Full text of Press Releases of the United States Department of the Treasury : Volume 155

View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

HS
\~

,At 3P~
\I.

~ess
,., '4'~__~e.s

LIBRARY
QrJOM

5Ul~

MAR 1 .. 1967

1IfASUaY OEPARJ M£NT

LIBRARY
ROOM 5030

JUN 1 51972
TREASURY D'EPARTMENT

TREASURY DEPARTMENT

FOR RELEASE: MORNING NEWSPAPERS
TUESDAY, AUGUST 2, 1966
SUM MAR Y
TAX GUIDELINES COVERING INCOME ALLOCATIONS
BETWEEN RELATED CORPORATIONS PROPOSED BY TREASURY
The Treasury Department today announced proposed tax
guidelines covering a wide range of business transactions between
related corporations. The new standards would affect any company
which has subsidiaries, including affiliates in foreign countries.
The new standards or guides are proposed Internal Revenue
Service regulations. A public hearing will be held on the
regulations later this year.
The regulations are designed to give business firms,
including those exporting to foreign subsidiaries, guidance on
how transactions with affiliates may be carried out with reasonable
assurance that increased tax liabilities will not result from audits
of these transactions by IRS.
The Treasury's announcement:
Makes it clear that the Internal Revenue Service
is following a policy of allocating income between
related corporations~ for tax purposes, only in
"significant" cases, not in instances where "minimal"
amounts are involved.
States that the guidance provided by the proposed
regulations is expected to minimize uncertainties
about the tax consequences of transactions between
related companies -- thus faciliating such transactions, including export sales by American
companies through their foreign affiliates.

F-559

- 2 -

Explains that the United States, through tax
treaties with other governments, is making it
possible for the appropriate tax officials in
each country to agree in particular cases on
the proper allocation of income between related
companies.
000

The attachments to this summary include -1.

A more technical and complete announcement of
the actions being taken, and policies being
stated.

An outline of the proposed regulations, to be
published in full in the Federal Register on
Tuesday, August 2, 1966.

In addition, copies of related IRS announcements are being
issued by the Internal Revenue Service.

000

TREASURY DEPARTMENT
(

FOR RELEASE MORNING NEWSPAPERS
TUESDAY, AUGUST 2, 1966
TREASURY DEPARTMENT ANNOUNCES
PROPOSED SECTION 482 REGULATIONS
The Treasury Department today announced the issuance of
proposed regulations affecting the taxation of American firms
with subsidiaries, including companies with foreign affiliates.
The proposed standards, to be published in the Federal
Register on Tuesday, August 2, 1966, advise taxpayers of the
policies to be applied by the Internal Revenue Service in
Section 482 cases. Section 482 of the tax law gives the
Commissioner of Internal Revenue authority to adjust or
allocate the incomes of various members of a group of firms
under cornmon control, in order to reflect accurately the true
income of the members or to prevent tax avoidance. While in
recent years Section 482 has been most frequently applied to
transactions between U. S. companies and their foreign affiliates,
the section and the regulations now being issued are equally
applicable to transactions between two related domestic taxpayers.
The regulations are designed to give U. S. taxpayers,
including those engaged in exporting to foreign subsidiaries,
guidance as to the manner in which they may carry out transactions with their affiliates with reasonable confidence that
audit of these transactions by the Internal Revenue Service will
not result in increased tax liabilities under Section 482. To
accomplish this, the regulations set out specific rules and
standards which taxpayers may follow to avoid allocations on
audit. The regulations also will facilitate the audit procedures
of the Service and thereby result in quicker disposition of those
cases that do arise under Section 482.
F-559a

- 2 -

It is not the policy of the Service to make minimal
allocations under Section 482. Rather, adjustments will be
proposed only in those cases where there have been significant
deviations from so-called arm's length dealings -- that is,
dealings that would take place between unrelated companies -or where there has been significant shifting of income. This
attitude toward the administration of Section 482 and the
guidance provided by the proposed regulations for both taxpayers
and revenue agents are expected to minimize uncertainty as to
the application of Section 482 and thereby facilitate intercompany
transactions, including exports by U. S. firms to their affiliates.
For example, the proposed regulations make clear that a U. S.
company exporting goods to a foreign subsidiary may determine
its intercompany selling price with reference to the competitive
condition faced by that subsidiary.
Issuance of regulatory guidelines under Section 482 was
one of the administrative measures recommended in a recent report
to the Department of Commerce of the National Export Expansion
Council's Action Committee on Taxation. This Committee suggested
that issuance of clarifying regulations would "remove some of
the disincentives affecting export trade."
The proposed regulations set forth standards for the
application of Section 482 to cases involving the pricing of
tangible property sold by one member of the group to another
member, and cases in which intangible property, such as patents,
copyrights, and trademarks, are made available by one member
of a group of companies to another member.
The regulations also reflect certain modifications of
earlier proposed regulations under Section 482 which were issued
on March 31, 1965. The earlier regulations covered cases in
which money or services or tangible property are made available
between members of a group, and also contained rules generally
applicable to all cases under Section 482.
Neither tne newly-proposed regulations nor the revisions
of the proposed regulations issued on March 31, 1965 are final.
The Internal Revenue Service will schedule public hearings on
the proposed regulations later this year, following the 60-day
period specified in the proposed regulations for the submission
of views by interested parties.

- 3 The Treasury Department also will make the proposed
regulations available to the working party of the Fiscal
Committee of the Organization for Economic Cooperation and
Development (OECD), which is studying the international
implications of allocations made by tax authorities of the
various countries under provisions comparable to Section 482.
This study is designed to develop internationally accepted
rules governing allocations between affiliates in different
countries so that the same transaction is not subject to
excessive taxation because of conflicting rules in those
countries.
At the same time, the Treasury is continuing its efforts
to reach agreement with other countries on tax treaties providing
that the "competent authorities" of each country may agree in
particular cases as to the proper allocation of profits between
related companies. These agreements will be implemented by the
imposition of tax in one country and a corresponding credit or
refund in the other. The recently ratified tax treaties with
West Germany and the Netherlands contain a provision of this
type, as does the existing tax treaty with Belgium. The revised
treaty with the United Kingdom recently approved by the Senate,
also contains similar provisions, and a like provision is being
proposed in connection with the revision of the treaty with
France. In this connection, the IRS will study the "competent
authority" procedures under U. S. tax treaties to determine
whether those procedures are fulfilling their objective of
eliminating double taxation.
In addition to proposed regulations under Section 482,
proposed regulations under Section 861 of the Code are to be
published as part of the same notice in the Federal Register.
The Sect~on 861 regulations contain standards to be applied in
propoer1y apportioning deductions between income from P. S.
and non-V. S. sources. A review of the present rules for
apportioning deductions under this section was prompted by
publication of the first part of the proposed regulations
under Section 482 in March 1965. A description of the proposed
regulations under Sections 482 and 861 is attached.

- 4 The Internal Revenue Service also plans other actions
related to Section 482.
It will:

Publish announcements changing two Revenue
procedures (Rev. Proc. 64-54 and Rev. Proc.
65-17). One of these procedures (Rev. Proc.
64-54), originally announced by the IRS in
late 1964, provided that the Revenue Service
would not pursue certain types of Section 482
allocations for taxable years beginning prior
to January 1, 1963, and that, in cases where
allocations were made, foreign taxes paid could
be offset against the U. S. tax attributable
to the Section 482 allocation. The announcement
will extend the period to which this Revenue
Procedure will apply to taxable years beginning
prior to January 1, 1965. The other Revenue
Procedure (Rev. Proc. 65-17) provides that,
in certain circumstances, a taxpayer whose
income has been increased as a result of a
Section 482 allocation may receive from its
affiliate an amount equal to that allocation
tax-free. Rev. Proc. 65-17 now applies for
all taxable years, but for years beginning
after December 31, 1962, it is subject to
different conditions. The effective date of
these conditions is now postponed to taxable
years beginning after December 31, 1964.
The Internal Revenue Service also will
announce that it contemplates applying the
regulations issued under Section 482 to
prior taxable years except in those cases
covered by Rev. Proc. 64-54.

Publish notices clarifying the position of
the Service in certain court cases in which
acquiescences were previously announced.

- 5 -

PROPOSED REGULATIONS
The Commissioner of Internal Revenue has, through the
powers granted him under Section 482, authority to adjust
incomes within groups of commonly controlled corporations
or other entities to reflect accurately the true incomes of
the members of the group or to prevent tax avoidance. For
example, he may make allocations to reflect adequate
reimbursement for services rendered by one member of a group
of corporations to another member of the group where the
services are for the benefit of the latter member. He also
has the authority to adjust the prices charged for goods sold
by one member to another where the prices charged are not a
fair reflection of the proper price, or to require a proper
charge where money or property of one member is made available
to another.
Section 482 applies to any group of corporations under
common control, including groups in which one or more foreign
corporations are members. The proposed regulations set forth
the standards to be applied by the Internal Revenue Service
in making allocations in cases involving the sale of tangible
property by one member to another, and in cases in which
intangible property is made available by one member to another.
The proposed regulations also contain changes in the proposed
regulations under Section 482 published on March 31, 1965. The
changes made in this portion of the proposed regulations are
mainly the result of comments received from taxpayers in the
period since their publication. These earlier regulations
contain certain general rules, as well as more specific
standards, applicable to cases in which intercompany loans or
advances, services, or the use of tangible property are
involved.
The standards set forth in the proposed regulations
include:
1.

Sale of Goods: In determining arm's length
price of the seller for the sale of goods in
transactions between members of the same
group, the proposed regulations describe in
detail three methods which may be used in
determining that price. If sales of the
product involved in the intercompany transaction have taken place between unrelated

- 6 -

parties under comparable circumstances,
the price charged in the unrelated sale
applies.
If no such sales have occurred,
the regulations require that under certain
conditions the arm's length price of the
seller must be determined by making certain
calculations based on the sale price of the
property outside the group. Under this
method, the arm's length price is ascertained
by subtracting from the resale price outside
the group an appropriate profit margin for
the member reselling the goods.
Typically,
this method would be most appropriate where
a manufacturer sells merchandise to a
related distributor which, without further
processing, resells the merchandise to
unrelated parties. The third method described in the proposed regulations involves
determination of the arm's length price of
the seller by adding an appropriate profit
margin to the cost of producing the property.
The regulations also permit the use of any
other method of determining an intercompany
price if the taxpayer can establish that the
method has been consistently used by the
taxpayer and is clearly more appropriate.
Moreover, the regulations permit the taxpayer
in appropriate cases to take into account
the competitive position of its affiliate in
establishing an intercompany price.
2.

Intangibles: The proposed regulations require
that an arm's length royalty or other charge
be paid if one member of a related group
allows another member of the group to use
intangible property (such as a patent, trademark or copyright) belonging to the first
member.
The regulations describe the factors
to be taken into account in determining a

- 7 proper charge for the use of such property.
Normally no charge is to be made until the
property is made available by the member of
the group which developed it. As an alternative
to requiring a royalty or other charge, the
regulations permit the establishment of a
bona fide cost sharing arrangement under
which two or more members of a group may
share the costs and risks of developing
intangible property in return for an
interest in any intangible property that
may be produced under the arrangement.
Such an arrangement may apply to a single
research project or to all research and
development activities of the group. If
such an arrangement exists, no charge will
be made for the use of the property developed
under the arrangement by a member participating
in the arrangement.
Because these regulations affect different types of cases,
they are of necessity rather detailed. Therefore, the general
statements above are subject to a number of conditions and
exceptions.
The proposed regulations under Section 861 set forth
standards to be applied in apportioning deductions between income
from U. S. sources and income from non-U. S. sources. These
rules are of particular importance for purposes of computing
the foreign tax credit. The proposed regulations make clear
that where an item of gross income (such as a management fee)
results from the rendition of services to another member of the
group, the costs or deductions associated with such services
will be allocated to the fee and not to any other income received
by the member rendering the services. The proposed regulations
also contain rules for allocating deductions where they are
related to two or more items of income.

u.~

TREA$UAY

DEPARTMENT:

INTERNAL REVENUE SERVICE
PUBLIC

INFORMATION
WORTH 4-4021

DIVISION

TECHNICAL INFORMATION RELEASE
TIR-836
FOR RELEASE
TuesdaYt August 2, 1966
The U. S. Internal Revenue Service today announced that the following
Revenue Procedure will appear in Internal Revenue Bulletin 1966-34,
dated August 22, 1966.
Rev. Proc. 66-33
Policy and procedure governing the application of
section 482 of the Internal Revenue Code of 1954.
Revenue Procedure 64-54, C.B. 1964-2, 1008, amended.
SECTION 1.

SCOPE.

This Revenue Procedure extends certain provisions of Revenue
Procedure 64-54, C.B. 1964-2, 1008 to apply to taxable years beginning
prior to January 1, 1965, and announces the effective date of the proposed
regulations under section 482 of the Internal Revenue Code of 1954.
SEC. 2.

REVENUE PROCEDURE 64-54 •

• 01 Revenue Procedure 64-54 prescribes the Service1s policy and
procedure for the treatment of United States controlling taxpayers
subject to "economic double taxation" or other undue hardship for taxable
years beginning prior to January 1, 1963, ariSing from the application
of section 482 of the Internal Revenue Code of 1954 (sectio~ 45 of Internal
Revenue Code of 1939) to the United States controlling taxp~yers and one
or more of their controlled foreign entities •
• 02 It has been ascertained that the circumstances causing the hardships which Revenue Procedure 64-54 was designed to mitigate continued
beyond January It 1963. Accordingly, all of the provisions of Revenue
Procedure 64-54, with the exception of section 4.02 thereof, are extended
to cover taxable years of United States controlling taxpayers beginning
prior to January 1, 1965. Section 4.02 applies only to the cases of
United States controlling taxpayers for taxable years beginning prior to
January 1, 1963.
SEC. 3.

EFFECTIVE DATE OF PROPOSED SECTION 482 REGULATIONS.

It is contemplated that when proposed regulations sections 1.482-~d)
and 1.482-2 are finally adopted, they will apply to all taxable years covered
by the Internal Revenue Code of 1954, except as provided otherwise in
section 1.482-2(d)(4)(ii)(a). However, the Internal Revenue Service will
not pursue section 482 allocations where section 4.01 of Revenue Procedure
64-54, as amended t and as clarified by Revenue Ruling 65-109, C.B. 1965-1,
222, so provides.

U. S.

T REA SUR Y

DE PAR T MEN T

INTERNAL REVENUE SERVICE
PUBLIC

INFORMATION

DIVISION

WORTH 4-4021

TECHNICAL INFORMATION RELEASE
TIR-837

Fbif·RELEASE .
Tuesday, August 2, 1966
The U. S. Internal Revenue Service today announced that the following
amendment to Revenue Procedure 65-17, C.B. 1965-1, 833, will appear in
Internal Revenue Bulletin 1966-34, dated August 22, 1966.
Rev. Proc. 65-17
Amendment I.
Technical position and procedure governing the adjustment of accounts
and the transfer of amounts as the result of allocations of income or
deductions made pursuant to section 482 of the Internal Revenue Code pf
1954 (section 45 of the Internal Revenue Code of 1939).
SECTION 1.

SCOPE.

This amendment to Revenue Procedure 65-17, C.B. 1965-1, 833, extends
certain of its provisions to apply to taxable years beginning prior to
January 1, 1965.
SEC. 2.

BACKGROUND •

• 01 Revenue Procedure 65-17, among other things, permits a qualifying
United States taxpayer, whose taxable income has been increased by reason
of allocation under section 482 of the Internal Revenue Code of 1954 and
who complies with the requirements of the Revenue Procedure, to receive
payment from the related entity from, or to, which the allocation of
income, or. deductions, was made, of an amount determined in accordance
with the Revenue Procedure, without having the receipt of such amount
considered as a taxable distribution for Federal income tax purposes.
Section 3 of Revenue Procedure 65-17, provides, in part, that a United
States taxpayer shall qualify for the treatment provided in the Revenue
Procedure, if, for a taxable year beginning prior to January 1, 1963, the
taxable income of such taxpayer is increased by the Internal Revenue
Service und~section 482 of the Code and no part of any underpayment
of tax by such taxpayer for the taxable year involved in the allocation
is due to fraud. Section 4.03 of the Revenue Procedure provides, in part,
that the account receivable, which is established to adjust accounts
between the entities involved in the section 482 allocation, shall bear
interest from the day after the date the account is deemed to have been
created or from the first day of the taxpayer's first taxable year beginning
after December 31, 1962, whichever is later, to the date of payment.
(More)

-2SEC. 3.

EXTENSION OF REVENUE PROCEDURE 65-17 •

• 01 It has been ascertained that the circumstances which warranted
the application of the policy of Revenue Procedure 65-17 to United States
taxpayers whose cases did not involve fraud have continued beyond
January 1, 1963 •
• 02 Accor4ing1y, the date, "January 1, 1963," appearing in
Section 3.01 of the Revenue Procedure is amended to read, "January
1, 1965." The date, "December 31, 1962," which appears in Sections
3.02 and 5.01l(b) is amended to read, "December 31, 1964." The date,
"December 31, 1962," appearing in Section 4.03 (relating to interest
on accounts receivable) of the Revenue Procedure is amended to read,
"December 31, 1964."

U.~

TREASURY

DEPARTMENT

INTERNAL REVENUE SERVICE
PUBLIC

INFORMATION

DIVISION

Washington, D. C.
20224
Area Code 202
WOrth 4-4021

TECHNICAL INFORMATION RELEASE
TIR-838
FOR RELEASE
Tuesday, August 2, 1966
The Internal Revenue Service today explained its acquiescence
in the decision of the Tax Court in Smith-Bridgman & Co., 16 T.C.
287 (1951) (Acq. C.B. 1951-1, 3), and also announced its position on
the Sixth Circuit's opinion in Tennessee-Arkansas Gravel Co., v.
Commissioner of Internal Revenue, 112 F. 2d 508 (1940). The Revenue
Service stated that its announcement has been prompted by certain
interpretations which have been made of these cases.
The cases deal with section 482 of the Internal Revenue Code,
which gives the Revenue Service authority to allocate income and
deductions among the members of a group of business entities owned
or controlled by the same interests so that the true income of each
member of the group is clearly reflected.
In Smith-Bridgman & Co., the taxpayer made interest-free loans
to its parent company. The funds were used to retire outstanding
debenture bonds redeemable at a premium plus accrued interest. Uhder
the authority of section 4S of the 1939 Code (predecessor of settion 482
of the 1954 Code) the Revenue Service determined that inc0me representing
interest of 4 percent on these loans should be allocated from the
parent to the subsidiary in order to clearly reflect income.
In the Tennessee-Arkansas Gravel Co. case, the taxpayer leased
equipment to a commonly controlled corporation during 1933 for $1,000
a month. Although the lease agreement covered only the year 1933, the
lessee continued to use the equipment during 1934 without paying rent.
Under the authority of section 45 of the 1939 Code the Revenue Service
determined that $12,000 should be allocated to Tennessee-Arkansas
Gravel Co. from the commonly controlled company as the fair rental
value of the equipment for 1934.
In both cases the courts pointed out that no corresponding
adjustments were made to the income or deductions of the related
corporations from which the allocations were made. The courts concluded that by increasing the taxpayer's income in each case the
Revenue Service had not distributed, apportioned, or allocated gross
income, but had improperly created or distributed income where none
in fact existed.
-More-

-2-

The Smith-Bridgman & Co. and Tennessee-Arkansas Gravel Co. cases
have been cited by some as authority for the proposition that income
may not be attributed under section 482 to a member of a controlled
group involved in a transaction with another member, if the latter
had no gross income or if no income was realized outside the group
as a result of the particular nan-arm's length transaction.
The Revenue Service stated that its acquiescence in SmithBridgman & Co. was intended only to concur in the proposition that
appropriate adjustments are to be made to the incomes of both members
of the group affected to reflect the section 482 allocation. The
Revenue Service emphasized that its acquiescence was not intended
to override its position as to the scope and purpose of section 482
set forth in existing regulations. Similarly) the Revenue Service
stated it concurs in the result reached by Tennessee-Arkansas Gravel
Co. only to the extent the holding is based on its failure to have
made an appropriate adjustment to the income or deductions of the member
of the group from which the allocation was made.
The Revenue Service stated that proposed regulations published
in the Federal Register for August 2, 1966, ar.e designed to clarify
further the meaning of section 482 and to provide more specific rules
for its application. Proposed sections 1.482-li (d) (2) and (4) and
proposed sections 1.482-2 (a) and (c) relate to methods of allocation
in general) and specific allocations in the case of loans between
related business entities and use of tangible property by related
business entities.

U.~

TREASURY

DEPARTMENT

INTERNAL REVENUE SERVICE
PUBLIC

INFORMATION

DIVISION

Washington, D. C.
20224
Area Cod e 202
WOrt h 4 -4021

::;:;:;:;:;:;:;:;::::::::::;::::::::::::::':;:\':':'::'.:. :.;.:

TECHNICAL INFORMATION RELEASE
TIR-839
FOR RELEASE
Tuesday, August 2, 1966
The Internal Revenue Service today stated its position on certain
issues decided by the Tax Court in the case of Columbian Rope Company,
42 T.C. 800 (1964).
The Revenue Service had previously published acquiescence
(C.B. 1965-1, 4) on all issues in the case except one involving
allocation of income from a Panamanian corporation to the taxpayer,
a domestic corporation.
On this issue the Tax Court held that dollars resulting from sales
made by taxpayer's Philippine subsidiary, but diverted to the taxpayer's
Panamanian subsidiary because of Philippine currency restrictions,
need not be included in taxpayer's taxable income. The Court
indicated that because the Philippine subsidiary had valid needs to
accumulate U.S. currency outside the Philippines, none of the amounts
accumulated by the Panamanian subsidiary should be included in
taxpayer's income.
The Revenue Service said that, although it agrees the Philippine
subsidiary had valid reasons for accumulating some amount of U.S.
currency outside the Philippines, it is of the opinion that the amount
accumulated by the Panamanian subsidiary was greatly in excess of the
amount needed to transact its business:.
The Revenue. Service said it does not consider the Columbian Rope
case to be a precedent for the proposition that amounts in excess of
reasonable compensation for services may be div~rted flo~ one subsjdiary
corporation to another subsidiary corporation w~thout ue~ng treate as
constructive dividend income to the parent corporation.
Another issue in the case was whether compensation paid by the
parent corporation to its officers and directors could be partially
disallowed under section 162 of the Code to the extent the payments
were attributable to the officers' supervision of the operations of the
corporation's Philippine subsidiary.
Although one of the officers of the parent corporation was also
president of the Philippine subsidiary, the Court found on the basis of
the record, that the Philippine subsidiary was adequately staffed with
personnel who lived and worked in the Philippines, and that the time
devoted by the parent corporation's top executives to the Philippine
subsidiary was in the nature of general supervision of the subsidiary
"which would be an ordinary and necessary part of their duties in
conducting and managing petitioner's business." The Court concluded
-More-

-2-

that the c~en$.tion paid by the parent to its eKecutives was reasonable
in amount and deductible in full under section 162.
The Revenue Service explained that its acquiescence on this
issue was based on the particular facts in the case.
The Revenue Service interprets the Court's findings to mean that the
president of the Ph~1ippine subsidiary performed no executive
services for the benefit of the subsidiary, and that the services of
the executive officers of the parent were in connection with the
parent's significant investment in the subsidiary.

# # #

TREASURY DEPARTMENT
OR RELEASE 6: 30 P.M.,
onday, AUgust 1 J 1966.
lill3ULTS OF TREASURY'S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series of Treasury
ills, one series to be an additional issue of the bills dated Hay 5, 1966, and the
ther series to be dated August 4, 1966, which were offered on July 27, 1966, were
pened at the Federal Reserve Banks today. Tenders were invited for $1,300,000,000,
r thereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of 182-day
ills. The details of the two series are as follows:
OF ACCEPTED
:>MPETITIVE BIre:
~GE

High
Low
Average

91-day Treasury bills
maturing November 3, 1966
Approx. Equiv.
Price
Annual Rate
98.782
4.818~
98.775
4.846~
98.778
4.834~
11

182-day Treasury bills
maturing February 2, 1967
Approx. Equiv.
Price
Annual Rate
97.494 "E.I
'.957~
97.482
4u981j
97.488
4.969~
11

=;;

f!:.!

Excepting 1 tender of $150,000; bl Excepting 1 tender of $300,000
46% of the amount of 91-day bills
for at the low price was accepted
59% of the amount of 182-day bills bid for at the low price was accepted

bra

frAL TENDERS APPLIED FOR AND ACCEPl'ED BY FEDERAL RESERVE DISTRICTS:

District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Kansas City
Dallas
380 Francisco

AP121ied For
$ 22,261,000
1,587,101,000
32,934,000
32,542,000
10,836,000
58,040,000
301,247,000
68,914,000
18,008,000
27,708,000
25,187,000
118,661,000

Acce12ted
12,207,000
$
819,821,000
15,193,000
24,582,000
10,836,000
18,583,000
239,301,000
49,774,000
10,968,000
24,853,000
15,187,000
58,798,000

TOTALS

$2,303,439,000

$1,300,103,000

~nneapo1is

£1

Al?E1ied For
$
6,069,000
1,484,707,000
13,566,000
37,425,000
5,717,000
41,029,000
263,476,000
38,634,000
10,853,000
22,649,000
12,920,000
118,466 ,000

AcceE!!ed
6,069,000
$
725,404,000
5,025,000
36,675,000
3,617,000
12,139,000
81,709,000
35,830,000
5,443,000
11,664,000
7,818,000
69,260,000

$2,055,511,000

$1,000,653,000 ~

Includes $247,966,000 noncompetitive tenders accepted at the average price of 98.778
Includes $114,587,000 noncompetitive tenders accepted at the average price of 97.488
These rates are on a bank discount basis. '!he equivalent coupon issue yields are
4.96~ for the 91-day bills, and 5.17~ for the 182-day bills.

'-560

STATEMENT BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT A NEWS CONFERENCE ON THE HAGUE MEETING
OF THE GROUP OF TEN COUNTRIES
MONDAY, AUGUST 1, 1966, AT 4:00 P.M.
ROOM 4121, MAIN TREASURY

At the meeting of the Ministers and Governors of the
so-called Group of Ten countries last Monday and Tuesday at
The Hague, the world reaped the benefits of a year of hard
and fruitful work looking to the modernization and improvement of our international monetary system.
The Ministers and Governors received and considered a
Report by their Deputies on the negotiations initiated pursuant
to their mandate of last September. The full text of that
Report will be made available to the public around the last
of August.
But already the Report has served a most constructive
purpose. The Report, in the opinion of the Ministers and
Governors with one exception, provides the basis for agreement on the deliberate creation of reserve assets sufficient
to justify proceeding from the first phase of negotiations
to a broader consideration of the questions that affect the
world economy as a whole.
Accordingly, the procedure for this second phase was
authorized by the Ministers and Governors. After consulting
with the Managing Director of the International Monetary
Fund, they recommended a series of joint meetings in which
the Deputies would take part together with the 20 executive
directors of the Fund, representing all 103 member nations
of the International Monetary Fund. We have provided for
you here copies of the Communique containing these recommendations.
Out of those meetings, which will be the subject of a
report by mid-1967, the United States hopes and believes
there will emerge a specific contingency plan for the
deliberate creation of reserves which can become the subject
of formal intergovernmental agreements.
F-56l

- 2 The Ministers and Governors also considered another
Report on the "Balance of Payments Adjustment Process"
prepared by Working Party Three of the Organization for
Economic Cooperation and Development. This Report is a
valuable survey of the measures and instruments by which
countries, individually and collectively, and in ways compatible
with the pursuit of their essential internal objectives,
could preserve a better balance of payments equilibrium and
achieve a faster and more effective adjustment of imbalance.
Recalling events of the past year, I am more than ever
glad that President Johnson authorized me last summer to
suggest consultation with our friends abroad on what steps we
might jointly take to secure substantial improvements in
existing international monetary arrangements.

Perhaps, it will be useful to review briefly the background of the significant development that The Hague meeting
represents.
There is no longer any question whether new means to
create monetary reserves are needed.
The main question is
when the need will become pressing.
As you know, the newly mined gold that goes into official
reserves and the deficits in the balance of payments of the
United States are the only major sources of additional
liquidity that have served over recent years to irrigate the
growth of trade and econom1C development in the world.
Our balance of payments deficit was cut in half in 1965.
This year we are holding our own, despite the special and
short term foreign exchange costs to us of our defense of
freedom in Vietnam. New supplies of gold reaching official
quarters have furnished no more than one-quarter of the
reserve growth of the world in the last fifteen years.
Consequently, unless some supplement or supplements to
gold and dollars can be found that the nations agree to accept
and hold as part of our national official reserves, deficiencies
in reserves will result that will be felt over time around
the world. The reserves will not remain adequate to meet the
needs of the rapidly expanding volume of trade and development and will therefore constrict the remarkable growth
that has marked the free world since the war~

- 3 -

I said when I suggested this course of action last year
that the United States was not wedded to any particular
prucedure or timetable. But I emphasized that the United
States considers agreement on means to strengthen and improve
existing international monetary arrangements to be a matter
calling for all of us to move ahead to make basic plans but
without delay. The term "contingency planning" has become
attached in monetary circles to the establishment of plans
as to what would be done to create reserves when the
existing sources of additional reserves dry up and are
insufficient for the needs of the world. At the meeting of
the International Monetary Fund last September, the Ministers
of the Grnup of Ten gave their Deputies a dual assignment,
to be approached in two stages of work.
The first was to report to the Ministers by the Spring
of this year on what basis of agreement could be reached among
the Group of Ten countries on improvements in the international
moneLary system. This was to include a Report on what scope
of agreement was reached on basic points concerning the
creation of new international reserves.
Our charge to the Deputies last September stated that as
soon as a basis for agreement on essential points had been
reached, it would be necessary to proceed from this first
phase to a broader consideration of the questions that
affect the world economy as a whole. We have now decided to
proceed.
Paragraph 5 of the Communique issued last Tuesday at
The Hague stated:
"As to the way in which such a future
contingency could be met, the Deputies in
their Report to the ministerial group have
achieved a consensus on a number of basic
principles and elements of any such contingency
planning, although they have not reached
agreement on all points or presented a fully
developed plan."

- 4 -

And then p,_cagraph 7 reads as follo'1.\1s:
"Th,E: ~.Lnisters and C,)vernors instructed their
rc~~ti(s to continue their studies on a number

of unresolved problems. However, they also
thou;:::l; -: it appropria te to look now for a
wider framepork in \vhich to consider the
questions that affect the \vGrld economy as
a \vhoJe. With this in vie\,! the Ministers
and Goverrors, after consulting with the
Managing Director of International Monetary
Fund-recommended a series of joint meetings
in which the Depucies could take part, together
with the executive direct~rs of the Fund.
1f-le !v1i n is tprs 2nd Gc\U rn0rs "f the Group of Ten
we :
'c
:ject a Report f:-:l~ their Deputies not
latEr r~h,in the mlddle of 1967.
One delegation
did not join in makin~ the aforementioned
recomr.1enda t ion. "
p

The execul~ i-]C' directors of the International Monetary Fund
represent the entire 103 members of the International Monetary
Fund. So in bringing together the Deputies to the Group of Ten
and the executive directors of the International Monetary Fund,
you will have in these joint meetings those who are authorized
to speak on these subjects for all of the member countries,
as well as the major countries who would be expected, of course,
to provide the substantial proportion of the financial backing
for any new reserve assets.
This is the so-called second phase of the work. And the
second phase should be ~signed to deal with the unresolved
questions of procedure in the Group of Ten and to assure that
the basic interests of all member countries in the International
Monetary Fund in new arrangements for the future of the world
monetary system will be adequately considered and represented
before significant intergovernmental agreements for formal
structural improvements of the monetary system are concluded.
The Ministers and Governors of the Group of Ten, with the
exception on one country, have now decided that we have the
basis for moving onward to this second stage of our work. I
think this will permit us to advance in the coming year to
specific agreement upon ways and means of assuring that future
reserve needs of the world, both within and beyond the Group
of Ten countries, will be provided for adequately.

- 5 -

I would like to acknowledge the important contribution
of the Congressional Subcommittee on International Exchange and
Payments of the Joint Economic Committee, chaired by Congressman Henry Reuss. He, Senator Paul Douglas, Congressman William
Widnall and Congressman Robert F. Ellsworth and other members
of the Subcommittee have provided invaluable understanding and
emphasis looking to constructive solutions. The Subcommittee's
Report on "Guidelines For Improving the International Monetary
System" is living up to its title.
Throughout the year we have also been assisted by the
consultation and advice of the Advisory Committee on International Monetary Arrangements under the leadership of
former Secretary of the Treasury Douglas Dillon. This Committee,
composed of outside financial and economic experts and an
interdepartmental group in the executive branch, have met
regularly with Treasury officials.
The Deputies for the United States in the negotiations
of the Group of Ten were Under Secretary of the Treasury
for Monetary Affairs Frederick Deming and Governor Dewey Daane
of the Federal Reserve Board. They were assisted by George
Willis, Deputy to the Assistant Secretary of the Treasury for
International Monetary Affairs, Robert Solomon, Adviser to the
Federal Reserve Board, and Donald McGrew, Treasury Representative
in Paris.

000

TREASURY DEPARTMENT

August 2, 1966
FOR IMMEDIATE RELEASE
WINTHROP KNOWLTON SWORN IN AS
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
Secretary of Treasury Henry H. Fowler today
administered the oath of office to Winthrop Knowlton
as Assistant Secretary of the Treasury for International
Affairs.
Mr. Knowlton, 35, and a native of New York City,
joined the Treasury Department in June 1965 as Deputy
Assistant Secretary for International Affairs. He
succeeds Merlyn N. Trued, who recently resigned.
President Johnson's nomination of Mr. Knowlton as
Assistant Secretary of the Treasury for International
Affairs was unaminously confirmed by the Senate on
June 19, 1966.
A magna cum laude graduate of Harvard College in
1953, and a 1955 graduate of the Harvarci Business School,
Mr, Knowlton was a partner in the New York investment
banking firm of White, Weld and Company before joining
the Treasury Department.
He attended Lawrenceville School, Lawrenceville,
New Jersey, and the University of Nanking, at Nanking,
China, before going on to Harvard.
Mr. Knowlton is married to the former Grace Daniels
Farrar, and they have five children. They reside at
1121 Spring Hill Road, McLean, Virginia.

000

F-562

TREASURY DEPARTMENT

August 2, 1966
FOR IMMEDIATE RELEASE
The Treasury Department released the
attached letter of this date by Secretary of
the Treasury Fowler to Senator A. Willis Robertson,
Chairman of the Senate Banking and Currency
Committee.

Attachment

F-563

•

............
:~ .. ~: .~:

THE SECRETARY OF THE TREASURY
WASHINGTON

August 2, 1966

Dear Mr. Chairman:
I appreciated very much your letter of July 28, 1966,
advising me of your agreement to expedite action on bills
relating to financial institutions in which the Administration
is interested. I welcome the opportunity you have afforded
me to advise you of the Administration's position on the
important legislation pending with regard to such institutions.
As you know, there has been a great deal of discussion
of ways and means to insure that a significant part of the
country's savings will continue to be available for investment in home mortgages, and to insure stability in the interest
rate structure within the financial community. It is the
view of the Administration, and I am pleased to note that it
is yours also, that the present authority of the Board of
Governors of the Federal Reserve System and the Federal
Deposit Insurance Corporation to establish maximum interest
rates which may be paid on bank deposits should be broadened
to enable those agencies to establish different categories
of deposits for interest rate limitations and should be made
discretionary. For example, they should be permitted to fix
different limitations for different size deposits, an
authority that is now lacking.
The recent action of the Federal Reserve Board in limiting interest rates payable on "multiple maturity" time deposits
and the fact it has recommended enactment of S. 3627 indicates,
in my opinion, a willingness on its part to take action to
limit undue rate competition. Therefore, I believe it is
possible to return to the original idea of granting discretionary authority to the bank regulatory agencies, rather
than involving Congress in legislating interest rate ceilings.
It is the Administration view also that the Federal
Home Loan Bank Board should be granted stand-by authority to
establish maximum rates of interest which may be paid on the
share accounts of savings and loan associations; and that

- 2 provision should be made for coordination of the actions of
the three agencies in the exercise of discretionary powers
relating to interest rates.
In addition to these provisions, all of which are
incorporated in the Federal Reserve Board bill, S. 3627, it
is the view of the Administration that (1) the Board of
Governors of the Federal Reserve System should be authorized
to raise reserve requirements on time and savings deposits
to a maximum of 10% rather than the present 6%; and (2) the
authority of the Federal Reserve System should be broadened
so that it can purchase the obligations of any agency of the
United States. This would enable it to acquire obligations
of the Home Loan Bank Board and the Federal National Mortgage
Associations, among others.
I am sure that I can speak for the entire Coordinating
Committee on Bank Regulations, as well as myself, in expressing our gratification that your subcommittee will consider
on August 2, 1966, the Financial Institutions Supervisory Act
of 1966. As you know, we believe there is a substantial
need for this legislation and we are very hopeful that it can
be enacted in satisfactory form at this session of the
Congress.
Sincerely yours,

Henry H. Fowler

The Honorable
A. Willis Robertson, Chairman
Committee on Banking and Currency
United States Senate
Washington, D. C. 20510

TREASURY

r,~PARTMENT

August 3, 1966
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
$2,300,000)000, or thereabouts, for cash and in exchange for
T$reasury bllls maturing August 11, 1966, in the amount of
2,302,555,000, as follows:
91-day bills (to maturity date) to be issued
in the amount of $ 1,300,000,000, or thereabouts,
additional amount of bills dated May 12, 1966,
mature November 10, 1966, originally issued in the
$1,001,478,000, the additional and original bills
interchangeable.

August 11, 1966,
representing an
and to
amount of
to be freely

182-day bills, for ~,OOO,OOO,OOO, or thereabouts, to be dated
August 11, 1966,
and to mature February 9, 1967.
The bills of both series will be is~ued on a discount basis under
competitive and noncompetitive bidding aa hereinafter provided, and at
maturity their face amount will be payable without interest. They
will be issued in bearer form only, and in denominations of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, August 8, 1966.
Tenders will not be
received at the Treasury De~artment, Washington ,. Eac h tender must
be for an even multiple of $1,000, and in th~ case of competitive
tenders the price offered must be eApressed C~ the basis of 100,
with not more than three decimals, e. g., 99.~125. Fractions may not
be used. It is urged that tenders be made on the printed forms and
forwarded In the spec ial enve lopes whiC' h 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.
F-564

- 2 Immedicuclv deter ~ill) closing hour, tenders will be opened at the
Federal Reserve- o,ii-ks ar'j Branches, following which public announcement will be made bv the Treasury Department of the amount and price
range of accepted b~ds. Those s~bmitting 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 Bankon August 11, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing August 11, 19660 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 Utlited States, or by a1']" :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
inLerest. 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 thi~
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circuLar may be obtained f{~
any Federal Reserve Bank or Branch.
000

STATEMENT BY THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE THE
COMMITTEE ON BANKING AND CURRENCY
UNITED STATES SENATE
9:30 A.M., THURSDAY, AUGUST 4, 1966
Mr. Chairman and Members of the Committee:
I appreciate this opportunity to present the views of
the Treasury Department in regard to legislation to restrain
excessive competition for savings.

Enough has been said and

written on this subject during the past several months to
render unnecessary any lengthy review of background developments
and I shall therefore confine these remarks to a brief statement
of our present thinking.
It seems clear first of all that excessive competition for
savings is having a number of unfortunate effects that deserve
attention.

It is raising interest rates sharply on home

mortgages and slowing down the flow of mortgage money even when
the homebuyer is willing and able to pay the higher rates.
Mortgage rates have risen about 1/2% or more since late 1965,
while some of the lenders who are usually most active in the
mortgage market -- savings and loan associations and mutual
savings banks -- have cut back their commitments substantially.
Horne building, as an industry, is adversely affected.
resources it employs are only partly transferable to other
~reas

of activity where demand is greater and thus there is

The

- 2 economic waste in requiring this industry to bear a heavily
disproportionate share of the burden of over-all restraint
however justifiable that over-all restraint might be.
The rate competition is potentially dangerous, moreover,
in possibly encouraging thrift institutions to take an overextended position, tending to reach for higher-yielding but
less liquid credits in order to cover their higher rates paid
on savings acco 'Jnt s .
Commercial banks have been better able to hold their own
in the fierce competition for savings.

In the first half of

1966, savings and loan associations gained only $2 billion in
savings accounts as against $4.3 billion in the year earlier
period.

Mutual savings bank deposits gained $.8 billion in the

first half of 1966 as against $1.8 billion a year earlier.
Time and savings deposits at commercial banks were up $9.5 billion
in the first half of 1966 compared with a rise of $10.7 billion
in the comparable period a year earlier.
In these circumstances it seems clear to us that the
supervisory authorities need more effective tools at their
command to deal with interest rate competition for savings in
a manner consistent with the orderly functioning of financial
markets.

- 3 On July 25 the House Committee on Banking and Currency,
after extensive hearings on the subject, reported out a bill
designed to protect a part of the local savers market for
investment in horne mortgages and to help stabilize the interest
rate structure.

These objectives are most welcome.

After the House Committee issued its report, the Treasury
convened a meeting of the Coordinating Committee to discuss
the issues involved.

This Committee includes the Chairman of

the Federal Reserve Board, the Comptroller of the Currency, the
Chairman of the Federal Deposit Insurance Corporation, and the
Chairman of the Federal Horne Loan Bank Board.

The Committee

reached unanimous agreement that the Congress should:
1.

Grant to the Federal Reserve Board flexible authority

to establish different categories of deposits for interest rate
limitations.
2.

Give the same authority to the Federal Deposit

Insurance Corporation.
3.

Grant stand-by authority to the Federal Home Loan

Bank Board to set maximum rates of interest on the share accounts
of savings and loans.
4.

Provide for coordinated use of these flexible authorities

by the agencies named above.

- 4 5.

Grant to the Federal Reserve Board the authority to

raise reserve requirements on time and savings deposits to a
maximum of 10 per cent.
6.

Broaden the authority of the Federal Reserve System

so that it can purchase the obligations of any agency of the
United States Government.
The first four of these points are in essence the same
as those in the legislative proposals recently made to your
Committee by the Federal Reserve Board.
I should note that the third point -- authority of the
Home Loan Bank Board to set maximum dividend rates for member
savings and loan associations -- is quite essential to the
whole program.

This was clearly demonstrated by the experience

of late June when a number of savings and loan associations
pushed their rates higher despite the admonitions of the Board.
The fifth point -- giving the Federal Reserve authority
to raise reserve requirements on time and savings deposits to
a maximum of 10% -- should be helpful in providing our monetary
authorities with greater flexibility in controlling the growth
of credit in the economy and restraining unwarranted excesses
in the bidding up of short-term funds.
The final point in our suggested program -- broadening the
authority of the Federal Reserve so that it can purchase the

- 5 obligations of any agency of the United States Government -would make clear and uniform the areas of authority that are
now piecemeal.

There would be no intention here of putting

pressure on the Federal Reserve to engage in any large program
of

underwriting the market offerings of Federal agencies, but

we do feel that even a modest participation in the market by
the central bank should help in broadening the market for agency
issues and reducing the high rates of interest at which these
offerings have recently had to be made.
This program is not presented as a panacea for all the
difficulties facing the financial markets, or particularly the
mortgage market, at this time.

We believe it would, however,

tend to restrain the unhealthy escalation of interest rates in
the competition for savings -- which has not really served to
increase over-all flows of savings in the economy, and it would
help to stabilize mortgage interest rates.

It would tend to

restrain the outflows of funds from thrift institutions and
protect the liquidity and general soundness of those institutions.
Accordingly, it would help to support homebuilding activity, and
the ability of prospective homebuyers to finance their purchases.

TREASURY DEPARTMENT
Washington
FOR RELEASE AFTERNOON NEWSPAPERS
SATURDAY, AUGUST 6, 1966
REMARKS OF THE HONORABLE JOSEPH W. BARR
THE UNDER SECRETARY OF THE TREASURY
AT THE
GRADUATION OF THE 3525TH PILOT TRAINING WING
WILLIAMS AIR FORCE BASE, ARIZONA
ON SATURDAY, AUGUST 6, 1966, AT 9:00 A.M. (MST)
On April 7 last year in the city of Baltimore, the President
of the United States spoke of a world at the crossroads.
"This generation of the world, 11 he said, "mus t choose:
destroy or build, kill or aid, hate or understand."
I have come to Phoenix today to tell you what can happen
in one of the vast and heavily populated areas of the world
when the threat of hatred, violence, and destruction is removed
or drastically curtailed.

I am speaking of Asia and the hopeful

developments which are taking place there today.
In his speech in Baltimore more than a year ago, the
President made two points:

first, that we would honor our

commitments in Southeast Asia, and, second, that paralleling
this military activity we would throw the might and the prestige
of this nation into a cooperative effort with the peaceful
countries of Asia to develop the economic potential of those lands.

F-565

- 2 -

It is to the second phase of this struggle that I want
to address myself today.

I want to tell you about the progress

that the Asians have made since last April in getting their
countries moving towards a solutiun of the age-old problems
of hunger, sickness, ignorance, and poverty which have lived
with the people almost from the beginning of time.
But before I begin a catalog of Asian progress on the
economic

front~

1 want to emphasize one point:

economic

development is dLmost imnossible unless it can be carried on
in a climate where there is at least hope for order and peace.
The milit&TY

e~fcrts

we are

in are not only the

engag~d

honorable fulfjllment of a solemn

pl~dge;

shield behind which the people of

ASl.:l

they are also the

are beginning to stir.

Economic deve.i::l;n::e71t is usually not dr3lI1atic -- it seldom
catches world headlines.

But the progress of Asian cooperation

reflects the real objectives of thi.s nation.
Let me

qu~te

the President's Baltimore speech again:

"We often say he-w impressive power is.
impressive at all ....
impressive ....

But I do not find it

A dam built acr'·.,ss a great river is

A rich harvest in a hungry land is impressive.

The sight of healthy children in a classroom is impressive."

- 3 In these words the President characterized our economic
objectives in Asia.

Sixteen months have elapsed since then.

This is a fitting occasion to sum up the progress that has
been made.
First and foremost, I would like to tell you something
about the Asian Development Bank.

This is a project that is

very close to my heart, because the President assigned to me
the responsibility for assisting Mr. Eugene Black, former
President of the World Bank, in developing the United States
Government's position with respect to this far-seeing idea,
shortly after the Baltimore speech.

He assigned to Mr. Black

the responsibility for coordinating our entire economic effort
in Asia, including the Asian Bank.
coordinated

u. s.

I was to develop a

position on the Bank, to take charge of our

negotiations, and, finally, to make certain that the Congress
concurred with our objectives.
In his Baltimore speech, the President threw the full
weight of our nation behind this Asian idea:
an Asian

develop~ent

bank.

the creation of

He indicated the United States'

willingness to cooperate in the Asian Development Bank project
with all Asian nations which are members of the United Nations
or any of its specialized agencies, all the Asian nations which

- 4 -

are members or associate members of the United Nations Economic
Commission for Asia and the Far East, and all developed
non-Asian members of the United Nations.
includes the Soviet Union.

This, of course,

He stressed the importance of

creating an institution in which the nations in the area could
develop plans to meet their problems and share advice and
counsel as they move towards their objectives.
Frankly, I was astounded by how much work had already
been done by the nations of Asia, in the great arc from Iran
to Korea, and how quickly agreement was reached.

In the

relatively short time span of eight months, a charter was
agreed upon, subscriptions to capital stock were approved,
and, at Manila on December 4, 1965, 22 countries signed the
Articles of Agreement.
signed the Agreement.

An additional nine countries have since
The signatory nations have submitted

the Agreement to their respective parliaments for approval,
and the inaugural meeting of the Asian Development Bank is now
scheduled to be held in Tehran in October of this year.
To the best of my knowledge, this is the first example in
recorded history of a major cooperative effort by the nations
of Asia under which they themselves will provide the major
share of the organizational and managerial talent as well as
of the resources.

In this instance, 19 Asian nations have come

- 5 together freely to pledge their resources in collective efforts
to improve the economic lot of the whole region.
The signing of the Charter of the Asian Development Bank
was only the first of a series of notable developments which
have taken place since the President's Baltimore speech and
from the assurance our determination in Vietnam has given to
Asia that there is hope for order and peace.
Late in 1965, at the time the Asian Development Bank was
being put together, the Ministers of Education of South Vietnam,
Laos, Malaysia, Singapore, and Thailand met with Mr. Black in
Bangkok to consider the problems involved in achieving greater
regional cooperation in the field of education.

A Secretariat

of the Asian Ministers of Education was subsequently formed to
ensure that continuing attention would be given to exploring
the prospects for regional cooperation to help solve the
educational problems of the area.

A number of interesting

new approaches are now under active consideration including
the possible establishment of an Asian Institute of Technology,
and other regional centers of excellence in tropical medicine
research, agricultural research, science and English language
teaching, and other fields.

These prospects were the subject

of review by over 100 specialists from Southeast Asian countries
who met in Kuala Lumpur at the end of July.

- 6 One of the most impressive and well established Asian
initiatives in Southeast Asia is the Mekong Development
Committee.

This Committee, which was first formed by Cambodia,

Laos, South Vietnam, and Thailand in 1957, is now supported
by 21 outside nations and 12 agencies of the United Nations.
The Mekong Development Committee has an established
professional staff in Bangkok.

It is actively promoting and

coordinating the planning of water resources development projects
in the Lower Mekong River Basin.

Exclusive surveys and

investigations have already been undertaken.

Feasibility

studies are being carried out on priority projects.

Several

tributary dams and other works are in the engineering and
construction phase.

Development of this great natural resource

will involve dozens of projects and require many millions of
dollars.

Many developed countries will need to contribute.

The most recent step in this field has been the establishment
of the Nam Ngum Development Fund to finance a hydroelectric
project on a tributary of the Mekong River.

The United States

provided 50% of the funds and seven other countries provided
the balance.

- 7 -

Still another important Asian initiative lies in the
field of banking and finance.

Governors of the Central Banks

of Ceylon, Laos, Malaysia, the Philippines, South Vietnam,
and Thailand met in Bangkok in February to discuss economic
and social development plans, monetary policy, regional
cooperation, and the future operations of the Asian Development
Bank.

This may be the beginning of a regularized series of

meetings over the coming years.
Only a few months ago the Japanese Government launched
a major new initiative among their Asian neighbors.

High

level representatives of all the countries of Southeast Asia
except Burma sat down together in Tokyo last April to discuss
the problems of regional economic development.

That was the

first major international conference of this kind called at
Japanese initiative since before the second World War.
One of the most hopeful results of the Southeast Asia
Ministerial Conference in Tokyo was the decision to convene
a Southeast Asia Agricultural Development Conference sometime
during the corning year -- perhaps as early as this autumn.
A conference of this kind would be an.other "historic first"
in Asian affairs.

It might well result in the creation of an

- 8 -

Agricultural Development Fund operating in conjunction with
the Asian Development Bank.
In June, 1966, ten nations -- Japan, Republic of China,
Australia, Thailand, South Vietnam, the Philippines, Malaysia,
New Zealand, Korea, and Laos -- met in Korea and agreed to
establish an Asian and Pacific Council.

This is to be a

loosely knit regional organization which will be a forum for
continuing consultation on political, economic, technical,
and social affairs.
In addition to the primarily economic accomplishments
which I have outlined above, I want to mention two far-reaching
political events which will bear directly on economic development in Asia.

India and Pakistan last fall decided to halt a

growing conflict that could have wrecked their development
plans.

Indonesia, it appears, has decided to end its con-

frontation with Malaysia and concentrate its efforts instead
on bringing order into its economy.
These are the highlights of the progress made in Asia
during the 16 months that have elapsed since President Johnson
stated our Asian objectives in Baltimore and our willingness
to participate in a cooperative development program.

- 9 It is a hopeful record.

It is a record in which all

of the countries involved can take great pride.
Asia is stirring; it is moving; it is alive with a new
spirit.

For the first time in modern history, Asia has

great hopes.
I think reasonable men must admit that the hope we
see in Asia today and the progress the nations of Asia are
making toward economic cooperation and development could not
have been expected without the military shield held so proudly
and determinably by our forces in Vietnam.

000

TREASURY DEPARTMENT

August 3, 1966
FOR USE IN MORNING NEWSPAPERS OF
THURSDAY, AUGUST 4, 1966
FRANKLIN ROBERT SAUL FIRST RECIPIENT
OF NEW TREASURY HONOR AWARD
Secretary of the Treasury Henry H. Fowler today
presented the Office of the Secretary Honor Award to
Franklin Robert Saul, Assistant to the Secretary for
Debt Management.
Mr. Saul, 35, and a native of Belleville, New Jersey,
is leaving the Treasury Department to return to private
business.
The new award, established in July 1965, is for
"outstanding service related to the Office of the
Secretary of the Treasury."
Mr. Saul joined the Treasury on May 1, 1965, after
10 years with the First National City Bank of New York,
where he was a vice president.
The citation for the award to Mr. Saul is attached.

Attachment
F-566

CITATION
OFFICE OF THE SECRETARY HONOR AWARD
FRANKLIN R. SAUL

Franklin R. Saul, in fifteen months as Assistant
to the Secretary (Debt Management) during 1965-66, has
made an outstanding contribution to the Treasury.
His expert knowledge of financial markets, imaginative
and flexible approach to the adaptation and innovation of
financing techniques, and sound judgment have been of
enormous value in helping to guide the Treasury through an
unusually difficult period in its debt management operations.
In addition to the Treasury's own debt operations, he
has made a significant contribution in shaping and coordinating the increasingly large and complex financial operations
of various Federal Government agencies.
In his wide range of contacts with other Government
agencies, the financial community, and the public, he has
been a most able and effective representative of the Treasury
Department.
For his achievements and contributions in these areas,
Franklin Ro Saul is deserving of the Office of the Secretary
Honor Award.

TREASURY DEPARTMENT

August 4, 1966
FOR IMMEDIATE RElEASE
TREASURY DECISION ON STEEL WELDED WIRE MESH
UNDER THE ANTIDUMPING ACT
The Treasury Department has completed its investigation with respect to the possible dumping of steel welded wire mesh for concrete
reinforcement from Ita~. A notice of intent to close this case with
a determination that this merchandise is not being, nor like~ to be,
sold at less than fair value within the meaning of the Antidumping
Act, 1921, as amended, will be published in an ear~ issue of the
Federal Register.
The merchandise under consideration consists of lightweight concrete reinforcement mesh for buildings.
Purchase price was found to be lower than home market price or
third country price with respect to two of the firms investigated.
Purchase price was not lower than home market price with regard to
the other firm's shipments.
During the earlY stages of the antidumping investigation, the
two firms selling below home market price or third country price revised their prices which eliminated the likelihood of sales below
fair value. Assurances were given that irrespective of how the
presently pending dumping proceeding was determined, no future sales
to the United States will be made at prices which could be construed
to be at less than fair value. There appears to be no likelihood of
a resumption of prices which prevailed before such price revision.
Appraisement of the above-described merchandise from ItalY will
continue to be withheld pending further determination.
Imports of the involved merchandise received during the period
September 1, 1964, through December 31, 1965, were valued at approximately $600,000.

Enough has been said and

It is raising interest rates sharply on horne

mortgages and slowing down the flow of mortgage money even when
the homebuyer is willing and able to pay the higher rates.
Mortgage rates have risen about 1/2% or more since late 1965,
while some of the lenders who are usually most active in the
mortgage market -- savings and loan associations and mutual
savings banks -- have cut back their commitments substantially.
Home building, as an industry, is adversely affected.
resources it employs are only partly transferable to other
lreas of activity where demand is greater and thus there is

The

- 2 -

economic waste in requiring this industry to bear a heavily
disproportionate share of the burden of over-all restraint
however justifiable that over-all restraint might be.
The rate competition is potentially dangerous, moreover,
in possibly encouraging thrift institutions to take an overextended position, tending to reach for higher-yielding but
less liquid credits in order to cover their higher rates paid
on savings accoants.
Commercial banks have been better able to hold their own
in the fierce competition for savings.

In the first half of

1966, savings and loan associations gained only $2 billion in
savings accounts as against $4.3 billion in the year earlier
period.

Mutual savings bank deposits gained $.8 billion in the

- 3 On July 25 the House Committee on Banking and Currency,
after extensive hearings on the subject, reported out a bill
designed to protect a part of the local savers market for
investment in home mortgages and to help stabilize the interest
rate structure.

These objectives are most welcome.

After the House Committee issued its report, the Treasury
convened a meeting of the Coordinating Committee to discuss
the issues involved.

This Committee includes the Chairman of

the Federal Reserve Board, the Comptroller of the Currency, the
Chairman of the Federal Deposit Insurance Corporation, and the
Chairman of the Federal Home Loan Bank Board.

The Committee

reached unanimous agreement that the Congress should:
1.

Grant to the Federal Reserve Board flexible authority

to establish different categories of deposits for interest rate
limitations.
2.

Give the same authority to the Federal Deposit

Insurance Corporation.
3.

Grant stand-by authority to the Federal Home Loan

Bank Board to set maximum rates of interest on the share accounts
of savings and loans.
4.

Provide for coordinated use of these flexible authorities

by the agencies named above.

- 4 5.

Grant to the Federal Reserve Board the authority to

raise reserve requirements on time and savings deposits to a
maximum of 10 per cent.
6.

Broaden the authority of the Federal Reserve System

This was clearly demonstrated by the experience

- 5 obligations of any agency of the United States Government -would make clear and uniform the areas of authority that are
now piecemeal.

There would be no intention here of putting

pressure on the Federal Reserve to engage in any large program
of

underwriting the market offerings of Federal agencies, but

We believe it would, however,

It would tend to

TREASURY DEPARTMENT
Washington

FOR RELEASE AFTERNOON NEWSPAPERS
SATURDAY, AUGUST 6, 1966

REMARKS BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE SECTION OF TAXATION
AMERICAN BAR ASSOCIATION
QUEEN ELIZABETH HOTEL, GRAND BALLROOM
MONTREAL, CANADA
AUGUST 6, 1966 - 12:00 NOON
CURRENT TAX DEVELOPMENTS
The topic of "Current Tax Developments" is a safe one
even when chosen many months in advance and whatever the
audience involved.

There are sufficient matters churning

in the tax field to please or worry any particular group.
The task is thus more of selecting among many subjects
rather than a lack of material.
My last appearance before this distinguished audience
was five years ago, in a luncheon talk at St. Louis.

I then

had occasion to say, "I believe we are entering on a per.'_oG
of significant change in the Federal tax structure".

retrospect this strikes me as a successful prophecy -- and
a gross understatement.

The five intervening years have

brought profound and widespread changes in our Federal tax

F-568

- 2 -

system -- changes in the structure itself and changes in
our ways of thinking about that structure and its functions.
Nor will the future be different.

Nor should it be.

vital, ever-changing and developing tax system is but a
reflection of a developing country, and an assurance that
the tax system is playing its necessary role in that development.
Of course, the Treasury sometimes regards the pace as
too slow in some matters, and too fast in others.

And I

can well hear the lament of "vice versa" that many in the
tax bar would want to add from their perspective.
But clearly, with so much that needs attention and doing,
unless the pace is swift and demanding we will fail in our
objective of maintaining a tax structure responsive to the
needs of our society.

We are familiar with the agenda of

issues involving the important concerns of tax equity and
simplification.

At the same time, we can see ahead many

new problems which cannot wait until we finish our agenda of
existing issues,

- 3 -

For each of our Great Society goals -- elimination of
poverty, an end to discrimination, improvement of education,
improvement in urban life, improvement in the quality of our
physical surroundings -- we find the question asked -- "Can
and should the tax system playa specific role?"
As an illustration, consider the war on poverty.

This

raises, in a new way, the question of how the level of
social security benefits and their financing is related to
poverty.

It also raises the question of whether the present

system of tax benefits for the aged is an appropriate
response to the problems of the aged poor.

Most dramatic of

all is the emerging discussion whether a program of fixed
money grants linked to the tax system through negative rates
may provide a serious alternative to the present system of
categorical public assistance programs.
The question of the role of the tax system is also raised
in the international area -- as in the need for balance of
payments equilibrium, or in our relationships with the developing nations.
Finally, overriding all of these concerns is the responsibility of the tax system to play its fiscal policy role, in

- 4 proper coordination with monetary policy, of promoting economic growth and providing the economic base to meet our
domestic needs and international obligations

a responsi-

bility that requires a structure properly adapted to long-run
needs and at the same time sufficiently flexible to be
responsive to the current economic climate.
We see that we must look both at our familiar tax problems and at the new possibilities of the tax system in
relation to a dynamic economy.

But we must also guard against

our own tax introspection and against wasting our energies on
debating old slogans in situations where the real issues have
moved elsewhere.

A fast pace of legislative activity seems

common around the world.

The debates and analyses related

to tax policy issues in other countries are valuable to us
as a source of both new questions and new answers.

For this

reason we are particularly awaiting the forthcoming report of
the Royal Commission on Canadian Tax Reform.

Such reports

give us a chance to consider anew in our country whether we
can still tell forests from trees, mountains from molehills,
or what you will.

And indeed, there are always some recom-

mendations in these reports that make our tax bar thankful

- 5 -

for those "sound fellows in our Treasu (y Depa"L'tmen.t' "
These tasks and challenges facing our tax system and
those concerned with its future course are thus formidable
and indeed on the bleak days, overwhelming.
But we are not without resources, both at hand and
capable of development.

I recently had occasion to speak

on Computer Technology and Federal Tax Policy, and described
the analytical tools for tax research that were being developed in this context.

For example, an income tax model,

consisting of a magnetic tape data file containing a random
stratified sample of tax returns and a computer tax program
for its use, enables the Treasury to test quickly a large
variety of proposals respecting the income tax.

Similar

models are being developed for the corporation tax and the
estate tax.

Models of this nature also assist in testing

the validity of certain policy hypotheses underlying variol.1

existing tax provisions, especially those based on the
approach of providing a tax incentive toward reaching desirable social goalso

- 6 -

Further experimentation with analytic computer models
providing simulated business experience appears to offer
opportunities for greatly expanded knowledge regarding our
tax system.

Thus, we are becoming increasingly optimistic

that our current computer study of depreciation will furnish considerable guidance on the workings and mechanical
validity of the reserve ratio test under the depreciation
guidelines and on the technical application of the more
complex aspects of depreciation methods, such as the sum of
the years-digits method.

We also are hopeful the study will

throw light on the impact on the effective tax rates of different taxpayers -- and hence on the tax equity aspect -- of
permitting various degrees of non-conformity between the tax
life used for a group of depreciable assets and a taxpayer's
actual rate of replacement for those assets.

Preliminary

results indicate variations in these effective tax rates to
an extent that might well cause our Canadian friends to throw
a skeptical glance at their system of depreciable tax lives,
which abandons conformity in favor of certainty in administration.

- 7 We are also engaged, through a contract with an

\.,uts~.de

research group, in exploring a simulation study on the subject
of tax influences on real estate investment.

We are hopeful

that this study, and associated research of a conventional
ch~racter,

will not only give us fresh insights into the

workings of a number of tax provisions affecting real estate
investment, but also useful information on the relationship
of the tax system to our goals in urban development.
We are also pursuing our research regarding the influence
of the tax system on investment, with particular reference to
methods of accelerated depreciation available since 1954 and
the significant changes that occurred with the institution of
the investment credit and the depreciation guidelines.

The

economists are still at the frontiers of a theory of business
investment, and this is why their work is so challenging -and frustrating

to a tax planner.

But theoretical and

econometric analysis are proceeding rapidly and we are hopeful
of useful insights.

Indeed, there is some current econometric

analysis regarding the investment credit which would indicate
it possesses a powerful and sensitive thrust, suggesting that

- 8 -

one should proceed cautiously in considering changes in its
application lest the economic levers are pulled or pushed
too far.
Given the variety of problems and research tools, we
c~n

also hope there will be a widening circle of organiza-

tions and individuals engaged in tax research. The recent
activities of the Brookings Institution and of the National
Bureau of Economic Research, to name two organizations prominent in this field, have already added greatly to our
knowledge. The economists, as is probably to be expected, are
considerably ahead of the lawyers and accountants, though one
wonders whether their lead must be so great.

Certainly,

there is much to study in both the latter fields, and many
paths to that study.

Thus, as an example, the Treasury and

the Association of American Railroads, with the aid of an
accounting firm employed jointly, are engaged in a broad
study of existing and alternative methods of tax depreciation
for railroad track, grading and tunnel expenditures.

The

thought occurs that there may well be other areas suitable
for joint Treasury-private research.

- 9 -

Projects of your Section indicate other possible paths
such as the work on tax liens which we hope will culminate
in the passage this year of the Federal Tax Lien Act of 1966.
The research of your Committee on Substantive Tax Reform is
also promising, especially if it continues its exploration
and description of the basic policy choices that must be made
whenever one considers basic tax reform and basic tax simplification

and if it delineates the policy alternatives and

their price tags, both of revenue gain or loss in the specific
area affected and of rate reduction or increase if the revenue
changes are used in turn to adjust tax rates for all.

Perhaps

this work, though still showing the broad perspective, will
lay open possible paths to changes in specific areas over a
period of time.
The recent work of the

A~erican

Law Institute in the

field of estate and gift tax revision is another excellent
example.

Here also the usefulness of cooperative studies is

demonstrated, for the parallel work of the Brookings Institution in the economic aspects of these taxes, based on Treasury
supplied data, gives us a broad base of knowledge.

The

- 10 Treasury is now engaged in its consideration of the research
results of these two organizations, in accordance with its
earlier decision to await the progress of their work rather
than initiate its own research.
I suggest the lesson of these activities is the complexity of tax research.

I think we have learned that we do not

achieve a sound tax system by concentrating on ad hoc solutions to narrowly conceived problems and by being satisfied
with a particular provision because it offers some kind of an
incentive for some good activity.

Tax problems must be ana-

lyzed in the context of their relationship to systematic
principles of tax law.

It is also necessary, if one hopes to

take responsible positions in these difficult areas, to relate
these analyses to quantitative estimates of amounts involved
and likely effects.

Helpful results will come, I think, from

systematic and to some extent organized research efforts, such
as the work of this Section previously mentioned on the tax
lien problem.
There are many promising areas calling for the attention
of lawyers.

Thus the tax bar can and should be useful in

- 11 -

achieving needed revisions in areas where the present shape
of the structure is to a large degree its own handiwork, and
where it should know better than most the nature of the current problems and defects.

Tax-exempt foundations are an

obvious example, as are other aspects of tax-exempt organizations, such as the task of picking up the legislative and
administrative pieces after the Supreme Court's decision in
the Clay Brown case.

Pension plans represent another area,

which lawyers can share with banks and the insurance companies.
And in such matters as the treatment of capital gains at
death, the tax bar, without yielding any view it may have on
ultimate policy decisions, could well engage in objective
consideration of aspects of particular solutions.

For example

how best to meet problems which certain types of estates, such
as closely held companies, may have under a system of taxation
of capital gain at death, or how to cope with the practical
problems of various transitional paths to that system.
But all this is part of the grand design of our tax systec,
and much of it lies in other disciplines.

You may well be ask-

ing what about current Current Tax Developments, so let me turn
to this subject.

- 12 -

The current year is one in which tax policy
strong fiscal stimulus to fiscal restraint.

mov~d

from

As a consequence,

through reinstated automobile and telephone excise tax rates,
adoption of graduated withholding, and a speed-up in various
tax collections, many taxpayers have experienced increased
tax payments.

We are also watching very closely whether the

economic situation and budgetary developments call for further
tax restraint.

Tax planning in this respect has been consid-

erably aided by the work of the Subcommittee on Fiscal Policy
of the Joint Economic Committee with regard to tax flexibility
and the forms of temporary tax increase measures.
For these reasons, reflecting the President's Economic
Report, the Treasury has steadily said that this year it must
oppose specific tax proposals, however meritorious, that
involve significant net tax reduction.
There are always a number of specific problems at hand
which find proponents of a tax route to their solution, and
this is reflected in the current legislative session.

Tbu,:; :

to name a few, we have measures to increase the tax benefi·t-,-;'
of H. R. 10 pension plans, to eliminate from taxable income

- 13 employer reimbursement of certain employee moving expenses,
to provide tax incentives for the installation of antipollution equipment, or to provide tax incentives for
employer expenses of manpower training.
th~

While recognizing

problems in,these areas, the Treasury feels that they

are not so presently compelling that 1966 must be the year
of solution, when viewed against a policy of fiscal restraint
and budgetary concern.
Nor are the tax solutions proposed for these areas so
clearly obvious as their proponents assert.

We can first

ask what is the need these areas share in common and what do
they seek in common in turning to the tax system.
is "Money".

The answer

While this is not a profound observation and is

quickly reached, it does require that we put the next question -- Why should the money corne from a tax reduction provision?

If the money should come from the Government, as may

be necessary to some extent in the case of pollution and manpower training, still, why from a change in the tax structure?
Loans or grants may be infinitely more useful ways

hit the

- 14 target, as is already the case in our manpower training programs under the Labor Department and in our aid to cities and
States in combating pollution.
As for moving expenses, the reimbursed employee does not
have a greater claim to money from the Government than the
non-reimbursed employee.

Clearly the latter has the greatest

need for what is being sought -- money -- since he must pay
the moving expenses out of his pocket.

Senator McCarthy's

recent bill recognizes this last point and covers all
employees.

This is a more expensive revenue bill than one

confined to reimbursed current employees, but -- in keeping
with our present deduction for moving expenses which treats
reimbursed and non-reimbursed employees equally -- should at
least be the framework within which we can attempt to seek
some solution.

The problem then becomes one of seeing if

any of these fringe expenses should be added to the presently
deductible basic moving expenses or should remain as nondeductible costs outside of the definition of income, so that
the tax on any reimbursement becomes simply another cost of
moving which an employer may choose to bear or not.

- 15 viewed, we would seem to need more analysis before a reasonable answer can be achieved.
Perhaps -- as respects H. R. 10 plans -- the money
should come from the taxpayer himself.

Much as our doctor

friends and we lawyers dislike to admit it, in actual practice the self-employed pension plan becomes a tax reduction
arrangement for the better-off professional man, with doctors
heading the list.

Over 75 percent of the present H. R. 10

deductions are taken by doctors, lawyers, and dentists, and
they would thus obtain 75 percent of the tax revenue involved
in the pending revision.

Indeed, about one-half of the reve-

nue lost would go to individuals in these professions with
incomes over $25,000.

These plans are not for the plumber,

the small shopkeeper, or the farmer -- the savings of these
people are needed for their businesses, to meet the social
security tax on the self-employed, and for their family obligations -- and therefore are not available for H. R. 10 plans.
A glance at Canadian experience with these plans -- where
there is full deduction up to $2,500 without a 50 percent
limitation and no employee coverage requirement -- since their

- 16 adoption in 1957 is instructive.

The latest figures show

that six years later -- 1962 -- the rate of participation
exceeded an almost negligible figure (3-1/2 percent) only
in the professional group -- where we find over 40 percent
of, the doctors and dentists and 24 percent of the lawyers
participating.

As respects incomes, the rate of participa-

tion is quite low -- never above 6 percent -

under $10,000

income -- but is about 30 percent in the $20,000 - $100,000
class.

It is apparent that H.R. 10 plans are attractive

only to a class with liquid assets and already possessing
sufficient security so that some assets can be set aside
permanently until after age 65 -- and the only class meeting
these conditions is the better-off professional group.
This is not to say that the matter ends here, but it is
rather to point out that it appears the H. R. 10 approach to
problems of retirement has a distinctly limited usefulness
to the great majority of self-employed persons, and that the
very small group of professional persomwhich does benefit
is not in such need that the present advantages must be
expanded at once.

Any change should at least await a resolu-

tion of issues in the broader area of pension plans.

- 17 Let me mention one other current proposal which concerns
lawyers, where the immediate revenue loss is not large but a
very vital tax principle is in danger of distortion.

I refer

to the bill to permit deductions, as charitable contributions,
fo~

amounts contributed to campaigns on State referenda

regarding judicial reform and constitutional tax revision.
These campaigns may be regarded as good causes also seeking
the common need -- money -- but here also it is the individual
and not the Government who should supply it.

For clearly, on

reflection, our deduction for contributions becomes a shambles
if we permit deductions for lobbying where the causes are
"good causes" -- passed on one by one by the Congress.
It may be noticed that all of these matters share a common aspect in addition to the need for money, and that is they
are not basically concerned with the traditional tax problem
of defining net business income.

Rather, they involve the use

of the tax system as an incentive to reach certain goals -control of pollution, manpower skills, labor mobility, security
on retirement, support for good causes.

(A possible exception

in part is the moving expense item, for viewed broadly it can

- 18 be said to raise the question of what is the place of moving
expenses in the measure of net business income in the modern
day.)

They all thus underscore the need for adequate cost

effectiveness analysis before the answer can be given as to
whether a tax sol,ution is more appropriate than a non-tax
route.
As the concluding aspect of current tax developments,
we can look at tax regulations.

Here also -- and I include

important TIR's and published rulings in this category
there has been considerable activity, for a variety of reasons.

First, regulatory activity is the clear aftermath of

legislative activity, and the many subjects involved in the
Revenue Acts of 1962 and 1964 in turn simply meant many corresponding regulations.

In some cases these regulations

were expressly required to fill out the legislative pattern,
as in aspects of the foreign income and the investment credit
provisions.

Next, regulatory activity has resulted from the

desire of the Treasury to offer guidance in areas hitherto
left to case-by-case action.

The recent proposed Regulations

under section 482 respecting parent-subsidiary allocations is
an example.

The depreciation guidelines are another.

- 19 Then, there is the need to revise an existing regulation
when changes which have occurred in the area require administrative response.
1.

Examples here are:

The soon to be published consolidated return

regulations, which were also prompted by basic changes
in the 1964 Act pointing to increased use of these
returns.
2.

The proposed regulations on educational expenses,

designed to clarify previous regulations shown by litigation to be confusing and ambiguous.

Another example of

this nature could be a revision of the regulations on
fellowships and scholarships if a current study reaches
this result.
3.

The proposed regulations on mutual swap funds,

designed to supply guidance where the taxpayer is probing
for the outer limits of statutory language.

Another

example of possible administrative action is our current
study of arbitrage on State and local bond issues wher.
these governmental units are probing for the outer limits
of the section 103 exemption of State and local bond
interest.

- 20 -

I believe this increase in administrative guidance to be
both a desirable and a necessary matter.

Reflection on the

many tax issues I discussed at the outset of this talk will
show how heavily mortgaged is the time of the Congressional
tax Committees, and we must remember these Committees also
deal with many non-tax matters.

A moment's thought on the

matters dealt with in recent legislation and those on the
horizon will indicate that they involve policy issues generally falling outside the day-to-day activity of the tax bar
the application of the general technical rules respecting
corporations, partnerships and trusts.

There really isn't

much time for the Congress to restudy and improve the latter
rules, nor indeed should they be changed too frequently sinc o
they are basic to a working tax system.

But how then do we

provide for the needed flexibility in the technical joints?
How will we secure the improvements that keep these general
provisions workable and sensible -- sometimes freeing transactions from useless restrictions or technicalities

sO!ilctimes

cutting off a gimmick that strays too far from the nonnal
paths of the business world.

I suggest this Section give

- 21 thought to the problem, and to the ways in which a properly
conceived regulatory activity can be a useful answer.
There clearly must be a sharing of burden between
Congress and Executive -- and the courts -- with each workin~

in its area of responsibility -- if our tax system is

to be responsive to current needs and provide as much guidance and certainty as possible.

This is clearly recognized

in the Congress -- for every Congressman and Senator who says
an .interpretative problem should be solved legislatively,
there are many more who ask:
matter administratively?"

"Can't you take care of this

All of this suggests that irre-

sponsibility can lie in inaction by the Treasury if it fails
to take administrative action on what it sees as an otherwise
proper decision -- and the inaction can involve not only the
Government's interests but also those taxpayers who happen
to be on the same side of the matter.

Of course, action can

sometimes bring error, but I hazard the thought that more
errors will lie in inaction than in action.
We regard Treasury regulations and important TIR's and
rulings as an integral part of the tax policy functions for

- 22 which the Treasury Department and the Internal Revenue SerJic£
bear responsibility within the Executive branch.

As such,

these matters receive the constant attention of top level
policy officials in the same manner as does legislative
policy formulation.

This attention is centered on achieving

the fairest and most responsible answer possible within the
limits and standards set by the legislative provisions.

recognize that, quite properly, we do not share this task of
administrative decision-making with other agencies or bodies,
so that there is no diffusion of authority and we alone bear
the responsibility for the answer.
We consequently seek to obtain, through public hearings,
conferences, and discussions, as much information as we can
on the problems presented and solutions suggested.

The tax

bar can here clearly play a vital role -- and your Section
indeed does this -- in seeing to the limits of its ability
and experience that we receive this information, that we are
obtaining the proper perspective and view of the ground to
be covered, and that we are made aware of regulations that
are no longer responsive to current problems or offer
quate guidance in the light of current experience.

inade~

- 23 -

We seek similar assistance in carrying out, for the
President, our task of making recommendations on legislative
matters.

And so, let me close as I closed my talk five years

ago -- for the problems are never ending and the ultimate
paths to solutions never changing:

"There is much to be

done to improve our tax system and there is much that this
Section can contribute o

This being so, we must work together

to see that as an organization and as a profession we meet
our share of the responsibility for progress in the field of
taxation."

TREASURY DEPARTMENT
(

August 5, 1966
~OR

IMMEDIATE RELEASE

PRELIMINARY RESULTS OF TREASURY REFUNDING
Preliminary figures show that $10,102 million, or 67.fi1" of' the $14,893 million
ecurities of the five issues eligible for exchange have been exchanged in the
urrent refunding offer. About $8,447 million, or 92.~ of the $9,136 million outtanding, were exchanged by holders of securities maturing August 15, and $1,655
illion, or 28.7% of the $5,757 million outstanding, were exchanged by holders of
ecurities maturing November 15.
Subscriptions total $5,866 million for the 5-1/4~ certificates of Series A-1967
1d $4,236 million for the 5-1/4~ notes of Series A-1971, of which$l,435 million for
1e certificates and $2,717 million for the notes were received from the public.
Of the eligible securities held outside the Federal Reserve Banks and
)vernment accounts $2,510 million, or 78.5% of an aggregate of $3,199 million, of
le August 15 maturities and $1,642 million, or 33.5% of an aggregate of $4,901
.llion, of the November 15 maturities were exchanged.
Following is a breakdown of securities to be exchanged for the new issues
mounts in millions):
ELIGIBLE FOR EXCHANGE

Date
Securities
fue
notes, A-1966
8/15/66
bonds, 1966
8/15/66
tal August maturities

Amount
~ 8,436
700
9,136

PREREFUNDING
)/4~ ctfs., A-1966 11/15/66
notes, E-1966
11/15/66
i/B1o bonds, 1966
11/15/66
,al November mat uri ties

1,652
2,254
1,851
5,757

Grand Totals

:£14,893

SECURITIE3 TO BE ISSUED
5-174~
5-174~
Ctfs.
Notes
A-1971
Total
A-1967
$7,918
$2,317
$5,601
529
264
265
8,447
2,581
5,866

$5,866

UNEXCHANGED
Amount
$ 518 6.1
171 24.4
7.5
689

513
554
588
1,655

1,139
1,700
1 z263
4,102

68.9
75.4
68.2
71.3

~4z236

~10z102

~4z791

32.2

Details by Federal Reserve D1stricts as to subscriptions will be announced
ere

F-569

STATEMENT BY THE HONORABLE HENRY H. FOWLER
S~RETARY OF THE TREASURY
BEFORE THE SENATE FINANCE COMMITTEE
ON H. R. 13103
MONDAY, AUGUST 8, 1966

Mr. Chairman and Members of the Committee:
I am appearing before you to urge prompt and favorable action on
H. R. 13103, legislation which is intended to establish equitable
tax treatment for foreign investment in the United States.

Passage of

this bill will serve an important national objective by providing a
comprehensive and integrated revision of our present system of taxing
foreign individuals and foreign corporations on income derived from
the United States.

The revision is supportable on tax policy criteria

and brings our system of taxing foreigners more into line with the
rules existing generally in the other developed countries of the world.
A fundamental and enduring consequence of this revision will be increased
interest on the part of foreigners generally in investment in the United
States.

This proposed legislation, therefore, is one of the important

positive elements of our long range balance of payments effort.
Background of Proposals
In his Balance of Payments Message of July 18, 196.3, President
Kenneqy announced he was appointing a task force to review U. S.
Government and private activities which adversely affect foreign
purchases of the securities of U. S. companies.

The group was com-

posed of representatives of finance, business, and government.
task force, of which I had the privilege of serving as chairman,

This

- 2 studied various courses of action which could be adopted in both the
private and public sectors to encourage foreign ownership of U.

securities.
In April, 1964, the task force issued its report containing 39
recommendations, which called for a broad range of actions b.Y U.

international business organizations and financial firms, as well as
by the Federal Government, to bring about broader foreign ownership of
U. S. corporate securities.

Among the recommendations directed toward

the Government those dealing with the taxation of foreign individuals
and foreign corporations have the most significant and immediate impact.
Issuance of the task force report prompted a broad and intensive
review by the Treasury of rules governing taxation b.Y the Uni ted
States of foreign individuals and foreign corporations.

This review

considered these rules not only from the standpoint of the balance of
payments but also in view of conventional tax

poli~

considerations.

As a resuJ.. t of this review, on March 8, 1965 the Treasury Department
submitted to the Congress proposed legislation containing proposals
in all of the tax areas dealt with in the task force report, and also
in other areas where it appeared that change was desirable to make
the present systElll more consistent with rational tax treatment of
foreign investment.

The House

W~s

and Means Committee then thor-

oughly considered that bill, as well as several areas not covered b.Y
the bill, and, foilowing public hearings, a new version of the bill

-) (H. R. 11297) was introduced by Chairman Mills on September 28, 1965
and public conrnents on the revised bill were invited.

The Comrni ttee

then further considered the matter in executive session and Chairman
Mills introduced a revised version (H. R. 13103) on February 28, 1966.
Following public hearings on March 7, 1966, H. R. 1310) was favorably
reported out of the Ways and Means Committee and passed by the House
of Representatives without opposition on June 15, 1966.
The Treasury tepartmen ...,igrees wi til the view expressed by the
task force and in the House Ways and Means Committee Report that
many of the existing rules applicable to foreign investors in the
United States are outmoded and inconsistent with sound tax policy
and as a result deter foreign investment, to the detriment of our
balance of payments position.

These rules were enacted many years ago

and do not reflect the changes in economic conditions which have occurred
over the last fifteen years.
Examples of tax rules which impede foreign investment in this
country are many:

The present level of our estate tax -- much higher

on foreigners than on U. S. citizens -- is completely out of line
with the rates generally prevailing elsewhere in the world and acts
as a Significant deterrent to potential foreign investors.

Also, the

fact that we require income tax returns from foreigners who only make
paSSive investments here is inconsistent with international tax
practice and hinders foreign investment in the Uni ted States.

These

and other aspects of our system of taxing foreigners contribute to the
widely-held view that investment in U. S. securities poses such serious

- 4tax problems for the foreign investor that it carmot be undertaken

without the benefit of expensive tax advice.

At the same time, some

of these provisions are extremely difficult, if not impossible, to
enforce, or are susceptible of relatively easy avoidance by the
sophisticated foreign investor.

Since tbe,y deter many foreign

investors and are avoided by the rest, they give rise to almost no

tax revenue.
However, this bill is not intended to convert the Un1 ted States
into a tax haven nor divert investment capital to the United States
from less developed countries.

The purpose of this bill is to provide

equitable tax treatment for foreign investment in the United States.
At the same time we recognize that this purpose will not be served
i f the bill violates proper tax policies or international tax standards,

thereb,y setting off a competitive contest among the developed nations
of the world to attract foreign investors through tax devices.

attract foreign investors, the United States must offer not tttax
breaks" or "tax gimmicks" -- it must offer a growing and qynamic
economy.

We believe our record of economic growth over the las t six

years and our prospects for the future are sufficient to induce a
substantial increase in foreign investment if our tax s.ystem does
not act as a bar.
MOreover, policies of this bill are consistent with the general
policy of the United States which treats foreign capital on a basis
of equali ty wi til domes tic capi tal.

Thus, there generallT is no

- 5requirell'lent that a foreign investor apply to U. S. authori ties for
permission to invest; the policy of the United States is to avoid
interfercmc(: Hi th the right of foreigners to engage in particular
types of economic activity in the United States; there are no legal
provisions re1luiring the particip.gtion of domestic capital in foreign
enterprises engC1ged in business in the United States; and the United
Stptes h<l0 no exchange controls, there C'lre no restrictions on the
re~itt8nce

of business profits, or income from passive investments,

?nd U. S. dollars are freely converti'ble in the market for any
curriCmc:i.es and for Rll purposes; and the U. S. economy offers
fo:'eie:ners
h8S

!3n

,'1.

s~~e,

ol1tstandin~

ready and rl.i vers ifi:3d investment market which
record of

e~onomJ.~

growth.

The United States -- with a GNP of $732 billion, personal conc:u.rr;ption expenditures of

$459

billion, business expendi tllres on new

pl ant ;md equipnent of $52 billion in 1965; en increase of $28 billion in GNP for the first half of 1966, the sixth year of our economic
upsHing, ;m open door policy under which President Johnson said

"The United St8tAS It18rmly invites busi nessmen from other industrial
countries to

ex~lore

o(l[lortllni ties in the
o~por'i,unjty

the many promising investments and licensing
1].

S. A." -- offArs to foreign investors an

to t.::!ke adv:mtage of the potenti81s of investing in a

;:;r88t .gnd grmr; ng market place.
1',0 t.he

10ng-r'l~r.e

investing country.

Thp.se investments will contribute

0conomic growth of the United States and the
The bill should

encoura~e

such investments by

- 6rsnoving certain tax obstacles involved in the present system.
&1actment of H. R. 13103 will result in a revenue gain of about
$l. million armually.

