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L'B~,ARY
~(lf\M 5030
JUN '\ S '\9711Rf}$\lR'i
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---
United States Savines Bonds Issues and Redeemed Through January 1965
(Dollar amounts in millions - rounded and will not necessarily add to totals)
% Out:;;t~ding
Arr.ount
Amount
k-.ount
Issued 1/ Receer.'.ed 1/ Outstanding 2/ of Arr.t.lssucdl
MATur~ED
5,003
29,521
400
4,992
29,421
374
11
100
26
.22
.34
6.50
1,842
8,133
13,090
15,259
11,955
5,319
5,015
5,234
5,154
4,498
3,895
4,077
4,643
4,721
4,902
4,683
4,401
4,260
3,987
3,972
3,987
3,838
3,758
1,574
6,976
11,256
12,978
9,926
4,251
3,843
3,861
3,719
,3,173
2,741
2,824
3,084
2,989
2,946
2,828
2,593
2,372
2,172
2,041
1,867
1,689
1,$61
866
268
1,157
1,834
2,281
2,029
1,122
1,232
1,373
1,434
1,325
1,154
1,253
1,559
1,732
1,957'
1,855
1,808
1,888
1,815
1,931
2,120
2,148
2,690
2,891
14.55
14.23
14.01
14.95
16.91
20.86
24.28
26.23
21.82
29.46
29.63
30.73
33.58
36.69
39.92
39.61
41.08
44.32
45.52
48.62
53.17
55.97
63.29
76.93
406
472
-66
Series H (1952 - Jan. 1957) lI ...
H (Feb. 1957 - 1964) ••••••
Total Series H•••••••••••••••••
135,398
3,670
6,574
10,245
94,608
1,637
945
2,582
40,789
2,OTI
5,629
7,662
~§:~~
Total Series E and H•••••••••••
145,643
97,190
48,451
33.21
3.323
34,924
148,966
183,890
1.972
34,787
99,162
133,949
Series 11.-1935 - D-1941 •••••••••••
Series F & G-1941 - 1952 •••••••••
Series J and K - 1952 ••••••••••••
UNHATURED
Series
E:
Y
1941 ••••••••••••••••••••••
1942 ••••••••••••••••••••••
1943 ••••••••••••••••••••••
1944 ••••••••••••••••••••••
1945 ••••••••••••••••••••••
1946 ••••••••••••••••••••••
1947 ••••••••••••••••••••••
1948 ••••••••••••••••••••••
1949 •••••••••.••••••••••••
1950 ••• ~ ••••••••••••••••••
1951 ••••••••••••••••••••••
1952 ••••••••••••••••••••••
1953 ••••••••••••••••••••••
1954 ••••••••••••••••••••••
1955 ••••••••••••••••••••••
1956 ••••••••••••••••••••••
1957 ••••••••••••••••••••••
1958 ••••••••••••••••••••••
1959 •• ~ •••••••••••••••••••
1960 •••••••••••••••••••• ,.
1961 ••••••••••••••••••••••
1962 ••••••••••••••••••••••
1963 ••••••••••••••••••••••
1964 ••••••••••••••••••••••
Unclassified.,••••••••••••••••••
Total Series E•••••••••••••••••
Series J and K (1953 - 1957) •••••
4,250
) Total matured ••••••••
All Series] Total unmutured ••••••
Grand Total ••••••••••
b -' Includes accrued discount.
~ Current redemption value.
11 At option of owner bonds may be held and
will earn interest for additional periods
after original maturi ty dates.
l!I Includes matured bonds which have not been
presented for redemption.
1:11. '3t;2
137
49,803
49,940
30.13
74.79
40 .. 69
.39
33.43
27.16
BUREAU OF THE PUBLIC DEBT
United States Savines Bonds Issues and Redeemed Through January 1965
(Dollar amounts in millions - rounded and will not necessarily add to totals)
M.ount
Issued 1/
{ED
~
n ·es A-1935 - D-1941 •••••••••••
r ies F & G-1941 - 1952 •••••••••
ri es J and K - 1952 ••••••••••••
'ATURED
r ies
E:
2/
-
Amount
% OuE~t~ding
mount
Redeer.'.ed 1/ Outstanding 2/ of Arr.t.lssuod
.22
.34
5,003
29,521
400
4,992
29,421
374
11
100
26
6.50
1,574
6,976
ll,256
12,978
9,926
4,257
3,843
3,861
3,719
3,173
2,741
2,824
3,084
2,989
2,946
2,828
2,593
2,372
2,172
2,041
1,867
1,689
14.55
14.23
14.01
14.95
16.97
20.86
24.28
26.23
27.82
29.46
29.63
30.73
33.58
36.69
39.92
39.61
41.08
44.32
45.52
48.62
53.17
55.97
63.29
76.93
1962 ••••••••••••••••••••••
1,842
8,133
13,090
15,259
1l,955
5,379
5,075
5,234
5,154
4,498
3,895
4,077
4,643
4,721
4,902
4,683
4,401
4,260
3,987
3,972
3,987
3,838
1963 ••••••••••••••••••••••
1964 ••••••••••••••••••••••
4,250
3,758
1,~~
268
1,157
1,834
2,281
2,029
1,122
1,2321,373
1,434
1,325
1,154
1,253
1,559
1,732
1,957
1,855
1,808
1,888
1,815
1,931
2,120
2,148
2,690
2,891
unclassi.fied.,••••••••••••••••••
406
472
-66
135,398
3,670
r ies H (1952 - Jan. 1957) 2/ ..•
6,574
H (Feb. 1957 - 1964) ••••••
10,245
otal Series H•••••••••••••••••
94,608
1,037
945
2,582
40,789
30.13
~,O)J
~5.40
48,451
1941 ••••••••••••••••••••••
1942 ••••••••••••••••••••••
1943 ••••••••••••••••••••••
1944 ••••••••••••••••••••••
1945 ••••••••••••••••••••••
1946 ••••••••••••••••••••••
1947 ••••••••••••••••••••••
1948 ••••••••••••••••••••••
1949 ••••••••••••••••••••••
1950 ••• ~ ••••••••••••••••••
1951 ••••••••••••••••••••••
1952 ••••••••••••••••••••••
1953 ••••••••••••••••••••••
1954 ••••••••••••••••••••••
1955 ••••••••••••••••••••••
1956 ••••••••••••••••••••••
1957 ••••••••••••••••••••••
1958 ••••••••••••••••••••••
1959 ••••••••••••••••••••••
1960 •••••••••••••••••••• ,.
1961 ••••••••••••••••••••••
Total Series E•••••••••••••••••
,otal Series E and H•••••••••••
145,643
97,190
ies J and K (1953 - 1957) •••••
, 1 121
1.272
34,787
99,162
133,949
) Total matured ••••••••
Seriesj Total unm~tured ••••••
Grand Total ••••••••••
34,924
~8,966
183,890
Includes accrued discount.
Current redemption value.
At option of owner bonds may be held and
will earn interest for additional periods
niter original maturity dates.
Includes matured bonds which have not been
~re.ented'for
redemption.
5,629
7,662
!V1 .1 t;2
137
49,80)
49,940
85~63
74.79
33.27
40.69
.39
33.43
27.16
BUREAU OF THE PUBLIC DEBT
TREASURY DEPARTMENT
Washington
FOR RELEASE:
UPON DELIVERY
STATEMENT OF THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE THE
COMMITTEE ON BANKING AND CURRENCY
HOUSE OF REPRESENTATIVES
FEBRUARY 1, 1965
10:00 A.M.
Mr. Chairman and Members of the Committee:
I
wplcome this opportunity to discuss H.R. 1818. which would
imrlemcnt a recommendation by the President in his Econumic
Message tl) adapt the gold reserve provisions of the Federal Reserve
Act
Ll)
the realities of present and prospective monetary requirements.
This would be achieved by eliminating the provision of existing
law that the Federal Reserve Banks hold gold certificates
to at least 25/0 of their own deposit liabilities.
equival~J
The similar
requirement that a gold certificate reserve of 25% be maintained
against Federal Reserve notes in circulation would not be affected.
The Need for Action
The need for this legislation does not arise from any sudden
emergency or crisis, nor does it signal any prospective change in
the
econom~c
and financial policies of the Administration or of
the Federal Reserve System.
In the future as in the past, our
oomestic n1Lmetary policies will be directed toward meeting the
D-U86
- 2 -
of 1l11111l'Y dnd credit.
Gold will clllltinuL: tu be lllatll' ll-l'l,ly available
at the fixed price of $35 per ounce, tu meet thL' Il')!,itilll;ltL: demands
ll[ furl'ign mlll1etary al1thnrities -111undatiun
III
d
policy tll,lt
1'-'
lilt, h;Jsic
the international monct.lrv systl'm.
this legisLHion is simply tu elirnin.1tv ;lny lInneCv'-'Sdrv qlll'stions
,lr dllubts abllut our ability tu discharge thesl' tw,; lund,l111l'nt;Il
rcs[hmsibilities with full effcctivencss
UVCl'
yl',ll-~
Llll
,lilL'ad.
Sustained, healthy growth at hllln(: -- marred nl,ittwr by
inflationary excesses nor by
widl'sprl~.qd
unemplllvmC'ntlJ1d w,l<-;tc,d
n'S,lllrces -- must necessarily he sllpported hy
Th i s nll1lll,tary ,
the vlllul1le u[ money and credit.
1
n t urn,
r e q 11 ire a 1 a r g e r bas e
l) [
h ,1 n k
rt' S c
;~l-)wth
)1-1, rly
":J1,ln~,
I
r v ( S, w hie h
.'1)
in
wi 11,
;11- l'
h c 1d
largely ill the form of deposits by the commerci.ql banks at the
Federal Reserve.
It wi 11 also ml'an 1arger .qml)lmt
S
(1[
currency
in circulation -- currency consisting almost entirely of Vedera1
Reserve notes -- as the rising vulllnll' of tradl' gl'nerates additional
dcmands fur cash.
Under the provisions of present
law, these expanding Federal
Reserve note and deposit 1iabilitil:s will in turn require that
increasing amounts of our gold be set aside as p.qrt of the Federal
- 3 Reserve Banks' gold certificate reserves.
But, the present operating
margin of sll-called "free gold" over and above existing requirements
is already relatively small.
The normal growth of our domestic
money supply will exhaust this margin within a year or two, even
wit h l 1 U t the
Cl
u t flow
0
f a sing leo u n c e u f go 1d .
Clearly, the capacity of the Federal Reserve to accommodate
the monetary and credit needs of a strong and growing economy
with stable prices must not be jeopardized.
Equally clearly,
our pledge to maintain the convertibility of the dollar into
gold at $35 an ounce must not be cast into doubt by fear that
our gold stock available for that purpose may be inadequate.
True enough, the emergency provisions of present law can
be invuked if needed to suspend the gold cover requirement, but
these provisions clearly are framed for temporary use rather than
for long-range needs of growth.
H.R. 3818 would meet this problem
simply and straightforwardly, for as long ahead as anyone can now
foresee, by immediately freeing almost $5 billion of gold presently
held as reserves against Federal Reserve deposits.
It will also
permit us to avoid the present necessity of automatically setting
aside additional gold as the growth of our economy enlarges the
volume of bank deposits.
- 4 Th~
Pr~sent
Situation
At the end of 1964, the volume of Federal Reserve notes in
Cil-culaL ion -- which make up over 95/0 of our basic currency -t l) tal e d $) 5 . 3 bill i on .
At the sam e tim e, Fed era 1 Res e rv e de p 0 sit
liabilLties amounted to $19.5 billion.
Together, these Federal
Reserve liabilities required a gold certificate reserve of $13.7
billion, absorbing for that purpose all but $1.4 billion of the
gold certificates issued to the Federal Reserve against the
Treasury gold stock.
And since January 1st the Treasury gold
stock has declined by $200 million as a result of sales to
foreigners, with further losses to be expected.
In terms of ratios, gold certificate holdings had fallen
to 27.5% of the note and deposit liabilities on December 31, 1964.
This represented a decline of 2.2 percentage points in the ratio
in thL' space of a year
and during that year our loss of gold
to [l)reLgners amounted to only $125 million.
The decline in the
ratio during 1964 was thus almost entirely accounted for by the
needs of our domestic economy for additional money and bank credit
and by the expansion in currency that is a normal reflection of
growing trade and business turnover.
Looked at over a longer period of time, it is true that
declines in our gold stock, as well as increases in Federal Reserve
- 5 notes <lnt! dq)()sits, have contributed to the declining ratio.
These
lossl's of g(dd to foreigners are, of course, closely connected to
t h l' b a 1 nne C
l)
f p a ym e n t s de f i cit s we h a ve ru n () V e r the pas t 1 5 yea r s .
is essential that the vigorous effort launched in 1961
It
tll rl,ducl' and e1 iminate that deficit and to stem the gold loss
be
COIl
t i
I1lll'd
and reinforc ed unt i 1 cqu i 1 i brium is res t ored.
The
i\chninistclti(lll, as you know, attaches the highest priority to that
e[[llrt, and the President will shortly review our entire balance
()f p<lymcnts program in a special message to the C(>ngrcss.
llllWl'Vl'r, it is abundantly clear that the U.S. cannot expect to
support its own long-term monetary expansion -- an expansion that
will il1l'vitahly be associated with the continued growth of our domestic l'conomy -- by attracting to this country a disproportionate share
,)f world gldd reserves.
_utfll)W
l)f
The fact is that, even after the large gold
lhl' past decade or more, the United States still holds
'-) oml'\ ')/ () r the monetary gold of the entire free world.
Lainly,
it
Cer-
is essential that this country, with the dollar play-
Lng a key role as a world reserve and trading currency, continue
o holcl a large gold stock, and our policies are directed toward
h<lt encl.
Moreover, as our balance of payments deficit is ended,
orne reflux of gold from abroad could be a normal and healthy
development.
But, it would be short-sighted and self-defeating
- 6 to attempt deliberately to draw in from abroad the billions of
dollars of gold that would be necessary over the years simply
to meet the mechanical requirements of present law as our
economy grows.
During the past year, Fe d era 1 Reserve N0 tes in circulation
increased by $2,466 million.
Of this, $662 million resulted from
a decline of the same amount in the circulation of silver certificates. Meanwhile deposits of member banks, representing their
required reserves, also grew $1,037 million during 1964. Thus,
disregarding the temporary, one-time impact of the retirement
of silver certificates, it was necessary under present law to
add over $700 million of gold to the reserves required against
Federal Reserve notes and deposits.
This amount is more than
the average annual increase over recent years in monetary stocks
of gold in the entire free world.
If we attempted to drain gold from abroad year after year
in the amounts needed to meet the essentially arbitrary and
outmoded gold cover provisions of present law, the only result
would be a drive by other countries to protect their own gold by
controls and restrictions that would sacrifice all the progress
that has been made toward freer trade and payments among the
nations of the free world.
Far from looking toward future increases
- 7 in our gold stock adequate to meet the gold cover requirement, the
hard fact is that until our own balance of payments can be brought
into equilibrium, we must be prepared for further outflows.
The Purpose and Effectiveness of the Gold Reserve Requirement
The current gold cover requirement is an outgr()wth of a much
earlier period in our monetary history, and can he fully understood
only in the context of circumstances that have long since vanished.
Prior to the establishment of the Federal Reserve System in 1913,
the several kinds of paper currency then in use circulated alongside
gold coins domestically, and were freely convertible, directly or
indirectly, into gold.
In an effort to protect this convertibility,
a variety of devices was used at various times to maintain the
note circulation in a fixed relationship to gold and to provide
assured redemption facilities.
One result was that the supply
of currency was not responsive to the changing needs of the
economy, and this so-called "inelasticity", combined with deficiencies
in the banking structure, helped make the economy prone to recurrent
bouts of inflation and panic.
The Federal Reserve System was designed to eliminate these
defects by providing a means for adjusting the supply of currency,
deposits, and credit flexibly to the needs of commerce and business.
At the same time, however, our currency, including the new Federal
- 8 Reserve notes, remained convertible into gold.
Under these
circumstances it was entirely natural that those framing the
Federal Reserve Act included a provision that the Federal Reserve
Banks maintain certain minimum reserves of gold in relation to
their note and deposit liabilities, even though the passage of
the Federal Reserve Act clearly recognized that the supply of
money and credit should be adjusted to the needs of the economy
rather than set in some fixed relationship to gold.
These minimum
requirements were apparently considered desirable largely to
encourage full public confidence in the new institutions; to
assure acceptability of the newly introduced Federal Reserve
notes alongside gold; and finally to provide some ultimate limit
to the expansion of Federal Reserve credit.
It is also worthy of mention that the original Federal Reserve
Act treated reserves against deposits in a different manner than
reserves against Federal Reserve currency.
In the first place the
reserves against deposits were originally set at 35% while those
against notes were set at 40%.
Possibly more significant is the
fact that the original Federal Reserve Act provided for reserves
against notes to be held only in gold, but permitted either gold
or "lawful money" to serve as reserves behind deposit liabilities.
- 9 ..
Only since 1945, when the current 25% requirement was established,
have note
and deposit liabilities been treated in the same fashion.
Thus there is clear precedent for treating deposit liabilities in a
different fashion from Federal Reserve notes as far as reserves
are concerned.
I believe the record of the past half century makes it amply
clear that the provision of Federal Reserve credit, and the
associated increase in its note and deposit liabilities, has,
quite properly, been related to the needs of the economy rather
than to the reserve requirements specified by law.
During the first two decades of the Federal Reserve System)
when our currency was still redeemable in gold domestically, the
level of Federal Reserve Bank deposits and currency typically
fluctuated far below the limits set by the gold reserve requirement.
As shown by the table attached to my statement, this remained the
pattern during the 1930's and early 1940's, after the convertibility
of our currency into gold by American residents was ended.
At one
time, in 1940, the ratio actually rose as high as 91%.
Toward the end of World War II, there was concern that the
vast expansion of money and credit required by wartime financing
might exhaust the "free gold" held in excess of legal requirements,
thus hampering the war effort.
Congress consequently reduced the
- 10 reserve requirements set by the original Federal Reserve Act to
the present uniform requirement of 25% in gold against both notes
and deposits.
As it turned out, of course, the war was soon over,
and the actual ratio remained over 40% until 1959.
This experience
clearly demonstrates that the release of gold from the legal
requirement in excess of the needs that actually materialized
did not become a basis for an unwarranted expansion in Federal
Reserve credit.
Today, the strong probability that the present margin of
gold over the 25% requirement will be exhausted within a relatively
short time no more indicates a need for domestic monetary restriction
than the existence of a wide margin of "free gold" in the past
provided a useful signal or excuse for monetary expansion.
The
fact is that, the Federal Reserve, in discharging the fundamental
responsibility delegated to it by the Congress for regulating the
supp 1y
l) [
muney and cred it in accord with the need s of the economy,
must not be constricted by an arbitrary formula designed for
another time.
While the desirability of eliminating the gold reserve
requirement against Federal Reserve Bank deposits appears to me
beyond dispute, I recognize that the purpose of any change in a
requirement of this kind that has lingered on for many years can
- 11 easily be misunderstood and misconstrued.
There may be some, for
instance, who fear that this action may in some fashion imply a
departure from the Administration's firm policy of maintaining
the stability of the dollar both at home and internationally.
Let me, therefore, make it crystal clear that I am most keenly
aware of the dangers that can come from an undisciplined expansion
of credit.
The proposal before you does not carry this danger.
In the future, as in the past, the best assurance we
ca~
hnve
that the supply of bank reserves will be neither so little as
to stifle growth nor so large as to fuel inflation lies in a
responsible and independent Federal Reserve System, functioning
within a framework of responsible Government.
For our part,
this Administration has and will continue to work in close
cooperation with the Federal Reserve in developing an effective
financial program, while fully respecting its unique place within
our structure of Government and its special responsibility for
developing informed, independent judgments concerning monetary
policy.
International Implications
President Johnson has recently reiterated the fixed policy
of the United States to defend the present gold value of the
- 12 dollar "with every resource at our command".
The Chairman of the
Federal Reserve Board has repeatedly made it clear that the
existing gold reserve requirement need be no bar to our making
good on that pledge.
Present law provides that the gold requirement
can he suspended -- initially for thirty days, and subsequently
for intervals of fifteen days.
It should be clearly understood
by all that that provision of law could and would be invoked if
required to meet foreign demands, and that the suspension would
be renewed as long as needed.
It would clearly be incongruous, however, to fall hack on
special and easily misunderstood powers for temporary suspension
at a time when we are dealing with basic long-term problems rather
than with a passing emergency.
Reliance on a temporary arrangement
can give rise to totally unwarranted doubts at home and abroad
over the extent of our commitment to the international stability
of the dollar, and over our ability fully to support that commitment.
Without question, prompt passage of the measure before you,
unequivocally releasing some $5 billion of gold from the present
requirement, will reinforce confidence in the stability and
strength of the dollar by placing beyond any doubt the willingness
of both the Executive and Legislative Branches to
fully available in its defense.
m.1l~c
",!["
golr1
- 13 In this connection, it is worth emphasizing that almost all
industrially important foreign countries have long since abandoned
any rigid tie between their gold holdings and the domestic monetary
system.
One relatively small country -- Belgium -- fixes a
minimum legal ratio between gold and central bank note and deposit
liabilities.
One other country -- Switzerland -- has retained a
link to the note issue (as would H.R. 3818), but it has no requirement against other central bank liabilities.
In the Netherlands,
the comparable reserve requirement can be met by holdings of
foreign exchange as well as gold.
South Africa, which accounts
for 70% of the free world production of gold, also, and understandably, has a gold reserve requirement very similar to our own
present requirement. In every other instance, among the leading
financial powers of the free world, gold holdings are unequivocally available for international use.
Conclusion
H.Ro 3818 represents an essentially modest step to bring our
gold reserve requirement into line with present needs. Its implications for our economic well being are, however, important.
You will find, I am sure, that this bill has broad support
among informed banking and financial circles in this country.
As a further indication of our firm intent to defend the gold
value of the dollar against any potential pressure, it will help
reinforce confidence in the dollar abroad, and I am certain it will
be warmly welcomed by foreign monetary officials. I urge that you
promptly report the bill favorably to the House and speed its
passage.
OF GOLD CERTIFICATE RESERVES TO
DEPOSIT AND FEDERAL RESERVE NOTE
LIABILITIES COMBINED
~\TIO
Percent
Year
End
19L2
62.9
1949
54.7
1(n~
63.8
1950
49.4
1q
70.8
1951
46.4
1 () 5
77.6
1952
46.2
I 93h
RO.l
1953
44.5
1 Y'~ 7
79.9
1954
45. 1
1q
~K
R3.7
1955
44.4
1C) ') <J
86.7
1956
44.6
1 (J40
90.8
1957
46.3
I 9!{ 1
90.8
195R
42. 1
1<)42
76.3
1959
39.9
1<)4 \
62.6
1960
37.4
1944
49.0
1961
34.8
1945
41.7
1962
31.8
194fl
43.5
1963
29.7
1947
48.3
1964
27.5
1948
48.9
Yl'ar
End
~~
Offic(' of th(' Secretary of the Treasury
Office of Debt Analysis
:;()urc(>: Federal Reserve Bulletin
Percent
February 1, 1965
TREASURY DEPARTMENT
February 1, 1965
FOR nn·1EDIATE REIEASE
THEASURY DECISION ON SYNTHETIC DIAMOND POVIDER OR DUST
Wu)ER THE ANTIDUMPING ACT
The Treasury Department has completed the investigation with
respect to the possible dumping of synthetic diamond powder or
dust from Ireland, sold by Industrial Grit Distributors (Shannon)
Ltd., County Clare, Ireland.
A notice of intent to close this
case "lith a determination that this merchandise is not being, nor
likely to be, sold at less than fair value will be published in
an early issue of the Federal Register.
Synthetic diamond pmrder or dust is used in the manufacture
of diamond grinding ,{heels.
It is produced in two general quali-
ties, depending on whether it is for use in metal-bonded or
reSin-bonded grinding wheels.
The imported material is almost
wholly of the quality for use in reSin-bonded wheels.
Appraisement of the above-described merchandise from Ireland
is being withheld at this time.
The dollar value of imports of the involved merchandise received during the period June 1963 through September 1964 was
approximately $1,100,000.
000
TREASURY DEPARTMENT
February 1, 1965
FOR IMMEDIATE REIEASE
TREASURY DECISION ON sYNTHETIC DlAM)ND POWDER OR DUST
UNDER THE ANTIDUMPING ACr
The Treasury Department has completed the investigation with
respect to the possible dumping of synthetic diamond powder or
dust from Ireland, sold by Industrial Grit
Ud., County Clare, Ireland.
~stributors
(Shannon)
A notice of inteRt to close this
case with a determination that this merchandise is not being, nor
likely to be, sold at less than fair value will be published in
an early issue of the Federal Register.
~nthetic
diamond powder or dust is used in the manufacture
of diamond grinding wheels.
It is produced in two general quali-
ties, depending on whether it is for use in metal-bonded or
resin-bonded grinding wheels.
The imported material is almost
wholly of the quality for use in resin-bonded wheels.
Appraisement of the above-described merchandise from Ireland
is being withheld at this time.
The dollar value of imports of the involved merchandise recei ved during the period June 1963 through September 1964 was
approximately $1,100,000.
000
- -:
r,-'-~
-,
co,. ~r'-~:~
:
..
--;,.....
\./
..
.~.
~."
_____ .... '--" i....-l ..
...
'l-,"'r-.....,C"-n~r
:c'8~;2.:"··~r:!8n-::, 2..!1.:.~Ol:J.ced
...i..~",
"0_
.... .!....:.:
·S-~~0~
c.; ....
12.st
8\l(;~ir::;
~'-.,)
?:,,'_:~~E 0:: ACCEPTED
CCl?E7ITIVZ BIDS:
.LO
v
l..."
LJ_
-:,--,".1.
",r~";tio-,-c.
....... v_
. . _'-. __
t:~_2...t
-~~e
t'31"'.C:.2~8
io~~ ~~~:o
Se~i2S o~
of t~"2 bi:Lls d.::;.tcQ ....'
~'0"'er,;'~o',-_5, .
:~c~, 2.:._d t:18 Cc.:,8r series to be daticd ?eG:,~1.:c:-:..·y ~:') }.965, 1~:-.QC~1 '.~2:"'2 oi'ie:l'e'-t on J~'J1U:ll'.
27 J ~;:::'::.:. c:).:::ecl at the Fcd.e:tal Res8:::'Ve :22.D'.:s on Fcbr-t:2.:."·Y I. 'i'e:::c.2rs lJera invited for
;;i.~ :20C'~ 000) coo., or thereabouts, of 91-d.ay bills a:1d fo:' ~l,OOO~OOO,OOOj or the:'oabouts
c:...· :..Ei 2-G.C:.y bills. The det2.ils of the t~;o series 8Te as follo:rs;
J,. ... , ' _•. .:...'..... _r,J
b':;~':
_.L .....
.;C"w'"
................ ,\0.-,....-....
lS2-day Tre2..3U2~ bill:
9l-d<lY Tr(;as'J.~7 bi1 1,3
m2:t;uring E2..Y 6, 1965
r-::':':::;:1
99.023
99.016
99.017
Lo'::
~2.,::,.tl:ci:1~ A'J.~.s~
:::.7
5· 1965
?rice
970998
97,,992
3.960};
3.972;;'
97~99L.
3.968;;
y
~J E::cepting 2 tenders totaling $3,350~ COO
'/[,-:; of the amoUl1t of 91-day bills bid for at the lO~T :price ~;as accepted
3G/~ of th3 ar.1ount of l82-day bills bid. fOT at the 10~.y price :,2S accepted
TO~·).:L. TEND~RS
P..PPLIED FOR AND ACCEP'l'ED BY
I)~.:-~-~:,::-ic·:j
An-plied ?or
2.)s'c,on
$
1:·21J Yo:..'~
l7,250~ooo
1,5LO, 861.)., 000
2~" 703,000
23,562,000
?~li12d,:;19hia
C1evel2....'1d
2icrLr;).ond
.:~_-:.lwl-~2.
C.::.ica:2;o
Louis
~,,',
~'VQ
:·~i:-.I122-po:is
}(c.:..-;.sas Cit:r
D::J.las
Fra.'1cisco
SS.T1
70'l'~:..I..S
F~j)E2l2. r:ESJ~RVE
Acced:ecl
$
16, 3L;;., oeo
12,7 0 3:;000
22;1362~000
r 1,..1:;)/;;
o-"~' ceQ
32.;1061,000
285,060,000
53,882,000
22, 2L7 ,coo
26,657,000
29, 754, coo
22,51..;.6;; coo
1 onQ
1')8
"6_:'j
- :;0
v
47 )13': ,CCO
13)902;;COO
25,657,000
19,754,COO
156,017,000
103,163~000
$2~225,014,ooo
c', 201 ~j~ 97 ;;v..J
O"~
":-.1.:1
-:.J :L::;.cluc.es $229,332,000 noncorr.::?eJvi tiv3 ter-~dC:C3
c/
y
.P_p"?li::cl ::'01'
33))55;;oeo
$
1 , 8f_ 2 ,_'_,_;;
i 1,-; 0"0
U
16,657,000
98,30)-1-':) 000
10,651,000
17,738;1000
777 ; ce)~, ceo
11,957,000
DISTRIC':;:'S:
Accepted
$
5;;441,00
11,239,Ou
58,823,00
6,822,00
3,6::i.9,OO
ll~., 229, OC
277,h=-O)000
12,722,000
8,819,000
19!10l4,00O
12:;272,000
151,039,000
Y
$2)!70,,630, 000
4)655,O~
836,350,00
5 3'/')0...1, , 00
34,006,00
6,712,O~
17,359,0(
~)l;l 004, 559,O~
0':C t:c:e 2..Ver2C"e D:~:"ce of
99.0i
IncJ.:,lCles $90)643,000 noncoY::::?et.itive tenders 2.~8C:~)~::'8d at the aV8rac:~ p~~iC3 of 97.99i
2.CCCdC,2d.
0::1 a CCU:?Orl iSS1.:8 0:': -(:,:18 S2(;8 length and for t.he sarno c::r:ount invested, 'che retUl'n (
'v~-,~se bills \TOuld provide yields of 3 .. 98;';, f0:"- the 91-clc:.y bi2.1s 3 2..:."_d 4.11%, for th(
:.32-c.2.Y ',):"113.. I1"1'ceres'(' rates on bills 2.::.'e cfc:.oted in te::'::;',s of oank discoun.t vri'-ih 1
:~2tU:~"1 :c'212:ceQ tCl tl:.e face a!T'.Ocrlt of the bil:'s ~J2yc..b1e at ::_8.t.u:~ity r2..the:: than the
,:. ::-.Ot:.:.-"t if-Vested ;::.n.ci 'i:,heir lerlgth in actual Tlu.::,:':l3::-' of d2.Ys relatec. '00 a 350-d2..Y ye(J
In cor-~t:::'2..S'0 j yialc.s C::1 certific2.t8s, notes, 2.:.~_:, bone.s i.lI'G cc-,put8d i::. -e.er:;"s ci in~
-:...:;';:' on t28
c..:-::'OLL.---:"c,
invc,s'::'ed> 2.J.---:d r812t3 the m;;:,",)2:"~ of days r8:-::c.inir;.g in
cu.1
interest
FJ:.~io.:l to the ac'Cual nillnoer of days i:'1. the '::e:.~iodo
uit:l se:::'.i"-I.lTJ.ual cc::.'Jou:
. ....d.inry
if
...
"
...
0
;:"0:'2
than
o~
coupon period is involved ..
TREASURY DEPARTMENT
R RELEA.SE A.}f. NEVlSPAPERS,
eSday, Februa;r 2, 1965.
February 1, 1965
RESlTLTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series of
easury bills, one series to be an additional issue of the bills dated November 5,
64, and the other series to be dated February 4, 1965, which were offered on January
, were opened at the Federal Reserve Banks on February 1. Tenders were invited for
,200,000,000, or thereabouts, of 91-day bills and for $1,000,000,000, or thereabouts,
182-day bills. The details of the two series are as follows:
NGE OF ACCEPTED
91-day Treasury bills
182-day Treasury bills
maturing May 6, 1965
maturing August 5, 1965
Approx. Equiv.
Approx. EqUiv.
Price
Price
Annual Rate
Annual Rate
High
99.023 a/
97.998
3.865%
3.960%
Low
99.016 97.992
3.893%
3.972%
~verage
99.017
97.994
3.888% !I
3.968%
a/ Excepting 2 tenders totaling $3,350,000
11% of the amount of 91-day bills bid for at the low price was accepted
30% of the amount of 182-day bills bid for at the low price was accepted
rAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESrJRVE DISTRICTS:
!1PETITIVE BIDS:
Y
)istrict
3oston
.Jew York
'hi1adelpbia
;leveland
.lichmond
lt1anta
:hicago
~t. Louis
inneapo1is
ansas City
alIas
an Francisco
TOTALS
ApE1ied For
$ 17,250,000
1,540,864,000
24,7 03,000
23,562,000
11,957,000
31,061,000
285,060,000
53,882,000
22,247,000
28,657,000
29,754,000
156z017z000
$2,225,0]..4,000
A,Eplied ::;'or
Acce;eted
$
33,855,000
$ 16,343,000
1,812,141,000
777,009,000
16,657,000
12,703,000
98,304,000
22,362,000
10,651,000
11,957,000
17,738,000
22,546,000
277,418,000
128,864,000
12,722,000
47,137,000
8,819,000
13,902,000
19,014,000
25,657,000
12,272,000
19,754,000
151,039,000
103z163z000
$1,201,397,000 ~ $2,470,630,000
Acce;eted
4,655,000
$
836,350,000
5,304,000
34,006,000
5,441,000
11,239,000
58,823,000
6,822,000
3,619,000
14,229,000
6,712,000
17,359,000
$1,004,559,000
sI
Includes $229,332,000 noncompetitive tenders accepted at the average price of 99.011
Includes $90,643,000 noncompetitive tenders accepted at the average price of 97.994
On a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 3.98%, for the 91-day bills, and 4.11%, 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.
rn contrast, yields on certifica.tes, notes, and bonds are computed in terms of inter~st on the amount invested, and relate the number of days remaining in an interest
~eriod to the actual number of days in the period, with semiannual compounding if
lore than one coupon period is involved.
457
TREASURY DEPARTMENT
FOR IMMEDIATE RELEASE:
February 2, 1965
FRED B. SMITH NAMED
ACTING GENERAL COUNSEL
Treasury Secretary Douglas Dillon today said he had named
Fred Burton Smith as Acting General Counsel of the Treasury
Department. The appointment became effective February 1, 1965,
following the departure of Go d'Ande10t Belin who resigned last
week to resume private law practice in Boston.
Mr. Smith has served as Deputy General Counsel since
April 12, 19620 Before that he was an Assistant General Counsel,
having been appointed to that post on October 15, 1959. He
joined the Office of the General Counsel in 1943 and has been
with the Treasury continuously since.
Mr. Smith was born in Syracuse, New York, on January 27, 1915.
He studied at public schools in central New York and was
graduated from Princeton University with an A.B. degree in 1937.
He was graduated from Syracuse University College of Law in
1940 with the degree of LL.B. In the same year he was admitted
to practice in New York State and for three years thereafter was
associated with the firm of Hancock, Dorr, Ryan & Shove of
Syracuse.
In his service with the Treasury, he has been concerned
primarily with legal matters in the monetary, international
finance and trade fields. He was active in the negotiations
leading to the creation of the Inter-American Development
Bank and those leading to the Group of Ten's General Arrangements
to Borrow. He has also served as a member of other United States
delegations to a number of international conferences.
000
D-1488
FOR RELEASE:
UPON DELIVERY
TREASURY DEPARTMENT
Washington
STAT;:::l1Et\T OF THE HOt\OAABLE DOUGlAS DILLON
S;::Cl{cTl\~{Y OF THE TREASUl\Y
BEfORE THE HOUSE CO:'IMITTEE ON BAi~Kn:G Al\fD CURRENCY
ON INCREASING THE LillSOURCES OF THE
FUND FOR SP;:::ClAL OPERATIONS OF THE
I~TER-Al1El(.ICAN DEVELOPMEl'-IT BAhK
February 3, 1965 - 10:00 A.M.
Mr. Chairman and Members of the Committee:
I am happy to appear again before this Committee in
support of the proposed expansion in the resources and the
responsibilities of the Fund for Special Operations of the
Inter-American Development Bank.
The legislation before
you is the same as that upon which I recommended favorable
action last August.
It would authorize the United States to
contribute $250 million per year during fiscal 1965, 1966
and 1967 to the expanded FSO.
The Latin American countries
as a group would contribute a total of $50 million per year
over the same period in their own currencies.
These new
resources are vital to continued operations of this financial
arm of the Alliance for ?rogress; existing resources will be
fully committed in a matter of months.
I, therefore, urge
early and favorable action by the Congress.
The Fund for Special Operations is the window of the
Bank which, in appropriate circumstances, makes loans on
repayment terms that are substantially easier than loans made
D-1489
- 2 -
from the Ordinary Capital resources of the Bank.
The Bank, in
the past, has also provided loans on easy repayment terms from
the Social Progress Trust Fund (SPTF), which the Bank administers
on behalf of the United States.
But the SPTF's resources,
amounting to $525 million financed entirely by the United
States, will shortly be fully committed -- and no further U.S.
contribution will be made to this fund.
Rather, the expanded
FSO will take over the SPTF's lending activities in the fields
of land settlement, housing, education, water and sanitation
facilities.
I do not anticipate any diminution in the importance
which the Bank attaches to lending for these essential social
purposes, and have made this clear in an exchange of letters
with Mr. Reuss.
Further delay on the part of the United States would
certainly be disruptive to the essential operations of this
key institution of the Alliance for Progress.
More than
this, it would also -- justifiably, I think -- give rise to
the feeling on the part of the Latin American members of the
Bank that the United States was failing to meet the reasonable
expectation of financial support for the Bank compatible with
our oft expressed support for the Alliance for Progress.
By the terms of the Resolution adopted at the meeting
of the Bank's Governors in Panama in April of last year,
- 3 the proposal cannot come into effect unless and until the
United States acts.
The Kesolution provides that the agreement to increase
the Bank's resources will only become effective after
fourteen countries with shares in the increase amounting to
$860 million of the $900 million total have com~leted action
to approve the increase.
Eighteen of the other nineteen
countries have already taken the necessary action and all
that is now necessary is action by the United States.
It hAC originally been expected that the increase would
take effect on December 31, 1964.
missed
an~
prompt action is necessary, as otherwise the
Hank will be out of funds fo)
next April.
This date has now been
these important ?rograms after
President Johnson stressed the need for prompt
action in his aid message.
He said:
lITo strengthen multi-national aid, and further
to strengthen the Alliance for Progress, I urge the
Congress promptly to approve the three-year authorization
of $750 million which constitutes the United States
contribution to the Fund for Special Operations of
the Inter-American Development bank.1I
Mr. Chairman, it will save the time of this Committee,
if I do not go over in these opening remarks the same ground
covered in my opening statement of August last year.
Instead,
I am attaching to this statement my earlier remarks and some
- 4 materials urin6iug the information up to date.
I shoule mention
one relatively minor difference from my presentation last
August.
t ollowing the appropriation by Congress of each
year's installment, we would make the annual U.S. contribution
in the form of a letter of credit instead of in the form of
non-interest bearing notes.
increasin~ly
adopted in connection with major domestic
federal prosrams.
brin6
This procedure is beinb
bud~etary
As in other cases, this procedure will
expenditures under the program more closely
into line with actual use of the funds by FSO.
~xisting
non-
interest bearin6 notes frow earlier contributions would, of
course, be unaffected.
The IDG and the Alliance for Progress are movins forward;
the self-hel? concept is taking hold.
Moreover, we have,
in the lnter-fl.merican Committee for the Alliance for Progress
(CLAP), the institutional framework within which basic
problems can be faced and resolved.
for Special Operations
~.yill
Expansion of the Fund
sustain and reinforce the forward
momentum that is starting to change the face of the other
American
~epublics.
I strongly urge the Committee and the
Congress to take forward-looking action by approving the
proposal before you.
Annex 1
STATUS OF FUNDS IN FSO AND SPTF
AS OF DECEMBER 31, 1964
Local
Total
184.5
34.5
219.0
146.5
24.4
170.9
38.0
10.1
48.1
$
D.Q
Total resources contributed
Against which,
loan commitments
through 12/31/64
Balance available
for commitment
SPTF
--rotal resources contributed
Against which,
loan commitments
through 12/31/64
Balance available
for commitment
Combined FSO/SPTF
Total resources contributed
Against which,
loan commitments
through 12/31/64
Balance available
for commitment
Less minimum reserve
for contingencies
Less estimated net amount
of dollars utilized for
administrative expenses and
technical assistance
Balance available for
commi trnen t
525.0
525.0
450.0
450.0
75.0
75.0
--
709.5
34.5
596.5
24.4
113.0
10.1
123.1
25.0
2.0
27.0
--
7.0
81.0
* * * * *
8.1
7.0
89.1
*
Projected annual lending rate
250
50
300
Projected monthly lending rate
21
4
25
Estimated number of months beyond
Dec. 1964 for which lending
could be maintained at projected
rate with pre ••nt re.ourcel
Approx. 4 Approx. 2
(i.e.,
(i ••••
throughthroufh
April '65)Feb. 65)
Approx. 3
(i ••• ,
through midMarch '65)
Annex 2
INTER-AMERICAN DEVELOPMENT BANK
Summary of Loans Approved
through December 31,1964
(in millions of dollars)
1961
1962
1963
1964
122.9
79.1
178.6
164.0
544.6
7. 2
41.8
32.5
49.4
170.9
Soc ia 1 ;? ro~.;re S s
Trust Fund
112.1
204.9
47.1
85.9
450.0
TOTAL
282.2
325.8
258.2
299.3
1,165.5
159.3
246.7
79.6
135.3
620.9
Approved loans:
1/
Onlinar j ;<esources
Fund [or Soe,~ i,q 1
Ooerations
'"'k
;t~
~k
...,';
i'(
~
...,';
FSO/SPTF Comb i_ned
1/
l\iet of cancellations
NOTE:
Cunru1ative
to date
Tot31s may not add due to rounding
Annex 3a
INTER-AMERICAN DEVELOPMENT BANK
DESCRIPTIONS OF FUND FOR SPECIAL OPERATIONS LOANS
MAY 1 - DECEMBER 31, 1964
ARGENTINA
WATER SUPPLY AND SANITATION
$2 million loan
signed October 7, 1964
This loan was granted to the Administracion General
de Obras Sanitarias de la Nacion, a public entity, to
help finance the improvement of the water supply systems
of two towns in the province of Buenos Aires. An additional $3.5 million for this project is being financed
from the Social Progress Trust Fund.
BOLIVIA
ELECTIRC POWER
$3.5 million loan
signed July 24, 1964
This loan was extended to the Republic of Bolivia to
contribute to the financing of the Corani hydro-electric
project.
BRAZIL
WATER SUPPLY SYSTEM
$7 million loan
approved December 30, 1964
This loan is being borrowed by the Banco do Estado da
Guanabara, S.A., the financial agency of the State of
Guanabara, and will help finance the project being carried
out by the Superintendencia de Urbanizacao e Saneamento to
supply water to 80 percent of the population of Rio de Janeiro
by 1966.
GUATEMALA
TECHNICAL ASSISTANCE
$235,000 loan
signed August 26, 1964
The Republic of Guatemala was granted this loan to
help finance studies relating to the improvement of the
water supply system in Guatemala City.
HONDURAS
TECHNICAL ASSISTANCE
$200,000 loan
approved November 19, 1964
This loan was extended to the Republic of Honduras to
finance studies relating to the installation of a pulp and
paper plant.
3a
- 2 -
MEXICO
AGRICULTURE
$9.8 million loan
signed October 30, 1964
This loan was extended to the Nacional Financiera, S.A.,
a public entity, to assist in financing nine independent
irrigation systems in the Lerma-Chapala-Santiago river
basin.
NICARAGUA
AGRICULTURE
$4.5 million loan
approved December 30, 1964
This loan was made to the Banco Nacional de Nicaragua
to help finance a livestock development program. The
program will consist of the extension of credits to cattle
raisers to be used for a wide range of purposes.
PANAMA
INDUSTRY
$1 million loan
approved December 21, 1964
The Banco Nacional de Panama was granted this loan to
help finance an industrial development program in which
medium and long-term credits will be made available to private enterprises.
PARAGUAY
INDUSTRY
$4 million loan
signed August 17, 1964
This loan was granted to the Banco Nacional de Fomerlto,
a public entity, for relending to promote an industrial
development program in Paraguay.
PERU
TECHNICAL ASSISTANCE
$475,000 loan
signed November 6, 1964
This loan to the Republic of Peru is to help finance
studies for building highways between four towns.
- 3 -
URUGUAY
AGRICULTURE
$3.6 million loan
approved November 5, 1964
This loan was approved for the Cooperativa Nacional
de Productos de Leche to assist in financing the expansion
of the dairy industry. The borrower is a cooperative
which manufactures dairy products and is responsible for
supplying all of the pasteurized milk of the city of
Montevideo.
CABEI
INDUSTRY AND INFRASTRUCTURE
$8.2 million loan
approved December 20, 1964
This loan was extended to the Central American Bank
for Economic Integration to help finance industrial and
infrastructure projects of a regiona! nature in Central
America.
Annex 3b
INTER-AMERICAN DEVELOPMENT BANK
DESCRIPTIONS OF SOCIAL PROGRESS TRUST FUND LOANS
MAY - DECEMBER 1964
ARGENTINA
WATER SUPPLY AND SANITATION
$3.5 million loan
signed October 7, 1964
The Bank granted this loan to the Administracion General
de Obras Sanitarias de la Nacion to finance the improvement
of the water supply systems of two suburbs of Buenos Aires,
Auellaneda and Lanus. About eoo,ooo persons living in these
two suburbs will penefit from the project.
BOLIVIA
ADVANCED EDUCATION
$325,000 loan
signed May 7, 1964
The Bank granted this loan to the Republic of Bolivia
in order to install 18 laboratories and a technical library
at the Bolivian Technological Research Institute.
BRAZIL
ADVANCED EDUCATION
$4.0 million loan
approved July 30, 1964
This loan was granted to the Government of Brazil to
finance the acquisition of equipment and library material
relating to the basic sciences.
BRAZIL
AGRICULTURE
$2.7 million loan
approved July 30, 1964
This loan was granted to the Superintendencia do
Desenvolvimento for relending to agricultural cooperatives
and associated farmers.
CHILE
HOUSING
$5.0 million loan
signed August 12, 1964
The Caja Central de Ahorros y Pre.tamos was granted
this loan in order to finance the construction of about
2,500 houses for families of low income through the savings
and loan system.
3b
- 2 CHILE
ADVANCED EDUCATION
$1.25 million loan
signed October 31, 1964
The Bank granted this loan to the Corporacion de
Fomento de la Produccion to finance a curriculum of
public health and related matters at the University of
Chile.
CHIlE
ADVANCED EDUCATION
$1.05 million loan
signed November 2, 1964
This loan was granted by the Bank to the Corporacion
de Fomento de la Produccion to finance the expansion of
the College of Physical Sciences and Mathematics at the
Catholic University of Chile.
COLOMBIA
AGRICULTURE
$7.0 million loan
signed June 10, 1964
The Fondo de Desarrollo y Diversificacion de Zonas
Cafeteras y Federacion Nacional de Cafeteros borrowed
these funds to provide for agricultural diversification
in the coffee-producing areas of the Department of Caldas.
COLOMBIA
HOUSING
$7.5 million loan
approved October 8, 1964
The Bank granted this loan to the Instituto de Credito
Territorial to finance the construction of houses forwwincome families.
COLOMBIA
HOUSING
$2.5 million loan
approved December 30, 1964
The Bank granted this loan to the Instituto de Credito
Territorial de Colombia, the agency in charge of the promotion and construction of housing programs in the nation
to help finance the construction of 1,400 houses for
'
members of a labor organization. The loan proceeds will
help finance the construction of 1,120 houses and 280
apartments, and will benefit about 9,800 people.
- 3 -
COSTA RICA
ROADS
$4.0 million loan
signed June 2, 1964
The Bank made this loan to the Government of
Costa Rica to help finance the construction and improvement of 50 feeder roads with a total length of 392 miles.
Completion of the program is expected to lead to an
improvement in the standard of living of low-income
farmers in this predominantly agricultural country.
COSTA RICA
WATER SUPPLY AND SANITATION
$140,000 loan
signed July 2, 1964
This loan to the Servicio Nacional de Acueductos y
Alcantarillado was made to finance studies regarding the
improvement of the sewerage system of San Jose.
COSTA RICA
AGRICULTURE
$1.3 million loan
approved October 1, 1964
This loan was made to the Instituto de Tierras y
Colonizacion to finance a colonization project for 600
low-income farmers in Limon Province.
COSTA RICA
HOUSING
$3.6 million loan
approved December 30, 1964
The Bank granted this loan to the Instituto Nacional
de Vivienda y Urbanismo to help finance the construction
of 2,816 houses for low-income families in Costa Rica.
The houses will be built over a two-and-a-half year
period in three sub-projects.
DOMINICAN REPUBLIC
WATER SUPPLY AND SANITATION
$1.05 million loan
signed August 7, 1964
The Bank granted this loan to the Dominican Government
to finance the installation and improvement of water supply
systems in five localities.
DOMINICAN REPUBLIC
ADVANCED EDUCATION
$900,000 loan
approved December 30, 1964
This loan was granted to the University of
Santo Domingo to help finance laboratory equipment and
bibliographic material for the University.
3b
- 4 ECUADOR
WATER SUPPLY AND SANITATION
$268,000 loan
signed AU8ust 7, 1964
The Bank granted this loan to the Municipa1idad de
Guayaquil to finance studies relating to the improvement
of the sewerage system of Guayaquil.
EL SALVADOR
WATER SUPPLY AND SANITATION
$4.4 million loan
approved October 1, 1964
The Administracion Naciona1 de Acueductos y
Alcantarillados was granted this loan to finance the
construction, improvement, and expansion of water supply
and seweLage systems and related sanitary works in over
100 towns. The projects are expected to benefit more
than half a million persons in E1 Salvador.
GUATEMALA
WATER SUPPLY AND SANITATION
$3,020,000 loan
approved December 30, 1964
The Bank granted this loan to the Instituto de Fomento
Municipal of Guatemala to help finance water supply works
in 23 communities and sewerage works in another 7 communities of the country. The program will benefit about
150,000 people.
HONDURAS
WATER SUPPLY AND SANITATION
$400,000 loan
signed October 23, 1964
This loan was granted to the Servicio Autonomo
Nacional de Acueductos y A1cantari1lados to finance the
improvement and expansion of water supply systems of
six cities.
NICARAGUA
HOUSING
$5.25 million loan
approved December 31, 1964
This loan was made to the Instituto Nicaraguense de
la Vivienda to help finance the construction of 3 , 774
housing units for low-income families in Nicaragua.
- 5 PARAGUAY
HOUSING
$3.4 million loan
approved September 10, 1964
This loan to the Republic of Paraguay was made to
finance the construction of about 3,800 houses for lowincome families.
PERU
AGRICULTURE
$3.5 million loan
signed November 6, 1964
This loan was made to the Government of Peru to
finance construction of seven related irrigation projects
and their access roads in the sierra region of the country.
PERU
ADVANCED EDUCATION
$2.5 million loan
signed November 5, 1964
The Bank made this loan to the Universidad Nacional
de Ingenieria to finance university improvement and expansion.
VENEZUELA
WATER SUPPLY AND SANITATION
$10.0 million loan
approved December 30, 1964
This loan was granted to the Division de Acueductos
Rurales to help finance water supply works in about 300
rural communities. The project will benefit about 275,000
people. It is a new stage of the National Rural Water
Supply Program which Venezuela initiated in 1961 with the
aid of another $10 million loan.
Annex 4
TREASURY DEPARTMENT
STATEMENT OF THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE TIlE
COMMITTEE ON BANKING AND CURRENCY
OF THE HOUSE OF REPRESENTATIVES
(SUBCOMMITTEE ON INTERNATIONAL FINANCE)
AUGUST 11, 1964, 10·00 A.M.
Mr. Chairman
an~
Memhers of the Committee:
I am happy to appe<lr hefore you today in connection with the
participation of the United States in the
propose~
exn~nsion
of
the Fund for Special Ooerations (FSO) of the Inter-AmericRn
Development Bank (IDB).
This represents another imnortant step
forwarrl in United States support for the B.1nk --
an~
for the
AJ15ance for Progress.
The
le~is]ation
he fore vou would authori?e the Secretary of
the Treasury ;}s U. S. Governor of the IDB to vote in favor of an
increase equivalent to $900 million in the resources of the FSO
an~
would authorize the appropriation without fiscal year limita-
tion of $71)0 million as the U. S. share of this increase.
The
payments woulci he mane in three annual installments, of $:250 million
eacb, in fiscal 1()65, 19()()
an~
1967, and would he in the form of
non-interest bearinR notes rather than cash.
legislation
woul~
Separate appropriation
be sought for each year's payments.
The
- 2 -
Latin American memhers of t~e InB woulrl contrihute $~n million
A year in their mm currencies.
The nrcmosoIll
'olhen anprover1 hv 14 fountries with tot,,'
to the equivalent of
Increasen ll. S.
~86;')
~~'O\.lJ
rl he effecti'Je
contrihl1tjon~ ~mol1ntinp'
milli.on.
p~rt:icipation
in tbe FSO unrlel" this TH'of)oSAl
,.,o\.llrl be in lieu of anv further contr:ihllt"ionR to the Social
Progress Trust Fund.
r,e
NRtion~l
Anvisorv Council on InternationAl Monetarv
An~
FinanciRl Problems has considered this proposal and holls issued
a Snec; al Renort strongl
Conies of the
P,c~ort
y
recommenriin,~
Congres~5
onal R1"nrOva1.
Rre he fore you.
Backgro\lnc1 of the ProposRl
I would like to recAll brieflv, Hr.
Ch,qi.TmEIn,
t"e history
and structure of tbe Inter-American nevelooment Epnk Rnrl the
scone of the United StAtes' narticiDAtton in this inRtitution
and its activities.
Tle IDE
DeceMber 30, 1"59 and ber,Rn
CAMe
into
ooerllt;on~
le~Rl
eYi~tence
in tl)e fR.ll of
on
1~60.
though the IDB was estahli she(l ori.or to the Act of Bogota
the Charter of Pt1TIta riel
f~re,
i t hA~
Even
~.nd
become the key link in
the emerging pattern of closp cooperation between the United States
- 3 anrl the LatiT1 American repuhl i.ca.
It is "thf' B,=mk of the
Alliance" anr1 is clearly fulfilling thfs role with p.;rc:'at Sl1ccess.
As the nrincipal financiAl insti.tlttion of the Inter-American
svstem, t1le IDB constitutes one of the most essential onsratinr::
elements of our concerted drive toward economic an(l socia1
cleveloemen!: in Latin A.merica.
All of the countries of Latin
America are memhers of the IDB, with the sole exception of
Cuha, wb ich is no longer eU gible to join.
The Bank has
through
t~ree
UP
to nm-l carried on its financing operations
"windows.'
The first of these, Orclinary Capital,
provi(les clevelonment ftmcls on conventional terms in mucl, tl'€
same manner as the \-10r10 Bank.
It commenced onerations witl,
governmental suhscrint ions hut nm07 obtAins its fvn(ls frnm
private financial markets 5.n the same manner
RS
does the
~\ror1cl
B:mk.
The second "window" of the Bank is its Funcl for Special Onerations,
desiRtled to offer financing where, for halance of paymert: s or
other reRsons
1 encling on conventl.onal terms 5.5 not. anpropriate.
The FSO's loans on easy repayment terms ar.e made entirely from
resources provided by the United States and the
members of the Bank.
acted
liS
L~tin
American
In addition, since mi.rl-196l the Bank has
Admlnistrator of the Social Progress Trust Funcl (SPTF),
- 4 -
which amounts to $)21 million, all of which has been provided
by the Uniterl States.
easy terms and are
Loans from the SPTF are repayable on
ma~e
for four important areaS of social
development -- water Stlpply and sani.tation, advanced edt1cat i on,
housin~,
and lanrl settlement and improved land use.
It is with the
secon~
of these windows, the Fund for
Soecial Operations, that we are concerned today.
The initjal
resources of the FSO amounted to $146 million, of which the
United States provided $100 million and the Latin American
countries nroviderl $46 million.
LAst year, as An interim
measure, the memher governments agreed on a $73 million increase
in FSO resources, $)0 million from the United States and
$23 million frrnn the LAtin American members.
resources of the
Fsn
now amount to $219 million, of which the
tTnited States has contributed $150 million.
contributions hv
Thus the total
me~hers
Payment of these
was made one-half in U. S. dollars
and one-half jr. :1Atic:1al currency -- which in our case meant
that Otlr entir2 cO:1trihution was in dollars.
have heen
fU]]'J
opi ~ ~"
All installments
all menber countries.
Bv July 31. la~4. $136 million of FSO resources had been
committed for loar.s and technical assistance.
Further, the
- 5 management of the lank estimate. that the remainder of the Fund's
resources, approximately $85 million, will be fully committed
by the spring of next year.
By July 31, 1964 only $114 million
remained uncommitted in the SPTF and it il also expected to be
fully commit-tcd in the near future, that is, sometime next spring.
Reasons for the Proposal
After ri-onroxirnately two years of operations with its three
th~
windows,
lOB's Board of Governors concluded that the Bank
harl reachcci a point in its development at which it would be
appropriate to consider the simplification and strengthening of
its structure.
Moreover, it was evident that the scope and
jrnportanc(> of the financing operations carried on by the Bank
on an easy repayment basis would soon require rna.;or addi ti ons to the
arnOtmt of capital available for these purposes.
Accordingly, at
the Four t 11 Annual Meet ing in Caracas, Venezuela, in Apri 1 1963,
the Governors asked the Executive Directors to prepare a study
of the fu t ,1 r(> re lat ion sh ips of the FSO to other act i vi t ie s of
the Bank
Cl:,",/.l
also of the sufficiency of the Fund's resources.
Th(' study occupied about a year, and at the Annual
Meeting held in Panama this past April, the Executive
Dircctor: i('i;ortcd to the Governors recommending an
expansion
o~
the resources of the FSO and a broadening of its
- 6 functions to include those previously carri.ed on
by the SPTF.
T'1e recommendation assumed that, concurrent with the expansion of
the FSO, the United States would ~iscontinue further contri~utton8
to the SPTF.
I have made it clear to the other Governors that
this ,,,oulc1 in fact be the case.
Thus, the B"nk's e)Cistin~
three wtnoows would be reduced to two.
One -- the Orrtinary
Capital, obtaini.ng its ft'nds in the private canital mArkets -- "rot' 1I
make loans on conventional repayment terms; the other -- the FSO,
obtaining its funds from member contributions -on
e'l~y
to
t:: 1
repayment terms.
This arranpement would
~-lould
~e
etdte simnPT
at of the .Jorl rl Bank ;!no IDA.
The aovAntage of such a consolidation of functions
trc Bpnk is readilv apparent.
anr~
make loans
economical.
Arlministration
~olill
wit~in
he more effic;en:
The T)attern of loan terms offered by the Bank
will he more uniform, ani! the cOl1ntries borrowing from the Bank
ujll find t;'at loan procedures are simpler and more unrlerstanoable.
From the llnited States ooint of view, the expansion of the FSO
to incl ude the functions of tre SPTF -- and the terminAtion of
furtf",er contr~hutionc:; to the SPTf -- means that f"n(ls h;t~erto
orovided entirely by the United States will hereafter be provided
- 7 in part hy
t~e
Latin
~erican
countries.
Under the proposal of the Executive Directors, which the
B~nk's
Governors
~ave
unanimously referred to their governments
for appropriate legislative action, the member governments
of the Bcmk would contrihute $100 million per year to the FSO
in their own nntional currencies in each of the fjscal years
1965, 1966, and 1967.
Tile United States share of
t~is
annual
contrihution wou1cl he $/')0 million, all payable in non-interest
hearin!' notes which would not be cashed until the Bank required
the funds for dishursements.
The Latin American memhers of the
Bank woul c1 contri hute $')0 million each year in thei r own nati ona1
cl1rrf'ncie~.
For comparison nurposes the combined totals of past contrihutions to the FSO ann SPTF have heen as follows (in millions of
dollars)-
c) lendar Year
19(,]-62
1 qfl3
19(,4
United States
$494
Other Countries
$4(,
o
181
o
23
1 0 (,1 and 19(,2 are lumped together since the United States
made a contribution of $394 million to the SPTF in 1961 with the
understanding that it would cover both 1961 and 1962.
Contributions
that had originally heen planned for 1963 were actually approved hy
the Congress -- and the resources made available to the Bank -- in
January 1964.
- 8 From these totals it can be seen that the $250 million
annual contribution proposed for the United States closely
approximates our annual contributions in 1961 and 1962 and
exceeds our 1964 contribution by 38%.
On the other hand, the
contributions by the Latin American countries will be
considerably more than twice their previous annual contributions,
In considering the need for funds to be lent on easy
repayment terms, the Bank's Board of Executive Directors has
taken account of Latin America's minimum needs for external
funds to implement the Charter of Punta del Este, of the
development programs wllich have been prepared by individual
countries, of the magnitude and types of loan applications and
inquiries made to the Bank, and of the Bank's capacity for
processing loan applications and controlling disbursements.
The Bank has also taken account of the balance-or-payments
and external debt problems of Latin America and the continuing
need -- as borne out by the experience of other lending
institutions -- for credit on special terms such as can be
offered by the FSO.
Taking account of these varied
considerati~
the Bank regards a lending level equivalent to $300 million a
year, for loans on easy repayment terms, as desirable and
- 9 feasible in order for it to meet its minimum responsibilities
under the Alliance for Progress.
With the combined availabilities of the FSO and the SPTF
the Bank succeeded in achieving almost a $250 million annual
lending rate in the year 1962.
With the resources now being
proposed, the Bank will be able to reach and to maintain a
slightly higher lending level.
Moreover, with the assured
availability of funds for a three-year period, the Bank will
be able to avoid sharp year to year variations in the level
of lending -- such as have occurred over the past few years
because of uncertainties in the timing and amount of new
funds provided to the FSO and SPTF.
Loans from the two funds
aggregated $164 mi1ljon in 1961, rose to $246 million in 1962,
and then fell to $80 million in 1963.
the efficiency of the
B~nk's
It seems clear that
operations and its relationships
with borrowers would be greatly improved by the approval of
the three-year program now proposed.
Frapo sed
Or er a t ions
0
f
the t:xpanded FSO
The operations of the expanded FSO will follow closely
many of t:l€ p.:Jtterns and practices successfully established
in the past by the separate operations of the FSO and the SPTF.
- 10 The expanded FSO will continue to provide essenda 1 financial
assistance for high-priority development projects in the
economies of the Latin American members of the IDB.
of projects
~Iich
The type
will be financed include -- in addition to
such basic projects as roads, Jams, water facilities and
industrial development projects -- programs in the fields of
low-income housing, improved land utilization, land settlement
schemes, and agricultural credit programs.
It is also expected
that the Br:mk through tile FSO vJill furni sh assistance for the
expansion of higiter education facilities in Latin America by
Inaking loans to
r<lcilities at:
proviJ~
for the construction and equipment of
univcrsiLil'.C;
and teclmical institutions.
These
loans will provide training in the technical and managerial
sldlls so desperately nl'('ded if Latin America is to achieve
meaningful development o[ its society and resources.
Technical
assistance loans and the financing of studies of basic sectors
o[ the economy will also be provided.
In its administration of the proposed expanded FSO, the
Bank will conlinue to take into account the institutional
improvements which the horrovd.ng country is undertaking, the
specific steps initiated to achieve the success of the project
- 11 -
proposed for financial assistance from the FSO, the extent to
which local contributions are made available for financing
the project, and, lastly but perhaps most important of all,
Mr. Chairman, the extent and effectiveness of the over-all
self-help practices of the borrower in conformity with the
principles establiffied by the Charter of Punta del Este.
Through new institutional arrangements in the
B~nk,
a
senior official will advise the President of the Bank on the
formulation and review of development objectives, policies, plans
and programs.
This official -- who will be a United States
citizen -- and his staff will serve as the Bank's liaison with
the Inter-American Alliance for Progress Committee (ClAP),. the
important new organ of Inter-AmErican economic cooperation.
This advisory office will coordinate the effective programming
of the Bank's resources, and maintain close contact with other
sources of foreign capital, including our own AID administration.
The Bank's efforts to program its resources to achieve maximum
results will be greatly assisted by the assured availability of
funds for a three-year period, as now proposed.
Turning now, Mr. Chairman, to questions of operational
procedure, there are two matters I would like to review briefly
- 12 wiLll you.
First, the question of loan terms for the expanded
The Resolution to be voted on by the Board of Governors
FSO.
or Lhe IDB does not specifically state the terms on which
[uLul"e loans [rom the expanded FSO are to be made.
l~(
The
solution states, however, that the Board of Executive
Directors of the IDB "in establishing financing policies Dr
the (FSO) silall take into consideration the policies which
11ClVC
guided the operations of the Social Progress Trust Fund
I expect, therefore, that policy on loan terms would be
generally comparable to present policies for the FSO and the
,d'lT.
On loans made by the SPTF interest rates of [rom 2 to
3- i
I:~
per cen t have been appl icable, depending upon the na ture
01 the project.
jncilldin~
Maturities have been from 20 to 30 years
a grace period with repayment of principal and
inlcrest in the currency of the borrower, but with provision
[or maintenance of value and with optional payment in U.S.
dollars.
T:le interest rates I have mentioned include
<I
3/4
Dercent per annum service charge which is payable in U.S.
dollars.
FSO loans have been made on basically similar terms
alt:lOugh the interest rate has usually been 4 percent and there
- 13 is no separate service charge.
Some loans made by the FSO
have required payment of amortization and interest in the
currencies lent.
The second matter I wish to review is the question of
procurement policy.
Previous U.S. contributions to the FSO
:lDve been Dvailable for world-wide procurement, while U. S.
contributions to the SPTF were available only for U.S.
procurement or procurement in other member countries of the
lDB.
Under this ne\Ol proposal, the U. S. contribution to the
exp~nded
FSO will be available on the same basis as the SPTF
procurement in the past, tha t is. only for the purchase of
~oods
an<i services in the United States or from
t~e
country of
the borrm·Jer; or in some cases, from other memLer countries of
t:le Bank if such a transaction would be advantageous to the
uorro\Oler.
On the basis of past experience with the SPTF this
,",ould mean that well over 80 percent of future U.S. contribution"
to an expanded FSO would be utilized to finance U.S. exports.
Effect of Proposal on the U.S. Balance of Payments
This leads us directly to the matter of the effect of
tllis proposal upon the balance-of-payments position of the
United States.
As I have indicated earlier, the entire U.S.
- 14 contribution to the expanded r ••ource. of the FSO will be in
the form of non-interest bearin, note, rather than cash and
consequently will have no immediate impact upon our balance
of payments.
These notes will only be encashed later by the
Bank as funds are required for di.bursement.
Consequently,
the balance-of-payments impact of these transactions will not
be reflected in our international accounts until the cash is
paid over to the Bank -- well after the funds have been
appropriated.
And when the balance-of-payments effect is
felt, the fact that over 80 percent of the expenditures from the
U.S. contribution to the FSO will be made in the United States
will mean that the impact of our contribution will be minimal.
Relationship to U,S, Bilateral Aid Policies
Both the manner in which the proposed contribution to
the expanded FSO will be utilized, and the over-all policies
of the IDB are fully in accord with the major policy guidelines
established by Congress for the U.S. bilateral aid program.
The availability of funds in the expanded FSO for the furtherance
of Alliance
obje~tives
will be fully taken into account in
the preparation of U.S. bilateral economic assistance programs
to Latin American nations, as is the availability of funds from
other international lending agencies.
No funds to be provided
- 1) to the expanded FSO will L... .t.1va:f.lable to Communist bloc
countries, as membership in the lOB is limited to Latin
American nations, and Cuba has never joined the Bank and is
no longer eligible for membership.
With respect to the
expropriation of private property without compensation, it
should be noted that in no case has it been necessary to invo(
the "Hicken looper Amendment" in Latin America requiring the
suspension o[ U. S.
"s~:i
stance.
If circumstances should ar:i Sl'
requiring such measures by the United States, parallel actior.
could easily be taken in the Fund for Special Operations,
since t;le U. S. vote of
1-+:"1
percent is necessary to obtain tne
two-thirds major:it;' t:,,,t is required for favorable
of any loan made
1)','
considerat~\:'
the Fund for Special Operations.
Proposed Legislative Action
The proposed legislation for which favorable committee
ac tion is reque c ted
(l) authorize the Sc cre tary
',70111d:
0f
the Treasury as U.S. Governor of the IDB to vote in favor of
the Resolution c;:JllinQ for a $<JOO million increLlse in the
resources of the [SO and, upon adoption of the Resolution by
the Board
0
f GnvcrneJr s,
to
States to
A
subscription of
the terms
0
f the lZe so 1 u tion,
Cl
gree on beha 1 f
$7~O
0 [
tne Uni ted
million in accordance with
(2) au thor ize the appropr ia t ion
- 16 without fiscCll year limitation of $750 million, and (3) delete
certain
tec~nical
provisions in the existing language which
lirn.it the total of non-interelt bearing notes which may be
issu~d
to the total of previous subscriptions and contributions
to the Ordinary Capital and the FSO.
This last action will
permit substitution of notes for the full amount to be
authorized under the proposed increase.
The Governors of the lOB contemplated that action would
be taken by members by December 31, 1964, although the Executive
Directors are authorized to extend the timetable as necessary.
The need for the [jrst instClllment of $250 million was taken into
account in formulating the current FY 1965 budget and a formal
appropriation request will be submitted upon approval by
Congress of the authorizing legislation.
Two further annual
requests will be made in the normal manner for fiscal 1966 and
1967.
Conclusion
In conclusion, Mr. Chairman, I would like to reiterate
t~lClt
the Inter-American Development Bank is
I
vital part of
the financial structure of the Alliance for Progress.
Therefore
it is most important that the Bc:nk have not only adequBte resources
but also the structure most suitable to accomplish the tasks
- 17 facing it.
T~H:
administrative advantages of simplifying the
Bank's structure through consolidation of the op:aration. of
the FSO and the SPTF are clear.
The bound.ri •• Detween lend-
ing for social development and lending for economic development
are indistinguishable and, therefore, provide -'> reason to
continue i:l1e maintenance of separate financtns sources which
are inseparable in practice.
The FSO' s resources wi 11 be exhausted in .arly 1965 and
are in need of replenishment.
also nearing exhaustion.
The resources of the SPTF are
Tbis provides a desirable opportunity
to terminate furt:ler contributions to the Secisl Progress Trust
Fund and to make future contributions only to an expanded Fund
for Special Operatjons.
$2~O
The proposed U.S. coatribution of
million per year for the
l~ree
years 1965, 1966 and 1967
\ViII permit the Inter-American Dev@lopment lank to finance
a level of lending on easy
repaymen~
terms Which is appropriate
to fulfill Alliance objectives and nec@ssary if these objectives
are to be met.
I urge that you act favorably on this bill.
T~ank
you, Mr.
~lairman.
- 3 ~Il)(nIJJX
and exchange tenders vill receive equal treatment.
Cash adjustments vill be made
for differenc~s 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
~e
or other disposition of the bills, does not have any exemption, as such, and loss
trom 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
loca.l 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 10terest.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 19~
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
w-
clude in his income tax return only the difference between the price pa.id for such
bills " whether on origina.l issue or on subsequent purcha.ae, and the amount actuall1
received either upon sa.le or redemption at maturity during the taxable year for
which the return is made, as ordinary gain or loss.
Trea.sury Department Circular No. 418 (current reVision) and this notice, prescribe the terms of the '!'reasury bills and govern the conditions of their •issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
- 2 -
decimals, e. g., 99.925.
Fractions may not be used.
It is urged that tenders
be made on the printed forms and forwarded in the special envelopes which will
be supplied by Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
others than
banking institutions will not be permitted to submit tenders except for their
own account.
Tenders will be received without deposit from incorporated banks
and trust companies and from responsible and recognized dealers in investment
securities.
Tenders from others must be accompanied by payment of 2 percent of
the face amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids. Those
submitting tenders will be advised of the acceptance or rejection thereof.
The
Secretary of the Treasury expressly reserves the right to accept or reject any
or all tenders, in whole or in part, and his action in any such respect shall
be final.
Subject to these reservations, noncompetitive tenders for each issue
for $200,000 or less without stated price from anyone bidder will be accepted
in full at the average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders in accordance with
the bids must be made or completed at the Federal Reserve Banks on
February 11,
1965
J(J§1@9 _______ , in cash or other immediately available f'unds or in a like face
amount of Treasury bills maturing
February 11, 1965
----------~~------------.
~
Cash
TREASURY DEPARTMENT
Washington
February 3, 1965
FOR IMMEDIATE RELEASE,
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for tvo serie,
of Treasury bills to the aggregate amount of $ Z,2Q~Q,QQQ , or thereabouts, for
cash and in exchange for Treasury bills
mat~ring
February 11, 1965
,in the
&mow.
XWX
of $ 2110itlJl,000 , as follows:
91 -day bills (to maturity date) to be issued
W
February 11, 1965
4W
in the amount of $ 1,200,000,000 , or thereabouts, represent-
xxmxx
ing an additional amount of bills dated
and to mature
November 12, 1964 ,
xmx
, originally issued in the
May 13, 1965
Wi
amount of $ 1,00ftit7,000 , the additional and original bills
to be freely interchangeable.
182
4m
-day bills, for $
1,OOO~,000
February 11, 1965
xtm
, or thereabouts, to be dated
,and to mature
Augustx::fiiJ965
The bills of both series will be issued on a discount basis under competitive
I
and noncompetitive bidding as hereinafter provided, and at maturity their f&ee
I
They will be issued in bearer form
I
only~
and in denominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000
~d,
amount. will be payable without interest.
$1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the
closing hour, on"'!-thirty p.m., Eastern Standard time, Monday,
Feb~,
Tenders will not be received at the Treasury Department, Washington.
1965_
Ea.ch tender
must be for an even multiple of $1,000, and in the case of competitive tender8~
price offered must be expressed on the basis of 100, with not more than three
TREASURY DEPARTMENT
February 3, 1965
R IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
r two series of Treasury bills to the aggregate amount of
2,200,000,000,or thereabouts, for cash and in exchange for
easury bills maturing February 11,1965, in the amount of
2,101,787,000, as follows:
91-day bills (to maturity date) to be issued February 11,1965,
the amount of $ 1,200,000,000, or thereabouts, representin~ an
iitlonal amount of bills dated November 12,1964, and to
ture May 13, 1965,
originally issued in the amount of
;000,317,000, the additional and original bills to be freely
cerchangeable.
182-day bills, for $ 1,000,000,000, or thereabouts, to be dated
)ruary 11,1965, and to mature August 12, 1965.
The bills of both series will be issued on a discount basiS under
lpetitive and noncompetitive bidding as hereinafter provided, and at
urity their face amount will be payable without interest. They
1 be issued in bearer form only, and in denominations of $1,000,
000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
lturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
to the closing hour, one-thirty p.m.~ Eastern Standard
e, Monday, February 8, 1965.
Tenders will not be
eived at the Treasury De~artment, Washington. Each tender must
for an even multiple of $1,000, and in the case of competitive
ders the price offered must be expressed on the basis of 100,
h not more than three decimals, e. g., 99.925. Fractions may not
used. It is urged that tenders be made on the printed forms and
warded in the special envelopes which will be supplied by Federal
erve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
tamers provided the names of the customers are set forth in such
jers. Others than banking institutions will not be permitted to
nit tenders except for their own account. Tenders will be received
10ut deposit from incorporated banks and trust companies and from
oonsible and recognized dealers in investment securit10~. ~2nders
n others must be accompanied by payment of 2 percent of the face
lnt of Treasury bills applied for, unless the tenders are
)mpanied by an express guaranty of payment by an lncoITlorated bank
:;rust company.
490
- 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 submlttlng tenders
will be advised of the acceptance or rejection thereof. The
Secretary of the Treasury expressly reserves the righ to a:ce P or
reject any or all tenders, in whole or in part, and hlS act~on In
any such respect shall be final. Subject to these reservatl~ns,
noncompetitive tenders for each issue for $200,OOO.or less wlthout
stated price from anyone bidder will be accepted In.f~ll a the
average price (in three decimals) of accepted competltlve bl~S
for the respective issues. Settlement for accepted tenders ln
accordance with the bids must be made or completed at the Federal
Reserve Banks on February 11,1965,
in cash or other immediately
available funds or in a like face amount of Treasury bills
maturing February 11, 1965.
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.
7
7
7
The income derived from Treasury b1lla, whether 1nterest or
gain from the sale or other d1sposition of the b1lls, does not have
any exemption, as such, and loss from the sale or other d1spos1tion
of Treasury b1lls does not have any special treatment, as SUCh,
under the Internal Revenue Code of 1954. The b1l1s are subject to
estate, inher1tance, g1ft or other exc1se taxes, whether Federal or
State, but are exempt from all taxation now or hereafter 1mposed on
the princ1pal or 1nterest thereof by any State, or any of the
posseSSions of the United States, or by any local taxing author1ty.
For purposes of taxat10n the amount of d1scount at wh1ch Treasury
bills are originally sold by the Un1ted states 1s cons1dered to be
interest. Under Sect10ns 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at wh1ch b1lls 1ssued
hereunder are sold is not considered to aoorue unt1l such bills are
sold, redeemed or otherwise d1sposed of, and sUOh b1lls are exoluded
from cons1deration as capital assets. Aooordingly, the owner of
Treasury bills (other than life insuranoe oompan1es) issued hereunder
need include in his income tax return only the d1fferenoe between
the price paid for such bills, whether on or1ginal issue or on
subsequent purchase, and the amount actually reoeived either upon
sale or redemption at maturity during the taxable year for Whioh the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (ourront rQvls1on) and this
notice prescribe the terms of the Treasury bille and govQrn the
conditions of their issue. Copies of the oircular may bo obtainod rr~
any Federal ReBerv~ Bank or Branoh.
000
TREASURY DEPARTMENT
(
February 3, 1965
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S CASH OFFERING OF 4~ NOTES
Reports received thus far from the Federal Reserve Banks show that subscriptions total $10,593 million for the offering of $2,170 million, or thereabouts,of 4 percent Treasury Notes of Series E-1966, due November 15, 1966.
The total amount of subscriptions accepted is about $2,253 million.
The Treasury will allot in full, as provided in the offering circular,
$537
million of subscriptions from States, political subdivisions or instru-
mentalities thereof, public pension and retirement and other public funds,
international organizations in which the United States holds membership,
foreign central banks and foreign States, Government Investment Accounts, and
the Federal Reserve Banks, where the subscriber made the required certification
of ownership of bonds maturing on February 15, 1965.
On subscriptions received subject to allotment, the Treasury will allot
in full subscriptions up to $100,000 and other subscriptions will be subject
to a
15 percent allotment with a minimum allotment of $100,000 per subscrip-
tion.
Subscriptions subject to allotment total $5,873 million from commercial
banks for their own account and $4,183 million from all others.
Details by Federal Reserve Districts as to subscriptions and allotments
will be announced when final reports are received from the Federal Reserve
Banks.
000
D-1491
TREASURY DEPARTMENT
FOR lJttt1EDIATE RELEASE
February 3, 1965
RESULTS OF TREASURY'S CASH OFFERING OF 4~ NOTES
Reports received thus far from the Federal Reserve Banks show that subscriptions total $10,593 million for the offering of $2,170 million, or thereabouts,of 4 percent Treasury Notes of Series E-1966, due November 15, 1966.
The total amount of subscriptions accepted is about $2,253 million.
The Treasury will allot in full, as provided in the offering circular,
$ 537
milllon of subscriptions from States, poll tical subdivisions or instru-
mentalities thereof, publlc pension and retirement and other public fUnda,
international organizations in which the United States holds membership,
foreign central banks and foreign States, Government Investment Accounts, and
the Federal Reserve Banks, where the subscriber made the required certification
of ownership of bonds maturing on February 15, 1965.
On subscriptions received subject to allotment, the Treasury will allot
in fUll subscriptions up to $100,000 and other subscriptions will be subject
to a
15 percent allotment with a minimum allotment ot $100,000 per subscrip-
tion.
Subscriptions subject to allotment total $5,873 million from commercial
banks tor their own account and $4,183 million from all othera.
Details by Pederal Reserve Districts as to lubscriptions and allotments
will be announced when final reports are received trom the Pederal Reserve
Banks.
000
D-1491
TREASURY DEPARTMENT
February 4, 1965
FOR IMMEDIATE RELEASE
UNITED STATES AND CHILE SIGN
$16,120,000 EXCHANGE AGREEMENT
Secretary of the Treasury Douglas Dillon and the
Ambassador of Chile, Sergio Gutierrez, today signed a
$16,120,000 Exchange Agreement between the United States and
the Government and Central Bank of Chile.
The Agreement, which is effective for a one-year period,
replaces one for $15 million signed in March 1964.
Under
the Exchange Agreement, Chile may request the United States
Exchange Stabilization Fund to purchase Chilean escudos.
Any escudos acquired by the United States Treasury would
subsequently be repurchased by Chile with dollars.
The Agreement will assist Chile in maintaining orderly
conditions in the foreign exchange markets as part of its
program of economic stabilization and growth, and is designed
to supplement the resources available under the $36 million
stand-by arrangement announced by the International Monetary
Fund on January 6, 1965.
000
D-1492
TREASURY DEPARTMENT
I
FOR IMMEDIATE RELEASE
UNITED STATES AND CHILE SIGN
$16,120,000 EXCHANGE AGREEMENT
Secretary of the Treasury Douglas Dillon and the
Ambassador of Chile, Sergio Gutierrez, today signed a
$16,120,000 Exchange Agreement between the United States and
the Government and Central Bank of Chile.
The Agreement, which is effective for a one-year period,
replaces one for $15 million signed in March 1964.
Under
the Exchange Agreement, Chile may request the United States
Exchange Stabilization Fund to purchase Chilean escudos.
Any escudos acquired by the United States Treasury would
subsequently be repurchased by Chile with dollars.
The Agreement will assist Chile in maintaining orderly
conditions in the foreign exchange markets as part of its
program of economic stabilization and growth, and is designed
to supplement the resources available under the $36 million
stand-by arrangement announced by the International Monetary
Fund on January 6, 1965.
000
D-1492
TREASURY DEPARTMENT
WASHINGTON.
February
4, 1965
FOR ll-'llilEDIA'l'E .H.ELEASE
TnEASUHY DECISION ON CHIDRINATED PARAFFIN
UlillER THE ANTIDUI'iJPING ACT
The Treasury Department has completed the investigation with
respect to the possible dumpin3 of chlorinated paraffin from
EnGland) manufactured by Imperial Chemical Industries Limited,
En~land.
Prompt ly after the commencement of the antidumping
investiGation, price revisions ,,[ere made vrhich eliminated the
likel.ihood of sales belol" fair value) and the United States
firms \Thicn had complained of dumping withdrew their complaints.
A notice of intent to c lose this case vTi th a determination
that this merchandise is not beins) nor likely to be, sold at
less than fair value will be published in an early issue of the
Federal ReGister.
Chlorinated paraffins are a series of vraxes having a variety
of uses) such as oil additives) plasticizer-extenders for plastics,
etc.
Appraisement of the above-described merchandise from EnGland
is beinG iTithheld at this time.
The dollar vc.luc of inports of the involved merchandise recei ved dur inc; the period l·iay through July
:"5 ) L~()O •
000
196!~ vTaS
approximate ly
TREASURY DEPARTMENT
Feb21uary 4, 1965
FOR IMMEDIATE RElEASE
TREASURY DECISION ON CHIDRINATED PARAFFIN
UNDER THE ANTIDUMPING ACT
The Treasury Department has completed the investigation with
respect to the possible dumping of chlorinated paraffin from
England, manufactured by Imperial Chemical Industries Limited,
England.
Promptly after the commencement of the antidwnping
investigation, price revisions were made which eliminated the
likelihood of sales below fair value, and the United states
firms which had complained of dumping withdrew their complaints.
A notice of intent to close this case with a determination
that this merchandise is not being, nor likely to be, sold at
less than fair value will be published in an early issue of the
Federal Register.
Chlorinated paraffins are a series of waxes having a variety
of uses, such as oil additives, plasticizer-extenders for plastics,
etc.
Appraisement of the above-described merchandise from England
is being withheld at this time.
The dollar value of imports of the involved merchandise received during the period May through July
$5,400.
1964 was approximately
4:
-2-
"hic1YhaS~:C::"fUIIY "eat~;~.r15rOblemS *l'"e~ons
/r~~a;~8 tha~~G~~:riZ~
1\
In no event would any solution be acceptable that
involved a change in the fixed $35.00 price of gold.
It
is also .?ssential that any changgs in the system ensure that
ad2.quat~
international credit will continue to be available
to finance the swings in trade typical of a growing world
":=conomy.
I(
I(
President de Gaulle has recommended that the gold
exchange standard,
bas~d
on the use of dollars freely
«sHfRxBi
convertible into gold at $35.00 an ounce,and which has
aerved the world well for 30 years be abandoned.
~opos3d
He has
that instead we retreat to the full gold standard
which collapsed in 1931 and which proved incapable of
financing the huge increase of world trade that
haJ marked
the twentieth century.
I' ~tudies
of possible ways to improve the world monetary
system have been underway for the past 18 months in the
International 110netary Fund and in the Group of Ten countries
making up the GAB.
The new French proposal will presumably
be introduced in these forums where a number of other
proposals have been under study for som~ time. ~/
/move
toward the r2storation of the so-called gold standard, with
all its
rigidi~
and sharp deflationaJY consequences, would
z;.
~~-."'G,. ~
be $I~il!o~ l:.~OlfJ the main stream of thinking among
th~~ents
The
s trengthene
participating in these studies.
ates con
~. ~nd
only be btlilt
imp- o-J~d'i
TREASURY DEPARTMENT
February 4, 1965
FOR IMMEDIATE RELEASE
The Treasury today released the following statement:
"President de Gaulle has recommended that the gold
exchange standard, based on the use of dollars freely
convertible into gold at $35.00 an ounce, and which has
served the world well for 30 years be abandoned. He
has proposed that instead we retreat to the full gold
standard which collapsed in 1931 and which proved
incapable of financing the huge increase of world trade
that has marked the twentieth century.
"Studies of possible ways to improve the world
monetary system have been underway for the past 18
months in the International Monetary Fund and in the
Group of Ten countries making up the GAB. The new
French proposal will presumably be introduced in these
forums where a number of other proposals have been under
study for some time. However, a move toward the
restoration of the so-called gold standard, with all
its rtgidities and sharp deflationary consequences,
would be quite contrary to the main stream of thinking
among the governments participating in these studies.
"In no event would any solution be acceptable
that involved a change in the fixed $35.00 price
of gold. It is also essential that any changes in
the system ensure that adequate international credit
will continue to be available to finance the swings
in trade typical of a growing world economy."
000
D-1493
TREA~ UIl'::'
DEP A1\,rM!/:'~
Washington
FOR RELEASE UPON DELIVERY
REM ARK0 !h l..£LA:'JD dO'''! 'lRD
DIRECTOR, OFFICE OF UO~lESTIC GOLJJ AND SILVER OPERATIONS
BEFORE THE SIXTY~EIGHTH
NATIONAL wESTERN MINING CONFERENCE AND EXHIBITION
THE DENVER HILTON HOTEL, DENVER, COLORADO
SATURDAY, FEBRUARY ti, 1965: 2 P.M., M.~.T.
TREASURY'~
GOLD AND SILVER POLICIES
Just two years ago. t :lcid the pri v', lege of addressing your
SixtY-Sixth Conference.
I h3ve enjoyeG few occasions more.
So
I consider myself twice blessed to be here again in this great
and beautiful city -- where I have so many old friends whom I
see far too seldom -- to tal~ to ttis dlslinguished gathering of
representatives of one of OUI nation's most essential industries.
In his very graciou~ l~tt?r of invItation, Mr. Robert Palmer
suggested it would be a p; ,L'~l c-l]cirl j' ~o'Jod time to discuss wi th
you -- and I quote hi;.;; words -- "t11e l,.~cts of life regarding
silver and gold." Ce:;:'Ln,l'y l L 11,15 besn J. lor:g time since gold
and silver have fig,ure,:'; so \J.l',)rllll(;ntly in public discussion and
public policy as they have dGr~a~ recpnt years.
And in this
world of incredibly rapid cll~n~e thE lacts of life regarding gold
and silver -- like the f~c~s of Ii ~s regarding most other
things -- cannot remaIn entirely unchanged, as new needs and new
problems constantly arIse.
But at the very outset, let me repeat what I said here two
years ago -- and m.:lke <;ery clear :h:t the onE cardinal fact of
life regarding gold remains as l[:lr';U,'.:.c'l:E tod;o~y a,s it has been
since the day of its inception.
Lpt we emphasize that our
Government's policy on gale.! IS essentially the same today as it
was in 1934, when Con~.;rc~~ p..lssed the Geld Reserve Act. Our
basic policy has been -- ~n~ rRm~ins ~- one of centralizing the
gold reserves of the c Cdr, L\' i ~1 the ;,3. :ids o:t ".he Government under
the jurisdiction of the Trc~sury and ~'lhtainlng a fixed price
of $35 an ounce for gold,
For our pJ8d~e to maintain that price,
with every resource a~ .J'~l ,cmmdnd; ~,~~ ,he bedrock upon which the
soundness of our do':" 1 L~~ ,lci c'ndO" ,
As you know, P j'C'si de ,1\ .Jor !1!SOL _.:
S Economic Message to
the Congress abou t c1 , .... C').: :' /0 I reCO;T'T('l)(Jefi th::- r the Congress -and I quote -- "elimirn 1e <:~e albi tl'~try requJ..l'ement that the
Federal Reserve Banl< ~ 11,,11 n t ..:d n ,t go Id s er ti fIe a te reserve agai ns t
their deposit liabilitles.' ThlS ac·ico, the Message pOinted out,
,!,
- 2 would strengthen "our ability to carry out effective and
responsible monetary and credit policies" and "place beyond
any doubt ••• the availability of our gold stock for defense
of the dollar."
Let me review with you very briefly the history of the
gold certificate requirement and some of the factors behind
the President's decision.
The requirement that Federal Reserve notes and deposits
be backed by a prescribed proportion of gold originated in a
period when gold was still in circulation domestically.
This
requirement, in good part, appears to have been designed to
assure public confidence in the newly established Federal
Reserve Bdnks and in Federal Reserve Notes.
Another purpose,
presumably, was to place some ultimate restraint upon the
expansion of our money supply in the form of currency and bank
deposits.
Today, however, the primary function of gold is to settle
international deficits and surpluses, and the supply of money
is effectively controlled by the Federal Reserve System in the
broad interests of orderly, non-inflationary economic growth.
These responsible authorities recognize various factors as
important in determining its policy.
The two most important
are the need to preserve domestic price stability in an expanding
economy and the need to deal when necessary with our balance of
payments situation.
Over the years, therefore, it has not been
the arbitrary gold backing requirement, but other factors
entirely which have determined our money supp~y -- in the process
holding it well below the levels which would have been .
theoretically possible under the statutory gold reserve
requirements against Federal Reserve Notes and deposits.
In 1945, there was clear recognition of the principle
that changes in our money supply should be determined, not by
the amount of our gold holdings, but by our domestic and international needs, when for the first time, it seemed possible
that the gold reserve requirements might actually block the
expansion of money credit essential to orderly wartime financiq.
The law at that time called for a 40 percent reserve of gold
against notes and a 35 percent reserve of gold or lawful money
against deposits.
The overall ratio of actual gold holdings
to these notes and deposits was about 50 percent.
In those
circumstances, the Congress cut the gold reserve requirement to
the current 25 percent.
Today, besides the United States, only one of the world's
leading ind~strial countries - Belgium - has any clear legal link
between the1r gold reserves and the note and deposit liabilities
of their central bank.
Switzerland has a similar requirement,
- 3 but only against notes.
The others either have no gold reserve
requirement or have suspended its application for many years;
moreover, of the country that does have requirements more or
less similar to ours, those. requirements have not served over
time as a limiting factor upon money supply.
In this country,
as in the United States, it is the requirements of a sound
monetary policy -- not of a mechanical gold reserve formula -that sets the limits on the actual money supply.
As I said earlier, gold today plays its primary role in
the international payments system, where it still serves as the
ultimate means of settling international deficits and surpluses.
The United States, as you know, has for too many years run
balance of payments deficits which have led to substantial declines in our gold stock. We have in recent years reduced t~ese
deficits, and last year we came very near to stopping our net
gold losses altogether.
But while we have been making progress
in these respects, and are determined to bring our international
accounts fully into balance, the fact remains that we have had
international deficits and gold 108&e& for &ome time -- and,
despite our efforts, we must be prepared to face the prospect
of further gold losses until international equilibrium is fully
restored.
That situation has, from time to time in the past, led some
observers to suggest that foreign holders of dollars would be
reassured, and their confidence in the dollar reinforced, if
the full amount of our gold stock were made more clearly available
to settle our international accounts.
They have noted that the
25 percent gold cover requirement "ties up" nearly $13 billion
of our gold.
The fact is that President Johnson -- and President Kennedy
before him -- have made it abundantly clear that our full gold
stock stands behind the dollar internationally, and have pOinted
out that the 25 percent requirement may be suspended. William
McChesney Martin, Chairman of the Federal Reserve's Board of
Governors, has also made it clear that the requirement would in
fact be suspended, if necessary.
Nevertheless, needless que.tions will arise 50 long as
there is a need to rely upon powers for suspension de.igned for
temporary periods rather than longer-run needs.
It is against
that background that the Joint Economic Committee of the
Congress and others have in the pamt recommended that the
25 percent requirement be entirely abolished.
Beyond these international considerations, it is now quite
apparent that the continued irQwth and health of our ~omeetio
economy as well requires the abolition of an anachroni&tlc and
arbitrary limit upon our money 8upply.
Tbe .ustained economic
- 4 expansion, with stable prices, that we have every reason to
expect throughout this year and beyond will need to be supported
by a proper and disciplined growth in money and credit. But as
President Johnson pointed out in his Economic Message, "this
growth, as it is reflected in Federal Reserve note and deposit
liabilities, could easily absorb -- within two years or less,
and without the outflow of a single ounce of gold -- the present
operating margin over the 25 percent 'gold cover' required by
existing law."
At the end of las t year, Federal Resel've notes in circulation
totalled $35.3 billion -- and Federal Reserve deposit liabiliti~
totalled $19.5 billion. Together, these Federal Reserve liabilities required a gold certificate reserve of $13.7 billion,
thus using all but $1.4 billion of the gold certificates issued
to the Federal Reserve against the Treasury gold stock. Since
January 1st, sales to foreigners have cut the Treasury gold
stock by $300 million, and we can expect further losses.
In terms of ratios, gold certificate holdings on December 31 1
1964, had dropped to 27.5 percent of the note and deposit
liabilities. This meant a decline of 2.2 percentage points in
the ratio for the year -- and yet for the year our net loss of
gold to foreigners was only $125 million. Thus, the decline in
the ratio last year was almost entirely the result of domestic
economic needs for more money and bank credit and of the
expansion in currency that normally accompanies rising trade
and business turnover.
It is against that background that President Johnson· has
recommended the elimination of the 25 percent gold cover requiument on Federal Reserve deposits to preclude any unnecessary
doubts and questions over our ability to make our gold fully
available in defense of the dollar in international markets,
and to provide for adequate, but not excessive, monetary growth
at home. This proposal would free almost $5 billion of gold
from the present requirement. At the same time, it would
preserve intact the present requirement against Federal Reserve
notes -- thus helping to emphasize the close link that exists
between gold and the dollar.
So much for gold. Now turning to silver, we have seen in
recent years an increasing worldwide demand for silver for
industrial, professional and artistic use relative to new
supplies reaching the market. This is in marked contrast to
the situation existing in 1933 and 1934 when the Tr~asury
embarked on its massive silver purchase program.
In 1933, as you know, the United States embarked upon a
silver purchase program which had for its main purpose the
elimination of large stocks of silver from the market place
and the subsequent firming of price. The program was carried out
through two sets of laws, one relating to the purchase of newly
mined domestic silver and the other to the purchase of foreign
and secondary silver.
- 5 The law relating to the purchase of foreign and secondary
silver was the Silver Purchase Act of 1934. Purchases under
this Act were not mandatory -- they were called for only when
deemed "in the public interest... Over two billion one hundred
million ounces were purchased under this Act between 1934 and
1942. However, after 1942, no Secretary of the Treasury deemed
it to be in the public interest to purchase additional foreign
or secondary silver.
The fact is there was very little silver
available for purchase.
The proclamations and acts relating to the purchase of
newly mined domestic silver made it mandatory that the Mint
purchase all the newly mined silver offered to it.
Under these
proclamations and acts, we purchased an additional 884 million
ounces of silver and, as you well know, the market price of
silver was such for many years that it paid the producers to
deliver all of their production to the mints.
Three billion ounces of silver, therefore, were purchased
by the United States during the period 1933 to early 1959 under
these purchase programs at an average price of 58.7 cents per
ounce.
Needless to say, the price of silver did firm, usually
just under the government buying price.
While this purchase program was going on, the industrial
demand for silver was increasing. Silver not only continued to
be used in the luxury items, but found rising new markets in
the electronics and aircraft industries and other important
industrial fields.
At current rates, world consumption
of silver exceeds new production plus the secondary supplies
coming into the market.
Since 1959, the demand has been met
by adding Treasury silver to these supplies either through
direct sales or through the redemption of silver certificates.
The coinage needs of the United States, as well as for some
other countries, have been met from existing stocks and have not
been a factor in the market.
In 1933, when the first Presidential Proclamation taking
newly mined domestic silver off the market was issued, United
States industrial consumption amounted to only 10.8 million
ounces. During the 8-year period from 1933 through 1940,
annual average industrial consumption in the United States was
23 million ounces.
In 1941, at the start of the war, it jumped
to 72.4 million ounces and then averaged 116 million ounces
during the war period 1942 through 1945. Consumption in the
United States since the war has been up and down f~om a low of
~5.5 million ounces to a high of 1~0 million ounces.
In 1963
it was 110 million ounces and in 1964 it is estimated that the
demand was about 120 million ounces.
There is no end-use breakdown of world industrial consumption,
and even in the United States the statistics are unsatisfactory
since it is difficult for the seller to identify the final use of
silver.
For example, silver solder may be used in any number of
- 6 operations.
However, from what information is available on
United States consumption, we can make the following breakdown
of the estimated industrial and artistic uses of silver for
the year 1963:
Troy Ounces
Batteries
Brazing alloys and solders
Dental and Medical
Electrical contacts and other)
electrical uses
)
Electronic components
)
Mirrors
Missiles
6,200,000
13,000,000
5,100,000
26,000,000
3,100,000
200,000
Photographic film, plates, and
sensitized photographic paper
33,300,000
Silverware and Jewelry
22,000,000
Miscellaneous
Total industrial use - Domestic
1,100,000
110,000,000
The current situation regarding domestic production and
consumption is: annual newly mined production runs around
35 million ounces and net industrial consumption amounts to
about 110 million ounces.
In other words, we in the United Stat~
consume industrially about three times our current production.
More than 60 percent of our production in the United States comes
into being as a by-product of copper, lead and zinc mining. The
remainder comes from mines in which silver is a primary metal.
The excess over and above this domestic production must
either be met by the importation of silver or from Treasury st~~
As a general rule, the United States is a net importer of silver.
However, in the year just ended, with silver in rising demand in
other areas, we were a net exporter.
The absence of a surplus
abroad, of course, added to the drain on the Treasury stocks.
Free world industrial consumption of silver (exclusive of
coinage) has increased over 86 percent during the last 15 years.
In 1949 it amounted to 132.5 million ounces and in 1963 it was
247.0 million ounces. Exclusive of the United States free
world industrial consumption rose from 47.4 million o~nces in
1950 to the current level of about 137 million ounces in 1963.
- 7 -
In 1933, when the first Presidential Proclamation taking
newly mined domestic silver off the market was issued, the use
of silver in coinage that year amounted to less than one
million ounces.
During the 8-year period from 1933 through
1940, the average annual consumption of silver in the United
States coins was 16 million ounces.
In 1941, at the start of
the war, it jumped to 55 million ounces and an annual average
of 67.5 million ounces were consumed in coinage during the war
period 1942 throu~h 1945.
From 1945 through 1961 the average
was 38.8 million ounces.
In 1962 coinage use rose to
77 million ounces and in 1963 to III million ounces.
In the
year just ended on December 31, we consumed a total of
203 million ounces in United States coinage.
Meanwhile coinage consumption of silver in the rest of the
free world, has decreased 13.7 percent during the past 15 years.
In 1949, it amounted to 70.4 million ounces and in 1963,
60.7 million ounces.
Silver's role in national monetary systems has been
declining -- few countries now use silver in coinage or as
backing for paper money.
Over the years, silver has played an important role by
providing part of the hand-to-hand money in the United States and,
of course, it has also backed E'ome of our paper currency.
Certainly hand-to-hand money plays a key role in facilitating
trade, but in terms of our overall money supply -- which includes
bank deposits as the major portion -- its role is small; our
money supply now totals about $157 billion, while the tQtal
amount of our coins and s~lver certificates amount to
only $4.3 billion.
The Uni ted Sta tes Treasul'y has not purchased si Iver in
commercial quantities since 1959.
In order to obtain silver to
meet coin,loge needs, Fresident Keti..lCdy on November 28, 1961,
directed the Treasury to retire silver certificates, thus
freeing the silver back of such certificates for the manufacture
of silver coins.
At that ti/ne the Federal Reserve banks did not
have the authority to issue Federal Reserve notes below the $5
denomination.
Therefore, our supply of silver for coinage was
limited to the retirement of silver certificates of $5 and
above, the only certificates that could be replaced by
corresponding Federal Reserve notes.
The Act of June 4, 1963,
authorized the issuance of $1 and $2 Federal Reserve notes, thus
making it possible to retire gradually all silver certificates
and to free the silver as needed for coinage.
The United States Treasury also continues to redeem silver
certificates with silver bullion upon request at the monetary
price of $1.29f an ounce.
When the market price rises to that
level, as at present, this results in a further drain on the
silver stocks.
- 8 On February 1, 1965, the Treasury held 1,150,975,280.6 troy
ounces of silver in the form of bullion back of silver certificates.
This constitutes a large reserve -- about five times
annual world industrial demand -- from which we can obtain our
immediate coinage needs and from which we can redeem silver
certificates.
It is naturally difficult to estimate the present life of
our silver stocks.
In 1964, our stocks fell 372.1 million ounces,
We used 202.4 million ounces of new silver for coinage and sold
8.7 million ounces to other government agencies.
Silver
certificates were redeemed by the public for approximately
141.2 million ounces of bullion and 25.6 million silver dollars
containing 19.8 million ounces of silver.
Quite clearly, silver has experienced such a sharply
increased industrial and coinage demand in relation to the
supply, that its role as hand-to-hand money must be reappraised.
In view of the many uncertainties in appraising coinage and
industrial demand for silver in the next few years, as well as
the possibility of increases in production, it is impossible to
estimate with precision the date when our silver stocks might
in fact be depleted.
While it is evident that our current stocks
provide protection against an immediate problem, we must also
recognize that a continuation of present trends will make it
necessary in the reasonably near future either to reduce the
silver content of our coins or to use a different alloy. We
cannot delay a decision, for to delay is to risk jeopardizing
our assured ability to protect the existing coinage and
to provide an orderly changeover to a new alloy.
Consequently,
it is imperative that any change be made while our silver stocks
are still ample.
The studies that the Treasury now has under
way are designed to provide a sound basis for determining when
a change in our silver coinage may be appropriate and what the
nature of this change should be, so that these decisions can be
made in advance of any serious. problem.
Our major objective in
considering the various alternatives that have been proposed is,
as it must be, to assure that the needs of our economy for
acceptable coins in ample supply will not be jeopardized.
o 0 000
- 13
C.
~
Reforms of a technical nature should be made in certain estate
tax provisions which govern tax incidents of contributions to private
foundations.
D.
A sanction less severe than the criminal penalty of existing
laH should apply for the failure to file a return required of a private
foundation.
*
-x-
-x-
-~-
-x-
*
These TreasuTJ- Department proposals are based upon a recognition
that private foundations can and do make a major contribution to our
The proposals have been carefUlly devised to eliminate sub-
societ~.
ordination of charitable interests to personal interests, to stimulate
the flow of foundation funds to active, usefUl programs, and to focus
the energies of foundation fidliciaries upon i:h eir philanthropic functions.
The recommendations seek not only to end diversions, distractions,
and abuses, but to stimulate and foster the active pursuit of charitable
ends vThich the tax laws seek to encourage.
proposals
ma~-
Any restraints which the
impose on the flol'; of funds to pri'Iate foundations will
be far outweighed by the benefits '.-lhich 'tlill accrue to charity from
the removal of abuses and from the elimination of the shado'..1 which the
existence of abuse nm-l casts upon the private foundation area.
- 12 -
this proposal, the donor and related parties would not be pennitted to
constitute more than 25 percent of the foundation's governing body
after the expiration of the prescribed period of time.
Foundations
",hich have now been in existence for 25 years would be permitted to
continue subject to substantial donor influence for a period of from
five to ten years from the present time.
III.
Additional Problems
Revie"Vl of the practices of private foundations and their contri-
butors discloses the existence of several problems "i-lhich have less
general significance than those discussed in Part II of the Report.
Part III of the Report draws the follOiiing conclusions about these
problems:
A.
Gifts to private foundations of certain classes of unproduc-
tive property should not be deductible until the foundation sells the
property, makes i t productive, applies it to a charitable activity,
or transmits it to a charitable organization other than a private
fOlmdation.
B.
Charitable deductions for the contribution, to private founda-
tions of section 306 stock (generally, preferred stock of a corporation
whose common stock is owned by the donor) and other assets should be
reduced by the amount of the ordinar:,- income which the donor ',-1Quld
hs:,"e
realized if he had sold them.
- 11 -
purposes be prohibited.
Second, it recommends that foundation loans
be confined to categories i-lhich are clearly necessary, safe, and appropriate for charitable fiduciaries.
Third, it proposes that foundations
be prohibited from trading activities and speculative practices.
F.
Broadening of Foundation Ma.nagement
Present law imposes no limit upon the period of time during which
a donor or his family may exercise substantial influence upon the affairs
of a private foundation.
Uhile close donor involvement with a founda-
tion during its early years can provide unique direction for the foundation's activities and infuse spirit and enthusiasm into its charitable
endeavors, these effects tend to diminish with the passage of time, and
are likely to disappear altogether with the donor's death.
On the other
hand, influence by a donor or his family presents opportunities for
private advantage and publiC detriment which are too subtle and refined
for specific prohibitions to prevent; it provides no assurance that the
foundation will receive objective evaluation by private parties who can
terminate the organization if, after a reasonable period of time, it has
not proved itself; and it permits the development of narrowness of view
and inflexibilit J' in foundation management.
Consequently, the Treasury
Department recommends an approach which would broaden the base of foundation management after the first 25 years of the foundation's life.
l1
Under
This recommendation would not prevent foundations from borrowing
mone:,. to carr;;: on their exempt functions.
fA
- 10 -
E.
Financial Transactions Unrelated to Charitable Functions
Private foundations necessarily engage in many financial transactions connected with the investment of their funds.
Experience has,
hovever, indicated that unrestricted foundation participation in three
classes of financial activities which are not essential to charitable
operations or investment programs can produce seriously unfortunate
results.
Some foundations have borrowed heavily to acquire productive assets.
In doing so, they have often permitted diversions of a portion of the
benefit of their tax exemptions to private parties, and they have been
able to swell their holdings markedly without dependence upon contributors.
Certain foundations have made loans whose fundamental motivation
was the creation of unwarranted private ad vantage.
The borrowers, however,
,vere beyond the scope of reasonable and administrable prohibitions on
foundation self-dealing, and the benefits accruing to the foundation's
~snagers
or donors were sufficiently nebulous and removed from the loan
transactions themselves to be difficult to discover, identify, and prove.
Some foundations have participated in active trading of securities or
speculative practices.
The Treasury Department recommends special rules to deal with each
of these three classes of unrelated financial transactions.
First, it
proposes that all borrOwing by private foundations for investment
ff!
_ a _
() evotes the property to acti ve charitable operations, or (c) donor contrc~
over the business or property terminates.
Correlati vely, the recommended
legislation would treat transfers of such interests, made at or before
death, as incomplete for all estate tax purposes unless one of the three
qualifying events occurs within a specified period (subject to limited
extension) after the donor's death.
For the purposes of this rule, con-
trol VTould be presumed to exist if the donor and related parties own 20
percent of the voting power of a corper ation or a 20 percent interest in
an unincorporated business or other property.
This presumption could be
rebutted by a showing that a particular interest does not constitute control.
In determining whether or not the donor and related parties possess
control, interests held by the foundation would be attributed to them
until all of their mill rights in the "business or other underlying property cease.
The Treasury Department has given careful consideration to a modification of this proposal which would postpone the donor's deduction only
iThere, after the contribution, he and related parties control the
business or other underlying property and, in addition, exercise substantial influence upon the foundation to vThich the contri"bution was made.
Such a rule "lTQuld permit an immediate deduction to a donor who transfers
controlled property to a foundation over which he does not have substantial influence.
Analysis of this modification indicates that it
possesses both advantages and disadvantages.
Congressional evaluation
of the matter, hence, vTil1 require careful balancing of the two.
- 8 D.
Family Use of Foundations to Control Corporate and Other
Property
Donors have frequently transferred to private foundations stock of
corporations oyer 'vThich the donor maintains control.
The resulting
relationships among the foundation, corporation, and donor have serious
undesirable consequences which regQire correction.
Similar
probleos arise when a donor contributes an interest in an unincorporated
business) or an undivided interest in property) in which he or related
parties continue to have substantial rights.
In all of these situa-
tions) there is substantial likelihood that private interests '''ill be
preferred at "the expense of charity.
Indeed) each of the three major
abuses discussed thus far ma;;- be presented in acute form here.
here are
sufficientl~-
The problems
intensified) complex) and possessed of novel
ramifications to require a special remedy.
To pro-:ide such a
adoption
o~
remed~)
the Treasux:,' Department recommends the
legislation '.{hich) for gifts made in the future, would
recocnize that the transfer of an interest in a family corporation or
c-sher c::mtrolled. propert:- lacks the finali t:.'- which should characterize
a deductiole charitable ccn-':ribution.
Under this recommendation, where
the :::"0::-:0:.: and. rsla-":'ec par'~ies :aaintain control of a business or other
l?:::>OpC:;:-~~ c..:.'te::- the con~ri;:;u:!:;io::-: 0:' Eill interest in it to a private foun-
dation, no income tax deduction ',lould be penni tted for the gift until
fll
- 7 ncr.etheless be of sufficient magnitude to produce involvement in the
affairs of the business.
Serious difficulties result from foundation commitment to business
endeavors.
Regular business enterprises may suffer serious competitive
disadvantage.
Moreover, opportunities and temptations for subtle and
varied forms of self-dealing -- difficult to detect and impossible
completely to proscribe -- proliferate.