In addition, in the fiscal year 1967 only, it

is expected that the bill will produce a revenue gain of approximately

$22.5 million by reason of the provision requiring U. S. withholding
agents to rami t taxes withheld on payments to foreigners more frequently than on an annual basis, as 1s the case under present law.
(See Table I on page 7 of the Report of the Committee on Ways and
Means on H. R. 13103, entitled "Estimated revenue changes resulting
from the foreign investors tax bill").
Impact of H. R. 13103 on the Balance of Payments
There is no way of es tima ting wi th any degree of precision the
impact of the bill on foreign investment in the United States or the
resul ting benefit to our balance of payments.
securi ties investment are many and complex.

The factors governing
Even in purely domestic

transactions, intangibles such as habit, convenience, and past experience may be as important as yields, price-earnings ratios and
other economic indica tors.
Although difficult to quantify, there is ample evidence of a
sizable potential for attracting foreign investment in U. S. corporate
securities, particularly stocks, by residents of the prosperous
countries of Continental. Ehrope.

After more than a decade of rapidly

rising incomes, Ellropeans have to a large extent fulfilled many of

- 7their nnst pressing consumer needs and are accumulating savings at a
high rate.

Individuals in Europe are turning increasingly towards

securities investment, as shown by the rising activity on European
stock exchanges, the large number of new offices being opened in
Europe by American securities firms, and rising sales of mutual fund
shares.

Yet, even now, in Europe only 1 person in 30 is a shareowner

as compared to 1 in 11 in the United States.
At the end of 1965, foreigners held an estimated $12.5 billion
of U. S. corporate stocks valued at market prices.

In every year

since 1950 except three, foreign purchases of U. S. stocks have exceeded
foreign sales and in the seven years between 1959 and 1965, net purchases
by foreigners averaged $175 million (both
governmental transactions).

excludin~

certain foreign

These net figures are the residual of

total transactions lihich in recent years have been about

.~3-1/2

billion each year for both purcha ses and sales.

,~2-1/2

billion

A small

percentage increase in such purchases, therefore, could have had a
substantial effect on the net balance of transactions.
If the amount of additional investment expected to result

fro~

II. :1. 13103 were merely a function of the allDunt of tax saved, there
would be little improvement in tm balance of payments.

Lore important

than any tax savings to foreigners, however, is the substantial effect
vlhich will result from the simplification and rationalization of our
tax treatment of foreign investors.

Our high estate tax on foreigners,

for example, is widely considered by experts to be one of the

bigb~st

- 8 barriers to foreign investment.

Existing estate tax rates alJoost

certainly deter many foreigners from investing here at all.
particularly

This is

becauSB the exemption is limited to only $2,000 --

nearly any investment whatsoever will subject the estate to tax and
require filing of an estate tax return.

It is rot surprising under

these complexities that the small foreign investor may avoid purchasing U. s. stocks because of the inconvenience of the estate tax;
the big investor also may avoid such purchasing because of ttM3 size
of the tax itself.
Viewed in this light, it is clear that the changes contained in
H. R. 1)10) should in tiITB materially increase the volume of foreign
investment in the United states.

Based on the sizable potential for

foreign purchases of U. S. corporate stocks which is known to exist,
we expect that the legislation will eventually result in a meaningful
additional capital inflow, other factors remaining unchanged.

Some

time -- perhaps one to two years or maybe more -- will be required
before foreigners can reorient their reactions to the United States
tax system am complete the adjustment of their portfolios to take
advantage of H. R. 1)10), but a substantial impact may be felt in the
period ahead.
Specific Proposals Contained in H. R. 1)10)
I should like to review at this time the principal substantive
cha~

embodied in H. R. 1310).

Capital Gains. -- The present system of taxing capital gains

- 9 realized by foreigners has contributed to the view that investment in
the Un! ted States is something which should be approached cautiously
because of the possibUi ty of inadvertenUy becom:lng subject to tax.
The Internal Revenue Code now provides for a general exanption from
capital gains tax for nonresident
United States with two exceptions.

fore1gner~

not doing business in the

First,t the foreigner's gains are

subject to U. S. capital gains tax if he is physically present in the
United States when the gain is realized, and second, all gains during
the year are taxable if he spends 90 days or more in the United States
during that year.
The physical presence restriction can be easily avoided by the
experienced foreign investor if he arranges to be outside the country
"Then the gain is realized, but is a potential trap to the foreigner
who is not aware of its existence.

The bill would eliminate this

restriction from the general capital gains exemption.

In addition, the bill would extend the 90-day period which a
foreigner may spend here without being subject to capital gains tax

to 183 days.

This will make the provision more consistent with

interna tional standards governing the taxation of foreigners residing
in a country for a substantial period.

It will alse' minimiz,<;3 a fOl'-

eigner's fear that he will be taxed on capital gains

~aalized

at the

beginning of a taxable year if he later spends a substantial amount
of time in the United sta tea during that year.

- 10 Graduated Income Tax Rates. -- At the present time, foreign
individuals not doing business in the United States who derive more
than $21,200 of investment income from U. S. sources are subject to
regular U. S. income tax gradUated rates on that income and are
required to file returns.
applies.)

(Below that figure a nat 30 percent rate

These requirements have produced little revenue, in part

because we have eliminated graduated rate taxation of investment
income in almost all of our treaties wi til the other industrialized
countries and in part because of the relative ease with which this
provision is avoided.

However, the possibility of being subjected to

graduated rate taxation and the accompanying return requirement may
be a source of concern to foreigners and consequently act as a substantial deterrent to foreign investment in the United States.
H. R. 13103 eliminates this form of taxation of nonresident
foreigners not doing business here and removes the requirement for
filing

return~

in such cases.

The liability of foreign investors

deriving U. S. investment income would thu.s be limited to the tax
withheld at the statutory 30 percent rate or a lower applicable
treaty rate.

The legislation would continue graduated rate taxation

for foreigners who are doing business in the United States.

These

rules are consistent with the practices of most other industrialized
countries.
Definition of "Ehgaged in Trade or Business". -- H. R. 13103
makes clear that nonresident alien individuals or foreign corporations

- 11 -

are not engaged in trade or business in the United States -- and thus
are subject to tax at the 30 percent withholding rate or lower treaty
rate rather than at regular graduated rates .. - because of investment
activities here or because they have granted a discretionary investment
power to a U. S. banker, broker or adviser.

This provision should have

the effect of removing much of the uncertainty which now surrounds the
question of what amounts to engaging in trade or business in the
Uni ted States.

Uncertainty of this type is undesirable as a matter

of tax policy and has the effect of limiting foreign investment in
the United States.

foreigners do not desire to invest in U. S.

stocks if they cannot give a U. S. bank or broker discretionary
authority to act for them.
The bill also changes present law by giving foreign individuals
and foreign corporations an election to compute their income from
real property on a net income basis at regular U. S. rates rather than
at the 30 percent withholding rate or lower treaty rate on gross
income.

This type of treatJnent is common in the tax treaties to which

ilie Uni ted States i::; a party and i::; designed to deal wi th the problem
which arises from the fact that the expenses of operating real
property (e.g., taxes, interest, depreciation) may be high and cannot
be taken as deductions if the recipient of the income from such real
property is not engaged in trade or business in the United States.
It is sometimes difficult for a foreigner to determine whether his
U. S. real estate activities constitute engaging in trade or business

- 12 in the United States.

'!hus, taxation at. higher graduated rates on a

net basis, 1. e., after allowable deductions J frequently results in a
lower tax liabUi ty than taxation at a )0 perCell t rate (or lower
treat,y rate) on gross income without any allowance for deductions.
Segregation of Investment and Business Income. -- Under present
law, if a foreign individual is doing business 1n the Uni. ted States
he is subject to tax on all of his U. S. income, whether or not
connected with his business operations, at regular graduated rates.
H. R. 1)10) would separate the bu.siness income of a foreign individual
engaged in business here from his im1e.::.trnent income (e.g., dividends,
interest, royal t.ies) , and would:,a;'. the investlTlent income at the )0
percent statutory withholding rate or at the lower appropriate treaty
All business income would remain subject to tax at grach1ated

rate.
rates.

With respect to foreign corporations doing business in the
United States (so-called resident fo!.'eign curporations), which also
have investments here, H. R. 1)103 would likewise separate the investment income from the business income of the foreign corporation.
Under the legislation, a resident foreign corporation
investment income from the United States would thus be

:riv:i.ng such
t.a.x:at1~:.

such income at the statutory )0 percent rate or at th.e lower applicable treaty rate.
The bill conforms our treatment of investment income to the
general approach followed by many other

nations~

It also is in accord

- 13 with the Organization for Economic Co-operation and Development Model
Income Tax Convention and the approach followed in our more recent
treaties with the United Kingdom, Germany and the Netherlands, and
thus has the advantage of confonni ty to international practice.
The bill offers guidelines, which are supplemented b.Y the legislati ve history, to the application of the "effectively connected"
concept.

A foreigner who is receiving investment income from the

Un! ted States, under the approach of the bill would no longer have to
be concerned that some other activity in the United States will
suddenly be considered as attributing to him a trade or business status
in the United States, thus subjecting the investlnent income to business
taxation.

Instead, as long as the investment income is not effectively

connected with the other activity, any uncertainty as to the status of
the latter would not color or affect the investment income.

The

removal of such uncertainty should encourage investments b,y foreigners
in the United States.
As a result of the above-described changes, the foreign corporation
engaged in business in the United States and

al~o

receiving dividend

income would no longer au toma tically receive on those dividends the
deduction now afforded under the Internal Revenue Code to dividends
received by one corporation from another corporation.

The elimination

of the dividends received deduction in certain cases as respects resident foreign corporations is in part designed to end an abuse which has
developed.

Frequently, a foreign corporation with stock investments in

- 14 the United States engages in trade or business here in some minor way
and then claims the dividends received deduction on its stock investments -- which results in the taxpayer paying tax at a rate of only

7.2 percent on the dividends (48 percent corporate tax on 15 percent
of the dividerxls).

Thus, such a corp:>ration ends up paying far less

than the 30 percent statutory or applicable treaty rate on its

dividends, even though its position as respects its investment income
is basically the same as a corporation which is not doing bu sines! here
but which also derives investment income from the United States.
those cases where the applicable treaty rate is

5 percent (the rate set

by certain treaties where subsidiary dividends are involved), the resident foreign corporation will benefit from this proposed change.

Where

the treaty rate is rrore than 7.2 percent and the dividend income is not
effectively connected, the higher treaty rate will govern.
Taxation of Foreign Source Income of Certain Foreigners
The House noted that under present law certain foreigners can
conduct business activities within the United states and not pay any
tax to the United States (or frequently any other country) on the income
derived from such activities.

This is in contrast with the tax rules

of other countries, which under comparable circumstances would tax
active businesses with similar activities in their countries.

To give

the United States a parity of tax jurisdiction, and also to prevent
the United States from being used in some cases as a kind of "tax haven U
country because of the absence of that jurisdiction, the bill provides
for the U.

taxation of four limited kinds of income which are

- 15 attributable to the conduct within the United States of a trade or
business by a foreigner, even though the technical source of such
income under our Code rules is foreign.

Under the circumstances

covered, this provision is consistent with economic realities in
attributing the profits to the U. S. business, and is in accordance
with the practice

or many member countries of the OECD.

The bill provides that such limited kinds of foreign source income
of foreigners can be subject to U.S. tax only if the foreigner has an
office or other fixed place of business within the United States to
which such income is attributable.
a U.

Thus, for example, under the bill

tax would be imposed where a U. S. branch of a foreign enter-

prise imports goods from abroad, soliCits, negotiates and performs
other activities required in arranging the sale of such goods, and
then resells the goods in the United States.

Today the transaction

may rot be taxed by the United States i f the sale is considered to
take place outside the United States in view of the passage of title
outside the United States (and it may not be taxed by

~he

country of

residence of the taxpayer if it does not tax its residents on incoIOO
arising outside that country under the source rules of that country).

In accordance with this tax treatment, the bill allows a foreigner
whose foreign source income is so taxed in the United States a foreign
tax credit for creditable foreign taxes paid on such foreign source
income if the foreign tax is levied on the basis of source jurisdiction by the foreign country.
Personal Holding Companies and "Second Dividend 'rax". -- H. R. 13103

- 16 changes the personal holding company provisions of the Internal
Revenue Code as applied to the U. S. investment income of foreign
corporations and also modifies the application of the so-callod
"second dividend tax".

Under the bill, foreign corfX)rations owned

entirely by foreigners 'WOuld be exempt from the personal holding
company tax as respects their U. S. income.

This is desirable because

of the elimination of graduated :::'ates as applied to individual foreigners which is contained elsewhere in Ghe bill, and which makes
the application of the personal holding company provisions to corporations wholly-owned by foreigners nc longer appropriate since a ,,"n.thholding tax on its income has already been collected.
Under the bill, the "second ·Uvidend taxll (which under present
law is levied on dividends distributed by a foreign corporation to its
shareholders (whether foreigners or U. S. citizens) if the corporation
derives

percent or more of its

gr'08f

income from the United States)

would be applied only to the dividend distributions of foreign corporations doing business in the United States winch derive 80 percent or
more of their business income from their U. S. bUSD18SS.

It is

desirable to retain this part of the tax to cover those cases where
a resident foreign corporation has the great bulk of its business
operations in the United States, so as to treat

dividf-;!l~J

of such a

corporation as being from U. S. sources.
These changes should have the effect of eliminating application
of the personal holding company tax and "second dividend tax" in many
cases where they now apply, and where they lnay now act as a deterrent to

- 17 foreign investment.
Bank Deposits. -- Under present law, interest on deposits with
U. S. banks paid to foreigners not doing business within the United
St ate s is oot sub je ct to U. S. income t ax and the depo si tis no t
subject to estate tax.

This is an exception to the general rule

which subjects to U. S. income tax all interest paid by residents of
the United States, corporate or indiVidual.

The House saw from the

standpoint of tax equity no basis for such an exception but, because
of balance of payments considerations, deferred the repeal of this bank
deposit interest income tax exception until 1972.

The repeal of the

bank deposit estate tax exemption will become effective for decedents
dying after the date of the enactment of the bill.
Where the interest is paid on a deposit of a foreigner in a
foreign branch of aU. S. bank, the House liberalized the present
bank deposit rule by providing that. interest from such deposits with
foreign branches of U. S. banks shall no longer be subject to U.
tax except under limited circumstances.

Under present law such

interest income is subject to income tax when received by foreigners
engaged in business within the United States; and subject to U. S.
estate tax in the hands of nonresidents not citizens.
Estate Tax. -- It is Generally felt that our current system of
taxing the U. S. estates (involving only the U. S. assets) of foreign
decedents is inequitable and constitutes a significant barrier in our
tax laws to increasing foreign investment in U. S. corporate securities.

- 18 Under present law, a foreign decedent is taxable at regular U. S.
estate tax rates, ranging up to 77 percent, on U. S. property held at
death.

Moreover, the U. S. estates of foreign decedents are entitJ.ed

only to a $2,000 8XEITlption compared with a $60,000 exemption available
to U. S. citizen decedents.

In addition, foreign decedents are not

enti tled to the marital deduc tion available to U. S. citizen dec eden ts.
As a consequence, a foreign decedent's estate must pay far heavier
estate taxes on its U. S. assets than would the estate of a U. S.
citizen owning the same assets.

fureover, U. S. estate tax rates

applied to nonresidents are in most cases considerably higher than
those of other countries and therefore foreigners who invest in the
United States suffer an estate tax burden.
H. R. 1;103 would increase the exemption for the U. S. estates
of foreign decedents from $2,000 to $30,000 and would tax such estates
on the basis of a 5 to 25 percent rate schedule.

With this Significant

increase in the exemption and sharp reduction in rates, the effective
U. S. estate tax rate on foreign decedents would be generally comparable to the effective rate of tax of a U. S. citizen who can
utilize the $60,000 exemption and the marital deduction.

Ihis

effective rate would no longer be considerably higher than most other
countries, and would be more closely comparable to the rates prevailing elsewhere.
This change should have an important effect on foreigners contemplating investment in U. S. securities.

Where the gross U. S.

- 19 estate would be less than $30,000, there would be no estate tax, and
no need to file an estate tax return.

In those instances where the

estate is larger, the effective rates would be substantially reduced.
Thus, the top rate would drop from 77 percent to 25 percent, and the
effective rates would be only 3 percent on a U. S. estate of $100,000
(the present effective rate is 17 percent), 7 percent on a U. S. estate
of $500,000 (the present effective rate is 26 percent), 10 percent on
a U. S. estate of $1,000,000 (the present effective rate is 29 percent)
and 18 percent on a U. S. estate of $5,000,000 (the present effective
rate is 43 percent).
Elcpatriate American Citizens. -- The provisions of H. R. 13103
which eliminate graduated income tax rates for foreign individuals and
substantially reduce the estate tax liability of foreign decedents

create a substantial tax incentive to U. S. citizens who might wish to
surrender tlleir citizenship in order to take advantage of these changes
in the law.

While it is doubtful whether there are many who would be

willing to take such a step, still the incentive would be present and
might be utilized.

In 19.36 when the Congress eliminated graduated

rates of tax on the U. S. income of former citizens, this action was
reversed wi thin one year because it was believed that tb.i:: change had
provided an incentive for expatriation to avoid tax.

H. R. 13103

deals with this problem by providing that in the future an individual
who has surrendered his U. S. citizenship for tax reasons within a
preceding 5-year period shall be subject to U. S. taxation with respect

- 20 to his U. S. income and assets at the rates applicable to Uf> S. citizens.

Such individuals will therefore not receive the benefits of this
legislation during such 5-year period but will be taxed substantially
as nonresident foreigners are at present.

These provisions will not

apply unless the avoidance of U. S. taxes was one of the principal
reasons for his surrender of citizenship.
Retaining Treaty Bargaining Position. -- B.Y unilaterally making the
change~

applicable to foreigners provided in H. R. 13103, the United

States could be placed at a considerable disadvantage in negotia.ting
similar rules in other countries for Americans with income from foreign
sources.

In order, therefore, to protect the bargaining position of

the United States in international

~ax

treaty negotiations, H. R. 13103

authorizes the President, where he determines such action to be in the
public interest, to reapply present law to the residents of any foreign
countr.y which he finds has not acted to provide our citizens with substa:ltially the same benefits for investment in that country as those
enjoyed by its citizens on their investments in the United States as a
resul t of this legislation.

If this au thori ty were invoked, it could

be limited to those investment situations as to which li. S. citizens
were not being given comparable treatment.

TIlis provision of the bill

is patterned on provisions presently contained in the Internal Revenue
Code which attempt to assure U. S. persons appropriate

tax

treatment

by foreign countries, e.g., section 891 which provides for doubling of
U. S. rates on foreigners under certain circumstances; section 901(b)(3)
which denies a foreign tax credit to alien residents of the United States

- 21 -

unless a similar credit is allowed U. S. persons by their home
countries.

We believe that the presence of such a provision will

be a material aid in our securing appropriate prOVisions respecting
these matters in our international tax treaties.
In addition to the comments I have made on the eXisting bill

I wish to recommend to the Corrnnittee two amendments which will
further the purpose of this proposed legislation.
The first of these would clarify the tax exemption on income
from investments held by foreign central banks in securities or
other obligations issued or guaranteed by the various agencies of
The present language of section 895

the United states Government.

of the Code which provides for tax exemption on income received by
foreign central banks on "obligations of the United states" leaves
in doubt the status of some obligations of Federal agencies other

than those of the Treasury.

Interest in such investments has been

shown by various central banks and it is clearly desirable to provide
the broadest possible spectrurr: of investment possibilities in the
United States in order to attract and hold foreign dollars which
otherwise might be converted into gold.

Also from the standpoint of

marketing such issues it is in our interest to broaden the inarket by
making them attractive to this type of
The second amendment

~uld

lar~e

investor.

expand the authDrity of the Secretary

of the 'rreasury to issue foreign-currency-denominated securities in

- 22 -

the same range of maturities and interest rates as is authorized
for regular dollar issues and in a manner which could benefit our
balance of payments.

The present legislation permits the sale of

such foreign-currency-denominated issues only in the form of bonds
and certificates of indebtedness whereas regular dollar issues may be
offered in the form of certificates, bonds and ootes.

Offerings in

the one to five-year maturity range are in the form of notes.

The

ability to issue notes in the foreign currency series of securities
will make it possible for us to offer an attractive investment in the
medium term range of maturities since interest could be paid at rates
comparable to that on regular U. S. issues of similar maturity.
therefore, propo se that the word

note sft be added to the pre sent

language of section 16 of the second Liberty Bond Act of 1917, as
amended.
The Treasury Department also recommends certain amendments to
the bill developed jointly by our staff and the staff of the Joint
Committee on Internal Revenue Taxation.

These proposals are described

in a printed pamphlet entitled "Summary of House Bill and Suggested

Technical Amendments" prepared for your use by these staffs, and
therefore I will not describe them now.
Conclusion
Our current system of taxing foreign investors in the United States
contains elements which are inconsistent with generally accepted

- 23 international tax policy principles and which, at the same time, act
to discourage foreign investment in the United States.

H. R. 13103

is designed to reshape our present system in order to make it a more
rational and equitable vehicle for taxing foreign individuals and
corporations.
The legislation is an important element of the President's
comprehensive program for dealing with our balance of payments problem.
Foreigners will invest in this country as long as our economy remains
prosperous and stable.

However, it cannot be expected that the level

of foreign investment will reach its full potential so long as provisions exist in our tax laws which, whi10 serving no sound tax
purpose, discourage foreign investors.

H. R. 13103 will eliminate

or modify these provisions and provide an up-to-date system of taxing
foreigners which is in accord with international tax standards.
Adoption of H. R. 13103 will lead to a simpler, more rational
and more equitable method of taxing foreigners.

It will also be an

important step in improving our balance of paytrents deficit and the
strengthening of the international position of the dollar.

Because

this legislation will contribute to these two vital national objectives, I urge you to support it.

TREASURY DEPARTMENT
4

6:30 P.M.,
, August 8, 1966.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING

1e Treasury Department announced that the tenders for two series of Treasury bills,
:-ies to be an additional issue of the bUls dated May 12, 1966, and the other series
iated August 11, 1966, which were offered on August 3, 1966, were opened at the
L Reserve Banks today. Tenders were invited for $1,300,000,000, or thereabouts, of
bills and for $1,000,000,000, or thereabouts, of 182-day bills. The details of the
:-ies are as follows:
91-day Treasur,y bills
November 10,- 1966
Approx. Equiv.
Price
Annual Rate
98.791 a/
4.783%
98.775 4.846%
98.780
4.826% Y

)F ACC~TED
[TIVE Blre:

rnaturin~

·
·••
••

182-day Treasury bills
February 91. 1967
Approx. Equiv.
Annual Rate
Price
S.020.~
97.h62 §I
5.093%
97.425
5.050fo
97 .I~47

maturin~

Excepting one tender of $20,000; bl Excepting 2 tenders totaling $1,400,000
of the amount of 91-day bills bi! for at the low price was accepted
:% of the amount of 182-day bills bid for at the low price was accepted
;;~

~NDERS

APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

'ict
.n
:ork
.delphia
land
lond
ta
go
ouis
apolis
s City
s
rancisco
TOTALS

Applied For
Acce;eted
23,540,000 $ 13,540,000
1,602,222,000
879,482,000
20,463,000
32,463,000
3l..!'-J"""j--?"'.- ·;""0
33,931,000
26,624,000
26,204,000
27,486,000
51,432,000
130,718,000
175,909,000
38,139,000
51,139,000
20,052,000
19,842,000
29,6)4,000
30,634,000
25,068,000
17,858,000
62 2 960,000
93,0851. 000

·
·
·
··•
·•
·
·•

$2,166,399,000 $1,300,257,000

sI $1,559,859,000

A;e.E1ied For
$
5,928,000
1,131,197,000
14,369,000
•
r ' 000
"~
'-.;,; 6 .~,
•
l1.J.,543,000
•
44,352,000

Acce;eted
$
5,928,000
691,377,000
5,869,000

lS4,61~,000

1~,618,000

23,00),000
10,978,000
15,402,000
13,545,000
--.!.,oe ,228,000

19,503,000
10,978,000
15,402,000
13,545,000
60,228,000

••
••

~J,6~S,000

14,543,000
34,352,000

$1,000,039,000 d/

ldes $262,502,000 noncompetitive tenders accepted at the average price of 98.780
ldes $123,024,000 noncompetitive tenders accepted at the average price of 97.447
~ rates are on a bank discount basis.
The equivalent coupon issue yieldS are
b for the 91-day bills, and 5.25% for the 182-day bills.

TREASURY DEPARTMENT

August 9, 1966

FOR IMM:2DIATE RELEASi
TR~URY HARK~T

TRANSACTIOHS IN JULy

Durinr, July 1966, market

tran~actions

direct and guaranteed securities of the government
for

Trea~ur:r

Investiuent and other aceotUlts resulted

in net purer: '1::-e::; by the Treasur:l Depart::nent of
~60 , 287 ,

500 . 00
000

F-572

TREASURY DEPAR'I'M:ENT
Washington

IMMEDIATE RELEASE

WEDNESDAY, AUGUST 10, 1966

F-573

The Bureau of Customs has annolmced the following preliminary
figures showing the imports for consumption from January 1, 1966,
to July 30, 1966, inclusive, of commodities under quotas established
pursuant to the Philippine Trade Agreement Revision Act of 1955:

Commodity

Annual • Unit of •• I~orts as g&
·•• Established
Quota Quantity
··• Quantity ·• J y 30, 19
Gross

2u8,827

Buttons •••••••••••

510,000

Cigars ••••••••••••

120,000,000

Number

Coconut oil .••••••

268,800,000

Pound

Quota filled

Cordage •••••••••••

6,000,000

Pound

4,959,u54

Tobacco •••••••••••

3,900,000

Pound

2,167,277

5,573,240

:'"MMFJ) lATE

TREASURY DEPAR'IMElIT
Washington, D. C.

RELEASE

WEDNESDAY, AUGUST 10, 1966

F-574

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 amen:led, an:l 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 appen:lix to the Tariff Schedules of the
United States. There is no political cormotation in the use of outmxied names.)
un:ler
Country of Origin

Established Quota

Egypt and Sudan ••••••••••••
?e.r1l •••••••••••••••••••••••

India and Pakistan •••••••••
China • •••••••••••••••••••••
Maxi. co •••••••••••••••••••••
Brazil •••••••••••••••.•••••
Union of Soviet
socialist Republics ••••••
Argentina ••••••••••••••••••
Hai. ti •••••••.••••••••••••••
Ecuador ••••••••••••••••••••

11
~

Imports

Country of Origin

783,816
247,952
2,003,483
1,370,791
8,883,259
618,723

1,542,372

11
~I
~

9,333

Except Barbados, Bermuda, Jamaica, Trinidad,
Except Nigeria and Ghana.

Established Quota

Honduras ••••••••••••••••••••

181,062

475,124
5,203
237

1.11."

~rt;9

752

Par'agtl~ ••••••••••••••••••••

871

Colombia ••••••••••••••••••••
Iraq •••••••••••••••••• e • • • • •
British East Africa •••••••••
Indonesia and Netherlands
New Guinea ••••••••••••••••
British W. Indies •••••••••••
Nigeria •••••••••••••••••••••
British W. Africa •••••••••••
Other. including the U.S ••••

l24
195
2,240
71,388

21,321
5,377
16,004

Tobago.

Cotton l-1/St. or more
Established Yearly Quota - 45.656.420 lhs.
Staple Length
Allocation
1-3/8" or more
39,590,118
1-5/32" or more and under
1-3/8" (Tanguis)
1,500,000
,_,/R. ..

n ...............""

...... ,.1

...... ,.1 .......

I!,!92orts Year ended

Jg9" 31,

39,590,17

265,286

1966

IJl!Ports Aug. 1 ~ 1966 to Aug. i, 1966
1

,504,969
105,626

-2COTTON WASTES

(In pounds)
COTT<1l CARD STRIPS made from cotton havin~ a staple of less than 1-3/16 inches in length, OOMBF.R
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 L'Je quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more
in staple length in the case of the foll~ countries: United Kin~dom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy:
- -Country of Origin

:
:

: Sept. 20,

:
United Kin~dom ••••••••••••

Canada ••••••••••••••••••••
France ••••••••••••••••••••
India and Pakistan ••••••••
Netherlands •••••••••••••••
Switzerland •••••••••••••••

Belgium •••••••••••••••••••
Japan. •••••••••••••••••••••
China •••••••••••••••••••••
'Eg:y'pt •••••••••••••••••••••

Cuba ••••••••••••••••••••••
GennarJY" • • • • • • • • •••••••••••

Italy ..•••••••..•....•.•..
other, includin~ the U.S ••

4,323,457

239,690
227,420
69,627
68,240
44,388
38,559
341,535
17,322

78,062

1,441,152

to Aug.

1966

78,062

75,807
22,747
11~, 796
12,853

8,135

...
1l,765

25,443
7,088

5,482,509

148,208

1,599,886

o£ CustOJ'/lB.

Imports
Sept. 20, 1965

58,381

6,544
76,329
21,263

1/ Included in total imports, column 2.
Prepared ~ the Bureau

Total Imporis- :-EstaDfished -=
1965, to:
33-1/3% of :
: Aug. 8, 1966
: Total Quota :

Established
TarAL QUOTA

78,062

1/
-

TREASURY DE.?AR'lHEXT
Wuhington, D. C.
IMMEDIATE RELEASE

WEDNESDAY, AUGUST 10, 1966

F-575

The Bureau ot CUstoms announced todq prel.im1nary tigures 8howing the
quantities ot wheat and milled wheat products authorized to be entered, or
withdrawn from warehouse, tor consumption under the import quotas establi8hed
in the President's proclamation ot Mq 28, 1941, as mod1tied by the President's
proclamation ot AprU 13, 1942, and providecl tor in the Taritt Schedules ot
the United States, tor the 12 months commencing Mq 29, 19)6, as tollows:
••
••

Country

:
••

Wheat

Milled wheat products

••

•

Origin
Imports
• Established :
••
Quota
:Mq 2~, 1966 ,
iAug. ,1966
,•
(Bu8hels)
(Bushels)
Canada
China

795,000

735,668

Hungar'1

Hong Kong
Japan
Un! ted Kingdom
Australia
Germany
STria
New Zealam
Chile
Netherlands
Argentina
Italy

100

••• Established
••
,•

Quota

(Poums)

3,815,000
24,000
13,000
13,000
8,000
75,000
1,000

••

Imports

:M81' 29, 1966,
iAu~. 8 2 1966
~Poun:ls)

3,815,000

5,000

100
100

5,000
1,000
1,000

1,000
14,000
2,000
12,000
1,000
1,000

100
2,000
100

Cuba
1,000

France
Greece
Mexico
Panama

1,000
1,000

100

1,000
1,000

Uruguay

Po1am ani Danzig
Sweden
Yugoslavia
Norwq
Canary 18laDi8

1,000

1,000
1,000
1,000
1,000
100
100

Rumania

Guatemala

BrazU
Union ot Soviet
Socialist Republics

100

Belgium

100

Other to reign countrie8
or areas
800,000

735,668

4,000,000

3,815,000

TREASURY DEPARTMENT

Washington

WIATE RELEASE

DNESDAY, AUGUST 10, 1966

F-576

The Bureau of Customs announced today preliminary figures on imports for
lsumption of the following commodities from the beginning of the respective
)ta periods through July 30, 1966:

·•
••

Commodity

~ff-Rate

Period and Quantity

: Unit of : Imports as of
: Quantity: July 30, 1966

Quotas:

fresh or sour ••••••••

Calendar year

1,500,000

Gallon

lIe Milk, fresh or sour •••

Calendar year

3,000,000

Gallon

laIn,

918,557

tIe, 700 lbs. or more each July 1, 1966 other than dairy cows) ••• Sept. 30, 1966

120,000

Head

4,732

tIe, less than 200 Ibs.
ach ••••••••••••••••••••••

12 mos. from
April 1, 1966

200,000

Head

90,899

h, fresh or frozen, fi1eted, etc., cod, haddock,
ike, pollock, cusk, and
)sefish ••••••••••••••••••

Calendar year

23,591,432

Pound

Fish •••••••••••••••••••

Calendar year

65,662,200

Pound

34,368,944

12 mos. from
11)-1. , 000,000
Sept. 15, 1965 45,000,000

Pound
Pound

82,034,916
31,618,044

'es, forks, and spoons
.th stainless steel
ndles •••••••••••••••••••

Nov. 1, 1965 Oct. 31, 1966

84,000,000

Pieces

kbrooms •••••••••••••••••

Calendar year

1,380,000

Number

1,283,34cr

r brooms ••••••••••••

Calendar year

2,460,000

Number

2'409'474~/

je or Irish potatoes:
!rtified seed ••••••••••••

~her

•••••••••••••••••••••

0 •••

Quota

filled~/

Quota filled

Imports for consumption at the quota rate are limited to 17,693,574 pounds
during the first 9 months of the calendar year.
[mports as of August 6, 1966.

-2-

·•••

Cor.tT1odity

Period and Quanti ty

••
~f : I,orts as
•• Unit
Quant ty: Ju Y 30, 19

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)

0 •••••••••

•• 0 ••••••••••••• 0

1,200,000

Pound

12 mos. from
Sept. 11, 1965

1,000

Pound

12 ros. from
August 1, 1965

1,709,000

Pound

12 mos. from
August 1, 1966

1,709,000

Pound

Imports as of August 5, 1966.

F-576

Quo ta filled

1,201,825

'E),2~

TREASURY CEPARTMENT

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
$2,300,000,000,or thereabouts, for cash and in exchange for
Treasury bills maturing August 18, 1966,
in the amount of
$2,301,257,000, as follows:
91-day bills (to maturity date) to be issued
in the amount of $1,300,000,000, or thereabouts,
additional amount of bills dated May 19,1966,
mature November 17 ,1966 ,ori~j.nally issued in the
$1,000,501,000, the additional and original bills
interchangeable.

August 18 1966
representIng an'
and to
amount of
to be freely

182-day bills, for $1,000,000,000, or thereabouts, to be dated
18,1966,
and to mature February 16, 1967.

~ugust

The bills of both series will be issued on a discount basis under
~ompetitive and noncompetitive bidding aa hereinafter provided, and at
naturity their face am0unt will b~ payable without interest. They
Jill be issued in bearer form 0:11:;, 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 !1'ederal Reserve Banks and Branches
to the closing houri one-thirty p.m., Eastern Daylight Saving
ime, Monday, August 5,1966.
Tenders will not be
'eceived at the Treasury Department, Washingt0n. Each tender must
e for an even multiple of $1,000, and in the case of competitive
enders the price 0ffered 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 '.lI"led that tp.nders be made Or! the printed forms and
orwarded in the special envelopes which will be supplied by Federal
eserve Banks or Brariches on application therefor.

Banking institlltion5 ~en~r311y may su~mlt tenders for account of
lstomers provided ~he naMes of the custom~rs are set forth in such
~nders.
Others than banking institutions will not be permitted to
lbmit tenders except for their own account. Tenders will be received
lthout 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
tount of Treasury hills applied for, unless the tenders are
:companled by an express guaranty of payment by an incorporated bank
, trust company.
F-577

- 2 Immediately after the closing hour, t:nders.will be.opened att~
Federal Reserve Banks and Branches, follow1.ng wh1.ch publlC announce-·
ment will be made by the Treasury Department of the amount and ~ke
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the Treas\1lI
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 ust be
made or completed at the Federal Reserve Bank on August 18, 966,b
cash or other immediately available funds or in a like face mount
of Treasury bills maturing August 18,1966.
Cash and exchc ,ge ten&
will receive equal treatment. Cash adjustments will be madE for
differences between the par value of maturing bills acceptea in
exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest ~
gain from the sale or other disposition of the bills, does not ~n
any exempt ion, as such, and loss from t he 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 Federalm
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 taxa t ion the amoun t of discount a t 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 issu~
hereunder are sold is not considered to accrue until such bills m
sold, redeemed or otherwise disposed of, and such bi lls are exclud~
from consideration as capital assets. Accordingly, the owner of
Treasury hi Ils (other than life insurance companies) issued hereund
need incI
ncome tax return only the difference be~e~
the price ~~~~ _____ ch bills, whether on original issue or on
subsequent purchase, and the amount actually received either upoo,
sale or redemption at maturity during the taxable year for wh~h~
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) andc
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue.
Copies of the circular may be obta~~
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
2

FOR RELEASE MORNING NEWSPAPERS
THURSDAY, AUGUST 11, 1966
TREASURY ANNOUNCES POLICY ON INTERNAL REVENUE SERVICE
RULINGS ON CERTAIN STATE AND LOCAL BOND ISSUES
Secretary of the Treasury Henry H. Fowler today announced
that the Internal Revenue Service will not issue rulings on the
Federal tax status of interest on certain state and local
governmental obligations.
The transactions in question are those in which states or
their subdivisions issue tax free obligations with the principal
object of using the funds thus obtained to invest in taxable
securities, usually Federal Government issues, that pay higher
interest than do the state and local securities.
The purpose of this type of transaction is to gain for the
state and local governments the "arbitrage profits" that result
from the spread of interest rates on the taxable Federal
obligations and the tax exempt state and local obligations.
This ruling policy will continue in effect pending the
:!onclusion of a study by the Internal Revenue Service to
jetermine whether such state and local obligations are, in
~eality, tax exempt obligations of states or their political
>ubdivisions, within the meaning of the Internal Revenue Code
)f 1954.

At the White House Conference for State Legislative Leaders
June 16, 1966, Secretary Fowler said:
"The Federal Government is sympathetic
with the need of States and municipalities
to meet their financial problems. But we
cannot condone extension of the tax exemption
to these new financial arrangements . . . at
the expense of the nation's taxpayers."
And he added that --

-578

- 2 -

"I hope no one will be misled into
thinking that we are launching an attack
on the basic interest exemption for state
and local borrowing. Quite the contrary,
curtailment of uses which cannot be
condoned is a condition necessary for
preservation of the exemption for its
intended use."
The accompanying technical information release issued by
the Internal Revenue Service describes the transactions in
question in more detail.

000

Attachment

IITEI.Al I£VEI UE SEIVICE
fltUaLIC

INI'O .... ATION

202-

DIVISION

WO .. TH ..4011

TIR-840

Thursday, August 11, 1966
'i.'he U. S. Internal Revenue Service today announced details of its
policy of declining to iaaue rulings that the interest on certain obligations
is exempt from Federal income taxation under Section 103 of the Internal
Revenue Code of 1954.
The policy will continue in effect, pending the conclusion of a
study to determine whether such obligations should be considered obligations
of States, Territories, possessions, their political subdivisions or the
District
Columbia. The study will be directed at obligations issued
by these governmental units where a principal purpose is to invest the
proceeds of the tax-exempt obligations in taxable obligations, generally
United States Government securities, bearing a higher interest yield.
The profit received by the governmental units on the difference between
the interest paid on the 'exempt obligations and the interest earned on
the taxable obligations is in the nature of arbitrage. The study will
not affect obligations issued prior to the date of this release.

More specifically, this ruling policy will apply to obligations
falling within either of the followipg two categories:
1. Where all or a substantial part of the proceeds of the issue
(other than normal contingency reserves such as debt service reserves)
are only to be invested in taxable obligations which are, in turn, to
be held as security for the retirement of the obligations of the governmental
unit.
2. Where the proceeds of the issue are to be used to refund
outstanding obligations which are first callable more than five years
in the future, and in the interim, are to be invested in taxable o'ligations held as security for the satisfaction of either the current issue
or the issue to be refunded.
The following are examples of transactions with respect to which
no ruling will be issued:
First, a State may issue obligations and invest the entire proceeds
in United States bonds with similar maturities bearing a higher interest
yield. The United States bonds are then placed in escrow to secure payments of interest and principal on the State obligations. The profit
on the interest spread accrues to the State over the period of time that
these obligations are outstanding.
(M;)re)

TIR-840-2
Second, a municipality may immediately realize the present value
of the arbitrage profits to be derived over the future by casting the
transaction in the following form: It may issue obligations in the amount
of $100 million, use $20 million to build schools or for some other
governmental purpose, and invest the balance, $80 million, in United
Stat •• bonds which bear a higher interest yield. The United States bonds
are escrowed to secure payment of interest and principal on the municipal
obligations. The interest differential is sufficiently large so that
the interest and principal received from the United States bonds are
sufficient tC pay the interest on the municipal obligations as well as
to retire them at maturity.
Third, a municipality may issue obligations for the stated purpose
of refunding outstanding obligations first callable more than five years
in the future. Durinl the interim before the outstarlding obligations
are redeemed the proceeds of the advance refunding issue are invested
in United States bonds bearing a higher interest ,ield, and such bonds
are escrowed as security for the payment of either of the issues of
municipal obligations. During that interim period, arbitrage profits
based on the interest spread inure to the municipality.
The Service made clear that this announcement covers only obligations
falling within the two categories described above. Thus, for example,
it does.not oover an issue of obligations where the proceeds are intended
to be used to construct a facility even though the proceeds are initially
ptaced in a trust for the security of the bond holders, and invested in
taxable obligations, pending their use to meet the construction costs as
they occur. Nor does it cover an issue of obligations merely because a
portion of the proceeds is invested inttaxable obligations and held
solely to meet interest payments on the obligations pending the availability of other revenues.
# # #

rREASURY DEPARTMENT
Q

IMMEDIATE RELEASE
TREASURY ANNOUNCES NO FURTHER
$2 BILLS WILL BE PRINTED
The Treasury Department announced today that no further $2
United States notes will be printed, because a lack of public
demand indicates that this note serves only a limited public
interest.
As of June 30, 1966, the $2 currency outstanding amounted
to $139,321,994, approximately one-third of 1 percent of the
total currency outstanding. Most of the $2 notes issued lie
Ear long periods unused in bank vaults. Because the $2 bill
ls not circulated freely, the average life of each $2 bill is
Ibout six years, compared to the $1 and $5 bills which wear
Jut in 18 to 20 months. Movement of the $2 bills out of
Lnventory has been so slow that none has been made since the
~nd of Fiscal Year 1965 (June 30, 1965).
Existing stocks of the new $2 United States notes will be
.ssued, and $2 bills returned to Federal Reserve Banks in a
:ondition fit for continued circulation will be recirculated
lS long as the current supply lasts.
Appropriations for the current fiscal year did not provide
:unds for printing $2 United States notes, and the Treasury has
.0 plans to seek funds for this purpose in the Fiscal Year 1968
udget.
The $2 bill has a long history. On June 25, 1776, the
ontinental Congress authorized the issuance of $2 million in
bills of credit for the de fense of America." Under this
uthority, 49,000 bills in the $2 denomination were issued.
During the Civil War, an Act of Congress of July 11, 1862,
~rmitted issuance of $2 notes, as United States currency.

000

·579

TREASURY DEPARTMENT

August 11, 1966
:MMEDIATE RELEASE
TREASURY OFFERS $2 BILLION IN MARCH TAX BILLS
The Treasury Department, by this public notice, invites tenders for
'0,000,000, or thereabouts, of 208-day Treasury bills, to be issued
discount basis under competitive and noncompetitive bidding as
nafter provided. The bills of this series will be designated Tax
ipation Series, they will be dated August 26, 1966, and they will
e March 22, 1967. They will be accepted at face value in payment
come taxes due on March 15, 1967, and to the extent they are not
nted for this purpose the face amount of these bills will be paywithout interest at maturity. Taxpayers desiring to apply these
in payment of March 15, 1967, income taxes have the privilege of
ndering them to any Federal Reserve Bank or Branch or to the Office
e Treasurer of the United States, Washington, not more than fifteen
before March 15, 1967, and receiving receipts therefor showing the
~mount of the bills so surrendered.
These receipts may be submitted
=u of the bills on or before March 15, 1967, to the District Director
~erna1 Revenue for the District in which such taxes are payable.
Ll1s will be issued in bearer form only, and in denominations of
), $5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
~ity value).
'enders will be received at Federal Reserve Banks and Branches up to
osing hour, one-thirty p.m., Eastern Daylight Saving time, Thursda~
18, 1966. Tenders will not be received at the Treasury DepartWashington. Each tender must be for an even mUltiple of $1,000,
the case of competitive tenders the price offered must be expressed
basis of 100, with not more than three decimals, e.g., 99.925.
ons may not be used. It is urged that tenders be made on the
d forms and forwarded in the special envelopes which will be supby Federal Reserve Banks or Branches on application therefor.
~nking

Institutions generally may submit tenders for account of
=rs provided the names of the customers are set forth in such
;. Others than banking institutions will not be permitted to
tenders except for their own account. Tenders will be received
: deposit from incorporated banks and trust companies and from
;ible and recognized dealers in investment securities. Tenders
:hers must be accompanied by payment of 2 percent of the face
of Treasury bills applied for, unless the tenders are accompanied
~xpress guaranty of payment by an incorporated bank or trust
F-580

- 2 All bidders are required to agree not to purchase or to sell, or tc
make any agreements with respect to the purchase or sale or other disposition of any bills of this issue at a specific rate or price, until
after one-thirty p.m., Eastern Daylight Saving time, Thursday, August II
1966.
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 rej ection thereof. The Secretary of the Treasury expressl
reserves the right to accept or reject any or all tenders, in whole or
in part, and his action in any such respect shall be final.
Subject to
these reservations, noncompetitive tenders for $400,000 or less wit~m
stated price from anyone bidder will be accepted in full at the averag
price (in three decimals) of accepted competitive bids. Payment of
accepted tenders at the prices offered must be made or completed at the
Federal Reserve Bank in cash or other immediately available funds on
August 26, 1966, provided, however, any qualified depositary will be
permitted to make payment by credit in its Treasury tax and loan accoun
for Treasury bills allotted to it for itself and its customers up to an
amount for which it shall be qualified in excess of existing deposits
when so notified by the Federal Reserve Bank of its District.
The income derived from Tresury bills, whether interest or gain
from the sale or other disposition of the bills, does not have any ex!
tion, 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 exem~
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 taxat ion 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 considerat ion 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, wheth'er on original issue Droll
subsequent purchase, and the amount actually received either upon ~~
or redemption at maturity during the taxable year for which the returt
is made, as ordinary gain or' loss.
Treasury Department Circular No. 418 (current revision) and ~U
n9 tice , prescribe the terms of the Treasury bills and ~overn the c~J
t~ons of their issue.
Copies of the circ~ar may by Qotained fr~ .
Federal Reserve Bank or Branch.

TREASURY DEPARTMENT
z
August 11, 1966
IMMEDIATE RELEASE
TREASURY OFFERS $1 BILLION IN APRIL TAX BILLS
The Treasury Department, by this public notice, invites tenders for
00,000,000, or thereabouts, of 238-day Treasury bills, to be issued
discount basis under competitive and noncompetitive bidding as
inafter provided. The bills of this series will be designated Tax
cipation Series, they will be dated August 26, 1966, and they will
re April 21, 1967. They will be accepted at face value in payment
ncome taxes due on April 15, 1967, and to the extent they are not
ented for this purpose the face amount of these bills will be paywithout interest at maturity. Taxpayers desiring to apply these
s in payment of April 15, 1967, income taxes have the privilege of
=ndering them to any Federal Reserve Bank or Branch or to the Office
le Treasu~ of the United States, Washington, not more than fifteen
before April 15, 1967, and receiving receipts therefor showing the facE
It of the bills so surrendered. These receipts may be submitted in
of the bills on or before April 15, 1967, to the District Director
!ternal Revenue for the District in which such taxes are payable. The
will be issued in bearer form only, and in denominations of $1,000,
0, $10,000, $50,000, $100,000, $500,000, and $1,000,000, (maturity

Tenders will be received at Federal Reserve Banks and Branches up to
losing hour, one-thirty p.m., Eastern Daylight Saving time,
day, August 18, 1966. Tenders will not be received at the Treasury
tment, Washington. Each tender must be for an even mUltiple of
0, and in the case of competitive tenders the price offered must be
ssed on the basis of 100, with not more than three decimals, e.g.,
5. Fractions may not be used. It is urged that tenders be made on
rinted forms and forwarded in the special envelopes which will be
led by Federal Reserve Banks or Branches on application therefor.
3anking institutions generally may submit tenders for account of
lers provided the names of the customers are set forth in such
~s.
Others than banking institutions will not be permitted to sub~nders except for their own account.
Tenders will be received with~posit
from incorporated banks and trust companies and from
lsible and recognized dealers in investment securities. Tenders from
: must be accompanied by payment of 2 percent of the face amount of
.ry bills applied for, unless the tenders are accompanied by an
s guaranty of payment by an incorporated bank or trust company.
-581

- 2 ,\1 I, bilJ(:t:'rs arL' L-l'quireG '_.Co a~ree not to purchase or to sell, Or',
makl' ar1\' a~rl'L',,:~)nt.') \\ 1:..11 respect ~~-: the purchase or sale or other dis."
position uf any bills of this issue at a specific rate or price, until
after one-thirtv p.m., Eastern Daylight Saving time, Thursday, August Ii
"
1966.
Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announC~~t
"V iII be made by the Trea sury Department of the amount and price range c:
accepted bids. Those submitting tenders will be advised of the accepta~
or rej ection thereof.
The Secretary of the Treasury expressly reserves
the right to accept or reject any or all tenders, in whole or in part,
and his action in any such respect shall be final.
Subject to these
reservations, noncompetitive tenders for $200,000 or less without stated
price from anyone bidder will be accepted in full at the average price
(in three decimals) of accepted competitive bids.
Payment of accept~
tenders at the prices offered must be made or completed at the Federal
Reserve Bank in cash or other immediately available funds on August 26,
1966, provided, however, any qualified depositary will be permitted to
make payment by credit in its Treasury tax and loan account for Treawry
bills allotted to it for itself and its customers up to any amount fur
which it shall be qualified in excess of existing deposits.when so
notified by the Federal Reserve Bank of its District.
The income derived from Treasury bills, whether interest or ga~
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 ~e
Internal Revenue Code of 1954. The bills are subject to estate, inher·
itance, gift or other excise taxes, whether Federal or State, but are
exempt from all taxation now or hereafter imposed on the principal or
interest thereaE by any State, or any of the possessions of the United
States, or by any local taxing authority.
For purposes of taxationt~
amount of discount at which Treasury bills are originally sold by ~e
United States is considered to be interest. Under Sections 454 (b) ad
1221 (5) of the Internal Revenue Code of 1954 the amount of discount a:
which bills issued hereunder are sold is not considered to accrue unti!
such bills are sold, redeemed or otherwise disposed of, and such bills
are excluded from consideration as captial assets. Accordingly, ~e
owner of Treasury bills (other than life insurance companies) issued
hereunder need include in his income tax r~turn only the difference
between the price paid for such bills, whether on original issue or~
subsequent purchase, and the amount actually received either upon sal:
or redemption at maturity during the taxable year for which the retu:.
is made, as ordinary gain or loss.
Trea sury Department Circu lar No. 418 (current revi s ion) and thi~;
notice, prescribe the terms of the Treasury bills and govern the cone.
tions of their issue.
Copies of the circular may be obtained fr~~
Federal Reserve Bank or B~anch.

F-581

TREASURY DEPARTMENT

August 11, 1966
FOR IMMEDIATE RELEASE
TREASURY OFFERING OF TAX ANTICIPATION BILLS

The Treasury announced plans today to meet the first part of
its cash needs for the current half-year period with the sale of
$3 billion of tax anticipation bills.

The sale will include $2

billion of tax anticipation bills maturing next March and $1 billion
of tax anticipation bills maturing next April.

These bills will be

sold by cOL!peti ti ve bidding on August 18 for payment AUc,o-ust 26.
Banks will be pernitted to pay for their accepted tenders by 100
percent tax and loan account credit.
The Treasury noted that the current borrowing is expected to
provide for casr. needs until late in October.

The Treasury also

noted that remaining cash needs in this calendar year would
probably be Met with the sale of additional April tax bills and
June tax bills.

000

F-582

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE

Treasury Secretary Henry H. Fowler announced today
that David C. Mulford, who for the past year has worked
in the Treasury Department as a White House Fellow will
leave the Treasury on August 12.
After a trip to Africa in September, Mr. Mulford
plans to join the investment banking firm of White, Weld
and Company in New York.
Mr. Mulford served his Fellowship as an assistant to
the Under Secretary of Treasury, Joseph W. Barr, beginning
in October, 1965.
Mr. Mulford is 29. He was born at Rockford, Illinois.
He is a graduate of Lawrence College, Appleton, Wisconsin,
and was formerly a specialist in African affairs. He holds
graduate degrees from Boston University's African Studies
Centre and from Oxford University in England, where he
earned a PhAD. He has held a number of academic fellowships
and is the author of two books on Zambia.
Mr. Mulford is married to the former Astrida Akmentins
of Appleton, Wisconsin. They have two sons. The Mulfords
will live at 9 Pierrepont Street, Brooklyn, New York.

000

F-583

TREASURY DEPARTMENT

August 12, 1966

R Jlv1MEDIATE RELEASE

SUBSCRIPrION FIGURES FOR CURRENT REFUNDING
The results of the Treasury's current exchange offering of S-1/4% certificates
indebtedness dated August 15, 1966, maturing August IS, 1967, and S-1/4% notes
ted August IS, 1966, maturing May IS, 1971, open to holders of $14,893 million of
~urities maturing on August 15 and November IS, 1966, are summarized in the tables
low. Total subscriptions amount to $10,123 million, including $8,452 million in
~hange for securities maturing August lS, leaving $684 million, or 7.5%, of such
~urities for cash redemption.
Exchanged for the
5-1/4% Ctfs. J A-1967
$
48,047,000
5,019,630,000
28,210,000
80,800,000
60,748,000
61,672,000
168,397,000
95,777,000
43,902,000
64,383,000
62,374,000
128,673,000
8,191,000
$S,870,804,000

Federal Reserve
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Icuis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
Total

Exchanged for the
S-1/4% Notes, A-197l
$ 122,018,000
2,583,673,000
102,268,000
200,S45,000
78,217,000
133,207,000
453,874,000
151,210,000
73,086,000
131,107,000
73,390,000
136,002,000
13,870,000
$4,252,467,000

SUMMARY OF AMOUNT AND NUMBER OF SUBSCRIPTIONS BY INVESTOR CLASS
(Dollar amounts in millions)

i viduals

1./

5-1/4% Certificates
A-1967
Amount
No. Sub.
79
2,821
$

5-1/4% Notes
A-197l
Amount No. Sub.
6,872
$ 119

Total
Amount
No. Sub.
9,693
$ 198

nercial Banks
:>wn account)

741

2,268

1,664

8,470

2,405

10,738

others

620

l z316
6,40S

950

3 z044

1 z570

4 z360

$2,733

18,386

$4,173

24,791

Totals
!ral Reserve Banks
ld Government Accts.
Grand Totals

$ 1,440
4 z431
$5,871

1 z519

$4,252

ncludes partnerships and personal trust accounts.

F-584

Sz950
$10,123

TREASURY DEPARTMENT

August 12, 1966
FOR IMMEDIATE REIEASE
TREASURY DECISION ON BUlK, CRUDE, UNDRIED SOIAR SAIlr
UNDER THE ANTIDUMPING ACT

The Treasury Department has determined that bulk, crude, undried
solar salt from Mexico, manufactured by Cia Exportadora de Sal, Baja
California, Mexico, is not being, nor likely to be, sold at less than
fair value within the meaning of the Antidumping Act, 1921, as amended.
A "Notice of Tentative Determination," was published in the Federal
Register on April 19, 1966.
The merchandise under consideration is used for industrial purposes such as water purification.
All submissions received in oPPosition to the tentative determination were given full consideration.
Imports of the involved merchandise received during the period
April 15, 1965, through June 30, 1966, were valued at approximately
$950,000.

TREASURY DEPARTMENT

:&SE 6:30 P.M.,
! August 15, 1966.

Department announced that the tende:-s for two series of Treasury bills,
to be an additional issue of the bills dated ~':.ay 19, 1966, and the other series
~ted August 18, 1966, which were offered on August 10, 1966, were opened at the
L ?eserve Banks today. Tenders were invited fo;:' .tl,300,OOO,000, or thereabouts, of
bills and for $1,000,000,000, or thereabouts, of l82-day bills. The details of the
~es are as follows:

1e Treasury
~ies

IF ACCEPTED

:TIVE BIDS:

91-day Treasury bills
NC7ember 17.2 1966
Approx. Equiv.
Price
Annual Rate
98.737
4.996%
98.710
5.1°3%
98.724
5.cx..8% !I

maturin~

.gh
IV

'erage

182-day Treasury bills
February 16 z 1967
Approx. Equiv.
Price
Annual Rate
5.262%
97.340
97.286
5.368%
97.313
5.315% Y

•• _maturin~
••

s
••

:
I

, Excepting 2 tenders totaling $1,8001 000; bl Excepting 4 tenders totaling $702 000
~% of the amount of 91-day bills bid I-or at -the low pr~ce was accepted
'
%of the amount of 182-day bills bid for at the low price was accepted
ENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

iet
n

ork
:ielphia
land
md
~a
~o

JUis

!,polis
I

City

'ancisco

TOTALS

Applied For
Accepted
s Applied For
5,179,000
$ 24,590,000 $ 14,590,000 s $
857,412,000:
1,299,206,000
1,523,112,000
21,793,000 s
14,163,000
33,793,000
31,656,000
31,656,000 :
25,461,000
18,035,000
18,035,000 :
5,590,000
44,714,000 :
.34,630,000
47,7l4,000
:
163,833,000
146,835,000
188,535,000
32,756,000 :
19,491,000
42,756,000
17,543,000 :
10,940,000
17,543,000
37,112,000
37,112,000 :
21,275,000
19,101,000
14,431,000 :
12,780,000
80,691,000
92,814,000
63,331,000 :

Accepted
$
5,179,000
710,786,000
7,743,000
25,461,000
5,590,000
34,630,000
113,833,000
12,991,000
10,940,000
21,275,000
8,780,000

sI $1,705,362,000

$1,000,022,000

$2,064,638,000 $1,300,208,000

42 z814,OOO

des $267,065,000 noncompetitive tenders accepted at the average price of 98.724
des $122,882,000 noncompetitive tenders accepted at the average price of 97.313
rates are on a bank discount basis. The equivalent coupon issue ;yields are
tor the 91-day bills, and 5.54% for the 182-day bills.

TREASURY DEPARTMENT
:;;;f

August 16, 1966
UNITED STATES DEPOSITS ITS INSTRUMENT OF
RATIFICATION OF THE ASIAN DEVELOPMENT BANK
The United States today deposited its instrument of
atification of the Asian Development Bank, at United Nations
eadquarters in New York City.
The instrument of United States ratification of the new
egional development bank was presented to the United Nations
n ceremonies in which Arthur J. Goldberg, United States
mbassador to the U.N., and Joseph W. Barr, Under Secretary of
he Treasury, participated o Mr. Barr represented Treasury
ecretary Henry H. Fowler, appointed by President Johnson as
nited States Governor of the Asian Development Bank.
The United States was among 22 countries that signed the
harter of the Asian Development Bank in Manila last December,
ight months after President Johnson gave his support to Asian
uggestions that it be created.
The President named Under Secretary Barr, and Eugene Black,
pecial Adviser to the President for South East Asian Development,
o head a United States team to work with the U.N.'s Economic
ommission for Asia and the Far East in organizing the Bank.
President Johnson sent the Asian Development Bank Bill to
ongress early this year. The Congress gave overwhelming approval
o United States participation and to the U.S. pledge of $200
illion of the Bank's $1 billion subscribed capital. President
ohnson signed the enabling legislation March 16, 1966e
Thirty-one nations have qualified as founding members of the
sian Development Bank, 19 of them Asian. The Bank will come
lto being when 15 countries, ten of them Asian, have ratified.
It is expected that the required number of countries will
~posit instruments of ratification shortly.
The Bank's President will be elected by the Board of Governors
t its inaugural meeting scheduled for Tehran October 17 to 19. It
: exgected to open for bu~iness at its headquarters in Manila in
~cem er.
000

TREASURY DEPARTMENT

August 16, 1966
PRESS STATEMENT ON PRIME RATE
~ith respect to the rise today in the prime rate at a New York
city bank, 3ecretary of the Treasury Henry H. Fowler said:

We need to limit credit to help restrain rising
prices. But surely there is a better way to limit
credit than by simply raising its price.
Since early last December, the prime rate charged
by the commercial banks has been increased three times
from 4-1/2 percent to 5-3/4 percent, and interest rates
in all sectors of the money market have risen substantially.
This increase is the fourth. Yet, during this period,
the grow~h of total commercial bank credit, and business
loans in particular, has shown little or no tendency to
abate. Indeed, business loans climbed faster in the
first half of 1966 than in the same period in 1965 -before the present high levels of interest rates prevailed.
Bank lending practices are determined by the banks,
thems8lves, subject only to the regulations laid down by
the mon~tary and bank supervisory authorities who receive
their powers directly from the Congress, and not through
the President.
Reliance by the bigger banks on higher interest
rates as the only means for allocating credit among a
relatively few large borrowers threatens to push up the
cost of money again for every borrower. I hope that
today's increase in the prime rate does not become the
occasio~ for lenders to raise rates generally.
Raising the price of money should not be the sole
means of determining who gets credit. When demands exceed
a bank I s resources, credit expansion can and should be
restrained by bankers saying "no" to borrowers on criteria
other than that of who is willing to pay the highest rate.

006

TREASURY DEPARTMENT
Washington
FOR RELEASE:

UPON DELIVERY

REMARKS BY THE HONORABLE JOSEPH W. BARR
THE UNDER SECRETARY OF THE TREASURY
AT CEREMONIES MARKING DEPOSIT
OF THE UNITED STATES' INSTRUMENT OF RATIFICATION
OF THE ASIAN DEVELOPMENT BANK
AT THE UNITED NATIONS, UNITED NATIONS BUILDING
TUESDAY, AUGUST 16, 1966,10:45 A.M., EDT
On March 16, when President Johnson signed the legislation
by which the United States Congress gave its approval to
American participation in the Asian Development Bank, the
President turned to the Ambassadors of the Asian members of
the Bank -- who had been invited to the White House at the
President's special request -- and told them:
"This is a moment in which history and
hope meet, and move on from here as
partners . . . This Act is an economic
Magna Carta . . . This Bank is a symbol
that the twain have met, not as Kipling
predicted, 'At God's great Judgment Seat,
but at the place of men's shared needs."
We are happy, we are proud and we are hopeful as we meet
with you today in the United Nations to intrust to your
keeping the official instruments by which United States
participation in this shining new venture, the Asian
Development Bank, is ratified.
We are happy, because we believe in this project.
We are proud, because by this act of ratification we
officially join hands with our Asian friends in a venture
that was their thought, that is for their purposes and
benefits, that they devised, and that we are honored to be
permitted to enter.
F-586

- 2 We are hopeful, because never before in history have
Asians, as they do in this Bank, pledged that they will
seek their greatest individual good in the greatest
possible common progress.
Through that pledge, the magnificent richness and
diversity of the Asian cultures can be brought to bear all
on one common aim: the development of Asia's great natural
resources, and of her untold human talent, for the provision
of a better life for Asian peoples, from Iran to the far
reaches of the Pacific Ocean.
But we come here in a mood of optimism for the future
for other reasons also. The coming into being of the Asian
Development Bank is but one -- however important -- of a
series of notable developments that have taken place since
April, 1965, when President Johnson threw the full weight
of the United States behind the proposal of the Asians
for this Bank.
The Ministers of Education of South Vietnam, Laos,
Malaysia, Singapore and Thailand met late in 1965 with
Mr. Eugene Black, President Johnson's Adviser on Southeast
Asian Development, who has played a central role in the
organization of the Asian Development Bank. At the
Bangkok meeting of Asian Education Ministers, plans were
laid for making improved and more widely available
education the foundation stone upon which economic and
social improvement can go forward in Asia.
Out of this has come a suggestion for an Asian
Institute of Technology, and other regional centers for
the development and teaching of advanced knowledge in such
subjects as tropical medicine, agricultural research,
science and language teaching. These prospects were
considered by more than 100 specialists from Asian countries
who met at Kuala Lumpur at the end of July.
The Mekong Development Committee's dreams are
advancing to reality. It recently set up a professional
staff at Bangkok, and it is actively promoting and
coordinating the planning of water resources development
projects in the Lower Mekong River Basin. The most recent
step in this direction was the Nam Ngum Development Fund to
finance a hydroelectric project, for which the United
States put up 50 percent of the funds, joined by seven
other countries.

- 3 -

The Governors of the Central Banks of Ceylon, Laos,
Malaysia, the Philippines, South Vietnam and Thailand have
begun to meet together to discuss economic and social
development, monetary policy, regional cooperation and the
operations of the Asian Development Bank.
Only a few months ago, at the initiative of the
Japanese Government, high level representatives of all the
countries of Southeast Asia sat down together in Tokyo to
discuss their economic development from a regional point
of view.
Out of this grew a project carrying an immense cargo of
hope: the decision to convene a Southeast Asia
Agricultural Development Conference, perhaps as early as
this Autumn. This might result in another historic first
for Asia: an Agricultural Development Fund to operate in
conjunction with the Asian Development Bank.
In June of this year Japan, the Republic of China,
Australia, Thailand, South Vietnam, the Philippines,
Malaysia, New Z~aland, Korea and Laos met in Korea and
agreed to establish an Asian and Pacific Council.
I will close this brief sU~Jary of the creative awakening
that is going on in Asia with mention of two political
developments or far reaching importance.
First, India and Pakistan decided last Fall to halt a
conflict that could have destroyed their development
prospects.
Second, onll a few days ago, Indonesia called off its
confrontation vlich Halaysia.
I think a 1.1 here will agree that these highlights of
events in Asia fully justify our view that in the years
to come, one or the world's greatest ?eriods of human
progress will ~e seen in Asia.
We believe that the Asian Development Bank has a major
role to play in that progress, and that it will play it
fully. In doing so, it will have our warm support.
000

TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
STATEMENT BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT A NEWS CONFERENCE ON THE BALANCE OF PAYMENTS
IN THE SECOND QUARTER OF 1966
WEDNESDAY, AUGUST 17, 1966, AT 2:00 P.M., EDT
Let me begin by saying that we are somewhat encouraged
by the prcliminary second quarter balance of payments results,
and the picture for the first half of this year that has
emerged.
Summary
The halance of payments data released by the Commerce

Departmont today show a seasonally adjusted second quarter
deficit of $163 million on the "liquidity" basis.
This repr~sents a reduction of $391 million from the
first quarter deficit of $554 million.
On the "official settlements" basis, the deficit for the
second quarte~ amounted to $189 million, a reduction of
$59 million from the first quarter.
Tho "liquidity" deficit for the first half ran at an

annt].11 rate of $1.4 billion, about equal to last year's
deficit of $1.4 billion on a rounded basis. On the official
settlements basis, the first half deficit ran at an annual
rate of $874 million, compared to last year's deficit of
$1 . 3 b j 11 ion .
the fact that the balance of payments costs of
ViL'tnam have steadily risen since mid-1965, the deficit on
a liquidity basis is only half of what it was before the
intensification of our balance of payments program in early
1965. In 1964, as you recall, the deficit was $2.8 billion.
D~spite

F-587

- 2 As I have stated on past occasions, one quarter is too
short a period on which to base an assessment of our balance
of payments position. That position is a net result of
many different types of transactions reflecting many
different economic and other factors, both domestic and
foreign; and the relative importance of various types of
transactions shifts substantially from period to period.
In the balance of this statement I will discuss the
principal factors, on which we have information, that affected
our payments in the second quarter of this year. Then I will
try to answer your questions.
Costs of Vietnam
The Vietnam conflict, of course, continues to have a
significant influence on our balance of payments.
The direct deficit on Defense account in all areas abroad
ran at an annual rate in the first quarter of 1966 that was
about $700-$8CO million higher than the annual rate in the
first half of 1965. We do not have second quarter figures
for the military deficit but there is no reason to believe
that it was substantially different than in the first.
The indirect costs of Vietnam, in the form of larger
imports and r~duced exports, are difficult to measure, but
they are undo~btedly substantial. They partly explain the
$300 million decline in the second quarter trade surplus.
Trade
Our trade surplus fell from about $1.1 billion in the
first quarter to about $800 million in the second quarter.
Exports in the second quarter were slightly below the
first quarter level -- and for the first half were only
2.5 percent above the level of the second half of 1965.
Imports rose $260 million in the second quarter. For
the entire first half, imports were 8 percent above the
second half of last year. I will have some additional
comments, on the longer term trade surplus picture, later
in this statement.

- 3 -

Capital Transactions
The gain in our balance of payments position in the
second quarter is attributable to an improvement in our
capital account.
All major categories of private capital flows on which
we have information showed improvement except for bank
claims on foreigners, where there was a moderate outflow for
the first time in five quarters. The principal favorable
factors included:
Purchases of new foreign security issues
were down substantially, from $459 million
in the first quarter to $191 million in the
second. As I pointed out at my May press
conference, the first quarter figures were
abnormally high because of Canadian security
issues postponed from late 1965 to early 1966.
Net liquidations by U. S. residents of
outstanding foreign securities came to $78
million in the second quarter compared with
$21 million in the first quarter.
Flotations of security issues abroad by U. S.
corporations amounted to about $290 million
in the second quarter, compared to $185 million
in the first. Many of these corporations are
domestic subsidiaries which have been established
for the express purpose of ra~ing money abroad
and thus minimizing direct investment outflows
fr0fl1 the U. S. We do not yet have figures for
r.~~ect investment outflows themselves.

In aGGition, there was an unusually high level
of foreign purchases of medium term certificates
of deposit and U. S. Government agency obligations
i~ ths second quarter.
In part, this inflow is
a,:coH.f1::ed for by purchases by the World Bank in
antic~pation of its U. S. bond issue in the
third quarter. The inflow also reflects the
attractive rates of return offered by these
instruments as a result of tighter monetary
p~licy in the U. S.

- 4 -

As you know, the Senate now has under consideration the
Foreign Investors Tax Act, which has been passed without
opposition by the House of Representatives. This proposed
legislation is designed to remove obstacles to foreign
portfolio investment in the U. S. When enacted, this
legislation will help us to secure further long term foreign
investment in the U. S.
This bill, it seems to me, is long overdue. It is one
which is designed to deal with the balance of payments
problem -- not in an emergency way but as one of the paths
to a long term solution of the problem. Above all things,
we should be taking those steps that will -- as this Act
would -- make use of natural competitive forces to add to
our long term balance of payments strength, and reduce our
reliance on temporary measures.
The Task Force report was originally made in the
Spring of 1964. The House Committee thoroughly considered
the bill all last summer, and comments were invited. There
were hearings in June of 1965. This, bill has been around
a good long time. I would certainly hope that for balance
of payments reasons, Congress will promptly complete action
on this legislation.
German Offse t
I pointed out at the May press conference that our
receipts under our German military offset arrangements had
been running in the third and fourth quarters of 1965 and
the first quarter of 1966 at a rate below the guarterly
average that would result if these receipts were spread
evenly over the eight quarters (from July 1965 through
June 1967) covered by the current arrangements. The
shortfall of actual receipts in the second quarter of 1966
from the hypothetical quarterly average (there is no formal
agreement that the payments be spread evenly in this fashion)
amounted to almost $125 million.
The fact that the receipts have been running substantially
below the quarterly average for the entire first year of the
agreement indicates that they must necessarily come in at a
much higher rate in the second year.

- 5 Gold Losses
During the second quarter U. S. gold transactions
resulted in a net loss of $209 million, bringing total net
losses for the first half to $277 million. This compares
with net losses of $589 million in the second quarter of
last year and $1,421 million in the first six months. Last
year's first-half loss reflected sales of $259 million to
the International Monetary Fund.
With the exception of France, which is continuing its
policy of converting at least $34 million into gold each
month, we were net purchasers of gold from other countries
in the first half of 1966.
Sales of gold for domestic industrial and artistic uses
are continuing to increase and were higher in the first half
of this year than the $52 million sold for these purposes
during the same period last year.
Additional comments on our trade position
As we look ahead, it is clear that our trade surplus
has a key role to play in our efforts to bring our balance
of payments into equilibrium. The decline in our surplus -from the high level of $6.7 billion in 1964 to $4.8 billion
last year arrlan annual rate of a shade less than $4 billion
in the first half of 1966 -- is disappointing. Had we had
the 1964 trade surplus in 1965, the U. S., all other things
remaining unchanged, would have shown a balance of payments
surplus of about $500 million, on the liquidity basis.
On the same assumption, our liquidity surplus in the first
half of 1966 would have run at an annual rate well in excess
of $1 billion. But while this decline in our trade surplus
has prevented us from moving into equilibrium, it does not
necessarily signal any long term deterioration in our basic
competitive posture.
I would remind you that our trade surplus has dropped
before
by $4.3 billion in 1950
by $2.8 billion in 1958
by $2.3 billion in 1959

- 6 -

But over the long term the trend has been favorable:
Average trade surplus
(in billions)
1951-55

$2.4

1956-60

$3.9

1961-65

$5.3

Why should we anticipate a turn for the better in our
trade surplus?
We can anticipate it because of our proven ability to
maintain price stability at least comparable to that of
our major competitors, and because we are spending vast sums
on increased research and development and for investment in
cost-cutting facilities here in the United States.
Our record of domestic price stability in the last five
years has been the best of the major industrial nations.
And I warrant that even this year -- despite the special and
temporary impact of Vietnam -- it will be better than many
of the industrial nations with whom we must compete.
Chart I, which is attached, highlights the record,
showing the annual rate of cost of living increase for the
United States compared to that for France, Germany, Italy,
United Kingdom and Japan for the periods 1955-60, 1960-65,
and 1964-65.
The chart indicates that in the period 1960-65, the
United States' cost of living increased by 1.4 percent
per annum, Germany's by 3.1 percent, France's by 4 percent,
the United Kingdom's by 4 percent, Italy's by 5.5 percent,
and Japan's by 7 percent.
To enhance further the competitive position of U. S.
industry, corporations will this year invest more in
research and in ~ plant and equipment than in any year in
history. Research outlays will total $14 billion, and
investment in plant and equipment is expected to amount to
$60 billion, compared to $52 billion in 1965 and an average
of $38 billion the previous five years. This high level

- 7 -

of investment is having an adverse present impact on our
trade balance;
by contributing to the strain on present
resources, thus reducing the resources
available for export; and
by adding to the demand for imports.
But the high level of investment will ultimately provide
an arsenal of modern low-cost facilities. These will enable
the United States to compete more effectively both in export
markets and in the domestic market against foreign imports.
We shall, of course, continue to compete on a fair basis,
without resort to restrictive practices.
Obviously we cannot be complacent about our trade
picture. We here in the Government are devoting many hours
to considering how we might best help the business community
in its export efforts.
In recent weeks, the Treasury has announced
a revision of IRS guidelines for intracompany pricing and income allocation which
we believe will clarify and simplify
regulations affecting exports from U. S.
companies to their foreign affiliates.
Consideration is being given to how our overseas
personnel can be more effectively organized
to help U. S. exporters.
We are working to make sure that our aidtying techniques are effective in
producing exports that ~ truly additional
and that do not merely substitute for
commercial exports we would have made in
any event.
The Export-Import Bank has already taken a
number of steps, including some recommended
by the National Export Expansion Council,
in order to assure continued maximum
effectiveness of its lending facilities.

- 8 I am pleased to announce today that the Export-Import
Bank will inaugurate a special rediscount facility for
export paper. This new facility should provide additional
liquidity to commercial banks in a manner enabling them
better to serve exporters' financing needs. Mr. Harold
Linder, the distinguished Chairman of the Export-Import
Bank, will announce this important development at the
conclusion of my responses and take your questions concerning
it.
We hope and believe that these actions, coupled with
other, earlier steps, will serve to re-emphasize to the
private sector the importance we attach to an intensified
national export effort. But this is not the end of our
efforts on the government side. We are going to search and
pursue every opportunity and possibility to realize an
important and lasting improvement in our trade position.
The potential effects of such an improvement on our
international payments position should be clear to all.
This is the background against which we must now move
ahead into the second stage of negotiations on international
monetary reform. We must build on the bases of agreement
reached by the Group of Ten Deputies and on the work of the
International Monetary Fund, broadening the negotiations -in accordance with the recommendations of the Ministers and
Governors of the Group of Ten at the recent meeting at
The Hague -- into a wider framework in which questions
affecting the economy of the world as a whole can be
considered and resolved.

000

TREASURY CEPARTMENT
August 17, 1966
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY B:LL OFFERING
The Treasury Department, by this pu~:ic notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$2,300,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing August 25, 1966, in the amount of
$2,302,459,000, as follows:
92-day bills (to maturity date) to be issued
in the amount of $1,300,000,000, or thereabouts,
additional amount of bills dated May 26, 1966,
mature November 25, 196~originally issued in the
$1,000,484,000, the additional and original bills
interchangeable.

August 25, 1966,
representing an
and to
amount of
to be freely

182-day bills, for ~,OOO,OOO,OOO, cr thereabouts, to be dated
August 25, 1966, and to mature February 23, 1967.
The bills of both series will be issued on a discount basis under
competitive and noncompetitive bidding an hereinafter provided, and at
maturity their face amount will be payable without interest. They
will be issued in bearer form only, and in denominations of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, August 22, 1966.
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.
F-588

- 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 Departmert of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rej ec t ion there of . The Secre tary of the Treasurv
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, nonconpetitive 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 accepteG competitive bids for the respective issues.
Settlement for acceptPd tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on August 25, 1966, b
cash or other immediately available funds or in a like face amount
of Treasury bill~ r1aturing August 25, 1966.
Cash and exchange tendeld
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 t~e bills, does not have
any exemption, as such, and loss from the sale or other dispositioo
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject ~
estate, inheritance, gift or other excise taxes, whether Federal ~
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 bi lIs are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereundeld
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 ~
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and ~br
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained for
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

August 18, 1966
FOR USE AFTER 6 P.M.
EDT THURSDAY, AUGUST 18, 1966
U. S. DRAWING FROM
THE INTERNATIONAL MONETARY FUND
Secretary of the Treasury, Henry H. Fowler, today
announced a U.S. drawing of $250 million equivalent of
Italian lire from the International Monetary Fund and
a further series of technical drawings on the Fund of
$100 million in Canadian dollars.
The Italian lira drawing represents an ordinary, nontechnical use of U. S. drawing rights on the Monetary
Fund. During the course of the year Italy has been
running a substantial balance of payments surplus, and in
order to help finance this surplus as well as U. S.
International payments the United States requested a
drawing of lire from the Fund. To meet the U.S. request,
the Fund, whose regular lira holdings are at a low level,
arranged to borrow from Italy the lire needed for the
U.S. drawing.
This transaction which is of mutual benefit to
the United States and Italy, demonstrates the flexible
manner in which the Fund can assist reserve currency
countries as well as other countries in financing their
balance of payments surpluses and deficits.
The $100 million equivalent technical drawing of
Canadian dollars represents a continuation of the
practice begun in February 1964 of obtaining currencies
for sale to other countries making repayments to the
Fund. As in the last two technical drawings, the
arrangements for this one provide for periodic take
downs over the next three to four months.

F-589

000

TREASURY DEPARTMENT
q

A non-technical, regular drawing on the IMF, such as
the one in Lire announced today, provides the United
States with foreign exchange for use in directly financing
our international payments position.
A technical drawing from the Fund, on the other hand,
provides the United States with foreign currency for use
in sales to countries making repayments to the IMF.
Arrangements for making such technical drawings were
worked out in 1963 when the Fund's ability to accept
dollars, except from the United States, approached the
limit under the Fund's rules (75 percent of the U. S.
quota in the Fund). A technical drawing, thus, enables
the U. S. to avoid purchases of gold from us for use as
repayments to the Fund. It also avoids sales of dollars
to surplus countries (who would be in a position to use
the dollars to buy gold from us), for the purpose of
using the currencies received to repay the IMF.
The foreign exchange proceeds of a regular drawing
on the IMF can be used by the United States in three ways:
1. for exchange market operations;
2. to repay short-term credits such as
swap drawings; or
3. to reduce foreign dollar holdings directly.
The transaction in lire announced today represents the
second such non-technical use of the IMF by the United States.
In July 1955 we drew $300 million in five European currencies
and used the proceeds to payoff short-term swap drawings
and otherwise reduce official holdings of dollars abroad.
The Italian lire and Canadian dollar drawings will bring our
total drawings from the International MonetaLY Fund to $1,610
million. However, because of dollar drawings by other countries,
our repayment obligation will amount to only about $980 million
after these transactions. The remaining virtually automatic
portio~" of our drawing "rights (the gold tranche) will amount to
about ~300 million.
000

TREASURY DEPARTMENT

August 18, 1966
FOR

I~1MEDIATE

RELEASE
TREASURY REFUNDS ONE-YEAR BILLS

The Treasury Department, by this public notice, invites tenders
Eor $1,000,000,000, or thereabouts, of 365-day Treasury bills, for
;ash and in exchange for Treasury bills maturing August 31, 1966, in
:he amount of $1,000,277,000, to be issued on a discount basis under
~ornpetitive and noncompetitive bidding as hereinafter provided.
The
lills of this series will be dated August 31, 1966, and will mature
illgUSt 31, 1967, when the face amount will be payable without interest.
'hey 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
p to the closing hour, one-thirty p.m., Eastern Daylight Saving
ime, Thursday, August 25, 1966. Tenders will not be received at the
reasury Department, Washington. Each tender must be for an even
ultiple of $1,000, and in the case of competitive tenders the price
ffered must be expressed on the basis of 100, with not more than
lree decimals, e. g., 99.925. Fractions may not be used. (Notwith:anding the fact that these bills will run for 365 days, the discount
lte will be computed on a bank discount basis of 360 days, as is
lrrently the practice on all issues of Treasury bills.) It is urged
lat tenders be made on the printed forms and forwarded in the special
lvelopes which will be supplied by Federal Reserve Banks or Branches
l application therefor.
Banking institutions generally may submit tenders for account of
storners provided the names of the customers are set forth in such
nders. Othernthan banking institutions will not be permitted to
brnit tenders except for their own account. Tenders will be received
thout deposit from incorporated banks and trust companies and from
sponsible and recognized dealers in investment securities. Tenders
Dm others must be accompanied by payment of 2 percent of the face
Junt of Treasury bills applied for, unless the tenders are accomlied by an express guaranty of payment by an incorporated bank or
1St company.
F-590

- 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 rej ection 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 ~n accordance with the bids must be
made or completed at the Federal Reserve Bank on August 31, 1966, in
cash or other immediately available funds or in a like face amount of
Treasury bills maturing August 31, 1966. Cash and exchange tenders wi.
receive equal treatment. Cash adjustments will be made for difference,
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 ~e
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 taxat ion 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 original~
sold by the United States is considered to be interest. Under Sect~D
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 oo~
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 ~is
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.

TREASURY DEPARTMENT
,
RELEASE 6: 30 P.N.,
~sdaYJ

August 18, 1966.
RESULTS OF TREASURY'S OFFERING OF $3 BILLION TAX ANTICIPATION BILLS

The Treasury Department announced that the tenders £or the two series of Treasury
Anticipation bills, each series to be dated August 26, 1966, which were o£fered on
st 11, 1966, were opened at the Federal Reserve Banks today. Tenders were invited
$2,000,000,000, or thereabouts, of 20B-day bills and for $1,000,000,000, or therets, of 238-day bills. The details of the two series are as follows:
E OF ACCEPTED
ETITIVE BIDS:

High
Low
Average

208-day Tax Anticipation
bills maturing March 22, 1967
Approx. Equiv.
Price
Annual Rate
5.170%
97.013 a/
96.B75 5.409%
96.916
5.338%

23B-day Tax Anticipation
bills maturing April 21, 1967
Approx. Equiv.
Price
Annual Rate
5.231%

5.500,t

Excepting 2 tenders totaling $300,000;

5.433:~

td Excepting

1 tender of $1,860,000

94 percent of the amount o£ 20B-day bills bid £or at the low price was accepted
35 percent of the amount of 238-day bills bid for at the low price was accepted
~

TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESErtVE DIsrrRICTS:

ltrict
lton
r York
lade lphi a
veland
bmond
anta
cago
Louis
neapolis
sas City
Francisco

Acce,eted
AEE1ied For
$ 193,300,000 $ 178,300,000
1, 071, 3k7,ooo
495,847,000
115,343,000
119,84.3,000
201,945,000
165,585,000
50,007,000
35,507,000
136,545,000
~6,605,OOO
259,73.3,000
.3 5,733,000
71,975,000
76,975,000
108,080,000
91,280,000
5.3,8)6,000
51,436,000
68,120,000
12B,120,000
428,600,000
3.30,600,000

TOTALS

$2,944,.391,000 $2,000,271,000

Las

··

A,p.e1ied For
• $
66,400,000
:
694,477,000
22,196,000
20,143,000
2B, 370, 000
40,251,000
190,811,000
41,535,000
52,152,000
34,420,000
43,920,000
252,820,000

$1,487,495,000

Acce~ted

63,400,000
393,177,000
18,896,000
13,493,000
28,370,000
39,751,000
160,611,000
36,285,000
44,302,000
34,420,000
33,790,000
134,320,000

$1,000,815,000

:ludes $.302,841,000 noncompetitive tenders accepted at the average price of 96.916
:ludes $155,925,000 noncompetitive tenders accepted at the average price of 96.40B
se rates are on a bank discount basis. The equivalent coupon issue yields are
7% for the 20B-day bills, and 5.68% for the 238-day bills.
1

STATEMENT BY THE HONORABLE FRED BURTON SMITH
GENERAL COUNSEL OF THE TREASURY
BEFORE THE COMMITTEE ON UN-AMERICAN ACTIVITIES
HOUSE OF REPRESENTATIVES
MONDAY, AUGUST 22, 1966
Mr. Chairman and Members of the Committee:
I am very glad to appear before you today to comment on H.R. 12047
which amends the Internal Security Act of 1950.

You have also requested

testimony concerning any actions the Treasury Department has taken
relative to, or any communication that it has received from, any
individuals or groups in the United States which have sent, or
attempted to send, financial remittances or goods to North or South
Viet Nam for the National Liberation Front of South Viet Nam, the
National Liberation Front of South Viet Nam Red Cross, or any other
agent or agency of North Viet Nam.
First, I will comment on H.R. 12047.

Section 402(a) of the bill

would provide criminal penalties for certain acts connected with the
collection of funds and property intended for delivery to any hostile
foreign power or agency, or national thereof, or any person acting in
hostile opposition to the Armed Forces of the United States.
Most of the acts that would be covered by this section insofar
as existing hostilities are concerned are already covered by Section 5(b)
of the Trading with the Enemy Act and the Treasury's Foreign Assets Control
and Cuban Assets Control Regulations issued thereunder.

Thus, anyone who

might give to any hostile foreign power, or agency or national thereof,

F-592

- 2 -

or to any organization, group or person, acting in hostile opposition

to the armed forces of the United

8mtea,

or give to another for

delivery to such an entity, any property, supplies or thing, or
any lJ¥)ney or thing of value for the purchase thereof, without a

license from the Treasury Department, would be in violation of the
'l'ra.d1D8 with the EneIl\f Act.
maximum

Punishment for such violation is a

of 10 years t imprisonment, $10,000 fine, or both.

The only

thing in Section 402(a) that is not covered by the Trading with the

Enenw Act and Treasury regulations is the advising, counseling,

ur~

or solicitation of such gifts.
As to the first part, the actual giving, delivery, or remitting

of money or property to hostile entities, since it is adequately covered
by existing legislation and regulations, we feel that enactment of the

provisions of Section 402(a) is unnecessary.

As to the second part,

the advising, counseling, urging and solicitation of gifts of money or
property, and whether these should be the subject of prohibition in a
criminal statute, I do not think the Treasury has any special competence
to express a view.

It is noted that the Justice Department teels that

some of these activities may be covered by the Foreign Agents' Registration Act.

Certainly, I should say that I persona.lly am. revolted by

the conduct of some of our citizens, particularly students and some of
their mentors on the faculties of some of our outstanding universities,
in advocating assistance to foreign powers and groups who are engaged
in warfare endangering the lives of members of our armed forces.

therefore entirely sympathetic with the JOOtives 'Which underlie the

I am

- 3 sponsorship of this legislation.

I do feel, however, that to extend

the scope of existing law to cover such matters as advocacy and
solicitation might involve difficult questions of infringement upon
the constitutional rights of our citizens in the areas of freedom
of speech, freedom of thought, etc.

Moreover, we are inclined to

think that undue publicity has given an exaggerated impression of
the proportion of our citizenry who hold and advocate these reprehensible views.

Finally, we are inclined to believe that the aid

actually received by these hostile groups in the form of money or
property is minimal.

FOr all of these reasons, we have serious

doubts as to the wisdom of attempting to legislate fUrther in this
area.
There is one further factor that I should like to mention.
Undoubtedly

there8~

a certain number of persons in the United

States who out of humanitarian motives would wish to contribute to
the relief of civilians who are injured due to the conduct of hostilities, whether or not citizens of North or South Viet Nam, and
regardless of their allegiance.

The proposed legislation does not

clearly distinguish between this group on the one hand and those
groups which are motivated by a desire to help a hostile power in
the conduct of its activities against the United States and South
Vietnamese forces.

I do not believe that we should make it a crime

for persons to solicit funds for assistance based on these humanitarian
motives.

For this reason, I believe that in the development of any

legislation governing solicitations, care should be taken to draw a
proper distinction.

- 4In this connection, it may be of interest to this Committee to

!mow that in certain types of cases the State Department advocates,
and the Treasury Department is prepared to license, the transmittal
of funds or property for these purposes under

strictly controlled

condi tions •
In order to assure that such donations are used for humanitarian

purposes, they must be made through the auspices of the International
Commi ttee of the Red Cross.

Further, in order to make certain that

donations are used where they will be of maximum benefit to the
victims of war, the International Committee of the Red Cross must
be left free to use the gift to aid victims of war on either side.
Additionally, to avoid making any foreign exchange available to
North Viet Nam or the Viet Cong, the International Committee of the
Red Cross must be asked to purchase medical supplies or services with
the donations received.
This policy has been established in connection with the efforts
of the Department of State to assist American military persormel who
are prisoners of war in North Viet Nam.

A rigid ban against all

solici tat ions of remittances such as is provided in the pending
legislation might well interfere with this effort to assist our
military people who are captives of North Viet Nam.
Under this policy, we have issued one license authorizing the
remittance of $240 to the International Committee of the Red Cross.
The licensee is Mary Bernier of the Viet Nam Relief Fund, 1025 Elm
Street, San Carlos, california.

- 5 -

We have also received two other inquiries as to the procedure for
obtaining Treasury licenses for this purpose.

The writers of these

inquiries were informed of the policy set forth above and were furnished
application forms, but have not to date submitted license applications.
The persons were:
Rodgers Taylor Dennen
Box 240, Whitman College
Walla Walls, Washington
Lois Lee Rathbun
830 Calle Cortita
Santa Barbara, California
Turning now to Section 403 of the proposed legislation, that section
would provide criminal penalties for any person who interferes with the
movement of the armed forces or with the movement of supplies and material
for the armed forces.

The problem with which this section deals lies

within the principal competence of the Department of Defense.

Insofar

as the functions of the Treasury Department are concerned, this provision
is not needed.

The only activity of which the Department is aware that

has impeded the Coast Guard in the performance of its missions as an
armed force concerns interference by members of various organizations
with the launching of naval vessels.

In this regard, the Coast Guard

has authority under the Magnusson Act (SO U.S.C. 191 et

to promul-

gate regulations establishing limited access areas in connection with
the launching of naval vessels.

Penalties for violation are imprisonment

for not more than ten years and a fine of not more than $10,000.

The

Treasury Department defers to the views of the Department of Justice as
to the necessity for additional criminal sanctions in this area, since
that Department would be primarily responsible for enforcing the provisions
of Section 403.

- 6You have also requested that I testify as to actions the Treasury
Department has taken relative to persons in the United states who
have sent or have attempted to send money or goods to the Viet Cong.
In those cases where we have had information that a group intends
to send funds or supplies to North Viet Nam or the Viet Cong, we have
either by letter or by personal interview placed such groups on
notice that the proposed activity was illegal in the absence of a
Treasury license.

Specifically, we have sent letters to this effect

to the Medical Aid Committee, Box 1128, Berkeley, california, and to
the Chairman of the Committee to Aid the Viet Namese, c/o the University
of Michigan.

Copies of these letters were furnished to this Committee

with our letter of August 10, 1966.

We have also sent this type of

letter of warning to other groups not mentioned in the committee's
inquiry of August

1, 1966.

These letters were sent to:

Stanford Committee for Medical Aid to Viet Nam
c/o Stanford University
Balo Alto, california
Humanist Society
Greskill, New Jersey

~~U

In addition, on October

29, 1965 representatives of the Treasury

visited the office of the May Second Movement at 640 Broadway, New York.
Two representatives of that group were personally advised of the
prohibitions of the Regulations and were requested to convey this
information to all branches and members of the May Second Movement.

- 7 We subsequently found that, despite our warning, the Medical Aid
O>mm1ttee sent $1,500 to the Liberation Red Cl:"oss via Prague.

We then

blocked this amount in the U.S. accounts of the Czech bank which had
received these remittances for the Viet Cong, thereby nullifying
the intended foreign exchange benefit to the Viet Cong of the remittances.
We were able to deprive the Viet Cong of the benefit of these illegal
remittances even though the necessary information was not obtained until
some time a:rter the funds were sent.

This blocking action demonstrates,

we hope, that it is fUtile under our existing Regulations for any group
to send fUnds to the Viet Gong without our license.

Moreover, the

blocking of the amount of these illegal remittances in the CZech bank's
accounts served to close off a principal remittance channel which would
otherwise have been available to groups wishing to send funds to the
Viet Gong without our license.

The action fUrther served as a warning

to other foreign banks not to permit their facilities to be used for
such illegaJ. remittances, and as a reminder to American banks of the
requirements of the Regulations.

The American bank was reprimanded

for its negligence in handling these remittances for the Medical Aid
Committee.

Copies of our correspondence with that west Coast bank were

furnished to this Committee with our letter of August 10,

1966.

Similarly, we have just ascertained that a money-broker in Hong
Kong named Chin Sing yap Tong has cashed some dollar eheeks vhich had
been sent to the North Viet Namese commercial representative in Hong
Kong for the Viet COng.

We therefore have named this money-broker as

- 8 a designated national.

This action makes it illegal for any American

to deal with the money-broker.

Transactions by foreign banks in United

states dollars with this money-broker are likewise prohibited.

We are

continuing our investigation of money changers in Hong Kong who may be
cashing checks for the Viet Cong.
Although we believe such action enables us to prevent any significant foreign exchange benefit to the Viet Cong, it would be difficult
if not impossible to completely stop all unlicensed remittances in the
absence of wartime censorship controls, and even then some might still
escape detection.
On

August 10, 1966 the washington Post carried a report that

Quakers in the Washington-Baltimore area were determined to send aid
to victims of the fighting in North Viet Nam even though it is illegal
to do so.

The Quaker representatives on the following day informed the

Department of state that they do not wish to do anything illegal, and
hope that a license will be granted to permit such hu.ma.nitarian
remittances.

They were informed of the licensing policy concerning

assistance through the International COmmittee of the Red Gross, and
advised to apply for the necessary Treasury license.

They subsequently

did so, requesting permission to send up to $1,000 in this fashion.
The Quaker application is presently under consideration by the Treasury
Department, which is consulting with the Department of state as to
whether it should be approved in the national interest.

We have also

- 9 sent a letter through the Federal Reserve Bank of Richmond to all banks
in the area alerting them to the possibility of attempted illegal
remittances by the Quakers.

The banks were asked to bring any such

attempts to our attention.
As I indicated earlier, it is the policy of the Treasury Department

to administer these Regulations very strictly in order to prevent any
unauthorized foreign exchange accruals to blocked areas.

We do not

license any such transactions unless there is a clear-cut demonstration
that it is in the national interest to do so, as in the example I cited
earlier of assisting American prisoners of war.
To sum up, therefore, the Treasury does not favor enactment of
H.R. 12047 for the following reasons:
(1)

It is unnecessary since adequate authority to
control the remittance problem exists and is
in full use;

(2)

The ban imposed on solicitations is inflexible
and could interfere with

u.s.

efforts to aid

our captured military personnel; and,

(3)

The Coast Guard has adequate authority to prevent
interference with its launchings of vessels.

Thank you for this opportunity to explain the Treasury's views on
H.R. 12047.

TREASURY DEPARTMENT
Washington

STATEMENT BY THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE THE SENATE FINANCE COMMITTEE
THURSDAY, AUGUST 18, 1966

Mr. Chairman and Members of the Committee:

I appreciate this opportunity to appear before you to present
the views of the Treasury Department on the problem of Federal support
for political campaign financing.

An appropriate solution to this

problem is vital to the integrity of political fund raising and to
more meaningful participation by the electorate in the political process.
I am not without some personal experience in this whole subject.
I served as the treasurer of the Marion County, Indiana, Democratic Central
Committee from 1952 to 1956.

I served as the treasurer of the Welch for

Governor Committee in 1956.

I, of course, was subject to the current laws

governing political contributions while I served as a Member of the 86th
Congress.
It is my personal opinion, and not necessarily the view of the
Treasury or of the Administration, that the most dangerous thing an
American citizen can do in public life is to act as a treasurer for a
political party.

One may have the best intentions of the world, but the

unreality of present law and the contradictions that it contains literally
constitute a beartrap for the most honest of citizens.

I will confess

that never was I so relieved when the statute of limitations ran on my
tenure as treasurer of a political party, in spite of the fact that I

F-593

- 2 -

felt at the time that I

w~s

performing a service that was necessary to

the proper functioning of the election processes of this country.
I have learned that one can be defeated as a Congressman without
destroying his reputation or his credit worthiness.

A reasonable amount

of nrudence should kepn one from the perils of imneachment while serving
as Under Secretary of the Treasury.
~ttacks

The occasional disagreements and

which are the natural results of public service can be borne.

However, the hazards to whic:

',honest and conscientious man exposes

himself when he acts as the treasurer of a political party are in my
opinion almost unsupportable.

Therefore, I speak not only for the

Aaministration but with a great degree of personal prejudice in the hope
tLat something can be done in this extremely inportant, but extremely
:ifficult area.
For many years it has been recognized that existing Federal laws
pertaining to restrictions on, and the disclosure of, political campaign
finances have been ineffective.

At the same time the soaring costs of

campaigns for elective public office have contributed to the circumvention
of present limitations.

Because substantial campaign expenditures, in

this age of mass communications media, are necessary to insure the existence
of an informed elec-c,Jrate , it is important that a coordinated solution
to both problems be i'oun,j.
Recognizing the:

~portance

of these matters to the basic fabric

of a free society, President Johnson, in his state of the Union Message,
stated:
As the process of election becomes more
complex and costly, we must make it possible for
those without personal wealth to enter public life

- 3 -

without being obligated to a few large contributors.
Therefore I will submit legislation to revise
the present unrealistic restrictions on contributions
to prohibit the endless proliferation of committees,
bringing local and state committees under the act __
to attach strong teeth and severe penalties to the requirement of full disclosure of contributions

and to broaden

the participation of the people, through added tax incentives,
to stimulate small contributions to the party and to the
candidate of their choice.
Pursuant to this pledge, the President submitted to the Congress a
proposed Election Reform Act of 1966.

This proposed Act would invigorate

the laws concerned with the disclosure of political contributions and
expenditures as well as the limitations on political contributions.

The

proposals are designed to obviate the possibility that mnall groups of
affluent men can, by their wealth, achieve undue political influence.
An affirmative approach is also necessary to insure that political

parties and candidates will have adequate financial resources derived from
large segments of the population.

Accordingly, to complement the other

proposals contained in the election reform legislation, the President has
recommended a tax deduction for political contributions.
This tax incentive serves the primary purpose of encouraging greater
public participation in the political process and thereby reducing the
dependence of elected public officials on wealthy contributors.

- 4-

A deduction from gross income, not in excess of $100 per year,
would be allowed to individuals for qualified political contributions.
This maximum would be $50 in the case of a married individual filing a
separate return.
Since the deduction would be available even to those

taxp~ers

who

claim the standard deduction, the incentive has a potential effect on all
taxpayers, and not only to the 50 percent of taxpayers who itemize their
tax deductions.

This is consistent with the need to stimulate broad public

participation in the political process.
The proposal would apply to contributions made to any organization
organized and operated exclusively for the purpose of influencing the
election of one or more individuals to any public office, and to any candidate
for any elective public office, whether at the Federal, state or local level.
Qualified recipients of deductible political contributions would, therefore,
cover the spectrum of political office.

This approach should foster the

full and free discussion of governmental affairs which is basic to a
democratic system.
It is estimated that the revenue loss which would result from enactment
of this proposal would be approximately $50 million in a Presidential election
yeax, and would average $25 million over a four-year cycle, from one
Presidential year to another.
The extent to which this proposal will increase campaign funds cannot
be accurately estimated.

We believe, however, that the favorable attitude

of the government towards political contributions manifested by this proposal
will encourage small contributions.

It should also encourage political

- 5 -

organizations to devote greater efforts on small contribution fund raising.
We recognize that other possible solutions to this problem have been
suggested.

The distinguished Chairman of this Committee has introduced a

bill which would provide funds to political parties for Presidential
campaign purposes by direct grants computed on the basis of popular vote.
others have suggested a matching incentive plan under which the government would
pay directly to political parties or candidates amounts equivalent to small
contributions they receive.

These hearings provide an opportunity for public

discussion and evaluation of all reasonable proposals.
one

Our goal is a common

to provide the best methods possible to achieve the desired results.
I want to make clear that the problem of incentives for political

contributions is directly tied to the needed reforms in our obsolete laws
dealing with the disclosure of, and the restrictions on, campaign finances.
Increased levels of political contributions and greater participation in
political affairs, absent necessary safeguards in the public interest, would
only intensify the existing problems.
Therefore, we urge the Congress to enact the balanced program set
forth in President Johnson's proposed Election Reform Act of 1966.

TREASURY DEPARTMENT
4

LEASE 6 :30 P.M.,
r AUgust 22, 1966.
RESULTS OF TREASURY 1 S WEEKLY BILL OFFERING

Ie Treasury Department announced that the tenders for two series of Treasury bills,
~ies to be an additional issue of the bills dated May 26, 1966, and the other series
~ted August 25, 1966, which were offered on August 17, 1966, were opened at the
_ Reserve Banks today. Tenders were invited for $1,300,000,000, or thereabouts, of
bills and for $1,000,000,000, or thereabouts, of l82-day bills. The details of the
'ies are as follows:
F ACCEPTED
TIVE BIDS:

Yl
i

~rage

92-day Treasury bills
maturing November 25 I 1966
Approx. Equi v •
Price
Annual Rate
98.725
4.989%
98.708
5.056%
98.717
5.020% 1:./

182-day Treasury bills
maturing February 23, 1967
Approx. Equiv.
Price
Annual Rate
5.390%
97.275 !/
97.262
5.416%
97.265
5.410% 1/

Excepting 1 tender of $3,000,000
of the amount of 92-day bills bid for at the low price was accepted
; of the amount of 182-day bills bid for at the low price was accepted
~

:rIDERS APPLIED FOR AND ACCEPl'ED BY FEDERAL RESERVE DISTRICTS:

ct
rk
elphia
:md
ld
1
)

lis
>olis
City
neisco
TOTALS

AEj21ied For
20,659,000
$
1,296,206,000
28,782,000
27,773,000
12,409,000
35,600,000
316,887,000
59,564,000
17,402,000
23,912,000
22,999,000
215,932,000
$2,078,125,000

Acce]2ted
10,659,000
$
790,556,000
16,782,000
27,773,000
12,409,000
30,290,000
191,066,000
55,564,000
17,402,000
23,912,000
16,789,000
106,942,000

A]2Elied For
5,808,000
$
1,443,649,000
11,873,000
25,801,000
11,635,000
26,172,000
276,006,000
39,537,000
11,030,000
14,163,000
13,067,000
281,233 ,000-

Acce,Eted
$
5,808,000
686,321,000
3,873,000
13,276,000
10,835,000
8,766,000
156,759,000
10,509,000
6,030,000
13,119,000
8,017,000
80,327,000

$1,300,144,000b/ $2,159,974,000

$1,003,640,000

£/

es $235,713,000 noncompetitive tenders accepted at the average price of 98.717
es $119,042,000 noncompetitive tenders accepted at the average price of 97.265
retes are on a bank discount basis. The equivalent coupon issue yields are
ror the 92-day bills, and 5.64% for the 182-day bills.

TREASURY DEPARTMENT
q

August 23, 1966
FOR IMMEDIATE RELEASE

ANTIDUMPING PROCEEDING ON
DARTBOARDS AND DAR'IGAMES

On June

30,1966, the Commissioner of ,Customs received informa-

tion in proper form pursuant to the provisions of section 14.6(b) of
the Customs Regulations indicating a possibility that dartboards and
dartgames imported from England are being, or likely to be, sold at
less than fair value within the meaning of the Antidumping Act, 1921,
as amended.

The information was submitted by Haecker Industries Inc.,

Philadelphia, Pennsylvania.
Having conducted a summary investigation pursuant to section
14.6(d)(1)(i) of the Customs Regulations and having determined on
this basis that there are grounds for so doing the Bureau of Customs
is instituting an inquiry pursuant to the provisions of section 14.6
(d)(l)(ii), (2), and (3) of the Customs Regulations to determine the
validity of the information.
An

"Antidumping Proceeding Noti ce l1 to this effect is being pub-

lished in the Federal Register pursuant to section l4.6(d)(1)(i) of
the Customs Regulations.
Imports of the involved merchandise received during the period
January 1, 1966, through June 30, 1966, were valued at approximately
$150,000.

TREASURY DEPARTMENT

August 24, 1966
FOR IMMEDIATE RELEASE

TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
'or two series of Treasury bills to the aggregate amount of
;2,300,000,000, or thereabouts, for cash and in exchange for
'reasury bills maturing September 1, 1966, in the amount of
,2,301,813,000, as follows:
91-day bills (to maturity date) to be issued
n the amount of $L, 300,000, 000, or thereabouts,
dditional amount of bills dated June 2, 1966,
.ature December 1, 1966, originally issued in the
1,001,308,000, the additional and original bills
nterchangeable.

September 1, 1966,
representing an
and to
amount of
to be freely

182-day bills, for ~,OOO,OOO,OOO, or thereabouts, to be dated
eptember 1, 1966, and to mature March 2, 1967.
The bills of both series will be issued on a discount basis under
)mpetitive and noncompetitive bidding as hereinafter provided, and at
lturity their face amount will be payable without interest. They
Lll 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
rlaturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
) to the clOSing hour, one-thirty p.m., Eastern Daylight Saving
.me, Monday, August 29, 1966.
Tenders will not be
!ceived 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
rwarded in the special envelopes which will be supplied by Federal
serve 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
omit tenders except for their own account. Tenders will be received
:hout deposit from incorporated banks and trust companies and from
3ponsible 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.
'-595

- 2 -

Immediately after the closing hour, tenders will be opened at
Federal Reserve Banks and Branches, following which public announce_
ment 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 Treas\Ut
expressly reserves the right to accept or reject any or all tenders ,
in \Jhole or in part, and his action in any such respect shall be
'inal. 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
l..'_cimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on September 1, 1966, I
cash or other immediately available funds or in a like face amount
of Treasury bills maturing September 1, 1966, Cash and exchange ten~
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 exempt ion, as such, and loss from the sa le 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 ~
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 authori~,
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 bi lIs are exclude~
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereun~e
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 upoo
sale or redemption at maturity during the taxable year for wh~h~
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) a~~
notice prescribe the terms of the Treasury bills and govern t~ f
conditions of their issue. Copies of the circular may be obtalned
any Federal Reserve Bank or Branch.
000

-REASURY DEPARTMENT

August 24, 1966
~OR

IMMED IA TE RELEASE
GEORGE E. ZEITLIN, LEAVING TREASURY POST AS
DEPUTY TAX LEGISLATIVE COUNSEL,PRESENTED
MERITORIOUS SERVICE AWARD

The Treasury Department's Meritoriou.s Service Award was
)resented today to George E. Zeitlin, Deputy Tax legislative
:ounsel, who is resigning to teach at the New York University
:chool of Law.
Mr. Zeitlin, 35, and a native of New York, joined the
~easury Department in November 1962 as an attorney,
ubsequently becoming Assistant and Associate Tax Legislative
ounsel before he was named Deputy Tax Legislative Counsel in
965. During nearly four years with the Treasury, he worked on
number of important tax developments, including the Revenue
ct of 1964, the Tax Adjustment Act of 1966 and administrative
evisions in depreciation guidelines in 1964. In addition, as
eputy Tax Legislative Counsel, he supervised other attorneys
orking on tax matters.
Before joining the Treasury, Mr. Zeitlin was associated
Dr seven years with the New York law firm of Chadbourne, Parke,
1iteside and Wolff. A graduate of Columbia College, Columbia
1iversity Law School, and the New York University School of
iW, Mr. Zeitlin has had considerable experience both in
~aching tax law and as a
writer on tax matters.
In presenting the Meritorious Service Award to Mr. Zeitlin,
;s is tant Secre tary Surrey pra ised his "high degree of
>mpetence and boundless energy," noting that Mr. Zeitlin's
:forts also have been devoted over the past four years to work on
lny of the most pifficu1t Treasury tax regulations.

000

tation attached

596

ClTATIOll

Meritorious Service Award

Geers- E. Zeitliu
In hi. four y ..rs with the Office of Tax Legislative Coun •• l,
George ZeitliG has actively participated in most of the ~ortaat
tax develop.ents dur1Dg thia period. particularly the Revenue Act
of 1964, the Tax Adjustment Act of 1966, and the depreciation revision. 1n 1964. With bi. b1gh degree of competence and boundl •••
e1t8rgy. he baa been able to cOlllbil\e these projects with work on
. .ny of the moat difficult Treaaury tax Regulations issued over
the paat four y.ars.
Ae Deputy Tax Legialative Couns.l, he baa not only reviewed
much of the work of the Office but has alao devoted considerable
tfae to aucca •• fully training younger attorneya. His breadth of
knowledge of the tax 1... , quick mind, and willingness to w.ak
hard and 1001 have cClilbined to make major eontrlbuti.oRs to the
Office of the Tax Legislative Counael.

TREASURY DEPARTMENT
Washington
STATEMENl' BY THE HONORABLE FRED B. SMITH,
GENERAL CruNSEL OF THE TRFASURY DEPARTMENT
BEFrnE THE HOOSE C<»tI:I*rEE ON VRrERANS
AFFAIRS, AUGUST 24, 1966 AT 10:00 A.M., EIYl'.

Mr. Chairman:

It is a pleasure for me to appear before this Committee to
testify on H.R. 16557.

This bill would authorize the Administrator

of Veterans Affairs to refund unearned premiums on national service
life insurance erroneously deducted from the arrears in pay paid by
the U.S. Government to certain members of the military forces of the
Government of the Philippines.

The bill would also amend provisions

of existing law, prOviding certain service-connected benefits for a
number of Philippine veterans and their survivors, to (1) authorize
payments of such benefits at the rate of two pesos for each dollar
otherwise authori zed and (2) where annual income is a factor in
entitlement to benefits, to apply the dollar limitation at the rate
of two pesos for each dollar.

The rate now applicable in both cases

is one peso per dollar.
Since I wish to speak about the balance of payments aspects of
this legislation, I would also like to note that this Committee has
reported favorably H.R. 16330 which provides for extension and expansion of the program of grants-in-aid to the Philippines for the
hospitalization for certain veterans,' and H.R. 16367 which extends the
benefi ts of the War Orphans I Educational Assistance Program to the
children of certain Philippine veterans.
The Treasury supports the President's objective of finding
equitable means of resolving certain inequities and inadequacies

F-5~

c: -

that have developed with respect to Philippine veterans benefits
through legislation such as is being considered by this Committee.
However, the President has said that he wishes to minimize the adverse
effects on our balance of payments of the increased payments to the
Philippines resulting from the legislation.

Accordingly he asked

Secretary of State Rusk and Secretary of the Treasury Fowler to
prepare an offset program for discussion with the Philippine govermnent.
The i.ncrease in veterans benefits provided by the two bills that
this Committe has considered and the one the Committee is now considering, will mean that the U.S. will be spending more dollars in
the Philippines in order to buy the pesos needed to pay the increased
benefits.

Unless mitigation arrangements are agreed on, these in-

creased payments to the Philippines will have a significant immediate
adverse effect on our balance of payments, at a time when we are
making efforts on all fronts to eliminate our payments deficits. It
is estimated that the impact of the three bills would be to raise
expenditures in the Philippines by about $17 million in the first year.
Thereafter, the increase would taper off slightly, but would continue
for several years into the future at the rate of at least $12 million
above current dispersement.
The Treasury Department is discussing with other interested
agenCies

a program for offsetting the balance of payments effect of

the increased veterans benefits payments.

We believe that this can

be done in a way that is mutually beneficial to the U.S. and the
Philippines.

- 3 In order to give the Committee some perspective on why mitigating
arrangements are needed, I would like to spend a few minutes on the
present balance of

p~ents

eliminating the deficit.

situation and on our progress toward

Figures announced last Wednesday show that

our defiCit, on a liquidity basis, for the first half of this year ran
at an annual rate of $1.4 billion, about equal to last year's deficit
of $1.4 billion.

Despite the fact that the balance of

p~ents

costs

of Viet Nam have steadily risen since mid-1965, the deficit on a
liquidity basis is only half of what it was before the intensification
of our balance of payments program in early 1965.

In 1964 the deficit

was $2.8 billion.
In 1965, in a special message to Congress, the President asked
bankers and businessmen to exercise voluntary restraint in lending
money or making investment in developed countries.

The Federal Reserve

Board suggested guidelines to be followed by banks and by non-bank
financial institut·ions in their foreign If!D1ling and investment activities and to requests by the Department of Cc:.m.erce for sillUar restraints
by the business cODllllllity.

This program has received excellent coopera-

tion from bankers and businessmen and has made a SUbstantial contribution toward eliminating our balance of payments deficit.
The Government in its expenditures has also been making every
effort to reduce the effects of its overseas expenditures.

For instance,

the balance of payments effect of our military expenditures overseas
was reduced by $1 billion between 1960 and 1965 despite the increased
spending in Viet Nam.

Similarly, the effects of our foreign economic

- 4 assistance on the balance of payments in this period were reduced by
$400 million and about 80 percent of our aid expenditures is now tied
to the purchase of U.S. goods and services.

Many other programs are

being implemented and are needed in order to restore balance in our
international accounts.
Thus, through the efforts of all our citizens and the Government
we have made good progress toward eliminating the balance of payments
deficit despite the increased costs resulting from our efforts in Viet
Nam.

But, a $1.4 billion deficit is still a long way from equilibrium

and we must continue to pursue every effort to avoid an adverse effect
on our balance of payments as a result of the Government's overseas
activities.

It is for this reason that the President desires that

arrangements be reached on minimizing the balance of payments effect
of the three veterans benefit bills.

TREASURY DEPARTMENT

August 25,1966
FOR IMMEDIATE RElEASE
ANTIDUMPING PROCEEDING ON
ALUMINUM SHEATHED COAXIAL CABIE
On August 1, 1966, the Commissioner of Customs received infor-

mation in proper form pursuant to the provisions of section l4.6(b)
of the Customs Regulations indicating a possibility that aluminum
sheathed coaxial cable, also known as insulated electrical conductor
cable imported from Canada, manufactured by Canada Wire & Cable Company, Ltd., Toronto, Canada,is being, or likely to be, sold at less
than fair value within the meaning of the Antidumping Act, 1921, as
amended.

Pursuant to a determination under section 14.6a of the Cus-

toms Regulations, the name of the person who raised or presented the
question of dumping is withheld.
Having conducted a summary investigation pursuant to section
14.6(d)(1)(i) of the Customs Regulations and having determined on
this basis that there are grounds for so doing the Bureau of Customs
is instituting an inquiry pursuant to the provisions of section
l4.6(d)(1)(ii), (2), and (3) of the Customs Regulations to determine
the validity of the information.
An "Antidumping Proceeding Notice" to this effect is being pub-

lished in the Federal Register pursuant to section 14.6(d)(1)(i) of
the Customs Regulations.
Imports of the involved merchandise received during the period
January 1, 1966, through July 31, 1966, were-valued at approximately
$220.000.

TREASURY DEPAR'lMENT
Washington
STATEMENT OF THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
ON AIRWAYS USER CHARGES
AUGUST 24, 1966 -- 10 A.M. EDT
Mr. Chairman and Members of the Committee:
When the Congress in 1962 repealed the tax on amounts
paid for transportation of persons by land and water, it
followed President Kennedy's recommendation and retained
the tax on transportation of persons by air.

This recom-

mendation was part of a proposal by the President for a
system of airways user charges to recoup from civilian users
of the airways the costs of facilities and services utilized
by them o

The other parts of the President's proposal were

not acted upon in 1962.

Today, after our four years of

experience with the tax on air passenger tickets, I appear
in support of President Johnson's recommendation that further
steps be taken to develop an airways user charge system to
encompass general aviation and the cargo carrying function
of cormnercial aviation.

I use the term "general aviation"

to cover those civilian aviation activities other than the
carrying for a fee

F-598

of passengers or cargo.

- 2 In money terms, the recommendations with respect to
cargo transportation and general aviation are quite minor
relative to the monies brought in by the 5 percent ticket
tax.

But transportation of persons by commercial air carriers

is only one aspect of air transportation.

We believe that in

fairness to all involved, the user charge system should be
extended to all civilian users of the airways.

Such expansion

of the user charge system also would enhance the equity of
our tax system by requiring certain airways users to
contribute to the cost of airways facilities which now are
paid by all taxpayers in general -- most of whom never fly.
The program which we are presenting today is a
modification of that recommended by President Johnson in
his January Budget Message.
You will remember that the Budget program had five
parts.

These were: 1) an increase in the ticket tax to 6

percent until January 1, 1969 when it would revert to 5
percent; 2) a 2 percent tax on amounts paid for transportation
of property, with an increase to 4 percent as of January 1,
1969; 3) refund of the full 4 cents per gallon

tax on

gasoline used in planes subject to the taxes on persons or

- 3 -

air cargo; 4) imposition of a tax of 4 cents a gallon on
all fuel (jet or gasoline) used in other ci.vilian planes;
and 5) transfer from the Highway Trust Fund to the general
fund of the revenues from the excise tax on gasoline used
in aviation.
By

way of explanation, let me state that there is now

no tax on jet fuel.

Gasoline is taxed initially at 4 cents

a gallon, but aviation users, along with other off-highway
users, are entitled to a refund of 2 cents a gallon.
The modifications we are proposing are in items 1 and
2 of the original proposal of the President.

We now propose

that the tax on passenger fares be continued at 5 percent
rather than be raised temporarily to 6 percent.

As for

the cargo tax, we recommend that no provision be made for
an automatic increase in 1969 over the 2 percent rate,
although some provision should be made for future evaluation
of the desirability of an increase.
In dollar terms, the proposals would result in
revenues, at fiscal 1967 levels·of business, of $212 million
compared with $199 million under present law.
shawn in the table following:

Details are

- 4 -

Present law

Tax

Proposal

(millions)
Commercial aviation
$186

$186

a gallon

192

194

Gasoline, 2t a gallon
now, 4t proposed

$199

$212

Passenger fares, 5%
Gasoline,

Air cargo charges,
Total
General aviation

Jet fuel,

a gallon

Total
Grand Total

As far as commercial aviation is concerned, the
proposed changes would result in practically no increase
in current tax liability.
equity in this area.

But the changes would improve

The new tax on jet fuel and the 2

cents a gallon increase in the tax on gasoline used by
general aviation also would improve equity as between

vari~

types of general aviation operations besides increasing

tre

- 5 -

contribution of general aviation toward its share of the
costs of the airways system.

Even so, the increased rates

would recoup less than 12 percent of the proportion of
airways costs allocable to general aviation.
I might also point out that the table is constructed
on the assumption that operators of general aviation planes
all apply for the 2 cents a gallon refund now available on
their gasoline.
incorrect.

We know, as I will show later, that this is

To the extent that users do not apply for

refunds, the increased gasoline tax liability of $6 million
shown in the table is an overstatement.
A review of recent growth of the air passenger
transportation business convinces us that prior estimates
of revenues from the 5 percent tax in the next few years
were too low.

The now expected higher rate of growth in

passenger traffic, together with the proposed tax on air
cargo, should bring revenues fairly close to airways costs
allocable to commercial aviation.
in the tax on air cargo, we

As to a further increase

are~willing

to wait and see how

this subsidiary part of the air transportation industry
s.;;:veiops

jii~~~:Jr~

(..,f

recommending a future tax increase.

- 6 Full refund to air carriers of the 4 cents a gallon
tax on aviation gasoline, rather than only 2 cents a gallon
as at present, would equalize the fuel tax pOSition of
different carriers.

Almost 90 percent of the fuel used

today by air carriers is jet fuel.

Since the smaller,

local carriers have a higher proportion of their fleets in
piston-engined planes, these carriers are subject to fuel
tax to a much greater degree than the trunk lines with
their fleets of new jets.
A fuel tax, in our opinion, however, constitutes the
most effective way of increasing general aviation's
contribution to its share of the cost of the airways
system.

Over the years we have reviewed alternative

approaches, such as a

gr~duated

charge per hour of operation.

annual license fee or a

Another approach might be

to impose specific charges for actual uses of various
airways facilities,

All of the alternatives, while

havi~

certain merits, appear less acceptable than a fuel tax.
Some alternatives would
and policing.

requir~

detailed record keeping

A ,fuel tax has the advantage of being collected from
a smaller number of taxpayers than taxes which would be
paid directly by general aviation plane operators
there are some 90,000 general aviation planes.

and

Over

45,000 of these are planes used solely for personal,
non-business, purposes.

A fuel tax also reflects a

combination of hours of use of a plane and its size.

Thus

a light private plane operated a few hours a year uses
little fuel relative to a jet executive plane.

It is true,

of course, that the hours of operation of a plane are not a
direct measure of its use of the facilities provided by the
airways system.

But the more a plane is used, the greater

the possibility that it will make direct use of the airways
facilities.

Furthermore, the mere presence of a plane in

the air is one of the reasons we need controls over the use
of navigable airspace and the traffic control facilities
involved.
Operators of general aviation planes would be affected
in different degrees by the proposed 4 cents a gallon tax
on all the fuel used by them.

Large organizations which are

- 8 -

using jet planes would pay 4 cents a gallon more for their
fuel.

Since those persons who use gasoline powered planes

now pay at least 2 cents a gallon, at least half of the
proposed tax on jet fuel is needed to equalize the tax
situation of those able to afford jet planes with those
using gasoline powered planes.

Operators of gasoline

powered planes would have to pay 2 cents a gallon more than
at present if they currently apply for the 2 cents refund
on their gasoline.

HOst operators of general aviation

planes do not apply for the refund.
While we do not now tabulate gasoline refund claims
in a manner that enables us to identify claims for airplane
use, the validity of the last statement is supported by the
figures on total claims for gasoline refunds.

In the fiscal

year 1965, the Internal Revenue Service paid 28,000 claima
for refund of tax on gasoline used
other than farm use.

off-t~H1ghway,

for

In addition to airplane operators,

these refunds went to such claimants as mass-transit firms,
contractors, and motorboat operators.

Planes used for

general aviation purposes number about 90,000 and over

- 9 -

45,000 of these are planes used for personal flying.

Very

few of the operators of general aviation planes could have
applied for refunds, although operators of some business
planes undoubtedly did apply.

This apparent lack of interest

in the refund is understandable when one notes that the
average personal plane operator is entitled to a refund of
les8 than $20 a year.
The final recommendation of the President was that the
revenues from the excise tax on gasoline used in aviation
be transferred from the Highway Trust Fund to the general
fund.

Since the other aviation user charges will go to the

general fund, aviation gasoline tax revenues also should be
placed in the general fund.

At current operating levels,

Highway Trust Fund revenues would be reduced by $6 million
a year by repeal of the tax on gasoline used in commercial
aviation -- and less in subsequent years as gasoline use by
the airlines declines.

The revenue loss from the transfer

of the tax on gasoline used by general aviation is estimated
at $7 million currently and slightly more as general aviation
grows in the future.

The latter estimate assumes, however,

that general aviation operators all apply for the 2 cents a
gallon refund now available.

- 10 While we believe that we ought to look forward to
someday having an aviation user charge system that approaches
the highway user charge system in the relationship of user
charges to expenditures, we are not

reco~~ending

complete funding system for the airways
the foreseeable future.

any such

at least not in

The gap of considerably over

$100 million per year between the revenue from general
aviation (even as proposed to be increased) and the costs
allocated thereto make impossible the relating of airways
expenditure to receipts from airways user charges.
While, at least for the In:wment, it does not appear
possible to formulate an airways expenditure program
limited to user charge revenues, this does not

precl~de

our working toward a more sufficient and equitable airways
user charge system.

Currently, we can make a step forward

by taxing charges for air C8"cgo transportation to more

accurately reflect Federal expenditures benefiting cargo
flights.

Rail cargo is charged for the cost of the

privately owned rail facilities, and truck cargo charges
reflect the highway user <-"large system.

As to general

- 11 -

aviation, jet fuel should be taxed merely as a matter of
equity as between those using gasoline powered planes and
those

abl~

to afford the larger and faster jets.

increase in the excise tax on all fuel used in general
aviation is sorely needed to recoup even a minor portion
of the airways costs justifiably allocable to this category.
Every motorist pays his share of Federal highway aid in the
form of taxes on gasoline, tires, and lubricating oil.

believe that it is no more than reasonable to work toward
a similar contribution as respects the airways by the general
aviation group.

000

TREASURY DEPARTMENT

JR RELEASE 6: 30 P.M.,

hursday, August 25, 1966.
RESULTS OF REFUNDING OF $1 BILLION OF ONE-YEAR BIILS

The Treasury Department announced that the tenders for $1,000,000,000, or
~ereabouts, of 365-day Treasury bills to be dated August 31, 1966, and to mature
19ust 31, 1967, which were offered on August 18, were opened at the Federal Reserve
:mks today.
The details of this issue are as follows:
Total applied for - $2,236,780,000
Total accepted
1,000,030,000

Range of accepted competitive bids:
High
Low
Average

(includes $33,047,000 entered on a
noncompetitive basis and accepted in
full at the average price shown belOW)
(Excepting one tender of $5,000,000)

annum
- 94.110 Equivalent rate of discount approx. 5.809% per
II
II
"
"
5.863%
"
"
- 94.056
II
"
"
5.844% "
"
- 94.075
1/
1\

(74% of the amount bid for at the low price was accepted)
~deral

Reserve

lstrict
)ston
~w York
liladelphia
Leveland
lchmond
;18nta
licago
;. Louis
lnneapolis
msas City
11188
10 Francisco
TOTAL

Total
Applied For

Total
Accepted

38,807,000
1,458,549,000
16,494,000
34,161,000
1,419,000
23,151,000
295,508,000
28,283,000
6,707,000
27,581,000
11,262,000
294,858,000

$2,236,780,000

I This rate is on a bank discount basis.

-599

15,807,000
626,749,000
1,494,000
1,861,000
1,419.1 000
3,151,000
134,708,000
22,183,000
1,207,000
6,331,000
1,262,000
183,858,000

$1,000,030,000

The equivalent coupon issue yield is 6.20~.

TREASURY DEPARTMENT

FOR USE IN MORNING NEWSPAPERS
OF FRIDAY, AUGUST 26, 1966
NEW DISTRICT DIRECTOR FOR BALTIMORE
NAMED BY U. S. CUSTOMS SERVICE
Assistant Secretary of the Treasury True Davis today
announced the appointment of Leslie L. Spiers as District
Director for the Baltimore Customs Region III. Mr. Spiers
is presently Director of the Portland (Oregon) Customs
District. He succeeds John Eugene Kennedy, who retired
recently. The appointment is effective on September 1st.
The Baltimore Customs District includes the ports of
Annapolis, Cambridge and Crisfield, Maryland, and
Washington, D. C. It is under the supervision of the
Regional Commissioner of Customs in Baltimore.
The Bureau of Customs, part of the Treasury Department,
is headed by U. S. Commissioner of Customs Lester D. Johnson
in Washington.
..'..
"

..'...
"

Mr. Spiers was born in Oklahoma in 1906, and was educated
at the University of Arizona in Tucson. After service as a
railroad clerk, he entered the Customs Bureau as an inspector
in 1938. He served as deputy collector, entry officer,
liquidator, fiscal accountant and field auditor at Nogales,
New Orleans and San Francisco.
Mr. Spiers served with the Navy 1943-45 as a machinist.
In 1955 Mr. Spiers became organization and methods examiner
in Washington. In 1956 he was named assistant collector of
customs at Charleston, South Carolina. In November 1963, he
was transferred to Manila as advisor to the Commissioner of
Customs for the Phillipines.

000

F-600

REASURY DEPARTMENT

August 29, 1966

IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invit~s tenders
two series of Treasury bills to the aggregate amount of
300,000,000, or thereabouts, for cash and in exchange for
LSUry bills maturing September 8, 1966,ln the amount of
300,532,000, as follows:
91-day b~lls (to maturity date) to be issued
;he amount of $1,300,000,000, or thereabouts,
.tional amount of bills dateC June 9, 1966,
Lre December 8, 1966,originally.,issued in the
)00,517,000, the additional and original bills
Irchangeable.

Sept.ember 8 ,- 1966,
representing an
and to
amount of
to be freely

182-day bills, for $1,000,000,000, or thereabouts, to be dated
:ember 8, 1966, and to mature March 9, 19670
The bills of both seri,es will be issued on a discount basis under
letitive and noncompetitive bidding as hereinafter provided, and at
lrity their face amount will be payable without interest. They
. be issued in bearer form only, and in denominations of $1,000,
)00, $10,000, $50,000, $100,000, $500,000 and $1,000,000
;uri ty value).
Tenders will be received at Federal Reserve Banks and Branches
the closing hour, one-thirty p.m., Eastern Daylight Saving
I, Friday, September 2, 19660
Tenders will not be
lived at the Treasury De~artment, Washington. Each tender must
'or an even multiple of $1,000, and in the case of competitive
lers the price offered must be expressed on the baSis of 100,
1 not more than three decimals, e. g., 99.925.
Fractions may not
lsed. It is urged that tenders be made on the printed forms and
rarded in the special envelopes which will be supplied by Federal
Irve Banks or Branches on application therefor.
;0

Banking institutions generally may submit tenders for account of
;omers provided the names of the customers are set forth in such
lers. Others than banking institutions will not be permitted to
lit tenders except for their own account. Tenders will be received
LOut deposit from incorporated banks and trust companies and from
lons1ble and recognized dealers in investment secur1ties. Tenders
1 others must be accompanied by payment of 2 percent of the face
Lnt of Treasury bills applied for, unless the tenders are
tmpan1ed by an express guaranty of payment by an incorporated bank
,rust company.
601

- 2 Immediately after the closing hour, tenders will be opened at the
Federa 1 Reserve Banks and Branches, following which pub 1 ic 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 rej ec t ion thereof. The Secre tary of the Treasurv
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 ~nders 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 Bank on September 8, 1Qh6, in
cash or other immediately available funds or in a like face a ... __ .. .:
of Treasury bills maturing September 8, 1966. Cash and exchange tenderd
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 tceatment, 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 bi lls 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 t~
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revis ion) 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

August 29, 1966
FOR IMMEDIATE REIEASE
ANTIDUMPING PROCEEDING ON
PIG IRON
On June 6, 1966, the Commissioner of Customs received information in proper form pursuant to the provisions of section 14.6(b)
of the Customs Regulations indicating a possibility that pig iron
imported from East Germany is being, or likely to be, sold at less
than fair value within the meaning of the Antidumping Act, 1921, as
amended.

The information was submitted by Congressman Thaddeus J.

Dulski of New York, on behalf of the domestic pig iron industry.
Having conducted a summary investigation pursuant to section
14.6(d)(1)(i) of the Customs Regulations and having determined on
this basis that there are grounds for so doing the Bureau of Customs
is instituting an inquiry pursuant to the provisions of section
14.6(d)(1)(ii), (2), and (3) of the Customs Regulations to determine the validity of the information.
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.
Imports of the involved merchandise received during the period
January 1, 1966, through June 30, 1966, were valued at approximatelJr
$800,000.

TREASURY DEPARTMENT
4

WSE 6:30 P.M.,
., August 29, 1966.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING

he Treasury Department announced that the tenders for two series of Treasury bills,
ries to be an additional issue of the bills dated June 2, 1966, and the other series
dated September 1, 1966, which . . . rere offered on August 24, 1966, were opened at the
1 Reserve Banks. to~. Tenders were invited for $1,300,000,000, or thereabouts, of
bills and for $1,000,000,000, or thereabouts, of 182-day bills. The details of the
ries are as follows:
OF ACCEPTED
ITIVE BIDS:

igh
ow
verage

91-day Treasu_~ bills
maturing December II 1966
Approx. Equiv.
Price
Annual Rate
98.726 a/
5.040%
98.704 5.127%
98.714
5.087% Y

••

·
·:
·•••
•
:
•

182-dey Treasury bills
maturing March 2,2 1967
Approx. Equiv.
Price
Annual Rate
97.208
5.523%
97.154
5.629%
97.186
5.566% Y

I Excepting one tender of $2,000,000
4% of the amount of 91-nay bills bid for at the low price

was accepted
5% of the amount of 182-day bills bid for at the low price was accepted
rENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

crict

A;ep1ied For
Acce;eted
~on
$ 23,137,000 $ 13,137,000
York
910,758,000
1,444,868,000
18,562,000
lade1pbia
30,562,000
reland
26,247,000
26,247,000
11,178,000
11,178,000
lDlond
30,183,000
mta
35,~3,OOO
133,666,000
268,666,000
~ago
35,526,000
Louis
36,526,000
19, Oll, 000
19,011,000
19apolis
25,650,000
sas City
25,650,000
18,180,000
26,180,000
Las
57,987,000
Francisco
87 z387 2 OOO
TOTALS $2,034,455,000 $1,300,085,000

••
••

:
:
••
I

:
••
I
I
I

£I

Applied For
Acce;eted
7,388,000
$
7,388,000 $
708,581,000
1,)20,501,000
5,i~60,OOO
13,460,000
14,697,0cx>
24,f,97,OOO
4,675,000
4,675,000
19,247,000
25,247,000
lll,998,OOO
261,998,000
21,612,000
21,612,000
12,238,000
12,238,000
12,547,000
12,547,000
10,961,000
13,961,000
10,605,000
90,605,000
$1,808,929,000 $1,000,009,000 ~

.udes $254,022,000 noncompetitive tenders accepted at the average price of 98.714
udes $122,083,000 noncompetitive tenders accepted at the average price of 97.186
e rates are on a bank discount basis. The equivalent coupon issue yields are
,% tor the 91-day bills, ani 5.81% tor the 182-day bills.

TREASURY DEPARTMENT
Washington
STATEMENT OF THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
ON H. R. 15942 AND H. R. 15943
AUGUST 29, 1966 -- 10 A.M. EDT

Mro Chairman and Members of the Committee:
I appreciate very much this opportunity to appear before
your Committee to explain the views of the Treasury Department
on H. R. 15942 and HoRo 15943.

These identical bills relate

to a group of problems which have been of serious concern to
Congress before -- the problems generated when tax-exempt
organizations borrow money for purposes unrelated to their
exempt functions o

Those problems were considerably intensi-

fied last year by the decision of the Supreme Court in
Commissioner v. Clay B. Brown.
For several reasons, the Treasury Department strongly
supports these bills, which Chairman Mills and Mr. Byrnes
have introduced.

To make clear the grounds for our support,

let me first describe the Brown case briefly and outline the
exempt organization problems which it highlights.

With that

background, I can then explain how the proposed bills work
and why it is our view that, in their continuation of an

F-603

- 2 -

approach adopted by Congress in 1950 to deal with one form
of exempt organization investment borrowing, they would
resolve these problems effectively and fairly, and without
impeding the legitimate functions of the organizations to
which Congress has accorded the privilege of tax exemption o
The Brown Case
The Brown case involved a situation which an exempt
organization acquired a sawmill and lumber business by
agreeing to pay the former owners a percentage of the
future profits of the business until a specified maximum
amount had been reached.

Making no commitment for payment

other than from the assets of the transferred business
itself and the income produced by those assets, the exempt
organization obtained the business -- valued at $1,300,000 -without any investment of its own funds.

Careful steps were

taken to immunize the earnings of the enterprise from the
present tax on unrelated business income.

The question

before the Supreme Court was the tax treatment of the former
owners of the business; the exemption of the organization was

- 3 ...

not in issue o

With three Justices dissenting, the Court

held that the former owners were entitled to treat their
profits on the transaction as capital gains.
Alarmed by the implications of the decision, the dissenting opinion pointed out that:
In any realistic sense the Government's grant of
a tax exemption was used by the [exempt purchaser]
as part of an arrangement that allowed it to buy a
business that in fact cost it nothing o I cannot
believe that Congress intended such a resu1t ••• o •
Unless Congress repairs the damage done by the
Court's holding, I should think that charities
will soon own a considerable number of closed
corporations, the owners of which will see no good
reason to continue paying taxes at ordinary income
ratesoo.oThe tax avoidance routes opened by the
Court's opinion will surely be used to advantage
by the owners of closed corporations and other
income-producing assets in order to evade ordinary
income taxes and pay at capital gain rates, with
a resultant large-scale ownership of private businesses by tax-exempt organizations.
The majority and concurring Justices also referred to the
area as one for Congressional action.
Unfortunate Consequences of Exempt Organization
Investment Borrowing
The availability of the tax exemption for use in transactions following the Brown pattern, and in other arrangements

- 4 involving borrowing for investment purposes, has three very
unfortunate consequences:
Incentive for Shift of Productive Property to Exempt Sector
First, in any acquisition in which the purchase price
is to be financed from the future earnings of the transferred
property, tax-exempt orgaPizations are peculiarly suited to
pay a substantially higher price -- and pay it more rapidly
than a taxable purchaser could afford.

They can, in effect,

make available to the seller the additional business earnings
which would have been paid to the government as taxes had
the purchaser been taxable.

The particular advantage of

exempt organizations as purchasers in transactions of this
sort has for some time been widely advertised in the tax and
business press, and since the Brown decision such advertising
has intensified.
ment o

Several examples are appended to this state-

I draw your attention particularly to a page of the

Prentice-Hall Executives Tax Report entitled "Boosting
Profits."

Asking "Have}Ou Put a Price on Your Business?",

the announcement provides an arresting and enticing answer:
"You May Be Able to Double It -- By Selling to a Charity."

- 5 -

With the dual attractions to sellers of higher prices and
Supreme Court-approved capital gains treatment, it seems
quite likely that, unless something is done, a substantial
unplanned shift of productive property to the exempt sector
of our economy will occur.

One result of such a shift

would, clearly, be very considerable erosion of the income
tax base.

Another might well be broad economic and social

changes stemming from the ownership of a large number of
businesses by organizations with different motives and
different objectives than the entrepreneurs who have thus
far constituted our business community.
Diversion of Exemption Benefit to Private Parties
A second undesirable result typically attends borrowing
by exempt organizations for investment purposes.

The price

inflation characteristic of Brown-type transactions and
common in other exempt organization borrowing situations
deflects, to the personal benefit of private parties, a
substantial portion of the advantage which Congress intended
tax exemption to produce for the organizations upon which
it conferred the exemption o

When sellers obtain the increase

- 6 in purchase price made possible by the tax exemption of
future earnings, they draw a significant share of the
advantage of the exemption to themselves o

In effect, the

purchasing organization trades temporary use of its exemption for the opportunity to own the property completely
in the future.

This result has commonly been described

as the organization's "selling its exernption. u
Exempt Organization Expansion from Within
A third unfortunate consequence follows from exempt
organization investment borrowing o

This investment borrow-

ing enables an exempt organization to convert its tax
exemption into a self-sufficient device for the production
of capital.

By borrowing, the organization can extend the

function of its exemption beyond the protection of income
stemming from charitable contributions or membership fees;
it can use the exemption to develop funds even where there
are no contributions or membership fees.

Commentators have

referred to this activity as "trading upon" or "capitalizing" the tax exemption.

The organization which makes such

use of its exemption can sever itself from reliance upon

- 7 contributors or members and eliminate the healthful scrutiny
of its purposes and activities which that reliance implies.
By this extension of its exemption privilege to borrowed
assets and this separation from dependence upon contributors
or members, the organization begins a multiplication of its
holdings which bears no relation to the community's evaluation of its exempt activities; it embarks upon an extension
of its economic holdings which is limited only by the
financial acumen and commercial skills of its managers.

organization involved several years ago in Tax Court litigation, for example, began with a net worth of $1,000 and -by means of borrowing -- within five years had increased its
holdings to include a 34-acre tract of industrial real
property worth $1,150,0000

Another organization, formed in

1954 with no funds of its own at all, entered upon a program
of investing in oil payments with borrowed money.

By 1961

the organization had incurred indebtedness of more than $14
million, and had net income of almost $70,000 a year. Remarkable as they are, these situations are by no means atypical
illustrations of the consequences of unrestricted exempt
organization borrowing for investment purposes.

- 8 Previous Congressional Action
In 1950 Congress recognized the impropriety and danger
inherent in such exploitation of the tax-exemption privilege.

Concerned with a proliferation of situations in which

exempt organizations were purchasing commercial property,
leasing it back to the original owners, and utilizing future
rents from the property to pay the purchase loan, both this
Committee and the Senate

F~nance

Committee stated that:

[One] objection to the lease-back is that it
is altogether conceivable that if its use is not
checked, exempt organizations in the not-too-distant
future may own the great bulk of the commercial and
industrial real estate in the country. This, of
course, would lower drastically the rental income
included in the corporate and individual income tax
bases. The fact that under present law an exempt
institution need not use any of its own funds in
acquiring property through lease-backs -- borrowed
funds may represent 100 percent of the purchase
price -- indicates that there is no limit to the
property an exempt institution may acquire in this
manner
Such acquisitions are not in any way
limited by the funds available for investment on
the part of the exempt institution. This explains
why particular attention should be given to leasebacks which involve the use of borrowed funds.
Where an exempt organization uses its own funds,
expansion of its property holdings through the
lease-back device must necessarily proceed at a
much slower pace. (H. Rep. No o 2319, 8lst Cong.,
2d Sess. 39 (1950), 1950-2 Cum. Bull. 410; S. Rep.
No. 2375, 81st Cong., 2d Sess. 31 (1950), 1950-2
Cum Bu1I o 506)
0

- 9 To deal with the problem, the Revenue Act of 1950 provided, generally, for taxation of a portion of the rent which
certain types of exempt organizations receive from property
acquired with borrowed funds.

The fundamental approach of

this provision (continued without material change as section
514 of the present Internal Revenue Code) was a simple and
sound one:

Tax exemption should be restricted to earnings

arising from the exempt entity's own assets, so as to eliminate the abuses and artificial incentives attendant upon
exemption of

inco~e

produced by borrowed funds.

Despite the essential soundness of its policy, the form
which the 1950 Act took has proved to contain several defects.
Because the provision was engrafted upon legislation which
had the rather different objective of taxing the business
activities of exempt organizations

whether the organiza-

tion owned them outright or not -- it was made applicable
only to those classes of organizations which Congress
thought to be then significantly involved in business.

a result, it imposes no restraint whatever upon the abuses
which arise when other kinds of exempt organizations borrow

- 10 to invest.

Again, because the measure was drafted to cope

with the particular variety of investment borrowing specifically drawn to the attention of Congress in 1950 -- the
leaseback -- it was made applicable only to rental income.
It thus affords no solution to the same fundamental problems which exist where the income produced by borrowed funds
is realized in the form of royalties, dividends, interest,
or capital gains.

Finally, even in the area to which it

does apply -- even, that is, where the exempt organization
is in one of the classes covered by the legislation and
where its investment is in rental property -- the 1950 Act
has been crippled by the presence of an exception which permits rents from leases whose terms are not longer than five
years to be received without tax.
Tax planners have taken full and repeated advantage of
these deficiencies of the 1950 legislation.

The situation

involved in the Brown case typifies a growing body of trans·
actions in which exempt organization have fashioned their
acquisitions of productive property to avoid the impact of
the provision.

Indeed, even before the announcement of the

- 11 Supreme Court decision in Brown, more than 30 similar cases
in which, for one reason or another, the tax imposed under
the 1950 Act was, or was claimed to be, inapplicable -- were
pending before the courts or the Internal Revenue Service.
With the impetus added by Supreme Court approval of capital
gains treatment for the sellers, the already well-traveled
avenues around the 1950 Act can be expected to become
thoroughfares.
Design of Proposed Bills
The proposed bills continue the basic approach of the
1950 provision, but eliminate the deficiencies which experience has demonstrated that provision to possess.

The

bills impose income tax upon the "unrelated debt-financed
income" of all exempt organizations described in sections
401 (a) and 501 (c) of the Internal Revenue Code.

Under the

bills, income would be subject to tax only if it meets two
tests:

it would have to be derived from property acquired

or improved with borrowed funds, and its production would
have to be "unrelated" to the educational, charitable,
religious, or other operations constituting the basis of

- 12 -

the organization's tax exemption.

Income produced by

investments of an organization's own funds would be unaffected by the bills.

Further, borrowing by an exempt

organization for its exempt purposes -- for example, borrowing by a college to build a dormitory

would fall

beyond the scope of the proposals.
The taxable portion

the unrelated income from any

particular property would, in general, be the amount bearing the same ratio to the total income from the property
as the amount of the average indebtedness for the year
bears to the basis of the property at the end of the yearo
Deductions would be limited by the same percentage figure.
Certain special rules would be employed to prevent avoidance of the tax by shifting deductions from years in which
indebtedness is largely or completely discharged to earlier
years in which it is high:

depreciation, for example, would

be limited to the straight-line method.
Generally, during the next five years the new rules
would apply only where indebtedness has been incurred after
the date of the bills' introduction (June 27, 1966) and only

- 13 to income received after the date of enactment.

The five-

year transition period would afford organizations with
previously initiated unrelated borrowing an opportunity to
prevent or minimize tax under the new rules by disposing
of their acquisitions for fair value, by discharging indebtedness in full with exempt income or other assets, or at
least by reducing the amount of outstanding indebtedness.
After the transition period, the new rules would become
applicable to all situations of exempt organization investment borrowing.
A more detailed explanation of the mechanics of the
bills is attached.
What the Bills Do Not Do
To eliminate any possible misunderstanding, I should
like to make very plain what the proposed

bil~do

not do.

First, they do not have any effect upon the exempt organization which invests only its own funds.
to the organization which borrows

They apply only

the organization which

is earning money with someone else's funds.

Second, they

have no effect upon the organization which borrows in

- 14 pursuance of its exempt activities.

Only the production of

income unrelated to those activities results in tax o

Third,

the bills do not change the rules which Congress enacted in
1950 for the taxation of businesses owned outright by exempt
organizations.

Those rules, with their present exceptions

and exclusions, would remain as they are.

Finally, the

bills do not single out anyone kind of exempt organization
and impose a special tax upon it.

They apply equally to all

categories of organizations exempted under the general
exemption section of the Internal Revenue Code.
Tax Treatment of Sellers
In passing, I should like to point out also that the
bills do not deal with the Supreme Court's grant of capital
gains treatment to the sellers in transactions of the Brown
type.

While extension of capital gains privileges to trans-

fers of the Brown pattern may lead to abuses beyond the
exempt organization field, the Brown transfer has sufficient
elements in cornmon with some kinds of ordinary commercial
transactions to make it important that care be taken in any

- 15 legislative withdrawal of capital gains treatment.

Further,

the overwhelming majority of transfers in the Brown mold
have thus far been to exempt organizations, and it may well
be that, as a practical matter, adoption of the present
bills will obviate the necessity of dealing with the capital
gains issue.

In view of those facts, and in view of the

urgency of attention to the exempt organization problems
arising under the Brown decision, we have concluded that it
would be best to attend now to the primary problem area -the abuses and pressures produced by exempt organization
investment borrowing -- and to subject the future experience
of the Internal Revenue Service and the development of the
case law to continuing careful scrutiny to determine whether
the capital gains problems possess sufficient practical
importance to warrant legislative action.
Conclusion
In closing, let me emphasize that the present fortuitous, but very powerful, incentive for the transfer of
businesses and other classes of productive property to exempt
organizations requires effective and prompt Congressional

- 16 action.

As I have mentioned, even before the Brown decision

gave Supreme Court sanction to the capital gains treatment
claimed by the sellers in such arrangements, a considerable
number of these transfers had occurred.

If Congress does

not deal with the problem -- and deal with it quickly -a great many more will take place.

We have, for example,

been informed that even in the brief span since the Supreme
Court decision one organization has managed to acquire seven
separate businesses.

Advertisements by exempt organizations

in the Wall Street Journal (copies of several of which are
appended to this statement) afford another indication of
what will come.

The proposed bills employ an approach which

Congress has already approved in dealing with problems of
this character.

It is an approach which would have no effect

at all upon exempt organizations limiting themselves to use
of their own funds -- or even of borrowed funds related to
their exempt activities -- and which does no more than place
those organizations borrowing for unrelated investment purposes upon the same tax ground as other taxpayers.

Because

- 17 the need for legislation here is great and the proposed bills
are effective, fair and moderate, the Treasury Department
strongly recommends that the Ways and Means Committee approve
them.

Attachments

Technical Explanation

General

H.R. 15942 and 15943 would use the general approach of the statute
enacted in 1950 to deal with the leaseback problem (now section 514 of
the Internal Revenue Code). Income derived from property acquired or·
improved with borrowed funds would be taxable if the use of the property
is unrelated to the organization's exempt purpose or function. To make
as much use as possible of the solution already adopted by Congress,
H.R. 15942 and 15943 would integrate this proposed tax into the existing
statutory structure. As a result, such basic concepts as the distinction
between "related" and "unrelated" activities would be defined by existing law, and the necessity for new and unfamiliar definitions would be
reduced.
2.

Organizations Subject to

l.'c...x

Section 1 of H.R. 15942 and 15943 would amend section 511 (a), which
imposes the unrelated business tax, to make the tax apply to all organizations exempt from tax by reason of section 401 (a) and section 501 (c).
Section 2 of the bill would expand the definition of "unrelated business
taxable income" provided in section 512 to include a new category of
unrelated income -- "unrelated debt-financed income." The organizations
already subject to the unrelated business tax (e.g., charitable organizations, labor unions) would be taxable both on this category of income and,
as at present, on income derived from the active conduct of an unrelated
trade or business. The organizations not now subject to the tax (e.g.,
churches, civic associations, fraternal associations) would be taxable
only on the new category of income. This revision would not affect the
tax imposed by existing law on unrelated business activities of exempt
organizations; its only effect would be to make all exempt organizations
taxable on certain debt-financed income.

Income Subj ect to Tax

(a) tlUnrelated debt-financed income. " While H.R. 15942 and
15943 would apply to income whether or not it is "rent", they would in
large part use rules similar to those of the existing leaseback provision
in determining what income is to be taxed and in computing how much of
it is taxable. Under the new rules, the tax base would be "unrelated
debt-financed income". Such income would be the gross income taken into
account under the new section 514 (b) with respect to "debt-financed
property", less the deductions allowable under the new section 514 (c)
with respect to such property. In general, subsections (b) and (c) of
section 514 bring into the computation of the tax base a portion of the
total gross income and deductions attributable to debt-financed
property, determined by applying to those totals the fraction

average acquisition indebtedness for the taxable year
the property at the close of the taxable year.

aajustea oasts or

- 2 An addition to existing law is that gains from the sale or other disposition

of debt-financed property are included in the gross income figure.
(b) "Debt-Financed Property." Debt-financed property would, with
four exceptions, be all property (e.g., rental real estate~ tangible personal property, corporate stock) which is held to produce lncome and .
with respect to which there is an "acquisition indebtedness" at aIJY tune
during the taxable year (or during the preceding 12 months, if the property
is disposed of during the year). The four exceptions from this definition
would be these:
(1) Property all of the use of which is related to the
exercise or performance of the organization's exempt function. Thus, a
college could finance construction of a dormitory for its students with
borrowed funds and payoff the indebtedness from student rents without
subjecting any of those rents to tax.
(2) Property all of the income from which is already subject
to tax as income from the conduct of an unrelated trade or business. This
exception would prevent double taxation of income from financed property
used in a trade or business which is taxable under existing law. The
exception would, of course, not apply to organizations presently excepted
from tax on income deriving from unrelated business.
(3) Property all of the income from which is derived from
research activities excepted from the present unrelated business income tax.
There are three classes of such research: (a) that performed for government~
bodies; (b) that performed by colleges, universities, or hospitals for
any person; and (c) that performed by certain fundamental research organizations for any person.

(4) Property all the use of which is in a trade or business
exempted from tax by section 513 (a)(l), (2), or (3). These exceptions
apply where (a) substantially all the work in carrying on the business is
performed without compensation (e.g., a church thrift ship), (b) a section
501 (c)(3) organization carries on business primarily for the convenience
of members, students, patients, officers, or employees (e.g., a college
cafeteria), or (c) the business consists of selling merchandise substantially
all of which has been received as contributions (e.g., Good Will Industries).
(c) "Acquisition Indebtedness." Income producing property
would become "debt-financed property" -- and its income taxable -- only
where there is an "acquisition indebtedness" attributable to it. The latter
term would be very similar to "business leases indebtedness" as defined in
existing law. Generally, an Ttacquisition indebtedness lt would exist with
respect to any property whenever the indebtedness was incurred in acquir~
or improving the property or would not have been incurred "but for" the
acquisition or improvement of the property. If an indebtedness is incurred

- 3 after the property was acquired or improved, it would have to meet a further
requirement: it would not be "acquisition indebtedness" unless its incurrence was reasonably foreseeable at the time of the acquisition or
improvement. Under special rules, if property is acquired subject to a
mortgage, the mortgage would be treated as an acquisition indebtedness
incurred by the organization when the property is acquired. The extension,
renewal, or refinancing of an existing Indebtedness would not be treated
as the creation of a new indebtedness. The latter rule would preclude the
argument that a refinancing was not reasonably foreseeable at the time of
the original acquisition of the property and that, therefore, the obligation
extant after the refinancing is not an acquisition indebtedness.
(d) "Aver e acquisition indebtedness." For purposes of the
numerator of the fundamental debt basis fraction, acquisition indebtedness
would be averaged over the taxable year. The averaging mechanism precludes
an exempt organization from avoiding the tax by using other available funds
to payoff the indebtedness immediately before any fixed determination date.
If debt-financed property is disposed of during the year, tlaverage acquisition
indebtedness" would mean the highest acquisition indebtedness during the
preceding 12 months. Without such a rule, an exempt organization could avoid
tax by using other resources to discharge indebtedness before the end of one
taxable year and dispose of the property after the beginning of the next
taxable year. For example, suppose exempt organization E has purchased
income-producing property for $20,000 and incurred an indebtedness, still
unpaid, of $15,000 to make the purchase. If E sells the property on December
31 for $50,000, 75 percent of the $30,000 capital gain would be included in
gross income. Suppose, however, E uses other available resources to discharge
the indebtedness on December 31, and sells the property January 2. Without
the described special rule for dispositions, the numerator of the fraction
would be zero, and no part of the gain would be taxable. Under the special
rule an organization would have to commit its own funds at least 12 months
in advance of disposition to escape tax on gain from the disposition.
(e) Basis. For purposes of the denominator of the debt/basis
fraction, adjusted basis would be computed as of the close of the taxable
year, after adjustment for depreciation allowed or allowable during the
year. This provision follows section 514 (a)(l) of existing law. The
adjusted basis of property disposed of during the year would be determined
as of the date of disposition.
If property is distributed from a taxable corporation to
the exempt organization, the exempt organization would be required to use
the basis of the distributing corporation, with adjustment for any gain
recognized on the distribution either to the exempt organization (as, for
example, might be the case if the exempt organization had an acquisition
indebtedness applicable to its stock in the distributing corporation) or
to the taxable corporation (for example, as recapture of depreciation under
sections 1245 or 1250). This rule would prevent an exempt organization
from acquiring the property in a taxable subsidiary to secure accelerated
depreCiation during the first several years of the life of the property,
enabling the subsidiary to payoff a large part of the indebtedness during
those years and the exempt organization to obtain a stepped-up basis

- 4 (advantageous both for depreciation purposes and for purposes of enlar~
the denominator of the debt/basis fraction) on liquidation of the subs1~.
ary.

(f) Allowable deductions. The percentage used in determining
the taxable portion of total gross income would. aLso be used to canpute
the a110wable portion of deductions "directly connected with" the debtfinanced property or the incane from it. The direct connection requirement is carried over from section 512 of present law. The general app~h
of the bills is to allow all deductions that wouJ.d be allowed to a normal
taxpayer, to the extent consistent with the purpose of the bills and the
nature of the speciaL problems to which they are directed. For example,
net operating loss and charitable contribution deductions would be ~,
subject to the l1m1 tat ions imposed by existing law on organizations taxable on unrelated business incane (e.g., the percentage l1m1tations on
the charitable deduction are computed with reference only to the organization's unrelated business incane, not its totaL incane).
However, the deduction for depreciation would be restricted to
the straight-line method. Accelerated depreciation Ordinarily has the
effect of deferring tax on lncane fran depreciable property. However,
under the approach of the proposed bills, an exempt organization would
become a taxpayer only for a limited period of time -- while acquisition
indebtedness remains outstanding -- and would during that time be taxed
on a declining proportion of its income. In that setting, accelerated
depreciation can be used for more than mere tax deferral; it can be used
to reduce the totaL amount of the tax payable or, in some situations,
eliminate tax altogether. It accanplishes that result by enlarging deductions in early years, in which taxability would otherwise be high because
of the large amount of indebtedness outstanding.
To the extent that the
use:f'u.l life of the property is longer than the term of the indebtedness,
acceleration of depreciation shields otherwise taxable income by means of
deductions shifted fran periods in which no tax at a1l would be paid.
Hence, the bills' 1im1tat ion of depreciation to the straight-line method
is necessary to make their approach meaningful.
Multiple use of property. If property is used partly for
exempt and partly for non-exempt purposes, the income and deductions
attributable to the exempt uses are excluded from the computation of
unrelated debt-financed incCllle, and allocations are to be made, where
appropriate, for acquisition indebtedness, adjusted baSiS, and deduct1o~
assignable to the property.
(g)

Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.

Citation Information
Document Type: Article

Number of Pages Removed:

Author(s):
Title:

"Boosting Profits: Have You Put a Price on Your Business? You May Be Able to Double It By Selling to a Charity"

Date:

1963-06-24

Journal:

Prentice-Hall Executives Tax Report

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.

Citation Information
Document Type: Article

Number of Pages Removed: 2

Author(s):
Title:

"New Developments in Tax-exempt Institutions and Related Matters"

Date:

1963-11-01

Journal:

The Journal of Taxation

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.

Citation Information
Document Type: Article

Number of Pages Removed:

Author(s):
Title:

The Kiplinger Tax Letter

Date:

1965-05-14

Journal:

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.

Citation Information
Document Type: Article

Number of Pages Removed:

Author(s):
Title:

"Tax-Exempt Institution Seeks Closely-Held Companies (Brokers Protected)"

Date:

1965-05-25

Journal:

Wall Street Journal

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.

Citation Information
Document Type: Article

Number of Pages Removed:

Author(s):
Title:

"Tax Exempt Foundation Will Purchase Private and Closely Held Companies [...]"

Date:

1965-08-09

Journal:

Wall Street Journal

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.

Citation Information
Document Type: Article

Number of Pages Removed:

Author(s):
Title:

"Highly Respected Charitable Fund (Non-Profit) Will Purchase [...]"

Date:

1965-05-19

Journal:

Wall Street Journal

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

TREASURY DEPARTMENT

August 30, 1966
FOR IMMEDIATE RELEASE
NEW DEPUTY ASSISTANT FOR PUBLIC AFFAIRS
Secretary of the Treasury Henry H. Fowler today announced
the appointment of Frank O'Brien, Jr. as Deputy Assistant to
the Secretary for Public Affairs. Mr. O'Brien, who joined the
Treasury in April, 1965, replaces Mark T. Sheehan, who is now
with the Department of State.
In his new post, Mr. O'Brien will be principal assistant
to James F. King, the Assistant to the Secretary for Public
Affairs. Mr. King directs the information, press, and related
activities of the Treasury Department and all its bureaus.
Mr. O'Brien was born in Kansas City, Missouri, April 4,
1916. He attended public schools in Kansas City and was
graduated from the University of Nissouri in June, 1939 with
a Bachelor of Journalism degree.
He worked for Hearst Publications until March, 1940, in
New York City when he went to Turkey for the International
News Service.
In 1941, Mr. O'Brien became an Associated Press staffer in
charge of the AP listening post at Istanbu! covering the
occupied Balkan countries. In 1944, he covered entry of the
Russian army into Rumania and the Soviet takeover in Rumania
and Bulgaria.
Mr. O'Brien went to Egypt in 1945. Following assignments
in Syria, Italy and another tour of duty in Rumania, he returned
to the U. S. in 1946 where, with William B. King he wrote a
book on the Russian takeover of the Balkans, The Balkans,
Frontier of Two Worlds, published by Knopf in 1947. He then
went to the AP Bureau in Rome where he was assigned to general
political, economic and Vatican coverage.

-F-604

- 2 -

Mr. O'Brien returned to the U.S. in 1949. He worked one
year at the AP Bureau in Philadelphia, and was assigned to the
Washington AP Bureau at the end of 1950. His duties included
coverage of the Treasury, Federal Reserve System, Department
of Commerce, Securities and Exchange Commission, Federal Trade
Commission, and housing agencies.
In April, 1956, Mr. O'Brien joined the Research Staff of
the Committee for Economic Development. At CED, he handled
research assignments in adaptation of the economy to change,
causes of poverty, foreign development assistance, agricultural
policy and trade policy, and edited a research quarterly. He
became Assistant Director of Research -- Editorial, in 1964.
In addition, he was the author of a book-length CED study of the
growth of economic troubles and weaknesses in communist
countries, Crisis in World Communism, published by CED and
MacMillan Company in the Spring of 1965.
Mr. O'Brien is married to the former Sevim Zekeriya of
Istanbul, Turkey. They live (at 4211 Bradley Lane) in
Chevy Chase, Maryland. They have three children.

000

United States Savings Bonds Issued and Redeemed Through August 31~ 1966
(Dollar amounts in millions - rounded and will not necessarily add to tc: ': ls)
Amount
Issued 1

Amount
Redeemed 1

Amount
Outstandin

~URt;D

I %ofOuts
tanding
Amt.Issued_
I

.18
5,003
4,994
9
.22
66
29,455
lries F & G-1941 - 1952 •••••••••• 29,521
1.74
864
849
15
lries J and K - 1952 - 1953 .•••••
~~ED
~======~========~===========*==========
ries E: 3/
13.35
1,857
1,609
248
1941 •••••••••••••••••••••••
13.05
8,197
7,128
1,070
1942 •••••••••••••••••••••••
12.80
ll,$02
1,689
1943 ••.•••••••••••••••••••• 13,191
13.56
1944 ....••••.•.•••••••••••• 15,385
2,086
13,300
j
15.22
1945 ••••••••••••••••••••••• 12,069
10,232
1,837
19.11
1946 •••••••••••••••••••••••
1,401
4,406
5,447
22.46
1947 •••••••••••••••••••••••
1,1$6
5,146
3,990
24.19
1,284
1948 ••••••••••••••••••••••
4,025
5,309
25.72
1,346
3,888
5,234
1949 •••••••••••••••••••••••
I
1,2,38
27.07
1950 •....••••••••••••••••••
3,335
4,573
27.10
2,886
1951 •••••••••••••••••••••••
1,073
3,959
1,160
27.n
2,988
1952 •••••••••••••••••••••••
4,148
30.22
1,429
4,728
1953 •••••••••••••••••••••••
3,299
32.27
4,812
1954 •••••••••••••••••••••••
3,259
1,553
34.26
1,716
3,293
1955 •••••••••••••••••••••••
5,009
36.44
3,068
1,759
4,827
1956 •••••••••••••••••••••••
1,736
38.37
2,789
4,524
1957 ••••••••••••••••••••••
1,816
2,$62
41.48
1958 •••••••••••••••••••••••
4,378
1,727
42.14
2,370
4,096
1959 •••••••••••••••••••••••
1,838
44.92
2,254
1960 •••••••••••••••••••••••
4,092
I
2,11.8
2,000
4,llB
48.57
1961 •••••••••••••••••••••
1,992
1,972
50.25
1962 •••••••••••••••••••••••
3,964
2,444
4,401
1,957
196) ••••••••••••••••••••••
55.53
1,823
4,296
2,473
1964 •••••••••••••••••••••••
57.57
2,680
4,203
1965 •••••••••••••••••••••••
1,523
63.76
1,662
84.15
313
1966 •••••••••••••••••••••••
1,975
638
-31
lassified •••••••••••••••••••••
607
\

~ A-1935 - D-1941 ••••••••••••

al Series E•••••••••••••••••••

29.07

1,991
1,375
3,366

42,019
1,680
6,177
7,857

Series E and H••••••••••••• 155,771

105,895

49,876

32.02

(1954 - 1957) ••••••
2,878
ITotal matured ••••••••• 35,388
)eries ~I Total unmatured ••••••• 158,649
prand Total ••••••••••• 194,037

2,108

771

26.79

W
50,646
50,737

31.92
26.15

es H (1952 - Jan. 1957) 3/ •••
H (Feb. 1957 - 1966) •• -; ••••
a 1 Series H•••••••••••••••••••
a1

es J and K

144,548

102,529

3,670
7,5S2
11,222

35,296
108,003
143,301

lcludes accrued discount.
~rent r8demption value.
~ option of owner bonds may be held and will earn interest for additional
!riods after original maturity dates.
lcludes matured bonds which have not been presented for redemption.
BUREAU OF THE PUBLIC DEBT

45.78
81.79
70.01

.~>

TREASURY DEPARTMENT

FOR USE IN-AFTERNOON NEWSPAPERS OF
FRIDAY, SEPTEMBER 2, 1966
TREASURY HONORS 159 AT ANNUAL AWARDS CEREMONY
Under Secretary of the Treasury Joseph W. Barr today honored
159 Treasury employees, recipients of awards for outstanding
service and significant contributions to Treasury operations,
at the Department's Third Annual Awards Ceremony.
In the fiscal year ending last June 30, Treasury employees
received more than $800,000 in awards for adopted suggestions
for improved Treasury operations and other outstanding service.
Estimated first year benefits to the Treasury, in the form of
cost reductions and increased efficiency, exceeded $7 million -more than twice the previous all-time high.
Among those recognized at the aW8rds ceremony, held at
the Departmental Auditorium, Washington, D. C., were:
38 persons, who during the year had received
either of the Treasury's two top awards, for
Exceptional Service or for Meritorious Service.
43 employees who, through outstanding
suggestions or service, contributed to
significant monetary savings, increased
efficiency, or distinct improvements in
government service.
13 supervisors, for notable achievements in
encouraging employee contributions to
efficiency and economy.
43 employees who received special awards for
outstanding contributions in improving
communications and services to the public.

F-60S

- 2 In addition, the awards ceremony, held on a day marking
the l77th anniversary of the Treasury Department, honored 21
long-time career employees -- 15 of whom have served more than
40 years, four more than 45 years, and two more than 50 years.
The ceremony today also noted that Merlyn N. Trued, who
resigned as Assistant Secretary of the Treasury for International
Affairs in April received the Treasury's highest honor -- the
Alexander Hamilton Award. Mr. Trued is now a Cleveland banker.
The Bureau of the Mint was cited for outstanding
participation in the Treasury Department's Incentive Awards
Program. The Bureau of Accounts was recognized for outstanding
achievement in the Bureau's suggestion program.
Attached is a list of those recognized, and their citations.

000

EMPLOYEE SUGGESTIONS AND SERVICES
Recognition by the Secretary of outstanding suggestions or exemplary
services which served to effect significant monetary savings, increased
efficiency, or improvements in Government operations.
AD2 ROGER S. ADAMS, Aviation Machinists Mate, Second Class, U.S.
Coast Guard Air Station, New Orleans, La.
For development of a specially designed portable hoist to simplify
changing of engines of HH-52A Helicopters when an over~ead
hoist is not available. Estimated savings-$15,OOO. Suggestion
Award-$1,000.
MARY A. AMBROSE, Card Punch Operator, Bureau of the Public Debt,
Parkersburg, W. Va.
For exceptional productivity in a key-punch operation, enabling
her to exceed the group average by 44 percent, and contributing
to the overall effectiveness of the Savings Bonds Program. Special
Service Award-$525.
KENNETH E. BALGE, Assistant Special Agent in Charge, Washington
Field Office, U.S. Secret Service, Washington, D.C.
For his excellent performance and outstanding courage during an
undercover assignment on a major counterfeiting case which involved grave personal danger. Special Service Award-$500.
NEIL R. BUTLER (Retired), Formerly Aviation Electronics Technician,
Second Class, U.S. Coast Guard Aircraft Repair and Supply Center,
Elizabeth City, N.C.
For successfully devising a method to enable utilization of electronic consoles already available for tests on electronic equipment
in the HH-52A Helicopters, thus eliminating the need for expensive new equipment. Estimated savings-$72,OOO. Suggestion
Award-$l,OOO.

YNCM-Pl ROBERT CARLSON, Master Chief Yeoman, 1st Coast Guard
District, Boston, Mass.
For proposing the use of messages to accelerate the separation of
nonproductive enlisted personnel, thus contributing to the cost
reduction program of the Coast Guard. Estimated savings$24,000. Suggestion Award-$770.
EDWARD A. CONROY, Chief, Planning and Programing Branch, Internal Revenue Service, Washington, D.C.
For superb leadership he provided a special project involving investigative procedures and techniques. Special Service Award$500.
MARGARET F. CRAFT, Supervisory Tax Examiner, Data Processing Division, Internal Revenue Service Center, Chamblee, Ga.
For suggesting the utilization of electronic accounting machines
to reduce manhours spent in keypunching unpostable correction
cards. Estimated savings-$36,250. Suggestion Award-$835.
CLEMENT A. DERNBACH, Revenue Officer, Internal Revenue Service
District Office, Chicago, Ill.
For his outstanding suggestion pertaining to the collection of
delinquent taxes from persons arrested for violating marihuana
and narcotic tax laws, resulting in collection of additional revenues. Suggestion A ward-$600.
JAMES F. GAULDING, Assistant Regional Counsel, Alcohol and Tobacco
Tax, Southwest Region, Internal Revenue Service, Dallas, Tex.
For highly exemplary manner in managing and directing the
legal affairs and personnel of the Alcohol and Tobacco Tax func·
tion of the Southwest Regional Counsel's Office. Superior Work
Performance Award-$SOO.
PHILLIP J. GILLHAM, Entry Procedures Auditor, Bureau of Customs,
Houston, Tex.
For intensive research and analysis of the importation of galvanized pipe, resulting in an increase in revenue, estimated at
$80,000 per annum. Special Service Award-$500.
HAROLD D. HEDRICK, Tool and Die Maker, U.S. Mint, Denver, Colo.
For modifications in machining of coinage dies, resulting in saved
time and first-year savings of $11,596 in the manufacturing of
dies for striking U.S. coins. Suggestion Award-$540.