Foundation management may be
dravm from concern with charitable activities to time-consuming concentration on the affairs and problems of the commercial enterprise.
For these reasons, the Report proposes the imposition of an absolute limit upon the participation of private foundations in active
business, whether presently owned or subsequently acquired.
This recom-
mendation would prohibit a foundation from owning, either directly
or through stock holdings, 20 percent or more of a business unrelated
to the charitable activities of the foundation (within the meaning of
section
513).
Foundations would be granted a prescribed reasonable
period, subject to extension, in which to reduce their present or subsequently acquired business interests below the specified maximum limit.
- 6:?L"st) such private f01mdations should be required to devote all
2/
of their net income -
.
to actlve charitable operations (whether con-
ducted b~ themselves or b J' other charitable organizations) on a reasonabl;; current basis.
To afford flexibility) the requirement should be
tempered by a five-year carryforward provision
and a rule permitting
accumulations for a specified reasonable period if their purpose is
clearly designated in advance and accumulation by the foundation is
necessary to that purpose.
Second, in the case of non-operating private foundations which
minimize their regular income by concentrating their investments in
10'.T
yielding assets, an "income equivalent II fonnula should be provided
to place them on a parit;y with foundations having more diversified
portfolios.
This result can be accomplished by requiring that the;y
2/
disburse an amount equal either to actual foundation net income -
or to a
fixed percentage of foundation asset value, whichever is greater.
c.
Hany
Foundation Involvement in Business
private foundations have become deeply involved in the active
conduct of business enterprises.
Ordinarily, the involvement takes the
form of ownership of a controlling interest in one or more corporations
which operate businesses; occasionall;y, a foundation owns and operates
a business
Y
directl~:.
Interests which do not constitute control may
Except long-term capital gains.
- 5 -
Till~ing
note of the disadvantages to charity of permitting
unrestricted accumulations of income, Congress in 1950 enacted
the predecessor of section 504 of the present Internal Revenue
Code, i.fhich denies an organization's exemption for any year in
which its income accumulations are (a) "unreasonable" in
amount or duration for accomplishing its exempt purposes,
(b) used to a "substantial tt degree for other purposes, or (c)
invested in a imy which (~eopardizes )\he achievement of its
1/
charitable objectives. -
The indefiniteness of the section's
standards, hm-lever, has rendered this provision difficult to
apply and even more difficult to enforce.
Two changes in
the law are needed for private foundations which do not
carryon substantial active charitable endeavors of their
own.
!/
Section 681 imposes similar restrictions upon non-exempt
sts . ,-1hich, under section 642( c), claim charitable dedllc~lO~S.ln excess of the ordinary percentage lDnitations on
lndl "lduals' deductible contributions.
::u
(II
_
:::.2:l~ni::;t~!-')
L~
_
!1m'Q to enforce j.n Ii tic;o.tion, and othe:nlise insufficient
to pp~"\ cnt souses.
,:hote-rer minor aclvantages ch8.ri ty ma~T occasionally
deri'ic from the; opportunit'J' for free dealings between fOl.llldations and
donors are too slight to overcome the weight of these considerations.
Consequently, the Report recommends legislative rules patterned on
the total prohibitions of the 1950 House bill.
The effect of this
recoElIl1endation ,{ould, generally, be to prevent private f01mdations
from dealing \lith any substantial contributor, any officer, director,
or trustee of the foundation, or any party related to them, except
to pay reasonable compensation for necessary services and to make incidental purchases of supplies.
B.
Delay in Benefit to Charity
The tax laws grant current deductions for charitable contributions
upon the assumption that the funds "\1ill benefit the public welfare.
This aim can be thwarted when the benefits are too long delayed.
Typi-
cally, contributj.ons to a foundation are retained as capital, rather
than distributed.
',Jhile this procedure is justified by the advantages
. . Thich private foundations can bring to our society, in few situations
is there justification for the retention of income (except long-term
capital gains) b:; foundations over extended periods.
Similarly, the
purposes of charity are not '{ell served when a foundation' s charitable
disburs~ents
are restricted by the investment of its funds in assets
which produce little or no current income.
fA
- 3 -
__ .o~J:: dono"C'::; -,Jho
')ri'-a:~c
.
:);:' iJal:e substantial contributions to a
i'8uno...::,.-tio'-1 ha'-e cnsat.;ecl in other transactions uith the founda-
~
Ol'
crea-r~e
p-:.uchJ.::;eu f:co:n i
-;;~
;'1one~'
:-:3..:-
b~
oorro-,.Jed from it or loaned to it.
l.'hc::::c 'c;rJ.Dso.ct.ion::; o.rc ra~:c:l~ necessar J to the dischare;e of the founda-
-:;:i.on 1::; chcxi '-.able objectives.: on8.
thc~-
c;i':e ri_sc to
vcr~
real danger
oi' c..:i.';ersion oi' founlation asse'cs to p::"i"ate advantage.
,,;o;nizant of this c..angcr: the :Iouse of
~~E:;presentatives
in 1950
apPl'ovcd a oill "hich -,70uld have inpoced. absolute prohibi tione upon
;J.oct :inCllicial interco1..1.rse bct-.lecn foundations and donors or related
pa::'"ics,
0..'18. ~.'hich
-,JQuld. hD.vC seve:cel;y rectricted other such dealings.
=1o'.Ie-;er, the Eleasure finally adopted, -,lhich has been carried vTi thout
rna-::,erial ch2.l1ge into pre::;ent la',7, prohibits onl) loans vlhich do not
tear
0..
"reasona!.:ile" rate of interest and do not have "adequate" secu-
ri t;, "st:csto.ntial" purchases of propert;:,' for more than "adequate"
consic~era-l.:ion,
"sul)stantial" sales of propert)' for less than "adequate"
c::msideration, and ;:;ertain other trm sactions.
Foul--teen
~'ears
of eL-..'"Perience have demonstrated that the impre-
c:isioD of' -':;his statu:,e nal:es the la'" difficult and expensi'fe to
ffl
- 2 -
their o\m bents, concerns, and experience.
pluralism of our social order.
In doing so, they enrich the
EQually important, because their funds
are frequentl: free of commitment to specific operating programs, they
can shift the focus of their interest and their financial support from
one charitable area to another.
They can, hence,
constitute a powetiUl
instrument for evolution, growth, and improvement in the shape and
direction of charity.
B.
Evaluation of General Criticisms of Private Foundations
Three broad criticisms have been directed at private foundations.
It has been contended that the interposition of the foundation between
the donor and active charitable pursuits entails undue delay in the
transmission of the benefits \-Thich societ J should derive from charitable
contributions; that foundations are becoming a disproportionately large
segment of our national economy; and that foundations represent dangerous
concentrations of economic and social power.
Upon the basis of these
contentions, some persons have argued that a time limit should be imposed on the lives of all foundations.
i'-u1alysis of these critiCisms,
howe'/er, demonstrates that the first appears to be susceptible of solution b J a neas~re of specific ~e3ign and limited scope, the second lac~
:;:'actual bQ3is) and the third ic) for the present, beine; amply met by
i'ound.c.tions theLlcel'!es.
,i'.;:;, 2.
consequence, the Treasury Department has
c:)nclu;::'ecJ. "~;1at prolap-c, and ef:':'ect;i'.'e action to end the specific abuses
eJ~tant &~on= i'ounda tioD.s is p::Cc:'e::cccble to a Genel~al liL"l.i tation upon
:::'o'J.-:..::. o:':.ion l-i. ves.
fA
SU·ll·IARY OF REPORT
I.
An Appraisal of Private Foundations
.1hile private foundations have generally been accorded the same
favorable tax treatment granted other philanthropic organizations -exemption from tax and the privilege of receiving donations deductible
by the donors -- previous legislation has placed several special restrictions upon
the~.
To determine whether additional restrictions
are necessary, one must first inquire into the character of the contribution which private foundations make to private philanthropy and
the validity of the general ciriticisms which have been leveled at
them.
A.
Philanthropic Values and Private Foundations
Private philanthropy plays a special and vital role in our society.
Beyond providing for areas into which government cannot or should not
advance (SUCh as religion), private philanthropic organizations can
be uniquely qualified to initiate thought and action, experiment with
ne',,,,, and untried ventures, dissent from prevailing attitudes, and act
quickl:' and flexibly.
Private foundations have an important part in this work.
Available
eyen to those of relativel'y restricted means, they enable individuals
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- 9 -
assets of foundations were represented by common stock.
The
ordinary income of foundations in their tax year ending in 1962
was $580 million.
were $484 million.
In this period aggregate net capital gains
Contributions received were $833 million.
Total grants paid out, including the costs of distributing
grants, were $1,012 million.
- 8 1962.
Apparently, much of this relative growth since 1950
reflects the fact that corporate stock prices have risen
faster than that of other assets.
Private foundations have
large holdings of corporate stock but the share of all corporate
stock owned by foundations has been virtually constant since 1950.
The Treasury survey of foundations covered about 1,300
of the roughly 15,000 private foundations in the United States
in 1962.
The sample included all of the largest private
foundations and the total assets of the foundations studied
made up three quarters of the assets of all private foundations
in 1962.
The survey shows that the market value of the assets of
all private foundations at the end of the tax year 1962 was
$16.3 billion.
The net worth, in terms of market values, was
$15.5 billion.
In terms of current values, two-thirds of the
- 7 Under this proposal, after that time the donor or
related parties could not make up more than 25
percent of the foundation's governing bodyo
In addition to the six maj or recommendations, the Treasury
also recommended measures to meet four less significant problems.
These problems are primarily technical in natureo
The report brings together and evaluates statistical
information on the long-run growth of private foundations as
well as the closely related growth of deductions for charitable
contributions.
It also includes the results of a statistical
survey by the Treasury of the activity of private foundations
in 1962.
This information indicates that the proportion of total
wealth of individuals owned by foundations has increased from
about 0,3 or 0.5 percent in 1930 to about 0085 percent in
-650
In order to meet the problem of ' unrelated financial
transactions" in which a foundation engages in
lending or borrowing not related to its charitable
function or speculation, the Treasury recommends
barring foundations from speculative practice,,;
prohibiting all borrowing by foundations for investment purposes; and confining foundation loans
to those which are clearly necessary, safe, and
appropriate.
6
0
In order to meet the problem of "perpetual donor
influence l l in which a donor or his survivors continue
to exercise substantial influence over the activities
of the foundation indefinitely, the Treasury recommends
broadening the base of foundation management after
the first 1uventy-fi ve years of a foundation I slife.
-5-
20 percent or more of any business, included businesses
operated in corporate form, not related to its charitable
function.
4.
In order to meet the problem of "family use ll of
foundations as devices to transfer control of family
corporations ortther assets to children or other
relatives in such a manner as to avoid the full impact
of gift or estate taxes, the Treasury recoTIll1lends that
hereafter
for gifts of family corporation stock, no
charitable deduction would be allowed until (1)
the
foundation sells the stock or (2) the foundation contributes the stock to a public charity cr (3) the
donor's control over the corporation or asset ended.
Such use of foundations as a device to maintain family
control can create conflicts of interest to the
detriment of charitv.
-4-
charitable putposes.
In order to impose the same
obligation upon those foundations which hold investments producing little or no income, the Treasury
recommends
they be required to maintain expenditures
for charitable purposes at approximately the same
/
level as if they had 1vested their funds in income..
producing assets o
These rules on deferred benefits
apply only to so-called "non-operating" foundations
-- those which make gifts rather than operate an
institution themselves.
3.
In order to meet the problem of "business involvement"
in which foundations become so involved in private
business that free competition may be impaired and
their charitable function hindered, the Treasury
recommends that a foundation not be allowed to own
- 3 -
prohibition on financial transactions between a
foundation and its contributors, officers, directors
or trustees o
20
In order to meet the problem of "deferred benefits",
in which there may be a substantial delay between
the time a foundation or a donor receives a tax
benefit -- either in the form of a deduction for the
donor or an exemption for the foundation -- and when
the foundation actually spends funds for charitable
purposes, the Treasury recommends limiting the period
during "vhich a foundation may withhold its income
from charity.
This would be done by specifying how
soon -- generally one year -- after a foundation receives
net income (exclusive of income from long-term capital
gains) it vJOuld be obliged to spend such income for
- 2 -
HovJever, problems were uncovered among a minority of private
foundations.
These problems are not subject to solution
under present layJ and, therefore, a number of legislative
measures are recommended.
The Treasury does not recommend placing a time limit on
the lives of foundations nor does it feel it is necessary to set
up a separate regulatory agency to oversee foundation activities.
The Treasury proposes changes in present law to solve
six major problems revealed by the study.
A number of less
significant problems are also dealt with.
The six major problems and the proposed solutions are:
1.
In order to meet the problem of "self-dealing" in
\vhich foundation assets may be diverted to private
advantage, the Treasury recommends a general
TREASURY PRESS RELEASE
FOR USE WHEN THE SENATE FINANCE COMMITTEE
OR THE HOUSE WAYS AND MEANS COMMITTEE
PUBLISHES THE TREASURY REPORT ON PRIVATE
FOUNDATIONS.
TREASURY REPORT ON PRIVATE FOUNDATIONS
The Treasury report on private foundations published
today by the Congressional Tax Committees is the result of
more than a year of examination of the impact of present law
on tax-exempt private foundations.
In keeping with the
request for the report from the Senate Finance Committee and
the House Ways and Means Committee, only private foundations
were studied, and the report does not involve public foundations
or other types of publicly supported charities such as schools
and churches.
The Treasury study -- which included a detailed statistical
survey of foundation activities -- showed that the vast majority
of private foundations do not abuse their tax privileges.
COR R E C T ION
--------Treasury Department Release No. 0-1494, dated
February 8, 1965, on "Treasury Report on Private
Foundations", has an error on page 4, first paragraph,
1 ine 3:
The percent in 1962 should read
0.85, NOT .085.
TREASURY DEPARTMENT
February
FOR USE WHEN THE SENATE FINANCE COMMITTEE
OR THE HOUSE WAYS AND MEANS COMMITTEE
PUBLISHES THE TREASURY REPORT ON PRIVATE
FOUNDATIONS.
TREASURY REPORT ON PRIVATE FOUNDATIONS
The Treasury report on private foundations published today
by the Congressional Tax Committees is the result of more than
a year of examination of the impact of present law on tax-exempt
private foundations.
In keeping with the request for the
report from the Senate Finance Committee and the House Ways and
Means Committee, only private foundations were studied, and the
report does not involve public foundations or other types of
publicly supported charities such as schools and churches.
The Treasury study -- which included a detailed statistical
survey of foundation activities -- showed that the vast majority
of private foundations do not abuse their tax privileges.
However, problems were uncovered among a minority of private
foundations.
These problems are not subject to solution under
present law and, therefore, a number of legislative measures are
recommended.
The Treasury does not recommend placing a time limit on
the lives of foundations nor does it feel it is necessary to set
up a separate regulatory agency to oversee foundation activities.
The Treasury proposes changes in present law to solve six
major problems revealed by the study. A number of less
significant problems are also dealt with.
The six major problems and the proposed solutions are:
1.
D-1494
In order to meet the problem of IIself-dealing"
in which foundation assets may be diverted to
private advantage, the Treasury recommends a
general prohibition on financial transactions
between a foundation and its contributors,
officers, directors or trustees.
- 2 2.
In order to meet the problem of "deferred
benefits", in which there may be a substantial
delay between the time a foundation or a donor
receives a tax be~efit -- either in the form of
a deduction for the donor or an exemption for
the foundation -- and when the foundation
actually spends funds for charitable purposes,
the Treasury recommends limiting the period
during which a fo~ndation may withhold its
income from charity. This would be done by
specifying how soon -- generally one year -after a foundation receives net income
(exclusive of income from long-term capital
gains) it would be obliged to spend such
income for charitable purposes.
In order to
impose the same obligation upon those
foundations which hold investments producing
little or no income, the Treasury recommends
they be required to maintain expenditures
for charitable purposes at approximately the
same level as if they had invested their
funds in income-producing assets. These rules
on deferred benefits apply only to so-called
"non-operating" foundations -- those which make
gifts rather than operate an institution
themselves.
3.
In order to meet the problem of "business
involvement" in which foundations become so
involved in private business that free
competition may be impaired and their
charitable function hindered, the Treasury
recommends that a foundation not be allowed
to own 20 percent or more of any business,
included businesses operated in corporate form,
not related to its charitable function.
4.
In order to meet the problem of "family use" of
foundations as devices to transfer control of
family corporations or other assets to children
or other relatives in such a manner as to
avoid the full impact of gift or estate taxes,
the Treasury recommends that hereafter for
- 3 gifts of family corporation stock, no charitable
deduction would be allowed until (1) the
foundation sells the stock or (2) the
foundation contributes the stock to a public
charity or (3) the donor's control over the
corporation or asset ended.
Such use of
foundations as a device to maintain family
control can create conflicts of interest to
the detriment of charity.
5.
In order to meet the problem of "unrelated
financial transactions" in which a foundation
engages in lending or borrowing not related
to its charitable function or speculation, the
Treasury recommends barring foundations from
speculative practices; prohibiting all borrowing
by foundations for investment purposes; and
confining foundation loans to those which are
clearly necessary, safe, and appropriate.
6.
In order to meet the problem of "perpetual
donor influence" in which a donor or his
survivors continue to exercise substantial
influence over the activities of the
foundation indefinitely, the Treasury recommends
broadening the base of foundation management
after the first twenty-five years of a
foundation's life. Under this proposal, after
that time the donor or related parties could
not make up more than 25 percent of the
foundation's governing body.
In addition to the six major recommendations, the Treasury
also recommended measures to meet four less significant problems.
These problems are primarily technical in nature.
The report brings together and evaluates statistical
information on the long-run growth of private foundations as
well as the closely related growth of deductions for charitable
contributions.
It also includes the results of a statistical
survey by the Treasury of the activity of private foundations in
1962.
- 4 This information indicates that the proportion of total
wealth of individuals owned by foundations has increased from
about 0.3 or 0.5 percent in 1930 to about .085 percent in 1962.
Apparently, much of this relative growth since 1950 reflects
the fact that corporate stock prices have risen faster than that
of other assets.
Private foundations have large holdings of
corporate stock but the share of all corporate stock owned by
foundations has been virtually constant since 1950.
The Treasury survey of foundations covered about 1,300 of
the roughly 15,000 private foundations in the United States in
1962. The sample included all of the largest private foundations
and the total assets of the foundations studied made up three
quarters of the assets of all private foundations in 1962.
The survey shows that the market value of the assets of
all private foundations at the end of the tax year 1962 was
$16.3 billion. The net worth, in terms of market values, was
$15.5 billion.
In terms of current values, two-thirds of the
assets of foundations were represented by common stock. The
ordinary income of foundations in their tax year ending in 1962
was $580 million.
In this period aggregate net capital gains
were $484 million. Contributions received were $833 million.
Total grants paid out, including the cost of distributing grants,
were $1,012 million.
(NOTE:
A copy of the introduction to the
Treasury Report is attached.)
UNITED STATES TREASURY DEPARTMENT
REPORT ON PRIVATE FOUNDATIONS
INTRODUCTION
Because of the importance which this nation attaches to private
philanthropy, the federal government has long made generous provision
1/
for tax exemptions of charitable -
organizations and tax deductions
for the contributors to such organizations.
Since the federal tax
laws in this way encourage and, in substantial measure, finance
private charity, it is altogether proper -- indeed, it is imperative
for Congress and the Treasury Department periodically to re-examine
the character of these laws and their impact upon the persons to
which they apply to ensure that they do, in fact, promote the values
associated with philanthropy and that they do not afford scope for
abuse or unwarranted private advantage.
This Report responds to requests by the Committee on Finance of
the United States Senate and the Committee on Ways and Means of the
House of Representatives that the Treasury Department examine the activities of private foundations for tax abuses and report its conclusions
"};/
The terms "charity" and "charitable" are used in their generic
sense in this Report, including all philanthropic activities
upon which the relevant portion of the Internal Revenue Code
of 1954 (section 501 (c) (3» confers exemption. Unless otherwise indicated, all statutory references are to the Internal
Revenue Code of 1954, as amended.
- 2 -
and
112Ve
reco:n:;:cnd~tions.
Loth the ,:;ongress and the l'reasut';y Department
in';estiGated these problem areas in the past.
A major study
rC3ultec. i.n important legislation in 1950, "'hen opportunities for
self-dealine and. the accumulation of income were restricted and,
in addition, the income of feeder organizations and the unrelated
business income of certain classes of organizations were subjected
to tax.
The Revenue Act of 1964 imposed further restrictions on
foundations seeking to qualify as recipients of unlimited charitable
contributions.
HO'wever, the major revisions of 1950 have not been
comprehensively revievled since their enactment.
In its present study,
the Treasury Department has sought to detennine whether existing
legislation has eliminated the abuses with which it was designed to
cope, and whether additional abuses have developed which require
correction by legislative action.
In keeping with the Coneressional requests which prompted it, the
scope of this Report is limited to private foundations.
The discussion
of problems and proposed solutions, thus, is confined to that context.
The restriction of the Report to private foundations does not indicate
any judgment upon whether or not Similar or other types of problems
may exist among other classes of exempt organizations.
For purposes
of this Report, the tenn "private foundation" designates:
(1)
organizations of the t~pe granted tax exemption by section
501 (c) (3) (that is, generally, corporations or trusts formed and
- 3 operated for religious, charitable, scientific, literary, or educational purposes, or for testing for public safety or the prevention
of cruelty to children or animals), with the exception of:
(a)
organizations which normally receive a substantial part of their support from the general
public or governmental bodies;
(b)
churches or conventions or associations of
churches;
(c)
educational organizations with regular faculties, curricula, and student bodies;
(d)
}/
and
organizations whose purpose is testing for
l~/
public safety; -
and (2) non-exempt trusts empowered by their governing instruments to payor permanently to set aside amounts for certain charitable
purposes.
In carrying forward its study, the Treasury Department has conducted an extensive examination of the characteristics and activities
~/
Described in section 503 (b) (3).
1/
Described in section 503 (b) (2).
~/
While organizations within this minor category are exempt
from tax, contributions to them are not deductible; and they
would therefore appear to be more closely analogous to business leagues, social welfare organizations, and similar
exempt groups than to foundations.
- 4 of private foundations.
It has investigated and evaluated the experi-
ence of the InternaJ Revenue Service and the Department of Justice in
the administration of the la\-ls governing the taxation of foundations,
their contributors, and related parties.
Its study has drawn upon
pertinent information assembled in investigations conducted by other
groups.
l./
It has conducted a special canvass of approximately 1300
selected foundations.
From these and other sources, it has compiled
and tabulated a variety of classes of relevant statistical data.
It
has discussed the area with an Informal Advisory Committee on Founda-
6/
tions apPointed by Secretary Dillon. -
It has, further, considered
a broad range of proposals for refonn, extending from remedies narrowly tailored to end specific abuses to sweeping recommendations for
the elimination or restriction of tax exemptions and deductions for
certain classes of foundations.
l./
E.g., SUbcommittee No.1, Select Committee on Small Business of
the House of Representatives, whose chainnan is Representative
\'lright Patman. The reports of the investigations of this subcommittee, entitled "Tax-Exempt Foundations and Charitable Trusts:
Their Impact on Our Economy," have been published in three installments (dated, respectively, December 31, 1962, October 16,
1963, and t1arch 20, 1964) and are hereinafter referred to as
the "Patman Reports." A transcipt of hearings held by the
group in 1964 has been published recently. See "Tax-Exempt
Foundations: Their L"npact on Small BuSiness, If Hearings before
SUbcommittee No.1 on Foundations, b8th Cong., 2d Sess., 1964.
~
This Committee met "lith Treasury officials on several occasions,
and was a valuable source of infonned opinion; but the conclusions and recommendations of this Report are those of the Treasury
Department, and are, of course, based on facts and views drawn
from many additional sources.
- 5The Department's investigation has revealed that the preponderant
number of private foundations perform their functions without tax abuse.
However, its study has also produced evidence of serious faults among a
minority of such organizations.
other problems are also present.
Six major classes of problems exist;
While the Internal Revenue Service has
taken virgorous action in recent years to improve its administration of
7/
the existing laws which govern foundations and their contributors, -
additional legislative measures appear necessary to resolve these problems.
This Report seeks first to place private foundations in general
perspective, by considering the values associated with philanthropy
and the part played by private foundations in realizing those values.
Against this background, it explores the major problems in detail and
8/
presents possible solutions. -
In a separate section it describes
additional problems of less general significance and recommends approaches
9/
to deal with them. -
Appendices present tables of relevant statistics
and other information.
11
Appendix C summarizes the administrative improvements which have
been effected by the Internal Revenue Service.
~
The Report does not deal with the problem of distinguishing between permissible educational activities of foundations and dissemination of propaganda. The distinction is drawn by existing
law. The Internal Revenue Service has been investigating situations
of questionable operations and taking the action appropriate under
presently applicable rules. This program will continue.
2/
The provisions designed to ensure compliance with existing law will
have to be re-examined to determine their a~acy to the task of
securing compliance with the rules proposed in this Report. The
fundamental objective of such provisions should be to make certain
that funds which have been committed to charity and for which tax
benefits have been granted will in fact be devoted to charitable ende.
Also, effective enforcement of the rules recommended here will require
the filing of intormation returns by the organizations to which the
rules apply. Since certain private foundations are not now required to
file such returns, suitable revisions will have to be made in the
relevant provisions of existing law.
~
SUI·fi1A.RY OF REPORT
1.
An Appraisal of Private Foundations
~hile
private foundations have generally been accorded the same
favorable tax treatment granted other philanthropic organizations -exemption from tax and the privilege of receiving donations deductible
by the donors -- previous legislation has placed several special restrictions upon them.
To determine whether additional restrictions
are necessary, one must first inquire into the character of the contribution which private foundations make to private philanthropy and
the validity of the general ciriticisms which have been leveled at
them.
A.
Philanthropic Values and Private Foundations
Private philanthropy plays a special and vital role in our society.
Beyond providing for areas into which government cannot or should not
advance (such as religion), private philanthropic organizations can
be uniquely qualified to initiate thought and action, experiment with
new and untried ventures, dissent from prevailing attitudes, and act
quickly and flexibly.
Private foundations have an important part in this work.
Available
even to those of relatively restricted means, they enable individuals
or small groups of establish new charitable endeavors and to express
- 2 their
O\ffi
bents, concerns, and experience.
Equall~'
pluralism of our social order.
are
frequentl~
In doing so, the:-i enrich the
important, because their fUnds
free of commitment to specific operating programs, they
can shift the focus of their interest and their financial support from
one charitable area to another.
They
can~
hence, constitute a powerful
instrument for evolution, growth, and improvement in the shape and
direction of charity.
B.
Evaluation of General Criticisms of Private Foundations
T.~ree
broad criticisms have been directed at private foundations.
It has been contended that the interposition of the foundation between
the donor and active charitable pursuits entails undue delay in the
transmission of the benefits which societ J should derive from charitable
contributions; that foundations are becoming a disproportionately large
segment of our national economy; and that foundations represent dangerous
concentrations of economic and social power.
Upon the basis of these
contentions, some persons have argued that a time limit should be imposed on the lives of alJ foundations.
Analysis of these criticisms,
however, demonstrates that the first appears to be susceptible of solution b J a measure of specific
~ezign
and limited scope, the second lacks
factual bo.3is, and the third is, for the present, beine; amply met by
foundations themsel'fez.
1.5
Q
conseCluence, the Treasury Department has
concluded that prompt and effective action to end the specific abuses
extant amons foundations is prefemble to a General limitation upon
fo~~dation
lives.
- 3 II.
Major Problems
The Trea:mry Department' s
the existence of six
stud~;,
cate~ories
of private foundations has revealed
of major
proole~s.
~elf-dealing
n.
~ome
donors who create
OY mcl~e
substantial contributions to a
private foundation have engaGed. in other transactions .lith the foundation.
Property may be rented to or from it; assets
or p'J.rchased from it;
These transactions are
mone~·
ma~i
be sold to it
nay be borro·wed from it or loaned to it.
ral'el~
necessary to the discharge of the founda-
tion's charit.able objectives; and they give rise to ver:' real danger
of diversion of foundation assets to private advantage.
Cognizant of this danger) the House of Representatives in 1950
approved a bill which would have imposed absolute prohibitions upon
:nost financial intercourse
bet~,-leen
foundations and. donors or related
parties, and Vlhich would have severely re3tricted other such dealings.
lIowever, the measure finally adopted) \.hich has been carried vTi thout
material change into present 1m., prohibits only loans which do not
bear a "reasonable" rate of interest and do not have "adequate" security, "substantial" purchases of property for more than "adequate"
conSideration, "substantial" sales of property for less than "adequate"
consideration, and certain other transactions.
Fourteen years of experience have demonstrated that the imprecision of this statute makes the law difficult and expensive to
- 4 administer, hard to enforce in litigation, and otherwise insufficient
to prevent abuses.
Hhatever minor advantages charity may occasionally
derive from the opportunity for free dealings between foundations and
donors are too slight to overcome the weight of these considerations.
Consequently, the Report recommends legislative rules patterned on
the total prohibitions of the 1950 House bill.
The effect of this
recommendation would, generally, be to prevent private fOlUldations
from dealing \-lith any substantial contributor, any officer, director,
or trustee of the foundation, or any party related to them, except
to pay reasonable compensation for necessary services and to make incidental purchases of supplies.
B.
Delay in Benefit to Charity
The tax laws grant current deductions for charitable contributions
upon the assumption that the fUnds vTi1l benefit the public welfare.
This aim can be thwarted when the benefits are too long delayed.
Typi-
cally, contributions to a foundation are retained as capital, rather
than distributed.
While this procedure is justified by the advantages
which private foundations can bring to our society, in few situations
is there justification for the retention of income (except long-term
capi tal gains) by foundations over extended periods.
Similarly, the
purposes of charity are not well served when a foundation's charitable
disbursements are restricted by the investment of its funds in assets
which produce little or no current income.
- 5 -
Taking note of the disadvantages to charity of permitting
unrestricted accumulations of income, Congress in 1950 enacted
the predecessor of section 504 of the present Internal Revenue
Code, which denies an organization's exemption for any year in
which its income accumulations are (a) lIunreasonablell in
amount or duration for accomplishing its exempt purposes,
(b) used to a "substantial" degree for other purposes, or (c)
(C
))
invested in a way which jeopardizes the achievement of its
1/
charitable objectives. -
The indefiniteness of the section's
standards, however, has rendered this provision difficult to
apply and even more difficult to enforce.
Two changes in
the law are needed for private foundations which do not
carry on substantial active charitable endeavors of their
own.
Section 681 imposes similar restrictions upon non-exempt
trusts which, under section 642(c), claim charitable deductions in excess of the ordinary percentage IDnitations on
individuals' deductible contributions.
- 6
~
First, such private f01ll1dations should be required to devote all
of their net income
~I
to active charitable operations (whether con-
ducted by themselves or by other charitable organizations) on a reasonably current basis.
To afford flexibility, the requirement should be
tempered by a five-year carryforward provision
and a rule permitting
accumulations for a specified reasonable period if their purpose is
clearly designated in advance and accumulation by the foundation is
necessary to that purpose.
Second, in the case of non-operating private foundations which
minimize their regular income by concentrating their investments in
low yielding assets, an "income equivalent" fonnula should be provided
to place them on a parity with foundations having more diversified
portfolios.
This result can be accomplished by requiring that they
2/
disburse an amount equal either to actual foundation net income -
or to a
fixed percentage of foundation asset value, whichever is greater.
c.
Foundation Involvement in Business
Many private foundations have become deeply involved in the active
conduct of business enterprises.
Ordinarily, the involvement takes the
form of ownership of a controlling interest in one or more corporations
which operate businesses; occasionally, a foundation owns and operates
a business directly.
~
Interests which do not constitute control may
Except long-term capital gains.
- 7 nonetheless be of sufficient magnitude to produce involvement in the
affairs of the business.
Serious difficulties result from foundation commitment to business
endeavors.
Regular business enterprises may suffer serious competitive
disadvantage.
Moreover, opportunities and temptations for subtle and
varied forms of self-dealing -- difficult to detect and impossible
completely to proscribe -- proliferate.
Foundation management may be
drawn from concern with charitable activities to time-consuming concentration on the affairs and problems of the commercial enterprise.
For these reasons, the Report proposes the imposition of an absolute limit upon the participation of private foundations in active
business, whether presently owned or subsequently acquired.
This recom-
mendation would prohibit a foundation from owning, either directly
or through stock holdings, 20 percent or more of a business unrelated
to the charitable activities of the foundation (within the meaning of
section
513).
Foundations would be granted a prescribed reasonable
period, subject to extension, in which to reduce their present or subsequently acquired business interests below the specified maximum limit.
- 8 D.
Family Use of Foundations to Control Corporate and Other
Property
Donors have frequently transferred to private foundations stock of
corporations over which the donor maintains control.
The resulting
relationships among the foundation, corporation, and donor have serious
undesirable consequences which
re~ire
correction.
Similar
problems arise when a donor contributes an interest in an unincorporated
business, or an undivided interest in property, in which he or related
parties continue to have substantial rights.
In all of these situa-
tions, there is substantial likelihood that private interests will be
preferred at the expense of charity.
Indeed, each of the three major
abuses discussed thus far may be presented in acute form here.
The problems
here are suffiCiently intensified, complex, and possessed of novel
ramifications to require a special remedy.
To provide such a remedy, the TreasurJ Department recommends the
adoption of legislation which, for gifts made in the future, would
recognize that the transfer of an interest in a family corporation or
other controlled property lacks the finality which should characterize
a deductible charitable contribution.
Under this recommendation, where
the donor and related parties maintain control of a business or other
propertJ" after the contribution of an interest in it to a private foundation, no income tax deduction would be permitted for the gift until
(a) the foundation disposes of the contributed asset, (b) the foundation
- 9 devotes the property to active charitable operations, or (c) donor control
over the business or property terminates.
Correlatively, the recommended
legislation would treat transfers of such interests, made at or before
death, as incomplete for all estate tax purposes unless one of the three
qualifying events occurs within a specified period (subject to limited
extension) after the donor's death.
For the purposes of this rule, con-
trol would be presumed to exist if the donor and related parties own 20
percent of the voting power of a corpcration or a 20 percent interest in
an unincorporated business or other property.
This presumption could be
rebutted by a showing that a particular interest does not constitute control.
In determining whether or not the donor and related parties possess
control, interests held by the foundation would be attributed to them
until all of their own rights in the business or other underlying property cease.
The Treasury Department has given careful consideration to a modification of this proposal which would postpone the donor's deduction only
where, after the contribution, he and related parties control the
business or other underlying property and, in addition, exercise substantial influence upon the foundation to which the contribution was made.
Such a rule would permit an immediate deduction to a donor who transfers
controlled property to a foundation over which he does not have substantial influence.
Analysis of this modification indicates that it
possesses both advantages and disadvantages.
Congressional evaluation
of the matter, hence, will require careful balancing of the two.
- 10 -
E.
Financial Transactions Unrelated to Charitable Functions
Private foundations necessarily engage in many financial transactions connected with the investment of their funds.
ho,rever, indicated that unrestricted
fo~ndation
Experience has,
participation in three
classes of financial activities which are not essential to charitable
operations or investment programs can produce seriously unfortunate
results.
Some foundations have borrowed heavily to acquire productive assets.
In doing so, they have often permitted diversions of a portion of the
benefit of their tax exemptions to private parties, and they have been
able to swell their holdings markedly without dependence upon contributors.
Certain foundations have made loans whose fUndamental motivation
was the creation of unwarranted private advantage.
The borrowers, howeverj
were beyond the scope of reasonable and administrable prohibitions on
foundation self-dealing, and the benefits accruing to the foundation's
~lagers
or donors were suffiCiently nebulous and removed from the loan
transactions themselves to be difficult to discover, identify, and prove.
Some foundations have participated in active trading of securities or
speculative practices.
The Treasury Department recommends special rules to deal with each
of these three classes of unrelated financial transactions.
First, it
proposes that all borrowing by private foundations for investment
- 11 -
1/
purposes be prohibited. -
Second, it recommends that foundation loans
be confined to categories which are clearly necessary, safe, and appropriate for charitable fiduciaries.
Third, it proposes that foundations
be prohibited from trading activities and speculative practices.
F.
Broadening of' Foundation Ha.n..a.gement
Present law imposes no limit upon the period of time during which
a donor or his family may exercise substantial influence upon the affairs
of a private foundation.
While close donor involvement with a founda-
tion during its early years can provide unique direction for the foundation's activities and infuse spirit and enthusiasm into its charitable
endeavors, these effects tend to diminish with the passage of time, and
are likely to disappear altogether with the donor's death.
On the other
hand, influence by a donor or his family presents opportunities for
private advantage and public detriment which are too subtle and refined
for specific prohibitions to prevent; it provides no assurance that the
foundation will receive objective evaluation by private parties who can
terminate the organization if, after a reasonable period of time, it has
not proved itself; and it permits the development of narrowness of view
and inflexibility in foundation management.
Consequently, the Treasury
Department recommends an approach which would broaden the base of foundation management after the first 25 years of the foundation's life.
-1/
This recommendation would not prevent foundations from borrowing
money to carry on their exempt functions.
Under
- 12 -
this proposal, the donor and related parties would not be permitted to
constitute more than 25 percent of the foundation's governing body
after the expiration of the prescribed period of time.
Foundations
which have now been in existence for 25 years would be per.mitted to
continue subject to substantial donor influence for a period of from
five to ten years from the present time.
III.
Additional Problems
Review of the practices of private foundations and their contri-
butors discloses the existence of several problems which have less
general significance than those discussed in Part II of the Report.
?art III of the Report draws the following conclusions about these
problems:
A.
Gifts to private foundations of certain classes of unproduc-
tive property should not be deductible until the foundation sells the
property, makes it productive, applies it to a charitable activity,
or transmits it to a charitable organization other than a private
foundation.
B.
Charitable deductions for the contribution; to private founda-
tions of section 306 stock (generally, preferred stock of a corporation
whose common stock is owned by the donor) and other assets should be
reduced by the amount of the ordinary income which the donor would
have realized if he had sold them.
- 13 •
C.
Refonns of a technical nature should be made in certain estate
tax provisions which govern tax incidents of contributions to private
foundations.
D.
A sanction less severe than the criminal penalty of existing
law should apply for the failure to file a return required of a private
foundation.
*
*
*
*
*
*
*
These Treasury Department proposals are based upon a recognition
that private foundations can and do make a major contribution to our
society.
The proposals have been carefully devised to eliminate sub-
ordination of charitable interests to personal interests, to stimulate
the flow of foundation funds to active, useful programs, and to focus
the energies of foundation fiduciaries upon their philanthropic functions.
The recommendations seek not only to end diversions, distractions,
and abuses, but to stimulate and foster the active pursuit of charitable
ends which the tax laws seek to encourage.
Any restraints which the
proposals may impose on the flow of fUnds to private foundations will
be far outweighed by the benefits which will accrue to charity from
the removal of abuses and from the elimination of the shadow which the
existence of abuse now casts upon the private foundation area.
TRrJl.SURY DEPARTMENT
STATEHENT OF THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE THE
SENATE COMMITTEE ON FOREIGN ReLATIONS
ON INCREASING THE RESOURCES OF
THE FUND FOR SPECIAL OPERATIONS OF THE
INTER-AMERICAN DEVELOPMENT BA1~
FEBRUARY 5, 196) - 10:00 A.M.
Mr. Chairman and Members of the Committee:
I welcome this opportunity to appear before your Committee
in support of the proposed expansion in the resources and
responsibilities of the Fund for Special Operations (FSO) of
the Inter-American Development Bank (IDB).
Adoption of this
proposal would be another important step forward in United
States support for the Bank -- and for the Alliance for Progress.
President Johnson in his recent Budget and Foreign Aid Messages
to Congress urged early and favorable action on the legislation
before you.
This legislation would authorize the Secretary of the
Treasury as U.S. Governor of the IDB to vote in favor of an
increase equivalent to $900 million in the resources of the
FSO and would authorize the appropriation without fiscal year
limitation of $750 million as the U.S. share of this increase.
The payments would be made in three annual installments, of
$250 million each, in fiscal 1965, 1966 and 1967 and would be
D-1495
- 2 in the form of
d
letter of credit rather than cash.
ScDDrate
appropriation legislation would be sought for each year's
payment.
The Latin American member s of the IDB \-,7ould contribute
$50 million a year in their o\m currencies.
Increased U.S. participation in the fSO under this
proposal would be in lieu of any further contributions to the
Social Progress Trust Fund.
The National Advisory Council on International Monetary
and Financial Problems has considered this proposal and has
issued a Special Report strongly recommending Congressional
approval.
Copies of the Report are before you.
Background of the Proposal
I ",,"ould like to recall briefly, Hr. Chairman, the history
and structure of the Inter-American Development Bank and
the scope of the United States' participation in this institution
and its activities.
The lOB came into legal existence on
December 30, 1959 and began operations in the fall of 1960.
Eventhough the lOB was established prior to the Act of Bogota
and the Charter of Punta del Este, it has become the key link
in the emerging pattern of close cooperation between the United
States and the Latin l-i.meri can republics.
It is lithe Bank of
the Alliance" and is clearly fulfilling this role with great
- 3 -
success.
As the principal financial institution of the Inter-
American system, the IDB constitutes one of the most essential
operating elements of our concerted drive toward economic and
social development in Latin America.
All of the countries of
Latin America are members of the IDB, with the sole exception
of Cuba, which is no longer eligible to join.
The Bank has up to now carried on its financing operations
through three "windows."
The first of these, Ordinary Capital,
provides development funds on conventional terms in much the
same manner as the World Bank.
It commenced operations with
governmental subscriptions but now obtains its funds from
private financial markets in the same manner as does the World
Bank.
The second Ilwindow" of the Bank is its Fund for Special
Operations, designed to offer financing where, for balance of
payments or other reasons lending on conventional terms is not
appropriate.
The FSO's loans on easy repayment terms are made
entirely from resources provided by the United States and the
Latin American members of the Bank.
In addition, since mid-196l
the Bank has acted as Administrator of the Social Progress
Trust Fund (SPTF), which amounts to $525 million, all of which
has been provided by the United States.
Loans from the SPTF
are repayable on easy terms and are made for four important
areas of
~cial
development -- water supply and sanitation,
- 4 advanced education, housing, and land settlement and improved
land use.
It is with the second of these windows, the Fund for
Special Operations, that we are concerned today.
The initial
resources of the FSO amounted to $146 million, of which the
United States provided $100 million and the Latin American
countries provided $46 million.
In 1963, as an interim measure,
the member governments agreed on a $73 million increase in FSO
resources, $50 million from the United States and $23 million
from the Latin American members.
Thus the total resources of
the FSO now amount to $219 million, of which the United States
has contributed $150 million.
Payment of these contributions
by members was made one-half in U.S. dollars and one-half in
national currency -- which in our case meant that our entire
contribution was in dollars.
All installments have been fully
paid by all member countries.
By December 31, 1964, $171 million of FSO resources had
been committed for loans and technical assistance.
Further, the
management of the Bank estimates that the remainder of the Fund's
resources, approximately $48 million, will be fully committed
in the next few months.
By December 31, 1964 only $75 million
remained uncommitted for loans from the SPTF and it is also expected
to be fully committed in the near future.
- 5 -
Reasons for the Proposal
After approximately two years of operations with its
three windows, the IDB's Board of Governors concluded that
the Bank had reached a point in its development at which it
would be appropriate to consider the simplification and
strengthening of its structure.
Moreover, it was evident
that the scope and importance of the financing operations
carried on by the Bank on an easy repayment basis would soon
require major additions to the amount of capital available
for these purposes.
Accordingly, at the Fourth Annual Meeting
in Caracas, Venezuela, in April 1963, the Governors asked
the Executive Directors to prepare a study of the future
relationships of the FSO to other activities of the Bank and
of the sufficiency of the Fund's resources.
At the Annual Meeting held in Panama in April 1964, the
Executive Directors reported to the Governors recommending an
expansion of the resources of the FSO and a broadening of its
functions to include those previously carried on by the SPTF.
The recommendation assumed that, concurrent with the expansion
of the FSO, the United States would discontinue further
contributions to the SPTF.
I have made it clear to the other
Governors that this would in fact be the case.
Thus, the
Bank's existing three windows would be reduced to two.
One -- the
On!~
r1.::>rj
~C\pi ~al,
6
~.
obt3ining its funds In the private capital
n,t'rkc :.S - - ',)vuld make loans on conventional repayment terms;
thE o:...her -- t~le FSO, obtaining its funds from member contributions
-- uOli.:.. d
~vould
make loans on easy repayment terms.
This arrangement
be c; ui te similar to that 0 f tlle lVJor ld Bank and IDA.
The advanta2e
of such a consolidation of functions within
c'
the Bank is readily apparent.
efficient and economical.
Administration wiLL be more
The pattern of loan terms offered by
the Bank will be more uniform, and the countries borrowing from
the Bank will find that loan procedures are simpler and more
understandable.
From the United States point of view, the
expansion of the FSO to include the functions of the SPTF -and the termination of further contributions to the SPTF -means tllst funds hitherto provided entirely by the United
States will hereafter be provided in part by the Latin
American countries.
Under the proposal of the Executive Directors, which the
Ba~k's
Governors have unanimously referred to their governments
for appropriate legislative action, the member governments of
2:he Bank \Jould contribute $300 million per year to the FSO
in their
o,;~n
t1ational currencies in each of the fiscal years
1965, 1356 and 1967.
The United States share of this annual
contribution hould be $250 million.
The Latin American members
- 7 of the Bank would contribute $50 million each year in their
own national currencies.
For comparison purposes the combined totals of past
contributions to the FSO and SPTF have been as follows (in
millions of dollars) :
Calendar Year
1961-62
1963
1964
United States
Other Countries
$494
$46
181
23
o
o
1961 and 1962 are lumped together since the United States
made a contribution of $394 million to the SPTF in 1961 witn
tne understanding that it would cover both 1961 and 1962.
Contributions that had originally been planned for 1963 were
actually approved the the Congress -- and the resources made
available to the Bank -- in January 1964.
From these totals it can be seen that the $250 million
annual contribution proposed for the United States closely
approximates our annual contributions in 1961 and 1962 and
exceeds our 1964 contribution by 38 percent.
On the other hand,
the contributions by the Latin American countries will be more
than twice their previous annual contributions.
In considering the need for funds to be lent on easy
repayment terms, the Bank's Board of Executive Directors has
taken account of Latin America's minimum needs for external
- 8 funds to implement the Charter of Punta del
~ste,
of the
development programs which have been prepared by individual
countries, of the magnitude and types of loan applications and
inquiries made to the Bank, and of the Bank's capacity for
processing loan applications and controlling disbursements.
The Bank has also taken account of the balance-of-payments
and external debt problems of Latin America and the continuing
need -- as borne out by the experience of other lending
institutions -- for credit on special terms such as can be
offered by the FSO.
Taking account of these varied considerations,
the Bank regards a lending level equivalent to $300 million a
year, for loans on easy repayment terms, as desirable and
feasible in order for it to meet its minimum responsibilities
under the Alliance for Progress.
With the combined availabilities of the FSO and the SPTF
the Bank succeeded in achieving almost a $250 million annual
lending rate in the year 1962.
With the resources now being
proposed, the Bank will be able to reach and to maintain a
slightly higher lending level.
Moreover, with the assured
availability of funds for a three-year period, the Bank will
be able to avoid sharp year to year variations in the level
of lending -- such as have occurred over the past few years
- 9 -
because of uncertainities in the timing and amount of new
funds provided to the FSO and SPTF.
Loans from the two funds
aggregated $164 million in 1961, rose to $246 million in 1962,
fell to $80 million in 1963, and rose to $135 million in 1964.
It seems clear that the efficiency of the Bank's operations
and its relationships with borrowers would be greatly improved
by the approval of the three-year program now proposed.
Proposed Operations of the Expanded FSO
The operations of the expanded FSO will follow closely
many of the patterns and practices successfully established
in the past by the separate operations of the FSO and the SPTF.
The expanded FSO will continue to provide essential financial
assistance for high-priority development projects in the
economies of the Latin American members of the IDB.
I do not
anticipate any diminution in the importance which the Bank
attaches to lending for essential social purposes.
The type
of projects which will be financed include -- in addition to
such basic projects as roads, dams, water facilities and
industrial development projects -- programs in the fields of
low-income housing, improved land utilization, land settlement
schemes, and agricultural credit programs.
It is also expected
that the Bank through the FSO will furnish assistance for the
expansion of higher education facilities in Latin America by
- 10 making loans to provide for the construction and equipment of
facilities at universities and technical institutions.
These
loans will provide training in the technical and managerial
skills so desperately needed if Latin America is to achieve
meaningful development of its society and resources.
Technical
assistance loans and the financing of studies of basic sectors
of the economy will also be provided.
In its administration of the proposed expanded FSO, the
Bank will continue to take into account the institutional
improvements which the borrowing country is undertaking, the
specific steps initiated to achieve the success of the project
proposed for financial assistance from the FSO, the extent to
which local contributions are made available for financing the
project, and, lastly but perhaps most important of all, Mr.
Chairman, the extent and effectiveness of the over-all selfhelp practices of the borrower in conformity with the principles
established by the Charter of Punta del Este.
Through institutional arrangements in the Bank initiated
last year, a senior official advises the President of the Bank
on the formulation and review of development objectives,
policies, plans and programs.
This official -- who is a United
States citizen -- and his staff serve as the Bank's liaison
~-rith the Inter-American Alliance for Progress Committee (ClAP)"
- 11 the important new organ of Inter-American economic cooperation.
This advisory office is coordinating the effective programming
of the Bank's resources, and maintains close contact with other
sources of foreign capital, including our own AID administration.
The Bank's efforts to program its resources to achieve maximum
results will be greatly assisted by the assured availability
of funds for a three-year period, as now proposed.
Turning now, Mr. Chairman, to questions of operational
procedure, there are two matters I would like to review briefly
with you.
FSO.
First, the question of loan terms for the expanded
The Resolution to be voted on by the Board of Governors
of the IDB does not specifically state the terms on which
future loans from the expanded FSO are to be made.
The
Resolution states, however, that the Board of Executive
Directors of the IDB rlin establishing financing policies for
the (FSO) shall take into consideration the policies which have
guided the operations of the Social Progress Trust Fund.1l
On loans made by the SPTF interest rates of from 2 to
3-1/2 percent have been applicable, depending upon the nature
of the project.
Maturities have been from 20 to 30 years
including a grace period with repayment of principal and interest
- 12 in the currency of the borrower, but with provision for
maintenance of value and with optional payment in U.S. dollars.
TIle interest rates I have mentioned include a 3/4 percent per
annum service charge which is payable in U.S. dollars.
FSO
loans have been made on basically similar terms although the
interest rate has usually been 4 percent and there is no
separate service charge.
In a number of instances, loans
made by the FSO have required repayment in the currencies
lent, but the recent trend of loans has been in favor of
allowing repayment in the currency of the borrower.
These terms have applied because of the very nature of
the funds and the purposes to ,vhich they are being devoted,
and of the special needs of the countries concerned.
light of the Governor's resolution, I
~~u1d
In the
generally expect
that loans from the expanded FSO will be repayable in the
currency of the borrower with provisions requiring ma.intenance
of value and with maturities ranging from 20 to 30 years.
Interest would also be payable in the currency of the borrower
and would be between 2-1/4 and 3-1/4 percent.
In addition,
there would be a service charge of 3/4 of 1 percent, payable
in dollars.
- 13 -
The second matter I wish to review is the question of
procurement policy.
Previous U.S. contributions to the FSO
have been available for world-wide procurement, while U.S.
contributions to the SPTF were available only for U.S.
procurement or procurement in othei member countries of the
IDB.
Under this new proposal, the U.S. contribution to the
expanded FSO will be availaae on the same basis as the SPTF
procurement in the past, that is, only for the purchase of
goods and services in the United States or from the country
of the borrower; or in some cases, from other member countries
of the Bank if such a transaction would be advantageous to
the borrower.
On the basis of past experience with the SPTF
this would mean that \vell over 80 percent of future U.S.
contributions to an expanded FSO would be utilized to finance
U.S. exports.
Effect of Proposal on the U.S. Balance of Payments
This leads us directly to the matter of the effect of
this proposal upon the balance-of-payments position of the
United States.
As I have indicated earlier, the entire U.S.
contribution to the expanded resources of the FSO will be in
the form of a letter of credit rather than cash and consequently
- 14 will have no immediate impact upon our balance of payments.
The letter of credit will be drawn on only later by the
Bank as funds are required for disbursement.
Consequently,
the ba1ance-of-payments impact of these transactions will
not be reflected in our international accounts until the
cash is paid over to the Bank -- well after tme funds have
been appropriated.
And when the ba1ance-of-payments effect
is felt, the fact that over 80 percent of the expenditures
from the FSO will be made in the United States will mean that
the impact of our contribution will be minimal.
I should add that the letter of credit procedure is
somewhat different from the form of non-interest bearing
notes used in the past.
Now, after each installment is
appropriated by the Congress, we would make that year's amount
available to the Bank in the form of a letter of credit.
This
procedure is bcing increasingly adopted in connection with
major domestic federal programs.
As in other cases, this
procedure will bring budgetary expenditures under the program
more closely into line with actual use of the funds by FSO.
Existing non-interest bearing notes would, of course, be
unaffected.
- 15 Relationship to U.S. Bilateral Aid Policies
Both the manner in which the proposed contribution to
the expanded FSO will be utilized, and the over-all policies
of the IDB are fully in accord with the major policy guidelines established by Congress for the U.S. bilateral aid
program.
The availability of funds in the expanded FSO for
the furtherance of Alliance objectives will be fully taken
into account in the preparation of U.S. bilateral economic
assistance programs to Latin American nations, as is the
availability of funds from other international lending agencies.
No funds to be provided to the expanded FSO will be available
to Communist bloc countries, as membership in
th~
IDB is
limited to Latin American nations, and Cuba has never joined
the Bank and is no longer eligible for membership.
With
respect to the expropriation of private property without
compensation, it should be noted that in no case has it been
necessary to invoke the "Hickenlooper Amendment" in Latin
America requiring the suspension of U.S. assistance.
If
circumstances should arise requiring such measures by the
United States, parallel action could easily be taken in the
Fund for Special Operations, since the U.S. vote of 42 percent
- 16 is necessary to obtain the two-thirds majority that is
required for favorable consideration of any loan made by
the Fund for Special Operations.
Proposed Legislative Action
The proposed legislation for which favorable Committee
action is requested would:
(1) authorize the Secretary of
the Treasury as U.S. Governor of the IDB to vote infuvor of
the Resolution calling for a $900 million increase in the
resources of the FSO and, upon adoption of the Resolution by
the Board of Governors, to agree on behalf of the United
States to a subscription of $750 million in accordance with
the terms of the Resolution, and (2) authorize the appropriation
without fiscal year limitation of $750 million to be committed
in three equal installments.
Need for Prompt Action
It had originally been expected that the increase would
take effect on December 31, 1964.
This date has now been
missed and prompt action is necessary, as otherwise the Bank
will be out of funds for these important programs after next
April.
Further delay on the part of the United States would
not only be disruptive to the essential operations of this
key institution of the Alliance for Progress, but would also
- 17 -- justifiably, I think -- give rise to the feeling on the
part of the Latin American members of the Bank that the
United States was failing to meet the reasonable expectation
of financial support for the Bank compatible with our oft
expressed support for the Alliance for Progress.
President
Johnson stressed the need for prompt action in his Foreign
Aid Message to the Congress on January 14.
He said:
liTo strengthen multi-national aid, and
further to strengthen the Alliance for Progress,
I urge the Congress promptly to approve the threeyear authorization of $750 million which constitutes
the United States contribution to the Fund for
Special Operations of the Inter-American Development
Bank. II
The President re-emphasized this in his Budget Message of
January 25.
By the terms of the Resolution adopted at the meeting
of the Bank's Governors in Panama in April of last year, the
proposal cannot come into effect unless and until the United
States acts.
The Resolution provides that the agreement to
increase the Bank's resources will only become effective after
fourteen countries ''lith shares in the increase amounting to
$860 million of the $900 million total have completed action
to approve the increase.
Eighteen of the other nineteen
- 18 countries have already taken the necessary action and all
that is now necessary is action by the United States.
Conclusion
In conclusion, Mr. Chairman, I ,..lould like to reiterate
that the Inter-American Development Bank is a vital part of
the financial structure of the Alliance for Progress.
There-
fore, it is most important that the Bank have not only
adequate resources, but also the structure most suitable to
accomplish the tasks facing it.
The administrative advantages
of simplifying the Bank's structure through consolidation of
the operations of the FSO and the SPTF are clear.
The
boundaries between lending for social development and lending
for economic development are indistinguishable and, therefore,
provide no reason to continue the maintenance of separate
financing sources which are inseparable in practice.
The FSO's resources will be exhausted very shortly and
are in need of replenishment.
The resources of the SPTF are
also nearing imminent exhaustion.
This provides a desirable
opportunity to terminate further contributions to the Social
Progress Trust Fund and to make future contributions only to
an expanded Fund for Special Operations.
The proposed U.S.
contribution of $250 million per year for the three years
- 19 1965, 1966 and 1967 will permit the Inter-American Bank to
finance a level of lending on easy repayment terms which is
appropriate to fulfill Alliance objectives and necessary if
these objectives are to be met.
The IDB and the Alliance for Progress are moving forward;
the self-help concept is taking hold.
Moreover, we have, in
the Inter-American Committee for the Alliance for Progress
(ClAP), the institutional framework within which basic problems
can be faced and resolved.
Expansion of the Fund for Special
Operations will sustain and reinforce the forward momentum
that is starting to change the face of the other American
Republics.
I strongly urge the Committee and the Congress to
take forward-looking action on the proposal before you.
Thank you, Mr. Chairman.
Annex 1
STATUS OF FUNDS IN FSO AND SPTF
AS OF DECEMBER 31, 1964
Local
Total
184.5
34.5
219.0
146.5
24.4
170.9
38.0
10.1
48.1
$
FSO
--rotal resources contributed
Against which,
loan commitments
through 12/31/64
Balance available
for commitment
SPTF
Total resources contributed
Against which,
loan commitments
through 12/31/64
Balance available
for commitment
Combined FSO/SPTF
Total resources contributed
Against which,
loan commitments
through 12/31/64
Balance available
for commitment
Less minimum reserve
for contingencies
Less estimated net amount
of dollars utilized for
administrative expenses and
technical assistance
Balance available for
commitment
525.0
525.0
450.0
450.0
75.0
75.0
709.5
34.5
596.5
24.4
113.0
10.1
123.1
25.0
2.0
27.0
7.0
7.0
81.0
8.1
89.1
* * * * * *
Projected annual lending rate
250
50
300
Projected monthly lending rate
21
4
25
Estimated number of months beyond
Dec. 1964 for which lending
could be maintained at projected
rate with present resources
Approx. 4 Approx. 2
(i.e.,
(i.e.,
through
through
April '65)Feb. '65)
Approx. 3
(Le.,
through mic
March '65)
Annex 2
INTER-AMERICAN DEVELOPMENT BANK
Summary of Loans Approved
through December 31,1964
(in millions of dollars)
1961
1962
1964
-
-Approved loans:
1963
Cumulative
to date
11
Ordinary Resources
122.9
79.1
178.6
164.0
544.6
Fund for Soecia1
Operations
47.2
41.8
32.5
49.4
170.9
Social Progress
Trust Fund
112. 1
204.9
47.1
-
85.9
450.0
TOTAL
282.2
325.8
258.2
299.3
1,165.5
159.3
246.7
79.6
135.3
620.9
.,', -k "k ·k "';'\
~'~
Fso/sPTF Combined
11 Net of cancellations
NOTE:
Totals may not add due to rounding
TREASURY DEPARTMENT
(
FOR RELEASE A.M. NEWSPAPERS,
Tuesday, February 9, 1965.
February 8,
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
TI!\..~ Treasury Department announced last evening that the tenders for two series 01
Treasury bills, one series to be an additional issue of the bills dated November 12, .
1964, and the other series to be dated February 11, 1965, which were offered on
February 3, were opened at the Federal Reserve Banks on February 8. Tenders were
invited for $1,200,000,000, or thereabouts, of 91-day bills and for $l,OOO,OOO,~, ~
thereabouts, of 182-day bills. The details of the two series are as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing May 13, 1965
Price
Approx. Equiv.
Annual Rate
3.893%
99.016 Y
3.913%
99.011
99.013
3.903%
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
£I.
'C/
Y
Annual Rate
97.990
97.983
97.984
Y
a/Excepting two tenders
percent of the amount
31 percent of the amount
TOTAL TENDERS APPLIED FOR AND
12
182-day Treasury bills
maturing August 12, 196,
Price
Approx. EqUi,
3.976%
3.990%
3.987%
Y
totaling $365,000
of 91-day bills bid for at the low price was accepted
of l82-day bills bid for at the low price was accepted
ACCEPTED BY FEDERAL RESERVE DISTRICTS:
AEElied For
$ 32,900,000
1,590,168,000
24,791,000
26,687,000
12,367,000
43,071,000
280,248,000
43,005,000
23,949,000
32,761,000
30,003,000
101,743,000
$2,24l,693,000
Acce;eted
AEE1ied For
$
38,669,000
$ 13,324,000
1,767,638,000
823,583,000
20,000,000
12,722,000
86,479,000
21,687,000
9,302,000
12,367,000
24,216,000
29,032,000
230,150,000
121,432,000
11,336,000
30,669,000
8,751,000
18,997,000
22,478,000
29,761,000
12,888,000
23,123,000
63,660,000
216,533,000
$1,200,357,000 ~ $2,448,440,000
·
·
AcceEted
$ 20, 219,OC
800,045,OC
6,015,00
42, 895,OC
3,302,00
12,318,00
46,769,00
9,836,00
3,501,00
14,238,00
5,888,00
36,209,~
$1,001,235,00
Includes $252,352,000 noncompetitive tenders accepted at the average price of 99.m
Includes $92,424,000 noncompetitive tenders accepted at the average price of 97.96b
On a coupon issue of the same length and for the same amount invested, the return a
these bills 'Would provide yields of 4.00%, for the 91-day bills, and 4.13%, for tbe
182-day bUls. 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 ~
the amount invested and their length in actual number of days related to a 36o-da1
yeax. In contrast, yields on certificates, notes, and bonds are computed in tel'll8
of interest on the amount invested, and relate the number of ~s remajn1ng_~_~~
interest payment period to the actual. number of days in the period, with S8IIlJ..UUcompounding i f more than one coupon period is involved.
TREASURY DEPARTMENT
RELEASE A.M. NEWSPAPERS,
:day, February 9, 1965.
February 8, 1965
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series of
bills, one series to be an additional issue of the bills dated November 12,
, and the other series to be dated February 11, 1965, which were offered on
J.a:ry 3, were opened at the Federal Reserve Banks on February 8. Tenders were
ted for $1,200,000,000, or thereabouts, of 91-day bills and for $1,000,000,000, or
eabouts, of 182-day bills. The details of the two series are as follows:
jUry
£ OF ACCEPTED
ETITlVE BIDS:
91-day Treasury bills
182-day Treasury bills
maturing May 13, 1965
maturing August 12, 1965
Price
Approx. Equiv.
Price
Approx. Equiv.
Annual Rate
Annual Rate
High
3.893%
97.990
3.976%
99.016 Y
Low
99.011
3.990%
3.913%
97.983
Average
99.013
97.984
3.987% !/
3.903% !I
a/Excepting two tenders totaling $365,000
12 percent of the amount of 91-day bills bid for at the low price was accepted
31 percent of the amount of l82-day bills bid for at the low price was accepted
L TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
.strict
Jston
'ew York
hUadelphia
leve1and
ichmond
tlanta
hicago
t. Louis
inneapolis
ansas City
allas
m Francisco
TOTALS
Applied For
$ 32,900,000
1,590,168,000
24,791,000
26,687,000
12,367,000
43,071,000
250,248,000
43,u05,000
23,949,000
32,761,000
30,003,000
101,743,000
$2,241,693,000
Acce.!2ted
$ 13,32h,oOO
823,583,000
12,722,000
21,687,000
12,367,000
29,032,000
121,432,000
30,669,000
18,997,000
29,761,000
23,123,000
63,660,000
$1,200,357,000
£I
A.!2Plied For
$ 38,669,000
1,767,635,000
20,000,000
86,479,000
9,302,000
24,216,000
230,150,000
11,336,000
8,751,000
22,475,000
12,888,000
216,533,000
$2,448,440,000
Accepted
20,219,000
800,045,000
6,015,000
42,595,000
3,302,000
12,318,000
46,769,000
9,836,000
3,501,000
14,238,000
5,888,000
36 2 209 2 °°0
$1,001,235,000
$
lcludes $252,352,000 noncompetitive tenders accepted at the average price of 99.013
tlClUdes $92,424,000 noncompetitive tenders accepted at the average price of 97.984
tl a coupon issue of the same length and for the same amount invested, the return on
nese bills liould provide yields of 4.00%, for the 9l-day bills, and 4.13%, for the
32-day bills. Interest rates on bills are quoted in terms of bank: discount with
ne return related to the face amount of the bills payable at maturity rather than
1e amount invested and their length in actual number of days related to a 360-day
a~. In contrast, yields on certificates, notes, and bonds are computed in tems
r lnterest on the amount invested, and relate the number of days remaining in an
rlterest payment period to the actual number of days in the period, with semiannual
~pounding if more than one coupon period is involved.
sI
TREASURY DEPARTMENT
February 9, 1965
FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN JANUARY
During January 1965, market transactions in
direct and guaranteed securities of the government
for Treasury investment and other accounts resulted
in net purchases by the Treasury Department of
~397,55l,300.00.
000
D-1497
TREASURY DEPARTMENT
=
February 9, 1965
FOR IMMEDIATE BEliASE
TREASURY MARKET TRANSACTIONS IN JANUARY
During January 1965, market transaction! in
direct end guaranteed securities of the government
for Treasury investment and other accounts resulted
in net purchases by the Treasury Department of
~397,551,800.00.
000
D-1497
- 3 -
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
~E
or other disposition of the bills, does not have any exemption, as such, and 10s8
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 1nclude 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 actua1l~
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.
- 2 -
decimals, e. g., 99.925.
Fractions may not be used.
It is urged that tenders
be made on the printed forms and forwarded in the special envelopes which will
be supplied by Federal Reserve Banks or Branches on application therefor.
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 accompaniec
by an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids. Those
submitting tenders will be advised of the acceptance or rejection thereof. The
Secretary of the Treasury expressly reserves the right to accept or reject any
or all tenders, in whole or in part, and his action in any such respect shall
be final.
Subject to these reservations, noncompetitive tenders for each issue
for $200,000 or less without stated price from anyone bidder will be accepted
in full at the average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders in accordance with
the bids must be made or completed at the Federal Reserve Banks on February 18,_
1965
+16+-
, in cash or other immediately available f"unds or in a like face
amount of Treasury bills maturing
February 18, 1965
--~~~~~-f~1~1}~--------------
Cash
TREASURY DEPARTMENT
Washington
_ooooeoot
FOR IMMEDIATE RELEASE,
February 9, 1965
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two ser11
of Treasury bills to the aggregate amount of $ 2,200,000,000 , or thereabouts, to!
-fd}cash and in exchange for Treasury bills
mat~ring
Februa~
18, 1965 , in the amour
- !)-
of $ 2,102,387,000 , as follows:
-~t~
91
-day bills ( to maturity date) to be issued
-fsf-
February 18, 1965
------------~~T---------'
in the amount of $ 1,200[000,000 , or thereabouts, represent-~1-}
ing an additional amount of bills dated
and to mature
May 20, 1965
November 19, 1964 ,
-Pi=}
, originally issued in the
.f9}l,OOO~23,OOO
amount of $
-f }
, the additional and original bills
to be freely interchangeable.
182
-day bills, for $ 1,000,000,000 , or thereabouts, to be dated
-(Oil}
.
-f12}
February 18, 1965 , and to mature
-f13}-
August 19, 1965
-fI~f-
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinaf'ter 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,
on~-thirty
p.m., Eastern Standard time, Monday, February 15, 1965_
-ersf
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 t~
price offered must be expressed on the basis of 100, with not more than three
TREASURY DEPARTMENT
~OR
IMMEDIATE RELEASE
February 9, 1965
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
Jr two series of Treasury bills to the aggregate amount of
Z,ZOO,OOO,OOO,or thereabouts, for cash and in exchange for
reasury bills maturing February 18, 1965, in the amount of
Z, 102,387 ,000, as follows:
91 -day bills (to maturity date) to be issued February 18, 1965,
1 the amount of $1,200,000,000, or thereabouts" representing an
ldlt1ona1 amount of bills dated November 19, 19b4, and to
ature May 20, 1965,
originally issued in the amount of
1,000,823,000, the additional and original bills to be freely
.1terchangeab1e.
182 -day bills, for $1,000,000,000, or thereabouts, to be dated
ebruary 18, 1965,and to mature August 19, 1965.
The bills of both series will be issued on a discount basis under
lmpetltive and noncompetitive bidding as hereinafter provided, and at
Iturlty their face amount will be payable without interest. They
11 be issued in bearer form only, and in denominations of $1,000,
,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
aturity value).
Tenders will be received at Federal Reserve Banks and Branches
to the cloSing hour, one-thirty p.m., Eastern Standard
me, Monday, February 15, 1965.
Tenders will not be
celved at the Treasury De~artment, Washington. Each tender must
for an even multiple of $1,000, and in the case of competitive
nders the price offered must be expressed on the basis of 100,
,th not more than three decimals, e. g., 99.925. Fractions may not
used. It is urged that tenders be made on the printed forms and
Narded in the special envelopes which will be supplied by Federal
se~e Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
,stomers provided the names of the customers are set forth in such
~ders. Others than banking institutions will not be permitted to
'lmit tenders except for their own account. Tenders will be received
;hout deposit from incorporated banks and trust companies and from
5ponslb1e and recognized dealers in investment securities. Tenders
)m others must be accompanied by payment of 2 percent of the face
)unt of Treasury bills applied for, unless the tenders are
ompanied by an express guaranty of payment by an incorporated bank
trust company.
D-1498
- 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 each issue for $200,000 or less without
stated price from anyone bidder will be accepted in full at the
average price (in three decimals) of accepted competitive bids
for the respective issues. Settlement for accepted tenders in
accordance with the bids must be made or completed at the Federal
Reserve Banks on February 18, 1965, in cash or other immediately
available funds or in a like face amount of Treasury bills
maturing February 18, 1965.
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.
000
-2-
Commodity
·•
·•
• Unit of
Imports u Oi
·•• Quantitz •: Jan.
30, 19M
Period and Quantity
Absolute Quotas:
Butter substitutes containing over 45% of butterfat,
and butter oil •••••••••••
Calendar year
Fibers of Cotton processed
but not spun •••••••••••••
Peanuts, shelled or not
shelled, blanched, or
otherwise prepared or
preserved (except peanut
butter) ••••••••••••••••••
D-1499
1,200,000
Pound
12 mos. from
Sept. il, 1964
1,000
Pound
12 mos. from
August 1, 1964
1,709,000
Pound
Quota Fill,
Quota Fille
TREASURY DEPARmmT
Washington
IMMEDIATE RELEASE
D-1499
THURSDAY, FEBRUARY 11, 1965
The Bureau of Customs announced today preliminary figures on imports tor consumption of the following commodities from the beginning of the respective quota
periods through January 30, 1965:
Commodity
•
··•
Period and Quantity
: Unit of : Imports as of
: Quantity : Jan. 30. 196~
Tariff-Rate Quotas:
Cream, fresh or sour ••••••••
Calendar Year
1,500,000
Gallon
25,667
Whole Milk, fresh or sour •••
Calendar Year
3,000,000
Gallon
3
Cattle, 700 1bs. or more each Jan. 1, 1965 (other than dairy cows) ••• Mar. 31, 1965
120,000
Head
2,319
12 mos. from
Cattle less than 200 1bs.each April 1, 1964
200,000
Head
54,243
Fish, fresh or frozen, filleted, etc., cod, haddock,
hake, pollock, cusk, and
rosefish ••••••••••••••••••
Calen:lar year
Tuna Fish •••••••••••••••••••
Calendar Year
To be
Pound
7,162,5~
announced
Poun:l
3,540,035
12 mos. from 114,000,000
Sept. 15, 1964 45,000,000
Pound
Pound
93,574,555
Quota Filled
announced
To be
White or Irish potatoes:
Certified seed ••••••••••••
Other •••••••••••••••••••••
Knives, forks, and spoons
Nov. 1, 1964 with stainless steel han:lles Oct. 31, 1965
69,000,000
Pieces
57,678,392
-
mKASURY DEP~'r
Wuh1D.gton
dUTE RELEASE
D-1499
KURSDAY, FEBRUARY 11, 1965
'n
The Bureau of Custo.. announced. todq pre1 1 • &l7 tigures on iIIporta tor conIDIPtion of the following colllllOdltles fro_ the beginn1q ot the reapectl".. quota
Briods through J aDU&l7 30, 1965:
•
•••
: Unit
ot : IIIporte as ot
30. 1965
: QuIRt!t l : J ape
Kitt-BAte Quotu:
t'eaa, tresh or sour ••••••••
Calendar rear
1,500,000
Gallon
25,667
HUk, fresh or sour •••
Calendar rear
3,000,000
Gallon
3
~le
attle, 700 lbs. or more each Jan. 1, 1965 (other than dair1 cow) ... Kar. 31, 1965
attle
1811
12 mos. tro.
than 200 lbs. each AprU 1, 1964
llh, trelh or trosen, filleted, etc., cod, haddock,
hake, pollock, cuak, aDd
120,000
Head
2,319
200,000
Hec
54,243
ro.etish ••••••••••••••••••
Calendar Tear
to be
aDDOunced.
PoUDd
7,162,566
ma Fish •••••••••••••••••••
Calendar rear
To be
announced
Pourn
3,540,035
lite or Irish potatoes:
Certified lead •••••••••••• 12 mos. trom 114,000,000
Other ••••••••••••••••••••• Sept. 15, 1964 45,000,000
Pound
Pound
Quota P1lled
I1ltS, tork., aD1 spoons
Rov.
with .taiDle.s steel handles Oct.
Pleces
1, 1964 31, 1965 69,000,000
93,574,555
57,678,392
-2-
: Un! t ot : lIIport.. u 0:
• Qynti tr • J p. 30. 126:
Ab,olut!
QgetU:
But.ter sub.tit.utes containing OYer 45% ot but.tertat.,
aDd but.t.er oil •••••••••••
Calendar 7ear
Fibers or Cotton processed
but DOt spun •••••••••••••
Sept. 11,
Peanuts, shelled or DOt
shelled, blanched, or
otherwise prepared or
pre,erved (except peanut
12 ms. rro.
butter) ••••••••••••••••••
D-1499
1,200,000
PoUDd
Quota Fill
12 .:;).. trail
August
1964
1, 1964
Pound
1, 709, (XX)
Pound
Quota Fill
TREASURY DEPARTMENT
Washington, D. C.
D- 1500
n.t.{EDlA TE l\ELUSE
THURSDAY, FEBRUARY 11, 1965
pRELIMINARY DATA ON IMPORTS FOR CONSL'MPTION OF UNldANUFACTURED LEAD AND ZINC CHARGEABLE TO THE CUOTAS ESTABLISHED
BY PRESIDt'NTlAL PRCCLAMATION NO. 3257 OF SEPTEMBF.R 22, 1958, AS MODIFIED BY '!'HE TARI:oT SCHEDULES Of THE
uNITl4.:D STATES, WHICH BECAME EITF,cTIVE AUGUST 31, 1963.
OUARl'rnLY QUOTA. PERIOD IMPORTS ~
925.01-
January 1, 1965 - March )1, 1965
January
1, 1965 - February 5, 1965 (or as noted)
ITEM 925.04-
ITEM 925.02·
ITEM 925.03I
I
Le&i-bearing oree
Country
.f
Prod.uction
and
ID& teria1s
Umrrought led &at
led waste and. scrap
Za-bearing oree &n4
I
s
materials
I
I
I
:
UDln-oug'ht zino (exoept alloys
of zinc and zinc dust) and
zinc wasts and.
.era,
lqlorta
Autralia
11,220,000
11,220,OOC
22,540,000
2,89·,988
BelgiUll and
~ (total)
5,040,000
••• 728,326
13,4040,000
···7,977,559
Bolina
c.u.da
15,920,000
7,184,175
66,480,000
66,480,000
ItJllly
Yedoo
16,160,000
Psl'U
16,160,000
lA,SOO,OOO
6,560,000
···2.943,629
-s •• Part 2, Append~ to Tariff Sohedu1es •
••Repub110 of South Afr~oa.
··~port. a. of ".br\lary 8. l'&~
~~
IN TKJI.: BUREAU OF
CUST~
20)90-4,7«
3,600,000
···1,722,·U4
70,.0480 ,000
14,579,311
6,320,000
1,200,043
12,880,000
1,114,059
35,120,000
7,547,915
3,760,000
1,921,008
5,440,000
···3,251,844
6,080,000
6,080,000
14,S80,OOO
~oslarla
.l.1l other
oountries (total)
37,840,000
13,973,015
ormer1y Belgian Congo)
So. Afrioa
···49),097
36,880,000
~IUbliO of the Cougo
'4I(JD
7,520,000
15,760,000
···27,622
6,080,000
"·2,720,292
17,1!MO,000
••• 17,607, 143
TREASURY DEP.ARTMDrr
WUhlDgtOll, D. C.
naa;DU TE
D- 1500
Ja:LI.lSt
THURSDAY, FEBRUARY 11, 1965
PRELMiiARY
DATA Cfi IMPORTS FOR CONSL'MPTI0N OT UNIAlrurAC'l'URl:D LUD AND ZINC CHARGEABLE TO THE 0UOTAS ESTABLISBED
BY PRESIDENTIll PROCLAMATIC1f NO. 3257 OT SEP'l'EMBF.R 22, 1958, AS MODIFIED BY 'mE TARIIT SCHEDULES OJ' 'l'HE
l.INITI:D STATES, WHICH BJXal.1E ~Trn: AUGUST 31, 1963.
ClUARTuu,y QUOTA PERIOD IMPORTS -
lTDI 925.01-
January
1,
1~'5
-
March
31, 1"5
.IaD&a.r7 1, 1"5 - 'obna&17 5, 1,65 (or as
~
925.03-
ITg(
Doted)
!TEN 925.04-
925.02·
I
I
I
LeM-beariDC ore.
CGDtl7
.t
Pro41wtl_
aDd . .teriala
.ora,
~lea4'"
lead . . . te alii
I
•
•••
I
ZiJ»-beariDC oree aU
materi.aJJI
.CIUii"tirly QUota
I Dlltiable leN
(POQiIIi J
A_bal1a
11,220,000
.0000000000y QIiiti
Imporb I Dnlable leU.
11,220,000
(PCNiii J
22,540,000
BoUn..
Cene4'
.Qiiiiiii'1.7 Qiii't&
ImporUa ZiDo Co_teat
(Niiii)
5,040,000
•••728,3 2'
13 ,.440.000
···7"n,55'
Pen
16,160.000
16,160,000
2,8,..,,88
.AU otber
oO\lll'triee ('\0'\&1.)
6,560,000
···2,,..3,'2,
-s •• Part 2. AppeD41Jt 'to Tariff Sehedu1es •
••Repub11.0 of South Atr1.oa.
~" . . . • t ~.b~ ., l~S
Br
.e~
~
e)
-
!!fort.
···.~5,0'1
•
15,920,000
7,184,175
66.480,000
",480,000
31,840,000
2~,ot..744
3,600,000
···1,722,414
36,880,000
13,'73,015
10,.480 ,000
14,57',311
6,320,000
1,200,043
12,880,000
1,114,05'
35,120,000
7,547,,15
3.760,000
1,,21,008
5..-..0,000
·"3,251,844
-
lA,880,000
Y1lCoalarla
aa4 siDe 4u") aa4
",..te aM .....
1,5'20,000
of '\be Co~o
(tOrlBel"~ BeIC1&Il CoDCo)
lA,~,OOO
ziAO
Import..
~pullo
''VIl. So. Atri_
.t dDO
I
ltaq
)"uti..
u.rrought ziDo (.Dept alley.
.QU&rieJ'~y QIi.i'ta
..
~-=.7'( 'total)
I
I
1
-
.I
15,760.000
···27,'22
6,080,000
···2,720,2,2
•
n,840,OOO
···17,607,14)
6,0130,000
&.080,000
-2-
COTTON WASTES
(In pounds)
COTTON CARD STRIPS made from cotton having a staple of less than 1-3/16 inches in length, COMBER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VALUE: Provided, however, that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3116 inches or more
in staple length in the case of the following countries: United Kingdom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy:
Country of Origin
Established
TOTAL QUOTA
Total Imports
Sept. 20, 1964, to
Feb. 8, 1965
United Kingdom ••••••••••••
Canada ..................... .
France ••••••••••••••••••••
India and Pakistan ••••••••
Netherlands •••••••••••
Switzerland......... • •••
Belgium..
• •••••
Japan •••••••••••••••••••••
China •••••••••••••••••••••
Egyp t •••••••••••••••••••••
Cuba....
••
• •••••••••••
Ge rmany •••••••••••••••••••
Ita 1 y •••••••••••••••••••••
4,323,457
239,690
227,420
69,627
68,240
44,388
38,559
341,535
17,322
8,135
6,544
76,329
21,263
1l,713
239,393
25,425
25,443
7,088
5,482,509
319,795
1,599,886
Included Ln total imports, column 2.
1,441,152
75,807
43,264
22,747
14,796
12,853
Other, including the U. S.
~I
Established
33-1/3% of
Total Quota
Imports
Sept. 20, 1964
to Feb. 8, 1965
11
TREASURY DEP AR'IMENT
Washington, D. C.
IMMED lATE RELEASE
D-1501
THURSDAY, FEBRUARY 11, 1965
Preliminary data on imports for consumption of cotton and cotton waste chargeable to the quotas established by
Presidential Proclamation No. 2351 of September 5, 1939, as amemed, and as modified by the Tariff Schedules of the
United States which became effective August 31, 1963.
(The country designations in this press release are those specified in the appemix to the Tariff Schedules of the
United States. There is no political connotation in the use of outmxied names.)
"
Country of Origin
Egypt and Sudan ••••••••••••
Peru •••••••••••••••••••••••
India and Pakistan •••••••••
China ••••••••••••••••••••••
Mexico •••••••••••••••••••••
Brasil •••••••••••••••••••••
Imports
Established Quota
783,816
247,952
2,003,483
1,370,791
8,883,259
618,723
1,801,410
}/
Baiti ••••••••••••••••••••••
Ieuador ••••••••••••••••••••
11
2/
475,l24
5,203
237
9,333
Established Quota
Honduras ••••••••••••••••••••
Par~ ••••••••••••••••••••
Colombia ••••••••••••••••••••
Iraq ••••••••••••••••••••••••
British East Africa •••••••••
Indonesia and Netherlands
38,370
Union of Sorlet
Socialiat Republics ••••••
Argent~ •••••••••••••••••
Country of Origin
~I
SJ
New Guinea••••••••••••••••
British W. Indies •••••••••••
.1geria•••••••••••••••••••••
Britiah 11. Africa. ••••••••••
other. inc]uding the U.s ....
Except Barbados, Bel'tlllXia. Jamaica. Trinidad, ani Tobago.
Except Nigeria and Ghana.
Cotton 1-1/811 or more
Established Yearly Quota - 45.656.420 1bs.
Imports Augnat 1. 1964 - February 8, 1965
Stap1e Length
1-318ft or more
~-5/32ft or more and under
1.-3/8"
"1 _"1 ffllllt
a....
(Tangu:1.s)
DK>_
IUd UDder
Allocation
Imports
39. 590. Tl8
39.590,778
1.500.0CX>
9,665
752
871
l24
195
2.240
71,388
21,321
5,377
16,004
l!lT2rts
TREASURY DEPAR'Dfm'
Washington. D. C.
DMmIATE RELEASE
D-1501
THURSDAY, FEBRUARY 11, 1965
Prel.1llinary data on imports tor consuq:>tion ot cotton am cotton waste chargeable to the quotas established by
Presidential Proclamation No. 2351 of September 5, 1939, as amemed, am as modified by the Tariff Schedules ot the
United States which became effective August 31, 1963.
('nle country designations in this press release are those specified in the appeniix to the Tarift Schedules of the
United States. 'nlere is no political connotation in the use of out..ooded names.)
COTTOM (other than linters) (in pound8)
Cotton under 1-1/8 inches other than ~ or harsh
lq)orts Septe.ber 20. 1964 - Febl'uary _ ~ 1965
Country
ot Origin
EgJpt and Sudan ••••••••••••
Peru •••••••••••••••••••••••
TndiA and Pakistan •••••••••
c~
•••••••.••.•.••••••••.
Mazico ••• e • • • • • • • • • • • • • • • • •
Braa1l •••••••••••••••••••••
UDiDn ot Sorlet
Socialist Republica ••••••
~.xt,1.Da. •••••••••••••••••
Raiti ••••••••••••••••••••••
Ecuador ••••••••••••••••••••
!I
Y
Established Quota
783,816
247,952
2,003,483
1,370,791
8,883,259
618,723
Establ 1 abed !P!ta
Honduras ••••••••••••••••••••
38,370
Paragtlal".••••••••••••••••••••
Colombia••••••••••••••••••••
Iraq ••••••••••••••••••••••••
1,801,410
11
475,124
5,203
237
9,333
Except Barbados, BelW¥la. Jamaica. Trinidai,
Except. Ifigeria and Ghana.
Country ot Origin
I!p?rts
Ul'Jier 3/4"
~I
g
am
British East Africa •••••••••
Indonesia am Netherlan1s
Hew Guinea ••••••••••••••••
British W. Indies •••••••••••
R1ser.1a •••••••••••••••••••••
Briti8h V. !.trica. ••••••••••
Other. 1ncJDdiD8 the U.s ....
Tobago.
Cotton 1-118" or IIOre
Established YearlY Quota - 45.656.420 1bs.
Imports Augaat. 1. 1964 - FebruarY 8. 1965
St.ap1e Length
1.-3/Sn or more
1.-5/32" or IIIDre and un:Ier
Allgcat1.on
39.590.778
T!!IV?rt.S
.39,590,718
752
871
l.24
195
2,240
7l.J88
21,321
5,m
16,00t.
L'PN
-2-
COM'OM WASTES
(In pounds)
COTTON CARD STRIPS made from cotton having a staple of less than 1-3/16 inches in length,
COMBER
WAS1'E, LAP WASTE, SLIVER WASTE, AND ROVING WASTE. WHETHER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VALUE: ProVided, however, that not more than 33-1/3 percent of the quotas shall
be ftlled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or .are
in staple length in the case of the follOwing countries: United Kingdom, France, Netherlands,
Switzerland, BelgiUIII, Germany, and Italy:
Established
Country of Origin
United Kingdom ••••••••••••
Canada ••••••••••••••••••••
France ••••••••••••••••••••
India and Pakistan ••••••••
Netherlands •••••••••••••••
Switzerland •••••••••••••••
Belgium •••••••••••••••••••
Japan •••••••••••••••••••••
China •••••••••••••••••••••
Egyp t •••••••••••••••••••••
Cuba ••••••••••••••••••••••
Ge -rmany •••••••••••••••••••
Italy •••••••••••••••••••••
TOTAL QIDTA
4,323,457
239,690
Total lmpqrts
: Established
Imports
Sept. 20, 1964, to.:
33-1/3% of
Sept. 20, 1964Feb. 8~ 19~ __ _
_Total QtJ.9ta: _.to r.b. a~ 14165
11..713
1,441,152
23<],393
227,420
75,807
69,627
68,240
44,388
38,559
341,535
17,322
8,135
6,544
76,329
21,263
43.264.
25.425
25,443
7,088
5,482,509
319.795
1,599,886
22,747
14,796
12,853
Other, including the U. S.
~I
Included in total Lmports, column 2.
Prepared
~n
the Bureau o£ Customs.
11
TREASURY DEPARTMENT
\-lASHINGTON
IMBEDI ATE RELEASE
THURSDAY, FEBRUARY 11, 1965
The Bureau of Customs has announced the following preliminary
figures showing the imports for consumption from January 1, 1965,
to January 30, 1965, inclusive, of commodities under quotas
established pursuant to the Philippine Trade Agreement Revision
Act of 1955:
. Established Annual
Commodity
Quota Quanti ty
:
Unit of
Quantity
Imports as of
January 30, 1965
Gross
35,493
543,120
Buttons ••• o • • • •
510,000
........
1(>0,000,000
Number
Coconut oil ••.
268,800,000
Pound
79,797 ,078
6,000,000
Pound
578,108
3,900,000
Pound
Cigars
Cordage
Tobacco
••• 0
•••
.......
'l'REASURY DEPAR'lMEm'
WASHINGTON
IMMEDIATE RELEASE
THURSDAY, FEBRUARY 11, 1965
0-1502
The Bureau of Customs has announced the following preliminary
figures showing the iMports for consumption from Jarmary 1, 1965,
to January 30, 1965, inclusive, of commodities under quotas
established pursuant to the Philippine Trade Agreement Revision
Act of 1955:
I
Commodity
Annual : Unit of
·• Established
: Quantity
Quota Quantity
:
·
Buttons ••••••••
510,000
Cigars ••••••••
: Imports as of
: January 30, 1965
:
Gross
35,493
120,000,000
Number
543,120
Coconut oil •••
268,800,000
Pound
79,797,078
Cordage •••••••
6,000,000
Pound
578,108
Tobacco •••••••
3,900,000
Pound
-
6 -
As indicated by the President in his message, the Treasury
will shortly submit to Congress a bill embodying specific
proposals to improve the tax treatment of foreign investment
in Do So corporate securities, generally along the lines
recommended by a special task force appointed by President
Kennedy
0
\, D- ~ ----r:::. &~, A
Secretary Dillon also noted
A..--.A:....Z
.
,L
tha~~~:~::':.~~;~: ;11. ~11
shortly propose legislation to the Congress that would provide
assurance that voluntary efforts, and any voluntary agreements,
undertaken by financial institutions as part of the President I s
program will not be subject to antitrust action.
- 5 -
those acquisitions by all U.S. persons of foreign debt obligatic
with a period to maturity of one year or more.
Existing
exemptions, inc luding those for export credit, direct investment
and loans to less developed countries, will continue to apply.
In order to be certain that the proposed amendments to the
Interest Equalization Tax do not serve as an inducement to
accelerate acquisitions of foreign debt obligations, the
President requested Congress to make these amendments effective
tomorrow, February 11, 19650
However, these amendments would
not be effective with respect to acquisitions made pursuant to
firm commitments in effect as of February 10, 19650
A bill incorporating the proposed amendments to the Interest
Equalization Tax has been submitted
to Congress.
t~
by Secretary Dillon
A detailed outline of this measure and of the
President's Executive Order are attached
- 4 Application of the tax to all credits to Japan with a
period of maturity of one year or more would, in the opinion of
the President, have such consequences for that country as to
threaten to imperil the stability of the international monetary
system.
Consequently, the President
~8Re
te exempt from tax
this year up to $100 million of borrowings by, or guaranteed by,
the Government of Japan which would otherwise be subject to the
taxo
In requesting Congress to extend the Interest Equalization
Tax for two years (to expire on D2cember 31, 1967) the President
also asked that its scope be extended so as to subject to tax
- 3 -
efforts of American business to compete more effectively abroad,
Also exempted are loans repayable in foreign currencies by
foreign branches of D.S. banks and direct investments in foreign
subsidiary banks.
These exemptions are designed to permit
foreign offices of DoSe banks flexibility in conducting their
-:it .', t.' I " (; ~ (, 1(' d
normal operations in the countries where they ~re ~Qmici~Qd.
The President's order also made clear that the existing
exemption for new Canadian issues would not apply to bank loans.
As provided by the law, the President issued the order
extending the tax after concluding that commercial bank loans to
foreigners
had materially impaired the effectiveness of the Interest
Equalization Tax by replacing other types of acquisitions
which were subject to the taxo
(A statement outlining the facts
upon which the President made this finding is attached to this
release.)
- 2 -
Commenting on EHese and other actions asked for by the
President, Secretary Dillon said:
"The voluntary cooperation and support of the President's
entire program by American business and the general public
is essential to its success.
The measures taken today will
complement, but not substitute for. these voluntary efforts."
As announced in the Balance of Payments Message, the
President has exercised his power to extend the Interest Equalization Tax to commercial bank loans to developed countries with
a period to maturity of one year or more.
The Executive Order
and Treasury Regulations implementing it have been filed with the
Federal Register and will become effective tomorrow,
February 11, 19650
Under the law, export-connected loans of banks are exempted
from the tax, assuring the ability of banks to support the
..:')
;?.t-,«
"
/Cl ~-.I-
(C I
1.1RAFT - 2/S/95
FOR IMMEDIATR_-REJ.EASE
TREASURY ACTIONS FOLLOW PRESIDENT'S
BALANCE OF PAYMENTS MESSAGE
Treasury Secretary Douglas Dillon today announced that he has
put regulations into effect to carry out President Johnson's
Executive Order applying the Interest Equalization Tax to UoS.
bank loans to foreigners.
This and other steps within the Treasury's area of responsibility were outlined by the Secretary following the President's
Balance of Payments Message sent to Congress earlier today.
,(
L4
Secretary Dillon said that the Treasury
~ {lr.'-l"f,,'L,/
~., eger~'
'to the Cong
a bill extending the present Interest Equalization Tax on
foreign securities sold in this country for another two years
to three
and expanding its scope to cover one /year loans.
He also said he will shortly request_.Congress
to reduce
__"'o~
,
""",,
"
the present exempt'iQn f~customs duty on foreign purchases
''-
by U. SQ citizens returning from abroad to $500
TREASURY DEPARTMENT
-
February 10, 1965
FOR IMMEDIATE RELEASE
TREASURY ACTIONS FOLLOW PRESIDENT'S
BALANCE OF PAYMENTS MESSAGE
Treasury Secretary Douglas Dillon today announced that he has
put regulations into effect to carry out President Johnson's
Executive Order applying the Interest Equalization Tax to U. S. bank
loans to foreigners.
This and other steps within the Treasury's area of responsibility
were outlined by the Secretary following the President's Balance
of Payments Message sent to Congress earlier today.
Secretary Dillon said that the Treasury is sending to the
Congress a bill extending the present Interest Equalization Tax on
foreign securities sold in this country for another two years and
expanding its scope to cover one to three year loans.
Commenting on this and other actions asked for by the President,
Secretary Dillon said:
"The voluntary cooperation and support of the President's
entire program by American business and the general public is
essential to its success. The measures taken today will complement,
but not substi tute for, these voluntary efforts."
As announced in the Balance of Payments Message, the President
has exercised his power to extend the Interest Equalization Tax
to commercial bank loans to developed countries with a period to
maturity of one year or more. The Executive Order and Treasury
Regulations implementing it have been filed with the Federal
Register and will become effective tomorrow, February 11, 1965.
Under the law, export-connected loans of banks are exempted
from the tax, assuring the ability of banks to support the efforts
of American business to compete more effectively abroad
Also
exempted are loans repayable in foreign currencies by foreign
branches of U. S. banks and direct investments in foreign subsidiary
banks. These exemptions are designed to permit foreign offices of
U. S. banks flexibility in conducting their normal operations in
the countries where they are located.
The President's order also
u
D-1503
- 2 -
made clear that the existing exemption for new Canadian issues
would not apply to bank loans.
As provided by the law, the President issued the order extending
the tax after concluding that commercial bank loans to foreigners
had materially impaired the effectiveness of the Interest Equalization Tax by replacing other types of acquisitions which were
subject to the tax.
(A statement outlining the facts upon which
the President made this finding is attached to this release.)
Application of the tax to all credits to Japan with a period of
maturity of one year or more would, in the opinion of the President,
have such consequences for that country as to threaten to imperil
the stability of the international monetary system. Consequently,
the President has stated that he will exempt from tax this year up
to $100 million of borrowings by, or guaranteed by, the Government
of Japan which wJuld otherwise be subject to the tax.
In requesting Congress to extend the Interest Equalization Tax
for two years (to expire on December 31, 1967) the President also
asked that its scope be extended so as to subject to tax those
acquisitions by all U. S. persons of foreign debt obligations with
a period to maturity of one year or m~re.
Existing exemptions,
including those for export credit, direct investment and loans to
less developed countries, will continue to apply.
In order to be certain that the proposed amendments to the
Interest Equalization Tax do not serve as an inducement to accelerate
acquisitions of foreign debt obligations, the President requested
Congress to make these amendments effective tomorrow, February 11, 1965.
However, these amendments would not be effective with respect to
acquisitions made pursuant to firm commitments in effect as of
February 10, 1965.
A bill incorporating the proposed amendments to the Interest
Equalization Tax is being submitted by Secretary Dillon to Congress.
(A detailed outline of this measure and of the President's Executive
Order are attached.)
As indicated by the President in his message, the Treasury will
shortly submit to Congress a bill embodying specific proposals to
improve the tax treatment of foreign investment in U. S. corporate
securities, generally along the lines reco~ended by a special task
force appointed by President Kennedy.
Secretary Dillon also noted that the Department of Justice will
shortly propose legislation to the Congress that would provide assurance that voluntary efforts, and any voluntary agreements, undertaken
by financial institutions as part of the President's program will not
be Subject to antitrust action.
February 10, 1965
ANALYSIS OF
LONG-TERM U. S. COMMERCIAL BANK LOANS TO FOREIGNERS
The President's action in extending the application of
the Interest Equalization Tax to long-term bank loans to
foreigners reflects increasing evidence that such loans have
materially impaired the effectiveness of the tax. A sizeable
portion of these loans appears to have substituted, directly
or indirectly, for other forms of borrowing subject to the
Interest Equalization Tax.
Data now available indicate that the outstanding volume
of loans maturing in more than one year by domestic offices
of U.S. banks to foreign borrowers in developed countries
rose by over $650 million during 1964. As shown by Table I,
this compares to an earlier peak of $122 million for years
before the lET was proposed. The net outflow in su-.:..l~ loans
to developed countries in the 18 months since the announcement
of the tax was over four times the increase during the 18
months preceding the announcement of the Interest Equalization Tax. Moreover, recent increases in the volume of new
U.S. commercial bank term loan commitments to foreigners,
which totaled over $1 billion to borrowers in developed
countries during 1964, point toward a further acceleration
of the upward trend. The distribution of these commitments
by area and purpose is shown on Table II.
While some portion of the accelerated volume of foreign
lending may be accounted for by other factors, analysis of
the size, purpose, type of borrower, and terms of individual
loan commitments indicates that a substantial and increasing
portion of recent loans are close and direct substitutes for
new security issues. In this connection it is interesting to
note that only 15 percent of the new term loan commitments
to industrial countries last year was used to finance U.S.
exports. By contrast 28 percent was used for plant expansion.
In addition, study of the pattern of the rising volume
of foreign loans to particular countries or areas, as against
the background of a declining volume of new issues from the
same areas, suggests that demands for credit diverted from
the capital markets have in some instances indirectly returned
to the U.S. market via bank loans.
In view of the above,
and growing portion of the
capital has been diverted,
securities market to U. S.
Interest Equalization tax.
it seems clear that a significant
foreign demand for longer-term
directly or indirectly, from the
banks since announcement of the
TABLE I
CHANGES IN OUTSTANDING LONG-TERM U. S.
COMMERCIAL BANK LOANS TO FOREIGNERS a/
(Millions of dollars)
-
1959
All Countries:
(of which)
Developed:
~/
Change During Period
1960
1961
1962
1963
1964
183
153
136
126
568
966
14
-2
122
116
493
669
Continental
Western Europe
6
36
132
31
381
465
Japan
3
3
5
50
126
142
Other Developed
5
-41
-15
35
-14
62
Total long-term claims, including loans, previous to 1963.
TABLE II
LONG-TERM U. S. COMMERCIAL BANK COMMITMENTS TO ALL COUNTRIES AND
TO DEVELOPED COUNTRIES DURING
1964
(Millions of dollars)
By Area
I
II
QUARTERS
III
IV
Total
441
336
501
781
2059
273
169
302
413
1157
120
103
162
282
667
Japan
85
40
63
61
249
Other Developed
68
26
77
70
241
All Countries:
(of which)
Developed:
Continental
Western Europe
By Purpose
Financing of
U. S. Exports
All
Countries:
(of which)
Developed
Third CounShip
Financing
try Trade
Plant
Working
Financing Capital
Debt Refinancing
Other
Total
363
81
209
490
248
181
487
2059
178
65
152
329
171
90
172
1157
February 10, 1965
DESCRIPTION OF EXECUTIVE ORDER AFFECTlNG COMMERCIAL BANKS
AND PROPOSED AMENDMENTS TO INTEREST ~UALIZATION TAX ACT
In h.is Bala1'l.ce of Payments Message today, the President announced
that he has exercised the authorl ty granted to him under the Interest
Equalization Tax Act to extend that tax to acquisitions by United
States commercial banks made after February 10, 1965 of debt obligations of foreign borrowers with one year or more remaining to maturity.
He also proposed amendments to the Interest Equalization Tax Act which
would extend the tax for two years beyond the present expiration date
of December 31~ 1965, and apply it to acquisitions by any United
States person of foreign debt obligations with one year or more
maining to ma.turltYe
.n~-
These amendments would also be effective with
respect to acquisitions made after February 10, 19658
Executive Order Extending the Tax to Commercial Banks
The Interest Equalization Tax was extended to United States commercia1 banks which acquire foreign debt obligations maturing in one
year or more under a provision contained in section 4931 of the
Internal Revenue Code authorizing the President, by Executive order,
to revoke in whole or in part the statutory exclusion from the tax
for acquisitions of debt obligations of foreign obligors by commercial banks in the ordinary course of the banking business.
the Executive
order~
Under
acqatsitions of debt obligations of foreign
obligors with a period to maturity of one year or more, including
time or savings deposits placed with foreign banks, will be taxable
-
"c. -
at the rates set forth in sections 4911 and 4931 of the statute if
made at offices of commercial banks located in the United States.
Acquisitions of such debt obligations with periods remaining to maturi ty of one year or more repayable in United States currency which
are made at foreign branches of such banks will also be taxable.
Acquisitions of debt obligations repayable exclusively in foreign
currencies made by foreign branches remain exempt from the tax o
Similarly, the order has not extended the tax to transfers by United
States commercial banks to foreign banking subsidiaries in which
they have a direct investment (see section 4915(c) of the Code).
Regulations under this order have been promulgated today.
Further regulations will be issued wi thin the next week which will
require United States commercial banks with foreign branches or subsidiaries to report to the Treasury Department information relating
to the flow of funds from commercial bank home offices in the United
States to foreign branches or subsidiaries after the date of the
Executive order.
The Executive order also results in the taxing of loans with a
period remaining to rna turi ty of one year or more made to Canadian
borrowers by commercial banks in the United States, as well as the
placement by such banks of time or savings deposits with one year
or more remaining to maturity with Canadian banks.
The Executive
order makes clear that a prior Executive order exempting all Canadian
- 3 original or new issues from Interest Equalization Tax shall not apply
to commercial
blTJJ.~
In accordance
loa.ns.,
~~th
section 493l(d)(l) of the Internal Revenue
Code, the Executive order also continues the exemption for loans made
by
commercial banks in connection with export transactions involving
the perfoTI.:".r.CJ of services by United States persons or the sale of
property manufactured, produced, grown, extracted, created or developed primarily i:: the United States.
In order to qualify l.or
this exemption, such eAjport credit extensions must meet the tests
now set forth in section 4914(c)(l)(B), (2), (3), (4) or (5) or
section 493l(d)(1) of the Code and section 147.9-2 of the Regulations.
Acquisitions of foreign debt obligations by United States commercial
banks pursuant to commitments undertaken by such banks before
August 5, 1964 are exempt, provided that such commitments were unconditional, or subject only to
condition~
contained in a formal
contract which had been partially performed, or as to which before
August
5,
1964, the bank had signified its approval in writing of
all principal terms of the acquisition.
See section 493l(d)(3) of
the Code and section 147.9-3 of the Regulations.
In accordance with the terms of the Interest Equalization Tax
Act, the Executive order does not affect the statutory exclusions
available to any
Ur~ted
States person under sections 4914, 4915 and
- 44916 of tIle Internal Revenue Code.
These exclusions include the
acquisition of a debt obligation issued or guaranteed by a less developed country, or of an individual or partnership resident in such
a country, or of a less developed country corporation.
~~th
In accordance
section 493l(c), however, acquisitions by commercial banks of
foreign debt obligations with periods remaining to maturity between
one and three years will not be exempt solely because they were
acquired from a United states person.
Interest Eqqal1zation Tax Amendments
With respect to the proposed changes in the Interest Equalization Tax contained in the President's Message, an Interest Equalization
Tax Extension Bill has been transmitted to Congress as an amendment
to Chapter
41 of the Internal Revenue Code (as added by Public Law
88-563, 88th Congress, 2nd Session, enacted September 2, 1964).
This
bill includes only those changes which are essential to the implementation of recommendations contained in the President's Message.
These amendments extend the tax for two additional years and extend
its coverage to the acquisition by any United States person of foreign
debt obligations with periods remaining to maturity of one year to
three years.
The provision for taxing debt obligations with one to three
years remaining to maturity, would apply with respect to acquisitions
made after February 10, 1965.
Provision is made, however, to exempt
- 5from the new provisions acquisitions made pursuant to firm commitments existing on
Februa~J
10, 1965.
Amendments in Detail
The specific changes recommended in the new bill are as follows:
(1)
Imposition of Tax --
On
or after February 11, 1965,
debt obligations of foreign obligors with periods remaining to
maturity of one year or more which are acquired by United States
persons will be subject to Interest Equalization Tax.
Acqui-
nitions of foreign debt obligations before that date are subject
to the tax only if they have periods remaining to maturity of
three years or more at the time of their acquisition.
The following rate schedule applies to acquisitions of
foreign debt obligations with a period to maturity of between
one and three years, made after February 10, 1965.
(These are
the same rates made applicable to commercial bank acquisitions
of debt obligations with the same roaturf ties by the Executive
order issued by the President):
If the period remaining
to maturity is:
At
At
At
At
At
At
least
least
least
least
least
least
1 year, but less
1-1/4 years, but
1-1/2 years, but
1-3/4 years, but
2-1/4 years, but
2-3/4 years, but
than
less
less
less
less
less
The tax, as a
percentage of
actual value is:
1-1/4 years
than 1-1/2 years
than 1-3/4 years
than 2-1/4 years
than 2-3/4 years
than 3 years - - -
1.05
1.30
1050
1.85
2030
2.75
percent
percent
percent
percent
percent
percent
- 6 (2)
Insurance Company Fund of Assets Designations -
Section 4914(e) of the Code w.i.ll be amended, effective after
February 10, 1965, to conform the rules covering an insurance
company maintaining an exempt fund of assets to the changes
proposed with respect to the scope of the tax.
(3)
Demand Obligations -- A conforming change in the
definition of the period remaining to maturity of demand obligations in section 4920(a)(7)(B)(1v) provides that any debt
obligation payable on demand (including bank deposits) shall
be considered to be less than one year o
(4)
Pre-existing Commitments -- The proposed amendments
do not apply to otherwise taxable acquisitions by United States
persons (other than commercial banks) made after February 10,
1965, pursuant to commitments to acquire which became fixed on
or before that date, or which were subject only to conditions
such as customary closing conditions or the execution of
formalizing documents which would not effect a change in the
principal terms.
For example, the amendments would not apply
to an acquisition by a United States person of two-year notes
of a foreign obligor made pursuant to an agreement to acquire
which, on or before February 10, 1965, the United States lender
had approved and as to which it had sent to the foreign borrower
written evidence of such approval (e.g., in the form of a
- 7 commitment letter or draft purchase contract) which referred
to the principal terms of agreement, provided that such agreement
was subject only to the execution of formal documents and customary closing conditions, and contained all of the principal
terms of the actual acquisition.
(,5)
Returns -
Amendments to section 6on(d) and section
6076 of the Internal Revenue Code also provide for the filing
of a return for the calendar quarter in which these proposed
amendments may be enacted, which would report any new tax with
respect to acquisitions made after February 10, 1965, which may
become due pursuant to the proposed tax on acquisitions of one
to three year debt obligations.
The United States person who
becomes liable for such new tax would report his tax liability
on or before the end of the calendar month following the
calendar quarter in which these amendments are enacted or at
such later time as may be specified in regulations prescribed
by the Secretary or his delegate.
TREASURY DEPARTMENT
February 11, 1965
FOR ll-n,t:.:DIA'l'E RElEASE
TREASURY DECISION ON CRUDE SULFUR
UlmER THE AlITIDUIvIPll'l'G ACT
The Treasury Department has completed the investigation with
respect to the possible dumping of crude sulfur from Canada.
A
notice of a tentative determination that this merchandise is not
being, nor likely to be, sold at less than fair value "Till be
published in an early issue of the Federal Ree;ister.
Appraisement of the above-described merchandise from Canada
is not beine; withheld at this time.
The dollar value of imports of the involved merchandise received durinG the :period January through August
1964 vas approxi-
TREASURY DEPARTMENT
February 11, 1965
FOR IMMEDIATE REIEASE
TREASURY DECISION ON CRUDE SULFUR
UNDER THE ANTIDUMPING ACT
The Treasury Department has completed the investigation with
respect to the possible dumping of crude sulfur from Canada.
A
notice of a tentative determination that this merchandise is not
being, nor likely to be, sold at less than fair value will be
published in an early issue of the Federal Register.
Appraisement of the above-described merchandise from Canada
is not being withheld at this time.
The dollar value of imports of the involved merchandise received during the period January through August
mately $5,500,000.
1964
was approxi-
TREASURY DEPARTMENT
.FOE IIJlTImIAT.i RElliASE
TREASuRY DECISION ON FERROCBROMIUM
UUDER THE ANTIDU1~D~G ACT
The Treasury Department has completed the investigation
vith resPect to the possible dumping of ferrochromium, not containin6 over 3 percent by weiGht of carbon, from France.
A
notice of a tentative determination that this merchandise is
not beinG' nor likely to be, sold at less than fair value will
be published in an early issue of the Federal Resister.
ApprQisement of the above-described merchandise from France
is not beinG withheld at this time.
IJo merchandise of the type under investigation was entered
for consumption in the United States.
All importations, and
they l1ere very small in B.Inount, vrere entered into bonded vlarehouse for subsequent exportation to lther countries.
TREASURY DEPARTMENT
WASH.nC»TON
FOR IMMEDIATE RElEASE
TREASURY DECISION ON FERROCHROMIUM
UNDER THE ANTIDUMPING ACT
The Treasury Department has completed the investigation
with respect to the possible dumping of ferrochromium, not containing over 3 percent by weight of carbon, from France.
A
notice of a tentative determination that this merchandise is
not being, nor
like~
be published in an
to be, sold at less than fair value will
ear~
issue of the Federal Register.
Appraisement of the above-described merchandise from France.
is not being withheld at this time.
No merchandise of the type under investigation was entered
for consumption in the United States.
All importations, and
they were very small in amount, were entered into bonded warehouse for subsequent exportation to vther countries.
TREASURY DEPARTMENT
FOR IMMEDIATE REIEASE
TREASURY DECISION ON APPIE JUICE
UNDER TEE ANTIDUJlPING ACT
The TreasUDT Department has completed the investigation with
respect to the possible dumpinG of apple juice from Canada, manufactured by Sun-Rype Products Ltd., Kelowna, B.C., Canada.
A
notice of intent to close this case with a determination that this
merchandise is not being, nor likely to be, sold at less than fair
value will be published in an early issue of the Federal Register.
Appraisement of the above-described merchandise from Canada
is being withheld at this time.
The dollar value of imports of the involved merchandise received during the period December
approximately $230,000.
1, 1963, through June 1964 was
TREASURY DEPARTMENT
(
FOR IMMEDIATE REIEASE
TREASURY DECISION ON APPIE JUICE
UNDER THE ANTIDUMPING ACT
The Treasury Department has completed the investigation with
respect to the possible dumping of apple juice from Canada, manufactured by
Sun-~e
Products Ltd' l Kelowna, B.C., Canada.
A
notice of intent to close this case with a determination that this
merchandise is not being, nor likely to be, sold at less than fair
value will be published in an early issue of the Federal Register.
Appraisement of the above-described merchandise from Canada
is being withheld at this time.
The dollar value of imports of the involved merchandise received during the period December 1,
approximately $230,000.
1963, through June 1964 was
TREASURY DEPARTMENT
February 12, 1965
FOR IMMEDIATE RELEASE
SUBSCRIPl'ION AND ALLO'IMENT FIGURES FOR TREASURY I S CURRENT CASH OFFERING
The Treasury Department today announced the Bubscription and allotment
figures with respect to the current offering of 4~ Treasury Notes of Series
E-1966, due November 15, 1966.
Subscriptions and allotments were divided among the several Federal Reserve Districts and the Treasury as follows:
Federal Reserve
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. wuis
Minneapolis
Kansas City
IAlllas
San Francisco
Treasury
Totals
Total Subscriptions Received
$ 466,867,000
4,736,617,000
311,775,000
592,496,000
323,999,000
412,634,000
1,844,131,000
269,088,000
177,388,000
243,367,000
193,982,000
1,062,792,000
619,000
$10,635,755,000
Subscriptions by investor classes:
States, political subdivisions or instrumentalities thereof, public pension
and retirement and other public funds,
international organizations in which the
United States holds membership, foreign
central banks and foreign States Which
received full allotment ---------------Commercial Banks (own account) --------All others ----------------------------Total
Fed. Res. Banks & Govt. lnv. Accts. ---Grand Total
D-1504
$
56,403,000
5,906,504,000
4,147,248,000
$10,110,155,000
525,600,000
$10,635,755,000
Total
Allotments
$
77,262,000
1,169,034,000
54,768,000
103,888,000
56,l95,000
90,978,000
327,143,000
61,846,000
42,107,000
55,219,000
35,726,000
179,06"6,000
419 , 000
$2,253,651,000
- 3 -
BE'l'tt
MODIPIED
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
~I
or other disposition of the bills, does not have any exemption, as such, and loss
trom the sale or other disposition of Treasury bills does not have any special
treatment, as Buch, under the Internal Revenue Code of 1954.
The bills are subjec
to estate, inheritance, gift or other excise taxes, whether Federal or state, but
are exempt from all taxation now or herea.f'ter 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 suc}
bills,· whether on original issue or on subsequent purchase, and the amount actualJ
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.issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
- 2 -
HODIFIED
BE'f'A
decimals, e. g., 99.925.
Fractions may not be used.
It is urged that tenders
be made on the printed forms and forwarded in the special envelopes which will
be supplied by Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
others than
banking institutions will not be permitted to submit tenders except for their
own account.
Tenders will be received without deposit from incorporated banks
and trust companies and from responsible and recognized dealers in investment
securities.
Tenders from others must be accompanied by payment of 2 percent of
the face amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those
submitting tenders will be advised of the acceptance or rejection thereof.
The
Secretary of the Treasury expressly reserves the right to accept or reject any
or all tenders, in whole or in part, and his action in any such respect shall
be final.
Subject to these reservations, noncompetitive tenders for each issue
for $200,000 or less without stated price from anyone bidder will be accepted
in full at the average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders in accordance with
the bids must be made or completed at the Federal Reserve Banks on
1965
Februa~
(-)
251-
, in cash or other immediately available funds or in a like face
amount of Treasury bills maturing
February
25~
1965
--~~~~~tl~'~)~---------
Cash
Exhibit 2-.60
BE'i'A - MODIFIED
TREASURY DEPARTMENT
Washington
February 15, 1965
FOR IMMEDIATE RELEASE,
~
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two seriel
of Treasury bills to the aggregate amount of $ 2,20041?f'OOO , or thereabouts, for
Febru~W'
cash and in exchange for Treasury bills mat'\lring
1965, in the a.moun
of $ 2,102,202,000 , as follows:
(4)
91 -day bills (to maturity date) to be issued February 25, 1965
tw
(6)
in the amount of $1,200,000,000 , or thereabouts, represent-
(7)
ing an additional amount of bills dated
November 27, 1964 ,
f8f
, originally issued in the
and to mature May 27, 1965
(9)
amount of $ 1,000,102,000 , the additional and original bills
(-lO)
to be freely interchangeable.
18.2 -day bills, for $ 1,000,000,000 , or thereabouts, to be dated
(II)
l12}
Februa~ 25, 1965
-13)
, and to mature
August 261;1965
(1 )
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).
!enders will be received at Federal Reserve Banks and Branches up to the
clOSing hour, on~-th1rty p.m., Eastern Standard time,
Friday, February 19, 1965_
(15)
!enders 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 tM
price offered must be expressed on the basis of 100, with not more than three
TREASURY DEPARTMENT
February 15, 1965
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
$2 200 000 OOO,or thereabouts, for cash and in exchange for
Tre'asurY bills maturing February 25,1965, in the amount of
$2,102,202,000, as follows:
9~day bills (to maturity date) to be issued February 25, 1965,
in the amount of $1,200,000,000, or thereabouts) representing an
additional amount of bills dated November 27, 19t>4, and to
.mature May 27, 1965,
originally issued in the amount of
$1,OOO,102,000,the additional and original bills to be freely
interchangeable.
18~day bills, for $1,000,000,000, or thereabouts, to be dated
ebruary 25,1965, and to mature Augus t 26, 1965.
The bills of both series will be issued on a discount basis under
ompetitive and noncompetitive bidding as hereinafter provided, and at
aturity their face amount will be payable without interest. Th~y
III be issued in bearer form only, and in denominations of $1,000,
j,OOO, $10,000, $50,000, $100,000, $500,000 and $1,000,000
maturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
to the c losing hour, one-thirty p. m., Eas tern Standard
;ime, Friday, February 19, 1965.
Tenders will not be
'eceived at the Treasury De{,artment, Washington. Each tender must
le for an even multiple of $1,000, and in the case of competitive
enders the price offered must be expressed on the basis of 100,
ith not more than three decimals, e. g., 99.925. Fractions may not
e used. It is urged that tenders be made on the printed forms and
oNarded in the special envelopes which will be supplied by Federal
'eserve Banks or Branches on application therefor.
lp
Banking institutions generally may submit tenders for account of
ustomers provided the names of the customers are set forth in such
enders. Others than banking institutions will not be permitted to
ubmlt tenders except for their own account. Tender.s will be received
Hhout deposit from incorporated banks and trust companies and from
~sponsible and recognized dealers in investment securities.
Tenders
{'om others must be accompanied by payment of' 2 percent of the face
mount of Treasury bills applied for, unless the tenders are
~companled by an express guaranty of payment by an incorporated bank
trust company.
I
D-1505
- 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 each issue for $200,000 or less without
stated price from anyone bidder will be accepted in full at the
average price (in three decimals) of accepted competitive bids
for the respective issues. Settlement for accepted tenders in
accordance with the bids must be made or completed at the Federal
Reserve Banks on February 25, 1965,
in cash or other immediately
available funds or in a like face amount of Treasury bills
maturing February 25, 1965.
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.
000
TREASURY DEPARTMENT
(
FOR RELEASE A. M. NEWSPAPERS,
Tuesday, February 16, 1965.
February 15, 1965
RESUU'S OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series 0:
Treasury bills, one series to be an additional. issue of the bills dated November 19,
1964, and the other series to be dated February 18, 1965, which were offered on
February 9, were opened at the Federal Reserve Banks on February 15. Tenders were
invited for $1,200,000,000, or thereabouts, of 91-day bills and for $1,000,000,000, a
thereabouts, of 182-day bills. The details of the two series are as follows:
RANGE OF ACCEPTED
CCMPETITIVE BIDS:
High
Low
Average
91-d.a;,r Treasury bills
maturing Kay 20, 1965
Price
Approx. EqUiv
Annual Rate
99.010
3.916%
99.001
3.952%
99 .. 005
3.936%
!I
i
U
i
i
:
i
:
:
182-day Treasury bills
maturing A.ugust 19, 1965
Price
Approx. Eqili
Annual Rate
970981
3.994%
97.968
4.019%
91.970
4.015%
5% of the amount of 91-day bills bid for at the low price was accepted
68% of the amount of 182-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR AND ACCEPI'ED BY FEDERAL RESERVE DISTRICl'S:
District
Applied For
Accepted
: Applied For
Accepted
Boston
$ 18,299,000 •
18,299,000 z •
60,130,000 $ 22,130,C
New York
1,430,521,000
732,449,000:
1,585,841,000
7ll,721,C
Philadelphia
29,685,000
17,685,000 s
16,950,000
8,950,(
Cleveland
23,751,000
23,751,000:
61,967,000
44,423,r
Richmond
14,373,000
14,373,000 :
3,156,000
3,156,(
Atlanta
45,463,000
43,563,000 z
22,502,000
14,756,(
Chicago
312,660,000
177,785,000 s
237,943,000
78,111,(
st. Louis
34,260,000
29,260,000:
11,795,000
7,795,(
Minneapolis
19,010,000
17,060,000 I
8,644,000
6,484,(
Kansas City
26,263,000
26,263,000 2
17,996,000
10,408,(
Dallas
23,197,000
18,247,000:
10,882,000
,,382,(
San Francisco
96,296,000
81,296 ,000 t
123,958,000
87,031U
TOTALS
$2,073,778,000
$1,200,031,000
$2,161,764,000 $1,000,354,\
a/ Includes $253,645,000 noncompetitive tenders accepted at the average price of 99.~
b/ Includes $93,155,000 noncompetitive tenders accepted at the average price of 91.9.
On a coupon issue of the same length and for the same amount invested, the return
these bills would provide yields of 4.03%, for the 91-day bills, and 4.16%, for tI:,
l82-day bills. Interest rates on bUls are quoted in terms ot bank discount with
the return related to the face amount ot the bills payable at maturitY' rather thai
the amount invested and their length in actual number ot dqs related to a )604J
year. In contrast, yields on certificates, notes, and bonda are computed in tel'll
of interest on the amount invested, and relate the number ot days remai.niDg in an
interest payment period to the actual. nWllber ot days in the period, with s8JlilDD1ll
compounding i t )lOre than one coupon period is involved.
Y
XI
I
Y
TREASURY DEPARTMENT
)R RELEASE A. M. NEWSPAPERS,
le8MY, February 16, 1965.
February 15, 1965
RESUIl'S OF TREASURY I S WEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series or
bills, one series to be an additional issue of the bills dated November 19,
64, and the other series to be dated February 18, 1965, which were offered on
Ibruary 9, were opened at the Federal Reserve Banks on February 15. Tenders were
nted for $1,200,000,000, or thereabouts, of 91-day bills and for $1,000,000,000, or
ereabouts, of 182-day bills. The details of the two series are as follows:
~asury
'NGE OF ACCEPTED
MPETITIVE BIDS:
High
Low
Average
91-da;r Treasury bills
:
maturing May 20, 1965
Price
Approx. Equiv.:
Annual Rate
:
99.010
3.916%
99.001
3.952%
:
99.005
3.936%!/
182-day Treasury bills
maturing August 19, 1965
Price
Approx. EqUiv.
Annual Rate
97.981
3.994%
97.968
4.019%
97.970
4.015% !I
5% of the amount of 91-day bills bid for at the low price was accepted
68% of the amount of 182-day bills bid for at the low price was accepted
rAt TENDERS APPLIED FOR AND ACCEPTED
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
st. Louis
Minneapolis
Kansas City
BY FEDERAL RESERVE DISTRIGl'S:
A;eE1ied For
Acce,Eted
: A,EE1ied For
AcceEted
$ 18,299,000 $ 18,299,000 : $ 60,130,000 $ 22,130,000
1,430,521,000
732,449,000 :
1,585,841,000
711,721,000
29,685,000
17,685,000
16,950,000
8,950,000
23,751,000 :
23,751,000
61,967,000
44,423,000
14,373,000
14,373,000 :
3,156,000
3,156,000
45,463,000
43,563,000 :
22,502,000
14,756,000
)12,660,000
177,785,000 I
78,111,000
237,943,000
29,260,000
34,260,000
11,795,000
7,795,000
19,,010,000
17,060,000 :
8,644,000
6,484,000
26,263,000
26,263,,000 I
10,,408,000
17,996,000
Dallu
18,247,000
23,197,000
10,882,000
,,382,000
San Franci s co
81 z296 zOOO :
96 z296 z000
123 z958 z000
87z03802OOO
TOTALS
$2,073,778,000 ii,200,0)1,000 !I $2,161,764,000 $1,000,354,000 ~/
Includes $253,645,000 noncompetitive tenders accepted at the average price ot 99.005
Includes $93,155,000 noncompetitive tenders accepted at the average price of 97.970
On a coupon issue of the same length and for the same amount invested, the return on
these bUls would provide yields of 4.03%, for the 91-day bills, and 4.16%, for the
l82-dal bills. Interest rates on bUls are quoted in teru ot bank discount with
the return related to the face amount of the bill" payable at maturity- rather than
the amount invested and their length in actual nmber of days related to a 360-day
;year. In contrast, :yields on certificates, notes, and bonds. are computed in terms
ot interest on the amount inTested, and relate the number of days remaining in an
interest payment period to the actual number of days in the period, with semjannual
~ompounding if aore than one coupon period is involved.
1506
·
·
FOR RELEASE UPON DELIVERY
EXPECTED ABOUT 10:00 A.M. EST
STATEMENT OF ROBERT A. WALLACE
ASSISTANT SECRETARY OF TREASURY
BEFORE THE HOUSE GOVERNMENT OPERATIONS SUBCOMMITTEE ON LEGAL AND
MONETARY AFFAIRS
FEBRUARY 16, 1965
THE CURRENT COIN SITUATION
tIR. CHAIRMAN, MY STATEMENT SHI\LL BE BRI EF, ALTHOlXiH OF COURSE I
SHALL BE GLAD TO ANSWER ANY QUESTIONS FROM MEMBERS OF THE COMMITTEE.
I SHI\LL TALK ABOUT THE GENERAL COIN SITUATION, WH<\T WE Hl\VE DONE ABOOT
IT, WHERE WE STAND TODAY AND THE PROSPECTS, SO FAR AS WE CAN TELL, FOR
THE FUTURE.
I THINK IT WOULD BE BETTER TO LEAVE ALL QUESTIONS PERTAINING
TO THE OPERATION OF THE MINTS TO MISS EVA ADAMS, THE DIRECTOR OF THE MINT.
YOU WILL RECALL THAT BEFORE LAST YEAR OUR GENERAL PLAN WAS TO BOOST
MINT PRODUCTION AS EFFICIENTLY AND ECONOMICALLY AS POSSIBLE WHILE
PI..AN'4ING TO MEET OUR LONG-RANGE NEEDS WITH THE CONSTRUCTION OF A NEW MINT
IN PHILADELPHIA.
IN THE FIVE-YEAR PERIOD BETWEEN 1959 AND 1964, THE MINT
VERY NEARLY TRIPLED THE PRODUCTION OF COINS, FROM 1-1/2 BILLION TO 4-1/3
BILLION
~LLY.
THESE PRODUCTION II\CREASES WERE t-AADE IN ORDER TO BUILD UP OUR It-NENTORY
OF COINS SO THAT \£ COULD MEET THE PERIODIC SEASONO.L At-[) REGIOt-W. St()RTAGES
AS THEY OCCURRED.
THE DEMAND FOR COINS OF COURSE, HAS BEEN GROWING STEADILY
BECAUSE OF THE IN:REASED USE OF VEt-DING MACHINES, A GROWINi POPULATION AND
A SIZABLE Jl»1P IN THE ,c1H)UNT OF COt'+1ERCIAL ACTIVITY.
0-1507
- 2 LAST tJARCH,
~EVER,
T\\O THlf'liS HAPPENED ALJ.'OST SIMJLTANEOUSLY WtiICH
TOUCH:D OFF BROAD NEW INTEREST IN COINS.
TI-£ FIRST WAS THE INTRODUCTION
OF THE KENNEDY HALF DOLLAR WH I CH WAS MJCH
~RE
SM
tW)
ANTICIPATED.
POPULAR AS A KEEPSAKE THAN
Tt£ SECON) OCCURRENCE, ALSO IN M4RCH, WAS TJic\T THE
TREASURY EXI-WJSTED ITS SUPPLY OF SILVER DOLLARS.
IN APRIL
SEE MUCH INCREASE IN THE ACTIVITIES OF COIN SPECULATORS
At-l)
Wtf()
M4Y WE COULD
BOJGHT UP
NEW COINS BY THE ROLL !NO BY THE BAG, FURTHER INTENSIFYING THE GEf'£RALLY
TIGHT SITUATION.
AFTER 01 SCUSSING THE
~TTER
WITH THE PRESIDENTS OF Tt£ TWELVE FEDERAL
RESERVE BANKS, WE BECAME CONCERNED THAT THE SHORTAGE MIGHT REACH CRISIS
PROPORTIONS IN Tt£ FALL -- ESPECIALLY
DURJ~
THE Ct-RISTM4S St-OPPING SEASON.
IT Wl\S TH I S POS SIB I LI TV WH I CH PR()o1PTED THE TREASURY TO INS TI TUTE A CRASH
PROGRAM TO DOUBLE THE
PRODUCTI~
OF COINS WITHIN A YEAR.
MISS ADAMS WILL
BE GLAD TO GIVE YOU Tt£ DETAILS OF THAT PROGRN1, BUT I AM PLEASED TO
PNtOJNCE THAT WE ARE ON SCHEDULE.
COIN PRODUCTION IN THE LAST SIX
~NTHS
OF CALEt'{)AR YEAR 1964 JUt-PED NEARLY 60% OVER Tt£ SAfo£ PERIOD A YEAR EARLIER.
I THINK TI-E ENTIRE COUNTRY OWES A DEBT OF GRATITlDE TO OUR MINT
DIRECTOR, MI SS ADPMS, AND TO ALL THE EMPLOYEES IN THE B~EAU OF THE MINT
FOR Tl-EIR TREMENDOUS GAINS IN PRODUCTION UN)ER TI-£ CRASH PROGRAM.
CONSIDER,
FOR EXAMPLE, THO.T IN Tt£ LAST SIX MONTHS OF CALEf'<)AR 1964, THE T\\o MINTS IN
PHIlADELPHIA AND Da-NER PRODUCED 3,431,061,000 COINS.
nus,
IN A HA.LF YEAR
Tt£Y PROOUCED MORE CO I NS THAN ARE NORMd.LL Y PRODUCED I N A Wt-()LE YEAR.
- 3 At-D n£y ARE KEEPIf\G TO THE SCHEDULE.
BY JUt£ 30 THEY WILL HAVE
PRODUCED 8 BILLION COINS At-D THEIR MACHINES WILL BE GOIf\G AT AN ANNJAL
RATE OF OVER 9 BILLION.
T~NKS
TO THIS CRASH PROGRAM
AJ'.I)
TO THE MINT EMPLOYEES WtiJ HAVE
BEEN VtORKIt-t; MOUN) THE CLOCK 24 HOURS A DAY, 7 DAYS A WEEK, WE WERE
ABLE TO AVERT A COIN CRISIS LAST FALL.
M:>RE RECENTLY WE HAVE RECEIVED ENCOURAGING FLOW BACK FIGURES FRQ'1
TI-£ FEDERAL RESERVE SYSTEM.
THESE FIGURES IN)ICATE THAT, CQ'1PARED WITH
A YEAR AGO, THE FEDERAL RESERVE SYSTEM'S INVENTORY OF PENNIES HAS TRIPLED.
ALL TWELVE FEDERAL RESERVE PRESIDENTS HAVE TOLD ME
T~T
THE PEt'-NY SITUATION
IS APPARENTLY UN)ER CONTROL AN) THE ENTIRE COIN SITUATION HAS GREATLY
IMPROVED, BUT THAT COINS OTHER THAN PEt'tHES REMAIN S<ȣWHAT TIGHT.
THIS BEARS OUT INFORMATION WE HAVE RECEIVED.
LAST
1964 COINS WERE BEING ADVERTISED AT FANTASTIC PREMIUMS.
SU~R
ROLLS OF
TODAY, AS A RESULT
OF LEGISLATIVE AUTHORITY GIVEN TO THE SECRETARY OF THE TREASURY TO CONTINJE
THE 1964 DATE ON COINS, THERE HAS BEEN A DECIDED SOFTENIf\G OF THE SPECULATIVE
MARKET FOR 1964 COINS.
EVEN THOUGH DEALERS ARE STILL ADVERTISIt-t; THEM AT
PREM I LMS, ONLY TI-£ M:>RE GULL I BLE ARE BUY I f\G THEM.
BEFORE LAST FALL, IT WAS VERY RARE TO SEE 1964 COINS IN CIRCULATION
BECAUSE SO MlWY HAD BEEN BOUGHT UP FOR THE PURPOSE OF HOARDING
ON FUTURE It-CREASES IN f\lJMISM.A.TIC VALUE.
AN)
SPECULATING
EVEN IN THE CHAf\GE WHICH YOU Af\D I
RECEIVE IN OUR DAILY COIN TRANSACTIONS WE NOW SEE A GREATER At-D GREATER
PROPORTION OF 1964 COINS StiJWING UP.
- 4 Af'D WHl\T OF THE FUTURE?
THERE IS
~
QUESTION IN MY MIt-{) BUT THAT IF
Tt£ COIN SITUATION ALCNE WERE ALL WE HAD TO DEAL WITH, OUR PRODUCTION
SCHEDULE COULD EASILY DEMOLISH WHAT REMAINS OF THE COIN SHORTAGE.
THE
ONLY POSSIBLE DIFFICULTY IS WHAT MIGHT HAPPEN WHEN WE CHANGE OUR COIN
ALLOYS.
THEREFORE, AS A PART OF OUR GENERAL STUDY OF COINAGE ALLOYS PW
THE SILVER SITUATION, WE SHALL ALSO HAVE TO ASSESS WHETHER OR
BE NECESSARY TO BOOST OUR COIN PRODUCTION STILL FURTHER.
BE DONE IF NECESSARY.
~T
IT WILL
I Kr-vw THIS CAN
THIS YEAR WE ARE DOUBLINi THE PRODUCTION OF COINS.
IF NECESSARY At\{) IF WE RECEIVE THE f'.ECESSARY SUPPORT IN COt-t;RESS, IT WOULD
BE POSSIBLE FOR US TO DOUBLE THIS PRODUCTION STILL AGAIN.
THUS, WE CooLD
NOT ONLY DOUBLE BUT COULD EVEN REDOUBLE OUR COIN PRODUCTION IF THIS IS
REQUIRED TO PREVENT FUTURE SHORTAGES.
MEANWHLE, WE HOPE TO HAVE COMPLETED OUR COINAGE ALLOY STUDY SCM:
TIME IN APRIL.
so.ve
WE HAVE TESTED AN> ARE TESTIt-t; NlMEROUS ALLOYS
OF THEM IN PRODUCTION-SIZE RUNS.
AN)
p.4ATERIALS,
WE HAVE BEEN IN TOUCH WITH Tt£ SILVER
USERS, Tt-£ SILVER PRODUCERS PW THE VEN:>ING MACHlf'.E CC»PANIES.
OUR RECCl-1-
MENDATIONS WILL TAKE INTO ACCOUNT ALL CONSIDERATIONS AFFECTING THE VARIOUS
INTERESTS AN> MAKE WHAT WE HOPE WILL BE SOlW PROPOSALS FOR DEALIt-t; WITH
THE SITUATION.
I REGRET, toR.
OF TIi«\T STUDY.
CHAI~,
THAT IT IS TOO SOON TO GET INTO THE DETAILS
YOU MAY BE SURE, HOWEVER, THAT WE WILL p.4AKE IT AVAILABLE
TO THIS COMotITTEE THE MIt-lfTE IT IS Ca-PLETED.
T~K
YOU VERY MJCH.
00 00 00
BETTER MANAGEMENT
Re1Nrks by
A. E. Weatherbee, Alaistent Secretary for Administration,
Treasury Department
before the Federal Executive Board of Dallas-Fort Worth. Texas
February 18, 1965
I am always glad of an opportunity to meet with one of the
rederal Executive Boards.
It is a particular pleasure to meet here
today with a Board whose Chairman is a .ember of my own Department.
The Treasury has been a strong source of support for the Federal
Executive Boards since their very beginning.
We had experimented with
similar groups within the Department, and we were perhaps more aware
than others of the potentialities, and also of the possible pitfalls. of
the Boards.
When plans to form the Boards were first announced. members of
my staff went imaediately to Boston, Philadelphia. and New York to
ask our field heads for their ideas and suggestions on the possible
scope, activities and organization of the Boards.
As a result, when
I met later with an interagency group to discuss these matters, the
reports of my staff had convinced me that prospects were indeed good
for setting up these Boards on a workable. realistic basis.
The success of the Boards has been of special interest to
the Treasury because of our large investment of staff time in this
endeavor.
The Treasury has no departmental regional structure at
the field level.
Since 10 of our 12 bureaus have field offices, we
could conceivably have up to 10 representatives on a Board.
FEB members. about 90--or l4\--are Treasury people.
Of 610
- 2 -
Because of our multiple representation on the Boards, I appointed
one Treasury
me~er
representative.
his Board.
on each Board to serve as my personal liaison
Each reports directly to me on the activities of
Each bureau also has appointed one person at headquarters
to work with my office on Board matters.
There are a number of groups in Washington that bring together
officials who share similar responsibilities.
I am a member of one
such group--the Executive Officers Group--and I know from my own
experience the value of such organizations.
This group is composed
of the heads of administration in the largest agencies.
Until its
formation some of them didn't even know their own counterparts in
other agencies.
We now have at least a speaking acquaintance and
when a common problem comes up, it is a great help to be able to
pick up the telephone and swap ideas freely and frankly with Leo Werts
of Labor or Joe Robertson at Agriculture, or one of several others.
It is in part through such group activities that people get to
know each other in the various Washington agencies.
The resulting
network of personal relationships is highly effective in getting a
lot of the government's work accomplished.
There have been few official mechanisms in the field to promote
this kind of cooperation.
In the areas where they exist, the rederal
Executive Boards have helped to fill this gap.
In general, the Treasury reaction to the Boards is that they are
much more successful than the pessimists had expected but perhaps not
as universally successful as the optimists had hoped.
As in any other
collective effort, the localities--and the individuals involved--appear
to get out of the Boards pretty much what they put into them.
- 3 -
From all reports the Dallas-Fort Worth Board has a good record
indeed.
You have some active committees, one of which is doing
pioneer work in fAcilitating university relationships on recruitment
and training matters.
You have undertaken a number of interagency
studies and assisted each other in your employee placement problems.
You have a particularly interesting project in the workshops you
have set up for the exchange of management ideas between the government
and private industry.
These are just a few of your many projects that
have generated widespread interest.
The Boards have been favored with an abundance of one ingredient
which should insure their success.
They have had support from the
highest levels in the government.
The rEBs were first announced by
President Kennedy.
As one of his first acts after assuming office,
President Johnson affirmed his support of the Boards.
With President Johnson's commitment to cost reduction, it is
particularly fortunate that the FEB machinery exists in the field
for the exchange of information on management improvement and for
joint improvement projects.
This brings me to the core of my remarks today.
Do not be
misled by the somewhat impressive topic--tlBetter Managementtl--under
which I have been billed.
I will simply make a few random observations
about the President's economy program and tell you something about
the management improvement system in my own Department.
- ... There has never been any doubt that the President means business
with his economy program.
In the first days of his Administration he
established what has now become a familiar pattern.
He announces a
phase of his economy program and either links it, or follows it
closely, with action measures designed to put teeth into the program.
According to an item in the "Washington Post," he even fines members
of his family $1 each time one of them forgets to turn off the lights!
In the President's words, he "covets a reputation for good management," and this goal is high on his list of priorities.
It is not uncommon for our national leaders to express full support
for government economy measures.
To be for economy ranks almost as
high as being for motherhood in public appeal.
What is uncommon is
that we now have a President who takes a deep personal interest in
good management, a President who personally initiates many economy
measures.
I understand that Bureau of the Budget staff members are
burning the midnight oil regularly trying to keep up with him.
The President was sworn into office for his first term on
November 22, 1963.
Eight days later he issued his first
message on Thrift and Frugality.
These words, thrift and frugality,
have become the bywords of his Administration.
In the President's
language:
"I have pledged that the Executive Branc.h will be
administered with the utmost thrift and frugality;
that the government will get a dollar's value for
a dollar spent; and that the government will set
an example of prudence and economy."
-
5 -
In carrying out this pledge. the President announced his intention
to do four things:
to keep budget requests at a bare minimum; to
support the departments' efforts to achieve administrative or
legislative changes; to support adequate salary scales; and to accord
increased recognition where deserved.
He has followed through on
each of these promises.
A month following his Thrift and Frugality memorandum. the
President issued a requirement for quarterly reports from the agencies
on the number of employees and on actions to improve management.
My office has the central responsibility for the management
improvement program in the Treasury.
to prepare.
This is one report we are glad
Without the silent. unrelenting pressure of a reporting
system that extends from the bottom to the very top of the government,
it is like pushing a ten ton truck uphill to keep a management
improvement program going on a systematic, continuing basis.
My office has long required quarterly reports from the Treasury
bureaus on management improvement projects completed and scheduled.
Summaries of these reports now go to the President.
He reads them.
From time to time he writes Secretary Dillon to comment on an item,
to commend his efforts, or to request further data.
sufficiently impressed with Treasury's record
He was
to ask the Secretary
to describe the Treasury's management improvement system at a
Cabinet meeting,
- 6 -
The President has continued to hammer away on the economy theme
in Cabinet meetings.
He stresses that Cabinet members must give the
matter their personal attention.
He reports to the Cabinet from time
to time on the progress of cost reduction efforts.
In one meeting he
asked them "to be as unsatisfied as a little boy's appetite" in their
efforts to increase economy and efficiency.
The President has made it clear that he is interested in economy
all down the line.
He has said that no matter how small an agency is
he wants it managed as if it dwarfed everything in the budget.
He
wants economy practiced in such small matters as putting out the lights
and limiting filing cabinets as well as in such large matters as
scrutinizing the need for entire programs.
There has always, perhaps, been a tendency--in government and out-to think that top people should pay attention only to large economies,
and that small economies should be made by those down the line.
But
particularly in a government setting, this is not nece.sarily the way
the ball bounces.
Sometimes the only way to focus proper attention
on the need for the small economies is to show an interest in them.
and to set an example, at the top.
I think this is what President
Johnson is trying to do.
Let me tell you an incident that illustrates this.
A member of
my staff played bridge not long ago with the postmaster in a small town
in Virginia.
The postmaster said that she had been trying unsuccessfully
for years to get her employees to turn off the lights when they went
home for the night.
~ntioned
Not being the "I told you so" type, she had not
the matter since the President's announcement.
But since that
- 7 -
announcement, she reported jubilantly, the lights had not been left
on once.
This is the kind of economy that the President meant when he
said, "We are tightening our belts in the govern..nt.
every dollar stretch as far as it will go.
We are making
We are not brushing aside
any saving, no matter how insignificant it might seem."
The other truth here is that amall economies do add up to large
economies when applied government-wide.
A brief drive by the President
to eliminate excess publications had netted savings of $1.8 million
the last I heard, with the Defense figures not yet in and the drive
continuing.
And if you or I ever reach a point where we don't think
that is a lot of money, I think we should leave the government for a
while and reorient our sense of values.
The President also has emphasized that in building the Great
Society, every Federal agency should be bold and imaginative in
formulating new ideas and programs and in carrying out tough-minded
reforms in existing programs.
In a statement last November, he said,
and I quote:
"To be sure. every program needing reform has a
pressure group which will fight reform.
But I
want to make the decisions as to those fights which
it will be worthwhile to take on and those which it
won't.
I want you to give me plenty of such
decisions to make."
Again he put teeth into his request by requiring a special report
from each agency head on such suggested reforms.
- eThis is the type of support that administrators dream of.
The
Treasury pulled out and dusted off economy proposals that have been
shelved for years.
I am sure this went on throughout the government.
Results already are evident in reports of the clo.ing allover the
country of aarginal government offices and institutions.
As a result of this personal leadership of the President, management
improvement efforts throughout the government have received a shot in
the arm.
In my own Department, with exceptionally strong interest
and leadership from Secretary Dillon, documented management improvement
savings almost doubled from $15.9 million in fiscal year 1963 to
$29.5 million in 1964 -- an all-time high for the Treasury.
I might move on now to tell you something about the Treasury's
own system to improve management.
As
a backdrop,
organization.
I should first give you a rough sketch of the.
The Department has about 87,000 civilian and 35,000
military personnel in a dozen operating bureaus with more than 3,000
field installations.
The basic function of the Treasury -- to manage the nation's
finances -- has remained unchanged through the years.
Two bureaus,
the Internal Revenue Service and Customs. are especially concerned
with revenue collection.
There are two bureaus exclusively concerned
with law enforcement, Narcotics and Secret Service. and three fiscal
bureaus. Accounts, Treasurer's Office, and Public Debt.
In addition,
we have two manufacturing operations, the Hint and Bureau of Engraving
and Printing.
We have an advertising-type bureau engaged in the pro-
motion of savings bonds, and an office that supervises the national
banks.
Finally, there is a military organization, the United States
- 9 -
Coast Guard. which operates as part of the Navy in time of war.
The Treasury has all of the management problems of a large.
exceedingly diverse, and far-flung organization.
We can control the
way work is scheduled and done. but characteristically the work
volume is beyond our control.
For example. we cannot control the
number of taxpayers or the number of customs inspections.
control the number of checks issued.
We cannot
The demand for coin is
determined by the public and by the economy.
Manpower represents 70% of our total operating budget.
You can
understand. therefore. that manpower utilization is the most
significant aspect of our management improvement program.
The Treasury has had a formal management improvement program
in effect since 194&. thus predating by several years the legal
requirements for such a program.
If one characteristic were to be
used to describe the program from the first. I believe it would be
common sense.
The Treasury program was born in an era when management experts
were regarded by many as some new ivory tower nonsense.
In such an
atmosphere it was necessary to proceed with the greatest caution and
fine.se to sell the program both in and outside of the Treasury.
The Treasury traditionally has been a highly cost-conscious
organization.
It has been inhabited by hard-working. conscientious
people who firmly believed that they already were giving the public
the beat service they could at the lowest cost.
not lie in curbing fancy spending habits.
The problem did
In some cases the bureaus
- 10 -
needed to be encouraged to spend more money to strengthen their
functions.
The problem was to create a climate that was self-
critical and open-minded toward change.
In those early days, one bureau, when asked by the Secretary
to survey its operations and report all areas of needed improvement,
replied in a few short sentences that no improvements were necessary.
Not long afterward a management consulting fir. vas engaged to make
a comprehensive survey of this same bureau.
The reco..andations,
which when put into effect resulted in savings of substantially over
$1 million, were an eye-opener for all of the bureaus.
Thus began
the gradual change in attitude which is now so marked throughout
the Department.
Because of the wide differences in functions, size, .cope, and
operating problems of the various bureaus, it was obvious that no
one management improvement system would be satisfactory to all.
The
bureaus were given complete latitude to tailor-make their systems to
fit their own needs, within the bDOad injunction that the system
.ust provide for the systematic and continuous review of their
operations to effect improvements.
Early in the manage.ent improvement program a Treasury Management
Committee was set up, with representation fro. all parts of the
Department.
The purpose of the Committee was to get the bureau
officials involved in charting the course of the program and thus to
stimulate bureau interest and action.
I still look to the Committee
to get the bureaus' thinking on manalement problems that arise and
as a means of coamunicating departmental policy.
- 11 -
A useful adjunct of this Committee is a so-called Alternate
Group.
The main Committee is composed of the person in each bureau
primarily charged with responsibility for administrative matters, and
is usually the deputy or assistant bureau head.
The Alternate Group
is made up largely of the persons next in line in the bureaus with
re$ponsibility for management improvement staff work.
The latter
group meets regularly to discuss current management problems.
Of
late the meetings have taken the form of workshops on matters of
common interest, such as long-range planning and manpower utilization.
Several other factors have contributed to the success of the
Treasury program.
The program always has had the strong support of the Secretary
and other top management officials.
I have mentioned already the
value of this.
I have also mentioned the advantages of a regular reporting
system.
The Department has depended strongly on such a system,
which regularly projects future plans and reports on past accomplishments.
The reports give the various management levels an opportunity
to evaluate progress, to give appropriate recognition for outstanding
results, and to furniah stimulation where needed.
In line with the principle of decentralization that governs
most of our administrative activities, we have not built up large,
highly specialized staffs of management analysts at either the
departmental or bureau headquarters levels.
We have tried to attach
management analysts, who are generalists as far as possible, to the
lowest levels in the organization that can support such efforts.
- 12 -
These people are thus available on a daily basis to the line operators
who are, after all, responsible for the success of the management
improvement program.
On a less frequent basis, a fresh look may be
taken at operations at any level by analysts higher in the organization
or from outside firms.
In an organization as large as the Treasury and with so many
paperwork operations, widespread participation by employees generally
in management improvement efforts is a must.
This has been achieved
primarily through heavy emphasis on the incentive awards program.
The proaram has paid off in the Treasury, not only in dollar benefits,
which are substantial, but in building morale and in keeping the
windows open to innovation.
Savings through the incentive awards
program increased dramatically from $2,150,000 in fiscal 1963 to
$3._,5.000 in 1964 -- an all-time high for Treasury.
Bureau achievements are recognized in a quarterly Management
Newsletter.
The Newsletter also serves to exchange information on
new techniques.
The Management Analysis Division of the Office of Managemant and
Organization, which is part of my office, provides central leadership
and coordination to the program.
It also appraises progress and
participates in some of the major aanagement surveys as time permits.
Although this Division is organized as a separate entity in order not
to de-emphasize its management improvement functions, it works
closely with the other staff services under my supervision.
- 13 -
These other offices, Budget and Finance, Personnel, and Administrative
Services, all participate in varying degre.s in management improvement
efforts and at times work together on projects.
For example, three
of the offices under my supervision are responsible for assisting
the bureaus in setting up their new position management systems in
accordance with recent Budget Bureau requirements.
The budget review process is an occasion for close inquiry into
manasement progress and plans.
Staff of the Management Analysis
Division sit in on the annual budget hearings at the departmental
level.
Employment controls are exercised through the requirement of
annual employment plans and the setting of ceiling allocations to
the bureaus with quarterly limitations and monthly analy.es.
Recently the emphasis of the Office of Management and Organization
has been on examining the basic roles and missions of the bureaus.
During the past two and one-half years, staff from this office has
spearheaded or participated in comprehensive surveys of six of the
Treasury bureaus and offices, in which 88\ of our personnel are
employed.
ODe survey, of the Mint, was made by an outside firm.
The others were undertaken by teams made up of departmental and
bureau staff.
These surveys covered the Bureau of Customs, Internal
Revenue Service, Coast Guard, Secret Service, and Office of International
Affairs.
The Treasury indeed has reason to be proud of the accomplishments
of its management improve..nt program.
its results:
Here, briefly, are some of
- l~ -
Identifiable annual savings total almost $180 million aince the
prograa began.
Civilian employment has decreased in the past 15 years in
spite of tremendous increases in work volume in all major activities.
Individual productivity is up substantially with a better quality
of service.
For exaaple:
The Division of Disbursement tripled employee
productivity and reduced the cost of issuing
checks by one half (from six cents in
19~9
to
three cents in 1964).
The Bureau of the Public Debt reduced personnel by
40% in 10 years while its workload doubled on
regular Treasury securities and the savings bond
workload increased significantly.
The Mint reduced manufacturing costs of coins to
about half of the 1951 costs.
The Internal Revenue Service reduced the cost of
collecting $100 from $1.12 to $.49 in the past
15 years.
Cost reduction is not, however, our principal goal.
to increase the effectiveness of management.
Our goal is
This I tbink we are
doing.
• • • The calibre of personnel is higher •
supervision is improved.
The qual! ty of
- 15 -
••• More and better manage.ent information i. available through
technological progress.
Deci.ion making is closer to the .cene of
operations and is more .ound •
••• The organizational .tructur. and work proc••••• are undergoing
constant streamlining •
••• There is a higher d.gree of coordination of Tr.a.ury op.rations
both in Washington and the field.
Th. Treasury ha. become a .ore
unifi.d depart..nt instead of a holding company type of organization.
These. in my opinion. are some of the real indicators of better
management. not only in the Treasury but throughout the govern..nt.
Recently a distinguished academician. who has b.en in and out
of the Federal Service several times. remarked in a ... ting that if
he were looking for staff he would go first to the be.t-managed
organizations in the country.
He said that the Internal R.venue
Service would be one of his first ports of call. and add.d that this
would not have be.n true ten y.ars ago.
This is the kind of tribute that I think should mean more to
Frank White and the other key p.ople in his organization than statistics
on savings.
It is recognition of the terrific impact that qualified
people. and sometimes a mere handful of people. can have on an
organization in a short period of time.
Frank. incidentally. is
one of those people and I was delighted to endorse th. reco...ndation
which r.sulted in his rec.iving the National Civil Service Leagu.'s
covet.d award last year.
- 16 A talk by a Treasury spokesman would not be complete without a
few comments an the payroll savings plan for Savings Bands.
Leadership
and direction have a great deal to do with the success of this progra.
also.
That is why the Treasury depends so completely on people in
your capacities for the success of the program.
The Federal executives in Dallas and Fort Worth have given us
fine support.
60.2\.
Participation in Dallas is 68.2\, and in Fort Worth
Several agencies are flying the Treasury Minute Man Flag,
which is given to large groups achieving 90\ or more participation.
These agencies include the regional office of the General Services
Administration, U. S. Army Depot at Fort Worth, and Internal Revenue
Service.
Government-wide the results have been good.
September
196~
there were
2.~
At the end of
million federal employees, military
and civilian, enrolled in the Payroll Savings Plan.
This represented
an increase of nearly 200,000 over a comparable period in 1963.
With the enthusiastic leadership of John Macy, we expect an even
greater increase in this year's campaign.
That we support the program in the Treasury ourselves is evident
from our participation statistics.
In the past half dozen years we
have steadily increased participation to a new high in
196~
of 93.7\.
All of us in the Treasury who carry a part of the responsibility
for managing the public debt are particularly conscious of the
contribution the payroll savings program can .ake to the sound
handling of our nation's finances,
Today, E and H Savings
Bonds account for 22\ of the publicly held portion of the debt.
- 17 -
New sales have been holding at consistently high levels, amounting to
$~.6
billion last year.
This is equivalent to
financing over the same period.
~O\
of our total cash
Much of this is in the form of small
bonds purchased through the Payroll Savings Plan, which now accounts
for some 60\ of all E Bond sales.
But, again, the importance of this program will not be found in
statistics alone.
What this means is that the Treasury has been able
to tap an immense source of funds that would otherwise be difficult to
reach, and to do so without an abrupt and potentially damaging impact
on flows of savings through our financial institutions or to other
borrowers.
What is more. these benefits to the Treasury have their counterpart
for the individual.
He has been afforded a convenient means of
obtaining an absolutely sate investment, promptly convertible into
cash, at an assured rate of return over a number of years.
The campaign materials you will have at your disposal this year
stress the importance of the savings bonds program to the nation as
well as to the individual investors.
Ooe point that I feel we should
get across to government employees is that every citizen buying savings
bonds is making a personal contribution to the soundness of the
American dollar. and to better debt manaaement on the part of the
Treasury.
Your efforts on behalf of the Savings Bonds Campaign will
be deeply appreciated by my Department.
- 18 -
Now that I have delivered the cOlIJIIercial, I can conclude
quickly.
I have talked pri.. rily about the Treasury's progress in manage.ent
improvement, but our experience is not unique.
The last decade and a
half have seen a dra..tic improve..nt in federal manage..nt.
be
proud of it.
We should
We all should talk IIOre about it.
But the fascinating part of our job. i. that there never is an
end to the proble..
There never i. an end to the opportunities for
further iaprove..nt..
That, I believe, is what holds so many able
people in the Federal Service in spite of some of the headaches inside
and so..times higher inco... outside.
It is fun.
It is challenging.
And it is aatisfying to be a&king a contribution, however .mall, in
the public interest.
-
~
-
Depreciation Policy
Proper depreciation policy requires that equipment
replacement practice be consistent with depreciation deductions,
so that deductions for business expenditures reasonably reflect
actual costs.
The reserve ratio test provides an objective test of the
reasonableness of taxpayer depreciation deductions.
The new
measures make the reserve ratio test useful to almost all present
and future users of the 1962 guideline procedures. Moreover,
they give taxpayers substantially more time to adjust their
actual depreciation practices by making the reserve ratio test
easier to meet during the transitional period.
Thus, all but a few guideline users will be able to take full
advantage of the 1962 depreciation liberalizations and to validate
their deduction~ without being obliged to undergo lengthy and
detailed examination of their entire depreciation practice by
the Internal Revenue Service.
(NOTE:
In addition to this release, a supplementary
release containing a more detailed description
of the proposals and their effects, with
examples, is available on request from the
Office of Information of the Treasury Department)
- 7 The Treasury did not rely solely on the NICB Survey in
making its decision. Detailed information on guideline adoption
was obtained by analyzing studies by the Internal Revenue Service
and by the Commerce Department.
In addition, information on
the number of firms which would have failed the reserve ratio
test in 1965 under the 1962 procedure was drawn from a broad
range of larger companies, as well as industry groups. The
information obtained covered electric and gas utilities,
railroads, and other industries. The information obtained from
these varied sources confirmed the high percentage of firms using
the 1962 guidelines which would fail to meet the reserve ratio
test in 1965 unless action was taken to liberalize the guideline
procedure.
Separate values for each of the three liberalizing measures
cannot be estimated accurately because the measures will be used
in combination. However, if the transitional allowance rule
were adopted by itself, it probably would allow taxpayers about
three-fourths of the $700 million to $900 million in benefits
which they would otherwise lose in 1965 through failure to meet
the reserve ratio test.
Of the remaining benefit to taxpayers by
adding the guideline form and the minimal adjustment rule,
probably the bulk of the additional benefit is provided by the
new guideline form.
The technical details of the three liberalizing procedures
and the new limitation will be published soon by the Internal
Revenue Service and will be effective for most taxpayers for
the taxable year 1965. These changes are in accordance with
the Treasury policy, announced in 1962, of keeping its tax
treatment of depreciation as up-to-date as possible.
That policy was stated in the 1962 revision as follows:
"The experience under the new guideline
lives, industry and asset classifications and
administrative procedures will be watched
carefully with a view to possible corrections
and improvements. Periodic reexamination and
revision will be essential to maintain tax
depreciation treatment which is in keeping with
modern industrial practices."
- 6 -
In order to prevent use of such techniques with the
guideline procedure taxpayers will not be allowed to use the
guideline procedure (beginning in general with the fourth
taxable year to which the guideline procedure is applicable,
which would be 1965 for calendar year taxpayers) if they use the
straight-line method or the sum of the years-digits method -unless the cost of current acquisitions is recorded in year's
acquisition accounts or in item accounts. Accounts depreciated
under the declining balance method will not be affected.
The Effect of the New Measures
Without the new liberalization, an estimated 60 percent of
larger firms using the guidelines would have failed the reserve
ratio test in 1965. Failures under the test would have reduced
the total tax benefits in 1965 resulting from the 1962 revision
estimated at $1.8 billion -- by some $700 million to $900
million.
The three liberalizing measures will allow the great bulk of
the firms which would have failed the test in 1965 to meet it.
These measures, even taking account of the limitations, will
allow such firms some $600 million to $800 million of the
benefits which otherwise they would not have been eligible to
receive.
At the request of the Treasury, the National Industrial
Conference Board last September made a survey of the
depreciation practices of several hundred large firms -- chiefly
those with assets of $10 million or more.
Of the firms surveyed,
about 60 percent were found to be using the guideline procedure
established in 1962. Since the survey, a number of taxpayers
have elected to switch to the guideline procedure, and more are
expected to do so.
Of these guideline users, about 15 percent
would have met the reserve ratio test automatically. About
25 percent more of these guideline users would have been enabled
to meet the test with the help of the transitional rule provided
in the 1962 revision. Thus some 60 percent of guideline users
in the survey would have found themselves unable to meet the
test in 1965. Based on NICB data for larger firms, with the
application of the new liberalizing changes, some 95 percent of
all adopters will be able to meet it with the help of the new
guideline form or transitional allowance rule or both. That will
leave only about 5 percent of all guideline users unable to
meet the liberalized test in 1965.
- 5 -
standard ratio is determined from the reserve ratio table or from
the guideline form. In either case, the upper limit is stated in
percentage points a The transitional allowance rule adds a certain
number of percentage points to this limit. The additional number
of percentage points for 1965 is 150 This number will gradually _.
very slowly at first -- be reduced to zero over a period of years
equal to a guide line life. (This transi tional allowance is measurl
in percentage points -- not percentQ Thus, it will be 15 points
regardless of the old upper limit figure to which it is added. It
is in percentage points because the reserve ratio itself is expres:
in percentage points both in the table and in the forma)
For example, if under the 1962 provisions the taxpayer foood 1
had an upper limit of 60 percent on the reserve ratio test for 196'
he could still meet that test if his actual reserve ratio turned
out to be 75 percent or less, because of the additional 15 percent,
points added by the transitional allowance rulea
The "Minimal Adjustment Rule"
The second new transitional rule -- the minimal adjustment ru
is designed to help those taxpayers who cannot meet the rese~e
ratio test during the transitional period even with the benefit of
the transitional allowance rule. This minimal adjustment rule is
more liberal than the previous adjustment rule which it replaces.
The old rule allowed the Internal Revenue Service to increase the
life used by the taxpayer by as much as 25 percent if the taxpayer
could not meet the reserve ratio test or otherwise justify the
guideline life he is using to calculate deductions. (Increasing
the life automatically reduces the depreciation deduction the
taxpayer can claim in any single year because it spreads the total
amount deductible over the longer period.)
Instead of the old 25 percent maximum, the new rule sets a ne'
maximum adjustment of either 5 or 10 percent, depending on the
extent by which the taxpayer fails to meet the reserve ratio test.
Moreover, adjustments can be imposed by the Internal Revenue Se~i
only in alternate years. In addition, if at any later time the
taxpayer brings his reserve ratio within the transitional limits,
will be automatically allowed to return to the useful life he was
employing before he was obliged to lengthen it under an adjustment
The New Limitations
In addition to the guideline form and the two new transitiona
rules, limitations are set on certain techniques used by some taxpayers. in calc,:"latin~ depreciation. These techniques have been fa
to be lncompatlble wlth the guideline procedure because they exag~
ate the benefits of the 1962 revision and they become particular~
inappropriate in the transitional period when_liberal transitional
rules are in forceu
- 4 depreciation deductions by an objective test
The form contains
the same 20 percent margin of tolerance as that already built into
the reserve ratio tables, so that even taxpayers who hold their
asset as much as 20 percent longer than the period over which
costs of the assets are deducted -- usually the guideline life
will still pass the test o
G
Each year the taxpayer will have the option of using the
guideline form or the reserve ratio tables.
Even in cases where
neither of these two objective tests is met, a taxpayer may still,
as in the past, demonstrate the appropriateness of his depreciaticr
practices on the basis of all the pertinent facts.
The form,
however, will allow more taxpayers to justify their depreciation
practices simply and objectively without resorting to lengthy
examinations by the Internal Revenue Service.
The New Transitional Rules
The 1962 revision provided two special rules for easing the
transition from previous depreciation practices. The first allooe
taxpayers a three-year moratorium before any test of their
deductions would be required. The second allowed a subsequent
period during which no test would be required as long as the
taxpayer's actual practice continued to move closer to the pattern
of deductions he was claiming.
Despite these liberal transition rules, studies show that
a number of taxpayers who are trying to conform their practices
to the 1962 revision will be unable to meet the reserve ratio
test.
Therefore, two additional rules are now being adopted to
ease the transition to the guidelines set forth in the 1962
revision. They are a "transitional allowance rule" and a
"minimal adjustment ruleo" The two new rules will be applicable
for a period equal to one guideline life -- which will begin,
for calendar year taxpayers, in 19650
The "Transitional Allowance Rule"
The transitional allowance rule, in effect, extends the
transitional period beyond three years.
It raises the upper limit
of the standard reserve ratio -- regardless of whether the
- 3 The New Measures
Since the 1962 revision was put into effect, two problems have
become apparent. The first is that a number of taxpayers will not
have brought their equipment replacement practice into line with
their deductions by the end of the three-year transitional period,
The second is that certain ways of computing depreciation when
combined with the 1962 changes can result in unjustified tax
benefits.
The three new liberalizing measures are designed to meet the
first problem by easing the difficulties some taxpayers otherwise
would encounter under the change-over to the 1962 depreciation
rules and guidelines. The limits on the ways in which depreciation deductions can be calculated are designed to meet the second
problem by preventing exaggeration of tax benefits.
The three liberalizing measure s include a "guide line form"
which will provide an optional substitute for the reserve ratio
tables -- as well as two new transitional rules o
The "Guideline Form"
The guideline form will allow each taxpayer to compute a
reserve ratio standard tailored to his individual circumstances.
This is important because the reserve ratio tables are desi~(
to cover the general run of taxpayers. Therefore, taxpayers who
replace equipment at irregular intervals often have difficulty in
meeting the test because the tables are based on the experience
of the average business taxpayer. The reserve ratio tables asswe
an even rate of growth" For that reason, a taxpayer who purchases
a large part of his equipment at one time could fail to meet the
standard in the reserve ratio tables because his equipment costs
are bunched and his rate of growth is uneven.
Many taxpayers who would otherwise have failed to meet the
reserve ratio test will be permitted by the guideline form to meet
it -- because it will give them an opportunity to make proper
allowance for their particular pattern of equipment acquisition.
Thus, all taxpayers will have the opportunity to justify their
- 2 -
for virtuallv ever\, item of equipment in use. It is usually to th{
advantage o{ a taxPayer to take as large depreciation deductions a~
possible as early as possible after he puts the equipment into
use -- thus the 1962 guideline procedure benefitted taxpayers
by allowing shorter useful lives.
The "Reserve Ratio Test"
As an objective test of conformity between depreciation
deductions and actual equipment replacement practice, the 1962
guideline procedure provided a "reserve ratio test."
A "reserve ratio" is the ratio of the total of depreciation
deductions already taken on assets still in use (called the
"depreciation reserve") to the original cost of those assets. Thu:
the more of the cost that the taxpayer has already taken in
deductions, the higher his reserve ratio would be. The reserve
ratio test requires that the taxpayer's actual reserve ratio be
compared to a standard range of reserve ratios appropriate to the
useful life and the method the taxpayer is using to calculate his
depreciation deductions.
The reserve ratio test is not met if the taxpayer's actual
reserve ratio exceeds the upper limit of the range of standard
ratios which is shown in the reserve ratio tables published in
1962. Such an excess may indicate that the taxpayer's actual
equipment replacement practice does not a:::cord with the useful lifE
under \vhich he has been computing his depreciation deductions.
In other \vords, failure to meet the reserve ratio test may mean
that the taxpayer has been recovering the cost of his equipment
too quickly -- over a period substantially shorter than its actual
useful life to him. Thus, raising the upper limits of the standar(
range of the reserve ratio helps the taxpayer.
The purpose of the reserve ratio test was to allow taxpayers·
b\7 comparing their actual reserve ratio with an objective standard
in the form 'Jf prepared tables reflectinG reserve ratios appropri at
to the useful lives clai:ned by the taxpayer under the guideline
procedure for the equipment involved -- to demonstrate that their
choice of the useful lives, and therefore their depreciation
deductions, were justified.
TREASURY DEPARTMENT
HOLD FOR USE IN A.M. NEWSPAPERS
FRIDAY, FEBRUARY 19, 1965
February 19, 1965
TREASURY LIBERALIZES DEPRECIATION RULES
The Treasury Department today announced three new measures
liberalizing the manner in which income tax deductions for
depreciation of plant and equipment can be taken to insure that
business will reap the full benefit of the 1962 depreciation reform,
At the same time, the Treasury limited the ways in which such
deductions can be calculated.
The combination of the new measures and the new limitations
will result in increasing depreciation tax benefits during 1965 by
an estimated $600 million to $800 million over what they would
have been if the 1962 reform had not been modified.
The 1962 Depreciation Revision
The new measures modify the depreciation rules which accompanie
the liberal guideline procedure initiated in 1962. Those rules
were part of a thorough depreciation reform designed to foster
more rapid equipment modernization.
At that time, taxpayers electing to use the guideline procedure.
were allowed three years as a transitional period. At the end of
the three years -- beginning in taxable year 1965 for most
taxpayers -- they would have been obliged to show that their actual
equipment replacement practice is either already consistent with
their depreciation deductions or clearly moving toward consistency.
The taxpayer is allowed, under the tax laws, to recover the
cost of equipment by deducting it over the period he will use it
its "useful life." The 1962 depreciation guideline procedure,
among other things, established guides for determining useful
lives, by suggesting" guideline lives 0" These suggested "guideline:
lives" covered about 75 broad classes of industries and assets,
and replaced a long list of thousands of separate suggested lives
D-1S08
TREASURY DEPARTMENT
)LD FOR USE IN A.M. NEWSPAPERS
~IDAY, FEBRUARY 19, 1965
February 19, 1965
TREASURY LIBERALIZES DEPRECIATION RULES
The Treasury Department today announced three new measures
liberalizing the manner in which income tax deductions for
depreciation of plant and equipment can be taken to insure that
business will reap the full benefit of the 1962 depreciation reform.
At the same time, the Treasury limited the ways in which such
deductions can be calculated.
The combination of the new measures and the new limitations
will result in increasing depreciation tax benefits during 1965 by
an estimated $600 million to $800 million over what they would
have been if the 1962 reform had not been modified.
The 1962 Depreciation Revision
The new measures modify the depreciation rules which accompanied
the liberal guideline procedure initiated in 19620 Those rules
were part of a thorough depreciation reform designed to foster
more rapid equipment modernization o
At that time, taxpayers electing to use the guideline procedure
were allowed three years as a transitional period. At the end of
the three years -- beginning in taxable year 1965 for most
taxpayers -- they would have been obliged to show that their actual
equipment replacement practice is either already consistent with
their depreciation deductions or clearly moving toward consistency.
The taxpayer is allowed, under the tax laws, to recover the
cost of equipment by deducting it over the period he will use it
its "useful life." The 1962 depreciation guideline procedure,
among other things, established guides for determining useful
lives, by suggesting "guideline lives o "
These suggested "guideline
lives" covered about 75 broad classes of industries and assets,
and replaced a long list of thousands of separate suggested lives
D-1508
- 2 -
for virtually every item of equipment in use.
It is usually to the
advantage of a taxpayer to take as large depreciation deductions as
possible as early as possible after he puts the equipment into
use -- thus the 1962 guideline procedure benefitted taxpayers
by allowing shorter useful liveso
The "Reserve Ratio Test"
As an objective test of conformity between depreciation
deductions and actual equipment replacement practice, the 1962
guideline procedure provided a "reserve ratio test 0"
A "reserve ratio" is the ratio of the total of depreciation
deductions already taken on assets still in use (called the
"depreciation reserve") to the original cost of those assets o Thus,
the more of the cost that the taxpayer has already taken in
deductions, the higher his reserve ratio would beo The reserve
ratio test requires that the taxpayer's actual reserve ratio be
compared to a standard range of reserve ratios appropriate to the
useful life and the method the taxpayer is using to calculate his
depreciation deductions o
The reserve ratio test is not met if the taxpayer's actual
reserve ratio exceeds the upper limit of the range of standard
ratios which is shown in the reserve ratio tables published in
1962. Such an excess may indicate that the taxpayer's actual
equipment replacement practice does not a2cord with the useful life
under which he has been computing his depreciation deductions.
In other words, failure to meet the reserve ratio test may mean
that the taxpayer has been recovering the cost of his equipment
too quickly -- over a period substantially shorter than its actual
useful life to him. Thus, raising the upper limits of the standard
range of the reserve ratio helps the taxpayero
The purpose of the reserve ratio test was to allow taxpayers -by comparing their actual reserve ratio with an objective standard
in the form of prepared tables reflecting reserve ratios appropriate
to the useful lives claimed by the taxpayer under the guideline
procedure for the equipment involved -- to demonstrate that their
chOice of the useful lives, and therefore their depreciation
deductions, were justified o
- 3 -
The New Measures
Since the 1962 revision was put into effect, two problems have
become apparent. The first is that a n"..lmber of taxpayers will not
have brought their equipment replacement practice into line with
their deductions by the end of the three-year transitional period.
The second is that certain ways of computing depreciation when
combined with the 1962 changes can result in unjustified tax
benefits.
The three new liberalizing measures are designed to meet the
first problem by easing the difficulties some taxpayers otherwise
would encounter under the change-over to the 1962 depreciation
rules and guidelines. The limits on the ways in which depreciation deductions can be calculated are designed to meet the second
problem by preventing exaggeration of tax benefits.
The three liberalizing measures include a "guideline form"
which will provide an optional substitute for the reserve ratio
tables -- as well as two new transitional ruleso
The "Guideline Form"
The guideline form will allow each taxpayer to compute a
reserve ratio standard tailored to his individual circumstances.
This is important because the reserve ratio tables are designed
to cover the general run of taxpayers. Therefore, taxpayers who
replace equipment at irregular intervals often have difficulty in
meeting the test because the tables are based on the experience
of the average business taxpayer. The reserve ratio tables assume
an even rate of growth
For that reasos, a taxpayer who purchases
a large part of his equipment at one ti~e could fail to meet the
standard in the reserve ratio tables because his equipment costs
are bunched and his rate of growth is uneven.
0
Many taxpayers who would otherwise have failed to meet the
reserve ratio test will be permitted by the guideline form to meet
it -- because it will give them an opportunity to make proper
allowance for their particular pattern of equipment acquisition.
Thus, all taxpayers will have the opportunity to justify their
- 4 depreciation deductions by an objective test o The form contains
the same 20 percent margin of tolerance as that already built into
the reserve ratio tables, so that even taxpayers who hold their
asset as much as 20 percent longer than the period over which
costs of the assets are deducted -- usually the guideline life
will still pass the testo
Each year the taxpayer will have the option of using the
guideline form or the reserve ratio tables. Even in cases where
neither of these two objective tests is met, a taxpayer may still,
as in the past, demonstrate the appropriateness of his depreciation
practices on the basis of all the pertinent facts. The form,
however, will allow more taxpayers to justify their depreciation
practices simply and objectively without resorting to lengthy
examinations by the Internal Revenue Service.
The New Transitional Rules
The 1962 revision provided two special rules for easing the
transition from previous depreciation practices. The first allowed
taxpayers a three-year moratorium before any test of their
deductions would be required. The second allowed a subsequent
period during which no test would be required as long as the
taxpayer's actual practice continued to move closer to the pattern
of deductions he was claiming.
Despite these liberal transition rules, studies show that
a number of taxpayers who are trying to conform their practices
to the 1962 revision will be unable to meet the reserve ratio
test.
Therefore, two additional rules are now being adopted to
ease the transition to the guidelines set forth in the 1962
revision. They are a "transitional allowance rule" and a
"minimal adjustment rule 0" The two new rules will be applicable
for a period equal to one guideline life -- which will begin,
for calendar year taxpayers, in 19650
The "Transitional Allowance Rule ll
The transitional allowance rule, in effect, extends the
transitional period beyond three years. It raises the upper limit
of the standard reserve ratio -- regardless of whether the
- 5 -
standard ratio is determined from the reserve ratio table or from
the guideline form. In either case, the upper limit is stated in
percentage points o The transitional allowance rule adds a certain
number of percentage points to this limit. The additional number
of percentage points for 1965 is 150 This number will gradually -very slowly at first -- be reduced to zero over a period of years
equal to a guideline life. (This transitional allowance is measured
in percentage points -- not percent o Thus, it will be 15 points
regardless of the old upper limit figure to which it is added. It
is in percentage points because the reserve ratio itself is expressed
in percentage points both in the table and in the formo)
For example, if under the 1962 provisions the taxpayer found he
had an upper limit of 60 percent on the reserve ratio test for 1965,
he could still meet that test if his actual reserve ratio turned
out to be 75 percent or less, because of the additional 15 percentage
points added by the transitional allowance rule o
The "Minimal Adjustment Rule"
The second new transitional rule -- the minimal adjustment rule
is designed to help those taxpayers who cannot meet the reserve
ratio test during the transitional period even with the benefit of
the transitional allowance rule. This minimal adjustment rule is
more liberal than the previous adjustment rule which it replaces.
The old rule allowed the Internal Revenue Service to increase the
life used by the taxpayer by as much as 25 percent if the taxpayer
could not meet the reserve ratio test or otherwise justify the
guideline life he is using to calculate deductions. (Increasing
the life automatically reduces the depreciation deduction the
taxpayer can claim in any single year because it spreads the total
amount deductible over the longer period.)
Instead of the old 25 percent maximum, the new rule sets a new
maximum adjustment of either 5 or 10 percent, depending on the
extent by which the taxpayer fails to meet the reserve ratio test.
Moreover, adjustments can be imposed by the Internal Revenue Service
only in alternate years. In addition, if at any later time the
taxpayer brings his reserve ratio within the transitional limits, he
will be aut:omatically allowed to return to the useful life he was
employing before he was obliged to lengthen it under an adjustment.
The New Limitations
In addition to the guideline form and the two new transitional
rUles, limitations are set on certain techniques used by some taxpayers in calculating depreciation. These techniques have been found
to be incompatible with the guideline procedure because they exaggerate the benefits of the 1962 revision and they become particularly
inappropriate in the transitional period when liberal transitional
rules are tn-i"orce
0
- 6 -
In order to prevent use of such techniques with the
guideline procedure taxpayers will not be allowed to use the
guideline procedure (beginning in general with the fourth
taxable year to which the guideline procedure is applicable,
which would be 1965 for calendar year taxpayers) if they use the
straight-line method or the sum of the years-digits method -unless the cost of current acquisitions is recorded in year's
acquisition accounts or in item accounts. Accounts depreciated
under the declining balance method will not be affected.
The Effect of the New Measures
Without the new liberalization, an estimated 60 percent of
larger firms using the guidelines would have failed the reserve
ratio test in 1965. Failures under the test would have reduced
the total tax benefits in 1965 resulting from the 1962 revision
estimated at $1.8 billion -- by some $700 million to $900
million.
The three liberalizing measures will allow the great bulk of
the firms which would have failed the test in 1965 to meet it.
These measures, even taking account of the limitations, will
allow such firms some $600 million to $800 million of the
benefits which otherwise they would not have been eligible to
receive.
At the request of the Treasury, the National Industrial
Conference Board last September made a survey of the
depreciation practices of several hundred large firms -- chiefly
those with assets of $10 million or more. Of the firms surveyed,
about 60 percent were found to be using the guideline procedure
established in 1962. Since the survey, a number of taxpayers
have elected to switch to the guideline procedure, and more are
expected to do so. Of these guideline users, about 15 percent
would have met the reserve ratio test automatically. About
25 percent more of these guideline users would have been enabled
to meet the test with the help of the transitional rule provided
in the 1962 revision. Thus some 60 percent of guideline users
in the survey would have found themselves unable to meet the
test in 1965. Based on NICB data for larger firms, with the
application of the new liberalizing changes, some 95 percent of
all adopters will be able to meet it with the help of the new
gUideline form or transitional allowance rule or both .. That will
leave only about 5 percent of all guideline users unable to
meet the liberalized test in 1965.
- 7 The Treasury did not rely solely on the NICB Survey in
making its decision. Detailed information on guideline adoption
was obtained by analyzing studies by the Internal Revenue Service
and by the Commerce Department. In addition, information on
the number of firms which would have failed the reserve ratio
test in 1965 under the 1962 procedure was drawn from a broad
range of larger companies, as well as industry groups. The
information obtained covered electric and gas utilities,
railroads, and other industries. The information obtained from
these varied sources confirmed the high percentage of firms using
the 1962 guidelines which would fail to meet the reserve ratio
test in 1965 unless action was taken to liberalize the guideline
procedure.
Separate values for each of the three liberalizing measures
cannot be estimated accurately because the measures will be used
in combination. However, if the transitional allowance rule
were adopted by itself, it probably would allow taxpayers about
three-fourths of the $700 million to $900 million in benefits
which they would otherwise lose in 1965 through failure to meet
the reserve ratio test. Of the remaining benefit to taxpayers by
adding the guideline form and the minimal adjustment rule,
probably the bulk of the additional benefit is provided by the
new guideline form.
The technical details of the three liberalizing procedures
and the new limitation will be published soon by the Internal
Revenue Service and will be effective for most taxpayers for
the taxable year 1965. These changes are in accordance with
the Treasury policy, announced in 1962, of keeping its tax
treatment of depreciation as up-to-date as possible.
That policy was stated in the 1962 revision as follows:
"The experience under the new guideline
lives, industry and asset classifications and
administrative procedures will be watched
carefully with a view to possible corrections
and improvements. Periodic reexamination and
revision will be essential to maintain tax
depreciation treatment which is in keeping with
modern industrial practices."
- 8 -
Depreciation Policy
Proper depreciation policy requires that equipment
replacement practice be consistent with depreciation deductions,
so that deductions for business expenditures reasonably reflect
actual costs.
The reserve ratio test provides an objective test of the
reasonableness of taxpayer depreciation deductions. The new
measures make the reserve ratio test useful to almost all present
and future users of the 1962 guideline procedures. Moreover,
they give taxpayers substantially more time to adjust their
actual depreciation practices by making the reserve ratio test
easier to meet during the transitional period.
Thus, all but a few guideline users will be able to take full
advantage of the 1962 depreciation liberalizations and to validate
their deduction~ without being obliged to undergo lengthy and
detailed examination of their entire depreciation practice by
the Internal Revenue Service.
(NOTE:
In addition to this release, a supplementary
release containing a more detailed description
of the proposals and their effects, with
examples, is available on request from the
Office of Information of the Treasury Department)
Errata Sheet
Part 1 -- Guideline Form
Page 9, Line 3:
Page 12, Line 8:
substitute "(Column B)" for "(Co1unm C)".
substitute "(Co1unm B)" for "(Colunm C)".
Part 2 -- Arransitional Rules
Page 9, next to the last line:
substitute "C" for "D".
SUPPLEMENTARY RELEASE
This supplements the Treasury Department Press Release
relating to the changes in the 1962 depreciation reform.
It
is divided into four parts:
1.
The Guideline Form
2 • Transitional Rules
3. Limitations on Some Depreciation Calculation Techniques
4.
Sources of Information on Operation of Guideline Procedure
THE GUIDELINE FORM
The reserve ratio test objectively measures the relationship
between the useful lives claimed by a taxpayer for tax depreciation
purposes and the taxpayer1s actual pattern of replacing his depreciable assets.
A IIreserve ratio II is the ratio of the total of depreciation
deductions already taken on assets still in use (the IIdepreciation
reserve ll ) to the original cost of those assets.
Under the reserve
ratio test the taxpayerts actual reserve ratio is compared to a standard
range of reserve ratios (Reserve Ratio Table) appropriate to the useful
lives and the depreciation method used by the taxpayer to calculate his
depreciation deductions and to the taxpayerts rate of growth.
The
reserve ratio test is met if the taxpayer's actual reserve ratio
is not higher than the upper limit of the appropriate range.
A taxpayerts rate of growth is determined from a published growth
table based on a simple comparison of assets in use at the close
- 2 -
of the current taxable year Hi th assets in use at the close of an
.
earlier
taxable year (lib ase year II) •
Under the grovrth table taxpayers may find that they have the
same grovrth rate although their patterns of acquiring assets are
quite different.
For example, assume that Taxpayer A had depreciable
assets in a certain guideline class of
$1,000 at the close of 1956
(the base year) and had a net addition of
$50 of assets a year for
each of the next
10 years so that at the end of 1965 he would have
total assets of
$1,500. Assume that Taxpayer B also had $1,000 of
assets in
1956 and had net additions of $250 in 1956 and $250 in 1957
and had no net additions thereafter.
At the end of
1965, Taxpayers A
and B Hould both have the same grovrth rates under the growth table
($1,500 of assets on hand in 1965 compared to $1,000 in 1956). If
they used the same depreciation methods and test life, they would
both have the same reserve ratio range and upper limit against Hhich
to test their actual reserve ratios.
- 3 The Treasury studies have shown that the Reserve Ratio Table
does not accommodate readily to the situation of taxpayers who have
certain types of irregular growth patterns (those whose acquisitions
are bunched as in the case of Taxpayer B).
The average age of Bls
equipment is greater than the average age of Als equipment; therefore, B
has properly taken more depreciation deductions and his actual reserve ratio
is properly higher than Als.
The Reserve Ratio Table, however, does not
distinguish between A and B because of the uniform growth rate assumption
used in the Table.
Thus the reserve ratio range indicatedin the Table is
the same for A and B, and thus is too low for B.
As a consequence, B
might not meet the test.
Moreover, as stated in the
1962 Revenue Procedure, the reserve
ratio test based on use of the Reserve Ratio Table is not appropriate
- 4either for a new taxpayer or for an existing taxpayer who starts
a new guideline class o
Nor is it appropriate for any taxpayer who
has a guideline class that contains relatively few assets, most
of which are retired at or about the same time.
The guideline form provides an appropriate objective test in
all of these cases.
The guideline form is designed to provide each
taxpayer with an individually tailored upper limit against which he
can measure his actual reserve ratio to determine whether his replacement practices are consistent with the useful lives he is using for
tax depreciation purposes.
The guideline form may be used as a
substitute for the Reserve Ratio TablE: at the annual election of
the taxpayer.
other years.
'rhus, he may use the form in one year and the tables in
Moreover, a taxpayer may use the form for one guideline
class and use the tables for other classes.
To use the guideline form the taxpayer need only know the gross
amount of
e~uifDent
in the guideline class that was
ac~uired
in the
- 5 current year and in each preceding year for a period of one test
life (usually the guideline life) plus 20 percent of a test life.
(This 20 percent addition furnishes the same tolerance as that
built into the Reserve Ratio Tables, so that a taxpayer may hold
assets as much as 20 percent longer than the useful life claimed
for tax depreciation and still meet the reserve ratio test.)
For example, to use the guideline form in 1965 for a guideline
class with a 10-year life, a taxpayer should ascertain the cost of
ac~uisitions back through 1954 (10 years plus 2 years).
If the taxoaver elects to use the guideline form for purposes
of the reserve ratio test for any guideline class, he should follow
the procedure outlined in the examples below.
The taxpayer 1 s actual
reserve ratio is compared with the reserve ratio limit determined by
dividing the total I1cost of assets l1
ac~uired
during the l1extended life ll
for the guideline class into the total I1computed reserve ll for the same
period.
- 6 COST OF ASSETS.--The cost of assets for any year is the annual
investment in assets (without reduction for retirements or depreciation) in the guideline class.
The annual investment includes
the cost of all assets acquired during the year regardless of present
status; i.e., it includes assets even if they have been discarded or
depreciated in part or in full.
For example; if $30,000 of assets were
acquired in 1959 and by 1965 $5,000 of those assets have been sold or
retired, $30,000 is nevertheless to be entered.
EXTENDED LIFE.--The extended life, for any guideline class, is the
test life for that class, usually guideline life, plus 20% of such
test life.
If the lIextended life II includes a fractional part of a year, the
fractional part applies to the year preceding the oldest full year
of the extended life and rnJy tne proportional part of the cost of assets
for such year is to be used.
For example, in the case of a 14.4 year
extended life, the fraction (40%) would apply to the 15th preceding
- 7 year.
For such 15th year, only 40 percent of the cost of assets
is to be entered.
COMPUTED RESERVE.--To obtain the computed reserve, the cost of assets
for each year is multiplied by the appropriate annual factor from the
Table of Annual Factors.
That Table will provide annual factors
appropriate for each test life and depreciation method (e.g., straightline, double declining balance) used for a guideline class.
Table A,
which is attached, shows appropriate annual factors for commonly used
test lives.
Different Depreciation Methods Applied to a Guideline Class Account
If the taxpayer uses more than one Depleciation method with
respect to different assets in the same guideline
clas~
he must record
the cost of assets depreciated under each method on a separate form
(as illustrated in Example 2 below).
However, in computing the reserve
ratio limi\ the total cost of assets on each such form should be added
and the grand total divided by the grand total of the total computed
reserve for each such computation.
- 8 Example l.--Taxpayer C
Taxable year:
Test life:
1965
10 years
Extended life (test life plus 20% of test life):
Depreciation Method:
A
Taxable
year
B
Cost of
Assets
12 years.
Straight line
C
Annual Factors
(from Table A) 1/
D
Computed Reserve
(Column B x Column C
1953
1954
$15,000
1.000
$15,000
1955
10,000
1.000
10,000
1956
30,000
.950
28,500
1957
20,000
.850
17,000
1958
25,000
.750
18,75 0
1959
30,000
.650
19,500
1960
25,000
·550
13,750
1961
30,000
.450
13,5 00
1962
15,000
·350
5,250
1963
25,000
.250
6,25 0
1964
15,000
.150
2,250
1965
15,000
.050
750
Total
!,/
$255,000
$150,500
Note that Table A assumes the use of the half year convention.
The annual factors should be adjusted by the taxpayer if the
half year convention is not used.
- 9 Reserve ratio limit:
(Total computed reserve (Column D))
(Total cost of assets (Column C))
150,500
255,000
59.02
If Taxpayer C1 s actual reserve ratio (the ratio of the total
depreciation deductions already taken on assets still in use
to the original cost of those assets) is not greater than 59.02,
he meets the reserve ratio test. If C's actual reserve ratio
is not greater than 74.02, he meets the reserve ratio test
with the assistance of the 15 point transitional allowance.
Example 2.--Taxpayer D
Taxable year:
Test life:
1965
6 years
Extended life (test life plus 20% of test life):
Depreciation methods:
7.2 years.
(1)
Double declining baJance-with a later switch 'co "tr8.i~h"t, line:
on assets acquired new in 1958
through 1961.
(2)
Double declining balance:
on aSGets aCQuired "~~w il-n 1.962
"throu~l." 1965.
straight line: on assets acquired
used in 1963.
- 10 Double Declining Balance--Straight Line
A
Taxable
year
1958
B
Cost of
Assets
$ 2.,000 2'
C
Annual Factors
(from Table A)
!I
D
Computed Reserve
(Column B x Column C)
1.000
$ 2,000
1959
6,000
1.000
6,000
1960
4,000
.951
3,804
1961
8,000
.852
6,816
1962
1963
1964
1965
Total
!I
?J
~20z000
~18z620
Note that if any particular asset is depreciated under more than
one method (e.g., at first double declining balance and later
switched to straight line) this combination is treated as a separate
method of depreciation for purposes of the guideline form method.
Includes only 8) percent of cost of assets aC<luired in 1958 to
reflect fractional year of extended life. It is assumed that $10,000
of property was aC<luired in 1958. Therefore, $2,000 is entered
in Column B (20% x $10,000).
- 11 Double Declining Balance
A
Taxable
year
B
Cost of
Assets
C
Annual Factors
(from Table A)
D
Computed Reserve
(Column B x Column C)
1958
1959
1960
1961
1962
$2,000
.753
$1,506
1963
3,000
.630
1,890
1964
3,000
.444
l,d32
1965
6,000
.167
1.1. 002
Total
$)4,000
~'5z 730
Straight Line
A
Taxable
year
B
Cost of
Assets
C
Annual Factors
(from Table A)
C
Computed Reserve
(Column B x Column C)
1958
1959
1960
1961
1962
1963
$2,000
.417
$834
1964
1965
Total
$2,000
$834
- 12 -
-
--:~
$18,620
-cO"tal COll:puteJ reserve
5;130
~ct~l
co~pute1
reserve
,<'a~ __ 1 tc ta~ compute1 reserve (Column D)
JD~
-
~~_
total
SL total
$20,000
-eotal cost of assets
S~
ccs~
14,000
of assets
cos~
2,000
of assets
$3 6,000
. ,::.'and tuta:i cost of assets (Column C)
'jrar.-'i total computed reserve
Grand total cost of assets
~ $25,184
~ 69.96%
$36,000
actual reserve ratio (the ratio of the total
1eductions already taken on assets still in use
to -cte original cost of those assets) is not greater than 69.96%
he ::,eets t~lc: reserve ratio test. If D's actual reserve ratio
is cct Greater than 84.960/), he meets the reserve ratio test
Hitll -eLk assistance of the 15 point transitional allowance.
L
Tuxp'1yer
$25,184
~~prLci'1tion
DIS
- 13 Table A
Annual Factors
: :
:
:Double declining:
declining:150% declining: balance with
Sum-of-thebalance
:
balance
:
shift to
: years-digits
: straight line
Ye~r:Straight:Double
:
line:
Test Life - 3 Years
4
3
2
1
1.000
.833
.500
.167
.975
.926
.778
.333
.9(J7
.813
.625
.250
1.000
.926
.778
.333
1.000
.917
1.000
.938
.813
.625
.250
1.000
.950
.667
.250
Test Life - 4 Years
5
4
3
2
1
1.000
.875
.625
·375
.125
.954
.906
.813
.625
.250
.876
.802
.683
.492
.188
.800
.550
.200
Test Life - 5 Years
6
1.000
.938
.857
1.000
1.000
5
4
3
.900
.700
.500
.300
.100
.896
.796
.942
.827
.712
.520
.200
.967
2
1
.827
.712
.520
.200
.708
.584
.405
.150
.867
.700
.467
.167
Test Life - 6 Years
--
8
7
6
5
4
3
2
1
1.000
1.000
·917
.927
.890
.750
.583
.417
.250
.083
.835
.753
.630
.444
.167
.950
.792
1.000
.951
1.000
1.000
.976
.723
.631
.508
.344
.125
.852
.753
.630
.444
.167
.905
.786
.619
.405
.143
.885
.844
1.000
-
1.,
-
: :
:
:Double declining:
:St.raight:Double declining:15~ declining: balance with
Sum-ot-thereAT:
line:
balance
:
balance
:
shift to
: years-digits
: straight line
,_
Test Life - 7 Years
9
8
'7
!
/'
0
1.00G
1.000
·929
.786
2
.643
·500
·357
.214
1
,(171
,c:,
l~
3
.942
·919
.886
.841
.870
.835
.190
·733
.7TI
.688
.563
.388
.1 43
.660
.567
.449
.298
.107
1.000
1.000
1.000
1.000
.955
.982
.9 29
.866
.TT7
.839
.714
.554
.357
.125
.860
.828
.788
.739
.679
1.000
1.000
1.000
.605
.514
.723
.631.508
.688
.563
.388
.143
Test Life - 8 Years
10
9
8
7
1.000
1.000
.938
.813
6
.688
5
.563
.438
.313
.188
.063
4
3
2
1
.935
.912
.883
.844
·792
.723
.631
.508
.344
.125
.402
.264
.094
Test Life -
.960
.881
.802
1.000
.986
.944
.875
.TT8
.125
.653
.500
.319
.111
.344
9 Years
11
1.000
.921
.852
1.000
1.000
10
1.000
.944
.833
.722
.611
.901
.881
.8l!-7
.803
.747
.822
.787
.74.4.693
1.000
.964
.892
.819
.747
1.000
.989
.956
·900
.822
.500
.389
.278
.167
.675
.582
.462
.309
.111
.558
.470
·363
.236
.083
.675
.722
.600
.456
9
,.,8(
6
5
4
3
2
1
.056
.632
.~2
. 2
·309
. ill
.289
.100
- 1':; -
: :
:
:Double declining:
:Straight:Double declining:15~ declining: balance with
Sum-of-theYear: line:
balance
:
balance
:
shift to
: years-digits
fltraight line
Test Life - 10 Years
~c-
1'"
1.000
11
1.000
10
9
7
6
.950
.B50
.750
.650
·550
5
4
3
2
1
.450
.350
.250
.150
.050
8
.845
.BIB
1.000
1.000
1.000
1.000
.879
.7~
.849
.748
.703
.967
.902
.836
·771
.105
.923
.903
.eu
.764
.105
.651
.590
.631
.511
.432
·332
.214
.015
·539
.424
.280
.100
.631
·539
.424
.280
·991
.964
.918
.855
·773
.613
.555
.418
.26Jt.
.100
·091
1.000
1.000
1.000
Test Life - 11 Years
14
13
12
11
10
9
8
7
6
5
4
3
2
1
1.000
1.000
1.000
.935
.918
.900
·955
.&78
.864
·773
.682
.591
.500
.B51
.811
·771
.127
.661
.409
.318
.227
.136
.593
.502
·391
.256
.091
.045
.860
.840
.814
.185
.151
.712
.666
.613
.552
.482
.400
.305
.195
.<X)8
1.000
1.000
·910
.90)
.848
.188
.727
1.000
.992
.910
.932
.819
.811
.661
·727
.593
.502
·391
.256
·091
.629
·515
.386
.242
.083
- 16 : :
:DoDble deci:_~ing:
:
: Streigbt:Double decJ.inirlg:15G1> declining:
Year. l~ne:
b81finc~
:
balance
'
balance wi ·:;h
sbift to
~
st:::1': ight lith"!
-----------------------
Sum-of-the:yeBrs-digits
Test Life - 12 Years
15
14
13
12
1.000
1.000
1.000
11
.958
.875
10
·792
9
8
7
.708
.625
6
5
4
3
2
1
.542
.458
·375
·292
.208
.125
.042
.855
.835
·929
.914
.897
.1.57'7
l..000
1.000
I.COO
1.000
1.000
.811
<784
1.000
.972
,994
.974
.897
,852
.753
.916
.822
.787
.718
671 0('
•
•
.744
.693
. 632
.579
.519
.860
8Cc:;
.749
.693
.632
.769
.558
.450
·372
.282
.180
0558
.470
.363
.236
.083
.590
.,481
.632
.470
.363
.236
.083
.063
Test Life
- 13
.942
J, •
.840
.686
·359
.224
. Off
Y~~ars
1.000
16
1.000
·925
.850
15
14
13
1.000
1.000
·911
.831
. 962
.895
.876
.7811.
.853
11
.885
.808
·974
12
.826
.755
.7 2 3
. 8'7~)
10
9
.795
·75'(
.687
.6 47
.601
.818
,912
.654
• 7f.r:;,
v-"
.863
.713
,802
.5 48
.661
.6oc
8
,731
.577
7
·500
.423
5
·346
.269
.192
6
4
3
2
1
.115
.038
.713
.661
.809
1.000
1.000
1.000
1.000
1.000
.995
.978
.951
·922
.731
.648
.600
.490
.527
.l!.23
.441
·339
.348
.263
.441
.451
.219
.166
·339
.219
·335
.2(9
.0'77
.058
~555
.527
.On
--------_.
.071
_'-
<~_zr_';'.
_ _ _ _ _. _
- 17 -
.
:Double declining:
:
:Straight:Double declining:15~ declining: balance with
Sum-of-theYear: line:
balance
: balance
:
shift to
:years-digits
: straight line
:
Test Life - 14 Years
17
16
1.000
1.000
.921
.908
.845
.827
1.000
1.000
1.000
1.000
15
14
13
12
11
1.000
.893
.875
.854
.830
.801
.806
.783
.157
.128
.695
1.000
.916
.927
.879
.830
1.000
.995
.981
.951
.924
10
9
.619
.6CJ7
.536
.464
·393
.168
.729
.632
.570
.659
.618
.572
.521
.463
.181
.733
.684
.632
.570
.881
.829
.167
.695
.614
.321
.250
.179
.107
.036
.499
.415
.318
.204
.071
.399
.326
.246
.155
.054
.499
.415
.318
.204
.071
.524
.424
.314
.195
.067
1.000
8
7
6
5
4
3
2
1
.964
.893
.821
.150
.684
Test Life - 15 Years
.842
.824
1.000
1.000
1.000
.918
.905
.891
.80lt.
1.000
1.000
15
14
13
12
11
.967
.900
.833
.167
.700
.874
.855
.832
.807
.711
.183
.759
.132
.702
.669
.977
.931
.840
.794
.996
.983
.963
.933
.896
10
.633
.567
.500
.433
.367
.743
.703
.651
.604
.544
.632
.591
.546
.495
.439
.749
·703
.657
.604
.544
.850
.796
.133
.663
.583
.300
.233
.167
.100
.033
.413
:392
.299
.191
.067
.TI1
.301
.231
.145
.050
.413
.392
.299
.191
.067
.496
.400
·296
.183
.063
18
17
16
9
8
7
6
5
4
3
2
1
1.000
1.000
.886
1.000
- lc) -
: :
:
:Double declining:
:Straight:Double declining:15~ declining: balance with
Sum-of-theYear: line:
balance
:
balance
:
shift to
:years-digits
straight line
Test Life - 16 Years
20
19
18
17
16
15
14
13
12
11
1.000
1.000
1.000
1.000
.925
.915
.903
.889
1.000
1.000
1.000
1.000
1.000
1.000
.979
.996
.873
.906
.855
.835
.811
.784
.753
.760
·735
·707
.677
.936
.893
.850
.807
.764-
.985
.967
.941
.908
.868
.566
.521
.472
.417
.607
.721
.678
.632
.579
.519
.820
.765
.702
.632
.555
·357
.291
.217
.1)6
.047
.450
.372
.282
.180
.063
.471
.379
.279
.173
.059
.844
.781
.719
.656
.594
.531
.469
.344
.718
.678
.632
.579
.519
5
.281
.219
.156
.094
.031
.450
.372
.282
.180
.063
3
2
1
1.000
1.000
.969
10
9
8
7
6
4
.855
.838
.82l
.803
.782
.406
.644
- 19 :
:Double decLining:
:
·
:Straight:Double declining:15~ declining: balance with
Sum-of-theYear. line :
balance
balance
shift to
:
years-digits
:
·
straight line
.
Test Life - 17 Years
----.
21
1.000
·923
.850
1.000
1.000
20
19
18
17
16
1.000
1.000
1.000
·971
·912
·913
·901
.888
.873
.856
.835
.819
.801
·782
.761
1.000
1.000
1.000
.980
·939
1.000
1.000
1.000
·997
.987
15
14
13
12
.853
.794
·735
.676
.618
.837
.815
.790
.762
.731
.738
.712
.685
.654
.620
.898
.858
.817
.776
.736
·971
.948
.918
.882
.840
7
6
.559
.500
.441
.382
.324
.695
.654
.608
.556
.497
.584
.543
.499
.451
.398
.695
.654
.608
.556
.497
.791
.735
.673
.605
.529
5
4
.265
.206
.430
·353
.267
.170
.059
.339
.275
.205
.128
.430
·353
.267
.170
.059
.448
·359
.265
.163
.056
11
10
9
8
3
2
1
.147
.088
.029
.044
- 20 -
.
..
:Double declining:
:
:Straight:Double declining:15~ declining: balance With
Sum-of-theYear: line:
balance
: balance
:
shift to
:years-digits
straight line
Test Life - 18 Years
22
'2l
1.000
1.000
·920
.910
.8J4.7
.832
1.000
1.000
1.000
1.000
20
19
18
17
16
1.000
1.000
.972
.917
.861
.899
.887
.817
1.000
1.000
.997
.988
.974
15
1413
12
.806
.872
.857
.839
.782
.762
.7l4.O
1.000
1.000
.981
.942
.904
11
.750
.694
.639
.583
.818
.796
.770
.741
.7($
.717
.691
.663
.632
.599
.865
.827
.788
.750
.711
.953
.927
.895
.857
.813
10
9
8
7
6
.528
.472
.417
.361
·306
.673
.632
.586
.534
.476
.562
.522
.479
.431
.380
.673
.632
.586
.534
.476
.763
.708
.579
.506
5
4
3
2
1
.250
.194
.139
.083
.028
.410
.337
.254
.160
.056
·323
.262
.195
.122
.042
.410
·337
.254.160
.056
.427
.342
.251
.155
.053
.800
.646
- 21 -
.
:
:Double declining:
·:Straight:Double
declining:15~ declining:
balance with
Sum-of-theYear. line
balance
balance
shift to : years-digits
·
straight line
Test Life - 19 Years
21
1.000
1.000
1.000
.918
.908
.898
.843
.829
.815
1.000
1.000
1.000
1.000
1.000
1.000
20
19
18
17
16
1.000
.974
.921
.868
.816
.886
.799
.781
.763
.742
.720
1.000
.982
.945
.908
.872
1.000
.997
.989
.976
.958
15
14
13
12
11
.763
.711
.658
.605
.553
.751
.721
.688
.696
.670
.642
.611
.578
.835
.798
.762
.725
.688
.934
.905
.871
.832
.787
10
9
7
6
.500
.447
·395
.342
.289
.652
.611
.565
.514
.457
.542
.503
.460
.414
.363
.652
.611
.565
.514
.457
.737
.682
.621
.555
.484
5
4
3
2
1
.237
.184
.132
·079
.026
·393
·321
.242
.152
.053
.309
.249
.185
.115
.039
.393
·321
.242
.152
.053
.408
.326
.239
.147
.050
23
22
8
.872
.857
.840
.821
.800
.m
-
ee -
:Double declining:
:Straight:Double declining:15~ declining: balance with
SUJl-of-theYear. line :
balance
shift to : years-digits
balance
:
:
straight line
:
:
:
Test Life - 20 Years
.840
.827
.813
.798
1.000
1.000
1.000
1.000
1.000
.804
.781
.763
.744
.724
.701
.983
.948
.913
.878
.843
.998
·990
·979
.962
.940
.725
.675
.625
.575
.525
.783
.759
.732
.702
.669
.677
.651
.622
.592
.559
.808
.773
.738
.704-
.669
.914
.883
.848
.8<JT
.762
10
9
8
7
6
.475
.425
.375
.325
.275
.632
.591
.546
.495
.439
.632
.591
.546
.495
.439
.712
.657
.598
.533
.464
5
4
3
2
1
.225
.175
.125
.075
.025
.377
.307
.231
.145
.050
·377
.307
.231
.145
.050
.390
·312
.229
.140
24
23
22
21
1.000
1.000
1.000
1.000
20
19
18
17
16
·975
.925
.875
.825
.775
15
14
13
12
11
.916
.906
.896
.885
.872
.857
.842
.824
.523
.~
.442
.397
.348
·295
.238
.176
.liO
.038
1.000
1.000
1.000
.~
- 23 -
:Double declining:
:Straight:Double declining:15~ declining: balance with
Sum-of-theYear: line:
balance
: balance
:
shift to
: years-digits
straight line
:
:
:
Test Life - 22 Years
27
26
1.000
1.000
·920
.912
.845
.835
1.000
1.000
1.000
1.000
25
24
23
22
21
1.000
1.000
1.000
·977
.932
.903
.893
.883
.871
.858
.823
.810
.796
.781
.765
1.000
1.000
1.000
.984
·952
1.000
1.000
1.000
.998
.992
20
19
18
17
16
.886
.844
.828
.811
.792
.771
.748
.729
.920
.841
·795
.750
.705
.688
.665
.857
.825
·793
·982
.968
.951
·929
.903
15
14
13
12
11
.659
.614
.568
.523
.477
.749
.724
.696
.665
.632
.641
.614
.586
.556
.523
.761
.729
.697
.665
.632
.874
.840
.802
.761
.715
10
9
8
7
6
.432
.386
.341
.295
.250
.595
.555
.510
.461
.407
.488
.451
.411
.368
.321
.595
.555
.510
.461
.666
.613
·555
.494
.429
5
4
3
2
1
.205
.159
.114
.068
.023
.348
.283
.211
.132
.045
.272
.218
.161
.100
.034
.348
.283
.211
.132
.045
.360
.7(y)
.888
.4ar
.2E5T
.2(Y)
.128
.043
TRANSITIONAL RULES
Introduction
Unde~
the 1962 Guideline Procedure, taxpayers using lives
permitted by the procedure to calculate depreciation deductions
were not required to meet the reserve ratio test for the
first three taxable years to which the guideline procedure
applied.
However, the right to use the guideline lives may be ques-
'tioned by the Internal Revenue Service, beginning in the fourth year (1965
for calendar year taxpayers), if the reserve ratio test is failed and if the
taxpayer is not demonstrating a trend toward a replacement
practice consistent with the lives used to calculate depreciation
deductions.
Under the 1962 procedure, a trend toward a con-
sistent retirement and replacement pattern is demonstrated
if, in the
Cl.u:r~nt
year, the amount by which the taxpayer IS
actual reserve ratio exceeds the upper limit of the standard
reserve ratio range is lower than the excess in anyone of the
three preceding years.
- 2 -
In order to facilitate
~Ge ~ra~sition
to the
g~iQeline
procedure,
two additional transitional rules will be authorized -- the transitional
allowance rule and the minirual adjustment rule.
The use of the new
transitional rules will begin with the fourth taxable year (1965 for
calendar year taxpayers) to which the guideline procedure applies.
Transitional Allowance Rule
As the first of the two new rules, the reserve ratio test will be considered to be met, for the fourth taxable year to which the guideline procedure
applies, if the taxpayer's reserve ratio does not exceed the upper limit
of the standard reserve ratio range by more than 15 percentage points.
Exa~ple:
Taxpayer A files his returns for the calendar
year. For 1965, the upper limit of the appropriate reserve
ratio range for one of his guideline classes is 60 percent.
The actual reserve ratio is 75 percent. For 1965, the
reserve ratio test is considered to be met for this particular guideline class since the margin of failure is not in
excess of 15 perdentage points.
7ne transitional allowance, initially established at 15 percentage
points will decline over a period of years equal to the guideline life.
One-third of the allowance (5 points) will taper off ratably over the
first one-half of the transitional period.
The remaining two-thirds
- 5 As provided in the 1962 Guideline Procedure, once the trending rule is failed, it cannot be relied on in later years; however,
the transitional allowance rule is available for the entire
transitional period.
Minimal Adjustment Rule
As the second of the two new transitional rules, the permissible
lengthening adjustments have been reduced substantially.
Under the
1962 guideline procedure, if the reserve ratio test is not met, no
adjustment to useful lives is to be made by the Internal Revenue Service
if the taxpayer is able to demonstrate, under all the facts and circumstances, that none is warranted.
If an adjustment is permitted,
useful lives may be lengthened by not more than 25 percent.
Under
the new minimal adjustment rule useful lives will not be lengthened
by more than
5 or 10 percent.
If the trending rule is not met and the IItransition limit II (the
sum of the upper limit of the standard reserve ratio range plus the
transitional aJJ.owance) is exceeded (and if the taxpayer is unable to
- 4 upper li.::i t of the standard reserve ratio range for that year and for
the tLree preceding years must all be calculated consistently, either
from tile reserve ratio table or from the guideline form. (The transitional
allowance is, of course, not used for the purpose of applying the trending rule.
Example: For purposes of applying the trending rule,
Taxpayer A, who reports on a calendar year, should make the
following calculations:
Margin by which the upper limit of the standard
reserve ratio range is exceeded
Year
1962
1963
1964
1965
1966
1967
Guideline Form
7
6
5
6
7
8
Table
9
7
6
10
9
10
For 1965, the trending rule is met since the taxpayer may
look to the results under the guideline form for 1962, i963, 1964,
and 1965. Using the form, the margin of failure in 1965 (6 percentage points) is lower than it was in one of the three preceding years (1962 -- 7 percentage points).
For 1966, the trending rule would be failed if the taxpayer
looked to the guideline form, but is met since he may look to
the tables. Using the table, the margin of failure in 1966
(9 percentage points) is lower than it was in one of the three
preceding years (1965 -- 10 percentage points).
For 1967, the trending r~le is not met if the guideline form
is used for that year and the three preceding years; nor is it
met if the table is used.
Accordingly, the trending rule is
not met for 1967, notWithstanding that the margin of failure in
1967 using the guideline form is lower than the margin of failure
for 1966 using the table.
- 5 As provided in the 1962 Guideline Procedure, once the trending rule is failed, it cannot be relied on in later years; however,
the transitional allowance rule is available for the entire
transitional period.
Minimal Adjustment Rule
As the second of the two new transitional rules, the permissible
lengthening adjustments have been reduced substantially.
Under the
1962 guideline procedure, if the reserve ratio test is not met, no
adjustmeut to useful lives is to be made by the Internal Revenue Service
if the taxpayer is able to demonstrate, under all the facts and circumstances, that none is warranted.
If an adjustment is permitted,
useful lives may be lengthened by not more than 25 percent.
Under
the new minimal adjustment rule useful lives will not be lengthened
by more than
5 or 10 percent.
If the trending rule is not met and the Jltransition limit II (the
sum. of the upper limit of the standard reserve ratio range plus the
transitional a.:uowance) is exceeded (and if the taxpayer is unable to
- 6 demonstrate, under the facts and circumstances} that a lengthening
adjustment is not warranted), useful lives will be lengthened under
a sliding scale.
If the actual reserve ratio exceeds the transition
limit by less than 10 points} the useful life may not be lengthened by
more than 5 percent.
If the transition limit is exceeded by 10 or more
points, the useful life may not be lengthened by more than 10 percent.
Under the minimal adjustment rule, the useful lives will be
lengthened for the year of failure (that is, if the transition limit
is exceeded, the trending rule is not met) and adjustment is not precluded because of facts and circumstances). However, no adjustment
will be made for the year immediately subsequent to a year for which
a lengthening adjustment has been made.
Example: Taxpayer A, who reports on the calendar year
and uses a 10-year guideline life, makes the follOwing calculations:
Year
1962
1963
1964
1965
Upper limit of the Transistandard reserve
tional
ratio range
Allowance
50
51
51
50
15
Transition
limit
65
Actual Margin
Reserve
of
Ratio
Failure
53
55
55
55
- 7 For 1965, tne trenciin,s rule is net l":'.e-u sir-.. ce ti:.e n~a:'::-G:.r. . 0::
i'ail;.ll:e ir. 1965 is not lm-rer than it -,;as in 3....'1Y one of t~J.e "Vr.ree
:freceding years
(:rhus, A r.:.ay not rely on the trendir.g :.::-ule fer
any future year.) lim{ever, no lengthenir.s adjust::-.. ent ,-rill be r:lade
since the actual reserve ratio (55 percent) does not exceeci the
transition limit (65 percent).
0
14
13
49
51
63
64
72
68
9
4
For 1966, since the actual reserve rauio exceeds the transition
limit by less than 10 paints, the useful life for 1966 ~y be lengthened
by 5 percent to 10.5 years. Since an adjustrr..ent ,{as made for 1966, no
ad~ustment may be rr..ade for 1967.
1968
1969
1970
1971
51
50
51
12
li
10
49
8
63
61
61
57
73
65
10
7J
7
9
69
l2
For 1968, since the transition limit is exceeded by 10 points
and since no adjustment Has made for 1967, the useful life for 1968
way be lengthened by 10 percent to 11.5 years (10.5 years plus 10% x
10 = li.5). Since an adjustment Ims made for 1968, none l":'w.y be made
for 1969.
For 1970, since the margin of failure is less than 10 points the
useful life for 1970 may be lengtnened by 5 percent to 12 years
(11.5 plus 5% x 10 = 12).
No adjustment may be made for 1971 since one was made for 1970.
Taxpayers rill be permitted to return to tne original useful lives
If, in any year
reserve ratio
e~uals
subse~uent
to a lengtnening adjustment, the actual
or is below the transition li:::lit, the taxpayer rili
be permitted to use, for that year, the useful life used at the
of the transitional period.
beg~'1ing
-
,
\)
-
Exc:.u;lple: If under the facts presented in the preceding
example, the actual reserve ratio for 1971 were 57 or less, the
useful life for 1971 would be decreased to 10 years.
Termination of transitional period
The transitional period will terminate at the end of the taxable
year in which the transitional allowance expires.
Example: If the guideline life is 10 years, the transitional
allowance for 1974 is two points, and there is no allowance for 1975.
1974 is the last year of the transitional period.
If the transitional period has expired, no further lengthening
adjustment may be made until the fourth taxable year after the last
adjustment.
Example: Taxpayer Bls useful life was lengthened for 1971
and the transitional allowance expired in 1972. No additional adjustment may be made to B's useful life for 1973, or 1974. For 1975
an adjustment may be made in accordance with the 1962 Guideline Procedure.
A special rule will be available to those taxpayers for whom the
cumulative lengthening adjustments
e~ual
or exceed
to the expiration of the transitional period.
25 percent prior
Such a taxpayer may elect
to terminate the applicability of the minimal adjustment rule.
If he
- 9 so elects, he will not be subject to any further lencthcni:l.:3 o.djustr::tent until the fourth to.xo.blc yeo.r o.:fter the year for 'dhich
bis cumulative lenGtheninG ildju.::;tl;'211t i'il'ct
r(:~cI::.cd
25 ;,ercent ,
~
and any subse<luent lengthenin:3 o.aj-,,"stment HOl.<ld be oo...:;(;d on all the
facts a..'1d circumstances.
Of courc e, if) during the balance of the
transitional period, his actual reserve ratio E::<luals or is less
than the transition limit, he rr,ay return to the class lii'e used at
the beginning of the
transitiona~
period.
Example: To.xpayer C, who reports on a calendar year) has
an lS-year guideline life. His us eful life was lengthened by
10 percent for 1975 and this brought his cumulative 1ent;thening
adjustment to 30 percent. C:s actual reserve ratio exceeds the
transition limit for 1916, 1977, 1978 and 1979. For 1977 and
subse<luent years, C chooses to terminate the applicability of the
minimal adjustment rule so no lengthening adjustment may be made
for 1976, 1977 or 1978. A lenGthening adjustment under all the
facts and circumstances may be made for 1979.
In 1980, Cls actual reserve ratiO e<lualed or was less than
the transition limit. D may again use an 18-year useful life to
calCUlate depreciation for 1980.
LIMITATIONS ON SOME DEPRECIATION CALCULATION TECHNIQUES
Treasury studies indicate that certain depreciation calculation
techniques, used in conjunction with the transitional rules contained
in the 1962 Guideline Procedure, have resulted in exaggerated depreciation deductions.
Frequently, the cost of numerous items of equipment is recorded
in one account called a IImultiple asset account. II
multiple asset account is one
An lIopen-endll
which contains the cost of equipment
acquired in the current year and in prior years.
The use of open-end
multiple asset accounts has been regarded as an acceptable accounting
technique.
At the same time it has been recognized that this practice
does involve difficult problems.
Depreciation rates (which are based on
the useful life and method used by a taxpayer) applied to open-end multiple
asset accounts must be kept under constant surveillance in order to
prevent the depreciation reserves from becoming too large relative
to the cost of equipment.
The useful life of new additions to
the accounts and timing of retirements must be studied
- 2 -
continuously in order to keep annual depreciation deductions consistent
with actual practice.
The reserve ratio test is designed to perform this function objectively.
However, jl:ring the transitional period, the reserve ratio test is not applied
in full.
As a result, if certain depreciation methods are used in combination
with open-end multiple-asset accounts} the annual deductions for depreciation
may be seriously exaggerated.
The National Industrial Conference Board survey and other studies
have indicated that there is a direct relationship between the use of openend multiple-asset accounts with the straight-line method or the sum-of-theyears-digits method and the incidence and degree of failure to meet the
reserve ratio test.
These studies also show that the use of these depre-
ciation techniques greatly increased after issuance of the
1962 Guideline
Procedure.
If either the straight-line or the sum-of-the-years-digits method is
used to
cal~ulate
depreciation, the amount of the depreciation deduction
is the produce of the rate of depreciation times the total original cost
of equipment that is still in use.
Thus, the longer equipment is
- 3 kept in use, the larger such total original cost arid the larger the current
depreciation deduction, assuming the depreciation rate remains constant.
Example 1. Ass~~e that early in 1963, Taxpayer A ac~uired for
$8,000 one light-weight general-purpose truck WhlCh he
iepreciates under the straight-line method over the fouryear life provided in the 1962 guideline procedure. (Assume
also that A estimated that the salvage value of the truck was
less than 10 percent and therefore may be disregarded.) Thus,
Taxpayer A uses a 25 percent rate and claims a depreciation
allowance of $2,000 per year with respect to the cost of such
truck. At the end of 1965, Taxpayer A will have had total deprecitition
deductions of $6,000 and will have a remalning undepreciated
cost of $2) 000, whi ch he will recover in 196 6.
Assume further that Taxpayer A acquires a second similar
truck in 1966. If A places the cost of second truck in a
separate account and uses the same method and rate, he will
recover $2,000 per year in depreciation for the years 1966
through 1969 with respect to the second truck. Thus, he will
have a total depreciation deduction of $4,000 for 1966 and
$2,000 in each of 1961, 1968 and 1969. He will not have
depreciated the full cost of the second truck until the end
of 1969.
However, if A were to place the cost of the second truck
in the same account as the cost of the first truck, the original
cost in such account would become $16,000)assuming that the
first truck is not retired. At the 25 percent rate applicable
for the 4 year guideline life, A would have $4,000 of depreciation for 1966 $4) 000 for 1967 and would exhaust the account
by a deduction of $2,000 in 1968. Thus, A would have exaggerated
his depreciation deductions so as to recover the full cost of
the second truck in two and one-half years instead of the four
years prescribed by the guideline procedure.
Example 2. If Taxpayer C and Taxpayer D both acquire $10,000
of equipment in every year and they each use the straight-line
method with a 10-year useful life, their current depreciation
deductions would be the same if they kept their equipment for
the same length of time. However, if C keeps his e~uipment
for 15 years and D for 10 years, C's depreciation deduction
would be greater because the total cost of his equipment still
on hand is greater. Thus, after 15 years C's deduction is
$15,000 per year and D's is $10,000 per year. ($150,000 x 10%
versus $100,000 x 10%). Thus, C exaggerates his deduction
for current acquisitions by merging their cost into an account
which contains the cost of overage assets. This exaggeration
encourages retention of old assets and runs contrary to the
policy of encouraging modernization of equipment.
- 4 -
During ~ormal periods, the taxpayer's depreciation rate can be
adjusted to keep depreciation deductions consistent with replacement
practices.
That is, if equpment is kept longer, the depreciation rate
will be reduced.
(The depreciation rate is determined from the
useful life and the depreciation method.
the lower the rate.
The longer the useful life
Thus, under the straight-line method, if a 10-year
useful life is used, the rate is 10 percent; if a 20-year life is used,
the rate is 5 percent).
During the transitional period under the Guideline Procedure,
depreciation rates cannot as readily be adjusted because of the liberal
transitional allowance and the minimal adjustment rules.
Therefore, if open-
end multiple-asset accounts are used with the straight line or sum-of-theyears-digits method during the transitional period, exaggerations of depreciation deductions occur
With year's acquisition accounts and with
item accounts, such exaggeration does not occur.
(A year's acquisition
account is one which contains only the cost of equipment acquired in that
one year; an item account contains the cost of only one piece of equipment.)
Under the year's acquisition or item account
technique~
when a
- 5 -
piece of equipment is held for a period longer than
the life used to calculate its depreciation, its cost
does not continue to enter into the base used to calculate current
depreciation on the other remaining assets.
of the current deduction.