JOHN E. HURLEY, Principal Technical Assistant, Exempt Organizations
and Pension Trust Division, Office of Assistant Commissioner
(Technical), Internal Revenue Service, Washington, D.C.
For proposing a revision of the post review procedures which
eliminated the need for returning many case files from field offices
to the National Office. Estimated savings-$17,000. Suggestion
A ward-$680.
JOHN D. JAMIESON, Special Mechanical Assistant, U.S. Mint, Denver,
Colo.
For achievement in engineering the conversion of dual-strike coin
presses to four-strike presses, constituting a major breakthrough
in the field of coin production. First-year savings-$214,OOO.
Special Service Award-$1,265.
FRANCIS E. JONES, Guard, Distinctive Paper Field Unit (U.S. Government Mill), Operating Facilities Division, Bureau of Engraving and
Printing, Pittsfidd, Mass.
For suggesting a more economical method of wrapping and banding dry distinctive currency paper for shipment to Washington.
Estimated annual savings-$1O,470. Suggestion Award-$515.
Cdr. DAVID M. KAETZEL, 14th Coast Guard District, Honolulu, Hawaii.
For development of an improved insulation technique for use in
ship and boat construction, thereby reducing the labor cost of
applying the insulation material. Estimated savings-$20,000.
Suggestion Award-$750.
JAMES J. KELLY, Supervisory General Supply Officer, U.S. Mint, Philadelphia, Pa.
For developing a system for the reclamation of used die holders,
which restored them to their original size at approximately onethird the cost of new holders. Estimated savings-$39,448.
Suggestion A ward-$850.
WILLIAM E. LEUBA, Quarterman Boatbuilder (Plastic), Coast Guard
Yard, Baltimore, Md.
For initiative and effective leadership during detail as Shop Head
of the Plastic Products Shop resulting in savings of almost $14,000.
Superior Work Performance Award-$760.

ANTONIO LONARDO, Jr., Digital Computer Systems Administrator, Ac~
counting and Data Processing Division, North Adantic Service
Center, Internal Revenue Service, Lawrence, Mass.
For proposing the duplicating of multireels of tape onto one tape,
thereby alleviating the shipment of tapes having only a few feet of
data. Estimated savings-$34,134. Suggestion Award-$825.
REYNALDO P. MADuRa, Criminal Investigator, Bureau of Narcotics,
Mexico, D.P., Mexico
For exceptional cooperation with international law enforcement
officials and outstanding work under hazardous conditions in a
foreign country, which led to one of the largest seizures of mari·
huana ever made in Mexico. Special Service Award-$500.
SIDNEY MANSTER, Assistant Regional Counsel (Enforcement), North
Atlantic Region, Internal Re\'enue Service, New York, N.Y.
For the highly exemplary management and direction of the legal
affairs and personnel of the Enforcement function in the North
Atlantic Regional Counsel's Office. Superior Work Performance
Award-$500.
E. MCGRAW, Chief, Facilities 1vfanagement Branch, Central
Service Center. Internal Revenue Service, Cincinnati, Ohio

THOMAS

For proposing the use of magnetic tape shipments with a monthly
invoicing system to replace individual bills of lading. Estimated
savings-$30,OOO. Suggestion A ward-$l ,000.
CHRELE ROBERT E. MOORING, Chief Radio Electrician, U.S. Coast
Guard Headquarters, Washington, D.C.
For developing a receiver audio distribution switchboard for
Coast Guard vessels which reduced labor time and shipfitting
necessary for installation of complex audio distribution systems.
First year savings-$6,895, plus significant subsequent benefits.
Suggestion Award-$500.
P. NANTELL, Criminal Investigator, Internal Security Division,
Central Region, Internal Revenue Service, Cleveland, Ohio

JOHN

For excellent work in a special investigation which served as a
model case in the Integrity Assurance Program. Special Service
Award-$500.

CHARLES W. NYQUIST, Staff Assistant to the Regional Counsel, Western Region, Internal Revenue Service, San Francisco, Calif.
For the highly exemplary manner in which he undertook the coordination and preparation of a related group of 20 unusual and
unprecedented Tax Court cases. Special Service Award-iSOO.
EDWARD F. OSTROWSKI, Engineering Technician, 3d Coast Guard District, New York, N.Y.
For suggesting the use of MYLAR film for preparing form for
lighted aids, thus facilitating the aids to navigation conversions.
Estimated savings-$9,000. Suggestion A ward-$650.
ROBERT L. PACKARD, Chief, Collection Division, Internal Revenue
Service District Office, Reno, Nev.
For providing able leadership to the Reno District during the
9-month absence of the District Director due to illness. Special
Service Award-$600.
RICHARD J. ROGERS, Storage Battery Repairman, U.S. Coast Guard Base,
Boston, Mass.
For development of a jack-type clamp to secure 12-AN-I0 power
unit in buoy pockets, thus facilitating ease and speed of installation. Estimated savings-$22,242. Suggestion Award-$765.
EDWARD W. VOIGT, Line Commodity Specialist, Bureau of Customs,
Detroit, Mich.
For the development and implementation of the Immediate Delivery System of merchandise processing, regarded as an important
factor in the modernization and reorganization of the Customs
field service. Suggestion Award-$SOO.
G. NORRIS WATSON, Senior Attorney, Refund Litigation Division,
Office of the Chief Counsel, Internal Revenue Service, Washington,

D.C.
For the highly exemplary manner in which he has discharged his
duties and responsibilities to the Refund Litigation Division.
Su perior Work Performance Award-$500.
HORACE

M. WEST, Office Appliance Repairman, Birmingham Dis-

bursing Office, Bureau of Accounts.
For modifying an obsolete inserting and sealing machine, enabling it to mechanically open check envelopes and remove contents. First-year savings-$12,581. Special Service Award$565.
227-700-66--2

EARL R. WHITE, Customs Inspector, Bureau of Customs, John F. Kennedy Airport, New York, N.Y.
For exceptional alertness in effecting a seizure of more than 6Yz
pounds of heroin without advance information concerning its delivery. Special Service Award-$600.

ROBERT Y AKUBEC, Formerly Special Agent, Intelligence Division, Manhattan District Office, Internal Revenue Service, New York, N.Y.
For outstanding undercover work in a large-scale bookmaking
operation which required arduous efforts under conditions of great
danger and resulted in the indictment of 10 individuals and the
seizure of $10,632.04. Special Service Award-$500.

GEORGE S. ALBERTS, Senior Staff Assistant to Chief, Audit Division,
Brooklyn District Office
ANTHONY D. DELUKEY, Regional Analyst, Office of the Assistant
Regional Commissioner (Audit)
SAM FELSENSTEIN, Chief Classifier, Audit Division, Brooklyn District
Office
North Atlantic Region, Internal Revenue Service, New York, N.Y.
For outstanding achievement in the Audit Classification Program
of the !vfanhattan and Brooklyn Districts' prerefund returns at
the North Atlantic Service Center. Estimated savings-$48,900.
Group Special Service Award-$960.

CONRAD A. ALBERDING, Contract Specialist
RrCHARD

HEYS,

Procurement Officer

Facilities l\.1anagcment Division, Office of the Assistant Commissioner (Administration), Internal Revenue Service, Washington,
D.C.
For outstanding ingenuity and resourcefulness in purchasing magnetic computer tape and conducting negotiations with several
companies which resulted in a much lower price. Estimated
savings-$106,OOO. Group Special Service Award-$1,160.

SIDNEY F. CARWILE, Management Analysis Officer
FRANCIS B. FRERE, Management Analyst
FRANK D. LAWSON, Management Analyst
FREDERICK W. TATE, Assistant Director
Bureau of the Mint, Washington, D.C.
For their achievements in reducing costs on the transportation and
processing of metals required for new coinage alloys under the
Coinage Act of 1965. Estimated savings-$3,267,140. Group
Special Service Award-$4,320.

CHARLES B. MILLER, Senior Regional Analyst, Office of Assistant
Regional Commissioner (Data Processing)
ROBERT M. STEELE, Management Officer, Administration Division,
Office of Regional Commissioner
Internal Revenue Service, Atlanta, Ga.
For suggesting and designing a plastic insert to convert surplus
account-card cabinets into units for housing microfilm cartridges,
eliminating the need for purchasing microfilm storage cabinets.
Savings-$28,744. Group Suggestion Award-$1,140.

SPECIAL AWARDS FOR EXCELLENCE IN
IMPROVING COMMUNICATIONS AND
SERVICES TO THE PUBLIC
Recognition by the Secretary for outstanding contributions during fiscal
year 1966 which improved communications and services to the public.
WILBUR BEALL, Chief, Cash Division, Office of the Treasurer of the
United States, Washington, D.C.
For exceptional supervisory abilities in maintaining effective. service and excellent relations with the public, resulting in a public
image of the highest order.

L. EVANCIC, Telephone Supervisor, 9th Coast Guard District,
Cleveland, Ohio
For notable achievement in furthering the Coast Guard's relationship with the pubtic. Her capabilities and courtesy were recognized by the Ohio Bell Co. in their VOICE Magazine.

ROSE

MARGARET L. FLETCHER, Statistical Officer, Office of the Director of the
Mint, Washington, D.C.
For noteworthy contributions in the preparation of the Annual
Report of the Director of the Mint which serves, at home and
abroad, as a primary source of information on coinage, monetary
stocks, and industrial consumption of gold and silver.
R. FREDERICO, Guard Supervisor (Senior Lieutenant), U.S. Mint,
Philadelphia, Pa.

LOUIS

For exemplary performance of duty and commendatory judgment
and conduct when dealing with the public.
WALTER 1. HERRON, Chief, Check Claims Division, Office of the
Treasurer ofthe United States, Washington, D.C.
For technical excellence and stimulation of highly effective employee performance within the Check Claims Division, resulting
in improved communications and service to the public.

HAROLD B. MASTER, Assistant to the National Director-Coordinator
for Banking and Volunteer Activities, U.S. Savings Bonds Division,
Washington, D.C.
For outstanding contributions to the Savings Bonds Program,
resulting from his understanding, courtesy, cooperativeness, unfailing patience, and good humor in dealing with volunteers of the
program throughout the Nation and with the general public.
RONALD B. MERRIWEATHER, Special Agent, Cleveland Field Office, U.S.
Secret Service, Cleveland, Ohio
For his noteworthy contributions to high-quality service in dealing
with public officials and the public generally in the difficult role of
criminal investigator.
FRANCIS W. PICKAR, Clerk-Stenographer, U.S. Savings Bonds Division,
Miami, Fla.
For providing a constant and efficient source of information to
volunteers of the Savings Bonds Program and the bond-buying
public in a cooperative and pleasant manner, which has been a
tremendous asset to the Program.
MYRTICE G. POMEROY, Public Information Specialist, Bureau of Customs, Washington, D.C.
In recognition of her highly successful efforts in improving the
design and appearance of Customs publications used by the public.
MARY L. PRYOR, Securities Examiner (Claims Correspondent), Securities Transactions Section, Division of Loans and Currency, Bureau
of the Public Debt, Washington, D.C.
For noteworthy improvements in the processing of claims for
relief on account of the loss, theft, or destruction of securities, and
for the outstanding clarity and helpfulness of her correspondence
with the public.
F. SAVAGE, Internal Revenue Agent, Internal Revenue Service,
San Diego, Calif.
For exemplary performance in the dissemination of tax informa·
tion to the public in support of the voluntary compliance objectives
of the Internal Revenue Service.

WALTER

LAWRENCE B. SLOTNIK, Criminal Investigator, Bureau of Narcotics,
Chicago, Ill.
For outstanding interest and effort in improving communications
and services to the public, and in particular with the medical and
pharmaceutical professions.
JANE B. SPEAR, Management Analyst, Office of Management and Organization, Office of the Secretary, Washington, D.C.
For imaginative, timely, and effective staff assistance to the Secretary's Public Services Committee and the Treasury's Interbureau
Public Services Committee in furtherance of Treasury's program
to improve its communications with the public.
CLARICE W. THOMAS, Directory Clerk, U.S. Coast Guard, Washington,
D.C.
For the highly exemplary representation of the Coast Guard to the
public as reflected in expressions of appreciation from private citizens, business concerns, and other Government agencies for her
outstanding service.
JOHN W . WARNER, Jr., Deputy Assistant to the Director (Information
and Liaison), U.S. Secret Service, Washington, D.C.
For noteworthy contributions to high-quality communications in
the preparation of public literature and for his efforts to obtain
excellence in telephone, letter, and face-to-face communications
throughout the Bureau.
MARY F. WILLIAMS, Securities Examiner, Correspondence and Ruling
Unit, Bureau of the Public Debt, Chicago, Ill.
For excellence in improving communications and services to the
public by her effectiveness in the preparation of correspondence
and the outstanding quality of her writing.
ISABELLA R. WILTSHIRE, Clerk-Correspondent, Bureau of Narcotics,
Washington, D.C.
For exceptional ability in judiciously handling requests for information from the general public and Federal and State agencies
concerning the Bureau and its functions.

LUCILE N. BOYD, Employee Development Officer, Programs and
Standards Branch, Training Division, Internal Revenue Service,
Washington, D.C.
LUTHERA B. DAWSON, Employee Development Officer, National Training Center, Training Division, Internal Revenue Service, Arlington,
Va.
For their noteworthy contribution entitled "Management of Writing and Writers" for use in the Management Development Program of the Service to help improve communications with the
public.
FRED R. BOYETT, Regional Commissioner, Chicago, Ill.
DAVID

C. ELLIS, Assistant Commissioner, Washington, D.C.

PALMER F. KING, Assistant Regional Commissioner, Houston,. Tex.
CLEBURNE M. MAIER, Regional Commissioner, Houston, Tex.
Bureau of Customs
For excellent service performed in educating the business community concerning the effects of the reorganization or the Bureau
of Customs and accompanying procedural changes.
KENNETH A. DEHART, Assistant Superintendent, Plate Printing
Division
FRANK S. TUCCI, Assistant Head, Production Control and Scheduling
Branch, Industrial Engineering Division
CLINTON A. BALL, Guard, Security Division
Bureau of Engraving and Printing, Washington, D.C.
For significant contributions to better communications with the
public about the Federal Government through displays and
exhibits at philatelic, numismatic, and other public events.
G. FOWLER, Personnel Officer, National Office Branch, Personnel Division
EDWARD W. BROOKS, Management Analyst, Facilities Management
Division, National Office

JOSEPH

Internal Revenue Service, Washington, D.C.
For suggesting and developing a visitors' information telephone
system by which a receptionist in the main lobby of the IRS
building can answer questions of visitors from stations at each
entrance.

CHARLES J. COCKBURN, Industrial Engineering Technician, Industrial
Engineering Division
JOHN A. SEYMOUR, Head, Engineering and Development Branch,
Office of Research and Development Engineering
EDWARD J. KALIN, Industrial Engineering Technician
WALTER KONRAD, Industrial Engineering Technician, Industrial Engineering Division
JOHN M. CHALKER, Supervisory Electrical Engineer
GEORGE R. LATHAM, III, Mechanical Engineer
EDWARD A. PETERSON, Mechanical Engineer
RICHARD C. SENNETT, Mechanical Engineer
EDWARD H. CAHILL, Jr., Engineering Technician
JOSEPH M. DEBOSE, Jr., Engineering Technician
EDWARD J. MAcHALE, Electrical Engineer
AXEL B. NISKANEN, Mechanical Engineer
DAVID B. MOORE, Engineering Technician
WILLIAM E. TILEY, Engineering Technician
JESSE L. MARKS, Jc., Engineering Draftsman
Office of Research and Development Engineering, Bureau of Engraving and Printing, Washington, D.C.
For outstanding accomplishments in developing a self-guided tour
system and performing engineering work required for its installation, thus providing a much more extensive, informative, and
convenient tour of Bureau operations to more than 600,000
tourists annually at an estimated cost reducdon of $70,000
annually.

AWARDS TO SUPERVISORS
Ret'ognition by the Secretary of notable achievements by supervisors
in encouraging employee contributions to efficiency and economy.
These supervisors were selected from Bureau nominees after considera~
lion of such factors as the size of groups supervised, the value of con~
tributions, and the nature of action by the supervisor.

M. ANNIS, Chief, Securities Division, Office of the Treasurer
of the United States, Washington, D.C.

HOWARD

For achieving a high level of employee performance and for leadership in promoting effective USe of the Incentive Awards Program
to reduce operating costs and to improve services to the public.
Assistant Superintendent (Mechanical Services), Con~
struction and Maintenance Division, Bureau of Engraving and
Printing, Washington, D.C.
For exceptional initiative and leadership which effectively increased employee participation in the Incentive Awards Program,
resulting in increased efficiency and substantial cost reductions.

HENRY A. ATOR,

Cdr. WILLIAM H. BOSWELL, Chief, Budget and Cost Analysis Division,
U.S. Coast Guard Headquarters, Washington, D.C.
For outstanding effectiveness in encouraging the employees of
his Division to increase the quantity and quality of their participation in the Incentive Awards Program.
DAVIS, Supervisor, Vault Unit, Security Audit Section,
Division of Retired Securities, Bureau of the Public Debt, Wash·
ington, D.C.
For exceptional leadership and ability in training and utilizing
manpower which enabled his unit to process a substantially greater
workload despite high personnel turnover.

WILLIAM ALVIS

Supervisory Tax Technician, Los Angeles District, Internal Revenue Service, Van N uys, Calif.
For his many excdlent suggestions and the stimulation given his
fellow employees in the cost-reduction program.

HERBERT H. HERSCH,

ISRAEL P. JACKSON, Supervisor, Stores Section, Operating Facilities
Staff, Division of Financial Management, Bureau of Accounts,
Washington, D.C.
For motivating his employees to be exceptionally cost and safety
conscious and instilling in them an unusual spirit of teamwork
and dedication to Bureau programs.
SALVATORE MAGLloZZO, Chief, Diversified Payments Branch, New
York Disbursing Office, Bureau of Accounts
For the stimulus he has provided his employees to better their
performance, to be cost and production minded, and to augment
their skills by diversified on-the-job trai!ling.
RANDELL S. MAYER, Jr., Chief Classifying Officer, Office of the District
Director, Internal Revenue Service, New Orleans, La.
For his demonstrated ability to couple cost-consciousness with
creativity, a sense of duty, high morale, and efficiency among his
employees despite heavy workload pressures.
ROBINSON, Supervisor, Diversified Payments Section, Special
Payments and Claims Branch, Philadelphia Disbursing Office, Bureau of Accounts
For leadership and personal example which motivated her employees to improve operations through the Suggestion Program
and inspired greater productivity d~spite reorganization and lack
of subordinate supervisory assistance.

ALYCE

Foreman, Plate Printing Division, Bureau of Engraving and Printing, Washington, D.C.

VERNON RUTHER,

For personal leadership and genuine interest in effectively encouraging employee participation in the Incentive Awards Program within his Section and Division.
PHILIP SANSOTTA, Regional Chief, Facilities Management Branch, Internal Revenue Service, Cincinnati, Ohio
For commendable leadership in the Incentive Awards Program
and the comequent success of his employees in improving Service
operations through their suggestions and performance.

PHILLIP

R. SMITH, District Supervisor, Bureau of Narcotics, Baltimore,

Md.
For initiative, resourcefulness, and effective leadership in promot~
ing the Incentive Awards Program as manifested by many sig~
nificant contributions of his employees and his own personal
contributions.
G. TAYLOR, Guard Supervisor, Security Division, Bureau of
Engraving and Printing, Washington, D.C.
For personal leadership and interest in effectively encouraging
employee participation in the Incentive Awards Program, resulting in 115 suggestions submitted per 100 employees on his rolls.

RUFUS

THE SECRETARY'S ANNUAL AWARDS
TREASURY INCENTIVE AWARDS
PROGRAM
The Secretary of the Treasury presents two honorary awards each year
to recognize bureaus for outstanding participation and results in the
Treasury Department's Incentive Awards Program. One is given to
the bureau showing the best average results in the suggestion phase of
the program and the other to the bureau showing the best at/crage
results in the performance phase of the program.

SECRETARY'S AWARD FOR PERFORMANCE
PHASE OF PROGRAM
Bureau of the Mint
For effective recognition of employee performance which significantly exceeded normal job requirements. In recognition of such
performance, approximately 5 percent of the Mint personnel received either performance awards or high-quality pay increases
and estimated tangible benefits from services recognized exceeded
$3.5 million during fiscal year 1966.

SECRETARY'S AWARD FOR SUGGESTION
PHASE OF PROGRAM
Bureau of Accounts
For outstanding achievement in the Bureau's suggestion program
during fiscal year 1966. Per 100 employees on its rolls the Bureau
had 12.5 adopted suggestions and estimated savings of $3,383.

CAREER SERVICE RECOGNITION
Recognition by the Secretary of employees in the Washington, D.C.,
area who attained 50, 45, or 40 ymrs of Federal service during fiscal
year 1966.

50 Years of Federal Service
George F. Breen
Grant R. Newton (Retired)

1ntcrnal Revenue Service
Bureau of the Public Debt

45 Years of Federal Service
Daisy F. Gambon
Bessie E. Tett
Ruth E. Loveless
Forrest P. Neal

Burcm of Engraving and Printing
Bureau of Engraving and Printing
Bureau of Engraving and Printing
I ntcrnal Revenue Service

40 Years of Federal Service
Bernard A. Alexander
(Retired)
Richard W. Barkley, Jr.
Margaret L. Burke (Retired)
William G. Christian
Ross A. Heffelfinger
Kenneth W. Johnson
Percy M. Marshall
James E. Murray
Lillian V. Poague
Emmett C. Sullivan
Mary E. Swain (Retired)
Joseph B. Thompson
William Tolbert
Charles H. Wagner
Dorothy I. Williams

Office of the Treasurer, U.S.

Tnternal Revenue Service
Office of the Secretary
J nternal Revenue Service
Bllreau of the Public Debt
Internal Revenue Service
Bureau of the Public Debt
Internal Revenue Service
Internal Revenue Service
U.S. Coast Guard
Bureau of the Public Debt
Bureau of Engraving and Printing
Bureau of Engraving and Printing
In tern;}l Re\'enue Service
Bureau of Narcotics

MERITORIOUS SERVICE AWARD
The Meritorious Service Award is next to the highest award which
may be recommended lor presentation by the Secretary. It is conferred
on employees who render meritorious service within or beyond their
required duties.
III (Retired), Formerly Assistant Director, Appellate Division, Internal Revenue Service, Washington, D.C.
For outstanding performance and excellent management ability in
developing plans, programs, and procedures which have resulted
in increased appellate productivity while maintaining high-quality
standards.

LEO BARDENHEUER

H. BINGLER (RetireJ), Formerly District Director, Internal Revenue Service, Pittsburgh, Pa.
For exemplary performance and excellent achievement in the management, administration, and technical direction of assessment,
enforcement, and collection activities in the Pittsburgh area.

JOHN

Attorney-Adviser (General), Office of the General Counsel, Office of the Secretary
For vital assistance in the preparation of materials for use in conferences on international monetary affairs, particularly in Group
of Ten Activities, and for wise counsel in the drafting of reports
on these conferences.

MICHAEL BRADFIELD,

F. BREKLE, Assistant Officer in Charge; San Francisco Assay
Office, Bureau of the Mint

fOHN

For invaluable contributions to the emergency expansion and conversion of the San Francisco Assay Office to a modern coinproducing plant.
Chief, Excise Taxation Staff, Office of Tax Analysis,
Office of the Secretary

JOHN COPELAND,

For outstanding assistance in the solution of tax problems, exceptional ability in analyzing excise tax proposals, and important
contributions to the development of Treasury tax policy.

KENNETH M. FAILOR, Assistant

I()

tilL; Director of the

Mint

For exceptional achievement s in establishing effective relationships
with the public and with the l~ongress and for his outstanding
skill in forecasting coinJgc demands.
WIRTH F. FERGER (Retired), l'~lltllcr1y Tax Research Officer, Office of
the Assistant Commissioner (Pbnning and Research), Internal
Revenue Service, \Vashingt<lll, 1),c.
For outstanding leadership in the advanced research activities of
the Internal Revenue Senlce and distinguished contributions to
the art of tax administration.
PATRICK F. GORMAN III, Chid, Reproduction Branch, Office of Administrative Services, Office of the Secretary
For leadership, ingenuity, ;} oJ devotion to duty in providing
timely and high-quality ;F'j,rurluction work in the Office of the
Secretary, despite stringem ,ieadlines.
EVA K. HAUGHEY, Assistant to the Director, Office of Debt Analysis,
Office of the Secretary
For exemplary contributions to the organization and work of the
Office of Debt Analysis and exceptional performance in broadening
public understanding of fiscal and debt management policies.
HAROLD HAWKINS (Retired), Formerly Regional Commissioner Western Region, Internal Revenue Service, San Francisco, Calif.
For distinguished contribution to the stature and integrity of the
Internal Revenue Service hy superlative performance in organizing, directing, and coordmating a major segment of its activities.
GUSTAV A. JUSTUSSON (Retired), FG;-c·,'Ierly Assistant Chief, Division of
Loans and Currency, Bureau of tile Public Debt, Washington, D.C.
For substantial contributiDns to the orderly and efficient conduct
of public debt activities anJ leadership in reducing operating costs
without impairment of the qU:1lity or timeliness of service to the
public.
HYMEN R. KAPLAN, Public Information Specialist, Public Information
Division, U.S. Coast Guard, \Vashington, D.C.
For exceptional achievement in portraying the U.S. Coast Guard
to news media in the light of its service to the American public.

EDMUND J. LINEHAN, Director, Advertising and Promotion Branch,
U.S. Savings Bonds Division, Washington, D.C.
For outstanding contributions to the U.S. Savings Bonds Program
resulting from unstinted dedication of exceptional ability to the
advertising and promotion fields.
S. MAHARAY, Deputy Director of Personnel, Office of the
Secretary
For outstanding performance in the areas of employee management relations and services and his vital role in strengthening the
:'ut:; ~ personnel program of the Department.

GEORGE

STEPHE~ C. MANNING, Jr. (Retired), Formerly Deputy Assistant to the

Secretary (Public Affairs), Office of the Secretary
For superlative performance of duty as Deputy Assistant Secretary and outstanding contribution to a better public understanding
of Treasury policy.
ANITA WELLS MERRIAM, Financial Economist, Office of Tax Analysis,
Office of the Secretary
For outstanding ability and important contributions to the Office
of Tax Analysis in the area of Federal-State-Iocal fiscal relations.
EMANUEL E. MINSKOFF (Deceased), Formerly Chief of Enforcement,
Office of Foreign Assets Control, Office of the Secretary
For exemplary performance resulting in an extraordinary record
of detection, prosecution, and conviction of major violators of
Treasury foreign assets controls and a high degree of public
compliance with those controls.
RANDOLPH MOBBS, Regional Disbursing Officer, Bureau of Accounts,
Birmingham, Ala.
For outstanding management ability and performance which contributed to cost reductions and advances in employee productivity.
ALVIN W. NORCROSS, Assistant to the Director of Personnel (Career
and Employee Development), Office of the Secretary
For major contributions and outstanding competence in the areas
of employee training and incentive awards.

GEORGE F. REEVES (Retired), Formerly Assistant General Counsel,
Office of the General Counsel, Office of the Secretary
For exemplary performance, professional competence, and valuable
counsel as principal legal adviser to the Fiscal Service.
ROBERT B. RITTER (Retired), Formerly Director, Alcohol and Tobacco
Tax Legal Division, Office of the Chief Counsel, Internal Revenue
Service, Washington, D.C.
For excellent legal and managerial ability in developing plans,
legislative programs, and management procedures which increased
the productivity of the Alcohol and Tobacco Tax Division while
maintaining high-quality standards.
PAUL S. RUNDLE, Assistant Special Agent in Charge, U.S. Secret Service,
Paris, France
For exemplary performance as an undercover agent and in col~
laboration with police in several European countries which re~
suIted in breaking up a gang of dangerous criminals and large
seizures of counterfeit U.S. currency.
THOMAS E. SCANLON (Retired), F ormerl y District Director, Internal
Revenue Service, Brooklyn, N.Y.
For exceptional performance as District Director in a large and
complex operation and for innovation and organization on proj~
ects which have had Service-wide significance and application.
CHARLES B. SMITH, Administrative Officer, Dangerous Cargo Transportation, Port Security and Law Enforcement Division, U.S. Coast
Guard, Washington, D.C.
For outstanding professional competence and significant contributions to the efficiency of the U.S. Coast Guard in the field of
dangerous cargo transportation.
WILLIAM H. SMITH, Deputy Commissioner of Internal Revenue
For outstanding contribution to successful tax administration
through leadership in directing the forward thrust of the Service
in its use of Automatic Data Processing.
LEOLA M. STAHL, Secretary to Assistant General Counsel Donald L.
Ritger. Formerly Secretary to the Deputy General Counsel.
For extended effort and ability in performing secretarial duties
for the Acting General Counsel in addition to her regular duties
as secretary to the Deputy General Counsel.

GEORGE TOBIN, Assistant Superintendent and Chief Clerk, New York
Assay Office, Bureau of the Mint
For superior performance during more than 41 years of service
at the New York Assay Office and an exemplary record of contributions to the programs of the Bureau of the Mint.
ERNEST H. VAUGHN (Retired), Formerly Regional Commissioner, Central Region, Internal Revenue Service, Cincinnati, Ohio
For outstanding performance as Regional Commissioner and for
improvements in tax administration which have had Service-wide
significance and application.
WILLIAM M. WEIR (Retired), Formerly Budget Officer, Office of
Budget and Accounts, Bureau of the Public Debt
For sound judgment and outstanding administrative ability in
meeting program requirements of the Bureau of the Public Debt
and in insuring the smooth and efficient conduct of public debt
operations.
GEORGE E. ZEITLIN, Deputy Tax Legislative Counsel, Office of the
Secretary
For his major contributions to the most important tax developments during the period 1962-66, including the Revenue Act of
1966, the Tax Adjustment Act of 1966, and the depreciation
revisions of 1964.

EXCEPTIONAL SERVICE AWARD
This is the highest award which may be recommended for presentation by the Secretary. The award is conferred on employees who
distinguish themselves by exceptional service within or beyond their
required duties.
EVA

ADAMS,

Director of the Mint

For outstanding direction of the Mint in overcoming coin shortages and in forestalling a coinage crisis by timely production of
new and intricately designed coins.
C. BETTS, Jr., Deputy Assistant Secretary for Administration
and Director, Office of Budget and Finance, Office of the Secretary

ERNEST

For outstanding performance, as Director of the Office of Budget
and Finance, and effective contributions, as Deputy Assistant
Secretary for Administration, to the Treasury's management
improvement programs.
KENNETH

HARRISON,

Chief Counsel, U.S. Coast Guard

For outstanding performance and professional competence which
have contributed directly to the resolution of the many legal
intricacies involved in the operations of the U.S. Coast Guard.
JAMES

HENDRICK,

Deputy Assistant Secretary, Office of the Secretary

For continued excellence as Deputy Assistant Secretary in an
office with supervisory responsibility over major Treasury activities and for outstanding contribution to the Department's administration of antidumping laws.
Deputy to the Assistant Secretary for International Financial and Economic Affairs, Office of the Secretary

RALPH HIRSCHTRITT,

For valued counsel to the Secretary and exceptional contribution
to the formulation and execution of United States foreign and
economic policies.

D. JOHNSON, Commissioner of Customs
For distinguished service to the Bureau of Customs and dynamic
leadership in effecting a fundamental reorganization of the Customs Service with a minimum of dislocation to operations.

LESTER

BILL McDoNALD (Retired), Formerly Assistant National Director, U.S.
Savings Bonds Division
For outstanding contributions to the Treasury Department in
maintaining the Savings Bonds Program at an exceptionally high
level in sales and operations.
LAWRENCE M. STONE, Formerly Tax Legislative Counsel, Office of the
Secretary
For outstanding professional competence, exceptional ability, and
sound judgment in the direction of an office which carries a
major responsibility for the Department's role in the tax policy
field.

DISTINGUISHED SERVICE AWARD
The highest recognition which may be conferred by Treasury on an
individual not employed by the Department for unusually outstanding
assistance to the Department.
C. DECKER, Consultant, Office of the Secretary, and Honorary
Vice Chairman of the Board, Corning Glass Works, Corning, N.Y.

WILLIAM

For invaluable assistance to the Treasury Department in negotiating procurement contracts and assuring timely receipt of highquality materials essential for new coinage needed to resolve the
serious coin shortage existing throughout the Nation in 1965.

ALEXANDER HAMILTON AWARD
This award is conferred by the Secretary to individuals personally
designated by him to be so honored. It is generally restricted to the
highest officials of the Department who have worked closely with the
Secretary tor a substantial period of time and who have demonstrated
outstanding leadership during that period.
N. TRUED, Formerly Assistant Secretary for International
Affairs, Office of the Secretary

MERLYN

For extraordinary achievement in greatly strengthening the international monetary system and in creating tools and institutions for
meeting future challenges to international financial cooperation.

TREASURY DEPARTMENT
3

FOR IMMEDIATE RELEASE
WITHHOLDING OF

.A.PPRPJSE:<:;~~ ~l~

PLASTIC CONTAnm...-qs
The Treasur,y Department is instructing customs field officers to
withhold appraisement of polyethylene containers, item No. 665 F-30,
from canada, manufactured by Reliance Products Limited, Winnipeg, Canada, pending a determinatioL

tClS

to whether this merchandise is being

sold a.t less than fair value ",'1 thin the meaning of the Antidumping Act,
192 1, as amended.

'!his withholding order will apply to importations

entered, or withdrawn from warehouse, for consumption after publication
of the order, which 'Will appear in the Federal Register in the near
future.
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 iLjury 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 wi thin the meaning of the Anti-

dumping Act was :.:"ecei ved in proper form on January 25, 1966.

~is in-

formation was the subject of an IIAntidumping Proceeding Notice" which

was published on page 5527 of the Federe.l Register of April 7, 1966,
pursuant to section 14.6(d)J Customs Regulations.

TREASURY DEPARTMENT
t

RELEASE 6:,30 PeM. ,
!lz September 2, 1966.
RESULTS OF TREASURY' S WEEKLY BILL OFFERING
The Treasury Department; announced that the tenders for two series ot Treasury bills,
series t.o be an additional. issue of the bills dated June 9, 1966, and the other
IS to be dated September 8, 1966, which were offered on August 29, 1966, were opened
he Federal Reserve Banks today. Tenders were invited for $1,300"000,000,, or thereta, of 91-dq bills and :tor $1,000,000,000, or thereabouts, of 182-d.a¥ bills. The

il8 of the two series are as follows:

E OF ACCEPTED
ETITIVE BIDS:

High
Low
Average

91-dq Treasury bills
maturing Decembt.r 8, 1966
Approx. Equiv.
Price
.Annual Rate

98.110
98.684
98.691

Approx. Equiv.

Price

5.103%

5.155% Y

••
:

5.206%

182-day Treasur.r bills
maturing March 9, 1967

97.148

97.133
97.140

Annual Rate

5.641%

5.671%

5.657%

a/ Excepting two tenders totaling $1,370,000
43% of the amount o:t 91-day bills bid .for at the low price was accepted
23% ot the amount of 182-day bills bid for at the low price was accepted
, TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

.strict
Iston
:w York

iladelphia
eveland
ohmond

lanta
icago
• Louis

nneapolis
DSas City

11as
11

Francis co
TarALS

AEElied For
$
29,705,000

1,382,302,000
31,284,000
25,3l4,ooo
13,006,000
40, 776,0<x>
251,676,000
48,668,000
21,539,000
21,550,000
22,937,000
90,047,000

Ace eEte d

•

19,705,000
869,187,000
19,,284,000
25,314,000
~10Q6,OOO

,776,000
128,676,000
46,018,000
21,539,000
20,550,000
16,937,000
85,~7,OOO

·••

••
:
••
••
:

••
••

·•••

••

AEE1ied For

AeceEted

28,.911 , 000 $

l,390,~68,OOO

12,987,000
45,574,000
8,554,000
32,105,000
302,333,000
47,738,000
9,299,000
11,651,000
12,832,000
f 7},251,000

13,914 ,.OOOi.
683,473,000
4,639,000
36,124,000
3,554,000
17,770,000
150,073,000
36,538 ,000
4,722,000
11,076,000
7,632,000
30,701,000

$1,978,804,000 $1,300,039,000 10/ $2,175,606,000 $1,000,216,000

noncompetitive tenders accepted at the average price ot 98 0 697
$ll7 ,157,000 noncompetitive tenders accepted at the average price ot 97.140
use rates are on a bank discount basis. The equivalent coupon issue yi.e1ds are
I~ tor the 91-d.a¥ bills, and 5.90% for the 182-dq bills.

lludes $236,846,000
~ludes

io6

TREASURY

C~PARTMENT

September 7, 1966

FOR IMMEDIATE RELEASE

September 15, 1966,
representing an
and to
amount of
to be rreely

182-day bills, for $ 1,000,000,000, or thereabouts, to be dated
September 15, 196qand to mature March 16, 1967.
The bills of both series will be issued on a discount basis under
competitive and nonco~etitive bidding as hereinafter prov1ded, and at
maturity their face amv~nt will be payable without interest. They
will be issued in bearer form only, and in denominations of $1,000,
$5,000, $10,000, $~O,OOO,
$100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, September 12, 1966.
Tenders will not be
received at the Treasu~J 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 th~ee decimals, e. g., 99.925. Fractions may not
be used. It is urge~ that tenders be made on the printed forms and
forwarded in the sperlal envelopes which will be supplied by Federal
Reserve Banks or BranC'i1es on apolication therp..for.
Banking institut~vns generally may submit tenders for account of
customers provided the names of the customers are set forth 1n 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 inco~orated banks and trust companies and from
responsIble and recognized dealers in investment securit1es. Tenders
from others must be acc ompanied by payment of 2 percent of the face
amount of Trea3Ury bi:ls applied for, unless the tenders are
accompanied by an exr-ress guaranty of payment by an incorporated bank
or trust company.
F- 607

- 2 -

Immediately after the closing hour, tenders will be opened at" the
Federal Reserve Banks and Branches, following which public annocncement will be made by the Treasury Departm~~t of the amount and price
range of accepted bids. Those suhmitting ~endcrs will be advised
of the acceptance or rejection thereof. Tr.e Secretary of the Tr0asur\'
expressly reserves the right to accept or ~eject any or all tenders, .
in whole or in part, and his action in any such respect shall be
final.
Subject to t~ese rese~vAtions. n0n2ompetit:ve tenders for
each issue for $200.noo or ]rss pithout stated priC'e from any on ..
bidder will be acce?ted ~n full Bt th~ average price (in three
decimals) of accepterl competitive hids for the respective issu~s.
Settlement for acceTJtEi terder::; in accorrlc:rce wi.th th(> bids must he
made or completed at t!1(' Fp-J("'~al ~eSErve Tic<r:k on September lS, 1(1')6, l~
cash or other i~mediately avaiJ3b12 funds 0~ in a like fRce amcJ~r
of Treasury bills mMturing September 15, 1~1'i6.Crtsh and 0',;:hange t~nde:-5
will receive equal treatment. Cash adju~l~~nts will he ~ade for
differences between the par value of maturjng 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 ~ale or other dispositl1n
of Treasury bills does not have any speciaL treatment, as such,
under the Internal Revenue Code of 1954. T~e bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation ~cw or hereafter impnsed or
the principal or interest thereof by any Stlte, or any of the
possessions of the U,ited States, or by any local taxing authorit)
For purposes of taxation the amount of difcount at which Treas~~y
bills are originally sold by the United States is considered t~ be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 195L~ the amount of discount at which bills iss,~:d
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, Rnd such bi lIs are exclu(j~d
from consideration RS capital assets. A,.:c(;rdingly, the owner of
Treasury bills (or::"er than life insurance 2ompanies) issued hereurder
need include in his income tax return onl:r the difference betweer.
the price paid for such bills, whether on original issue or on
subsequent purchase, and the arr.,::)t.:n~ u.::tu~ ll~' :-ec""'i\1·:d either upn.-:
sale or redemption at maturity during th,= taxable year for whicr. ::~2
return is made, as ordinary gain or loss.
Treasury Department Circular No. 6.18 (c'Jrre:l.t revision) and thi,
notice prescribe the terms of the TrQ~sury bills and govern the
conditions of thei1:" issue. I.".:opies of the r:i=cl!:;'ar may be obtaL1ed:0
any Federal Reserve Bank or Branch.

TREASURY DEPARTMENT
5

September 9, 1966
FOR IMMEDIATE RELEASE

TREASURY ESTABLISHES ADVISORY COMMITTEE
ON CUSTOMS ADMINISTRATION
Assistant Secretary of the Treasury True Davis announced
today that the Secretary of the Treasury had approved
establishment of a new advisory -o~ni.tte~ which will be
known as the Advisory Committee on C'.lstoms Administration.
The principal objective of the Committee is to enable
the Treasury Department to maintain a regularly established
mechanism of consultation with representatives of commercial
and other private interests principally concerned with the
administration of the Customs laws and regulations.
The members of the Committee are:
True Davis, Chairman
Assistant Secretary of the Treasury
James P. Hendrick, Vice Chairman
Deputy Assistant Secretary of the Treasury
I. M. Bomba, President
National Council of American Importers
New York, New York
Ralph Casey, President
American Merchant Marine Institute, Inc.
New York, New York
J. Bradley Colburn, President
Association of Customs Bar
New York, New York
J. Edward Day (for~er Postmaster General of the U.S.)
Sidley, Austin, Burgess & Smith
Washington, D. C.

F-608

- 2 Ralph Dewey, President
Pacific American Steamship Association
San Francisco, California

Lester D. Johnson
Commissioner of Customs
Washington, D. C.
Walter J. Mercer, President
National Customs Brokers & Forwarders
Association of America
New York, New York
John J. Murphy, President
National Customs Service Association
Edgewater, Maryland
William J. Taylor, President
Railway Express Agency, Inc.
New York, New York
Stuart G. Tipton, President
Air Transport Association of America
Washington, D. C.

On June 6 the Bureau of Customs completed one of the
most thoroughgoing reorganizations of the entire 176 year
old history of the Customs Service. This was made possible
by the President's Reorganization Plan No. I of 1965, which
was submitted by President Johnson to the Congress on
March 25, 1965, and became effective 60 days later.
The President's Plan provided for the abolishing of the
53 Customs positions to which appointments were previously
required to be made by the President. This served to establish
the Customs Service organization on a career basis.
Establishment of a career organization paved the way for
the regionalization of the Customs Service. Nine regional
offices and 42 subordinate district offices have now replaced
the 113 separate, independent field activities which previously
reported to the Customs Bureau headquarters in Washington, D.C.
Assistant Secretary Davis stated that at a time when the
Customs Service is undergoing such momentous changes, it is most
important that the Treasury Department take advantage of the
knowledge background and experience of the various organizations
and group~ primarily concerned with the admi~istr~tio~ of.the.
Customs laws and regulations.
It is with thLs obJectlve Ln mlnd
that the Advisory Committee on Customs Administration was
established and wilL function.
000

TREASURY DEPARTMENT

September 9, 1966
FOR IMMEDIATE RELEASE
U.S. - U.K. TREATY RATIFIED
Ratifications were exchanged today of a protocol
amending the United States-United Kingdom income tax
convention, the Treasury Department announced today.
The protocol was necessitated by changes in the British
income tax structure which were enacted in 1965.
The amendments brought about by the protocol were
summarized in a Treasury· release of February 10, 1966.
Among other things, the protocol reduces the statutory
withholding tax rates on dividends to 15 percent, retroactive in the United States to January 1, 1966 and in the
United Kingdom to April 6, 1966.

000

F-609

TREASURY DEPARTMENT

September 9,1966
FOR IMMEDIATE RELEASE

R. DUANE SAUNDERS APPOINTED ASSISTANT
TO THE SECRETARY OF THE TREASURY
Secretary of the Treasury Henry H. Fowler today announced
the .appo in tmen t of R. Duane Saunders as As s is tan t to the
Secretary (Debt Management).
Mr. Saunders, 53, has been with the Treasury Department
since 1941. Since 1959, he has been Director of the Treasury's
Office of Debt Analysis.
In his new post, he will aid the Secretary of the Treasury
in developing and coordinating plans and policies for debt
management. He succeeds Franklin R. Saul, who resigned
recently to return to private busin2ss.
Mr. Saunders was born in Bergville, Minnesota. He was
graduated from the University of t1innesota in 1939. He taught
economics at the University's School of Business Administration
from 1939 to 1941, when he joined the Treasury Department as a
fiscal economist.
During World War II, he served in the Army from 1942 to
1946, in the European Theater of Operations, rising from private
to captain.
Mr. Saunders was named Assistant Chief, Debt Analysis
Staff, Office of the Secretary, in 1953 and served in that
capacity until he was promoted in 1959 to Director, Office
of Debt Analysis. He was presented the Treasury's
Exceptional Service Award in 1964.
Mr. Saunders lives at 2400 Daphne Lane, Alexandria,
Virginia. He and his -wife, the former Laura M. Gilman of
Long Beach, California, have a son and two daughters.
000

F-6l0

TREASURY DEPARTMENT

FOR n~·1EDIA TE RELEASE

FEDERAL AGENCY FINANCING AND
PARTICIPATION SALES
Secretary of the Treasury Fowler announced today the
completion of a preliminary review of all potential Federal
security sales. He also announced decisions already taken
that will reduce substantially contemplated offerings of
participation sales and Federal agency securities to the
private market and hold those offerings to a minimum for the
remainder of the calendar year.
He said that this review and the decisions announced
were taken pursuant to the President's Message of Thursday,
September 8, and should help reduce current pressures on the
money market and on interest rates.
The Treasury's announced plans will affect the flow into
the private market of various Federal agency securities and
participation certificates in pools of Federally owned
financial assets during the balance of this calendar year.
A list of the agencies covered by the new program and a list
of the Federally owned financial assets projected for
disposition in the fiscal year 1967 in the President's BudFet
Message last January are attached.
The sale of participation certificates through FNMA
tentatively scheduled for September has been canceled and
will not be offered at another time in this calendar year.
In addition, further sales of participation certificates
through FNMA will be made into the private market during the
remainder of 1966 only if the market returns to more normal
conditions.
Also, there will be no public offering of additional
participation certificates by the Export-Import Bank for the
halance of this calendar year.

F-611

2 -

The Treasury also reported that it has had several
meetings with advisers in the financial community, and with
officials of other Government agencies, in order to improve
the design and marketability of participation certificates,
and thus reduce their market impact and interest cost.
A number of suggestions are being scrutinized and some of
these will be adopted on the next occasion when participation
sales are offered to the market.
With respect to Federal agency security issues, it is
planned that, in the aggregate, the agencies will borrow no
additional money in the private market between now and year-end.
Any offerings to the market will be confined to the amount
necessary to replace existing issues scheduled to mature. To
accomplish this result, an intensive effort will be made to
reduce the over-all new money needs of the Federal credit
agencies to a minimu~onsistent with the nation's economic
well-being. This effort is in line with a Presidential
memorandum sent on September 9 to all Government departments
and Federal credit agencies. A copy of the memorandum is
attached to this statement.
Even after applying rigid standards, there is expected
to be some need for additional financing by Federal credit
agencies beyond the replacement of maturing issues. At least
for the balance of this calendar year, it is planned to raise
these additional funds, in the aggregate, through the sale of
Federal agency securities to various Government investment
accounts.
The interest yields available on these high quality agency
securities clearly make these securities attractive investments
for the trust accounts. Furthermore, such placement assists
the objective of reducing strains on capital markets. Around
mid-1966 an increased volume of agency issues involving
considerable amounts of new money were sold, bringing rateS of
return in excess of their normal relationship with direct
Treasury issues.
In the months ahead, by providing the
agencies' new money needs through securities purchases by the
Government investment accounts, the type of pressure experienced
earlie~ this year should be avoided.
In August and September, it may be noted, the Government
invest~er.~ accounts have already arranged to purchase a porti~
of the securities offered by the Federal Home Loan Banks, the
Federal National Mortgage Association (to support its operati~S

- 3 in the secondary mortgage market), and the Federal Land Banks.
Purchases of these securities by the Government investment
accounts totaled $223 million.
The President directed the Secretary of the Treasury on
September 8 to ask each Federal credit agency to present to
the Secretary, for final review by the President, all proposals
for sal~s of securities during the rest of this year.
In several cases, the Secretary of the Treasury already
has the authority to approve the financing arrangements made
by Federal credit agencies.
In those cases where the Treasury
does not have this authority, the President in the attached
memorandum is asking that the Treasury and the Bureau of the
~udget be consulted in regard to the credit agencies' lending
programs and financing arrangements, and that proposed agency
financing operations in the market be approved by the President.
A table attached summarizing "Federal Agency Security Issues
and Participation Sales" at six-month intervals beginning with
the fiscal year 1965 provides some measure of the increasing
market impact of the sales of these securities which the
announced program is designed to alleviate.
This table shows that agency and participation certificate
sales in the first six months of this year raised more than
$5 billion in additional money.
In the next four months there will be no additional money
raised by a~ency sales in the market, and no sales of
participation certificates in the market unless market conditions
improve materially.

Attachments

September 9, 1966

MEMORANDUM FOR THE HEADS OF DEPARTMENTS
AND FEDERAL LENDING AGENCIES

After over five years of uninterrupted growth in our economy,
we face the threat that inflation will take away some of our
hard won gains. To the record level of private and public
demands have been added the costs of fulfilling our commitments
in Vietnam. We cannot allow these demands to thwart our
objective of continued healthy growth, and we must not buy price
stability at the expense of a stagnant economy.
Restraint in private and public demands is essential at this
time or we may fall short in our objectives.
Because we cannot
fail to supply the needs in Vietnam the burden of restraint must
be carried by the remainder of the public sector and by the
private sector of our economy.
I have strongly urged upon labor and management the need for
self-disciplin~.
At the Federal level expenditures are being
eliminated, reduced, or postponed on a case by case exa~ination
of all programs and activities, as outlined in my Message to the
Congress of September 8, 1966.
Federal credit programs -- programs created to serve legitimate
and important credit needs of our economy which are not adequately
served by the private financial markets -- must also share in the
difficult process of restraint. Monetary policy, as you know,
is now restrictive.
Pressures on the availability of funds are
~e[lected in ~he highest level of interest rates in the last
45 years. A part of the enormous demand for funds, after being
denied in the private sector, is seeking accommodation from
Federal credit sources.
This is to be expected, and to some
extent the very purpose of the Federal credit programs is to help
distribute 1iffiited resources more equitably.

- 2 But Federal credit resources cannot be allowed simply to
substitute for private resources.
To do this would undermine
the whole objective of reducing total demands on the capital
markets and pressures on interest rates.
I am therefore requesting the head of each Department and
lending ~~ency to review his operations to assure that direct
loans or loans insured or guaranteed by the agency are for
essential and nonpostponable needs.
Each loan should be
examined in terms of whether it promotes present national
objectives Rnd not just in terms of whether the loan is a sound
loan.
Heads of agencies that help finance private cr~dit
institutions should examine policies and operations with a view
to reducing the need for the agency borrowings in the capital
markets and minimizing the need for borrowing from the Treasury.
Essential credit needs will have to be met, but the objective
should be a sizable net reduction in demands upon credit markets.
I am further requesting agency heads to present their reviews
and reduced schedule of needs to the Secretary of the Treasury
and the Director of the Bureau of the Budget to insure a
coordination of the programs and a reduction in credit dernar.ds.

LYNDON B. JOHNSON

List of Departments and Federal Agencies with Lending
and Borrowing Activities Covered by New Program

Departments:
Agriculture
CQmmerce
Defense
Health, Education and Welfare
Housing ard Urban Development
Interior
Labor
State
Treasury

Agencies:
Export-Import Bank of Washington
Farm Credit Administration
Federal Deposit Insurance Corporation
Federal Home Loan Bank Board
General Services Administration
Interstate Commerce Commission
National Capital Planning Commission
Office of Economic Opportunity
Small Business Administration
Tennessee Valley Authority
Veterans Administration

FEDERALLY OWNED FINANCIAL ASSETS PROJECTED IN THE
PRESIDENT'S BUDGET MESSAGE IN JANUARY FOR DISPOSITION BY
PARTICIPATION SALES IN THE FISCAL YEAR 1967
(In millions of dollars)

Farmers Home Administration
HEW: Office of Education
Federal National Mortgage Assoc.
Federal Housing Administration
Public Housing program
College housing loans
Public facility loans
Veterans Administration:
Direct loan revolving fund
Loan guarantee revolving fund
Export-Import Bank
Small Business Administration
Total

600
100
520
820
80
154
106

975
850
4,205

Foder&l. Agency Security Iaaues and Participation Sal.ea
(In millions ot dollara)
TotaJ.
·• offeringa
·
·•
·•

~.a. tur1 ties

tiona.J..
. M.d1
monel 2L

Fiscal. year 1965:
J~ - Dec. 1964:

$ 4.. 539

Total ••••••••••••••

$ 4,629
750
5,379

Agency securi ti.es ••••

5,461

4,456

Agency securities ••••

Participation sales ••

Jan. - June 1.965:

riacal. year 1966:
Ju1¥ - Dec. 1.965:

Jan. - June 1966:

86
4 .. 625

261

664925

168

1,334
-168

5,461.

4,624

1,1.66

Agency aecurities ••••

5,623

4,856

Participation &~ea ••
Total ••••••••••••••

C100
....

325

6,523

5,18l.

724
575
1,299

Agency aeeuritiea ••••

8,6 43

5,901

Participation &alea ••

lz700

103

3,476
1.2 598

Total ••••••••••••••

10,343

6,004

5,074

Agency securities ••••

2,928

2,000
80..-

2,9€i3

2,039

582
-89
493

Agency aecuri ties ••••

n.&.

Fart1c1patlon .. alea ••
Tbt&l ••••••••••••••

n.a.
n.a.

4,196
333....

PartiCipation a&lea ••
TOta1 ••••••••••••••

~8cal "Ie&r

1961:
Ju4r - Au8. 1966:

Participation sales ••

Total ••••••••••••••
Sept •• Dec. 1966:

~q'~~

4,529

21
'J./

n.a.
n.a..
n.&.

September 9, 1966
1't1ce ot the Secretary ot the Treasury
ottice of Debt Analysis
, Includes "puts" and. redemptions prior to maturity.
I Includes short-term financing by FNMA and TVA not sho~ sejJ8r8.te~: on a net
basia these amounted to $172 million July-Dec .. 1964, $329 clll10n Jan.-June
1965, $-44 million J~-Dec. 1965.. $134 mi) lion Jan.-June 1966, $-206 million

I..

July-Aug. l.966.
In &dd.1.tion $140 million

va.

taken by Federal trwlt

Not available.
ItaU _,. mot add to total due to rounding.

tund.Q.

FOR RELEASE ON DELIVERY TO THE SENATE
AND THE HOUSE OF REPRESENTATIVES

September 8, 1966

NOTICE: There should be no premature release of this Message to the
Congress. nor should ita contents be paraphrased, alluded to or hinted
at in earlier stories. There is a total embargo on this message until
it has been delivered to the United States Senate or the House of
Representatives, which includes any and all references to any material
in this message.

Bill Moyers

THE WHITE HOUSE

TO THE CONGRESS OF THE UNITED STATES:

It is now time to set forth to the Congress and the American people
the additional steps we consider necessary to assure the continuing health
and strength of our economy.
I have been watching carefully the performance of our economy.
have consulted frequently and at great length with the wisest and most
experienced advisers available to the President -- with the responsible
officials in my Administration, with Members of the Congress, with
leaders of business and labor and with economists from our universities.

Prudent economic policy requires timely well-considered action in
the national interest. The true interest of the American people lies in
uninterrupted growth at stable prices. We must always be prepared to
act to protect that growth. But we must act with caution and avoid drastir.
changes that are not clearly required for the economic welfare. We must
focus our restraint on those sectors of the economy that need urgent
attention.
Certain actions have become clearly necessary to protect the interest
of our people in stable prosperity and I intend to take those actions now.

I am going to cut all federal expenditures to the fullest extent consistent
with the well- being of our people.
I recommend that the Congress promptly make. inoperative, for a
temporary period, those special incentives for plant and equipment
investment and commercial construction that currently contribute to
overheating the economy.

Every effort will be made to ease the inequitable burden of high
interest r.ates and tight money.
Further longer-range actions may prove necessary to maintain
balanced growth and finance the defense of Vietnam. But we will not have
the necessary facts about fiscal 1967 expenditures until the Congress
completes action on the remaining eight appropriation bills, and until the
Department of Defense knows the size of the supplemental appropriations
needed to support our men in Vietnam.

As soon as I receive these bills and defense estimates, I will again
review Federal expenditures for this fiscal year. We intend to reduce
or eliminate every possible federal expenditure provided in those bills
consistent v. ith
the well-being of our citizens.
more
lOVER)

l
When the Congress votes for add-ons to the remaining eight
appro;>riation bills, it must bear m mind that each vote to increase the
budget wlll likely require a vote to increase the revenue later.
This AdIninistration .8 prepa.red to recommend whatever action is
necessary to n.aintain the stable growth and ~rosperity of the ~a8t five
and one-half years and to pay for current expenditures out of current
revenues, as we are now doing.

The Performance 2i..~ Economy

Today the strength of the American economy exceeds all records
and all expectations. For 67 rr,onths - - for five and a half years - - the
trend of our economy has been titeadily up:
True production of goods and services has grown 5-1/Zo;o
a year, putting the American economy in the front rank
among the major nations of the world.
The spendable income of our consumers has increased 41 %.
Nine million more workers are employed on non-farm .~ayrolls.
Unemployment has dropped from 7% to 3.9%.
No nation has ever enjoyed such prosperity.
High production, high wages. high profits and low unemployment
are benefits co be sought and }lreserved. The new problems of
prosperity are much to be preferred to the old problems of recession or
depression. But the great satisfaction chat accompanies the solution of
old ,Jroblems must be tempered by full recognition of the new problems
these solutions bring.
We must meet <hese new ~jroblems without jeopardizing past gaIns
or ;Jresent tlerformance. And we must not revert to the jJenduluITl
economy of the 1950's.

Caution signs becaIne visible early this
policy required r'rudent action.

y~a.r.

Responsible fiscal

This Administration and the Congress acted to protect our prosperity
by taking $10 billion of excess ,Jurchasing ~ower out of the econoITlY this
calendar year:
$6 billion through Increased iJayroll taxes for social
security and medicare.

$1 billion through restored excise taxes.
$1 billion through graduated withholding of individual .axes.
$1 billion through a speed-up in corporate tax rJayments.

$1 billion through an administrative acceleration of tax

payments.

Responsible fiscal policy also dem.anded tight control of Fede ral
expenditures. This control has been exerted.
The fiscal 1966 budget on a national income basis - - the best measure
of the economic impact of federal activity - - showed an overall surplus
of about $1 billion. In the first half of calendar 1966, the annual rate of
this surplus rose to $3 billion. SiDce January 1 of this year, we have
taken in more money than we have spent.
The fiscal 1967 budget submitted to the Congress reflects the same
tight control, As a result, apart from special Vietnanl costs, the 1967
budget increased expenditures by only $600 million -- an increase of less
than 10/0 over fiscal 1966. For the Great Society program enacted by the
CODgress, I requested an additional $3.2 billion - - but only after offsetting
reductions had been made.
by pruning lower priority programs,
by improved manageITlent and cost reduction. and
by closing obsolete bases and eliminating unnecessary defense
expenditures.
Therefore, except for the $600 million, every dollar spent on Great
Society programs was secured by reducing or eliminating outmoded
programs,
In recent weeks, there have been signs of developing imbalance in
the economy.
As we all know. prices have been r~Slng. To be sure, average income
is rising faster than prices, and average price increases in the past 5-1/2
years are considerably less than in the previous 5-1/Z years.
Nevertheless, sustained price increases in food. services and
industrial products threaten our delicately balanced structure of wage and
price stability. "Ne ask workers to restrict heir wage demands to the
gains in labor's productivity. But this also requires a reasonable prospect
of stable living cos ts.
Ours is increasingly a fixed income population. Niore than 20 million
Americans depend on social security benefits. Millions of others live on
modest private pensions, past savings, and the proceeds of life insurance
policies.
Inflation imposes a cruel and unjust tax on all the people.
Inflation also ~aps the competitive strength of An"!.erican industry in
world trade. Recently, we have witnessed a decline in the trade surplus
so vital to our balance of payments position. A healthy export expansion
has not been enough to offset the bulging inc rease in impo .... ts.
In recent months, there has been a.n exaggerated boom in business
investment. Moreover, the rapid growth of business credit has not
moderated significantly. despite tight money restraints that, if intensified,
threaten to halt balanced growth.
In the early 1960's, when there was unnecessary slack in the economy.
and when growth was too slow, we took the steps needed to stimulate
e~cpansion and move toward full employment. But good economic policy
works both ways. When total spending rises more rapidly than the economy
can accommodate - - when business investInent creates undue pressures -when armed conflict overseas imposes new burdens on government - - then
we must be willing to shift into lower gear and reduce inflationary pressures.
more

(OVER)

Our prq~r"-m early this year to remove $10 billion frOYTI the> ll. S.
eco1U'rny was a first step in this direction. But the continued and
mounting pressures since that time require the second-step progrllYTI
I am. recommending today. And I shall not hesitate to take furtheT fisc~l
!'>tep8 when the size of the budget and the developnlents in our economy
indicate thi'lt thl"y are neee!! sary.

Program of Action

I rropo~e the fnllnwinQ
and the Amf"rican people:
1.

pro~ranl

of iYTImediate action Jnt' thf"

r("\T'I2 ......

...!

~ taking strong measures ~ reduce )~~ priority fede!..'!.! ~x
penditures.

n .. terrnination

of the exact amflllnt of rt"ritlrthln in th::lt 1i""tD,1

r-f th.,. fisc~l lQh7 h'lrlget lIn<-ler dtrert Prp~i!lpntinl rr~llltrol

1'1""'"

p" .. ';nn

;""r!;~

('nnl2r""~;~nal ::IC'tin" "1"\ tllf' rI"P'''i"jng Clnj:'ropTi"ltinll hill".
'I11T hpc:I
T'l'psent pstirnr!tp i!'! that a rf'ductinn nf 1 (1"'" - - 1\pprrV ",irrH\!ply '!; 1 hill;""
"ill be req\!1red from that pnrtinn of the h~H1get.

Rills 'llready r:'!l'Isea by \,nth H"u"es: of r"rmllrE's'! - - .. nn1" l1n<>r,;",,,,,,,Iv
<Inn otlH'rs by l;>rgp bip<>rti9i1n Tn"j"rities - _ hr!ve addeo apprr"{in,"f"ly
~;; -I, -l billinn tn the spenrHng iI\lthority 1 requpstpd from thi" ,,,,,,,,i"'n "f
tJ,., Ct"\ne,"p"s" I! bill" p"l<!'lf'd hr po!, or til''' other of 1h .. q""".,., ,,(
InnQTf'S<:" "r nnw beforf' {'<Jngrf'!'!"ional ('ommittf'e~" ar .. filudlv "'p~ .... vp,]
in theil' flr!'!"f'n1 forn" thf'v "'"ill ilU~ aIm,.,!'!t $4 bi.llion to Fpdpral .. ponrHnll
illIthf'rit\ "nel $2 billion to spf'nrHng In the ('urrent fieral vp:>r.
Mpr"h"'rc:
(·f 1111" I ,'ng1f'ClS wilL b,' h(llning rE'rnaif'.in~ appropril'tions ~'ithin til ..
'Iln,'unt f'f TT1\" re-quests, lirn i t thf> anlnunt 'If aodHinnal 1'1"\'''""1'' that may
hf' l"C'q'';' pn "f'xt yE':'!r.

Allh"""l, thE' ('(lSi!' "f the Vietnam confli.rt are uncerti'lln. if thi .. ronflict "',,<I"'nn!; 11"'vnnd thf' {'111 rpnt fiscal Vp'lT. WI" will hI' fnrrPfl to oroPT
"riel,!;on,,1 T11r!h>ri.;l\ ano f'qllipnH·nt.
Tn he on the si'l.fe Riof' ilnn tn
S\lpport I'llr TTl"'n in \'ietn"ITl. we must act on this contin.E!f'n<y.

I hi'l.\·p i'l.lrp;:tdy diTf'rtpd that lower-priority Federal prneram8 hp
Tf'duCpd \w $1. r; hilHon in fiscal IQ(>7.
f'f'dPT"'} civilian al':""nrieB have hpen directed to defer. strf'tch 01lt,
and otherwisp reduce contr;:!.cts, npw orriere and comn1itrnents.
F;,,("h
lna.,ior "'gpncv has bf'en givt'n a sa .... ingl'! target, with order!" to tT1eet
Ihi'lt ta r ge1.

I anl prepared to defer and reduce Federal expenditurp.Fl!
by requesting "-ppropriations (or Federal progranls at levels
below those now being authorized by the Congress,

bv withhold ing appr opriations provided above my budget
recommendations whenever possible, and
by cutting spending in other areas which have significant
fiscal impact in 1967.

My 1967 budget called for total expenditures of $112.8 billion. Of
this amount. $58.3 billion is for Defense. Of the remaining $54.5
billion. payments fixed by law or otherwise uncontrollable __ such as
the civilian pay, interest on the public debt, veterans' compensation
and pensions, public assistance payments. agricultural price supports,
and payments on prior contract. -- account for $31.5 billion. This
leaves only some $Z3 billion of expenditures subject to immediate
Presidential control.
The corresponding appropriation total (new obliglltional authority)
is $31 billion. The savings I have directed must COnle from that total.
They will not be easy to achieve.
But at a time when individual incomes and corporate profits are at
unpardleled levels, a compassionate and mature people will not ms.ke
the poor carry the burden of fighting infhtbn. For such a policy would
be neither good economics nor social justice.
During the calendar year 1967, the product of the American economy
will increase by Some $50 billion. Before the end of this yellr, we will be
producing at a rate of $750 billion -- 3/4 of a trillion dollars -- a year.
And the Federal budget has been clr..itnir..g a declining share of that
product. The Federal Administrative b'.l.dg~t -- the ~st measure of the
size of Federal programs tha.t are not sed-financed -- has declined from
17'1., of the gross nl\tional product in fiscal 19S5 to less than 15% in fisc!!.1
1966. If we had spent the same pe rcenti'ige as in 1955. our Administrative
budget WQuld have been $15 billion higher last year.
I intend to conserve and save public outlays at every possible point.
But it would be shortsighted to abandon the tasks of educating our
children. providing for their health. rebuilding the decaying cities in
which they live, and otherwise promoting the general welfare.
P08tp o ned investment in buildings and machines can be made at a
later date without seriouli injury to our welfare. But we can never
rec~pture the early years of a child who did not get the head st:1rt he
needed to be a productive citizen, or the lost opportunities of the teenage
dropout who was nevr.r given;;. second chance. And we can never repair
the ravages of a disease that could have been prevented, or recall the
lives lost by cancer that might have been cured.
The fiscal measures which have given us the unparalleled prosperity
of the past 5-1/2 years were a product of the partnership of the Congress
and the Executive. The Great Society programs, placed on the statute
books of this country by the overwhelming majority of the Congress, also
reflect our partnership tu promote the welfare of the people of this country.
So, now, we must work together to assure that the prosperity IUld Bocial
progress of the past five and a half years continue.
2.

.!. recommend ~tho

C~n-Rress make the 7% investment tax ,credit ,
inoperative, efiective September I, 1966, ~becotne operatlve aSaln
~ Janu~ry 1, ~
1

The temporary suspension should apply to all orders for machinery
and equipment placed on or after September 1, 1966, and before
January 1, 1968, regardless of the date of their delivery.
The suspension should be across-the-board, without exception, applying effectively and equitably to all investing industries. No special
treatment or special exclusions should be made for this brief period of
suspension.
more
(01Jll}i)

6
One of the great accomplishments of recent year. has been the
mighty upsurge of busines8 investment in plant and equipment, to expand
a.nd update our industrial capacity and to provide more Jobs for our
workera. This gratifying surge i. now, however, proceeding too awiftly.
For the paat three yeara, thls inveatment hal been r1a101 more than
twice aa faat as our Oros a National Product.

Our machinery and equipment industries cannot digeat the demands
currently thrust upon them. We see symptom. ot strain in arowing
backlogs, acceleratin, pricea and emerging ahortag.a of .killed workers.
There is a ten-month average backlog on machine tool ordera alone. On
many machine tools, the order backlog exceeds 15 months.
Our capital markets are clogged with excea.ive demands for funds
to finance investment. Theee demand. bid intere.t rates higher and
hlgher, and draw too large a share of credit from other important ulles.
The current maChinery and equipment boom reflects many incentive !I
and Support. -- the reform of depreciation guidelin~a. the investment tax
credit, reductions in co rpo!';> tf'! ir.C0r:11 t.ax ra.tes, the dralTlatic 8 trengthening of consumer mllrkete, and th~ stepped-up flow of defense orders.
I am agld.ng CC>Dgre8s tOday to make inoperative for 16 tnontbs one of
the special inc~nj;iveli in orde r to moderate the growth of capital spending.

Our high employment, high profit eC0nomy will still provide
abundant incentive fOT gro'~h In our capacity sufficient to produce the goods
we need, for modernizing facUities, and hence for m&intaining a strong
international competitive position.
A temporary S\Uipenslon of the inveatment credit will relieve
excessive pressures on our capital goods producers and on our financial
markets. We can then ~ook forward to a .Inoothe r flow of inveatInent
goods -- at stable costs bo>:'. for machinery and for Inoney.
The special credit was recow.me!lded as a bonus for investment to
help move the economy forward. This recommendation reflected the
commitment of this Administration to a bigh-investInent, higb4reaearch,
high-growth economy. This i8 a firm long-term plan that we intend to
carry out. A high level of business investment is indispensable to our
prosperity and to our economic growth. The bonus of the investment
credit bas proved itself to be too effective a promoter of 8uch investm'!nt
to be abandotted. We shall need this bonus ove r the years ahead and it
should be ~Qtol"ed.
Now, however, our problem is to keep inveBtInent within safe speed
limits. We should not continue to preslil on the accelerator. We should
Dot now provide a bonus to do something that we do not want done now
ilnd will ve ry much want and need to be done later on.
3.

.!.. recommend ~ ~ Congre911 ,uspend until January.l.z 1968.1 ~
~ ~ accelerated depreciation on nIl buildln{ii and structures
started ~ transferred ~n 0.2" ~
September 1,

--mo.

Just as machinery and equipInent outlays are stimulated by the
investment tax credit, construction of commercial and industrial
buildings i8 advanced ilnd encouraged by accelerated depreciation. To
aS8ure that 8afe apeed limite a.re applied to all forms of inveatment.
we should now remove this special incentive.
more

7
Today, it is contributing unnecessarily to an inflation of building
costs and to the pressures on financial markets, which are reflected in
high interest rates. In the pallt 12 months, commercial and industrial
construction was 27% higher than during the previous year.

In the last few months, certain areas of private building have been
caught in the vise of tight money and high interest rates. The suspension
of accelerated depreciation is surely a more effective and equitable way
to hold construction within bounds.
The logic and equity of restraint thus require suspension of
accelerated depreciation. In this way, we can apply restrictive
measures evenly to the various types of investment and through a broad
and balanced use of our tools of economic policy.
4.

Lurge!!!!. Federal Reserve ~. in ~uting it& ~ ~
monetary restraint, and ~ large commercial ~~!£. coope rate
~ the President and the Congrcs!!.!£ ~ interest ~~~
~ the inequitable burden ~ tiflht. ~.l:

The Secretary of thp Treasury ha6 reviewed all potential Federal
security sales and is taking action to keep them at the minimum in the
months ahead. This should help reduce current pressures on the money
market and on interest rates.
I urge the Congrr"s3 to act promptly on pendi.ng legislation to prevent
competition for depos it and sha re accounts from driving up interest rates.
As more of the burden of restraint is assumed by fiscal measures
by elimination of speC'lal stimulants to business investment, higher

taxes and reduced or postponed Federal spending - - we should take
further action to reduce the burdens iITlposed on the American people
by tight rooney and high inte rest rate s. Present munetary measures
iITlpose a special hardship on hOITlebuye rs and small businessmen.
Banks should handle money and credit equitably and without
extracting excessive profits. They should rely less on high interest
rates to price borrowers out of the market and more on the placing of
appropriate ceilings on credit.
I am responding to the requests of the financial community to ease
the great pressure on rnoney rnark~ts. The Federal Reserve Board
and our large comITlercial banks must now recognize that we are
determined to restrain inflationary pressures by fiscal and budgetary
measureS. I ask, in turn, that the financial community seize the
earliest opportunity to lower interest rates and more fairly allocate the
existing supplies of credit.
I have been assured that every effort is being made to detect any
easing of inflationary pressures in oycler that monetary policy can be
adjusted quickly and adequately to maintain stable and sustainable
econotnic growth.

Preserving Economic Freedorn
The demand for goods, including capital investment must be kept
roughly in balance with the ability of our economy to meet this demand.
Within this general strategy for a free economy. we seek the cooperation of etnployers and unions in lTlaintaining price and wage policies
cons is tent with stability.
more
(OVER)

We ask that wage increases remain within labor's productivity gains.
We ask that industry forego price increases where there are no increases
in costs and reduce prices when costs fall.
The alternative to this strategy is the endless pursuit of wages by
price s, and prices by wages, to the cotnmon dis advantage of all
participants and the nation as a whole.

I ask American business to:
Base demands for credit on genuine needs. not on speCUlation
of future scarcity or higher cost.
Maintain an inventory position based on current requiretnents,
not on fears or hopes that prices will be higher later on.
Postpone investment projects that al"e not absolutely necessary
at this time.
Set prices on the basis of real costs, not imaginary future costs
that build in an aS5UITlption of inflation.
Limit profits to those appropriate for a steadily expanding
economy.
I ask Am.erican labor to:

Avoid wage demands that would raise the average level of costs
and prices in the econo:ny.
Adopt work rules and standards for entry into its trades that are
appropriate for a continuing full-employment economy.
Cooperate with business to raise productivity so that pay
inc reases will be matched by production increases.
The steps I have taken and recomrnended today are needed to keep the
American economy on the safe course of stable prosperity it has enjoyed
for the pa~t five and one-half years.
Decisions mz.de elsewhe I-e will influence our defense needs in Vietnam.
Because we cannot control or ?redict these outcomes, we cannot blueprint
our fiscal rneasures in the months ahead. But should additional fiscal
measures be required to preserve price stability and rnaintain sound fiscal
pOlicies. I will recommend theITl.

By continuing on a prudent course in our private and public policies and
by preserving our capacity for stable economic growth, we can look forward

to continuing progress. We can rnake that progress within the framework of
a free economy. We do not want to resort to controls. If we take the
necessary actions, next year should bring new heights in consumer living
standards, in savings for the future, in our progress toward the Great Society.
I urge the Cocgress to exercise prudent restraint in appropriating public
funds and to act promptly on the legislative proposals I have set forth in this
message.

LYNDON B. JOHNSON

THE WHIT E HOUSE,
Septen,ber 8, 19&6.
#

TREASURY DEPARTMENT
(

6:30 P.M.,
l, September 12, 1966

RESULTS OF TREASURY'S WEEKLY BILL OFFERDJG

The Treasury Department announced that the tenders for two aeries of Treasury bllls,

aries to be an additional issue of the bills dated June 16, 1966, and the other
s to be dated September 15, 1966, which were of"fered on September 1, 1966, were opened
a Federal Reserve Banks tod.c\Y. Tenders were invited for $1,)00,000,000, or there5, of 91-~ bills and for $1,000,000,000, or thereabouts, of 182-~ bills.
The
Is of the two series are as follows:
OF ACCEPTED
TITIVE BIDS:
fiigh

Low
lverage
i /

91-~ Treasury

bills

_maturing December 15.1 1966
Approx. Equiv.
Annual Rate
Price
98 9 6)7 a/
;;. 313~

98.610
ge.623

5.u99%

5.h47%

·•
·:

182-day Treasury bills
maturing March 16, 1967
Approx. Equiv.
Price
Annual Rate

I
I

97.016
96.992

,
:

5.902%
5.950%
5.926% 1/

97.004

Excepting one tender of $2b.O, 000; bl E~ct3pting one tender of" $300,000

72% of the amount of 91-day bills bid 'tor at tne low price was accepted

8% of the amount of 182-day bills bid for at tte low price was accepted
TENDERS APPLIED FOR AND ACCU>TED BY F2DERAL :t=S;;h',r: DI3TRICTS:

Itriot

iton
r York
~adelphia

lveland
~hmond

.anta
.cago

Applied For
~
16,391,000
1,361,810,000
35,015,000
31,796,000
12,555,000

Accepted
$
16,.391,000
807,910,000
23,015,000

Applied For

31,796,000
12,555,000

57,879,000

49,369,000

••
••
:

••

320,$56,000
46,297,000

158,398,000
38,933,000

Francisco

21,959,000
32,093,000
20,017,000
10,3,477,000

21, .391,000
32,093,000
15,017,000
93,337,000

••

TOTALS

$2,059,845,000

$1,3 0 0,205,000

£I

Louis
neapolis
saa City

las

••
••
••

Accepted

24,371,000 $

1,707,581,000

5,439,000
802,070,000

17,408,000

8,927,000

318,434,000

20,304,000
6,674,000
19,612,000
47,610,000

28,715,000

16,92),000

42,610,000
6,674,000

33,390,000

20~686~OOO

26,533,000

15,186,000
19,455,000

15,906,000

10,446,000

276,969,~

27,425,000

$2,519,277,000 $1,000,071,000

tY'

lUdes $282,468,000 noncompetitive tenders accepted at the average prioe of 98.623
ludes $175,641,000 noncompetitive tenders accepted at the average price o£ 91.004
se rates are on a bank discount basis. The equivalent coupon issue yields are
~ for the 91-~ bills, and 6.19% for the 182-day bills •
.2

TREASURY DEPARTMENT
Washington

STATEMENT BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE THE HOUSE WAYS AND MEANS COMMITTEE

ON H. R. 17607
MONDAY, SEPTEMBER 12, 1966, 10 A.M. EDT

Mr. Chairman and Members of the Committee:
I appreciate this opportunity to discuss the program
presented in the President's Message of September 8, 1966
and to present the Treasury's views on the bill before
you, H. R. 17607.

I wish also to thank the Committee for

its promptness in holding these hearings.

The situation

calls for action, however inconvenient the timing.
I favor the prompt enactment of H. R. 17607 suspending
some of the existing special tax incentives to investment
during the next sixteen months because:
(1)

It will contribute to a restraint of infla-

tionary developments that are proving disruptive of
the financial markets and placing excessive strain
on the capital goods industrieso
(2)

It will promote a more sustainable rate of

balanced economic growth in the next sixteen months
and thereafter.

F-6l3

- 2 (3)

It will suspend special fiscal stimulants

to investment, and thereby support a policy of monetary restraint without incurring the burdens and
without running the risks of excessively tight money
and high interest rates.
(4)

It will complement other measures enacted

by the Congress or pending before it and being undertaken through administrative action to reduce upward
pressures on interest rates and minimize discriminatory
impact of tight money and high interest rates on the
housing sector of the economy.
Ie

The Legislative Proposal in the Perspective
________~o~f__the Overall Program

Our economy and the financial system that services it,
increasingly strained by the requirements of war and a
rapidly expanding private sector, are subject today to at
least three clearly discernible demand pressures:
in the money and financial markets, excessive demands
for credit and monetary restraint together have
created severe tightness and a sharp rise in interest rates, with highly selective impact on several
sectors particularly single family housing;

- 3 in the market for capital goods, the ever mounting
flow of new orders by business firms corning on top
of an unprecedented rate of outlays for plant and
equipment is generating rising prices, rising wage
rates and shortages of some skilled labor, and is
augmenting the large demands for capital from
banks and the securities market;
the rising rate of government expenditures, Federal,
State and local, highlighted by steadily expanding
defense and public works outlays is adding steadily
to aggregate demand at a high rate.
These three sources of pressure are interrelated and
reinforcing.

Accelerating business spending breeds demands

for credit from banks and for financing in the capital market.
Higher Government spending also generates credit demands -by the Government itself, and by private firms which receive

Government orders and w~rk on borrowed funds to fill new
contracts.

And tight money itself causes additional Govern-

ment spending, particularly to help finance areas of important
economic activity such as homebuilding from which the supply
of private capital has been diverted.

- 4 The program contained in the President's Message is
designed to deal with all three pressure points.
This program is prim3rily economic and financial in
its objective and thrust.
m~st

It represents, I believe, the

carefully chosen and prudent means, consistent with

preserving stable economic growth within the framework of
a free economy, to ease the strain of the pressures
described.
The spokesmen for the Administration are here today
to request your action on one legislative proposal recommended in the program outlined in the President's Message,
which is interrelated with the other elements of that
program.
This proposal is not a tax reform proposal -- it is
temporary in design and purpose.
It is not a revenue-raising proposal in purpose or
objective; any revenue aspects are only incidental.

So we

do not come here today with any new estim~tes of revenues
or expenditures for fiscal 1967.
The proposal is basically an anti-inflationary measure
designed to relieve the pressures, clearly observable in

- 5 the money markets and capital goods sector, which are producing unusual strains, the highest interest rates in
forty years and a perceptible trend toward a general
condition of economic instability.
Before

com~enting

on the details of this legislative

proposal, let me relate it to the balance of the program.
As regards action to affect the credit market, the
proposed suspension of special incentives to undertake
major programs of business investment should serve to
moderate business needs for financing.
In addition, the President's directive to me to review
all Federal security sales and present them to the President
for approval will result in lessening the burden of Federal
finance on the markets.

The President's memorandum to

Federal Departments and agencies of September 9, calling
for careful and thorough pruning of Federal lending and
borrowing activities, should reduce aggregate Federal credit
demands on the private market.
It has already been decided to cancel the sale of FNMA
participation certificates tentatively scheduled for
September, and to have no FNMA participation sale in the

()

market for the rest of 1966 unless market conditions improve.
Nor will there be any Export-Tn,port Bank sale of participation certificates in the market in the rest of this calendar
year.

Market sales of Federal agency securities, meanwhile,

will be limited in the aggregate to an amount required to
replace maturing issues, while new money, to the extent
genuinely needed, will be raised through sales of agency
securities to Governm2nt investment accounts.
I am submitting for the record a copy of a Press release
issued Saturday, September 10, announcing these decisions
pursuant to that portion of the President's Message.
Another important ingredient of the President's progran
is the passage of legislation to give the bank regulatory
agencies and Federal Home Loan Bank flexible authority to
halt and hopefully reverse the harmful process of excessive
interest rate escalation in the field of consumer savings.
The favorable House action last Thursday on H. R. 17255 is
an important step in this direction.
The announced program for reducing Federal expenditures
for fiscal 1967 is yet another related measure to minimize
the drain of federal financing on the credit market in

- 7 addition to reducing aggregate demand

Since the Director

of the Budget will deal with this subject in detail, I
will only observe that the President made clear his firm
determination to hold down all lower priority expenditures
by means of deferrals, stretching out the pace of spending
and otherwise reducing contracts, new orders and commitments -- a policy and program with which I have been
actively and affirmatively concerned from the initial preparation of the January Budget.
I would like to relate this policy and program of the
President to hold down Federal expenditures to the legislation before you.
I am mindful of the fact that many members of this
Committee, both

M~jority

and Minority, have expressed their

disinclination to consider any tax measure for the purpose
of increasing revenues unless there have been firm efforts
to hold down expenditures.
In my view, the program presented to you today is consistent with that position.

First, it incorporates very

specifically in point (1) of the President's Message the
expenditure reductions Director Schultze will discuss.

- 8 course, any final precise description of the amount and
nature of the spending cuts, beyond the recitals in the
President's Message and the Director's Statement here
today, must await action by the Congress on the eight major
appropriation bills pending before it.
Since the time it became readily apparent to all that
the appropriation process of the Congress was likely to
result in appropriations substantially in excess of the
President's budget, it has not been possible to develop and
execute in complete detail an expenditure control program
for the fiscal year 1967 until final action on the major
money bills is complete.

Give us the bills and we will do

the job.
Second, there is no inconsistency between the President's
legislative proposal and the Members' position that I have
referred to, because H. RD 17607 is not offered as a revenue
or tax increase measure.

Its purpose is clearly and simply

to suspend a stimulant to forces that are proving inflationary
in the current economic situation.
I come now to the specifics of the President's legislative recommendation, as reflected in H~ R. 17607, which would

- 9 suspend temporarily the 7 percent investment tax credit
for machinery and equipment and the option to elect acce1erated depreciation on buildings, for the period September 1,
1966 through December 31, 1967.
As members of this Committee are well aware, I have
always been a strong exponent of the investment credit.

When

I appeared before this Committee last January in connection
with the Tax Adjustment Act of 1966, I was specifically
questioned as to whether consideration had been given to
repealing the 7 percent investment credit in developing the
President's 1966 tax program.

I then answered as follows:

"The first observation I would want to make is that
one of the great advantages that we have now, and we
will have in the period ahead, is the continued
expansion of this Nation's productive capacity and
a continued modernization of existing capacity and
capacity that may be added. Therefore, I think we
want to be very chary of restraining or holding back
the enlargement of this productive capacity to meet
growing requirements, whether they be for defense or
for civilian use."
When asked whether I thought the investment credit should
be a fixed part of the tax law, I further commented:
"I think that in addition to the stimulation effect,
which was one of the considerations, there was another,
and perhaps a more basic consideration, that attaches
to the investment credit. From a long-term structural

- 10 standpoint, wholly apart from cyclical considerations,
it was desirable to have a feature of our tax law
which encouraged additions to productive capacity and
continuing modernization of industrial capacity in
view of the problems of international competition and
in view of the fact that the existing setup had been
marked by a rather, you might say, stalled industrial
capacity. Plant and equipment expenditures had been
pretty well stalled at a given level for a number of
years o
It was felt that this was a structural condition and that something ought to be done of a
permanent and enduring nature that would encourage
the results that I think we have achieved."
Mr. Chairman, our experience to date has justified the
faith I had in.1962 in the efficacy of the investment credit,
and my belief that it should become a permanent part of our
tax structure.

Since then industrial production has

increased three times as fast as in the previous decade,
real business fixed investment has increased nearly four
times as fast, and our economic growth generally has far
surpassed its previous rate.

This remarkable achievement

is not due solely to the investment credit, but I firmly
believe the investment credit has contributed substantially
to it.

Moreover, looking to the long-term future I am con-

vinced that the encouragement provided to business by the
credit to modernize and expand its use of capital equipment
is essential to maintaining full employment with stable

- 11 -

prices, and to keep our industry competitive with foreign
goods.

The President and his Administration fully share

these views.
It is therefore, as I am sure you understand, only
with considerable reluctance and after very careful study
that we have reached the conclusion that suspension of the
investment credit is an appropriate measure at this time.

r stress suspension and not repeal since the credit should
be regarded, as President Johnson's Message indicated, as
an essential and enduring part of our tax structure.
Not only do I regard the investment credit as a permanent structural component of our tax system but also one
that should be suspended only in times of active hostilities
at least on a scale such as characterizes the present situation.

Even under such circumstances I would, as past

attitudes have made clear, be chary of suspending the investment credit unless the combination of a rapidly expanding
civilian economy and increasing and special defense needs
made this course compelling.

I would be opposed to treating

the investment credit as one of many countercyclical devices
to be suspended and restored with the normal ups and downs
in our economy.

- 12 The present situation is unique and was quite unforeseeable when the credit was adopted and stress was put -and properly so -- on its permanent character.

We then

contemplated a peacetime economy and thoughts of a country
engaged in hostilities on the present scale were far from
our minds.

But hostilities can cut ruthlessly across many

plans and procedures designed to meet problems of a
country at peace o

We are deeply committed to an extensive

military operation in Southeast Asia which shows no signs
of early termination.
clearly evident.

Its effects on our economy are

We are also confronted with a monetary

situation of almost unparalleled tightness, which is producing distortions in our economy and the highest levels
of interest rates in more than 40 years.
Early in the year when the question of suspending the
credit was raised in the Senate, we hoped that this change
in the law could be avoided.

In March the President

invited to the White House more than 100 chief executives
of companies which, together, are responsible for making a
large portion of business plant and equipment outlays.

that dinner the President made a strong personal appeal to

- 13 those present to carefully review their investment plans
with the objective of screening out and setting aside for
deferral whatever projects and expenditures they possibly
could.

Many of the executives did just that and wrote

letters to the President confirming their plans to moderate
their investment outlays.
Total plant and equipment outlays, however, continued
to surge upward.

The latest Commerce-SEC Survey released

to the public early last week, based on reports from business in late July and August, continued to forecast a
17 percent rise in plant and equipment outlays for this
calendar year just as it did last spring.

It is true that

the rate of expansion forecast for the second half of 1966
is smaller than the actual rate for the first half.
this had been forecast all along.

But

It is also true that

actual increases for the last twelve quarters of this series
have turned out to be higher than the forecasts.

The real

point is that the level of investment is simply too high
under present circumstances and it is taking place despite
developments in financial markets and sharp increases in
interest rates paid by corporate borrowers, factors which
Some thought would restrict capital expenditures.

Undoubtedly

- 14 the increase would have been larger without the influence
of the President's appeal for restraint.
It would be dangerous to let the economy proceed on
its present course without a release from these pressures
that suspension of the investment credit and the companion
measure, accelerated depreciation on buildings, will help
accomplish along with the remainder of the program set forth
in the President's Message.
The unforeseeable escalation of Vietnam in mid-1965
gave a strong upward thrust to the demand on our

resources~

In response, the policy of the Administration has been to
take fiscal steps designed to meet conditions as they
unfolded.

This was exemplified in the Tax Adjustment Act

of 1966 which applied the degree of restraint that conditions
and prospects at that time required.

Similarly, we are now

proposing another appropriate step again responsive to prevailing conditions.

In view of the uncertainties with which

we still are confronted, we cannot offer blueprints for
future programs.

The only prudent course is to maintain a

flexible, step-by-step approach.

- 15 II.

Specific Background For The Legislative Proposal

Our economy is now operating close to the limits of
its productive powers.

It is being called upon not only

to meet emergency defense requirements associated with
military operations in Southeast Asia, to support civilian
activities of Federal, State and local government, and to
produce an enormous flow of capital goods for business.
It is at the same time providing the American consumer with
the highest standard of living the world has ever known.
The strain on our economic resources is most acute in
the field of credit referred to above and in business
investment, where the high level of activity has created a
substantial excess of demand over supply, which will be
augmented by future orders with consequent additional strain
on money markets.
The high and rising levels of business investment spending have been a main cause of credit tightening, mounting
interest rates, and diversion of financial -- and hence
real -- resources away from other important areas of economic
activity.

- 16 The resulting process of interest rate escalation -the bidding up for a limited supply of funds -- deserve
special comments here, because the muting of this process
is a major part of the President's program to restore and
maintain stable financial marketso
For several years of business expansion, 1961 through
1965, credit expanded with relatively little change in
interest rates except in short-term rates.

Credit demands

grew, but the expansion of savings and bank credit were
able to

accommoda~Bthis

expansion to the great benefit of

the economy, which enjoyed rapid growth.

A major means by

which banks were able to participate in this process of
credit expansion was through amassing very large gains in
time deposits, essentially by simply bidding for those
deposits and then making the funds available for loans to
business and other borrowers.
What had been from 1961 to 1965 an orderly process of
credit expansion and real economic expansion acquired in
1966, however, some aspects of an unhealthy scramble for
liquidity and credit, in which interest rates have shot up
and credit has flowed in a lopsided fashion.

Businesses,

- 17 particularly corporate business, have taken a very large
share, while the mortgage market has had to do with less.
This result has emerged because total credit demands
increased while supplies were being held back by a more
restrictive monetary policy.
To meet heavy business demands for loans, the banks
this year have bid up the interest rates on certificates
of deposit, and due to more restricted credit availability
that bidding hqd to be more aggressive than before.

addition, banks have made more room for business loans by
selling their holdings of Treasury issues or allowing those
holdings to mature without being replaced with other
Treasury issues.

In this entire process, interest rates

on Treasury issues and other securities rose.
Indicative of business demands on the banks, commercial
bank loans to business rose at an annual rate of 22 percent
in the first seven months of this year, while bank loans
other than business loans rose at about a 7 percent annual
rate, and bank investments registered no net change at all.
At the same time, business borrowing was exerting a
substantial direct impact in the capital markets.

Net funds

- 18 raised through corporate bond issues in the first half of
this year were at an annual rate some 80 percent heavier
than the rate for all of 1965.

Clearly, businesses have

had to rely very heavily on external financing for their
large investment outlays, despite the substantial growth
in their internal cash flow.

And just as clearly, this

absorption of credit by business has been reflected in a
smaller supply of funds for the home mortgage market, and
has begun to threaten the supply of funds for State and
local governm9nts and for sm.:tll business.
This is not to say that business borrowing has been
the only source of pressure on the markets, but it has been
a very prominent one.

Treasury borrowing has not been a

major factor; holdings of Treasury debt by the public (that
is, apart from trust account and Federal Reserve holdings)
was $4.1 billion lower on June 30, 1966 than a year earlier.
Increased Federal agency borrowings and participation sales
did exert some market pressure, which our new program is
now designed to minimize.

I might mention,too, that much

of the increase in agency debt during the first half of this
year reflected borrowings to fill credit needs in the mortgage

- 19 area that arose essentially because of the dearth of funds
for this purpose in the private market.
The strain on the credit market caused by our high
rate of business investment has been paralleled by strain
on our productive resources available for capital goods.
Machinery and equipment producers are simply unable to keep
their production up to the pace of their incoming orders.
In every single one of the last twelve months order backlogs for machinery have grown larger, accumulating to a
27 percent increase for the whole period.

In just the

past six months the backlogs have increased 15 percent.
The backlog of metal cutting machine tool orders alone now
equals more than ten months shipments.
A crucial factor in limiting the production of machinery
and equipment is the acute shortage of skilled workers.
the second quarter of this year the unemployment rate in
non-electrical machinery was down to 1.9 percent, and the
average work week of 44 hours is now the longest in any
manufacturing industry.

The BLS reports the machine tool

industry as having the tightest manpower situation in the
country.

Apparently a handful of occupations account for

- 20 two-thirds of all the hard to fill jobs.

These are

machinists, machine shop workers, mechanics and repairmen,
welders, tool makers and die sinkers, and pattern and model
makers.
As a result of this excess demand and very tight supply
condition, prices of machinery have been spurting upward.
Electrical machinery prices have risen at a 4 percent annual
rate so far this

year~

which incidentally is the reverse of

a long downward trend that persisted through 1965.

Prices

of metal-working machinery have risen at a 7 percent annual
rate in the first seven months of this year.

In the period

from January to July, price increases exceeded a 10 percent
annual rate for a number of important groups of machinery
products:

metalworking presses (14 percent), precision

measuring tools (12 percent), transformers, and power regulators (12 percenq, and wiring devices (10 percent).
Pressure on prices, the supply and wages of skilled
labor, and on the financial

m~rkets

has also been generated

by the strong pace of construction other than single family
homebuilding.

In the past 12 months commercial and industrial

construction has averaged 12 percent above the preceding year.

- 21 This high level of activity has put upward pressure on
wage and material costs in the construction industry and
contributed to scarcity of skilled labor.

Construction

prices have recently accelerated, and wage rates of construction workers have accelerated even more so.

Moreover,

if measures were to be taken to relieve credit stringency
without at the same time reducing the stimulus to construction, continued upsurge in construction could well be the
outcome.
In view, then, of the current

boo~

condition in the

market for capital goods and construction other than homebuilding, a moderation of the demand in these markets will
exercise a stabilizing influence on the economy.

This

needed moderating influence can be accomplished by temporarily suspending the investment credit on machinery and
equipment and accelerated depreciation on real estate.
The bill before you carries out this proposal.
III.

Specific Elements of the Legislative Proposal

The bill would temporarily suspend the investment credit
allowed by section 38 of the Internal Revenue Code

The

suspension would apply to (i) property acquired during the

- 22 suspension period, (ii) property ordered during the suspension period, and (iii) property, the physical construction
of which begins during the suspension period.

The suspen-

sion period would begin on September 1, 1966, and end on
December 31, 1967.
Machinery and equipment acquired during the suspension
period pursuant to a binding contract made by the taxpayer
prior to the beginning of the suspension period would not
be affected by the suspension.

Also, property, the physical

construction of which commenced prior to the beginning of
the suspension period, would be unaffected.

Investment

credit carryovers from periods prior to the suspension
period may be utilized during the suspension period only
to the extent that they would have been allowed had there
been no suspension.
The bill would limit depreciation to the straight-line
method for real estate (not qualified for the investment
credit) acquired, ordered, or whose physical construction
is begun during the suspension period.

The suspension

period for this purpose would be the same suspension period
used for the investment credito

Property acquired during

the suspension period pursuant to a binding contract made

- 23 prior to the beginning of the suspension period and property,
the physical construction of which commenced prior to the
beginning of the suspension period, would be unaffected.
It is to be noted that the suspension covers orders
and commitments in the suspension period and is not limited
to deliveries or installations in that period.

Careful

study has indicated that this is a feasible approach.
However, I want to emphasize that this does not imply any
basic change in the normal operation of the investment
credito

That is, the taxpayer will still be entitled to

take whatever credit against tax liability that is permitted
to him only after delivery or installation of machinery or
equipment takes place.
The reason for applying the suspension to orders is
the greater scope of its economic impact

If the suspension

applied only to installations, it would have no impact at
all on orders placed in the suspension period where delivery
of the equipment would occur after the termination of the
suspension period.

In these cases the demand on current use

of resources would not be relieved at all.

The activities

of the firms producing the equipment would go ahead unabated
and their flow of orders would continue undiminished

24 -

On an orders basis, on the other hand, suspension
would affect not only all items ordered and delivered in
the suspension period but also items ordered for delivery
after the suspension period.

(There would be no essential

difference in treatment of items ordered on binding orders
prior to September 1, 1966, since these orders would be
excepted from the suspension under either method.)