This prevents exaggeration
For instance in example 2 if the over 10-year-
old property ($50,000) were, not included in the depreciable base,
CIS
deduction would be $10,000 (like Dts) and not $15,000.
Consequently) beginning in the fourth taxable year (1965 for
calendar year taxpayers) to which the 1962 Guideline Procedure
applies) taxpayers will not be permitted to use the Guideline Procedure
if the cost of current acquisitions of equipment is recorded in
open-end) multiple asset accounts and depreciation for these accounts
is calculated under either the straight line method or the sum-of-theyears-digits method.
If either of these methods of depreciation is
Used and the taxpayer wishes to use the Guideline Procedure) the cost
of assets purchased in the fourth and subsequent taxable years to which
the Procedure applies) must be recorded in "year's acquisition" accounts
or in "item" accounts.
- 6 If a declining balance method is used to calculate depreciation,
then open-end) multiple-asset accounts may continue to be used.
Under
the declining balance method, depreciation is computed on a base which
is diminished each year by the amount of depreciation already deducted.
Hence, if the declining balance method of depreciation is used, any
gross exaggeration of current deductions due to an extensive amount of
overage property in use is not possible.
Special Rule for Certain Accounts Depreciated Under the StraightLine Method
Taxpayers may not use the Guideline Procedure for the third taxable
year to which it applies
(1964 for calendar year taxpayers) with respect
to a guideline class if the cost of any equipment in that guideline
class acquired in the third taxable year is depreciated under the
straight-line method, unless a year's acquisition account or item
accounts are used or unless one of the following exceptions applies:
- 7 (1)
The taxpayer used the straight-line method for
all equipment within that guideline class which was acquired in the second taxable year (1963 for calendar
year taxpayers) and recorded the cost of those assets in
open-end multiple-asset accounts.
(2)
The taxpayer (not covered by exception (1)) planned
to adopt the straight-line method to depreciate assets acquired
in the third taxable year and to record the cost of those
assets in open-end multiple-asset accounts, and he demonstrates
to the Internal Revenue Service that he has already placed
sUbstantial reliance on the prior rules in his planning.
(For example, the taxpayer had, prior to the date of this release, made a public announcement of earnings based on such
plan that would be significantly changed if the use of the
plan were not permitted.)
- 8 This special rule does not apply in the case of taxpayers
whose income tax return
f'01'
such third taxable year is due on or
before February 28, 1965 (wi U:..out regard to extens ions of time).
Examples:
(1)
Taxpayer X, who reports on a calendar year,
has recordeci the cost of equipment purchased
prior to 1954 in one multiple asset account
for which depreciation is calculated under the
straight-line method. The cost of all assets
purchased from 1954 through 1963 is recorded
in one account for vThich depreciation is calculated
under the declining balancE: method.
X purchased $1,000,000 of equipment in 196~.. He
may not use the guideline procedure (unless the
substantial reliance exception applies) if he adds
this cost to the previously established straightline account. If he chooses, he may add it to
the declining balance account and the guideline
procedure would be available.
(2)
Taxpayer Y, who reports on the calendar year and
who commenced operations in 1955, has consistently
used the sum-of-the-years-digits method, and recorded
the cost of equipment in one open-end account.
Y purchased $2,000,000 of assets in 1964, $1,000,000 in
1965 and $1,500,000 in 1966. Y desires to use the
"guideline ll procedure for 1964 and subsequent years.
The cost of the 1964 acquisitions may be recorded in the
previously established open-end account. The cost of the
1965 acquisitions may not be added to the previously
established account but should be recorded in a separate
year's acquisition account if the taxpayer wants to use a
multiple asset account for which depreciation is calculated under the sum-of-the-years-digits method. Similarly, the cost of the 1966 acquisitions should be recorded
in a separate year's acquisition account for 1966 if the
sum-of-the-years-digits method is used.
SOURCES OF INFORMATION ON OPERATION OF GUIDELINE PROCEDURE
The Treasury Department has gathered information from numerous
sources in conducting its review of the 1962 Guideline Procedure,
leading to the
~resent
changes.
The pertinent findings are discussed
in this memorandum.
I.
Special Survey of Corporate Guideline Depreciation and the
Investment Credit De artment of Commerce Office of Business
Economics 1
The first major source of information on the operation of the
new guideline procedure was a special survey of corporations conducted
in April and May 1963 by the Office of Business Economics) Department
of Commerce.
About 6)200 of the 9)000 corporations receiving ~uestion-
naires responded) of which 5)440 companies supplied usable information.
Tax Benefits
A major finding of this early survey was that corporate depreciation allowances for tax purposes in 1962 totaled about $27.7 billion
or $4.1 billion mOre than in the previous year.
Sixty percent of this
increase) or about $2.4 billion) was attributable to the 1962 Guideline
Procedure, since the normal increase in depreciation due to growth of
productive facilities would have been about $1.7 billion in the absence
of the new depreciation rules.
As a result of the Guideline Procedure)
corporation income taxes were about $1-1/4 billion lower than otherwise.
1J
Published in an article by Lawrence Bridge) ttNew Depreciation Guidelines
and the Investment Credit) Effect on 1962 Corporate Profits and Taxes) It
Survey of Current Business) July 1963.
- 2 De~reciation~ed~c~~ons b~~uid~lin~U!~_~~~Non-~uidel~~e Use
The survey elso found that corporations electing to use the guidelines in 1962 accounted for
$1~.8
billion or almost 55 percent of total
corporate depreciation allowances in 1962.
For these firms, the guide-
line system resulted in an increase of almost one-fifth in depreciation
deductions in 1962.
Rate of Adoption and Reasons
About 53 percent of the corporations surveyed indicated they would
use the Guideline Procedure.
Corporations that bad decided not to use the guidelines were asked
to indicate briefly their reasons.
Most of these companies stated the
use of the guidelines afforded no appreciable tax saving or that management preferred the existing procedures.
This is not surprising since
it was recognized at the time the 1962 Guideline Procedure was published
that many companies already used lives as short as the guideline lives.
Only 5 percent of the respondents with 3 percent of the depreciation
indicated concern that the "reserve ratio is or will be too high."
Smeller companies were less inclined to use the guidelines than
larger enterprises.
This too is consistent with expectations at the
time the 1962 Guideline Procedure was published.
Small bUSinesses
frequently did not need the guidelines since in 1962 they already were
using depreciable lives shorter than those used by the large firms.
Studies indicate that this is a consistent pattern in industry after
industry.
- 3 Table 1 provides data frOli Internal Revenue Service, "Statistics
of Income," concerning the aggregate effective depreciation rates for
corporations by size in the period just before the publication of the
1962 guidelines.
It is clear that the effective depreciation rates
decline a8 the size of the business becomes larger.
This means that
the smaller the firm the shorter the average useful tax life.
Another reason for anticipating that small business would not
generally elect the guidelines was that small corporations did not
fully utilize the opportunities to increase depreciation deductions
that were available to them before 1962.
In a 1961 Treasury study,
it was found that only 36 percent of small companies used the additional
first-year depreciation allowance.
In addition, as shown in Table 2,
small firms made far less use of the accelerated depreciation methods
than did larger firms.
II.
Internal Revenue Service Special Tabulation of Depreciation
Deductions for 1962 und~.r R~venue Procedure 62-21
-The results of a special tabulation of the 1962 depreciation
deductions claimed on income tax returns by nonfinancial corporations
with total assets of $25 million or more, prepared
by
the Statistics Division, Internal Revenue Service, are presented in
Table 3.
As shown in Table 3, there were almost 2,000 nonfinancial corporations in 1962 that reported total assets of $25 million or more on their
income tax returns and these accounted for about 58 percent of the total
depreCiation claimed by all corporations in 1962.
- 4 Nearly two-fifths of these companies (a lesser proportion than found
in the Commerce survey) reported that they had elected to use the
Guideline Procedure for part or all of their depreciable assets.
This
data for 1962 understandably understates the depreciation actually
claimed under the Guideline Procedure.
Some companies may not have
reached a decision to use the Procedure which they could affirm at time
of filing their 1962 tax returns.
others may intend to have their depre-
ciation deductions examined under the Guideline Procedure but did not
explicitly indicate this on their 1962 tax returns because they were not
required to do so at time of filing.
To a lesser extent, still others
may have adopted the Guideline Procedure but failed to supply information to this effect on their returns.
III.
National Industrial Conference Board Survey of Depreciation
Practices
A depreciation survey was undertaken for the Treasury by the National
Industrial Conference Board (NICB) in the fall of 1964 to obtain comprehensive data on company experience under the Guideline Procedure.
Coverage and Response Rate
The NICB questionnaire was sent to a panel of nearly 1,000 large
manufacturing corporations.
About 475 or roughly one-half of the
cODlpanies receiving questionnaires produced usable responses.
These
responses reported total depreciable assets of over $106 billion at the
end of 1963,cr about 55 percent of the depreciable assets of all manufacturin[ curporations (21 percent of the depreciable assets of all
corporations).
- 5 Adoption of the Guidelines
Of the companies furnishing usable reSIJonses 63 IJercent
indicated they had adopted the guideline procedures for the bulk of the
depreciable assets employed in their principal line of business
activity.
y
The 297 responding companies indicating that they had adopted
the guidelines reported total depreciable assets in 1963 of about
$77.5
billion or about 40 percent of the depreciable assets of all
manufacturing corporations.
While the survey panel does not strictly
represent a statistical sample of corporate enterprise as a whole, its
coverage of depreciable assets in the manufacturing sector is so
comprehensive it can be relied on to reflect major trends and developments in the depreciation area.
Reasons for Non-adoption
Consistent with prior studies of reasons for not adopting the
guidelines, expectation of failure to qualify under the reserve ratio
test was of relatively minor importance among the reasons cited.
The
~7 The NICB survey shows that a greater percentage of businesses adopted
the Guideline Procedure than is indicated by either the Internal Revenue
Service or Department of Commerce surveys. The increase in the rate of
adoption between the Commerce and NICB studies may be attributable to
the facts that the NICB surveyed only large companies and the NICB survey
was more recent. In the year and one-half between the Commerce and NICB
surveys, businessmen had more time to weigh the benefits of the Guideline
Procedure.
It is also expected that as more and more tax returns for 1962 and
later years are examined (and in some of the NICB cases depreciation
deductions for 1962 had been examined by the Internal Revenue Service),
more taxpayers will turn to the Guideline Procedure to support their
depreciation deductions or to curtail any examination of the depreciation
records. This should increase the rate of adoption beyond that indicated
by the NICB survey.
- 6 -
major reason cited by the NICB panel for non-adoption was that tax lives
were already equal to or shorter than the guidelines.
As stated earlier,
this is consistent with the results expected when the 1962 Guideline
Procedure was adopted.
Anticipated
Experien~e
under the Reserve Ratio Test
Some 277 companies or all but a handful of the 297 responding
guideline adopters reported on their anticipated experience under the
reserve ratio test tor 1965.
About 87 percent of these 277 companies
indicated they expected to fail the basic reserve ratio test under the
1962 Guideline Procedure.
These companies held about 88 percent of the
total depreciable assets reported by the 277 companies.
The range of
passing and failing and the average deviation are shown respectively in
Tables 4 and 5.
Of the 87 percent which did not expect to qualify under the basic
reserve ratio test, some 68 percent indicated they also would not
qualify under the "trending II rule.
Thus) about 40 percent of a]
reporting
guideline adopters expected to qualify either under the basic reserve
ratio test or under the trending rule set forth in the 1962 Guideline
Procedure.
Causes of Failure
About one-half of the companies which expected not to qualify under
the 1962 Guideline Procedure reported that a reason was insufficient time
to adjust to the shorter guideline lives.
An almost equally frequent
reason cited was that it was considered uneconomical to retire assets
at the end of the time period represented by the guideline lives.
- 7 Additional depreciation generateu on "fully ueIJreciated assets It
restored to or retained in multiple-asset accounts was
cited by about one-third of the companies.
IrreGular patterns of
investment or additions to uepreciable accounts was another factor)
cited by about one-quarter of the firms. (See Table 6. )
Effects of the New Rules
1.
Effect of new 1
in 19 5
percenta e
oi'rL transi tional allowance
The 15 percentage point transitional allowance deals with the
major cause of nonqualification cited by the panel--inauequate time to
adjust to the new guideline lives.
It will allow taxpayers a longer
period to adjust to the new guideline lives.
The addition of the 15 percentage point transitional allowance alone
will increase the
percenta~e
of reporting guideline-using companies which
would automatically Clualify from about 40 to about 75 percent.
2.
Effect of the new [';uideline form
The guideline form alternative was directed towaru another major
cause of failure of the test--irregular additions of depreciable assets
which led to erroneous results under the tabular method of applying the
reserve ratio te::;t because the table assumes constant rates of Growth.
fro test the effect of the new guideline form alternative in applyinG
the reserve ratio test) u follow-up survey was made by the NICB of all
guideline-us inc; companies which ex.}Jccteu to fuil the basic reserve ratio
-stest (230 compu.nies).
These 238 companies included 72 companies which indicated
they would fu.il the basic reserve ratio test by
more.
15 percentage points or
The response to this follow-up survey was approximately
55 percent
(128 companies)] and included 36 of the 72 companies which expected to
fail the basic reserve ratio test by
As shown in Table
7,
15 percentage points or more.
the use of the guideline form itself reduced
the expected margin of failure below
15 percentage points for 24 companies
Or two-thirds of the 36 companies otherwise unable to qualify even with the
transitional allowance.
Of the remaining 12 companies] two would be enabled
to qualify under the trending rule.
The results indicated that the combination of the
15 percentage point
transitional allowance and the new guideline form alternative] including
its use with the trending rule] would permit all but about 7.8 percent of
responding companies which expected to fail the basic reserve ratio test
to qualify under one or more of the new test rules.
This small group of
companies would represent only about 6.7 percent of all responding guidelineusing companies in the NICE panel.
In addition to reducing to a small percentage the number of taxpayers
who do not meet any of the tests] the guideline form alternative substantially increased the margin of qualification for a large proportion of
otherwise qualifying companies.
About 20 percent of the responding
companies ',{hich ',{ould otherwise fail the basic reserve ratio test were
able to pass 'vri th the cuideline form.
In addition] the new guideline form
- 9 -
appeared to reduce the average margin by which reserve ratios exceeded
the reserve ratio standard by some five percentage points as compared
with consistent use of the table method.
A minority of the companies
did not do as well under the guideline form as under the original
table method.
However) since the guideline form is optional) it will
not work to their disadvantage.
Eliminating companies that did not do
as well under the guideline form) the average net improvement as a result of the guideline form option was substantially greater than five
percentage points.
3.
Depreciation calculation technig,ues
The NICB survey showed that exaggerated depreciation deductions
resulted from the interplay of open-end multiple-asset accounts with
straight-line and sum-of-the-years-digits (SYD) depreciation methods.
This cause of failure of the reserve ratio test is dealt with by the
new constraints on inappropriate depreciation calculation techniQues.
As shown in Table 8,
some 47 percent of the respondents that ex-
pected to fail the basic reserve ratio test had switched to open-end
accounts after adopting Revenue Procedure 62-21.
Among companies
expected to pass, there was relatively little switching to openend accounts.
A switch to open-end accounts was typically combined
with the use of straight-line and SYD methods since 80 percent of the
depreciation claimed by switchers was calculated under the straight-line
or SYD method and only 20 percent under a declining balance method.
contrast) firms continuously using open-end accounts calculated about
In
- 10 one-half their depreciation deductions under a declining balance method;
firms which use year's acquisition
accounts both before and after
adopting the Guideline Procedure calculated about 36 percent of their
depreciation under a declining balance method.
(See Table
9.)
Table 10
shows that taxpayers who switched to open-end accounts after adopting
the Guideline Procedure were more likely to fail the reserve ratio test
and to fail it by a larger margin than those who consistently used openend, single asset or year's acquisition accounts.
"Booking" of Tax Depreciation
More than, 80 percent of responding companies expecting to fail the
test did not ''book'' their tax depreciation for purposes of their general
financial statements.
In contrast, companies which ''booked'' their tax
depreciation tended to have a better record with respect to the expected
margin of failure.
IV.
$pecific Industry Studies and Other Infor.mation Sources
In addition to the basic statistical information on the operation
of the guideline system provided by the NICB survey, the Commerce survey,
and Internal Revenue Service data, the Treasury has obtained highly
useful material from other sources.
Trade Associations and Business Groups
Data have been furnished on a confidential basis to the Treasury
by major business groups and trade associations which throw important
light on their position with respect to the reserve ratio test and the
effectiveness of the new changes.
The Treasury's study of the working
of the guideline system also included field interviews with the management
- 11 -
of selected firms in various industries, together with lJilot studies and
actual case testing of new features of the reserve ratio test, such as
the guideline form.
The Department has also talked with particular
taxpayers who submitted valuable comments and observations on the
guideline system and possible improvements thereinj it has also received valuable advice and insights from outside economists, accountants
and attorneys.
General Consistency of Findings with NICB Survey Results
The findings from these other sources have been generally consistent
with those which emerged from the NICB survey.
In particular, the
findings with respect to non-manufacturing corporations, such as electric
and gas utilities and railroads, indicated results similar to those shown
by the NICB survey which was confined almost entirely to manufacturing
corporations.
These other sources have shown that a defect in the original reserve
ratio test lay in the fact that the tables providing the reserve ratio
standards assume a constant uniform rate of growth.
method, while
The original tabular
effective for many taxpayers, was found to be
not well adapted to the situation of many taxpayers with irregular or
fluctuating additions to their depreciable property accounts.
The original 3-year transitional period was found generally to be
too short a period for taxpayers to make the transition from the equipment
lives previously used to the new guideline lives.
Many industries were
found to be in a transitional period to a new technology and more modern
retirement practices
re~uiring
additional time which will be facilitated
by the new liberalized transitional rules.
- 12 -
The oriGinal adjustment table with its maximum 25 percent lengthening
of tax life in the event of failure of the test was found to be too
:::evere in its possible impact.
This led to the formulation of the new
mere moderate and gradual adjustment provisions, geared in part to the
margin of excess over the appropriate 'reserve ratio standard.
'l'here were als0 widespread indications that the use of straight-line
and sum-of-the-years-digits methods of depreciation in combination with
open-end accounts were resulting in excessive and unintended rates of
depreciation.
These conditions led to high reserve ratios and serious
difficulties under the test.
The treatment of overage property, heavily
depreciated under previous methods and added to the depreciable base under
the new guideline grouping procedures, aggravated these problems.
The
new restrictions on the use of open-end accounts with straight-line and
sum-of-the-years-digits methods of depreciation were indicated to be
efl'ecti ve in dealing with these defects.
Businessmen, trade associations, and other industry representatives
a~
th'~
well as economists and tax practitioners
a~nost
universally expressed
view that the guideline lives were quite liberal.
There also appeared
to be a broad consensus that the major technical defects of the reserve
ratio test are eliminated by the present improvements.
Thus, in its
revised fOrTI, the reserve ratio test can play an important role in the
tax structure, assisting business in its continual re-examination of
modernization pOlicies.
The reserve ratio test, through its objective
- 13 rules, can effectuate major savings in the burden of compliance and
administration in the depreciation area and obviate the uncertainties
and non-uniformities that arose under the previous system.
- 14 -
Table 1
Effective Depreciation Rates for Corporations With
Net Income in All Industrial Groups
($000)
Depreciation
Depreciable
Number of
allowance
assets
returns with
net income
for year
{gross}
.
Assets
$1 - 25
25 - 50
50 - 100
100 - 250
250 - 500
500 - 1,000
1,000 - 2,500
2,500 - 5,000
5,000 - 10,000
10,000 - 25,000
25,000 - 50,000
50,000 - 100,000
100,000 - 250,000
250,000 - or more
Total
120,147
100,603
131,645
171,639
83,021
43,710
$ 101,759
182,228
404,027
1,071,796
967,700
930,459
1,841,161
4,712,168
13,143,979
12,765,660
12,990,576
.120
.098
.085
.082
.076
.072
26,475
11,075
6,584
4,511
1,609
1,039,302
741,273
719,085
1,009,733
846,885
14,865,893
10,914,838
10,993,719
16,058,975
14,537,481
.069
.068
.065
.063
.058
901
697
543
1,016,852
1,865,780
8,775,159
19,088,192
36,745,314
208,589,185
.053
.051
.042
715,589
19,769,298
378,096,911
.052
$ 849,770
Office of the Secretary of the Treasury
Office of Tax Analysis
Source:
Effective
·· depreciation
·· rate
Statistics of Income, Corporations, 1961-1962, p.254
- 15 -
Table 2
Percent of Depreciation Claimed \Yhich is on AcceleratEe'd jIlfc,thods
by Size of Firm: All Industries Reporting Depreciation, 1960-1961
.. ijI of depre: 'ciation under
Number of." : accelerated
(
re t urns
methods Post
1953 assets
only)
0>,
Size, of firm:
total assets
($000)
AS~Umpti::
: 12 :.
2/ _
0-
100
514,771
21. t/)
26.81)
100-
500
304,121
34·7
30.7
500-
1,000
51,128
39.6
53
1,000-
5,000
45,054
44·3
61.1
5,000- 10,000
7,9 2 6
44.1
76
10,000- 25,000
5,565
43.2
73·1
25,000- 50,000
2,039
47.3
81.8
50,000-100,000
1,089
48.6
83.2
100,000-250,000
734
50·7
90.0
250,000 and over
550
46 .5
92.9
932,977
4-3.0
70.0
$
TOTAL
°
°
Office of the Secretary of the Treasury
Office of Tax Analysis
!I Assumes
that all straight-line depreciation not
attributable to particular time period is generated
by post-1953 assets
gj
Assumes that all straight-line depreciation not
attributable to particular time period is generated
by pre-1954 assets.
Table 3
DEPRECIATION ALLOWANCES OF NON-FINAJ~CIAL CORPORATIONS WITH TOTAL ASSETS OF $25 MILLION OR MORE
NUMBER OF ACI'IVE CORPORATION RETUlli"lS AND DEPRECH.TION CLAll-1ED UNDER REVF.NUE PROCEDURE 62-21,
BY SIZE OF TarAL ASSEI'S. 1962
:-- Numbc~_ acti '10. corJ2.orntion return~'
- - ---
I
Vlith depreciation
Size of total assets
L -..
I
'D
,-j
under Revenue
Pr'lcedure 62-21
Total
with total assets
$2,5,000} 000 or more:
Total
$2~,000}OOO under
$250,000,000 •••••••••••••
$25 0 ,000,000 under
$l,OOO}OOO,OOO····,······1
;p., 000,000,000 or more ••••
Percent Wl th
Ttl
Under Revenue
depredation
0 a
Proced\.U'e 62-21
under Revenue
..
. .
(Milllan
(MEhon
Pr oce d ure 62- 21 L
"
,
- . .2.0J1ars..L.. ____ .9.9.1121'8 )
R
!
,
UnCleI'
evenue
Pl'ar~edurc
6?=::'1.
w_
(1)
I
p"} -
1,957
I,
734
37.5
1,7,907
7,255
1:5.6
1,669
575
34.5
4,645
1,45.3
31. J
22;J
;L18
52.9
63.1
4,875
6,:387
2,475
3,3Z7
50.8
52.1
_~turns
65
(J)
_ _I r - -
(II)
~
(5)
__
-____L -_ _~_ _~___~,~
$~~~~~-L
~
D0~Jreciation cli:Jti,~7!I
~-P-e-~-c-e-n~t'
•
41
Btathtie. D1v1a101l, lDtenaal RneDue Berne.
- 17 BleB Survey of
Deprecia~ion
Table
Practices
4
of ProcGdure Adcp~crs villose Actu~l Reserve Ratios
in 1962 ~nd 1965 Occurred in the Fo11o'..JiI!S Classes of
Deviation from Their Appropriate Upper Limits.
Percc~t
Percentage
exp~ctcd
pOln~6 of
deviatior:::-:-
P.:;rccnt of adopters
1962
1965
- 20 & below
1.8
0
- 19 to -15
2.2
1.1
- 14 to -10
4.8
1.1
9 to - 5
8.8
1.8
4 to - 1
17.6
8.1
3·3
1.8
- 0 1 to
4
15.4
16.1
5 to
9
22·3
20.9
10 to
14
14.3
22.7
15 to
19
5.8
20 & above
3·7
100.0
~
12.1
Y
100.0
1/ Combined 26.4 p8rc.::;:.:t of cc::::;::::nies failing by
15 or nore pe~centaGe ?oints represents 72
out of the 213 ccwpn~iez.
~':'IJote:
PercentaGe points of e:::pcct;ed deviat:Lon eq\~al actual
reserve ratio mil:}UZ cPDTopriate upper lir.::li t. !·1illus
signs therefore indicate C:A'"Pcctcd paszing of the
test.
Note: I'igures :::hovJn in this
t::.~le
are subject to minor revisions.
- 18 -
RICB Surve, of Depreciation Practices
TG.ble
5
Averc.r,e Size of =x:;:ccted Iieviation OI~ L;::tual
l\eSerVe natios frem A]}yo;?r:'s.te Up?er Li:n::' ts
Percent~ge point~
ex·,)ected deviatiCD
Adop-cers ili th l.ctual
neserve R~tios in
excess of Upper Limits
1/
11. 7
),
9 .'T
All h.do:;:ters
----v':_~_
of
--~~--~----~----~~--~------------------------------------------------:Jf tile Secretary of the Treasury
C:.'_' ':'..:e of Tax Analysis
~ctual
reserve
iTote: Figures
ra~ios
S~()wn
minus appro?riate u?per limits.
in this table are subject to minor revisions.
- 19 NICB Survey of Depreciation Practices
Table 6
Reaso~s
:~rc2nt~S~G
for Expected Failure of Basic Reserve Ratio Test
besed on 233 co=panieo exp~ctcd to fail which furnished this infor~tiubl
P8rccnt~6e
of coc9anies
citing this reason
ReaGons cited
r;ot enouGh tice to adjust to
shorter gui~clines
Unccono~ic~l
to retire
IIFully depreCiated
~~~~~~
a;:;~c;ts"
33
Irregular additions
23
Bro~d spread of service lives
!/
15
Green accounts
2
Single a;:;se:t <:lccounts
o
other
1
Total
111
3./
Office of the Secz-c·..:..::::cy of the 'ireasury
Office of Tax Analysis
~/ Hide clispcr;:;ion of rctirem~ntG around the ave:.~ac;e life of assets
iL
'5..1
co:::.bir:.:::tion
l'li th
certain irregulc::' grO\vth patterns.
Si::ce peY'cente.c;es are based 0::'1 t1:'8 nu::~cY' of co;:;panies furnishinG
th::':3 inloZ'ESltion and 50;1:8 cC.:~:Jnic;:; C:::'VG r:::ultiplc reo.sons, tile
su;:J of the individual percent3ges e::~.:;c;dG 100 p2rcent. The excess
of the: total over 100 percent ind.ic8·::'2~ tb= extent to which
lliultij~8 ~easons were cited.
Hote;: FiC<':::"~(;":; s:':'o~J:1
in this table aTe subject to minor revisions.
NICB Survey of Deprec1st1on Practices
Table 1
,}Ll:"': of TestinG New GuideUnc Form Altermtive ',lith 128 Comp:~nics
Hh.i.t:h S.'.r)( LJ.:J to Fail !Basic Reserve Ratio Test under Revenue Procedure 62-21
Frequency distribution - Number of Componies
t':'.lrl3j-n-Ol' fDilul;c-:- - - - . under orll3iml
---pQS-s
basic test:
by anj'
PcrcentDgC! polnts: r'l;HC;in
o
----l\csults uncleI' nC'l
~UIdCline
-- ----------
1'Or1":1---- .----------------------
1"Dil
1,hrgin-of foiling--'ullder llC,;;'-8-1t(:l'nativcbnsic tesT:-i)cl'centacci)o'i-11Ts
1 - l~
5 - 9
10 - 1 1115 - 19
20+
'l'otal
1 -
I}
13
9
7
I
o
o
30
5 -
9
8
10
7
2
I
I
29
10 - II}
3
7
13
6
3
1
33
15 - 19
2
1
8
6
20+
o
3
2
2
l~
26
30
37
17
11
C\I
Total
O['-l'ice of-{he Secret8_cy of the Treasur-Y-Office of Tux Analysis
1
3-
--
0
5
------..
7
- --------
1/ Of the 12 Hho fa i l by 15 or Dore points on both tubles Dna fOrt:1) 2 po ss the
- trendinl3 rule. Thus, 10 or ,{.8 percent fail nll tests.
l~ote:
Figures ch01m in this table
~rc
subject to minor revisions.
IY
20
16
128
IICB Survey of Depreciation Practices
Table
8
Asset Grouping Practices Used for Tax Purposes Before and
Mter Adoption ot Revenue Procedure 62-21, as Percent
at Companies that Expected to Fail and Pass the General Rule
y
Types of depreciation accounts used
·: Number or :
.
Atter adoption
Betore adoption
Year s
Single
: companies : Single
Year s
acquisition: end
acquisition
:
end
Other:
asset*
asset*'
:
·
Open- :
1
C\J
I
Open- :
: Other
CompaDies expected to tail
236
5~
3fi1,
l~y
1f,
l~
2~
6fJ1,y
~
Companies expected to pass
37
lI6
43
30
3
24
43
38
5
I
Office or tile Secretaryot the Treasury
attice of Tax AnalySis
*
Y
y
Item accounts.
Will add to more than 100 percent because a number
one grouping method.
Indicates
or
companies reported use at more than
47 percent in this group switched to open-end accounts.
Bote: Figures shown in this table are subject to minor revisions.
- 22 -
11GB Survey of Deprec1at1oaPract1ees
':2able 9
Dc::precia-;:iofl Clc.~:-:-.eG ='o.~ 'I'd.X ?urposes in 1963 under Rev.:mue
Proced'J..re 62-2l, by Respo:.c.':'nl Corporatior.s Employing Open-End
M~ltip1e Asset, .A.CCO"l.:.nts, Classified by Depreciation
l\(e"thod and Asset Grouping Practice
(~ r:;illions)
~~TIreciatic~
Asset Grouping
Practices
:N"'CL1ber of
:companies
Str&i2:1".lt - : DecEnj.ng:
l i l".e
balance
rr.ethod
Sum-of years
Other
digits
Total
Ope~-end ~'J..ltip1e
asset ['CCOll.'1ts
-J.sec. sfter) out
n·~t
before
122
$53;.6
41.0~0
mu1tipleasset account.s
used before and
after adoption
$266.5
20.3%
$505.2
38.5%
$1.9
•2%
6,
:-__ ..L.- .....
?
~-Lj-,
100.0%
Ope~!-end
tear's 8cqu181tio.
accOUllts used
be~ore 8Aa arter
IAliopt1oD
.... -_-~~:;.c:--:_
52
55
$608.3
25.5S
$467.8
53.~
c":;-<;;1e SecTetaryof the 'I'reasury
.::: . ..:'ice of 'rex Analysis
.::';':'02;
~1,156.7
48.4%
$316.8
36.1~
$624.8
26.11>
$ .2
$2,389.9
100.0;£
$93.6
lOc 74
-----------------
Fisures shawn in this table are subject to minor revisions.
- 23 -
NICB Survey of Depreciation Practices
Table 10
Companies Adopting Guideline Procedure Classified by Asset Grouping
Practice and by Passage or Expected Margin of Failure of General Rule, 1965
Percentage frequency distribution
:
:
:Single asset:
Yearfs
:Open-end multiple-:open_end multiple-: (or item
:acquisition
asset accounts
asset accounts
accounts): accounts
used after but
used before and
used before:used before
not betfare
after adoption
aDd after
and after
adop ion
adoption
adoption
Number of companies
52
42
55
17~
20{0
20{0
57
64
62
53
36
19
11
20
3
°
100
7
7
100
100
122
~
Pass
Expected margin of
failure:
(percentage points)
1 - 14
15 or more
Not reported
Total
100
Office of the Secretary of the Treasury
Office of Tax Analysis
Note:
Figures shown in this table are subject to minor revisions.
TREASURY DEPARTMENT
Washington
FOR RELEASE: P.M. NEWSPAPERS
WEDNESDAY, FEBRUARY 17, 1965
REMARKS BY THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE THE GOVERNMENT-INDUSTRY CONFERENCE
OF THE NATIONAL INDUSTRIAL CONFERENCE BOARD
AT THE SHERATON-PARK HOTEL, WASHINGTON, D. C.
WEDNESDAY, FEBRUARY 17, 1965, 11:15 A.M. ,EST.
It is always a pleasure to appear at any gathering sponsored by
the National Industrial Conference Board, which is one of the great
economic forums of our country and a vital force for economic progress.
As just one example of your excellent efforts, your survey of company
experience with the Reserve Ratio test under the 1962 Depreciation
Guidelines and Rules has been most useful to the Treasury Department in
its review of the workings of that test. President Johnson will have more
to say about that in his address today.
The economic weather in that February of four years ago, when you last
held a Government-Industry conference, was a far cry from the balmy
economic climate we enjoy today. We were then in the trough of a
recession, and our economic problems were legion. I will not review all
the immense advances we have since made, for you are thoroughly familiar
with them. Instead, I would like to talk briefly about one area in
which, while we have made material progress, we must now move ahead even
more quickly and decisively -- our balance of payments. I would then be
happy to answer any questions any of you may have.
Last week, as you know, President Johnson sent to the Congress a
special Message, in which he reasserted in unmistakable terms our
determination to end our balance of payments deficit, assessed the
progress we have already made and the problems tiEt confront us, and
proposed additional measures to speed us on our way toward balance.
We need these new measures, as the President has made emphatically
clear, not because our advances have been illusory or temporary or
slight -- for they have been sound and strong and lasting. We need these
new measures because, solid as our progress has been, we need more of it
now, not tomorrow.
D-1508
- 2 -
When a new Administration took office four years ago, the United
States had just experienced its third successive year of large payments
deficits. On the basis of regular transactions, these deficits had
averaged almost $4 billion a year from 1958 through 1960, and had touched
off an increasing loss of confidence in the dollar. They brought with
them, as well, an accelerating outflow of gold amounting to more than
$5 billion in the same three-year period -- an outflow that reached a
climax in the Fall of 1960, when speculators pushed the price of gold in
London up to $40 an ounce.
There were those who believed then -- as there are those who
believe now -- that we could not simultaneously advance our economic
growth at home and move toward balance in our international accounts.
The only sure way, they insisted, to restore balance to our international
payments was to clamp down severely on credit at home -- despite the
harm that would visit upon an already ailing economy. To promote
economic expansion at home -- and adopt credit policies to nourish that
expansion -- would, they warned, invite a rising tide of imports which
would inevitably aggravate our payments deficits.
That view might well have been correct if our situation had been the
classic one in which domestic inflation and over-consumption foster
deficits in a nation's international accounts. But our situation was
entirely different, for our balance of payments deficits exis·ted
side-by-side with excessive unemployment, under utilized manufacturing
capacity and stable price levels. We had, therefore, to seek greater
economic growth at home -- and to seek it in a way that would advance,
rather than retard, the reduction of our payments deficit.
We were convinced -- and events have more than upheld our conviction
that the way to enduring progress in our balance of payments was through
sound and strong economic growth, accompanied by basic price stability.
For only in such a domestic climate could we achieve the gains in
productivity essential to improving our international competitive
position. And only a flourishing domestic economy would proveattractive
to both foreign and domestic private investment.
Obviously, however, we could not rely on domestic expansion alone,
for although it held the long-range answer to our payments problem, it
could not solve the problem immediately before us. It was imperative
that, as we moved toward balance over the long run, we also make prompt
and substantial reductions in our payments deficit. It is in this area
that our performance has been disappointing and must be improved.
Even though much more remains to be done, there has been much solid
progress during the past four years. We set in motion a broad array of
Special measures designed to attack directly every major area of
weakness in our international accounts. We adapted our monetary policy
- 3 -
to the dual needs of external balance and domestic growth -- raising
short-term interest rates by nearly 1-3/4 percent, a 75 percent
increase -- to keep them reasonably on a par with those abroad. And this
policy is being continued. At the same time ample amounts of long-term
credit were made available for domestic growth. We took vigorous steps
to encourage exports, instituting an entirely new system of export credit
guarantees. We drastically reduced the ~dverse payments impact of
government outlays overseas. We eliminated the attraction of foreign
tax havens for our private capital, and we reduced the special exemptions
given tourists to make duty free purchases abroad.
Over the past four years, our commercial exports -- excluding those
financed by the government -- have grown hy more than one-fourth, boosting
our commercial trade surplus to a new high of $3.7 billion -- $900 million
more than in 1960 and $1.5 billion more than in 1963. By a drastic policy
of tying foreign aid expenditures to U. S. goods and services, we have
saved almost $500 million. We have cut military outlays abroad by more
than $200 million -- despite sharply rising prices in the countries where
our forces are stationed -- and we have increased military sales abroad
through the Defense Department by another $450 million. In addition, our
earnings from past private investments abroad have gone up by nearly
$1. 9 bill i on .
Together, these gains add up to about $3.9 billion worth of solid
improvement in our underlying balance of payments position -- enough, all
else aside, to have brought our payments into actual balance last year.
Our problems today arise from the fact that the full force of these gains
has, thus far, been largely neutralized hy a $2.5 billion boost in
private capital ou tf10ws since 1960 - - $2 1--i 11 ion of which happened las t
year.
The Interest Equalization Tax proved highly successful by holding
purchases of foreign securities last year to the 1960 level -- $400
million less than during 1963. But, the expansion of long-term bank loans
abroad last year amounted to over $900 million -- $800 million above
1960 and $400 million above 1963. Short-term capital outflows in the
form of bank credits and corporate funds rose to $2.2 billion, more than
$800 million higher than the 1960 level, and $1.4 billion higher than
the 1963 level despite the fact that our !Ilnne~r-!Ilarket rates remained
generally in line with those abroad. And Jirect investment abroad by
American companies -- for the most part j~ Canada and Europe -- Exceeded
the 1960 rate by almost $500 million and the 1963 rate by about $250
million. A rise of $300 million in other ~_ong-ter;n capital outflows
makes up the total $2.5 billion increase.
- 4 Alongside these swelling capital outflows, American travel and
tourist spending abroad last year was $600 million higher than in 1960
three times the corresponding rise in foreign travel outlays in this
country. Our travel deficit grew by $400 million and last year stood at
$1. 7 b ill i on .
As a result of all these factors, we had a balance of payments
deficit last year -- in terms of regular transactions -- of $3 billion,
an improvement of only $900 million over 1960. To be sure, half of last
year's $3 billion deficit occurred in the fourth quarter alone -- and
some of the deterioration in the fourth quarter resulted from temporary
factors. But when all this is said,there is no gainsaying the fact that
our deficit is still far too large, that we cannot continue to sustain
such deficits and that the data for the fourth quarter reveal weaknesses
in our payments posture that must be remedied without delay. We must
act -- and act now, when we can do so from a position of strength.
And let no one doubt the strength of the dollar today in all markets
of the world -- a strength supported by hard facts. For while we have
suffered gold iosses, we have curtailed these losses in recent years.
We still hold 35 percent of the entire free world monetary stock of gold.
Leaving aside the $22 billion of United States government claims on
foreigners, our private investments abroad by themselves exceed the total
of all foreign investment plus all foreign dollar holdings both public
and private by more than $15 billion. And that margin has been widening
every year. Our international balance sheet grows stronger year by year.
And our ability to compete in world markets remains beyond question -our commercial trade surplus is far and away the world's largest. Last
year it was more than twice the size of West Germany's -- the next
larges t.
Backed by such solid elements of strength, we need have no fears for
the security of the dollar, as long as we demonstrate by our deeds that
we are determined to bring our balance of payments deficit to an end. We
must end the growth of our short-term international liabilities. It is
no longer good enough merely to offset the growth of these liabilities
by an even larger growth of long-term assets. When we talk of
substantial improvement in 1965, I want to make it amply clear that we
are not thinking of a few hundred million dollars. Even a full billion
dollar improvement would not meet our needs. We can and must do
ronsiderably more.
It is for that reason that President Johnson proposed last week a
ten-point program to reinforce the measures already underway. Most of
you, I am sure, are by now familiar with the President's. proposals.
They feature a massive, many-sided attack by all sectors of the American
economy upon the swelling capital outflows that, more than any other
Single factor, have inflated our recent international deficits. They call
upon the American business man, upon the American banker, and upon all
Americans to join in a truly national effort to stem the outpouring of
dOllars abroad.
- 5 The President has asked Congress to extend for two years the
Interest Equalization Tax on purchases by Americans of foreign securities
a tax scheduled to expire at the end of this year. That tax has proven a
highly effective rein upon such purchases since legislation was submitted
to Congress in July of 1963. Moreover, it has shown itself a strong
catalyst to the growth of European capital markets, which are essential
for the adequate financing of economic growth in the Free World in the
years that lie ahead.
But it is now clear that outflows stemmed by the Interest Equalization
Tax have all too frequently found other channels abroad. Last year,
for example, American bank loans with maturities of over one year to
foreign borrowers in developed countries rose by more than $650 million
in contrast to a peak annual increase of $122 million for the years
before the lET was proposed.
A careful analysis of these outflows shows that a large and growing
portion of recent loans are definite substitutes for new security
issues. It is significant, also, that of the new term loan commitments
to industrial countries last year, only 15 percent financed U. S.
exports -- while 28 percent went for plant expansion.
Thus the President, under authority granted by the Interest
Equalization Tax law, has issued an Executive Order -- effective last
Thursday, February 11 -- imposing the Tax on bank loans to foreigners
with maturities of one year or more, with exemptions for borrowers in
developing countries. I should make clear that the current exemption
under the Interest Equalization Tax law will continue to be granted to
all export-connected loans of banks, thus assuring the banks' ability to
support the efforts of American business to compete more effectively
abroad.
But the heart of the new program lies not in new legislation, but
rather in the President's action to enlist the voluntary but active
cooperation of the business and banking community with the government in
cutting back sharply on the increasing outflow of dollars abroad. It is
to this cooperative effort that we look for the greatest savings. We are
convinced that American business will rise to the challenge. Failure is
unthinkable.
The Government, will intensify its already effective efforts to
stanch the dollar drain from our economic aid and military commitments
abroad. At least two hundred million dollars of additional savings are
in sight in this area.
And, finally, the President has set forth several 'other important
measures to heighten the effectiveness of our export expansion program,
to encourage foreign investment in U. S. securities, to foster greater
foreign travel in this country and to cut the outflow of our tourist and
travel dollars abroad.
- 6 -
What distinguishes all these measures -- and the President's
-- is the degree to which their success depends upon the voluntary
)operation and support of American business and the American public.
le President has set forth, for all to understand, the challenge that
)nfronts us -- and he has set forth the steps that we must take to meet
wt challenge. He has issued a call to arms to all Americans -- and
)on their response res ts the solution to a stubborn, difficult and
npor tan t pr ob lem .
~ssage
000
-
:1.1'('
C};ClIl)ll,
1'1'0111 nLL tQxnL:ton now 01' hereufLer :imposcu on the principal or lntercr.
Lllcl'(:o{' by [my 8l.0. I,e, or :my of the
1oe:) 1 tr\x.i
-
.)
nr: auLhor1ty.
For
pO~~Ges81.0ns
purJlo,>e~;
of'
t:l;W
of the Unlted States, or by <uW
Ucn l.bo o.mount of c1iacount at '''hieh
r1'1'Co.r:111'Y
bLlls o.re oriGinnlly sold by Lhe United states is considered to be in-
Lercst.
Under Gcctions -1St1 (1)) nnu 1221 US) of the Internal Revenue Code of 1954
the nmount of discount at lTh1.ch bill" issued hereunder are sold is not considered
to nccruc unti 1 such 1)il1r; o,re sold, redeemed or oLherwise disposed of, and such
bills m'e'
oi.'
c;,cllld~
1'reClsury b.L
U.[;
11 from cOl1r;icirTfl[,i on nr; c:'ll lLal.
(oLhcT
111:10
rl.ccordingly, the mmer
1[,'C'in[mruncc companies) issued hereunder need in-
clude In hiG income to.x return on l.v
tll(~
bills, 1-ThethcT on ortc;i.n[l,lL:;r;u(' or on
received either upon snJ.e or
n..;,~ctG.
~;ltbr;efJnent
red(~lTI:J1tjon
Hlliclt the return i:] lnQ.dc, ar; onl i nory
diffc1'ence betvreen the price paid for
purchase, and the amount actuaJ
nL mnturi ty
u: in
01'
GUC
durin~
the taxable yee,r for
loss.
'l'l'CrtSUJ:f Dcp[\.rtw~nL CiJ.'Cu 10.1" No. ~18 (current revision) and this notice, pre
scribe I.hc terras 01' the
r1'rNI.GUr~r
Copies of the circular may
b(~
bin.s ond Govern the condi ttons of their issue ..
obtcdncd from any Federal Reserve Bank or Branch.
- 2 -
lJ1king insti tutiono ..r.lll not be pennl tLed La subml t tenders except for thelr own
CcOlUlt.
Tenders "Iill be received
Vi
Lllout ucposit from ineorporatE;d banks and
I1lst companies and from responaiblc Dnd l'eCOBnized dealers in investment securities.
mdcrs from others must be accompanied by po.,'{lllent of 2 percent of the face BJnmUlt
f Treasury bills applied for, unlc8G the tenders are accompanied by an eXJ>ress
uo.ranty of payment by an incorporated
bon1~
or trust company.
Inunediatcly after the closing hour, tenuers will be opened at the Federal Reerve
no.nl~s
and Branches, follmfiIlG "hJcb pub] ic annmUlcemcnt vlill be made by the.
Ircasury Department of the amount and pri ce ranBe of accepted bids.
inc, tenders ..Iill be advised of the acceptance or rejec Lion ·thereof.
'l'hose subml tThe Secretary
t' the 'l'reasury e:<''Presoly reserves the riGht to accept or reject any or all tenders,
.n "Thole or in part, and his action in any such respect shall be final.
:> these reservations, noncompetitive tenders for~;
20&000
Subject
or less vlithout
-«?-)
itated price from anyone bidder "\-rill be accepted in full at the average price (in
ihree decima18) of accepted competitive bids.
Settlement for accepted tenders in
lccordance ,·Iith the bids must be made or completed at the Federal Reserve
March
~65
BanJ.~
on
, in cash or otbcr immediately available funds or in a like
race amount of Treasury billa matur1nc;
Genders ..rill receive equal treatment.
February 28, 1965
Cash and exchanee
(12 )
CaGh adjustments vlill be made for differ-.
mees bebleen the par value of maturine bills accepted in exchange and the issue
price of the ncVT bills.
The income derived from Treo.Gury bills, '\-mether interest .or galn from toe sale
Dr 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
trentment, as such, under the Internal Revenue Code of 1954.
'l'he bills are subject
to estate, inheritance, gift or other excise taxes, "\-lhether Federal or state, but
TREI\SURY DEPARTMENT
Washington
February 17, 1965
FOR IHMEDIATE RELEASE,
X~_
_
TREASURY REFUNDS ONE-YEAR BILLS
The Treasury Department, by this public notice, invites tenders for
$ 1,00D,z3J0, 000
, or thereabouts, of
-tCtin exchal'lCe for Treasury bills maturing
of $ 1,000$l}:!000
365
=t3"F
-day Treasury bills, for cash and
February 28, 1965
+4f"
, to be issued on a discount basis under competitive and
noncompetitive bidding as hereinafter provided.
February 28, 196.5
dated
, in the am01ll1t
The bills of this series will be
, and will mature
-w=
the face amount will be payable without interest.
February 28, 1966 , "Then
.f1+"
They will be issued in bearer
form only, and in denominations of $1,000, $5,000, $10,000, $50,000, $100,000,
$500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve. Banks and Branches up to the
closing hour, one-thirty p.m., Eastern Standard time, Tuesday, February 23, 19~.
:w:
Tenders ,"rill 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 thl
price offered must be expressed on the basis of 100, with not more than three dec·
1mals, e. g., 99.925.
Fractions may not be used.
these bills will run for
365
(Notwi thstanding the fact that
days, the discount rate will be computed on a banI
{Sf
discount basis of 360 days, as is currently the practice on all issues of Treasur,
bills.)
It is urged that tenders be made on the printed forms and forwarded in
the special envelopes which ,nIl 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
TREASURY DEPARTMENT
February 17, 1965
FOR IMMEDIATE RELEASE
TREASURY REFUNDS ONE-YEAR BILLS
The Treasury Department, by this public notice, invites tenders
for $1,000,000,000, or thereabouts, of 365-day Treasury bills, for
cash and in exchange for Treasury bills maturing February 28, 1965, in
the amount of $1,000,520,000, to be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided. The
bills of this series will be dated February 28, 1965, and will mature
February 28, 1966, when the face amount will be payable without
interest. They will be issued in bearer form only, and in
denominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000
and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
to the closing hour, one-thirty p.m., Eastern Standard time, Tuesday,
February 23, 1965. 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. (Notwithstanding the fact
that these bills will run for 365 days, the discount rate will be
computed on a bank discount basis of 360 days, as is currently the
practice on all issues of Treasury bills.) It is urged that tenders
be made on the printed forms and forwarded in the special envelopes
which will be supplied by Federal Reserve Banks or Branches on
application therefor.
Banking institutions generally may submit tenders for account of
customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.
D-1510
- 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 0
accepted bids. Those submitting tenders will be advised of the
acceptance or rejection thereof. The Secretary of the Treasury express
reserves the right to accept or reject any or all tenders, in whole or
in part, and his action in any such respect shall be final. Subject
to these reservations, noncompetitive tenders for $200,000 or less
without stated price from anyone 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 1, 1965, in
cash or other immediately available funds or in a like face amount of
Treasury bills maturing February 28, 1965. Cash and exchange tenders
will receive equal treatment. Cash adjustments will be made for
differences between the par value of maturing bills accepted in exchang
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 rede~ption at maturity during
the taxable year for which the return is maoe, as ordinary ~ain 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.
000
TREASURY DEPARTMENT
Washington
REMARKS BY THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
AT THE WHITE HOUSE CONFERENCE
ON THE BALANCE OF PAYMENTS
THURSDAY, FEBRUARY 18, 1965
Today we stand at a decisive point in our drive to end our
balance of payments deficits.
Last year, our deficit on regular transactions was $3 billion -a disappointingly small improvement over the $3-1/4 billion deficit
of 1963, and far too large a figure for us to accept passively
after four years of strong and sustained effort to end that deficit.
But while to cite these overall figures is to throw into bold
relief the challenge before us, it is also to obscure the very real
and lasting progress that our program of the past four years has
achieved.
We have cut the annual dollar outlay for foreign aid by almost
$500 million. Today a full 85 percent of our foreign aid
commitments go for American goods and services. We have also
trimmed our net military expenditures abroad from $2.7 billion in
1960 to $2.0 billion last year -- a saving of $700 million despite
rising costs abroad.
We have made an intensive effort to encourage American exports.
Such measures as last year's tax cut, the liberalized depreciation
allowances and the investment credit of 1962 -- and above all the
maintenance of wage price stability -- have not only helped
generate greater incomes, profits and incentives, but have also
helped translate them into greater productivity and thus into greater
American competitiveness in world markets.
This accomplishment, along with numerous other measures to
aid exports directly, has brought rich rewards -- to American
business and to our balance of payments. Our commercial exports
those not financed by the government -- last year reached a level
of $22.4 billion, 28 percent higher than in 1960 -- thus giving
us a commercial trade surplus of $3.7 billion, $900 million larger
than in 1960.
D-15ll
- 2 These efforts -- coupled with an increase of nearly $1.9
billion in our income from foreign investment -- have brought us
about $3.9 billion worth of balance of payments improvement over t~
past four years -- enough, all else aside, to have brought actual
balance in our payments last year.
Instead, we had
a deficit of $3 billion.
Why?
One reason is the net rise of some $400 million in our travel
and tourist deficit since 1960.
But the major reason is that since
1960 we have also had a rise of $2.5 billion in annual private
capital outflows -- $2 billion of which occurred last year. Unless
we curb these outflows all our other efforts will be nullified.
And to curb them we need your help.
The Interest Equalization Tax held last year's outflow of
capital into foreign securities under $700 million -- $1-1/4
billion, or more than 65 percent, below the rate in the first
half of 1963 -- returning it virtually to the 1960 level. But
the outflow in other forms of capital has multiplied.
Since 1960, for example:
the annual increase in outstanding bank
claims has grown from $1.1 billion to
$2.5 billion;
direct investment has risen from $1.7 billion
to $2.2 billion;
and incomplete data indicate that other
short-term lending by corporations has grown
from $353 million to somewhere around
$700 million.
These -- plus a $300 million increase in other long-term
capital outflows -- have sent the total outflow of private capital
up from just under $3.9 billion in 1960 to over $6.3 billion last
year, a rise of some $2.5 billion. What particularly concerns us
today is the fact that $2 billion of that rise occurred last year.
Only a small amount of this capital went to finance our
exports, and the great bulk of it went to the other industrial
countries -- thus adding to their dollar holdings.
It is here
that we must make substantial improvement.
- 3 Last year
well over half o[ the Dutflow of short-term
bank capital went to advanced countries;
well over half of new long-term bank commitments
went to industrialized countries, and only about
15% of them for exports;
while direct investment in developing countries
serves to offset outflows that might otherwise be
required in the form of aid appropriations, and
will not be affected by our new program, the fact
is that in the first nine months of 1964 almost
two-thirds of our direct investment outflow went
to Europe;
and virtually all of the build-up in corporate liquid
balance abroad occurred in the developed countries.
We recognize that, over the long run,this capital outflow
comes back in the form of dividends, interest and loan repayments.
We recognize that, over the long run, these outflows of capital
become a source of strength and more than pay for themselves.
But,
in the short run, they cost our balance of payments position dearly,
and it is \vith the short run that we must now be concerned~
The problem is that our capital outflows are simply growing
too fast in relation to the inflows they generate, and in relation
to the improvements we have been making in other areas of our
balance of payments. While we are waiting for the return flows
to mount, we look abroad and see an ever rising tide of short-term
liquid claims on us -- a rise in claims that if allowed to continue
will inevitably lead to further gold outflows.
Since 1957, our gold stock has declined by $7.4 billion, our
liquid dollar liabilities to the monetary authorities of other
countries have risen from $9 to $14 billion -- and private banks,
individuals and businesses abroad hold another $11 billion. We
know that these holdings are simply the essential counterpart of
the dollar's position as a reserve currency and of its vital role
in world trade.
But we must also realize that the willingness of
foreigners to accumulate additional dollars is not without limits.
It is now perfectly clear that that willingness is nearing an end.
The time has come when we must show rapid and clear cut progress
in reduc ing our pa ymen ts de fie it.
- 4 I know that you have, in recent weeks, been reading and hearing
about a so-called "attack" on the dollar and on the gold exchange
system.
Indeed, this disparagement of our currency comes from
lofty heights -- but it is an isolated view. We need your help to
make sure it remains an isolated view.
But this view is indicative of one very important fact. That
is, that the power and influence of the United States throughout
the world, in a political as well as a financial sense, depends
on the continued strength and soundness of our dollar.
We must move now while we can still move from a position of
strength. With your help we can make the swift and lasting
advance that we need, thus assuring that, as our nation -- and your
businesses and your banks -- grow and prosper in the months and
years ahead, the dollar will continue to be the strongest currency
in the world.
000
TREASURY DEPARTMENT
=
lELEASE A. M. ~PAPERS,
-day, February 20, 1965.
February 19, 1965
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series of
Jury bills, one series to be an additional issue of the bills dated November 27,
, and the other series to be dated February 25, 1965, which were offered on
Ilary 15, were opened at the Federal Reserve Banks on February 19. Tenders were
ted for $1,200,000,000, or thereabouts, of 91-day bills and for $1,000,000,000, or
!!abouts, of 182-day bills. The details of the two series are as follows:'
E OF ACCEPTED
ETITlVE BIDS:
High
Low
Average
91-day Treasury bills
maturing May 27, 1965
Approx. EqUiv.
Price
Annual Rate
98.995
3.976%
98.990
3.996%
98.992
3.989%
!I
182-day Treasury bills
maturing August 26, 1965
Approx. Equiv.
Price
Annual Rate
97.961
4.033%
97.955
4.045:,g
97.956
4.043%
!I
!I
lCeepting 1 tender of $12,000
ereent of the amount of 91-day bills bid for at the low price was accepted
ereent of the amount of 182-day bills bid for at the low price was accepted
L TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
strict
ApElied For
ApElied For
AcceEted
AcceEted
$ 26,737,000 $ 16,737,000
stan
$ 51,319,000 $ .17,069,000
[II York
1,919,959,000
825,746,000
1,684,365,000
844,628,000
iladelphia
11,520,000
3,520,000
27,014,000
14,395,000
eveland
68,808,000
33,141,000
40,834,000
35,433,000
ehmond
2,841,000
2,635,000
10,006,000
9,580,000
lanta
18,030,000
9,071,000
41,434,000
24,736,000
icago
194,342,000
38,967,000
276,421,000
120,026,000
• Louis
6,098,000
11,663,000
36,483,000
25,972,000
nneapolis
8,323,000
5,573,000
17,243,000
ll, 075, 000
nsas City
9,018,000
7,698,000
23,116,000
21,708,000
llas
14,948,000
3,948,000
22,842,000
15,112,000
n Francisoo
192 z788 .. 000
~9.!919 .. 000
120.621.000
Q1.2B1.000
TOTALS
$1,003,385,000
$2,327,122,000
$1,200,689,000 ~/ $2,503,559,000
£/
mCludes $206,578,000 noncompetitive tenders accepted at the average price of 98.992
Includes $76,140,000 noncompetitive tenders accepted at the average price of 97.956
~ a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 4.09%, for the 91-day bills, and 4.19%, for
the 182-day bUls. 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 reaa.ining
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-1S12
~ince
tr:-o out of thrc e taxp8yer s ~ refunds •
a~".~f;s.u,:,y~~gp
11 ~(
1
.,
,.
I~ ! - -: ~ ,:' ,,'l
•
<'
.- {
I'
,,"
I'
-
r
i /'
I /1 &:4
A("
",
nucl! of t Le l,~ n~, en'! i t H, 01(1 i ngA~ 1] b8 reflected in
101!:er refunl1s rnther than in IBrGer tax
pfl~Tments
of tbe 1964 Act on
llLUCb
smaller tItan
18
popularly s:upposed.
due ..
F~Mt
Furthermore, T'1:1n,'! t'e"],
",i
t:;ol~inf:"'
in
rf,s~·or.2e
to 2n
;:>
~y'?rs
vo] unt.lrj ly incre2seri their 1961:
:vi >;0 ry from the Internal Revenue Service
-4A taxpayer will generally be underwithheld if he becomes
a "moonlighter" and duplicates his withholding exemptions
on both jobs.
A taxpayer will
generally be underwithheld if his Spouse
enters the labor force and claims withholding exemptions.
A taxpayer will generally be underwithheld if he had new
income or an increase in income on which there is no
withholding, such as dividends, interest, capital gains,
fees or other income from self-employmento
For these reasons -- which have nothing whatever to do with th
Revenue Act of 1964 -- many taxpayers will have larger than expecte
amounts of tax due for 1964,just as in any year.
All of these factors can lead to cons iderab Ie underwithholding
which far exceeds the amount that could result from the Revenue Act
of 1964.
-3-
because between 1963 and 1964 personal income increased by
more than $27 billion and employment increased by 1. 5 mill
A taxpayer
wil~
generally be underwithhel.d if his itemized
deductions are less in 1964 because of lower medical
expenses, smaller charitable contributions, or perhaps
because he "bunched" his itemized deduct ions in 1963 and
took the standard deductions in 1964 in order to maximize
the value of his deductions by using them up before the ta
cut went into effect.
A taxpayer will generally be underwithheld if he has lost
one or more exemptions in 1964 and failed to make the
required adjustment in his withholding
to compensate.
This can occur through divorce, through the marriage of
a dependent, through the employment of a dependent or for
other reasons.
-2-
For a married couple with two children and a wage or salary
income of $7,000 it m uld not exceed $23, at $10,000 it could not
exceed $83, at $15,000 it could not exceed $129, and at $20,000
it could not exceed $149.
There
a~many
reasons why a taxpayer would face larger final
payment for 1964 than he had anticipated
A common reason is that
many taxpayers do not file quarterly declarations of tax and so
do not realize the extent of their failure to keep their
withhold~
up to the level of their current tax liabilities until the final
accounting at the end of the year.
Other reasons for larger final
payments include.
1.
A taxpayer will generally be underwithheld if he had an
increase in income during the year, more overtime, or
employment for a longer period than he is accustomed to.
These factors were particularly important during 1964
The fact is that since two out of three taxpayers
receive refunds, much of the
daLwithholding attribu-
table to the 1964 Act will be reflected in lower refunds
rather than in larger tax payments due.
Therefore, the
effect of the 1964 Act on those taxpayers who do have
final payments to make will be much smaller than is
popularly supposed.
FUR RSLEASC: AN PAPER'::>
SUNDAY, FiBRUARY 21, 1965
UNDER.rr THHOLDING IN 1964
The Treasury Department today issued the following statement
in response to inquiries concerning income tax underwithholding in
1964:
"30me taxpayers have expressed concern that reduction of the
18 percent withholding rate to 14 percent last March, when the
Revenue Act of 1964 went into effect, will substantially increase
the size of final tax payments due for 1964.
"The fact is that the increase in underwithholding as a result
of the Revenue Act of 1964 has a much smaller effect on the average
taxpayer than is popularly supposed.
"For instance, in 1964, for a single person earning $4,000, the
increase over 1963 underwithholding could not exceed $34.
it could not exceed $61.
~lO)OOO
At $6,000
At $8,000 it could not exceed $83 and at
it could not exceed $98.
TREASURY DEPARTMENT
~OR
RELEASE A.M. NEWSPAPERS
3UNDAY, FEBRUARY 21, 1965
WITHHOLDING IN 1964
The Treasury Department today issued the following statement in
esponse to inquiries concerning income tax underwithholding in 1964:
"Some taxpayers have expressed concern that reduction
of the 18 percent withholding rate to 14 percent last
March, when the Revenue Act of 1964 went into effect, will
substantially increase the size of final tax payments due
for 1964.
"The fac t is tha t since two ou t of three taxpayers
receive refunds, much of the reduction in withholding
attributable to the 1964 Act will be reflected in lower
refunds rather than in larger tax payments due.
"Furthermore, the reduction in withholding attributable
to the 1964 Act has a much smaller effect on the average
taxpayer -- whether he has a tax payment or a refund
due -- than is popularly supposed.
"For instance, in 1964, for a single person earning
$4,000, the increase over 1963 underwithholding could not
exceed $34. At $6,000 it could not exceed $61. At
$8,000 it could not exceed $83 and at $10,000 it could
not exceed $98.
"For a married couple with two children and a wage
or salary income of $7,000, it could not exceed $23,
at $10,000 it could not exceed $83, at $15,000 it could
not exceed $129, and at $20,000 it could not exceed $149.
"There are many reasons in addition to the 1964
Revenue Act why a taxpayer would face larger final
payment for 1964 than he had anticipated -- as would
be true in any other year. A common reason is that
many taxpayers do not file their quarterly declarations
of tax and so do not realize the differences between
their withholding and their current tax liabilities until
the final accounting at the end of the year. The
principal reasons for larger final payments are:
)-1513
- 2 "1. A taxpayer is likely to be underwithheld
if he had an increase in income during the year,
because of a pay raise, more overtime, or
employment for a longer period than he is accustomed
to. These factors were particularly important
during 1964 because between 1963 and 1964 personal
income increased by more than $27 billion and
employment increased by 1.5 million.
"2. A taxpayer is likely to be underwithheld
if he has lost one or more exemptions in 1964 and
failed to make the required adjustment in his
withholding to compensate. This can occur through
divorce, through the marriage of a dependent, through
the employment of a dependent, or for other reasons.
"3. A taxpayer is likely to be underwithheld
if he becomes a 'moonlighter' and duplicates his
withholding exemptions on both jobs.
"4. A taxpayer is likely to be underwithheld
if his spouse enters the labor force and claims
withholding exemptions.
"5. A taxpayer is likely to have
final payment if he had an increase in
which there is no withholding, such as
interest, capital gains, fees or other
self-employment.
a larger
income on
dividends,
income from
"6. A taxpayer is likely to have a larger
final payment if his itemized deductions are less
in 1964 because of lower medical expenses, smaller
charitable contributions, or perhaps because he
'bunched' his itemized deductions in 1963 in order
to maximize the value of his deductions by using
them up before the tax cut went into effect.
"For these reasons -- which have nothing whatever to do
with the Revenue Act of 1964
many taxpayers will have
larger than expected amounts of tax due for 1964, just as
could happen in any year.
- 3 -
"All of these factors can lead to considerable
underwithholding which far exceeds the amount that
could result from the Revenue Act of 1964.
"Furthermore, many taxpayers voluntarily increased
their 1964 withholding in response to an advisory from
the Internal Revenue Service put out after the Revenue
Act of 1964 went into effect. As a result, the amount
of any underwithholding resulting from that law is
expected to be substantially reduced."
000
1964 Underwithho1ding Due to 1964 Revenue Act for Certain Vlage Earners at Various Income Levels
Wage
income
Underwithholding
in 1963 at 18%
withholding rate
Underwi thholding : - Change in : Change in underw i . t- h 1:lo1ding
in 1964 at 14.7% : underwi th-: due to earb- adoi'ti_or of
withholding rate~ holding
14% withholding 3/
11
Change in underwi thho1ding
due to other factors in
1964 law~1
Singlerersonz one exemption! standard deduction
$ 2,000
2,500
3,000
3,500
4,000
5,000
6,000
7,000
8,000
10,000
$
3
(1)*
11
16
22
28
70
164
209
390
$(l~)
;-r- J6
(1)
24
42
56
79
131
229
292
488
0
+13
+26
+34
+51
+61
+65
+83
+98
$+ 8
+11
+14
+18
+21
+27
+33
+38
+46
+58
$-24
-11
- 1
+ 8
+13
+24
+28
+27
+37
+40
Harried couEle z with two children, standard deduction
$ 3,000
4,000
5,000
6,000
7,000
8,000
10,000
12,500
15,000
20,000
*
$
8
6
( 6)
(19)
21
4
25
194
395
1,002
$
(44)
(31 )
(22)
(4 )
44
52
108
303
524
1,151
$+
52
37
16
15
+ 23
+ 48
+ 83
+108
+129
+149
$+ 2
+ 8
+ 14
+ 21
+ 26
+ 34
+ 46
+ 61
+ 76
+107
$-54
-45
-30
- 6
- 3
+14
+37
+47
+53
+42
Figures in parentheses are amounts of overwithholding.
1/ Withheld tax is determined from withholding tables.
2/ Average withholding rate for 1964: 2 months at 18 percent and 10 months at 14 percent.
31 Amount of underwithholding was determined by multiplying 8 (the number of weeks of early adoption of the
- 14 percent rate) times the difference between 18 percent (1963) and 14 percent (1964) weekly withholding
as provided in the appropriate withholding tables.
~/ Percentage reduction in withholding rate relative to percentage reduction in 1964 tax rates, and the
adoption of the minimum standard deduction.
Note: If underwithho1ding is estimated to be $40 or more, and if the single person has $5.000 or more of wage
income and the married couple has $10,000 or more of wage income, they must make quarterly declaration
payments of such underwithho1ding.
Table 2
1965 Underw1thho1d1ng Due to 1964 Revenue Act
tor Certain Wage Earners at Various Inca.e Levels
Wage
incoae
1/
Underwlthholdlng : Underwlthho14Ing
Change 1n
in 1963 at 1~ : in 1965 at 14f. ••
underv1thhold1ng
vithholding rate vithholding rate •
·
S1081e 2ersonz one exea:2tion. standard deductioo
$ 2,000
2,500
3,000
3,500
4,000
5,000
6,000
7,000
8,000
10,000
$ 3
(1).
11
16
22
28
70
164
209
390
$-27
-15
- 6
+8
+14
+29
+32
+26
+36
+26
'(24)
( 16)
5
24
36
57
102
190
245
416
Married couE1e, vith two children. standard deduction
$ 3,000
4,000
5,000
6,000
7,000
8,000
10,000
12,500
15,000
20,000
$ 8
6
( 6)
(19)
21
4
25
194
395
1,002
$ (43)
(43)
(43)
(34)
10
18
69
247
447
1,002
$ -51
-49
-37
-15
-11
+14
-+44
+53
+52
0
* Figures in parentheses are amounts of overvithho1ding.
1/ Withheld tax is detel"llined from withholding tables.
Note:
If underwithholding is estimated to be $40 or more, and if the single
person has $5,000 or more of wage income and the married couple has
$10,000 or more of wage income, they must make quarterly declaration
payments of such underwithholding.
TREASURY DEPARTMEl\lT
:*
RELEASE A.M. NEWSPAPERS,
esciay, February 24, 1965.
==
F~b:!"\UU7 23, 1965
RESULTS OF REFUNDING OF $1 BILliON Ol~ ONFJ"'YEAR BILLS
The Treasury Department announced last evening that the tenders for $l,OOO,OOO,OOO~
hereabouts, of 365-day Treasury bills to b~ jated fEJ~)rua!'"l': 2'8, 1965, and to mature
Ilary 28, 1966, which were offered on Februa:c":; 17., ,.'r~r~ opened ,~t the Federal Reserve
s on February 23.
The deta:!s of this issue are as follows,
Total JiPplied for - ~,023,196,ooo
Total accepted
- $1.,000, 7~,OOO
/:,3;:'; 02e, 000 entered G,.;, a
nonco::tp",·ti_ t c-,,' basis and accepted in
.full at th~ i'l'!?'!'l!'age price shown below)
(incllll'")r-?cS
fumge of accepted competitive bids:
High
Low
Average
- 95.904
- 95.873
- 95.882
Equivalent rate of discmmt ,1pprOr;, ,- h.olJO% per
It
"
"
tI
(27 percent of the amount
H
i1
!!
II
11
II
bid for 2't
Federal Reserve
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Hinneapolis
Kansas City
Dallas
San Francisco
tj~:-?
-
.:-,
>
--.~~ :~
uc070%
46062%
;::2-
'",/3,!B
&mUBl
11
It
It
't
",...I
gc:~·~·pt,e~~
.
-~ ~l_
~ ,~, "",P~c
lL~~ , 846 1 000
:; ,L~55 ~ 000
~ ''J ~'89,? OO()
,>
'::
,()OO
~: .~ : 0: 'S: ()OO
:?h;; 2. 38.000
TOTAL
:: ::. coupon issue of the same length and fr::Jr' th(~ ~~",,'\A 8~or.:rt ,,-:rlT\P;;::;8~~~ th-e return
these bills would provide a yield of 4.. 25%, In.' BT:c:8t .i."?te'Ss on :;ill£ 2.re quoted
r: terms of bank discount with the return re19,(~';';(;~
'u;~ face ,g,mt":'JD.t. of "t;i1e bills
ayable at maturity rather than the 8JllO'.mt j]l,'I:'G:t , / ':":ld c,h~:i:;,~ ~~8qfL~,
~(;tuaJ. numer of days related to a 36O-<:iq :rear. In t;;on:~c;t:~, 7ield8 00 cert,if:\cates, notes,
nd bonds are computed in terms of interest,
. ,',' aLi'J 0 o.nt, l,:!ve~::rt;;?;'d$ GJ,.1'lC; f',elate the
umber of days remaining in an interest pa;vmtilr:t. pRriod to the act~l number of daya
n the period, with semiannual compounding if '"t:'re than u.-:'a CJ'Y,1ptl'D, period is involved.
:l
D-1514
. . . . .y AND BRAZIL ENTER
NEW EXCHANGE AGUEMENT
Secretary of the Treasury Douglas Dillon and the
Ambassador of Brazil, Juracy Magalhaes, today signed
a $53,660,000 Exchange Agreement between the United
States, the Government of Brazil, and the Bank of Braail.
Under the Agreement, which is effective for a oneyear period, Brazil may request the United States
Exchange Stabilization Fund to purchase Brazilian
cruzeiros in amounts not exceeding the value of the
Agreement. Any cruzeiros so acquired by the Uaited Stat••
Treasury would subsequently be repurchased by Erasil with
dollars.
The Agreement will assist Brazil in maintaining orderly
conditions in . foreign exchange markets &s part of its program of economic stabilization and growth, and is designed
to supplement the resources available under the $125 million
stm~d-by arrangement announced by the International MOneta,
Fund on January 13, 1965. The Agreement signed today
implements the Treasury portion of various United State.
Government economic and financial programs 1n Brazil in
1965, estimated to total more than $450 million, which
were announced December 14) 1964 on the occasion of the
signing of a $150 million program loan of the Agency for
International Development.
J.. IMITED OFFICIAL USE
OASLA/OLA/HJCostanzo:mfl
2/16/65
TREASURY DEPARTMENT
,
February 23, 1965
FOR IMMEDIATE RELEASE
U. S. AND BRAZIL ENTER
NEW EXCHANGE AGREEMENT
Secretary of the Treasury Douglas Dillon and the
Ambassador of Brazil, Juracy Magalhaes, today signed a
$53,660,000 Exchange Agreement between the United States,
the Government of Brazil, and the Bank of Brazil.
Under the Agreement, which is effective for a one-year
period, Brazil may request the United States Exchange
Stabilization Fund to purchase Brazilian cruzeiros in amounts
not exceeding the value of the Agreement. Any cruzeiros so
acquired by the United States Treasury would subsequently
be repurchased by Brazil with dollars.
The Agreement will assist Brazil in maintaining orderly
conditions in her foreign exchange markets as part of her
program of economic stabilization and growth, and is designed
to supplement the resources available under the $125 million
stand-by arrangement announced by the International Monetary
Fund on January 13, 1965.
The Agreement signed today implements the Treasury
portion of various United States Government economic and
financial programs in Brazil in 1965, estimated to total
more than $450 million, which were announced December 14,
1964 on the occasion of the signing of a $150 million program
loan of the Agency for International Development.
000
D-1515
STATEMENT OF THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE THE
JOINT ECONOMIC COMMITTEE
FEBRUARY 22, 1965
10:00 A.M.
Mr. Chairman and Members of the Joint Economic Committee:
We meet after a year of substantial progress and accomp1ishment.
But we have no cause for complacency.
At home too many of our workers -- particularly younger
people just entering their productive years and those who
suffer from inexperience, lack of education, and racial
prejudice -- are without jobs.
As we enter the fifth consecutive
year of economic advance) we must be alert both to the dangers
of price pressures and of any flagging in the forces of
expansion,
At the same time, our balance of payments has not shown
the improvement we must have.
Further action -- as outlined
by President Johnson in his Message on the Balance of Payments
is essential to the continued strength of the dollar.
And,
on that solid foundation, we must press forward, in cooperation
with our friends and trading partners, with our effort to
D-1S16
- 2 assure the capacity of the international monetary system
over the years ahead to provide the reserves and credit
facilities needed to support the vigorous and balanced growth
of the free world economy.
Fiscal Policy and a Progressive Economy
Maintenance of a healthy rate of domestic economic
expansion, free from inflation, will continue to require the
coordinated use of the tools of fiscal, monetary, and debt
management policy.
But, within that framework, fiscal policy,
and particularly tax policy, has unquestionably come to assume
a more crucial role than ever before in sustaining our forward
momentum and carrying out the mandate of the Employment Act
of 1946.
The first important steps to spur more rapid growth
through tax policy were taken in 1962.
1962, you will
recall~
The Revenue Act of
provided for a tax credit of 7% on new
investment in machinery and equipment, and in the same year
the Treasury reformed and liberalized the tax treatment of
depreciation, bringing up to date badly outmoded procedures
- 3 that served as a drag on new investment.
Coupled with the
two-stage reduction in the corporate tax rate contained in
the Revenue Act of 1964, these measures provideo a powerful
stimulus to business investment in plant and equipment,
increasing the profitability of a typical investment in new
equipment by more than 30%.
Just last week we improved and liberalized the reserve
ratio test procedures that accompanied the 1962 liberalization
of depreciation.
studies.
This action was taken after extensive
It will make certain that businesses which truly
wish to adapt their replacement practices to the new shorter
lives announced in 1962 can obtain the full tax benefits of
the 1962 guidelines.
For 1965 it will mean that additional
taxes will amount to a maximum of $100 million rather than
the $800 million that would have been the case under the
original 1962 reserve ratio test procedures.
The response of private investment to tax incentives and
to expanding sales and profits has been remarkable indeed.
- 4 Producers' outlays on durable equipment, after correction
for price change, amounted to $26 billion in 1961 as compared
to $26.6 billion in 1952.
But in the three years since 1961,
those same outlays, again corrected for price change, have
risen to $35.1 billion, an increase of over one-third in the
space of only three years.
Yet, the expansion of investment
has been closely geared to requirements for new productive
capacity and no unsustainable capital goods boom on the 1956-57
model has been allowed to develop.
Along with the invigoration of private investment that is
so basic for long-run growth, the individual tax reduction of
1964, as it becomes fully effective, is releasing $11 billion
of consumer purchasing power at 1965 levels of income.
The
size, composition, and timing of last year's tax cut were
carefully planned, and the results were almost exactly as
predicted in the 1964 Economic Report of the President.
A year ago that Report projected a Gross National Product
of $623 billion as the mid-point within a $10 billion range.
The actual result is now estimated at $622.6.
A year ago
the Report estimated that with tax reduction the unemployment
- 5 rate could be expected to fall to approximately 5% at the end
of the year -- as it actually did, before falling even further
to 4.8% in January.
The behavior of personal income, corporate
profits and other measures was also in line with our expectations.
The tax reduction enacted last year continues to spur
consumer and business spending) although the large initial
thrust is now behind us.
Later this year we will further
improve the tax system, encourage price
declines~
and give
the economy another measured and timely stimulus through the
reduction and elimination of some of our excise taxes.
The
PresidentVs budget provides for excise tax reductions effective
on July I that will total $1.75 billion a year when fully
effective.
The Presidenc will spell out the details of this
program in ample time to permit consideration by the Congress
before mid-year.
Over the past four
years~
as this record suggests, we
have corne to a far greater appreciation of how fiscal and tax
policy can help achieve our economic goals.
But much remains
to be done before we can be satisfied that this policy tool
can be used with the flexibility that is essential should
recessionary tendencies gather force.
- 6 To meet that need, the President has urged that the
Congress review its own procedures to assure prompt action on
temporary tax cuts, if and when required.
The lengthy and
painstaking deliberations by the Congress, which are entirely
necessary and appropriate before undertaking a lasting
structural change in the tax structure, are not relevant to
purely temporary, across-the-board, anti-recessionary cuts.
We simply must be able to count on procedures that insure
an early decision in response to a Presidential proposal,
or else we must give up the strongest anti-recessionary
weapon in our arsenal.
At the same time, we must, of course, develop programs
that will attack structural problems of unemployment and
depressed areas at their roots and solve them within a framework of over-all price stability.
These deep-seated problems
will only yield to a concerted attack aimed directly at their
causes.
We are mounting just such an attack.
In a modern industrial society, those without skills,
or with skills no longer in demand, suffer a heavy disadvantage
Training programs such as those now being conducted under both
- 7 the Manpower Development and Training Act and the Economic
Opportunity Act can make a key contribution to individual
and national welfare., The Appalachia program, now under
Congressional consideration, is an ambitious effort to deal
in a coordinated way with a particular depressed area problem.
An improved Area Redevelopment Act would be helpful in spurring
growth.
Carefully designed programs such as these will play
a steadily increasing role in reducing unemployment and
widening job opportunities.
Monetary and Debt Management Policies
The timely use of fiscal policy enables us to make far
more effective use of the tools of monetary and debt management
policies in meeting our internal and external economic goals.
For instance, the stimulus from tax reduction, by lifting some
of the burden for promoting economic expansion from monetary
policy> has made extremely easy money policies at home
unnecessary -- policies that would have been totally out of
keeping with our balance of payments problem.
- 8 -
The fact is that, in a world of increasingly free trade
and payments, we cannot expect to insulate our domestic money
and capital markets entirely from those of other countries,
nor would that be consistent with our longer-range goals of a
liberal world economic order.
As the President emphasized
in his Economic Report, monetary policy must and will remain
free to respond if the stability of the dollar is threatened,
either from domestic inflation as a result of excessive demand,
or from outflows of money and capital that undermine our
balance of payments.
But, if monetary policy is to play that
role effectively, and without potential damage to the internal
economy, we nrust also recognize the corollary need for dynamic,
flexible fiscal policies in promoting domestic prosperity.
So long as we are willing in the future, as during the
past few years, to use all the varied tools of financial policy
flexibly, and in complementary ways, intolerable conflicts
need not arise between our commitment to defend the dollar
and our commitment to sustained domestic growth and prosperity
Effective economic policy does not require that every tool
be pushed hard in the same direction and at the same time.
- 9 -
What is required is that, in seeking our varied goals, we
achieve a blend and a balance among our policy tools -- taking
advantage of the strong points of each -- that will permit
progress in several directions simultaneously.
The Debt Management Record
The use of our policy instruments in the pursuit of
multiple objectives is well illustrated in an area for which
I have had direct responsibility and which affects the economy
almost daily:
the management of the public debt.
Debt management has in recent years helped keep our
market interest rates in the short-term area reasonably
competitive with rates in major foreign money centers, thus
minimizing interest rate incentives to the transfer of shortterm funds abroad.
Thus, we increased the volume of Treasury
bills $5.0 billion further during 1964, helping to raise the
three-month bill rate from about 3-1/2 percent at the close
of 1963 to just under 4 percent today.
At the same time, however, it has been important to
insure that this action, undertaken for balance of payments
- 10 reasons, did not clash with other objectives.
With persistent
unemployment and unused industrial capacity, we have wanted
to avoid upward pressures on the structure of long-term interest
rates, and to assure the availability of investment funds
adequate to support the steady rise in domestic investment and
economic activity.
In addition, the Treasury also has continuously before
it the need to maintain a well-balanced maturity structure
in the national debt, a prerequisite for flexibility in its
financing decisions.
This requires sizeable placements of
new intermediate and longer-term securities in the market
in order to offset the shortening effect of the passage of
time on the term to maturity of outstanding issues.
Otherwise,
debt would soon pile up in the short-term area, not only
risking an inflationary potential but also straining that
sector of the market and using up some or all of the shortterm borrowing capacity which it is prudent to hold in reserve
for emergencies.
To achieve this balanced debt structure and avoid any
excessive build-up of liquidity, the Treasury last year reduced
- 11 -
outstanding short-term debt other than Treasury bills by an
even larger amount than the rise in the volume of bills.
As a result, the total marketable debt due within one year
actually declined by $1.0 billion.
And, as in the preceding
year, the Treasuryis borrowing was done, on
ba1ance~
without
recourse to the commercial banking system -- making it the
third successive year in which bank holdings of Treasury
securities showed no increase.
Actua11y~
commercial bank
holdings of Government debt as shown in the attached table
were slightly lower at the end of January than they were
four years earlier.
Thus, all of the large increase in bank
credit over the past four years has been used to finance
private borrowers and State and local governments.
The great bulk of the Treasury's debt extension has
continued to be achieved through advance
refundings~
a technique
initiated during the preceding Administration and further
developed and extensively utilized during the past four years.
One important advantage of this technique is that it minimizes
the impact on the market and on interest rates of our debt
extension operations.
Investors responded to three advance
- 12 refunding offers, in January and July 1964 and January 1965,
by exchanging existing short-term holdings for $4.2 billion
of bonds maturing in 20 years or more, for $7.5 billion of
bonds maturing in about 9 years, and for $10.3 billion of bonds
maturing in 5 to 7 years.
An additional $1.5 billion of
Ie-year bonds was issued in the regular refunding in May 1964.
Reflecting these operations, the marketable debt due in
5 years or more rose $7.1 billion in the twelve months that
ended on January 31, exceeding the $5.8 billion increase in
the entire marketable debt over this period.
table
indicates~
As the attached
an amount larger than the entire $25.1 billion
increase in the marketable debt since January 1961 has been
financed over that period in longer-term issues; marketable
debt due in 5 years or more is up $26.9 billion.
Accordingly,
the average maturity of the marketable debt as of January 31,
1965 was 5 years and 5 months, 4 months longer than its yearago level and eleven months longer than in January 1961.
Moreover, if we add the $2.6 billion increase in the
outstanding volume of savings bonds since January 1961 to the
$26.9 billion increase in the portion of the marketable debt
- 13 due in five years or more, we get a total of $29.5 billion,
well beyond the $28.4 billion rise in the entire public debt
over these four years.
This is a clear record of noninflationary
finance not often recognized by those who like to talk of
loose fiscal policies in Washington.
It is noteworthy that these efforts to finance the
Government at long-term have been achieved without any noticeable
upward pressure on long-term yields.
Most long-term interest
rates important to private economic activity are now well
below the levels touched in 1961:
average conventional
mortgage rates are currently 5.8%, down nearly 3/8%; offering
yields on new high-grade corporate bonds have recently been
under 4-1/2%, 1/8% or more below levels of the spring of 1961;
and a widely-used municipal bond yield average which was as
high as 3.55% in 1961 is currently at 3.10%0
This is an impressive record when one considers the
increase of about 1-3/4% in short-term yields that has taken
place since the lows of early 1961, as well as the record
demand for funds.
The volume of funds raised during the past
four years totals about $240 billion, nearly 50% higher than
- 14 the total of the preceding four years.
A major part of the
explanation lies, of course, in the high and rising flow of
savings for longer-term investment generated out of the
steadily rising incomes that have accompanied our prosperity.
The smooth flow of these savings into investment has been
greatly assisted and encouraged by confidence in continuing
price stability and by the increases in interest rates paid
by savings institutions and commercial banks.
Clearly, the Treasury's program of noninflationary debt
management has been entirely consistent with full availability
of credit to private borrowers at stable or declining longterm interest rates.
Importance of Cost-Price Stability
Fiscal incentives and sound financing of the national
debt have helped account for the remarkable degree of price
stability that has accompanied our vigorous expansion.
In
contrast, earlier postwar expansions have typically been marred
after the initial recovery period, by rapid increases in costs
and narrowing profit margins.
The bidding up of prices and
costs dissipated the forces for expansion; maladjustments and
distortions soon developed, and recessionary forces gathered
strength.
- 15 We have avoided that pattern during the present expansion.
The rise in productivity associated with more rapid growth and
an expanded scale of investment, along with moderation in wage
demands, has
~aused
manufacturing labor costs per unit of out-
put to decline more or less steadily throughout the current
expansion.
As a result, there has been no squeeze on profit
margins and little upward pressure on prices.
With costs and
prices stable) and productivity rising steadily, we have
maintained a good balance throughout the economy and no drastic
tightening of money has been necessary to curb overexuberance.
We must not allow the dismal cycle of inflation and
recession of the earlier postwar period to reappear.
challenge is
clear~
The
for experience shows that the task of
maintaining cost-price stability becomes more difficult as
expansion whittles away margins of unused plant capacity and
selective labor shortages begin to appear.
Moreover, some
signs of price pressures -- fortunately confined to limited
sectors of the economy and in some cases reflecting temporary
interruptions in the flow of raw materials from abroad -- were
apparent in the closing months of 1964.
- 16 These pressures by no means signify that our long period
of price stability is ending.
They do, however, re-emphasize
the need for vigilance.
Our financial policies afford assurance that total
demand will remain well within our growing capacity to produce,
and we do not face excess demand inflation.
But~in
addition,
we must recognize that -- even at a time when over-all demand
is not excessive -- costs and prices may be pushed up by
pressures of wage bargaining and the pricing policies of
large firms.
The record of labor and industry in recent years in this
respect has been good, although we are all aware, I think,
that it has not been in every instance as good as it could
have been.
The price-wage guideposts, endorsed by both
President Kennedy and President Johnson, point unambiguously
to the responsibilities of both labor and management if key
wage settlements and pricing decisions are to serve the public
interest.
The acceptance by all sectors of our economy of
- 17 their continuing responsibility for noninflationary policies
is the key to steady expansion at home and a stronger competitive
position abroad.
Balance of Payments
Cost-price stability has contributed to a marked improvement in our already favorable balance of trade.
Commercial
exports) excluding those financed by the Government, rose to
$22.4 billion in 1964, an increase of 16% over 1963, and
fully 28% over 1960 levels.
As a result, our commercial
trade surplus widened from 1963's $2.3 billion to an estimated
$3.7 billion in 1964, despite the larger demand for imports
generated by our rising levels of economic activity.
The 1964 results
were~
of course, aided by the special
grain sales to both Eastern and Western Europe early in the year,
and we cannot count on equally favorable over-all trends
in 1965.
But, there can be little doubt that the relative
stability of our own costs and prices since 1958) while most
foreign costs and prices have been rising more or less steadily,
is at last beginning to count in our favor.
Our improved trade balance has been paralleled by further
savings in net Government spending overseas, and by an
- 18 unprecedented increase in income from our rising volume of
foreign investments.
These factors combined to reduce our
deficit on regular transactions to an annual rate of about
$2 billion over the first three quarters of 1964 -- about in
line with earlier expectations despite rising levels of
capital outflows.
However, as you
know~
progress in reducing our deficit
for the year as a whole was disappointing.
A sharp deterioration
during the fourth quarter pushed our deficit on regular
transactions up to $3.0 billion for the year as a whole.
While some of the fourth quarter results can be traced to
temporary factors, analysis of the results for the year made
it perfectly clear that new measures needed to be taken to
achieve a more rapid reduction in the underlying deficit and
to maintain the international strength and stability of the
dollar unquestioned.
As a consequence, President Johnson has announced a
ten-point program to intensify our effort to reach an early
balance.
Export promotion will be pressed even harder and
overseas dollar cost of Government programs will be reduced
t~
- 19 -
even further.
In addition, legislation will be sought to
narrow the gap on tourist expenditure by reducing the dutyfree exemption on our returning tourists and our "See the U.S.A."
program will be greatly intensified.
But, the major thrust of
the President's program is in the area of capital movements.
The reason is simple.
The bulk of our difficulty can be
traced to accelerating outflows of American investment and
loan funds to a rapidly growing outside world that desires
capital and that apparently is still incapable of mobilizing
its own savings with full effectiveness.
Since 1960, gains
in our trade balance, net savings in our aid and military
programs
overseas~
and rising investment income have benefited
our balance of payments by about $3.9 billion.
But over that
same period, private capital flows abroad increased by about
$2-1/2 billion to a record $6.3 billion) washing away most of
the gains in other sectors of our accounts"
This huge capital outflow is in one sense a reflection
of our basic strength as a nation
capable of
generating~
the huge savings we are
the steady increase in our holdings of
productive and profitable assets abroad, and the world-wide
- 20 -
usefulness of the dollar.
But, at this point in time, it is
also evident that our balance of payments position cannot
afford accelerating outflows of capital at the expense of our
international liquidity.
Nor can we afford a heavy outflow
of the gold that stands behind our pledge to maintain the value
of the dollar at $35 an ounce.
And just such an outflow is
inevitable unless we take the steps that will hold the outflows
of capital within our capacity as a nation to finance them.
The success of this program rests on the cooperation of
the business and financial communities in a voluntary program
to limit the flow of dollars abroad arising from their own
operations.
Such a voluntary program, designed in the public
interest, can be an enormously effective instrument in assisting
the early balance in our payments that is so urgently needed.
Only last Thursday) the President, together with Secretary Connor
Chairman Martin, and I,outlined to a group of distinguished
business and financial leaders the nature of this voluntary
program.
I am sure they will respond to the challenge quickly
and effectively
International Financial Cooperation
Early and decisive reductions in our balance of payments
deficit are essential not only to protect the dollar, but
- 21 also to permit calm and orderly study and appraisal of the most
effective approaches toward assuring the adequacy of the
international financial system to meet the needs of a growing
world.
The capacity of the present system to meet short-run
strains has been imppessively demonstrated
when sterling came under heavy pressure.
most recently
The massive credits
extended to the British amounted to a collective endorsement
-- backed by $3 billion of hard cash -- of existing exchange
parities by the major industrial countries.
The speed and
effectiveness with which these credits could be assembled
was a product of the close international financial cooperation
built up over recent years.
Meanwhile, we are exploring with other leading nations
how best to meet the longer-range needs of the world for
international liquidity and for more effective processes of
international balance of payments adjustment.
These studies
are complex and difficult, and it is not surprising that some
differences of approach among the major countries are evident
at this stageQ
Certainly, we cannot afford to look back
- 22 -
nostalgically and seek a solution in the rigid mechanism of
a pure gold standard -- a mechanism that even in an earlier
and simpler day was prone to breakdown and deflation.
Instead,
the challenge is to build upon the system that has served the
world so well over the postwar years
with full awareness
of its problems and shortcomings, to be sure, but also with
healthy respect for its resiliency and flexibility in responding
to varied and never fully predictable needs.
While this long-run effort is being pressed to a
satisfactory conclusion, the planned expansion of IMF resources
provides tangible assurance that the financial support needed
to facilitate expansion in world trade and payments will be
available.
The Executive Directors of the International Monetary
Fund have agreed in principle to submit to member governments
proposals for a general increase of all quotas by 25%, plus
special increases for a relatively small number of countries
whose quotas are out of line with their economic importance.
Together, these increases, if accepted by the member countries,
would total $4.8 billion, and when completed would bring the total
- 23 quotas of the Fund up to $20.9 billion, an over-all rise of
approximately 30%.
The U. S. quota, which would be subject
only to the 25% general increase, would rise from the present
$4,125 million to $5,160 million.
It is expected that
legislation providing for this increase will be introduced
next month; full provision for it has already been made in.
the PresidentWs budget.
The Fund proposals will provide that 25% of each country's
quota increase must be paid in gold.
The United States has
been prepared at all times to pay this 25% from its own gold
holdings, but we had been concerned that such payments by
others would lead to large purchases of U. S. gold.
I am glad
to say that this possibility will be forestalled by measures
agreed upon in the Fund.
I believe that the understandings
that have been reached will fully protect the interests of
the United
States~
and its other
the payments system as a
whole~
the Fund
members~
Conclusion
I have touched upon several key challenges for economic
policy in 1965 -- maintaining price stability while reducing
- 24 -
unemployment -- achieving a decisive reduction in our balance
of payments deficit -- and progress toward a stronger internationa
payments system.
Each of these problems we approach from a
position of great strength.
Business is moving ahead with good momentum, but without
inflationary pressures on supplies or speculative excesses.
Our international competitive position is slowly but surely
improving, and standing behind the dollar is the world's largest
gold stock and a huge volume of foreign assets.
The international
financial system has withstood a series of shocks and strains,
while demonstrating its ability to finance a further large
increase in world trade.
Given a continued willingness to use all our tools of
economic policy in flexible and imaginative ways -- and with
the vital support of industry, labor, and finance -- I am
confident that the challenges of today will become the
successes of tomorrOW
Q
THE STRUCTURE AND OWNERSHIP OF
THE PUBLIC DEBT
JANUARY 1961 AND JANUARY 1965
(In billions of dollars)
Debt Structure
January
1961
January
1965
Change
$146.4
42.9
$144.7
69.7
-$ 1. 8
+ 26.9
47.2
53.6
49.8
54.4
+ 2.6
+ 0.8
Total public debt $290.2
$318.6
+$28.4
$- 0.4
146.4
$ 62.3p
l60.5p
209.1
222.8
+ 13.7
54.6
26.6
59.1
36.7
+ 10.2
$290.2
$318.6
+$28.4
Marketable public debt
Due within five years
Due after five years
Nonmarketable public debt
Savings bonds
Special issues and other
Ownership
Commercial banks
Other publicly-held debt*
Total publicly-held
debt
Government investment
accounts
Federal Reserve Banks
Total public debt
$ 62. 7
+14.1
+
4.5
p - Preliminary
* Includes state and local governments, individuals, private
investment institutions, corporations, all other private
holders.
NOTE:
Details may not add to totals shown due to rounding.
TREASURY DEPARTMENT
February 24, 1965
RELEASE ON RECEIPT
TREASURY SECRETARY DILLON NAMES JOHN H. RANDOLPH, JR.,
AS NEW VIRGINIA STATE CHAIRMAN FOR U. S. SAVINGS BONDS
Secretary of the Treasury Douglas Dillon today appointed
John H. Randolph, Jr., Richmond business and civic leader, as
volunteer State Chairman for the U. S. Savings Bond program in
Virginia.
Mr. Randolph, President of the First Federal Savings & Loan
Association of Richmond, succeeds C. Francis Cocke, Chairman of
the Board, First National Exchange Bank of Roanoke.
In announcing Mr. Randolph's appointment, Secretary Dillon
said: "We feel that the Savings Bonds program is one of the most
important activities in which we are engaged. It is not only an
essential feature of our debt management program but also serves
to encourage individual thrift. The addition of a leader of
Mr. Randolph's stature will help us immensely."
Associated with the First Federal Savings & Loan Association
since 1955, Mr. Randolph is past president of Richmond Chapter
#129, American Savings and Loan Institute; charter president of
the Richmond Chapter, Society of Residential Appraisers; past
president of the Virginia Savings and Loan League, and a member
of the National Thrift Committee Advisory Council and the United
States Savings and Loan League's Legislative Committee.
In addition, Mr. Randolph is Director of the Germantown Fire
Insurance Co. of Philadelphia, the Southern Title Insurance Corp.
the Virginia Industrial Development Corp., the Central Richmond
Association, the Better Business Bureau, the Four Seasons Club
of Lanexa, Va., and Director and Finance Chairman of the Commonwealth Council, Girl Scouts of America.
000
TREASURY DEPARTMENT
February 24, 1965
RELEASE ON RECEIPT
TREASURY SECRETARY DILLON NAMES JOHN H. RANDOLPH, JR.,
AS NEW VIRGINIA STATE CHAIRMAN FOR U. S. SAVINGS BONDS
Secretary of the Treasury Douglas Dillon today appointed
John H. Randolph, Jr., Richmond business and civic leader, as
volunteer State Chairman for the U. S. Savings Bond program in
Virginia.
Mr. Randolph, President of the First Federal Savings & Loan
Association of Richmond, succeeds C. Francis Cocke, Chairman of
the Board, First National Exchange Bank of Roanoke.
In announcing Mr. Randolph's appointment, Secretary Dillon
said: "We feel that the Savings Bonds program is one of the most
important activities in which we are engaged. It is not only an
essential feature of our debt management program but also serves
to encourage individual thrift. The addition of a leader of
Mr. Randolph's stature will help us innnensely."
Associated with the First Federal Savings & Loan Association
since 1955, Mr. Randolph is past president of Richmond Chapter
#129, American Savings and Loan Institute; charter president of
the Richmond Chapter, Society of Residential Appraisers; past
president of the Virginia Savings and Loan League, and a member
of the National Thrift Connnittee Advisory Council and the United
States Savings and Loan League's Legislative Connnittee.
In addition, Mr. Randolph is Director of the Germantown Fire
Insurance Co. of Philadelphia, the Southern Title Insurance Corp.,
the Virginia Industrial Development Corp., the Central Richmond
Association, the Better Business Bureau, the Four Seasons Club
of Lanexa, Va., and Director and Finance Chairman of the Connnonwealth Council, Girl Scouts of America.
000
- 3 -
and exchange tenders viII 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
~e
or other disposition of the bills, does not have any exemption, as such, and 10s8
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 subJec1
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 19~
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 1nclude in his income tax return only the difference between the price paid for Buet
bills,' whether on original issue or on subsequent purchase, and the amount actuall
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.issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
- 2 -
decimals, e. g., 99.925.
Fractions may not be used.
It is urged that tenders
be made on the printed forms and forwarded in the special envelopes which will
be supplied by Federal Reserve Banks or Branches on application therefor.
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 accompanie
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 Trea sury Department of the amount and price range of accepted bids. Thos
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 each issue
for $200,000 or less without stated price from anyone bidder will be accepted
in full at the average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders in accordance with
the bids must be made or completed at the Federal Reserve Banks on
1965
Marc~
, in cash or other immediately available funds or in a like face
amount of Treasury bills maturing
t-1arch 4, 1965
------~~~~-~-----------
Cash
_
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE,
February 24, 1965
X
'mEASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two serif
of Treasury bills to the aggregate amount of $
2,20~,000
cash and in exchange for Treasury bills mat1,lring March
of $
2,10~,000
, or thereabouts,
4~65
tOJ
, in the amour
X
, as follows:
91 -day bills (to maturity date) to be issued
March 4, 1965
XEOX
Xl*
in the amount of $ 1,200,000,000 , or thereabouts, represent-
XID}X
ing an additional amount of bills dated December 3, 1964
)@OX
and to mature June 3, 1965
, originally issued in the
$iOX
amount of $
1,0~,000
, the additional and original bills
to be freely interchangeable.
182
~
-day bills, for $ 1,000,000,000 , or thereabouts, to be dated
XXtt¢t
March.5
, and to mature
September 2, 1965
~
The bills of both series will be issued on a discount basis under compet1t1v
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).
'!'enders will be received at Federal Reserve Banks and Branches up to the
closing hour,
on~-thirty
p.m., Eastern Standard time,
Monday, March 1, 1965
_
X5O(}W
Tenders will not be received at the Treasury Department, Washington.
Each tendet
must be for an even multiple of $1,000, and in the case of competitive tenders U
price offered must be expressed on the basis of 100, with not more than three
rREASURY DEPARTMENT
February 24, 1965
IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
200,000,000, or thereabouts, for cash and in exchange for
asury bills maturing March 4, 1965,
in the amount of
,100,511,000, as follows:
91-day bills (to maturity date) to be issued March 4, 1965,
the amount of $ 1,200,000,000, or thereabouts, representing an
11tlonal amount of bills dated December 3,1964, and to
ure June 3,1965,
originally issued in the amount of
000,051,000, the additional and original bills to be freely
erchangeable.
182-day bills, for $ 1,000,000,000, or thereabouts, to be dated
ch 4, 1965,
and to mature
September 2, 1965.
The bills of both series will be issued on a discount basis under
Ipetitive and noncompetitive bidding as hereinafter provided, and at
;urity their face amount will be payable without interest. They
.1 be issued in bearer form only, and in denominations of $1,000,
000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
turity value) .
Tenders will be received at Federal Reserve Banks and Branches
the closing hour, one-thirty p.m., Eastern Standard
e, Monday, March 1, 1965.
Tenders will not be
elved at the Treasury De~artment, Washington. Each tender must
for an even multiple of $1,000, and in the case of competitive
ders the price offered must be expressed on the basis of 100,
hnot more than three decimals, e. g., 99.925. Fractions may not
used. It is urged that tenders be made on the printed forms and
waroed in the special envelopes which will be supplied by Federal
eNe Banks or Branches on application therefor.
;0
Banking institutions generally may submit tenders for account of
tomers provided the names of the customers are set forth in such
ders. Others than banking institutions will not be permitted to
mit tenders except for their own account. Tenders will be received
hout deposit from incorporated banks and trust companies and from
ponsible and recognized dealers in investment securities. Tenders
m others must be accompanied by payment of 2 percent of the face
'unt of Treasury bills applied for, unless the tenders are
ompanied by an express guaranty of payment by an incorporated bank
crust Company.
1517
7
_
Immediately a[Ler 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 each issue for $200,000 or less without
stated price from anyone bidder will be accepted in full at the
average price (in three decimals) of accepted competitive bids
for the respective issues. Settlement for accepted tenders in
accordance with the bids must be made or completed at the Federal
Reserve Banks on March 4, 1965, in cash or other immediately
available funds or in a like face amount of Treasury bills
maturing March 4, 1965.
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.
000
- 2 Our success in those measures was, in no small measure, the
result of Stanley Surrey's remarkable ability to combine an
unmatched grasp of our tax system in all its complex detail with
a broad vision of its scope and purpose -- and to view our tax
laws, not merely in terms of the narrow interests of the Treasury
or the Internal Revenue Service, but in terms of the true national
interest.
The extraordinary depth and range of his talents were nowhere
better displayed than in his work with the tax committees of the
Congress -- work that was invaluable to the successful passage of
the Revenue Act of 1964. His willingness to turn devil's
advocate for the benefit of the members of the committees, to turn
the full strength of his truly impressive knowledge of taxation
against the very proposals he was supporting -- so that the
members of Congress could come to an independent judgment -- won
the lasting respect of those committees.
Crucial, as well, throughout our tax labors of the past four
years was Stanley Surrey's ability to work with the tax bar, with
accountants and with industry, to distinguish between real
problems and special pleading, and to maintain the respect and
good will of all while vigorously pursuing the national interest.
Stanley Surrey has demonstrated the same surpassing excellence
in all he has undertaken here at Treasury -- and no one has
undertaken more. He has earned the admiration and respect of all
who have worked with him. He has served in the best tradition of
the Treasury and of the government.
It is with the deepest sense
of personal gratitude -- and the greatest personal pleasure -that I present the Alexander Hamilton Award to Stanley Surrey.
I will now read the citation:
REMARKS BY THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
UPON PRESENTING THE ALEXANDER HAMILTON AWARD
TO ASSISTANT SECRETARY OF THE TREASURY
STANLEY S. SURREY
AT THE TREASURY DEPARTMENT
MAIN TREASURY BUILDING
WASHINGTON, D.C.
WEDNESDAY, FEBRUARY 24, 1965, 12:00 P.M., EST
The Alexander Hamilton Award is the highest award the
Treasury can bestow on one of its own.
No man deserves that honor more than Stanley Surrey.
I count it one of the greatest rewards of my sixteen years
in government that I have known and worked with some of the
ablest and most dedicated men in America.
I know of none abler or
more dedicated than Stanley Surrey.
The four years in which I have worked with Stanley Surrey
have been long, crucial and indescribably arduous.
It is not
the least of his accomplishments that, under intense and unrelentinp
pressure, he has responded with unfailing grace, energy and
brilliance. He has earned my utmost respect for his professional
abilities and my very deep personal regard.
During the four years in which Stanley Surrey has served as
Assistant Secretary for Tax Policy, this nation did more to
improve its tax system -- in terms both of fairness and of
economic growth -- than at any other time in our history. That
record is the work of no one man -- but no one man can, with
greater justice, take pride in that record than Stanley Surrey, who
bore the responsibility for fashioning the Administration's tax
proposals.
If Stanley Surrey had been less able, less dedicated, less
willing and less dogged in his determination to see the job
through, we might not have achieved the Revenue Acts of 1962 and
1964 in their present form.
OWR
REMARKS BY THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
UPON PRESENTING THE ALEXANDER HAMILTON AWARD
TO ASSISTANT SECRETARY OF THE TREASURY
STANLEY S. SURREY
AT THE TREASURY DEPARTMENT
MAIN TREASURY BUILDING
WASHINGTON, D.C.
WEDNESDAY, FEBRUARY 24,1965,12:00 P.M., EST
The Alexander Hamilton Award is the highest award the
Treasury can bestow on one of its own.
No man deserves that honor more than Stanley Surrey.
I count it one of the greatest rewards of my sixteen years
in government that I have known and worked with some of the
ablest and most dedicated men in America. I know of none abler or
more dedicated than Stanley Surrey.
The four years in which I have worked with Stanley Surrey
have been long, crucial and indescribably arduous. It is not
the least of his accomplishments that, under intense and unrelenting
pressure, he has responded with unfailing grace, energy and
brilliance. He has earned my utmost respect for his professional
abilities and my very deep personal regard.
During the four years in which Stanley Surrey has served as
Assistant Secretary for Tax Policy, this nation did more to
improve its tax system -- in terms both of fairness and of
economic growth -- than at any other time in our history. That
record is the work of no one man -- but no one man can, with
greater justice, take pride in that record than Stanley Surrey, who
bore the responsibility for fashioning the Administration's tax
proposals.
If Stanley Surrey had been less able, less dedicated, less
willing and less dogged in his determination to see the job
through, we might not have achieved the Revenue Acts of 1962 and
1964 in their present form.
- 2 -
Our success in those measures was, in no small measure, the
result of Stanley Surrey's remarkable ability to combine an
unmatched grasp of our tax system in all its complex detail with
a broad vision of its scope and purpose -- and to view our tax
laws, not merely in terms of the narrow interests of the Treasury
or the Internal Revenue Service, but in terms of the true national
interest.
The extraordinary depth and range of his talents were nowhere
better displayed than in his work with the tax committees of the
Congress -- work that was invaluable to the successful passage of
the Revenue Act of 1964. His willingness to turn devil's
advocate for the benefit of the members of the committees, to turn
the full strength of his truly impressive knowledge of taxation
against the very proposals he was supporting -- so that the
members of Congress could come to an independent judgment -- won
the lasting respect of those committees.
Crucial, as well, throughout our tax labors of the past four
years was Stanley Surrey's ability to work with the tax bar, with
accountants and with industry, to distinguish between real
problems and special pleading, and to maintain the respect and
good will of all while vigorously pursuing the national interest.
Stanley Surrey has demonstrated the same surpassing excellence
in all he has undertaken here at Treasury -- and no one has
undertaken more. He has earned the admiration and respect of all
who have worked with him. He has served in the best tradition of
the Treasury and of the government. It is with the deepest sense
of personal gratitude -- and the greatest personal pleasure -that I present the Alexander Hamilton Award to Stanley Surrey.
I will now read the citation:
CITATION
Al.(!.xa.ndVt fiamUton AUJtvtd
St.a.nley S. SUJr.JttlU
A.6 the dU.ll ~ (tJic.ltaec"t 0 6 Adm.i..n.i..!ltJtati..o n .ta.x POUCl!, Stan.l.e'l SUIL'telj
htL6 c.ontJUbu..teJ ir.ltl1£MU1t.abl.tj to bo~h the dO'r:1UUC and .(.Y!teJfl1a.t.(.cnal.
eeonoJ1?.(.c bVtength 06 the United Sta.tu.
Oh
The ~~e.\lenue Act. 06 7962, the fJeyl'te.c.i.at..i.OH Reno/UtI
1962 (utd the
;~evenue Act 06 1964 eOI'r.p1l..i.&e the mO.4t c.ompJC..e.he~.ive pltogJ(.41m 0 { .ine-om€.
ta.x )Leduc.tum and Jte l~oJun
OWt \jalion·.6 n.(/).toJttl.
..u.
Stt.u!.le(! Su.I!Jte.y not onil} du.igned the Adm.i.ni...t'Ltluon
pItOpoAa1.~
co H.taine.d .in tho.!l e. me a.4 WU'A , bid thlto ug It IliA ti.JteielJ J, e ~ 601ttI; a.nd
Jte6u.~a1:. .to c.owlte.nance. even t.he pOIJ4.i.bi...l.-itu
~c.,{aL Jtole .in the,{Jt lJucc.elJIJ6ul enactm~nt.
06
h.iA
de.~ea:t., he. pUtlt..d a
Stanle.u SuJVte!.f ha.6 de.vott.d r.L6 ti6e to iwpltov.ing OUIt .tax iCUM.
one. itaIJ a gJtea-tell bwwWge 06 taxmol1 aM <tU -U.6 a.6pe.ct6. No
one. waIJ bett~ qua£i6i..ed to pe.400~ ~he .~ni~ic.a.nt pubtLe 4~v.i.ce
tha..t J~ LIJOIi.k. OVVl the pa,6t 30Ult qedu lteplte.6 e.HU. Hi4 u.npa..taUefe.d
acc.ompt.i.4hmentll alte a 6U.ti.Jtg ,tlu.bu..te to ft.i..4 tmowledge, to hi6 at.i..LU.y
and tc hu detiicl1.Li.cn.