IVo

Effects of the Legislative Proposal

Just as the enactment of the investment credit provided
a strong incentive to investment, so its suspension would
sharply reduce the incentive to invest during the suspension
period.
~~~orary

Moreover, the fact that the suspension would be
adds a reinforcing incentive to defer capital

projects until the credit is restored.

For example, on

typical investments in machinery and equipment the investment credit raises the after-tax rate of return from 10
percent to 12 percent or 13 percent.

Thus, when the credit

is suspended, the investor is offered the difference between
earning 10 percent if he begins the project during the suspension period, compared to earning 12 to 13 percent if he
defers launching the proj ect until after the suspens ion period.

- 25 As a consequence of this effect on incentives, the
current demand for capital goods should be significantly
moderated.

In the first instance, the impact should show

up in a level of orders below what would have otherwise
been the case.

For those items which can be ordered and

delivered in a short space of time -- such as trucks,
office equipment, store fixtures and air conditioners
the effect of a diminished order flow on investment expenditures and on aGtivity by the producers of the equipment
should be quite rapid.
When the order to delivery period is longer (one year
or more) the moderation in the order flow should still have
a prompt and favorable effect in relieving pressures on our
scarce resources.

The production plans and activity of the

capital goods producers respond promptly to a change in
their order inflow.

Their incentives to scramble for and

hold on to skilled labor and scarce materials will be
diminished and their accumulation of inventories of goods
in the various stages of production will be slowed down.
As a result the upward pressures to prices and wage rates
should be held down.

Even in those cases where abnormally

- 26 large order backlogs prevail, any reduction in the inflow
of new orders should have an influence on prices before
there is any effect on production.

By moderating the

dem~nd

for investment goods, suspen-

sion of the investment credit will make a marked contribution
to relieving pressure on money and financial markets.

True,

suspension of the credit does mean some reduction in the
cash flow of business firms putting them ,under a need for
funds to replace the loss of the investment credit on those
orders which are not deferred.

But this will be more than

offset by the reduction in credit requirements resulting
from the deferrals of orders for machinery and equipment
purchases induced by the suspension.
In moderating investment demand at this time, suspension of the credit will also help to improve our current or
short term balance-of-payments position.

The high levels

of investment demand have contributed to a rise in our
imports relative to our exports.

Imports of capital equip-

ment have shown a large increase in the first half of 1966
over a comparable period of 1965

44 percent -- and,there

is evidence that our exports of machinery have been held down

- 27 because United States producers have given priority to
domestic orders.

For example, while foreign orders in the

machine tool industry have run well above a year earlier,
shipments are lagging behind last year totals.
In part, the moderation of demand for capital goods
induced by suspension will be reflected in a reduced output
of capital goods.

To the extent that this is the case, it

implies some temporary sacrifice of growth of capacity,
and some slowdown in the rate of plant modernization and
productivity increases.

Indeed it is these benefits from

the investment credit that I have stressed and value highly.
Nevertheless, I believe that this temporary sacrifice of

long-run benefits is in the present case more than balanced
by the immediate benefit of tempering the unique, short-run

inflationary pressures that now confront us.
MOreover, there is evidence that at present investment
is proceeding at a rate that might not be sustained in the
long run.

Therefore, it is desirable to slow it down now,

so that it will proceed at a more even pace in the long run.
I am confident that when the investment credit is reinstated
there will follow a certain catching-up period of accelerated

- 28 -

investment by business.

This will occur at a time when

there is less strain in the economy than at present, and
the loss of capacity due to suspension of the credit will
thus only be temporary and not permanent.
Suspension of accelerated depreciation on buildings
will temporarily remove this special incentive to construction, and in a manner parallel to suspension of the
investment credit will offer a strong inducement to defer
the launching of construction projects until after the
suspension has terminated.

Thus it will contribute to

restraining inflationary forces by reducing the pressure
from this source of demand on money and credit markets, and
on markets for skilled labor and construction materials.
This will be particularly favorable to the single family
homebuilding industry -- which has borne the brunt of the
tight money and high interest rates we have been experiencing.

Industrial, commercial and apartment construction are

closely competitive with single family home construction
both in financing requirements and use of labor and materials.

29 -

Conclusion
In conclusion, I should like to emphasize that
H. R. 17607 is an essential part of the President's program
to mute inflationary pressures.

It is designed to permit

the nation to meet its defense requirements while, at the
same time, it continues the stable growth and prosperity
which we have enjoyed for the past 5-1/2 years.

Hence, I

strongly urge that this Committee approve the bill as
promptly as possible.

STATEMENT OF THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE THE SENATE BANKING AND CURRENCY COMMITTEE
TUESDAY, SEPTEMBER 13, 1966

Mr. Chairman and Members of the Committee:
I am grateful for the opportunity to appear before your
committee again on the question of excessive interest rate
competition for savings.

In my opinion, there has been no

lessening of the need for legislative action in this area since
we met some weeks ago.

Since then there has been a sharp decline

in housing starts and further indication of cutbacks in lending
commitments.

Fortunately, Congressional action has increased

the financial resources which FNMA can make available to the
housing market.

But, we all know that a heavy burden may

continue to rest on the homebuilding and home financing
industries.
As I stated before your committee in August, the legis lative proposals before you are not a panacea for all the difficulties facing the financial markets, or particularly the mortgage
market, at this time.

The significant difference between the

present situation and that of a month ago is, of course, the
recent announcement of the President's program to assure the

- 2 continuing health and strength of our economy.

The present

legislation is an important ingredient of that program.
As you know, the President has proposed sizable reductions
in lower priority Federal expenditures and temporary suspension
of certain investment incentives.

These fiscal actions would

substantially reduce the existing pressure on the money and
capital markets.

In addition, a careful and thorough pruning

of Federal lending and borrowing activities will reduce aggregate
Federal credit demands on the private market.

Last Saturday,

Secretary Fowler announced the results of a preliminary review
of all potential Federal security sales.

During the rest of this

year there will be no new money raised by Federal agency sales
in the market and no sales of participation certificates unless
market conditions improve materially.
These reductions in the upward pressure on market interest
rates will help, by themselves, to cool off some of the heated
competition for time deposits and share accounts.

But the

special legislation you are considering today is also needed to
insure the success of the President's program in the interest rate
area.

It will restrain the unhealthy escalation of interest

- 3 rates in the competition for savings that has diverted money
away from the mortgage market.

And, it will protect the

liquidity and general soundness of our financial institutions
during a difficult period.
Therefore, I respectfully request favorable committee
action on legislation in this important area.

000

TREASURY DEPARTMENT

September 13, 1966

FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN AUGUST
During August 1966, 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
$264,108,000.00.
000

F-614

TREASURY DEPARTMENT
Washington

FOR RELEASE AFTERNOON NEWSPAPERS
TUESDAY, SEPTEMBER 13, 1966

REMARKS OF THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
AT THE INTERNATIONAL ANNUAL MEETING
OF TIlE PHARMACEUTICAL MANUFACTURERS ASSOCIATION
AT THE OTSEGO SKI CLUB
GAYLORD, MICHIGAN
ON TUESDAY, SEPTEMBER 13, 1966, AT 1:45 P.M., (CST)

THE PRESIDENT'S PROGRAM FOR NATIONAL
ECONOMIC RESPONSIBILITY
had planned to talk to you today on the subject of
the "Great Society," but the release of the President's new
economic policy program on September 8, gives me the
opportunity instead to talk to you about the kind of economic
conduct which must underlie a "Great Society."
I

Before plunging into this thesis I am going to lay a
claim on your courtesy by indulging in a bit of reminiscing
and reflecting. The President's message of last Thursday
brought to me an intense and very personal degree of
satisfaction. For the past five years I have taken an active
part in the continuing debate on taxes together with
Secretaries Dillon and Fowler and with Assistant Secretary
Surrey. This last Presidential message brought the arguments
we advanced in the past five years full circle.
believe that the debate that was generated by the
tax proposals of Presidents Kennedy and Johnson has been
salutary. The Nation, the Congress, the tax bar, and we
in the Treasury have added a bit to our store of knowledge
in the process. As an aside I should warn you that the
Ways and Means Committee of the House and the Finance Committee
of the Senate have been educated to a point where they are
formidable indeed. Let factitious pleaders beware~ They
do not suffer foolishness gladly~
I

F-6l5

- 2 -

The economic results are truly impressive -- as even
any casual perusal of recent economic statistics will
indicate.
But one line of criticism has persisted doggedly through
the debates of the past five years. This line of argument
went something like this. "Cutting taxes to stimulate an
economy, even when the nation's budget is in deficit, is
sensible if it relieves the country from an overly
restrictive tax system. Agreed that it may well result in
more, not fewer, Federal revenues.
But will you politicians
have the courage and sophistication to take tax action,
even if the budget is in balance, when it becomes necessary
to restrain an overly exuberant economy?"
The President's message, in a single line, destroyed
this concern.
I quote: ". '" good economic policy works
both ways." This simple statement made it clear that the
Johnson Administration's policy is a policy of fiscal
responsibility.
Let me mention one other line of conjecture that has
been prominent in recent months. Those who argue that
fiscal policy is fine in theory but dangerous in practice
because politicians by inclination will use it only one way
on the downside -- also argue that the only acceptable
alternative is a strong and independent central bank that
can and will exercise restraint.
must confess that a reading of recent history in most
of the world tends to support this view. Restraining fiscal
action is almost impossible to find -- with the exception of
the recent series of heroic proposals advanced in the U.K.
Restraint has inevitably come from the Central Banks.
I

But the extraordinary behavior of interest rates
this summer indicates that at least in our country there
are limits to the usefulness of a restrictive monetary
policy to curb a boom of the current proportions.
I believe
on balance, and I wish the academics would probe this
phenomenon that there are indeed definite and rather narrow
limits on our practical ability to use monetary policy as a
restraining influence in this nation.
I also believe that
our central bank concurs in this.
So for good or for bad,
lr
the politicans must be prepared to "bite the bullet and to
use tax policy as a restraining as well as a stimulating
fac tor.

- 3 Now let me return to my thesis -- what sort of economic
conduct makes a Great Society possible.
First, let me summarize some of the principal aspects
of the "Great Society" as we can see them emerging.
I realize, of course, that some identify the "Great
Society" as a trademarked product of President Johnson's
Administration.
But the "Great Society" is generic.
It is America.
It
is a striving not for mere luxuries and idle pleasures.
It
is a restless driving ahead, on the part of a people who
live in abundance unmatched anywhere in the world, to improve
the quality of their life through improvement of such things
as health, service, and education while they act to make
sure that the American standard of living is shared by all
Americans.
In addition, we know that an America -- mighty, healthy,
prosperous and growing -- will not long survive in a hostile
and despairing world. America can be neither safe nor free
to pursue the goals of the "Great Society" at home if the
spirit of man is being ground into the dust in other parts of
the world. To liberate the spirit of man, America helped
to rebuild Western Europe, came to the aid of Greece and
Turkey, defended the freedom of Berlin. We have helped new
nations toward independence. And we have carried forward
the largest program of economic assistance in the world. We
have worked to help build a hemisphere of democracy and
social justice. And we have drawn the line against Communist
aggression -- in Korea -- in the Formosa straits -- in Cuba -and again in Vietnam.
Th.e challenges facing the "Great Society" are becoming
to a great nation, which has experienced the greatest upsurge
of economic well-being in the history of the world over the
past five and one-half years.
I need cite only a few economic
statistics to support this:
United States gross national product
totaled $503.8 billion in 1960; it is
now running at an annual rate of more
than $732 billion.

- 4 Total personal income, in 1960, amounted
to $385.2 billion; in mid-1966, it was
running at an annual rate of nearly
$560 billion.
The profits of our corporations, after
taxes, today are running at an all-time
high of some $48.7 billion annually,
compared with $26.7 billion in 1960 -and business outlays for new plants and
equipment, designed to produce newer and
better products at a lower unit labor
cost, are running this year at more than
$60 billion.
Average farm income last year rose
23 percent, breaking all records, and
has moved to higher gt"ound aga in in 1966.
President Johnson observed last January that, "We
have learned how to achieve prosperi ty .... now we mus t sus ta in
it, deal with its problems, and make the most of the
opportunities it presents."
These words are almost prophetically apt to the program
for dealing with the problems of prosperity that President
Johnson laid before the Congress and the American people,
and the American business and labor communities, on
September 8. This is a program of prudence and responsibilicy"
It is a program to protect and preserve the unexampled
well-being of our whole nation and of all of its parts.
It
is a program calling upon all of those parts to participate
in prudent, responsible protection and preservation of the
tremendous gains the nation has made in recent years.
What, then, is his program, and what is the role of the
various segments of our society in it?
Here are the main points, as outlined in the President'c;
message to the Congress on September 8:
1.

Strong measures to reduce lower priority federal
expenditures.

- 5 -

Determination of the exact amount of reduction in that
limited portion of the fiscal 1967 budget under direct
Presidential control must await Congressional action on the
remaining appropriation bills. Our best present estimate is
that a reduction of 10 percent -- approximately $3 billion -will be required from that portion of the budget.
Although the costs of the Vietnam conflict are uncertain,
if this conflict extends beyond the current fiscal year, we
will be forced to order additional material and equipment.
To be on the safe side and to support our men in Vietnam, we
must act on this contingency.
Federal programs of a lower-priority nature are to be
reduced by $1.5 billion in fiscal 1967.
Federal civilian agencies have been directed to defer,
stretch out, and otherwise reduce contracts, new orders and
commitments. Each major agency has been given a savings
targe t, with orders to meet that target.
The President will defer and reduce Federal expenditures:
by requesting appropriations for Federal
programs at levels below those now being
authorized by the Congress,
by withholding appropriations provided in
excess of his budget recommendations
whenever possible, and
by cutting spending in other areas which
have significant fiscal impact in 1967.
These savings are not intended to be made at a time
when individual incomes and corporate profits are at
unparalleled levels, at the expense of programs for
alleviating poverty and ill health and poor education. Such
a policy would be neither good economics nor social justice.
Postponed investment in buildings and machines can be
made at a later date without serious injury to our welfare.
But, as the President told Congress, we can never recapture
the early years of a child who did not get the head start
he needed to be a productive citizen, or the lost
opportunities of the teenage dropout who was never given a
second chance. And we can never repair the ravages of a
disease that could have been prevented, or recall the lives
lost by cancer that might have been cured.

- 6 The fiscal measures which have given us the unparalleled
prosperity of the past five and one-half years were a product
of the partnership of the Congress and the Executive. The
"Great Society" programs, placed on the statute books of
this country by the overwhelming majority of the Congress,
also reflect our partnership to promote the welfare of the
people of this country. So, now, we must work together to
assure that the prosperity and social progress of the past
five and a half years continue.
2.

The President recommended that the Congress make the
7 percent investment tax credit inoperative, effective
September 1, 1966, to become operative again on
January 1, 1968.
The President specified:
The temporary suspension should apply
to all orders for machinery and equipment
placed on or after September 1, 1966, and
before January 1, 1968, regardless of the
date of their delivery.
The suspension should be across-the-board,
without exception, applying effectively
and equitably to all investing industries.
No special treatment or special exclusions
should be made for this brief period of
suspension.

Our machinery and equipment industries cannot digest the
demands currently thrust upon them. We see symptoms of strain
in growing backlogs, accelerating prices and emerging shortages
of skilled workers. There is a ten-month average backlog on
machine tool orders alone. On many machine tools, the order
backlog exceeds 15 months.
Our capital markets are clogged with excessive demands
for funds to finance investment. These demands bid interest
rates higher and higher, and draw too large a share of
credit from other important uses.

- 7 A temporary suspension of the investment credi; \nlJ
relieve excessive pressures on our capital ~oods producers
and on our financial markets. We can then look forward to
a smoother flow of investment goods -- at stable costs both
for machinery and for money. Our high employment, high
profit economy will still provide abundant incentive fo"-'
growth in our capacity sufficient to produce the goods \,0
need, for modernizing facilities, and hence for maintaining
a strong international competitive position.
Our problem is to keep investment within safe speed
limits.
3.

The President also recommended that the Congress suspend
until January l~ 1968, the use of accelerated depreciation
on all bUildings and structures started or transferred
on or after September 1, 1966.

The reasoning here is the same:
it is not the time to
be pressing on the accelerator; rather, the need is for an
economically safer rate of investment.
4.

The President asked the Federal Reserve Board, in executing
its policy of monetary restraint, and our large commercial
banks, to cooperate with the President and the Congress to
lower interest rates and to ease the inequitable burden of
tight money.

The President disclosed that Secretary of the Treasury
Fowler has reviewed all potential Federal security sales
and is taking action to keep them at the minimum in the
months ahead. This should help reduce current pressures
on the money market and on interest rates.

This is already a ,very wide ranging program. But the
President called upon the whole of the nation for responsible
economic behavior to preserve the prosperity we all share:
Banks, he said, should handle money and
credit equitably and without extracting
excessive profits. They should rely
less on high interest rates to price
borrowers out of the market and more on
the placing of appropriate ceilings on
credit.

- 8 The Federal Reserve Board and our large
commercial banks must now recognize that
the government is determined to restrain
inflationary pressures by fiscal and
budgetary measures. Mr. Johnson asked,
in turn, that the financial community
seize the earliest opportunity to lower
interest rates and more fairly allocate
the existing supplies of credit.
Within this general strategy for a free
economy, the President sought the
cooperation of employers and unions in
maintaining price and wage policies
consistent with stability.
He asked American business to:
Base demands for credit on genuine needs,
not on speculation on future scarcity or
higher costs;
Maintain an inventory position based on
current requirements, not on fears or
hopes that prices will be higher later
on;
Postpone investment projects that are not
absolutely necessary at this time;
Set prices on the basis of real costs,
not imaginary future costs that build in
an assumption of inflation;
Limit profits to those appropriate for a
steadily expanding economy.
He asked American labor to:
Avoid wage demands thst would raise the
average level of costs and prices in the
economy;
Adopt work rules and standards for entry
into its trades that are appropriate for
a continuing full-employment economy;

- 9 Cooperate with business to raise productivity
so that pay increases will be matched by
production increases.
Let me conclude on the same two notes the President's
message concluded:
We are not entirely free to do as we might prefer
there are overriding considerations that must not be
neglected.
Decisions made elsewhere will influence our defense
needs in Vietnam.
Because we cannot control or predict
these outcomes, we cannot blueprint our fiscal measures in
the months ahead. Should additional fiscal measures be
required to preserve price stability and maintain sound
fiscal policies, they will be requested.
But -By continuing on a prudent course in our private and
public policies and by preserving our capacity for stable
economic growth, we can look forward to continuing progress.

000

TREASURY

C~PARTMENT

September 14, 1966

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
$2,300,000,000, or thereabouts, for cash and 1n exchange for
Treasury bills maturing September 22, 1966,in the amount of
$2,301,149,000, as follows:
91-day bills (to maturity date) to be issued September 22, 1966,
1n the amount of $ 1,300, 000, 000, or thereabouts, representing an
additional amount of bills dated June 23, 1966,
and to
mature December 22,1966, originally issued in the amount of
$1,000,375,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $ 1,000,000,"'00. or thereabouts, to be dated
September 22,1966, and to mature MoTCh 23, 1967
0

The bills of both series will be issued on a discount baais 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,OOOJ $10,000, $50,000,
$100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches
one-thirty p,m.,Eastern Daylight Saving
t1me,Monday, September 19,1966.
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 tp.nders be made on the printed forms and
forwarded 1n the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application therefor.
up to the closing hour,

Banking institutions generally may submit tenders for account of
customers provided the names of the customers are set forth 1n 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 1n 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.
F-616

- 2 Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announce~
ment 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 Bank on September 22,1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills macuring September 22,1966. 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 f~
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
(

FOR IMMEDIATE RELEASE
UNITED STATES FOREIGN GOLD TRANSACTIONS IN 1966
The Treasury announced today that net sales of monetary
gold by the United States to foreign holders during the second quarter of 1966 amounted to approximately $167.3 million.
The major transactions during the quarter, as shown in
Table I, were the purchase of $50 million from Canada by the
United States and the sale by the United States of $221 million to France.
In addition, the table includes gold sales
and purchases for Fiscal Year 1966 which show net sales to
foreign holders amounting to $378.4 million compared to sales
of $1,473 million in Fiscal Year 1965.
Sales of gold to domestic users -- permitted for industrial and artistic purposes -- came to $41.3 million. This
brought the total net outflow of gold from the gold stock
of the United States in the second quarter of 1966 to $208.6
million.
In the Fiscal Year 1966 the net drain on United States
monetary gold stocks resulting from domestic gold transactions
amounted to $141.3 million as compared to $100.7 million for
the Fiscal Year 1965.
Table II, attached, shows sales of gold by the United
States during the second quarter of 1966 to other countries
to enable them to pay the gold portion of their quota
increases in the International Monetary Fund.
Deposits of
like amounts of gold were made by the IMP with the United
States to mitigate the effects upon the united States gold
stock of the quota increases.
Transactions of this nature
amounted to $17.9 million in the second quarter.
During
Fiscal Year 1966 these transactions amounted to $182.8
million.

Attachments

F-617

Table I
UNITED STATES NET MOOETARY GOLD

TRANSACTlOOS WITH

FOREIGN COUNTRIES AND INTERNATlOOAL INSTITUTICllS

January 1, 1966 - June .30, 1966
(In millions of dollars at $3, per fine troy ounce)
Negative figures represent net sales by the
United States; positive figures, net purchases.
First
Quarter*
1966
Afghanistan
Austria
Belgium
Brazil
Canada
Ceylon
Chile
Colombia
Costa Rica
Denmark

Second
Quarter*
1966

1.2
1.0
+100.0
- 0.1
+

7.0
0.1
5.0

Dominican Republic

- 0.1

Egypt
France
Greece
Iran
Ireland
Jamaica
Jordan
Lebanon
Liberia
Morocco
Nicaragua
Pakistan
Spain
Sudan
Switzerland
Syria
Tunisia
Turkey
United Kingdom
Uruguay
Vatican
Yugoslavia
All Other
Total

1.1
-102.8

1.9

0.8
+ 50.0
1.5

0.1

-220.7
+ 9.6
1.0

0.4
1.0

- 10.8
1.2

0.1

1.0
0.2

0.2

0.1
+ 11.0
0.2
1.5
1.8
7.2

7.0
1.5

0.5
- 19.0
0.1

0.9

- 34.0

Total U.S. gold outflow -68.3
(Including domestic trans-)
actions)
(-34.3
*Figures may not add due to rounding.

Fiscal Year 1966
July 1, 1965 June 30, 1966*

3.2
- 37.5
- 21.0
3.8
+150.0
- 0.2
5.4
+ 6.2
- 0.4
5.0
- 0.2
3.3
-577.7
+ 9.6
- 7.5
- 2.3
1.0
- 0.6
- 10.8
1.4
+ 4.7
1.1
0.6
-

- 30.0

+
-

0.1
18.0
2.0

1.7

- 20.9
+169.9
- 0.3
+ 4.5
- 2.6

0.6
0,2
-167.3

-378.4

-208.6

-519.7

(- 4l.3)

(-11..1.3)

Q.2

Table II
UNITED STATES MONETARY GOLD TRANSACTIOOS WITH FOREIGN
COUNTRIES MITIGATED THROUGH SPECIAL DEPOSITS BY THE IMF
(millions of U.S. $)

First Quarter

Second Quarter

1966

Jamaica
1.5
Korea
1.3
Dominican Republic
- 0.4
Sudan
3.0
Japan
- 56.3
Honduras
1.0
Nicaragua
1.0
Vietnam
- 0.3
Iraq
- 4.0
Ivory Coast
- 0.2
Liberia
1.0
Syria
2.0
Denmark
8.3
Sweden
- 18.7
Ethiopia
1.0
Haiti
- 0.2
Ceylon
- 4.0
Austria
- 25.0
Congo (Leopoldville)
- 8.6
Somalia
- 0.9
Ecuador
Malagasy
Upper Volta
Greece
Rwanda
Morocco
Cameroon
Gabon
Chad
Mauritania
Central African Republic
Republic of Congo (Brazzaville)
Mali
Algeria
Tunisia
Dahomey

1.3
1.0
0.1
10.0
0.2
0.9
0.2
0.1
0.1
0.1
0.1
0.1
1.0
0.8
1.8
0.1

TaI'AL

-1)0.7

- 17.9

IMF DEPOSIT

+130.7

TarAL FOR FIRST TWO QUARTERS:

$148.6

17.9

TREASURY DEPARTMENT
WASHINGTON.

September 14, 1966
FOR IMMEDIATE RELEASE
TREASURY DEeIS ICN 00 SHOES
UNDER THE ANTIDUMPING ACT
The Treasury Department has determined that shoes, leather,
men I s and toys t , welt construction, from Poland are not being, nor
likely to t.e, sold at less than fair value within the meaning of
the Antidumping Act, 1921, as amended.
A "Notice of Intent to Discon+.inue Investigation and to
Make Detennination That No Sales Exist Below Fair Value,u was
published in the Federal Register on July 15, 1966, stating that
termination of sales with respect to shoes, leather, menls and
boys t, welt construction, imported from Poland was considered to be
evidence that there are not, and are not likely to ba, sales below
fair value. No persuasive evidence or argument to the contrary
was presented within )0 days of the publication of this notice in
the Federal Register.
The t.ermination of sales occurred soon after the exporter
was advised that price discriminations existed with respect to its
sales. The complaint was withdrawn based on the assurances that
there would be no resumption of sales at prices which could be
likely to be below fair value.
Customs officers are being instructed to proceed with the
appraisement of this merchandise fram Poland without regard to
any question of dumping.
Imports of the involved merchandise received during the
period May 1, 1964, through May 31, 1965, were valued at approximately $144,000. There were no shipments after May 31, 1965.

TREASURY DEPARTMENT

September 14, 1966

FOR IMMEDIATE RELEASE

ANTIDUMPING PROCEEDING ON

DISC BRAKE PADS
On June 13, 1966, the Commissioner of Customs received information

in proper form pursuant to the provisions of section 14.6(b) of the
CustOID$ Regulations indicating a possibility that disc brake pads imported from Canada, manufactured by Certified Automotive Products,
Rexdale, Ontario, Canada, are being, or likely to be, sold at less
than fair value within the meaning of the Antidumping Act, 1921, as
amended.

The information was submitted by Arnley, Inc., Pittsburgh,

Pennsylvania.
Having conducted a summary investigation pursuant to section
14.6(d)(1)(i) of the Customs Regulations and having determined on
this basis that there are grounds for so doing,the Bureau of Customs
is instituting an inquiry pursuant to the provisions of section
14.6(d)(1)(ii), (2), and (3) of the Customs Regulations to determine
the validity of the information.
An "Antidumping Proceeding Notice rl to this effect is being published in the Federal Register pursuant to section l4.6(d)(1)(i) of
the CustOmB Regulations.
Imports of the involved merchandise received during the period
January 1, 1966, through May 31, 1966, were valued at approximately
$50,000.

TREASURY DEPARTMENT

Washington
IMMEDIATE RELFASE

FRIDAY, SEPTEMBER 16,1966

F-618

The Bureau of Customs announced today preliminary figures on imports for
consumption of the following commodities from the beginning of the respective
quota periods through September 3, 1966:

Conmodity

·•••

Period and Quantity

: Unit of t Imports as of
: Quantitl: Seet. 3, 1966

Tariff-Rate Quotas:
Cream, fresh or sour

Calendar year

1,500,000

Gallon

Whole Milk, fresh or sour •••

Calendar year

3,000,000

Gallon

963,140

Cattle, 700 Ibs. or more each July 1, 1966 (other than dairy cows) ••• Sept. 30, 1966

120,000

Head

22,868

Cattle, less than 200 Ibs.
each ••••••••• ~ ••••• o • • • • • •

12 mos. from
April 1, 1966

200,000

Head

914,867

Fish, fresh or frozen, filleted, etc., cod, haddock,
hake, pollock, cusk, and
rosefish ••••••••••••••••••

Calendar year

23,S91,u32

Pound

Quota filled!:!

Tuna Fish •••••••••••••••••••

Calendar year

65,662,200

Pound

38, 55h, 236

12 mos. from
114,000,000
Sept. 15, 1965 45,000,000

Pound

82,034,916
31,855,519

White or Irish potatoes:

Certified seed ••••••••••••
other ••••••••••••••••••• 0.
Knives, forks, and spoons
with stainless steel

Pound

Nov. 1, 1965 Oct. 31, 1966

814,000,000

Pieces

Whiskbrooms •••••••••••••••••

Calendar year

1,380,000

Number

1,305,4~/

other brooms ••••••••••••••••

Calendar year

2,460,000

Number

2,428,50~/

hatldles •••••••••••••••••••

Quota filled

~/ Imports for consumption at the quota rate are limited to 17,693,574 pounds
during the first 9 months of the calendar year.

Imports as of September 9, 1966.

-2-

.•

Commodity

Period and Quantity

: Unit of : Imports as of
: quantity: Sept. 3, 19~

Absolute Quotas:
Butter substitutes containing over LS% of butterfat,
and butter oil

Calendar year

Fibers of cotton processed

12 mos. from

0 ••••••• 0.

but not spun ••••••••••••

Peanuts, shelled or not
shelled, blanched, or
otherwise prepared or
preserved (except peanut
butter) •••••••••••••••••

Septo ll, 1965

1,200,000

Pound

1,000

Pound

1,709,000

Pound

12 mos. from

August 1, 1966

1/ Imports as of September 9, 1966.

F-618

Quota .filled

182, 88Jl/

TREASURY DEPARTMENT
Washington

IMMEDIATE RELEASE

FRIDAY, SEPTEMBER

The Bureau
figures showing
to September J,
lished pursuant
1955:

16~

1966

F-619

of Customs has announced the following preliminary
the imports for consumption from January 1, 1966,
1966, inclusive, of cOITUTlodities under quotas estabto the Philippine Trade Agreement Revision Act of

---

: Established

Commodity

:~ual

Quota Quantity

. Unit

of • Imports as of
Quantity
Sept. 3, 1966

·..........

510,000

Cigars ••••••••••••

120,000,000

Number

.......

268,800,000

Pound

Quota filled

6,000,000

Pound

5,210,30 6

3,900,000

Pound

2,618,7 62

Buttons

Coconut oil
Cordage
Tobacco

•

••••••••

·..........

Gross

305,920
7,533,713

TREASURY DEP AR'IMENT
Washington, D. C.

IMMED lATE RELEASE

F-620

FRIDAY, SEPTBMBER 16,1966

Prelimina.ry data on imports for consumption of cotton and cc~ton wazte chargeable to the quotas established by
Presidential Proclamation No. 2351 of September 5, 1939, as amemed, ani 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 appendix to the Tariff Schedules of the
United States. There is no political cOIUlotation in the use of outm:xied names.)

"
Country of Origin

Established Quota

783,816
247,952

Egypt and Sudan ••••••••••••
Peru •••••••••••••••••••••••
India and Pakistan •••••••••

2,00),48)

China ••••••••••••••••••••••

1,370,791

Mexico •••••••••••••••••••••
Brazil •••••••••••••••••••••
Union of Soviet
Socialist Republics ••••••
Argentina ••••••••••••••••••
Haiti ••••••••••••••••••••••
Ecuador ••••••••••••••••••••

8,88),259

!I
~

Imports

Country of Origin

Established Quota

Honduras ••••••••••••••••••••
181,062

Par agtlay- ••••••••••••••••••••

1,5112,372

618,723

475,124
5,.203
237

~I
~

9,333

Colombia ••••••••••••••••••••
Iraq ••••••••••••••••••••••••
British East Africa •••••••••
Indonesia and Netherlands
New Guinea ••••••••••••••••
British W. Indies •••••••••••
Nigeria •••••••••••••••••••••
British W. Africa •••••••••••
Other, including the U.S ••••

Except Barbados, Bernnxla, J amaiC8, Trinidad, and Tobago.
Except Nigeria and Ghana.
Cotton I-lISt' or more
Established Yearly Quota - 42&656.420 Ibs.
Imports Augugt I, 1966 - September 12, 1966
Staple Length

I-J/sn

or more
1-5/)2" or more am. umer
1-3/8't (Tanguis)
-

1 __ -

•

Allocation

Imports

39,590,778

18,733,013

1~500~OOO

105,626

Imports

752
871
l.24

195
2,240

71,388
21,321

5,377
16,004

...

COTTON WASTES

(In pounds)
CO'M'~ CARD STRIPS made from cotton havin~ a staple of less than

1-3/16 inches in length, OOMBER
LAP WASTE, SLIVER ~.-lASTE, AND R'WING WASTE, WHEl'HER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VAlliE: Provicied, however, that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more
in staple le~th in the c;tse of the followin~ countries: United Kingdom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy:

t,.~ASTE,

Country of Origin

Established

TarAL QUOTA

:
United Kin~dom ••••••••••••
CaJ"lada ••••••••••••••••••••
France ••••••••••••••••••••
India and Pakistan ••••••••
Netherlands •••••••••••••••
Switzerland •••••••••••••••
Belgium •••••••••••••••••••
Japan •••••••••••••••••••••
China •••••••••••••••••••••
~t .•.•.••••..•..•..•••.
C\lba ••••••••••••••••••••••
Cie I'1naJJY" • • • • • • • • • • • .. • • • • • • •

Italy .....•.•.........••..
Other, includin~ the U.S ••

L,323,457
239,690
227,420

Total Imports
:
: Sept. 20, 1965, to
: Sept. 12, 1966
:
78~O62

Established:
33-1/3% of:
Total Quota:

1,441,152

lnq>ort.s 1 /
Sept. 20, 1965 to Sept. 12~lJ96

78,062

86,82i j

75,807

69,627
68,24 0

22,747
ll~, 796

44,388

12,853

38,559

341,535
17,322
8,135

6,544

...

76,)29
21,263

23,272

25,443
7,088

5,482,509

188, ISS

1,599,886

Included in total imports, column 2.

Prepared in the Bureau of llistoms.

78,062

TREASURY DEPARTMENT

September 16, 1966
FOR RELEASE MORNING NEWSPAPERS
WEDNESDAY, SEPTEMBER 21, 1966
TREASURY PUBLISHES RESULTS OF SURVEY
OF EXPORT FINANCING
The Treasury Deparanent today announced the publication
of a booklet, "Survey of Export Financing." It contains the
results of a questionnaire survey of 2,869 U. S. manufacturing
firms with export operations.
Assistant Secretary for International Affairs Winthrop
Knowlton said in a foreword to the study:
"This initial study deals with export credit extension
by exporting firms--a field which has never before been
surveyed comprehensively.

....

"The study raises more questions than it answers.
Hopefully, it will lead to analyses in depth of situations
where there is: 1) a possibility that larger amounts of
export credit financing might add to total U. S. exports;
or 2) conversely, a possibility that export credits
already being extended are more than adequate.
are questions that have to be determined
ultimately by each manufacturing exporter. His good
judgment, the willingness of the private banking system
and other private lenders to give a high priority to
export financing, and the provision of whatever supplementary Government facilities are necessary, will ensure
that the use of export credit plays an appropriate role
in the expansion of U. S. exports."
I~ese

The booklet was written by Philip P. Schaffner, Director
of the Office of Balance of Payments Programs, Operations
and Statistics, under whose direction the survey was conducted.
The introductory chapter presents background information
on the survey and summarizes the more significant data.
F-62l

- 2 -

Chapter II presents an assessment of the export financing
situation by reporting firms, on the basis of their experience
during 1965. The firms commented on the effects of changes
in terms or availability of export credit, or in the use of
export guarantees and insurance, on their export performance.
A number of firms provided additional information on the
export financing operations of private lending institutions
and on the export guarantee and insurance operations of the
Export-Import Bank and the Foreign Credit Insurance Association.
Chapter III analyzes data provided by the survey on the
export credit structure of U. S. manufacturing firms. The
data are presented by industry categories and by size of firm,
as measured by export volume. The relationship between shares
in total export credit extended and shares in total exports
of different categories of firms receives particular consideration.
Copies of the "Survey of Export Financing" are available
upon request, at the Treasury Department.

TREASURY DEPARTMENT
Q

September 15, 1966
FOR IMMEDIATE RELEASE

FRANCE TO PREPAY $70.8 MILLION ON DEBT
TO THE UNITED STATES
Secretary of the Treasury Fowler announced today
that the Government of France has made a further advance
payment of $70.8 million on its remaining indebtedness
to the United States.
This prepayment will apply to the debt of the
Government of France to the United States under the
Surplus Property and Lend Lease Agreements of May 28,
1946 and December 6, 1947. It will reduce the amount
of outstanding French Government debt to the United
States stemming from post World War II loans and
financial settlements to about $300 million.
Since 1947 the Government of France has repaid a
total of approximately $1,850 million, of which $810
million has been paid in advance of the dates specified
in the loan agreements.

000

F-622

TREASURY DEPARTMENT
(

)R RELEASE 6:30 P.M.,
m<iay, September 19, 1966
RESULTS OF TREASURY I S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series ot Treasury bills,
series to be an additional issue of the bills dated June 23, 1966, and the other
!ries to be dated September 22, 1966, which were offered on September 14, 1966, were
)ened at the Federal Reserve Banks today. Tenders were invited for $1,)00,000,000, or
lereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of 182-day bills.
le details of the two series are as follows:
lS

lNGE OF ACCEPTED
}1PETITlVE BIDS:

91-~ Treasury bills
maturing December 22, 1966

Price
High

98.609

Low

Average

98.581

98.588

:
t

182-day Treasury bills
maturing March 23, 1967

Approx. Equiv.

Annual Rate
5.503%
5.614%

Price

••
••
•

96.941 -96.947

50586% y'

96.968 a/

Lxcepting 4 tenders totaling $1 11)2,000.
49; of the amount of 91-day bills b~d for at the low price was accepted
62% of the amount of 182-day bills bid tor at the low price was accepted

tTAL TENDE...RS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

AEElied For
$ 16,,663,,000
1,315,998,000
30,987,000
35,720,000
14,374,000
35,362,000
336,223,000

Accepted
$ 16,663,000

54,~6,OOO

50,~6,OOO

Dallas
San Francisco

20,891,000
33,707,000
20,771,000
20$ .1 304.1 000

16,897,000
33,707,000
15,771,000

lla.,264,000

TarALS

$2,120,052,000

$1,300 ,010,000

District
Boston
New York

Philadelphia
Cleveland
Richmond

Atlanta
Chicago
St. Louis

Minneapolis
Kansas City

769,368,000
18,172,000
31,720,000
14,374,000
26,056,000
165,972,000

••

•

:
:

••
••

•:
:
:

:
••

•
E(

AEE1ied For
$
42, '.::39,000
1,6)e,376,OOO
16,638,000
76,211,OOO
7,025,000
28,308,000

316,514,000
)0,396,000
17,387,000
23,354,000
15,542,000
:43,821,000
,~2, 456, 211, 000

Acce"eted
..."
7/639,000
b53,186,OOO
6,704,000
47,041,000
'

6,411,OOO
1,5,589,000
153,814,000
21,541,000
9,631,000
19,30 4,000
10,442,000
49, 21.~1, 000
$1,000,543,000 c/

Includes $277,074,000 noncompetitive tenders accepted at the average pr~ce of 98.588
Includes $178 655 000 noncompetitive tenders a~epted at the average pnce of 96.947
These rates ~ o~ a bank discoUJIti basiso The equival.ent coupon issue yields are

5.74% for the 91-day bills" and 6.32% for the 182-day bills.
523

TREASURY DEPARTMENT
Washington

FOR RELEASE:

UPON DELIVERY

REMARKS OF THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE THE MUNICIPAL TAX COLLECTORS AND TREASURERS
OF THE VIRGINIA MUNICIPAL LEAGUE
61ST ANNUAL CONVENTION
AT THE JOHN MARSHALL HOTEL, RICHMOND, VIRGINIA
ON TUESDAY, SEPTEMBER 20, 1966, AT 1:30 P.M., EDT

It is a pleasure for me to have the opportunity to
speak to you today, for several reasons.
For one, it is always good to get away from the office
and from Washington to talk with people outside the center
of the Federal government and learn what they are thinking.
Second, I welcome the opportunity to discuss the
President's economic policy, with which I am intimately
involved, and that is what I am going to do today.
I might add a third reason:
the municipalities of the
great State of Virginia, which you represent, will not be
directly affected by the President's proposals to suspend
the investment credit and accelerated depreciation. I have
spent a great deal of time in the last ten days talking with
people who will be directly affected, so the change in point
of view today will be refreshing.
And that gets me into my subject, which is one of great
interest to everyone in government, in business, in the
professions -- everyone, in fact, because every thinking
person is concerned with the economy.
There is an old French expression which is usually
translated as "the more things change, the more they are the
same. "
I think I disagree to some extent, at least, with that
old French adage.
I believe there is evidence that things
do change.

F-624

Today there is widespread agreement in the nation that
Federal tax policy should be used to apply restraint to our
ebullient economy in order to avert inflationary dangers.
When the President announced his anti-inflationary
program on September 8 and sent to the Congress his proposals
to suspend two important tax incentives for business investment, it was the first time tax policy had been used in a
period of prosperity and near-balance in the Federal budget
to cool off a major sector of the economy that was overheating.
I would not have thought this possible 10 or 15 years
ago.
Today tax policy and what we have come to call the
lI new economics" have been major public
issues for six years.
We have become something of a nation of sophisticates In
fiscal matters.
It is a sign of maturity
This is a healthy condition.
in our nation.
It is proof that, if they are given the facts
and exposed to the free interplay of differing viewpoints,
the people can make the difficult decisions which democracy
requires of them.
The program the President announced and sent to the
Congress on September 8 was promised conditionally last
January.
In his budget message to the Congress and the American
people on January 24, President Johnson said, and I quote:
"If
. events in Southeast Asia so
develop that additional funds are required,
I will not hesitate to reauest the necessary
sums. And should that contingency arise, or
should unforeseen inflationary pressures
develop, I will propose such fiscal actions
as are appropriate to maintain economic
stability. fI
The President had just proposed to the Congress a
speed-up in the collection of corporate taxes, graduated
withholding of individual taxes to make the amounts withheld
more nearly equal to individual tax liabilities, and

- 3 postponement of two of the excise tax reductions enacted
the previous year.
This program did not increase any person's or corporation's
total'tax liabilities. But by taking additional sums out of
the economy in the short term, it did provide additional
funds for financing our commitment in Vietnam and exerted
an anti-inflationary effect.
With this program and other measures, the Federal
government has taken an additional $10 billion in excess
purchasing power out of the economy during the current
calendar year.
The President
and, I may add, the Secretary of the
Treasury, your fellow Virginian, Secretary Fowler, and I
as Under Secretary -- repeatedly expressed the hope that
the action taken early this year would be sufficient to
keep our economy from overheating as it passed through our
sixth year of expansion.
While we were concerned about the possibility of inflation, we were also concerned lest we oVer-react -- that
instead of taking our foot off the gas pedal and slowing
down our rate of acceleration we might be stomping on the
brakes and sending the economy into a skid.
Over and over again the President reassured the American
people that he and his advisers were watching the performance
of the economy very closely and that, if developments made
it necessary, he would take the action promised in January.
In recent months and weeks the economic picture has
corne more sharply into focus.
The economy continues to enjoy a vigorous and healthy
expansion.
But there are some soft spots.
Our economy and the financial system that services it
are experiencing at least three clearly discernible pressures:
in the money and financial markets, excessive
demands for credit, together with monetary
restraint, have created severe tightness and
a sharp rise in interest rates, with an
unfortunate and highly selective impact on
several sectors, particularly single-family housing;

- 4 in the market for capital goods, the evermounting flow of new orders by business
firms, corning on top of an unprecendented
rate of outlay for plant and equipment, is
pushing up prices and wages, creating
shortages of some skilled labor, and adding
sharply to the large demands for capital
from banks and the securities market;
the rising rate of demand that must be met
if we are to carry out our commitment to the
defense of freedom in Vietnam.
There is a close relationship among these three sources
of pressure:
Faster business spending breeds demand for credit from
banks and for financing in the capital market.
Higher defense spending also generates credit demands -by the government itself and by private firms which receive
government orders and work on borrowed funds to fill new
contracts.
Tight money itself causes additional government spending,
particularly to help finance areas of important economic
activity -- such as homebuilding -- from which the supply
of private capital has been diverted.
I do not mean to sound like an alarmist. Let me
reassure you of the basic strength and health of our economy
with just a few statistical observations:
the United States gross national product,
which totalled just under $504 billion in 1960,
is now running at an annual rate of more than
$732 billion.
total personal income, in 1960, amounted to
$385 billion; in mid-1966, it was running at
an annual rate of nearly $560 billion.
the profits of our corporations, after taxes,
today are running at an all-time high of
almost $49 billion annually, compared with

- 5 $26.7 billion in 1960 -- and business
outlays for new plants and equipment,
designed to produce newer and better
products at lower unit labor costs, are
running this year at more than $60 billion.
average farm income last year rose 23 percent,
breaking all records, and has moved to higher
ground again in 1966.
In short, the evidence is clear that we have solved the
problems of a sluggish economy which required so much of
our time, energy, and attention a few years ago.
As President Johnson observed last January, "We have
learned how to achieve prosperity . . . now we must sustain
it, deal with its problems, and make the most of the
opportunities it presents."
This means, among other things, dealing with the three
sourceS of pressure which I mentioned a moment ago. The
President's program is designed to cope with all three.
Here are the main points of the program:
First, the President promised strong measures to reduce
lower priority Federal expenditures.
When the needs of defense and other amounts in the
fiscal 1967 budget fixed by law or otherwise uncontrollable
are taken account of, only about $31 billion is actually
subject to direct Presidential control.
Our best present estimate is that a reduction of
10 percent -- about $3 billion
will be required from
that part of the budget.
Determination of the exact amount that can be cut in
that limited portion of the budget must await final
Congressional action on the remaining appropriation bills.
Although the costs of the Vietnam conflict are uncertain,
if this conflict extends beyond the current fiscal year, we
will be forced to order additional material and equipment.
To be on the safe side and to support our men in Vietnam,
we must act on this c0ntingency.

- 6 -

Federal programs of a lower-priority nature are to be
reduced by $1.5 billion in fiscal 1967.
Federal civilian agencies have been directed to defer,
stretch out, and otherwise reduce contracts, new orders, and
cormnitments. Each major agency has been given a savings
target, with orders to meet that target.
The President has proposed to defer and reduce Federal
expenditures:
by requesting appropriations for Federal
programs pt levels below those now being
authorized by the Congress;
by withholding appropriations provided in
excess of his budget recommendations whenever
possible; and
by cutting spending in other areas which have
significant fiscal impact in 1967.
But, in a time when individual incomes and corporate
profits are at record heights, the President does not intend
that these economies be made at the expense of programs for
alleviating poverty, ill health, and inadequate education.
We cannot in justice p~ace the pernicious tax of
inflation on the elderly and the many others who live on
fixed incomes. But neither can we tax the young, the ill,
and the unfortunate by denying them their chance for
education, health, and opportunity.
Second, the President recommended that the Congress
suspend the 7 percent investment tax credit, effective
September 1, 1966, to become operative again on January 1, 1968.
The President specified:
the temporary suspension should apply to all
orders for machinery and equipment placed on
or after September 1, 1966, and before
January 1, 1968, regardless of the date of
their delivery.

- 7 the suspension should be across-the-board ,
without exception, applying effectively
and equitably to all investing industries.
No special treatment or special exclusions
should be made for this brief period of
suspension.
Our machinery and equipment industries cannot digest
the demands currently thrust upon them. There is a ten-month
average backlog on machine tool orders alone. On many
machine tools, the order backlog exceeds 15 months.
Our capital markets are clogged with excessive demands
for funds to finance investment. These demands bid interest
rates higher and higher, and draw too large a share of credit
from other important uses.
A temporary suspension of the investment credit will
relieve excessive pressures on our capital goods producers
and on our financial markets. Our high-employment, highprofit economy will still provide abundant incentive for
growth in our capacity sufficient to produce the goods we
need, for modernizing facilities, and for maintaining a
strong international competitive position.
Third, the President also recommended that the Congress
suspend until January 1, 1968, the use of accelerated
depreciation on all buildings and structures started or
transferred on or after September 1, 1966.
The reasoning here is the same: we must not give a
reward in the form of a tax advantage to investment which
contributes to the pressures on the economy.
Fourth, the President asked the Federal Reserve Board,
in executing its policy of monetary restraint, and our
large commerica1 banks to cooperate with him and the Congress
to lower interest rates and to ease the inequitable burden
of tight money.
I am pleased to be able to add here that the Congress
has already responded to the President's message by passing
a bill enlarging the powers of our national monetary
authorities to deal with interest rate escalation.

- 8 Fifth, the President disclosed that Secretary Fowler
has reviewed all potential Federal security sales and is
taking action to keep them at the minimum in the months
ahead. This should help reduce current pressures on the
money market and on interest rates.
In those five points the President mobilized the
resources of the Federal government to relieve inflationary
pressures in the economy.
But President Johnson went further, calling on the
entire nation to act responsibly to preserve the prosperity
we all share and enjoy.
He called on the banks to allocate credit fairly and
without extracting excessive profits. He urged them to rely
less on high interest rates to price some borrowers out of
the market and more on placing of appropriate ceilings on
credit.
He called on the Federal Reserve Board and the entire
financial community to take advantage of the earliest
opportunity and reduce interest rates while allocating
existing supplies of credit more equitably.
He called on business to base their credit demands on
genuine needs rather than on speculation on future scarcities
or higher costs; to maintain their inventory positions on the
basis of current requirements rather than on fears or hopes
that prices will go up; and to postpone investments that are
not absolutely necessary now.
He also asked business to set prices on the basis of
real costs rather than building into them the assumption of
future inflation and to limit their profits to a level
appropriate for a steadily expanding economy.
He called on labor to avoid wage demands that would
raise the average level of costs and prices and to adopt
work rules and standards for entry into its trades that are
appropriate for a full-employment economy.
He also asked labor to cooperate with business to raise
productivity, so that pay increases will be matched by
increases in production.

- 9 This is the President's anti-inflation program.
a program that should inspire confidence.

It is

Its diversity should inspire confidence in its effectiveness. And it is not intended to be self-serving when I say
it should inspire confidence in our nation's leadership,
for I am speaking of the President's leadership.
Not all these proposals will be popular. For example,
vigorous dissent has already been voiced from some quarters
on the proposals to suspend the two tax incentives for
business investment.
The President had a clear idea of what the reaction
might be when he made his recommendations. But he made them
anyway, because he knew the economy -- and our prosperity -requ ired them.
Let me quote him briefly just once more:
"By continuing on a prudent course in our
private and public policies and by preserving
our capacity for stable economic growth, we
can look forward to continuing progress. We
can make that progress within the framework of
a free economy. We do not want to resort to
controls. If we take the necessary actions,
next year should bring new heights in consumer
living standards, in savings for the future,
in our progress toward the Great Society."
What the President is saying is that, in exchange for
the right to enjoy prosperity in a free nation, we must all
be prepared to put aside or postpone some of our enjoyment
and some of our free volition in order to preserve and
protect that prosperity when it is threatened.
It is an essential part of our political maturity that
we discuss economic policy as a public issue, open to debate
by all concerned.
It is also an essential part of that political maturity
that we accept the sacrifices which a free society requires
of us.

- 10 You are in a position to help the President and the
Administration to avert the danger of inflation.
As principal financial officers of your municipalities,
you are in position to recommend postponing some of your
projects and to recommend stretching out some of your
programs
to reduce, or to delay, some of your financing
and some of your procurement.
I know that to do so often requires very difficult
decisions. You must decide if delaying would do more harm
than good. You must gamble that conditions will permit
going ahead with a project at a later date if it is
postponed now.
I recognize the complexity of the factors
involved.
But as municipal leaders of the Old Dominion, I know
you will make the right decisions -- right not only for
your cities but also for the nation.
And you will be strengthened by knowing that the rest
of the nation -- business, labor, the financial community,
and every other sector, as well as the government -- will be
sharing the burden with you.

000

TREASURY DEPARTMENT

September 20, 1966
FOR IMMEDIATE RELEASE

The Treasury today made public an exchange of correspondence
between Secretary of the Treasury Henry H. Fowler and
Representative Henry S. Reuss, Chairman of the International
Finance Subcommittee of the House Banking and Currency Committee,
commending the Subcommittee for urging the Inter-American
Development Bank to give further attention to stimulating
agricultural development in Latin America.
Secretary Fowler is the U.S. Governor on the Bank's
20-nation Board of Governors.
The Reuss Subcommittee held hearings August 29 at which
five private experts gave their views on the need for expanded
agricultural development in Latin America in order to meet the
goals of the Alliance for Progress.
The Subcommittee adopted a resolution at the conclusion
of the private experts' testimony calling on U. S. representatives
to the IDB to encourage the Bank~
(a) to initiate work as soon as possible among the
institutions and agencies concerned on comprehensive Latin
American agricultural planning (comprehending both goals and
concrete means of meeting these goals, and drawing on the
energies and resources of both Latin America and the rest of
the free world), and (b) to give explicit recognition to the
urgency of the Latin American agricultural problem and the
need for comprehensive planning therefor in the Bank's
forthcoming decision regarding its need for additional capital
resources.
The Subconmittee held the hearings in anticipation of
legislation for an expansion of the resources of the IDB
next year.
Representative Reuss forwarded a copy of the
Subcommittee Resolution to Secretary Fowler by letter on
August 30, 1966.

F-625

- 2 In a letter to Representative Reuss of September 9, 1966,
Secretary Fowler reviewed the IDB's substantial financing of
agriculture and rural development in Latin America, amounting
to over $600 million or roughly 40 percent of the Bank's total
financing since its inception in 1960. Secretary Fowler
concurred with Representative Reuss' view that action was
urgently needed to step up agricultural output and productivity.
He proposed that the Bank improve and intensify its agricultural
efforts, and in this connection take immediate steps toward
better coordination of the activities of the various agencies
involved in dealing with the Latin American agricultural
problem.
The Secretary characterized the Subcommittee Resolution
as "a useful expression of view that rests on concepts with
which I agree." He added, "I intend to give the Bank the
strongest encouragement to move in just the directions the
Resolution outlines."
Representative Reuss, commenting on the Secretary's
letter, said, "Hunger, malnutrition and the threat of famine
are not remote problems for Latin America ... therefore, I
appreciate both the broad appraisal Secretary Fowler has made
of the Inter-American Bank's present and future role in
financing of Latin American agriculture and his ready
acceptance of the general views underlying the Subcommittee
Resolution."
Copies of the letters exchanged are attached.

!DiRY S. REUSS, WIS .. CHAIRMAN
IBRAHAM J. MULTER. N.Y.
'HOMAS L. ASHLEY. OHIO
VILUAM S. MOORHEAD. PA.
fENRY B. GONZALEZ. TEX.
llCHARD T. HANNA. CALIF.
:OMPTON I. WHITE. JA .. IDAHO
lICHARD L. OTTINGER. N.Y.

SEYMOUR HAL~ERN. N.Y.
WIL.1..IAM B. WIONALL. N.J.
JAMES HARVEY. MICH.
aURT L. TALCOTT. CALIF.

PAUL NELSON.
CURK AND STAFF DIRECT!

HOUSE OF REPRESENTATIVES
SUBCOMMITIEE ON INTERNATIONAL FINANCE
OF THE

COMMITTEE ON BANKING AND CURRENCY
EIGHTY-NINTH CONGRESS

WASHINGTON, D.C.

August 30, 1966

Honorable Henry H. Fowler
Secretary of the Treasury
Washington, D. C.
Dear Mr. Secretary:
In accordance with the unanimous approval of all members of the
International Finance Subcommittee, please find attached a resolution
adopted by the Subcommittee on Tuesday, August 30, 1966.
The Subcommittee hearing that laid the foundation for the adoption
of this resolution concerned the role to be played by the Inter-American
Development Bank in stimulating agricultural development in Latin America.
As soon as printed copies of the hearing are available, I shall send copies
to your office for your information and consideration.
Since~ely

yours,

liL(A/~1~_

Henry S. Reus s
Chairman

Attachment

HENRY S. REUSS. WIS., CHAIRMAN
ABRAHAM J. MULTER. N.Y.
THOMAS L. AS"ILEY. OHIO
WILLIAM S. MOORHEAD. PA.
HENRY B. GONZALEZ. TEX.
RICHARD T. HANNA. CALIF.
COMPTON I. WHITE. JR .• IDAHO
RICHARD L. OTTINGER. N.Y.

SEYMOUR HALPERN. N.Y.
WILLIAM B. WIDNALL, N.J.
JAMES HARVEY. MICH.
BURT L. TALCOTT, CALIF.

HOUSE OF REPRESENTATIVES

..... Ul.

NELSON,

cu:.. K

AND STAFF elRECTCI'

SUBCOMMITIEE ON INTERNATIONAL FINANCE
OF THE

COMMITTEE ON BANKING AND CURRENCY
EIGHTY-NINTH CONGRESS

WASHINGTON, D.C.

RESOLUTION
WHEREAS,

the Banking and Currency Committee of the House of Representatives
of the United States has legislative jurisdiction over the United
States! participation in the Inter-American Development Bank, and

WHEREAS,

the Board of Governors of the Bank at their Seventh Annual meeting
in April

1966 have indicated the Bank's need for additional capital

resources, and
WHEREAS,

the International Finance Subcommittee of the House Banking and
Currency Committee has received expert testimony on the urgent need
for expanded agricultural development in Latin America if the goals
of the Alliance for Progress are to be attained, and

WHEREAS,

the Congress will have before it in 1967 a request for increased
resources for the Bank, which request

~Till

have to be evaluated in

the context of the long-term requirements for such expanded agricultural development,
BE IT RESOLVED THAT, the International Finance Subcommittee requests the U. S.
representatives to the Inter-American Development Bank to enco11Tage
the Bank (a) to initiate \vork as soon as possible among the institutions

and agencies concerned on comprehensive Latin American agricultural

planning (comprehending both goals and concrete means of meeting
those goals, and drawing on the energies and resources of both Latin
America and the rest of the free world), and (b) to give explicit
recognition to the urgency of the Latin American agricultural problem
and the need for comprehensive planning therefor in the Bank's forthcoming decision regarding its need for additional capital resources.

####
(Adopted August 30,

1966)

~.::>

THE SECRET/-\

•

•. ),:,

[HE:: TR[ASURY

SEP

~
......

9 1956

Dear Mr. Chairmnn:
I very much appreciace the oppc,rtunity you have offered
me to co:nment upon the qU2stJ.on of agriculture in Latin
America and the importacti~ role the Inter-lHrrerican Development
Bank (IDB) can play in stimulating greater progress in the
agricultural section of Latin Lmerican economies.
As you will recall [:eo,,) yuur IJarllcipation in the U. s.
Delegation to the Annual Meetin~ of the IDB in Mexico City
in April of this year ~ I expressed tit that ti.me concern over
the present and prospective state of Latin American agriculture
and asked that the IDB eXClmine its effct4ts in this regard to
determine if agriculture were being accorded an appropriate
priority in its operations. I noted then:
"I believe we need to gi'lle greater attention to the
sectoral needs -- in addition co global needs -- for

Latin American development. Foremost among these, I
would urge special thought to the problems of agriculture and food, and the further intensive promotion of
the economic integration movement. The Bank's annu~l
report indicates that in the first five years of its
operation the Bant<") S cUi"ilulativc lending in the field
of agriculture was 21 percent of the total. Does this
figure reflect the proper distribucion of emphasis
which we should p16ce on our operation during the next
five years? Are \.;e doing enough, for example, to meet
the critical problem of mobilizing and developing
human resources to the critical task before us? I can
appreciate from my own experience the problems which
the Governments of Lati.n l~iTi.Cr~ca must face in finding
a sufficient number of properl.y qualified and dedicated
public 3ervants in 2-t~>C~l ke~ fie 1 ds as taxation and
public finance, and I wonde~ whether the Bank, in
cooperation with other international and national lending agencies~ could not plan to make a more intensive

- 2 contribution toward the solution of this type of
problem. Agriculture development and food production
are assuming increasingly critical importance in the
world today. With Latin America's vast resources of
fertile and productive land, could the Bank do more
to assist in developing Latin America's food production
so that its needs for proper nutrition are more promptly
and fully met? In addition to purely national efforts
in this area, there are aspects of the food problem
which would appear particularly fruitful to approach
by means of multi-national efforts -- to open up ne\"
areas in the hemisphere, and to develop an industrial
base to service agriculture by the production of
fertilizer and pesticides, and modern tools and
equipment."
The Subcommittee hearings you are no,v holding tD obtain
the vie~vs of non-governmental authorities on the Latin American
agricultural situation are timely, and I look fo~vard to examining the fresh perspectives these experts may offer.
In the comments that follmv, I wish to outline briefly
the underlying trends that make increased agricultural production, particularly food production, a matter of urgency.
I then '''ish to describe the Bank's contribution to Latin Alnerican
agricultural development. Finally, I "will indicate the directions in which I consider it important for the Bank, for other
institutions and entities operating on the Latin American scene
and for Latin I~erican Governments to move if satisfactory
agricultural growth is to be achieved.
Latin America is not today in the grip of starvation.
However, as you point out in your statement of July 18, 1966
the Latin American countries are not immune to the forces that
have so drastically affected the rest of the developing world.
If unreversed, these forces will bring famine and misery to the
population of the Latin American countries. Per capita food
production in the region in the mid-sixties is below that of
the pre\var period. The trend of per capita food production in
the postwar period offers no encouragement. Since the late
fifties, the FAG estimates that such production increased by no

- 3 -

more than one percent. If nutrition levels were already
adequate, stagnation in per capita food production would be of
minor consequence. But there are serious qualita~ive and
quantitative deficiencies in Latin American diets, and the bare
one percent of progress in food production since the late
fifties -- which has still not sufficed to achieve prewar
levels -- amounts to roughly an additional 25 calories a day
per person, or less than half a slice of bread per day.
I am not suggesting that in absolute terms Latin American
agriculture has not expanded. Since the mid-fifties, food
production has increased by 30 percent. The effect of the
increase has been all but erased, however, by population growth,
which has proceeded at rates up to 3.5 percent per year in some
countries, among the highest in the world. Although the need
to deal effectively with the population problem is crucial,'
none of the efforts that may now be put in motion will significantly affect the size of populations for many years. Therefore,
the prospect is that the rate of population growth will shortly
overtake the rate of growth in Latin American food production.
Per capita output of food will shrink.
It is against this somber setting that we must consider
the Inter-American Development Bank's performance to date and
its future role. I believe the Bank, in its five years of
financing activity, has made a tangible contribution -to rural
development in its broadest sense. The financial requirements
in this field are extremely large, and the IDB has been the
largest single provider of official assistance for agriculture.
Bet't'leen January 1, 1961 and January 1, 1966, the Bank made
commitments to lend $1.53 billion dollars in Latin America for
all purposes. An estimated $605 million, or close to 40% of
total commitments, 'tqas for rural development in its widest sense.
Of the $605 million, $348 million Has directly for agricultural
projects narrowly defined.
This latter amount can be broken do'tV11 into three major
components (see Table I):
(a)

$326.6 million in loans that might be described
as increasing the capital inflow into agriculture.
This category includes all loans clearly identifiable as part of an agricultural project, loans to

- 4 improve marketing and loans to improve food processing, and is the basis of the 21% figure I
cited in my Mexico City speech as the proportion
of total Bank lending to the agricultural sector;

(b)

$14.6 million in additional loans to finance
technical assistance;

(c)

$6.5 million for loans for higher education where
an important part of the loan was for financing,
teaching and research in the agricultural sciences.

In addition to narrowly defined agricultural financing,

the IDB has lent $257 million for social overhead in rural
areas not specifically tied to agricultural production,as
follmvs:

(a)

$170 million for housing, potable water and seVlage
in the rural sector;

(b)

$87 million for pm'ler) hightvays and roads (in the
rural sector) other than access roads linked to
specific agricultural p~ojects.

On a basis roughly comparable to the narrOH definition of
agricultural lending above, the major international and bilateral lending agencies, including the IDB, have committed
close to $635 million for investment in agricultural development (excluding technical assistance) in Latin America. As
indicated in Table II, the Bank has contributed more than half
of this external financing for the period 1961-1965.
During this five year period the Bank had actually disbursed $136.05 million or 41.6% of its loan co~~itments for
agriculture. This compares Hith a disbursement rate of 33.4%
for the Bank's lending at large.
Of the Bank's agricultural project lending, the largest
amount loaned - almost 20% of the total - has been for colonization and land settlement. The next largest loans by categories have been: irrigation (19 percent), gpneral agricultural

- 5 -

credit (18 percent), capital for mechanization of agriculture
(13 percent) and funds for general agricultural development
(10 percent). For the rest, 8 percent of the portfolio is for
diversification of production through livestock development and
3% for diversification through introduction of new crops. The
categories of "promotion of food processing" and "improved land
use" each account for 3% of the portfolio, while strengthening
of producer and consumer cooperatives accounts for less than
0.5% of the total amount loaned.
The Bank has thus been heavily committed to expanding
acreage under cultivation through colonization, settlement, land
improvement and irrigation. To a much lesser extent, the Bank
has become involved in the very difficult process of diversification of production. Loans for promotion of technological change
have been confined primarily to funds for mechanization of
agriculture, and the provision of ~vorking capital for farmers
to acquire the supplies necessary to undertake technological
changes. Thus far, only tHO loans have been made for improvement of marketing through cooperatives, although there has been
considerable investment in access roads and major roads that
will facilitate the movement of agricultural output.
Almost all the loans, with the exception of some of those
for irrigation, colonization and processing, provide a very
large element of rural credit to farmers. Although only 18%
of the Bank's portfolio Has specifically designated for rural
credit on a functional basis, approximately 50% of the amount
loaned by the Bank for agricultural development ~vas used to
provide rural credit, "lith the additional amount above the 18%
specifically designed to incorporate rural credit into the other
categories of projects that I have described. Thus, the Bank's
principal instrument for agricultural development has been rural
credit. Rural credit has been provided to encourage diversification of production, to help small scale producers, to encourage
technological change, to assist producers on land colonization
schemes and so forth. With minor exceptions, the Bank has become the major source of financing for agricultural credit
institutions in Latin America.
The Bank has also been active in providing funds for member
countries to acquire a wide variety of technical assistance.
Much of its $14 million in technical assistance lendins has
been of a preinvestmcnt nature, i.e., to assist in the

- 6 implementation of projects and to develop and strengthen institutions that have received loans.
The Bank has also made four educational loans totaling
$6.5 million. Three of these loans were to universities to
help develop the teaching of agricultural science. The fourth
loan \vas for developing a national center that combines teaching research and agricultural extension services.
I have reviewed the agricultural lending record of the
Bank at some length in order to make it clear that the Bank,
under President Herrera, is already playing an important part
on the Latin American scene. Hm'7ever, my conviction has
deepened that the Bank must ass~~e a still more important role
in hemispheric agricultural development. There are t"i'70 aspects
of the problem on which I \vould like to comment.
First, there is the question of overall priorit~~ in the
application of the Bank's resources. In my view, it is
essential that the Bank devote a substantially greater part of
its effort to the development of food and agriculture, "'hich
in a feH years will become a matter of life or death for large
segments of Latin America's population. In its industrial
lending, the Bank should emphasize projects related to agricultural inputs -- production of fertilizer and agricultural
chemicals, irrigation machinery, farm implements and the like.
As you are aHare, the Executive Directors of the Bank are
no\'] engaged in an appraisal of its further needs for resources,
particularly for the Fund for Special Operations. You may be
assured that in the course of the Executi~e Directors' consideration of this issue U. S. representatives will work for
the strongest possible recognition of the priority that food
and agricultural development demands. Financing for these
purposes involves, of course, a large element of local costs.
It will be necessary to ensure, therefore, that the arrangements
for tying dollars provided by the U. S. to the Bank are in fact
fully effective and that such expenditures will not adversely
affect our balance of papnents.

- 7 In connection with the replenishment of Bank resources,
1 might observe that in agriculture, a$ well as other sectors
of development, the principal burden and principal effort must
come from the assisted countries themselves. Continental selfhelp for Latin America means not only that domestic budgetary
resources must be mobilized to the maximum, but also that development resources from the more advanced Latin American
countries must begin to flow either through the Bank's capital
structure or borrowings, or through direct bilateral channels,
to the less advanced nations.
The second question is that of the Bank's role as leader,
stimulator, crystallizer, and coordinator of the a<:tivities of
the various institutions and entities concerned with Latin
American economic development.
The Bank must of necessity playa major role. It is the
financial arm of the Alliance for Progress and possesses both
technical and financial resources. The over-all guidance for
the Alliance for Progress is provided through ClAP, the InterAmerican Committee on the Alliance for Progress which serves
as the Executive arm of the Inter-American Economic and Social
Council. World-~-lide financial agencies, such as the Horld
Bank and its affiliates, and world-wide technical assistance
agencies such as the UN Development Program and the Food and
Agricultural Organization, contribute importantly to the Latin
American scene. Bilateral programs provide agricultural
development resources and technical assistance. National
agricultural institutes and research programs, and such regional
bodies as the Inter-American Institute of Agricultural Sciences,
are additional parts of the institutional structure of Latin
American agricultural development.
1 strongly favor efforts to achieve a better coordinated

approach in Latin America that would integrate the diverse
elements now involved. Clearly, CLAP is the desirable mechanism
for encouraging commitments on the part of governments to attack
their m'ln agricultural problems vigorously. The Bank has established a desirable relationship with FAO similar to that
between the \~orld Bank and FAO for the identification and
evaluation of agricultural projects.

- 8 Plans have already been made for the Bank's round table
discussion at the April 1967 Annual Meeting to concentrate on
the Latin American agricultural problem. I see no reason vlhy
this discussion forum could not be the beginninG of an important mechanism of cooperation amon8 all those concerned with
this problem. }leeting annually under the Bank's sponsorship
to review and appraise the progress on and outlook for the
agricultural scene, this forum could be transformed into what
would be, in effect, a functional "consultative group" of the
relevant financial and technical institutions and entities, with
the full participntion of ClAP. I intend to explore this possibility further within the Government and with the President of
the Bank.
I am less concerned with the problem of where the exact
locus of overall coordinating responsibility lies than with

the far more important problem of infusing all the operating
agencies with the kno~vledge of and the necessary sense of
urgency about Latin America's food and agricultural outlook.
At every opportunity I shall be turning my own efforts
toward developing this sense of urgency in those active on the
Latin American scene. I again express my appreciation for the
chance to put my vieHs before the members of your SubcoITh'11ittee.
Your hearings will, I am sure, focus attention on the scope of
the task ahead. The Resolution just adopted by the Subcommit":ee
is a useful c},:pression of view that rests on concepts ''lith \vhich
I agree. I intend to give the Bank the strongest encouragement
to move in just the directions the Resolution outlines.
Sincerely yours,

H.e",.....) t-"\. ::J1v.-i..",Henry H. Fmvler
The Honorable
Henry S. Reuss, Chairman
Subcommittee on International Finance
Comluittee on Banking and Currency
House of Representatives
Washington, D. C. 20515
Enclosure

TABLE I

IDB Loans for Agricultural Development 1961-1965

($ millions)
Capital for development
Funds for technical assistance
Loans for agricultural education

326.6 million
14.6

6.50

347.7

TABLE II

Loans and grants, by agency,_ for azricultural development 1961-1965
($ millions)

Inter-American Development Bank

326.62

AID

153.8

IBRD/IFC/IDA

12.1.4

International Development Agency

U. No

Special Fund

Export-Import Bank

3.6

21.3

7.4
634.12

TREASURY DEPAR'T'M.ENT
Washington

FOR USE UPON DELIVERY

STATEMENT BY THE HONORABLE HEl\fWt' H. FOWLER
SECRETARY OF THE TREASURY
AT A MEETING WITH
THE NATIONAL INDUSTRIAL CONFERENCE BOARD
AT THE WALDORF-ASTORIA HOTEL IN NEW YORK CITY
WEDNESDAY, SEPTEMBER 21, 1966, 3: 15 P.M., EDT

I am very pleased indeed to be with you upon so ausplclOUS
an occasion as the 50th anniversary of this distinguished
organization for economic research.
In my position as Secretary of the Teeasury, I am often
reminded of the many and profound contributions the National
Industrial Conference Board has made to our understanding of
how a free economy works -- and how it should work. Much
that is embodied in public policy today is the result of your
50 years of patient research and illuminating reports.
If I were asked to summarize your work in a line, I would
say, and I think that you would not disagree with me, that you
have been engaged in exploring the potentials of a partnership
for economic well being between the government and the
business community of a free nation that wants to remain free.
I believe the idea that a free people can collaborate with
their government to get the most out of their economy is one
of the moS t important -- and, nowadays, one of the fastest
spreading -- political-economic concepts in the world.
Our public-private partnership has been of unparalleled
bene fi t to this country, and its pe ople) a s demons tra ted
by your chart study made for this occa~·) lon"
I hope that before this 50th anniversary meeting closes,
you will resolve to carry your work torward at least another
full 50 years, for I can see no time in the future when the
contributions to knowledge such as you make will not be
needed at least as greatly as they have been in the past.

F-626

- 2 -

I am glad to note, in this respect, that you have
dedicated this meeting to the future.
I hope that my remarks,
which deal with President Johnson's anti-inflation program,
will throw a sidelight of some value- upon your theme,
"The Future of Capitalism."
It is my view -- and your work indicates that it is
also your view -- that the future of capitalism is a future
of responsible economic behavior, by government, by the
public, by labor, by farmers, and, as the very existence of
NICB suggests, by the business community, great and small.
The President's anti-inflation program is nothing more
and nothing less -- than a call to a new level of responsible
economic behavior by all segments of the American economy.
It is a program for maintaining, and continuing the
unprecedented economic gains we have made during the long
climb over the past six years out of economic stagnation.
It is a program for maintaining and extending those
gains by preserving the balance between our various demands
for goods and services, and our capacity to satisfy rising
demand that has been the unique, and the uniquely beneficial,
aspect of our economic growth over the past six years.
The economy has now come under special strains that
threaten that balance. These strains arise largely, although
not exclusively, from two sources: exuberant capital
expansion by business, and demands arising from our defense
of freedom in Vietnam.
I do not think that any of you here
today, faced with this problem would choose to curtail the
defense of freedom in order to let business plant and
equipment expansion go unchecked. Nor did President Johnson.
He asked the Congress to suspend temporarily special tax
incentives to business investment during the next sixteen
months.
Nor did the President stop there. He committed himself
to a strong program to reduce lower priority federal
expenditures, including an estimated cut of 10 percent -- or
approximately $3 billion, depending upon Congressional
action on remaining appropriation bills -- in that limited
portion of the Budget under direct Presidential control.

- 3 The President's program also pointed the way toward
balance in another important aspect of economic policy -the application of fiscal and monetary measures in balance,
whether in seeking stimulus or restraint.
In this connection,
he called upon the Federal Reserve Board, in executing its
policy of monetary restraint, and our large commercial banks,
to cooperate with the President and the Congress to lower
interest rates and to ease the inequitable burden of tight
money.
He called upon the whole economy, and all those
responsible for it, for restraint.
The President's program is designed to:
(1) Contribute to a restraint of inflationary
developments that are proving disruptive
of the financial markets and placing
excessive strain on the capital goods
industries.
(2) Promote a more sustainable rate of balanced
economic growth in the next sixteen months
and thereafter.
(3) Suspend special fiscal stimulants to
investment, and thereby support a policy
of monetary restraint without incurring
the burdens and without running the
risks of excessively tight money and high
interest rates.
(4) Complement other measures enacted by the
Congress or pending before it and being
undertaken through administrative action
to reduce upward pressures on interest
rates and minimize the discriminatory
impact of tight money and high interest
rates on the housing sector of the economy.
The strains on the economy at present show up in three
clearly discernable ways:
in the money and financial markets, excessive
demands for credit and monetary restraint
together have created severe tightness and a
sharp rise in interest rates, with highly
selective impact on several sectors,
particularly single family housing;

- 4 in the market for capital goods, the ever
mounting flow of new orders by business firms
coming on top of an unprecedented rate of
outlays for plant and equipment is generating
rising prices, rising wage rates and shortages
of some skilled labor, and is augmenting the
large demands for capital from banks and the
securities market;
the rising rate of government expenditures,
Federal, State and local, highlighted by
steadily expanding defense and public works
outlays is adding steadily to aggregate
demand at a high rate.
These three sources of pressure are interrelated and
reinforcing. Accelerating business spending breeds demands
for credit from banks and for financing in the capital market.
Higher Government spending also generates credit demands -by the Government itself, and by private firms which receive
Government orders and work on borrowed funns to fill new
contracts. And tight money itself causes additional
Government spending, particularly to help finance areas of
importa,lt economic activity such as homebuilding from
which the supply of private capital has been diverted.
The program contained in the President's Message is
designed to deal with all three pressure points.
This program is primarily economic and financial in
its objective and thrust.
It represents, I believe, ~he
most carefully chosen and prudent means, consistent with
preserving stable economic growth within the framework of
a free economy, to ease the strain of the pressures described.
Let me emphasize that the President's proposal to
suspend the investment tax credit and accelerated depreciation
for the next 16 months is not a tax reform proposal -- it is
temporary in design and purpose.
Let me emphasize also that it is not a revenue-raising
proposal in purpose or objective; any revenue aspects are
only incidental.
This proposal, and the entire program announced
September 8, is basically an anti-inflationary action.
designed to relieve the pressures, clearly observable ~n
the money markets and capital goods sector, which have
produced the highest interest rates in forty years, and a

- 5 perceptible trend toward a general condition of economic
instability.
Let me relate the tax aspects to the balance of the
President's anti-inflation program:
The proposed suspension of special incentives to undertake major programs of business investment should relieve the
credit market by moderating business needs for funds.
The President directed me to review all Federal security
sales and present them to the President for approval with the
objective of lessening the burden of Federal finance on the
markets. The President's memorandum to Federal Departments
and agencies of September 9, calling for careful and thorough
pruning of Federal lending and borrowing activities, should
reduce aggregate Federal credit demands on the private
marke t.
It has already been decided to cancel the sale of FNMA
participation certificates tentatively scheduled for
September, and to have no FNMA participation sale in the
market for the rest of 1966 unless market conditions improve.
Nor will there by any Export-Import Bank sale of participation
certificates in the market in the rest of this calendar
year. Market sales of Federal agency securities, meanwhile,
will be limited in the aggregate to an amount required to
replace maturing issues, while new money, to the extent
genuinely needed, will be raised through sales of agency
securities to Government investment accountsc
Another important ingredient of the President's program
is the legislation passed last week to give the bank
regulatory agencies and Federal Home Loan Bank flexible
authority to halt and hopefully reverse the harmful process
of excessive interest rate escalation in the field of
consumer savings.
The announced program for reducing Federal expenditures
for fiscal 1967 is yet another related measure to minimize
the drain of Federal financing on the credit market in
addition to reducing aggregate demand. The President has
made clear his firm determination to hold down all lower
priority expenditures by means of deferrals, stretching out
the pace of spending and otherwise reducing contracts, new
orders and commitments -- a policy and program with which I
have been actively and affirmatively concerned from the
initial preparation of the January Budget.

- 6 Of course, any precise description of the amount and
nature of the spending cuts must await action by the
Congress on the eight major appropriation bills still
pending before it. When Congress gives us the bills, we
will do the job of expenditure control.
Let me stress that we have been exercising a vigorous
control of Federal expenditures all along.
In the fiscal years, 1965, 1966, and as proposed by the
President in 1967, Federal budget expenditures -- including
in the latter years large amounts for Vietnam -- were
respectively, 14.8, 15.0, and 14.7 percent of our gross
national product. With the exception of 1958 and 1951,
these are the lowest percentages since 1942 -- a period
spaning 25 years, five Presidents, and a large growth in the
responsibilities of the Federal Government.
When President Johnson took office, the budget under
which he was operating, that for fiscal 1964, called for
$98.8 billion of expenditures. Three years later, exclusive
of the costs of Vietnam, his budget called for expenditures
of $102.3 billion -- an average increase of slightly over
$1 billion per year. And this increase in the total of
Federal outlays is much smaller than the added costs over
this period of Federal pay raises and increases in the public
debt alone.
In each of the fiscal years 1965 and 1966, the Federal
deficit was lower than the prior year.
The deficit in the
administrative budget in fiscal 1965 was $4.8 billion lower
than the year before, and $8.5 billion below the 1964
estimate prevailing when President Johnson took office.
In
1966, despite the added expenses of Vietnam, amounting to
$5.8 billion, the deficit was cut another $1.1 billion below
that of 1965, to $2.3 billion.
In fact, on a national income
and product account budget basis, favored by many economists
as the true measure of the stimulus or restraint of Federal
activities, the 1966 Budget was in surplus $1 billion.
The President announced on September 8 that he had directed
Federal agencies to defer, stretch out, and otherwise reduce
contracts, new orders, and commitments by $1.5 billion in
fiscal 1967. The total amount of the reductions which will
ultimately be required must await Congressional action on the
remaining authorization and appropriation bills. But,
as I indicated earlier, given our best estimates of likely

- 7 possibilities, we believe a total of at least $3 billion
below the final appropriations figures will be called for.
And we are prepared to make such reductions.
Since his anti-inflation program was announced the
President has begun implementation of his promise to seek
fUrther economies in government by issuing to the various
.departments and agencies a new six-point economy program.
For example, he has ordered a 25 percent cut in Federal overtime
pay.
Now I will turn to thE part of the President's
anti-inflation program that calls for temporary suspension
of the 7 percent investment tax credit for machinery and
equipment and of the option to elect accelerated depreciation
on buildings, for the period September 1, 1966, through
December 31, 1967.
As everyone here is probably well aware, I have been a
strong exponent of the investment credit, having worked
strenuously to secure its original enactment in the
Revenue Act of 1962, along with the administrative
liberalization of depreciation.
Our experience to date has justified the faith I had in
1961-2 in the efficacy of the investment credit, and my belief
that it should become a permanent part of our tax structure.
Since then industrial production has increased three times as
fast as in the previous decade, real business fixed investment
has increased nearly four times as fast, and our economic
growth generally has far surpassed its previous rate. This
remarkable achievement is not due solely to the investment
credit, but I firmly believe the investment credit has
contributed substantially to it. Moreover, looking to the
long-term future I am convinced that the encouragement provided
to business by the credit to modernize and expand its use of
capital equipment is essential to maintaining full employment
with stable prices, and to keep our industry competitive with
foreign goods. The President and his Administration fully
share these views.
It is therefore, as I am sure you understand, only with
considerable reluctance and after very careful study that we
reached the conclusion that suspension of the investment
credit is an appropriate measure at this time.
I stress
suspension -- and not repeal -- since the credit should be

- 8 regarded, as President Johnson's Message indicated, as an
essential and enduring part of our tax structure.
Not only do I regard the investment credit as a permanent
structural component of our tax system but also one that should
be suspended only in times of active hostilities at least on
a scale such as characterizes the present situation. Even
under such circumstances I would, as I have in the past made
clear, be chary of suspending the investment credit unless
the combination of a rapidly expanding civilian economy and
increasing and special defense needs made this course
compelling.
I am opposed to treating the investment credit
as a counter-cyclical device, to be suspended and restored
with the normal ups and downs in our economy.
The present situation is unique and was quite unforeseeable
when the credit was adopted and stress was put -- and
properly so -- on its permanent character. We then contemplated
a peacetime economy and thoughts of a country engaged in
hostilities on the present scale were far from our minds.
But hostilities can cut ruthlessly across many plans and
procedures designed to meet problems of a country at peace.
We are deeply committed to an extensive military operation in
Southeast Asia which shows no signs of early termination.
Its effects on our economy are clearly evident. We are also
confronted with a monetary situation of almost unparalleled
tightness, which is producing distortions in our economy and
the highest levels of interest rates in more than 40 years.
Early in the year when the question of suspending the
credit was raised in the Senate, we hoped that this change
in the law could be avoided.
In March the President
invited to the White House more than 100 chief executives
of companies which, together, are responsible for making a
large portion of business plant and equipment outlays. At
that dinner the President made a strong personal appeal to
those present to carefully review their investment plans
with the objective of screening out and setting aside for
deferral whatever projects and expenditures they possibly
could. Many of the executives did just that and wrote
letters to the President confirming their plans to moderate
their investment outlays.

- 9 Nevertheless, the level of investment in both plant and
equipment has remained too high under present circumstances and
it is taking place despite sharp increases in interest rates
paid by corporate borrowers which some thought would restrict
capital expenditures. Undoubtedly the increase would have been
larger without the influence of the President's appeal for
restraint.
This made clear the need for temporary suspension
of special investment incentives, accelerated depreciation
as well as the investment tax credit.
It would be dangerous to let the economy proceed on
its present course without a release from these pressures
that suspension of the investment credit and the companion
measure, accelerated depreciation on buildings, will help
accomplish along with the remainder of the program set forth
in the President's Message.
The unforeseeable escalation of Vietnam in mid-1965
gave a strong upward thrust to the demand on our resources.
In response, the policy of the Administration has been to
take fiscal steps designed to meet conditions as they
unfolded. This was exemplified in the Tax Adjustment Act
of 1966 which applied the degree of restraint that conditions
and prospects at that time required. Similarly, we are now
proposing another appropriate step again responsive to
prevailing conditions.
In view of the uncertainties with which
we still are confronted, we cannot offer blueprints for
future programs. The only prudent course is to maintain a
flexible, step-by-step approach which will maintain the stable
growth and prosperity of the last 5~ years, and in the
President's words, "pay for current expenditures out of current
revenues, as we are now doing."

000

TREASURY CC::PARTMENT

September 21, 1966

FOR IMMEDIATE RELEASE

September 29, 1966,
representing an
and to
amount of
to be f re€.ly

182-day bills, for $1,000,000,000, or thereabouts, to be dated
;eptember 29,1966, and to mature March 30, 1967.
The bills of both series will be issued on a discount basis under
and noncompetitive bidding as hereinafter provided, and at
naturity their face amount will be payable without interest. They
~111 be issued in bearer form only, and in denominations of $1,000,
~5,OOO, $10,000, $50,000,
$100,000, $500,000 and $1,000,000
(maturi ty value).
~ompetitive

Tenders will be received at Federal Reserve Banks and Branches
lP to the closing hour, one-thirty p.m., Eastern Daylight Saving
:ime, Monday, September 26, 1966.
Tenders will not be
~eceived at the Treasury De~artment, Washington.
Each tender must
)e 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,
iith 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
'orwarded in the spec 1al enve lopes whic h will be supplied by Federal
~eserve Banks or Branches on application therefor'.
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
lubmit tenders except for their own account. Tenders wIll be received
rithout deposit from incorporated banks and trust companies and from
'esponsible and recognized dealers in investment securities. Tenders
'rom others must be accompanied by payment of 2 percent of the face
lmount of Treasury bills applied for, unless the tenders are
ccompanied by an express guaranty of payment by an incorporated bank
r trust company.

F-627

- 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 Bank on September 29, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing September 29,1966. 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 t~
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 fro
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
4.

FOR IMMED IA TE RELEASE

TREASURY'S MONTHLY OFFERING OF 9-MONTH
AND ONE-YEAR BILLS
The Treasury Department, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $1,400,000,000,
or thereabouts, for cash and in exchange for Treasury bills maturing
September 30, 1966, in the amount of $1,000,499,000, as follows:
273-day bills (to maturity date) to be issued September 30, 1966,
in the amount of $500,000,000, or thereabouts, representing an
3dditional amount of bills dated June 30, 1966, and to mature June 30,
1967, originally issued in the amount of $1,001,443,000, the additional
:ind original bills to be freely interchangeable.
36S-day bills, for $900,000,000, or thereabouts, to be dated
,eptember 30, 1966, and to mature September 30, 1967.
The bills of both series will be issued on a discount basis under
~ompetitive and noncompetitive bidding as hereinafter provided, and at
naturity their face amount will be payable without interest. They will
)e issued in bearer form only, and in denominations of $1,000, $5,000,
310,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
:0 the closing hour, one-thirty p.m., Eastern Daylight Saving time,
Luesday, September 27, 1966. Tenders will not be received at the
Creasury Department, Washington. Each tender must be for an even
rultiple of $l,OOO,and in the case of competitive tenders the price
>ffered must be expressed on the basis of 100, with not more than three
lecimals, e.g., 99.925. Fractions may not be used. (Notwithstanding the
act that the one-year bills will run for 36S-days, the discount rate
ill be computed on a bank discount basis of 360 days, as is currently
he practice on all issues of Treasury bills.) It is urged that tenders
e made on the printed forms and forwarded in the special envelopes
hich will be supplied by Federal Reserve Banks or Branches on
pplication therefor.
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
ubmit tenders except for their own account. Tenders will be received
ithout deposit from incorporated banks and trust comp~n~es and from
esponsible and recognized dealers in investment secur1t1es. Tenders
rom others must be accompanied by payment of 2 percent of the face
F-628

- 2 amount of Treasury bills applied for, unless the tenders are accompan~d
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
,vi11 be made by the Treasury Department of "the amount and price range of
accepted bids. Those submitting tenders will be advised of the accep~ru
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 Ce final. Subject to these
reservations, noncompetitive tenders for each issue for $200,000 or less
\'Jithout 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 Bank on
September 30, 1966, in cash or other immediately available funds or in a
like face amount of Treasury bills maturing September 30, 1966. Cash ani
exchange tenders will receive equal treatment. Cash adjustments will be
made for differences be tween 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 IMMEDIATE RELEASE

September 21, 1966

SALE OF 9-MONTH AND 12-MONTH TREASURY BILlS

The Treasury Department announced today that $1.4 billion of Treasury
bills will be sold through competitive bidding on September 27 for payment
September 30.

The proceeds of the sale will be used to redeem the $1.0

billion of l2-month bills maturing

Septembe~

30 and raise $400 million of

additional cash.
The sale of $1.4 billion of bills will include $900 million of new
l2-month bills and $500 million additional bills maturing June 30,1967.
This reopening, as 9-month bills, of the l2-month bills sold in June 1966,
marks the start of a program to auction both 9-month and l2-month bills
each month.

By reopening the l2-month bills for additional sales, the plan is
expected to increase the marketability of the l2-month bill issues.

The

initiation of the program at this time will help to raise additional funds
in the months ahead, when Treasury borrowing needs in the market will bE
enlarged because of Government investment account purchases of Federal
agency securities, and because of the cancellation of the sale of participation certificates at this time, as announced by the Treasury on
September 10.
The Treasury also noted that its next major cash borrowing, probably
in the form of tax anticipation bills, is expected to be announced in early
October for payment after mid-October.

Further borrowing intentions, which

may involve bills or coupon-bearing issues, will be indicated as plans
become firm.

000

F-629

TREASURY DEPARTMENT

September 22, 1966

FOR IMMEDIATE RELEASE

ANTIDUMPING PROCEEDING ON
TETRAMETHYLTHIURAM DISULFIDE
AND ZINC DIETHYLDI'IHIOCARBAMATE

On June 20, 1966, the Commissioner of Customs received information
in proper form pursuant to the provisions of section 14.6(b) of the Cus-

toms Regulations indicating a possibility that Tetramethylthiuram Disulfide (TMTD) and Zinc Diet~ldithiocarbamate (ZDC) imported from the
Netherlands are being, or likely to be) sold at less than fair value
within the meaning of the Antidumping Act, 1921, as amended.

The informa-

t10n was submitted by Vanderbilt Export Corporation} New York, New York.
T.MTD is used as an ultra-accelerator for curing rubber manufactured

goods.

ZDC is used as an ultra-accelerator for curing rubber and latex

manufactured goods.
Having conducted a

smI!)nsr,y

investigation pursuant to section 14.6

(d)(l)(i) of the Customs Regulations and having determined on this basis
that there are grounds for so doing) the Bureau of Custom£ is instituting

an inquir,y pursuant to the provisions of section 14.6(d)(1)(ii), (2), and

(3) of the Customs Regulations to determine the validity of the information.

An "Ant idumping Proceeding Notice" to this effect is being published
in the Federal Register pursuant to section 14.6(d)(1)(i) of the Customs
Regulations.
Imports of the involved merchandise received during the period January 1,

1966, through July 31, 1966, were valued at approximateLY $71,000.

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
TREASURY ASSISTANT SECRETARY TRUE DAVIS NAMED U.S.
EXECUTIVE DIRECTOR OF THE INTER-AMERICAN DEVELOPMENT BANK

Secretary of the Treasury, Henry H. Fowler, today announced
the appointment of Assistant Secretary of the Treasury, True
Davis, as United States Executive Director of the InterAmerican Development Bank.
Mr. Davis, who will continue to serve as Assistant
Secretary of the Treasury, succeeds Tom Killefer who has
rejoined private industry in Detroit, Michigan.
"I am confident he will make a memorable contribution to
this young and vital institution for Inter-American
development and cooperation", Mr. Fawler said.
The Inter-American Development Bank was established in
1959 to contribute to the acceleration of economic development
of Latin American countries.
It has 20 members, including:
Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica,
Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti,
Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru,
United States, Uruguay and Venezuela.
Mr. Davis is one of seven Executive Directors of the
Inter-American Development Bank. The Executive Directors
serve three-year terms and are responsible for the conduct
of the operations of the Bank under the Board of Governors.
The Secretary of the Treasury is the United States
member of the Board of Governors.
Mr. Davis was born in St. Joseph, Missouri, December 23,
1919.
Before starting his business career, he attended
Cornell University. He entered the Navy in 1942, and
attained the rank of Lieutenant, Senior Grade, before being
discharged in 1945.

F-630

- 2 -

After a career as an executive in the Anchor Serum Company
of St. Joseph, Missouri, and a member of other companies,
Mr. Davis was appointed Ambassador to Switzerland in October,
1963. He served there until his appointment as Assistant
Secretary of the Treasury in September, 1965.
He is a member of the American Legion and the Veterans
of Foreign Wars, a former chairman of the VFW's Americanism
Committee, and publisher of VFJ's booklet Americanism vs.
Communism.
Before entering the diplomatic service, Mr. Davis
was chairman of the Department of Commerce Export Expansion
Council for the Kansas City region and a member of the
nuclear energy committee of the National Association of
Manufacturers. He was also a director of the Missouri State
Chamber of Commerce.
He is married to the former Virginia Bruce Motter of
St. Joseph, Missouri. They live (at 2860 Woodland Drive,N.W.)
in Washington, D. C. They have three sons.

000

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
SECRETARY FOWLER ANNOUNCES APPOINTMENT OF
JOHN R. PETTY AS DEPUTY ASSISTANT SECRETARY

Secretary of the Treasury Henry H. Fowler today
announced the appointment of John R. Petty, 36, as Deputy
Assistant Secretary of the Treasury for International Affairs.
Until his appointment, Mro Petty was a Vice President
of Chase Manhattan Bank in New York, and head of Chase
Manhattan's Worldwide Projects Management Division. He
will be principal assistant to Winthrop Knowlton, Assistant
Secretary of the Treasury for International Affairs. He
will assume his new duties immediately.
Mr. Petty has been with the Chase Manhattan Bank since
1953. He has worked in the international banking field since
1955. From 1958 to 1960 he was an Assistant Treasurer of
Chase Manhattan for Western Europe and Africa. Since then
he has served in the bank's Western European division, in its
Paris branch, and in New York.
Mr. Petty served in the U. S. Navy Pacific Fleet during
the Korean War, leaving service in 1953 as a Lieutenant, Junior
Grade.
Mr. Petty was graduated from Brown University in 1951.
He majored in international relations.
Mr. Petty worked on international studies from 1953 to
1961 in association with the Council on Foreign Relations.
He was a member of the National Export Expansion Council's
Action Committee on Export Financing and the Defense Industry
Advisory Council's Subcommittee on Military Exports.
He is married to the former H. Lee Mills.
three sons.
000

F-63l

They have

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE

Secretary of the Treasury Henry H. Fowler today
announced that the Treasury Department's Cost ReductionManagement Improvement Program saved almost $45 million
during fiscal 1966, ended June 30.
Savings and avoided costs for the fiscal year adding up
to $44,567,000 were described in a report from the Secretary
to President Johnson on Treasury actions under the program
to hold down the costs of government.
During the 20-year history of the program, savings of
approximately $270 million have been reported, of which
nearly $118 million, or 43 percent, have been in the past
three years.
The Treasury's 1966 savings totalled $5.5 million more
than the previous record of $39 million, achieved in fiscal
1965, and over $10 million more than the $34 million goal
established early last year.
Treasury actions also resulted in savings to other
Government agencies during fiscal 1966 totalling $650,000.
These are not included in the above figures.
Projected
savings of approximately $1 million will accrue to other
agencies during fiscal 1967 as a result of these activities.
The Treasury savings and cost-avoidance figures result
primarily from actions taken to reduce operating costs.
They do not include savings reSUlting from use of the new
clad metal alloys in the coinage.
000

F-632

TREASURY DEPARTMENT

FOR RELEASE P.M. NEWSPAPERS
MONDAY, OCTOBER 3, 1966

SECRET SERVICE REPORTS NEW HIGH IN COUNTERFEITING
Counterfeiting of U.S. currency reached a new high this
past year -- as did recoveries of counterfeits and arrests -Secret Service Director James J. Rowley said today. This was
disclosed in a report to David C. Acheson, Special Assistant
to the Secretary of the Treasury (for Enforcement) on the
activities of the Secret Service for the past fiscal year,
July 1, 1965 through June 30, 1966.
In recovering an all-time high of $9 million in counterfeit currency the Secret Service seized 90 percent of this
amount before it could reach the public. In addition, Mr. Rowley
noted that arrests for counterfeiting crimes also reached a
record high of 866.
"There is no indication that this criminal activity
will lessen in the corning year," said Director Rowley. "The
ease with which large amounts of counterfeit currency can be
produced by technicians with limited capability is largely
responsible for the unprecedented amount of counterfeit currency.
The Report also showed that forgeries of Government
checks and bonds continues to be a major enforcement responsibility for the Secret Service. During the past fiscal
year the Service investigated nearly 50,000 of these forgery
cases, involving more than $5 million and 2,691 persons were
arrested for these crimes.
The Report to Mr. Acheson said that "The protection of
the First Family, Vice President, former Presidents, their
Wives, and the Widow and Minor Children of the late President
Kennedy continued to be the primary responsibility of the
Service. Investigations in the interest of our protective
responsibilities continued to receive priority attention."
The Report illustrated Secret Service activities with
highlights of a few counterfeiting and forgery cases. It
credited local, state and other law enforcement agencies and
citizens for their part in aiding the Secret Service in its
responsibilities.
The Secret Service yearly Report is attached.
F-633
aQo

SECRET SERVICE ANNUAL REPORT
Fiscal Year Ended June 30, 1966

During FY1966 the Secret Service recovered an all-time
high of $9 million in counterfeit currency. Ninety percent
of this amount was seized before it could be passed on to the
public. Arrests for counterfeiting violations also reached
a new high of 866. Thirty-six plants for the manufacture of
counterfeit money were seized.
There is no indication that this criminal activity will
lessen in the coming year.
The ease with which large amounts
of counterfeit currency can be produced by technicians with
limited capability is largely responsible for the unprecedented
amount of counterfeit currency.
Further, the rise in counterfeiting activity generally
follows the rise in the affluence of the country and with the
increase in the amount of currency in circulation.
Though the quality of the counterfeit has not improved,
its sheer volume and wide distribution will require additional
coverage in some areas of the country not heretofore seriously
affected by counterfeiting operations.
The following are summaries which illustrate the type and
scope of counterfeiting activities during FY1966.
In July 1964 a known Boston criminal and his associates
became acquainted with a notorious morals offender who owned
a small printing shop in an isolated area in central New Jersey.
This printer had previously been a co-defendant in a wellpublicized obscenity case in the District of Columbia and had
since retreated to this remote New Jersey horne.
Using printing supplies purchased in the New York CityNewark area by the Boston group, the printer manufactured
nearly a quarter of a million dollars in counterfeit $5, $10
and $20 Federal Reserve Notes which were returned to Boston
for distribution. Approximately $40,000 in these notes were
passed in the Massachusetts area during the following months.

- 2 -

By July 1965 the Secret Service had arrested 46 persons
for handling these notes, including the printer. The plant was
seized, together with $150,000 in the counterfeit notes.
Subsequently, on February 11, 1966, four new issues of
counterfeit $10 and $20 Federal Reserve Notes appeared in the
New York City-Newark area. Several passers were arrested and
it soon became apparent that the counterfeiting plant was operated by the same New Jersey morals offender who was then free
on bond awaiting trial on the previous counterfeiting arrest.
Agents located the plant in a residence in Camden, New
Jersey, during the early morning hours on February 17. They
captured one-half million dollars in uncut sheets of the notes
which one of the counterfeiters was trying to destroy.
The defendants in the second arrest, involving the printer,
an associate and several passers, were brought to trial in New
York City and all were convicted. The printer is now serving
a five-year sentence for producing the second group of notes
while still awaiting disposition of the first case in New
Jersey.

******
A new counterfeit $20 Federal Reserve Note appeared
March 27, 1962, in the bank deposit of a Bismarck, North Dakota,
auto parts distributor. The businessman could not recall who
had passed the note in his store. Several others of this type
counterfeit were also passed in the area by an unknown passer.
The Secret Service had no leads to the source of these notes.
Further, the counterfeits stopped appearing.
After almost four years, the man who made these counterfeits decided to try his luck once more at passing the notes.
He went to a social affair in Bismarck and passed two of the
counterfeits, bearing identical serial numbers, in the purchase
of tickets to be used at the beer counter. Since these were the
only two $20 notes accepted by the ticket seller during the entire evening, the counterfeiter was identified and quickly arrested.

- 3 He was cooperative following his arrest and told Agents
he had made the counterfeits during the latter part of 1961
at a local printing shop in which he was employed. He took
Agents to his home where the plates, negatives and over $10,000
in the counterfeits were recovered. He had been successful in
passing only five notes during the four-year period.

Florida produced a counterfeiting plant which specialized
in an extremely high volume but a "minus" net profit.
In November 1965, nine new issue counterfeit $20 Federal
Reserve Notes were passed in Dublin, Georgia. Although we
could not identify the passer, we did develop information tracing the counterfeits to the owner of a correspondence school
in Lakeland, Florida, and we concentrated our investigation on
this individual.
Agents arrested the school owner and his accomplice at
Lakeland, Florida. They found $750,000 in counterfeit notes,
the press and other paraphernalia used to manufacture the notes
at their residence. A search of their garage disclosed an additional one million dollars in the counterfeits.
Although the counterfeiter told Agents he had been unable
to transfer any of the notes to underworld contacts, we later
arrested two ex-convicts in Georgia for passing the notes. They
admitted receiving about $25,000 in the counterfeits from the
Florida man through a mutual acquaintance, and the counterfeiter had never received any payment for the notes and had
operated entirely without a profit during this venture.
He is now serving a five-year sentence.

On a balmy day in February, roofing contractors installing

a new roof on a dwelling in North Miami, Florida, noticed certain
pieces of paper coming from a chimney of a nearby residence.
Upon closer inspection they found the papers to be portions of
what appeared to be currency. The roofers took the currency to
a local banker who called our Agents to examine the notes.
The
notes were counterfeit and of an issue not previously known to
the Sprv;ce.

- 4 Agents obtained a search warrant and proceeded to the
suspect's house where they found a Cuban National and his
family with a complete currency counterfeiting plant. He had
attempted to manufacture counterfeit $1, $5 and $10 notes to
supplement his earnings at a local photo-finishing firm.
However, before passing any of the notes, he decided to destroy
them by burning them in his fireplace.
He is presently awaiting
trial.

********
On July 28, 1965, a British attorney residing in Lausanne,
Switzerland, passed fifty-eight new counterfeit $100 Federal
Reserve Notes at four different banks in Geneva. He was arrested that date and Swiss authorities seized $380,000 in these
counterfeits which he had hidden in his car and office.
The subsequent investigation was conducted by our Paris,
New York and Los Angeles Offices in cooperation with Swiss
authorities.
The investigation disclosed that the attorney
had been involved with another British subject on various
financial enterprises.
In July 1965 the attorney was in serious
financial difficulty.
He requested assistance from his British
business acquaintance who was then temporarily residing in the
United States. He assisted him by sending one-half million
dollars in counterfeit United States currency on July 27, 1965,
through a courier.
Following the attorney's arrest, the investigation led to
the courier, then to the attorney's British acquaintance and
to several other United States citizens.
The Englishman and two of his American associates were convicted in Federal Court in Los Angeles.
The prosecution of the
attorney is being handled by Swiss authorities.

********
The table on the next page summarizes receipts of counterfeit money during Fiscal Years 1965-1966.

- 5 -

COUNTERFEIT MONEY RECEIVED -- FISCAL YEARS 1965 AND 1966

Receipts of Counterfeit
Notes and Coins

1965

1966

Counterfeit Money Received
in the United States