:~o
S~f
demonAVta.,Ung tha..t tax poUcy could be. tL6ed to mow. .the counVty
economic pote.wUa.l. StanlfJ.! $ultltt..ll w YIttlde a. lo.4.tiJ4g
eotWt.ibu.t.C.on to the pl(.uut 4Ild 6u1.wtt wel6aA£ 06 the Pf.op~
.the
United sta..tu.
c.i.c4eJt
to W
0'
V"u.~l.a4
Vi..l.ton
CITATION
Ex c.e.pti.o nai SeJlv.ic.t. AwoJt.d
Robvr..t CaJL6u..re.U
.5.i.II1CL Augu.,t ,_ 1962, RobfA.-t CauweU Iuu .«.v~ tU Spt.eial A44.u.t.4n.t t:.o
t:.lte SftCllU.IVUJ 0' .the. lUa4u;\Y. Thuughout hi.6 4Vlv.iC.e., he lta4 c.Dn.6.i6te.n.t1.y
e.xlt.ibUed tho4e qua.U.t.i.u that make e.r.c.e.p.t.i.oKa.i ac.c.ompwMteni. r04Mbte. He.
ha4 c.otrlb.ine.d a bllUl.i",u .ot.teUe.e:t IidUJl « .6elUe. 0' huMo-t and a 4te.ady wU.Ungnu~
to engage. .i.;1 .6keu hllltd ",IOU wtdVt 4«A.t4.Utt.d CUld e.WU4.tUtg .eJte.du.Lu. He. IUl.6
c.ott/do.ntly rU.l.played a Jutlle. a.b.i..tUtj to "I.e. e.1Vtone.i.1f c.omT'iu: maUVt4 thJlough tiJ
c.ompietiott with Itt.ma/tlutble c.eleJtU:1J CU1d coupled a u.nique c.ol31p1te.hell4iol'l 06 .tile
lughut level. policy CJ)n4.ideJU1t.iotU with " elo.u. f!.t/f. to .\DaUne. df.t.aU.. HI. 1146
apP'\Oaciled ai.l IM.tte.u wWt " .tal.VJ.tc.d .e.... e 0' balcutc.e.. yu. he. hal, eDn4.idvr.e.d
no ma_tte.Jt 40 ltouU.;1f. t.Jt4t .it d.id Mt IfttJLU 4 4heVlp look .ill ~iJw.l .ltev-Uw .to <U4u.t..e
ij'JU U uru 6ac.J:uattI! 4Cewta.te and Ifttlde.
"eMe. a.cS a mtLtte.\ 0 ~ poUc.y. The6 e
aile aU qu.a.l...i•.tiu tha.-t have made. Robt/lt CM414't.U an ou.-Utand.i.ng Spec.Lt-t A44i4tant.
oull
.ua
In add..U.ion, Ite. ha4 t4RVt tUt .impo«.u.t ptVa.t
the. 'o~o. 06 petie'.! .itt
ceJt.ta.i..A .J.mpolLt4nt altec14. FOJt e.l~e_ At. plalJf..d a lI.tUUng JUJU itt .lite. de.v¢.l.opt1trtt
the taW PWil wtdt..U4ku bq the. SecAe.t SeJtv.ie~ .to pMvidt. .iMpuVf..d 4Jld mou
e6 ~t.eti~ plto:t.e.c.UOIt '0Il. tile Pltui.de.n.t a' the UiU.Ud S.t4.tu 'otllMUtg .the. tJtag.ic.
eveKtll 06 NOV0nb~ t2. 1963.
0'
Exp04l!d -to the. ~etut ..sti1lldlJ.Mi 0' ~~Oll " Ite. eccllkf.d u.de. btJ Ude.
wU:1t ,up Q".ic.i~ .itt ao"f.}UlIIut 011 eoMplu ..a.t.teu 06 domu.ti.e rued. .bc.tf.lUl.4ti..ottal.
&ilJCJLt and mone.t4Jt~ 4"c.(u. 4U wdl. IU o.thfA di,~ ""IlUU -Uavolv-Utg TIte.44u,\U
ltuPOIil4.ib.i.Uti.u,. Robe..U Cauwe.U et.e.aJtl" pJtove.d .to be. 4n ouUt.a.JUUIlg a.nd
dedi.ea-ted
.uva.n.t
0' tkt. GOVfANlI'It.ttt.
H.u Jtaltt. abil..Lt.i.u a.nd ItDtcZUabl.e. e.HoltU
06 .tht. Tltt.4J,Wtl/ pfJUonlli.l.l! 41&d
lta.vt be.e)', O~ ~U.\4bLt \14lue. t;o the. SUJte..iAJt1j
;tIJ t.ht UttitLd S-U-tu T~u.ty Ot.~.
CITATHl,',j
ClCqJtiOna.i. S uv.i.ce AM.wtd
Ji..xon VonneUef!
Alt A~wt4nt to
.the. Se.eA«aA.rj 6e,ll Pu.bUe.
AH~ 60,ll
tJte. put
60"-'. qettU, fJ.i.r.OIt VOitu.Ut.1j halt trf4de. « Wliqu.e. eoKWbu-tiol1 t.o th.U
Oepalttme.n-t and to the. f.eoMtKic. e.~" 0' OU~ eountA.". TM. widt.
&1eeepl4nee. 06 e"Ug h-tf.ltui 6-Uc.4t poUc..iu. c.u.lMi..MU.Itg .it( the. 1964
tar. llt.du.etiDn, and oft Jtf.t!eMt ht.tVUULt.iDit4l 6i.uneiA.l ~
~ due ht good mea-4u.te tD t:#tw e.a.tf.6ul (!rId e~ upolt~n .to
the. public. Hila good judg.f.fIlt, Ith. .te'I.U41 to 4ece.pt. te.elllu.e4l.
ob6U4c.a.ti0tt4. ItU taJ.Vttf.d f.rUthcg ad h.U 6d.ieUolJ,j .tu.tN 0' plt.t&uf.
06t~n madf. tltt, diUeltVtef. "bt.twe.efil ...u.ilttUpltu4t.UJn 06 4" ..lmpoUallt
plt.inc..iple. 4Kd puhUc ufldeuancu.Mg.
In
4cki~ving
thi6
0'
ltu.ece6~,
Vixon VonnLllf.q'lt ift6eetiou.4 good
numol{ aM kI..4 k.indnu.&
.,~,.uut p.l4~ M t.tNLU pau. FOI{.tlte.
46'e.etlo" tktLt ot.lt£u Itottl ,~ IWn W t.Q t.~60JLU
bc.f{{1M .tilt.
MGt QJld NJie. P044.i.blt plUJdiguAU pUQuet.i.OIt o~ f.-pUr. IUtd
\lolum.i.ltoU6 ~ wtdt.JL tUA.fJftf. .time. p1tU~e..
fJ,u Jtt.coltd 06 dc.kif.V~n.t
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CITATION
Excertio~l S~~v~ee A~d
ChaJtteA A. SUW.va.tl
A4
the
,u4.u.t4nt to .the Se.e'lt.ta..ty
'O~
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p44.t 6~ ~/e.o.lL.6. Cluu.lu A. SulUuQA Iuu bUJl w.tltuP!eflt4t ..i.A
ob.ta.in.ittg a 'OWl and o.e. qwva..tu bU.l..iOIt dcUaJt ~outmUt iA tM.
Na;t.i..olt' 4 b4ian£e. 06 pa~c.n.t6. Tkii. -imptoUDfettt, with the. plU)4pr.c.t
0' 4eueA4i aJd.iUoul b.i.U.iOK do.li.aJc..4 to come, .u the. 4ggILf.9Ue. o~
undelt ~tJ "364M a.ICd mi..tit.aAy 44lu 4gUtMU.t.4 whf,\ft
MIl. Su.iUu4fl it46 be.u t1 ~ Utt..U:.t.d St.4.tu M.9o.t.i.4.tQI(..
~(teUp.U
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Ve.6vue
and o.the.t. dge.neiu, Mot. SuWua.n W 1U4Wttd " CDOJUUna.Ud UrLUe.d
Statu Go,,~~ e.~'o.u to a.c.h..ie.ve. 6UN.tantW. puJtcluuu 0' U. s.
miU.t4Itfj t.4u.i~at by .the. Fed«41. R....b.Ue 0t GWtr4Jty, I.t4lIJ. Au.4W4.
Spa,iA. Aiut.\4U4, .tIte. UlWt,u K.iAgdowr ad lJf4Ity olk" eowr.t.Uu. Tlte.
6!fU.~ iUtd 6ueeu6'ul de.vd..opmut 0' t.h.i.A PJU)9Jt4fn iuu be.u 4
ma.jolt (!IJlltA.ibuUon to the. wc.t,4ott. Ot the. NaUg". 4Itd 'ult. Sl.tJ.UVtLn' 4
peueVeA4nce. 4Itd .(mag~na..t.i.on -- .in toltg kowu 0' nego.t.i.a..Uolt all
oue~ the. wouti ...... have. bUll U4u.ti4t ttJ 4olv-UIg .tAe. CDIItplu 4If.Ci
cU.H.iCl.iU pUblut6 htvolvt.d. Tw, CDtfIOlud with othu. 4U4Uitie.
4IId hItpo.u:.an.t dJa.if.4 .in the. 4.tU 04 u.t.iout 4UJAJU.:tq, lU6UJLf.dllJ
eolllt.titu.ted e.xef.p.ti.oMl 4f)tV.t.f.t .to tU Dt~t.tt.t.
Voug,ia-6 V-<.lion
CITATION
Exc.e.r.ucma.l SC/tV,lc.£
~W'l.d
Paul A. Vol.cJU.1L
Th.U aWtVr.d .u made. .i.n IU..cogniliOtl 06 Paul A. Volckl~' /, ou,/".-4tand-Utrt
4tJtlliee. .to tltf. TltU4U1lY dwUJtB tlte. put th.\f.e. ~'f.aJt4. F.{.u.t 44 V.i.Jlf.e.tcIL
06 & Ot,.lCf. ()~ F.i.M.ne.lal. A.tatlhjw and 1IOf4. 44 1)tpu.t~ UndtJt Se.CAUaJtlt
60lt MOJ!Wlty A664J.Jt.6. ht. W mttde. d c.on-Unu.lJcg CD~bu:t.ioft .to thf.
dr.vdopmut o~ -impolLttutt TJtf.tL6Wt!1 poUeiu .u. bo.th tltt dOIMU.tU. and
.intVtIt4t.iOrtat. &-trt4rtual MUI.
It
to
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4uch a Wtoad 1t4ngf. 0 ~ TIte.a..6U1lrl o.eti..v.lty. PtUtl Volc.ke.Jt luu
,tblt
to do 40 bf.e4t~f. o~ e.~eLptioMl abJ..l...U:" tUld 4 bewtdteA6 ea.p4e.itq 604
lurJtd kIDU. He. Ita6 eombiM.d hirh .tt.cltl1.£e.«l eompeultc!'f. .in ~ 4fl4l.~...i.4 I) ~
ecwllom« ilJtd 6bur.neial p.wbl~ edl..tlt « Itf.tll '1."41. 06 what 1..4 pUct1.c.n!.
in ttNt16 o~ pabU.e p(1UetJ. In addLt.Ut". hi. w dflltOftUJuttc.d ct .... ea.bU.U~( to ~a.tt & e.uuti4t6
T~CUUAJJ poUeli with 4.imp.c.iei.tq
4tId 'O.tel. TIaJA It" bt.p u.tJteme.t'J .wpo_ttutt .ill 9~ ~r. puolli Md
CC111gUu.lDMl .6uppou ~01t TlLfAUIlJ(.{f pItOg.um4 4Ifd pol.i.e.i.u iJt .tile ,i.lIIl.nel.at
0'
tVILa.
'CUll VDLUfA hA6 6c.tvtd .in .thf. T-'.t.46U1UI wi..t:Jt gU4t lut 4I'Id f.fte-tg If.
He. Iuu lIIf..t. 4Jtd eon.t.i~4 tIJ tffUt. " d~ ,che.dulL tI1itJt UA~l'tg
ecIItfpO~f. Md good 1at.ettoJt.. c.t.uIc.l.q. It.l4 ,,"'0IlNIlC.L h46 OC.tK bt tht
IUgluut tJtadLtl". 06 .the. TIlLa.6Wt!l O~~'.6 txc:.tp.tit1Jtal SaJtv.iee. ~.
Vou.gia..6 Vil-ton
CITATION
Exc.ep.tiollU1l SfAv.ic.t AW-td
!\Ufmu.a E.
Wu.tkt.llb~e
.u
TJU4 awaJU1
givt.. bl ...eCJ)g~~ 01. flo"" ma.jo~ eolttJUbut.ion
to the. acc.OPupfuhmeUb 06 tlte. TUJUWly Vt.~u.t ~i.e& 1/0Ule.
appoinbnl.nt ia! Se.ptembt.t 7959
4U ~Vf.
lUwl«ttt
S,.c..u.ta.t~.
YOu-\ I.rtcqc.lopuU..e b~f. "0 ~.ttILtiOK 4M titl. cut o~
gOVeJiHme.ni W ~uppUe.d 4A .indiApe.tt64bie iragJte.dieu to tnt. upid
aKd AUCCUA 6u1. 6olfmUla-tioJl o~ new poUe.iu. pJWg/UJ1rl6 aNi p«Jcr.duAU
that ha.6 ocewvtw .LIt tht T.ua.6Q.lj Pf.pc..UMeAt .c.. uuat ljUJt.6.
WUhou.:t
YOWl
.imag-i.H4tiJJ. aM -i.ui.glt.t. te.c.ruuC4l. oW.t4elu '""-9lat
have. pIle.vaU.e.d OUf)L .61b4tu.uvl. Jtuulb. tUId v.Lt4t .u..iti4t.J..u" Migh-t
have. diw. Unde,Jt ljOWL tudeukip. ~tA.4Uon W bl.l.ll 4 tDo.f.
00 p.tOg4U.6 4Itd tnt. ~ 'oJt aeMt.".uag .tIt1. IIIOAt t.Hl.etivc. u"
.tilt V~.tlItut· ~ pltf6.iul.. Iwarut 4Jtd 6iMnei41 """,,,-ea.
0'
0'
YOWL ll.t.coJUi 0' aekil.voreat ad .dt.t. C!Datilud.tlj 4Itd w.U4OM 'Iou
ha.v.. pltov.ide.d the. Ot.~ mkf. fJOl! « fllQJt..thfj ueip.iPt
.tlt&
TJtt,iUUJlY' ~ Exc.e.ptiofl41 StJtv..ic.e Auxvtd.
OOugw OUl.o"
- 2 -
and by his insistence on clarity of thought and expression in all
Treasury communications, particularly those with the public and the
press.
Mr. Sullivan was cited by the Secretary as instrumental in
obtaining a $4-1/4 billion improvement in our balance of payments as
a result of military sales and offset agreements with other nations.
The Secretary praised Mr. Volcker for shouldering heavy duties
as deputy to the Under Secretary for Monetary Affairs during a perio(
when the latter found it necessary to spend much of his time out of
the country. He said that Mr. Volcker "constantly displays an
impressive grasp of banking, finance and economic matters and, in
addition, a great ability to corrnnunicate this knowledge."
In citing Mr. Weatherbee, the Secretary said he "has ably and
efficiently continued to improve the management of one of the largest
and most diverse of our government departments. In this process
he has enabled the department to produce more per dollar expended."
Copie s of the citations which accompanied the awards are attache
000
TREASURY DEPARTMENT
February 24, 1965
FOR IMMEDIATE RELEASE:
SECRETARY DILLON HONORS
SIX TOP TREASURY OFFICIALS
Treasury Secretary Douglas Dillon at noon today presented the
Alexander Hamilton Award to Assistant Secretary Stanley S. Surrey
and the Treasury Department's Exceptional Service Award to five
of his principal aides for their achievements during the past four
years.
were:
Those receiving the Treasury's award for exceptional service
Robert Carswell, Special Assistant to the Secretary;
Dixon Donnelley, Assistant to the Secretary for Public Affairs;
Charles A. Sullivan, Assistant to the Secretary for National
Security Affairs;
Paul A. Volcker, Deputy Under Secretary for Monetary Affairs;
A. E. Weatherbee, Assistant Secretary for Administration.
In presenting the Alexander Hamilton medal, the Treasury's
highest award, to Mr. Surrey, Secretary Dillon credited Mr. Surrey
with a major role in the achievement of the Revenue Act of 1964.
Secretary Dillon said: "I have known few men in the public service
who have brought a more effective combination of dedication and
ability to their job." He said Mr. Surrey was a "master craftsman
of tax policy."
Referring to the five recipients of the Treasury's Exceptional
Service Award, Secretary Dillon said that "each uniquely contributed
to the achievements of the Treasury over the past four years •.. "
He cited Mr. Carswell for his work as his principal assistant
on many problems of great complexity and importance to the Treasury
and to the nation o The Secretary said his efforts have been "of
il1TIl1easurable value."
The Secretary called attention to Mr. Donnelley's contribution
to the Treasury by his work at many important international conferen(
D-15l8
TREASURY DEPARTMENT
(
February 24, 1965
JR IMMEDIATE RELEASE:
SECRETARY DILLON HONORS
SIX TOP TREASURY OFFICIALS
Treasury Secretary Douglas Dillon at noon today presented the
lexander Hamilton Award to Assistant Secretary Stanley S. Surrey
nd the Treasury Department's Exceptional Service Award to five
f his principal aides for their achievements during the past four
ears.
ere:
Those receiving the Treasury's award for exceptional service
Robert Carswell, Special Assistant to the Secretary;
Dixon Donne11ey, Assistant to the Secretary for Public Affairs;
Charles A. Sullivan, Assistant to the Secretary for National
Security Affairs;
Paul A. Vo1cker, Deputy Under Secretary for Monetary Affairs;
A. E. Weatherbee, Assistant Secretary for Administration.
In presenting the Alexander Hamilton medal, the Treasury's
ighest award, to Mr. Surrey, Secretary Dillon credited Mr. Surrey
ith a major role in the achievement of the Revenue Act of 1964.
ecretary Di 110n said: "I have known few men in the public service
ho have brought a more effective combination of dedication and
bility to their job." He said Mr. Surrey was a "master craftsman
f tax policy."
Referring to the five recipients of the Treasury's Exceptional
rvice Award, Secretary Dillon said that "each uniquely contributed
the achievements of the Treasury over the past four years ••• "
He cited Mr. Carswell for his work as his principal assistant
n many problems of great complexity and importance to the Treasury
nd to the nation.
The Secretary said his efforts have been "of
mmeasurab1e value."
The Secretary called attention to Mr. Donne11ey's contribution
o the Treasury by his work at many important international conferences,
)-1518
- 2 -
and by his insistence on clarity of thought and expression in all
Treasury communications, particularly those with the public and the
press.
Mr. Sullivan was cited by the Secretary as instrumental in
obtaining a $4-1/4 billion improvement in our balance of payments as
a result of military sales and offset agreements with other nations.
The Secretary praised Mr. Volcker for shouldering heavy duties
as deputy to the Under Secretary for Monetary Affairs during a period
when the latter found it necessary to spend much of his time out of
the country. He said that Mr. Volcker "constantly displays an
impressive grasp of banking, finance and economic matters and, in
addition, a great ability to communicate this knowledge."
In citing Mr. Weatherbee, the Secretary said he "has ably and
efficiently continued to improve the management of one of the largest
and most diverse of our government departments. In this process
he has enabled the department to produce more per dollar expended."
Copies of the citations which accompanied the awards are attached
000
CITATION
AUxmtd",
H~. A~d
s.t.tu&Utj S.
SUVtf.l1
A4 t:U c.hif.~ cltc.kUte.t 06 AdJaUa,Utlta:tiolt .tax
pcuc.",
StaAlt.f/ s"~¥
ha4 c..oJt.Ui.buUd .intnt(Uuubiy to bo.tlt .t.ht. domutie. ad uUJua4tioMl
tc.oftOlftic: "tAtqth c 6 tht Ullitul .stLJ.ttA.
Tilt P-e.\luue. Act 06 1962, the O~t.ci4.tion Re.oooUt 0& 196! altd lItt
1964 ~«t tht mo.,t compulaelU.i"e. P«)9.t4M 0' in~
t4x lltd"c..tio .. ad .ttooUt i..Ia OUlt Na..t.i.olll' .. hutDJtt/.
j;!tVtlWt. Act
0'
stan.U.1/ S&AMtt,l 1W.t. oAl,! du.t.gllt.d the. A~u.o" pltOpoW6
i..Ia
1'Itfd6u.tu, bu.t tMough h.U -tiu.l.uli e.Hol\.U aNi w
.\e.@IUU .ti1 c.owttVUUtc.e. tvu the POIJ6.i.bUUtf 06 dt6f..4t., Itt. pU,!t.d a
cAYcial Jtott .ill .tJte.i.t .l.Lc.c.u.6~ lnacbtut.
C!.O~
tho.,.
sta.nlt.1! SuutJj It4.6 df.vott.d h.i.6 U6e. tc ~("Ji.Itg Ou.\ ux. ~.
No one. W a gU4tf,t ttl.Olli1Udgt 06 taX4Lt.iAn aM <tU ili cUpt.ct6. No
Olle. WtU b«.t.u qwtU,.iw to peJt60Juft tkf. .~.utl.ic.ar.t pubUe 6f.JtV«t.
th4t. StU WDU OVf)t tht ptUt aO" t{eI1Jt4 JttpJtUUU. Hi..4 Wip4AaUt..ltd
ac.complU~ altt a ~J..tt.i.Jtg W.bu.t.e to W tmowUdge, to It.U 4hU.i..t~
tutd tc hU dtdic.a.Uon.
otl dtJlWM VtaU"fI tha.,t; ta l poU.c.y could be UJ, eel t.o mow- tht. c.tJU.ntJut
chMVt to u. tcottomic. po.ten.tial, Strutitl! SU.Jt'Ltll Jt44 JJtt1dt a lD.6~
eontJL.i.bu.ti.oM to the pJluut and ,LVtwte wd~Me o~ tltt Pf.opU o~ .tItt
U".i.tt.d s.ta..tu.
Vouflla. 'Jilton
CITATION
Exupwul ,Suuiu AMt4.ld
Rob«.t C4It'''U
ru
Si.u
~t
0'
I, J96f, Robut Cau.u W
4tJ\Vtd U
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to
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uft.ib.Utd tStD4t qu.ali.u.u that Rtkt e:tc.(pt..i.D1tIli. tlcc.omptUI.tlU: pOAubie. Ht.
"114 ec1fI'fb..i..nt a bJt.U.l.i.4nt iltttllt.a toUh d 4t.lUe o~ 1wIttDJ\ tUtd " I,tu.dlj w.U.UltgtcU4
to e.ng age i..n I, heVl haA.d wo-tk wtdeA A"".ta-UtW IlItd t.lM"".tUtg • cJttdulu • He. htu
d.i6playtd a J\aJte a.b..Ui.tr,1 to Aee. e.ltJtfmf1!1 c.OIfIPltx INlUC,U tJrJc.ougk to
c.ompu.uOrt wU:h 'ttJnaJltldbie ~tJ and c.oupled a. wt.i.qut e~t.hLU.loK 06 tnt.
IUghut uve.l polic.y CDM.idVULliotU I.ttitlt 4 cio.6t t.t/f. to .\Ou.fue d«.4U. Ht. It,u
dpplloac.ht.d a.U maitt.U wi.th a t4.tVttt.d AtMe. on bahutc.t, !jt.t ht ha.6 eDJl4.i..dVtt.d
"0 ~ 40 ... ouUnt. i:1tat -it did not lneti.t a Ah~p look in ~i.Aal ..tev.uw .to lU4uu.
.(ha;t i l utt.4 &t1c.luJLilq 4C.c.u.tdte ClAJ ~d e
.6VtAt tU a nLtt,)t 0 ~ pcU(!,Lj. The.. e.
Me all qu.aLUiu that have PJt4dr. RobeJtl CaA..611Jfi.1 an ou.t.6.t41tdiltg Spt.eUi. A.u.i6.t.ut.
con.ld.Jllttirj
,ull
In adcL.L.tiOJl, Itt. Iwu taflu an ~'ttaJt.t p4Jt-t .ua tht. 'O~O.. o~ pcUCJf Ut
cvr..,.ta.Ut .hMpoUa.nt aJtt.cU. Felt r.l~plt., ke plaljf.d a. It.t1d.Utg 1tOlt. in tltt. dt.udopatrtt
0' the ~ plalt6 UIldt.U4#u.n btJ the SecAu SeAviee to p.tovidt ..iJnpMvtd ad .ncU
eHf.c.t.ive pltou.c..t.iOft ~0It. the PJ\t6.wVtt 06 the UK.i.Ud Statu 'ellow.Ut~ tkt. .tJutgic
t.vt.~ o~ fJovembVl
tt,
1963.
[Xpo6ed to tht 4..t.\.ictut .~~.a.ltdaJtd ()~ ~.ompa.-t.UO" .u he IiCcltktd I...idt btl 6..ide.
wi...tJt .t.c p 0 H-ic...i4l4 .ill GovtJtJMtft.t 011 cOMplex I)1(1UVU 06 door« uc. ttJtd .inttJIJta..t.i..oKa,l
6.i6CJJ1. and mcnetaJty a!6aLu, aj wt.U tt6 othu diU.ic.u.Lt .i4~Ue.A Utvolv-irtg TJtt4'WtII
llUpoM.ib.il.LtiU, ;(ob«t Cauwt.U c.leaJt1u PJtoved to be. an ou.Ul.a.JUUTlfl and
dedicated 't)lv4Kt
the. GOvt ... ~Mt. H« JtaJtt abil.Ui..u and J\~ble t.ft~01tU
have bt.,w 06 ~u't4ble. V4lu.t. .to thf. St.eIle..taJttJ 06 the. TJtLa~Wl.U pVt..6onalL./ and
tc the UtU.tLd St4tu TU4.6u)uJ Ot~.
oe
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CITATION
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1te.c.Lipa UMeIt P4UU.a1tt! 06~At..t aJId mi..Ut.aJuJ 'UU 4glte.~nt6 wh«~
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the
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rrti.U..i(J/Uf equ..iP'l¢nt btf tht FWVlal J.?qru.bUe 0' GtAlnClltll, I.t4l.q, AauWa,
Spain, Au.6.tJutli4, .t.Ite. Ult-iLu K.i.Jt9dowr <JJld Mall" othu c-ounruU. Tlte.
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de.vd.opmV« 0 6 .tJU.~ pJlog,,-am hal, btu 4
0'
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to
out
the 141f.t6a..tt 0& the. Na.tioJt, and lIlt. 3u1.UVfUt' A
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ovelt .the lA.'olll.d -- havt betlt U~Vttial tc .6ol.v-Utg tht CDMpiu dltd
di. a6i.CJdt plto bluu. .iNvo lVf.d. TkU, C!OJ'tlbhte.d with otlt tJt ~ vu.Wve
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Doug(M V..<.Uon
CITATION
f xc.t.p.t.ion.a.i SVtV.4U
~d
P«al A. VOlcR.LJt
Th.U ~ iA made -in ~CDgn.U1.olt 06 Paul A. Volekt't·.6 ou..ataJtd.i.nq
4 tJlv.i.e~ tD th~ T-'lU4Wl ~( d~ the. ptU t. thlttfl 1}f.Q,tJ. Fiu.t cU !J..(At«cJt
0& tM. 0 6'ic.~ 0 ~ F.ow.nci..al. Analyw aru1 ItOW M V'lputfj Unde't Secu.taltll
6o~ '''OI1WIt!! A~ ,sttht.6. he w made d c.ontinu.Ut9 c..on,..tJUbution to .tht
Jr.ve.iOp9tu..t 0 ~ q.,polLtaJ1t T.'tea.Au't~! pouc.iu .in bo-th the dOlMut«. and
.i1tte.JutaU.Drla.l Irbt4llc.1al altt4.t.
It ..u 1U-UUwti. 6clt. ant ..i.nd..i.vi.dua! .to MVe. C!onVt.ibu..tt..d .60 e!, ~tct.ivtl/'
tD .UU!.h &l Moaei l\anpt 0 ~ Tltta.6Wtt,' act.i.v.it ' ,. PtUd. Volc.kvr. Iut6 bt.tn ablt
to Jo .60 bteau.6t 06 e~~ptioMl. abJ...l..Url and a bcwullu4 eapttwrJ bOlt
ItfJAc.i ~u. HI. h46 ~b..iM.d h~h .~cJut.ieat c.ompett..nef. .in the arutl"m 0 6
~CD"OWtie and 5l.1f4nei.al p.tobl~ ,JUh a keen .6etMf. 06 whu i..A p1ttU!t.lc.al
.in t~ 06 pubLic. poUCtf. Iii adJ1...t,W... ht w dePttmi.tJuttt.d a ..\.U~
f1b.LU.t" to ~e .tht. e..ut.nti..4U
TJt£Q..6U,ttJ petietl wLth !..impt1..wrr
Ibtd ~ollc.e. rIMA Iuu ~Vt u.tJt~ll! Qnpoltt.ant .ill ga.llt.Utq wi..de public (uui
COllguu.iottal. .6UPPO« oDlL TItt.tUU)(11 p.tOg.lt~ ttnd poUc.iu bt tkt.. lbtanei.af
oe
tVlu.
PaJd. Volcl« h.u .6Vlu~d .in thfl Tltt..lUUIll1 wah gJte.a.t ltd and tftM.1.3!/.
ttt ;uu mt-t. aNi c.ottUmu!-' to ~"!flU. a d~ .6c.he.du1.t. w{,th u.»e4ililtg
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h-igltut tJta.dWOJt 06 the!. TJttiUWtf/ ue.p~t' /) [xe.tpti..orral Sa~\I.iet ~d.
Doug.tM Dil.tOH
CITATION
fu.t.pUoJt4l Suv«r.
~d
AUfJRCU E. "'u.tk~r.
.u
Tki.A ~
give.1t .iN. u.eogKitUJ,. o~ l/0Wt mt1j~ c.l"tlAibuLioJt
.to the. ac.c.DWlplU~u. o~ .the. TJUJUu.tV V~p4.tbfeAt u.c& ~
a.ppo.i.nttnvtt .l,. SLPtflnb« 7959 4U ~tJtaU..Vf. AA4.iAt«Jt.t SU..U.tMq.
e.rtC.qc..l.opt.dic. lutowlt.dge. 06 admi..n.L6tJuttiOK aM tltt au 06
gOV~f.Kt Iuu .UPPULd cUt .indi.l.pt.rwtble. i.1l9.te.di.Utt. to the. ll4p.id
cad .uc.c.u.6u.l 60lUJlLlawn o~ new poUc..iu, p.tOg.um4 tUtd p.toewu.u
th4t ha.6 OC.C:Wl..U.d .iIt the. TIWUWt" ve.~VI.t i..It uee.1It ~.
WUhout [fOWl .imag.inat.io,. IIItd irui.gltt, .t.u.WC4l o&.t4el.u aight
have. pt.e.V4i..l.£d ouu .~t4Itti.ve. .tuuUA, ruuI vLtal btitla.tivu Migh..t
have. d.ie.d. Uftdu '#'Wt iude..uh.ip, a.Jm.i.AUt.t4tiort W bt.e.1l 4 tool
p.tOgJLU. aAd the. ~ 40.t a&t-vag the. mo.t
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4
(!O~~ aM w.udOlt1 'Iou.
WOJt..t11'l ueip..i.ut 0' .tltc.
j)Oug~
Oi.Uoli
TREASURY DEPARTMENT
February 26, 1965
FOR RELEASE 12:00 NOON
FRIDAY, FEBRUARY 26, 1965
STATEMENT BY SECRETARY DILLON ON REPORT OF
THE INTERNATIONAL MONETARY FUND
Secretary of the Treasury Douglas Dillon today issued the foll~~
statement on the proposals of the International Monetary Fund to
increase the quotas of its members:
!lThe resolutions submitted to the Governors of the Fund
by the Executive Directors authorize an increase in Fund
quotas of $4.8 billion. This increase will enable the Fund
to play the central role in the international monetary
system intended by its founders and desired by its members.
"The United States wholeheartedly supports the Fund
report. We particularly welcome those provisions that would
minimize the impact of the quota increase on reserve positions,
especially those of reserve currency countries.
"Without those provisions, the United States might have
lost as much as $800 -- $1,100 million in gold from the
proposed quota increases.
Instead, these provisions are
expected to hold our net loss of gold from sales to other
nations for IMF payments to something in the range of
$25-$45 million.
In addition we expect to use $259 million
in gold for our own gold payment to the Fund.
This payment,
however, will be fully offset by an equivalent income in
automatic United States drawing rights on the Fund.
"I am convinced that, at the present stage, these
arrangements will benefit not only the United States, but
also the Fund itself and its 101 other members.
"As stated in the President's Budget Message,
Lesislation which would authorize the U. S. Governor to
consent to the proposed increases in the quotas of IMF members
will be submitted to the Congress in the near future."
000
D-15l9
TREASURY DEPARTMENT
February 26, 1965
RELEASE 12:00 NOON
)AY, FEBRUARY 26, 1965
STATEMENT BY SECRETARY DILLON ON REPORT OF
THE INTERNATIONAL MONETARY FUND
Secretary of the Treasury Douglas Dillon today issued the following
tement on the proposals of the International Monetary Fund to
rease the quotas of its members:
"The resolutions submitted to the Governors of the Fund
by the Executive Directors authorize an increase in Fund
quotas of $4.8 billion. This increase will enable the Fund
to play the central role in the international monetary
system intended by its founders and desired by its members.
"The United States wholeheartedly supports the Fund
report. We particularly welcome those provisions that would
minimize the impact of the quota increase on reserve positions,
especially those of reserve currency countries.
"Without those provisions, the United States might have
lost as much as $800 -- $1,100 million in gold from the
proposed quota increases.
Instead, these provisions are
expected to hold our net loss of gold from sales to other
nations for IMF payments to something in the range of
$25-$45 million. In addition we expect to use $259 million
in gold for our own gold payment to the Fund.
This payment,
however, will be fully offset by an equivalent increase in
automatic United States drawing rights on the Fund.
"I am convinced that, at the present stage, these
arrangements will benefit not only the United States, but
also the Fund itself and its 101 other members.
"As stated in the President's Budget Message,
Legislation which would authorize the U. S. Governor to
consent to the proposed increases in the quotas of IMF members
will be submi tted to the Congress in the near future."
000
519
CITATION
l{eILU:o!ti..ou..6 SeJtv.ie..e AWCllld
OOJ(otiw d~
Bo.1tC.ltr4llve
Fclt the i£ut ~OU}l l'(eall.4 f)oltOthu de 1:>0Itc./1OfLa.Ve. fliU a.c.tp.-I.i a,6
Co rt &.i..deiU,w-t: A46.i.6 tant
the. SecJtdaJU{ 0 f, the TJteal.uJt. y COf1'..{tl!~ ta<.th
fum 9l.Otn ,the i>epaJlooent 06 Sta.te '(Jt JaJtLUVU( 1961. HeJt fmowledge.
to
06 .the mdltcd6 and pItOe..e.dUlte.4 o~ 90vVll11tlent o.t1d helt bltdU.gene..e
an.d 60JtU..i..9ht have. b~en .i..nfupet1.6CLbte to the. e6ft.Lei.en.t e..ondu.ct 01
bu.6.itU!...u i...n the Sec/l.e~IJ· 4 () (: 6.i..e..e.. I H tk.i.4 1H<lJ'lnf}l. .611e h(l~ Ii-Ia.de
a. twtab!.e. COJtVLi.buuort to .the e6 ~eetivene44 "6 the dec.Uiotl-I'ULk.ing
pltOCU6 in
tJU!.
TIte.MuJt~ ;JtpCl/ltme.tlt
Me.lutoJUoLU. SVtvi...ce AWtlltd.
wJucit ih
lLe.co<J~ti..zed 6u
tJvi.4
CITATI0ii
1Awtotiou6
Seli.v.ic~
A(i.Wic1
Vona.l..d 1. Lamont
In ..two and one. Itat6 (!w.JtJ. in .the. Chie!. CO{Ltt4el'~ OU,ic.e o~ -the
1nteluul.l. ~e.ve.lULe Sav..[c.L and theA t0lt cne and a kalA f{t.(Vt4 lU Spe.ua.e.
A4~.u.taAt .to the. St.cAct.aJtl/ a.nd Vat-doll 06 the fxtC!UUve. SU/te..taJti.a;t,
"",udd 1. Lamont w made. 4ub6.t.an.ti..al. con.tJt.ibuUolU .to .tJtt. ,,,w.t..i.OYl
of, hnpgJtl4n.t. ..u.bJ.tantivt .u.w.u con fil(.onti.~ .tiLt Ot.paJt.tMwt and tJJ the.
e.A6.ieie.nt ~.lJta..ti01t 01. .the. O"ic.e. oA the. SU/Lt..taJt~/. H.iA tkough.t5u1.
poLicy dutJf.rAi.nationA a.nd thcJlo(.lg/'lHUIl uUt vilal l.c the Luuattct 06
.the. butVf.l. ,tM ~t#t'I£Jlt ILt.gu..l.c.tUOtt4 undet. the Revf.ltue Aet 0' '962.
Thut. 4Clmf. qu.al.i.,t.lu c.omb-ine.cl t.tJUk ptMonal inLt1.a.Uvt an..-I long hoCA.IU
haVf. gJte.4tlq c.l.dItil,i.t.d. ana 1.lUttILed tuit I,1:aU p.tepa-ta..U:on o~, .the ~"ll
-wnge. 06 cOVHpte.x. .u4UU (!.Ofl1Vzg wthe. Stc.Jl.e.li.L't I( C ~ tItt!. TJtf.tU{M'I hOlt
dtJ!b~.wn.
Unde.lL hti leadeJWh1.r' .the [xe.CJLt.i..ve Sec.ItUo.Jti..ci.l ha.s bec.orne
an ,impolttant. ne,tv\! CtntVt 60ft .the VepttJl.tml.tt.t. Tht4e a.ccomplu/tme.nt6
(U'!qutAQcno.hll! COM tULltt. meJt..i..tolti..ol.U 6fAV.(Cf. ..to the OeptUl~rt.t cmd
enUUt. !tit. Lt'tmonttc -thiA Au'(tlt(l.
TREASURY DEPARTMENT
FOR IMMEDIATE RELEASE
DILLON PRESENTS AWARD TO TWO AIDES
Treasury Secretary Douglas Dillon today presented the Treasury
Department's Meritorious Service Award to his Confidential Assistant,
Mrs. Dorothy de Borchgrave, and to Donald I. Lamont, Special
Assistant to the Secretary and Director of the Treasury's Executive
Secre tar ia t .
The award is conferred by the Treasury on those who render
meritorious service within or beyond their required duties.
Mrs. de Borchgrave, who served with the Secretary when he was
U. S. Ambassador to Paris and Under Secretary of State, came to the
Treasury with him in 1961. She was cited for her knowledge of
methods and procedures of government and her intelligence and
foresight, "which have been indispensable to the efficient conduct
of business in the Secretary's Office."
Mr. Lamont served two and one half years in the Chief
Counsel's office of the Internal Revenue Service before assuming
his present duties. He received a Special Service Award from
Commissioner Caplin in recognition of his work there.
From 1957 to
1961, Mr. Lamont was associated with the legal firm of Ballard,
Spahr, Andrews & Ingersoll in Philadelphia.
Secretary Dillon cited Mr. Lamont for "substantial contribution
to the solution of important substantive issues confronting the
Department and to the efficient administration of the Office of the
Secretary," as well as his "thoughtful policy determinations and
thoroughness" in carrying out his duties.
The citations for the awards reads as follows:
TREASURY DEPARTMENT
FOR IMMEDIATE RELEASE
DILLON PRESENTS AWARD TO TWO AIDES
Treasury Secretary Douglas Dillon today presented the Treasury
Department's Meritorious Service Award to his Confidential Assistant,
Mrs. Dorothy de Borchgrave, and to Donald I. Lamont, Special
Assistant to the Secretary and Director of the Treasury's Executive
Secre taria t .
The award is conferred by the Treasury on those who render
meritorious service within or beyond their required duties.
Mrs. de Borchgrave, who served with the Secretary when he was
U. S. Ambassador to Paris and Under Secretary of State, came to the
Treasury with him in 1961. She was cited for her knowledge of
methods and procedures of government and her intelligence and
foresight, "which have been indispensable to the efficient conduct
of business in the Secretary's Office."
Mr. Lamont served two and one half years in the Chief
Counsel's office of the Internal Revenue Service before assuming
his present duties. He received a Special Service Award from
Commissioner Caplin in recognition of his work there. From 1957 to
1961, Mr. Lamont was associated with the legal firm of Ballard,
Spahr, Andrews & Ingersoll in Philadelphia.
Secretary Dillon cited Mr. Lamont for "substantial contributions
to the solution of important substantive issues confronting the
Department and to the efficient administration of the Office of the
Secretary," as well as his "thoughtful policy determinations and
thoroughness" in carrying out his duties.
The citations for the awards reads as follows:
CITATION
MeJUto1U.ocu SVlvic.e !w.xtIld
VoJtotiw
d~ [lM.chr4ave
Fo~ the.. lA.4t 60U4 l!eM..lI iJOJW.thlj de &o-tc.hgltllve htu aett.d ac\
Co"~.id,!.n..t.i.a.l A4~.i6taH..t to the SecJle.;t.o.JU.(
the Tltea4uJ1lj c.o",..ln,q wi-tf:
hki1 .~Jtom the VepaJt..ooent 06 State .itt Ja.nuaJtlf , 961.
Hvr. knowUdgt
06 .dtt.. m«hc~ a.nd J;-VtOC.WUltt4 o~ goveJtMtt1en.t dtld ht/t intdligtnce
06
llnd 60lluight have beet: i.tld.i.JpetL6ctble. ;to the. e66i.c..ien.-t conduct o!
~.inu~ .ill the SeC!l.etaAq' 4 o£: 6i.c.e..
I H .th..U mClmtVt 4ne.. ha..) ma.de
a. notable contJt.ibutiort to tht e ~ ~ec.U\)e.ne.u 06 the de.c.i.6.ion-M4k.ing
l1J{.OCU4 .in the T~a.otVly ;)tpa.Jl.W;vtt wluc.h ..i.& Jc.e.c.oguu.J bu th..i.4
'4e1LUoltioU6 SlVlvic.e AwaJtd.
CITATI0/~
MwtolLioU6
Svw.ie~ AW61;\({
VoJliLld 1. LdWI"t
lit t . lUId OAL We !!fJ1Jl4 .in ~ht. Chie£ COwt.6tl'& 06~e 66 ..the
Ilttvulal R~IIf;IU&f. St)lVUt and tIlf.A 60Jt one and a hal6 u,uJt4 cU Spe.ua.l
A4~.u..t.:lAt to .the. StcAe.tMq and V.iAee.to-t 06 the [xec.utivt SUlt~.
iJollttid 1. Lamon,! w made ~f.Lb6tant.Uxl c.on.tJtibutieJlt.6 .to .titt .c.tu.tion
06 i.mpoJt.l4llt .6Ublt,tan.tivt .u~ con SJtonting tilt OepaJUmwt a.nd :tJJ .the
tt:~c..iV&t ~.t.\aUo.rt c~ the. OUic.e 06 the. Sf.CJlU4Jlq. H.i4 tltough-t5td
poUCIJ dulJlai.Mt.i.olt6 and thc,,-ougltnU6 ultJte vUd .to the. .u6W1'lCf 06
~ tJutvu 4tlfd VltVtt~...t ..tfgtWt-tiO.rt6 untiM .the Revenut. Act
196t.
0'
Tltut 64me. qu.aLi..tw cOMbined with peuona! btiUa..ti.vt. !lnd lonn hoUti
havt. q.u.aUq cl.aJLi~t.d, and .iJuUIl.ed tld.{ ~,ta'h p-\tpa.\4UoJl o~, tlte. 6ul.-l.
UIlge. 0& cOJHpiex -U4UU ~.iJtg ;to the St(.!teut[f o{ .tltt. TUtUWt.q 60Jt
de.c..i.6.(.oH.. UnciVl hi4 ltAdeukir .lite [xe.c:uti..v~ Sec-ttt.tVl.ia,t Iuu ~e~
M .(.r.lPOJttaKt ~jtve C.lllUJt 601[ tht. Dtp4Umt..nt. Tht~e a.c.eOlffT.'li4ltme.nt'
tWlUtAticnabl.I! f!.OM tLtutt. mVti..toll-ioU4 4tAv.iC~
tJt.tLtl.f \411.. Lamont .to thU Att.\vtd.
.totht
DepaJ{~a.( cuaa
TREASURY DEPARTMENT
:
=
RELEASE A.M. NE'I'lSPAPF.RS J
day, March 2, 1965.
March 1, 1965
RESULTS OF TREASURY'S WSEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series of
awry bills, one series to be an additional issue of the bills dated December 3,
, wd the other series to be dated March 4, 1965, which were offered on February 24,
opened at the Federal Reserve Banks on March 1. Tenders were invited for
00,000,000, or thereabouts, of 91-day bills and for $1,000,000,000, or thereabouts,
82-day bills. The details of the two series are as follows:
E OF ACCEPTED
'ETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing June 3, 1965
Approx. Equiv.
Price
Annual Rate
98 • 995 a/
3.976%
98.992 3.988%
98.993
3.982%
182-day Treasury bills
maturing September 2, 1965
Approx. Equiv.
Price
Annual Rate
97.961
4.033%
4.039%
97.958
97.959
4.038% Y
Y
~ Excepting 1 tender of $100,000
,2 percent of the amount of 91-day bills bid for at the low price was accepted
j7 percent of the a~ount of 182-day bills bid for at the low price was accepted
U. TENDERS APPLIED FOR AND ACCZPT~D BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
Stn Francisco
TOTALS
ApElied For
$ 19,223,000
1,620,428,000
25,794,000
32,888,000
11,752,000
43,520,000
317,861,000
36,645,000
21,180,000
30,177/)00
27,721,000
171 l 1433 z 000
$2,358,622,000
Accepted
$ 16,123,000
827,3 0 2,000
15,820,000
27,869,000
11,488,000
27,989,000
135,395,000
23,331,000
13,B64,000
20,361,000
15,625,000
64 z 8441. 000
$1,200,011,000
£/
Applied For
$ 47,975,000
1,633,284,000
17,323,000
51,873,000
10,438,000
25,590,000
244,656,000
13,309,000
8,071,000
16,779,000
10,186,000
223,781,000
AcceEted
$
7,363,000
775,426,000
4,194,000
35,940,000
3,582,000
13,716,000
55,781,000
7,054,000
4,071,000
e,079,000
5,186,000
79,636,000
$2,303,265,000
$1,000,034,000
51
Includes $238,019,000 noncompetitive tenders accepted at the average price of 98.993
Includes $94,505,000 noncompetitive tenders accepted at the average price of 97 .959
On a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 4..081~' for the 91-day bills, and 4.18%, for the
l82-day bills. Interest rates on bills are quoted in terms of bank discount with
the return rel~ted 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
~terest payment perjod to the actual number of days in the period, with semi&m~ compounding if more than one coupon period is involved.
n..152 0
TREASURY DEPARTMENT
March 2, 1965
FOR RELEASE AoM. NEWSPAPERS
WEDNESDAY, MARCH 3, 1965:
UNITED STATES AND FRANCE TO DISCUSS
REVISION OF INCOME TAX TREATY
Representatives of the United States and of France will meet
this spring in Washington to begin revision of the income tax
treaty between the two countries, the Treasury announced today.
An income tax treaty is essentially an agreement between two
countries to avoid double taxation of income earned in one country
by a citizen of the other.
Since the existing tax treaty with France was negotiated in
1939, and is one of the oldest tax treaties with the United States
now in force, the revision is expected to be extensive.
Both France and the United States are members of the
Organization for Economic Cooperation and Development; hence, the
OECD "Draft Double Taxation Convention" published in 1963 will be
considered in the negotiations. Those who are interested in the
new treaty may wish to consult the OECD draft as well as the
treaty recently concluded between the United States and Luxembourg,
which is also an OECD member. The treaty is No. 5726 in
"Treaties and Other International Acts Series", published by the
Department of Stateo
The negotiations will encompass a number of specific problems
which had evolved out of the many changes in the tax law of both
countries since 1939. Income of professional people, entertainers,
investors, employees of foreign corporations, and withholding on
such income will be discussed.
In addition, new rules will be
developed for taxing income of citizens of one country who maintair
permanent business connections in the other country.
Comments or suggestions on the treaty should be sub~itted by
April 1, 1965, to Assistant Secretary of the Treasury Stanley S.
Surrey, Treasury Department, Washington, D. Co
000
D-152l
TREASURY DEPARTMENT
March 2, 1965
FOR RELEASE AoM. NEWSPAPERS
WEDNESDAY. MARCH 3, 1965:
UNITED STATES AND FRANCE TO DISCUSS
REVISION OF INCOME TAX TREATY
Representatives of the United States and of France will meet
this spring in Washington to begin revision of the income tax
treaty between the two countries, the Treasury announced today.
An income tax treaty is essentially an agreement between two
countries to avoid double taxation of income earned in one country
by a citizen of the other.
Since the existing tax treaty with France was negotiated in
1939, and is one of the oldest tax treaties with the United States
now in force, the revision is expected to be extens i \!e.
Both France and the United States are members of lhe
Organization for Economic Cooperation and Development; hence, the
OEeD "Draft Double Taxation Convention" published in 1963 will be
considered in the negotiations. Those who are interested in the
new treaty may wish to consult the OECD draft as .;c 11-:-.', the
treaty recently concluded between the Uni ted States ;.md Luxembourg,
which is also an OECD member. The treatv is No. 'S72f, in
"Treaties and Other International Acts Series", publi shpd by the
Department of State.
The negotiations will encompass a nil ~lber of SpCl i':1 c pro~)lems
which had evolved out of the many changeJ in the tax l~~ of bot~
countries since 1939. Income of profess i ODdl peop 1e, f:!ntertain~rs,
investors, employees of foreign corporat ions, and W'l thholding on
such income will be discussed. In addition, new rules will be
developed for taxing income of citizens of one country who maintain
permanent business connections in the other country.
Comments or suggestions on the treaty should be sub~itted by
April 1, 1965, to Assistant Secretary of the Treasury Stanley S.
Surrey, Treasury Department, Washington, D. C.
000
D-1521
- 3 -
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
S~I
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 Buch, under the Internal Revenue Code of 1954.
The bills are subjec1
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
&Ctuall~
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.
- 2 -
decimals, e. g., 99.925.
Fractions may not be used.
It is urged that tenders
be made on the printed forms and forwarded in the special envelopes which will
be supplied by Federal Reserve Banks or Branches on application therefor.
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 accompanie
l
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.
Thosl
submi tting 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 each issue
for $200,000 or less without stated price from anyone bidder will be accepted
1n full at the average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders in accordance with
the bids must be made or completed at the Federal Reserve Banks on
1965
March 11,_
fl6"f
, in cash or other immediately available funds or in a like face
amount of Treasury bills maturing
March 11, 1965
------~~~~~~TL~~------
Cash
TREASURY DEPARTMENT
Washington
March 3, 1965
FOR IMMEDIATE RELEASE,
XXXXXXXXXXXX~~
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for tvo eerie
of Treasury bills to the aggregate amount of $ 2,200
'fit' 000
cash and in exchange for Treasury bills mat\lring
of $ 2,2()l
March 11, 1965 , in the
w:
'OOO , as follows:
W
91-day bills (to maturity date) to be issued
-tsfr="'l:-
in the amount of $
l!200~.000
, or thereabouts, for
BmOUD
,
March 11, 1965
=w-
, or thereabouts, represent-
ing an additional amount of bills dated
December 10, 1964,
{at
and to mature
amount of $
June 10, 1965
--~~~~~------
1,OO~8,000
,originally issued in the
, the additional and original bills
to be freely interchangeable.
182 -day bills, for
~
$ 1,OOOtOOO,000 , or thereabouts, to be dated
,-12)
Ma11~)11, 1965, and to mature
September 9, 1965 •
fl4t
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 fOnD 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,
on~-thirty
p.m., Eastern Standard time,
Monday, March 8, 1965
fUt
Tenders will not be received at the Treasury Department, Washington.
Each tender
must be for an even multiple of $1,000, and in the case of competitive tenders the
price offered must be expressed on the basis of 100, with not more than three
TREASURY DEPARTMENT
FOR IM'1EDIATE 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
$2,200,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing March 11, 1965,
in the amount of
$ 2,201,839,000, as follows:
9~day bills (to maturity date) to be issued March 11, 1965,
in the amount of $ 1,200,000,000, or thereabouts, representing an
addltional amount of bills dated December 10, 1964,and to
mature June 10, 1965,
originally issued in the amount of
$1,000,578,000, the additional and original bills to be freely
interchangeable.
18cday bills, for $ 1,000,000,000, or thereabouts, to be dated
March 11, 1965,
and to mature September 9, 19650
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
(maturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
to the cloSing hour, one-thirty p.m., Eastern Standarc
time, Monday
Tenders will not be
- , MArch 8 , 1965.
received at the Treasury De~artment, 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.
up
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.
- 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 each issue for $200,000 or less without
stated price from anyone bidder will be accepted in full at the
average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders in
accordance with the bids must be made or completed at the Federal
Reserve Banks on March 11, 1965
in cash or other immediately
available funds or in a like face amount of Treasury bills
maturing March 11, 1965. 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 lOBS 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.
000
TREASURY DEPARTMENT
March 3, 1965
FOR ll-1J.1EDIATE RElEASE
ANTIDUHPING PROCEEDIIJG ON
OFFICE I·lACHINE SPOOLS
On February 15, 1965, the Comrrissioner of Customs received
information in proper form pursuant to the provisions of section
14.6(a) of the Customs Regulations that all shipments of office
machine spools imported from Vlest Gerraany, manufactured by Regentrop & Bernard) Huppertal) Germany) are being, or likely to be,
sold at less than fair value vri thin the meaning of the Antidumping
Act) 1921) as mnended.
Information \las received from sources \lithin the Customs
Service.
An "AntidumpinG; Proceeding Notice" to this effect is being
published in the Federal Register pursuant to section 14.6(d)(1)(i)
of the Customs Regulations.
The dollar value of imports received during the period July 1
through november 30, 1964, was approximately $50,000.
000
TREASURY DEPARTMENT
(
March 3, 1965
FOR IMMEDIATE RElEASE
ANTIDUMPING PROCEEDING ON
OFFICE MACHINE sPOOLS
On February 15,
1965, the Commissioner of Customs received
information in proper form pursuant to the provisions of section
14.6(a) of the Customs Regulations that all shipments of office
machine spools imported from West Germany, manufactured by Regentrap & Bernard, Wuppertal, Germany, are being, or likely to be,
sold at less than fair value within the meaning of the Antidumping
Act, 1921, as amended.
Information was received from sources within the Customs
Service.
An "Antidwnping Proceeding Notice" to this effect is being
published in the Federal Register pursuant to section 14.6(d)(1)(i)
of the Customs Regulations.
The dollar value of imports received during the period July 1
through November 30, 1964, was approximately $50,000.
000
- 5T'le
'~esent
121"-]
h.'1s '-lorked smoothly ;::md effectively.
it-
11;lS';lssec: the test of more them
~s
~n
iD~ortnnt
tHO
years of annlication
instrument in our kit of tools to meet our
international resnonsibilities.
t'1e 1Jill before you, H.R. 5306.
000
I urge early
a~nroval
of
-4,'.t t',e G;"me tl.me.
int2~2st
r2te
I should emni,18.size thp.t our domestic
st~uct~re
will remain unaffected by
Si~nificant
'.
inte~nAtion_~l.
this
as these balances are from an
vie1:7no:i_nt, they are of smp.II consequence in
the over-all ITIr:'n8.gement of our domestic banking system where
the money sU'J·.,ly nlus time denosits amounts to over $280
bi lU.on.
In th5_s connection, com,-.,eti tion for these inter-
national balances is confined to relatively few banks, mostly
l~rge
an~
strong institutions in financial centers.
There is no doubt that investment in time denosits in
the U.S. has been found quite attractive by foreign official
instj.tutions.
of
T'
In tl1e first
.L. 8'-827.
~'le
tT,rlO
years, follm·r.Lng enactment
have seen time denosits of foreign
of-Ficial institutions -- those covered by the law -- rise
annroximately 86 nercent or an estimated $1.8 billion to
$3.8 billion at renorting member banks.
This is anproximately
equal to the entire rise in foreien official holdings of
sho!:."t- term 00llar fl.ssets of all tynes in the same neriod.
It
is clear that there could be a considerable and unnecessary
loss of some of these
exten~ed
de~os;ts
if the nresent law is not
and our banks are not left in a nosition to compete
effectivel:' internationally.
Failure to act -';'lOuld make the
ffi8n8.gement of out" balance-o:C'-,ayments deficit more difficult
~nd
inc~ease
the nulls on our gold.
-3;:>uthorit~_es
Ico--:-e1.:,n monet2X:'
f)'"
~1e
S"o~_t
-:-:en,1 6011ar cl;:1ims,
~ecision ~s
~ese~ves
is
to
rm n
~hether t~ey
in~luence~
nm., hold, in vArious forms
roximfltely $13.l~ billion.
hold dollars, gold or other
by many considerations other than
interest :::",.,tes) tI,e most imnortant of Hhich is the fundamental
sounoness DE the (1011,qr.
t~,C1t
;_ns1r:-e
their confidence in the dollar continues to be
nO~'lever,
i'JstLfie(1.
Our maj or t::lsk is, of course, to
one factor contributing to the desira-
bilitv of Any investment is the interest rate.
It ::i_s the '-'U1:"1Jose ot: this bill to '>ermit cormnercial
bC'n 1-cs contin1Jeci flexibility in com1Jeting in this area.
T<J'lile O'J1:" b;:m1.c.s have ;:1nrl
retlJ'~
reasonable
~rill
cont;.nue to sU1J1Jlement a
to foreisn monetAxy authorities
~"ith
an
attractive v,:n:-iety of senrices and fp.cilities, this flexi:::-:i.lity i'lill assist ou:-::- b::mks in the::i_r effort to attract
foreign official
de~osits
The ;mt}10r: ty of
1Jermissive.
be .-.,ai~.
here and to retain them.
this legislation is, of course, only
It does not comnel higher rates of interest to
In fe'ct, the rate naid will obviously be determined
by tie -,rofitability to the individual bank entering into
t~e cont~act;
"l;:lce
:"1_
but it is not in our national interest
to
constrictive ceil5.ng on banks' judgement in this area.
'r: -: n t('crns
tc r'illS
i_t~
0:-
0
F j_nte:~est t:','lt mC'.\' be T1r:dd, J:"9ther than in
(~e 'OS7_ ts
,-:"I,cce--teci at the higher L'9tes of interest,
-otent·.9l ~_s cEm::.ni_shed Hith each nassing day.
As a
J::"ef'ul t ther-e is no ~otenti2_1 bene:ei t to be derived from the
existinS
t:,e
18\-7
~or
denosits of more than seven months and with
nssrl[':e of time, increasingly shorter maturities become
affected.
I should make clear that the continuation of the exemption
fr,-om t;,e
~egulation
f7Q:!
ceilings in the T1ronosal before you
would, as in the 'resent law, 8?nly only to a limited class
of time de-Josi ts -- "foreign governments, monetary or financial
Cl.uthorities of foreign governments ;;"hen acting as such, and
internf1.t:i.onal fin:::tncial institutions of \vhich the United
States is
Cl
~ecognizes
member." These cn::·e the enti ties
~vhich
as entitled to carry out monetary gold
f-com t:1e United States.
the U. S.
~urchases
The O)resent legislation and the nresent
-ro'--'os.:11. (lre des:i_8necJ to -·\ennit us to meet more effectively
our internDtional
res'~ons:Lbilities
by increasing the opportuniti
Eor com---.etitive conunerci.ql banking to ')rovide helnful sunport
to
t~1e
Bj7
,e!1Tlittin:; bcmks to "ay interest on this limited class of
oolla:c in its role as Cl_n international reserve currency,
re-osits at more internationally comnetitive rates, the
attractiveness of holding dollars is increased and nressure
on
ou~ ~old
stock is
~erluced,
STAT-::>fENT OF THE I10NOIL-\BLE FREDERICK L. DEMING
'nT)=~ SEC\'ET!'.~\'Y OF T'iE T:lEASU:~Y FO~~ HONETARY AFFAIRS
BEFO~lE THE
IrOUSE BAWZING Lc\ND CUT~ENCY Cm1NITTEE
H.l. 5306
10:00 A.M. March 4, 1965
I l'lelcome the :JT)portunity to annear before this Committee
in
su~nort
of
This bill
H.~.
5306.
~rol1ld
extend 1'rithout time limitation the ex-
emntion from the regulptory ceilings of the interest rate
that corrunercial banks may nay on time denosits of foreign
p,overnments and monetary authorities and certa.in international institutions.
T .. e"resent lal'l, p. L. 87-327, 1;vhich
Octobe'~
..,er:i.od.
IS,
196~,
1;-78.S
approved on
;}!'"ovi(led this authority for a three-year
Its enClctment "Jas in accordance
~vith
the Administra-
tion's overCl.11 balance of nayrnents 71t"ogram.
TIe have nO'H hC:ld ove 1:la~
t~!lO
years of eXT)erience with the
and its usefulness has been demonstrated.
I, therefore,
corne befo-:-e you to urge that the termination date of this
legislation be removed.
Early action on
the bill is
~esirable.
nm} stcmns eX'Jires October 15 of this yeClx.
The law as it
However, its
beneFj_ts helve ellJ:"e2d u been im')aL:-ed as a result of the
0.
,')ro,?,ch of the eX'Jiration elate.
Because the exniration date
STATEMENT OF THE HONORABLE FREDERICK L. DEMING
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE
HOUSE BANKING AND CURRENCY COMMITTEE
H. R. 5306
10:00 A.M. March 4, 1965
Mr, Chairman:
I welcome the opportunity to appear before this Committee
in support of H.R. 5306.
This bill would extend without time limitation the exemption from the regulatory ceilings of the interest rate
that commercial banks may pay on time
de~osits
of foreign
governments and monetary authorities and certain international institutions.
The present law, p. L. 87-827, which was approved on
October 15, 1962, provided this authority for a three-year
oeriod.
Its enactment was in accordance with the Administra-
tion's overall balance of payments program.
We have now had over two years of experience with the
law and its usefulness has been demonstrated,
I, therefore,
come before you to urge that the termination date of this
legislation be removed.
Early action on
the bill is desirable.
now stands exnires October 15 of this year.
The law as it
However, its
benefits have already been imoaired as a result of the
approach of the expiration date.
Because the expiration date
-2-
is in terms of interest that may be paid, rather than in
terms of deposits accepted at the higher rates of interest,
its potential is diminished with each passing day.
result there is no
~otential
As a
benefit to be derived from the
existing law for denosits of more than seven months and with
the nassage of time, increasingly shorter maturities become
affected.
I should make clear that the continuation of the exemption
from the Regulation "Q" ceilings in the proposal before you
would, as in the present law, apply only to a limited class
of time deposits -- "foreign governments, monetary or financial
authorities of foreign governments when acting as such, and
international financial institutions of which the United
States is a member." These are the entities which the U.S.
recognizes as entitled to carry out monetary gold purchases
from the United States.
The present legislation and the nresent
proposal are designed to permit us to meet more effectively
our international responsibilities by increasing the opportuniti
for competitive commercial banking to provide helpful support
to the dollar in its role as an international reserve currency.
By nermitting banks to nay interest on this limited class of
deposits at more internationally competitive rates, the
attractiveness of holding dollars is increased and pressure
on our gold stock is reduced.
-3-
Foreign monetary authorities now hold, in various forms
of short term dollar claims, approximately $13.4 billion.
The decision as to whether they hold dollars, gold or other
reserves is influenced by many considerations other than
interest rates, the most important of which is the fundamental
soundness of the dollar.
Our major task is, of course, to
insure that their confidence in the dollar continues to be
justified.
However, one factor contributing to the desira-
bility of any investment is the interest rate .
.It is the purnose of this bill to permit commercial
banks continued flexibility in comneting in this area.
While our banks have and 'trill continue to SUT'plement a
reasonable return to foreign monetary authorities with an
attractive variety of services and facilities, this flexibility will assist our banks in their effort to attract
foreign official deposits here and to retain them.
The author)ty of
oermissive.
be paid.
this legislation is, of course, only
It does not compel higher rates of interest to
In fact, the rate paid will obviously be determined
by the urofitability to the individual bank entering into
the contract; but it is not in our national interest
to
place a constrictive ceiling on banks' judgement in this area.
-4At the same time, I should emphasize that our domestic
interest rate structure will remain unaffected by
legislation.
this
Significant as these balances are from an
international viewpoint, they are of small consequence in
the over-all management of our domestic banking system where
the money supply olus time deposits amounts to over $280
billion,
In this connection, competition for these inter-
national balances is confined to relatively few banks, mostly
large and strong institutions in financial centers.
There is no doubt that investment in time deposits in
the U.S. has been found quite attractive by foreign official
institutions.
In the first two years, following enactment
of P.L. 87-827, we have seen time deposits of foreign
official institutions -- those covered by the law -- rise
approximately 86 nercent or an estimated $1.8 billion to
$3,8 billion at reporting member banks.
This is approximately
equal to the entire rise in foreign official holdings of
short-term dollar assets of all types in the same period.
It
is clear that there could be a considerable and unnecessary
loss of some of these denosits if the present law is not
extended and our banks are not left in a position to compete
effectively internationally.
Failure to act would make the
management of our balance-of-payments deficit more difficult
and increase the pulls on our gold.
-5-
The present law has worked smoothly and effectively.
It has oassed the test of more than two years of application
as an important instrument in our kit of tools to meet our
international responsibilities.
the bill before you, H. R. 5306.
000
I urge early approval of
TREASURY DEPARTMENT
March 5, 1965
FOR IMMEDIATE RELEASE
UNITED STATES FOREIGN GOLD TRANSACTIONS
FOR FOURTH QUARTER OF 1964
During the fourth quarter of 1964, the net sale of
monetary gold by the United States amounted to $144.7 million.
In the first quarter of the year, there was a net sale of
$27.5 million, while in the second and third quarters, there
were net purchases of $95.0 million and $41.0 million, respectively.
These transactions brought to $36.2 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 1964
by quarters (table on reverse side).
In addition to these net monetary sales of $36.2 million
worth of gold to foreign entities, the U.S. had net domestic
sales of $89 million worth of gold for industrial, professional
and artistic uses.
Thus, the total decrease in U.S. gold stock
during Calendar 1964 was $125 million.
D-152~
(eVER)
UNITED STATES NET MONETARY GOLD TRANSACTIONS WITH
FOREIGN COUNTRIES AND
I!n'Efu~ATIONAL
INSTITUTIONS
January 1, 1964 - December 31, 1964
(In millions of dollars at $35 per fine troy ounce)
Negative figures represent net sales by the
United States· ositive fi ures net urchases
First
Second
Third
Fourth
Quarter Quarter Quarter Quarter
1964
1964
1964
1964
Austria
Belgium
Brazil
Chile
Colombia
Congo(Leopoldville)
Dominican Republic
Egypt
-32.1
-1.0
+28.1
-.7
Italy
Lebanon
Netherlands
Ph i lippines
+200.0
Salvador
Spain
Surinam
Switzerland
-2.2
-2.5
-8.4
-101.3
-.1
-101.3
-25.0
196
-55
-40
+54
-2
+10
+l
-2
-10
-5
-405
-225
-.1
-10.5
-60.0
+9.9
-30.0
-30.0
All Other
-.4
Total
-27.5
-51.0
+200
-10
-60
+19
-2
-32
+2
-81
-3
+162.5
-.6
-.2
-12.5
+125.0
-.6
+1
+617
-.7
-1.3
-1.0
-3
+9500
+41.0
-144.7
-36
-.1
-.1
Figures may not add to totals because of rounding.
Less than $50,000
-101.3
+2.5
+1500
+220 09
-.7
*
*
*-.9
Yea
-2
-2.7
-1.2
+109.3
-.6
U. K.
-40.1
+28.2
-1.3
+1.6
-5.0
-101.3
-200.0
-2.0
Yugoslavia
-1.1
-1.0·
+10.0
Finland
France
Germany
Israel
Syria
Turkey
-23.2
Calen
-2
FOR RELEASE ON DELIVERY
REMARKS BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE TAX EXECUTIVES INSTITUTE
SHOREHAM HOTEL, WASHINGTON, D.C.
6:30 P.M. EST, SUNDAY, MARCH 7, 1965
THE FUNCTIONS OF TAX POLICY
Tax policy has three basic functions.
First, it should produce revenue for the operations of
governmen t •
Second, it should raise this revenue in as fair and simple
a way as possible.
Third, tax policy should be responsive to the economic and
social goals of the society in which it operates.
During the past four years we have seen changes in tax
policy which in magnitude and significance have seldom been
equalled. I would like to discuss some of those changes, as
well as some of the changes now proposed, and some that might
possibly by proposed in the future, in the light of the three
functions of tax policy that I have mentioned.
The First Function:
Raising Revenue
In terms of the first function -- producing revenue -the Revenue Act of 1964 disposed of the notion that to raise
revenue you always have to raise tax rates and that to lower
tax rates is always to lower tax revenue. That Act recognized
instead that, by drawing too much money out of the private sector
of our economy, excessively high tax rates can retard our economic
growth and thus operate not to increase but to reduce tax revenue.
By lowering rates that Act left more funds in the private sector
for both investment and consumption -- and increased incentives
to invest, thereby raising our level of economic activity and,
in turn, increasing tax yields.
- 2 -
I think most economists agree that without the Revenue Act
of 1964 there is a good chance that today the United States wou
be in the midst of the fifth economic recession since the end
of World War II. Apart from the economic hardships, misery and
waste which any recession involves, we would also have a substantial drop in tax revenue, perhaps as much as several billior
dollars.
Tax policy is thus now more clearly seen as an important
part of over-all economic policy, and it is impossible to consic
tax measures without at the same time considering the way in
which changes in tax policy will affect economic· growth and the
functioning of our free enterprise system.
Before we consider the relation of tax policy to our
national economic goals, however, it is appropriate to consider
tax simplicity and equity.
The Second Function:
Tax Equity and Simplicity
In terms of the second function of tax policy
raising
revenue in as fair and simple a manner as possible
we have
seen much happen in recent years. Tne amount of tax reform
contained in the Revenue Acts of 1962 and 1964 cannot fail to
impress anyone who takes the trouble to look at the record.
It is true that many reforms which gained tax revenue were
offset by other equally desirable reforms which lost tax revenue
This, of course, does not in the least reduce the importance of
the total amount of structural revision, although a hasty glance
at the net revenue impact could lead some to assume that the
amount of revision achieved had been slight.
But we are all aware that more work lies ahead if we are
to keep on improving our tax system. One of the most important
areas to explore in considering future tax revision is the propo
by Senator Long of Louisiana to establish an alternate and lower
tax rate schedule at middle and upper income levels in lieu of
many deductions, credits and other preferences now available.
- 3 Senator Long's plan also provides for an increase in the
minimum standard deduction as well as a doubling of the maximum
standard deduction. These changes, combined with the alternate
tax schedule for middle and upper income taxpayers, would allow
many taxpayers at lower and middle income levels to shift from
the ranks of itemizers to the ranks of those taking the standard
deductions, and would allow higher income taxpayers to use the
alternate tax schedule rather than to compute taxable income
with the great variety of special provisions now present in the
law.
I understand it is Senator Long's view that the farther
down into the middle and lower income ranges such an alternate
schedule could be extended the better in the interests of both
horizontal equity and simplicity. In fact, in those brackets
the liberalization of the standard deduction could be seen as
one way of moving in that direction. This is in keeping with
the viewpoint that the benefits of changes of these types must
be appropriately balanced among taxpayers at different income
levels. Also, of course, such a plan would be self-defeating
if it were embroidered with exceptions at variance with its
basic concepts.
While I think Senator Long's proposal requires further
study, it does seem to offer one possible path to the lessening
of existing inequities in our tax system at all levels of
income. Certainly the data and analysis required for that study
will help us to achieve desired improvements in our tax structure.
Furthermore, as Senator Long points out, as more taxpayers
are able to adopt the standard deduction or an alternative
schedule approach, the simpler the task of filing an income tax
return would become. Anything we can reasonably do to make our
tax system simpler certainly deserves close attention. When
we can combine simplicity and equity, and do so in a manner
which does not interfere with raising revenue, or with furthering
our national economic and social goals, we should make every
effort to do so.
The problem of increasing tax simplicity is one of the most
challenging in the field of tax policy. I am sure that to a
non-expert there are many places in our tax structure which offer
- 4 opportunity for wholesale revision to achieve greater simplicity.
Yet, the more one learns about our tax structure, the more
difficult such changes really become.
The reason is that our tax structure directly affects so
many facets of both our economy and our society. Hence changes
which might appear relatively easy or minor in themselves may
involve far more significant effects as our economy and our
society adjust to them. Our task is to search for the areas
where simplicity can be obtained, leaving for more complex
solutions those problems whose very nature demands more detailed
answers.
The Third Function:
Furthering National Economic and
Social" Goals
In terms of the third function of tax policy -- furthering
national economic and social goals -- we have seen more progress
in recent years than ever before. We are enjoying the continued
benefits of the longest and strongest peacetime economic expansion in our history -- one which is entering its fifth year
this month.
What that means is that more than a million people are
working today who would not have jobs if it were not for the
Revenue Act of 19640 Certainly, there is no more vital goal
both social and economic -- than full employment.
As we move forward toward the Great Society, tax policy
will continue to be looked to as a means to move toward the
goals of that society, social as well as economic.
The most important way in which tax policy can contribute
to those goals is by maintaining healthy and balanced economic
growth. Only through such growth will our economy provide the
tax revenues we will need to reduce poverty, to meet our educational needs, to develop our communities, to improve national
health, and to make our country a more beautiful place in which
to live.
I have no doubt that tax policy can playa strong and
constructive role in moving toward these goals. It can only
do so, however, if it is used wisely.
- 5 -
It has long been the custom in this country for anyone
considering any new social or other program to begin by
suggesting that we encourage such a program through special
tax benefits. Unfortunately, the history of special tax
treatment for this or that specific non-tax purpose seldom
bears out the hopes put forth when the special rule was
first written into law. Far too often today's tax incentive
to achieve some specific non-tax objective -- usually an
objective that few of us would quarrel with -- turns into
tomorrow's loophole, through which drains vital revenue that
could have been used far more effectively to attack the
problem directly.
.
For example, a blanket tax credit for college tuition
payments, no matter how attractive it may be to those who
have to meet those payments, is hardly the way to meet our
educational needs. It is clearly no substitute for
President Johnson's student assistance program, which is
designed to make college education available to all Americans
on the basis of their ability to learn rather than their
ability to pay. In fact, a tax credit for tuition expenses -costing us a billion dollars -- could actually slow up rather
than hasten our progress in education by giving benefits to
those who have no real need for help, thus wasting tax revenue
which instead could be used directly to finance a constructive
program of aid to those students who most need it. And since,
as most educators realize, the tuition credits would quickly
be reflected in higher tuition charges, the needy students
would be that much further from their goals. I believe it
can be said that such a tax credit would not result in even a
single additional student going to college because of its
enactment.
The test, then, of any special tax proposal designed to
further a specific and desirable social goal should be whether
or not it is possible to achieve that goal more efficiently,
directly, and fairly through other measures which lie outside
the realm of the tax system.
Probably the
today is embodied
tainly no one can
tive role to play
most urgent social goal facing our nation
in President Johnson's war on povertyo Cer=
say that tax policy does not have a construcin this war. The Revenue Act of 1964 had an
- 6 -
average i~dividual income tax cut of about 20 percent -- but
that C'lt for very low income taxpayers averaged roughly twice
that perce~tage, as a result mainly of the splitting of the
fi~st brdcket and the adoption of the minimum standard deduction. These were tax measures broadly applied whose purposes,
of course, could not be met by devices outside the tax system.
The minimum standard deduction in particular is a fine illustration of a tax device designed specifically to aid low
income taxpayers, including those with family responsibilities.
Unlike a blanket tax credit or even increased personal exemptions, the benefits from the minimum standard deduction go
directly to those taxpayers who most need help -- and only to
them.
Any future tax proposal intended to aid low income groups
should be designed to assure that it provides benefits in the
most direct and effective manner possible.
As for the use of tax policy to further our economic goals,
the Revenue Act of 1964 reduces both individual and corporate
income taxes this year by almost $14 billion. But this is far
from the whole story.
The Revenue Act of 1962 had as its central prov1s10n a
7 percent investment tax credit. The purpose of this credit
was to encourage business to modernize productive equipment.
That same year, the Treasury acted to bring the tax treatment
of depreciation up-to-date for the first time in almost twenty
years. That change, too, was designed to encourage modernization. The three changes -- investment credit, depreciation
reform, and significant tax reduction -- were designed to work
together~ for their interaction was seen as mutuany reinforcing.
The present success of these measures now operating together
bears out this view.
But tax measures require constant review. As most of you
know, the tax benefit from the depreciation reform of 1962
would have been reduced by some $700 million this year if it
were not for the changes in the Guideline Procedure and reserve
ratio test recently announced by President Johnson. That would
have meant that the incentive to modernize embodied in the
depreciation reform would have been substantially weakened.
- 7 What many people do not realize is that the incentive
would also have been weakened if we had abandoned the reserve
ratio test altogether. Allowing taxpayers to use the new
guideline lives provided in the 1962 reform without requiring
that they bring their actual replacement practice into line,
would be to distribute the benefits of this reform indiscriminately among those who modernized and those who did not.
Indeed, the greatest benefits would have gone to those who
modernized the least or not at all.
The changes the President announced will ease the transition to the new guidelines for those firms which require a
longer time span, while at the same time assuring that the
tax benefits provided correspond to actual progress made
towards modernization. While these changes involve foregoing
some $700 million in revenue this year, they are entirely in
keeping with the belief of this Administration that business
must remain strong and growing if we are to maintain a healthy
economy.
As for the future use of tax policy to further economic
goals, I think there is no question that the excise tax reduction of $1.75 billion a year, which President Johnson has
proposed, is not only an improvement in our over-all tax
structure but also another step toward strengthening our
economy. It offers us a splendid opportunity to rationalize
our excise tax system, by striking directly at the haphazard
jumble of manufacturers' taxes, retailers' taxes and other
measures that years of tax history have brought about.
Although this jumble is often referred to as a "selective"
excise tax system -- no one today defends the bases for the
selection.
A~other major economic goal in the United States is
improvement in our nation's balance of payments. The business
community has a very significant role to play in this task, as
President Johnson made clear last month. Tax policy plays an
important role here as well. The Interest Equalization Tax,
for instance, is a good example of how tax policy can be
refined and developed to meet a very difficult economic problem. The success of the Interest Equalization Tax in bringing
foreign borrowing in the United States down to reasonable proportions in the areas to which the tax applied is impressive
testimony to the value of tax policy in furthering our international as well as national economic goals.
- 8 -
The proposed legislation to increase foreign investment in
the United States -- which will soon be submitted to the Congress
as part of President Johnson's Balance of Payments program
is an example of another constructive use of tax policy in
harmony with our international economic goals.
To return to the domestic scene, one way in which we could
make tax policy an even more potent instrument for advancing
our economic goals would be to insure that the Federal Government could use, when appropriate, the weapon of quick reduction
of tax rates on a temporary basis to forestall the possibility
of a recession and slowdown in economic expansion. While the
details of the Congressional procedure would have to be determined by the Congress, it is clear that the certainty of prompt
Congressional action on a Presidential request for a temporary
individual income tax rate cut would go far toward increasing
our ability to cope effectively with an economic slowdown. We
must at the same time continue our analysis of economic changes
so that our economic forecasting operates as precisely as'possible in this difficult area.
Still another needed tax policy step -- one that can be
said to lie in both the social and economic area -- is the proposal for changes in the tax law growing out of the Treasury
D2partment study of private foundations. rnese changes will
eliminate the abuses that study uncovered among a minority of
those foundations, and will also end the present mixing of
foundations and business, which today permits some business
enterprises to gain an unfair advantage over competitors.
Chairman Mills of the House Ways and Means Committee has stated
that this will be an appropriate area for early tax action, and
few will disagree with him.
A ?roblem of tax administration which has important tax
policy implications is now being looked into by the tax staffs
of the Congress and the Treasury. I refer to the possibility
of introducing a system of graduated withholding on salaries
and wages.
New attention has been focused on our withholding system
by the discussion regarding the effect on underwithholding
resulting from the Revenue Act of 1964. It would be helpful to
spend a moment on this latter aspect. The actual 1964 underwithholding resulting from this legislation both in individual
- 9 -
and over-all economic impact -- contrary to popular suspicion
was relatively quite minor.
In fact, the increase in underwithholding resulting from
the new law in 1964 could not even reach $100 for a single
person earning $10,000 a year, or $150 for a married couple
with two children and an income of $20,000 a year. Moreover,
in both of those situations the taxpayers should be filing
quarterly returns of estimated tax. For the single person
earning $5,000 and the married couple with a $10,000 income,
the levels at which quarterly estimates commence, the possible
increases are $51 and $83.
The minor effect on withholding of the 1964 Act does not
mean, however, that there will not be situations involving
larger amounts of underwithholding in 1964. Usually every year
about 20 million returns involve taxes due -- more than $5 billion -- and about half of these tax payments are the result of
underwithholding. The total amount due this spring will be
slightly less than last year as a result of the 1964 Act rate
changes.
In past years underwithholding has been normally produced
by such things as rising personal income through pay raises or
more overtime or employment for a longer period than usual, or
a change in exemption status in the latter part of the year
(as where a son or daughter ceases to be in a dependent status).
Yhere have been instances in recent years where final payments
increased by almost a billion dollars from one year to the next.
The year 1965 will not differ much from prior years, but because
a small part of the 1964 underwithholding and payments due in
1965 has resulted from the 1964 Revenue Act there is a natural
tendency for some taxpayers to blame the new law for their entire
tax bill.
All this has led tax experts and others to consider whether
this perennial problem of underwithholding cannot be reduced by
introducing graduated withholding rates -- using more than one
withholding rate so that the total withholding would more closely
reflect tax liabilities. Such a graduated system would
start with a rate lower than the present flat 14 percent rate.
This combination of a lower starting rate followed by a number
of higher rates would substantially reduce both the present
- 10 -
underwi tiiho lding if1 the brackets for which 14 percent is too low
a rate, and the present overwithholding in the lowest brackets
where 14 percent is too high a rate.
As in any tax proposal, there are a number of factors in a
graduated withholding system which require study. For example,
one is the technique ieself, and here the preliminary exploration seems favorable. Another is the method of transition to
the new SystCr,1. The Ulagn~tudes involved -- the increase in
current withholding and consequent withdrawal of funds from
the consumer spending stream -- are such that their effect on
the economic situation lnust be carefully considered in planning
the transition to avoid interference with our economic expansion.
Also, a graduated withholding system, while reducing underwithholding in many brackets and overwithholding in the lowest
brackets, could also lead to an increase in the present amount
of overwithholding.
This last aspect really requires us to take a hard look at
our present overwithhGlding. It now runs to about $5 billion a
year and involves some 40 million returns. Ahout 40 percent of
this overwithholding appeBrs to be due to the fact that our
present withholding system ]8 geared to the standard deduction,
while many taxpayers of C:OUTse use itemized deductions, so that
their actual tax liabilities are less than the amounts withheld.
Intermittent emp 1 0YTJ1eI1X, \'\Th i~ch [[Ir:>.ans that the VE'2.t:' I s wi thholdings will not reflect tiv:: t r }tal personal exemption, apparently
aCCOUD ts f C)!_ ;:ll'oUL 15 p C:J-c:c:nt 1)£ tbe overwi thho lding. Interestingly enough, almost a th~rd of t!te overwithholding seems to be
voluntary, ~ur m~ny tdxpay~rs do nor claim theJr full personal
exemptions fo.rwithhclcL:lTI.2- pUJ:'pc:.:es,
some S DC l' a 1
or pSyCh'.JlGg~_-.-,;., ,::;nd so~e tpc[;D.icaL Thus, is it har.:-mful to the
eCOTIO[(:Y to'· :j~-;:,., 2d.::h ?:>:ir c;.C7;l.~ $} oil-linT). or sc out of the economy
over the CCI1/·C.; c.f t';-t" y(>Cl:' c)')1;, t~) :ce~·~'.n;:) this a.ff10Uj."lt in lump-sum
payments 1'1 t'--,c fc< lc''';ln:~ sr·rj_-,"'!? ~~ ~!irlat does all this mean for
COnSu.mE!" '';' f'er/_ ~ :1g. T~Clr i [1CUV i (~'ia,~ o,=<.v:Cn;2":=?
AYe therE: techniques
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in the p.-::j CI ; ) t.-~"':c ,;1e·"t., "'IS. ;:",}. t-'l.e C'lrr'p.~.t .:l:.sl~ussion of
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11 -
Some reduction in overwithholding, if adequate techniques are
available to permit it, might be an important irnprovement.
Certainly ""('educing underwithholding would he.
Conclusion
We have come a long way lately in improving our tax system,
but we still have a long way to go. We know that changes in
tax policy occur in a rapidly changing climate. We know that
the economic effects of tax rates and tax systems change over
time, as the economy expands and as incomes increase. We know
that constant attention is necessary to assure that tax policy
makes a maximum contribution to national goals both social and
economic. We know that necessary changes in tax policy cannot
always be accompanied by increases in tax simplicity. We know
that substantial progress in furthering tax equity requires
broad public support.
The task for the future is to apply at least the knowledge
we have, as we go on to learn still more about our complex tax
system. The task is to be sure that every change we rna.ke is a
step toward making our tax policy serve more effectively a
society that becomes daily more complex -- a society that is
contant1y changing.
Merely because one tax cut was good does not mean that
every tax cut will be better, nor does it mean that tax cuts
are always the best way to achieve our national objectives.
For both expenditure policy and tax policy mt).st be closely
coordinated, as they are in President Johnson's budget for the
next fiscal year. This budget imposes expenditure reductions
wherever possible, as well as increased expenditure programs
where necessary -- as in the povertY1 education and health
programs. It is a budget which allow's us to save \,vhere we can
in order to spend where we must.
Together with this wise control of expenditures there is
a corresponding wisdom in the use of tax policy -~ bv proposing
an excise tax reduction that is both sou.nd as a ta.x measure and
prudent as a fiscal policy.
And this is really the new apprnach j.n tax policy ~~ the use
of tax policy as an integrated part of ecnnnmic and fiscal planning, to give the maximum possible SUiJport to our economy, so
that we can continue to make progress tm'JRI'(\ the Great Society.
FOR RELEASE:
ON DELIVERY
REMARKS BY LAWRENCE M. STONE
TAX LEGISLATIVE COUNSEL
U. S. TREASURY DEPARTMENT
BEFORE THE TAX EXECUTIVES INSTITUTE
SHOREHAM HOTEL, WASHINGTON, D. C.
MONDAY, MARCH 8, 1965, 9:30 A.M., EST.
Recent Developments in Depreciable Property Accounting
There have been a number of important changes in tax policy in the last
few years which affect tax depreciation.
I intend to outline them and give
some of the reasons why they were made.
In view of the fact that one of the
most important of these was contained in the recent Treasury Department release on the 1962 Depreciation reform, this is an appropriate time to review
these changes.
Investment credit
The investment credit introduced in 1962 has been well received.
Cor-
porate income tax liabilities for 1962 were reduced by over $800 million.
The beneficial effect on the economy has been widely recognized.
Practically
all of the regulations have been issued in either final or proposed form.
The proposed recapture rules contain many procedures which should go a long
way in easing administrative requirements.
In particular the procedure for
handling "mass assets!! seems to be a satisfactory solution to a problem many
thought was insurmountable.
- 2 The nonapplicability of the recapture rules on sales and leasebacks of
property on which a credit has been claimed is another helpful measure
contained in the proposed recapture regulations.
The consolidated return regulations are being revised and consideration
is being given to easing the investment credit recapture provisions on sales
of property from one affiliate to another.
Depreciation (other than guidelines)
The "Cohn Rule" (Rev. Rul. 62-92) denies depreciation in the year-ofsale on an asset sold at a gain.
This controversy may be resolved soon since
the Supreme Court has agreed to review the Fribourg Navigation case.
In the recent extensive study of the depreciation guidelines, it was
noted the sum of the years-digits (SYD) remaining life method of depreciating
open-end, multiple asset accounts was not functioning according to assumptions.
The remaining life plan is very complex -- it requires the maintenance of
hypothetical straight-line records as well as SYD records.
It may be that
straight-line data are not utilized properly in the computations or it may
be that straight-line data are inappropriate for the computations of
depreciation.
The Service is restudying the technique now permitted in the
regulations but this should not be a surprise to many tax experts.
When the
SYD method was introduced in 1954, depreciation experts had serious reservatio
regarding the use of the SYD method for multiple asset accounts.
- 3 The Depreciation Guideiir:es
ir:.COr..2 taxation
is a.::
e~er:.se
of
join~
;;te
YO'J.r
di:fiCJ.~t,ies
r.earir.~s.
is
business tha:. r::t<st be takeY'. ir:tc acco'cJ.t in
asc:e:c"tai::.ing corporate earnir.gs.
ji::~ic'J.=-t.
esser:tia~~y
contrc~=-ers
The deterrina:.ion c::: a reascnable
and auditors can at,test, to -c,hat.
an:1~~
il:cse of you
that depreciation controversies :::ar. :::a'..:.se in rat,e cr.aking
-=r.ese r:;robleIT.s began before tte :::orr::orate L.coIEe tax and wi::"::'
:ce:-.ain e\'en if the corporate tax were aco::"isf.ed.
As in tte :::ases cf financial
accc'~'1tir.E
aLi '..:.tL.i t,y reg'c::"a:.icr.) tr.e
~" aPFrca:::h) 1..iter. :::-atf.er st,roi..~ claiL"..s were r..ade that, tr.e -=':::-eas'..:.r:r Jepar-cr:.en"':
a::.i the =r.terr.al
~ever.'J.e
Servi:::e were restrictive in tte way lr. which they
::'e::r..:.ired :,axpayers tc el..p::"cy the straight -line ';.rri te -cf~~ l..ethcd.
-::::-.a:, I·las chaLged ire ::"954 with tte adoptior. cf a::::::elerated ::r.e:,tcds cf
\·;i th
'"ere
~realistic
and o"J.tr:::oded.
its
- 4 The general impression voiced by many in business was that unrealistic
depreciable lives were holding up modernization.
It is quite interesting
in retrospect to go back to the hearings on the Revenue Act of 1962 and read
the testimony of the business community on depreciation.
The constant
the~
is that of linking a realistic depreciation program with the task of
modernizing the machinery and equipment utilized by American business.
The
stress was always on modernization and not simply on expansion.
Against this background the Treasury developed its 1962 depreciation
reform.
The 1962 revision made these major changes:
it reduced Bulletin F to
75 broad guideline classesj it established forward looking livesj it instituted an objective control -- in the form of the reserve ratio test -to eliminate agent controversyj and it provided an adjustment period in the
form of a three-year moratorium.
At that time the Treasury recognized that
the new procedure would have to be carefully observed and improvement and
corrections made if necessary.
It was clear in 1964 that problems existed.
line procedure to the extent that we anticipated.
Business was using the guidE
But it was obvious that
many businesses would not be able to meet the reserve ratio test within the
three year moratorium period.
The Treasury therefore started an extensive
study -- to learn the reasons for the failures and to find out in general
how the guideline procedure was operating.
The study showed that difficultief
existed - - in the reserve ratio mechanics, in the transition arrangement, in
the lengthening adjustment procedures, and in the ways some accounting
methods were being utilized in conjunction with the guideline procedure.
- 5 In response to these problems, the general business reqllcst ,,ras for
additional one year blanket moratoriwn.
C-l,"
The more ve studied the mattert,'H
more we came to see that this was only a rough and incomplete measure) w·hi.
would do little more than postpone the problem.
What was needed - - and
,-11
\{YIH,t
we provided -- was a far more basic and longer-range solution,
There were four substantial revisions:
1.
Defects in the reserve ratio test principally attributable
to irregLllar growth have been overcome with the Introduction of the
guideline form.
This technique enables a taxpayer to make calculations
tailored to his own growth patteTIl.
At the same time, the 20 percent
leeway inherent in the tables has been retained,
Also the use of the
tables remains available as an option because tbpy may be hellJful
when growth is concentrated in recent years.
2.
Certain calculation techniques -- stra,lght -lLDIC or
the-years digits method with multiple asset
sum,~of
open~end 8CC;:lU:nt::=,
~
provided exaggerated benefits when used in COrl,]1JIlctioDi,ji th the
guideline procedure, a fact which came to ligb t
depreciation prior to the recent changes.
were sending some reserve ratios sky-high
-lX,. OllY
of
8(;
These F'xaggeratEll be!",
0
T}lere 1,las
amount of switching from de clining balance met hncjb
to these methods, switches that never would D8.ve
')T
;'1
sl:1:;r,t,8:n".:"{1
:i ( '.7)1
? (' \'':;:IT ~
i (',
'YCIJrlEc1 :,XC-:Cl',
T~ib
this setting of the possibility of exaggerated benefi.ts
counting situation operated to discourage mOdeITll,""C!'Llon
since it placed a high premium value on the n len!,)
(lll
<')f
[P",u
(J
Ui
That was why the Treasury adopted the accountj ng ,ccmstrai.nt s
announced.
I' i ;.
Be,
l"rc'y:,':i, .'
IT
".:o;C""T.'~
Y"~(fnt 1'1
- 6 -
3.
With regard to the adjustment period, three years was
found to be too short a time -- particularly for heavy industry.
To alleviate this condition, the Treasury adopted a long-range
solution rather than a temporary one-or-two year moratorium.
It
thus used a guideline life -- a full life cycle -- as the basis
for the transition period and then adopted a tapering down process
so that the change-overs required could be made gradually.
4.
The last measure included in the recent changes covered
the adjustment procedure in cases where the reserve ratio test is
not met.
The 1962 procedure prescribed a maxium adjustment of 25
percent to lives used.
This seems too abrupt an adjustment and
also held no relationship to degree of failure.
Consequently the
Treasury adopted the schedule of minimal adjustments.
We think we now have a test which is workable, a rational control on
accounting techniques which are inconsistent with an objective test procedure, and appropriate rules to permit a fair and gradual transition.
* * * * * * * *
Undoubtedly, many of you may be wondering why we are opposed to taxpayers having the guidelines as a matter
o.z-
right.
accounting co"cept of measuring taxable income.
It boils down to the
Just as it is a necessary
factor in calculating earnings per share, depreciation is a necessary factor
in calculating taxable income.
That is the function of depreciation -- to
- 7 allocate costs of equipment to revenues.
Using the guidelines as a matter
of right would mean that in many cases the lives would be arbitrary and the
allowances would be as equally arbitrary.
This arbitrary procedure would distribute the tax benefits of the 1962
~preciation
reform indiscriminately among those firms which were modernizing
equipment and those which were not.
If the goal were simply to increase
corporate cash flow to provide additional funds for expansion or investment,
this could be done far more effectively and in fact was done through the 1962
investment credit and the recent four-point cut in corporate rates.
TREASURY DEPARTMENT
FOR IMMEDIATE RELEASE
Proposed Legislation to Increase Foreign
Investment in the United States
The Treasury today submitted to the Congress proposed tax
legislation designed to increase foreign investment in the
United States.
Drafts of the proposed legislation, titled "An Act to
Remove Tax Barriers to Foreign Investment in the United States,"
were sent to Speaker McCormack and Vice President Humphrey.
Chairman Mills of the House Ways and Means Committee has stated
that he will introduce it.
The proposed legislation is part of President Johnson's
program to improve the U.S. balance of payments, which was
announced in his Message to the Congress on February 10, 1965.
The legislation contains proposed changes in the present
tax law. These changes are designed to stimulate foreign investment in the United States by removing existing tax barriers
to such investment. The proposed changes grew out of the
Treasury study of recommendations made to President Johnson last
April by the Task Force on Promoting Increased Foreign Investment
in United States Corporate Securities. This Task Force was
composed of leaders in the business and financial community and
was headed by the then Under Secretary of the Treasury, Henry H.
Fowler.
The changes affect the taxation of foreign individuals and
foreign corporations. Many of the provisions in the present
law which will be revised or eliminated by the proposed legislation have tended to complicate or inhibit investment in U.So
corporate securities without generating any significant tax
revenues.
D-1526
The totaL BllDual revenue loss from enactment of the proposed
legislation is estimated to be less than $5 million.
Foreign purchases of U.S. corporate securities are the
greatest single source of long-term capital inflow for the
United States.
Between 1956 and 1963, such purchases averaged
$190 million a year.
During that time the value of foreign-held
stocks outstanding more than doubled -- going from $6.1 billion
to $12.5 billion. There is no estimate of the ~ediate
benefit from the proposed legislation in terms of increased
investment, but over time it is expected that the legislation
would result in increased purchases of such securities of
roughly $100 million to $200 million a year.
The bill proposes three major tax changes affecting
foreigners and foreign corporations and a number of minor changes,
The major changes are:
1.
Reduction of the rate of U.S. estate tax
applicable to foreigners to bring the tax treatment of foreigners more in line with the rates usually
paid by American citizens, and with general
international practice. The reduction would
replace the present maximum rate of 77 percent for
foreigners with a maximum rate of 15 percent, and
replace the present $2,000 exemption with a
$30,000 exemption.
2.
Elimination of the provision in the present law which
makes foreigners' non-business income, such as
dividends and interest, subject to tax at regular
U.S. individual tax rates if it exceeds $21,200.
The tax on such income would be limited to the
flat 30 percent withholding rate provided by
statute or any lower withholding rate which may
be provided by treaty.
Business income would
continue to be taxed at regular U.S. rates if the
foreigner is engaged in business here.
3.
Elimination of the present provision for taxation of
capital gains realized by a foreigner simply because
he was present in the United States at the time of
the particular transaction. At the same time, the
- 3 -
period that a foreigner may spend in the United
States without becoming subject to tax on all
U.S. capital gains for the taxable year, would
be extended from 90 days to 183 days.
Since the application of the U.S. estate tax to foreigners
is one of the biggest barriers to foreign investment in the
United States, its reduction is probably the most important of
the
major changes. For example, the proposed change would
reduce the estate tax for a foreigner with a U.S. gross estate
of $100,000 from about $17,300 to about $3,000. A U.S. citizen
would pay about the same tax on such an estate if he did not
claim the marital deduction, and would pay no tax if he did.
(Foreigners are not allowed to claim the marital deduction.)
The proposed legislation also contains provisions dealing
with former U.S. citizens who in the future give up their
citizenship and live outside the United States in order to avoid
U.S. taxes. It would require such former citizens to pay regular
U.S. income and estate taxes on income from or property in the
United States, if they gave up their U.So citizenship less than
10 years before. This would not apply to former citizens who
could show that the surrender of their citizenship was not tax
motivated.
There are also other provlslons designed to contribute to
more rational and consistent tax treatment of foreigners and
foreign corporations.
(A general explanation of the proposed legislation is attached.)
000
ACT TO REMOVE TAX BARRIEHS TO }'OHEIGN INVESTMENT
IN THE UNITED STATES
General Explanation
Introduction:
In his balance of payments message of February 10, 1965, the President proposed a series of measures designed to reinforce the program to
correct the balance of payments deficit of the United States. Among the
proposals made by the President is one to remove the tax deterrents to
foreign investment in U. S. corporate securities so as to improve our
balance of payments by encouraging an increase in such investment. The
recommended legislation described herein would effectuate this proposal.
The review of the tax treatment of nonresident foreigners and foreign corporations investing in the United States resulting in these
legislative recommendations was prompted in large measure by the report
of the Task Force on Promoting Increased Foreign Investment in U. S.
Corporate Securities. This Task Force, which was headed by the then
Under Secretary of the Treasury, Henry H. Fowler, was directed, among
other things, to review U. S. Government and private activities which
adversely affect foreign purchases of the securities of U. S. private
companies. In its report, the Task Force made 39 recommendations designed to help the United States reduce its balance of payments deficit
and defend its gold reserves. Among these were several directed at
changing the tax treatment of foreign investors so as "to remove a number
of elements in our tax structure which unnecessarily complicate and inhibit investment in U. S. corporate securities without generating
material tax revenues." The Task Force report cautioned, however, that
its tax recommendations were not intended to turn the United states into
a tax haven, nor to drain funds from developing countries.
The legislation being requested deals with all of the tax areas
discussed in the Task Force report, although in certain instances the
action suggested differs from the proposals made by the Task Force.
Furthermore, the draft bill contains recommendations in areas not mentioned in the Task Force report which deal with problems which came to
light in the Treasury Department I s study of the present sy~tem of taxing
nonresident foreigners and foreign corporations. I~ should be emphasized
that the recommendations embodied in the proposed legislation were considered not only from the viewpoint of their impact on the balance of paymen~, but also to ensure that they contributed to a rational and consistent program for the taxation of foreign individuals and foreign corporations. Thus, all legislative suggestions made herein are justifiable
on conventional tax policy grounds.
- 2 -
It is estimated that the ad.option of these proposals would result
in a net revenue loss on an annual basis of less than $5 million.
Foreign purchases of U. S. stocks constitute the largest single
source of long-term capital inflow into the United states, with even
greater potential for the future. Net purchases have averaged $190
million a year between 1956 and 1963, while the outstanding value of
foreign-held stocks has risen from $6.1 billion to $12.5 billion during
this period. It is extremely difficult to measure the precise impact
of this proposed legislation on our balance of payments because of the
various factors affecting the level of foreign investment in the United
States. It is anticipated that, when combined with an expanding U. S.
economy, the proposed legislation will result over the years in a
significant increase in such investment.
Most provisions of the draft bill are proposed to become effective
to taxable years beginning after December 31, 1965. However, those provisions which provide a revised estate tax treatment for the estates of
foreigners are made applicable to the estates of decedents dying after
the date of the enactment of the proposed legislation. In addition, those
special provisions applicable to U. S. citizens who have surrendered
their United States citizenship are made applicable if the surrender
occurred after March 8, 190).
Specific Recommendations:
The following paragraphs describe the specific changes in the
Internal Revenue Code of 1954 which are proposed. Fbr this purpose the
technical language of the Internal Revenue Code has been used, e.g.,
foreigners are described by the technical term "alien."
1. Graduated Rates.--Eliminate the taxation at
graduated rates of U. S. source income of nonresident
alien individuals not doing business in the United
States.
Under present law, nonresident aliens deriving more than $21,200
of income from U. S. sources are subject to regular U. S. graduated
rates and are required to file returns. However, graduated rates on
investment income already are eliminated by treaty in the case of almost
all industrial countries, except where a taxpayer is doing business in
the United States and has a permanent establishment here. Only a very
small amount of revenue is collected from graduated rates at present.
For example, for 1962 graduated rates resulted in the collection of
- 3 -
$746,743 above the taxes already withheld.
Although graduated rates are
rarely applicable they complicate our tax law and tend to frighten
and confuse foreign investors.
Thus, graduated rates, whether applied to investment income or such
types of income as pensions, annuities, alimony and the like, serve no
clearly defined purpose, deter foreign investment, and should be eliminated. The elimination of graduated rates will limit the liability of
nonresident aliens not engaged in trade or business to taxes withheld,
and where the alien is not engaged in trade or business here no return
need be made. (However, graduated rates would be retained for the U. S.
business income of nonresident aliens engaged in trade or business here. )
2. Segre ation of Investment and Business Income
and Related Matters.--Provide that a nonresident alien
individuals engaged in trade or business in the United
states be taxed on investment (non-business) income at
the 30 percent statutory withholding rate, or applicable
treaty rate, rather than at graduated ratesj (b) foreign
corporations engaged in business in the United states be
denied the 85 percent dividends received deduction and
be exempt from tax on their capital gains from investments in U. S.. stocks; (c) nonresident alien individuals
and foreign corporations not be deemed engaged in trade
or business in the United States because of investment
activity in the United States or because they have granted
a discretionary power to a U. S. banker, broker, or
adviser; and (d) nonresident alien individuals and foreign corporations be given an election to compute income
from real property and mineral royalties on a net income
basis and be taxed at graduated rates on such income as
if engaged in trade or business in the United States.
Segregation of Business and Investment Income.
Under present law, if a nonresident alien is engaged in trade or
business within the United States, he is subject to tax on all his U. S.
income (including capital gains), even though some of the income is not
derived from the conduct of the trade or busines~ at the same rates as
U. S. citizens.
A nonresident alien individual engaged in trade or business in
the United States should be subject to taxation on his investment income
on the same basis as a nonresident alien not so engaged. Thus his investment income would be taxed at the 30 percent statutory rate or
- 4 applicable treaty rate, rather than at graduated rates. For the purpose
of determining the applicability of treaty rates the alien will be deemed
not to have a permanent establishment in this country. All business income should remain subject to tax at graduated rates, but the rates on
business income would be computed without regard to the amount of investment income.
This change conforms to the trend in international treaty negotiations to separate investment income from business income. Whether a
taxpayer is helped or harmed by segregating his investment from his business income, separate treatment is proper and equitable. Investment
decisions may be made on the same basis whether or not the alien is engaged in business here, since income arising from investments here will
not be subject to taxation at graduated rates in either event.
Moreover, a nonresident
ness here should not be taxed
states which are unrelated to
in this country, except where
under the rules pertaining to
alien individual engaged in trade or busion capital gains realized in the United
the business activity carried on by him
he would be subject to tax on those gains
nonresident aliens generally.
Tax Treatment of Income from U. S. Stock Investments by Foreign
Corporations.
Under present law all the activities of a corporation are treated
as part of its trade or business. Thus, for example, all its expenses
are treated as deductible as business expenses. Accordingly, it would
be inappropriate to segregate a foreign corporation's U. S. II investment II
income from its U. S. "business" income. However, there is one abuse in
this area which should be eliminated. Frequently, a foreign corporation
with stock investments in the United States engages in trade or business
here in some minor way (SUCh as by owning a few parcels of real estate)
and then claims the 85 percent dividends received deduction on its stock
investments in the United States. Such a corporation thereby may pay
far less than the 30 percent statutory or treaty withholding rate on its
U. S. dividend income, although its position is essentially the same as
that of a foreign corporation doing business elsewhere which has United
States investment income.
To eliminate this abuse and treat all foreign corporations with
investments in U. S. stocks alike, the 85 percent dividends received
deduction .hould be denied to foreign corporations doing business here.
Their income from stock investments would be made subject to the 30 percent statutory withholding rate, or any lesser treaty rate applicable to
- 5 such income, rather than regular U. S. corporate rates. For the purpose
of detenninjDg whether the treaty rates on dividend income apply, a foreign corporation will be deemed not to have a permanent establishment
in this country. To fully equate the tax treatment of stock investments
of foreign corporations doing business in the U. S. with that of foreign
corporations not doing business here, such corporations are exempted from
the U. S. tax on capital gains realized on their U. S. stock investments.
Definition of "Engaged in Trade or Business."
Present law provides that the term "engaged in trade or business"
does not include the effecting, through a resident broker, commission
agent, or custodian, of transactions in the United States in stocks,
securities, or commodities. There is some confUsion as to whether the
amount of activity in an investment account, or the granting of a discretionary power to a U. S. banker, brokerl~.or adviser, will place a nonresident alien outside of this exception for security transactions so
tbat he is engaged in trade or business in the United States. This uncertainty may deter investment in the United States and is undesirable
as a matter of tax policy.
The fact that a discretionary power of investment has been given to
a U. S. broker or banker does not really bear a relation to the foreigner's
ability to carry out transactions in the U. S. -- the discretionary power
is merely a more efficient method of operating rather than having the
investor consulted on every investment decision and frequently is merely
a safeguard to protect him in case of world tunneil. Nor, where the
alien is an investor, is the volume of transactions material in determining whether he is engaged in trade or business.
Accordingly, the proposed legislation makes clear that individuals
or corporations are not engaged in trade or business because of investment activity in the United States or because they have granted a discretionary investment power to a U. S. banker, broker, or adviser. No
legislative change is necessary to provide that the volume of transactions is not material in determining whether an investor is engaged in
trade or business in the United States as this is the rule under present
law.
Real Estate Income and Mineral Royalties.
Under present law it lS not clear whether a nonresident alien (or
foreign corporation) is engaged in trade or business in the United States
by reason of the mere ownership of uutmproved real property or real
-
0
-
property subject to a strict net lease, or by reason of an agent's activities in connection with the selection of real estate investments in
the United States.
If because of such activity a nonresident alien is considered as
not engaged in trade or business he becomes subject to withholding tax
on his gross rents. Since the consequent tax could exceed his net income, the taxation on a gross basis of income from real property should
not be continued where taxation on a net basis at graduated U. S. rates
would be more appropriate.
Therefore, a nonresident alien or foreign corporation should be
given an election to compute their income from real property (including
income from minerals and other natural resources) on a net income basis
and at regular U. S. rates as if they were engaged in trade or business
in the United States. Such an election is comparable to the one now
appearing in many treaties to which the United states is a party. Such
an election would not effect the method of taxation applied to his other
income.
3. Capital Gains.--Eliminate the prov~s~on taxing
capital gains realized by a nonresident alien when he
is physically present in the United states, and extend
from 90 to 183 days the period of presence in the United
States during the year which makes nonresident aliens
taxable on all their capital gains.
The underlying policy of U. S. taxation of nonresident alien individuals has been to exempt capital gains realized from sources in this
country. This policy has been proper both from a tax policy standpoint
and from the viewpoint of our balance of payments. However, existing
law has two limitations: U. S. capital gains realized by a nonresident
alien while he is physically present in the United states, or realized
during a year in which he is present in the U. S. for 90 days or more,
are subject to a U. S. tax of 30 percent.
The limitations now contained in our law, especially the physical
presence test, contain illogical elements and are likely to have a negative impact on foreigners who are weighing the advantages and disadvantages of investing in the United States. The physical presence test was
added to the law after World War II when many nonresident alien traders
were frequently present in this country. Since this is no longer true,
- 7 and moreover, since the tax may
the property outside the United
purpose. However, it does pose
may deter him from investing in
eliminated.
be readily avoided by passing title to
States, the provision now serves little
a threat to the foreign investor which
this country and therefore should be
The limitation relating to presence in the United States for 90
days or more in a particular year should be retained, but the period
should be lengthened to 183 days. This extension will remove a minor
deterrent to travel in the United States and help mitigate the harsh
consequences which may arise under the existing rule if a nonresident
alien realized capital gains at the beginning of a taxable year during
which he later spends 90 days or more in the United States.
4. Personal Holding Company and "Second Dividend"
Taxes.--(a) Exempt foreign corporations owned entirely
by nonresident alien individuals, whether or not doing
business in the United States, from the personal holding company tax; (b) modify the application of the
"second dividend tax" of section 861 (a) (2) (B) so
that it only applies to the dividends of foreign corporations dOing business in the United States which
have over 80 percent U. S. source income.
Under present law any foreign corporation with U. S. investment income, whether or not doing business here, may be a personal holding company unless it is owned entirely by nonresident aliens, and unless its
gross income from U. S. sources is less than 50 percent of its gross
income from all sources.
The personal holding company tax should not apply to foreign corporations owned entirely by nonresident aliens. The onl;y reason for
applying our personal holding company tax to foreign corporations owned
by nonresident aliens has been to prevent the accumulation of income in
holding companies organized to avoid the graduated rates. '\-1i th the
elimination of graduated rates as suggested in recommendation 1 (and the
revision of the second dividend tax, discussed belOW), U. S. investment
income in the hands of foreign corporations will have borne the U. S.
taxes properly applicable to it and accumulation of such income will not
result in the avoidance of U. S. taxes imposed on the company's shareholders. Hence, there is no longer any reason to continue to applJ the
personal holding company tax to these corporations.
- 8 With respect to the "second dividend tax," section 061 (a) (2) (B)
now provides that if a corporation derives 50 percent or more of its
gross income for the preceding 3-year period from the United states, its
dividends shall be treated as U. S. source income to the extent the
dividends are attributable to income from the United States. As a result such dividends are subject to U. S. tax when received by a nonresident alien. This tax is often referred to as the "second dividend tax."
However, under section 1441 (c) (1) a foreign corporation is not required to withhold tax on its dividends unless it is engaged in business
in the United States and, in addition, more than 85 percent of its gross
income is derived from U. S. sources.
It is now proposed to levy this second dividend tax only where the
foreign corporation does business in the United States, and 80 percent
or more of its gross income (other than dividends and capital gains on
stock) is derived from U. S. sources. Where a foreign corporation is
not doing business in the United States, it will pay U. S. withholding
taxes on all investment income and other fixed or determinable gains and
profits derived from the United States, and since that is all the tax
its foreign shareholders would owe if they received the income directly,
no second tax seems warranted.
With the adoption of the rule that the income from the U. S. stock
investments of foreign corporations doing business here be taxed at
flat statutory or treaty withholding rates, no further U. S. tax should
be imposed on such income. Therefore, in applying the proposed 00 percent test, such income of the foreign corporation, whether from U. S. or
foreign sources, should be disregarded and the test applied only to the
corporation's other income. Furthermore, if the Co percent rule is met,
the dividends of such corporations should be subject to tax only to the
extent that such dividends are from U. S. source income other than income from stock investments in the United States.
vii thholding requirements should confonn to the incidence of tax,
and therefore withholdlng should be required on dividends paid by foreign corporations doing business in the United states with 00 percent or
more U. S. source income to the extent such dividends are from U. S.
source income other than income from stock investments in the United
States.
ltli th the adoption of the reV1.SlOnS proposed in U. S. system of taxing nonresident aliens and foreign corporations, the regulations dealing
with the accumulated earnings tax will be revised to eliminate the application of this tax to foreign corporations not doing business in the
United States which are owned entirely by nonresident aliens. The accumulation of earnings by such corporations will not result in the
- 9 avoidance of U. S. taxes. However, because of possible avoidance of
the revised second dividend tax, the accumulated earnings tax will remain applicable to foreign corporations doing business here.
5. Estate Tax and Helated Matters.--(a) Increase
the $2,000 exemption from tax to $30,000 and substitute
for regular U. S. estate tux rates a 5-10-15 percent
rate schedule; (b) provide that bonds issued by domestic
corporations or goveTIlIllental tuli ts and held by nonresident aliens are property within the United States and
therefore are subject to estate tax; and (c) provide
that transfers of intangible property by a nonresident
alien engaged in business in the United States are not
subject to gift tax.
It is generally believed that high estate taxes on foreign investors
are one of the most important deterre~ts in our tax laws to foreign investment in the United States. OUr rates in many cases are higher than
those of other countries and in these situations, despite tax conventions
and statutory foreign estate tax credits, nonresidents who invest in the
United States suffer an estate tax burden. Moreover, under present law
a nonresident alien's estate must pay heavier estate taxes on its U. S.
assets than would the estate of a United States citizen owning the same
assets.
To mitigate this deterrent to investment and to rationalize the
estate tax treatment of nonresident aliens, the exemption for estates of
nonresident alien decedents should be increased from $2,000 to $30,000
and such estates should be subject to tax at the following rates:
If the taxable estate is:
The tax shall be:
Not over $100,000
Over $100,000 but not over
$750,000
Over $750,000
5% of the taxable estate
$5,000, plus lCP/o of excess over
$100,000
$70,000, plus 15~ of excess over
$750,000
The increase in exemption and reduced rates will bring U. S. effective estate tax rates on nonresident aliens to a level somewhat higher
than those imposed upon resident estates in Switzerland, Gennany) France)
and the Netherlands, for example, but substantially below those imposed
on resident estates in the United Kingdom, Canada, and Italy. Thus U. S.
- 10 investment from these latter countries bears no higher estate tax than
local investment because of foreign tax credits or exemptions provided
in such countries. The proposed tax treatment of the U. S. estates of
nonresident aliens is similar to the treatment accorded the estates of
nonresidents by Canada, whose rates on the estates of its citizens are
comparable to our own. Where additional reductions are justified these
may be made by treaty.
These changes should result in more appropriate estate tax treatment of nonresident aliens and thereby improve the climate for foreign
investment in the U. S. Particularly in the case of nonresident alien
decedents who have only a small amount of U. S. property in their estates, present U. S. rates and the limited exemption provided result in
an excessive effective rate of estate tax. The proposed changes correct
this situation. The new rates will produce for nonresident aliens' estates an effective rate of tax on U. S. assets which in many cases is
comparable to that applicable to U. S. citizens who may avail themselves
of the $60,000 exemption and marital deduction (which are not available
to nonresident aliens).
The following figures show the effective rates for nonresident
aliens under present law, and the effective rates produced by the proposed exemption and rates as compared to those applicable to the estates
of U. S. citizens electing and not electing the marital deduction:
U. S. gross
estate
$
60,000
100,000
500,000
1,000,000
5,000,000
Nonresident
alien under
present law
12.5
17-3
25.8
38.8
43.0
Nonresident
alien under
proposed law
2.0
3.0
7.4
8.8
12.6
U. S. citizen
U. S. citizen
with
marital
deduction
without
marital
deduction
8.0
11.1
16.9
3.0
22.1
26.7
42.3
As part of this reV1Slon of the estate tax, the situs rule with
respect to bonds should be changed. The present rule, very frequently
modified by treaty, is that bonds have situs where they are physically
- 11 located. This rule is illogical, permits tax avoidance, and is not a
suitable way to determine whether bonds are subject to an estate tax as
their location is one of their least significant characteristics for tax
purposes. Other intangible debt obligations are presently treated as
property within the United States if issued by or enforceable against a
domestic corporation or resident of the United States. Accordingly, it
is recommended that our law be amended to provide that bonds issued by
domestic corporations or domestic governmental units and held by nonresident aliens are property within the United States and therefore subject to estate tax.
Furthermore, a present defect in the operation of the credit against
the estate tax for state death taxes in the case of nonresident aliens
should be corrected. Under present law the estate of a nonresident alien
may receive the full credit permitted by section 2011 even though only
a portion of' the property subj ect to federal tax was taxed by a state.
The amount of credit permitted by section 2011 in the case of nonresident
aliens should be limited to that portion of the credit allowed the estate
which is allocable to property taxed by both the state and the federal
government.
Our gift tax law as it applies to nonresident aliens should be revised. Under present law a nonresident alien doing business in the
United States is subject to gift tax on transfers of U. S. intangible
property. This rule has little significance from the standpoint of revenue and tax eqUity. Therefore, our law should be amended to provide
that transfers of intangible property by a nonresident alien, whether or
not engaged in business in the United States, are not subject to gift
tax. Gifts of tangibles situated in the U. S. which are owned by nonresident aliens will continue to be subject to U. S. gift taxes.
6. Expatriate American Citizens.--Subject the
U. S. source income of expatriate citizens of the United
states to income tax at regular U. S. rates and their
U. S. estates to estate tax at regular U. S. rates,
where they surrendered their U. S. citizenship within
10 years preceding the taxable year in question unless
the surrender was not tax motivated.
As a result of the proposed elimination of graduated rates, taken
together with the proposed change in our estate tax as it applies to
nonresident aliens, an American citizen who gives up his citizenship
and moves to a foreign country would be able to very substantially reduce
his U. S. estate and income tax liabilities.
- 12 \";hile it may be doubted that there are many U. S. citizens who
would be willing to give up their U. S. citizenship no matter how substantial the tax incentive, a tax incentive so great might lead some
Americans to surrender their citizenship for the ultimate benefit of
their families. Thus, it seems desirable, if progressive rates are
eliminated for nonresident aliens and our estate tax on the estates of
nonresident aliens is significantly reduced, that steps be taken to limit
the tax advantages of alienage for our citizens.
The recommended legislation accomplishes this by providing that a
nonresident alien who surrendered his U. S. citizenship within the preceding 10 years shall remain subject to tax at regular U. S. rates on
all income derived from U. S. sources. A similar rule would apply for
estate tax purposes to the U. S. estates of expatriate citizens of the
United States. Thus, the U. S. property owned b;y expatriates would be
taxed at the estate tax rates applicable to our citizens (but without
the $60,000 exemption, marital deduction and other such provisions applicable to our citizens), in cases where the alien decedent's surrender of
citizenship took place less than 10 years before the day of his death.
The ip30,000 exemption granted nonresident aliens would be allowed to expatriate citizens.
To prevent an expatriate from avoiding regular U. S. rates on his
U. S. income by transferring his U. S. property to a foreign corporation,
or disposing of it overseas, the recommended legislation treats profits
from the sale or exchange of U. S. property by an expatriate as being
U. S. source income. To preclude the use of a foreign corporation by
an expatriate to hold his U. S. property and thus avoid U. S. estate taxes
at regular U. S. rates, an expatriate is treated as owning his pro rata
share of the U. S. property held by any foreign corporation in which he
alone owns a 10 percent interest and which he, together with related
parties, controls. Furthermore, the recommended legislation makes gifts
b~ expatriates of intangibles situated in the U. S. subject to gift tax.
These provisions would be applicable only to expatriates who surrendered their citizenship after March 8, 1965, and would not apply i f
contravened b::, the provisions of a tax convention with a foreign country.
110reover, the;y would not be applicable if the expatriate can establish
that the avoidance of U. S. tax vas not a prinCipal reason for his
surrender of ci0izenship.
7· i\etaining Treat;;.: BarGaining Position. --Provide
that the President be given authoritJ to eliminate with
respect to a particular foreign countrj any liberalizing
ci1anGes vhich have been enacted, if he finds that tne
cOW1trJ concerned has not acted to pro';ide reciprocal
concessions for our c~tizens after being requested to
do so b J the United States.
- 13 One difficulty which may arise from the liberalizing changes being
proposed in U. S. tax law is that it may place the United States at a
disadvantage in negotiating concessions for Americans abroad as respects
foreign tax laws. Moreover, the failure to obtain concessions abroad
may have an effect upon our revenues since the foreign income and estate
tax credits we grant our citizens mean that the United States bears a
large share of the burden of foreign taxation of U. S. citizens. To
protect the bargaining power of the United states the President should
therefore be authorized to reapply present law to the residents of any
foreign country which he finds has not acted (when requested by the
United states to do so, as in treaty negotiations) to provide for our
citizens as respects their United States income or estates substantially
the same benefits as those enjoyed by its citizens as a result of the
proposed legislative changes. The provisions reapplied would be limited
to the area or areas where our citizens were disadvantaged. Furthermore, the provisions reapplied could be partly mitigated, if that were
desirable, by treaty with the other country.
,. .
It is essential, if we are to revise our system of taxing nonresident aliens as is being suggested, that this recommendation be adopted.
Otherwise, we risk sacrificing the interests of our citizens subject to
tax abroad and reducing our revenues in an effort to simplify the taxes
imposed upon nonresident aliens.
8. 9-larterly Payment of 'vii thheld Taxes. --Provide
that withholding agents collecting taxes from amounts
paid to nonresident aliens be required to remit such
taxes on a quarterly basis.
Under the present system, withholding agents are required to remit
taxes withheld on aliens during any calendar year on or before March 15
after the close of such year. This procedure varies considerably from
that applicable to domestic income tax withheld from wages and employee
and employer F.I.e.A. taxes, where quarterly (in some cases monthly)
payments are required.
~ithholding on income derived by nonresident aliens should be
brought more closely into line with the domestic income tax system.
There is no reason to permit withholding agents to keep nonresident
aliens' taxes for periods which may exceed a full year before being required to remit those taxes, when employers must remit taxes withheld
on domestic wages at least quarterly. The Government loses the use of
the revenue, which revenue in 1962 exceeded $80 million, for the entire
year. Accordingly, section 1461 requiring the return and payment of
taxes withheld on aliens by March 15 ShOULd oe revised to eliminate this
- 14 specific requirement. The Secretary or his delegate would then exercise
the general authority ~ranted him under sections 6011 and 6071 and require
withholding agents to return and remit taxes withheld on income derived
by nonresident aliens quarterly. However, no detailed quarterly return
would be required.
9.
Exemption for Bank Deposits.--Under present law, an exemption
from income taxes, withholding, and estate taxes is provided for bank
deposits of nonresident alien individuals not dOing business in the
United States. By administrative interpretation, deposits in some savings and loan associations are treated as bank deposits for purposes of
these exemptions, but such exemptions do not apply to most savings and
loan associations. There does not appear to be any justification for
this distinction between types of savings and loan associations and it
should be eliminated by extending these exemptions to all such associations.
10.
Foreign Tax Credit--Similar Credit Requirement.--Section 901
(b) (3) provides that resident aliens are entitled to a foreign tax credit
only if their native countr;y allows a similar credit to our citizens
residing in that country. Apparently the provision is designed to encourage foreign countries to grant similar credits to our citizens. However, this requirement works a hardship on refugees from totalitarian
governments. For example, the Castro government is not concerned with
whether Cubans in this country receive a foreign tax credit. Therefore,
it is recommended that the similar credit requirement of section 901 (b)
(3) be eliminated, subject to reinstatement by the President where the
foreign country, upon request, refuses to provide a similar credit for
U. S. citizens. Of course, no request would ordinarily be made in a case,
such as Cuba, where the possible reinstatement of the present reciprocity
requirement would have little or no effect upon the foreign government's
policy toward U. S. citizens.
11. Stamp Taxes on Original Issuances and Transfers of Foreign
Stocks and Bonds in the United States to Foreign Purchasers.--OUr stamp
tax on certificates of indebtedness is imposed on issuances and transfers
within the territorial jurisdiction of the United States. The stamp
tax on issuances of stock does not apply to stock issued by a foreign
corporation, but the transfer tax applies to transfers in the United
States. These taxes have forced U. S. underwriters who handle issuances
of foreign bonds and stocks and their original distribution to foreign
purchasers to handle closings overseas. In view of the limited association of such issuances and transfers with the United States and the fact
- 15 that these taxes are ordinarily avoided by moving the transactions outside the United states, our law should be revised to exempt original
offerings of foreign issuers to foreign purchasers from our stamp taxes
~here only the issuances and transfers take place in the United States.
Such an exemption would facilitate such transactions and their handling
by U. S. underwriters and is consistent with our balance of payments
objectives.
12. Withholding Taxes on SaVings Bond Interest.--The Ryukyu Islands, the principal island of which is Okinawa, and the Trust Territory of the Pacific, principally the Caroline, Marshall and Mariana
Islands, although under the protection and control of the United States,
are technically foreign territory. Thus, the islanders are nonresident
aliens and subject to a 30 percent withholding tax on interest on United
States savings bonds. This interferes with the selling of U. S. savings
bonds. Therefore, the 30 percent withholding tax as it applies to the
interest income realized from U. S. savings bonds by native residents of
these islands should be eliminated.
In addition to the changes discussed above, the proposed legislation
makes a number of clarifying and conforming changes to present law.
March
e, 1965
TREASURY DEPARTMENT
RELEASE A.M. NEWSPAPERS,
~aYI March 9, 1965.
t
March 8, 1965
RESULTS OF TREASURY'S HEEKLY BILL OFFERING
Tre Treasury Department announced last evening that the tenders for two series of
~asury bills, one series to be an additional issue of the bills dated December 10, 1964,
j
the other series to be dated I1arch 11, 1965, which were offered on March 3, were opened
the Federal Reserve Banks on March 8. Tenders were invited for $1,200,000,000, or
ereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of 182-day bills.
e details of the two series are as follows:
182-day Treasury bills
maturing September 9, 1965
Approx. Equiv.
Price
Annual Rate
High
97 .. 984
3.988%
Low
4.009%
97.973
Average
4.001% 1./
97.977
70 percent of the amount of 91-day bills bid for at the low price was accepted
85 percent of the ~~ount of 182-day bills bid for at the low price was accepted
NGE OF
ACCEPTED
MPETITIVE BI DS :
91-day Treasury bills
maturing June 10, 1965
Approx. Equiv.
Annual Rate
Price
99.006
3.932%
99.000
3.956%
99.002
3.948%
Y
lTAL 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
;;; 27,049,000
1,519,13 0 ,000
27,762,000
30,007,000
17,149,000
42,721,000
277,318,000
35,688,000
25,895,000
31,240,000
30,246,000
87,050,000
$2,151,255,000
Accepted
$ 16,694,000
764,030,000
15,762,000
30,007,000
13,799,000
36,785,000
169,818,000
29,028,000
20,495,000
29,740,000
20,246,000
54,lS0,000
$1,200,554,000
!I
Applied For
$
29,169,000
1,380,961,000
11,185,000
63,809,000
5,035,000
24,799,000
240,683,000
13,422,000
11,857,000
15,426,000
11,008,000
72 Z620,2000
$1,879,974,000
AcceEted
$
4,169,000
786,461,000
3,185,000
28,945,000
5,010,000
23,049,000
60,48),000
10,922,000
9,357,000
14,926,000
6,008,000
47,2620,000
$1,000,135,000
((InClUdes $255,659,000 noncompetitive tenders accepted at the average price of 99.002
mcludes $99,321,000 noncompetitive tenders accepted at the average price of 97.977
( ~ a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 4.04J~, for the 91-day bills, and 4.14%, 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 ccmputed in tems
?f interest on the amount invested, and relate the number of days remaining in an
~terest payment period to the actual number of days in the period, with semiannual
compounding if more than one coupon period is involved.
sI
:::-
_
.
I. -
.
=-:-..
--~
,-
....
-~
... •
--
__
- -,-.
__ --.:. C:-..
~
, ....... ...J
. ...
~.--..:....
~
- ::'.:, ~:.:-.c..~
'-'
-=-::~; ,- ,->e-~I"; 7::.rct:.gh.hbruary
..: '..-~=-:
~
:-.c:'
~.~2.2~~:':~:":~i 2.~~
28, 19&.
to
t~~~~,
,
- : . , .. _ c . , - , c -. .J
...... --.._._L_
C'
.
.....,::::~=-0S
.... -.:...1)';>
~,~
:: G:.
i
l..-- ...
,",-;C:,1
I
.-1--7.1.,.-.., • • • • • • • • • • 1
-
··ll
5,003
4,992
.2,
29,424
29,521
97
.3
400
381
19
1952 •••••••••••• !
4.1"
!=.======~====================~====
9L...!...J...
I .,
S~~cs J ~. t K -
t;~~:~r;1.~
~V ..
:-=:2. ../.1') /
t",;...;
-
..,
c .-'2
..!..~;>
••••••••• t
II
..oJ •
l5)~l .••••••.•••••••..•••••
:9L3 ••••••••••••••••••••••
1,842
8,136
13,094
• • • • • • • • • • • • • • • • • • • • ft
15,266
., c;' ,?
oJo-/
'--r-'- • • • • • • • • • • • • • • • • • • • • • •
lS:~2: v
") c;', .-'
-/~)
j
I
•••••••••••••••••••••• I 11,959
19h6 ••••••••••••••••••••••
5,383
5,079
5,238
5,158
4,502
3,898
4,083
4,648
4,726
4,908
4,689
4,407
4,266
3,992
3,978
3,993
3,844
4,258
3,998
20
510
I
19L7 ••••••••••••••••••••••
~943 ••••••••••••••••••••••
19~9 •.•••••••.••••••••••••
1950 ••••••••••••••••••••••
-~7"'5 1- ••••••••••••••••••• a • •
1552 ••••••••••••••••••••••
1953 ••••••••••••••••••••••
") c,.-'I
~/~~
................•.....
1955 ••••••••••••••••••••••
1956 ••••••••••••••••••••••
1 c,.-'7
~~
t
.....•.•••..•••••••••. !I
1953 ••••••••••••••••••••••
19~9 ••••••••••••••••••••••
I
I
1960 •••••••••••••••••••• ~. \
1
q /"1 •••••••••••• v • • • • • • • • •
-/o~
1902 •••••••••••••••••••••• '
1963 ••••••••••••••••••••••
1964 ••••••••••••••••••••.••
1965 ••••••••••••••••••••••
r
Dncl~ssified •••••••••••••••••••
(1952 - Jan. 1957) 1/ ...
H (Feb. 1957 - 1965) ••••••
v~~ies H
i 3,670
!
6,627
10,297
70tal Series H••••••••••••••••• i
I
Total Series E ~~d H •••••••••••
517
266
1,151
1,823
2,264
2,016
1,ll8
1,227
1,367
1,429
1,320
1,148
1,249
1,551
1,717
1,948
1,852
1,806
1,885
1,812
1,928
2,ll6
2,l42
2,677
3,042
20
-7
95,008
1,654
963
2,616
14.~
14.~
13.9:
14.8:
16.&
20.7',
24.11
26.1C
27.7C
29.3~
29.1C
30SS
33.31
36.33
39.69'
39.$0
40.98,
!,4.19
45.39
48.47,
52.99
55.72
62.87
76.09
100.00
•
85.47
74.59
l ________~----__- - - - - -
I 146,171
i
Se~ics J and K (1953 - 1957) •••••
1,576
6,985
1l,271
13,001
9,942
4,265
3,852
3,871.
3,729
3,182
2,750
2,834
3,097
3,009
2,960
2,837
2,601
2,381
2,180
2,051
1,878
1,701
1,581
956
97,624
48,547
33.21
bI 1,334
Il======~======~=~====~=====
3,324
1,990
40.13
I========~========~~====~====~=======
34,924
149,495
184,419
=;-j'- ~-"~"S "'CC~"'O!''';
_,
-;; /
~
~.)
••
_~....,
_ _ _ \.. ... ("..;
~
..
1.-4\.:;:; .......
.". -:. o?7,io:: of
134,411
127
49,881
50,008
.36
33.37 .
27.12
"'';cco,o",-'v......LlJ.
\"-""'u
~ .. ,,~"'- -'v
- .~ec.' '""~')'"
~ 0'".L v'., l
_ .... v ........
,-,_ .. c:.; ...
34,797
99,614
~
O'{;:":e::'
"e
~'-.
bor.ds ~.ay be helc. Z-'"lQ
Deriods
~~:1 e~:1 ~~te~est fo::, ad~tio::~
~-"-:"e;: origi~al i7l.3. ttlri ty CD.. tes.
:::~-.::l1.::::cs r;-;.J.turec bonds l:hich have
__ '~'::e:lted for rede:r:ption.
..
not b3zn
BUREAU OF 'I'l-3 PUBUC DEBT
I
i Iss1..:cc. 1/
I' -ou:~
.~'.
,"
~
.
,
f'.,.....""",'1 . . "'IJ..
..r.2':'".OU~:-C
• u
T\~ce"'''''~d
....
t;;.; •• _
t
.-_· ........
,./
_
~.v
r ~-,, :-----O,,-I.->-',"""G.i.r.,?
p)
Cu~s~~ndir.~
"".0.- 2/iO~
I
-
'-""-..,J\.I ..... ,
"'~
. ~v • Is~~.u'0'U.
r_"T.
I
i;D
~ L-1935 - D-19LJ. •••• • ••••• -1 5,003
29,521
ies F & G-19U - 1952 •••••••••
400
ies J and K - 1952 •••••••••••• I
4,992
29,424
381
11
97
19
.22
.33
4.75
1,516
' 6,985
11,271
13,001
9,942
4,265
3,852
3,871
3,729
3,182
2,750
2,834
3,097
3,009
2,960
2,837
2,601
2,381
2,180
2,051
1, 878
1,701
1,581
956
266
1,151
1,823
2,264
2,016
l,ll8
1,227
1,367
1,429
1,320
1,148
1,249
1,551
1,117
1,948
1,852
1,806
1,885
1,8l2
1,928
2,116
2,142
2,617
3,042
20
-7
14.44
14.15
13.92
14.83
16.86
20.71
24.16
26.10
27.70
29.32
29.45
30.59
33.37
36.33
39.69
39.50
40.98
la4.19
45.39
48.47
52.99
55.72
62.87
76.09
100.00
rU?3D
~y
ias
~:
1,842
8,136
13,094
19~ ••••••••••••••••••••••
15,266
1945 •••••••••••••••••••••• ll,959
1946••••••••••••••••••••••
5,383
1947 ••••••••••••••••••••••
5,019
1948 ••••••••••••••••••••••
5,238
1949 ••••••••••••••••••••••
5,158
1950 ••••••••••••••••••••••
4,502
1951 ••••••••••••••••••••••
3,898
1952 ••••••••••••••••••••••
4,083
1953 ••••••••••••••••••••••
4,648
1954••••••••••••••••••••••
4,726
1955 ••••••••••••••••••••••
4,908
1956 ••••••••••••••••••••••
4,689
4,407
1957 • • ••••• • • • • • • • • • • • • • •
1958 ••••••••••••••••••••••
4,266
3,992
1959 •••• • • • • •• • • • • • • • • • • •
19co •••••••••••••••••••• ,. , 3,978
1961 ••••••••••••••••••••••
3,993
3,844
1962 ••••••••••••••••••••••
4,258
1963 ••••••••••••••••••••••
3,998
1964 •••••••• ,. ••••••••••• *• •
20
1965 ••••••••••••••••••••••
Jncl<:..ssified •••••••••••••••••••
510
1941 ••••••••••••••••••••••
1942 ••••••••••••••••••••••
1943 ••••••••••••••••••••••
.1
-I
!
517
I
fotal Series E •••••••••••••••••
1957) }} ••• I
1957 - 1965) •••••• ,
:des H (1952 - Jan.
H (Feb.
LO"al
'
H•••••••••••••••••
w S
er~es
•
10,291
2,616
I--------~------------~------------~-----------
146,171
97,624
ries J and K (1953 - 1957) •••••
3,324
1,990
Total ~atured ••••••••
)r tn....
1 Series i.l..o"a
1 unm""~ t urec.' ••••••
Gr~~d Total ••••••••••
::;cludes accrued discount.
34,924
149,495
184,419
34,791
99,614
134,421
Total Series E and H •••••••••••
--
85.47
74.59
Cu:!'ent redemotion v-alue.
~'\"mer bonds may be held.. and
~;~ earn interest for additional periods
~ r original maturity dates •
•nCludes matured bonds which have not been
?reSented for redemption.
W
48,547
33.21
1,334
40.13
127
49,881
50,008
.36
33.37
27.12
:\ option of
BURE:AU OF ':'HZ PUBUC DEET
TREASURY DEPARTMENT
March 8, 1965
FOR IMMEDIATE RELEASE
TREASURY MARKEr TRANSACTIONS IN FEBRUARY
During February 1965, market transactions in
direct and guaranteed securities of the government
for Treasury investment and other accounts resulted
in net purchases by the Treasury Department of
~210,921,950.00
000
D-1528
TREASURY DEPARTMENT
March 8, 1965
FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN FEBRUARY
During February 1965, market transactions in
direct And guaranteed
securi~ies
of the government
for Treasury investment and other accounts resulted
in net purchases by the Treasury Department of
~210,921,950.00
000
D-1528
TREASURY DEPARTMENT
WASHINGTON.
March 8, 1965
FO? HJ·'EDL.'I'E REIE.· SE
I'RE..'..S0rtY DEC ISIm; O~: FERTILIZERS
:s.IDER :r.:-=:2: .1';I'ID;JEPING .'.cT
ri~;:;
'I'reccs.rry Dep&rtwen-;:, 2::.S completed tile .!..nvestigc.tion
w::.tn. respect
})1-:'2 s pi-:.c:. te
~.
'(,0
tY'~e.
t.c:.e
p~ss::'ble
cl-..llJping of fertilizers:
eJlllllon.!.. um n::' trate type from Cc.n8.d8. .
2.Il1Illonium
. notice of
tent:Cct,ive determim.tion tikt t:nis mercDc.ndise is not being,
r...~r ~i~ely
1:,0
be, sold
in :.. ,1 ec.rly issJe
~f
::;'1:,
..less
t~lc.n
fair
vE~Lle
will be published
tLe Federai Register .
.-_pprc:isement of tfle [co.:;ve-descri·oed :nercn.8.ndise from Canada
T:.e dol..lc.I
v2.~.;e
w~teiy $l3,vv~,C0~.
of ::'nports of ti:e involved merch:::.ndise re-
TREASURY DEPARTMENT
FOR IMMEDIATE RELEP.sE
March 8, 1965
TREASURY D~ ISION ON FERTILIZERS
UNDER THE I.NTIDUMPING /J[;T
The Treasury Department bas completed the investigation
with respect to the possible dumping of fertilizers:
phosphate type, ammonium nitrate type from Canada.
ammonium
A notice of
a tentative determination that this merchandise is not being,
nor likely to be, sold at less than fair value will be published
in an early issue of the Federal Register.
Appraisement of the above-described merchandise from Canada
is being withheld at this time.
The dollar value of imports of the involved merchandise received during the period January through October 1964 was approximately $13,000,000.
- 1d tile
;)053ib1o
farms thooo rtlles might take.
This init..i..al enforce-
Plent effort c:.used confusion cmd. some hardship and we hDve therefore
t::ken ste?S t.o (,,\;1611or<:.::te toom in Revenue P,'ocedure
64-54.
Tlle ernph:ltds "1.Lll now shift fron; rule making to implementation
oJ t.he cxistlnb rules.
be to "ssurc
tilLj
Our m;:;jor ;)roblem in
too
next few J'ears will
t these n; .Les operl:te eil'ectively and sensibly and
to improve thel:) "lherever possible by using tile knowledge gained
through en.rorcerent ex [)erience •
conpla.;:.
Sorrx; of these rules [Ire novel and
\ie recot,11ize this ,:md th<Jt as a consequence, enforcement
\11 II h:1VC to l>u l>oth understnndint; 3l1d flav.:ible.
end th::t
G1lr
It is toward tills
ef1'orts over the corning ye8rs will be concentrated.
- 17 to reduce those t2xes wilen requested to do so in tl¥:J course of
trer,tJ'
ne~ot.i.dtions.
t~x.:Jtlon
This will both
pel"Itut
initial reduction of
of fo1"o:4):1er3 m:a--tl..-fr;-cltbeMe God at t.ne same titre
preserve our
~x)wor
to protect our taxpaiers with activities or
tax~itioll
The changes in our
desi~d
not solely
of foreigwrs just described are
too lnilEove our b,llance of p<Jyments but iire
Th.e titLe had come for
desirable in <-';00 of themselves.
J
thorout;h
review 01 the <Jpplication of our t£..x. law to foreigners and to t.helr
iuvea t,w nts here.
Conclusion
In recent ye;,rs
h.3vc been
h"e
the rult,;s
:).fi.nttn"n~t.i..on(,l
incOI,.G of
Unit~d
611g.<Jgeci
t::;x(}tion'Jffect:Lng not ooli the foreign
::.;tD t,cs citizens
,1m
corporations but also the
'JnitlXl 0t.;t,es source inco.:e ,')f foreit.>ners.
I;'rt. tl¥J result 01 :, changing world 114tern:.:t.ion~t!~
freedo,,; in
'1'ills
t·~e;lc
.\ct 01 lYe;2
~1,
in tile task of revising
This revision was in large
" world of u far greater
;:;,Jpitsl woverooots and of international. trade.
of rBvis .Lon is now ne,,;rirJG COfll[)letion.
s been on<,ctcd :"nd t.he
';nforcenent
recul~tions
activitl~s
The Revenue
Uixler it will soon
under section 4tl2,
uhich u6gui to DC intensified in 196:), t~ve given us iuf'crmation as
t~
how t,:.:-:-Y'jers held, in
i'i~ct,
boon ilikling with their foreign
:::i.'.L.1L t,e.s'nd lndic"ted to us ooth the nood for clearer rules and
- 16 Pl"ooleD15 l'lay arIse during the couree
ot their preparation vh.ioh had
not rreviously been foreseen and are mt apeciLically covered by the
regula t.ions.
Ie this occurs, we hope tbllt you will bring these
questions to our attention.
:"oreicn Investment in the United States
finally, I would like to comment briefly on the draft bill
which the
Secret~y
of the Tre:Jsury sent to Congress yesterday relating
to foreibnors investing in the United States.
the report of the
so-c~llled
It is an outgrowth of
uFowler Task Force" and is intended to
remove some of the hardships and complexities in our tax law which
have in the P3st served to prevent foreigners from investing in this
country.
The r'1ajor change proposed 18 a sharp reduction in the
hitherto oxtrerooly iligh estate tax payable by foreigners on their
United st;:;tes assets -- a tax which is At present higher than that
payable by United
st~tes
citizens owning a comparable estate.
In
3ddition, the drrift bill would eliminate unnacessory complexities
in the t2xQtion of foreigners' United States source income.
provisions in current law
r~lise
Thess
very little revenue for the United
Stntes ::lnd detar investment by fareigners.
~Jc
have :::lso included in the draft bill a IX'ovision which would
permit the ?resident to reimpose higher taxes if he finds that foreign
countries in the situbtiona covered by the bill are imposing burdensome
taxes on United States investors within their borders and rel'using
- is tldv:..nL;"~05
ilhlcu the guidelines will provide in elimi.nat.iu& COIl-
l'usion
del...-y.
I
~nd
u~ht
l:,mtion tU<:It t116se guiOOliDes will not dSCil w..i.t.ll the
,Iroblszu ;.,risint; urxler secti.on 3';';1 of the deiinit,.ion of the ward
"iJrovertyll.
I'lhile lie recoi;;nizo that the dei'luition of this
ter1tl
has given rise to probloms where tranal'(;Irs of know-bow to foreign
corporntions c:l"O ;::;t
l.'iSlle J
it is not truly:... section
367 problem
"Ind will therofore not be covered in this rUling.
Regul<.l tiona under tl:.e Revenw Act of 1962
Another areL of concern to you on which we ::.re current ly
workine 1s lX'OlflUlt;::>tion of regulations under the 1962 Revenue Act.
vlit.h
fGW
311 of
eJ.:ceptions rebUi<1tiollO have .:.lre;:,d,t been published Wlder
too
sections of ':>'ubpart 1-' of
Act. which fk.lsses cert:.dn t.11)66 of
t.l~
Act - the portion of t.ile
1nCOffi6
received boY
,,1
corporA,lon through to its United Dt,ates stockholders.
tha t., reguL.tlons under the
end
01' 't.1e 1iQllth,
express ;-'i!/;;in
reM;iu~
JtJlr,t' r~te
or
U~-,)preclat":"on
til)
~
~nticipate
1 would l..ike to
Dep",rt.umt tor t.Uo
t£xp~i,yers
in prOlllUlbating
llope z:.s 'WfJ 1.le;~r the end of t.he tJsk t.b.1t we
will continue to receive j'our help.
returns which ;Y'Ou
is.
l're<.;~uri
cooper2tion 'WW.ch :it naa received Jro!.T.
tllrlse ret;-ul::.tions.
We
sections will be iGsued by t.he
before AiJril
of t.brJ
forei&n
\Je
o;lso realh.e t.hat the
t~
currently preparing <:ire, in m<:lny instances,
the first whicn truly involve too
~pplic2tion
of Subpart 1<"'.
Per~p8
- 14 Section 367 Guidelines
We 3re
'J150
working on guidelines governing the application
of section 367 of the Code, tl-.3 section which requires trior Tre f1 sury
pprov81 far tax-free incorporations
forel&n corpor.:.!t lons.
~nd
reorgrulizations involving
1Je recognize that the :lpplication of section
)67 in the past has caused taxpayers some difficulty.
This has been
in p3rt the result of too lack of published guide lim 5 in the area.
The Service h2S, of course, developed rules to be used in reaching
its decisions on section 367
not been published.
rul~
applications, but these have
As a result, taxpayers have frequently learned
of them either by heres<Jy or when applicittion of these rules led to
:J
denial of their section )67 application.
Consequently" there has
baen considerable confusion in this area which has made tax planning
difficult and delayed conawnmation of international tranaact.iolls.
The guidelines are intendBd to solve this problem by setting
forth specific rules fat' passing upon section 367 applications.
They
will therefore have the effect of substituting objective criteria
for detarminiJ:lg whether a ruling is to be i8sued .for
criterion presently in use.
t~
SUbJecti va
We believe that tb.7se ,tropoBed rules
will be generous and will not interfere with international tran8Bctiona
which do not involve ta.x: avoidance.
H0wever, the guidltline8 ruy
possibly result in some loss of flexibility.
th~t
On balance we believe
this possible loss of .flexibility is far outweighed by the
- 13 T~~ Treatiee and Section
482
Heanwhile we ~re continuing to work toward develo~t of an
inter1l3tional mechanism for handling cases involving inconsistent
deterlilinotions by tw:> govermoonts as to the proper allocation of
income.
In our most recently negotiated bilateral tax treaties,
we dre expanding the scope of the relevant ,trovision to eliminate
procedurnl
b~llTiers
to implement .any agreement that is reached
between the two governments.
I do not think we can expect miracle.
in this nreD - the system for handling such controversie8 will only
'-.'ork if both countries involved recognize the seriousness of the
problem :md
,'ire
edger to \vork for its solution.
On our side, we
ore tdking ste ps to irnprove our handling of such controversies.
We
CXi)Cct to publish rules indicating how a taxp:'1)'Cr may bring relevant
C<1ses to the c1ttention of the Intern;-;l Revenue Service and how such
requests for Goverrurent intervention will be h<.:ndled.
However, the
ultiJilate success of tins program will in part depend on the attitude
of other nations.
I'ie have reason to believe that as restrictions on
the free movemont of copit;Jl iliiposed by foreign countries diminish,
thc)se countries become fi:.lced by 'problems
SimiL3I'
to those with which
this country has had to deCil in the last ten .:{ears, including
vrobler.lS of the type covered by section 482.
We believe that as
these countries ,-.re forced to develop rules to protect their revenues,
they will be interested in developing intern:-\tional methods of
el i.rr.in3ting or settLing conflicts ;:lr ising from inconsistent application
- 12 ~nd
determine wbatbar under ,.11 the f;1cta and circuID5tances
If
-; :)Ijlication to the ye":irs prior to 1965 would be equitable.
not, B;l6cinl interim rules will be
Another
p:~rt
promulg~-jted.
of the section 482 ;roblem concerns "ropntriation"
By repatri3tion, I mean the right
of the ,::nlO1.L.'lt cllocated.
toxpnyer to receive
0
ot the
distribution from its f"oreign attilitlte in an
;)I1'lOunt equ;11 to the section 482 ,illocBtion without hnvinG to PJy
tax on ouch d1str:ibution.
tt:lxpa:rers to 00 this.
review
:::;nd
A few rulinbs haw been iawed allold.ni
Hovever, the rroblem is nov undergoing thoroUgh
rulings have been mid up pending ita cOlllPletion, which
is expected this month.
An announcolOOnt o! our policies in this
are'l will be issued at about the same time :)s our f"irst group of
section 4132 regul::tions.
take the forn of
1:1
It seems likel,y that this announcOl'lmlt will
technic a 1 information release by ttm Internal
Revenue SerVice.
Inlddition to our coneider;;;tion of whether repatriation should
be 311o\led, we
21"0 1'1180
considerine subsidiary questions which Will
Arise i f repatriDtion should be allowed.
Some trocpaj'ers have critici.2.ed
the rulings which hnve baen issued because they required repatriation
withln
~,
short p;riod of time :.::fter the date of tba ruling.
other
taxpayers h:ve sU&:,-'ested that dividoma paid in the yep.r of the
311ocation should be tro;Jted as repatriated
so desires.
311lOunts
if the
fie are loob.llG into both of these suggeationa.
taxpa~
- 11 c:rr/ out iIltorcOI'\l),rlJ tr'1ns"ctious without fa;.r of
, udl t .
.f;-Jith efforts t,o i;iCot the
c:;t.::;:~rience
1"eguh~ory
st:;llCi;lrds will be respected.
h'.'s indic:,tod th.:lt most
t.Y~~cs
:.,:)2 eonccu'n four
on
,re 00 t tr ying to co llee t sril.'J 11 nITOunt s :md bood
,\';" in, i;:D
I}ur
;ldJust~nt
of
::-llocc~t.ion:
CdJeS
involving section
.interest, Lene1" u1 and
,drnlnistr::ti vo 8Xixmses, use of intt'nt,;ibles" and intercOmpiJllY pricing.
th,~t
the 18 ttcr two problems are
,r'urtller, our
0.;<1 Jt'll"
ience shows
rel-ted; thL:
HOst
seriouB disputes over price
'~re
involved.
jet
where intangibles
[resent t:.i.r:13, we 2re neorint.; completion of
ti~
reGl1L t.ions do:; Line \lith the proper :oothod of
,dninistr'
~lrise
t~.ve e>~penses ~illd
,:J lloc[;t1n6
interest ::;lloc.:tions.
These regulr!tiDns
1"0 ex:pected to De :.)ublished by the end or this month.
He '1"0
not
~,3
general am
Uni'ortun.1te 1y I
f?x ;:long 'is resfX3cts the provisions on intercompany
;il"icinG :,nd the use of intanJib los, but wo do not Wish to delny
thoso ro",'uLtions on \;hich consider:'tion
1.Jnt;;Gr.
lJo
110\1
hope
th~t
h':3
been completed ilny
reguV;tions on lricing ,';nd the use
ot
iut':ncible :.Jro;crty will be rO;idy by the end of }!"'y.
~ic 11;,\'0
not Jot deterl!1inoo the extent to which these new rule!
1.1i11- ':-:)1:,,' k') :!c~rs ;')r.i01" to 1965.
Of course, t3xpa;yers will be
lJ.o:>iQd to invokethcso rules if thE:y wish to do so.
ll.Jnd,·;)i)Lic~tiol1
,)rior to 1965
{il~\.!
On tt£l
otmr
in certain cireumst:)nces work
hardship if the rulc::;:,ro less i':.vor£101e to t.:XIJc'!yers than fre-existinJ
l;w \'l,; S
thQut,ht to be.
He -.r111 review ouch reb'1llatlon as it c.ppe.1rs
- 10 -
in
too
spirit of the Revenue Procedure or, i i a particular I&"Oblem
of general interest should develop, tlrough
revenue ruling or
&
siroibr ;JrulOUllcorrent..
One p.':.rticular question wbicn bas been raised deserves cormnent.
It has been suggested the t the Revenue Procedure uppliss only to
section 482
CBBOB
will not <>pply i f t.be saDla issue is raised under
[lm
o41ar sections of t.be Code, tor example section 61.
you that this is oot
I can a.sure
'1'he RevElllue Procedure is to have
t..ll;} C"'S6.
broi;·d applic:', tion dud covers any case to which aection 482 .is
~operly
'::P?licaole even though
t,b;}
deficiellCY is or was asserted
tUXler some other section of tbe law.
Revenue Procedure
decid~
those
64-~,
however, <bes DOt set forth rules far
the cases whiCLl remtlin under section 432.
C~jses
Thus, even in
wrere <!n ofi'set is to be allowed, the amount of tb8
deficienci rew1ins to be determined.
'Working on sect ion L.u 2
re~ula tions.
A;:;;
~ou
know, wo biJve been
It is DOt e OlSI, bowever, or
"llw3YS possible to draft detailed guidelines.
Each rule muat be
'ipplic;Jble in .: ; \-dde variety of clrcUlll8tancea and let not work injustice oithor to the taxpcyer or to trJJ GoverIlll8nt.
III
~paring
those rules, we have had discussions with people outside Treasury
~;nd
tJey
ll~'VC
rendered us v.;luable :;!s.5istance.
We exfSCt, that these
rules will furnish toxp2.ferS with sufficient guidc:nce to enable
those who l'ollmi tia:: princi;Jles set fcrth in tile re.,rulations to
- 9 I-Iestern Hemisphere Trride Cor t 1Orations is still under consideration.
To cease to LTosecute cases involvin5 Western Hemisphere Trade Corporations WQuld, however, not hJve tile
c){
ei~ect
of deferring ta3 realiz8tion
income but r::o t.her would permanently reduce the rate of tax on
that income from
52 percent to 38 percent. Consequently, such CDses
8re not comp;lrable to those to which the Revenue Procedure applied.
Dlloc~ltion
CClses involving
between domestic oorporations and their
domestic 1ffilhtes with foreign operations were considered few in
number.
e~ch
Since
c;:oo prob.:Jbly involved a BOfflwhat unique set of
circumst.':nces -- in the usual instance, allocation of income from
one fully tr1xable United St2tes comp;my to <:.nothor produces no revenue
effect -- it
WI1S
considered desirable to treat them individually.!
Upon pubUcntion of Revenue Procedure 64-5h, the Internal
J.evenue Service bee;an prep(lring bl1.lidelines to be uBed by agents In
applying it.
BecCluse
too Revenue Procedure's concepts were new, it
wile felt desit"3ble to temporarily suspend Bction on cases
to which
it would Rpply until it was certain that it was unders'tood by agents
in the field.
This educ;ltion8l process has been completed, and
processing of pre-1963 section 482 cases is now being reeurned.
With
the help of the ltevenue Procedure, it is hoped that settlement of
these cases
c~n
be
~rrived ~t
quickly.
We recognize that as the
:tevenue Procedure is cipplied in the field unforeseen problsm8 and
situations mr,y ",rise.
\-Je hope thClt tlEse can be dealt with individually
- d Unfortunately, in years
section 482 311ocp.tion should be nwde.
prior to 1963 tMro appear to be cases in \lhich no real effort was
Hade by too t<.xp<:yer to find the correct rrice.
Goods were sold
iot cost or less thnn cost \-lith <.lll of tl"¥:l .crofit being allocated
Under section 452, this hioiS not been
to t.he foreign subsidi::lry.
(md ,In {) llocation is required .
....... aU
;·.ll
camp;:n.!
,1S
exce;)tion
W<.lS
()lx)r~tions
6iL.Locel..1on 13
dlso made in
too
Revenue P..·ocedure for base
because in ID3ny such cases the base cOJnp<..n,y had
its :n;.,jor function a reduction in tax
primarily for business reasoIlS.
prior to 19b3 tha
t,
reqilired.
~Je
~nd
was not organized
believe taxpayors kneW even
tho income of such comp.-onies would be carel'ully
scrutinized,m \Olould be re:Jlloc&:lted under section h82 where it wus
The Tr:u:wry effect of Revenue Procedure 04-54 woore a l'oreign
:]fflli;]W is controlled by
&
dOlJ2stic company was eit.ber to speed
receipt of t,:.i,.",{ credits in cnses in which section 4B2 was appUed or
if) boc<iuse of !.he iL:venue Pc-ocedure, it was not to be applied, to
posttJOne re;;.lL.;;:;tiOI.i 01' inCOlOO.
C:1ses in Which 1:,00 for;.;ign
To extend the Revenue Procedure to
corporation controlled toe doroestic
corpot'<:- tion would h[JVe D3en to IIcreato" ta.x. credits not O'twrwise
:'V.3il~'ble
to
tho:;
U. S. cOJ1.. p:m,/ or to rermanently reduce income rotber
th:-.n to defer it.
The
e:;~tension
of or-he Revenue
Pl~ocedure
to c;",ses involving
- 7affiliated corporation with respect to such income.
It a180
announced that the allocations would not be made under circumstances
in which the Tre[1sury reoognized that the application of section 482
might be novol nnd retroactive in effect.
The Revenue Procedure does not, however, el1.m1nate all Jre-1963
section 482 allocation cases.
The Revenue Procedure does not generally
apply to CDses in which goods were sold between affiliates, nor to
cc:,ses involving base companies, .;.md tht.;} iD'i!Jact of the ofi'set allowc4Dce
for foreign taxes
p~id
will vary with each individu,ll case.
The
regulations have alwa,>,"s clearly indicated tlwt Sales t.r<msactians
were subjec t, to section 4b2 and that the
transactions must be arm's leIlf&.--th.
~ ices
charbed in such
We therefore did not believe that
any taxpayer could claim surprise or unfair
treatl~nt
application 01' this section to such transactions.
because of the
Obviously, there
are difficulties in determininr what is an arm's length price.
any businesSlliCln realizes, it is not easy to determine
price.
Despite thiliJ difficulty, the
~rvice
Ci
As
"fair"
is char&ed wit.h the
responsibility under sect.ion 432 for detarroini~ tOe correct income
of
<J
U. S. COlllpauy and if to do so requires a review of t.b.e
pt" ices
at which it sells or buys i;oods 1'rom an cl'filiat.e, it must be carried
out.
ObViously, it is not sensible policy to <.)rgue over small BxooWltS.
Where t.he price is
d
reasonable approximCltion of
~
correct price
determi.ned by IllCl113gement in tlle eY..aI'cise of its best judgloont, no
- 0 -
subjected t.o
t;1X ~bro-d
nnd there w:.,s little, if
this t~'x \Jould be refunded to
chnnce that
3Il,f,
tm foreign affilL1te.
thcServLce rublished.,: revenue rulinG suegestin6 to
~G2
"djusbents m:1Jlc be Jrwde under section
In July, 1963,
t~xlklyorB
tLlc'1t
vdth reslX3ct to prior
jcrs ·,nd thDt kx.p.·1jrers with foreign affili:3tes should protect
ther.selves OJ lvvjng those <3fi'iliates file refund chims ;:.bro.,d.
;,5 :, udits
by the oro.
:.rocooded, m.:m;y- sec tion 482 3l1occtions \\.'ere proposed
These frequently related to t,Y?ical section 482 cases
in which {;oods had boen sold between rlffiliates :'It prices Wlllch were
not arm· S leni.:,'t.h.
dut in
lTl<1ny
such as t.hose I rrevlously
other cases they relDted to situations
J~!entioned:
p,jtents 'Were licensed to
fare:4:;n I!l3nu.factur lob Clffil.13tes without suitnblo compensation or
funds were :"dvrmced to such ,3f£i113t08 for lOIlb
lfithout "'IlY )<J;¥1nent of interest.
~riods
of time
1{,ny t~xrxjyers comp13ired that
such ~.pplic:ltion of' section h82 WfiS novel
tim
retro.::;ctive in effect.
Furthernore, they st"qted WDt rofuIxi claims by foreign subsidiaries
would be wholly .1neffectuc'<l in aioost every case.
section hG2 ."lloc;;tions would
C3Use
As a result, such
double t.'lXction.
Sinee some
of the section 482 nlloc.8ti0l1S involved trCins.c,ctions between U. S.
cor.l~anies
t~x
;lud sffilLtes located in hlgh-t<'lx areBS [!broad,
could in
SOllie
too
totell
c-ses wipe out tiD frofits re<!lized.
Revenue Procedure 6J.l.-54 recobIlized these rroblems. To avoid
double 'tPx:::tion, it
st; tc~ t::-: on
r~~
gr~;nted
taxp-:Jyers an offset Clgninst the United
].loc l(;d inco.::e l'ort,l£
l.'X0S
),·id by the foreign
-sSection 402 gives discretion to the Commissioner of Internal
Revenue to allocate
1.ncolile
soong affiliated corporations 1.£ be
deems it necussnry to do so in order to Jroperly reflect their
income for tax purposes.
The section is couched in general terms,
dnd it nns always been difficult to formulate specll1.c rules tor its
As a result, the regulations tor many .fears past have
(Jpplication.
not been much roore specific than the statute.
They have indicated
that transactions between affiliated taxpayers should be carried out
so that too income arising from them would be the SUle ss 1.f t.he
t,r~ns8ctions
were between unrelated taxpayers, but. the regulat.ions
have not cootBined speci£ic guidel..ines indicating exactly bow this
broad generi:ll rule should be applied.
For years f):"ior to 1963, there was in some situations a great
deal of confusion as to when and how section 4B2 should be applied.
Some taxpayers believed that it was not applicable to cases in which
funds were advanced or intangible assets made available to related
corIX>r~tians
which were operating aa independent entities.
As a result, when the Internal Revenue Service, through it.a
Office of International Operations (010), first scrutinized 10 detail
trans·::lctions between U. S. taxpayers and their foreign affiliates,
it found many cases in which it believed allocations of income under
section 4B2 were proper.
which had been
iJ
But in many of those cases, the income
llocated to the foreign subsidiary had already been
- 4 the credit benefits 311 U. S. taxpayers with interests
with which we enter into a treaty.
ltv~-" l(.,t{< t
A conventional tax
{}.o
"VVU
the country
reaty lowers
:;....~ /\t~~--I
(;..
,
c~-t~~
the rotc of t d~incoIOO at the. sourc~w!t.h P88t1l:t.ift~41tl- \8~
P,)1'--{2- -r~ 1(.)( ~T,CLt t...f lV'L"')~ ~c4'lA.(,d JVJ~_A:tc ("
£,,1.&.( h;)"
~Vell'Wi tQ \he eal:lBtPy i~i,cQ t.fte reeipiem resides.
Since citizens
of;
~
developing country are unlikely to have subst.antial investueDt.s
lCLL~i
orn /2.ctivities in the United Stntes, that country receives !ewr
initial benefits from a conventional treaty than
tm
United States
and its citizens who have substantial investmant.s and trade throughout
too
world.
Also, a developing country must seriously weigh any 108s
of revenue that mil! result 1£ its tax base is narrowed by treaty.
Consequent ly, unless the United States extends the investment
credit to
u.
S. investors, the developing country may think it is unlikely
to gain sufficient benefit !rom a tax treaty 800 therefore may be
unwilling to sign one.
Thus, the seven percent credit provision in
the treaty benefits not only oew investors in the developing country
involved but all U.
s.
taxpayers with interests in that country.
~
t'lOU 4(./
\ ('2 v~l ldr;ilss
::-..ec
'roo
l)olic~·-
hDGt
Siblliiicant development in U. S. international tax
dU,C:lllUt.he P3st six Lil.mths hGS been t.ne publication by the
Intern;jl
t~evcnue
~~nnounced .in
'IT:' 063 d:::ted Deceraber 10, 1964.
forth rules .for
l.)CJ.
3m'v lce of Revenue P;-ocooure 64-$L, which was
;~.?plJlng
This Procedure set
section [,32 to ,Ye;:;rs prior to January 1,
- J We h,we .. Qi eo .fHt, sonte reservations about both the language .nd
sUbstance oi tais draft,
am
t.hey will have to be discussed witll tba
.I.~rench.
We helve requested taxpa.vors to send us any suggestiona lIiUch
they wish to make relevant to all tlle8e neli."OtiatioDS.
In view oJ: t.be
unusual significance of tile French negotiation, we hope t.axpa.,vers
will give us their comments and suggestlons so that we cun cooduct
t.his negotiation with as tllorough a knowledge of the p!"oblems involved
as possible.
Tho Investment Credit for Develop:i.ll§ Nations
The seven percent investment credit provision in the Thai treaty
is
~
150 included in the proposed treaty with Israel, and we hope
it will be incorporated in roost of oU!' future treaties with developing
countries.
Tllls credit is intonded to equalize the tax treatrrent of
investments in doveloping countries with thclt of investment in tOO
United States.
U. S. lllVestlOOnt in deprecic:;ble ;Jersona 1 property was granted a
seven percent ta;'i. credit by tlE Hovenue Act of 1962, and tbis
belpcd to spur illYestrent
~
streIl6then our oconomy.
nas
Encouragommt
oJ: priVGit.e invest,1TlJnt in the developing countries haS lonG been part
of United States' 1:)Qlicy.
The purpose of
extelldin~
the credit to
these countries is to increase such iuvestment dod thus foster
econo[c,ic develo;Jrnent of these countries.
too
2urtberrrore, extension of
- 2 U. S. Senate.
We will attempt to incorpal"ste in our new treaty
with India t~ same seven percent investment credit included in
the Thai trcclty.
Last month Treasury representatives went to IJ.abon to discuss
the possibility of negotiating a tax convention with Portugal.
These
discussions gave us every reason to believe t.hat a convention with
that country can be worled out, and representatives of the Portuguese
Gowrnment will probably come to Washington late this year to work
on a draft of such a convention.
In April, a Treasury delegation, beaded by Assistant Secretary
Surrey, will go to The Hague to discuss with tho Government of tOiJ
Netherlands possible revisions in our tax convention with t.hat
country.
Revision of ttl.at convention has been requested by the
Dutch in the light of ?roposed chaI166S in tlleir domestic corporate
incoll~
tnx law which they are presently consider!n&.
In Hay, representatives of tbe French Goverl'llWnt plan to come
to \'I3shirlgton to discuss
~i
complete re-examination of our convention
with that c')untry, in view of the tine tbat has elapsed since it was
ne;,;otiated.
treGty with
Since this will be too first negotiation of an entire
:'J
major developed country since ?ubUcation of the
model income ta.x convention proposed by the Organization for Economic
Co-ot~ratiOl1
b;~sis
[;nd Dew-e lopnent, its results
Illay
largely serve as
for future oot:;oti"tions with otller GEeD member countries.
1:1
RJ:2olJU1KS 3'i lUCHARD o. I..O.&NGARD, JR.
!'SSISTA:!T FOR INTERNATIONAL TAX AFFAIRS
U1U'l"~D STATES TRhASUR'i D~PARTMENT
~PSCIAL
:ruFJIhl THi:: TAX.
~UTIVES
INSTITUTE
S1".IllL.:JIAH dmL, dASH,INGTON, D. C.
LJ: 1;'; J~•• ;-1. EST, TUESDAY, MARCH
I11iG~NT
9, 19b5
INTERNATIONAL IAA rolIe y
wst Sel>tember in t10ntreal Assllitant Secretary Surrel reviewed
before this 3udlsnce the changes in internatiollal tax policJ which
tne United St.Jtes tws made in recent years.
Today I will discuss
some of the developments that have occurred since that speech.
Tax Treaties
I will not repeat Me. Surrey's emphasis on our tax treaty program,
because there b.a ve been few developtllmts in the last six months that
were Ix>t forecast in He. Surrey's speech.
We are continuing to make
steady {rogress in brint;;ing our treaty fr o~am up to date.
For
0-.'(unple, on11 l3st week we si6 ned a trea ty with Thall<:.nd, the tirst
treaty to be signed with c: develo})in6 country extendin6
t~
seven
percent investlWnt credit to U. S. trivate invest.ment in tbat country.
In less than two weeks, retresentatives of the Government of
India will be in washington to negotiate a tax convention.
between Iudi:.l <-ud the United States,
contai~
a tax
A treaty
spari~
!X"ovision,
was signed in 19>9, but later it was decided that such lX'ovisiollS were
undesiraole
;:tIID
',00 treaty
WClS
withdrawn from coDSicieration by the
FOR REIEASE ON DELIVERY
REMARKS BY RICHARD O. LOENGARD, JR.
SPECIAL ASSISTANT FOO INTER NAT IONAL TAX AFFAmS
UNITED STATES TREASUR Y DEPARTMENT
lEFORE THE TAX EXECUTIVES INSI'ITUTE
SHCREHAM HOTEL, WASHINGTON, D. C.
10:15 A.H. EST, TUESDAY, MARCH 9, 1965
RECENT INTERNATIONAL TAX POLIC Y
Last September in Montreal Assistant Secretary Surrey reviewed
before this audience the changes in international tax policy which
the United States has made in recent years.
Today I will discuss
some of the developments that have occurred since that speech.
Tax Treaties
I will not repeat Mr. Surrey's emphasis on our tax treaty program,
because there have been few developrrents in the last six months that
were not forecast in Mr. Surrey's speech.
We are continuing to make
steady Jrogress in bringing our treaty program up to date.
For
example, only last week we signed a treaty with Thailand, the first
treaty to be signed with a developing country extending the seven
percent investment credit to U. S. private investment in that country.
In less than two weeks, representatives of the Government of
India will be in Washington to negotiate a tax convention.
A treaty
between India and the United States, containing a tax sparing prOVision,
was signed in 1959, but later it was decided that such provisions were
undesirable and the treaty was withdrawn from consideration by the
- 2 U. S. Senate.
We will attempt to incorporate in our new treaty
with India the same seven percent investment credit included in
the Thai treaty.
Last month Treasury representatives went to Lisbon to discuss
the possibility of negotiating a tax convention with Portugal.
These
discussions gave us every reason to believe that a convention with
that country can be worked out, and representatives of the Portuguese
Government will probably come to Washington late this year to work
on a draft of such a convention.
In April, a Treasury delegation, headed by Assistant Secretary
Surrey, will go to The Hague to discuss with the Government of the
Netherlands possible revisions in our tax convention with that
country.
Revision of that convention has been requested by the
Dutch in the light of proposed changes in their domestic corporate
income tax law which they are presently considering.
In May, representatives of the french Government plan to corne
to Washington to discuss a complete re-examination of our convention
with that country, in view of the time that has elapsed since it was
negotiated.
Since this will be the first negotiation of an entire
treaty with a major developed country since publication of the
model income tax convention proposed by the Organization for Economic
Co-operation and Development, its results may largely serve as a
basis for future negotiations with other OECD member countries.
- 3 We have some reservations about both the language and substance
of this draft, and they will have to be discussed with the
French.
We have requested taxpayers to send us any suggestions which
they wish to make relevant to all these negotiations.
In view of the
unusual significance of the French negotiation, we hope taxpayers
will give us their comments and suggestions so that we can conduct
this negotiation with as thorough a knowledge of the problems involved
as possible.
The Investment Credit for Developing Nations
The seven percent investment credit provision in the Thai treaty
is also included in the proposed treaty with Israel, and we hope
it will be incorporated in most of our future treaties with developing
countries.
This credit is intended to equalize the tax treatment of
investments in developing countries with that of investment in the
United States.
U. S. investment in depreciable personal property was granted a
seven percent tax credit by the Revenue Act of 1962, and this has
helped to spur investmnt and strengthen our economy.
Encouragerrent
of private investment in the developing countries has long been part
of United States I policy.
The purpose of extending the credit to
these countries is to increase such investment and thus foster the
economic development of these countries.
Furthermore, extension of
- 4the credit benefits all U. S. taxpayers with interests in the country
with which we enter into a treaty.
A conventional tax treaty lowers
the rate of tax at the source on investment income as well as limiting
a country's power to tax trading income derived within its borders.
Since citizens of a developing country are unlikely to have substantial
investments or trading activities in the United States, that country
receives fewer initial benefits from a conventional treaty than the
United States and its citizens who have substantial investments and
trade throughout the world.
Also, a developing country must seriously
weigh any loss of revenue that may result i f its tax base is narrowed
by treaty.
Consequently, unless the United
~ates
extends the investment
credit to U. S. investors, the developing country may think it is
unlikely to gain sufficient benefit from a tax treaty and therefore
may be unwilling to sign one.
Thus, the seven percent credit
provision in the treaty benefits not only new investors in the
developing country involved but all U. S. taxpayers with interests
in that country.
Section 482 Changes
The most significant development in U. S. international tax
policy during the past six months has been the publication by the
Internal Revenue Service of Revenue Procedure 64-54, which was
announced in TIR 663 dated December 10, 1964.
This Procedure set
forth rules for applying section 482 to years prior to January 1, 1963.
- 5Section 482 gives discretion to the Commissioner of Internal
Revenue to allocate income among affiliated corporations if he
deems it necessary to do so in order to properly reflect their
income for tax purposes.
The section is couched in general terms,
and it has always been difficult to formulate specific rules for its
&pplication.
As a result, the regulations for many years past have
not been much more specific than the statute.
They have indicated
that transactions between affiliated taxpayers should be carried out
so that the income arising from them would be the same as if the
transactions were between
unrel~ted
taxpayers, but the regulations
have not contained specific guidelines indicating exactly how this
broad general rule should be applied.
For years prior to 1963, there
WeS in
some situations a great
deal of confusion as to when and how section 452 should be applied.
Some taxpayers believed that it was not applicable to cases in which
funds were advanced or intangible assets made available to related
corporations which were operating as independent entities.
As a result, when the Internal Revenue Service, through its
Office of International Operations (ala), first scrutinized in detail
transactions between U. S. taxpayers and their foreign affiliates,
it found many cases in which it believed allocations of income under
section 482 were proper.
But in many of those cases, the income
which had been allocated to the foreign subsidiary had already been
- 6 -
subjected to tax abroad and there was little, if any, chance that
this tax would be refunded to the foreign affiliate.
In July, 196),
the Service published a revenue ruling suggesting to taxpayers that
adjustments might be made under section 482 with respect to prior
years and that tzxpayers with foreign affiliates should protect
themselves by having those affiliates file refund claims abroad.
As audits proceeded, many section 4b2 allocations were proposed
by the 010.
These frequently related to typical section 482 cases
in which goods had been sold between affiliates at prices which were
not arm's length.
But in many otnBr cases they related to situations
such as those I previously mentioned:
patents were licensed to
foreign manufacturing affiliates without suitable compensation or
funds were advanced to such affiliates for long periods of tuoo
without dny payment of interest.
Many taxPdyers complained that
such application of section 482 was novel and retroactive in effect.
Furthermore, they stated that refund claims by foreign subsidiaries
would be wholly ineffectual in almost every case.
As a result, such
section 452 allocations would cause double taxation.
Since some
of the section 482 allocations involved transactions between U. S.
companies and affiliates located in high-tox areas abroad, the total
tzx could in some cases wipe out the profits realized.
Revenue Procedure 64-'4 recognized these problems. To avoid
double taxation, it granted taxpayers an offset against the United
states tcx on reallocated income for the taxes paid by the foreign
- 1 affiliated corporation with respect to such income.
It also
announced that the allocations would not be made under circumstances
in which the Treasury reoognized that the application of section
482
might be novel and retroactive in effect.
The Revenue Procedure does not, however, eliminate all pre-1963
section 482 allocation cases.
The Revenue Procedure does not generally
apply to cases in which goods were sold between affiliates, nor to
cases involving base companies, and the impact of the offset allowance
for foreign taxes paid will vary with each individual case.
The
regulations have always clearly indicated that sales transactions
were subject to section 482 and that the prices charged in such
transactions must be arm's length.
We therefore did not believe that
any taxpayer could claim surprise or unfair treatment because of the
application of this section to such transactions.
Obviously, there
are difficulties in determining what is an arm's length price.
As
any businessman realizes, it is not easy to determine a "fair"
price.
Despite this difficulty, the Service is charged with the
responsibility under section 482 for determining the correct ineore
of aU. S. company and if to do so requires a review of the pr ices
at which it sells or buys goods from an affiliate, it must be carried
out.
Obviously, it is not sensible policy to argue over small amounts.
Where the price is a reasonable approximation of a correct price
determined by management in the exercise of its best judgment, no
- esection
4e2 allocation should be made.
Unfortunately, in years
prior to 1963 there appear to be cases in which no real effort was
made by too taxpayer to find the correct pr ice.
Goods were sold
at cost or less than cost with all of the profit being allocated
to the foreign subsidiary.
Under section
4e2, this has not been
proper and an allocation is required.
An exception was also made in too Revenue P..:'ocedure for base
comp3ny operations because in many such cases the base company had
as its major function a reduction in tax and was not organized
primarily for business reasons.
We believe taxpayers knew even
prior to 1963 the: t the income of suc h comp"mies would be carefully
scrutinized and would be reallocated under section
482 where it was
~rtificially infl~ted.
The PI'inI2ry effect of Revenue Procedure
clffiliate is controlled by
d
64-54 where a foreign
dorestic company was either to speed
receipt of tax credits in cases in which section
if, because of the R0venue
P~ocedure,
postpone realization of income.
482 was applied or
it was not to be applied, to
To extend the Revenue Procedure to
cases in which the foreign corporation controlled the domestic
corporation would have been to "create" tax credits not otoorwise
Clvailable to the U. S. company or to permanently reduce income rather
than to defer it.
The extension of the Revenue Procedure to cases involving
- 9 Western Ht:misphere Trade Corpor ations is still under considera tion.
To cease to prosecute cases involving Western Hemisphere Trade Corporations would, however, not have the effect of deferring the realization
of income but rather would permanently reduce the rate of tax on
that income from 52 percent to 31) percent.
Consequently, such cases
are not comparable to those to whicil the Revenue Procedure applied.
Cases involving allocotion between domestic cor?orations and their
domestic offiliates with foreign operations were considered few in
number.
Since each case probably involved a sorrewhat unique set of
circurnst3nces -- in the usual instance, allocation of income from
one fully taxClble United States company to another produces no revenue
effect -- it was considered desirable to treat them individually.
Upon publication of Revenue Procedure
64-54,
the Internal
Revenue Service began rreparing guidelines to be used by 3gents in
applying it.
Because the Revenue
P~ocedure's
concepts were new, it
was felt desirable to temporarily suspend action on cases to which
it would apply until it was certain that it was understood by agents
in the field.
This educational process has been completed, and
processing of pre-l963 section 482 cases is now being resumed.
With
the help of the Revenue Procedure, it is hoped that settlement of
these cases can be arrived at quickly.
We recognize that as the
Revenue Procedure is applied in the field unforeseen problems and
situations may arise.
We hope that these can be dealt with individually
- 10 -
in the spirit of the Revenue Procedure or, if a particular problem
of general interest should develop, through a revenue ruling or
similrtr announcement.
One particular question which has been raised deserves comment.
It has been suggested that the Revenue Procedure applies only to
section 482 cases and will not apply i f the same issue is raised under
other sections of the Code, for example section 61.1 can assure
you that this is not the case.
The Revenue Procedure is to have
broad application and covers any case to which section 482 is
properly applicable even though the deficiency is or was asserted
under some other section of the law.
Revenue Procedure 64-54, however, does not set forth rules for
deciding the cases which remain under section 482.
Thus, even III
those cases where an offset is to be allowed, the amount of the
deficiency remains to be determined.
As you know, we have been
working on section 482 regulations.
It is not easy, however, or
always possible to draft detailed guidelines.
Each rule must be
applicable in a wide variety of circumstances and yet not work injustice either to the taxpayer or to the Government.
In preparing
these rules, we have had discussions with people outside Treasury
and they have rendered us valuable assistance.
We expect that these
rules will furnish taxpayers with sufficient guidance to enable
those who follow the principles set forth in the regulations to
- II -
carry out intercompany transactions without fear of adjustment on
audit.
Again, we are not trying to collect small amounts and good
faith efforts to meet the regulatory standards will be respected.
Our experience has indicated that most cases involving section
482 concern four types of allocation:
interest, general and
administrative expenses, use of intangibles, and intercompany pricing.
Further, our experience shows that the latter two problems are
related; the most serious disputes over price arise where intangibles
Clre involved.
At trn present tiroo, we are near ing completion of
regulations dealing with the proper method of allocating general and
administrCltive expenses and interest allocations.
These regulations
are expected to be published by the end of this month.
Unfortunately,
we are not as far along as respects the provisions on intercompany
priCing and the use of intangibles, but lve do not wish to delay
those regulations on which consideration has been completed any
longer.
We now hope that regulations on pr ic ing and the use of
intangible property will be ready by the end of May.
We have not yet determined the extent to which these new rules
will apply to years prior to 1965.
Of course, taxpayers will be
allowed to invoke these rules i f they wish to do so.
On the other
hand, application prior to 1965 may in certain circumstances work
hardship if the rules are less favorable to taxpayers than pre-existing
law was thought to be.
We will review each regulation as it appears
- 12 ~nd
determine whether under all the facts and circumstances
application to the years prior to 1965 would be equitable.
If
not, special interim rules will be promulgated.
Another part of the section 482 problem concerns "repatriation"
of the amount allocated.
By repatriation, I mean the right of the
taxpayer to receive a distribution from its foreign affiliate in an
amount equa 1 to the section 482 allocation without having to pay
tax on such distribution.
taxpayers to do this.
A few rulings have been issued allowing
However, the problem is now undergoing thorough
review and rulings have been held up pending its completion, which
is expected this month.
An announcement of our policies in this
area will be issued at about the same time as our first group of
section 482 regulations.
It seems likely that this announcement will
take the form of a technical information release by the Internal
Revenue Service.
In addition to our consideration of whether repatriation should
be allowed, we are also considering subsidiary questions which will
arise if repatriation should be allowed.
Some taxpayers have criticized
the rulings which have been issued because they required repatriation
\rrthin a short period of time after the date of the ruling.
Other
taxpayers have suggested that dividends paid in the year of the
allocation should be treated as repatriated amounts i f the taxpayer
so desires.
We are looking into both of these suggestions.
- 13 Tax Treaties and Section 482
Meanwhile we are continuing to work toward development of an
international mechanism for handling cases involving inconsistent
determinations by t'WO governrents as to the proper allocation of
income.
In our most recently negotiated bilateral tax treaties,
we are expanding the scope of the relevant provision to eliminate
procedural barriers to implement any agreement that is reached
between the two governments.
I do not think we can expect miracles
in this area - the system for handling such controversies will only
work if both countries involved recognize the seriousness of the
problem and are eager to work for its solution.
On our side, we
ore taking steps to improve our handling of such controversies.
we
expect to publish rules indicating how a taxpayer may bring relevant
cases to the attention of the Internal Revenue Service and how such
requests for goverl'lm3nt intervention will be handled.
However, the
ultimate success of this program will in part depend on the attitude
of other nations.
We have reason to believe that as restrictions on
the free movement of capital imposed by foreign countries diminish,
those countries become faced by problems similar to those with which
this country has had to deal in the last ten years, including
problems of the type covered by section 482.
We believe that as
these countries are .forced to develop rules to protect their revenues,
they will be interested in developing international methods of
eliminating or settling conflicts arising from inconsistent application
of internal tax rules.
- 14 Section 367 Guidelines
We are also working on guidelines governing the application
of section 367 of the Code, the section which requires prior Treasury
approval for tax-free incorporations and reorganizations involving
foreign corporations.
We recognize that the application of section
367 in the past has caused taxpayers some difficulty.
This has been
in part the result of the lack of published guidelines in the area.
The Service has, of course, developed rules to be used in reaching
its decisions on section 367 ruling applications, but these lillve
not been published.
As a result, taxpayers have frequently learned
of them either by heresay or when application of these rules led to
a denial of their section 367 application.
Consequently, there has
been considerable confusion in this area which has made tax planning
difficult and delayed consummation of international transactions.
The guidelines are intended to solve'this problem by setting
forth specific rules for p8ssing upon section 367 applications.
They
will therefore have the effect of substituting objective criteria
for determining whether a ruling is to be issued for the subjective
criterion presently in use.
We believe that these proposed rules
will be generous and will not interfere with international transactions
which do not involve tax avoidance.
However, the guidelines may
possibly result in some loss of flexibility.
On balance we believe
that this possible loss of flexibility is far outweighed by the
- 15 advantages which the guidelines will provide in eliminating confusion and delay.
I might mention that these guidelines will not deal with the
problem arising under section 351 of the definition of the word
"property".
While we recognize that the definition of this term
has given rise to problems where transfers of know-how to foreign
corporations are at issue, it is not truly a section 367 problem
and will therefore not be covered in this ruling.
Regulations under the Revenue Act of 1962
Another area of concern to you on which we are currently
working is promulgation of regulations under the 1962 Revenue Act.
With few exceptions regulations have already been published under
all of the sections of Subpart F of the Act - the portion of the
Act which passes certain types of income received by a foreign
corporation through to its United states stockholders.
We anticipate
that regulations under the remaining sections will be issued by the
end of the month, or at any rate before April 15.
I would like to
express again the appreciation of the Treasury Department for the
cooperation which it has received from taxpayers in promulgating
these regUlations.
We hope as we near the end of the task that we
will continue to receive your help.
We also realize that the tax
returns which you are currently preparing are, in many instances,
the first which truly involve the application of Subpart F.
Perhaps
- 16 proo1ems may arise during
t~
course of their preparation which had
not previously been foreseen and are mt specificall.y covered by the
regulations.
If this occurs, we hope that you will bring these
questions to our attention.
Foreign Investment in the United States
Finally, I would like to comment briefly on the draft bill
which the Secretary of the Treasury sent to Congress yesterday relating
to foreignors investing in the United States.
It is an outgrowth of
the report of the so-called "Fowler Task Force" and is intended to
remove some of the hardships and complexities in our tax law which
have in the past served to prevent foreigners from investing in this
country.
The major change proposed is a sharp reduction in the
hitherto extremely high estate tax payable by foreigners on their
United States assets -- a tax which is at present higher than that
payable by United States citizens owning a comparable estate.
In
addition, the draft bill would eliminate unnecessary complexities
in the taxation of foreigners' United States source income.
These
provisions in current law raise very little revenue for the United
States and deter investment by foreigners.
We have also included in the draft bill a provision which would
permit the President to reimpose higher taxes if he finds that foreign
countries in the situations covered by the bill are imposing burdensome
taxes on United States investors within their borders and refusing
- 17 to reduce those taxes when requested to do so in the course of
treaty negotiations.
This will both permit initial reduction of
taxation of foreigners and at the same time preserve our power to
protect our taxpayers with activities or assets abroad.
The changes in our taxation of foreigners just described are
not solely designed to improve our balance of payments but are
desirable in and of themselves.
The time had come for a thorough
review of the application of our tax law to foreigners and to their
investments here.
Conclusion
In recent years we have been engaged in the task of revising
the rules of international taxation affecting not only the foreign
income of United States citizens and corporations but also the
United States source income of foreigners.
This revision was in large
part the result of a changing world -- a world of a far greater
freedom in internationa 1 capita 1 movement s and of international trade.
This task of revision is now nearing completion.
The Revenue
Act of 1962 has been enacted and the regulations under it will soon
have all been issued.
Enforcffinent activities under section
4e2,
which began to be intensified in 1960, have given us information as
to how taxpayers had, in fact, been dealing with their foreign
affiliates and indicated to us both the need for clearer rules and
- 18 the possible forms those rules might take.
This initial enforce-
ment effort caused confusion and some hardship and we have therefore
t2ken steps to ameliorate them in Revenue Procedure
64-54.
The emphasis will now shift from rule making to implementation
of the existing rules.
Our major problem in the next few years will
be to assure that these rules operate effectively and sensibly and
to improve them wherever possible by using tile knowledge gained
through enforcement experience.
complex.
Some of these rules are novel and
We recognize this, and that as a consequence, enforcement
will have to be both understanding and flexible.
It is toward this
end that our efforts over the coming years will be concentrated.
STATEMENT OF THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE THE
INTERNATIONAL FINANCE SUBCOMMITTEE
OF THE BANKING AND CURRENCY COMMITTEE
UNITED STATES SENATE
MARCH 9, 1965, 10:00 A.M.
At the outset of these hearings, it may be useful if
I review in a general way the problems that we have faced
and the policies that we have followed in dealing with the
balance of payments deficit, before describing briefly the
Administration's new program.
Other witnesses will be
commenting in greater detail upon those aspects of the
President's ten-point program for which they have specific
responsibility.
For my own part, I will aim at an over-all
view of the progress that we have made to date and the tasks
that still lie ahead of us.
Certainly, there is a clear need to achieve prompt and
decisive reductions in our balance of payments deficit.
That
deficit has been with us for too long and it remains far too
large.
International trade today rests on the foundation of
a sound dollar which is essential to the continued growth and
stability of the entire Free World.
And the maintenance of a
sound dollar now demands a quick end to our payments deficit.
- 2 Last year, a swelling tide of private capital outflows
joined with other, more special, factors in carrying our
deficit on regular transactions to a fourth-quarter annual
rate of $5.8 billion.
Because of the very real progress we
had been making in most areas of our accounts, the deficit
on regular transactions for the full year 1964 was held to
about $3 billion, the smallest deficit on a comparable basis
since 1957.
But that is not nearly good enough.
We must
fully implement President Johnson's ten-point program to
assure the rapid and substantial improvement that is required.
BASIC APPROACH TO THE BALANCE OF PAYMENTS PROBLEM
Our underlying approach to the payments deficit has
been, from the start, to seek a solution within the framework of a more vigorous domestic economy, operating closer
to its full potential and offering improved incentives for
investment.
Our international competitive position had
deteriorated by the late 1950's because of an inadequate rate
of new cost-cutting investment coupled with an upward trend
in certain key prices that had persisted throughout the
decade.
Moreover, the slow growth of our economy was enhancing
- 3 -
the relative attractiveness of foreign investment.
As a
result, the years 1958 through 1960 saw three successive
balance of payments deficits that, on the basis of regular
transactions, averaged close to $3.9 billion annually.
These large payments deficits certainly could not be
attributed to an overstrained economy.
In early 1961, we
were faced with excessive unemployment, under-utilized
manufacturing capacity and a very low rate of economic growth,
all of which had to be corrected.
We could not seek a
deflationary solution to our balance of payments problem by
clamping down tightly on money and credit.
Quite the opposite,
it was essential to spur more rapid growth at home, while
finding the solution to our external problems in the rising
productivity and improved climate for domestic investment
that this growth would bring.
of balance of payments problem.
This was a new and unique kind
Because the standard remedies
were inapplicable, a new course had to be charted.
To achieve more rapid economic growth within a framework
of stable costs and prices, basic reliance was placed upon tax
- 4 reduction and investment incentives.
Similar results might,
in theory, have been sought through a very active use of
monetary policy.
But, an ,extremely easy monetary policy
would only have worsened the problem of capital outflows,
and so was necessarily ruled out, in spite of the slack in our
domestic economy.
Our over-all financial effort -- in both the monetary
and debt management areas -- has continually aimed at
maintaining our short-term interest rates in reasonable
alignment with key rates in foreign money markets.
At the
same time, growing prosperity has added to the large flows
of savings moving into our capital markets, and the longterm interest rates important for domestic investment and
residential construction have remained stable or even declined.
We felt, and continue to feel, that a more productive
domestic economy is an essential element in any long-range
solution to our payments problem.
However, in early 1961, it
was imperative to seek immediate and substantial reductions
in the payments deficit, because the longer-run correctives
could not be expected to yield their benefits at once.
- 5 -
Therefore, we undertook a broad array of special measures
designed to attack directly the major areas of weakness in
our international accounts.
A series of fourteen tables, showing our progress since
1960 and illustrating various other aspects of our balance of
payments, is attached as Annex I of this statement.
SPECIAL MEASURES TO ACHIEVE PAYMENTS GAINS
We took vigorous steps to encourage exports, including
both an entirely new system of export credit guarantees and
vastly improved government information and promotion services
for exporters.
We drastically reduced the adverse payments
impact of government outlays overseas.
We eliminated the
attraction of foreign tax havens for our private capital,
and, in mid-1963, we proposed the Interest Equalization Tax
which increased the cost to other industrialized countries of
raising funds in our markets through the sale of securities.
All of these measures have demonstrated their effectiveness.
Since 1960, our commercial exports have grown by more than
one-fourth.
While special factors have helped, much of the
improvement is attributable to our very impressive record
- 6 -
of cost-price stability while foreign costs and prices were
steadily rising.
In 1964 alone, our commercial exports
increased by $3.0 billion, or 15 percent.
This was enough to
more than offset the increase in imports which naturally
accompanied our expanding economy.
It gave us a commercial
trade surplus in 1964, omitting all government financed transactions, of $3.7 billion; over $900 million more than in 1960
and $1.4 billion more than in 1963.
In our aid program, we have adopted a rigorous policy of
tying our assistance, and over 85 percent of new AID commitments
are now tied to U.S. goods and services.
As a result of this
policy, the adverse effect of AID expenditures on the balance
of payments has been cut in half since 1960.
In 1960, out of
gross expenditures of $1.7 billion under the Foreign Assistance
Act, over $1 billion resulted in dollar payments abroad; in
1964, out of gross expenditures of $2 billion, dollar payments
abroad were down to about $500 million.
The cost of maintaining our military posture abroad of
course involves a major drain in our balance of payments.
The task both Presidents Kennedy and Johnson set was to get
this drain down to an irreducible minimum.
Three principal
- 7 methods have been used to do this:
streamlining and adjusting
overseas operations with savings in both military and civilian
manpower, returning procurement to the United States and
making offsetting sales of U.S. military equipment.
By streamlining operations and cutting procurement, the
Department of Defense expects to come close to achieving
President Kennedy's objective, set in July of 1963, of
trimming gross Defense expenditures abroad by $300 million
between 1962 and 1965.
This will be the case even though
sharply rising prices abroad have canceled out a goodly portion
of the savings that have been effected.
Because of savings in
the overseas procurement of uranium, over-all defense expenditures
in 1964 were nearly $250 million lower than in 1960 and should go
lower still this year as a result of economies already effected.
It is in the third area of action, military sales to other
countries, where the most impressive results in dollar terms
have been achieved.
Beginning in 1961, with the views of
Congress very much in mind, military assistance programs were
increasingly shifted from grant aid to sales, and financed at
market interest rates instead of zero percent.
The Departments
- 8 -
of Treasury and Defense undertook a major effort to maximize
sales of U.S. military equipment.
As a result, the export
efforts of the American defense industry have been greatly
strengthened.
Our Export-Import Bank has cooperated in this
new field; private banks are becoming interested; and, last
year, the Congress wisely authorized the Department of Defense
to issue guarantees under which many additional nations are
able to finance military purchases in the United States o
The results of this program have been striking.
Cash
receipts from sales of military equipment rose from approximatel)
$300 million in 1960 to over a billion dollars during each of
the years 1962, 1963, and 1964.
An outstanding example of
cooperation by an allied government is the agreement of the
Federal Republic of Germany to buy military equipment from
the United States in amounts equivalent to U.S. military
dollar expenditures in Germany affecting the balance of payments.
Recent examples of major military sales are the arrangements
with the United Kingdom and Australia for purchases of U.S.
military equipment totaling about one billion dollars.
- 9 The net effect of these various programs has been to
reduce our actual net defense dollar-outlays abroad from over
$2.7 billion in 1960 to a little over $1.6 billion in 1964
a most gratifying result.
The outstanding success of this effort
has not been fully appreciated, since, on a regular transactions
basis as shown in our official balance of payments statistics,
the 1964 figure for net defense expenditures was just over
$2 billion.
This difference between the actual results of our
efforts in the defense area and our official statistics arises
for two reasons.
First, because military sales are recorded
in our balance of payments on a delivery basis with no credit
for progress payments actually received; and,second, because
such of our sales of military equipment as pass through commercial
channels are included in our commercial export figures rather
than in the military accounts.
PROGRESS SINCE 1960 AND THE CAPITAL OUTFLOW PROBLEM
The extent of our over-all progress and the problems
we still face can be highlighted by comparing last year's
balance of payments results with those of 1960, as shown in
Table 4 of Annex I.
Last year our commercial trade balance
- 10 had improved $900 million relative to 1960 and cuts in
government overseas dollar expenditures, military and
nonmilitary, of $1.1 billion had been achieved.
Along with an
increase of $1.5 billion in our net receipts of private investment income, the full improvement relative to 1960 added up
to a massive $3.5 billion.
This would have been enough, all else aside, to have
brought our payments close to balance last year.
But, over
the same period of time, the outflow of private capital rose
by $2.3 billion, with $1.9 billion of this increase occurring
in 1964 alone, when the total outflow of U.S. private capital
soared to well over $6 billion.
This marked a return to private capital outflows matching
the scale of the second quarter of 1963, when the outpouring
of funds was particularly heavy in the long-term portfolio
capital area.
Therefore, the Interest Equalization Tax was
proposed in mid-July of 1963 with highly successful results.
In 1964, net sales of foreign securities to Americans were
less than $700 million, one-third the rate in the six months
prior to the lET and virtually the same as the outflow four
years ago.
- 11 But, in areas uncovered by the lET, capital outflows in
1964 were inordinately large.
The expansion of long-term bank
loans last year amounted to more than $900 million -- almost
$800 million above 1960 and about $300 million above 1963.
At the same time, short-term bank credits rose by $1.5 billion
in 1964, $500 million more than in 1960, and $750 million more
than in 1963.
In 1964, other short-term capital outflows, much
of which represent temporary investment of corporate funds,
were $200 million more than in 1960 and $500 million above 1963
despite our relatively successful efforts to keep
our domestic
money-market rates in line with those abroad.
Direct investment abroad by American companies -- for
the most part in Canada and Europe -- rose to $2.2 billion
and exceeded the 1960 rate by more than $500 million and the
1963 rate by more than $300 million.
A
rise of about $300
million in other long-term capital outflows over the level of
1960 accounts for the remainder of the increase of $2.3 billion
that has done so much to thwart our efforts to achieve balance.
There have been many signs of a further step-up in the
already rapid pace of U.S. corporate investment in Europe.
- 12 In the past four years, it is reported that there have been
2,500 new ventures in Europe by U.S. firms.
Increasingly large
sums have been spent as UoS. firms have bought into existing
European enterprises.
There is no question that U.S. investment
in Europe is highly desirable, and we welcome a return flow
of European investment here.
But, the questiori necessarily
arises as to how rapid a pace of new foreign investment we
can afford at a time when our over-all payments gap is so large.
Alongside these swelling capital outflows, American travel
and tourist spending abroad last year was about $600 million
higher than in 1960 -- 2-1/2 times the corresponding rise in
foreign travel outlays in this country.
Thus, our travel
deficit has grown by $350 million since 1960 and last year
stood at over $1.6 billion.
As a result of all these factors, our balance of payments
deficit last year -- in terms of regular transactions -- was
$3 billion, an
~mprovement
of only $900 million over 1960.
We must do much better.
DEFICITS AND FOREIGN DOLLAR HOLDINGS
We fully recognize that the private capital outflows that
today are preventing the achievement of balance will eventually
- 13 come back to us in the form of dividends, interest and loan
repayments.
But the need is to bring our accounts into
balance now, not at some indeterminate time in the distant
future.
To insure success, all areas of our payments must make
their contribution.
Consequently, to complement our success
in improving other areas of our payments, we must now hold our
outflows of private capital to levels that are consistent with
the early achievement of equilibrium.
Clearly, capital outflows
surged well beyond those levels last year.
But while we must moderate our private capital outflow
in view of the paramount national interest in achieving early
equilibrium in our international payments, we must not forget
that these outflows acquire valuable assets o
creditor position is extremely large.
Our net international
Leaving aside all U.S.
government claims on foreigners, our private investments abroad,
by themselves, exceed the total of foreign investment in the
U.S
o
plus all other liabilities to foreigners by some $18
billion, and this figure is growing larger every year.
This
strong financial position is buttressed by our impressive
ability to compete in world markets.
Our commercial trade
- 14 surplus is far and away the world's largest.
Last year it was
more than twice the size of West Germany's -- the next largest.
Building on these solid elements of strength, there is
ample justification for confidence in the future of the
dollar.
But the time has come when we must bring our balance
of payments deficit to an early end and curtail the constant
build-up of short-term liquid liabilities to foreigners.
Of
our total liabilities, the International Monetary Fund holds
approximately $3 billion received in connection with the U.S.
subscription to that institution, and these dollars do not of
course represent a claim on our gold stock.
Omitting the IMF
holdings, foreign dollar holdings now amount to about $28 billion,
roughly half of which is held by foreign governments and central
banks and thus represents a direct claim upon our gold stock;
the other half is held by private foreign banks, businesses,
individuals and nonmonetary international institutions.
Indeed, more than half of last year's $3.0 billion deficit
was financed by an increase in private holdings of dollars,
acquired voluntarily for commercial and other purposes.
But,
as our balance of payments deficit is now calculated , it makes
- 15 no difference whether the increase in liquid dollar claims is
held by foreign official institutions or by private holders and
nonmonetary international institutions.
If private dollar
holdings were not counted as part of the balance of payments
deficit but rather as a capital inflow -- a method which parallels
the course followed by other major countries -- our balance
of payments last year would have shown a deficit of only
$1.3 billion, a $1 billion improvement over the 1963 deficit
calculated on the same basis, as shown in Table 14 of Annex I.
But, whatever way we calculate our deficit, further
action is clearly required to speed up our progress toward
equilibrium.
Only by demonstrating that we are illoving
decisively in this direction can we insure that foreigners
will continue to be willing to hold their large dollar balances.
In addition, we can and should encourage the continued
investment of foreign official funds in this country by extending
the exemption from regulatory ceilings of the interest rates
that our commercial banks can pay on time deposits of foreign
governments and monetary authorities and certain international
institutions.
This exemption, originally enacted in October 1962,
- 16 has proved its value in reducing calls on our gold stock.
As
matters stand, our banks have no authority to pay higher rates
beyond next October.
I urge approval of legislation to continue
this exemption when, in due course, the matter is considered
by your Committee.
PRESIDENT JOHNSON'S TEN-POINT PROGRAM
The pressing need at this time is to proceed promptly
with the elimination of our deficit.
Therefore, the President
has called upon the American businessman, upon the American
banker, and indeed upon all Americans to join in a truly
national effort to stem the outpouring of dollars abroad.
The President's program calls for a redoubling of our
efforts to cut government expenditures abroad and to expand
exports.
To narrow the tourist deficit, legislation is being
requested to further limit the duty exemption for American
tourists.
Americans, as well as foreigners, are being
encouraged to travel more in this country.
In order to draw
more investment from abroad, the President has requested new
tax legislation to remove barriers to foreign investment in
U.S. corporate securities.
The President has imposed the Interest Equalization Tax
on bank loans of one year or more under the authority of the
- 17 Gore Amendment and is requesting legislation to extend the
lET through 1967, and to broaden its coverage to nonbank credit
of one to three-year maturity.
But the most significant element of the new program is
not new legislation, important as that is, but rather the
President's action to enlist the voluntary but vigorous
cooperation of the business and banking community in cutting
back sharply on the increasing outflow of dollars abroad.
It
is to this cooperative effort that we look for the greatest
savings and the quickest results.
A week after the President's Balance of Payments Message
was sent to the Congress, the President, together with
Secretary Connor, Chairman Martin and I, described our balance
of payments situation to a group of distinguished business and
financial leaders and outlined the nature of this voluntary
program.
I am sure they will respond to the challenge quickly
and effectively.
The banks are being asked to hold their 1965 increase
in foreign credits outstanding to 5 percent of the end-of-1964
level.
A set of 14 guidelines, developed by the Board of
- 18 Governors of the Federal Reserve System and published yesterday:
sets forth procedures for implementing this program.
These
guidelines are designed so as to assure that needs for export
credits and loans to less developed countries will be met.
This means that, over the coming months, bank loans to Western
Europe will have to be reduced substantially.
Within these
general guidelines, it has been left up to each bank to decide
how to direct its own activities.
Concrete evidence of the prompt cooperation of the banks
is revealed in the data we receive on their new commitments
for loans of one year or more.
These commitments to borrowers
in developed countries totaled over $1.0 billion in the full
year 1964.
And, this year, in the period prior to the President l
Message on February 10, commitments to developed countries
amounted to about $500 million, of which ~Qme $180 million
was for advance extensions of loans beyond their original 1966-67
n~turity
dates.
But since February 10, reports of new loan
commitments to borrowers from the developed countries have been
negligible in amount -- well under $5 million.
- 19 -
A somewhat similar approach is being followed in the case
of the foreign lending and investing activity of nonbank
financial institutions.
However, in the case of these
institutions, there are no guidelines for securities with
final maturities of over five years, since that area is
effectively covered by the Interest Equalization Tax and by
separate agreements governing the access of Canada and Japan
to our capital markets.
Industrial corporations are also being asked to improve
their individual balance of payments accounts.
This means that
companies whose earnings from abroad in the form of exports,
dividends, royalties, fees, etc., have exceeded their capital
outflows from the U.S. should strive to increase this surplus.
Companies which had a deficit on these items should strive to
reduce that deficit or turn it into a surplus.
The prospects
for the success of the President's program in the corporate
area have been greatly enhanced by evidence that the nation's
top corporate executives are willingly assuming personal
responsibility for their own company programs.
In the corporate,
as well as the financial areas of the President's
progra~
there
- 20 is to be no change in our over-all policy of encouraging
investment in the less developed countries.
A personal letter
detailing what is expected will be sent later this week by
the Secretary of Commerce to the heads of about 500 corporations:
including all which are active abroad.
It would, however, be a mistake to expect the full impact
of the program of voluntary restraint to be registered overnight.
Data are still far too fragmentary to reveal whether or not
the deficit for the first quarter will fall back to the levels
characteristic of the first three quarters of last year.
The information currently available to us, limited and
incomplete as it is, suggests appreciable improvement over
the fourth-quarter results and provides no basis whatsoever
for the occasional rumors of a vastly enlarged first-quarter
deficit.
The impact of the new program can also be seen in the
current increase in Eurodollar rates, which indicates a decline
in the supply of dollars in that market.
Finally, the dollar
has begun to strengthen significantly in the world's foreign
exchange markets.
a good start.
All in all, it appears that we are off to
- 21 Since the President's new balance of payments program
was not developed until mid-February, the complete first-quarter
results, which will not be known until May, are likely to
include some crosscurrents, with the favorable results of the
new program only incompletely reflected in the over-all total.
But certainly by the second, and more fully by the third quarter
of this year, we should be reaping very substantial dividends
from the measures contained in the President's program.
What distinguishes all those measures -- and the President's
Message, itself -- is the degree to which their success will
draw upon the voluntary cooperation and support of American
business and the American public.
The President has set forth,
for all to understand, the challenge that confronts us.
Upon
the response to this challenge rests the solution to a stubborn
and difficult problem.
be met.
I am confident that challenge will
ANNEX
I
STATISTICAL TABLES
Table
U. S. Balance of Payments: Balance on
Regular Transactions and Changes in U.S.
Gold Stock (1946-64)
1
Balance of Payments of the United States
(1946-64)
2
U. S. Balance of Payments, 1960-64
3
Selected Segments of U. So Balance of
Payments, 1960, 1963, 1964
4
United States Gold Stock and Convertible
Foreign Currency Holdings, and Foreign
Dollar Holdings, Selected Years
5
Estimated Gold Reserves and Liquid Dollar
Holdings of Foreign Countries and International Organizations
6
Gold Holdings of Free World Countries and
International Organizations
7
U. S. Private Capital Outflow, 1964
8
U. S. Long-Term Private Capital Outflows
and Income (1960-64)
9
United States International Investment
Position End-Selected Years
10
Outstanding United States Direct Investment in Europe and European Direct
Investment in the United States
11
U. S. Private Banking Claims on
Foreigners
12
Claims on Foreigners by U. S. Banks
As of December 31, 1964
13
Reconciliation of Regular-Transactions
and Official-Settlements Deficits
14
TABLE
u. S.
1
BALANCE OF PAYMENTS: BALANCE ON REGULAR TRANSACTIONS
AND CHANGES IN U.S. GOLD STOCK
1946 - 1964
(In millions of dollars)
Year
Balance on
Regular
Transactions
Change in
U.S. Gold
Stock
(-decrease)
{-deficit~
1)
1946
1947
1948
1,261
4,567
1,005
623
2,162 Jj
1,530
1949
1950
1951
175
-3,580
-305
164
-1,743
53
1952
1953
1954
-1,046
-2,152
-1,550
379
-1,161
-298
1955
1956
1957
-1,145
-935
520
-41
306
798
1958
1959
1960
-3,529
-4,178
-3,918
-2,275
-1075])
,
-1,702
1961
1962
1963
1964
-3,071
-3,605
-3,261
-3,006
-857
-890
-461
-125
Includes subscription payment in gold to International Monetary
Fund of $688 million in 1947 and $344 million in 1959.
Treasury Department
Office of Balance of Pa}ltlen ts Programs, Opera tions and Sta tis tics
March 6, 1965
l'ABLE
EALA.::CE OF PAY11E;;T3 OF THE 1J11ITED STATES*
2
1946 - 1964
(In millions of dollars)
Non-Military
Merchandise
Surplus
Year
Net Services
Remittances
& Pensions
Military
Expenditures
Gov't Gran~~
& Capital ~
1946
1947
1948
6,634
10,036
978
1,233
-9,57 6
5,630
992
1949
1950
1951
5,270
1,009
2,921
1952
1953
1954
Private
Long-term
Capital
Net
ret Private
Short-term
Capital plus
Errors &
Omissions
Bal. on
Regular
Transactions
Spes.
Gov't
Transag,
tions 5.;
Overall
Balance
Sales of
Spec. r'gn.
Cur. Bonds
Balance
Incl. Sales
of Spec. Fgn.
Cur. Bonds
Memo. Change
in Total
Gold Stock
(-Decrease)
-5,717
-450
-896
-962
770
1,062
1,261
4,567
1,005
1,261
4,567
1,005
1,261
4,567
1,005
1,530
870
823
1,5 6 3
-6,27 0
-4,216
-4,461
-621
-1,048
-740
926
-148
412
175
-3,580
- 305
175
-3,580
-305
175
-3,580
-305
164
-1,7 43
53
2,481
1,291
2,445
1,254
901
1,228
-4,434
-4,014
-900
-322
-713
553
456
-496
-1,046
-2,152
-1,550
-1,046
-2,152
-1,550
-1,046
-2,152
-1,550
379
-1,161
1955
1956
1957
2,753
4,575
6,099
1,372
1,515
1,709
-4,912
-5,150
-5,415
-674
-1,961
-2,902
316
86
969
-1,145
-935
520
-1,145
-935
520
-1,145
-935
520
-41
306
1958
1959
1960
3,312
972
4,7)6
1,307
1,176
1,156
-5,722
-4,791
-5,493
-2,552
-1,5 89
-2,107
126
489
-2,210
- 3,529
-4,178
-3,918
- 3,529
- 3,7 43
-3,881
-3,529
-3,7 43
-3,881
-2 J27~'d
1961
1962
1963
1964
5,416
4,442
4,993
2,017
2,271
2,104
-5,948
-5,939
-6,022
-2,177
-2,60 9
-3,244
-2,379
-1,770
-1,092
6,511
n.a,
n.a.
-3,071
-3,605
-3,261
-3,000
-2,370
-2, 20 3
-2,644
-2,763
-2,370
-2,203
-1,942
-2,388
-857
-890
-461
-125
p
-5,786
-)1,478
Il.a.
-115
n.a.
435
37
701
1,402
617 '
243
y
*Excludes grant-financed military supplies cu.u services.
GxcludinC nili tary and debt prepaynents.
s'~c( :::.~ -- 2. ';.).
ExcludillC; s~lcs of "on-=rLetablc convcrti ble I",edi lU 1 ~,c "1:, for21_~. c 'c'" .c.~.
, ,'-,1:
Includes subscription payment in gold to Ir.ternational I:onet~ry Fund of ~
million ir. 1]47 and. ~344 million ir.
;l'lllh:;~: 1946-59, Balance of Payments Statistical Supplement, ,"
• j"l .. ,>",'.
1960-,)I~, SllrvC,' of Current ?usiness, fl'cli!':'iEary "epo-'t fur 1),1" U.S. i.>e"art"1E:t of Co::-unerce
y
:iJ
'rrcasury Department
Office of DahUlCC ,11'
702
375
PLlj~ncnts
FroL;ru,ms, Operations anu 3tatistics
1959.
~·!arch
6 J lj65
623
2,1.2
»
-298
798
-1,01J.,a
-1,702
U.S. Balance or Payments. 1960
(Mlllions of dollars)
Commercial merchandise exports Zl
Commercial merchandise imports
Commercial trade balance
Tourism (net)
Private investment income (net)
Other services, remittances and pensions (net)~
Commercial balance
C'ACOLi:'.; 3
19641/
129£t. (Est.)
1960
12.Q1..
1.22.Z.
l22l
17.5
17.7
=.li...1
2.8
~
18.2
-16.1
2.1
-1. 5
3.2
19.3
-17.0
2.3
-1.6
3.2
22.3
-18,6
3.7
-1.6
3.8
-1.3
2.3
3.2
-1.3
2.9
~
-Q...2,
3.7
4.8
3.8
3.8
5.9
Military expenditures (net)lI
-2.7
-2.6
-2.4
-2.2
-2.1
Gov't. grants and capital payments abroad
-1.1
-1.1
-1.1
-0.9
-0.7
0.5
0.5
0.5
0.5
0.6
.=l....2.
.=it....1
~
.=it....1
~
-1.9
-2.2
-1,1
-0.7
-0.9
Receipts from debt repayments to U.S.
Gov't.~
U.S. Private capital
Direct investment
Foreign securities
Long-term bank credits21
other long-term
Short-term bank credits
Other short-term
-1, 7
-1.0
-0.4
-1.6
-0.8
-0.1
-0.1
-1.2
-0.4
0.3
0.6
0.2
0.3
Errors and omissions
-0,8
-1,0
-1,1
.::QJ
=l...Q
Balance on regular transactions
-3.9
-3.1
-3.6
-3.3
-3.0
-0.7
-0.2
Foreign capital
11
11
it!
21
21
-1. 7
-1.0
-0.1
-0.1
-0.4
-0.2
-0.7
0.2
-0.8
-0.4
-1.5
-0.5
0.#
Excluding military transfers under grants. ~ Excluding exports and services financed by Government grants
Excluding advances on military exports.
and capital.
Excluding prepayments and fundings.
Inclu.des small amounts of bank claims other than loans; and in 1963 approximately $150 million in "take-overs" by
banks of foreign claims from U.S. commercial firm.
Includes $204 million in Canadian gov't. purchases of non-marketable medium-term U.S. gov't. securities.
Note:
Figures may not add to totals due to rounding.
March 6, 1965
Treasury Department
Office of 3al3J1ce of Payments Prof;rerns, 'Jperations
o.n(~ ~tatistics
TABLE 4
SELECTED SEGMENTS OF U.S. BALANCE OF PAYMENTS, 1960, 1963, 1964
(Billions of Dollars)
1960
1963
Commercial trade surplus
2.8
Military expenditures (net)
-2.7
Govt. grants & capital
payments abroad
-1.1
Private Investment income (net), 2.3
2.3
-2.2
3.7
-2.1
+0.9
+0.7
+1.4
+0.2
-0.9
3.2
-0.7
3.8
+0.4
+1.5
+0.2
+0.6
1.3
2.3
4.7
+3.5
+2.4
Tourism (net)
-1.3
-1.6
-1.6
-0.3
-.-
U.S. Private capital
-3.9
-4.3
-6.2
-2.3
-1.9
All other items
-0.1
0.4
0.1
+0.1
-0.3
Balance on regular transactions -3.9
-3.3
-3.0
+0.9
+0.3
Sub-total
Note:
1964(est.)
Improvement (+)
1963-64(est. )
1960-64(est. )
.
Figures may not add due to rounding.
Treasury Department
Office of Balance of Payments Programs, Operations and Statistics
March 6,
1965
TABLE
5
UNITED STATES GOLD STOCK AND CONVERTIBLE FOREIGN CURRENCY HOLDINGS,
AND FOREIGN DOLLAR HOLDINGS, SELECTED YEARS
(In Millions of Dollars)
Foreign Do11a~Ho1dings!J
u.s.
End of Period
Gold
Stock
U.S. Holdings of
Convertible
Foreign Currencies
Total
Foreign
Countries
International
and Regional
OrganizationsY
1945
20,083
6,88J11
6,88J11
1949
24,563
8,226
6,409
1,817
1957
22,857
16,600
14,861
1,739
1960
17,804
23,598
18,686
4,912
1961
16,947
116
25,371
20,187
5,184
1962
16,057
99
27,129
21,073
6,056
1963
15,596
212
28,680
22,825
5,855
1964 p
15,471
432
31,164
25,289
5,875
11
Short-term dollars and marketable U.S. Government bonds and notes.
~/
Includes dollar holdings of Int. Mon. Fund, ($3356 million at end of 1964, largely in the
form of non-negotiable, non-interest-bearing notes, plus proceeds of $800 million of gold
sales by the Fund to the U.S.)Excludes non-negotiab1e,non-interest-bearing notes held by
International Development Association and Inter-American Development Bank.
Short-term only; data not available on foreign holdings of marketable U.S. Government bonds
and notes.
Treasury Department March 6,1965
Preliminary.
11
p.
Estimated Gold fleserves and Liquid Dollar Holdings of Foreign Countries and International OrGanizationsl.,,/ TABLE 6
Area
TOTAL. FOREIGN COUNTRIES
Total, Western Europe
{In millions of dollars2
Dec. 31,
June 3u,
196u
1945
38. Wt 6
19,3U2
25,94G
lU ,.2.J1.
Sept. }J,
1 C)6!+
48,?W
32,u8?
Dec. 31,
19c4 p
n,a.
n,a,
I3clGiwn
France
Germany
857
;',265
7
1,314
2,1(,5
6,450
1, 8;~1
6,438
1,887
5,392
6,257
Italy
Netherlands
Switzerland
61
483
1,509
3,08,
1,783
2,957
3,226
1,968
3,731
3,728
2,055
4,093
IJni ted Kingdom
Other
2,702
2,648
4,887
3,3lU
4,624
5,174
Canada
1. 6CJ6
J..J:L:.
~
~
Total, Latin American Reps.
la.2?2
~
W7Q
-lL.!!.
216
3,4 0 9
8(,U
2,733
1, C06
3,094
1,130
n.a.
~
W.0.
6,068
-ll&..
210
2,046
2,137
2,3 0 9
2,852
3,216
2,967
n,a.
1,283
1,251
1,912
n.a.
7,351
8,/t 22
Venezuela
Other
Total, ABia
Japan
Other
Total, Other Countries
INTEFJiATIONAL AND REGIONAL
5,h.A.J
n.a.
n.a,
8,053
P - Preliminary. n.a. - Not available.
Includes official gold reserves, and official and private holdinGS with banks in the U.S. of short-term
dollar assets and U.S. Government bonds and notes, except for non-marketable U.S. Treasury notes, foreign
series, and U.S. Treasury bonds, foreign currency series, which are excluded. U.S. GovernmenT !:lands and
notes are included in this table beginning with 1960 since data on these holdings are not available prior
to December 31, 1949. Gold reserves of U.S.S.R., other Eastern European countries, and China ~minland
are excluded.
11
TABLE 7
GOLD HOLDINGS OF FREE WORLD COUNTRIES
AND INTERNATIONAL ORGANIZATIONS
(In millions of U.S. dollars)
As of
Sept. 30,
1964
As of
~.
31,
1964
15,643
15,471
2,302
n.a.
16,245
16,860
592
1,395
92
3,565
4,149
2,104
1,601
31
182
2,532
600
1,451
92
3,729
4,248
2,107
1,688
31
189
2,725
Canada
990
1,026
Japan
290
n.a.
5,031
n.a.
40 2 501
n.a.
2,519
n.a.
43,020 e
n.a.
United States
United Kingdom
Continental Europe (developed) - Total
Austria
Belgium
Denmark
France
Gennany
Italy
Netherlands
Norway
Sweden
Switzerland
All other countries
All Countries
International Organizationsl/
Grand Tota 1 :
n.a.
11
Not Available.
e
Estimated.
Includes International Monetary Fund, European Fund, and Bank
for International Settlements
Note:
Detail may not add to totals because of rounding.
Treasury Department
Office of Balance of Payments Programs,Operations and Statistics
March 6.1965
TABLE 8
U. S. PRIVATE CAPITAL OUTFLOW. 1964
(-outflow, + inflow) (In Millions of Dollars)
Direct
Investment
All Countries, 1964 entire year
Other
Long
Term
Short
Term
-2.0
Total
-6.2
-==
-2.2
-0.7
=====
==--=-=
======
-1.5
-0.2
-0.8
-1.4
-1.2
-0.1
-0.7
-0.9
-2.9
-
Canada
Western Europe.!.!
Japan
Australia, New Zealand and
South Africa
-0.1
-0.9
-0.1
-0.2
+0.1
-0.3
-0.3
-0.1
-0.3
-0.3
-0.3
-0.9
-1.4
-0.5
Less Developed Countries, total
-0.3
All Countries, Jan-Sept.,1964
Developed Countries,Total
11
Foreign
Securities
-1.3
-0.1
-3 9
0
--
-0.1
-0.1
-0.1
-0.5
Including Finland, Greece, Iceland, Ireland, Portugal, Turkey and Yugoslavia.