Loss to the Public
Seized before Circulation
Total

846,213.30

962,060.99

2,517,596.27

8,098,417.35

$3,363,809.57

$9,060,478.34

Forged Government check cases investigated during the past
fiscal year numbered 42,545, involving an amount of almost
$4.5 million. A total of 2,618 persons were arrested for Government check violations.
The Secret Service also investigated 7,361 cases involving
the forgery and fraudulent negotiation of United States Savings
Bonds having a maturity value of nearly $750,000 and arrested
73 persons for this crime.
The following brief summaries are representative of the
cases involving criminals engaged in the forgery of checks and
bonds.
From March 1965 to November 1965, two men stole, forged and
cashed U. S. Treasurers checks from Virginia to Southern Florida.
They were arrested for these offenses on November 9, 1965, at
Daytona Beach, Florida.
During the period of their operations, these two men stole
over 200 U. S. Treasurers checks amounting to approximately
$20,000. One hundred and seventy-four of these checks were forged
and cashed. Thirty-one of the stolen checks were recovered from
an automobile belonging to one of the forgers.

- 6 -

Almost without exception these men obtained the checks
involved by burglarizing many different Post Offices.
The principal forger and negotiator of the checks was sentenced at Jacksonville, Florida, to serve thirteen years.
The
other is serving a sentence of seven years.

******
A woman forger was arrested July 16, 1965, in Dallas, Texas,
for the forgery and negotiation of U. S. Treasurers checks. At
the time of her arrest she surrendered over $9,500 in cash and
61 U. S. Treasurers checks she had stolen involving an amount
of over $3,500.
For several months prior to her arrest, she had traveled
extensively and had forged and cashed about 100 stolen U. S.
Treasurers checks in San Francisco, Los Angeles, Sacramento,
Reno, Kansas City, St. Louis, Detroit, Chicago, Houston, EI Paso,
Fort Worth and Dallas.
During the period of these violations she was on bond in
connection with two previous arrests for similar offenses involving approximately 90 checks in the New York City area.
During
one of these two previous arrests, she violently resisted being
taken into custody and in the ensuing scuffle both she and a
Special Agent went through a large plate glass window before
she was subdued.
She was prosecuted in Federal Court in Dallas, Texas, on
October 7, 1965, and was sentenced to serve fifteen years.
Almost without exception this forger victimized banks in
her forgery violations.

******
A woman was arrested January 28, 1966, in a bank in Buffalo,
New York, while in the act of forging 20 Savings Bonds totaling
$1,775.
Her supplier of the bonds, a man, was arrested outside
the bank while waiting her return to the car.

- 7 -

Their forgery activities began in May of 1965 when she
forged and cashed 48 bonds totaling $1,200.
They resumed their
activities in August of 1965. During the following six months,
they cashed at numerous banks in Michigan and New York, 307 bonds
stolen from Nebraska, Ohio, Indiana and New York, totaling nearly
$60,000.
The man entered a plea of guilty and was sentenced to four
years. After he entered his plea he surrendered through his
attorney 659 stolen bonds totaling $54,400. The woman also
entered a plea of guilty and was sentenced to four years, suspended, and placed on probation for four years.

Offenses investigated by the Secret Service resulted in
the conviction of 3,502 persons -- 97.7 percent of the cases
brought to trial durin~ the fi8cal year.
The incidence of crime over which the Secret Service has
investigative jurisdiction remains generally consistent with
the nationwide crime trend.
The protection of the Fi.rst Family, Vice President, former
Presidents, their wives, and the widow and minor children of
the late President Kennedy continued to be the primary responsibility of the Service.
The protective responsibilities of the Secret Service were
extended by law September 15, 1965, as follows:
"Protect the
person of a former President and his wife during his lifetime
and the person of a widow and minor children of a former President for a period of four years after he leaves or dies in
office, unless such protection is declined. 1f
Investigation in the interest of our protective responsibilities continued to receive priority attention.
We have continued to receive excellent assistance from
local, state and other federal law enforcement agencies in our
protective and investigative responsibilities.
Interested citizens
have also aided greatly by furnishing us with information important to our effective operation.

TREASURY DEPARTMENT
(

6:30 P.M.,

~J September 26, 1966
RESUVrS OF TREASURY 1 S WEEKLY BJLL OFFERING

The Treasury Department anno'Wlced that the tenders for two series of Trea.sury
Ls, one series to be an additional issue of the bills dated June 30, 1966, and
other series to be dated September 29, 1966, which were offered on September 21,
S, were opened at the Federal Reserve Banks today. Tenders were invited for
300,000,000, or thereabouts, of 91-d~ bills and for $1,000,000,000, or thereIts, of lS2-d~.y bills.

bills
maturin~ December 29,2 1966
Approx. Equiv 0
Price
Annual Rate
91-d~ Treasu~~

}E OF ACCEPTED
'ETITIVE BIDS:

High

9~.615

Low

98.605
9b.609

Average

5.1179%
5. 519,~
S.1)03;

•.
•
••
••
•
:
:

182-day Treasury bills
maturin~ March )0-2 1967

Approx. Equivo

l:/

Price

Annual ?.ate

97.078
97 .. 057
97.066

5.821%

5.78~
So804~~

21:% of the amount of 91-ciay bills bid fol' at the low price was accepted

63% of the amount of

le2-d~

bills bid for atthe low price was accepted

L TENDERS APPLIED FOR AND ACCEPrE:D BY nDERAL RESERVE DISTRICTS:

istriet
oston
ew York
'liladelphia
leveland
lchmond

ilanta
Iicago
i.

Louis

.nneapol1s
nsas City
J.las
n Francisco
TOl'ALS

AEI~1ied

·il

For

37,965,000
2,037,717,000
31,679,000
36,63[,000
13,764,000
3(:;,89G,OOO
357, :~65 ,000
66,]16,000
1B,377,00O
29, 1 :~,O , ~)OO
27,179,O00
293, )1G,3 , 000

AcceEted
9,22(',000
<P
;}30,568,000
13, l)Ol, 000
24,286,000
12,974,000
10,110,000
66,227,000
53,90(,,000
8,877,000
22,917,000
11,)29,000
l30,195,000
,'-.

$2,989,b9(.,OOO ~1,J02,540,ooo

·••
·••
s

••
••

Applied For

1,514,034,000
17,820,000
40,542,000
16,154,000

·
·
·:

35,653,000

•
•
:
•

345,820,000
57,866,000
16,56),000
21,372,,000

245,011,000

Acce~ted

25,263,000 $

14,L77,OOO

7,1187,000
668,284,000
7,L,)8,OOO
26,580,000
8,.344,000
13,008,000
16),194,000
39,266,000
7,613,000
18,815,000
9,127,000
30,965,000

$2,350,575,000 $1,000,121,000

elUdes 'j2;)tJ,le4,Ooo noncompetitive tenders accepted at the average price of 96.609
eludes $206,110,000 noncompetitive tenders accepted at the average price of 97.066
~se rates are on a bank disco'Wlt basis co The equivalent coupon issue yields are
)6, ~ for the 91-day bills, and 6.06,;; for the 182-day bills.
F-634

TREASURY DEPARTMENT

6: 30 P.M ... ,
J9scisy, September 27, 19[,6.

)R RELF..ASE

qESULTS OF TREASURY'S HONTHLY BILL OFFERING

The Treasury Department announced that the tenders for two series of Treasury
Llls, one series to be an additional.. issue of the bills dated June 30, 1966, and
18 other series to he datp.d September 30, 1966, which were off"ered on Sept.ember 21,
~6, were opened at the Federal Reserve Banks today.
Tenders were invited :tor
;00,000,000, or thereabouts, of 273-d~ bills and for $900,000,000, or thereabouts,
~ 365-day bills.
The details of the two series are as follows I
~GE

273-da~r Trea8ury bills
maturing June )0, 1966

OF ACCEPTED
MPETITIVE BIDS:

Approx. Equiv.
Price

High
Low

95.629 a/
95.564 -

Average

9l~
,

Annual Rate

S.76L:h

5.8Sa,:;
r:' P
".).
07,. 1/

,~\-,i"
•

:
:

365-day

Treasury bills
maturing Seftember 301 1967

Approxo Equiv.

·:•

Price

94.156

Annual Rate
5.764~
5.84S~

94.074 94.113

5.806,; y'

a/ .sxcepting 3 tencier0 totaling .$3,uOS,000; h/ ;':;xcepting 1 tender of ·;>5,300,000
"67:', of the amount of 273-day bills bid for at-the low price was accepted
13;~ of the amount of' )55-day bills bid for at the low price was accepted
TAL TENDERS APPLIED F'(J;{

District

f3oston
New York
Philadelphia
Cleveland
Richmond

ACCEPTED BY FEDERAL RESERVE DISTRICTS:

Appl.ip_1.::«Jr
u.,eil,OOO
$
78<- 109 \fi..JO
11,720,000
~

Accepted
.j)

3,475,000 :

2,177,000 ••
6,890,000 s
49l l86 aOOO I

6,890,000
63 1 836 1 000
$

9B4,t)M,OOO

AcceEted

6,638,000
649,459,000
3,071,000
15,033,000
6,826,000
11,559,000
89,135,000
15,588,000
9,547,000
5,389,000
7,637,000
79 z E2.3.t 0OO

900,005,000

3LL,120,OOO s
16,201,000 ••

18,201,000
3,h75,OOO
2,177,0C>0

Kansas City
Dallas
San Francisco

16,638,000
·• 4> 1,081,899,000

7h, 320, 000

St. Louis
Minneapolis

•• AEplied For

720,000 :
7,1.36,000 •
1,902,(X)() :
2,221,000 I

10,3'31,000

Chicago

4,871,000
36 8,509.000

f" 7 ,:) ~ , (,JOO
1,902,000

Atlanta

TOTALS

~ND

11,071,000
20, 06 3,000
6,826,000
18,559,000
149,135,000
le,888,OOO
9,547,000
5,389,000
7,637,000
127z073z000

5cx::,,(~08,OOO s/.n,'u72, 725,000

InclUdes ~28,206,o()()
noncompetitive tenders accepted at the average price of 95.596
Includes $66,166,c)l)O
noncompetitive tenders accepted at the average price or 94.113
These rates are on a bank discount basis. The equivalent coupon issue yields are
6.10% for the 273-oa'y bills, and 6.16Uor the 365-day billa.

F-635

TREASURY DEPARTMENT
Washington

FOR USE UPON DELIVERY
REMARKS OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY OF THE UNITED STATES
AND
UNITED STATES GOVERNOR OF THE INTERNATIONAL MONETARY FUND
BEFORE THE
ANNUAL MEETING OF THE INTERNATIONAL MONETARY FUND,
SHERATON PARK HOTEL, WASHINGTON, D.C.
WEDNESDAY, SEPTEMBER 28, 1966,PIT 11:00 A.M., EDT
STEPS TOWARD A MORE RATIONAL WORLD ECONOMIC ORDER
Introduction
I give you my country's heartiest welcome as we meet
together again to consider the vital work of the
International Monetary Fund. We are honored by your presence.
In their 1966 Annual Report, the Executive Directors report
on the strengthening of the Fund in the past year. The Fund's
resources have now been raised to over $20 billion as the
result of global and selective increases in quotas. During
the past year, a decision was made to renew the General
Arrangements to Borrow. These Arrangements have again been
utilized for the special purposes for which they were designed
and have helped the Fund meet record drawing requirements by
its members.
The United States fully supports the recent decision of
the Executive Directors to improve the Fund's special
Compensatory Financing facility, underVl,hich drawings may be
made to meet shortfalls in export earnings.
But our focus at these Annual Meetings must be on meeting
future challenges rather than past accomplishments.
When I spoke to you upon this same occasion last year, I
closed with a plea that we lift our eyes from our daily tasks
long enough to catch sight of the broad outlines of what we
Who are associated in the International Monetary Fund are
seeking to create: a world monetary structure strong enough,

F-636

- 2 -

flexible enough, and with growth potentials adequate to be
building of a Greater Society of Nations.
This vision of a Greater Society of Nations places three
principal requirements upon us in the year ahead:
First, it calls for acceptance of a wider, deeper, more
generally shared effort in the field of international
economic development -- to fill the crucial finance gap -- the
difference between the capital available to all of us and the
capacity of the developing countries to use increasing amounts
of capital effectively and productively -- so eloquently
expressed by President Woods in his notable address earlier
in this Mee ting .
In his February 1 Message to Congress on Foreign Aid,
President Johnson, anticipating this call, clearly stated the
position of the United States saying:

"I propose that the United States
in ways consistent with its balance of
payments policy -- increase its
contributions to multi-lateral lending
institutions, particularly the International
Development Association. These increases
will be conditional upon appropriate rises
in contributions from other members. We
are prepared immediately to support negotiations
leading to agreements of this nature for
submission to the Congress. We urge other
advanced nations to join us in supporting this
work. "
I have already made proposals to this end in a speech
at Granada, Spain earlier this year and my colleague,
Secretary George Ball, will develop this topic in his address.
Second, the vision of a Greater Society of Nations calls
for the successful negotiation in the year ahead of a specific
contingency plan for improved and expanded international
monetary arrangements -- arrangements with more depth, more
span, and more flexibility, arrangements that would build into
our international monetary system a means to provide world
liquidity consonant with the world's ability to use reserves
constructively.
I shall expand on this point later.

- 3 Third, the vision of a Greater Society of Nations
summons us to tasks of national and international cooperation
and development so far-reaching that they require the full
and efficient use of our human talent and our material
resources. We are facing a period in the world's history
when the numerous and pressing demands for both national
effort and international economic cooperation will reach new
heights.
The United States regards the year ahead as a hinge
for opening the door to a better future, as the strong
nations, the old and the emerging, seize their joint
opportunities to deal constructively with their joint problems,
without being haunted by the past or confounded by the present.
I commend for your consideration the sense of urgency and
analysis so well expressed in a Report issued within the
month by the Subcommittee on International Exchange and
payments of the Joint Economic Committee of the Congress of
the United States. This Report is entitled "Twenty Years
After: An Appeal for the Renewal of International Economic
Cooperation on a Grand Scale. lI
Without passing upon the particular procedures proposed
in that Report, there can be no question concerning the
rightness of the emphasis and '.lrgency expressed in the
following words:
"The world is in trouble -- deep
trouble -- in at least five different areas
of economic negotiation and policy: trade;
aid to less developed countries; maintaining
a balance in international payments;
international monetary reform; and maintenance
of stable price levels in economies marked by
full employment and rapid economic growth."
We in the United States are proud of our initiative3
and national contribution in the last twenty years in these
areas. We believe their spirit, their motivation and their
scale serve to give a measure of what must exemplify the
role, not just of the United States, but of other nations
individually as they regain and achieve strength and stature,
and of our family of free nations all together, if
international economic and financial cooperation is to assume
ever greater dimensions that are required for the last half of
this century.

- 4 We call upon nations -- those that are now strong and those
that are rapidly emerging -- to join us in a renewed effort that
will make the year ahead a notable beginning.
Let us. consider some of the specific ways in which
we may move toward a better world economy.

Strengthening the Adjustment Process

I call your attention to the Report of Working Party
Three of the Organization for Economic Cooperation and
Development, and to the discussion in the Report of the
Deputies of the Group of Ten countries of the need for
improvement in our adjustment process, and the concern
of the International Monetary Fund with the effective
operation of the adjustment mechanism.
Each of these reports recognizes that the adjustment
process needs to be improved and that the responsibility for
adjustment should fall upon both deficit and surplus
countries.
Deficit countries must make full efforts to balance their
payments positions through appropriate policy mixes -depending primarily upon fiscal and monetary policy to achieve
sustainable equilibrium. Surplus countries must employ their
surpluses or hold them in forms that are consonant with the
international interest, taking measures which will permit the
adjustment policies adopted by deficit countries to work.
It is neither the course of national economic wisdom nor
of international cooperation for surplus countries to use their
capital markets as instruments for the accumulation of gold
and other reserves beyond their needs. Rather they should
liberalize them -- to facilitate capital export and for the
finance of increased development assistance through the
international institutions such as the World Bank and its
sister banks.
Should this not be done by the surplus countrie: ~nd shoul~
they not also liberalize trade restrictions, the def1c1: ~ou~tr1es
after making appropriate use of policies to achieve equlllbrlu~ -may be forced, in the event such policies are not fully effect1ve,

- 5 to adopt either overly severe domestic measures or to apply
unduly restrictive trade, capital and assistance policies.
These are not only difficult choices -- they hurt the world
economy.
Let us apply these principles of adjustment to the
problem of development finance. However excellent
our development assistance intentions, our ability to
realize them will be lessened if due attention is not paid
to the need to finance assistance in ways that are
consistent with balance of payments positions.
In considering the extension of resources by the
industrialized countries to the developing countries, there
is a tendency to think of the donors as surplus
countries and the recipients as deficit countries. This is
not always the case. Among the capital exporting countries
there are countries with balance of payments deficits and
countries with balance of payments surpluses. Further, these
positions change from time to time.
It should remain clear that the amount of assistance
extended by donor countries should be determined by their
capacities to give assistance. However, in seeking to
increase these amounts to meet the growing needs of the
developing countries, the balance of payments positions of
,particular donor countries must be taken into account.
The most desirable way to reconcile these objectives
would be for donor countries with balance of payments surpluses
to reduce or eliminate any requirements that the financing
which they provide be linked to procurement in their markets.
In extreme cases, surplus countries might even require that
their financing be used for procurement in other countries.
Surplus countries might also take steps to enlarge greatly
the access of international lending institutions to their
domestic capital markets.
Deficit donor countries have to safeguard their balance
of payments positions while continuing to.ext:nd amo~nts.o:
assistance commensurate with the broad cr~ter~a of a~d-g~v~ng.
It should be possible for us to devise imaginative metho~s to
achieve this dual objective of increased aid and protec~~on o~
balance of payments, and to this end we would welc~me d~scuss~on
among donor countries and with the international f~nanc~al
institutions.

- 6 -

Rationalizing Capital Outflows
The Recommendations of a Task Force of the U.S.
Government that I was privileged to head in 1963 included
the following:
"The (United States) should, through
appropriate international bodies,
particularly the OECD, advocate the
step-by-step relaxation of monetary,
legal, institutional, and administrative
restrictions on capital movements,
together with other actions designed to
increase the breadth and efficiency of
Free World capital markets."

Unfortunately, so little progress has thus far been
made in this area that the United States is forced to ask
American banks and corporations to restrict their foreign
investment.
We still find among the most highly developed countries
of the world a wide-spread desire to run current account
surpluses although these same countries are not prepared to
supply capital net to the world on the scale that is
required to finance these export surpluses. Many of the
problems we face arise from this simple fact.
We expect that the DECO will issue shortly a blueprint
for progress in improving capital markets abroad. We are also
confident that, once the way is pointed, the OEeD will
establish procedures to assist in the translation of plans
into action. We can look forward to a meaningful improvement
in foreign capital markets that in turn will reduce the
need for restraining measures on our part to guard against overdependence upon U. S. capital.
Coordinating National with International Policy
It is the responsibility of every nation so to conduct
its internal affairs as to avoid weakening the international
economic fabric upon which, in the end, we depend for our
maximum individual and collective growth. The United States
is keenly aware that it is particularly incumbent upon a
reserve currency country to keep its economy in good balance
so that its currency should be a dependable store of value
in the reserves of other nations.

- 7 As you know, a year ago I was able to report a very
satisfying trend of improvement in the balance of payments
accounts of the United States.
But this year we have not
been able to make a further improvement. To a very large
extent the cause of our continued deficit is extraordinary
and temporary:
our heavy involvement in the defense of
freedom in Vietnam has directly increased our foreign
exchange costs for military expenditures in the Far East
by nearly $1 billion. This does not take account of the
indirect consequences reflected in the rapid rate of increase
in imports which has diminished the trade surplus.
In the past year sharp increases in demand, to a considerable
extent also attributable to our involvement in Vietnam, have
brought under attack the fine degree of balance among various
elements of our economy that was maintained in the United
States through most of the nearly six years of rapid economic
growth we have enjoyed.
Consequently, earlier this month President Johnson announced
a program intended to contribute to restoring that balance in
the United States economy.
With this program the United States Government took a
further step in a step-by-step use of fiscal and monetary
weapons during the past year to deal with inflationary
excesses in our economy, as and where they have appeared.
Working Party Three cited the need for the more active
use of fiscal policy as a counter-cyclical weapon.
In his
Message to the Congress of September 8, President Johnson
pointed out that when caution signs became visible early in
1966, the United States Administration and the Congress acted
promptly through a series of five fiscal measures taking
$10 billion of excess purchasing power out of the economy
during this calendar year.
The President also pointed out that responsible fiscal
policy demanded tight control of Federal expenditures, and
that this has been exercised, through a Budget policy that,
on a national income basis -- the best measure of economic
impact -- was designed to show an overall surplus of about
$1 billion, and that in the first half of 1966 actually ran
at an annual rate of $3 billion surplus. Speaking on
September 8, the President could say that since January 1,
the Government has taken in more than it spent.

- 8 The President has placed before the Congress further
fiscal recommendations:
suspension for 16 months of special
tax incentives to business plant and equipment investment.
And he has undertaken a further wide range of actions to
reduce Federal outlays, including a promise to cut actual
spending far below what has been authorized by the Congress
where authorizationsex:ceed the Fiscal 1967 Budget.
The Working Party Three recommendations called also for
further improvement in the implementation of general monetary
policy.
In the United States, monetary policy has been used
actively during the past year to dampen excess spending by
restricting the availability of credit in the face of a
strong surge in demands for credit.
In the process,
interest rates have risen to heights unprecedented for
40 years. All the instruments of general monetary policy
opel
market operations, reserve requirement changes and discount
policy -- have been used during the past year and, mostrecently there have been innovations in their use.
We have also been making
selective use of both
fiscal and monetary weapons as the Adjustment Process Report
likewise recommended. When the danger of excess demand
first appeared early this year, we took both monetary and
fiscal actions designed to restrain general demand. Now that
excess activity has become centered in the area of business
investment, the President has asked the Congress to enact
selective restraints in that area, by suspending special
tax incentives to investment. Meanwhile, the Federal Reserve
has adapted its discount administration so as to intensify
the pressure on banks to dampen loans to finance business
investment spending. And because excessive competition for
savings among financial institutions was having disproportionate effects on some sectors of the economy, we
developed and won Congressional approval for additional
authority by the regulatory agencies over interest rates
permissible for different types of deposits.
We expect this wide ranging, varied and flexible
mix of measures to exert effective control upon demand in
the United States such as the Fund Report for this year
suggests would be desirable. We also expect it to
succeed, because of the careful selection and the variety of
instruments used, without bringing about a harmful deflation.

- 9 At the same time, President Johnson recently declared
to the Congress:
"Decisions made elsewhere will influence
our defense needs in Vietnam.
Because we
cannot control or predict these outcomes, we
cannot blueprint our fiscal measures in the
months ahead.
But should additional fiscal
measures be required to preserve price stability
and maintain sound fiscal policies, I will
recommend them."

Improving the World System of
Financial and Economic Cooperation
One of the critically important areas in which we can
and should be moving currently toward a more rational world
economy lies in improvements that can be made in the world
system of financial cooperation.
At the center of this system lies the International
Monetary Fund and the truly remarkable network of
institutions and arrangements that has been developed to
work with or alongside the Fund in the task of
international economic problem solving.
One of these is the "General Arrangements to Borrow."
Another is the cooperative network of reciprocal swap
facilities developed by the United States and a number of
other countries that has recently been enlarged to a total
of $4.5 billion.
There is less certainty that we have made progress in
the field of the composition of reserves. Rising gold
ratios, at a time when supplies of new monetary gold are
limited, weaken rather than reinforce the system.
The improvements to date in the international monetary
system that serves the nations gathered here have been on
the whole defensive.
What is needed now is a positive advance: a widening
of the financial channels running between our nations,
deepening of them so that they can carry greater loads,
and extension of them so that they reach more directly into
all our lands.

- 10 For several years and in several international forums
we have been intensely occupied with world trading arrangements
in recognition of the necessity of expanding the volume and
improving the flow of world commerce and, particularly, of
increasing the participation of the developing countries in
this commerce.
In the Kennedy Round of the GATT trade
negotiations, we have now entered the crucial phase of
activity.
Another aspect of the future will be a different payments
situation from the one that has prevailed in the past two
decades, when the world's reserves have grown chiefly due
to United States payments deficits.
It is these deficits, chiefly, that have provided
successively to a number of countries the reserves which
have given them the courage to liberalize their trade
restrictions and have thus in a sense floated the great
increase in world trade that has taken place in recent years.
There is a realization that the world cannot look to continued
U. S. payments deficits to supply reserves in the future on
the scale that they have in the past, without unacceptable
risks to the stability of the international monetary system.
So we are moving towards equilibrium in our payments as fast
as the unusual and temporary foreign exchange costs of the
war in Vietnam will permit.
Such large reductions in reserves as have occurred have
affected the reserve currency countries and those countries
that had unusually high reserves at the end of World War II.
That is, where reserves were too concentrated at that time,
they have been redistributed.
But, that process -- having
taken place -- cannot be expected to continue under normal
conditions -- and further dispersion at the expense of the
reserve currencies does not strengthen the monetary system
as a whole.
We must also keep in mind the fact that changes are
taking place that are greatly increasing demand for goods
and services. For example, the world population is expanding
at a startling rate. The world's ability to produce and
transport is rising exponentially, due to leaping growth in
our technological and scientific capabilities.
Many more people, wanting many more goods and services,
and increasingly able to earn them will require a very
substantial rise in the world's needs for reserves. While we
must not make the mistake of confusing money, the lubricant,
with incomes which provide the fuel for the whole economic
machine, it is equally unwise not to give proper care to an
adequ~te supply and uso of lubricant.

- 11 We must not let it be said that we were the generation
of finance
ministers who insisted that new mountains of the
world's products could be carried to untold new millions of
the world's people waiting and eager for them, on an economic
machine which we refused to lubricate adequately.
On July la, 1965, I announced that the United States

stood ready to attend and participate in an international
monetary conference that would consider what steps we might
jointly take to secure substantial improvements in international
monetary arrangements.
Progress in the direction of better monetary arrangements,
including assurance of adequate reserves in the future, is our
decided purpose. With each passing month our determination
to move in that direction has increased. The Report of the
Deputies of the Group of Ten submitted this summer, the
action of the Ministers and Governors at The Hague on
July 28, the address of Managing Director Schweitzer
of the Fund, and the expressions of Governors at this meeting
confirm our conviction that the time for decisive action is
here.
We stand now at the threshold of the second stage of
our negotiations aimed at improving international monetary
arrangements. This stage follows upon agreement on basic
points of contingency planning for reserve creation by
the Ministers and Governors of the Group of Ten.
A fundamental basis of the discussions among the
Group of Ten countries was that all countries have a
legitimate interest in the adequacy of international reserves.
As a consequence, it was agreed that second stage
discussions should include joint meetings with the Executive
Directors of the Fund.
It was also agreed that deliberately
created reserve assets, as and when needed, should be
distributed to all members of the Fund on the basis of
IMP quotas or of similar objective criteria. Reserves
distributed in this manner would be created on the
basis of a collective judgment of the reserve needs of the
world as a whole and would not be either geared or directed
to the financing of balance of payments deficits of individual
countries.
I believe these are sound recommendations.
I hope and
trust that a specific plan for deliberate reserve creation
will emerge from this second stage to become the subject
of action by the Fund Governors no later than the next
annual ~leeting.

- 12 The Burdens of Supporting Freedom
The United States has raised a shield against aggression
in Southeast Asia -- as earlier in Europe and the Middle
East. We fight there together with our Vietnamese friends
whose homes, and lives and country are threatened, and
with the help of our allies from Australia, South Korea
and the Philippines.
The homes, the lives and the national integrity of
every free man -- of every free nation -- in the entire
world lies in the shelter of that shield.
In closing, I want to refer back to the U. S. balance
of payments position and, in this way, pull together the
threads of my speech.
Last year, our payments deficit was $1.3 billion on a
liquidity basis. This year so far, it is running at
about that same rate -- despite a rapid step-up of activity
in Southeast Asia. We have done well -- in the face of very
adverse circumstances.
If we have not made further progress in our balance of
payments position this year, the chief reason is the foreign
exchange costs of the shield of freedom that I have just been
discussing.
The U. S. has, at present, a net international payments
deficit on military account of $2.6 billion -- this is not
the budgetary cost but the foreign exchange drain.
We have a net deficit on foreign aid account -- after
tying -- of about three-quarters of a billion dollars.
The total of these two items taken together is about
two and a half times our overall deficit.
As I have already said, we have used fiscal and monetary
policy to keep our domestic economy in an attitude of
sustainable growth. We are prepared to do more -- as and
when needed.
The President has made this very clear. We
already have adopted some restraints on capital and
tightened our assistance policies to minimize the balance
of payments cost of this assistance.

- 13 -

My point is a simple one.
We want and intend, to attain balance -- we do not intend
in the future to meet the world reserve needs by an American
deficit. The costs of Vietnam have made the task more
difficult, to be sure.
The question is, therefore, not "whether" but "how",
to attain both our interim and longer term objectives.
Under present circumstances, there are three broad
possibilities. We can apply general and selective measures
that shrink the net flow of dollars to the rest of the world
without any conscious geographical selection -- that is,
wherever these measures happen to impinge. This course, we
suspect, is likely to mean that, in the first instance, a
number of developing countries and deficit countries would
feel the first impact in a shrinkage of their dollar receipts,
or their ability to command real resources, or both. Only at
a later stage would the needed adjustment of the persistent
surplus countries take place, as a result of the effect of
this shrinkage in the purchasing power of the intermediate
countries on the hard core of the world's imbalances in these
surplus countries.
The second course would be to tailor our measures to the
maximum extent possible to concentrate the adjustment on
surplus countries. Measures that affect capital outflow
could in large degree be so directed.
Indeed, our voluntary
restraints on capital represented a first, albeit cautious,
step in this direction, as did the Interest Equalization Tax.
But as economic as this course would seem to be, it is not
without problems, as you well know.
Finally, there is the possibility that the burden of
adjustment might be shared in a more positive way with the
surplus countries.
By this, I mean that the surplus countries
would follow more active, instead of passive, policies in
their pursuit of equilibrium.
I say this although quite
aware that such a course is not without difficulty for the
major surplus countries.
But I say this nevertheless because
it is clear to me that this course is the most efficient, if
not the only means of taking into full account all aspects
of the relationship of the pursuit of equilibrium to the
total objectives of a rational world economic order.

- 14 -

The answer to this question as to how the objectives
are to be attained is not one for the United States alone to
answer. How it will be answered depends on the composite
result of our own efforts and the policies of other countries,
particularly the countries in persistent surplus. Measures
taken by the deficit countries might have to be quite drastic
if surplus countries fallaw, whether by design or otherwise,
policies that tend to preserve these surpluses.
Here, as elsewhere, it is our hope that we can continue
to seek solutions through close and rational cooperation, both
in the interim period and in the longer run. We seek a world
in which nations work and consult together, understand each
other's capacities for action, and allow their policies to fit
together. A combined forward thrust is the desideratum
indeed it is necessary -- if our combined resources and
efforts are to meet the impressive demands of the years and
decade ahead.

000

TREASURY DEPARTMENT

September 28, 1966

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
~,300,000,OOO, or thereabouts, for cash and in exchange for
Treasury bills maturing October 6,1966,
~,304,083,000,
as follows:

in the amount of

91-day bills (to maturity date) to be issued
1n the amount of $1,300,000,000, or thereabouts,
additional amount of bills dated July 7, 1966,
mature January 5, 1967, originally issued in the
$ 1,OOl,23l,OOO,the additional and original bills
interchangeable.

October 6, 1966,
representing an
and to
amount of
to be freely

182 -day bills, for $1,000,000,000, or thereabouts, to be dated
October 6, 1966, and to mature April 6, 1967.
The bills of both series will be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and at
maturity their face amount will be payable without interest. They
will be issued in bearer form only, and in denominations of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, October 3, 1966.
Tenders will not be
received at the Treasu~J De~artment, Washington. Each tender must
be for an even multiple of $1,000, and 1n the case of competitive
tenders the price ofrered 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 1n 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.
F-637

- 2 I mme d i ate 1 y aft e r the cIa sin g h au r, ten d e r s will be ope ned a t 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 rej ec t ion there of .
The Secre tary 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 o~ 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 Bank on October 6, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing October 6, 1966.
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 d,'rived from Treasury b i lIs, whether interest or
gain from the sale or other disposition DE the bills, does not have
any exemption, as such, and loss from the saie or other dispositioo
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 other dise disposed of, and such bi lIs 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 t~
return is made, as ordinary gain or loss.
1

Treasury Department Circular No. 418 (current revision) and thls
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue.
Copies of the circular may be obtained fro
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

September 28, 1966
FOR IMMEDIATE REIEASE

ANTIDUMPING PROCEEDING ON
PIG IRON
On September 1, 1966, the Commissioner of Customs received information in proper form pursuant to the provisions of section 14.6(b) of the
Customs Regulations indicating a possibility that pig iron imported from
the U.S.S.R. is being, or likely to be, sold at less than fair value
within the meaning of the Antidumping Act, 1921, as amended.

The infor-

mation was submitted by Congressman Thaddeus J. Dulski of New York.
Having conducted a summary investigation pursuant to section
14.6(d)(1)(i) of the Customs Regulations and having determined on this
basis that there are grounds for so doing, the Bureau of Customs is instituting an inquiry pursuant to the provisions of section 14.6(d)(1)(ii),
(2), and (3) of the Customs Regulations to determine the validity of the
information.
An "Antidumping Proceeding Notice ll to this effect is being published

in the Federal Register pursuant to section 14.6(d)(1)(i) of the Customs
Regulations.
Imports of the involved merchandise received during the period January 1, 1966, through August 31, 1966, were valued at approximately

$4,600,000.

TREASURY

DEPARTMENT

September 29, 1966
FOR IMMEDIATE RELEASE

ITALY PURCHASES $145 MILLION IN DEBT
FROM THE UNITED STATES

Secretary of the Treasury Fowler and Harold F. Linder,
President and Chairman, Export-Import Bank of Washington,
announced today that the Italian Exchange Office (Ufficio
Italiano dei Cambi) has purchased promissory notes
aggregating $145.1 million from the Export-Import Bank of
Washington. These notes were under loans made since 1959
to the Italian Credit Institution (Istituto Mobiliare
Italiano) to assist in financing sales of various U. S.
goods and services to Italian industry.
This purchase represents substantially all of the
indebtedness of the Italian Credit Institution to Eximbank
currently outstanding. The unpaid maturities under the
loans are due, for the most part, in the next six years.
In July 1961,the Italian Exchange Office undertook a
similar purchase of loans made in prior years.

000

F-638

TREASURY

DEPARTMENT
September 29, 1966

FOR IMMEDIATE RELEASE
STATEMENT FOR THE PRESS

BY
SECRETARY OF THE TREASURY HENRY H. FOWLER
ON THE 1966 ANNUAL MEETING OF
THE INTERNATIONAL MONETARY FUND
AND
THE INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT
Secretary of the Treasury Henry H. Fowler today issued the
following statement:
I am gratified that the Governors of the
International Monetary Fund have supported proposals
for broadening and intensifying negotiations on the
deliberate creation of international reserves.
Practically all the Governors who addressed the
meeting endorsed the creation of a contingency plan to
make this possible, with outright opposition from only
two countries -- France and Chad.
I am also pleased that IMF Managing Director
Schweitzer recommended a series of joint meetings of
the Executive Directors of the International Monetary
Fund and the Deputies of the Group of Ten, to develop
solutions of this problem.
This second stage of negotiations would include
representation of the full membership of the International
Monetary Fund. Support for it came both from countries
outside the Group of Ten and the members of the Group of
Ten who reaffirmed on Sunday their recommendations made
earlier, in July at The Hague.
In my remarks at this Annual Meeting I stressed the
need for a greater sense of urgency and determination in
pushing negotiations to a successful conclusion, and I
expressed the hope of completing the development of a
specific contingency plan for deliberate reserve creation
in time for the next Annual Meeting.
F-63~

- 2 -

I repeat the commendation I made in that speech of
the emphasis and the sense of urgency expressed in a
recent report of the Subcommittee on International
Exchange and Payments of the Joint Economic Committee
of the U. S. Congress concerning negotiations and
enhanced international cooperation in the field of aid,
trade, international monetary reform, and the better
working of the adjustment process in the international
balance of payments.
During this IMF meeting, in a series of informal
conferences which I held with the Fund Governors from
Africa-Asia, Latin America, and other non-Group of Ten
countries, I have discovered very wide support for
strengthening and improving international monetary
arrangements.
With reference to suggestions by President Woods
of the World Bank and many Governors, that development
assistance should be increased, I would emphasize the
readiness of the United States to participate in an
expansion of the resources of the International
Development Association on a basis that takes account of
the balance of payments situations of the principal donor
countries.
I call upon donor countries enjoying balance
of payments surpluses to devote these surpluses in greater
measure to development financing, as an important aspect
of strengthening the international monetary system as a
whole.

000

TREASURY DEPARTMENT

FOR IMMED IA TE RELEASE

STATEMENT ISSUED BY STATE, TREASURY, AND COMMERCE
DEPARTMENT REPRESENTATIVES AT CONCLUSION OF
MEETING WITH REPRESENTATIVES OF THE
QUAKER ACTION GROUP OF PHILADELPHIA
The "Quaker Action Group" of Philadelphia recently informed
Departments of the Government and issued public statements to the
effect that it proposed to promote a mailing of parcels of medical
supplies to Vietnam (including North Vietnam) beginning
October 1st.
It was emphasized by the Quaker Action Group that it
would not follow the licensing requirements of the Federal
Government and others should feel free to observe or ignore them.
They emphasized their conviction that no government should exercise
control over an individual's extension of humanitarian relief.
The Government representatives requested the Quaker Action
Group to meet with them touay in Washington for a discussion of
the matter and in an effort to persuade the Quaker group not to
take action which might be in violation of Federal statutes.
It was explained to the Quaker Action Group that the
Government was prepared to give favorable consideration to
applications for the export of parcels of assistance to both
North and South Vietnam on the condition that the distribution of
such parcels would be under the supervision or subject to
inspection by a group such as the International Committee of the
Red Cross, the Canadian Friends Service Committee, or a similar
organization.
Further, it was explained that the Government
would consider i.ssuance of a limited number of licenses for
shipments of parcels of assistance to such an organization as the
International Committee of the Red Cross or the Canadian Friends
Service Committee for distribution anywhere in Vietnam at the
discretion of such organization, with a view to developing channels
to obtain supervision of such assistance.
It was emphasized to the Quaker Action Group that the strong
concern of the Federal Government is that such parcels in fact be
lsed for humanitarian relief purposes as the senders intend.

F-640

- 2 -

The Government representatives urged the Quaker Action Group
to give careful consideration to the points of view expressed and
to consider rescinding their previous advice to ignore licensing
requirements since it was quite clear that neither they nor the
Government desired to have parcels shipped to North Vietnam which
might be used for military purposes.
The representatives of the Quaker Action Group stated that
they would give careful consideration to the Government's request.
The Government's concern is that persons comply with
(a) in the case of merchandise, the Export Control Act
administered by the Commerce Department, and (b) in the case
of remittances of funds, Treasury's Foreign Assets Control
Regulations under the Trading with the Enemy Act.
Shipments
or remittances to North Vietnam, or its nationals~ are prohibited 2xcept pursuant to license. The Trading with the
Enemy Act is presently applicable by virtue of the 1950
Declaration of Emergency by President Truman.
The Government was represented by Robert Giles, General
Counsel, Commerce Department; Miss Barbara M. Watson,
Deputy Administrator, Bureau of Security and Consular Affairs,
State Department; and Fred B. Smith, General Counsel, Treasury
Department. The Government representatives were informed that
the recently-organized Quaker Action Group is not an official
organization of the Society of Friends or of the American
Friends Service Committee.

000

United ~tates Savincs Bonds Issued and Redeemed ThrouGh September 30, 1966
(Dollar amounts in millions - rounded and will not necessarily add to totals)
AnlOunt
Redeemed 1/

A;nount

Issued 1/

~~.O~~~

Outstandin a 2/

I % Outstandine
of Amt.Issued

5,003
29,521
864

;; A-1935 - D-19Ll .•••••••••••
es F & G-1941 - 1952 ••.•••••••
es J and K - 1952 - 1953 .•••••

4,994

29,h56
850

9
I

'URED

es E: 3/

1,857

1941 •••••••• • • • • • • • • • • • • ••.
1942 •••••••••••••••••••••••

8,200

1950 •.•••••••••••••••••••••

13,200
15,389
12,072
5,h50
5,150
5,313
5,238
4,577

1951 •••••••••••••••••••••••

),962

1952 •••••••••••••••••••••••
1953 •••••••••••••••••• ~ ••••

4,151
4,733

1943 •.••••••• • •••••• ••• ••••

1944.4 .•••••••.••••••.•••••
1945 •••.•••.••• • •••• • ••••••
19h6 •••••••••••••••••••••••

1947 •.•••••••••••••.•••••••
19u8 •••••••••••••••••••••• o
19~9 •••••••••••••••••••••••

1954 •.•.•••••••••••••••••••
1955 •.••••••••.•••••••••••• \

13,315
10,246
4,41~

3,998
4,033
3,897
3,343
2,893
2,996
3,309
3,271
3 , )07
3,087
2,801
2,573

5,OlS

1956 •••••••••••••••••••••••

4,R31
4,539
4,)84
4,103
4,098
4,124

1958 •.•••••••••••••••••••••

1959 •••••••••••••••••••••••
1960 •.•••••••••••••••••••••
1961 ••••••••••••••••••••• 00
1962 •••••••••••••••••••••••
1963 ••••••••••••••••••••••
1964 •••••••••••••••••••••••
1965 ••••••••••.••.••••••• 0.
1966 •••••••••••••••••••••••

3,970

Lassified •••••••••••••••••••••

2,265
2,13 0
1,985
1,914
1,846
1,571
413
617

1 Series H •••••••••••••••••••

145',053
3,670
1,601
11,272

1 Series E and H•••••••••••••

156,324

102,985
2,006
1,445
),h50
I
106,h)6

(1954 - 1957) ••••••

2,P79

2,152

ITotal matured •••••••••

35,3tH:i

35,300
108,587
113,887

••••••••••••••

H (1952 - Jan. 1957) 3/ .••
1957 - 1966) ••: ••••

H (Feb.

J and K

Eries ---- Total unmatured •••••••

159,203

IPrand Totalo ••••••••••

194,~91
L_

2,)80

u,40R
4,303
u,210
2,3 hO
597

1 Series E .•••

1l,S14

4,818

1957 ••••••••••••••••••••••

1,611
7,135

246
1,065
1,686
2,074
1,826
1,035
1,152
1,279
.1,341
1,233
1,069
1,155
1,b24
1,547
,
1708
1,744
1,738
1,811
1,72)
1,833
1,994
1,985

I
I
,
I

-80

42,067
1,n65
6,1!)6
7,821

I ~I
I

49,889
728

13.25
12.99
12.77
13,48
15.13
lB.??

22.37
24.07
25.60
26.94
26.98

27.82
30.09
32.11
34.06
36.10
I

38.~9

41.31
41.99
44.73

48.35

50000

2,h3u

2 ,1~57
2,639
1,948

.18
.22
1.62

I
!,

I·

$0,616
50,704

eludes accrued discount.
rrent redemption value.
option o[ owner bonds may be held and will earn interest for additional
riods after original maturity dates.
:ludes matured bonds which have not been presented for redemption.

BUREAU OF THE PUBLIC DEBT

55.22
51.10
62.68
82.54

29.00
45.37
80099
69.38
31.91
25.29
.25
31.79
26.ct>

TREASURY DEPARTMENT
:

FOR FlELEASE 6:3- P.M. J
11:::.nu8Y OL-v:Jbe~l_~-, IJ66.
HESULTS OF ThEASUT\Y' S \<TE.El(LY BILL Ol"FEl--:ING

'fte T eosury Dep2rtm,..;n, aLHl:Ju.l1c~a ,hat 1..he tenders i'or t,wo sel ies 0:' Tl'easury
bills, one se::..ies to be an addi "lional j ssue of the bills dated Ju.ly 7) 1966, and
the othe:.' sel ies to be da"(,ed Octobe1.' 5, 1 ::366, which "Wele a: fel'ed on Se[)tember 28,
1966, weie OJ ened at the Federal Rese!'ve Bank.s today. 'lenders WCl'e inv:; ted 1'0)
~1,30J,l)JU,JOO, 01' thel'eabouts, of :91-day bills and 101' $l,()OO,OOO,OOO, or thereabouts, of 182-day bills. The deta:i Is of the two sel'ies ale as allows:
J

~~GE

OF ACCEPTED

CO!>lPETITlVE BIDS:

High

Sl-day Tl'casulY Bills

182-day Treasury Bills
Llatm'ing AfTil 6} 1967
Ajyprox. Equiv.
Price
Annual Rate
97.148 ~/
5.641%
97.112
5.713%
97.132
5.673%

latul'i nl:; Janual-Y :.s} 1367
A. prox. Equi v.
Price
Annual Rate
7~ 7d
38.647
'-" .~VV/'..J
98.6H3
5.167%
98.633
5. '108~;
C,

1.0"1"

Avelase

Exee~;ting 1 tender 01 $603, OJ,:)
of the alount or 91-day olJ_ls bjd lo~' at the low 'l'jce was acee,.ted
100% oJ:' the a ,0W1t of' leG-day lJi} Is bid i'or at -'--he 1m] rice ",as acce ted

26%

~O'fAL

TENDERS APPLIED FOR AIID ACCEl--'TED BY FEDERAL RESERVE DISTRICTS:

A.:.,pllCd For
f 19, !5 65 , aoo
1,274,28" ,GOO

Dist.l:'i et

Bo-ston
rIel'; Yo::<.

Philadel hia

2S,::"u.3,JOO

Cleveland
Rieh"lond

31, ~JtJ5 ,CO\)

16) (J :~;:3 ,

Atlanta

J j (;

Acceltcd

k,ylied For

Aece.> ted

;:: ,;) 62,000
D37,3S1,OOO
'_ 6 ,383,000
::.il, :)58,000

16) \) /:5,(0)
3:3,8';)7,000

12,811,000
i,018,366,000
lS,'J4.E,OO!j
20,:)7~3)JuO

25,41J,OCO

7,786,000

7,786,0(;0
c;8,J83,uCCJ

45, 8~ 7 , CCyj
190,321, ~~J:":
57, 601,:. A./J

1/7,J21,OOJ

;::;(') E).:,l,GJ.J

162,808,(;u0
3, ), :::i 16, ()OO

l1inneaolis

1:3,l'f.:::;,J.JJ

1;;)17~,JiJJ

10,028,000

Kansas Ci ty

23,(370,\..)"-'>'-'

~:5,076JC00

lC,l16,()UO

Dallas

26,

IJ,700,OOu

San Francisco

S8, 606, ,..JlJ

22,6'73) 000
0u , 606, GuG

TOTALS

$lJel-i / .10,09G

,pl, 3Gu, 00 6,000

Cbiea(::o
St. Louis

OS~;, JJU

12,810,000

675,:'Sob,00C
7,048, (JUu

37,083,uUU

5~, oi~j,

OUo

:;)7) 2;) 7 /,)'00
33,u16,uOO
lCJ, OG8 ,COO

18,116,UOG
Id,700,JGJ
60 J 39~, GeJ

P./

/ Includes $276,370,000 non co l~ et,j.li ve -"endels acee} ted at the averac:e ~ l'~ce of J8. 633
I Includes $200,376, 000 nonco', eU_ ti ve l,endel'S acee ,tea at, "lhe avel'a2:e "'ll~e ~f" .)7.132
These rates al'e on a banl~ discount basis. The equivalent cou, on lssue Ylelds a:::'e
5.5SC/o

641

1'02.'

the 91-day bills, and 5.0)2%

fOj'

the 182-day bills.

STATEMENT BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE THE SENATE FINANCE COMMITTEE
ON H. R. 17607
MONDAY, OCTOBER 3, 1966, 10 A.M. EDT
Mr. Chairman and Members of the Committee:
I appreciate this opportunity to present the Treasury's
views on the bill before you, H. R. 17607.

The promptness

with which you have initiated this hearing is testimony to
the Committee's awareness that our situation today calls for
action without delay.

I favor the prompt enactment of H. R. 17607.

This bill

suspends the seven percent investment credit for a period of
sixteen months, and limits the accelerated depreciation
options applicable to new buildings or structures for the
same period.

Tne temporary removal of these special tax

incentives to investment will
contribute to a restraint of inflationary developments
that are proving disruptive of the financial markets
and placing excessive strain on the capital goods
industries;
promote a more sustainable rate of balanced economic
growth in the next sixteen months and thereafter;

- 2 -

support a policy of monetary restraint while avoiding the burdens and risks of excessively tight money
and high interest rates with their particularly
discriminatory impact on the housing sector of the
economy.

The Bill Related to the President's Full Program
This bill is an integral part of the President's program

as set forth in his Message of September 8.

Before comment-

ing further specifically on H. R. 17607, let me briefly
relate the bill to the balance of the program.
With regard to the credit market, the President's directive to me to review all Federal agency security sales and
present them to him for approval will result in lessening the
burden of Federal finance on the markets.

The President's

memorandum to Federal D'8partments and agencies of September 9,
calling for careful and thorough pruning of Federal lending
and borrowing activities, should reduce aggregate Federal
credit demands on the private market.
It has already been decided to cancel the sale of FNMA
participation certificates tentatively scheduled for September,
and to have no FNMA participation sales in the market for the

- 3 rest of 1966 unless market conditions improve.

Nor will

there be any Export-Import Bank sales of additional participation certificates in the market in the rest of this
calendar year.

Market sales of Federal agency securities,

meanwhile, will be limited in the aggregate to an amount
required to replace maturing issues, while new money, to
the extent genuinely needed, will be raised through sales
of agency securities to Government investment accounts.
I am submitting for the record a copy of a Press Release
issued Saturday, September la, announcing these decisions
pursuant to that portion of the President's Message.
Another important ingredient of the President's program
was the passage of legislation to give the bank regulatory
agencies and Federal Home Loan Bank Board flexible authority
to regulate interest rates on consumer saving.
step has now been taken, and

th~

This important

harmful process of excessive

interest rate escalation in the field of consumer savings
will be halted and hopefully reversed.
The announced program for reducing Federal expenditures
for fiscal 1967 is yet another related measure to minimize
the drain of federal financing on the credit market in

- 4 addition to reducing aggregate demand.

The President has

made clear his firm determination to hold down all lower
priority expenditures by means of deferrals, stretching out
the pace of spending and otherwise reducing contracts, new
orders and commitments -- a policy and program with which I
have been actively and affirmatively concerned from the
initial preparation of the January Budget.

The Budget

Director will deal with this subject in detail.

Of course,

beyond the recitals given in the President's Message and
the Director's statement here today, any final precise
description of the amount and nature of the expenditure cuts
must await action by Congress on the eight appropriation bills
pending before it.
Now, I am mindful of the fact that many members of both
Houses of Congress, Majority and Minority, have expressed
their disinclination to consider any tax measure for the
purpose of increasing revenues unless there have been firm
efforts to hold down expenditures.
In my view, the President's program and the bill presented
to you today are consistent with that position.

First, expend-

iture reductions are very specifically provided for in the

- 5 program.

Second, H. R. 17607 is not offered as a revenue

measure, or tax increase measure, or tax reform measure.
Its purpose is clearly and simply to suspend a stimulant to
forces that are proving inflationary in the current economic
situation.
The President's program represents, I believe, the most
carefully chosen and prudent means, consistent with preserving stable economic growth within the framework of a free
economy, to ease the strains to which our economy is now
subjected.

It continues the policy pursued by the Adminis-

tration since the unforeseeable escalation of Vietnam in
mid-1965, of taking fiscal steps designed to meet conditions
as they unfold.

This was exemplified in the Tax Adjustment

Act of 1966 which applied the degree of restraint that conditions and prospects at that time required.

The effect of the

accelerated payment of taxes provided by the Act was supplemented by an administrative order accelerating the payment
into Federal depositaries by employers of withheld income and
social security taxes.

We are now proposing another appro-

priate step again responsive to prevailing conditions.

view of the uncertainties with which we still are confronted,

- 6 we cannot yet offer blueprints for future programs.

The

only prudent course is to maintain a flexible, step-by-step
approach.

II.

Background for the Proposal

I turn now specifically to the action provided for in
H. R. 17607.

Let me again emphasize that the purpose of

this bill is not to raise revenue; revenue aspects are
incidental.

So we do not corne here today with any new

estimates of revenues and expenditures for fiscal 1967.

The

bill is basically an anti-inflationary measure designed to
relieve pressures clearly discernible in the money markets
and capital goods sectors.
Nor is the bill a tax reform proposal.

It is temporary

in design and purpose.
As members of this Committee are well aware, I have
always been a strong exponent of the investment credit.

Our

experience to date has, I believe, justified the faith I had
in 1962 in the efficacy of the investment credit, and my
view that it should become a permanent part of our tax
structure.

Since then industrial production has increased

three times as fast as in the previous decade, real business

- 7 fixed investment has increased about three and one-half
times as fast, and our economic growth generally has far
surpassed its previous rate.

This remarkable achievement

is not due solely to the investment credit, but I firmly
believe the investment credit has contributed substantially
to it.

Moreover, looking to the long-term future I am con-

vinced that the encouragement provided to business by the
credit to modernize and expand its use of capital equipment
is essential to maintaining full employment with stable
prices, and to keep our industry competitive with foreign
goods.

The President and his A±ninistration fully share

these views.
It is therefore, as I am sure you understand, only with
considerable reluctance and after very careful study that we
have reached the conclusion that suspension of the investment
credit is an appropriate measure at this time.

I stress

suspension and not repeal since the credit should be regarded,
as President Johnson's Message indicated, as an essential and
enduring part of our tax structure.
Not only do I regard the investment credit as a permanent
structural component of our tax system, but also one that

- 8 should be suspended only in times of active hostilities at
least on a scale such as characterizes the present situation.
Even under such circumstances I would, as past attitudes
have made clear, be chary of suspending the investment
credit unless the combination of a rapidly expanding civilian
econOillY and increasing and special defense needs made this
course compelling.

I would be opposed to treating the

investment credit as one of many countercyclical devices to
be suspended and restored with the normal ups and downs in
our economy.
The present situation is unique and was quite unforeseeable when the credit was adopted and stress was put -- and
properly so -- on its permanent character.

We then contem-

plated a peacetime economy and thoughts of a country engaged
in hostilities on the present scale were far from our minds.
But hostilities can cut ruthlessly across many plans and
procedures designed to meet problems of a country at peace.
We are deeply committed to an extensive military operation
in Southeast Asia which so far has shown no clear signs of
early termination.
evident.

Its effects on our economy are clearly

We are also confronted with a monetary situation

- 9 of almost unparalleled tightness, which is producing distortions in our economy and the highest levels for many of our
interest rates in more than 40 years.
Early in the year when the question of suspending the
credit was raised in the Senate, we hoped that this change
in the law could be avoided.

In March the President invited

to the White House more than 100 chief executives of companies which, together, are responsible for making a large
portion of business plant and equipment outlays.

At that

dinner the President made a strong personal appeal to those
present to carefully review their investment plans with the
objective of screening out and setting aside for deferral
whatever projects and expenditures they possibly could.
Many of the executives did just that and wrote letters to
the President confirming their plans to moderate their investment outlays.
Total plant and equipment outlays, however, continued to
surge upward.

The latest Commerce-SEC Survey released to the

public on September 8, based on reports from business in late
July and August, continued to forecast a 17 percent rise in
plant and equipment outlays for this calendar year just as

- 10 it did last spring.

It is true that the rate of expansion

forecast for the second half of 1966 is smaller than the
actual rate for the first half.
all along.

But this had been forecast

Moreover, actual increases for the last twelve

quarters of this series have consistently turned out to be
higher than the forecasts.

The real point is that the level

of investment is simply too high under present circumstances
and it is taking place despite developments in financial
markets and sharp increases in interest rates paid by corporate borrowers, factors which some thought would restrict
capital expenditures.

Undoubtedly the increase would have

been larger without the influence of the President's appeal
for restraint.

III.

Current Economic Need for the Measure

Our economy is now operating close to the limits of its
productive powers.

It is being called upon not only to meet

emergency defense requirements associated with military
operations in Southeast Asia, to support civilian activities
of Federal, State and local government, and to produce an
enormous flow of capital goods for business.

It is at the

same time providing the American consumer with the highest

- 11 -

standard of living the world has ever known.
The strain on our economic resources is most acute in
the field of credit referred to above and in business
investment, where the high level of activity has created a
substantial excess of demand over supply, which will be
augmented by future orders with consequent additional strain
on money markets.
The high and rising levels of business investment spending have been a main cause of credit tightening, mounting
interest rates, and diversion of financial -- and hence
real -- resources away from other important areas of economic
activity.
The resulting process of interest rate escalation -- the
bidding up for a limited supply of funds -- deserve special
co~~ents

here, because the muting of this process is a major

part of the President's program to restore and maintain stable
financial markets.
For several years of business expansion, 1961 through
1965, credit expanded with relatively little change in interest rates except in short-term rates.

Credit demands grew,

but the expansion of savings and bank credit were able to
accommodate this expansion to the great benefit of the economy,

- 12 which enjoyed rapid growth.

A major means by which banks

were able to participate in this process of credit expansion
was through amassing very large gains in time deposits, essentially by simply bidding for those deposits and then making
the funds available for loans to business and other borrowers.
What had been from 1961 to 1965 an orderly process of
credit expansion and real economic expansion acquired in
1966, however, some aspects of an unhealthy scramble for
liquidity and credit, in which interest rates have shot up
and credit has flowed in a lopsided fashion.

Businesses,

particularly corporate business, have taken a very large share,
while the mortgage market has had to do with less.

This result

has emerged because total credit demands increased while
supplies were being held back by a more restrictive monetary
policy.
To meet heavy business demands for loans, the banks this
year have bid up the interest rates on certificates of deposit,
and due to more restricted credit availability that bidding
had to be more aggressive than before.

In addition, banks

have made more room for business loans by selling their holdings of Treasury issues or allowing those holdings to mature

- 13 without being replaced with other Treasury issues.

In this

entire process, interest rates on Treasury issues and other
securities rose.
Indicative of business demands on the banks, comnercial
bank loans to business rose at an annual rate of 19 percent
in the first eight months of this year, while bank loans
other than business loans rose at about a 9 percent annual
rate, and bank investments registered almost no net change
at all.
At the same time, business borrowing was exerting a
substantial direct impact in the capital markets.

Net funds

raised through corporate bond issues in the first half of
this year were at an annual rate some 80 percent heavier
than the rate for all of 1965.

Clearly, businesses have had

to rely very heavily on external financing for their large
investment outlays, despite the substantial growth in their
internal cash flow.

And just as clearly, this absorption of

credit by business has been reflected in a smaller supply of
funds for the home mortgage market, and has begun to threaten
the supply of funds for State and local governments and for
small business.

- 14 This is not to say that business borrowing has been the
only source of pressure on the markets, but it has been a
very prominent one.

Treasury borrowing has not been a major

factor; holdings of Treasury debt by the public (that is,
apart from trust account and Federal Reserve holdings) was
$4.1 billion lower on June 30, 1966 than a year earlier.
Increased Federal agency borrowings and participation sales
did exert some market pressure, which our new program is
now designed to minimize.

I might mention, too, that much

of the increase in agency debt during the first half of this
year reflected borrowings to fill credit needs in the mortgage
area that arose essentially because of the dearth of funds for
this purpose in the private market.
The strain on the credit market caused by our high rate
of business investment has been paralleled by strain on our
productive resources available for capital goods.

Machinery

and equipment producers are simply unable to keep their
production up to the pace of their incoming orders.

In every

month during the year ending this August order backlogs for
machinery and equipment have grown larger.

The excess of

orders over shipments has ranged between 4 percent and

- 15 -

11 percent in the first eight months of this year pushing
backlogs up nearly $3 billion, so that they now stand about
27 percent above their August 1965 level.

In just the past

six months the backlogs have increased 14 percent.

The

backlog of metal cutting machine tool orders alone now
equals

~ore

than ten and one-half month shipments.

It is true that reports on new orders for durable goods
in July and August showed some decline.

But this is a some-

what volatile series, particularly in the transportation
category which dominated the August decline, and the series
as a whole despite its general uptrend has

ShO~l

declines on

at least three previous occasions over the year preceding the
July-August declines.

Moreover, machinery and equipment new

orders which declined in August, had risen significantly in
July while orders for non-electrical machinery which attracted
attention by declining in July, actually rose sharply in
August. Both these changes incidentally largely reflect fluctuations in the highly volatile series of shipbuilding orders.
Obviously, a decision whether or not to take restraining
action cannot be based on the behavior of orders over a one,
two, or three month period, but rather must take account of

- 16 the persistent patterns of orders in excess of shipments,
and the consequent persistent growth in backlogs.
A crucial factor in limiting the production of machinery
and equipment is the acute shortage of skilled workers.

the second quarter of this year the unemployment rate in nonelectrical machinery was down to 1.4 percent, and the average
work week of 44 hours is now the longest in any manufacturing
industry.

The BLS reports the machine tool industry as having

the tightest manpower situation in the country.

Apparently

a handful of occupations account for two-thirds of all the
hard to fill jobs.

These are machinists, machine shop workers,

mechanics and repairmen, welders, tool makers and die sinkers,
and pattern and model makers.
As a result of this excess demand and very tight supply
condition, prices of machinery have been spurting upward.
Electrical machinery prices have risen at a 4 percent annual
rate so far this year, which incidentally is the reverse of a
long downward trend that persisted through 1965.

Prices of

metal-working machinery have risen at a 7 percent annual rate
in the first seven months of this year.

In the period from

January to July, price increases exceeded a 10 percent annual

- 17 rate for a number of important groups of machinery products:
metal-working presses (14 percent), precision measuring tools
(12 percent), transformers and power regulators (12 percent),
and wiring devices (10 percent).
It should be noted that these price rises are taking
place in a sector of the economy where productivity advances
are very great and where we might otherwise have expected,
if not actual price declines, at least a high degree of price
stability such as we enjoyed prior to the Vietnam escalation
in mid-1965.
Pressure on prices, the supply and wages of skilled labor,
and on the financial markets has also been generated by the
strong pace of construction other than single-family homebuilding.

In the past 12 months ending in July commercial

and industrial construction has averaged 27 percent above the
preceding year.

This high level of activity has put upward

pressure on wage and material costs in the construction industry
and contributed to scarcity of skilled labor.

Construction

prices have recently accelerated, and wage rates of construction workers have accelerated even more so.

Moreover, if

measures were to be taken to relieve credit stringency without

- 18 at the same time reducing the stimulus to construction, continued upsurge in construction could well be the outcome.
Looking toward the future, the Administration does not
have precise quantitative estimates of investment expenditures for 1967.

Nobody does.

Experience tells us that the

most reliable information will become available early in
December when the Commerce-SEC survey will report on business
investment plans for the first half of next year.

Private

surveys have worked hard and ingeniously to produce earlier
forecasts of the year ahead, but their record in past years
has been admittedly disappointing.
We do know some important facts about investment in 1967.
We know that the large backlogs of orders and unspent capital
appropriations underwrite a continued growth in investment outlays.

We know that businessmen are likely to end this year

with high operating rates, record sales, rapidly growing consumer markets, and expanding cash flow.

They will have the

incentives and they will have the means to undertake a further
growth in investment expenditures in 1967.

Furthermore, the

inflationary pressure generated in the capital goods and construction sectors do not merely remain there. They spread to the

- 19 rest of the economy as capital goods producers compete strongly
for men and materials which are needed in our defense, consumer
goods, and even our consumer service industries.
It would be dangerous to let the economy proceed on its
present course without a release from these pressures that
suspension of the investment credit and the companion measure,
suspension of certain forms of accelerated depreciation on
newly constructed buildings, will help accomplish along with
the remainder of the program set forth in the Presidentts
Message.

IV.

Specific Provisions of H. R. 17607

The bill would temporarily suspend the investment credit
alloNed by section 38 of the Internal Revenue Code.

The sus-

pension would apply to (i) property acquired during the
suspension period, (ii) property ordered during the suspension
period, and (iii) property, the physical construction of which
begins during the suspension period.

The suspension period

would begin on September 9, 1966, and end on December 31, 1967.
Machinery and equipment acquired during the suspension
period under a contract binding upon the taxpayer prior to
September 9 would not be affected by the suspension.

Also,

- 20 -

property would be unaffected if its physical construction
began before the beginning of the suspension period.

general exemption would permit each taxpayer to continue to
utilize the credit to the extent of $15,000 of investment
or orders during the suspension period.

Furthermore, special

rules would continue the availability of the credit in certain situations involving the equipping of previously begun
structures, the completion or assembly of items of machinery
or equipment, and the consummation of lease obligations or
financing transactions.
An amendment added on the floor of the House would exempt
air and water pollution control facilities from the operation
of the suspension.

This exception is only justifiable on the

grounds that pollution activity frequently constitutes a
violation 0f State or local law.

In those situations where

one is required by law to abate activities causing pollution,
his claim to the investment credit rests on the same principle
as the claim of one bound by contract to acquire property,
that is, a legal obligation to proceed.

Since this is the

limit of the justification, we would recommend that the
amendment apply only to those situations where the taxpayer

- 21 is, in fact, required to install anti-pollution facilities
to avoid penalties under State or local law.
Investment credit carryovers from periods prior to the
suspension period could be used during the suspension period
only to the extent that they would have been allowed had
there been no suspension.

However, to permit taxpayers

greater scope for the utilization of both carryovers and
current credits after the suspension period, the bill would
effect two significant liberalizations of present limits upon
the credit.

It would, first, extend the carryforward period

from 5 to 7 years -- enabling taxpayers to make future use of
investment credit carryovers which might otherwise expire
unused as a result of the suspension period.

Secondly, for

years after the suspension period, the bill would raise to
50 percent of taxable income the existing 25 percent limitation upon annual utilization of the investment credit.
The bill's suspension of the right to elect certain
methods of accelerated depreciation would, generally, parallel
its suspension of the investment credit. For real property
(other than that eligible for the investment credit) whose
physical construction is begun or ordered during the period

- 22 from September 9, 1966 through December 31, 1967, the bill
would deny the accelerated forms of depreciation first
granted by the 1954 Internal Revenue Code -- most significantly, the double declining balance and sum of the yearsdigits systems.

This denial would apply for the entire

useful life of the property.

Since the 1954 Code methods

have never been available for used property, the effect of
the suspension would be to restrict depreciation of real
property whose construction is begun or ordered in the suspension period to the methods presently allowable for used
property.

As is now true in the case of used real estate,

the 150 percent declining balance system would continue to
be available.
Provisions similar to those governing suspension of the
investment credit would make the suspension of accelerated
depreciation inapplicable where real property construction
began before September 9, 1966, or begins thereafter pursuant
to a pre-existing binding contract.

Special rules, comparable

to the investment credit provisions, would allow accelerated
depreciation for certain previously planned, equipped buildings and for structures erected in accordance with certain
pre-existing lease obligations.

- 23 I have mentioned that the bill applies to orders placed
during the suspension period.

In that respect it differs

from other bills, addressed to the same end, which have been
introduced this year.

The reason for applying the suspension

to orders is to enlarge its scope and make more immediate
its effect upon the economy_

If the suspension were applied

only to installations, it would have no impact in all those
situations in which orders are placed during the suspension
period, but ultimate delivery of the ordered equipment is
deferred until after the termination of the suspension period.
Yet such orders make direct and immediate demands upon the
resources of the economy; they cause current planning, current
hiring, and current capital expenditures by the suppliers to
whom they are directed; and action inapplicable to them would
fail to relieve that pressure.

Hence, the bill's application

to orders is essential to its effectiveness.
As passed by the House, H. R. 17607 accommodates the
pressing economic necessity for suspension of the investment
credit and accelerated depreciation to the demands of administrative practicality and fairness to taxpayers.

The

accommodation which the bill achieves is a liberal one.

The

- 24 -

binding contract exception, for example, is substantially
m8re broadly drawn than the similar provision in the bill
which Chairman Long introduced on this subject last month.
The $15,O~O exemption will remove a multitude of small taxpayers from the practical effect of the bill; and it will
thereby diminish very cOD2iderably problems of a&ninistration and taxpayer compliance.
for the
of

co~pletion

b~ilding

The bill's special provisions

of items of machinery and the consummation

equipment plans

extending the full investment

credit or accelerated depreciation to situations in which
taxpayers have begun, acquired, or legally

com~itted

them-

selves for the major portion of a given unit of equipment or
structure -- represent liberal hedges against possible harshness in the areas to which they apply.
Further liberalization of the bill, however, must be
strictly avoided.

Any such modifications -- either by the

provision of special exceptions for particular industries,
areas, or kinds of investments, or by any other means -- will
run grave risk of impairing substantially the desired economic
effect of the measure.

It has, for example, been suggested

that taxpayers be permitted to claim the investment credit and

- 25 accelerated depreciation for a broad variety of investment
projects and programs which they had planned or announced
before September 9, or to which they are, in one degree or
another, economically committed.

Such treatment has been

sought for multi-facility plants and large industrial complexes, involving billions of dollars of planned investment.
If the Congress should accede to such requests, the restraining impact of the bill upon our economy could be very
considerably dissipated.

Unless such taxpayers are asked to

decide between actual activity now and deferral of activity
until after the suspension period, we will be unable to
achieve the moderation of investment that is required.

Hence,

I urge you strongly to approve the substance of the bill
before you, without the addition of special exceptions or
debilitating modifications.

Effects of the Bill

Just as the enactment of the investment credit provided
a strong incentive to investment, so its suspension would
s~arply

period.

reduce the incentive to invest during the suspension
Moreover, the fact that the suspension would be

- 26 temporary adds a reinforcing incentive to defer capital
projects until the credit is restored.

For example, on

typical investments in machinery and equipment the investment credit raises the after-tax rate of return from 10
percent to 12 percent or 13 percent.

Thus, when the credit

is suspended, the investor is offered the difference between
earning 10 percent if he begins the project during the susp.ension period, compared to earning 12 to 13 percent if he
defers launching the project until after the suspension
period.
As a consequence of this effect on incentives, the current demand for capital goods should be Significantly moderated.

In the first instance, the impact should show up in

a level of orders below what would have otherwise been the
case.

For those items which can be ordered and delivered in

a short space of time -- such as trucks, office equipment,
store fixtures and air conditioners -- the effect of a diminished order flow on investment expenditures and on activity
by the produ2ers of the equipment should be quite rapid.
When the order to delivery period is longer (one year
or more) the moderation in the order flow should still have
a prompt and favorable effect in relieving pressures on our

- 27 scarce resources.

The production plans and activity of the

capital goods producers respond promptly to a change in their
order inflow.

Their incentives to scramble for and hold on

to skilled labor and scarce materials will be diminished and
their accumulation of inventories of goods In the various
stages of production will be slowed down.

As a result the

upward pressures to prices and wage rates should be held
down.

Even in those cases where abnormally large order back-

logs prevail, any reduction in the inflow of new orders should
have an influence on prices before there is any effect on
production.
By moderating the demand for investment goods, suspension
of the investment credit will make a marked contribution to
relieving pressure on money and financial markets.

True,

suspension of the credit does mean some reduction in the cash
flow of business firms putting them under a need for funds to
replace the loss of the investment credit on those orders
which are not deferred.

But this will be more than offset by

the reduction in credit requirements resulting from the deferrals
of orders for machinery and equipment purchases induced by the
suspension.

- 28 In moderating investment demand at this time, suspension
of the credit will also help to improve our current or short
term balance-of-payments position.

The high levels of invest-

ment demand have contributed to a rise in our imports relative
to our exports.

Imports of capital equipment have shown a

large increase in the first half of 1966 over a comparable
period of 1965

44 percent -- and there is evidence that

our exports of machinery have been held down because United
States producers have given priority to domestic orders.

For

example, while foreign orders in the machine tool industry
have run well above a year earlier, shipments are lagging
behind last year totals.
In part, the moderation of demand for capital goods
induced by suspension will be reflected in a reduced output
of capital goods.

To the extent that this is the case, it

implies some temporary sacrifice of growth of capacity, and
some slowdown in the rate of plant modernization and productivity increases.

Indeed it is these benefits from the

investment credit that I have stressed and value highly.
But the sacrifice will not in any event be of importance.
In the first place, it must be recognized that in most areas

29 -

of the economy today, skilled labor rather than capital is
the limiting factor on increased production.

Furthermore,

suspension of the credit wJuld not curb top priority investments:

a project that offers unusually large short-run

returns in cost reduction or capacity increase will also
shmv a very handsoiTIe prafi t return even without the 7 perce ot
investment credit.

MJst of all, it must be remembered that

while the production of a capital good uses up resources now,
its contribution to productivity and cost reduction after it
is in operation comes gradually through time and not instantaneously.

(For example, if real investment in all industries

were reduced by 5 percent during the year 1967, by the beginning of 1968 our industrial capacity would be only one-half
p2r2ent less than otherwise.)
Therefore, I believe that any temporary sacrifice of
capacity growth caused by suspension of the investment credit
is in the present case m'Jre than balanced by the immediate
benefit of tempering the unique,

s~ort-run

inflationary pres-

sures that now confront us.
11or~over,
lS

there is evidence that at present investment

proceeding at a rate that might not be sustained in the

- 30 -

long run.

Therefore, it is desirable to slow it down now ,

so that it will proceed at a

~ore

even pace in the long run.

When the investment credit is reinstated there should fJllow
a certain catching-up period of accelerated investment by
b'Jsiness.

This will occur at a time when there is less strain

on the economy than at present, and the loss of capacity due
to suspension of the credit will thus only be temporary and
not permanent.
Suspension of accelerated depreciation on newly constructed
~uildings

will temporarily remove this special incentive to

construction, and in a manner parallel to suspension of the
investment credit will offer a strong inducement to defer

th~

launching of construction projects until after the suspension
has terminated.

Thus it will contribute to restraining

inflationary forces by reducing the pressure from this source
of demand on money and credit markets, and on markets for
skilled labor and construction materials.

This will be partic-

ularly favorable to the single family homebuilding industry -which has borne the brunt of the tight money and high interest
rates 'VI7e have been experiencing.

Industrial, commercial and

apartment construction are closely competitive with single

- 31 family home construction both in financing requirements and
use of labor and materials.

Conclusion
In conclusion, I should like to emphasize the H. R. 17607
is an essential part of the President's program to mute inflationary pressures.

I believe it to be a fair, workable, and

effective measure.

Its enactment in its present form is

urgently needed and I strongly request this Committee to
approve the bill as pTomptly as possible.

TREASURY DEPARTMENT
Washington

FOR RELEASE UPON DELIVERY

REMARKS OF THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
AT THE INTERNATIONAL COMMITTEE MEETING
OF THE AEROSPACE INDUSTRIES ASSOCIATION OF AMERICA, INC.
AT THE ERAWAN GARDENS HOTEL, PALM DESERT, CALIFORNIA
TUESDAY, OCTOBER 4, 1966, AT 12:30 PoM., PDT

EDUCATION, RESEARCH AND DEVELOPMENT AND THE
UNITED STATES BALANCE OF PAYMENTS

My public service began at a turning point in the recent
history of the United States.
I carne to the Congress in 1959. That date roughly
coincides with the corning of awareness in this nation that the
world had changed -- and that the United States could no longer
ignore a deficit in its balance of payments that had persisted
throughout the decade, with the sole exception of 1957.
You will remember that it was in early 1959 that most of
the industrial nations in Europe qualified under Article VIII
of the Articles of Agreement of the International Monetary
Fund and made their currencies freely convertible for nonresidents.
This meant that, for the first time since the early
1930's, the currencies of the great trading nations of the
world could move freely in international commerce.
This was a milestone towards which United States policy had
been directed since the end of World War II. With it we
realized the hope that we had expressed when the Bretton Woods
Agreement was formed:
that money and goods should move freely
between nations as the basis for ever-expanding world trade.

F-643

- 2 Our parallel hope -- that freely convertible currencies
would be the basis for expanding world trade -- has since then
become a fact.
Since 1959 world trade has increased by about
two-thirds.
However, my seven years in public service have taught me
an inescapable fact of life -- the solution of one set of
problems, the attainment of a particular goal, usually uncovers
a whole new group of perplexing issues for which there are no
easy answers.
This was precisely what happened in 1959.
Although the world took a giant step forward in its
financial and trading relationships, the 1959 deficit in the
United States' international accounts was $3.9 billion and that
year's gold loss was $734 million, not including an increase of
$344 million in our International Monetary Fund gold subscription. This deficit caused the first attempts by a few
thoughtful men to persuade this nation that we were facing a
completely new set of problems that had to be considered.
A brief review of the moves that this nation has taken to
face up to these problems can well lay the basis for my thesis.
The first steps in 1960 and 1961 were directed squarely at the
Government's own contribution to the problems. The gold budget
was introduced -- to determine for the first time precisely
which Government expenditures used up foreign exchange and how
much.
The foreign aid program was shifted from dollar grants
and offshore procurement increasingly in the direction of a
transfer of real resources -- trucks, tractors, machinery and
food -- rather than financial resources. Our military expenditures overseas came under close scrutiny, and the policy of
offshore procurement was strictly limited where it was not fully
reversed.
All these efforts bore fruit.
For the period from 1960
to mid-1965 -- when the escalation of hostilities in Vietnam
began -- the Government's foreign exchange expenditures declined
substantially.
Net military expenditures dropped by about
$1 billion, while net expenditures in foreign aid declined by
Some $400 million.

- 3 Beginning in 1961, a vigorous parallel drive was launched
to expand exports.
It paid off handsomely, as an examination
of our export totals and trade surpluses for the years 1961
through 1964 will reveal.
Exports rose steadily in this period, from $19.954 billion
in 1961 to $25.297 billion in 1964.
In the same years our
trade surplus rose more than $1.2 billion, from $5.444 billion
to $6.676 billion.
These two efforts worked in concert with various financial
initiatives, such as the General Arrangements to Borrow, the
gold pool, and the swap agreements.
The General Arrangements to Borrow, better known as the
"Group of Ten," came into being a.s it became evident that the
resources of the International Monetary Fund in the form of
currencies other than dollars and sterling might prove to be
insufficient in the event of a threat to the stability of the
world monetary system.
The parties involved are the ten principal financial
centers within the membership of the Fund. Switzerland, which
is not a member of the Fund, is associated through special
arrangements.
The ten countries agreed among themselves to
lend to the Fund, in case of need, amounts of their own
currencies totalling $6 billion.
The London gold pool agreement is a flexible unwritten
agreement under which eight governments agreed to provide gold
up to a certain amount when demand in the market exceeded
supply.
In return they received the right to get gold when
supply exceeded demand.
The swap agreements were designed to deal with highly
volatile movements of capital between financial centers.
Sudden exchange market pressures need to be met firmly and
promptly to avoid disruptive speculation.
To meet such situations the United States, in cooperation
with eleven major industrial countries and the Bank for International Settlements, established a swap network of short-term
facilities totalling over $2.5 billion.

- 4 Under these arrangements, the United States is able to
acquire currencies needed for exchange market operations
through short-term swap operations rather than selling gold
to foreign monetary authorities. When the temporary outflow
of funds reverses itself, the swap can then be reversed.
Working together, these efforts moved us rather steadily
toward a better balance.
But again, as familiar problems were
resolved, new and perplexing ones appeared.
In 1963 the demands of foreign borrowers on our long-term
capital markets became so heavy that we asked for and were
given authority to impose an Interest Equalization Tax that
tended to bring the costs of money here more nearly into line
with those of Europe and Japan.
The purpose was to relieve
the strain on the dollar caused by the tendency of Europeans
and Japanese to borrow in our relatively low-interest-rate
money market rather than in their own markets, where higher rates
were prevailing.
This move dealt effectively with portfolio investment.
But late in 1964 an unprecedented jump in foreign lending by
U.S. banks and direct investment overseas by U.S. corporations
prompted creation of the President's new balance of payments
program early in 1965. This included the very effective program
for voluntary restraint of bank lending and direct foreign
investment by businesses in most developed countries, as well
as extension of the Interest Equalization Tax to long-term bank
lending.
The result of these moves was that, for the calendar year
1965, our balance of payments deficit on the so-called overall
or "liquidity" balance -- which takes into account all officials
and private transactions -- hit the lowest level since 1957:
$1.355 billion.
For the first six months of this year we were roughly
holding our own at about the 1965 level, with a deficit on the
liquidity accounting of about $700 million -- $1.4 billion at
an annual rate.
This was in spite of the foreign exchange
expenses of the Vietnam operations.

- 5 Our heavy involvement in the defense of freedom in Vietnarrl
has directly increased our foreign exchange costs for military
expenditures in the Far East by nearly $1 billion.
This does
not take account of the indirect consequences, which are
reflected in a rapid rate of increase in imports that has
diminished our trade surplus.
The latter reference is to a trend that began last year
and has gained momentum in 1966 -- a shrinkage in our trade
balance from an average of $5.3 billion in the period 1960
through 1964 to $4.8 billion in 1965 and to a seasonally
adjusted annual rate of $3.9 billion in the first six months of
1966.
Our exports for this year are performing about as we
expected, totaling $28.5 billion at an annual rate for the first
half of the year.
But imports have jumped at an accelerated
rate for a 14 percent increase over 1965 to an annual rate of
about $24.5 billion.
I don't mean to sound like an alarmist before the representatives of an industry which has increased its exports in
recent years as well as you have.
Neither a single year nor a
two-year period necessarily establishes a trend.
If you look back over our trade surplus figures for the
last 15 years, you see gains and losses, upturns and downturns,
in individual years.
But you also see that our trade surplus
in the 1960's is vastly greater than it was in the 1950's.
The trend of our trade surplus averages for five-year periods
is sharply upward.
This year's surplus is smaller than we
have become accustomed to recently, but it is still well above
the average for the 1950's, which was about $3.2 billion.
Clearly, our basic trade position is very strong.
Nevertheless, we are running a substantial net international
payments deficit on military account, on foreign aid account -even with our tied-aid provisions -- and on capital and tourist
accounts.
These are not budgetary costs; they are net losses
in foreign exchange.
It is obvious that an even greater trade surplus must
play the major role in offsetting those deficits.
So any

- 6 -

reduction in our trade surplus, even if it represents a
temporary dip in a firm upward trend, is a matter of serious
concern.
One part of the solution, of course, is to restrain
potential excesses in the economy which generate a heavy level
of imports and which also make it less attractive to export. We
have tackled that problem through the budget by vigorously
pursuing the President's directive to meet our expenditure
requirements through current revenue.
In the fiscal year that
ended on June 30, 1966, our budget deficit of $2.3 billion was
the lowest in actual terms since 1960, amounting to about
2 percent of total budget expenditures.
The President has
reaffirmed in recent days his determination to equal or to
better that result in fiscal year 1967.
We have accomplished this by a rigorous control of
expenditures.
You may be surprised to know that, since
President Johnson took office, our budgetary expenditures,
excluding special Vietnam costs, have increased by only about
$3.4 billion since 1964.
We also moved towards our objective with the tax proposals
that were enacted early this year. We are continuing this
movement with the proposals which the Congress currently has
under consideration.
These proposals, as the President has
stated, are not for the purpose of raising revenue.
They were
designed to suspend tax incentives that were contributing to
excess demand in certain sectors of our economy -- in the areas
of new plant and equipment and commercial construction.
I
believe our record this year proves that this Administration is
determined to take whatever fiscal action is called for to keep
our economy stable and our budget in balance.
We have moved on problems as they became apparent, sector
by sector. We believe that this step-by-step approach is the
right course, given the fact that we are experiencing our
greatest and longest period of prosperity and that a broad-axe
attack on such delicate problems could have disastrous effects
on the lives of millions of our people, to say nothing of the
effects on world trade.

- 7 -

But there are those who be 1 i.~ ,,"
" approach has been
deficient and that we should have '-l~ L c:npl-:,::c~ to follow some sort
of grand design to balance our inteL,,,:.,;ticl)~dl accounts once and
for all.
I have lived through the~~;':/,---,_~~ ,,:ffering no excuses, I
will state that the area is new, the academic work is inconclusive, and the stakes are en01.TtlOUS,
Therefore, I believe that
the cautious approach we have followed has b~en prudent and
fully justified.
But the longer I consider the problem the more convinced
I am that there is one aspect of national policy that does
constitute a grand design for preserving the strong and viable
pas it ion of this nat ion in the wcre 1::1':s finance and commerce.
This continuing thrust of national policy is the research and
development effort of American industry and Government and the
educational effort that provides its foundation.
As you look at the position of the United States vis-a-vis
the rest of the world, it is obvious that our strongest
competitive positions often coincide with those areas where our
research and development efforts are most intensive -- areas
such as aircraft, agriculture, computers, automatically controlled
machinery, electronic componentry and measuring instruments,
industrial controls, agricultural and earth-moving machinery,
food manufacturing equipment, dental and surgical equipment,
and chemicals.
Computer exports, for one example, rose from $50 million
in 1960 to $225 million in 1965.
In many areas we have carved
out a competitive position that is almost unique.
It would be appropriate h~re to mention the part that your
industry plays. Aircraft of all types, of course -- commercial,
private, military, including helicopters -- are major export
items.
So are engines, parts, accessories, and instruments.
Further, there is the broad field of electronic devices for
communication, navigation, remote control and automation in
which you are intimately involved, fr2quently with other
industriesc

- 8 The importance of your industry in the domestic economy
is attested by your total sales of almost $21 billion in 1965
and your estimated sales of over $22 billion this year. One
dollar out of every $15 in value added by manufacturing
industries to our Gross National Product in 1965 was added by
the aerospace industry.
So it is no surprise to learn that your exports totalled
almost $1.5 billion in 1965 and accounted for 5.4 percent of
total U.S. exports. Your projected exports of $1.55 billion
this year will make 1966 the seventh straight year that your
exports have exceeded $1 billion.
Prediction is a risky business.
But recent trends indicate
that our reliance on the research and development-related sector
of our export totals might well increase.
The total amounts expended on research and development
give us some reason for optimism in this area. Business and
Government funds devoted to research and development for the
years 1961 through 1965 totalled more than $60 billion.
I am well aware there is no precise relationship between
amounts expended and results achieved.
Still, these totals
represent an enormous and an increasing national effort that
should provide the basis for maintenance of a viable export
position.
Even more dramatic than the increase in these research
and development totals are the basic inputs on the Federal,
state and local levels to provide an educational system that
is capable of serving as the foundation for this rapidly
expanding sector of our national life.
State and local governments have been doing a heroic job
in this area.
They have expended a total of more than $100 billion on education at all levels in the last four years. But
financial resources at the state and local level have been
under intense strain, and the need for a Federal supplement has
been apparent for years.
As a nation we have finally faced up to this need after
years of delay. The breakthrough came first in 1963 in Federal

- 9 assistance to colleges and universities, with the Higher
Education Facilities Act and the amendments and extensions of
the National Defense Education Act. The second breakthrough
occurred when President Johnson's program of aid to elementary
and secondary education passed the Congress in 1965.
Since President Johnson took office Federal assistance to
education has been legislated ranging from Operation Headstart
to the most advanced graduate work.
Let me list Some of the
education bills that have been passed since 1964:
National Defense Education Act Amendments of 1964
Elementary and Secondary Education Act of 1965
Establishment of National Foundation on the Arts and
Humanities to promote progress and scholarship
in humanities
National Vocational Student Loan Insurance Act of 1965
Health Professions Educational Assistance Amendments
of 1965
Higher Education Act of 1965
Financial assistance to public elementary and
secondary schools in major disaster areas
Our Federal Administrative Budget expenditures in this
area have more than doubled, going from $1.3 billion in fiscal
1964 to $2.8 billion in 1966.
I want to remind you that they
have been expanded not by merely adding on to the budget but by
substituting them in place of lower priority programs. That
was the method that President Johnson used to achieve this great
expansion in our Federal education efforts with an expenditure
increase for the period of only $3.4 billion, exclusive of
special Vietnam costs.
As I read American history, it seemS to me that the
American people have been engaged in a passionate struggle for
an ever ~etter and broader educational system since the first

- 10 -

days of the Republic.
The trend has run in a straight line
from the ordinances establishing the Northwest Territory and
setting aside certain lands for school purposes, through the
early days when, in my state of Indiana, teachers were paid
with pigs and whisky, through the establishment of the Land
Grant colleges to the educational acts that are currently
pending before the Congress today.
We all owe a great deal to that trend, which has given us
a society within which most Americans can gain the education
which is absolutely essential if they are to make the most of
their talents.
We also owe a great deal to the trend in research and
development programs, for without them we would be lagging far
behind our national potential.
Education, research, and development together have enabled
us to provide the human factor in the equation which has given
us the highest standard of living in history and opened more
exciting frontiers to us than any known before to man. Without
them, not all the land or mineral resources in the world would
give us the America we know and enjoy today.
The other side of the coin is that education, research,
and development have brought uS greater responsibilities. Our
role of world leadership surely sterns less from the natural
resources we control than from the fact that we know what to
do with them.
The economy in which our technology plays so
large a part is itself a responsibility. We have dealt
successfully with the problem of inadequate growth and we have
succeeded in reversing the trend of our balance of payments.
But now we must cope just as successfully with inflationary
tendencies and we must finish the job by bringing our international payments into balance.
Failure will jeopardize the
dynamic economic base on which our society, our standard of
living, and
our political stature in the world depend.
Further, the long way we have corne by fostering education,
research, and development teaches us that to go on towards the
frontiers of knowledge and to hold and improve upon our hard-won
gains will require more of the same.

- 11 -

A study of the costs of achieving our broad national goals,
conducted by the National Planning Association, has recently
given us an interesting view of the order of magnitude of the
tasks we are going to face in the decade ahead.
Many of you are familiar with it, I am sure, so I will not
dwell on its details.
The study uses actual expenditures in
1962 at all levels, both public and private, as its point of
departure.
It provides us with figures of $29.7 billion in
education and $16.85 billion in research and development.
According to the study, by 1975 we will have to increase
our expenditures for research and development to more than
double the 1962 level -- to $38.85 billion in 1962 dollars -if we are to achieve our goals in that area. And, the study
goes on, we will have to increase our educational expenditures
by well over two and one-half times the 1962 level -- to
$82.1 billion, again in 1962 dollars -- to reach the goals we
aspire to in that area.
Our actual expenditures in 1965 were up significantly
from 1962 -- to $39 billion for education and over $20 billion
for research and development, both in current prices. Further,
our Gross National Product has been increasing a little
faster than the rate assumed in the study.
But my purpose is neither to agree nor to disagree with a
particular study but rather to stress the magnitude of the
effort we have yet to make to achieve the educational and
research and development goals which reflect our desires and
needs.
I am confident that, if our national product has not
reached the level necessary to finance achievement of our goals
a decade hence, it will at least be very close to it. But I
think we all know that things don't just happen. We have a
good educational system because many people over the years
have thought such a system was a goal worth working for. We
have achieved an almost incredible technological sophistication, again only because you and many others wanted to achieve
it and worked and studied to achieve it.

- 12 Our knowledge that a new set of difficulties always comes
with solution or dissipation of the old and familiar problems
tells us that we cannot rest on past achievements. Some of us
tire in the process, and new people come to take our places,
but the work must go on.
You can rest assured that there will be no sag in the
upward trendline of effort and investment for education and for
research and development under President Johnson.
If you have
never heard the President address himself to the potentials of
education in the United States and the world, you have missed
an extraordinary experience!
I suppose it is only natural for those of us in the Treasury
to be extremely cautious about any new programs that cost
money.
I am sure that our predecessors, going back to
Alexander Hamilton, reacted in almost precisly the same way.
However, the expenditures that this nation has made on
education have played such a predominant role in the growth of
our domestic economy that even the most cautious financier must
admit the payout on these expenditures has been enormous.
The payout from research and development is something
we are just beginning to realize, and we are deficient in
quantitative measures.
But we can be sure it, too, is
munificent.
I think we Americans -- and probably you of the aerospace
industries more than most -- realize now the fundamental
soundness of the beliefs of our predecessors, going back to
the Founding Fathers, that investment in our human resources
in ourselves and in our youth, in education and in opportunity
is the best use we could possibly make of our money.

000

TREASURY DEPARTMENT
WASHINGTON

FOR RELEASE:

ON DELIVERY
REMARKS BY THE HONORABLE W. TRUE DAVIS
ASSISTANT SECRETARY
AT THE MISSOURI BANKERS ASSOCIATION
ST. JOSEPH, MISSOURI
WEDNESDAY, OCTOBER 5, 1966, AT 3:15 P.M., CST

NATIONAL ECONOMIC OBJECTIVES
It is good to be home again, and it is a pleasure to meet
with bankers of the State of Missouri.
For you, more than any
other group of citizens, are afforded a continuous opportunity to
gain a clear perspective and sensitive understanding of financial
and economic conditions within your immediate communities. We in
the Treasury are indebted to you, and to the entire banking
fraternity, for the steady inflow of financial and business
intelligence with which you provide us.
This indispensable intelligence assists us in formulating future contingency plans and in
initiating immediate measures to insure continued economic growth
and stability.
We in the Treasury and you in the banking fraternity have
mutual interests and concerns. The most important of these concerns
are the economic welfare of our country and the individual wellbeing of our citizens.
For the past six years, this Administration,
as President Johnson recently stated, has been trying to make
economic policy "the servant of our quest to make American society
not only prosperous but progressive, not only affluent but humane,
offering not only higher income but wider responsibilities, its
people enjoying not only full employment but fuller lives."
No nation has ever enjoyed such prosperity, nor have so many
people at one time ever participated in such prosperity. Almost
76.5 million people are now working, and less than four percent
of our labor force is unemployed. Our economy today is healthy
and strong.
For 68 months -- more than five and one-half years
the trend of our economy has been pointed in one direction only:

F-644

- 2 and that direction is up!
The remarkable, the unique feature of
this rise has been the fact that it has taken place in the presence of a fine balance of consumer demand and capacity to produce.
Today's prosperity did not come about by accident.
Today's
prosperity is the direct result of this Administration's intelligent and wise use of economic, fiscal, and monetary policies
since 1961. President Johnson's anti-inflation program, now
before the Congress, is designed to preserve this fine balance of
demand and capacity to produce, and to extend our gains through
a call upon all -- business, consumers, the Federal Government
and the Congress -- for responsible economic conduct in the months
and years ahead.
It was Proust who pointed out that in the remembrances and
understanding of things past the present becomes more viable,
more meaningful, more clearly comprehended. Remembrances of
economic conditions in the past is essential if we are to have a
clear perspective of how far we have progressed, how solid that
progression now is, and how firm the foundations are for building
the future. When our current economic expansion began in 1961,
our economy was only slowly emerging from a protracted recession.
This recession was only one of four with which we had been
afflicted during the post-war years. Unemployment was intolerably
high, and business investment was abnormally low.
It had failed
to maintain adequate levels of growth, and it was far less than
necessary to generate vigorous economic growth and enable us to
compete in world markets against other industrialized countries
whose annual rate of growth surpassed ours. We were also plagued
with a chronic series of deficits in our international balance of
payments. These averaged more than $3~ billion a year for three
years. They not only rendered the dollar vulnerable, but they
threatened the international monetary system which the dollar
supported.
It is true that prices had remained relatively stable during
the 1958-1961 period. This price stability, however, was
achieved at the expense of not achieving our national goals of full
employment and sustained, adequate economic growth.
It was the
result not of a pattern of positive and productive growth, but
rather the result of a pattern of anemic and inadequate growth
that had shown itself exceedingly susceptible to recession.

- 3 Our aim in 1961 -- even as now -- was to pursue and achieve
four national economic goals simultaneously:
price stability;
strong and sustained economic growth;
full employment;
relative equilibrium in our international balance
of payments.
To an extend unprecedented in a free economy we have moved -simultaneously -- toward these accomplishments. We have refused -and we still refuse -- to accept the old thesis that high employment can only be achieved at the expense of price stability, or
that price stability must be accompanied by considerable unemployment. These economic goals are not incompatible.
It was not
necessary then, nor is it now, to sacrifice anyone of these goals
in our pursuit to secure and maintain all of them. Our course of
action then -- as now -- was to take a flexible step-by-step
approach to the solution of our economic problems and the achievement of our national economic goals.
In pursuing this course we
recognized then -- as we do now -- that inevitable conflicts will
arise in the attainment of these goals.
The existence of such
conflicts, however, does not negate the wisdom of our approach to
their solution, nor justify our pursuit of one goal at the expense
of another.
It merely means that we rationally determine the
relative speed with which we wish to simultaneously pursue all of
our goals.
To restore the vitality of the private economy, it was
essential to liberate American enterprise from policies that had
stifled private investment.
It was imperative to provide business
incentives that would enable business and industry to expand and
grow, thus enabling them successfully to meet increasing foreign
competition while providing jobs to alleviate chronic unemployment,
To bring this about the Treasury early in 1962 revised
,
.d
'
depreciation guide-lines for tax purposes, and, at the Pres~ ent s
request, Congress enacted a tax credit of 7 percent on new 1nvestment in machinery and equipment.
These measures encouraged

- 4 productive new business investment that meant new jobs, greater
economic growth, greater productivity and lower costs -- all of
which are essential to continued price stability and progress in
our international balance of payments.
Simultaneously, we undertook a massive effort to attack
the problem of structural unemployment by adopting pioneering new
efforts to train and retrain unskilled and semi-skilled workers
to make them more employable and more productive.
Paralleling these fiscal measures -- revised depreciation
guide-lines and the 7 percent investment tax credit -- we also
adopted a dual approach to over-all economic policy.
Through
a massive, across-the-board income tax reduction we sought to
increase the general level of demand in the private economy and
to enhance the incentives for productive investment. Through
wage-price guide-lines, we encouraged wage-price restraint so
that measures for growing productivity and for growing aggregate
demand would result in rapid and real economic growth.
Debt management during this period was called upon to
support the Administration's efforts to stimulate the economy,
help achieve our balance of payments objectives, and help maintain
a financial environment favorable to home expansion and external
balance.
By adding to the market supply of very short-term issues,
notably Treasury bills, the Treasury materially assisted the
Federal Reserve System in maintaining our short-term money market
rates in reasonable alignment with those abroad.
This appreciably
reduced the incentives for short-term capital flows to foreign
money markets.
The Treasury also issued short-term bonds to foreign
monetary authorities, denominated in their own currencies, as a
means of absorbing foreign monetary balances that might have
otherwise been pressed upon us for conversion into gold.
Such measures in the fiscal, monetary, and economic areas
as I have briefly discussed had the desired effect of reducing our
balance of payments deficit to more manageable proportions,
appreciably encouraging the free flow of credit so vital to
industry, home buyers, and State and local governments, and
stimulating the economy by promoting necessary business and
industrial expansion.
The end result of these enlightened policies
was the greatest upsurge of economic well-being in the history of
the world.

- 5 A few notable statistics emphasize our achievements.
Gross National Product:
In 1960, our GNP totaled $503.8
billion. Today our GNP is running at an annual rate of more than
$732.6 billion.
Personal Income: In 1960, total personal income amounted
to $401 billion.
In August of 1966, it was running at an
estimated annual rate of $585 billion.
Corporate Profits after Taxes ran at an all-time high of
some $48.7 billion in the first half of this year.
This compares
most favorably with the $26.7 billion rate of after-tax corporate
profit in 1960.
Personal Income per capita of the Farm Population rose
sharply in 1965 to almost 30 percent above the 1964 level. The
situation continues to improve this year.
Almost every American has benefited from the prosperity of
the Sixties.
So, too, have tens of millions of people throughout
the world through our agricultural and financial assistance programs
which reflect this prosperity and economic growth.
Maintaining this prosperity and preserving our unprecedented
gains, while we dampen those inflationary pressures that during
the past few months have adversely affected our economy, is the
vital task that challenges our free society today.
To achieve our desired objective -- price stability and
economic growth -- the President sent to Congress on September 8,
an anti-inflation program, which incorporated the following
principal, inter-related elements:
1. Measures to Reduce Federal Expenditures
As part of his anti-inflation drive,
President Johnson has directed all agency heads
to hold employment in full-time permanent
positions for the remainder of this fiscal year
at or below the level of July 31, 1966. Those
agencies whose employment now exceeds the July 31
level are to reduce their employment as expeditiously
as possible.

- 6 Employment in temporary, part-time, or
intermittent positions for the remainder of
this fiscal year will also be held at, or
reduced to, the prevailing level as of June 30
of this year.
To meet the employment ceilings established
by the President, he directed Federal agencies
to increase their productivity, redeploy personnel,
simplify procedures, and strip work to essentials.
The President also directed them to reduce total
overtime pay for this fiscal year to the level
contemplated in the President1s budget recommendations for fiscal year 1967, or to a level 25 percent
below the actual overtime pay for fiscal year 1966.
The President directed that lower priority
Federal programs be reduced by $1.5 billion during
the present fiscal year.
This will be accomplished
by deferring, stretching out, or reducing contracts,
new orders, and commitments.
Each major agency has
been given a savings target with orders to meet that
target.
The President will also defer and reduce Federal
Expenditures:
by requesting appropriations for Federal programs
at levels substantially below those now being
authorized by the Congress;
by withholding appropriations provided above
budget recommendations whenever possible; and
by cutting spending in other areas which have
significant fiscal impact in 1967.

The total reduction in federal expenditures
resulting from these measures this fiscal year will be
at least -- and probably more than -- $3 billion.
This reduction in Federal spending will not be
at the expense of necessary, vital programs essential
to raising the quality of American life -- the
education of our children, providing for their health,

- 7 rebuilding our decaying cities, and eradicating
diseases that daily destroy or irreparably damage
the lives of millions of Americans.
Nor will this reduction in Federal spending
be at the expense of our country's efforts to
preserve the peace.
Rather, this reduction in Federal spending
that the President has requested will reflect our
continued efforts to operate at greater levels of
efficiency and reduce to a minimum non-essential
programs in the pursuit of our national goals.
2. Suspension of Special Tax Incentives to Investment
The second important element in the President's