Source:
=
Survey of Current Business, December 1964, for the first three quarters
Treasury Department
Office of Balance of Payments Programs, Operations and Statistics
March 6,
1965
-1.0
TABLE 9
u.
S. Long-Term Private Capital Outflows and Income
1960 - 1964
(Millions of Dollars)
Direct investment
Capital outflows
Investment income
Balance
Foreign Securities and
Other long- term
Capital outflows
Investment income
Balance
Total
Capital outflows
Investment income
Balance
1960
1961
1962
1963
1964(est)
-1674
2355
-1599
2767
-1654
3050
-1888
3072
-2200
3600
681
1168
1396
1184
1400
-863
405
-1025
476
-1227
538
-1685
617
-1956
730
-458
-549
-689
-1068
-1226
-2537
2760
-2624
3243
-2881
3588
-3573
3689
-4156
4330
223
619
707
116
174
Treasury Department
Office of Balance of Payments Programs, Operations and Statistics
March 6, 1965
TABLE 10
UNITED STATES INTERNATIONAL INVESTMENT POSITION
END-SELECTED YEARS
(In billions of dollars)
U.S. assets and investments abroad, total
Private investments
Direct
Other long term
Short term
U.S. Government credits and claims
Foreign assets and investments in the U.S.
total
Private obligations
Long term
Short term
U.S. Government obligationsl/
NOTE:
1/
1946
195B
1959
1960
1961
1962
1963
lB.7
5B.7
62.7
6B.9
75.0
BO.3
BB.2
13.5
7.2
5.0
1.3
41.1
27.4
10.2
3.5
44.B
29.B
11.4
3.6
50.3
32.B
12.6
4.9
55.5
34.7
14.3
6.5
60.0
37.2
15.5
7.3
66.4
40.6
17.6
B.1
5.2
17.5
17.9
lB.5
19.5
20.3
21. B
46.3
-
15.3
34.4
39.1
41. 2
46.0
==-=--
=
=
==z:
~
12.3
7.0
5.3
27.3
16.4
10.9
28.9
lB .1
10.9
30.5
lB.4
12.1
34.B
21. 4
13.4
33.6
20.2
13.3
3.0
7.1
10.2
10.6
11. 2
12.7
51. 5
37.B
22.B
14.9
l3.B
Detail may not add to totals because
of rounding.
Mainly foreign holdings of U.S.Government securities; also includes Export-Import Bank
Certificates, non-interest bearing notes for subscriptions to international organizations
(excl. IMF) and advances for military exports.
Source: U.S. Department of Commerce
Treasury Department
Office of Balance of Payments Programs, Operations and Statistics
March 6, 1965
TABLE 11
OUTSTANDING UNITED STATES DIRECT INVESTMENT IN EUROPE
AND
EUROPEAN DIRECT INVEStMUT II THE mUTED STATES
(Millionl of Dollars)
By Europe in
By the United
the United States States in Europe as
as of December3l.,1963 of December3L 1963
2,665
4,216
Belgium
161
351
France
182
1,235
Germany
149
1,772
Italy
102
668
1,134
445
Sweden
185
220
Switzerland
825
668
89
776
5,491
10,351
United Kingdom
Netherlands
Other European Countries
Total:
Source:
Survey of Current Business, August 1964.
Treasury Department
Office of Balance of Payments Programs, Operations and Statistics
March 6, 1965
TABLE 12
U, S, PRIVATE BANKING CLAIMS ON FOREIGNERS
(Millions of Dollars)
Increases
All Countries! Total
Short-terD1!:.1
Long-term
Co¥ntries, Total
Short-term_1
Long-term
Develo~ed
.Less DeveloEed Countries, Total
Short- tern\~j
Long-term
1.1
II
Amount Outstanding
Dec, 31 , 1964
1962
1963~.I
1964
465
338
127
1,232
641
591
2.296
1,354
942
380
264
116
965
464
501
1.412
741
671
6.277
4,03s!1
2,242
85
74
11
267
177
90
884
613
271
4 1 103
2,374 11
1,729
10.380
6,409
3,971
Exc ludiug co11ec tions. which increased by $175 million during 1964
and amounted to $1,007 million as of December 31, 1964.
The long-term total of $591 million (which includes both long-term
loans and other long-term claims) compares with $739 million in
the Commerce Department published figures which also include approximately $150 million of coumercial bank "takeovers" of claims
on foreigners from U.S. business firms.
March 6. 1965
Treasury Department
Office of Balance of Payments Programs, Operations and Statistics
TABLE 13
CLAIMS ON FOREIGNERS BY U. S, BANKS
As of December 31, 1964
(In Millions of Dollars)
Outstanding
12-31-64
Total claims reported by banks* •..••••......••••..•.• $10,380
Short- term* ........ " ........
II
•
•
•
..
..
•
..
..
•
•
•
•
•
•
•
..
..
..
..
•
•
..
•
..
...
6,409
Dollar Claims:
Loans ..............................................................................
~
e
2,652
Credits .••••......••.....••••.•••...
2,600
Other !)ollar Claims.............................
552
Foreign Currency Claims:..........................
605
Long-Term Banking Claims ......•.........•••.•.....
3,971
Acceptance
Loa n s .. . . .. " .. .. . .. . . . .. .. .. .. ., "" . . • ..
Other . ~ .........
iii
(t
11
••
fO
...
fi
....
e
<)
v
8
..
•
CI
•
....
8
It
..
t'Il
~
..
..
1f
..
•
....
Cl
..
•
~
•
I)
..
•
..
..
..
..
•
"
•
..
..
..
..
..
..
•
..
3 , 777
195
Note: Details may not add to totals because of rounding.
*Excluding collection items.
Tre2sury Department
Office of Balance of Payments
Programs, Operations and Statistics
March 6, 1965
ANNEX
II
The following material is supplied for the record in
response to a request by Senator Wallace F. Bennett that
information on seven specific points be furnished for the
hearings of the International Finance Subcommittee of the
Senate Banking and Currency Committee, March 9, 1965.
1) The volume of counterpart funds still available by
countries.
The attached table sets forth latest complete analysis
of balances of foreign currencies acquired without payment of
dollars from all sources, including PL 480 Title I receipts,
dated June 30, 1964.
"Excess currency" country balances are segregated at the
top of the page. "Excess currencies tl are the currencies of countries for which the Treasury Department determines (after reviewing the availabilities and prospective uses) that the supply
is great enough to more than cover requirements for the next
two or three years. Indonesia is not an excess currency for
FY 1965 and was removed from the list as of July 1, 1964.
Guinea was added to the excess currency country list by BOB
memorandum dated February 25.
1
T.bl. IS -. ANALYSIS OF nALA~C[S OF FOREIGN CURRENCIES.
ACQUIRED Il1l1ooT PAYMENT OF DOllARS. JUNE U. 196.
(In U. S. d.ll •• o.u; •• lonr • • OR'. a.itt.d)
AVAILABLE FOR U.S. USE
UNIT OF
CURRENCY
Excess C>trrtjncy Countries: !aI
• Burma
InJia ---------____________
Int.1onl'5ia
y _________ _
Kyet _ _ _ _ _ _
Rupee _ _ _ _ _
Rupillh _ _ _ _ _
Pound _ _ _ _ _ _
Rupee _ . _ _ _ _
Zloty _ _ _ _ _ _
Pound _ _ _ _ _ _
Diner _______
Isreel - - - - - - - - - - - - - P&klst.n ____________
• Foland ________________
Iln1ted Arab Republic _______
Yugoe la via ___________
Totel Excee. Currency
COW1trie. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
RESTRICTED
11
39.855
20.216,069
110.215
9.406
2.747.010
HON-RESTRICTrnY
2/
~~
Jl.I
13,114
J.VULABLE
FOR COUNTRI
USE
TOTAL
21
TOTAL
nUWLE
11.462.601
371.811,125
4.528.319
31.726.707
106.971.282
11,502.457
)92,027.194
4.638.534
31.736.114
109.718.29)
25.579.897
587.708.385
27.516.416
38.694.7)9
75.147.907
)7,082.354
979.735.580
32.154.951
70.430.853
184.866.201
489,930,580
489,94),695
--
489,94),69~
2.638.83) 1~,75.876.447
78.515.281
163.732.428
242.247.709
1-___..:1;,:1..;,2.:,;.3:..0;.:3-t1-2._'..I_....;.47~.B60...:.....:.•.:,529-4f-_...:....4:...7.:.•.:.97_2..:.:...8.:.3.:.3+-_ _242.:....;.:...1.:.).:.3:..1_0_2-+_ _290...:....:..1:..0..:5.:.:..936:::..
t-__2:..5:...886_..:.._809_+_1..:._140_:...1_68....;.._1_16-t__1.:,.166_..:._0_54_.:..9_2_6+_1...:._1_60_.5_1_2...:.._878_+-_2:..:.)2_6:..•.:..56_7..:._8....,:04
lJ II
Non-P.x.,eS8 Cu.rrency Countriee :""
Afghenistan _____________
ArGentina _________________
Austrel1e ______________
Au.tri. ______________________
Se Igu1.m _________________
A6rnluda _________________
Bolivia _______________
Brazil ~ __________
Cambodia _______________
Caned. ___________________
Ceylon ________________
Chile _________________
Chine _____________________
Colombia ___________________
__________________
Con~rJ
Costa Rica _____________
---_______________
r:zechoalovakia _________
[)erunark -_________________
_______________
I Sa vador ______________
-.thlopia ______________
r'inland ___________________
~yprus
~:cU8dor
~
~
~·ranctl
------__________ _
Afghani _ _ _ _ - - - - - - . Peso _______ _
515
Pound _ _ _ _ _ _
1.707
Schilling _____ _
22.279
Franc _______ _
185.419
Pound _______
421
Peso _ _ _ _ _ _ _
2,905
Cruzeiro _ _ __
19.838
Riel _ _ _ _ _ _
5.987
Doller _ _ _ _ _ _
Rupee ______ _
75,208
Eecudo ______
1,166
Doller _ _ _ _ __
110,674
Peso _ _ _ _ __
7.123
Franc _ _ _ _ __
22.476
Colon
Pound _ _ _ _ _ _ _
917
Koruna ______ _
1.032
Krone _ _ _ _ _ _ _
148.925
Sucre _________
5.363
Colon _________ _
Dollar ________ _
177.358
New Markka _ _ _
4,552
F'ranc ______ _
Jermany --------_______ _ W.O. Hark _____
---&. _____________ _ E.D. Hark _ _ _ _
Pound _______
_________________ _ Drachma _ _ _ _ _ _
Cl.U1tema.la ___________ _
Quetzal _ _ _ __
Franc _______ _
Gu1nea ---- ____________ _
_____________ _
Gourde _ _ _ _ __
Honduras ______________ _ Lempira ______ _
Ilong Kong ______________ _ Dollar ______ _
Hungary ----___________ _ Forint _______
Iceland ______________ _ Krona _______
Iran _____________________ _ Rial _______ _
Iraq ---------_________ _ Dinar _ _ _ _ _ _
Ireland _______________ _ Pound ______ _
Italy --------- _________ _ Lira _________ _
Jamaica ________________ _ Pound ______ _
'~erm.a.ny
I~reece
~161tl
Japan -----------------Jordan
_________________ _
Yen _____________ _
Dinar _______ _
Kenya -----------------_____ _
Korea ----------- __________ _
Won ________
-·----------1
See t'ootnOtel on ~
-----444.683
6,531.549
157,175
2,364.950
476.870
9.657.805
2,316.872
1.216.526
-------219.315
-----43.991
------- ------710.430
uhans - - _________________ _
Laos ---------------------Le banon , - - - - - - - - - - - - - - Libya - - - - - - - - - - - - - - - Halayei .. - - - - - - - - - - - Hali - - - - - - - - - - - - - - - Mexico - - - - - - - - - - - - - Morocco --------------------Nepal - - - - - - - - - - - - - Netherlande - - - - - - - New Zealand - - - - - - - Nicaragua - - - - - - - - Nigeria
---Norway
Paraguay
Peru
Philippines
Portugel
Rhodelia. Southern
8.597
124.718
123,651
144.632
667,905
E.A. Shilling _ _
Kip ______ _
Pound---____ _
Pound - - - - -_ _
Dollar - - - Franc - - - - - Peeo - - - - - Dirham - - - - - N.llupee
Guilder
POWld
Cordoba - - - Pound
Krone
GU&l'&Ili
Sol - - - - - Pelo
&Boudo
POUlld - - - - -
2,273.328
62,621
2.584
1.493
134.354
-------1.533
-------10.179
15.096
544.445
5.498
315
1.694
78.462
28
27,259.659
1,7)8
6;:9
54.278
249
2.717
646
4.100
20.040
4.622
3.443
2.583.966
428,171
-------
------5.704.905
106.88)
2.807 .601
555,294
901.01~
-----135.37
3.967.63
154.44'
4.611
815.56
------1. 70~ .971
301.12
201.75
21.49
2.040.)9'
2.492.811
57.71
653.29
110,19
------65.7)9
709
28.521
24.922
3.741
200.8()(
347.62
9<Y7
;0&:
525.240
54.547
)9.232
5O.4~
99.03.
557.65(
8,597
125,233
125.358
166.912
85).324
421
447.589
6.551.)88
5.987
157.175
2.440.158
478.0)6
9.768.479
2.323.995
1.2)9,002
1.278.504
104.182
13.372
------5.550.939
52.163.057
343.874
12.760.744
1.453.688
28.016.629
1,211.108
9,654,811
47.160
1.1)2.540
220.232
1.032
148.925
49.355
811,597
887,788
2.588.518
2.701,499
02,621
2.584
1.493
5.839.259
106,883
2.809.1)4
976.049
2.439.563
58.945
7.759.940
19.522.915
1)0.553
12,147,042
------ -------555.294
911.194
15,096
679,823
3.973.131
315
1.694
232.912
4.647
28.075.224
1.7)8
629
1.757.249
249
)03.844
202.)98
25.593
20.040
2.045.021
2.496.257
57.711 719.0)1
110.90)
28.521
225,723
351.363
907.086
575.711
153.579
596.882
351.567
lJ.031.680
-----------_._3.636.391
12.817.857
690.406
-------447.20)
20.625
55.560
15.340.924
878.192
5.351.277
6.928,260
lJ.485.926
16,343
'I
2
1,287.101
229 .415
125.358
180.285
853.324
421
5.998.528
58.714.445
349.862
157.175
15.200.902
1.9)1.724
37.785.109
3.535.104
10.89) .814
47.160
1.352.773
1,032
148 .925
860.953
-----1.863.837
'.028.082
2.760.444
7.822.561
2.584
1.49)
2,,362.175
237.436
14.956.176
555.294
911.194
15.096
1.031.)90
17.004.812
315
1.694
3.869.303
4.647
28.075.224
1.738
629
14.575.106
690.656
303.844
649.601
25.593
40.666
2.100.5 82
17.8)7 .181
57.711
1.597.22)
110.903
28.521
225.72)
351.)63
6.258,)64
7.503.971
1).6)9.505
596.882
1.6.34)
hbl. IS -- ANALYSIS OF BALANCES OF FOHEIGN CURRENCIES,
ACQUIRED IIITIlOUT PAYMENT OF DOLLARS, JUNE 30, 1964 - (C. . lillM.~1
(I D U S d 0 11 . [ 59!)"· 1 en J! I
n ta 0.1 tl! d)
r
..
·AVA IUBLE FOR U.S. USE
UNIT or
ClJRIilllCY
COUNTRY
•RESTRICTED
NON-RESTRICTED
AVAILABLE
TOTAL
FOR COUNTRY
TOTAL
USE
AVAILABLE
Non-Excess Currencl
Countries: - Continued
,;er,~gal
------------------ C.r.A. Franc - - -
Sierra Leone - - - - - - - - - - Somal! -------------------South Africa --------------Spa in --------------------Sudan --------------------SVElden ----------------------
Swi tzerlsl'ld - - - - - - - - - - - - Syrian Arab Republic -------Tha i land --------------Togo ------------------TllIll3io - - - - - - - - - - - - - - -
W.A. Pound - - - S. Shilling -------
Rand - - - - - - Peseta - - - - - - -
Poun~
1.485
---------------------48
;,485
1.6)2
735
9.35'
668,290
12,812
------------
Krona ---------Franc - - - - - - - - Pound - - - - - - - Baht - - - - - - - - C.r.A. Franc - - - Dinar
Lira - - - - - - Pound - - - - - - Peso
Bolivar
Piastre
Turkey - - - - - - - - - - - - United Kingdom - - - - - - - Uruguay - - - - - - - - - - Venezuela - - - - - - - - - Viet-Nam
Other - - - - - - - - - - - Total Non-Exce •• Currency
Countries Total All Countries - - ~.
1.485
--------195.)26
4.175
3,882
---------------48
----------------6)1,047
18,648,833
6)6.533
507,297
508,929
711.352
3,279,)94
1,535,789
712,OA8
3,288.747
2.204.079
12,812
7.415
3,775,305
21.18) ,262
13,658,959
1.456.274
)08,774
2,219.576
--------7,415
-------3,774,166
1,139
19,607,588
1,004,514
787,500
308,774
2.217,974
1,575.67)
12.654.444
668,774
------1,601
1.7621 768
7),508,578
1.485
199.502
3,882
195.326
~
87 687 716
.227,855 ,If)).
-
11<
1f1Q
48
170,377
19.285,366
8.499,843
712,088
3,288.747
20,153.859
1,712.187
.7,415
14,225,567
63.041,)39
18,289,154
1,824,8)8
308,774
1),028,018
170.m
]16
1 505 725 194
480.521 801
2,807.089,606
7,990 ,913
-----------------17,949.779
1,699,374
-------
10,450,262
41.858,076
4,6)0,195
368.56)
------.10.808,441
I~<
1 )01 )6I..LiI
1J.•
~?1?
P'OOTNOTES
Reslrir.:ted by the terms of intern&tlonel agreements or
7
lnclud~s t4,501,769 e.rm.r~ed for 104(g) 108ns pursuant to ollocotion letters No's. 35J and J54, dated
Augu9t 5, 1964 and August 17, 1964, reapectively.
8
Includ~6 $744.)53 earmarked for 104(6) grents (IndUS
Bosin Program) pursuant to allocation lettar No. 349,
d.ted Morch 9. 1964.
9
lneludes $125,29) earmarked for 104(g) loons i'ureuant to alloe.tion letter No. 348. doted Februery
21, 1964.
by admini9trative determinotion to use for specific
programs flnd may not be used for other purposes.
twn-restricttJd currencies mey be used for peynlent of
official U. S. oblige tiona in the countries concerfled
and for accommodation exchanges for lI.S. personnel.
J
use currencies ere U. S. olJrlsd foreign curren\oIhlch ere restricted to expenditure for joana or
graflts.
4
Whtlre the :3upply or
,-:::OUfltry
l~ies
Ii nonrestrll'led curren..:y l::)l.IbstsoLially exceeds the nomel operating requiremerlts of
the Government {exclusive of requirements financed by
restricted or reserve currencies} I the currency 1s
dElsignated en ~ currency by the Treesury Department.
10
11
lnclu~e9
$1,6(.8,76) .arIll!irk.. d far 104(0) grants pursuent to ellocstion letter No. 352, doted June 9, 1964.
(,'
Pursuant to Bureeu of the Budget's Bulletin No. 65-5,
doted September 15, 1964, i t i. expected thet Br.. U
will be designated
88 8n
excess currew.:y country
upon the signing of the eontemploted I.th ogreement
under Ti Ue I of the Agriculturel Trode Development
ond Assist.nce Act of 1954, os .mended (Public Lew
480) .
Hos been removed from the Ust at' excess currency
countries for purposes of budget request9 for the
flscol yeor 1965.
1::
\/here the supply of nonrestrlcted currency haldings
are not expected Bubst.ntislly to exceed requirements for the ressollsble fOTseeable future.
Analysis of non-restricted holdings available for U.S. use:
Excess Currency Countries
Non-Excess Current.:y Countries
Norl-restrh:ted funds
Less:
Alloca ted for Country uss
Undisbursed reservation
balance
Net aV81labllity
$
$1,140,168,116
87,687.717
- 7,040 ,378
$1,227,8);,833
- 7,040,)'/8
- 262,5'1),OJi
, 958,22 2 ,42
- 127,59<,,164
• - )9,998 ,"7
3
2) Conditions, if any. under which these funds can be
used to reduce the balance-of-payments deficit.
Treasury Circular No. 930, provides that "unless
otherwise authorized by the Secretary of the Treasury, no
agency or accountable officer shall purchase, or direct
the purchase of, foreign exchange from any source outside
the Government of the United States, except when exchange
for the purpose intended is not available for purchase from
within the Government".
All of our agreements (negotiated under Public Law 480
which provide for payment in foreign currencies), contain a
clause setting aside a specific amount or percentage for use
by the United States Government. The percentages range from
10 to 50% of the total sales contract and utilization of
these currencies to meet official expenses of the U.S. Government represents a saving in dollars directly benefitting our
balance of payments.
Some activities, other than regular government operations,
for which the U.S. Government uses foreign currency holdings
(when and where possible) are:
1) Payment of U.S. Government contractors and their
personnel in the foreign country.
2) Payment of veterans benefits, social security,
and any other benefits to beneficiaries living in the
foreign country.
3) Payment of air-line fares, freight bills,
communications and other services in the foreign country.
4) Procurement of materials required within the
country and, when possible, those needed for U.S. operations in other countries or in the programs of aid to
other foreign countries.
5) Sales to U.S. Government personnel, military
and civilian, as accommodation exchange.
6) Sales to U.S. citizens for travel or other purposes,
when possible by agreement with the host government.
4
- 2 -
In the past decade the United States has obtained benefit
to its balance of payments from utilization of foreign currencies as set forth in the following table.
As indicated in the table on our foreign currency holdings,
in the great majority of countries, these holdings are working
balances and are being used to meet our official requirements.
In most cases, not only these amounts will be fully used but
we will have to purchase some local currency with dollars to
meet our requirements in full. However, in eight countries
(Burma, Guinea, India, Israel, Pakistan, Poland, the United
Arab Republic, and Yugoslavia) our supply of foreign currency
is in excess of our estimated requirements and special problems
are involved.
Sales for payment in local currency under PL 480 are made
only in those cases where payment cannot be made in hard
currency and otherwise the sale would be lost. The excessive
amounts of local currency on hand, therefore, are a by-product
of u.s. aid through the Food-for-Peace program. Since these
goods were sold for local currency primarily because the
receiving country did not and does not have foreign exchange,
the effort to utilize the foreign currency in any way which
could deny the host country receipt of foreign exchange it
might expect otherwise is strongly resisted by the host government. Further, to the extent that u.S. use of these funds
reduces foreign exchange receipts of the host government,
the u.S. aid effort is circumvented. Nevertheless, the U.S.
has used these currencies to the maximum degree possible as
provided under the agreements and is constantly pressing for
more liberal arrangements about the use of these excess currencies. However, this effort requires negotiation with each
government concerned, and since the host governments foresee
no gain for themselves and even a loss of foreign exchange
from agreeing to our more extensive use of these currencies,
they do not willingly agree.
5
BALANCE OF PAYHENTS BE:TEFIT DERIVED FROM THE USE OF FOREIGN CURRENCY
ACQUIRED WITHOUT PURC:WSE WITH DOLLARS FISCAL YEARS 1955-1964
.'--li
1955
JJL.L-L-1..Lf_lI1'::>
1956
Ui
UU.Ll..Ol.
1957
C
U...l..VCL.J...C;l.lv~
1958
1959
,--
1960
--
1962
19(:3
f------ c-----
1964
1961
-
f----- --- - - --- - - - - -
Foreign currency used under appropriations for U,S, programs. 1/
321.4
240.9
258.6
270.5
240.6
208.3
240.1
242.1
;(87.0
321. 8
Less: Currency used under special
fnreign ,~urrency appropriations.
-----
-----
-----
3.6
2.4
1.0
21.4
39.3
45.6
29.2
Balance of payments benefit derived
from foreign curren~y usage. 2/
221 .4
2~0.9
258.6
2()6.9
238.2
207.3
218.7 "-_202.8
2[1.4
29 2 .!--'
11
Includes sales of foreign currency to U.S, personnel.
2/
This assumes that programs other than those authorized by special foreign currency appropriations would have
been carried on at the same level had there been no U.S. foreign currency holdings.
21
Includes $73.3 million resulting from the unfunding of ce~tain accounts pursuant to Section 508 of P.L. 88-257.
JL
3) The amounts of World War I loans to European
countries still outstanding.
Attached is a table showing the indebtedness of foreign
governments to the United States arising from World War I,
as of June 30, 1964; also, some supplementary tables on the
status of this indebtedness.
7
THE WORLD WAR INDEBTEDNESS OF FOREIGN GOVERNMENTS TO
THE UNITED STATES
(1917-1921)
Part I
Statement Showing Indebtedness, Also Payments of
Foreign Governments to the United States.
Part II
Payments Made Since July 1, 1932.
Part III
Summary of Receipts by Fiscal Years.
Part IV
World War I Indebtedness, Payments and Balances
Due Under Agreements Between the United States and
Germany in Reichsmarks and U. S. Dollars.
Part V
Indebtedness of Germany Under the Funding and
Moratorium Agreements of June 23, 1930 and May 26, 1932.
Source:
Treasury Department
Bureau of Accounts
8
PART I
Indebtedness or l'oreiOl Governments
Iudebt.edno38 or fo:-ei ~ gnvcrr.ments to th~ United 6ta.le.3 ari 3irg fro,.,. tbrl'1 lVar I J 85 of J~e 30. 19t1J
~ount due June '0, 19l1.
Cunulatt ve pOj'DIenh
Origl.nal
I nd..tJt...tne3'
Interest throueh
ohme }O, I96/,
Total
T')ta1
Int?rc~t
f'rlnclpal
l/ruoetur..d
pr1ne1pal
Principal end intereot
due .,d unpdd
lnoenia - - Austria
!I - -
I
l1,~,'7I1.L9
26,
"";193,(;('3.31
f
41.,05/3.9'
3,ll.8.(.6
Relet_ - - Cuba
419,8~7,6}O.37
':'tf!'Cho~lrr.n'_!" ~
185t071,02~ .. 07
t
38,153 ,OOO.~6
26,687 .::rl? Sq
713,771,,350. el,
12, ?fI6, 7'>1. 'ill
26~, 36" ,0';8. ;E
HaJ.y - - - - - - -
;> ,01,2,36/.,,319.:>fl
Latrta - - - - -
6,f'1'8 ,604. 20
Liberi .. - - - - -
26,000.00
b,L32 ,L6S. 00
l/,l, 950. ~6
.><)3,936, 720. ~1
2.2f'6, 7<;1. 'ill
97 ,297 ,635- 71
20,152,190. 01
10,9'Jl,7HI.",
2,59,1l7,L 8 7.IL
6,524J,31 ,~.1l
1(',-{81, 8.1'"
2, 576, ~35. 31
295,003,72O.?2
8,5H,006.g}
10,L71. 56
7,J65,L12.IL
26,625.411
2fl7 , 3UJ ,297,31
Z51 ,91.6, 6oL. ~
lJ,,397,677.11
16e,S75.e/,
L6';,2?O,9Ql.75
~~,~~,~~
639,800,782.30
B2 ,9}2, Y>5.!.L _
~...!'ton~.
----
Fi'lland - - "ranee - - - - ~rea.t fTi laiP- Qrrtte
IV ------
"''''gary 5 / - Litlr",nla - - "I """'g'~a §/ ----
Po1a.;oi - - - Iiunoni. - - - P.u .. ta
10,000,000.00
16,111>,012.87
B,9'T!,m.g1
L,OIl9, 689, 58ll.18
11,502,181,61,1.56
32,L9;,922.6,
1JC)I12f55Sw~
l:~~~~:U
Total - -
12,19~,2t\1,~~.92
--
!I n...
----
J.9,2Rl,L,I:tL 11
~,;'56,0)().131
L5,~U, 305. B4
6B,359,l'P.L5
~~laY1. - -
~b,6H\J?02.8f
19,9r,3,71cl.r.3
.0,,91.1,/3<'9,077.3:11, :26, f'll , 59".61
!
--
-
---------
8f2..666.0()
19,A'9,'J11,.17
------------?! 3.15 1 ,300.98
--- - - - - - - - - 3},033,642. B7
t
:>,<'8<',751.58
301,,1'18.09
1,21,0,/.}2.07
Z/l0.117 ,285.?7
;>,'6,O}9,'jb5.'b
')to.O~SJ~02.A2
I ~1 .. 181,/ql.cf,
',5 'O ,f72,f;,6.IA
3, 1L3, 133.3L
'''',9 2 1..26
19,157,00.37
' 0, OOO,{)O(l.oo
9n,9 2?67
73,990.50
37,1.61,,'19.28
~",L71. 56
26,coo.oo
23,122,1,97 ,190.83
-
~
2,33 ,31..8,03,}.50
15,1,21,671. 11
1IL,17~,Lge.£19
10,929,229,851. Q l
-------------
~3.~6r;..560.&f)
75?,3W.07
?,?OO.OO
lo,L71. ~6
23L,7S3.(\()
I!,' ,950.,6
1,?f7 ,?OJ7. 37
4,L9 8 ,632.02
1,003,1':".59
1,952,712, 'i'i
26, 625.48
21,3'N,OOO. IS
Y <'92,375.20
,)/8, ~,~:~~
760 ,/,95,556.01
l,99II,~,2~3.45
7./
Y
-------
---
-
c...-.,.
!'ederal ~blle at
IIa.o ~hed Ua'illty rar 8ecuriUe. falling due ben.,." ra,..,~ l~, 1938 and 113,. 6, 1945.
gj t5,985,605.58 haJJ - . !OSde available Car ...meatianal C-IC"""IJ'! progr.... with F1nla.~d J>-lrou""t to 20 U.S.C. 2Z"-2;t,.
}/ _ _ _ _ dd.......t 111_ _ _ daLe Dec. 15,1961./;/ ~ ~1l,336,ooo.1IO or ttl' de>-t ....1eh M.. _
rof'l1r.ded by tNo .~t of i!ay 2!', l<lfl. n,., .gree~""t has not bem
... tifi...! by ec..~..
5/ Iat.ereort ..,..,....ts fro. n,.". 15, 1<)32 to June 15, 1'-'37 .. ere po.Id In ...... ~o ",,,lval ..... t.
U '\be Inrl·~~es. or Nl'2n1"". "". r.llJleeIed pur""""t to thoo a g r _ t of April 11:, 1938.
7./ ~1u-1e3 claiJo! all"..... ce.?: 11,~"L"6.69 dated ~~. 15, ]':'29.
r:z:elude!l ~~t or nO"l,OOJ.OO Ql .June Ill. IqLo as a to'cfTl or eood f3i th.
.
W
Y ?rinelpall:;
!Jroc~~ f'rrr.J Itqni-i.1.tioc of Rus:rlan .'to~!:f!ts in th~ !Jn1te-d Stale,g.
9
~
3B,753,ooo.86
26,0:1" 539. 59
f.h1,583,077.60
-------.---262,2)/,,566.')2
3" ;'(9. 770.Al
t
',53 0 ,505.24
2l9,';leo,UOO.00
--------
91,~15,ooo.OO
10,036,o()(\.oo
C;,?f-S,1)2.1A
~,2LB,6GB.99
b,L~5, 733, Ifll,. 32
1,3 01 ,75',.301.93
ls, 15)"I,~5.10
1,9511, 69l,ab]. 71
1,,001,971.05
;> ,23 6 , 530, 1~f). 3L
IL,bW,l:>2.oI..
2.701,000,000.00
9,lCO,000,OO
1, Zl?,0(l5.00
1,202,900,000.00
4,2}O,3oo.00
-------13,159,920. Sf
-------
-----3,859,007.00
---------
109,~L,Ifll.07
~5,00L,ooo.oo
LJ,? ,N).,6IJl,.:>o
128,375,000.00
631,050,['70.1.2
P.9~Jll
- - ~6l5..-0Q9.~
aJ,3 63,bW,40l.37
6,I,gL,OlB,L6 5.94
•
~.m,ono.66
2'2,1,9/, ,03/,.35
4L1 ,ffi3, 077. W
---------170,35'>,76<:.52
2-5,}}),7 7 O.Bl
~/' }/',LB.19
L,LCT/ ,oIIl, 31/,.0
6,600,759,3 0 1.93
36 ,05)',1(1).10
2,71l9,fI.86,05
953,63 5 ,159.31.
10,1.<."9,822.04
--------~-
9,lOO,cH3.'>6
--------
nL,269,60)'.20
7L,300 ,I,ql. 07
6r ,058 ,LIo.),z
u,l,l,e..5:i3JlL_
1},6&},li,1 ,'35.1,3
PART II
PAYMENTS MADE DURrnG PERIOD F2.0M JULY l z 1932 TO JUNE 30 z 1964
Fundin~
Principal
Czechoslov.:J.ki a
-Total
$ 1,8 29,914.17
Y
-0-
-0-
$ 7,150,705.00
94,692.50
91,770.00
$1,286,469.12
21,132.18
21,132.18
30,000,000.00
83,055,999.07
-0-
113,055,999.07
Y
Total
-0-
1,035,120.00
-0-
1,035,120.00
11
Total
-0-
88,453.44
-0-
88,453.44
Y
Total
-0-
3,245,458.26
-0-
3,245,458.26
Y
Total
9,200.00
118,182.28
-0-
127,382.28
11
Total
-0-
109,376.36
-0-
109,376,36
11
Total
-0-
29,061.46
-0-
29,061.46
11 ~
Total
-0-
15, 1932 to
1963
15, 1963
1964
Great Brito.:'..n
Total
$ 1,829,914.17
2,901,000.00
167,000.00
Greece
Hungary
Interest
Moratorium
Agreements
Annuities
-0-
Tota!
finland
Decembc:June 15,
December
June 15,
A!£:eements
Italy
Latvia
Lithuania
Rumania
11,338,174.12 1/
282,824.68 112,902.18
Rus::;ia
$34,907,114.17
-0$95,018,818.37
-0-
$1,328,733.48
-0-
$131,254,666.02
1/ lor detailed analysis of payments see supplement of June 30, 1961.
Does not include $1,433.01 paid on unfunded indebtedness b,y the Provisional
Government of Russia.
1/ Does not include token payment made June 15, 1940.
!I
10
11
PART III
Summary of Receipts
Total. Fiscal Year 1933
Tr.ro\.lr;h Fi8~al Year 1963
1964
Total
Principal
Interest
$35,018,017 .17
176,397.98
$95,342,355.00
219,328.B8
$130,860,372.17
395,726.86
$35,194,415.15
$96,061,683.88
$131,256,099.03
?or a detailed analysis of Receipts
by
II
Fiscal Years see supplement of June 30, 1961.
11
PART
IV
World vJar I i ndphtedl1C'ss, payment;; ;,nd ba}8.l1ces dlJC
under a:,;reemf'nts hr:>tHee!1 thn Ilni t~d 3t,:1; co, and Ger;,.J:lY
as of June 30, J96~
Agreement of
June 23, 1930
and May 26, 1932
Amy costs
(reichsmarks)
i'iix( d clai ms
(rcich;;marks)
Total
To~al
(U.S. dollars)
(rcicltsF.arks)
Indebtedness as
funded ••••••••
1,01l8 ,100, 000.00
l/1,63?,OOO,ooo.on
-----
2,680,100,000.00
Payments:
Principal •••
Interl'?st ••••
50,600,000.00
856,006.25
i31,600,000.00
5,610,000.00
132,200,000.00
6,066,ho6.25
1/
3/
31,539,595.8~
138,666, Ll06. 25
1/
33,587,809.69
~/ $1,080,88~,330000
2 , 00 8 , 213 • 85
Total •••••
Balance:
Principal •••
Interest ••••
~/
Total •••••
51,056,006.25
87,210,000.00
997,500,000.00
469,250,707.75
1,550,1\ CO, 000.00
039,110,000.00
~/
2,547,900,0\)0.00
908,3 60,707.75
"1/
1,466,754,707.75
1,989,510,000.00
2/
3,056 ,264,707.75
Y
-Agreement of
February 27, 1953
Mixed claims
§.!
(U.S. dollars)
Indebtedness as
funded in U.S.
dollars
$97,500,000.00
1/ Excludes 089,600,000 reichsmarks canceled under aRreement
~/
2/ 1,027,568,070.00
366,303,~f36.60
1,393,911,556.6h
Total payr:ents
through
June 30, 1960
$Ol,SOO,OOO.OOJ __
Balance due
$ 56,000,000.00
of February 27, 1953 (see note 5).
The amount of indebtedness as funded was conv8rted to U.S. dollC'TS at tl.e rate of LO.33 cents to the
reichsmarks.
PART IV
J/
1±/
The amount of paymcnto t'Cl.S converted at the rate applicable at ti!'le of payment, i.e. J 40.33 or 23.32
cents to the reichSLlc>..rks ..
Includes interest accrued under unpaid moratoriU3 agre~~ent annuities a~ountinG to 5,239,989 reichs~arks.
5./
§/
Includes 4,027,6J.l e 95 reichsmJ.rks d~po3ited by the German wvern.:1Cnt in the Konversiooskasse fur
Deutsche Auslandsschulden and not paid to the Untted States in dollrtrs as rt(j~llred by the agree:-le:1t.
Under the agreement of Feb. 27, 1953, the United States agreed to cancel and deliver to t!1e Ge:inan
Government 2h reichsI:larks bonds of 20,400,000 reichs::l2rks each, issued under the a~r<.:eme'l:' of JW1'3 23,
1930, and receive 26 dollar hands amounting to $97,500,000. These bondS mature serially over a Fsriod
of 2S years beginning Apr. 1, 1953e The first 5 bonds are in amounts of $3,000,000 each, the next S in
amounts of $3;700,000 each, and th~ rCD?iring ]6 in amounts of $4,000,000 eachc
13
PART
V
lNDERTFJ)NESS OF GEPJ1ANY UNDER THE F1INDTNG AUD mnATORIHH AGREENENTS
OF JUNE 23, 1930 AND nAY 26, 1932
N:1cunts not paid accoc-ding to contract terr~3, June 30, 1964 (in i'?ichsmarks)
ArJi'Y Cos ts and j'li::ed Clairns
Funding~em2nt
Interest
Principal
Total due
through
Sept. 30,
March 31,
Sept. 30, 1933
March 31, 1963
1963
1964
Total (reichmmarks)
of June 30, 1964
1,682,300,000.00
38,050,000.00
38,050,000.00
11
lloratoriulTl
Agl'<2e],lcnt
----------, -
Total
-~-~-~~~~.---~-~---
82911133;312oS0
)6 11 560,250 .. 00
37,390,156.25
30,580J989~OO
903,083,718.75
30~580,989,,00
-0-0-
2,5h2,014 11 301oS0 ~
74,610g250.00
75 g 440,156.25
as
1,758,400,000.00
2,69 2 ,064,707.75
----------------------------------------------------------------~----------~~~-------
Total (in U. S. dollars
@ 40.33 cents to the
reichsJDark)
$709,162,1 20.00
$364,213,663.17
$12,333,3l2.86
$1,085,709,69 6 .63
Total (in U. S. dollars
@ 23.82 cents to the
reichsmark)
$418,850,880.00
$215,114,541.81
$ 7,284,391.58
$
641,249,813.39
~
y
~/
In accordance with the agreement of February 27, 1953, a reduction was made in the amount of 489,600,000
reichsmarks (24 bonds in the amount of 20,400,000 reichsmarks each) in exchange for 26 U. S. Dollar bonds
in the amount of $97,500,000 p~able in installments, on A9ri1 1st. of each year, until paid by the Federal
Republic of Germany.
For a detailed
ana~sis
of amounts coming due each semi-annual period see supplement of June 30, 1961.
4) Conditions, if any, under which these can be offset
against the balance-of-payments problem.
Most governments fulfilled their commitments under their
World War I debt agreements until the depression. Defaults
began in 1932, following the expiration of the one-year moratorium on debts owed to the United States negotiated by
President Hoover in an effort to mitigate the effect of these
debt obligations on Europe's economic health. With the exception of Finland, which is the only country which has continued fully to meet its obligations, debtor countries have
made only token payments since the early 1930's and no payments
at all since the beginning of World War II.
While the countries which have large World War I obligations to the United States have never denied the juridical
validity of their debts, there is a strongly held view
among them that the payment of these debts should be dependent on reparation payments by Germany. Resolution of the
problem of governmental claims against Germany arising out
of World War I was deferred "until a final general settlement
of this matter ll by the London Agreement on German external
debts, concluded in 1953. This Agreement, to which the United
States is a party, has the status of a treaty and was approved
by the Senate.
The Government of the United States has never recognized
that there was any connection between the World War I obligations of those countries and their reparations claims on
Germany. While the London Agreement would not prevent the
United States from raising, on a bilateral basis, the question
of payment of any of the debtor countries' World War I obligations (except in the case of Germany), it must be recognized
that any effort on the part of the United States to collect
these obligations would undoubtedly raise the problem of
German World War I reparations. From the practical viewpoint,
therefore, there does not seem to be any possibility of reaching an agreement on repayment in the absence of an over-all
settlement of the German World War I reparation problem, with
its wide-ranging political ramifications.
15
5) Can you supply the Committee with the volume by
country of soft currency we have acquired under Public Law
4801
...............
The attached table sets forth both total acquisition
and disbursement of local currency under the PL 480 program
since its inception in 1954. Balances are as of June 30,
1964.
16
FOREIGN CURRENCIES ACQUIRED AND DISBURSED UNDER TITLE I, PUBLIC LAW 480.
SINCE INCEPTION OF THE PROGRAM IN 1954.
(In millions of Units of Foreign Currency)
Page 1
4/
COUNTRY
Argentina
Austria
BolivIa
Brazil
Burma
Ceylon
Chile
China
Colombia
Congo
Cyprus
Ecuador
Ethiopia
Finland
France
Germany
Greece
Guinea
I col and
Indi!!
Indonesia
Iran
Israel
Italy
Japan
Korea
Hexico
Morocco
Nepal
N8thorlanda
Pakistan
CURRENCY
Peso
S:::hilling
Peso
Cruzeiro
Kyat
Rupee
Escudo
N. T. Dollar
Peso
Franc
Pound
Sucre
E. Dollar
Nev Markka.
Franc
W.D. Mark
Drachma.
Franc
Krona
Rupee
Rupiah
Rial
Pound
COLLECTIONS
Dr SBURSEJ·1ENTS
BALAUCES JUNE 30, 19b4THROUGH JUNE 30,- 196~
ULHTS OF
BY AGENCIES
SALES
FOREIGN
DOLLAR
OTHER
THROUGH
PROCEEDS PROCEEDS 11 JUNE 30, 19642J CURREUCY EQUIVALENT
633.6
1,044.2
181.2
110,511.8
214.6
126.9
51.2
5,858.0
350.0
2,677.9
.5
181.4
1.9
115.7
152.7
5.0
3,562.2
3,584.0
471.0
9,6'4.9
20,056.7
3,475.5
521.4
Lira.
90,074.6
Yen
52, 659.7
\~on
37,840.7
Peso
314.6
Dirham
102.4
Nepalese Rupee--------Guilder
1.0
Rupee
3,434.9
11.4
---------
3.4
532.8
21.3
2.0
7.1
50.8
44.3
----------------2.5
--------120.5
12.5
--------237.1
----------
15.0
155.2
192.4
69.4
63.5
1,291.2
---------
79.4
54.2
7.9
.1
--------89.3
17
630.7
1,043.9
119.2
47,714.9
115.0
65.1
52.9
4,773.4
381.7
1,651. 7
*
183.7
.6
228.4
165.2
5.0
3,254.6
803.2
470.1
6,902.0
5,829.8
3,007.4
467.1
91,019.3
52,637.3
34,495.5
368.1
33 •.3
.1
1.0
3,174.2
14.3 $
.3
65.5
63,329.7
120.8
63.8
5.4
1,135.4
12.5
1.026.3
.5
.1
1.3
7.9
.1
*
5.5
54.6
25.6
13.4
1.8
28.4
1.3
6.8
1.3
*.S
2.4
--------- ---------~--~------
544.8
2,780.8
15.9
)/2,881.1
14,419.3
537.5
117.8
346.5
22.4
3,424.6
.7
77.0
---------18;a
11.8
.4
ED5.9
2:7.9
1.2
39.3
.6
.1
13.4
.1
15.4
--------- ------------------ ---------350.0
72.9
I
FOREIGN CURRENCIES ACQUIRED AND DISBURSED UNDER TITLE I, PUBLIC LAW 480,
SINCE INCEPTION OF THE PROGRAM IN 1954.
Page 2
............
.. - - -- its of Foreign Currency)
_---
4/
DISBURSEHENTS
COLLECTIONS
THROUGH JUNE 30, 1964 BY AGENCIES
THROUGH
OTHER
SALES
PROCEEDS PROCEEDS II JUNE 30, 1964
COUNTRY
CURRENCY
Paraguay
Peru
Philippines
Poland
Portugal
Spain
Sudan
Syrian Arab Republic
Thailand
Tunisia
Turkey
United Arab Republic
(Cairo)
Uni ted Kingdom
Uruguay
Viet-Nam
Yugoslavia
TOTAL
Guarani
Sol
Peso
Zloty
Escudo
Peseta
Pound
S.Pound
Baht
Dinar
Lira
1,508.5
773.E
106.3
12,150.8
205.0
22,895.8
3.7
125.2
91.7
14.1
3,169.0
Pound
Pound
Peso
Piastre
Dinar
247.5
17.4
158.9
5,871.5
326 721. ~
46.4
42.1
1.2
----------------710.4
--------.9
3.7
.1
107.8
7.6
--------24.8
--------8 866.0
873.9
628.7
62.9
456.6
205.0
22,519.1
1.0
52.1
95.4
9.9
2,909.9
181.6
13.3
176.5
5,109.4
152,461.9
BALANCES JUNE 30. 19b4
Y
UNITS OF
FOREIGN
CURRENCY
DOLLAR
EQUIV ALENI'
681.0 $
187.0
44.6
11,694.2
5.4
7.0
11.4
48T;,J
1,087.1
2.7
74.0
7.9
18.1
4.3
366.9
~028
--------- ---------18.2
--------- ---------10.3
73.5
4.1
7.2
762.1
183,125.6
169.4
11.4
.4
10.5
244.2
$ 1.997.2
I
I
i
1
FOOTNOTES
*
11
Y
JJ
4/
Under 50,000
P.L. 480, 104(e) and (g) loan interest and repayment of principal and proceeds from sales of
104(d) commodities
Disbursements exceed collections in some countries because of conversions from other countries
Includes 20.3 rupees ($4.3) held in Nepal.
Total U.S. Government balances, including U.S. Use and Country Use funds in
Treasury end other' agency accounts.
18
6) Explain the conditions. if any. under which these
funds can be used to reduce the balance of payments deficit.
The answer to this question together with an analysis
of how these funds are being used is set forth in the answer
to question number 2 above.
19
7) In your opinion at this late date could Congress
pass any kind of legislation which would open up these funds?
Our foreign currency balances have arisen largely as a
direct consequence of our substantial sales of surplus agricultural commodities to friendly countries. Their acquisition
and use is negotiated through bilateral inter-governmental
agreements and any attempt to alter them by unilateral legislative action would require a judgment, not simply in terms of
the foreign currency aspect of the problem but, in terms of
our over-all foreign policy objectives. Such unilateral
legislative action at the present time does not appear likely
to be useful.
Any consideration of legislative action to dispose of substantial portions of our holdings of excess U.S.-owned foreign
currency by grants, as some hcwesuggested, should take into
account the possible loss to our balance-of-payments that
could be involved. The excess status of some of our currency
holdings may change quickly if unforeseen developments arise.
20
TREASURY DEPARTMENT
WASHINGTON.
March 10, 1965
AHTIDUlfPIHG PROCEEDIHG ON
VELV'li:T FIDOR C01f~HINGS
On Februil:cy 18, 1965, the Commissioner of Customs received
information in propc.c form pursuant to the provisions of section
14.6(a) of the Customs Re~ulations that all shipments of velvet
floor coverings imported from Great Britain, manufactured by
Carpet Trades Limited, Kidderminster, Great Britain, are being,
or li%ely to be, sold at less than fair value vithin the meaning
of the lilltidumpinc; Act, 1921, as mnended.
Information Vlas received from sources vithin the Customs
"
.
oerVlce.
An "Antidumpinc; P:coceedinl3 Hotice" to this effect is being
published in the Federal ReGister pursuant to section 14.6(d) (1) (i)
of the CUStOT1S
ReG~llations.
The dollar value of imports received durinc; the period AUl3ust 1,
19G}~, throuC;h December 31, 1964, was approxir:Jately $25,000.
TREASURY DEPARTMENT
March 10, 1965
FOR n1l',rEDIATE RElEASE
ANTIDUMPING PROCEEDING ON
VELVET FLOOR COVERINGS
On Februa~J 18, 1965, the Commissioner of Customs received
information in proper form pursuant to the provisions of section
14.6(a) of the Customs Regulations that all shipments of velvet
floor coverings imported from Great Britain, manufactured by
Carpet Trades Limited, Kidderminster, Great Britain, are being,
or likely to be, sold at less than fair value within the meaning
of the Antidumping Act, 1921, as amended.
Information was received from sources within the Customs
Service.
An "Antidumping Proceeding Notice" to this effect is being
published in the Federal Register pursuant to section 14.6(d)(1)(i)
of the Customs Regulations.
The dollar value of imports received during the period August 1,
1964, through December 31, 1964, was approximately $25,000.
- 3 -
and exchange tenders viII 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
treatment, as such, under the Internal Revenue Code of 1954.
any
special
The bills are subject
to estate, inheritance, gif't or other excise taxes, whether Federal or state, but
are exempt from all taxation now or hereaf'ter 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.
- 2 -
decimals, e. g., 99.925.
Fractions may not be used.
It is urged that tenders
be made on the printed forms and forwarded in the special envelopes which will
be supplied by Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
others than
banking institutions will not be permitted to submit tenders except for their
own account.
Tenders will be received without deposit from incorporated banks
and trust companies and from responsible and recognized dealers in investment
securities.
Tenders from others must be accompanied by payment of 2 percent of
the face amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those
submitting tenders will be advised of the acceptance or rejection thereof.
The
Secretary of the Treasury expressly reserves the right to accept or reject any
or all tenders, in whole or in part, and his action in any such respect shall
be final.
Subject to these reservations, noncompetitive tenders for each issue
for $200,000 or less without stated price from anyone bidder will be accepted
in full at the average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders in accordance with
the bids must be made or completed at the Federal Reserve Banks on
1965
March 18, _
i'1'6t
, in cash or other immediately available funds or in a like face
amount of Treasury bills maturing
March 18, 1965
------~~~{~~:=~r~------------
Cash
TREASURY DEPARTMENT
Washington
March 10, 1965
FOR IMMEDIATE RELEASE
~
TREASURY I S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two serie
of Treasury bills to the aggregate amount of $2,200,000,000
, or thereabouts, for
,{ficash and in exchange for Treasury bills mat\lring
of $2.200
t, -
-
6f.'000
.-,;;.;Ma;;;;.r;..c;;,.;h;;;.......;;1~8~':h~1..;..96.;;..5~_,
{~-
in the amoun
, as follows:
March 18, 1965
91 -day bills (to maturity date) to be issued
---_'""!I~=e~~----{~in the amount of $1,200,000,000 , or thereabouts, represent-
-ti~ing an additional amount of bills dated
and to mature
June 17, 1965
----.,..,{Q,,;:.,~~----
December 17, 1964 ,
-{8~, originally issued in the,
amount of $ 1,000J604,000, the additional and original bills
-fiQ~-
to be freely interchangeable.
182 -day bills, for $ 1,000,000,000, or thereabouts, to be dated
-fII~-f16~September 16, 1965
March 18, 1965
, and to mature
- { liJ~-{14~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,
on~-thirty
p.m., Eastern Standard time, Monday, March 15, 1965
-(la~Tenders will not be received at the Treasury Department, Washington. Ea.ch tender
must be for an even multiple of $1,000, and in the case of competitive tenders the
price offered must be expressed on the basis of 100, with not more than three
TREASURY DEPARTMENT
March 10, 1965
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
$2,200,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing March 18 , 1965 ,
in the amount of
$ 2,200,860,000, as follows:
91-day bills (to maturity date) to be issued March 18, 1965
in the amount of $ 1,200,000,000, or thereabouts, representing an
additional amount of bills dated December 17,1964, and to
mature June 17, 1965,
originally issued in the amount of
$1,000,604,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $ 1,000,000,000, or thereabouts, to be dated
and to mature September 16,1965.
Harch 18,1965,
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
(maturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
up to the c los ing hour, one -thirty p. m. ,
Eas tern Standard
time, Monday, March 15, 1965.
Tenders will not be
received at the Treasury De~artment, 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.
IJ)-1531
- 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 each issue for $200,000 or less without
stated price from anyone 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
Res:rve Banks on Ma~ch l8? 1965, in cash or other immediately
ava~lable funds or ~n a l~ke face amount of Treasury bills
maturing March 18, 1965.
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 lOBS 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.
000
TREASURY DEPARTMENT
WASHINGTON,
March 10, 1965
HITIJtOlDING OF APPl1AISlQ·lEHI' OF
PERClIIDLlliJ:'EYIEllE SOLV'.2;HT
The
'l'reasur~r
Department is instructing customs field officers to
,.'it11hold appcaisement of perchlorethylene solvent IP-420 from France)
L!Clnufacturecl
;)~
Solvay 2: Cie) Paris) France) pendin:-:; a determination
ns to ilhether tb1s merchmdise is bein,:.; sold 2_t less than fair value
lIithin the neaninc of the Anticlu,llpin: Act) 1921) as amended.
Notice
to thi:::; effect 1s bein;::; published in the Federal Re;ister.
LJncler the imtidUIJpinc; Act) deterr1.ination of sales in the United
States at less than fair value would require reference of the case to
the Tariff Com.r.~ssion) I1hich would consider whether American industry
Ylas bein; injured.
Both dUIJpin; price and injury must be shown to
.justif:.' a findin;:; of dwnpinc; under the lavr.
ThE:.:: inforraat1on allec::in3 that the merchandise under consideration
,ras -ueinc:::; sold at less than f8.ir value i-Tithin the meaninG of the AntidUl'npin= Act was received in proper forr.l on November 6) 1964.
The in-
fornation vas received froL1 Sources within the Customs Service.
The dc2-lar value or ir:rports received durinG the period July 1
TREASURY DEPARTMENT
March 10, 1965
FOR IMMEDIATE REIEASE
WITHHOLDING OF APPRAISEME}IT ON
PERCHIDRETHYIENE SOLVENT
The Treasury Department is instructing customs field officers to
withhold appraisement of perchlorethylene solvent IP-420 from France,
manufactured by Solvay & Cie, Paris, France, pendinz a determination
as to whether this merchandise is being sold at less than fair value
within the meaninG of the Antidumping Act, 1921, as amended.
Notice
to this effect is beine published in the Federal Register.
Under the Antidumping Act, determination of sales in the United
States at less than fair value would require reference of the case to
the Tariff Commission, which would consider whether American industry
was being injured.
Both dumping price and injury must be shown to
justify a finding of dumping under the law.
The information alleging that the merchandise under consideration
was being sold at less than fair value within the meaning of the Antidumping Act was received in proper form on November 6, 1964.
The in-
formation was received from sources within the Customs Service.
The dollar value of imports received during the period
throuGh November 30, 1964, was approximately :):.200,000.
Ju~
1
TREASUF.Y DEPARTMENT
1tJASHINGTON
IMMEDIATE RELEASE
D-1532
THURSDAY, MARCH 11, 1965
The Bureau of Olstoms has announced the follm-ring preliminary
figures showing the imports for consumption from January 1, 1965,
to February 27, 1965, inclusive, of commodities under quotas
established pursuant to the Philippine Trade Agreement Revision
Act of 1955:
Commodity
.• Established Annual
Quota Quantity
Buttons ••••••••
510,000
Cigars ••••••••
:
.
Unit of • Imports as of
:
Quanti ty February 27, 1965
Gross
84,636
120,000,000
Number
824,855
Coconut oil •••
268,800,000
Pound
109,700,632
.......
6,000,000
Pound
1,251,911
Tobacco •••••••
3,900,000
Pound
526,587
Cordage
TREASURY DEPARTMENT
WASHINGTON
IMMEDIATE RELEASE
THURSDAY, MARCH 11, 1965
D-1532
The Bureau of CUstoms has announced the following preliminary
figures showing the imports for consumption from January 1, 1965,
to February 27, 1965, inclusive, of commodities under quotas
established pursuant to the Philippine Trade Agreement Revision
Act of 1955:
:
COl'l1lTlodity
.
Established Annual : Unit of • Imports as of
Quota Quanti ty
• Quantity • February 27, 196~
Buttons ••••••••
510,000
Cigars ••••••••
Gross
84,636
120,000,000
Number
82h,855
Cocormt oil •••
268,800,000
Pound
109,700,632
.......
6,000,000
Pound
1,251,911
Tobacco •••••••
3,900,000
Pound
526,587
Cordage
-2-
Commodity
·
··
of
·· Unit
Quantity
Period and Quantity
as
·· Fe~orts
• 'Z7, 196
0
Absolute Quotas:
Butter sUbstitutes containing over 45% of butterfat,
and butter oil •••••••••••
Calendar Year
Fibers of cotton processed
but not spun •••••••••••••
Peanuts, shelled or not
shelled, blanched, or
otherwise prepared or
preserved (except peanut
butter) ••••••••••••••••••
n -1
~ '.< '.<
1,200,000
Pound.
12 mos. from
Sept. 11, 1964
1,000
Pound.
12 mos. from
August 1, 1964
1,709,000
Pound
Quota Fille
Quota Fille
TREASURY DEPAR'INENT
Washington
IMMEDIATE RELEASE
THURSDAY, MARCH 11, 1965
D-1533
The Bureau of Customs announced tod~ preliminary figures on imports for consumption of the following commodities from the beginning of the respective quota
periods through February 27, 1965:
··
Commodity
Period and Quantity
: Unit of
: Quantity
: Imports as of
:Feb. Z7, 1965
Tariff-Rate Quotas:
Cream, fresh or sour
•••••••••
Calemar Year
1,500,000
Gallon
48,0)8
Whole Milk, fresh or sour ••••
Calendar Year
3,000,000
Gallon
13
Cattle, 700 1bs. or more each
(other than dairy cows) ••••
Jan. 1, 1965 Mar. 31, 1965
12 .!DO s. from
Cattle, less than 200 Ibs. each April 1, 1964
120,000
Head
200,000
Head
55,810
Fish, fresh or frozen, filleted, etc., cod, haddock,
h&{e, pollock, cusk, and
rosefish •••••••••••••••••••
Calendar Year
24,383,589
Pound
Tuna Fish ••••••••••••••••••••
Calendar Year
To be
announced
Pound
4,175,915
\ihite or Irish potatoes:
Certified seed •••••••••••••
Other ••••••••••••••••••••••
12 mos. from 114,000,000
Sept. 15, 1964 45,000,000
Pound
Pound
107 , 452,1l5
Quo ta Filled
69,000,000 Pieces
Quota Filled
Knives, forks, and spoons
Nov. 1, 1964 with stainless steel handles Oct. 31, 1965
11
Quota
Fill~
Imports for consumption at the quota rate are limited to 6,095,897 pounds during
the first 3 months of the calendar year.
TREASURY DEPAR'n1ENT
Washington
IMMIDIATE RELEASE
~HURSDAY,
D-1533
MARCH 11, 1965
The Bureau of Customs announced
tod~
preliminary figures on imports [or con-
sumption of the following commodities from the beginning of the respective quota
periods through February Z7, 1965:
··•
COIllIOOdi ty
Period and Quantity
: Unit of
: Quantity
:Imports as of
:Feb. Z7, 1965
Tariff-Rate QUotas:
Cream, fresh or sour
•••••••••
Caleniar Year
1,500,000
Gallon
Whole Milk, fresh or sour ••••
Calendar Year
3,000,000
Gallon
Cattle, 700 1bs. or more each
(other than dairy cows) ••••
Mar. 31, 1965
13
Jan. 1, 1965 12
IOO s.
120,000
Heed
4,Pi73
200,000
Head
55,810
from
Cattle, less than 200 1bs. each April 1, 1964
Fish, fresh or frozen, filleted, etc., cod, haddock,
hake, pollock, cusk, and
rosefish •••••••••••••••••••
Calendar Year
~
Calendar Year
24,383,589
Pound
Quota FilleJ/
To be
Fish ••••••••••••••••••••
White or Irish potatoes:
Certified seed •••••••••••••
Other ••••••••••••••••••••••
announced
Pound
4,175,915
12 mos. from 114,000,000
Sept. 15, 1964 45,000,000
Pound
Pound
107,452,115
Quota Filled
69,000,000 Pieces
Quota Filled
~ves,
forks, and spoons
Nov. 1, 1964 with stainless steel handles Oct. 31, 1965
'JJ
Imports for cOll5umpUon at the quota rate are limited to 6,095,897 pounds during
the first 3 months of the calen:lar year.
-2-
Commodity
···
of
·••• Uiiit
Quantity
Period and Quantity
: ~orts as OI
: Fe. Z7, 1965
Absolute Quotas:
Butter substitutes containing over 45% of butterfat,
and butter oil •••••••••••
Calendar Year
Fibers of cotton processed
but not spun •••••••••••••
Peanuts, shelled or not
shelled, blanched, or
otherwise prepared or
preserved (except peanut
butter) ••••••••••••••••••
D-1533
1,200,000
Pound
12 ms. from
Sept. 11, 1964
1,000
Pound
12 ms. from
August 1, 1964
1,709,000
Pound
Quota Filled
Quota Filled
TREASURY DEl'AR'Dmn'
Washington, D. C.
IMMID lATE RELEAS E
THURSDAY, MARCH 11, 1965
D-1
The Bureau of CUstoms announced todq prel.1.m1nary' figures showing the
quanti ties of wheat and milled wheat products authorized to be entered, or
witMrawn from warehouse, tor consumption umer the import quotas established
in the President's proclamation ot Mq 28, 1941, as mod1t1ed by the President'l
proclamation of April 13, 1942, am provided for in the Tariff Schedules or
the United. States, for the 12 months COlJllDellcing Mq 29, 1964, as tollows:
••
••
Country
of
Origin
Milled wheat products
Wheat
Established ••
Quota
Established
Quota
Canada
China
Hungary
Hong Kong
Japan
United Kingdom
Australia
Germ.any
Syria
New Zea18lXi
Chile
NetherlaMs
795,000
79$,000
100
100
100
100
2,000
100
Argentina
Italy
CUba
France
Greece
Mexico
Panama
-
Poums)
(Bushels
1,000
100
Uruguq
Po1am am Danzig
Sweden
Yugoslavia
Norwq
Canary Islands
3,815,000
24,000
13,000
13,000
8,000
75,000
1,000
5,000
5,000
1,000
1,000
1,000
14,000
2,000
12,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
3,815,000
1.,000,600
3,816,1l7
720
397
1,000
100
100
Rumania
Guatemala
Brazil
Union of Soviet
Socialist Republics
100
100
Belgium
Other foreign countries
or areas
800,000
79,,000 /
TREASURY DEPAR'.tHnn'
Wuhington, D. C.
IMMEDIATE RELEASE
THURSDAY, MARCH 11, 1965
D-1534
The Bureau of CUstom announced todq prel.im1nary' figures showing the
quantities of wheat and milled wheat products authorised to be entered, or
witbirawn from warehouse, tor conaumption uBier the import quotas established.
in the President'lS proclamation ot Mq 28, 1941, as D>d1tied bY' the President' IS
proclamation of AprU 1), 1942, and provided for in the Tariff Schedules of
the United States, for the 12 months CODlDellcing M&7 29, 196h, &8 follows:
Country
of
Origin
••
••
••
••
••
:
:
••
Wheat
••
•I
•• Established ••
Imports
••
:May
29, 196h,
Quota
:
;M.arch 8 I ~26 ~
Canada
China
Hungary
Hong Kong
(Bushels)
(Bushels)
795,000
79$,000
M1lled wheat products
••
;
•• Established ••
••
•I
Imports
Quota
:Mq 29, 196~
(POuMS)
:Harch 8 a If 5
(Pounds
),815,000
3,815,000
24,000
1),000
1),000
8,000
Japan
Un! ted Kingdom
Australia
Germany
75,000
100
720
1,000
5,000
5,000
100
100
Syria
New Zealam
ChUe
Netherlands
1,000
1,000
1,000
14,000
2,000
12,000
1,000
1,000
1,000
1,000
1,000
100
2,000
Argentina
Italy
100
Cuba
France
Greece
Mexico
1,000
100
Panama
Uruguq
397
~OOO
Polao:i an:i Danzig
1,000
1,000
1,000
1,000
Sweden
Yugoslavia
Honra;y
Can817 Islands
1,000
100
100
Rumania
Guatemala
Braz11
Union of Soviet
Sociali8t Republics
Belgium
Other foreign cauntries
or areas
100
100
~OOO
79;,eeo
4,000,000
3,816,117
TREASURY DEPAFTMEN!'
Washington, D. C.
IMMEDIATE
D-1535
hELLA~t
rHURSDAY,MARCH 11 1965
1
f'ItELThUNARY DATA ON IMPORT::' FOR CONSl'MPTI0N Of UNMANUFACTURED LEAD AND ZINC CHARGEABLE TO THE WCYI'AS ESTABLISHED
BY PBESIDKNTIAL PROCLAMATION NO. 3257 OF SEPTEMBF:R 22, 1958, AS MODITIED BY THE TAR!:"]!' SCHEDUU;S Cf THE
DNIT1i;J) STATJ:S, WHICH BECAM!: Efl'JI',cTIVE AUGUST 31, 1963.
OUAR'l'uu,y QUar.A. PERIOD -
IMPORTS I'l'EM 925.01.
.,
Country
.7 an
.l2.!"Y 1, 1965 -' ~..3.:'(J~: 31, 1965
Jar.l4B,ry 1, 19(,'. - ~il:-"h ), 196:, (or as not·:d)
ITEM 925.03.
•
I
Leai-beariDg ores
and materials
Umrrought lead aM
lead waste and serap
Produoti(')n
ITEM 925.04.
ITEM 925.02.
S
I
Zin..-beariDg ores ani
materials
s UDltTought zino (exoept allOYII
of z inc and. zinc clua t ) and
zinc waste and. sera,
Iq>orts
.l.u. tral1a
11,220,000
11,220, aoe
22,540,000
7,995,677
Belgiwn and
lAlxeIaburg (total)
Bolina
Canada
5,040,000
'·"1, ':98, ;u(J
13,+40,000
"·1;1,25'3,lCZ
15,920,000
... ·1::,867,958
66,480,000
;::6,4"li,(~·U
Italy
Yerloo
16,160,000
Peru
1;:;, 16c" coc
So. ilrioa
lA-,980,000
oountries
(~ota1)
6,560,000
-See Part 2, Appendix to Tariff
••Repub110 of South Afrioa.
---Import.
&8
37,840,000
'''-;,7, 34l",,'Jl
3,600,000
···1,71L',414
27,1~1,71C
70,480,000
JY,7 0 5,I3"c
6,320,000
·'·;,4-4(.,485
12,880,000
"·7,912,743
35,120,000
:4,"';9,954
3,760,000
"-2,6i:.,Sii
5,+40,000
·"5,'*;8,"47
6,000,000
6, "9(,, c<,c
14,98C,COO
yugos1ana
All other
••• ,':';'), . . . j'l
36,880,000
Republio of the Congo
(formerly Belgian Congo)
-~D..
7,520,000
···3,13C,575
S~hedu1es
of Maroh 8, 1965.
)Ol'P.6.'RF.n IN THJ: 'R"JREA.U OF CUSTCMS
•
15,760,000
"·2,232,2·12
6.080,000
•• ·248,048
11,840,000
17,84G,OCC
TREASURY DEPAFTMEN!'
Waahington, D. C.
D-1535
Df,fEDIA. TE FELEASE
URSDAY,MARCH 11 196~
--"-"-;:..;;;.:;...::..,,;z...:....:::...;;:.;:..::.;;~~:...;'L.:::tI'~!tE£pfl::;::IMINARY DATA ON IMPORT::' FeR CONSl,'MPTI('.N or um.!ANUFACTURED LEAD AND ZINC CHARGEABLE TO THE CUOTAS ESTABLISHED
BY PRESIm:NTIAL PROCLAMATION NO. 3257 OF SEPTEMBF.R 22, 1958, AS MODIfIED BY THE TAR!"'F SCHEDULES l·f THE
uNIT14.:D STATJ:S, WHICH BECAME En']r,c;TIVI: AUGUST 31, 1963.
~ Ma.roh
OUARTU{LY QUO'li PERIOD -
Jan'.mry
1, 1965
IMPORTS -
January
1, 196') - Marrh 5, 1965 (or as noted)
:rTI)d
925.01.
31, 1965
ITEM 925.04.
!TIl.! 925.02·
ITlld 925.03.
I
CcuDtry
.r
Leu-bearl~
ores
and materiala
Umrrought lead. aM
lead. wa.te ana. .crap
I
I
Zine-beari~
orell ani
material.
Procluotion
I
I
UDlfrought z1no (exoept a.llCl)"s
ef z 1llo aDd z1no dua t) aDd
zinc wast. aD4 aera,
ImpGrla
11,220,000
"-us tr...l1a
lAo_ urt
Be141u. and
11, 22C,OOO
22,540,000
7,995,677
(total)
Balina
Canada
5,040,000
···1,(;98,;00
13,+40,000
···13,253,1C2
15,920,000
.... ·12,867,858
66,480,000
66,4'30,(00
Italy
lIexioo
16,160,000
Peru
16,160,000
~.,.
1,.4,980,000
···),1)(.,575
.SS8 Part 2, Appendix to Tariff Sehedules •
••Republic of South Afrioa.
···Import.
&8
of Maroh 8, 1965_
PREP.uu:D IN THJ!: B'JREAU OF
GUST~
·"37, 84(;, IXK
3,600,000
·"1,722,414
27,1~1,71C
70,<480,000
39,705,8,,(;
6,320,000
.u3,44C,485
12,880,000
···7,912,743
35,120,000
14,:'F)9,954
3,760,000
···2,62C,812
5.440.000
···5,438,847
6,000,000
6,U8C,OCC
15,760,000
6,560,000
37,8040,000
14,88C,COO
yugoslarla
"-11 other
oountries {total}
"0499,C97
36,880,000
RepubUo of the CoDCo
(formerly Belgian Congo)
-"OD. So.
7,!520,000
6,080,000
···2,232,2'12
•• 0
248, C'48
11,840,000
17, 640, OC(;
-2-
COTTON WASTES
(In pounds)
COTTON CARD STRIPS made from cotton having a staple of less than 1-3/16 inches in length, COMBER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VALUE: Provided, however, that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3116 inches or more
in staple length in the case of the following countries: United Kingdom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy:
Country of Origin
_~_~.~
:
Established
TOTAL QUOTA
___~ ___ -=-~ ____
United Kingdom ••••••••••••
Canada ••••••••••••••••••
France..
• ••••••••••••••
India and Pakistan.
Netherlands ••••••••
Switzerland •••••••••••••••
Belgium. • •
• •••••
Japan ..•...•.............•
Ch ina. . . . . . . . • .
. ....... .
Egypt....
• •.•...•...•
Cuba. • . .
. ...••..•••.
Germany_
•••••••••••
Ita l.y. . • • •..••••••.•••••
Total Imports
: Sept. 20, 1964, to:
Imports
1/
Sept. 20, 1964
~_~~_~~!1ar~l1_lb_ :l.J_65 ____---=--~'I'Qt;ll.l_Qt,1()_t9._:_ to _March a~ 1965
4,323,457
239,690
227,420
69,627
68,240
44,388
38,559
341,535
17,322
8,135
6,544
76,329
21,263
1l,713
239,393
5,482,509
Established :
33-1/3% of:
1,441,152
43,264
75,807
25,475
25,443
7,088
319,795
1,599,886
22,747
14,796
12,853
Other, including the U. S.
II Included in total imports, column 20
TREASURY DEPAR'IMENT
Washington, D. C.
IMMFD lATE RELEASE
D-1536
THURSDAY, MARCH 11, 1965
Prelimina.l"y data on imports for consumption of cotton an::l cotton waste chargeable to the quotas established by
Presidential Proclamation No. 2351 of September 5, 1939, as amemed, am as JOOdified by the Tariff Schedules of the
United States which became effective August 31, 1963.
(The country designations in this press release are those specified in the appeniix to the Tariff Schedules of the
United States. There is no political connotation in the use of outDlded names.)
"
Country of Origin
Egypt and Sudan ••••••••••••
Peru •••••••••••••••••••••••
India and Pakistan •••••••••
China ••••••••••••••••••••••
Mexico •••••••••••••••••••••
az-asU •••••••••••••••••••••
Union of Sorlet
Socialiat Republics ••••••
Argent~ •••••••••••••••••
Haiti ••••••••••••••••••••••
Ecuador ••••••••••••••••••••
!I.
y
Established Quota
Imports
Country of Origin
783,816
247,952
2,003,483
1,370,791
8,883,259
618,723
416,864
68,899
Par~
Nigeria and Ghana.
Honduras ••••••••••••••••••••
••••••••••••••••••••
Colombia ••••••••••••••••••••
Iraq ••••••••••••••••••••••••
2,657,001
11
475,124
5,203
~I
g
237
9,333
~cept Barbados, Bermma, Jamaica, Trinidad,
~cept
Established Quota
am
British East Africa •••••••••
Indonesia and Netherlands
New Guinea••••••••••••••••
British W. Indies •••••••••••
.igeria•••••••••••••••••••••
British V. Africa. ••••••••••
Other. inc]udi~ the U.s ....
Tobago.
.
Cotton I-liSt. or more
Established Yearly Quota - 45.656.420 lbs.
ImPorts AURUBt 1. 1964 - ~mrch 8, 1965
Staple Length
1-3/Stt or J1X)re
1-5/32" or more
an:l under
1-3/8" (Tangu:is)
1-1/8" or JllDre and UDler
Al.lDcation
Imports
39.590;778
39,590,778
1.500.000
9,665
~Lr
~.'>
?_1LE;_7~~
752
871
124
195
2.240
71,388
21,321
5,m
16,004
Imports
TREASURY DEP A.R'lMENT
Washington, D. C.
D4MFD lATE RELEASE
D-1536
THURSDAY, MARCH 11, 1965
Prel.1m1na.ty data on imports for consumption of cotton an1 cotton waste chargeable to the quotas established by
Presidential Proclamation No. 2351 of September 5, 1939, as amemed, am as modified by the Tariff Schedules of the
United States which became effective August 31, 1963.
(The country designations in this press release are those specified in the appeniix to the Tariff Schedules of the
United States. There is no political connotation in the Use of ou'bIrIded names.)
COTTON (other than linters) (in poums)
Cotton umer 1-1/8 inches other than ~ or harsh lDXier 3/4"
!Qx>rts September 2<1. 12~ - Ma~Qh~.. _19 5
Country of Origin
EgJpt and Sudan ••••••••••••
Peru •••••••••••••••••••••••
India and Pakistan •••••••••
China ••••••••••••••••••••••
Mexico •••••••••••••••••••••
Brasil •••••••...••••••••.••
Union ot Sonet
Socialiat Republics ••••••
Argentina. •••••••••••••••••
Haiti ••••••••••••••••••••••
ECuador ••••••••••••••••••••
Y.
Y
Established Quota
Imports
Country of Origin
Established Quota
783,816
247,952
2,003,483
1,370,791
8,883,259
618,723
416,864
68,899
Honduras ••••••••••••••••••••
871
Colombia ••••••••••••••••••••
l24
195
2,240
Iraq ••••••••••••••••••••••••
2,657,001
!I
475,l24
5,203
237
9,333
~I
g
British East Africa •••••••••
Indonesia and Netherlands
Hew Guinea••••••••••••••••
British W. Indies •••••••••••
B1ger.1a •••••••••••••••••••••
Britiah 11. Africa. ••••••••••
other, including the U.s ....
Except Barbados, Benuia, Jamaica, Trinidad, ani Toba80.
EJtcept Jiigeria aM Ghana.
Cotton I-llsn or )lOre
Established Yearly Quota - 45.656.420 Ibs.
Imports August 1. 1964 - March 8. 1965
Staple Length
I-318ft or more
1-5/32" or IIIDre ani
1-3/8" (Tanguis)
"1_"1
rt:an ......
752
Par~ ••••••••••••••••••••
Allpcation
tmder
~~_JlP')d_~er ___ _
Imports
)9,590,718
39,590,778
1.500.000
9,665
n,J88
21,321
5.m
16,004
IIIport.s
-2-
COTI'ON WASTES
(In pounds)
COTTON CARD STRIPS made from cotton having a staple of less than 1-3/16 inches in length, COMBER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MMlUFACTURED OR OTIlERWISE
p~VANCED IN VALUE:
Provided, however, that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3116 inches or more
in staple length in the case of the following countries: United Kingdom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy:
Es tablished
TOTAL QOOTA
Country of Origin
United Kingdom ••••
Canada...........
• ••••
Fr ance •..••..••...........
India and Pakistan..
Netherlands ••••••••
Switzerland •••••••••
Belgium ••
Japan..
• •••
. ..... .
China.
Eg yp t. .
Cuba..
Gc rmany. •
Italy...
. •.....•••
. •..
•••
••
. ........ .
Total Imports
Established :
Imports
11
Sept. 20, 1964, to:
33-1/3% of:
Sept. 20, 1964
March 81]._9§5___ ~_TQt{lJ_QU()t<l_:_!.9_~ch 8., 1965
4,323,457
239,690
227,420
69,627
68,240
44,388
38,559
341,535
17,322
8,135
6,544
76,329
21,263
1l,713
239,393
25,425
25,443
7,088
5,482,509
319,795
1,599,886
1,441,152
75,807
43,264
22,747
14,796
12,853
Other, including the U. S.
~I
Included in total imports, column 2.
- 6 the reserve method and thus to enjoy the same tax advantage that
most large banks now enjoy.
As an alternative to the new ceiling, any bank using the
reserve method can add to its reserves according to the general
standards of reasonableness under current law o
Under these
standards, a bank must show that its reserve is necessary to
absorb probable losses on existing loans
0
in which a bank can meet those standards.
There are several ways
For example, a bank
will meet them if its reserves for any given year reflect its
average loss experience for the previous six years -- under a
formula described in the ruling o
Since the average recent loss
experience of banks has been about fifteen one-hundreths of one
percent of loans, it is unlikely that many banks will use this
alternative o
The ruling was published today by the Internal Revenue
Service in the attached Technical Information Release o
- 5 amount of its losses.
Thus, the bank need not reduce its
reserves in order to meet the new ceiling.
Instead, it can
maintain those reserves at the same dollar level while the growth
in its loans gradually brings the ratio of its reserves to loans
down to the new ceiling.
The uniform rate will benefit
J.J....3
I'· ,-:'~
9,S'C O
,--.ian 9, GOO of the
'Jlvl",..rrr,
approxim~{~ ~,~fr~commercial banks in the United States, by
J,~{),
allowing
the~
or so banks which now have no reserve to
establish one with a minimum of difficulty, and by allowing the
Jf.3 <'J(}
other
_~
to increase their existing reserves •
.s:--<." /)
Most of the approximately
~
banks which do not now
use the reserve method are small banks with deposits of less
than $5 million.
By eliminating the cumbersome procedures
involved in working out 20-year loss averages under the old
rulings, the ne\'l rule \vill make it easier for small banks to adop
ted that under the
i\
banking industry \ove~
i the
,
Vv
billion ..
.-.. -.
-.-- ..~
\
months of study conducted with \
t
es of the Federal Reserve Board,
rporation, the Comptroller of the
FRANCIS A. LAVELLE
dng industry.
The ruling will allmv a bank whose reserve is less than
2.
percent of outstanding loans to build up the differences
over a period of not less than ten years.
The bank may also
make, on an annual basis, additions to its reserve equal to
20
percent of its net increase in loans plus the net amount of
losses charged to its reserve.
A bank whose reserve exceeds 20
;
!
percent of outstanding
loans \Vill be allo\Ved to make annual additions equal to the net
- 3 -
of loans , 4 , 076 banks had ceilings between one and three percent l
1,556 banks had ceilings between three and five percent, and
1,092 banks had ceilings of five percent or more.
Despite these wide variances in reserve ceilings, the actual
reserves set up by all commercial banks at the end of 1963
amounted to slightly more than two percent of outstanding loans
for all banks, and to slightly less than 2.25 percent of outstanding loans held by banks which use the reserve method.
The
average reserve ceiling of banks using the reserve method is abou
2.50 percent of loans.
To minimize the great disparities in reserve ceilings, the
new ruling sets up a single reserve ceiling of
of outstanding loans.
2.~ percent
Since this percentage simply reflects a
fair distribution of the benefits of previous rulings, it will
have no significant effect on total tax liabilities of the
- 2 -
determines the size of the tax deduction, banks with high
rese~e
ceilings can claim correspondingly high deductions, and thus
gain a tax advantage over other banks with lower ceilings.
The reason why some banks have been allowed much higher
reserve ceilings than others was their ability -- under earlier
Internal Revenue rulings -- to establish high ceilings on the
basis of their heavy losses during the depression years of the
1930's.
Under these rulings a bank's reserve ceiling could
be set at three times its loss experience for the period 1928
through 1947.
At the end of 1963, for example, 5,239 of the 13,275 insured
commercial banks -- all but a few hundred commercial banks are
,
"
I ,'.~
'
~
insured -- did not use the reserve method and, therefore, haii'"
'If-,/'
reserves for bad debts.
Of the 8,036 banks which used the
rese~1
method, 1,412 banks had reserve ceilings of less than one percent
- DRAFT -
FOR IMMEDIATE RELEASE
TREASURY ANNOUNCES NEW RULING ON
COMMERCIAL BANK BAD DEBT RESERVES
The Treasury today announced a new ruling that sets a
uniform ceiling
__ 2. L~
percent of outstanding loans --
on commercial bank bad debt reserves.
The ruling will apply to
all commercial banks for taxable years ending after 1964.
Federal tax law allows taxpayers -- including commercial
banks -- to deduct a debt when it becomes worthless.
As an alter-
native, a taxpayer may choose to set up a reserve against possible
future bad debts and take annual tax deductions in the form of
reasonable additions to that reserve.
The new ruling will not apply to taxpayers other than
commercial banks.
At present, there is great variation in the reserve ceilings
of commercial banks.
Since the size of the reserve ceiling
- 3 :'lost of the approximately 5,200 banks which do not nmv use
the reserve method are small banks with deposits of less than
$5 million. By elimin~ting the cumbersome procedures involved
in w~rking out 20-year loss averages under the old rulings, the
new rule will make it easier for small banks to adopt the reserve
method and thus to enjoy the same tax advantage that most large
bar,ks now enj oy.
11"~"t\'1 r'~/\'''''''=..).r~..,c.
As an alternative to the new~Q~ij~, any bank using the
reserve method can add to its reserve~cording -,to the genera.J..O::,_
standards of r-e-as-enableITe-S-S under current law.' .~
,
standa]:"d&, a bank m~-1:'h<rt its reserve--i-s--.necQssary to
absorh . ..pl:obab le lo&&€-& on exis ting
There are severa 1 ways
in which a bank can meet vtH6s~ standar s. For example, a bank
/ will meet them if its reserves for any given year reflect its
average loss experience for the
six years -- under a
formula described in the ruling.
ince the average recent loss
experience of banks has been abo
fifteen one-hundredths of one
percent of loans, it is unlikely, that many banks will use this
alternative.
lOa-a-iJ
(The ruling was published today by the Internal Revenue
Service in the attached Technical Information Release.)
... , :
.\
c_::J
I t1
l
,-
q..
,
..
,.,,.
r
•
- 2 Despite these wide variances in reserve ceilings, the actual
reserves set up by all commercial banks at the end of 1963
amounted to slightly more than two percent of outstanding loans
for all banks, and to slightly less than 2.25 percent of outstand~l
loans held by bank~ which use the reserve method.
The average
reserve ceiling of banks using the reserve method is about 2.50
percent of loans.
To minimize the great disparities in reserve ceilings, the
new ruling sets up a single reserve ceiling of 2.4 percent of
outstanding loans.
Since this percentage simply reflects a fair
distribution of the benefits of previous rulings, it will have no
significant effect on total tax liabilities of the banking industry
It is estimated that under the new ruling the reserves of the
commercial banking industry -- which now total about $3.3 billion -.
will increase over the next 10 ye~ by about $3.5 toJ4.5 billion,
depending on the growth in jpdu~y loans r~,~.:L~ ,~:..?,,>JtJIf!)7
..
hA:J·'::'
l3Y'
t;'AA..
kJ.
The ruling is the result of months of study conducted with
the cooperation of representatives of the Federal Reserve Board,
the Federal Deposit Insurance Corporation, the Comptroller of the
Currency, and the commercial banking industry.
The ruling will allow a bank whose reserve is less than 2.4
percent of outstanding loans to build up the difference/ovl:=r a
period of not less than ten years.
The bank may also make, on an
annual basis, additions to its reserve equal to 2.4 percent of its
net increase in loans plus the net amount of losses charged to its
reserve.
A bank whose reserve exceeds 2.4 percent of outstanding loans
will be allowed to make annual additions equal to the net amount of
its losses. Thus, the bank need not reduce its reserves in order
to meet the new ceiling.
Instead, it can maintain those reserves
at the same dollar level while the groVlth in its loans gradually
brings the ratio of its reserves to loans down to the new ceiling.
The uniform rate will benefit more than 9,500 of the
approximately 13,300 insured commercial banks in the United States,
by allmving the 5,200 or so banks which now have no reserve to
estaolish one with a minimum of difficulty, and by allowing the
other 4,300 to increase their existing reserves.
TReASURY DEPARTMENT
~
..l.'
,'\.
~~_
L
. ,L-,
_J ~
~
, ::: l..'
~n.k) 1_,
,
...'"1
•.
•
-FOR IMl'1EDIATE RELEASE
TREASURY ANNOUNCES NEW RULING ON
COXMERCIAL
BA~~
BAD DEBT RESERVES
(/\. ... // J, ~"
The Treasury today announced a new ruling that ~\a
uniform~~eilin~ -- 2.4 percent of outstanding loans -- on commercial
bank bad debt reserves.
The ruling will apply to all commercial
banks for taxable years ending after 1964.
Federal tax law allows taxpayers -- including commercial
banks -- to deduct a debt when it becomes worthless. As an
alternative, a taxpayer may choose to set up a reserve against
possible future bad debts and take annual tax deductions in the
form of reasonable additions to that reserve.
The new ruling will not apply to taxpayers other than commerci
banks.
At present, there is great variation in the reserve ceilings
of commercial banks. Since the size of the reserve ceiling
determines the size of the tax deduction, banks with high reserve
ceilings can claim correspondingly high deductions, and thus gain
a tax advantage over other banks with lower ceilings.
The reason why some banks have been allowed much higher
reserve ceilings than others was their ability -- under earlier
Internal Revenue rulings -- to establish high ceilings on the
basis of their 1
r losses during the depression years of the
1930's. Under these rulings a bank's reserve ceiling could be
set at three times its loss experience for th~.period 1928 through
1947.
r -',
'11
'<
''0
((
"'
At the end of 1963, for example, 5,239 of the 13,275 insured
commercial banks -- all but a few hundred commercial banks are
insured -- did not use the reserve method and, therefore, did not
have any tax reserves at all for bad debts.
Of the 8,036 banks
which used the reserve method, 1,412 banks had reserve ceilings
of less than one percent of loans, 4,076 banks had ceilings between
one and three percent, 1,556 banks had ceilings between three and
rive percent, and 1,092 banks had ceilings of five percent or more.
TREASURY DEPARTMENT
=
March 12, 1965
FOR RELEASE A.M. NEWSPAPERS
MONDAY , MARCH 15 , 1965
TREASURY ANNOUNCES NEW RULING ON
COMMERCIAL BANK BAD DEBT RESERVES
The Treasury today announced a new ruling that provides a
uniform reserve percentage -- 2.4 percent of outstanding loans
on commercial bank bad debt reserves. The ruling will apply to all
commercial banks for taxable years ending after 1964.
Federal tax law allows taxpayers -- including commercial
banks -- to deduct a debt when it becomes worthless. As an
alternative, a taxpayer may choose to set up a reserve against
possible future bad debts and take annual tax deductions in the
form of reasonable additions to that reserve.
The new ruling will not apply to taxpayers other than commercial
banks.
At present, there is great variation in the reserve ceilings
of commercial banks. Since the size of the reserve ceiling
determines the size of the tax deduction, banks with high reserve
ceilings can claim correspondingly high deductions, and thus gain
a tax advantage over other banks with lower ceilings.
The reason why some banks have been allowed much higher
reserve ceilings than others was their ability -- under earlier
Internal Revenue rulings -- to establish high ceilings on the basis
of their losses during the depression years of the 1930's. Under
these rulings a bank's reserve ceiling could be set at three times
its loss experience for the 20-year period 1928 through 1947.
At the end of 1963, for example, 5,239 of the 13,275 insured
commercial banks -- all but a few hundred commercial banks are
insured -- did not use the reserve method and, therefore, did not
have any tax reserves at all for bad debts. Of the 8,036 banks
which used the reserve method, 1,412 banks had reserve ceilings
of less than one percent of loans, 4,076 banks had ceilings between
one and three percent, 1,556 banks had ceilings between three and
five percent, and 1,092 banks had ceilings of five percent or more.
D-1537
- 2 Despite these wide variances in reserve ceilings, the actual
!serves set up by all conunercial banks at the end of 1963
nounted to slightly more than two percent of outstanding loans
)r all banks, and to slightly less than 2.25 percent of outstanding
)ans he ld by banks which use the reserve me thod. The average
~serve ceiling of banks using the reserve method is about 2.50
~rcent of loans.
To minimize the great disparities in reserve ceilings, the
ruling sets up a single reserve ceiling of 2.4 percent of
utstanding loans. Since this percentage simply reflects a fair
istribution of the benefits of previous rulings, it will have no
ignificant effect on total tax liabilities of the banking industry.
t is estimated that under the new ruling the reserves of the
ommercial banking industry -- which now total about $3.3 billion -'ill increase over the next 10 years by about $3.5 to $4.5 billion,
.epending on the growth in the loans made by banks.
~
The ruling is the result of months of study conducted with
:he cooperation of representatives of the Federal Reserve Board,
:he Federal Deposit Insurance Corporation, the Comptroller of the
;urrency, and the commercial banking industry.
The ruling will allow a bank whose reserve is less than 2.4
)ercent of outstanding loans to build up the difference over a
)eriod of not less than ten years. The bank may also make, on an
mnual basis, additions to its reserve equal to 2.4 percent of its
ret increase in loans plus the net amount of losses charged to its
reserve.
A bank whose reserve exceeds 2.4 percent of outstanding loans
/lill be allowed to make annual additions equal to the net amount of
tts losses. Thus, the bank need not reduce its reserves in order
to meet the new ceiling. Instead, it can maintain those reserves
at the same dollar leve 1 while the growth in its loans gradually
brings the ratio of its reserves to loans down to the new ceiling.
The uniform rate will benefit more than 9,500 of the
approximately 13,300 insured commercial banks in the United States,
by allowing the 5,200 or so banks which naw have no reserve to
establish one with a minimum of difficulty, and by allowing the
other 4,300 to increase their existing reserves.
- 3 -
Most of the approximately 5,200 banks which do not now use
the reserve method are small banks with deposits of less than
$5 million. By eliminating the cumbersome procedures involved
in working out 20-year loss averages under the old rulings, the
new rule will make it easier for small banks to adopt the reserve
method and thus to enjoy the same tax advantage that most large
banks now enjoy.
As an alternative to the new uniform percentage, any bank
using the reserve method can add to its reserves on the basis
of its current experience according to accepted standards.
There are several ways in which a bank can meet these standards.
For example, a bank will meet them if its reserves for any given
year reflect its average loss experience for the most recent
six years -- under a formula described in the ruling. Since the
average recent loss experience of banks has been about fifteen
one-hundredths of one percent of loans, it is unlikely that many
banks will use this alternative.
(The ruling was published today by the Internal Revenue
Service in the attached Technical Information Release.)
U.~
TREASURY
DEPARTMENT
INTERNAL REVENUE SERVICE
PUBLIC
INFORMATION
WORTH
DIVISION
~4021
TECHNICAL INFORMATION RELEASE
FOR RELEASE
Monday, March 15, 1965
TIR-707
U. S. Internal Revenue Service announced today that the
following Revenue Ruling will appear in Internal Revenue
Bulletin No. 1965-14, dated April 5, 1965.
Rev. Rul.
65-92
Revised method for computing annual additions to
reserves for bad debts by banks for taxable years ending
after December 31, 1964.
Mimeograph 6209, C. B. 1947-2, 26, and Revenue
Ruling 54-148, C. B. 1954-1, 60, superseded.
SECTION 1.
PURPOSE
The purpose of this Revenue Ruling is to provide a uniform
percentage for computing annual additions to reserves for bad debts
by banks in order to minimize the large differences in permissible
reserves now existing among banks under prior rulings.
SEC. 2 BACKGROUND.
Section 166(a) of the Internal Revenue Code of 1954 allows a
deduction for a debt which became worthless during the taxable year
and, under certain circumstances, for a debt which is recoverable
only in part and is charged off within the taxable year. Section
l66(c) of the Code provides that, in lieu of any deduction under
section 166(a) of the Code, there shall be allowed (in the discretion
of the Secretary or his delegate) a deduction for a reasonable
addition to a reserve for bad debts.
Mimeograph 6209, C. B. 1947-2, 26, authorized, in the case of
banks, a special method for computing an annual addition to the reserve for bad debts. Under this method, a bank's bad debt reserve
ceiling was computed by reference to a moving average experience
factor for determining the ratio of losses to loans on the basis of
20 years of experience, including the taxable year. For any portion
of such 20-year period during which a bank was not in existence, the
bank was authorized to use the average experience of other similar
banks with respect to the same type of loans.
TIR-707-2
Revenue Ruling 54-148, C. B. 1954-1, 60, supplemented
Mimeograph 6209 and authorized a bank to use an average experienc~ factor based on any 20 consecutive years of experience after 1927.
The Internal Revenue Service has re-examined the above
rulings in the light of the experience developed thereunder. The
rulings have resulted in large variances in reserves among banks
and in reserve ceilings not related to the probability of bad
debts on outstanding loans.
The Service has therefore approved a revised special method
for use by banks which is designed to minimize the existing large
variances in perrrassible reserves. This method, which is set
forth in sections 3 through 6 of this Revenue Ruling and which
utilizes a uniform ratio of 2.4. percent of outstanding loans, has
been approved by the Service In view of the reserve levels previously established by banks, and the special circumstances applicable
to the banking industry. This method will not be used by the
Service as a precedent for determining reasonable additions to
reserves for bad debts by taxpayers other than banks.
SEC. 3.
UNIFORM RESERVE RATIO
In lieu of reserve computations made through the use of a loss
experience factor determined on an individual basis as provided in
section 7 of this Revenue Ruling, a bank will be allowed deductions
for additions to its reserve for bad debts until the reserve equals
2.h percent of loans outstanding at the close of the taxable year,
sUDject to the exceptions and limitations prescribed in sections 4, 5,
and 6 of this Revenue Ruling.
SEC. 4.
RESERVE LESS THAN UNIFORM RATIO
If the dollar balance of a bank's reserve, as of the close of
its taxable year immediately preceding the year of the change, is
less th~ 2.k percent of loans outstanding at such time, the amount
of the dl.11·erence (referred to herein as the deficiency in the reserve) may be included in the bank's annual addition to the reserve
in an amount not exceeding one-tenth of the deficiency in the reserve, commencing with the year of the change. Such amount need not
be added in any specific taxable year but not mere than one-tenth of
TIR-707-3
the deficiency will be permitted in any one year. A bank computing
its annual reserve addition under this section will also be permitted to include in such addition an amount equal to net bad
debts charged to the reserve during the year. Further, it will
be permitted to include in such addition 2.4 percent of the increase in its loans outstanding at the en~ or the taxable year
over loans outstanding at the end of the year preceding the year
of change, to the extent that a reserve addition with respect
to such increase has not been taken in a prior year. The sum
of the foregoing amounts, however, may not exceed an amount
sufficient to increase the reserve to 2.4 percent of outstanding
loans at the end of the taxable year. Inus, if a decrease in
a bank's year-end outstanding loans has resulted in a reserve
ratio in excess of 2.,1.,. percent, no addition to the reserve would
be permitted for tha~ year. If a bank changes to the reserve
method of accounting, it shall be treated, for purposes of this
section, as having a reserve of zero for the taxable year immediately
preceding the year of the change.
SEC. 5.
RRJERVE EXCEEDING UNIFORM RATIO
If the dollar balance of a bank's reserve, as of the close of
its taxable year ending in 1964, exceeds /.4 percent of loans outstanding at such time, the addition to the reserve in any taxable
year shall not increase the reserve above the greater of (i) such
dollar balance, or (ii)2.4 percent of loans outstanding at the close
of the taxable year. 'lnus, a bank which has reserves exceeding
2.4 percent of outstanding loans may maintain the dollar balance of
lts reserve by making additions to its reserve equal to the net
amount of bad debts charged to the reserve during the year. Notwithstanding the preceding rules of this section, if the amount
of loans outstanding at the close of the taxable year is less than
the amount of loans outstanding at the close of the taxable year
ending in 1964, the addition to the reserve shall not increase the
reserve at the close of the taxable year to a percentage of outstanding loans which is larger than the percentage which the reserve
bore to outstanding loans at the close of the taxable year ending in
1964.
SEC. 6. MAXIMUM ANNUAL RESERVE ADDITION
Notwithstanding the provisions of sections/+ and. 5 of this ruling,
the addition to the reserve that a bank will be permitted in a taxable year through the use of the uniform reserve ratio shall not exceed an amount equal to 0.8 percent of loans outstanding at the end
TIR-707-4
c. f r,he taxable year, or an amount sufficient to bring the reserve
to 0.8 percent of loans outstanding at the end of the taxable year,
whichever amount is greater.
SEC. 7.
PROBABLE EXPERIENCE METHOD
In lieu of reserve computations made through the use of the
uniform reserve ratio under sections 3 through 6 of this Revenue
Rulin a a bank may compute its annual reserve additions under the
method'provided in this section. If a ~ank s~ computes i~s .
addition , it must establish, to the satlsfactlon of the . Dlstr1ct
Director of Internal Revenue, that the amount computed 1S necessary
in order to absorb the bad debts probably arising on loans outstanding at the close of the taxable year. In such event, the
reasonableness of the proposed addition for the taxable year shall
be determined under the provisions of section l66(c) of the Code
in light of the facts existing at the close of such year. Thus,
the reasonableness of the addition shall depend upon the total
amount of the existing reserve and current business conditions, the
nature of the bank's loans, the bank's past experience, and other
factors, which may reasonably be expected to have a significant
effect on the collection of the loans outstanding at the close of
the taxable year. The reasonableness of the addition shall not,
however, be based upon mere speculation, possibility, or contingency.
For purposes of this section, the addition to the reserve for any
tax2ble year will be regarded as reasonable if it does not increase
the balance of the reserve (as of the close of such year) above an
amount equal to the total amount of loans outstanding at the close
of such year multiplied by the !lmoving average experience percentage"
for such year. In determining the moving average experience percentage, reference shall be made to the bad debt experience of the
bank with respect to its loans for a six-year period comprising the
taxable year and the five preceding taxable years. The moving average
percentage shall be computed as the ratio which the total amount of
net bad debts sustained on loans during such six-year period bears
to the sum of the total amounts of loans outstanding at the close
of each taxable year in such period.
If the bank has not been in existence for the full six-year
period, then, for the portion of such period during which it was
not in existence, the taxpayer may use the average bad debt experience of comparable banks with respect to comparable loans.
TIR-707-5
SEC. 8.
DEFINITIONS OF TERMS
.01 The term Ilbanks" as used herein means banks or trust
companies incorporated and doing business under the laws of the
united States (including laws relating to the District of Columbia),
of any State, or of any Territory, a substantial part of the
business of which consists of receiving deposits and making loans
and discounts. Such term does not include a mutual savings bank
not having capital stock represented by shares, a domestic building
and loan association as defined in section 7701(a)(19) of the
Code, or a cooperative bank as defined in section 7701(a)(32) of
the Code •
•02 The term "loans" as used in sections 3 through 6 of this
ruling does not include Government insured or guaranteed loans to
the extent so insured or guaranteed .
•03 The term "the year of change" means the first taxable year
ending after December 31, 1964, or, in the case of a bank changing
from the specific charge-off method to the reserve method in a later
year, the year in which the change is made.
SEC. 9.
BANKS ON SPECIFIC CHARGE-OFF METHOD
Where a bank on the specific charge-off method of accounting for
bad debts desires to change to the reserve method, application to
make such a change shall be made in the manner prescribed by section
3 of Revenue Procedure 64-51, I. R. B. 1964-50, 95, but the amolli1t
of the reserve at the end of the year of change and subsequent years
shall be determined in accordance with the provisions of this Revenue
RulinG'
SEC. 10.
EFFECTIVE DATE
The provisions of this Revenue Ruling are applicable for taxable
years ending after December 31, 1964.
SEC. 11.
EFFECT ON OTHER DOCUMENTS
Mimeograph 6209, C. B. 1947-2, 26, and Revenue Ruling 54-148, C. B.
1954-1, 60, are hereby superseded. Section 4.02 of Revenue Procedure
64-51, I. R. B. 1964-50, 95, (relating to change in accounting method)
and Revenue Ruling 57-210, C. B. 1957-1, 94, Revenue Ruling 58-259,
C. B. 1958-1, 116, Revenue Ruling 57-509, C. B. 1957-2, 145, Revenue
Ruling 63-122, C. B. 1963-2, 98, and G. C. M. 25605, C. B. 1948-1,
38,(relating to the term 1I10ans") are hereby modified to remove
therefrom the references to Mimeograph 6209 and Revenue Ruling
54-148, and substitute in place thereof reference to this Revenue
Ruling for taxable years ending after December 31, 1964.
END
TREASURY DEPARTMENT
:.L~
. _I~~_~:: . . .
P.... lvi •
'_··,-~'JS(;.2.-:,r 1 :·~c:::ch
March 2, 1965
.I..\'!'~·~.:>rRr..u..rw J
16 , 196.5.
March 15, 1965
R2SULTS OF T?.E.ASURY'S \'EEKLY BILL OFFERING
r:-".~ ':'::-eas1ll'Y DeDartr.ler.t a.."'.nounced l.:.st eveninn; that the tenders for t~-o se·.·
,;.,\..... ./ t::'ll~~ one ~eries to be ~n ac.(~::~io:.1;:l is;::.•. ,:. of the bills datec. :-.~(,,: .. ,.,,-....... J
:....;~~~, z.r.d the other series to be c..ated. l·iaren 18, 1965, which 'trere of~e:'~~d ~n :·:a~ch 11
'.:;:'~8 o·::..:.r~sd. at the Feder.::.: Reserve Banks on Hareh 15. Tenders ,;:-o::e UlV'".l..tec. for
:....,20c:~.vJO.i000, or thereabo~t3, e-Z 9:-ezy bills and for· '. OOO,OCO,CCO.l o:..~ cvh':~'z;_JO~
ci :82-c:.:::.y bills. The details of the t~;o ~e:ries are as :1.'v:':':"v-;,:.3 ~
RA,NGE 01<' LCCZP1'E:J
Cm'~ZTITIVE
BIDS:
PJ.gh
Lou
Lverz.fJ,e
91-d.::y Treasury bills
r:J2..turing June 17, 1965
.Appro~. Equiv.
P::--5.ce
Annual R2.':.:,o
99~0:~,
99.007
99.0:i..O
··
·
o
;
3.901%
3.928%
3.917% "};/
:
132-c}-"::.y
r.2:'v·uxi::.·;
TZ'~2.s'.;;.";;.'Y
bills
16. 196
"':.ppro;.:. Zqu
.-'.'h"'1.1.'":"l P.c.te
SeFvl3;(.~:.,::r
?-..;.... ) .::e
~C~·-C:~-
~
:".-'
9~
UV,,,J
;;;, 1Iit"'''-)..,t
-,.
97.902
97,,9S'j
3.9Si2%
3.990% 1
36 percent of the a;llount of 9l-dE..y bi:ls bid fer at tha lou price Vla.S accepted.
63 percent of the amount of 182-day bills bid for at -'(.•'l.e low price was acc~pted
'.L'O':'_.:' :=Xi::;'~S APPUED FOR k'l"D ACCEPTED BY FEDERAL RESERVE DISTRIGrS:
- ·'.:~/.:.::-i~t
...lV..,'oj(...
~3-.; ~0~~:':
?~-'::":,,;::.~~_")hia
;;::"~v~::"c.
••::"clr.:0:':.i
Lcce-:;-ced
:
C :"8,585,000
703,549,000:
:'9,768,000
31,800.)000
:....5,039,000:
--.~ -~~-~.:.
38,048,000
29,886,000
O:..:..c-"s;o
282,325,000
51,438,000
23,632,000
136;1145,000
L3,9l0,000:
22J152,000
23,684,000
17,612,,000
138,638,000
~?1,200, 768,000 ~I
,s'c.
:'Oi.:.ic
I1inneapolis
Iansas c-:ty
Dallz.s
San i:i.~a.."lcisco
70T.US
.I
Applied For
$ 28,953,000
1,458,245,000
31,768,000
31,800,000
15,039,000
2~,324,000
27,712,000
235,198,000
C2,248,482,000
;~_pplied
For
$
33,,3l6,OOO
1,658,279,000
13,193,000
67,361,000
3,672,000
21,799,000
269,495,000
11.,859,000
9,500,000
15,629,000
9,833,000
214,588,000
$2,331,524,000
Accepted
$
3,316,
714,983,
5,193,
14,804,
3,580,
12,281,
63,985,
10,585,
5,519,
13,004,:
4,833,
150,540,:
$1,002,623,
Includes $276,436,000 noncompetitive tenders accepted at the average price of 99.
~~/ Includes $102,756,000 noncompetitive tenders accepted at the average price of 97.
;.1 On a coupon issue of the same length Qrld for the sa."'lle amount invested, tr.a returr
these bills would provide yields of ~~ .. 01%, for the 91-day bills, an~ 4.13%, for t
182-a.::.y bills. Interest rates on bi."11 s are quoted in terms of bank discou:1t "Witt
t~e ~~3'~-c::..~n related to t~e face amount of the bills pZ,yable at maturity ratr.e:" tr~,
"V::~ c...'"J.ot.:"'J.t investeG. a."'1d their leng".:,!:. :"'n act.-..:.c:l ::umber of days related. to a 36o-c.:
~-0'':_'. ::n contrast) yields on cerli:.:', :':::,t.es, notes, and bonds are cc~puted in te:..
0:: :"'nterest on the ~'"J.ount invested, "-.:.d. re:'ate the number of days rerr.ainir~g ir. .:0)
:.~
~3t payment period to the act-ua1 number of' days in the period "With semiaDnl
,.
,~
than one Coupon period is involved.
'
cv~._._,~~G.J.D.g I I ~ore
TREASURY DEPARTMENT
RELEASE A.M • NEWSPAPERS,
day, March 16 , 1965.
March 15, 1965
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series of
one series to be an additional issue of the bills dated December 17,
, and the other aeries to be dated March 18, 1965, which were offered on March 10,
opened at the Federal Reserve Banks on March 15. Tenders were invited for
00,000,000, or thereabouts, of 9l-day bills and for $1,000,000 ,000, or thereabouts,
B2-day bills. The details of the t vo series are as follows:
5~ybills,
91-day Treasury bills
maturing June 17, 1965
Approx. Equiv •
Price
Annual Rate
3.901%
99.014
3.928%
99.007
3.917% 1/
99.010
g OF ACCEPl'ED
trITIVE BIDS:
High
Low
Average
:
:
:
:
36 percent of the amount of 91-day bills bid for at
182-day Treasury billa
maturing September 16, 1965
Approx. Equi v •
Price
Annual Rate
91.985
3.986%
97.982
3.992%
97 .. 983
3.990% "};'/
the low price was accepted
63 percent of the amount of l82-day bills bid for at the low price was accepted
lL TENDERS
APPU~D
Lstrict
)ston
;w York
liladelphia
leveland
Lcbmond
~lanta
ll.cago
,. Louis
Lnneapolis
insas City
lUas
in Francisco
TOTALS
FOR AND ACCEPrSD BY FEDERAL RESERVE DISTRIcrS:
AEElied For
$
28,953,000
1,458,245,000
31,768,000
31,800,000
15,039,000
38,048,000
282,325,000
51,438,000
23,632,000
24,324,000
27,712,000
235,198 2°°0
$2,2h8,u82,000
Acce,Eted
$ 18,585,000
703,549,000
19,768,000
31,800,000
15,039,000
29,886 ,000
136,145,000
43,910,000
22,152,000
23,684,000
11,612,000
138 l 638 z000
$1,200,768,000 ~/
AEElied For
33,316,000
$
1,658,279,000
13,193,000
67,361,000
3,672 ,000
21,799,000
269,495,000
14,859,000
9,500,000
15,629,000
9,833,c.JOO
214,588,000
$2,331,524,000
Acce,Eted
3,316,000
:$
714,983,000
5,193,000
14,804,000
3,580,000
12,281,000
63,985,000
10,585,000
5,519,000
13,004,000
u,833,OOO
150,540,000
$1,002,623,000 ~
[ncludes $276,436,000 noncompetitive tenders accepted at the average price of 99.010
rncludes $102,756,000 noncompetitive tenders accepted at the average price of 97.983
)n a COupon issue of the same length and for the same amount invested, tre return on
Ghese bills would provide yields of 4.01%, for the 9l-day bills, am 4.13%, for the
lB2-day bills. Interest rates on bills are quoted in terms of bank discount with
~he return related to the face amount of the bills payable at mat uri ty rather than
~he amount invested and their length in actual number of days related to a 360-day
re~. In contrast, yields on certificates, notes, and bonds are computed in terms
~f lnterest on the amount invested, and relate the numbE'r of days remaining in an
I.llterest payment period to the actual number of days in the period, with semiannual
~ompounding i f more ttan one coupon period is involved.
).' 51 Q
.&,.
.-JU
- 3 -
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.
Tbe 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.
- 2 -
decimals, e. g., 99.925.
Fractions may not be used.
It is urged that tenders
be made on the printed forms and forwarded in the special envelopes which will
be supplied by Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
others than
banking institutions will not be permitted to submit tenders except for their
own account.
Tenders will be received without deposit from incorporated banks
and trust companies and from responsible and recognized dealers in investment
securities.
Tenders from others must be accompanied by payment of 2 percent of
the face amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those
submitting tenders will be advised of the acceptance or rejection thereof.
The
Secretary of the Treasury expressly reserves the right to accept or reject any
or all tenders, in whole or in part, and his action in any such respect shall
be final.
Subject to these reservations, noncompetitive tenders for each issue
for $200,000 or less without stated price from anyone bidder will be accepted
1n full at the average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders in accordance with
the bids must be made or completed at the Federal Reserve Banks on
l.JbS
,
~1arch
25,
fi&f
in cash or other immediately available funds or in a like face
amount of Treasury bills maturing
If;arcl: [;5, 1965
------~~ffH*~~-~---------
Cash
ii'£~V"~~A:
~0~W
TREASURY DEPARTMENT
Washington
March 17, 1955
FOR IMMEDIATE RELEASE,
J()C2_CUC:lOOOOOC)(JC3Oft'fOOCOOOOOOCOOOOCOO(
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two seriE
of Treasury bills to the aggregate amount of $ 2, 200 ~O, 000 , or thereabouts, for
cash and in exchange for Treasury bills mat\lring
March 25, 1965
of $ (:, 108 ~O, 000 , as follows:
91 -day bills (to maturity date) to be issued
f5f
in the amount of $
1,200~,000
,in the amour
W
March 2:¥s-t965
, or thereabouts, represent-
ing an additional amount of bills dated December 24, 1964
and to mature
amount of $
W
June 2=ltt1965
l,OO~7,OOO
, originally issued in the
, the additional and original bills
to be freely interchangeable.
182 -day bills, for $ l,OOOtOOO ,OOO , or thereabouts, to be dated
,12)
March~ 1965
,and to mature
September 23, 1965 •
fH1
.fi4f
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,
on~-th1rty
p.m., Eastern Standard time,
Monday, MarcfU¥ 1965
Tenders will not be received at the Treasury Department, Washington.
Each tender
must be for an even multiple of $1,000, and in the case of competitive tenders the
price offered must be expressed on the basis of 100, with not more than three
TREASURY DEPARTMENT
March 17, 1965
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
~,200,OOO,OOO, or thereabouts, for cash and in exchange for
Treasury bills maturing March 25,1965,
in the amount of
$2,108,740,000, as follows:
91-day bills (to maturity date) to be issued Marc h 25, 1965,
1n the amount of $ 1,200,000,000, or thereabouts, representing an
~dltlonal amount of bills dated December 24,1964
and to
mature June 24,1965,
originally issued in the amount of
$1,004,907,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $1,000,000,000, or thereabouts, to be dated
:1arch 25, 1965,
and to mature September 23,1965.
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
(maturi ty value) .
Tenders will be received at Federal Reserve Banks and Branches
to the cloSing hour, one-thirty p.m.,
Eastern Standard
time, Monday, March 22, 1965.
Tenders will not be
received at the Treasury De?artment, 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.
up
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-1S39
- 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 each issue for $200,000 or less without
stated price from anyone bidder will be accepted in full at the
average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders in
accordance with the bids must be made or completed at the Federal
Reserve Banks on March 25, 1965,
in cash or other immediately
available funds or in a l~Ke face amount of Treasury bills
maturing March 2), 1965.
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.
000
D~stribut~on
Date
July
Type of Divestiture
Number of Shares
Sale
550,000
25, 1962
November 14, 1962
by Christiana or GM Stock
pro rata distribution
(1/3 share GM per 1 share Christiana)
November 20, 1962
January
6, 1964
Sale
pro rata distribution
GM per 1 share Christiana)
(1/3 share
January 29,
1964
February 8, 1965
March 8, 1965
Sale
4,416,210
100,000
4,~16,210
400,000
Exchange
(3-1/4 shares GM for 1 share Christiana)
pro rata distribution
(1/3 share GM per 1 share Christiana)
March 17, 1965
Sale
4,W7,051
3,956,000
4.57,312
18,782,783
TOTAL
Total sales
Total pro rate
Total exchange
1,507,312
12,788,420
4,487,051
18,782,783
Table I
Distribution by duPont of GM Stock
Date
July 9, 1962
January 6, 1964
Type of Divestiture
Total No. of Shares
Total No. of Shares
Distributed to:hristiana
pro rata distribution
(1/2 share GM per 1 share duPont)
22,991,492
6,700,560
16,557,953
4,830,163
pro rata distribution
(36/100 share GM per 1 share du?ont)
January 29, 1964
January 4, 1965
Sale
4()J,000
pro rata distribution
(1/2 share GM per 1 share duPont)
October 4 thru.
December 5, 1964
Sale
447,847
62,552,153
63,000,000
6,708,506
38,847
63,000,000
TOTALS
Total sal~s
Total pro rata
23,002,678
18,247,283
- 9 -
suggested to
n~
that it would be helpful if the services of
l-ir. Kni,;ht cou Id be obtained as a temporary consu 1 tant.
ot t-lr.
Knil~ht's
Law 87-403,
dnJ
In vie,
kmlwledge of the legislative history of Public
of the background of the 1962 ruling, it seemed
logical that his advice would be helpful to the Commissioner in
reaching a decision.
I, therefore, telephoned Mr. Knight, who
agreed to serve as a temporary consultant to the Commissioner
of Internal Revenue on this matter.
Because of the Committee's interest in this matter, and
because of Senator Gore's desire that I acquaint myself with
the basic facts of the case, I have done so.
I have gone into
the matter enough to assure myself that the procedures used in
developing the new ruling were entirely proper and to give me
full confidence that the Commissioner issued the legally correct
ruling.
Beyond that Commissioner Cohen, who is here with me
today, has a statement as to exactly what the two rulings
covered and the reasons for their issuance.
He is also prepared
to answer detailed questions regarding the rulings or their
issuance.
000
- 8 -
the Gener.11 ;:,1t,1rs shares received in exchange [or Christiana
was appruxin',au:ly twice as much as that on the exchanged shares
of C:hristidna.
Cormnissioner Cohen's letter dated March 15,
1965, to Chairman Byrd pruvides further details of the results
of the exchange uffer.
I am attaching two tables which
summarize the distributions by which du Pont and Christiana
have divested their General Motors stock.
As 1 stated earlier, I have not played any substantive
part in the issuance of rulings on these stock distributions.
This was in accord with the basic and longstanding policy that
the Secretary of the Treasury does not decide individual tax
cases.
However, the Revenue Service is, of course, free to get
Treasury help and advice whenever it so desires.
In the case
uf both the 1962 rulings and the 1964 ruling, I am informed
that such information and advice was sought regarding the
legislative history of Public Law 87-403.
In addition, Treasury
revenue estimators were asked to assist the Revenue Service
in verifying the reasonableness and accuracy of estimates of
taxes payable or to be payable as a result of the distribution••
Last October, while Christiana's request for a modification
of the 1962 ruling was under consideration, my tax staff
sugges ted to
- 7 receiving f.1r more C:cner.1l :-1otors stock than they would have
received under a straight pro rata distribution.
\.J·~re
~
Thus, there
fewer shares of Ceneral Motors stock left for the final
rata
distri~l1tion
to taxable stockholders.
As a result,
the total tax payable by Christiana stockholders on the shares
received in the two distributions was $56 million less than it
would have been if all the shares had been distributed on a
pro rata basis.
The Government will recoup some part of this
amount in capital gains taxes on future sales of Christiana
stock by present shareholders of Christiana.
It is interesting to note the actual result of the
rata exchange offer.
~
pro
1,380,631 shares of Christiana stock were
exchanged for General Motors stock.
Of that total, 210,079
were attributable to individuals, 282,760 to corporations and
887,792 to charitable and non-profit holders.
On a percentage
basis, only about two percent of Christiana's individually-owned
shares took advantage of the exchange offer.
The percentage of
corporate-owned shares exchanged was 40 percent, while in the
case of charitable holders, who were tax exempt in any event,
the percentage was 65 percent.
The exchange was particularly attractive to charitable
holders since, based on 1964 dividend payments, the income from
the General Motors
- 6 -
On the basis UL the figures supplied by the companies,
which have been checked by the Treasury estimating staff and
by the Internal Revenue Service, it appears that the total
revenues [rom the distributions will amount to an estimated
$612 million, or $142 million more than the $470 million figure
mentioned during debate on Public Law 87-403.
Christiana in January offered its stockholders the right
to exchange their holdings of Christiana stock for 8,400,000
shares of General Motors stock held by it on the basis of
3-1/4 shares of General Motors for each share of Christiana.
4,487,051 shares of General Motors stock were exchanged for
1,380,631 shares of Christiana.
Thereafter, another 3,956,000
shares of General Motors stock were distributed pro rata to
Christiana stockholders.
It should be made perfectly clear that the
~
pro
!!!!
distribution carried out by Christiana was a taxable exchange
and offered no special tax benefits whatsoever to those who
took advantage of it.
However, there were indirect tax benefits
to the Christiana stockholders who did not accept the exchange
offer.
They flowed from the fact that tax exempt charitable
holders of Christiana stock found the offer attractive and
exchanged substantial quantities of their holdings, thus
receiving far
- 5 -
without oiler-in" tiny shdres in exchange for or redemption of
du Pont shares, and Christiana made two sizable pro rata distributJ
betore applying for modification of the ruling.
In August,
1~62
~
1~64,
Christiana applied for a modification of its
ruling that would permit it to offer to its stockholders a
pro rata exchange of General Motors stock for Christiana stock
and still retain the benefit of the 1962 ruling.
In December, 1964, after he had satisfied himself that the
Government would receive at least $470 million in revenue, I am
informed that the Acting Commissioner issued a new ruling which
removed the condition against
~
pro rata distributions in the
form of exchanges or redemptions by Christiana.
It is this ruling
which is the subject of today's hearing.
I am informed that Mr. Knight, who served as a temporary
consultant to the Acting Commissioner on the December, 1964,
ruling, recommended that the condition he had originally proposed
be removed.
I understand it was Mr. Knight's view that the
condition had served to protect the revenue of the Government and
was no longer justified.
Mr. Knight is here today at your
invitation and is prepared to discuss his recommendation with you.
Except for a final public sale of 457,312 shares of General
Motors stock by Christiana, all the distributions have now been
completed.
On the basis
- 4 -
I am inlormf'd that the Commissioner took this action in
his 1\j62 r\llini; Llrgely on the recommendation of the then
Ceneral Counsel (,f th(' Treasury, Mr. Robert H. Knight, who
had represented the Treasury in the Congressional hearings on
Public Law 87-401.
The reason for Mr. Knight's recommendation
was that when Public Law 07-403 was being considered by the
Senate, representations were made on behalf of du Pont that
the distribution of General Motors stock under the provisions
of the pending bill would result in very substantial revenue
to the Government.
Since
~
A figure as high as $470 million was mentioned
pro!!!! distribution of General Motors stock would
be less likely to yield revenues as high as $470 million than
2ro
~
dis tribution, Mr. Knight rec,ommended that the Service's
ruling be on the condition that no
~
pro rata distributions be
made even though such distributions had been specifically permitte
by the order of the District Court.
When the Commissioner of
Internal Revenue accepted Mr. Knight's recommendation, I am
informed that Christiana protested the inclusion of the condition
in the ruling and specifically reserved the right to seek
reconsideration at a later date.
Du Pont has completed its divestiture of General Motors stock
without offering
- 3 -
Christiana to dispose of
G~neral
Motors stock by any or all
(2)
~
of three methods:
(1) sale;
pro rata exchange for
Christiana stock;
or (3) pro rata distribution.
In addition,
the COtlrt held that certain members or connections of the
du Pont family and institutions controlled by them would have
to dispose of any General Motors stock they might receive from
Christiana.
They were given ten years to complete this
disposition and during that period they could not vote their
General Motors stock.
After the decision of the District Court, which was acceptel
by all parties, including the Government, I am informed that
both du Pont and Christiana requested rulings from the Commissiol
of Internal Revenue as assurance that their planned distribution
of General Motors shares would, among other things, come within
the provisions of Public Law 87-403.
I am further told that
the Commissioner, in the exercise of his lawful discretion,
determined to include in the Christiana ruling letter issued in
1962, a condition that the ruling would be of no force and effecl
if Christiana entered into any
~
pro rata exchange of stock.
Thus, if Christiana wanted the benefit of the ruling, it could
make only direct sales and pro rata distributions.
I am informed
- 2 -
family listed in the final judgment of the U. S. District Court
in Chicago directly or indirectly own or control about 50 percent
of Christiana.
As this Committee knows, the ruling that is
the subject of this hearing stems from the landmark decision
of the United States Supreme Court in the antitrust action
prosecuted by the Government in the 1950's against the du Pont
Company and others.
In that decision the Court held the du Pont
Company in violation of the antitrust laws and later ordered
du Pont to divest itself of its holdings of General Motors stock.
While the U. S. District Court in Chicago was considering
the terms of an order requiring the divestiture, Public Law
87-403 was enacted.
It permitted modified tax treatment for
the distributions of General Motors stock by du Pont and
Christi~
This Committee in its report on the bill, the discussion of the
bill on the Senate floor and President Kennedy when he signed
the law, all made it clear that the tax treatment provided for
in the bill was not intended to affect in any way the terms of
the Court's divestiture order, which was strictly an antitrust
matter.
The District Court in its final decree ordered Christiana
to divest itself within three years of all General Motors stock
held or received from du Pont.
It specifically permitted
Christiana to
STA TE;'1E~'IT OF THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
REFOI~E THE SEAATE FINANCE COMMITTEE
10:00 A.M., MARCH 17, 1965
I have been asked to appear today to discuss the recent
ruling of the Internal Revenue Service concerning the tax
t~eatment
of the recent
~
pro rata distribution of General
Motors common stock by the Christiana Securities Company.
I
welcome this opportunity for a public discussion of the subject.
I have every confidence that the Internal Revenue Service has
issued the legally correct ruling.
The Commissioner of Internal
Revenue is here with me and is prepared to discuss it in detail.
As I informed the Committee in executive session last month,
I took no part in the decision to issue this ruling, and I am
not in a position to discuss the technical and legal considerations that led to its issuance.
However, because of the intere
in this matter expressed by the Committee, I have inquired in
some detail into the revenue aspects of the distribution of
General Hators stock by the du Pont Company and the Christiana
Securities Corporation, and I would like to review these aspects
with you briefly.
Christiana is a holding company which holds a 29 percent
interest in the du Pont Company. The various members of the du P
family listed
STATEMENT OF THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE THE SENATE FINANCE COM1-lI TTEE
10:00 A.M., MARCH 17, 1965
I have been asked to appear today to discuss the recent
ruling of the Internal Revenue Service concernjng the tax
treatment of the recent
~
pro rata distribution of General
Motors common stock by the Christiana Securities Company.
I
welcome this opportunity for a public discussion of the subject.
I have every confidence that the Internal Revenue Service has
issued the legally correct ruling.
The Commissioner of Internal
Revenue is here with me and is prepared to discllss it in detail.
As I informed the Committee in executive session last month,
I took no part in the decision to issue this ruling, and I am
not in a position to discuss the technical and legal considerations that led to its issuance.
However, because of the interest
in this matter expressed by the Committee, I have inquired in
some detail into the revenue aspects of the distribution of
General tiotors stock by the du Pont Company and the Christiana
Securities Corporation, and I would like to review these aspects
with you briefly.
Christiana is a holding company which holds a 29 percent
interest in the du Pont Company. The various members of the du Pont
D-1540
- 2 -
family listed in the final judgment of the U. S. District Court
in Chicago directly or indirectly own or control about 50 percent
of Christiana.
As this Committee knows, the ruling that is
the subject of this hearing stems from the landmark decision
of the United States Supreme Court in the antitrust action
prosecuted by the Government in the 1950's against the du Pont
Company and others.
In that decision the Court held the du Pont
Company in violation of the antitrust laws and later ordered
du Pont to divest itself of its holdings of General Motors stock.
h~ile
the U. S. District Court in Chicago was considering
the terms of an order requiring the divestiture,
87-403 was enacted.
l~blic
Law
It permitted modified tax treatment for
the distributions of General Motors stock by du Pont and Christiana.
This Committee in its report on the bill, the discussion of the
bill on the Senate floor and President Kennedy when he signed
the law, all made it clear that the tax treatment provided for
in the bill was not intended to affect in any way the terms of
the Court's divestiture order, which was strictly an antitrust
matter.
The District Court in its final decree ordered Christiana
to divest itself within three years of all General Motors stock
held or received from du Pont.
It specifically permitted
- 3 -
Christiana to dispose of General Motors stock by any or all
~
of three methods:
(1) sale;
(2)
Christiana stock;
or (3) pro
~
pro rata exchange for
distribution.
In addition,
the Court held that certain members or connections of the
du Pont family and institutions controlled by them would have
to dispose of any General Motors stock they might receive from
Christiana.
They were given ten years to complete this
disposition and during that period they could not vote their
General Motors stock.
After the decision of the District Court, which was accepted
by all parties, including the Government, I am informed that
both du Pont and Christiana requested rulings from the Commissioner
of Internal Revenue as assurance that their planned distribution
of General Motors shares would, among other things, come within
the provisions of Public Law 87-403.
I am further told that
the Commissioner, in the exercise of his lawful discretion,
determined to include in the Christiana ruling letter issued in
1962, a condition that the ruling would be of no force and effect
if Christiana entered into any
~
pro rata exchange of stock.
Thus, if Christiana wanted the benefit of the ruling, it could
make only direct sales and pro rata distributions.
- 4 I am informed that the Commissioner took this action in
his 1962 ruling largely on the recommendation of the then
General Counsel of the Treasury, Mr. Robert H. Knight, who
had represented the Treasury in the Congressional hearings on
Public Law 87-403.
The reason for Mr. Knight's recommendation
was that when Public Law 87-403 was being considered by the
Senate, representations were made on behalf of du Pont that
the distribution of General Motors stock under the provisions
of the pending bill would result in very substantial revenue
to the Government.
Since
~
pro
~
A figure as high as $470 million was mentioned.
distribution of General Motors stock would
be less likely to yield revenues as high as $470 million than
pro
~
distribution, Mr. Knight recommended that the Service's
ruling be on the condition that no
~
pro rata distributions be
made even though such distributions had been specifically permitted
by the order of the District Court.
When the Commissioner of
Internal Revenue accepted Mr. Knight's recommendation, I am
informed that Christiana protested the inclusion of the condition
in the ruling and specifically reserved the right to seek
reconsideration at a later date.
Du Pont has completed its divestiture of General Motors stock
- 5 -
without offering any shares in exchange for or redemption of
du Pont shares, and Christiana made two sizable pro rata distributions
before applying for modification of the ruling.
In August, lY64, Christiana applied for a modification of its
1962 ruling that would permit it to offer to its stockholders a
~
pro rata exchange of General Motors stock for Christiana stock
and still retain the benefit of the 1962 ruling.
In December, 1964, after he had satisfied himself that the
Government would receive at least $470 million in revenue, I am
informed that the Acting Commissioner issued a new ruling which
removed the condition against
~
pro
~
distributions in the
form of exchanges or redemptions by Christiana.
It is this ruling
which is the subject of today's hearing.
I am informed that Mr. Knight, who served as a temporary
consultant to the Acting Commissioner on the December, 1964,
ruling, recommended that the condition he had originally proposed
be removed.
I understand it was Mr. Knight's view that the
condition had served to protect the revenue of the Government and
was no longer justified.
Mr. Knight is here today at your
invitation and is prepared to discuss his recommendation with you.
Except for a final public sale of 457,312 shares of General
Motors stock by Christiana, all the distributions have now been
completed.
- 6 On the basis of the figures supplied by the companies,
which have been checked by the Treasury estimating staff and
by the Internal Revenue Service, it appears that the total
revenues from the distributions will amount to an estimated
$612 million, or $142 million more than the $470 million figure
mentioned during debate on Public Law 87-403.
Christiana in January offered its stockholders the right
to exchange their holdings of Christiana stock for 8,400,000
shares of General Motors stock held by it on the basis of
3-1/4 shares of General Motors for each share of Christiana.
4,487,051 shares of General Motors stock were exchanged for
1,380,631 shares of Christiana.
Thereafter, another 3,956,000
shares of General Motors stock were distributed pro rata to
Christiana stockholders.
It should be made perfectly clear that the
~
pro
~
distribution carried out by Christiana was a taxable exchange
and offered no special tax benefits whatsoever to those who
took advantage of it.
However, there were indirect tax benefits
to the Christiana stockholders who did not accept the exchange
offer.
They flowed from the fact that tax exempt charitable
holders of Christiana stock found the offer attractive and
exchanged substantial quantities of their holdings, thus
- 7 receiving far more General Motors stock than they would have
received under a straight pro rata distribution.
Thus, there
were fewer shares of General Motors stock left for the final
prn
~
distribution to taxable stockholders.
As a result,
the total tax payable by Christiana stockholders on the shares
received in the two distributions was $56 million less than it
would have been if all the shares had been distributed nn a
pro .!.ill basi s.
The Government
~oJi 11
recoup some p.:.lr t
0
f this
amount in capital gains taxes on future sales of Christiana
stock by present shareholders of Christiana.
It is jnteresting to note the actual result of the .!lQ!! pro
rata exchange offer.
1,380,631 shares of Christiana stock were
exchanged for General Motors stock.
of that total, 210,079
were attributable to individuals, 282,760 to corporations and
887,792 to charitable and non-profit holders.
On a percentage
basis, only about two percent of Christiana's individually-owned
shares took advantage of the exchange offer.
The percentage of
corporate-owned shares exchanged was 40 percent, while in the
case of charitable holders, who were tax exempt in any event,
the percentage was 65 percent.
The exchange was particularly attractive to charitable
holders Since, based on 1964 dividend payments, the income from
- 8 -
the General Motors shares received in exchange for Christiana
was approximately twice as much as that on the exchanged shares
of Christiana.
1~65,
Commissioner Cohen's letter dated March 15,
to Chairman Byrd provides further details of the results
of the exchange offer.
I am attaching two tables which
summarize the distributions by which du Pont and Christiana
have divested their General Motors stock.
As I stated earlier, I have not played any substantive
part in the issuance of rulings on these stock distributions.
This was in accord with the basic and longstanding policy that
the secretary of the Treasury does not decide individual tax
cases.
However, the Revenue Service is, of course, free to get
Treasury help and advice whenever it so desires.
uf both the
l~62
In the case
rulings and the 1964 ruling, I am informed
that such information and advice was sought regarding the
legislative history of Public Law 87-403.
In addition, Treasury
revenue estimators were asked to assist the Revenue Service
in verifying the reasonableness and accuracy of estimates of
taxes payable or to be payable as a result of the distribution•.
Last October, while Christiana's request for a modification
of the lS62 ruling was under consideration, my tax staff
- 9 -
suggested to me that it would be helpful if the services of
Mr. Knight could be obtained as a temporary consultant.
In view
of Mr. Knight's knowledge of the legislative history of Public
Law 87-403, and of the background of the 1962 ruling, it seemed
logical that his advice would be helpful to the Commissioner in
reaching a decision.
I, therefore, telephoned Mr. Knight, who
agreed to serve as a temporary consultant to the Commissioner
of Internal Revenue on this matter.
Because of the Committee's interest in this matter, and
because of senator Gore's desire that I acquaint myself with
the basic facts of the case, I have done so.
I have gone into
the matter enough to assure myself that the procedures used in
developing the new ruling were entirely proper and to give me
full confidence that the Commissioner issued the legally correct
ruling.
Beyond that Commissioner Cohen, who is here with me
today, has a statement as to exactly what the two rulings
covered and the reasons for their issuance.
He is also prepared
to answer detailed questions regarding the rulings or their
issuance.
000
Tab.1e I
Distribution by duPont of GM Stock
Date
July
Type of Divestiture
9, 1962
pro rata distribution
(1/2 share GM per 1 share duPont)
January
6, 1964
29, 1964
January
4, 1965
Total No. of Shares
Distributed to Christiana
22,991,492
6,70ti,560
16,557,983
4,830,163
pro rata distribution
(36/100 share GM per 1 share duPont)
J a.nuary
Total No. of Shares
Sale
40:;,000
pro rata,distribution
(1/2 share GM per 1 share duPont)
October 4 thru
December 5, 1964
Sale
447,847
62,552,153
63,000,000
6,709,506
38,841
63,000,000
TOTALS
Total sales
Total pro rata
23,002,678
18,247,283
Table II
Distribution by Christiana of aM Stock
Date
July
Type of Divestiture
Number of Shares
Sale
550,000
25, 1962
November 14, 1962
pro rata distribution
(1/3 share GM per 1 share Christiana)
November 20, 1962
January
6, 1964
January 2<),
Sale
pro rata distribution
(1/3 share GM per 1 share Christiana)
1964
February 6, 1965
March 6, 1965
Sale
4,416,210
100,000
4,416,210
400,000
Exchange
(3-1/4 shares GM for 1 share Christiana)
4,467,051
pro rata distribution
(1/3 share GM per 1 share Christiana)
March 11, 1965
Sale
3,956,000
457,312
18,7tl2,763
TOTAL
Total sales
Total pro rate
Total exchange
1,507,312
12,788,420
4,487,051
18,782,783
TREASURY DEPARTMENT
WASHINGTON.
F01~.
!:'E
L~;EDI
~LK
r::'RES,JRY
SE
March 18, 1965
DECISIOI~ O:~ SYl?:~TIC
DIAHO~JD
POVmER OR DlJST
\..ElDER THE ri=TTIDU;·iPIHG J-,CT
r~;~(;
rl' re8.Sury
Depc:rt;nent hc..s determined th["t syntllet:LC diuJnond
I,uvlder or ddst fro]T, IrelC:llci, sold by Industrial Grit Distributors
(SU2L1l1.Jn) Ltd.
County Cl8.re, Irele:nd, :LS i.10t 'oeLlg, nor likely to be
of tlle . ntidumping ; ct.
Tnis action is beinG taken pursuant to
2.
",lotice of Intent to Discontinue Investig8tion and to Hake Determin2.ti.:m Tllat
~~o
Sales Exist B.::low F8ir Vclue,
Register on FebrucTY 2
1905,
I
publisned in the Fedcr:ll
bec2.use of price revisions
witl1 respect
to synti"etic di2.mond powder or dust imported from Ireland) sold by
IndustriE'-l Grit Distributors (Snannon) Ltd., County Clare, Ireland,
cend tIK:.t such fact is considered to be evidence that there are not,
end are not likely to be, sales below fair value.
No persu8.sive evidence or 8rburnent to the contr2.ry
witnin
WeS
presented
30 days of tne public2.tion of the above-mentioned notice in the
Federal Register.
ip'..?r2.ising officers are being instructed to proceed with the appraisement of this mercI-.2ndise from Ireland wi tnout regard to any question of dumping.
Tile dollc,r value of imports of the involved merchandise received
durin£; tile period ,June
.$1,100, vI..X,;.
1903 t:nr)ug!l September 1964 was approximately
TREASURY DEPARTMENT
FOR UiHEDIf'.TE RELE,'SE
TREj~lJRY
March 18, 1965
DECISION ON SYNTHETIC DIAMOND POWDER OR DUST
UNDER THE ANTIDUMPING flCT
The 'l'reElSury Dep&rtment h8.s determined th2t syntnetic diCJInond
powder or dust from Ireland, sold by Industrial Grit Distributurs
(Sllmll1Uil) Ltd. / County Clare, Irelund, is not 'oeing, nor likely to be,
sold in t:Lle Unl ted states at less than fair vL.lue wi tdin tne meaning
of the : ntidumping f;ct.
This action is being taken pursuc.nt to
<::
",Jotice of Intent to Discontinue Investigation and to Hake Determination T1JCl.t No Sales Exist Below Fair Vu.Iue," published in the Fed:::;rol
Register on February 2; 1965, because of price revisions
witll respect
to syntEetic diamond powder or dust imported from Ireland) sold by
IndustriEll Grit Distributors (Shannon) Ltd., County Clare, Ireland,
end that such fact is considered to be evidence that there are not,
and are not likely to be, sales below fair value.
No persuasive evidence or argument to the contrary
WL.S
presented
within 30 days of the publication of the above-mentioned notice in the
Federal Register.
Fppraising officers are being instructed to proceed with the appraisement of this mercha.ndise from Ireland without regard to any question of dumping.
Tne dollar value of imports of the involved merchandise received
during the period June 1963 through September 1964 was approximately
$1,100,000.
- 23 responsibility for developing solutions.
however, rh3t
sol~tions
that the UT'.i.t2d
~-::tates
I r2Qain confident,
can dnd will be found, provided only
discharges its own imm2diate responsibility
to maintain the full strength of the dollar as the world's primary
reserve currency by achieving an early balance in its international
accounts.
And with the help of you gentlemen that is exactly
what we are going to do.
000
-22provide the basis for
/timely agreements on ways and means for improving the present
~
system well in advance of any urgent need.
In looking back on the past four years, and on the post-war
period as a whole, there can be no question that the present system
anchored on gold and the dolla:Jand effectively supplemented by the
;:;Cz- L-u-o--e.£'4~..
International Monetary Fund -- has
serv~-~e
extremes
of inflation and deflation characteristic of other postwar periods
have been avoided.
Barriers to trade have been lowered or removed.
And, in this environment, the vast productive capabilities of the
free world have been released to the benefit of us all.
The challenge for the future is to build further on this
system, recognizing its potential weaknesses and shortcomings,
but preserving the elements of strength and flexibility that
have contributed so much to cur progress.
In this area, as in the area of adjusting capital flows,
I have no fixed blueprint to offer to those who will share the
- 21 -
o~
ret;erve::,
.)~hc1"
So the rhrust of
COUllt::..-ies.
O~_ll'
thinking has beer
to fLld the best '!Jay of ciivuiging Supplct:1enlary means of providing
the lLquiiity
b(~
only
thl~
is likely to be needed.
We feel that this can
don::! gra:lualJy and by '"nJilding on h7hat
\-Je/
have.
We
/
If
ern:)ha:::ic']lly ,Jisagree '".;i,th the
which
\.Jou~
d
~..,. 'tl8
1!1l turn
thf~sis
~)ac1\
recei.1tly
Clnd e;nbrace
. . . ."
propounded~~::)li~!
dn
outmoded and highly
restricti.ve systeTl -- a sys":e:n that would surely cripple the grmolth
of i:lterlldtion,:l.t tr::t.je and COmmel"Ce as our deficit was ended.
Under the circumstances, wi.th these hroad differences of approc
3~V
final resolution of the
~ee'ls
var~ety
~ssues
of
that have been raised
to tile r.ighly uo11ke1v )-,nti: ::be Gnited States has
"
8YGC • • •"M,
/
As that is done it will beem
less and less easy ":~ ignore the potentil1 need ~or supplementary
sources
o~
reserve assets and intarnational credit fdcilities.
Mear
technic dIs tudie s are ';ole 11 uncleI
unde:- the
~lnd
c lari fy the
iSSUE
·evaluate alternative t2c':iniq'j2S. These studies will, I believe,
- 20 of i,,~n'2Ld ins
T".,i
S
i;',L2r'1-3Lionrll 1 i.'::IU1.dity in :1dequate, but not excessiv,
:,'"ch c l~:::.::-ly
But ::.:
jiver[e~C2S
2 ~,ertc,ej~J::om
:he studi.2S o~ the Grot.:p of Ten
recentllo:lths, ther~ has been little pro:;ress toward
-n
vi~\:
~hn~
have become evident can, I believe, be
refcrn to the c;.,l't'r2nt United States
::1:.
Th:=- OV2rr; dj :-,,; fl.2<?d
':lecr«'ii-:i3:11 ;"hic r: :';C'11d Force
;-,,,1 ~ .
-- '--'
j,j
agree with these
ac~:i~\7i~:Z
t,) achi~v~
;~arly
h1l:.::nce
th-iS~')Cl}
~r
0:12 E'..J.roper:n "iew, is to develop a
'3.
pro::1ptend to our payments deficits.
~uropean
our
b'7 our w",rr.
friends on the
int(~rn"ltiona.l
'3.C
~ecessity
accounts.
+: ions , \vhich no'...·
cov~r
for
And we inte!
all
aspect~
But, in 3ssessing the problems of the
i<lt2:."na::.oncl ::lonetary s:;stem,
OU(
concern and that of a number of
other co;.:n t r ie s has been to look to\vard the future, whee there will
- 19 t~e
Eut
'3UCCc?SS
of
meet the basic problem.
togeth~r,
our present program does not, of course,
The
~ations
of the free worQd, working
must develop better means for influencing capital flows
(vithi-:-,:l hastc ::ramework of free ma.rkets and national objectives -and without placing intolerable burdens either upon monetary policy
or 11pon the resources of the international monetary system.
'~e
must be under no illusion that a different or improved
international monetary system could in any way eliminate the need
for adjusting these flows.
But these two questions are nonetheless
related, for one of the basic functions of the international
monet~
system is to provide sufficient means for financing deficits and
surpluses to permi t the working out of an orderly process of adjust!
This linkage between the process of adjustment and the international monetary syster:l seems to me to be at the source of much
of the confusion and difficulty evident in recent ihternational
efforts to develop a common approach to\vard the further evolution
~
international payments system.
0
All the major countries are ful
agreed, I belie'Je, • • dt the neec for developing an assured method
- 18 e,lvircnll:enl fur i ;,v2stme:1t l,..;i.thi:1 the United States through tax
1
eciuctiQ,l and ..o'Jstainecl grO\'Jth, together . . vith the development of
f ar ~argl~I,
abro~d.
far fnore effie ien t and :ar more flexib Ie c api tal market
\~'hi 12
th2re has b=en some encouraging progress in both
of thes2 .Jirectio:1S) much more remains to be done.
Th~se
ar~,
of course, long-run measures, and their influence
cdpital £10''''5 must be expected to cJ1erge only slmvly.
01
For the time
being, the existing disequilibrium -- dnd the urgency of reducing
our deficit --
h~s
required that we seek the cooperation of our ban1
and other financial inslitutions, as tvell as of our industrial firm:
in voluntarily reducing the flow of capital abroad.
The response
0
those asked to participate in this voluntary program has been
gratifying.
The effects are already clearly visible both in the
foreign exchange markets and in our preliminary payments statistics
which point to a sharp and favorable change since mid February.
t\v'o swallmvs don I t make a summer.
Bu
~·Je need a considerable period of
balance to offset the deficits of the past.
We know we can count 0
your cooperation in achieving this vitally needed result.
- 17 To cite th2se limitations and difficulties in the use of
monetary policy is not, of course, to say that monetary policy
doc~
not have
3
useful and essential role to play in helping the
adjustment process in the United States, as in other countries.
It has played such a role, is playing flit now, and will continue to
do so in the future.
chief reasons for
In fact, as I suggested earlier, one of our
r(~ ly in;
primari ly upon fiscal policy to stimulate
the domestic economy \Vas to give monetary policy additional freedom
in coping \.<.1ith our balance of payments problem.
And I can assure
you that monetary polic" remains fully available for further use
should the need aeise.
full burden for
But 1 see no realistic prospect that the
achievi~g
a permanent international adjustment in
capi tal flo<'I78 can reasonably he thrust on American monetary policy
alone either now or in the foreseeable future.
Instead, as I have suggested before to this grOD?, the only
really s2tisfactory long range solution to our present problem of
excessive capital outflows
li~s
in 8chieving a more attractive
- 16 It
mit~t,
\'lol!ldJe :1bL"
SU211
of course, be argued that 2xtremely tight money
"0
do the job if COrltL1ued over a long enough period.
a policy rests
of our
hu~e
OG
:he highly doubtful assumption that in spite
voluma of savings it would be technically feasible --
perhaps by dr,ls::ic:illv t"2cbcing the money supply -- to raise the
general level of our bark ana long-term interest rates by the 1-1/2
to 2 percent rh,".t (vould :)e needed to achieve interest rate parity
with Europe.
But even granting that assumption, such a policy
would surely be self-defeating.
rate
ob~ective,
Before it could achieve the intere
the extreme restriction of credit would surely move
us to\oJard domestic recession, and at a time when our economy is
already failing to use its resources to the full.
A recession woul
in turn, delay Ollr fundamenta.l aim of creating a more favorable
climate for investment in the United States.
At the same time, it
\"Quld r8;.-)idly create forces for easy money that would be likely to
.~
~./~.,
prove irresistihle.
,
.
Thus the end result \lOuld aRt, be an aggravatj
of our bala71ce of payments problem.
- 15 -:-1- ti,i~ E.,:~ttin~~
~onetdry
\.Je
could not expect moderately tighter
801icjes to orin; the
of long-tern funds abroad.
n~eded
reduction in the outflow
The disparities in the structure
of the capital mar}r:e::::, of our
difL~rent
countries are simply
too gr2at to
1)(~rTT1it
adjustment.
duch more js needed to bring interest rates here
1jS
to rely heavily on that approach toward
and in other industrialized countries into
tha~ is J:e~ifl'e@ if \'Je ,3.re
typ.e .f capital
flo~s
rough alignment
to put . . end to the "'stabilizing
that have tharacterized the past two
f
!
years.
tht~
I
/
- 14 -
,':1')
[her
~
nd; c a;~ i c n
(~:-
tht~
~~ tr·~ng th
o[ our longer- term
y·~ars,
they ha\le not merely
TTIarl(ets
s ::-:hdt:, ever the past four
provicJ~d
the vast'im.'·unt of funds necessary to support high
leve Is
0 i
hl)rrJ2bl-,
i 1dinz., <: re;-!larkdble expans ion in business
investment, and :he rapidly growing needs of our states and
localities.
Thev have also provided funds to the
equal to the entire $28.8 billion
first four
ye:lrs 0:::
FecJera~
this .t'..dministration.
Government~
J'
deficit during the
During that period
more than that ..lmOUl1t \'laS placed in savings bonds and marketable
debt maturing in over Five years.
in the increase of
al~ost
This achievement is reflected
one year or 20 ?ercert in the average
length of the marketable debt to a level. last seen in mid 1956.
- 13 pr~ssur,~s
a:nons; institutions \vith
!l
wide variety of investment
options, permit funds to flow promptly from one sector of our
econOrllY to another in resp'Jnse to changing demands.
And, a long
history of confidence in our currency, further fortified by the
stability of our prices in recent years, has encouraged individuals
and investment Jnstitutions to commit funds freely at long-term.
As a result of the pressure of the
eH8rm9~S
volume of private
savings seeking investment in our market, our long-term interest
rate structure has remained essentially stable during the past four
years, even though money market rates have risen by 1-1/2
.eas=r perc
,
<-
to a range of 4 to 4-1/2 percent.
As a result, the differential
between short- and long-term rates has almost disappeared.
Neverth
the bond markel has continued to absorb a record volume of longterm financing at stable rate levels.
- 12 -
"~~/'
,...'
the loan chargesi'a ... by local borrowers.
And, faced with con-
stricted internal markets, and thus denied a full range of fiscal
and monetary tools, the authorities themselves often find it
essential to pursue essentially domestic credit objectives -- and in
some
instance~ance internal budgetary needs
ments in external flows of
-- through adjust
-~-:;..&~
funds.~metime~borrOWing directly
-
from abroad and sometimes by seeking to influence the external
e~-C::-t'..I~d:1 /
borrowing or placement of funds by their {.b~s •
--~
~~
The sheer size of the United States economy and the ... sa321
~~~
volume of ~p~A;actj ODS fJ QHi:ng LliIOu~h our credit markets -estimated last year at over $70 billion -- help account for the
much greater fluidity of our markets and their ability to adjust
to, and absorb, large domestic or foreign demands with relative
ease.
But it is not a question of size alone.
The relative
freedom of the market mechanism, and the intensity of competitive
- 11 -
~.1
~tection
extent
~
for citizens
tha~he
~~;JI'/ private
rAr.
United
insurance and private industry.
But,
it is also a reflection, in many instances, of a conscious desire to
provide special preferences to one major group of borrowers or
another, and to maintain a high degree of Government control of
national economic development.
In either case, the natural result
is to leave those businesses and other borrowers that must look to
the remainder of the market more or less perpetually starved for
funds, and with an impelling desire to seek needed capital from
abroad.
All of these
. . . .~l factors have
._~
rates in Europe that,1'\th"sl!gRsat ttll
z;I("~r4"A,~ !~/ /~.r/~t~" :.. ~~.//'
(at~f~~~l~
peBLiO •• ~~i:ad
k
'--e remained
that, in /th~ "lighi-ofpast history, are unusually high.
I
Official
discount~rates,
/
and the money market rates more immediatel:
/
influenced by t~e official rates, often bear little relationship to
/
...) u<<'1Y ~7
MP,--
C
;:-;.''''
-y~..,,~
This structural imbalance forced us to propose the Interest
Equalization Tax during the summer of 1963.
It effectively
increased the cost of long-term portfolio crp.dit to foreigners
,
in developed countries.
As a result the outflow
capital in 1964 dropped back to the 1960 level.
,11,t·(
f'[ _~~
o~p6rtfolio
- 9 In the broadest sense, international differences in the rate
of return on
i'1vl~stment
interest rates and
th~
-- as these differences are reflected in
intensity of demands for credit -- also lie
behind the accelerating outflow of bank loans and other credits
\ I
a~)road;:
~.I
·The plain fact is that foreign borrowers are willing and
able to pay higher rates than domestic borrowers of similar credit
standing with free access to the vast resources of the U. S. credit
market, and foreign loans are thus in many instances more profitabl,
to the lending banks.
funds by our
The same is true for the placement of liquid
~orporations.
But the massive outflow of these types
of cred:i t is also related to other deepseated structural characteristics of American and foreign capital markets.
As you know, with rare exceptions, foreign financial markets,
even in countries with the most highly developed economies, lack
a large and fluid short-term money market.
are t]sually even more constricted.
Long-term bond markets
As a result, in most other coun
there is simply no effective mechanism by which private borrowers
i.n
1
.
investments
,liu.Levcr
b2 &
its
~0re
rrc~itablc
in'::: 1 \lence
1: ,-
1 .
>~:
(~
1" C r:
C_'1.~'-~
,
.
. _.~ 1... -1.: ;...
,.
r.. 'le:c:.
'-.~." -...., ~,...
l.~'" \..lL ____ .. ..:.
_
4-
.,:..
-
.1-,,)
1
(,j
11
_
'-
,
use [or
judc;ment
.::Jo
t._. \
.~
1~ ~
L eTlains , an'} 6ain in
:co
(?
,
in
Co .!. C
',')~'~~-;_"_.---"
... -----
,-
I-
I.!_ ,_
-.,7h i 1(:
d;. _~ .. ':..::: :.-
, "-
........
- 7 certain foreign markets; a desire to operate
• 4
more rapl('
~efMpn
raw
most
<l
\.;7.:111 o~ 2xterna1 tariffs; proximity to readily available
~aterials;
o~vious
and lower production costs -- to name some of the
[a~tors.
But oerhans most
States'
conntry.
industri~l
i~portant
of all is the fact that United
development so far exceeds that of any other
This has brought with it a degree of competition that is
W.fey unknmJn anywhere else in the
'~lorld.
Add to this our enormou
flow of savings_.-J and it is not surprising to find a general acceptan
of lower rates of
r~turn
on capital in this country than prevail
elsewhere -- rates that only partially reflect differences in risks
between investments here and abroad.
At the same time, our
businessmen and i:nvestors tend to place higher capital values
on prospective earnings than is the case
- 6 -
482
with tigher monetary policy the simple, effective, and unique remed
Naturally, if one defines an excess of liquidity as synonymous with
an excessive capital outflow, I suppose tha~position would be unassailable.
But that kind of analysis bears no realistic re1ation-
ship to the difficulty we face today.
All it does is to define
away the substance of a very real and tough problem.
In my judgment, it is much more enlightening -- although still
not the entire answer -- to analyze the problem in terms of
differences in investment profitability, rather than in terms of
liquidity.
Consider, for example, the outflow of funds for direct
investment abroad, which has continued to rise, reaching a •••
1
IF r
$2.2 billion in 1964.
At the present time, many American
firms clearly believe that a portion of their available resources
can be most profitably invested in subsidiaries abroad.
That
calculation rests on a variety of familiar considerations -- the
- 5 bdnkt-; have actually operated \vith a small net borrowed reserve
....
Corpoldt2 liquidity ratios have ~.'40 the lowest
position.
/'
levels
.-
. i...oa:e'~" '~R.
a q .... arter, century.
I
Equal~zation
IAt
the same-time' ,
~er
Tax has effectively increased the cost of long-term
portfolio credit to foreign borrowers in developed countries.
Clearly, credit has remained readily available in the United
States throughout this period, and our bank lending and long-term
interest rates are still low relative to most other countries.
But
it is also a palpahle fact that rising investment opportunities
and credit
dema~ds
at home, combined with increases in the Federal
Reserve discount rate and greater restraint in the provision of ban
reserves, have
inscead of
~oticeably
dec]ini~~
r~duced
the ease of our market.
Yet,
in response to these developments, the capital
Thj s fact 2.1one cS,:::ts into dOllOt tre thesis of those who view
tbe problem al'cmst
eTlti:-e~v
in
t2rr,lS
of
~'excessive'l
domestic liquic
·1
i
R(~
.J
:
- 4 at home could only aggravate the problem of capital outflows.
By
shifting much of the burden for promoting domestic expansion to
fiscal policy and tax reduction, we have enabled our monetary
authorities to move gradually, but steadily, to an essentially
neutral monetary policy.
Our short-term market interest rates have climbed significantly since the 1960-1961 recession, responding largely to two
~ point increases in the discount rate.
With the discount rate now
~~.-r
at 4 percent, Treasury bill' jt&!itithin 1/2 percent or so of
their postwar high -- a high reached only briefly during the period
of very tight money in 1959.
Loan/deposit ratios of banks have
gradually climbed to a postwar peak, and other traditional measures
of bank liquidity have confirmed a gradual tightening in their
position.
The Federal Reserve has rather steadily reduced the
free reserves of the banking system, and, for the past month, the
- 3 -
and to reduce the balance of payments impact of our aid and defense
programs had achieved visible and gratifying results.
Yet, as you
know, our deficit last year was once again disappointingly large,
primarily because capital had poured out of the United States in
unprecedented amounts -- in significant part to the strong surplus
countries of Western Europe.
The recent Annual Report of the Monet,
Commission of the European Economic Community highlighted this pain
noting that an improvement s*&M1!JIIe of about $3 billion in United
-;
States transactions for goods and services and government accounts
largely offset by a $2 billion increase in private capital outflows
Within the basic limitations set by the needs of an underemployed domestic economy, the United States throughout the last
four years has been alert to the fact that excessively easy money
~
486
- 2 -
that impede the entire process of restoring balance in the payments
of deficit and surplus countries alike.
The Group of Ten, in their recent study of the international
monetary system, concluded unamimous1y that ways must be found to
I
z..c,.• .£.
improve the process of balance of payments adjustment.
~J
The ....
~
j ••qp
t
"e
(Wholeheartedly joined in that conclusion and 1Iel;.
t
its sf the systematic studies of this matter now underway in
Working Party III of the OECD.
However, if these studies are to
h';;'~{ results they must face up to the stubborn and extremely
difficult problem posed by the deep structural imbalances in the
world's capital markets that have enormously complicated the smooth
functioning of the adjustment mechanism.
The nature of the problem is clearly illustrated by develop·
ments in our own balance of payments last year.
~~~
By 1964, the
mea;~en,bJ •• ·s saun.uy to improve our trade position
~/tl''f
Ii ~
'-ZEH1'l.RKS BY THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE TEE 13T~ ANNUAL MONETARY CONFERENCE
OF THE Ai"1ERICAN BANKERS ASSOCIATION
AT PRINCETON INN, PRINCETON, NE~\1 JERSEY
FRIDAY, :tARCH 19,1965,12:30 P.M., EST
This i# the fourth year in \"rhich I have had the special
privilebe of addressing this Conference of distinguished leaders
in the world of finance.
These have been years of remarkable in-
novation in financial practices and policies -- public and private
both within the United States and abroad.
Internationally, we have
fashioned a frame\vork for mutual consultation and cooperation that
measured against our common objectives of steady growth and
flourishing world trade, coupled with substantial price stability has proved both durable and viable.
But, despite much excellent progress, our international financ
system still suffers from a disturbing disequilibrium -- one I have
discussed
\.;i
th you on previous occasions.
This is the seemingly
chronic tendency for capital to flow between countries in direction
and in amounts
TREASURY DEPARTMENT
Washington
FOR RELEASE:
UPON DELIVERY
REMARKS BY THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE THE 13TH ANNUAL MONETARY CONFERENCE
OF THE AMERICAN BANKERS ASSOCIATION
AT PRINCETON INN, PRINCETON, NEW JERSEY
FRIDAY, MARCH 19, 1965, 12:30 P.M., EST
This is the fourth year in which I have had the special
privilege of addressing this Conference of distinguished leaders
in the world of finance. These have been years of remarkable
innovation in financial practices and policies -- public and private
both within the United States and abroad. Internationally, we have
fashioned a framework for mutual consultation and cooperation that -measured against our common objectives of steady growth and
flourishing world trade, coupled with substantial price stability -has proved both durable and viable.
But, despite much excellent progress, our international financial
system still suffers from a disturbing disequilibrium -- one I have
discussed with you on previous occasions. This is the seemingly
chronic tendency for capital to flow between countries in directions
and in amounts that impede the entire process of restoring balance in
the payments of deficit and surplus countries alike.
The Group of Ten, in their recent study of the international
monetary system, concluded unanimously that ways must be found to
improve the process of balance of payments adjustment. The
United States wholeheartedly joined in that conclusion and welcomes
the systematic studies of this matter now underway in Working Party III
of the OECD. However, if these studies are to have truly useful
results they must face up to the stubborn and extremely difficult
problem posed by the deep structural imbalances in the world's
capital markets that have enormously complicated the smooth
functioning of the adjustment mechanism.
The nature of the problem is clearly illustrated by developments
in our balance of payments last year. By 1964, the measures we had
undertaken to improve our trade position and to reduce the balance
of payments impact of our aid and defense programs had achieved
visible and gratifying results. Yet, as you know, our deficit last
D-154l
- 2 -
" IJ
' ,
year was once again disappointingly large, primarily because capital
had poured out of the United States in unprecedented amounts -- in
significant part to the strong surplus countries of Western Europe.
The recent Annual Report of the Monetary Commission of the European
Economic Community highlighted this point, noting that an
improvement of about $3 billion in United State~ transactions for
goods and services and government accounts had been largely offset
by a $2 billion increase in private capital outflows.
Within the basic limitations set by the needs of an underemployed domestic economy, the United States throughout the last
four years had been alert to the fact that excessively easy money
at home could only aggravate the problem of capital outflows. By
shifting much of the burden for promoting domestic expansion to
fiscal policy and tax reduction) we have enabled our monetary
authorities to move gradually, but steadily, to an essentially
neutral monetary policy.
Our short-term market interest rates have climbed significantly
since the 1960-1961 recession, responding largely to two half
point increases in the discount rate. With the discount rate r,ow
at 4 percent, Treasury bill yields are within 1/2 percent or so of
their postwar high -- a high reached only briefly during the period
of very tight money in 1959. Loan/deposit ratios of banks have
gradually climbed to a postwar peak, and other traditional measures
of bank liquidity have confirmed a gradual tightening in their
position. The Federal Reserve has rather steadily reduced the
free reserves of the banking system, and, for the past month, the
banks have actually operated with a small net borrowed reserve
posltlon. While corporate cash flow has remained high, liquidity
ratios have reached the lowest levels in a quarter of a century.
Clearly, credit has remained readily available in the
United States throughout this period, and our bank lending and
long-term interest rates are still low relative to most other
countries. But it is also a palpable fact that rising investment
opportunities and credit demands at home, combined with increases
in the Federal Reserve discount rate and greater restraint in the
provision of bank reserves, have noticeably reduced the ease of our
market. Yet, instead of declining in response to these developments,
the capital outflow has accelerated.
- 3 This fact alone casts into doubt the thesis of those who view
the problem almost entirely in terms of "excessive" domestic
liquidity, with tighter monetary policy the simple, effective, and
unique remedy. Naturally, if one defines an excess of liquidity as
synonymous with an excessive capital outflow, I suppose that
position would be unassailable. But that kind of analysis bears
no realistic relationship to the difficulty we face today. All it
does is to de fine away the subs tance of a very real and tough
problem.
In my judgment, it is much more enlightening -- although still
not the entire answer -- to analyze the problem in terms of
differences in investment profitability, rather than in terms of
liquidity. Consider, for example, the ou tflow of funds for d irec t
investment abroad, which has continued to rise, reaching $2.3
billion in 1964. At the present time, many American firms
clearly believe that a portion of their available resources can be
most profitably invested in subsidiaries abroad. That calculation
rests on a variety of familiar considerations -- the more rapid
~owth of certain foreign markets; a desire to operate inside a
wall of external tariffs; proximity to readily available raw
materials; and lower production costs -- to name some of the most
obvious fac tors.
But perhaps most important of all is the fact that United
States' industrial development so far exceeds that of any other
country. This has brought with it a degree of competition that is
unknown anywhere else in the world. Add to this our enormous
flow of savings, and it is not surprising to find a general
acceptance of lower rates of return on capital in this country than
prevail elsewhere -- rates that only partially reflect differences
in risks be tween inves tmen ts here and abroad. At the same time, our
businessmen and investors tend to place higher capital values on
prospective earnings than is the case elsewhere, and our corporations
at times find it attractive to pay higher prices in the acquisition
of going concerns abroad than would seem reasonable to local
inves tors.
Whatever the specific reason that particular direct investments
abroad appear to a given company to be a more profitable use for
its funds, the fac t is tha t we cannot e ffec ti ve ly influence this
judgment by simply reducing liquidity and tightening credit at home.
So long as the basic difference in profitability remains, any gain in
terms of reduced foreign investment will entail a substantially
larger cost in terms of dampening domestic investment as well.
- 4 There seems, therefore, little warrant ei ther in theory or in
practice for basing economic policy on a presumption that corporate
~nagers will permit considerations of the rate and availability of
bank credit to affect their decisions on foreign investment, while
leaving the domestic economy untouched.
In the broadest sense, international differences in the rate
of return on investment -- as these differences are reflected in
interest rates and the intensity of demands for credit -- also lie
behind the accelerating outflow of bank loans and other credits
abroad. This s true tura 1 imba lance forced us to propose the
Interest Equalization Tax during the summer of 1963.
It effectively
increased the cost of long-term portfolio credit to foreigners
in developed countries.
As a result the outflow of long-term
portfolio capital in 1964 dropped back to the 1960 level.
The plain fact is that foreign borrowers are willing and able
to pay higher rates than domestic borrowers of similar credit
standing with free access to the vast resources of the American
credit market, and foreign loans are thus in many instances more
profitable to the lending banks.
The same is true for the placement
of liquid funds by our corporations.
But the massive outflow of
these types of credit is also related to other deepsea ted structrual
characteristics of American and foreign capital markets.
As you know, with rare exceptions, foreign financial markets,
even in countries with the most highly developed economies, lack
a large and fluid short-term money market.
Long-term bond markets
are usually even more constricted.
As a result, in most other
countries there is simply no effective mechanism by which private
borrowers and lenders -- and to a very considerable extent
governments -- can readily raise or dispose of large sums in short
periods of time in the open market.
Instead, the available funds
I\Tithin each country are channeled almost entirely through a
relatively few big institutions dealing with individual customers
on a personalized basis.
These institutional markets are fairly
well insulated from the short-term money market, and frequently
respond only sluggishly if at all to the actions of the monetary
authorities.
The fluidity and size of the market available to most private
borrowers abroad is further impaired by the fact that many foreign
governments preempt a very large fraction of the savings available
for investment, or direct it into officially sanctioned uses,
- 5 frequently wi th a s izeab le subs idy for pre ferred borrowers added
along the way.
This is partly a natural result of basic social
decisions to provide, through Government social insurace programs,
the protection for citizens that we in the United States furnish
to a much larger extent through private insurance and private
~dustry.
But, it is also a reflection, in many instances, of a
conscious de s ire to provide spec ial pre ferences to one maj or group
of borrmvers or another, and to maintain a high degree of Government
control of national economic development.
In either case, the
natural result is to leave those businesses and other borrowers that
mst look to the remainder of the market more or less perpetually
starved for funds, and with an impelling desire to seek needed capital
from abroad.
All of these factors have contributed to a structure of longinterest rates in Europe that, with only one or two exceptions,
has rema ined throughou t the pos twar period at leve Is tha t, in the
light of pas t his tory, are unusually high.
Offic ia 1 d iscoun t ra tes ,
and the money market rates more immediately influenced by the
official rates, often bear little relationship to the loan charges
payable by loca 1 borrowers. And, faced wi th cons tric ted interna 1
~rkets, and thus denied a full range of fiscal and monetary tools,
the authorities themselves often find it essential to pursue
essentially domestic credit objectives -- and in some instances even
to finance in terna 1 budge tary need s - - through adj us tmen ts in
external flows of funds.
Sometimes this is done by borrowing
directly from abroad and some times by seeking to influence the
external borrowing or placement of funds by their commercial banks.
~rm
The sheer size of the United States economy and the tremendous
volume of funds raised in our credit markets -- estimated last year
at over $70 billion -- help account for the much greater fluidity of
our marke ts and the ir ab iIi ty to adj us t to, and abs orb, large
domestic or foreign demands with relative ease.
But it is not a
~estion of size alone.
The relative freedom of the market mechanism,
~d the intensity of competitive pressures among institutions with
a wide variety of investment options, permit funds to flow promptly
hom one sector of our economy to another in response to changing
demands. And, a long his tory of con fidence in our currency,
further fortified by the stability or our prices in recent years,
has encouraged individuals and investment institutions to commit
funds free ly a t long - term.
As a result of the pressure of the huge volume of private
savings seeking investment in our market, our long-term interest
rate structure has remained essentially stable during the past four
years, even though money market rates have risen by 1-1/2 percent
- 6 or more to a range of 4 to 4-1/2 percent. As a result, the
differential between short- and long-term rates has almost disappeared.
Nevertheless, the bond market has continued to absorb a record volume
of long-term financing at stable rate levels.
Another indication of the strength of our longer-term
markets is tha t, over the pas t four years, they have not merely
provided the vast amount of funds necessary to support high levels
of homebuilding, a remarkable expansion in business investment, and
the rapidly grmving needs of our states and localities.
They have
also provided fund s to the Governmen t, equa 1 to the en tire $28.8
billion Federal deficit during the first four years of this
Administration.
During that period more than that amount was placed
in savings bonds and marketable debt maturing in over five years.
This achievemen t is re flec ted in the increase of a 1m os t one year or
20 percent in the average length of the marketable debt to a level
last seen in mid-1956.
In this setting we could not expect moderately tighter monetary
policies to bring the needed reduction in the outflow of long-term
funds abroad.
The disparities in the structure of the capital
~rkets of our different countries are simply too great to permit
us to rely heavily on that approach toward adjustment. Much more
is needed to bring interest rates here and in other industrialized
countries into the rough alignment that is surely necessary if we are
to put a permanent end to the destabilizing capital flows that have
charac ter ized the pas t two years.
It might, of course, be argued that extremely tight money
would be able to do the job if continued over a long enough period.
Such a policy rests on the highly doubtful assumption that in spite
of our huge volume of savings it would be technically feasible -~rhaps by drastically reducing the money supply -- to raise the
general level of our bank and long-term interest rates by the 1-1/2
to 2 percent that would be needed to achieve interest rate parity
with Europe.
But even granting that assumption, such a policy would surely
be self-defeating.
Before it could achieve the interest rate
o~ective, the extreme restriction of credit would surely move
us toward domestic recession, and at a time when our economy is
already failing to use its resources to the full.
A recession would,
in turn, delay our fundamental aim of creating a more favorable
climate for investment in the United States. At the same time, it
would rapidly create forces for easy money that would be likely to
prove irresistible.
Thus the end result would not be an improvement
but rather an aggravation of our balance of payments problem.
- 7 To cite these limitations and difficulties in the use of
monetary policy is not, of course, to say that monetary policy
does not have a useful and indeed essential role to play in helping
the adjustment process in the United States, as in other countries.
It has played such a role, is playing such a role now, and will
continue to do so in the future.
In fact, as I suggested earlier,
one of our chief reasons for relying primarily upon fiscal policy
to stimulate the domestic economy was to give monetary policy
additional freedom in coping with our balance of payments problem.
And I can assure you that monetary policy remains fully available
for further use should the need arise.
But I see no realistic
prospect that the full burden for achieving a permanent
international adjustment in capital flows can reasonably be thrust
on American monetary policy alone either now or in the foreseeable
future.
Instead, ?s I have suggested before to this group, the only
really satisfactory long range solution to our present problem of
excessive capital outflows lies in achieving a more attractive
environment for investment within the United States through tax
reduction and sustained growth, together with the development of
far larger, far more efficient and far more flexible capital markets
abroad. While there has been some encouraging progress in both
of these directions, much more remains to be done.
These are, of course, long-run measures, and their influence on
capital flows must be expected to emerge only slowly.
For the time
being, the existing disequilibrium -- and the urgency of reducing
our deficit -- has required that we seek the cooperation of our banks
~d other financial institutions, as well as of our industrial firms,
in voluntarily reducing the flow of capital abroad.
The response of
those asked to participate in this voluntary program has been most
gratifying.
The effects are already clearly visible both in the
foreign exchange markets and in our preliminary payments statistics
which point to a sharp and favorable change since mid-February.
But
~o swallows don't make a summer.
We need a considerable period of
balance to offset the deficits of the past. We know we can count on
yoor cooperation in achieving this vitally needed result.
But the success of our present program does not, of course,
~et the basic problem.
The nations of the free world, working
together, must develop better means for influencing capital flaws
within a basic framework of free markets and national objectives -and without placing intolerable burdens either upon monetary policy
or Upon the resources of the international monetary system.
- 8 We must be under no illusion that a different or improved
international monetary system could in any way eliminate the need for
adjusting these flows.
But these two questions are nonetheless
related, for one of the basic functions of the international monetary
system is to provide sufficient means for financing deficits and
surpluses to permit the working out of an orderly process of adjustment.
This linkage between the process of adjustment and the international
monetary system seems to me to be at the source of much of the
confusion and di..fficulty evident in recent international efforts to
develop a common approach toward the further evolution of the international payments system. All the major countries are fully agreed,
I believe, on the need for developing an assured method of generating
international liquidity in adequate, but no excessive, amounts as
world trade and production increases over the years ahead. This much
clearly emerged from the studies of the Group of Ten and the International Monetary Fund las t year.
But in recent months, there has been little progress toward more
concrete agreement on methods and approaches. The pronounced
divergences in view that have become evident can, J believe, be
traced in good part to quite different assumptions about the relationship of international monetary reform to the current United States
payments deficit.
The overriding need, in one European view, is to develop a
mechanism which would force a prompt end to our payments deficits.
~ fully agree with these European friends on the necessity for
achieving early balance in our international accounts. And we intend
to achieve this goal by our own actions, which now for the first time
cover all aspects of our payments problem.
But, in assessing the problems of the international monetary
system, our concern and that of a number of other countries has been
to look toward the future, when there will no longer be an American
payments deficit pumping dollars into the reserves of other countries.
~ the thrust of our thinking has been to find the best way of
developing supplementary means of providing the liquidity that is
likely to be needed. We feel that this can only be done gradually
and by building on what we now have. And we emphatically disagree
with the thesis recently propounded in some quarters which would
turn back the clock and embrace an outmoded and highly restrictive
system -- a system that would surely cripple the growth of international
trade and cormnerce as our deficit was ended.
- 9 -
Under the circumstances, with these broad differences of approach,
any final resolution of the variety of issues that have been raised
seems to me highly unlikely until the United States has brought its
international payments into balance. As that is done it will become
less and less easy to ignore the potential need for supplementary
sources of reserve assets and international credit facilities. Meanwhile, difficult and time consuming technical studies are well
undervJay under the auspices of the Group of Ten, helping to clarify
ilie issues and to evaluate alternative techniques. These studies
will, I believe, provide the basis for timely agreements on ways
and means for improving the present monetary system well in advance
of any urgent need.
In looking back on the past four years, and on the post-war
period as a whole, there can be no question that the present system
anchored on gold and the dollar, and effectively supplemented by the
International Monetary Fund -- has served the world well. The
extremes of inflation and deflation characteristic af other post-war
periods have heen avoided. Barriers to trade have been lowered or
removed. Ap0, in this environment, the vast productive capabilities
of the free world have been released to the benefit of us all.
The challenge for the future is to build further on this system,
recognizing its potential weaknesses and shortcomings, but preserving
t~ elements of strength and flexibility that have contributed so
much to our progress.
In this area, as in the area of adjusting capital flows, I have
no fixed blueprint to offer to those who will share the responsibility
fur developing solutions. I remain confident, however, that solutions
can and will be found, provided only that the United States discharges
its own immediate responsibility to maintain the full strength
of the dollar as the world's primary reserve currency by achieving an
early balance in its international accounts. And with the help of
you gentlemen that is exactly what we are going to do.
000
['1'('
all
p.:-:r:1111'(. 1'\'01,1
LlltTCOt'
by
nll,Y
t~lxinl.
loe:,)
U~xaL:t
~~I.al.e,
on nOl.J'
01'
or <my of the
:mLhortLy.
ll<;rcnfLer :imposcu on the prlnc.i.po.l or JnL.0:t'f'
pO~~:JcsGlons
of the Un.lted States, or by
UIlY
For PUl'}lo:;ef; of' tl1;wLi.cn l.hc amount; of discount at I{hie
rl'l'c[u:ury 1,j] ts o.rc orhUnally sold hy the United Stutcs is considered to be inUnder [;ectlonG Ij·S.t1 (b) emd 1221 (!5) of the Internal Revenue Code of 105
LcrcGt.
the
~unount
of discount at "h1ch bi lL, issued hereunder arc sold is not considere
to accrue until such billr;
bills
flj'('
from
C;.Cl1.1dfll
O.L· ']')'('a[;I11';I bI.I.J~~
CITe
sold, rctlccl1wd or otherwise dlsposcd of, and such
COllf:icirTn:.jc'll
!If;
C;'ldt;;.l,
n.J~~cL::;.
I\('cordlngly, the mmey
(oLher :.ll:lrJ 1.;'(, in:;1U'[).ncc compunicG) issued hereunder need in
clu<le in hiG income to.x return on ly
Lll(~
dj f:l'crencc bct,·rcen the price paid for
GU
bill::; .. vhctheT on orLcina1 L;:;u(' ot' on ::Ubscf]ltcnt purchafJc, and the amount 8.ctw
reCL: .i.ved eIther uJlon f,n I.e or
uhiel! the l'etw'n i:; made,
a~;
r<.;(h~Jn})l. j
on flL mnturi ty durinG the ta.-'{able year for
ord i nOl:Y U; in or
l()[~G.
'l11'0n.cury Department Ci~'cular Bo. ~lG (current revision) and this notice, p:
~cr:ibc
I,h0
[;0),1I1G
01'
the
'rrC8GUT.','
hil.ls and [':overn the condi ttons of their issue
Copies of the circlLlar may br.' obt::d.ncd from any Federal RCGe:r.re Bank or Branch.
- 2 -
bankinc insti tutiono will not be; pennlt1.,ed to subml t tenders except for 1.,heir own
nCC01ll1t.
Tenders ,vill be receJvcd
\[i
L11ou1., ucposit frorn incorporated banks and
trust companies D11U from responsible Gnd l'ccor;nizcd uealers in investment securities.
Tenders from oLhers must be nccompanieu by payment of 2 percent of the face amount
of Treasury hills applied for, lUllc8G the; tenders are accom.panied by an· express
/lUaranty of payment by an incorporated bnnlc or trust company •.
Inunediatcly arter the closing hour, tenuers will be opened at the Federal Re-
serve Banl\:s and Branches, rollo1finc ,,111ch pubJic a.nnolUlcemcnt mil be made by the
Treasury Department of the omount and price nmge of accepted bIds.
ting tenders "rIll be advised or the acceptance or· rejec Lion thereof.
~'hose
Gubml t.-
The Secretary
of the 'l'reasury e;qJressly reserves the riGht to nccqJt or reject any o!,B:ll tenders,
in
~lhole
or in part, and his nction :tn any rmcn rCGpect shall be final.
to these reservations, noncompetitive tenders ror:j; 200~OOO
(~
)
Subject·
or less· without
stated price from anyone bidder I-T1ll be acccrtcd in full at the average price (in
three decimalo) of accepted competi ttve blue.
accordance "lith .the bids must be
March 31, 1965
--=l(::t:ll~)~~-
HlB.c1c
Settlement for accepted tenders in
or cOlTlJ!leted at the FedcrD,l Reserve Banlt on
, in CD.oh or other immediately available· funds or in a . like
Cash and exchange
face amOlmt of Tre asury b ill a Ina t ur 1nc; _...:Ma:.=r:::.:c:::.:h:;:-3:::.:1;:J...'...,;1=9::..6::..5:.-__
(12 )
tenders vrill receive equal treatm.ent. Cash adjustments will be made .fordiffer:-
ences bebTeen thcpar vD,lue of maturinG bills accepted in exchaneeand ·the issue
pr:lce
of
the nevT bills.
The income deri vcd from Treasury billa, "mether intercnt or gain from th~ sale
or other disposition of the b:t1ls, does' not have any exelnption,l;l.~ such, Md loss
frOln the sale or other disposition of Treasury bills does not have any special
treatment, as such, under the Internal Revenue Code of 1954.
The b~ll8 are subject
to estate, inheritance, gift or other excice taxes, ",hether Federal or state, but
TREASURY DEPARTMENT
Washington
FOR IHlvIEDIATE RELEASE,
March 18, 1965
SURY REFUNDS ONE-YEAR BILLS
The Treasury Department, by this public notice, invites tenders for
$ 1,000,000,000 , or thereabouts, of
=w:
in exchange for Treasury bills maturing
of $1,001,464,000
365
-day Treasury bills, for cash and
=t3+
March
, in the amoun j
~965
, to be issued on a discount basis under competitive and
(5 )
noncompetitive bidding as hereinafter provided.
dated
March 3l! 1965
----~~(6~)~------
'l'he bills of this series will bE
, and will mature
the face amount will be payable without interest.
March 31. 1966
~~4(~7)~~---
, when
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
Reserv~
Banks and Branches up to the
closing hour, one-thirty p.m., Eastern Standard time, Thursday: March 25. 1965 ..
-(8)
Tenders '\-rill not be received at the Treasury Department, Washington.
Each tendeJ
must be for an even multiple of $1,000, and in the case of competitive tenders tl
price offered must be expressed on the basis of 100, with not more than three dec
!mals, e. g., 99.925.
Fractions may not be used.
these bills will run for
365
4i»=
(Notwithstanding the fact
days, the discount rate will be computed on a boo
discount basis of 360 days, as is currently the practice on all issues of
bills.)
th~
Treas~
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 Branche I
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
CORRECl' ED GOPY
TREASURY DEPARTMENT
1·\3rch 1 8, 1 96 5
FOR IHMEDIATE RELEASE
TREASURY REFUNDS ONE-YEAR BILLS
The Treasury Department, by this public notice, invites tenders
for $1,000,000,000, or thereabouts, of 365-day Treasury bills, for
cash and in exchange for Treasury bills maturing March 31, 1965, in
the amount of $1,001,464,000, to be issued on a discount basis under
coopetitive and noncompetitive bidding as hereinafter provided.
The
bills of this series will be dated March 31, 1965, and ItJill mature
March 31,1966, when the face amount will be payable without interest.
They \vill 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,
Thursday, t-larch 25, 1965.
Tenders will not be received at the
Treasury Department, Washington.
Each tender must be for an even
~ltipe 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.
(Notwithstanding the fact that these bills will run for 36S-days, the
discount rate will be computed on a bank discount basis of 360 days,
as is currently the practice on all issues of Treasury bills.)
It is
urged that tenders be made on the printed forms and forwarded in the
special envelopes \vhich will be supplied by Federal RE::serve Banks or
Branches on application therefor.
Banking institutions generally may submit tenders for account of
customers provided the names of the cus tamers are se t forth in such
~nders.
Others than banking institutions will not be permitted to
submit tenders except for their own account.
Tenders 'Nill be received
without deposit from incorporated banks and trust companies and from
~Sponsible and recognized dealers in investment securities.
Tenders
hom others must be accompanied by payment of 2 percent of the face
~oont of Treasury bills applied for, unless the tenders are
~companied by an express guaranty of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at the
~deral Reserve Banks and Branches, following which public announcement
will be made by the Treasury Department of the amount and price range
:D-1542
-
')
-
of accepted hid:;. Thuse submitting tenders will be advised of the
acceptance or rejection thereof. The Secretary of the Treasury expre
reserve::; the ri\.C,ht tel accept or reject any or all tenders, in whole
in part, and hi::; Llctic)J1 in any such respect shall be final.
Subject
to these reservations, noncompetitive tenders for $200,000 or less
without stated price from anyone 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 hids must be
made or completed at the Federal Reserve Bank on March 31, 1965, in
ca:;h or other immediately available funds or in a like face amount
of Treasury bills maturing March 31, 1965. 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.
I
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 th
Internal Revenue Code of 1954. The bills are subject to estate,
inheritance, gift or other excise taxes, whether Federal or State, bu
are exempt [rom all taxation now or hereafter imposed on the principa
or interest thereof hy any State, or any of the possessions of the
United States, or hy any local taxing authority.
For purposes of
taxation the amount of discount at which Treasury bills are original]
sold by the United States is considered to be interest. Under
Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954
tLe amoun t 0 f disc oun tat wh ic h b i lIs is sued he reunder are sold is nc
considered to accrue until such bills are sold, redeemed or otherwiSE
disposed of, and such bills are excluded from consideration as capite
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 thi~
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.
000
~ tTGGEf) TED C<H1ENTS TO B! MAD! TO ALL PltESS UPRESElft'ATI'l1S
T~ORR~, THlJRImAY, MAaCH 18, 1965, \i1l!N THE $250 Mp.LtOil
GOLD LO~, S WILL BE ANNOUNCED BY "tIlE NEW YOIl( FEDDAL JESn.
I wol,ld suggest that the Tr •••oT] provide the followi~
information to all correspondents early\tomorrow aft.mOOD
lUhen the Nev York :Fed reveals
t~e
$250 1Ililltcm drop ill our
gold stock.
The drop in the gold stock this week reflecta almost
entirely a replenishment of the Exchange Stabilization Fund
to meet s french conversion of dollar. into gold.
purchase totals $231.5 million.
The Fr.ch
$150 1Il1ll10n of this repr•••tl
the second half of the $300 million purchase contemplated by
the Freuch Covernment at the end of last year on the baal. of
its dollar holdings at that time; $81.5 million repr.sents the
settlement of the gain tn French official reaerve. durlQl
rebrl'ar/ ~;.
complet~sthe ir~n~h~~i.l p:t~:~· proar•
except for those amOl 1nt8 which the French Government haa ..14
it will
und~~~~k~1 on 'the
basia of reserve gain.
~
(
monti.., aheee.
t
~:" ;". -, ~u
With the completion of this transaction Freach
Government dollar holdings are at a level equal in aEOURt to
French official debt to the Pnited
reqtlired work tng balances.
State~·!Q·. ~
t'. ~fH:'::';.,I-r'
TREASURY DEPARTMENT
FOR USE AFTER 3:15 P.M.
THURSDAY, MARCH 18, 1965
TREASURY COMMENT ON GOLD STOCK
DROP !NNOUNCEMENT
The drop in the gold stock this week reflects almost
entirely a replenishment of the Exchange Stabilization Fund
to meet a French conversion of dollars into gold.
purchase totals $231.5 million.
The French
$150 million of this
represents the second half of the $300 million purchase
contemplated by the French Government at the end of last year
on the basis of its dollar holdings at that time; $81.5 million
represents the settlement of the gain in French official
reserves during February.
It is our understanding that this
completes the French gold purchase program except for those
amounts which the French Government has said it will undertake
each month on the basis of reserve gains, if any, during the
preceding month.
With the completion of this transaction French
Government dollar holdings are at a level equal in amount to
French official debt to the United States and Canada, plus
required working balances.
000
TREASURY DEPARTMENT
=
FOR IMMED IA TE RELEASE
REORGANIZATION PLAN ANNOUNCED FOR
U.S. BUREAU OF CUSTOMS
A major program to reorganize the Bureau of Customs of the
Treasury Department was announced yesterday by President Johnson.
The President will send to Congress Reorganization Plan No. 1 of
1965, which calls for elimination of all positions within the
Bureau now filled by Presidential appointment, and would establish
the Customs Service organization on a career basis.
Treasury Secretary Douglas Dillon in providing further details
of the Reorganization Plan today said that approval of the Plan
would open the way for realignment and consolidation of many field
activities. Six regional offices would be established with about
25 subordinate district offices. They would replace 113 independent
field offices now reporting directly to headquarters in Washington,
D.C. These moves would enable the agency to cut costs, eliminate
much duplication of effort and strengthen the supervision of its
many activities. The new regional commissioners will exercise
substantial responsibility and authority delegated to them by the
Commissioner along operational lines now established in headquarters.
Headquarters of the six new regional offices are scheduled to
be in Boston, New York, Miami, New Orleans, San Francisco and
Chicago. Secretary Dillon said that, following Congressional
action, he expected to establish Region V with headquarters in
San Francisco on September 1, 1965, as a beginning of the process
of reorganizing and regrouping the Bureau's present field establishment. The tentative time table for establishment of the remaining
five regions and headquarters is as follows: Region III, Miami,
January 1966; Region IV, New Orleans, February 1966; Region I,
Boston, March 1966; Region VI, Chicago, April 1966; and Region II,
New York, May 1966. This schedule will allow time for evaluation
of the experience gained in the San Francisco Region before the
remaining five regions are created.
D-1543
- 2 Secretary Dillon said the changes were extremely important
in putting into effect many other recommendations proposed by
Treasury Department survey group which began its evaluation of
the Customs Bureau in March, 1963.
The survey resulted in the issuance today of a 642-page
report entitled "Customs -- An Evaluation of the Mission,
Organization and Management." The approved changes recommended
in that study are to be completed within three years.
A coordinating committee for review and implementation of
recommendations has been established with members representing
the Office of the Secretary and Bureau of Customs.
On the basis of a draft of the report, 52 recommendations
have already been put into effect. The remaining recommendations
are in process of implementation or still under study.
The changes proposed by the survey group would reduce the
unit costs of Customs services to taxpayers and make possible the
sorely-needed reduction of work backlog and the speed-up of entry
appraisement, and other operations.
By modernizing and improving
the Customs Bureau's organization and administration and the
management of its workload, the Bureau's missions of assessment
and collection of import duties and taxes, the control of carrier!
persons, and articles entering or departing the United States, ane
its assistance to other Federal agencies dealing with internationc
traffic and trade would be more effectively accomplished.
Secretary Dillon emphasized that none of the appraisement,
collection or enforcement functions would be discontinued as a
result of the reorganization.
The major findings and recommendations of the survey group's
report relate to the following areas:
organization; administrative management; entry and appraisement of merchandise; operation
of laboratories; liquidation of entries; appeals and protests of
decisions; "drawback", or refund of duties or taxes on certain
commodities subsequent to their exportation; marine activities;
the inspection and control of passengers, baggage and cargo;
relations with other Government agencies; public information and
communications; and the Bureau's bonding and penalty transactions
- 3 -
The 52 recommendations already put into effect, mostly in the
Washington, D.C., headquarters, have resulted in the consolidation
of the responsibilities of seven divisions into four new major
officies.
Also among the 230 recommendations made by the survey group
are the following:
'''Introduction of automatic data processing equipment to
speed up Customs transactions.
*Change of the present policy requ~r~ng 100 percent
examination of incoming passenger baggage.
*Consolidation of functions of classification, appraisement,
and liquidation, thus expediting the entry and clearance of imported
merchandise, reducing backlogs, eliminating delays, and improving
Customs relations with the business community.
*A continuing program to assist Customs brokers in proper
preparation of Customs entries; and stricter enforcement of
entry requirements.
"Clearance of "artistic antiques," imported for personal use
and not for sale, valued at $500 or less, by informal entry at all
ports.
*Introduction of a single form for all documentation of ships
-- a process which now requires a multiplicity of forms -- and new
procedures for determining tonnages of vessels.
The newly issued report represents, in addition to the work
of the Treasury survey group, the consideration of an Advisory
Committee composed of officials of Treasury, the Customs Service,
the Bureau of the Budget, and the U. S. Civil Service Commission.
The survey was announced on March 6, 1963, by Assistant
Secretary of the Treasury James A. Reed and former Commissioner
Philip Nichols, Jr., on instructions of Secretary Dillon. The
survey group was headed by James H. Stover, Director of the
Treasury's Office of Management and Organization.
Copies of the Report may be obtained from the Bureau of
Customs at $3.50 per copy.
000
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FOR RELEASE TO A. M. PAPE RS
MONDAY, MARCH 22, 1965
March 21, 1965
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
President Johnson today announced his intention to submit to
Congress this week a major plan of reorganization for the l75-year
old Bureau of Customs of the Treasury Department which will improve
its services to the public, ultimately save the taxpayers at least
$9 million each year, and place customs personnel upon a wholly
career bas is.
Under Reorganization PIaL No.1 of 1965, the Bureau of Customs
will be permitted to modernize its activities and establish strong
regional and district supervisory positions.
All Customs positions to which appointments are now made by
the President would be abolished, and all Bureau officials and
employees would henceforth be appointed under the civil service
laws. A total of 53 positions are affected.
The President stressed that people now holding these positions
will be given consideration for suitable employment in the Customs
Bureau under the civil service laws in any position for which they
may be qualified.
"The Bureau of Customs is an old and respected arm of the
Federal Government. Created in 1789 and consisting of many
districts established by Congress as new territories opened and
trade patterns evolved, its growth took place without particular
relation to the overall organization," President Johnson stated.
"Its basic structure has been little changed since its founding
date. Today the current and growing emphasis on international
trade and travel demands a more effective administration of the
customs laws to serve that essential segment of our economy engaged in foreign trade and travel.
"It is my op~nl0n that the betterments which can flow from
Reorganization Plan No. 1 of 1965 will benefit our economy and
contribute toward a smoother, more economical functioning of an
-2important Federal agency, all in line with the aims I expressed
in my State of the Union Message to the Congress on January 4."
Reorganization Plan No. 1 of 1965 will be submitted to
Congress under the authority of the Reorganization Act of 1949,
as amended, and would become effective after sixty days of
Congressional session if Congress does not disapprove.
Six regional offices with about 25 subordinate district offices,
would take the place of the present pattern of 113 independent field
activities now reporting directly to headquarters.
This would
materially cut costs, eliminate duplication of efforts and ~esult
in tighter management control.
Under the proposed reorganization, the headquarters for the
six new regional offices will be in Boston, New York, Miami, New
Orleans, San Francisco, and Chicago.
The present organization of the Bureau of Customs consists
of headquarters in Washington, D. C., 25 major collection districts,
and 22 smaller ones, 42 appraisement districts, 7 enforcement regions
7 comptroller districts, 9 laboratory districts, and the Customs
Information Exchange.
Reorganization Plan No. 1 flows from a 642-page report
entitled "Customs -- An Evaluation of the Mission, Organization
and Management" based on a two-year study by a Treasury Department
Survey Group.
None of the appraisement, collection or enforcement functions
would be discontinued as a result of the proposed reorganization.
Salaries of the 53 positions to be abolished under the proposed
reorganization range from $11,000 a year to $23,000 a year.
Principally, the proposed reorganization plan provides for
abolition of all Offices of Collector of Customs, Comptroller of
Customs, Surveyor of Customs, and Appraiser of Merchandise, to
which appointments are now required to be made by the President
by and with the consent of the Senate.
The Bureau of Customs, older than the Treasury Department of
which it is a part, collects $1,800 million annually on a budget
-3of about $80 million.
Its 9,300 personnel are spread out among
110 airports and about 355 ports and stations throughout the United
States. Customs agents, port investigators, and inspectors guard
the borders and the east, west, and gulf coasts against smuggling.
Customs inspectors greet more than 180 million travellers entering
the United States each year, and the Service performs a wide range
of related duties for other Government agencies.
The annual savings expected, if all the major recommendations
are put into effect, will total more than $11,000,000. Against
this, there would be additional offsetting costs estimated at
slightly more than $2,000,000, thus resulting in a net recu~ring
annual savings figure of about $9,000,000. Most of these added
costs will occur in the addition of new positions to effect desirable
changes in management at headquarters and the consolidated regional
offices, and to modernize procedures and practices.
A basic concept of the reorganization is to permit maximum use
of the skill and talent of the career employees in the Customs
Service.
In view of Customs' constantly increasing workloads, it
is not contemplated that there will be an overall reduction in
employment.
In the past 10 years there has been a 70 percent increase in
imported merchandise and a 50 percent increase in inte~national
travel, with less than a 10 percent increase in Customs personnel
strength. Customhouse brokers, who represent the importing community, have reportedly increased their staffs by 300 percent
during the same period.
,
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· I • '.. -._
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DRAFT PRESS RELEASE
FOR ~ 22, 1965
)lhr rC 11-.
Secretary of the Treasury Douglas Dillon today announced
a drawing by the United States on the International Monetary
Fund.
The drawing in the amount of $75 million is the first
made this year by the United States and is in equal amounts of
German marks, Canadian dollars, and Italian lire.
Total drawings, since their inception in February 1964,
now amount to the equivalent of $600 mi llion in various foreign
currencies.
A sizable part of these drawings has,been offset,
however, by the drawings of United States dollars by other
countries during the period. o
When other countries draw dollars
from the Fund it restores the U. S. position and in effect
amounts to repayment by the United States$
As a result, the net
reduction in United States drawings rights on the Fund has been
fj..,7i!about $330 million.
The currency dravm is expected to be used, as in the past,
for sale for dollars to other Fund members for their use in
making repayments to the Fund over the next several months.
Approve:
Disapprove:
TREASURY DEPARTMENT
March 22, 1965
FOR IMMEDIATE RELEASE
U. S. MAKES FIRST 1965 DRAWING
FROM IMF
Secretary of the Treasury Douglas Dillon today announced
a drawing by the United States on the International Monetary
Fund.
The drawing in the amount of $75 million is the first
made this year by the United States and is in equal amounts
of German marks, Canadian dollars, and Italian lire.
Total drawings, since their inception in February 1964,
now amount to the equivalent of $600 million in various
foreign currencies.
A sizable part of these drawings has
been offset, however, by the drawings of United States
dollars by other countries during the period.
When other
countries draw dollars from the Fund it restores the
U. S. position and in effect amounts to repayment by the
United States.
As a result, the net reduction in
United States drawings rights on the Fund has been about
$330 million.
The currency drawn is expected to be used, as in the
past, for sale for dollars to other Fund members for their
Use in making repayments to the Fund over the next several
months.
000
D-1544
TREASURY DEPARTMENT
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FOR RELEASE A.H. NEWSPAPERS,
March 22, 1965
-Tuesday, March 23, 1965.
RESULTS OF TREASURY'S l{8EKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series of
bills, one series to be an additional issue of the bills dated December 24,
1964, and the other series to be dated March 25, 1965, which were offered on March 17,
~re opened at the Federal Reserve Banks on March 22.
Tenders were invited for
$1,200,000,000, or thereabouts, of 91-day bills and for $1,000,000,000, or thereabouts,
of l82-day bills. The details of the two series are as follm-;s:
trea~
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
9l-day Treasury bills
maturing .June 24, 1965
Approx. Equi v •
Price
Annual Rate
99.010
3.916%
99.007
3.928%
99.009
3.922%
182-day Treasury bills
maturing September 23, 1965
Approx. Equiv.
Price
Annual Ra. te
97.989 a/
3.978%
97.983 3.990%
97.986
3.984% Y
Y
¥Excepting 1 tender of $50,000
62 percent of the amount of 91-day bills bid for at the low price was accepted
61 percent of the amount of 182-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RES:;;RVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Pichmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
Applied For
28,863,000
$
1,517,701,000
25,818,000
37,661,000
12,500,000
39,994,000
486,586,000
38,769,000
21,789,000
30,796,000
24,578,000
102,053,000
.'$2,]67,108,000
Accepted
$ 17,278,000
644,507,000
13,775,000
26,782,000
12,200,000
25,569,000
317,675,000
2tl,357,000
13,977,000
29,188,000
17,818,000
54,779,000
$1,201,905,000
£/
Applied For
$ 41,737,000
1,445,225,000
13,361,000
67,6b6,000
5,053,000
18,549,000
256,210,000
15,218,000
11,416,000
9,364,000
10,648,000
129,2l6,OOO
$2,023,683,000
Acce,Eted
$
9,787,000
735,995,000
5,361,000
38,758,000
5,003,000
14,999,000
95,182,000
11,121,000
9,221,000
8,364,000
6,648,000
59,769,000
$1,000,208,000
~mc1udes $237,845,000 noncompetitive tenders accepted at the average price of 99.009
ymcludes $91,358,000 noncompetitive tenders accepted at the average price of 97.986
'V ~ a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 4.02%, for the 91-day bills, and 4.12%, 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-1S45
sf
S TA'l'EMENT OF THE HONORABlE DOUGLAS DILLON
SECRETARY OF TIlE TREAS U R Y . I ) '.;
BEFORE THE
HOUSE BANKING AND CURRENCY COHMIT'l'EE
10:00 A.M., MARCH 23, 1965
I am especially pleased that on this, my last appearance
as Secretary of the Treasury before a Congressional Committee,
I am here in behalf of legislation designed to strengthen such
an outstandingly successful and important institution as the
International Monetary Fund.
I have with me today Mr. William
B. Dale, U. S. Executive Director of the Fund, who will be able
to answer any questions of detail you may have on the Fund's
operations.
The bill before the Committee would amend the Bretton
Woods Agreements Act of 1945 to authorize an increase of $1,035
million in the quota of the United States in the International
Monetary Fund.
that purpose.
It would also authorize an appropriation for
This would permit the United States to carry out
its part of a broad international program for expanding the
resources of the Fund.
As President Johnson pointed out in submitting this 1egislation to the Congress, the International Monetary Fund has
played a key role in the flourishing economic growth experienced
by the free world in the last two decades and an expansion of
the Fund's resources is now needed if it is to continue to
contribute effectively to free world growth in the future.
D-1546
- 2 The Legislation
The Bretton Woods Agreements Act provides in Section 5
that the authorization of Congress shall be received before any
person or agency shall, on behalf of the United States, request
or consent to any change in the quota of the United States in
the International Monetary Fund.
The proposed legislation
provides Congressional authorization for the United States to
consent to a
25~
increase in its quota.
Acting on instructions
from the Board of Governors of the International Monetary Fund,
the Executive Directors have submitted to the Governors two
Resolutions: the first proposes that all member countries accept a 251 increase in quota; the second proposes that sixteen
of the members accept, in addition to the 251. increase, special
increases which in the aggregate amount to $870 million.
The combined total of general and special increases recommended amounts to nearly $5 billion, and acceptance of the
recommendation by all members would increase the total of Fund
quotas from a little more than $16 billion to appro.imately
$21 billion o
The United States share of this total increase
would be slightly over one fifth, and our quota would become
$5,160 million as compared to its present $4,125 million.
The proposed quota increases by country are shown in detail
in the Special Report of the National Advisory Council on
- 3 -
International Monetary and Financial Problems which is before you.
Attached to that report as an appendix is the report of the Executive Directors of the Fund to
t~~
Board of Governors entitled
"Increases in Quotas of Fund Hembers: 4th Quinquennial Review."
In order for the increases recommended by the Executive
Directors to become effective
tw0
steps must be taken.
First,
they must be approved by the affiruative vote of Governors representing 80% of the Fund's voting power.
Such a ballot is currently
underway and is to be completed '\:::y March 31st.
In accordance with
the directive of the National AdvIsory Council, I have already
cast the vote of the United States in favor of the two resolutions.
The second requirement that has to be met before the quota increases can become effective is that countries whose quotas on
February 26, 1965 aggregated two tnirds of the total Fund quotas
must consent to the incrcac'-: '1:-, ,:::::ir quotas and make payment to the
Fund.
Payments received by t!1c ';:-,;""d will be placed in a segregated
account until the two thirds
reached, the funds will be
~ctal
re~urned
is reached. Should it not be
to the countries to which they
belong. It is the authority to give this consent, and authorization
for the appropriation to make this
legislation now before you.
pa}~ent,
that is sought in the
Consents to the increase are to he
- 4 received on or before September 25, 1965, or such later date as
the Executive Directors may determine.
Authorization of Appropriation
The legislation before you authorizes to be appropriated
$1,035 million, to remain available until expended.
This
authorization, and the subsequent appropriation, should be
considered in two parts.
First, the Articles of Agreement of the Fund provide that
25% of any quota increase must normally be paid to the Fund in
gold.
25% of the proposed U.S. increase amounts to $258.75
million and this amount must be paid at the time the United
States accepts its quota increase.
In exchange for this payment,
the United States will receive a "gold tranche" drawing right on
the International Monetary Fund.
This is a virtually automatic
drawing right and represents a reserve asset which the United
States can call upon at any time.
The remaining portion of the authorization -- $776.25 million -- will permit the United States to issue to the International Monetary Fund a letter of credit in that amount on
which the Fund may draw at such time as it may require additional
dollar funds to meet drawings of other members.
Although the
entire appropriation requested will be needed to permit the
- 5 United States to fulfill its obligations, expenditures against
this $776 million portion are not likely to occur in the foreseeable future.
The Fund now holds U.S. dollars in the amount of about
$3,350 million.
These are held almost entirely in the form of
non-interest-bearing notes.
As long as the United States con-
tinues to have a balance-of-payments deficit, Fund policy will
limit drawings in dollars.
And, in any event, the Fund's exist-
ing holdings of dollars will be used to meet the needs of any
future drawings before calls will be made on the new letter of
credit.
As the Committee is aware, the United States Government
has shifted increasingly to the provision of funds through a
letter-of-credit technique.
This amounts to an unconditional
obligation to provide funds as these are actually needed.
This
technique is now in general use both in our domestic programs
and in our dealings with international institutions.
It was
designed to obviate expenditures prior to the time when funds
are actually needed.
~ternational
In the past, the technique in dealing with
institutions was somewhat different.
Payments
were made to the institution and excess funds were returned to
the United States Government in exchange for non-interest-bearing
notes.
- 6 Nature of the International Monetary Fund
Before outlining the reasons for an increase in Fund quotas
I should like to say a word about the nature of the Fund itself.
The International Monetary Fund and the International Bank
for Reconstruction and Development were established following
negotiations at the Bretton Woods Conference of 1944.
The IBRD,
or the World Bank, was designed to provide long-term financial
assistance -- first for the reconstruction of war torn areas
and later for the economic development of its member countries.
It now gives particular attention to the needs of the less
developed countries of the world.
The International Monetary Fund, on the other hand, was
designed
"To promote international monetary cooperation
through a permanent institution which provides
the machinery for consultation and collaboration
on international monetary problems.
"To facilitate the expansion and balanced growth
of international trade and to contribute thereby
to the promotion and maintenance of high levels of
employment and real income and to the development
of the productive resources of all members as
primary objectives of economic policy."
t'
-
To accomplish these purposes, the Fund has worked contlnuously for the elimination of exchange restrictions, the
avoidance of competitive
exchan~e dep~eciation,
motion of exchange stability.
and the pro-
When member countries draw
needed currencies from the Fund they do so to provide financing
for their position while corrective measures are being taken to
eliminate a temporary balance-of-payments situation.
Any draw-
ing must be repaid within a 3-to S-year period.
The point I wish to make is that the International Monetary
Fund should not be confused with institutions whose primary
purpose is the making of long-term loans.
Even less should it
be confused with bilateral or multilateral aid programs under
which long-term assistance is provided, frequently on very
generous credit termso
When a country
d~awa
a
~eeded
moreover, it transfers to the
own currency.
duced when it
Accordin~ly,
~rovides
~und
currency from the Fund,
an equivalent amount of its
the assets of the Fund are not re-
temporary assistance to a member countryo
The composition of those assets is, however, changed, depending
upon the gold and currency composition of the drawings and repayments which have taken place.
I shall discuss the significance
of the asset composition at a later point.
- 8 -
In 18 years of Fund operations through the end of 1964,
member countries have drawn over $9 billion in dollars or other
currencies.
These drawings have been or are being repaid in
accordance with agreed schedules.
In the most recent ten-year
period, net drawings outstanding at the end of the year have
varied from a low of $234 million in 1955 to a high of $2,621
million at the end of 1964.
The latter figure is unusually high
because it includes nearly $1 billion of net drawings by the
United Kingdom, reflecting a large drawing by that country in
December 1964.
Prior to 1960, drawings from the Fund were predominantly
taken in the form of dollars and the United States established
a strong creditor position in relation to the Fund.
By the end
of 1957, gross drawings of dollars had amounted to nearly $2.7
billion.
The Fund had purchased additional dollars from the
United States by selling us nearly $600 million worth of gold.
At that time, IHF holdings of dollars represented no more than
281. of the United States quota.
Following the return to de facto convertibility of the
currencies of Western Europe at the end of 1958, the Fund began
increasingly to provide currencies other than the dollar to
countries seeking temporary financing.
This practice was
intensified as the balance-of-payments position of the United
- 9 -
States moved into substantial deficit.
Repayments in dollars,
however, continued to be large, with the result that in the
period from the end of 1957 to the end of 1962 the Fund's holdings of dollars increased by more than $1 billion.
In this way
the normal operations of the Fund absorbed more than $1 billion
from the reserves of other countries, thus easing our international financing problems and obviating possible drains upon
the United States gold stock.
By the end of 1963 Fund holdings
of dollars had been restored to 75% of the U. S. quota.
At that
point the U. S. was neither a creditor nor a debtor vis-a-vis
the institution.
Over the past year the United States has itself, for the
first time,
made modest drawings from the Fund.
We have drawn
primarily in German marks and French francs and we have sold the
currencies we have drawn, against dollars, to countries wishing
to make repayments to the Fund.
These countries could not use
their dollar holdings directly for this purpose since the Fund
does not accept in repayment currencies which it holds in excess
of 75% of quota.
For the Fund to accept such currencies -- in
this instance dollars -- would mean that the United States would
be placed in a debtor position vis-a-vis the Fund without any
initiative on our part; this would be inconsistent with the Fund's
method of operation.
- 10 -
Attached to this statement is a chart which shows graphically the developments of the U.S. position in the Fund which
I have just described.
Our current net drawings of approximately $330 million
(including a drawing of $75 million announced just yesterday)
have, of course, also had the effect of reducing United States
dollar liabilities to foreign countries; these countries have
paid dollars to us in order to acquire the particular currencies
used to repay the Fund.
The other side of the same picture I have been presenting
is that drawings from the Fund in recent years have been made
primarily in currencies other than the dollar.
These have been,
for the most part, the currencies of Western European countries
now in balance-of-payments surplus.
As a result, the Fund's
holdings of the currencies of the "Group of Ten" countries,
other than the United States and the United Kingdom, have been
reduced by more than $1 billion and at the end of 1964 amounted
to the equivalent of about $1.8 billion.
If all member countries accept the quota increases suggested for them, Fund holdings of these same currencies will be
increased by more than $1 billion and the liquidity of the Fund
will be substantially improved.
In addition, Fund holdings of
gold will also be increased by approximately $1 billion.
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- 11 As will be apparent from this brief summary, the operations
of the Fund are designed so that countries in balance-of-payments
surplus are called upon to provide a certain amount of interim
financing for countries in balance-of-payments deficit.
The
position of the surplus countries is, however, protected in two
ways.
First, the extent to which anyone country may be called
upon to provide its currency to the Fund is limited by the size
of that country's quota.
Secondly, the Fund examines the requests
of countries seeking to draw currencies from it with increasing
rigor, depending on the extent to which the drawing country is
making use of the Fund.
The gold tranche (normally 254 of quota)
is granted virtually automatically upon the drawing country's
assertion that it needs foreign currencies in connection with
its balance-of-payments financing.
When a country seeks to draw its first credit tranche (a
second 254 of its quota), the Fund will appraise its needs with
a liberal attitude provided that the member itself is making
reasonable efforts to solve its problems.
Requests for ad-
ditional drawings require substantial justification.
words of a recent annual report of the Fund:
In the
"They are likely
to be favorably received when the drawings or standby arrangements are intended to support a sound program aimed at establishing or maintaining the enduring stability of the member's
currency at a realistic rate of exchange."
- 12 Current Discussions Regarding
the International Monetary System
Members of this Committee will be aware that international discussion is presently taking place in various
inter-governmental forums regarding the effectiveness of
the present international monetary system to support and
sustain a ra?idly growing volume of world trade and further
expansion in the economic growth of both less developed and
developed countries.
I think this whole question was
in proper perspective last
Sept~~er
in Tokyo.
~laced
Mr. Pierre
Paul Schweitzer, Nanaging Director of the International
Monetary Fund, presented a brief comparison of international
monetary developments in the twenty years after the first
World
'~ar
and the twenty years after the second World War.
The latter period is, of course, the twenty years since the
Articles of Agreement of the International Monetary Fund
were negotiated at the Bretton Woods Conference in New
Hampshire.
The turbulent history of the period after World War I
includec the monetary crisis of the 1930's, the shattering
world-wide depression which followed, the proliferation of
'!beggar thy neighbor ' ! trade policies, and the growth of forms
of economic warfare in which exchange controls and other
financial tools played an important part.
- 13 In contrast, the twenty years since World War II, while
they have not been completely free of turbulent episodes,
have witnessed spectacular economic progress.
In the words
of Mr. Schweitzer:
lIThe record of the two decades since the end
of the
[secon~
World] War, although not perfect,
cannot be considered unsatisfactory.
achieved;
Much has been
a tremendous ex?ansion of world trade;
the convertibility of all major currencies; greatly
reduced reliance on restrictions and on bilateralism;
considerable, if still insufficient,
pro~ress
in
the develoi?i"L"1g countries; high levels of employment;
anc avoidance of the extremes of inflation and
deflation in most areas of the world."
In no small part this vast improvement in the international monetary system and in the economic cooperation
among the countries of the
~\7orld
Fund's policies and activities.
has been the result of the
In the agreement establishing
the Fund, the members undertook to eliminate from their
practices the more objectionable features of the monetary
and exchange systems in the earlier period.
By their par-
ticipation in the Fund, countries have become increasingly
- 14 aware of the problems of others, and have realized that they
are j?art of a worlrl community "?ith common economic interests.
The Fund has used its
~owers
of persuasion, the provision
of sound technical advice, and the availability of medium-term
assistance to secure the adoption of appropriate economic
policies in many countries.
It has to a great extent succeeded
in eliminating bilateralism in trade and exchange agreements.
It has brou6ht about a sharp reduction in multiple exchange
rate practices which were particularly disadvantageous to
American exporters who found themselves discriminated against.
It has used its resources effectively to give temporary relief
to countries whose exchanges were under pressure.
provided a
breathin~
This has
spell during which the countries con-
cerned could develop measures to restore equilibrium in ways
\vhich would have minimum adverse repercussions on other
countries.
The relative stability of exchange rates which
the Fund has fostered has encouraged the expansion of international trade and the international movement of productive
capital.
It would not be accurate, however, to attribute to the
International Honetary Fund all credit for the successful
international monetary record of the last two decades.
One
- 15 outstanding influence extraneous to the Bretton Woods
machinery (though consistent with the spirit of cooperation
which underlies that machinery) was the enlightened creditor
behavior of the United States, demonstrated in the Marshall
Plan when this country provided billions of dollars in grants
and loans to assist the recovery of the war devastated
nations of Western Europe.
Without this program the inter-
national monetary history following the second World War
could not have been as successful as it was.
The lesson learned during the first postwar decade
that the correction of international imbalance requires the
cooperation of countries in surplus as well as those in
deficit -- is one that continues to be highly relevant.
In this connection, I am happy to note that the Federal
Republic of Germany has taken a number of specific actions
to discourage disequilibrating capital inflows.
These
measures appear to be essentially eliminating what was a
disturbiu0o surolus
and thus contributing to a better inter•
national payments equilibrium.
This is the background against which the International
Monetary Fund, representinb nearly all the free world countries,
1arse and small, and the Group of Ten major trading countries
- 16 have been examining the adequacy of world reserves, the need
for international credit facilities, and possible future
needs for some new forms of international monetary assets.
The increase in Fund quotas now under consideration
falls in the second category -- expansion of international
credit facilities.
The pur?ose is not to add to reserves --
these are consic:ered to be adequate at the ?resent time -but rather to provide the Fund with the resources needed
to meet temporary
ir~alances
that are likely to grow larger
as the total value of world trade and world financial transactions expands.
As I have already mentioned, the use of a part of these
facilities is virtually automatic.
This applies to roughly
25 percent of the quota of any country.
Much the larger part
of the credit available to the Fund, however, is conditional
and subject to international review and supervision.
The Quinquennial
Revie~'7
The framers of: the International Honetary Fund foresaw
the probable
nee~
for periodic increases in Fund quotas to
kee .') pace with the expansion in v]orld economic activity.
While the Articles of Agreement permit review of the adequacy
of quotas at any time, they provide that quotas must be
- 17 revie~"ed
each five years.
The 2resent proposals for enlargine
quotas result from the fourth quinquennial review.
While
individual quotas have been changed from time to time on the
request of particular members and approval by the Governors
of the Fund, the only previous 3eneral incl.'ease occurred in
the !Jeriod 1958-59.
At that time, there was a general
increase in quotas of 50 percent for all members and special
quota increases were rectuested and accepted by Germany,
Canada, Japan and certain other countries.
Since 1958, world trade has increased by more than 50
percent.
:\ggregate
~vorld
imports, for examp Ie, were about
$101 billion in 1958 and about $150 billion in 1964.
No
COqlparable single figure is available to measure world
capital movements, but these have undoubtedly increased by
a substantially greater percentage since the restoration of
de facto convertibility in Uestern Europe at the end of 1958.
Both short-term and long-term capital movements have increased
greatly.
Some of these are equllibrating in nature;
others
tend to widen rather than narrow balance-of-payments
disequilibria.
The same period has seen greater use of the Fund's
resources by the larger member countries.
Canada, Italy,
Japan, the United Kingdom and the United States have either
- 18 drawn on Fund resources or entered into stand-by arrangements
with the Fund, or both.
In the past five years annual
drawings from the Fund have averaged more than $1 billion.
During the period 1955-59 the average was $440 million.
These facts clearly indicate the need for an increase
in the Fund's resources at this time.
This need was unani-
mously recognized by the Governors of the Fund at their
meeting in Tokyo last September.
Furthermore, in the absence
of unforseen developments, this increase will be expected to
provide for the Fund's needs until the next quinquennial
review in 1969-70.
In this light the current proposal can
only be considered an obviously essential but barely minimal
step in strengthening the international payments system.
Even when the Fund is not actually providing resources
to member countries to meet their temporary balance-of-payments
needs, it is performing an important role in the present-day
monetary system.
The very existence of the Fund, and the
drawing rights which members possess, provides a background
against which a number of the larger members have established
among themselves a substantial network of reciprocal bilateral
credits.
The swap arrangements operated by the Federal
Reserve System and the Treasury form part of this network.
These arrangements provide short-term facilities which permit
- 19 the participants to avoid or counter the damaging effects
which might otherwise follow from volatile capital flows of
a speculative or seasonal nature.
These short-term bilateral
facilities can be called on promptly and quietly by members
participating in them.
Should balance-of-payments difficulties
persist beyond the period for which the bilateral facilities
are provided the availability of medium-term credit from the
International Monetary Fund can facilitate liquidation of
the short-term obligations.
Evidence of the effectiveness
of the short-term bilateral network and of the manner in
which the International Monetary Fund may assist in converting
Short-term obligations into medium-term obligations was given
in the British drawing of $1 billion from the Fund last
December.
Arrangements for i1inimizing Impact on U.S. Gold Reserves
I have given particular attention to the possible effect
on the United States of gold payments to the Fund in connection
with the proposed quota increases.
normal course of events, many
It was clear that, in the
cou~tries
would wish to purchase
gold from the United States in order to pay the gold portion
of their quota increase to the Fund.
Both the Group of Ten
and the IMF recognized that, if non-reserve countries
utilized their holdings of reserve currencies to acquire
- 20 -
gold from reserve currency countries in order to make payments
to the IHFs the result would be both to reduce the gold holdings of the reserve centers and to actually diminish aggregate
world reserves.
Accordingly, special measures were developed to minLmize
this indirect drain on the gold stocks of the reserve countries
with its accompanying decrease in international reserves.
Three
measures, explained in full detail in the National Advisory
Council Report and in the Report of the Executive Directors of
the Fund, are contemplated.
First, a number of the major countries have indicated that
they intend to pay their gold subscriptions from their own gold
holdings and will not buy gold for this purpose.
Second, the Fund is prepared to make arrangements with
certain non-reserve countries in strong balance-of-payments
positions that gold sold by them to third countries for the
latter's gold payments to the Fund will be resold to the selling
country by the Fund in exchange for the selling country's own
currency.
Arrangements of this nature are expected to cover
some $150 million of gold subscriptions.
Third, to the extent that gold may still be purchased from
the United States and the United Kingdom by other countries, the
Fund is prepared to open gold deposits with those two countries
- 21 up to an aggregate amount of $350 million.
These funds will
be withdrawable by the International Monetary Fund on demand.
It is understood, however, that "on the occasion of B.ny use
of gold, the Fund would normally use, in appropriate proportions,
earmarked gold and gold on general deposit in accordance with
the good management of its assets."
These arrangements will provide fully adequate protection
for the United States gold stock while at the same time providing
the Fund with needed liquidity.
It should be noted that the
French Executive Director, on instructions from his government,
voted against the proposed 25% general increase in quotas, because
of disagreement with the need for the second and third of these
provis ions.
Conclusion
One of the basic principles established at Bretton Woods
was that the success of any international monetary system would
require intelligent, purposeful, organized cooperation.
That
principle is embodied in the International Monetary Fund and is
one to which the United States strongly adheres.
An increase
in the resources of the Fund is necessary at the present time to
maintain the strength and central position of the Fund in the
evolution of the international monetary system.
In the Special Report of the National Advisory Council, I
- 22 am
joined by my colleagues on the Council in recommending
strongly that the Congress support the proposed increase of
25% in the United States quota in the International Monetary
Fund.
In presenting this legislation for your consideration
President Johnson recalled that the United States has given
firm support to the International Monetary Fund since its
creation in the Bretton Woods Agreements Act of 1945, and he
urged that this support continue.
U. S. POSITION IN THE INTERNATIONAL MONETARY FUND
$8;1.
$8il.
---------<1 +3.5
+3.5~1-----------------------------
15% of US O{Jolo, $3/
I~
+3.01---
I
I
I
I
/
~,
------------~-I-
+1.0 1
Repllrclloses willi
do//ors by OIlier
~ __ COllntries_
/
'Oo//or HO/dlngs_ofFlln_tl__ _____ _
(End of Period)
+2.0
1+1.5
Poymenl
DraWIngs
byUS
\
-rl-~-n
Go/dSo/e I I
toUS ~
~~-R
+.51
1+2.5
#
{
1+30
- u. S. (){Joto
~
+1.51
,--
~I
I
~--
15% ofUS O{Jolo, $2./
~---------- ... --
+2.01
-
I
- - - --
+2.51-------
I
-------------'1.=
r--1
fOo//ors AcqUIred
- ~ +1.0
By Fund
(Ouring Period) _--j +.5
o
-.5
Oo//ors Drawn
From F{Jnd
~I- - - - - -
-.5
(OlJring Period)
\
-/.O
lXXXXXXXX'
,A_
,,.. A
_
'56
'57
'58
'59
'60
'61
'62
'63
'64
-1.0
Note· Fund holdings of dollars equal to 75% of the US. quota represents abo/anced posdlon - the US net/her a credtfor
.'Jor a debtor vis-a-vIs the Fund.
Fund holdings below 75% = Us. creditor {Jostl/on.
Fund holdmgs above 75% '" US. debtor {Josilion
Office of the Secr.l8ry of the fr.8StJry
FO-384
- 2 -
decimals, e. g., 99.9
@FedFRASER