anti-inflation message to the Congress deals with
the suspension of the special incentives to investment,
including the 7 percent tax credit on investment and
accelerated depreciation procedures. The President
has asked that these incentives be suspended for 16
months, beginning September 1, 1966, and ending
January 1, 1968.
Why is the suspension of the 7 percent investment
tax credit enacted in 1962 now necessary? The answer
is that the current demands thrust upon our machinery
and equipment industries are too great to be absorbed.
This year business intends to spend 17 percent
more on plant and equipment than it spent last year.
This increased expenditure comes upon the top of a
15.5 percent increase in 1965, and a 14.5 increase in
1964.
Investment in machinery and equipment during
the past three years has risen more than twice as
fast as our Gross National Product.
It is taking
place today, moreover, despite higher interest rates
and tighter money.
This capital-goods demand falls on top of the
extraordinary burden placed on the economy by the
accelerated increase during the past year of the
costs of our defense of freedom in Vietnam.
Capitalgoods demands have created such a demand for investment
credit that during the past few months there has been an

- 8 unprecedented rise in interest rates that has
created many inequities, such as a shortage of
funds for home buyers, that can no longer be
tolerated.
Consequently, the temporary suspension of
this investment incentive, which will relieve
excessive pressures on capital goods producers and
on our financial markets, is now as necessary to
the stabilization of our Nation's economic growth
as its initiation once was to its stimulation and
development.
Just as machinery and equipment outlays are
stimulated by the investment tax credit, so outlays
for construction of commercial and industrial
buildings are stimulated by accelerated depreciation.
Like the investment tax credit, accelerated depreciation is today contributing to inflationary pressures.
Both logic and equity require its temporary suspension,
along with suspension of the investment tax credit.
3. Federal Reserve Board and Large Commercial Banks
The third element of the President's antiinflation program is concerned with abatement of
pressures on interest rates and avoiding inequitable
effects of very tight money. The President urged
the Federal Reserve Board, in executing its policy
of monetary restraint, and our large commercial banks,
to cooperate with him and the Congress to lower interest
rates and to ease the inequitable burden of tight money.
One aspect of the President's recommendation in
this area has already been completed. Two weeks ago
the Congress passed and the President signed a law
which provides Federal agencies with additional
flexible authority to set interest ceilings on bank
time deposits and savings and loan accounts. As you
know, the Federal Reserve, the Federal Deposit
Insurance Corporation, and the Federal Home Loan Bank
Board all moved promptly to regulate the fierce
competition for consumer savings which has tended to
push up interest rates and divert funds away from
home building and buying.

- 9 As part of the President's program to help reduce
current pressures on the money market and on interest
rates, he directed Treasury Secretary Fowler to review
all potential Federal security sales. Secretary Fowler
did so promptly, and on September 10 announced a
program for keeping Federal pressures on the money
market at a minimum. The main points in the
Secretary's program include:
Cancelling the sale of FNMA participation
certificates tentatively scheduled for
September, with no further FNMA
participation sale in the market for the
rest of 1966 unless market conditions
improve;
Discontinuing Export-Import Bank sales of
additional participation certificates in
the market for the rest of the calendar year; and
Limiting market sales of Federal agency
securities in the aggregate to an amount
required to replace maturing issues, while
raising new money only to the extent
genuinely needed through sales of agency
securities to Government investment accounts.
These measures clearly indicate the Administration's
etermination to restrain inflationary pressures.
In turn,
he President hopes that the financial community will seize
he earliest opportunity to lower interest rates and improve
he allocation of existing supplies of credit.
The anti-inflation program laid before the Congress on
eptember 8 was the latest move in a careful step-by-step
rogram on the part of the Administration over the past year
J combat the threat of inflation where and when it has
)peared. The Administration has acted -- successfully -- to
loid inflationary pressures in consumer demand, as it is now
!ting to abate pressures in the capital goods market. Actions
lich the Administration has already taken, beginning last
tnuary, have resulted in the removal of $10 billion of excess
lrchasing power from the economy. This was achieved by:
Increasing by $6 billion payroll taxes for
social security and medicare.
Restoring $1 billion in excise taxes.

- 10 Withholding an additional
taxes.
Speeding up by

$1 billion in income

$1 billion corporate tax payments.

Administrative acceleration of tax payments by
$1 billion.
Moreover, action has been taken to redress the sharp
impact of monetary restraint on home building. With the signing
of the Federal National Mortgage Association Bill early last
month, there was a large potential increase in the availability
of money for home mortgages.
In time, the $1 billion special
assistance program and the expansion ofFNMA secondary market
purchase authority by $3.75 billion could finance 300,000 new
homes.
Earlier I mentioned that the fiscal and monetary measures
employed by this Administration enabled us to pursue all of our
national economic goals simultaneously.
One goal was to achieve
equilibrium in our balance of payments deficit. Although we have
had considerable success during the past five and one-half years
in this pursuit, the problem still exists. Last year, our payments
deficit was $1.3 billion on a liquidity basis.
So far this year,
it is running at about the same rate -- despite a rapid increase in
the foreign exchange costs of our defense of freedom in Asia
running about $1 billion more than a year earlier. We have a
payment deficit on military account of $2.6 billion and on foreign
aid account of three-quarters of a billion dollars.
The total of
these two items together is about two and one -half times our
overall deficit. We intend to correct this. As Secretary Fowler
said last week in his address before the annual meeting in the
nation's capital of the International Monetary Fund: "We want and
intend to attain balance. We do not intend in the future to meet
the world reserve needs by an American deficit." How we solve our
payments deficit will depend "on the composite result of our own
efforts and the policies of other countries, particularly the
countries in persistent surplus."
But solve our problem we will.
The practicing of economic restraint and the acceptance of
economic responsibility rests not alone with the Executive and
Administrative branches of the Federal Government.
Since we are
all concerned, since we are all involved in the continued economic
growth of our country and the economic well-being of ~ur.f~llow
Americans, we must practice restraint and assume.ou~ ~nd1v1dual
share of national economic responsibility. Our 1nd1v1dual and

- 11 -

collective efforts now, as in the immediate future, should be
directed to eliminating inflationary pressures on our economy that
are imposing unnecessary hardships on millions of Americans and
threatening the security of our economic achievements of the past
six years.
The financial community, of which you form a vital part,
has an extremely important role to play in accomplishing this
objective. The President has asked that you seize the earliest
opportunity to lower interest rates and improve the allocation of
existing supplies of credit.
Banks should handle money and credit
equitably, without extracting excessive profits, relying less
on high interest rates to price borrowers out of the market and
more on the placing of appropriate credit ceilings.
American business should base demands for credit on genuine
needs, maintain inventories based on current requirements, postpone
unnecessary investment projects, establish prices based on real costs,
and limit profits to those appropriate for a steadily expanding
economy.
The course of action that President Johnson set down in his
economic message to the Congress, which I have reviewed briefly
with you, is designed to keep the American economy on the safe
course of stable prosperity that it has enjoyed for the past five
and one-half years.
It is a flexible course, not a rigid course.
Should future conditions require its implementation, then additional
steps will be taken to insure the pursuit and attainment of our
goal. That goal, as I have emphasized, is to maintain a strong,
vigorous, balanced economy.
The maintenance of an economy that grows in good balance is
imperative for the achievement of our national goals, for the
successful prosecution of our efforts to bring peace to the people
of Vietnam and Southeast Asia, and for continuing our assistance
throughout the world to developing nations in their efforts to
raise their living standards while they eradicate social ills that
breed revolution and war.
The principal theme of our endeavors -- equally of interest
to business, banking, labor, government, and individual citizens
must be in the future as it has been in the past -- cooperation,
good will, and mutual trust. Working together we can solve any
problem, settle any dispute, resolve any difference. This will not
be difficult, for working together, utilizing human resources and
talents, is the American way of doing things.

000

TREASURY DEPARTMENT
Washington

FOR RELEASE AFTERNOON NEWSPAPERS
WEDNESDAY, OCTOBER 5, 1966 EDT
REMARKS BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE
79TH ANNUAL MEETING OF THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
SHERATON-BOSTON HOTEL, BOSTON, MASSACHUSETTS
OCTOBER 5, 1966 - 9:00 A.M. EDT
ACCOUNTING CONCEPTS AND THE FEDERAL TAX SYSTEM
The years beginning in 1961, as seen by those interested
in our Federal tax system, are crowded years.

New legislative

measures have followed hard on the heels of acts just completed,
and the revenue Committees of the Congress have been operating
at rates of activity well above, I am sure, "preferred rates"
to borrow the industrial production term.

The range of measures

and provisions considered and the policies they have served
have been wide and varied -- tax provisions to spur investment
and economic growth, tax reductions for the same purpose, tax
reform, new tax devices to aid in meeting our balance of payments problems, reduction and recasting of the excise tax
structure, increasing stress on a current tax payment system
and tax payment adjustments to impose fiscal restraint, and
F-645

- 2 now suspension of tax incentives to investment to moderate
the capital goods and construction sectors of the economy.
This scope and variety are in large part explained by the
varying economic conditions of this period -- a sluggish
rate of growth changed by fiscal measures to a strong and
ever-lengthening expansion that now, because of the impact
of Vietnam military expenditures, requires careful handling
if inflationary pressures are to be kept from gaining the
upper hand.

Moreover, these legislative measures have been

complemented by important administrative steps similarly
covering a wide area -- depreciation reform, the establishment of an administrative framework for international tax
matters, and consolidated returns, to mention a few.
In this vast tax kaleidoscope, one can be pardoned for
not discerning all of the principal lines of development.

would therefore like to address myself today to one significant aspect that may perhaps have been obscured by the new
substantive provisions that more readily command attention.
This aspect is the variety and number of the tax changes that
have a direct relationship to accounting concepts.

Let me

remind you of a few of these changes, as a means of illustrating the subject I would like to discuss.

- 3 -

In the international field, the substantive legislation
aimed at tax havens and other practices utilized for tax
purposes turn for their operative effects on the determination of the "earnings and profits of foreign corporations."
Obviously, just as in the case of domestic operations, we
must look to the accounting profession for the criteria
needed to establish the earnings and profits -- for United
States tax purposes -- of our foreign subsidiaries.

It is

interesting to recall that many lawyers had contended that
any measure involving the earnings and profits of a foreign
enterprise was doomed to failure, for how could one ascertain
those earnings and profits and then relate them to our standards.

This attitude, of course, complete overlooked the fact

that the accounting profession had been doing just that all
along for non-tax purposes in establishing consolidated
financial statements covering the domestic and foreign operations of many com?anies.

The task then became one of writing

down and systematizing these accounting rules and then coordinating them with tax doctrine to establish the operative norms
for Subpart F of the Internal Revenue Code.
As another illustration, again in the international area,
the recently proposed Sections 482 and 861 Regulations set

- 4 forth rules for the allocation of a variety of expenses of
domestic parent corporations between those corporations and
their foreign subsidiaries.

These expenses cover direct

expenses allocable to particular sources of income, indirect
expenses and general or administrative expenses.

Here again

the Regulations fundamentally embody accounting practices
and standards evolved to achieve for non-tax reasons a proper
allocation of expenses among related businesses.

Thus, the

rules accountants have worked out to govern the allocation of
expenses where a company has both government contracts and
non-government business, or where a company has both a business subject to a public regulatory body and a non-regulated
business, are essentially and directly applicable to the
allocations required by the substantive standard of Section
482.

Indeed, efficient management often requires such allo-

cation among the various branches or activities of an
integrated business to evaluate and control its own operational
performance.

So viewed, Section 482 in much

perhaps most

of its coverage is no unique and awesome tax concept but
instead only one of a number of situations where the requirements of law or management necessitate an allocation of expenses.

- 5 One further illustration -- that offered by the recent
revision of our consolidated returns regulations -- may be
helpful.

The previous consolidated return regulations had

not had an over-all review for a number of years.

Moreover,

the recent legislative changes in the 1964 Act made consolidated returns a more attractive tax route, so that a revision
and modernization of the regulations became imperative.

large part, this revision had as its guiding principle the
effort to bring consolidated reporting for tax purposes into
line with the accounting practices evolved for consolidated
financial statements.

Thus, in providing the tax rules to

govern the proper meshing and treatment of intercompany
transactions and the consequences of intercompany

pricing~

we looked to the concepts that underlie the putting together
of consolidated statements for financial purposes.

We are

still in the process of completing this harmonization between
consolidated tax returns rules and consolidated statement
accounting, as is indicated by our proposed regulations related
to earnings and profits and basis adjustments for consolidated
purposes and regulations currently in preparation regarding
the allocation of consolidated return tax liabilities.

- 6 -

These are illustrations from the recent past in which
the doctrines and rules carefully evolved in non-tax settings
through time and experience by the accounting profession are
serving us well in the tax field.
But there remain many tax areas in which we will require
your further assistance, and in which we are hopefillthat the
impetus of the tax need will spur you to a more intensive
study of the practices and rules you utilize to solve the
problems in the parallel non-tax contexts.

Thus, we are in

need of clearer and more reliable rules to determine when the
transfer of property involves a lease transaction or a sale
transaction.

Many tax consequences turn on the characteriza-

tion -- investment credit, depreciation, capital gain or
rental income -- and turn, moreover, in such a fashion that
for one tax purpose it will be to the taxpayer's advantage to
cling steadfastly to a sale characterization for the transaction but for another tax purpose to urge just as earnestly
that a lease is obviously the only sound label to apply.
Also

I hasten to add -- the Government can just as ardently

embrace one characterization only to spurn it the next time
round.

I am afraid that here we find the accounting dog chas-

ing its tax tail, for the relevant Accounting Authority

- 7 -

Opinion No.5, "Reporting of Leases in Financial Statements
of Lessee," Journal of Accountancy, Nov. 1964, after setting
forth criteria to distinguish a lease from a sale, then gives
great weight to the "treatment by the lessee for tax purposes."
Hence, this is a subject in which accountants and financial
people, each of whom have a stake in the non-tax consequences,
can, I hope, strive to provide standard which will aid in
determining the proper characterization without regard to the
tactical moves for tax purposes by taxpayers and Government.
Another matter is that of reserves for tax purposes.

one is seeking extreme pessimism regarding the future of our
country or an industry he need look no further than certain
parts of the tax field.

Never do the managers of a business

or the representatives of an industry become more doleful
and their hand writing more anguished than when urging on
the legislator or tax administrator the wisdom of a new special
reserve based on future contingencies.

For them, a repetition

of the depression of the early 1930's is always imminent, but
is perhaps the least of the dire consequences we face.

This

attitude of gloom is understandable when we recall that the
counters of pessimism are tax dollars saved, so that each
current addition to the reserve to reflect each doleful

- 8 prediction means a current tax reduction.

While we may prefer

to seek the company of optimists, we cannot gainsay a person's
or an industry's attraction to pessimism -- I suppose "conservatism" is the accounting terminology. But we can assert that
this attraction should not be at the expense of G8vernment and
those taxpayers who have more faith in the future.

The task

is thus one of accommodating this pessimism or conservatism
where a special reserve may be required or otherwise arise,
but not enabling it to gain a built-in tax advantage -- an
advantage that increases in size as the particular activity
grows and expands despite the continuing pessimism of its
managers.

The Treasury has been giving thought to this prob-

lem and is about ready to suggest an approach that appears in
one area at least to achieve the needed accommodation.
As another example, I have already mentioned the support
that our proposed Section 482 Regulations derive from the
accounting practices and standards governing the allocation
of expenses.

But in one part of this field, that of inter-

company price adjustments, a lesser need for non-tax rules
has meant less attention and thought to the appropriate concepts and standards that should here apply.

Moreover, it has

allowed a certain losseness to creep into the arrangements

- 9 -

used by integrated companies to govern their pricing on
intercompany transactions and has led to a less careful and
methodical scrutiny of these arrangements by the outside
accountants -- and lawyers -- for these companies.

However,

the need of the United States tax system, and indeed of the
tax systems of each of the countries touched by the intercompany price, for more careful pricing arrangements is
becoming increasingly clear and serious.

We seek a fair,

yet practicable, reflection of the share of the various
activities involved -- manufacturing, research, selling, and
the like -- where the activities spread over international
boundaries and thus involve the tax claims of several countries.
We hope this need will spur accountants

and lawyers -- in

their role as tax advisers to look more carefully at these
intercompany pricing arrangements now that their importance
is evident.

For it seems inescapable that the next stage in

the evolution of the relationship between international tax
systems and international business will require allocation and
pricing rules skillfully designed to accommodate the interests
of Governments in achieving a fair allocation among countries
for tax purposes of the profits of an international business
and the interests of the managers in arrangements that are

- 10 practicable in their daily operation and possess the degree
of certainty and stability necessary to satisfactory planning.
Let me touch briefly on one more area in this regard,
that of the reserve ratio test under our depreciation guidelines.

These guidelines seek to establish a realistic role

for the depreciation deduction in the proper measure of net
income over time, and a role, moreover, that can be kept as
free as possible from day to day controversy and litigation
between Government and taxpayer.

The reserve ratio test is

an effort to keep the guidelines linked with this purpose.
We are, as you know, engaged in studies to gauge the workings
of that test.

But I can think of no greater or more worthy

challenge to the accounting profession than the task of lending its experience and talents to the same goal, and of seeing
that the United States tax system continues to possess a fair,
workable and realistic system of tax depreciation.
I hope by now I have said enough to convince you of the
great stress we place on the importance for tax policy and
tax administration of searching out the accounting concepts
and standards applicable to the related non-tax setting and
then harmonizing the tax rule with those concepts and standards,

- 11 -

absent some overriding tax policy consideration.

I would

like to underscore this attitute by a brief reference to
the methods we follow in the Treasury to reflect this attitude in our daily work.

As you may know I and my office

concern ourselves with tax policy as reflected in legislation,
Treasury regulations, and major administrative rulings and
other pronouncements.

We have our links with many bodies

and agencies of Government -- the Congress, White House Staff,
Council of Economic Advisers, Bureau of the Budget and other
Federal Departments, with foreign Governments and international organizations, and of course in a direct and intimate
way with the Internal Revenue Service.

My staff consists

primarily of lawyers, economists, econometricians and revenue
estimators.

But we also have -- and regard as invaluable

an Accounting Adviser -- and the history of this position is
instructive.

From about 1954 to 1963 the large independent

accounting firms loans, in rotation, one man to the Treasury
for a period of a year.

This man, somewhat junior in experi-

ence, was assigned to our economic staff and worked on matters
that generally had a more statistical and descriptive character.

In 1964, recognizing both the necessity for expert

accounting guidance and the inadequacy of the previous

- 12 -

arrangement, we shifted to directly employing a CPA on our
staff in the same fashion that we employ our top level
lawyers and economists -- we seek them directly, we seek
men of ability, experience, and objective judgment; they
sever their ties, and they stay with us for a period that
varies with the particular individual.

The CPA now serves

in the Office of Tax Legislative Counsel.
The program has been very successful.

We are getting

innovative, experienced advice from individuals who can bring
to our problems the insights of the accounting profession.
In addition, we have been able to broaden the CPA's role
within our staff.

He no longer is restricted to being an

internal adviser to those on the staff responsible for the
preparation of legislation or regulations.

Instead, he now

directly bears a large part of that responsibility.

As such,

he meets regularly for discussions of all phases of taxation
with legislative and governmental representatives as well as
with industry representatives, members of the bar, and your
profession.
But clearly one or two staff CPAs are not enough and,
just as in the case of our legal and economic staffs, we rely
heavily on outside consultants.

Thus, in the preparation of

- 13 the major regulations and administrative rules mentioned
above -- Subpart F earnings and profits, Section 482, consolidated returns, depreciation guidelines, transition rules
for the reserve ratio test -- I and my staffs met many times
with members of the accounting profession practising at the
highest levels in their firms and with their assistants.
These meetings are informal and characterized throughout by
informed and objective discussion of the problems and the
advantages and disadvantages of various solutions.

We all

understand the ground rules -- ours is the responsibility
for decision and we are not seeking to shift it to the accounting profession; theirs is the responsibility of an honored
profession to place its skills and experience at the service
of its Government so that Government fully understands the
choices available and their limitations, to the end that as
wise and effective a solution as possible, accommodating all
-just concerns, can be achieved.
We, of course, also maintain our association with your
Committee on Federal

Taxation~

and have been aided signifi-

cantly through its direct presentation of matters of concern
to the accounting profession.

We also have consulting and

informal arrangements with accounting professors in the

- 14 Universities. And, as a new development, we have joined with
the Association of American Railroads in jointly retaining
an accounting firm to undertake a study of the depreciation
of railroad track and associated expenditures.
These remarks thus illustrate the importance we place
on accounting concepts and experience and some of the links
we have with your profession to obtain the knowledge we value
so highly.

All this may sound flattering to you, and indeed

I intend praise, for your assistance has been of great value
and we are grateful.

But please do not be misled by this,

for in all candor flattery is not my objective today.

Rather,

this genuine praise for genuine accomplishment is the prelude
to the expression of a concern that I wish to discuss -- a
concern that encompasses I believe both a challenge and a goal
for your profession.
All I have said about the great value we place on the
usefulness to tax policy of accounting standards already
accepted in non-tax settings can be restated in terms of your
responsibility to maintain those accounting standards untarnished and unwarped by the pull of tax pressures.

If tax

policies are to be based upon and harmonized with accounting
concepts, then it is imperative that those concepts reflect

- 15 the genuine operational needs of business and financial
accounting, and not be motivated by or tailored to soughtfor income tax consequences.

We know that this can be

psychologically and often materially difficult when tax
rates are still high.

But unless you hold fast to this goal,

you and your profession will become followers and not leaders.
No modern income tax system in a modern state could successfully operate under that condition.

For the complex tax

structures of today rely in a crucial way on the ability and
willingness of your profession to provide the objectivity in
the measurement of net income that is fundamental to these
structures.

The determination of an annual net income figure

from the receipts and expenditures of countless daily transactions, complex and simple, repetitive and unique, national
and international, is the essence of the income tax -- and
this is your task.

Objectivity in measurement does not mean

blind adherence to practices of a different age or different
economic or business systems.

Continuous modernization of

accounting practices and concepts is always a necessity.
But modernization cannot be the label or the gloss to cover
a yielding to a new concept whose claim to currency is the
saving in current tax dollars that it produces.

- 16 Nor is it enough to keep your standards high in a nontax setting but then urge -- or even allow -- the parallel
tax rule to depart in a fundamental and serious way from the
accounting standard.

This too can be an abdication of your

professional responsibility.

For if we allow tax accounting

to depart from business and financial accounting -- in an
area or for an item where both are still purporting to accomplish the same task, that of the annual measurement of net
business income -- then we place the tax system on shifting
sands.

So cast adrift, without any firm ties to accounting

standards, the tax system will have few defenses against the
whims, hazards and power assaults of political and lobbying
pressures.
In this light one can be concerned, for example, with
efforts in some quarters to eliminate from our tax system
the concept of depreciation, as a factor in the accounting
sense in the measurement of net income over the life of an
asset, and substitute instead a cost recovery concept completely unrelated to the function of measurement.

The word

"depreciation" might remain, to mask the fundamental change
that would thus o2cur, but the "tax depreciation" would no
longer have a parallel in the accounting field.

Each industry

- 17 would then push and clamor for a low number of years of cost
recovery, and the devil of tax inequity and consequent competitive unfairness take the hindmost. And even within a particular industry, those taxpayers with more rapid replacement
properties will assert the right to establish shorter lives
than the industry's "cost recovery" period.

Their claim

would seem a proper one -- but do not the validity and grounds
of their claim establish as well the propriety of matching
the depreciable life with the actual replacement practice
when the latter is considerably longer than the industry's
norm?

Or must both leader and laggard be placed in the

connnon mold?
We should not be led to such straits by pleas for absolute certainty, nor by the desire to achieve a tax reduction
through this indirect means.

Rather, we should seek to fol-

low your guiding star, the accurate reporting of annual
income and, as we have done in recent years, when conditions
are opportune achieve a reduction of tax burdens through a
direct lowering of tax rates.

We can also, through a method

such as the investment credit, allow for a basic stimulus to
investment that is clear-cut and calculable so that business
can readily perceive and weigh the incentive offered and turn

- 18 perception into investment response.
We in the Treasury must in turn look to our rules and
see where they may needlessly depart from that same guiding
star.

Thus, we are now examining our statutory rules

respecting prepaid income and accrued expenses in a number
of situations to see if they can be aligned more closely
with the traditional accounting concepts in this area.

believe that if we can devise acceptable rules to govern the
process of transition and avoiding in effect a doubling up,
the way could be cleared to that alignment.

In this regard

the transitional approach used in the pending bill regarding
dealers' bad debt reserves for guaranteed debt obligations
discounted with financial institutions may be helpful.
Another aspect of tax rules and business accounting that
offers intriguing possibilities lies in the audit disputes
between the Internal Revenue Service and our major business
companies.

These companies have their business books audited

and their tax returns prepared or reviewed by independent
accounting firms of ability and integrity.

These returns are

then examined by Internal Revenue Service agents of ability
and integrity.

But in the process tax deficiencies in large

amounts result and controversy ensues.

I cannot fully say

- 19 that one wonders why this should be.

For each -- the inde-

pendent accountant and the Internal Revenue Service agent
enters upon the task from a different door.

While using

common tools -- that is, accounting concepts and practices
each will inevitably and understandably tend to underscore
and use the interpretations and subtleties of these concepts
and practices which reflect the difference in their starting
points.

Where doubt must be resolved, where one of two

equally acceptable approaches must be chosen, where honest
and reasonable men can differ on a technical issue, then each
knows the compass which will lead to the choice.

As the

instances of doubt and choice increase for the return of a
given taxpayer, then the end result of the differing approaches
to these many choices can be a wide margin in final tax
result -- with the inevitable transition from controversy to
negotiation to compromise.
Maybe it has to be this way.

But still I wonder why we

cannot improve the situation and reduce the extent of disagreement.

It may be that while controversy is inevitable under

one approach to a tax issue, it can be greatly reduced if the
issue is approached by a different path.

Depreciation is an

example -- and the replacement of the Bulletin F approach by

- 20 -

the guideline and reserve ratio approach offers real opportunities to eliminate much of the dispute over this item.
I am sure there can be other examples.
Hence it may be helpful if your Tax Committee and the
Internal Revenue Service drew up meaningful lists of the
major areas of dispute, and then through informal but searching conferences, supplemented by careful studies, sought to
evolve

new approaches, standards, guidelines, or what you

will to reduce these disputes.

We cannot be perfectionists.

Nor can we waste our energies correcting petty irritations
and seeking minor correctives to legislative or administrative
rules where one can live as readily with one result or the
other. But we should not tolerate basically unnecessary disputes in important areas.

And therefore I believe your Tax

Committee and your profession could be of great help in
providing a proper perspective regarding the areas where our
energies could usefully be expended in the cause of reducing
unproductive controversies.

The suggestion above is offered

as one way to that end.
Let me conclude by expressing my appreciation for your
past and current assistance.

Speaking as a member of a pro-

fession, that of the law, which I place high in the list of

- 21 service to our Government, let me express my confidence that
your profession equally shares that high rank.

And so it is

that in the field of my immediate concern, the constant
improvement of our tax structure, we in the Treasury know we
can find in your profession a strong ally in achieving that
improvement.

TREASURY DEPARTMENT

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
$2,300,000,000, or thereabouts! for cash and in exchange for
Treasury bills maturing October 13 1966
in the amount of
$2,302,664,000, as follows:
'
,
91-day bills (to maturity date) to be issued
1n the amount of ~,300,OOO,000, or thereabouts,
additional amount of bills dated July 14, 1966,
mature January 12, 1967, originally issued in the
$1,000,993,000, the additional and original bills
interchangeable.

October 13, 1966,
representing an
and to
amount of
to be freely

182-day bills, for $1,000,000,000, or therp~bouts, to be dated
October 13, 1966, and to mature April 13, 1967.
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
to the closing hour, one-thirty p.m., Eastern Daylight Saving
tlme, Mondal' October 10, 1966.
Tenders will not be
received a 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 1n investment securities. Tenders
from others rnust 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.
F-646

- 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 Bank on October 13, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing October 13, 1966. 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 dispositioo
of Treasury bills does not have a~y special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject 00
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 t~
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 fr~
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
;

October 5, 1966
FOR J»1EDIATE RELEASE

Sale of $3".5 Billion of Tax Anticipation Bills
The Treasury annoWlced today the forthcoming auction of $3.5 billion
of tax anticipation bills to meet seasonal

~ash

needs.

The sale includes

$1.5 billion of tax bills maturing in April 1967 (in addition to the $1
billion of this issue already outstanding) and $2 billion of tax bills
to mature in June 1967.
The bills will be sold at auction on October 11, 1966, for payment

on October 18, 1966.

Banks may make payment for the bills by crediting

of Treasury tax and loan accounts.

'lb.e April tax bills, which mature April 21, 1967, may be used at
fa.ce value in payment of taxes due April 15, 1967.
mature June 22, 1967, and
due June 15, 1967.

F-647

may be

The June tax bills

used at face value in payment of taxes

- 2 All bidders are required to agree not to purchase or to sell, or to
make any agreements with respect to the purchase or sale or other
disposition of any bills of this issue at a specific rate or price,
until after one-thirty p.m., Eastern Daylight Saving time, Tuesday,
October 11, 1966.

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, non-competitive tenders for $400,000 or
less without stated price from anyone bidder will be accepted in full
at the average price (in three decimals) of accepted competitive bids.
Payment of accepted tenders at the prices offered must be made or
completed at the Federal Reserve Bank in cash or other immediately
available funds on October 18, 1966, provided, however, any qualified
depositary will be permitted to make payment by credit in its Treasury
tax and loan account for Treasury bills allotted to it for itself and
its customers up to any amount for which it shall be qualified in excess
of existing deposits when so notified by' the Federal Reserve Bank of its
Dis tric t.
The income derived from Treasury bills, wheth~r interest or g~in
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

~-648

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
TREASURY OFFERS $2 BILLION IN JUNE TAX BILLS
The Treasury Department, by this public notice, invites tenders f~
$2,000,000,000, or thereabouts, of 247-day Treasury bills, to be issued
on a discount basis under competitive and noncompetitive bidding as
hereinafter provided. The bills of this series will be designated Tax
Anticipation Series, they will be dated October 18, 1966, and they will
mature June 22, 1967. They will be accepted at face value in payment
of income taxes due on June 15, 1967, and to the extent they are not
presented for this purpose the face amount of these bills will be
payable without interest at maturity. Taxpayers desiring to apply
these bills in payment of June 15, 1967, income taxes have the
privilege of surrendering them to any Federal Reserve Bank or Branch
or to the Office of the Treasurer of the United States, Washington, not
more than fifteen days before June 15, 1967, and receiving receipts
therefor showing the face amount of the bills so surrendered. These
receipts may be submitted in lieu of the bills on or before June 15,
1967, to the District Director of Internal Revenue. for the District in
which such taxes are payable. The bills will be issued in bearer form
only, and in denominations of $1,000, $5,000, $10,000, $50,000,
$100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
to the closing hour, one-thirty p.m., Eastern Daylight Saving time,
Tuesday, October 11, 1966. Tenders will not be received at the
Treasury Department, Washington. Each tender must be for an even
mUltiple of $1,000, and in the case of competitive tenders the price
offered must be expressed on the basis of 100, with not more than
three decimals, e. g., 99.925. Fractions may not be used. It is
urged that tenders be made on the printed forms and forwarded in the
special envelopes which will be supplied by Federal Reserve Banks or
Branches on application therefor.
Banking institutions generally may submit tenders for account of
customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
submit tenders except for their awn 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.
F-648

•

TREASURY DEPARTMENT
( WASHINGTON. D.C.

FOR IMMEDIATE RELEASE

•

•••••• • :

October 5, 1966

TREASURY OFFERS ADDITIONAL $1-1/2 BILLION
IN APRIL TAX BILLS
The Treasury Department, by this public notice, invites tenders
for $1,500,000,000, or thereabouts, of l85-day Treasury bills (to
maturity date), to be issued October 18, 1966, on a discount basis
under competitive and noncompetitive bidding as hereinafter provided.
The bills of this series will be designated Tax Anticipation Series
and represent an additional amount of bills dated August 26, 1966, to
mature April 21, 1967, originally issued in the amount of $1,003,265,000.
The additional and original bills will be freely interchangeable. They
will be accepted at face value in payment of income taxes due on
April 15, 1967, and to the extent they are not presented for this
purpose the face amount of these bills will be payable without interest
at maturity. Taxpayers desiring to apply these bills in payment of
April 15, 1967, income taxe s have the privilege of surrendering them to
any Federal Reserve Bank or Branch or to the Office of the Treasurer of
the United States, Washington, not more than fifte~n days before
April 15, 1967, and receiving receipts therefor showing the face amount
of the bills so surrendered. These receipts may be submitted in lieu
of the bills on or before April 15, 1967, to the District Director of
Internal Revenue for the District in which such taxes are payable.
The bills will be issued in bearer form only, and in denominations of
$1,000, $5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
to the closing hour, one-thirty p.m., Eastern Daylight Saving time,
Tuesday, October 11, 1966. Tenders will not be received at the
Treasury Department, Washington. Each tender must be for an even
mUltiple of $1,000, and in the case of competitive tenders the price
offered must be expressed on the basis of 100, with not more than three
decimals, e.g., 99.925. Fractions may not be used. It is urged that
tenders be made on the printed forms and forwarded in the special
envelopes which will be supplied by Federal Reserve Banks or Branches
on application therefor.
Banking institutions generally may submit tenders for account of
Customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
sl!bmit tenders except for their own account. Tenders will be received
wlthout deposit from incorporated banks and trust companies and from
~esponsible and recognized dealers in investment securities.
Tenders
crom others must be accompanied by payment of 2 percent of the face
F-649

- 2 -

amount of Treasury bills applied for, unless the tenders are accompan~d~
an express guaranty of payment by an incorporated bank or trust company,
All bidders are required to agree not to purchase or to sell, or to
make any agreements with respect to the purchase or sale or other
disposition of any bills of this additional issue at a specific rate or
price, until after one-thirty p.m., Eastern Daylight Saving time,
Tuesday, October 11, 1966.
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, non-competitive tenders for $300,000 or less without
stated price from anyone bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids. Payment of
accepted tenders at the prices offered must be made or completed at the
Federal Reserve Bank in cash or other immediately available funds on
October 18, 1966, provided, however, any qualified depositary will be
permitted to make payment by credit in its Treasury tax and loan account
for Treasury bills allotted to it for itself and its customers up to any
amount for which it shall be qualified in excess of existing deposits
when so notified by the Federal Reserve Bank of its District.
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 purpose 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 conditi~
of their issue. Copies of the circular may be obtained from any Fede~l
Reserve Bank or Branch.
F-649

TREASURY DEPARTMENT
Washington
FOR RELEASE: UPON DELIVERY
REMARKS OF THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE
THE THIRD ANNUAL CORPORATE PENSION CONFERENCE
THE UNIVERSITY CLUB, NEW YORK, NEW YORK
THURSDAY, OCTOBER 6, 1966, AT 12:00 NOON, EDT
FINANCIAL MANAGEMENT OF FEDERAL
CREDIT PROGRAMS IN THE GREAT SOCIETY
As pension officers you have a lively interest in the
way the Federal Government manages its financial activities.
You represent the fastest-growing group of major financial
institutions in the nation. You are fully aware of the
impact of the Federal Government's activities on the broad
financial market of the United States. Your funds are
invested in that market, and you will return to the market
again and again to seek future investment opportunities.
Narrowing our focus on your interest somewhat, the
security, convenience, and steady earning power of United
States Treasury securities surely hold a substantial part
of your attention in the market. And if you do not hold
obligations issued or guaranteed by government lending
agencies, you will have at least considered them. So a
discussion centering on Federal credit programs can be
neither strange nor uninteresting ground for you.
We in the Treasury, of course, also have a keen interest
in all the government's financial activities, although we
observe from a different point of view. We have the
responsibility of maintaining the quality of the governmentbacked obligations you hold and those you have yet to buy.
That responsibility exists within the context of our
broader obligation to maintain and enhance the well-being of
all Americans.

F-650

- 2 To see Federal credit programs in proper perspective,
we should look briefly at the purposes for which they were
created before we consider the problems of their financial
management. Since the modest beginnings with the Farm
Credit Program in the first World War era, Federal credit
programs have grown tremendously. More important, their
scope has broadened vastly, reflecting an expansion in our
scale of priorities from the farm sector of the economy and
our society to include many other sectors and fields of
activity.
Federal credit aids now help to achieve the objectives
of government programs in six major areas. Varying among
direct loans, loan insurance, and loan guarantees, they
are:
improvement of private housing and
encouragement of home ownership;
development of agricultural and other
natural resources;
promotion of economic development abroad;
assistance to business, including small business
generally, transportation, and commercial
fisheries;
encouragement of community development and
public housing; and
improvement of education, including college
facilities and student loans.
Apart from programs generated to provide temporary
assistance after a natural catastrophe cr other emergency,
continuing Federal credit programs have been established to
meet two kinds of situations. In the first of these,
government has intervened to remedy what are -- or appear
to be -- imperfections in the functioning of the private
credit system. For whatever reason, potential borrowers
are unable to command adequate credit even though they are
able to pay a competitive price for it. So-called
"credit gaps" occur, and programs are designed to close
them -- to achieve more nearly the credit allocation that
might be expected to result if the market operated more
perfectly.

- 3 In the second kind of situation, the government seeks
to achieve social, economic, or other policy objectives
which would not otherwise be attained even if the market
functioned perfectly. The government intervenes to divert
resources to particular activities from which public and
private benefits are believed to flow in a degree justifying
the costs involved.
It is often hard to tell whether it is imperfection in
the market or the desire to achieve specific objectives
which led to developing and sustaining a particular credit
program. Farm credit has been justified both in terms of
food production and of the social significance of life on
the family farm. Do we lend money for education more because
of the unquestioned value of education or because many
educational institutions and their students cannot afford
to compete for credit?
Our nation has come a long way since the inauguration
of the first Federal credit program. Much of this nation's
progress over the years has been due, directly or indirectly,
to timely extension of credit to men and women who otherwise
would not have been eligible for it or could not have
afforded it. I might stress the element of timeliness here.
There are some who would argue that the market would, in
time, provide financing for any worthwhile purpose.
It matters little to a man who needs credit for his
farm or business or financing to provide a home for his
family, or to youth who need a school to go to, or to the
sick who need a hospital, that funds will be available
"sometime." A central part of the magnificent achievement
of our credit programs is that they have provided funds
when the funds were needed.
The funds which these programs have put into the hands
of the public for purposes recognized and written into law
by the Congress add to impressive totals. The budget which
the President sent to the Congress last January estimated
that direct loans outstanding would total $33.1 billion at
the close of the government's fiscal year 1966.
Guaranteed and insured loans outstanding were estimated at
$98.5 billion. Final figures for the year are not yet
available.

- 4 The President's budget for fiscal 1967 -- the current
year -- called for almost $8 billion in new commitments in
direct loans. Half the total was budgeted for loans to
foreign borrowers by the Export-Import Bank and the Agency
for International Development -- an essential part of our
economic and trade development effort abroad. The remainder
was to be divided among 18 other major credit programs. New
commitments for guarantees and insurance of private loans
were forecast at almost $28.4 billion Over half that total
was for housing loans insured by the Federal Housing
Administration, now part of the Department of Housing and
Urban Development.
Those are substantial figures. But it is well to keep
the situation in perspective, particularly as it respects
demands on our money markets. The tremendous growth of our
economy during the last five and one-h~ years, our savings
potential, and the rising credit demands of other sectors,
coupled with reductions in Federal deficits and a decline
in the Treasury financing placed in the private market,
have resulted in a shrinking in the demands of government
finance, relative to other demands. Large as it is in
absolute terms, Federal financing is a small proportion of
our financial markets.
But consider the size of the government's portfolio of
direct loans under the various credit programs: more than
$33 billion of the taxpayers' money -- taken from their
current accounts over the years -- immobilized in loans of
various maturities, often long-term. The total has been
growing rapidly, too -- it was just over $25 billion five
years ago.
Federal credit programs have been designed to
accomplish things the private market could not or would not
accomplish. Our lending activities have always been
supplemental to the private market, never aimed at taking
its place.
Over the years successive Administrations have devised
means to use the great resources of the private market to
accomplish the necessary and highly desirable social purposes
which we originally set out to accomplish through direct
government lending. When private capital takes up part or
all of the burden of a lending program, the resources of the

- 5 public sector are freed to turn to other worthwhile purposes.
This is advantageous for several reasons:
the capital resources of the private market are
far greater than those of the government;
we could not increase the Federal budget and,
indeed, few if any of us would want to
increase the Federal budget to the degree
required to provide all the necessary funds
through direct government loans; and,
while government assistance is required to get
programs underway, we often need the flexibility
and ingenuity of the private market to carry them
out successfully.
The public gains another advantage, too. Federal credit
programs, working through the private market, help to make
the market stronger, more competitive, and better able to
serve the economy's needs over the long-term.
The most striking long-term effect of the mobilization
of private financing for Federal credit programs can be seen
in the growth of guaranteed and insured loans. Today, three
dollars of every four lent under our programs are private
funds lent under government guarantee or insurance.
The substitution of private for public credit has
received great impetus since the mid-l950s under the asset
sales program. This has consisted of selling loans -selling the loan paper, actually, which is generated under
various direct Federal lending programs.
The idea of asset sales was endorsed by the distinguished
private Commission on Money and Credit, of which Secretary of
the Treasury Fowler was a member and which issued its authoritative report in 1961, and President Kennedy's Committee
on Federal Credit Programs, of which former Secretary of
the Treasury Dillon was chairman. The program was also given
high priority repeatedly in President Eisenhower's budgets.
But despite major efforts to draw on private credit,
the portfolio of direct Federal loans outstanding has
increased in recent years. This has had direct consequences
on the Federal budget. Money for direct lending programs
must be budgeted. This means that it must be raised from
tax revenue or additional public debt -- or else that it must
take the place of some other program, which then must be

- 6 -

postponed or dropped. The money appropriated to a direct
lending program is tied up, regardless whether private
funds have meanwhile become available which could take its
place.
These conditions led originally to the program of direct
sales of Federally held assets, which had the objective of
reducing the portfolio of direct loans held by the Government.
But problems developed with the direct asset sales program.
This program, in effect, sent Federal lending agencies
into the private market to raise money. We have had at
various times half a dozen or so agencies selling their loan
paper, some of it with appeal to a very limited market.
Further, the agencies went about this task with varying
degrees of expertise.
From the Treasury's standpoint, the main problem
presented by the myriad Federal agency credit programs has
been one of coordination. This is not to say that there
has been any lack of genuine cooperation. The various
agencies are all concerned with doing the best job possible,
and there is a spirit of give and take among the agencies
and with the Treasury and its debt management problems.
Moreover, with respect to any specific financing, the
Treasury must, by law, be consulted in most cases, while,
in other cases, we have been in close touch as a matter of
practice.
Rather, the coordination problem has reflected the
multiplicity of agencies dealing directly with the market,
each with its own scheduling problems and each with fairly
specific financing objectives or requirements, all of which
have had to be fitted within an over-all schedule. Obviously,
this has required detailed planning, careful consideration
of alternatives, and hard appraisals of amounts, msturities,
and pricing.
All the agencies have had some degree of flexibility in
their financial operations, but there have also been
constraints imposed by law, market acceptability, or
considerations of prudent financial management. Patterns
of cash flow posed constraints, too. Certainly, long-term
borrowing was more appropriate for some agencies,
particularly where it was fairly clear that a portion of
the agency's need was of a truly long-term nature. At the

- 7 -

same time, we at the Treasury knew that long-term agency
borrowing could compete directly with opportunities for the
Treasury itself to tap the intermediate or longer-term
markets.
The best technique we had at hand to cope with those
problems consisted of grouping assets, consisting of loans,
into pools and selling shares or "participations" in the
pools. The Export-Import Bank had been using the technique
since 1962 and had sold about $1.7 billion of its direct
loans which otherwise might not have been marketable.
The Federal National Mortgage Association -- Fannie May,
as we all call it -- acting under the provisions of the
Housing Acts of 1964 and 1965, sold $1.6 billion of
participation certificates in its own mortgage holdings and
those of the Veterans Administration.
Last January President Johnson proposed a bold step
forward in mobilizing the resources of the private market
to accomplish the purposes of the Federal lending programs.
His proposal became the Participation Sales Act of 1966.
Its basic provisions came directly from the Housing Acts of
1964 and 1965. The earlier act authorized Fannie May to
act as trustee for the sale of participations in pools of
first mortgages. The 1965 act extended that authority.
The Participation Sales Act enlarged the use of the
pooling technique by extending it to certain other Federal
agencies which hold financial assets. Further, it
capitalized on the experience and expertise of Fannie May
by giving responsibility for managing and coordinating the
pooling and sales of assets to that agency, serving as
trustee for the other agencies.
In authorizing the creation of participation certificates
for sale in the market, the Act brought into being a
security which cannot fail as its use develops to c anmand a
broad market at yields close in line with Treasury securities.
Finally, the Act provided for Congressional review of the
pooling of assets, so that the Congress retains its
traditional influence and control over the scope and
administration of the lending programs.

- 8 -

The Act extended the use of the participation sales
technique to include assets of the Farmers Home
Administration, the Office of Education's Academic Facilities
Loan Program, the College Housing Loan Program and the
Public Facilities Loan Program of the Department of Housing
and Urban Development, and the Small Business Administration.
Under this legislation, we proposed this year to reverse the
upward trend in the total of direct Federal loans
outs tand ing.
Since then, of course, our attention has been drawn
away from the size of the direct loan portfolio and the
problems of asset sales coordination to the escalation of
interest rates and a more general inflationary threat.
The President, speaking to the nation in his Message
to the Congress on September 8, outlined his program to
avert inflation. He said, and I quote:
"No nation has ever enjoyed such prosperity ...
liThe new problems of prosperity are much
to be preferred to the old problems of recession
and depression.
But, he continued:
" ... the great satisfaction that accompanies
the solution of old problems must be tempered by
full recognition of the new problems these
solutions bring."
As you know, the President asked the Congress to suspend
two tax incentives, the 7 percent investment credit and
accelerated depreciation, for 16 months to reduce pressures
in certain sectors of the economy. I am pleased that the
House of Representatives has already passed a bill embodying
those requests of the President, and the bill is before the
Senate Finance Committee this week.
Citing tight money conditions and high interest rates
that impose a special hardship on homebuyers and small
businessmen, President Johnson announced in his message that
he had asked Secretary Fowler to review all potential
Federal security sales and to keep them at the minimum.
Mr. Fowler announced two days later that there would be no
further sale of participations during this calendar year,

- 9 unless the market returned to more normal conditions. Federal
agency offerings to the market, he said, will be limited to
amounts necessary to refinance maturing issues. It is
planned to raise any needed additional funds through sale of
agency securities to various government trust fund accounts.
These necessary measures, adopted to protect the
unprecedented and hard-won economic gains of the last five
and one-half years, have unfortunately obscured temporarily
the great significance of the Participation Sales Act.
It is really a tremendous break-through in the
financial management of our credit programs.
I have described in some detail our concern over a
market entered by individual agencies in search of buyers
for their assets. This problem, of course, is now vastly
reduced in scale.
There is another area, of equal importance, where the
effect of this milestone legislation will be felt in future
years. This is in our budget treatment of lending programs.
A government loan -- to an individual, or a business,
or an institution -- is a liability, an obligation to pay,
on the part of the borrower. It is an asset for the
government. The borrower is obligated to pay back every
cent he borrows from the government, plus interest. Yet
money lent under our Federal credit programs is treated as
an expenditure. We say the Administration has "spent"
the money.
Consequently, we generally call the repayment of a loan
a net reduction in expenditure -- a "negative expenditure."
We could just as well call it "revenue." The net impact
on the budget is the same whether we call a loan repayment
a receipt or a negative expenditure.
The pooling of loans and the sale of participations,
when these techniques are in full use after the current
inflationary threat passes, cannot fail to underscore the
differences among Federal funds spent, say, for an Army
rifle, which is expendable and has a strong tendency toward
obsolescence; funds spent for a national park, which will

- 10 be an asset to be enjoyed by our grandchildren; and funds
lent to credit-worthy borrowers who will pay back every
cent, with interest. This will have an important effect
on the budgeting process.
Competition for
keen -- particularly
needs of our society
in part, meeting the

the available Federal budget dollar is
when the whole range of great unsatisfied
is considered. The Great Society means,
greatest of those needs.

It is only necessary to name a few areas -- health
and education, poverty, the re-building of blighted urban
areas, water pollution, air pollution, transportation -- to
see that future national needs will create great future
demands for capital.
We gain some perspective in the area of future capital
needs from the recent National Planning Association study,
Goals, Priorities and Dollars, a study of the cost of achieving
our national goals for 1975. The study estimates that, by
1975, our annual expenditure level for urban development
should reach nearly $130 billion, in 1962 prices.
In transportation, the study concludes our 1975
expenditure level should be almost $75 billion, and in
housing, $62 billion. All these are double the actual 1962
expenditures.
The study further estimates that, in 1975, annual
investment in private plant and equipment, should reach
almost $152 billion -- triple the actual 1962 level.
Gross private domestic investment as a sector of hypothetical
Gross National Product in 1975 is projected at $205 billion,
more than two and one-half times the actual 1962 level.
Another National Planning Association study estimated
the cost of transforming the nation's metropolitan centers
into what the study considered to be "viable" communities
over a period of 20 years. Their estimate was $2.1
trillion, in both public and private expenditures. These
figures give us some idea of the order of magnitude of the
need for capital which we will face in less than a decade.
The Participation Sales Act did not authorize any new
programs or any additional loan funds for existing programs.
But its passage was of vital importance in assuring local
communities, educational institutions, and individuals

- 11 -

that loan programs authorized by the Congress would be
adequately funded. Further, it provides assurance to many
others -- individuals, communities, and institutions -that future programs to alleviate their most severe problems
will be financially feasible.
Things in government seldom remain fixed and static
for long. We took a long step forward with the
Participation Sales Act. But I would not be surprised if, in
a matter of a few years, that step led to still more
comprehensive progress in the future financing of Federal
lending programs.
Perhaps the next step might be the establishment of
a new central Federal lending corporation which would
obtain funds for programs economically and efficiently by
issuing its own obligations in the private market. Such
obligations would have to be backed in some fashion by the
Treasury and subject to the Secretary's approval.
Conceivably, such a government lending corporation could be
justified in terms of real savings, still greater
coordination of agency financing, and more effective and
equitable allocation of credit resources.
Such a step may be regarded in the future as the
logical extension of progress we have already made.
Perhaps it is to such a Federal credit corporation that we
should look for the kind of stability and continuity in
program financing which is essential both to orderly and
economic planning at the local and individual scale and
overall financial program planning on a national scale.

000

TREASURY DEPARTMENT
RELEASE: UPON DELIVERY

Washington

REMARKS OF THE HONORABLE ROBERT A. WALLACE
ASSISTANT SECRETARY OF THE TREASURY
NATIONAL INDUSTRIAL CONFEREf'.CE BOARD -- "BUSINESS IN 1967"
~/ALDORF ASTORIA, OCTOBER 6, 1966
9:30 A.M.
ROLE AND POll CI ES OF THE FEDERAL GOVERNMENT IN 1967

INTRODUCTION
IT IS, OF COURSE, AN HONOR TO PARTICIPATE IN THIS SESSION OF THE NATIONAL
IN:>USTRIAL CONFERENCE BOARD.

THE DISCUSSIONS WHICH HAVE

E~NATED

FROM THESE

SESSIOI'IS IN RECENT YEARS HAVE HAD A TREtvlEt'DOUS H'PACT ON FEDERAL ECOf\OMIC
POLICIES.
OFFICIALS

BRINGING TOGETHER A BROAD SPECTRUM OF
~oJITH

ECOt~MISTS

AND GOVERNMENT

PRIVATE CITIZENS \4HOSE IWIVIDUAL DECISIONS CAN INFLUENCE THE

ECONOr-1IC \oJELFARE OF MILLIONS CONTII'lIES TO SERVE A VITAL FUNCTION IN OUR UNIQUE
DEMOCRATIC PROCESS.

THE SESSIONS SERVE AS A BROADENING FORCE ON ALL PARTICIPANTS,

ENABLING EACH TO GAIN A BETTER UNDERSTANDING OF THE VIEWS OF OTHERS.

THIS FRANK

EXCHANGE OF OPINIONS AMONG THOSE WHO HOLD KEY DECISION-MAKING POSITIONS IN
BOTH GOVERNMENT AND THE PRIVATE ECONOMY IS ESSENTIAL TO FORMING THE BROAD
NATIONAL CONSENSUS THAT LEADS TO THE KIND OF

ECOt~MIC

POLICIES WHICH HAVE KEPT

THE MiERICAN ECONOMY tJOVING FORWARD ON A SOUND BASIS.
IN MY OHN RErv'ARKS, 1 HOPE I WILL NEITHER UNDERPLAY NOR OVERPLAY THE
IMPORTANCE OF THE "ROLE AND POLICIES OF THE FEDERAL GOVERNrvENT IN 1967" IN
SHAPING THE PATTERN OF OUR ECONOMY IN THE YEARS AHEAD.

AS A FEDERAL OFFICIAL,

IT IS NATURAL FOR ME TO EMPHASIZE THE VIEW FROM WASHINGTON, BUT ONLY BECAUSE
I AM MORE FAMILIAR WITrt IT THAN WITH OTHERS.

I WOULD NOT, FOR A MINUTE,

PRETEND THAT THE FEDERAL GOVERNMENT CAN M)LD THE NATIONAL ECOf\OMY TO ITS

- 2 DESIRES, EVEN IF THIS \oJERE POLITICALLY POSSIBLE, WHICH IT IS NOT.

I THIN< \E

WOULD ALL AGREE, HOWEVER, THAT IT IS THE DUTY OF THE FEDERAL GOVER~NT tJN)ER
THE TERMS OF THE a-PLOYflENT ACT OF 1946 TO PROVIDE AN ENVIRCN'ENT FAVORABLE
TO STRONG AN) STABLE GROWTH.
ECONOMIC BEHAVIOR CAN HELP.

GOOO POLICIES BASED ON UP-TO-DATE

K~LEDGE

CERTAINLY BAD POLICIES, WHICH TOO OFTEN RESULT

FROM CLINGING TO OUTMODED DOGMAS AS A SUBSTITUTE FOR ECONOMIC ANALYSIS
CAUSE IRREPARABLE

CAN

D~GE.

THE E~CTM:NT OF THE E~LOYM:NT ACT IN 1946 WAS CERTAI NLY A MI LESTOtE
IN OUR COUNTRY'S POLITICAL Af'V ECONOMIC DEVELOPf!£NT, BUT WE HAVE LEARN:D A
IT IS EASY N>W TO CRITICIZE

GREAT DEAL t-'ORE IN THE INTERVENING 20 YEARS.

THE ECONOMIC STAGNATION OF THE 1950'S, A PERIOO WHICH INCLUDED THREE RECESSIONS,
PEACETI~

SLUGGISH GROIITH Af\I), PARADOXICALLY, THE WORST
HISTORY.

It-FLATION YEARS IN RECEN

THE FACT IS, HOWEVER, THAT M6M' OF THE ECONOMIC TOOLS WE HAVE

RECENTLY EMPLOYED WITH CONSIDERABLE SUCCESS WERE, AS LATE AS THE 1950'S, ONLY
THEORIES FAMILIAR WUNLY TO ACADEMICIANS

AN)

WERE NOT MEQUATELY DEVELOPED

FOR PRACTICAL USE IN THE POLICY-MAKING PROCESS UNTIL THE EARLY 1960·S.

EVEN

THESE ARE STILL BEING IfYPROVED UPON.
CONSIDER THE USE OF TJ-EORETICAL
DEVELOPED IN THE FIFTIES.
Ml'Y HAVE SEB£D LIKE A

EC~IC

tQ)ELS WHICH WERE JUST BEING

TO THE AVERAGE PERSON ON MAIN STREET, U.S.A., THIS

~NINGLESS

ACADEMIC PARLOR GAM:.

BUT, THESE MDELS

ADDED A NEW DIfotENSION TO EC<HlMIC ANALYSIS, AN> EVEN BEFORE THE VIET ~ ESCAIJ

- 3 -

MADE POSSIBLE POLICIES FAVORABLE TO 4-1/2 YEARS OF UNINTERRUPTED PEACETIME
ECONOMIC EXPANSION -- THE LONGEST AND STRONGEST IN HISTORY -- WITH THE MOST
STABLE PRICES OF ANY INDUSTRIALIZED NATION IN THE WORLD.

THE FULL EMPLOYMENT

t-ODELS GAVE US A NEW UNDERSTANDING OF v/HY THE ECOf\KJMY COULD NEVER QUITE f'AAKE
IT TO FULL EMPLOYMENT BEFORE BEING TUMBLED INTO A NEW RECESSION.

AND, IT

SHOWED US THAT DEALING WITH THE BUSINESS CYCLE INVOLVED MUCH MORE THAN SIMPLY
FOLLOWING THE CONVENTIONA.L APPROACH TO COMPENSATORY MONETARY AND FISCAL
POLICIES WHICH IN PRACTICE MEANT MAINLY RELIANCE ON THE SO-CALLED AUTOMATIC
STABILIZERS.
THE EARLY 1960'S
THE FULL

E~~lOYMENT

MODEL WAS PROBABLY THE MOST INFLUENTIAL THEORETICAL

FACTOR IN SHAPING FEDERAL ECONOMIC POLICIES DURING THE EARLY 1960'5.

INCORPORATING

ESTIMATES OF WHAT WOULD BE TOTAL NATIONAL PRODUCTION, GOVERNMENT SPENDING AND
REVENUES UNDER COND I TI ONS OF FULL
4%

UNE~PLOYMENT)

E~..pLOYr-ENT

(SOME\-JHAT ARB I TRAR I LY DE FI "ED AS

SUCH A MODEL DEVELOPED IN 1961 BY THE JOINT ECONOMIC COMMITTEE

OF CONGRESS INDICATED THAT THE THEN CURRENT FEDERAL TAX STRUCTURE WOULD YIELD A
NATIONAL INCOME ACCOUI\'TS 3UDGET SURPLUS OF SOME $18 BI lLION.

THIS t-1EANT THAT

AS INCOMES ROSE THE INCRE,.,1ENTAL ADDITIONS '.JOUlD BE TAXED AT THE HIGHER MARGlNA.l
RATES OF INCOME TAXATION WITH THE RESULT THAT A GREATER AND GREATER SHARE OF
RISING INCOME WOULD GO INTO TAX COLLECTIONS.

THE ECONOMY COULD THUS NEVER REACH

FULL EMPLOYMENT BECAUSE AS IT MOVED IN THAT DIRECTION THE FEDERAL TAX SYSTEM

- 4 WOULD EXERT A STRONGER AN:> STRONGER DEFLATIONARY EFFECT.

ONLY A GIGANTIC

INCREASE IN PRIVATE BORROWING COULD OFFSET THIS EFFECT.
IN 1961

AN)

1962., RISING DEFENSE

REQUIRE~NTS

MD INCREASINi EXPEIIDITURES

FOR LONG OVERDUE NATIONAL NEEDS., ALONG WITH EASY CREDIT., CONFORMED TO THE
THEORY OF COMPENSATORY EC(J.JOMI C POll CI ES •
EXTRE~LY

NEVERTHELESS., Uf\Er-PLOYI1:NT

STICKY AND A NUM3ER OF THE ECONOMIC INDICATORS LED

PREDICT A RECESSION.

~NY

OBSERVERS TO

A "QUICKIE" TAX CUT WAS REC<»t-ENDED BY S<»E.

HOWEVER., WAS REJECTED ON THE GROUN)S THAT WHAT WE REALLY

~EDED

WAS

THIS VIEW,

WAS A RESllUTl

ING OF THE TAX SYSTEM IN ORDER TO CORRECT THE BASIC FLAW REVEALED BY FULL BfU
f'.£NT

~DELS.

TH I S I NVOLYEO M)RE THAN MERELY US I NG TErvPORARY TAX CHANGES AS A

COf'IPENSATORY DEVICE.

ALTHOUGH

A~N

TAX CUT WOULD OBVIOUSLY HAVE EXERTED A

TEWORARY EXPANSIONARY EFFECT., WE WANTED TO GET AT THE ROOT PROBLEM OF THE FW
EMPLOYMENT SURPLUS AND., IN ADDITION., PRODUCE A TAX SYSTEM CONDUCIVE TO
INVESTM:NT AS WELL AS RISING AGGREGATE DEMAND.
IN 1963 AND ENACTED INTO LAW IN 1964.

RISI~

SUCH A PROGRAM WAS RECOWfN)8)

IT WAS FOLLOWED., IN 1965, BY THE

ELlMIN4TION OF A MJLTITUDE OF EXCISE TAXES WHICH HAD CLUNG TO 1liE SYSTEM SIta
THE KOREAN WAR.
THAT THESE POLICIES WERE SUCCESSFUL IS., I THIN<., SELF-EVIDENT FROM 11£
RESULTS EVEN BEFORE THE STEP-UP IN VIET NAM ACTIVITIES LAST YEAR.

BETWEEN

JANUARY 1961, WHEN THE EXPANSION BEGAN, AND JULY 1965, WHEN THE VIET NAM
ESCALATION WAS ANNOUNCED, GROSS NATIONAL PRODUCT JlJfItPED 32%, CORPORATE PROFITS
ROSE 64%., AND UNEMPLOYMENT SHRANK TO 4-112%, THE LOWEST I T HAD BEEN FOR EIGHT
YEARS.

DESPITE THIS TREMENDOUS EXPANSION, PRICES REMAIN::D STABLE.

INCREASfD

INVESTfv'ENT LED TO INCREASED PRODUCTIVITY SO THAT ~IT LABOR COSTS ACTUALLY
DEC LI NED EVEN WITH A RISE I N LABOR I NCOM: •

THE FEDERAL BUDGET DEFI CIT DEeLl.

TO $3-1/2 BILLION IN 1965 AND THE BALANCE OF PAYME~ITS DEFICIT DROPPED FROM
NEARLY $4 BILLION IN 1960 TO LESS THAN $l-L'i 81LLIeN IN l~iS.

- 5 THE DIALOGUES STIMULATED l3Y THE Nt\TIONt\L I f\l)USTRIAL CONFERENCE BOARD
DESERVE GREAT CREDIT FOR THESE J MPROVEMENTS.
IMPACT OF VI ET t.LAJvl ESCALATION
TODAY, NICB SESSIONS CAN CONTRIBUTE TO THE SOLUTION OF A VASTLY DIFFERENT
SET OF ECOt-.OMIC PROBLEMS.

I \1AS INTERESTED IN READING THE PAt·PHLET FURNISHED

FOR THIS PARTICULAR SESSION.

AFTER CITING THE ACCOMPLISHMENTS OF THE 1960'S,

IT STATES THAT "\~HILE THIS EXPERIENCE IS REASSURING, .AND THE BASIC VITALITY
OF THE ECONOMY HAS BEEN WELL ESTABLISHED, THERE IS SOME EVIDENCE THAT THIS
LONG EXPANSION MA.Y FINALLY RUN INTO A LOSS OF ENERGy.1l

IT THEN ASKS IF

THOSE SECTORS \'JHICH HAVE BEEN CONTRIBUTING TO ECONOMIC STRENGTH IN 1966 CAN
BE REPEATED IN 1967 AND IF NOT, WHAT OTHER STRENGTHS WILL MATERIALIZE?

ODDLY

ENOUGH, THE EXTRA DEMANDS OF VlET N.A.i'1 WERE NOT rvENTI ONED, BUT I TH I NK 'dE WOULD
ALL OBVIOUSLY AGREE THAT THEY MUST BE TAKEN INTO ACCOUNT.

IN FACT, I CONSIDER

RISING DEFENSE NEEDS A FACTOR WHICH SHOULD CONCERN US EVEN MORE THAN THOSE
LISTED IN

~~E

PAMPHLET -- AT LEAST IN THE

I~EDIATE

FUTURE.

ACTUALLY, OF COURSE, HE MUST, BE CONCERNED WITH TI."O POSSIBILITIES -- THAT
THE

ECO~.oMY

to-UGI-iT RUN OUT OF STEAM OR THAT IT mGHT GENERATE TOO MUCH STEAM.

THAT I S WHY \-JE NEED THE UTt--'OS T FLEX 18 ILl TY I N OUR

ECONO~11 C

PROGRAMS AND BE

READY AT ALL TIM:S TO M:>VE QUICKLY IN THE APPROPRIATE DIRECTION.
TO BE CAUGHT Z I GG I NG HHEN VIE SHOULD BE ZAGG I NG.
tvUST 3E GEARED TO COMBAT I NFLATION.

WE DON'T WANT

RIGHT NO\o,J I TH H~K OUR POLl CI ES

BUT ','IE ~'lUST ADJUST POLICY VIITfi CARE OR \'/E

COULD MAKE A 1967 SLOWDO\-JN TURN H~'TO A REALISTIC POSSIBILITY.
IT WAS IN THIS SPIRIT THAT THE PRESIDENT'S BUDGET, PRESENTED LAST
JANUARY, INCLUDED PROPOSALS TO SLOW DOWN BUT NOT CHOKE OFF I~~REASES IN
PURCHASING POWER -- f'IODERATE RESTRAINT IN CIVI LIAN EXPENDITURES AND TAX
ADJUST~£NT MEASURES~

HIS TAX PLAN RECOMMENDED RAISING REVENUES BY SPEEDING

- 6 UP TAX COLLECTIONS AND POSTPONING SCHEDULED REDUCTIONS IN EXCISE TAXES ON
AUTOtvU8ILES AND
I~DIVIDUAL

TAXES

TELEP~lONE

OR CORPORATE

~~HICH

SERVICES.

INC~£

HE DID NOT PROPOSE JlItJY CHANGES IN

TAX RATES OR A RESTORATION OF THOSE EXCISE

WERE ELIMINATED IN 1965.

~En/EEN

JANUARY 1 AND SEPTEt-IBER 1 OF ll-HS YEAR., IN ORDER TO DAlvPEN

INFLATIONARY PRESSURES THE PRESIDENT Af'ID CONGRESS TOOK ACTIONS WHICH ELIMINATED
$10 BILLION OF EXCESS PURCHAS-ING POV1ER FROM THE EC<l\IQMY -- THROUGH HIGHER
SOCIAL SECURITY TAXES, THE TAX ADJUSTf"ENT PROGRN1, AND TIiE ACCELERATION OF
LARGE EMPLOYERS'
~"ITHHELD.

PAY~'ENTS

OF EMPLOYEES' SOCIAL SECURITY AND INCCM: TAXES

I THINK THERE CAN BE NO QUESTION BUT THAT THESE FISCAL POLICIES,

COt'l3INED WITH THE CREDIT RESTRAINT OF THE FEDERAL RESERVE BOARD, HAVE KEPT
PRICE RISES

BEL~y

WHAT THEY WOULD OTHERWISE HAVE BEEN.

NEVERTHELESS, PRICE

tvOVErvENTS IN RECENT t-ONTHS HAVE CLEARLY It-l)ICATED THE NEED FOR ADDITIONAL
MEASURES.
THE

PRESIDE~~

STATED IN filS BUDGET MESSAGE LAST JANUARY THAT IF

EFFORTS \/ERE TO BECOfv'E NECESSARY

~iE

WOULD "PROPOSE SUCH FISCAL ACTIONS AS ARE

I-JEEDED TO r-1AINTAIN PRICE STABILITy. 1I
A~D

ADDITla~L

ADDITIONAL ACTION HAS BECOfvE f\ECESSARY

ON SEPTEMBER B, THE PRESIDENT ANNOUNCED A NEW ANTI-INFLATIONARY PROGRAM

\'/HICH CALLS FOR A $3 BILLION CUTBACK IN CIVILIAN EXPEf'.I)ITURES TO REDUCE n£
GOVERNfv'ENT I S DEf'.1AN)S ON THE ECONOMY AND A TEMPORARY SUSPENS I ON OF TI-E I NVESTtvENT CREDIT IN ORDER TO DIVERT FUNDS FROM Tt-E: SWOLLEN STREAM OF CAPITAL
OUTLAYS.

IN ADDITION, WE ARE HORKING ON A NEW TYPE OF FEDERAL SAVINGS CERTI-

FICATE DESIGNED TO ENCOURAGE SAVING.

- 7 THE PRESIDENT
MENT GROUPS.
HE HAS

ASK~D

~~S

ALSO CALLED FOR RESPONSIBLE BEHAVIOR AMONG NON-GOVERN-

ASKED BANKS TO HANDLE LOANS EQUITAI3LY AND WITH R.ESTRAINT.

BUSINESS TO RESTRAIN THEIR USE OF CREDIT, KEEP INVENTORIES AT

REASONABLE LEVELS, POSTPONE INVESTtvENTS, SET PRICES ON THE BASIS OF REAL
COSTS AND LIMIT PROFITS TO JUSTIFIABLE LEVELS.
AVOID WAGE

DE~VWDS

AND HE HAS ASKED LABOR TO

THAT WOULD RAISE PRICES, TO LIBERALIZE RESTRICTIONS ON

NE\-J ENTRANTS INTO ITS TRADES AND TO COOPERATE \'JITH t¥.f\IAGH1ENT TO RAISE
PRODUCTIVITY.
PROGRAMS TO ALLEVIATE THE PLIGHT OF THOSE GROUPS HARD-liIT BY CREDIT
SHORTAGES ARE ALSO UNDER\tJAY; A NEW LAW TO PERMIT AN ADDITIONAL $4.7 BILLION
TO SUPPLEMENT FUNDS FOR

HO~

tIORTGAGES; ANOTHER LAW TO SOFTEN THE FIERCE

COMPETITION FOR SAVINGS M''ONG FINANCIAL INSTITUTIONS AND A CUTBACK IN THE SALES
OF PARTICIPATIONS IN GOVERNMENT-HELD LOANS AND FEDERAL AGENCY OFFERINGS.
IN TRYING TO rvoVE THE SHIP OF STATE SAFELY AHEAD WITHOUT CRASHII\G INTO
THE SCYLLA OF A RECESSION OR THE CHARYBDIS OF INFLATION, THESE POLICIES
THI~K

ARE APPROPRIATE TO THE CURRENT SITUATION.

THEY FALL SOMEWHERE IN

BETWEEN THE ADVICE OF THOSE URGING STRONGER ANTI-INFLATIONARY PROGRAMS SUCH AS
TAX RATE INCREASES OR EVEN SUCH EXTREME MEASURES AS WAGE AND PRICE
ON THE CNE

HAW At..[)

THOSE WHO FEEL

T~T

CONTROLS

OUR POLICIES DO NOT REPRESENT

ENOUGH OF A HEDGE AGAINST THE POSSIBILITY OF A RECESSION ON THE OTHER HAND.
THE FACT IS .. HO\.,rEVER, THAT THE BALANCE BEn4EEN SUFFICIENT DEMAt'-D At-.[) EXCESS
DEMAND IS MUCH TOO DELICATE AT THIS POINT TO TAKE CHANCES WITH HEAVY-HANDED
POLICIES, ONE WAY OR THE OTHER.
IT WILL BE NECESSARY, THEREFORE, TO KEEP A CONSTANT SURVEILLANCE OVER
ALL ECONOMIC DEVELOPMENTS DURING THE NEXT THREE MONTHS.

DURING THAT TIME

- 8 WE SHALL BE DEVELOPING THE N:W FEDERAL BUDGET REC(Mt1EN)ATIONS WHICH MJST
TAKE ALL OF THE LATEST DEVELOPtlENTS I NTO ACCOUNT.
DECIDING ECONOMIC POLICIES
OUR FLEXIBLE APPROACH TO ECQ\JOMIC POLICIES WHICH WE HAVE FOLLOWED DURIN;
THE CURRENT YEAR WILL BE CONTINUED IN 1967.

IN THIS RESPECT, YOU MAY BE

INTERESTED IN HOW WE ARRIVE AT OUR RECOMMENDATIONS TO THE PRESIDENT.
ACTUALLY, OF COURSE, THE PRESIDENT SEEKS ADVICE FROM A GREAT NUMBER OF
SOURCES -- FROM ALL OF HIS CABINET t-£MBERS AND THE INDEPEI\DENT AGENCIES OF ll£
GOVERNMENT, FROM BUSIf\ESS
THE ACADEMIC COM'1UNITY,

PH)

FINANCIAL GROUPS, LABOR AND FARM REPRESENTATIVES,

~£MBERS

OF CONGRESS Af'.V MANY INDIVIDUALS.

HOWEVER, BOTH PRESIDENTS KENNEDY
HAVE RELIED HEAVILY

()\J

M[)

SINCE 1961

dOHNSON IN REACHING THEIR FINAL DECISI()6

THE RECOM'1ENDATIONS AND CGYMENTS OF AN

INFO~L

GROlP

IN THE GOVERNf<tENT WHICH IS SOf'v'EWHAT FACETIOUSLY REFERRED TO AS THE "TROIKA."
IT CONSISTS OF THE SECRETARY OF THE TREASURY, TI-£ CHAIRMAN OF THE COUNCIL OF
ECONOMIC ADVISERS, AND THE DIRECTOR OF THE BUREAU OF THE BUDGET.
THE TRO I KA I S A THREE -AGENCY GROuP BUT I TIS ALSO A THREE -LAYERED GROI.P.
STAFF EXPERTS OF THE THREE AGENCIES MAKE UP THE FIRST LAYER.
PREPARE Tt-E BACKGROUND MATERIAL -- THE LATEST STATISTICAL

THESE PEOPLE

DEVELOP~NTS Nf)

PROJECTIONS OF THE ECON<Jt.1IC BEHAVIOR OF VARIOUS SECTORS OF THE ECONOMY.

TIf

SETIING RIE ESTIMATE OF GOVERNt-'ENT SPENDING AND REVENUES AlONGSIDE THE
ANTICIPATED BEHAVIOR OF THE NON-FEDERAL CQM>OI\.ENTS OF THE GW, WE ARE
PROVIDED WITH A BASIC FRAMEWORK FOR POLICY RECOMMENDATIONS.
THE MIDDLE LAYER OF THE TROIKA CONSISTS OF AN ASSISTANT SECRETARY OF 11£
TREASURY, A FUNCTIO'J WHICH I PERFORM, ALONG WITH AN ASSISTANT DIRECTOR OF n£
BUDGET, DR. CHARLES Z\oJICK, AND A ~MBER OF THE COUNCIL OF ECOr-.oMlC ADVISERS,

- 9 DR. ARTHUR OKUN.

THIS LAYER REVIEWS THE PROJECTIONS OF ITS STAFF AND RELATES

IT TO THE POll CY DEC I S IONS WH I CH MUS T BE rvv\DE.
THE TOP LAYER IS THE TROIKA ITSELF -- SECRETARY

FOWLER~

CHAIRMAN ACKLEY

AND DIRECTOR SCHULTZE -- WHICH REVIEWS OUR ANALYSES AND DECIDES ON THE FINAL
RECOMMENDATIONS OR COMMENTS WHICH WILL BE PRESENTED TO THE PRESIDENT.
BASIC TO THIS ENTIRE PROCESS IS OUR PROJECTION OF GNP.
INDICATES A SLOW RATE OF GROWTH AND RISING

UNEMPLOYMENT~

IF THE PROJECTION

POLICY

RECOMMENDATI~S

WILL OBVIOUSLY BE DIFFERENT THAt! IF THE PROJECTION INDICATES THAT THE ECONOMY WILL
SURPASS ITS POTENTIAL FOR

GROWn~

WITHOUT INFLATION.

UNDER PRESENT CONDITIONS,

FOR EXAMPLE, WE FEEL THAT A REAL GNP GROWTH RATE AVERAGING SOME\o.JHAT BETTER THAN
4% A YEAR CAN BE ACHIEVED vJITHOUT EITHER STRONG INFLATI(]\JARY PRESSURES OR RISING
UNEMPLOY~-1EJJT.

IF ANTI CIPATED GRCMTH EXCEEDS THIS RATE BY AN APPRECIABLE

AMOLNT~

THERE IS A GREATER POSSIBILITY THAT PART OF THE INCREASE WILL BE IN THE FORM OF
HIGHER PRICES WHICH ADD NOTHING TO REAL GROWTH Ai-..JD CAUSE IMBALANCES If-..J THE ECO-..JOMY.
ON THE OTIfER HAND, IF PROJECTED GROWTH FALLS SIGNIFICANTLY BELOIJ THAT RATE, WE
WILL NOT BE EXPANDING IN ACCORDANCE \vITH OUR POTENTIAL, UNH1PLOYMENT IS LIKELY TO
RISE

~-..JD

THE DANGER OF A RECESSION MUST BE TAKEN INTO ACCOUNT.

ECONOMIC
SCIENCE.

FORECASTING~

DESPITE RECENT IMPROVEMENTS, IS STILL NOT .AN EXACT

NEVERTHELESS IT IS FAR BETTER THAN SE.L'...T-OF-THE-PA\ITS GUESSES Af\ID A

NECESSARY INGREDIENT TO THE EXERCISE OF SOUND JUDGMENT AFFECTING THE NATIONAL ECONOMY.
CO-..JTINUING PROBLEMS
WE HAVE FOUND THROUGH THE YEARS THAT GOVERNMENT EXPENDITURES ARE OF LIMITED
UTILITY AS A TOOL OF ECONOMIC STABILIZATION POLICY.

WHEN CONDITIONS HERE SUCH

THAT HIGHER EXPENDITURES COULD HAVE BEEN HELPFUL, AS IN 1961), WE FOl.JND IT VERY
DIFFICULT TO GET my SUBSTANTIAL AMOUNTS OF ADDITIOf.,fAL Spn·IDIHG Ui'JDERWAY QUICKLY
j]'jOUGH TO DO I"RJCH GOOD.

LOOSENING THE PURSE STRINGS IS AU-JAYS POPULAR BUT IT

TAKES TH'E TO GET NE\v spem It JG PROGRAI'-1S OFF THE GROlJ'JD.

- 10 -

WE ENCOUNTER A SIMI LAR STICKINESS WHEN WE TRY TO CUT EXPENDITURES.
REDUCTIONS ARE POLITICAllY SENSITIVE.

FOR EXAWLE, IvE :iAL> HOPED ll-tAT ntE

ENACTMENT OF THE FEDERAL AID TO EDUCATION PRUG:<K'i
BACK

SO~

~~OULD

ENABLE US TO CUT

OF THE SPECIAL PROGRAMS SUCH AS AID TO SCi-lOOlS IN FEDERAllY-AFFECTED

AREAS AND THIS WAS RECOMMENDED.
IN THEIR DISTRICTS

~VHICH

HOWEVER, MMlY f'AEMBERS OF CCNGRESS HAD SOiOOLS

BENEFITED FROM TIiE OLDER PROGRAM.

THEY TOOl< A DIM VIS

OF SUCH CUTBACKS AND WERE ABLE TO PREVENT TIiEM.
NEVERTHELESS, EVEN THOUGH LIMITED, EXPENDITURES POLICIES CAN HELP,
ESPECIAllY BY RESTRAINING INCREASES.

THE PRESIDENT'S PlAN OF SAVING $3 BIlLl~

vHll NOT BE POPULAR, BUT IT WIll HOLD DOWN AGGREGATE DEf'¥v'JD.
ALREADY UNDER WAY IN THE FORM OF CONS TRUCT I 0\1 STRETCH-OUTS,

REDUCTIG6 ARE
L1MITATI~S

0'4 1l1E

USE OF OVERTIME, PERSONNEL FREEZES AND OUTRIGHT PROGRAM POSTPONEMENTS.
TAX CHANGES CAN BE EFFECTIVE BUT THEY, 100, ARE CONTROVERSIAL AND TAKE A
GREAT DEAL OF TIME.

IT TOOK OVER A YEAR TO GET THROu\:rH OUR FIRST TAX PROGIW1,

THE INVESTMENT CREDIT, ENACTED IN 1962, AND ALSO OVER A YEAR TO ENACT THE
COMPREHENSIVE TAX CUT IN 1964.

HOWEVER, IT REQUIRED ONLY TWO fJO\!THS TO PASS

THE EXCISE TAX REDUCTION ACT OF 1965 AND THE TAX ADJUSTMENT ACT OF 1966.

NOW LOO<S AS THOUGH EVEN LESS TIME WILL 3E REQUIRED FOR CQ\JGRESS TO ACT Cl'J 1HE
PRESIDENT'S RECOI'1'-1ENDATION OF SEPTEMBER 8 TO SUSPEND THE INVESTMENT CREDIT.
NEVERTHELESS, I THINK VJE ALL RECOGNI ZE THAT PNY EFFORT TO RAISE INDIVIIXIAL
AND CORPORATE JNCCM: TAX RATES WOULD NOT ONLY TAKE A GREAT DEAL OF TIM:, BUT
WOULD BE SUBJECT TO GREAT Ca-lTROVERSY.

WHAT WE HAVE DONE SO FAR TO OffSET

PRJ CE PRESSURES HAS NOT AFFECTED ANYONE'S TAX RATES.

TI-iE TAX ADJUSTM:NT

- 11 -

ACT OF 1966 CHANGED PAYMENT DATES AND POSTPONED SCHEDULED EXCISE TAX REDUCTIONS
FOR AUTOMOBILES AND TELEPHONE SERVICE.

EVEN THE PRESIDENT'S MOST RECENT

PROPOSAL DOES NOT CHANGE TAX RATES BUT INSTEAD ELIMINATES A

Ba~US

PROVIDED FOR

INVESTf't'ENT.
OBVIOUSLY,

r~o

ONE LIKES TO HAVE HIS TAXES INCREASED.

Ca.JGRESS IS ELECTED

BY MILLla.JS OF INDIVIDULAS vlHO rvlAY NOT ACCEPT THE CONNECTION BETWEEN TAX
PAYM.:NTS Al'JD PRJ CE LEVELS -- THAT I F THEY PAY AN EXTRA FEW DOLLARS A WEEK IN
TAXES THE GOODS THEY BUY HILL COST LESS THAN THEY WOULD IF TAXES WERE NOT
INCREASED.
C~~SIDER

THE DEBATES OVER RECOMMENDATIa.JS TO CUT TAXES WHICH WERE FIRST

PROPOSED IN 1963.

I REMEMBER TALKING WITH

FI~JCIAL

ANY TAX CUT WHILE THE BUDGET WAS IN DEFICIT.

GROUPS WHO WERE AGAINST

HOWEVER, EACH ONE OF THESE INDI-

VIDUALS WAS SCHEDULED TO BENEFIT CONSIDERABLY BY THE TAX REDUCTION.

INITIALLY

THEY HERE AGAINST THE TAX CUT, BUT THEY COULD NOT HELP BUT LIKE THE IDEA OF
HAVING MORE MONEY TO SPEND.

THEIR OPPOSITI()\J, I MUST SAY, WAS NOT THE

STRONGEST OF ANY I HAD EVER SEEN.
IN THE CASE OF EXPENDITURES, ALTHOUGH EVERYONE IS FOR REDUCTIa-JS IN
GENERAL, SO rvlANY PEOPLE aENEFIT FROM THE VARIOUS PROGRAMS THAT PROPOSALS FOR
SPECIFIC CUTS ARE INVARIABLY MET WITH A BARRAGE OF OPPOSITION.
THERE IS" THUS" A NATURAL WCLINATION FOR EXPENDITURES TO RISE AND TAXES
TO FALL.

THEREFORE" WE l"ERE ABLE TO GAIN GENERAL ACCEPTANCE OF APPROPRIATE

FISCAL PROGRAMS DURING PERIODS OF EXCESS IVE UNEWLOYfvENT.

SINCE WE HAVE

NOT TRIED TO RAISE TAX RATES WE HAVE ALSO BEEN SUCCESSFUL WITH OUR ANTIINFLATIa.JARY FISCAL PROGRAM THIS YEAR.

BUT WHAT WILL HAPPEN IF INFLATIONARY

- 12 PRESSURES INCREASE?

AND WHAT I F WE WANTED TO CUT TAXES (]\I A TEt-PORARY BASIS?

COUND WE EVER GET THE ORIGINAL RATES RESTORED IF nilS BECAME NECESSARY?
CONSIDERING NEW APPROACHES
THE DESIRABILITY OF ACHIEVING GREATER FLEXIBILITY IN FISCAL POLICY
LED THE CQMV\ISSI()\J ()\J

~EY

AND CREDIT TO INCLUDE A RECOM'1ENDATION TO

GIVE THE PRESIDENT AUTHORITY TO VARY INCOME TAX RATES WITHIN A LIMITED
RANGE.

A REVEIW OF THE CMC RECOMvENDATIONS BY THE KENNEDY AIl'1INISTRATI(}.j

LED IN 1962 TO PRESIDENT KENNEDY'S PROPOSAL THAT THE PRESIDENT BE GIVEN
STANDBY AUTHORITY TO MAKE REDUCTI()\JS IN PERSONAL INCQ\1E TAX RATES
SUBJECT TO CONGRESSIONAL VETO.
SUGGESTI~S

OPPOSITION TO THIS PROPOSAL LED TO RECENT

FOR VARIOUS TYPES OF IMPROVEf'.ENTS IN C(]\IGRESSIO'JAL PROCEDURES

TO SPEED C()\JSIDERATIa-JS OF TAX CHANGES FOR SHORT RUN STABILIZATI()\l PURPOSES.
LAST SPRING, A SUBCOMMITTEE OF THE JOINT ECONOMIC COMMITTEE HELD HEARINGS
ON THIS ISSUE "TO
AGGREGATE

DE~D

C~SIDER

TECHNIQUES AND PROCEDURES FOR MAINTAINING

EQUAL TO CAPACITY SUPPLY THROUGH PROMPT VARIATION IN TAX

RATES."
THE SUBCOt+1ITTEE'S REPORT STATED THAT "OF THE MPNY ALTERNATIVE TAX
CHANGES SUGGESTED TO US AS SUITABLE, WE THINK THAT A UNIFORM PERCENTAGE
ADDITION TO OR SUBTRACTI()\l FROM CORPORATE AND PERS()\lAL INCOME TAX
LIABILITIES BE COMPUTED UNDER PRESENT PROVISIONS OF THE TAX CODE, TO BE
EFFECTIVE FOR A STATED PERIOD, BEST SATISFIES CRITERIA FOR SHORTRUN
ST AB I LI ZING REVENUE CHANGES."

- 13 -

THE SUBC(Mt>1ITTEE REC0rlMENDED THAT ANY CHANGE BE ADOPTED FOR A DEFINITE
TERM" AND lHAT SUCH TERM SHOULD BE SHORT, "PERHAPS NOT LCNGER THAN ()\JE
YEAR" IN ORDER TO ASSURE THAT THE QUE5TICN OF WHAT SHOULD BE THE APPROPRIATE RATE WOULD RECEIVE FREQUENT REVIEW.
IT IS NOT NECESSARY TO MAKE ANY CHANGES IN THE LAW TO CARRY OUT lHE
RECOt+ENDATI()\IS OF THE REPORT.

THE PRESIDENT C.AN AT ANY TIME RECOf'AMEND TO

CONGRESS ANY CHANGES HE FEELS WOULD BE DESIRABLE.
FROM AN ECONOMIC POINT OF VIEW" MOREOVER, IT IS NOT NECESSARY TO MAKE
CHANGES EFFECTIVE EVEN FOR AS L()\JG A PERIOD AS A YEAR.
MAGICAL ABOUT A CALENDAR YEAR.

THERE IS NOTHING

WliAT IS IMPORTANT IS THE IMPACT OF TAXES ()\J

PURCHASING POWER DURING ANY SPECIFIC PERIOD, WHICH IS PARTICULARLY RELATED TO
WITHHOLDING RATES ON WAGES AND SALARIES.

THEREFORE, CONS I DERATION SHOULD ALSO

BE GIVEN TO THE POSSIBILITY OF MAKING TAX CHANGES EFFECTIVE FOR PERIODS OF
LESS THAN A YEAR \vHEN SUCH A POLICY WOULD CLEARLY BE ADVANTAGEOUS.
THE CURRENY PAYMENT SYSTEM THAT WE HAVE FOR INDIVIDUALS THROUGH WITHHOLDING
AND ESTIMATED TAXES, AND FOR CORPORATICNS THROUGH CURRENT PAYtvENTS, PERMIT
RATE CHANGES TO HAVE AN ALMOST IMtvlEDIATE EFFECT ON THE ECONrny.

IN 1HE AREA

OF INDIVIDUAL TAXES PARTICULARLY A LARGER WI1HHOLDING RATE CHANGE EFFECTIVE
FOR PART OF A YEAR, CAN BE COMBINED WITH A SMALLER CHANGE IN THE BASIC RATES
USED TO COMPUTE lHE FINAL LIABILITY -- WHETHER THE NEED IS FOR HIGHER OR FOR
LOWER RATES.
SUCH A COURSE MIGHT, AT TIf'lES HAVE BOTH POLITI CAL AND ECOf\JOMIC ADVANTAGES.
CONSIDER FOR EXAfv1PLE, A TAX CHANGE INVOLVING ALTERATION OF WITHHOLDING RATES
TO BE EFFECTIVE FOR a-.JLY SIX MO'JTHS.

IN THIS WAY THE TOTAL AMOUNT OF THE

INCREASE OR DECREASE COULD BE CUT IN HALF, MAKING AN INCREASE MORE ACCEPTABLE
FROM A POLITICAL POINT OF VIEW" AND A DECREASE EASIER TO DROP, IF NECESSARY.

- 14 ALSO, THE FACT THAT IT WOULD BE EFFECTIVE FOR Q-.fLY SIX Ml'-JTHS WOULD GIVE
THE TAXPAYER NOTICE THAT THE NEW RATE WOULD NOT BE FOREVER FROZEN AT THE NEW
LEVEL.

FR()1 AN

VARY AGGREGATE

EC~()1IC

DE~D

STANDPOINT, A SIX

~TH

CtiN4GE IN TAX RATES WOULD

DURING THAT PERIOD ABOUT AS MJCH AS WOULD A YEAR'S

CHANGE.
ANOTHER ADVN-JTN3E OF OCCASIONAL SHORT-TERM CHANGES IN TAX RATES IS THAT
f'IODEST

VARIATI~S

COULD BE EfvPLOYED.

THERE ARE MANY INDIVIDUALS, BOlH IN

Ca-.JGRESS AND IN THE PUBLIC AT LARGE, WHO VIEW TAX CHANGES AS MAJOR SURGERY.
MORE FREQUENT JlND fYlJRE MODEST O-fANGES MI GHT BE PRESENTED AS A METHOD OF
AVOIDING SERIOUS OPERATIONS.
WELL, WI LL ACCEPT
OVER-ALL

EC~OMIC

VARIATI~S

IN THIS RESPECT BUSINESSMEN, AND
IN PROFITS, WAGES,

U\lEMPLOY~NT,

INDIVID~

PRICES AND

GROdTH BUT TEND TO FAVOR FIXED TAX RATES IN ORDER TO PERMIT

RATIO\IAL PLJlNNING FOR THE FUTURE.

HOWEVER, I F MODEST RATE CHANGES COULD

HAVE THE EFFECT OF REDUCING FLUCTUATIQ\lS IN 1HE OTHER ACCEPTED VARIABLES,
THIS SHOJLD PERMIT A BEITER, RATHER THPN A POORER, BASIS FOR PLANNING.
TEMPORARY TAX CHPNGES OF SHORT DURATIa-J SHOULD THEREFORE BE CONSlDEREDNOT ONLY FOR INCREASES, BUT ALSO FOR DECREASES.

THE EC<J\IQ\1Y MIGHT FIND ITSELF

IN THE POSITI()\,I OF NEEDING A QUICK BUT MI LD STIMULANT IN THE FORM OF A TAX
CUT -- ESPECIALLY IF THERE IS A SETTLEf"'ENT IN VIET NAM.

SIX tv'GJTHS LATER

THE EC()\,IOMIC SITUATHl'J MIGHT CALL FOR A RETURN TO THE PREVIOUS RATES if
UNH1PLOYMENT DROPPED, PRODUCTION ROSE, AND PRICE PRESSURES REAPPEARED.

HAVE A TAX CHANGE AUTG1ATICALLY END MIGHT GIVE US THE FLEXIBILITY NECESSARY
TO ACHIEVE APPROPRIATE FISCAL POLICIES -- WHETHER THEY BE TAX INCREASES OR
DECREASES.

- 15 SUCH FLEXIBILITY MIGHT PROVIDE A NEEDED REFINEMENT IN THE USE OF FISCAL
POLICY TO ACHIEVE ECONOMIC GROWTH AND STABILITY.

MODEST, BRIEF CHANGES

SHOULD GIVE MUCH BETTER CONTROL OF EC{)\J()MIC SPEED THAN BIG, CONTROVERSIAL
CHftNGES.

INSTEAD OF FLOOR-BOARDING THE ACCELERATOR OR JAM"-1ING ON THE BRAKES,

WE COULD SIMPLY VARY OUR SPEED TO MATCH THE NEED.
\oJITI-lOUT TAMPERING

~~ITH

THIS COULD BE ACHIEVED

C(X\lGRESSIONAL TAX PREROGATIVES AS THE CMe PROPOSAL

WOULD DO.
GREATER FLEXIBILITY IN FISCAL POLICY COULD ALSO MAKE IT r-tORE LIKE fv10NETARY
POLlCY -- QUICKLY ADAPTABLE TO ECCl\IOMIC NEEDS BY PERMITTING FAST BUT GENTLE
CHANGES OF EMPHASIS.

IF THIS COULD BE ACCOMPLISHED, IT WOULD GREATLY RELIEVE

THE HEAVY BURDEN WHICH MONETARY POLICY HAS HAD TO CARRY,

~ND

PERMIT MORE

BALANCED ADJUSTMENTS TO TAKE PLACE.
THE IDEA OF MEETING THE NEED FOR FLEXIBLE FISCAL POLICIES DY MEANS OF
SHORT-TERM TAX CHANGES SHOULD THUS BE EXPLORED, IN MY OPINION.

OF COURSE, NO

SUCH INNOVATION WOULD BE RECOM'1ENDED BY THE ADMINISTRATION \.JITHOUT A GREAT
DEAL OF FURTHER STUDY, SO I WOULD VERY MJCH LIKE TO GET THE OPINIONS OF NICS
PARTICIPJ1NTS ABOUT IT.
SUfvMARY
WE HAVE, IN RECENT YEARS, BEEN SUCCESSFUL IN DEVELOPING TOOLS FOR BETTER
ECOOMIC ANALYSIS AND IN SECURING APPROPRIATE POLICIES.

BUT \'iE NEED CONSTANTLY

TO WORK TOWARD REFINEMENT OF THESE TOOLS AND DEVELOP NEW ONES THROUGH THE
PROCESS OF CONTINUING RESEARCH.

IN ADDITION, WE MUST SEEK IMPROVED METHODS,

INVOLVING BOTH THE PRESIDENT AND CONGRESS, OF MAKING NECESSARY CHANGES
POLITICALLY ACCEPTABLE. SOME METHOD OF MOVING MORE QUICKLY WOULD BE HIGHLY
DESIRABLE TO COMBAT BOTH RECESSI<l'-JS .AND INFLATI<l'-J.
ME.ANWHILE, "THE ROLE AND POLICIES OF THE FEDERAL GOVERNMENT IN 1967" WILL,

AS IN THE PAST, BE DEVELOPED TO THE BEST OF OUR ABILITIES .AND, HOPEFULLY, GOOD
POLICIES WILL CONTINUE TO PREVAIL.

TREASURY DEPARTMENT
(

WITI-llIOIDING OF APPRAISruiffi:NT ON

TUBEIESS TIRE VALVES
The Treasury Department is instructinG customs field officers to
withhold appraisement of finished tubeless tire valves (except item Nos.
TR 413 and TR 415 produced by Alligator Ventilfabrik, Giengen-Brenz),
from West Germany pending 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.

This withholding order will apply to

importations entered, or yTithdraml from warehouse, for consumption after
publication of the order, which will appear in the Federal Register in
the near future.
Under the Antidumping Act, determination of sales in the United
States at less than fair value 't-,"Quld 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 dump inc under the law.
The

info~tion

alleging that the merchandise under consideration

vTas being sold at less than fair value within the meaning of the Antidumping Act 'vas received in proper form on April 26, 1966.

This infor-

mation was the subject of an "Antidumping Proceeding Notice 11 which waS
published on page 9751 of the Federal Register of July 19, 1966, pursuant to section 14.6(d), Customs Regulations.

TREASURY DEPARTMENT
(

RELEASE 6:30 P.M.,
!l, October 10, 1966.
RESULTS OF TRFASURY'S UEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series of Treasury

one series to be an additional issue of the bills dated July 14, 1966, and
other series to be dated October 1), 1966, which were offered on October 5,
, were opened at the Federal Reserve Banks today. Tenders were invited for
00,000,000, or thereabouts, of 9l-day bills and for $1,000,000,000, or thereabouts,
82-day bills. The details of the two series are as follows:
5,

E OF ACCEPT3D
ZTI'rlVE BIDS:

High

Low
Average

91-day Treasury bills
maturinfi Janu~ 12, 1967
Approx. Equiv.
Price
Annual Rate
98.6)0 2;./
S.I.~20%
98.608
5.507~
98.617
5.471fo
!I

·•••
·••
·•••
·•

l82-day Treasury bills
maturin~ A;eril l3 l 1967
Approx. J!:quiv.
Price
Annual Bate
5.732,;
97.102
97.064
5.76~
97.093
5.75U~

Excepting 2 tenders totaling $1,725,000
of the amount of 9l-~ bills bid for at the low price was accepted
12% of the amount of l82-d~ bills bid for at the low price was accepted

75%

T2iIDE3S A..-opLIZD FOE AND

,trict
3ton
~ York
Llade1phia
!ve1and
:h.'I1ond
.anta
.eago
, Louis

meapolis
Lsas City
las
Francisco
TOTALS

ACCEPT~D

BY FEDERAL RZSERV2 DIS'fRICTS:

Acce;eted
~
18,996,000
679,029,000
21,175,000
42,621,000
13,849,000
49,128,000
156,961,000
65,.')2),000
23,490,000
41,)35,000
2),80),000
164.102,000

·•
·
·••
·•

$2,278,087,000 $1,300,012,000

AE,.)lied for
$ 28,996,000
1,475,029,000
33,175,000
52,621,000
13,849,000
5),203,000
292,711,000
69,773,000
23,490,000
41,335,000
29,803,000
164.102.000

··•

A12.elied for
$ 23,617,000
1,400,101,000
16,3.:)9,1)00
20,305,000
1),711,000
36,117,000
2)...j.9, 500 , 000
64,42),000
16,).1-60,000
18,557,000
18,042,000
200,140,000

Acce,eted
$
0,7)6,000
57J.h337,OOO
8,244,000
23,305,000
8,711,000
19,317,000
122,620,000
54, 62),UOO
12,520,000
17,815,000
14,162,000
135,668,000

.;;2,065,332,000

~1,OOo,058,oOO

eludes $)29,418,000 nonc~mpetitive tenders acc~~pted at the avera,3e pr~ce of 98.617
eludes $204,256,000 noncompetitive t.enciers accepted at the aver~3e pr~~e of 97.093
ese rates are on a bank disc:>unt basis. The equivalent coupon ~ssue y:l.e1ds are
52~ for the 91-day bills, and 6.00% for the 182-day bills.

TREASURY DEPARTMENT

October 11, 1966

FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN SEPTEMBER
During September 1966, 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 $55,546,500.00.
000

F-652

TREASURY DEPARTMENT

FOR RELY.SE 6: 30 P.M.,
Tuesday, October 11, 1966.

RESULTS OF TREASURY 1 S OFFERING OF .$3., BILLION TAX ANTICIPATION BILLS
The Treasury Department announced that the tenders for two series of Treasury
Tax Anticipation bills, one series to be an additional issue of the bills dated
August 26, 1966, and the other series to be dated October 18, 1966, which were
offered on October 5, 1966, were opened at the Federal Reserve Banks today. Tenders
rere invited for $1,500,000,000, or thereabouts, of 18,-day bills and for
;2,000,000,000, or thereabouts, of 247-day bills. The details of the two series
Il'e as follows:

18,-day Tax Anticipation
247-day Tax Anticipation
bills maturing April 21, 1967
bills maturing June 22, 1967
Approx. Equiv.
Approx. Equiv •
Price
Annual Rate
Price
Annual Rate
Hi~
97.203 a/
.5 .443:,~
96.206
5.530%
Low
97.169 5 .509,~
5.640%
96.130
Average
97.182
5.484i Y
96.167
5.587% -y
~ Excepting one tender of ~,S,OOO
77% of the amount of 18S-day bills bid for at the low price was accepted
93% of the amount of 247-day bills bid for at the low price was accepted

RANGE OF ACCEPTSD
CO:':P~TITlVE

BIDS:

::>TAL TENDERS APPLIED FOB. AND

District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
r':irme apolis
Kansas City
Dallas
San Francisco
Totals

ACC~PTE;D

BY FEDERAL RESERvr:: DISTRICTS:

Applied For
AcceJ2ted
AE.21ied For
30,020,000
$ 112,375,000
$ 91,120,000 $
975,107,000
618,657,000
937,457,000
76,680,000
29,280,000
98,855,000
127,975,000
209,8)9,000
77,725,000
41,51D,000
24, J10, 000
3,,685,000
113,755,000
101,05S,000
50,740,000
370,952,000
276,$52,900 ..
355,396,000
65,605,000
:)5,955,000
92,365,000
109,755,000
93,820,000
70,755,000
29,059,000
59,779,000
45,034,000
60,600,000
48,694,000
33,394,000 •
162.z861 z000
1~61.561~000
374 z1 251. 000
$2,4,0, J16, 000
$2,272,993,000 ;p1, 500, 398,000

·
··

·
·
·

Acce,eted
$
77,955,000
628,587,000
94,785,000
203,489,000
20,685,000
42,786,000
341,356,000
71,865,000
78,820,000
28,609,000
45,250,000
366z125z000
$2,000,312,000

Includes $2)1,893,000 noncompetitive tenders accepted at the average price of 97.182
Includes $217,166,000 noncompetitive t,enders accepted at the average price of 96.167
These rates are on a bank discount basis. The equivalent coupon issue yields are
5.72% for the 18S-day bills, and 5.85% for the 247-day bills.

- 653

TREASURY DEPARTMENT

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
$2,300,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing October 20,1966,
in the amount of
$ 2,302,037,000, as follows:
91-day bills (to maturity date) to be issued
in the amount of $1,300 OOO,000, or thereabouts,
additional amount of bil i s dated July 21,1966,
mature January 19,1967, originally issued in the
$1,001,376,000, the additional and original bills
interchangeable.

October 20,1966,
representing an
and to
amount of
to be freely

182-day bills! for $1,000,000,000, or thereabouts, to be dated
October 20,1966,
and to mature April 20, 1967.
The bills of both series will be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and at
maturity their face amount will be payable without interest. They
will be issued in bearer form only, and in denominations of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, October 17, 1966.
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 t.rust 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.
F-654

- 2 Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announce.
ment 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 Treasu~
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 a t the Federa 1 Reserve Bank on Dc tober 20,1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills rna turing October 20, 1966. Cash and exchange tenden
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 m
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 soid 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 bi lIs 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 t~
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and ~~
notice prescribe the terms of the Treasury bills and govern the
C ond i t ions of the ir issue.
Copies of the circular may be· obtained ftI
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

October 12, 1966
FOR IMMEDIATE RELEASE
NICHOLAS A. REY NAMED HEAD OF
TREASURY'S EXECUTIVE SECRETARIAT
Treasury Secretary Henry H. Fowler today appointed
Nicholas A. Rey as a Special Assistant to the Secretary and
Director of the Treasury Department's Executive Secretariat.
Mr. Rey, 28, succeeds Robert J. Moody, who has resigned
to join the FMC Corporation, San Jose, California.
The Treasury's Executive Secretariat is the central
coordinating staff of the department, serving the Secretary
and the Under Secretaries.
Mr. Rey, will assume his new post on Monday, October 17,
1966.

He joined the Treasury Department in May 1963, as the

head of the Secretariat in the Office of the Assistant Secretary
for International Affairs.

Since early 1965, he has been an

economist in the Office of International Gold and Foreign
Exchange Operations.

He is a graduate of Princeton University

and the Johns Hopkins School of Advanced International Studies.

000

F-655

TREASURY DEPAR'IMFlIT
Washington, D. C.
IMMEDIATE RELEASE

F-656

THURSDAY, OCTOBER 13,1966

Prelimina.ry 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 amerrleci, ani 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 oubooded names.)

"
Country of Origin
Egypt and Sudan ••••••••••••
Peru •••••••••••••••••••••••
India and Pakistan •••••••••

China ••••••••••••••••••••••
Mexico •••••••••••••••••••••
Brazil •••••••••••••••••••••
Union of Soviet
Socialist Republics ••••••
Argentina ••••••••••••••••••

Haiti ••••••••••••••••••••••
Ecuador ••••••••••••••••••••

Established Quota

783,816
247,952
2,003,483
1,370,791
8,883,259
618,723
475,124
5,203

2Yl

9,333

Established Quota

Country of Origin

Imports

!I
~I
~

Honduras ••••••••••••••••••••
Par~ ••••••••••••••••••••
Colombia ••••••••••••••••••••
Iraq ••••••••••••••••••••••••
British East Africa •••••••••
Indonesia and Netherlands
New Guinea ••••••••••••••••
British W. Indies •••••••••••
Nigeria •••••••••••••••••••••
British W. Africa •••••••••••
Other. including the U.s ••••

Except Barbados, Benm.vla, Jamaica, Trinidad, ani Tobago.
Except Nigeria ani Ghana.
Cotton 1-118" or more
Established Yearly Quota - 45.656,420 lbs.
!mPOrts August 1. 1966 - October 10.
Staple Length
1.-3/8ft or more
1.-5/32" or more am unier
1--=t/et. ('T'AnInl~"')

1966

Allocation

39.590,778
, ...nrI_nnn

Inmnrts
20,395,401
,n~

~_/

Imports

752

8'71
l24

195

2,240

71,388

21,321
5,377
16,004

---

-2COTTON WASTES

(In pounds)
COTI'm CARD STRIPS made from cotton havi.n~ a staple of less than 1-3/16 inches in length, OOMBER
WASTE, LAP WASTE, SLIVER 'tiASTE, AND ROVnW WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VAlliE: Provided, however, that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more
in staple 1e~th in the case of the fol1~ countries: United Kin~dom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy:

Country of Origin

Established

: TarAL QUOTA

·•
Kin~dom ••••••••••••
Canada ••••••••••••••••••••
France ••••••••••••••••••••
India 'and Pakistan ••••••••

4,323,457
239,690
227,420
69,627
Netherlands •••••••••••••••
68,240
Switzerland •••••••••••••••
44,388
Belgium ••••••••••••.•••• .••
38,559
Japan •••••••••••••••••••••
341,535
China •••••••••••••••••••••
17,322

Total Imports

: Sept. 20, 1966,
: Oct~. 10~ 1966

Get'lft8l1Y" •••••••••••••••••••

Italy •.••••••.•.•.•.••.•.•
other, inc1udin~ the U.S ••

12,853

25,41.~3

76,329
21,263

the Bureau of Olstoms.

75,807
22,747
14,796

8,135

1/ Included in total imports, column 2.
Prepared

67,453

6,544

5,482,509

Establishea:- Imports
33-1/3% of: Sept.. 20, 1966
~: _Total~ota~ to Oct. 10, 1966

1,441,152

United

Egypt •••••••••••••••••••••
Cuba ••••••••••••••••••••••

-1/

7,088

67,453

1,599,886

TRF.ASURY DEPARTMENT

Washington

ntMEDIATE RELEASE

F-657

THURSDAY, OCTOBER 13,1966

The Bureau of Customs has announced the following preliminary
figures showing the imports for consumption from J armary 1, 1966,
to October 1, 1966, inclusive, of commodities under quotas established pursuant to the Philippine Trade Agreement Revision Act of
1955:
Annual ·• Unit of . Imports as of
.• Established
•• Quantity : Oct. 1, 1966
Quota
Quary.tity
:

Commodity
Buttons • ••••••••••

510,000

Gross

Cigars ••••••••••••

120,000,000

Number

Coconut oil ••••••

268,800,000

Pound

Quota. filled

Cordage • ••••••••••

6,000,000

Pound

5,409,200

Toba.cco • ••••••••••

3,900,000

Pound

2,696,012

334,250
8,339,138

TREASURY DWAR1MPJiT
WuhiDgton, D. C.
IMMPDIATE RELEASE

THURSDAY, OCTOBER 13,1966

F-658

The Bureau ot CUstoDIa announced tod81' pre1.1m1narr tigures showing the
quantities ot wheat and m:l.lled wheat products authorised to be entered, or
withdrawn from warehouse, tor consumption under the import quotas established
in the President's proclamation ot Mq 28, 1941, &8 mod1t1ed by the President' 8
proclamation ot AprU 13, 1942, am provided for in the Tari!! Schedules ot
the United states, tor the 12 months coDlllencing M81' 29, 1966, as tollows:

••
••
Country
of

Origin

••

••
••
••

z
:

Wheat

••

.•

;

: Established
Quota
••

•• Established
••
Quota

Poums)

(Bushels
Canada
China
Hungary
Hong Kong
Japan
Un! ted Kingdom
Australia
Gel"2D&DY
Syr1a
Hew Zealaai
ChUe
Netherlan1s
Argentina
Italy

Milled wheat products

795,000

790,156

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

790.156

1..000.000

100
100
100
100

2,000
100

Cuba
1,000

France
Greece
Mexico
P&Il8IIa

100

Uruguq

Poland am Danzig
Swac1en
Yugo.lavia
HorllQ'
Can8l"1 Islands

3,815,000

1,000

Rwun1a

100
100

Guateaal.a
Bl'uU
Union ot Soviet
Socialist Republic.

100

Belgium
Other foreign countries
or areas

BOO.. 000

),815,000

TREASURY DEPARTMENT
Washington
IMKEOIATE RELEASE

THURSDAY, OCTOBER 13,1966

F-659

The Bureau of Customs announced tod83 preliminary figures on imports for
consumption of the following commodities from the beginning of the respective
quota periods through October 1, 1966:

COmnr;)dity

.
:

Period and Quantity

.Unit of • Imports as of
:Quantitl: Oct. 1, 1966

Tariff-Rate Quotas:
Cream, fresh or sour •••••••••

Calendar year 1,500,000

Gallon

Whole Milk, fresh or sour •••

Calendar year

Ga.l.lon

Cattle, 700 Ibs. or more each July 1, 1966{other than dairy cows} •••• Sept. 30, 1966
Cattle, less than 200 Ibs.
each •••••••••••••••••••••••

DIOS. from
April 1, 1966

3,000,000
120,000

Head

38,625

.200,000

Head

96,484

Fish, fresh or frozen, filleted, etc., cod, haddock,
hake, pollock, cusk, and
rosefish •••••••••••••••••••

Calendar year 23,591,432

Pound.

Quota fille<t1l

Fish ••••••••••••••••••••

Calendar year 65,662,200

Pound

43,297,070

12 lWS. from 114,000,000
Sept.15,1965 45,000,000
12 mos. fran 114,000,000
Sept.15,1966 45,000,000

Pound
Pound
Pound
Pound

82,034,916
31,888,294

with stainless steel
handles ••••••••••••••••••••

Nov. 1, 1965Oct. 31, 1966 84,000,000

Pieces

Whiskbrooms ••••••••••••••••••

Calendar year 1,380,000

Number

1,)05,8Q8Y'

Other brooms •••••••••••••••••

Calendar year 2 / 460,000

Number

2,442,63621

White or Irish potatoes:
Certified seed •••••••••••••
Other ••••••••••••••••••••••

I,Z77,5aJ

Kni ves, forks, and spoons

Quota filled

Imports for consumption at the quota rate are limited to 17,693,574 pounds
during the first 9 months of the calendar year.

Imports as of October 8, 1966.

-2-

ColllOdit,.

•

Period aDd Quantit,.

: Unit or : Import. u Oi
: Quantitl: Oct. 1. 19i.

Ab801ute Quotas:
Butter substit.utes containing over 45% of butterfat,
and butter oil ••••••••••••
Fibers or cotton processed
but not spun ••••••••••••••

Peanuts, shelled or not
shelled, blanched, or
otherwise prepared or
preserved (except peanut
butter) ••••••••••••••••••

Calendar year
12 1II)S. from
Sept. 11, 1965
12 1108. from
Sept. 11, 1966

12 Il1O s. from
August 1, 1966

1, 200, (XX)

Pound

Quota tilled

1,000

Pound

•

1,000

Pound

•

1,709,000

Pound

192,]0

Imports as of October 8, 1966.

F=659

TREASURY DEP AR'IMElIT
Washington, D. C.

IMMEDIATE RELEASE

THURSDAY, OCTOBER 13,1966

F-660

Preliminary data on imports for conslDllPtion of cot.ton and cotton waste chargeable to the quotas establishErl by
Presidential Proclamation No. 2351 of September 5, 1939, as amenled, ani 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 apperrlix to the Tariff Schedules of the
United states. There is no political connotation in the use of outm:xied names.)

"
Country of Origin
Egypt and Sudan••••••••••••
Peru •••••••••••••••••••••••
India and Pakistan •••••••••
China ••••••••••••••••••••••
Mexico •••••••••••••••••••••
Brazil •••••••••••••••••••••
Union of Soviet
Socialist Republics ••••••
Argentina••••••••••••••••••
Haiti ••••••••••••••••••••••
Ecuador ••••••••••••••••••••

Established Quota
783,816
247,952
2,003,483
1,370,791
8,883,259
618,723

Imports

Country of Origin

181,062

Honduras ••• v • • • • • • • • • • • • • • • •
Paragu~ ••••••••••••••••••••
Colombia ••••••••••••••••••••

Established Quota

Iraq ••••••••••••••••••••••••

1,568,113

475,124
5,203
237
9,333

~/
~

British East Africa •••••••••
Indonesia and Netherlands
New Guinea ••••••••••••••••
British W. Indies •••••••••••
Nigeria •••••••••••••••••••••
British W. Africa •••••••••••
Other, including the U.S ••••

Except Barbados, Bermuda, Jamaica, Trinidad, ani Tobago.
and Ghana.

]V Except Nigeria

Cotton 1-1/&. or more
Established Yearly Quota - 45.656.420 1bs.
Imports August 1. 1966 - September 19. 1966
Staple Length

1-3/8" or more
1-5/32" or more ani urxier
,

~-J/811
(Tangui.s)
, 10.. __ ____
-~

---~--

Allocation

Imports

39_5~.718

18,733,013

~.500.000

105,626

Jmeorts

752

871

124
195
2,240

n,388
21,321
5,377
16,004

-2COTTON WASTF..S

(In pounds)
CO'rI'CN CARD STRIPS made from cotton havint; a staple of less than 1-3/16 inches in length, OOMBER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE

ADVANCED IN VAlliE: Provided, however, that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more
in staple 1ent;th in the case of the fol1owint; countries: United Kint;dom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy:

Country of Origin

Established

TarAL QUOTA

: Sept.

Kin~dom ••••••••••••

4,323,457

Canada ••••••••••••••••••••

239,690

France ••••••••••••••••••••

227,420

India and Pakistan ••••••••
Netherlands •••••••••••••••
Switzerland •••••••••••••••

69,627
68,240
44,388
38,559

Belgium •••••••••••••••••••
J ap811 •••••••••••••••••••••

China •••••••••••••••••••••
Egypt •••••••••••••••••••••
CUba ••••••••••••••••••••••

341,535
17,322
8,135

Ge~~ •••••••••••••••••••

76,329
21,263

Other,

includin~

in to_tal ilrrports, colunm 2.

Prepared 1.n t.he Bureau
F-660

Imports
1/
Sept. 20, 1965
to Sept. 19, 1966

22,595

25,443
7,088

187,481

1,599,886

the U.S ••
5,,482, ,09

1/ Included

Established:33-1/3% of:
Total Quota:

6,544

Italy •••••••••••••••••••••

20, 196" to:

Sept. 19, 19Q_6 ~

:
United

Total Imports

Q1stoms.

78,062

TREASURY DEPARTMENT
Washington

FOR RELEASE: UPON DELIVERY

REMARKS OF THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE
THE 28TH ANNUAL BUILDING PRODUCTS EXECUTIVE CONFERENCE
AT
THE STATLER HILTON HOTEL, WASHINGTON, D. C.
THURSDAY, OCTOBER 13, 1966,2:00 O'CLOCK P.M., EDT
I welcome the opportunity to speak to you today on a
subject with which I am intimately involved and which is
surely a matter of great interest to you and to all
thinking persons in the nation. I propose to discuss the
President's anti-inflation program: some of the events
and conditions that led to it, and what we in the government,
behind President Johnson's leadership, are doing now to check
inflation.
Today there is widespread agreement in the nation that
Federal tax policy should be used to apply restraint to our
ebullient economy in order to avert inflationary dangers.
When the President announced his anti-inflation program
on September 8 and sent to the Congress his proposals to
suspend two important tax incentives for business investment,
it was the first time tax policy had been used in a period
of prosperity and near-balance in the Federal budget to
cool off a major sector of the economy that was overheating.
Thus his program is a major milestone in American
economic policy. It carries forward the economic thinking
which underlay the decisions of President Kennedy and
President Johnson to cut Federal taxes despite the budget
deficits entailed in order to stimulate the economy in a
period of inadequate growth.
The program the President announced and sent to the
Congress on September 8 was promised conditionally last
January.

F-66l

- 2 -

In his budget message on January 24, President Johnson
said, and I quote:
"If . . • . events in Southeast Asia
so develop that additional funds are
required, I will not hesitate to request
the necessary sums. And should that
contingency arise, or should unforeseen
inflationary pressures develop, I will
propose such fiscal actions as are appropriate
to maintain economic stability."
The President had just proposed to the Congress a
speed-up in the collection of corporate taxes, graduated
withholding of individual taxes to make the amounts withheld
more nearly equal to individual tax liabilities, and
postponement of two of the excise tax reductions enacted
the previous year.
This program did not increase any person's or corporation's
total tax liabilities. But by taking additional sums out of
the economy in the short term, it provided additional funds
for financing our commitment in Vietnam and exerted an
anti-inflationary effect.
With this program and other measures, the Federal
government is taking an additional $10 billion in excess
purchasing power out of the economy during the current
calendar year, compared with last year.
The President repeatedly expressed the hope that those
actions would be sufficient to keep our economy from overheating
as it passed through our sixth year of expansion.
While we were concerned about the possibility of inflation,
we were also concerned lest we over-react -- that instead of
slowing down the economy's growth and averting inflation we
might slow it down too much and bring on a recession.
The nation had to put up with that experience during the 1950s.
We are determined that we will not repeat it in the 1960s.
Over and over again President Johnson has reassured the
American people that he and his advisers were watching the
performance of the economy very closely and that, if
developments made it necessary, he would take the action
promised in January.

- 3 In recent months and weeks the economic picture has come
more sharply into focus.
The economy continues to enjoy a vigorous and healthy
expansion. But there are some soft spots.
Our economy and the financial system that services it
have been experiencing at least three clearly discernible
pressures:
in the money and financial markets, excessive
demands for credit, together with monetary
restraint, have created severe tightness and
a sharp rise in interest rates, with an
unfortunate and highly selective impact on
several sectors, particularly single-family
housing;
in the market for capital goods, the evermounting flow of new orders by business
firms, coming on top of an unprecedented
rate of outlay for plant and equipment, is
pushing up prices and wages, creating
shortages of some skilled labor, and adding
sharply to the large demands for capital
from banks and the securities market;
the demands of our commitment to the defense
of freedom in Vietnam have been rising.
There is a close relationship among these three sources
of pressure:
Faster business spending breeds demand for credit fram
banks and for financing in the capital market.
Higher defense spending also generates credit demands -by the government itself and by private firms which receive
government orders and work on borrowed funds to fill new
contracts.
Tight money itself causes additional government spending,
particularly to help finance areas of important economic
activity -- such as homebuilding -- from which the supply
of private capital has been diverted.

- 4 -

Let me digress here momentarily to reassure you that,
while we consider these conditions to be matters for
concern, they are not a cause for alarm. The basic health
and strength of our economy may be demonstrated with a few
statistical observations:
the United States gross national product,
which totalled just under $504 billion in 1960,
is now running at an annual rate of more than
$732 billion.
total personal income, in 1960, amounted to
$385 billion; in mid-1966, it was running at
an annual rate of nearly $560 billion.
the profits of our corporations, after taxes,
today are running at an all-time high of
almost $49 billion annually, compared with
$26.7 billion in 1960 -- and business
outlays for new plant and equipment, designed
to produce newer and better products at lower
unit costs, are running this year at more
than $60 billion.
average farm income last year rose 23 percent,
breaking all records, and has moved to higher
ground again in 1966.
In short, the evidence is clear that we have solved the
problems of a sluggish economy which required so much of
our time, energy, and attention a few years ago.
As President Johnson observed last January, lIWe have
learned how to achieve prosperity . . . now we must sustain
it, deal with its problems, and make the most of the
opportunities it presents."
The condition we face is that of an economy operating
very close to the limits of its productive powers. Putting
it another way, to continue under the pressures I have
cited would be to try to do too much, too fast.
The President's program is designed to exert a moderate
restraint on the economy at the pressure points -- to
reduce our rate of expansion to a sustainable level.

- 5 -

Here are the main points of the program:
First, the President promised strong measures to
reduce lower priority Federal expenditures.
When we take account of the needs of defense and other
amounts in the fiscal 1967 budget which are fixed by law
or otherwise uncontrollable, we find that only about
$31 billion is actually subject to direct Presidential
control.
Our best present estimate is that a reduction of some
10 percent -- about $3 billion -- will be required from
that part of the budget. Realistically, of course, we cannot
determine the exact amount that can be cut in that limited
portion of the budget now. We must wait until the Congress
completes action on the remaining appropriation bills.
Although the costs of the Vietnam conflict are uncertain,
if this conflict extends beyond the current fiscal year,
which ends next June 30, we will be forced to order additiona~
material and equipment. To be on the safe side and to
support our men in Vietnam, we must act on this contingency.
Federal civilian agencies have been directed to defer,
stretch out, and otherwise reduce contracts, new orders, and
commitments. Each major agency has been given a savings
targe t, with orders to meet that target.
The President has proposed to defer and reduce Federal
expenditures with reduced appropriation requests, through
withholding of appropriations in excess of his budget
recommendations, and by cutting spending in other areas
which have significant fiscal impact in 1967.
But, in a time when individual incomes and corporate
profits are at record heights, the President does not intend
that these economies be made at the expense of programs for
alleviating poverty, ill health, and inadequate education.
Both justice and sound economic considerations require
that we do not allow inflation to levy its pernicious tax
on the American people or on their business activities.
But those same considerations demand that we do not avert
inflation at the expense of the young, the old, the ill,
and the deprived by denying them their chance for education,
health, opportunity, and security.

- 6 Second, the President recommended that the Congress
suspend the 7 percent investment tax credit for 16 months,
making it operative again on January 1, 1968.
Our machinery and equipment industries cannot digest
the demands currently thrust upon them. There is a tenmonth average backlog on machine tool orders alone. On
many machine tools, the order backlog exceeds 15 months.
Our capital markets are clogged with excessive demands
for funds to finance investment. These demands bid interest
rates higher and higher and draw too large a share of credit
from other important uses.
A temporary suspension of the investment credit will
relieve excessive pressures on our capital goods producers
and on our financial markets. Our high-employment, highprofit economy will still provide abundant incentive for
growth in capacity sufficient to produce the goods we need,
to modernize facilities, and to maintain a strong
international competitive position.
Third, the President recommended that the Congress
suspend until January 1, 1968, the use of accelerated
depreciation on all buildings and structures started or
transferred on or after September 1, 1966.
The reasoning here was the same: we must not give a
reward in the form of a tax advantage to investment which
contributes to the pressures on the economy.
Fourth, the President asked the Federal Reserve Board,
in executing its policy of monetary restraint, to cooperate
with him and the Congress to lower interest rates and to
ease the inequitable burden of tight money. He called on
our large commercial banks to join in this effort.
Fifth, the President disclosed that we in the Treasury
were reviewing all potential Federal security sales and
would take action to keep them at the minimum in the months
ahead.
In those five points the President mobilized the
resources of the Federal government to relieve inflationary
pressures in the economy.

- 7 But he went still further, calling on the entire nation
to act responsibly to preserve the prosperity we all share
and enjoy.
He called on the banks to allocate credit fairly and
without extracting excessive profits. He urged them to
rely less on high interest rates to price some borrowers
out of the market and to rely more on placing of appropriate
ceilings on credit.
He called on the Federal Reserve Board and the entire
financial community to seize the earliest opportunity to
reduce interest rates while allocating existing supplies
of credit more equitably.
He called on business to base their credit demands on
genuine needs rather than on speculation about future
scarcities or higher costs; to maintain their inventory
positions on the basis of current requirements rather than
on fears or hopes that prices will go up; and to postpone
investments that are not absolutely necessary now.
He also asked business to set prices on the basis of
real costs, rather than building into them the assumption
of future inflation, and to limit their profits to a level
appropriate for a steadily expanding economy.
He called on labor to avoid wage demands that would
raise the average level of costs and prices and to adopt
work rules and standards for entry into its trades that are
appropriate for a full-employment economy.
He also asked labor to cooperate with business to raise
productivity, so that pay increases will be matched by
increases in production.
That is the President's anti-inflation program, in
brief. I am pleased to be able to report that, in addition
to work already underway on reduction of expenditures, which
I mentioned earlier, we have made important progress on all
the other points of the program.
As you know, the House has passed the suspension of
the investment credit and accelerated depreciation, with
Some changes from the President's original request, and

- 8 the Senate Finance Committee has reported the bill out
favorably, although with further changes. We now expect
the bill to come up on the Senate floor tomorrow.
It is generally not a good practice for members of the
Administration to comment publicly in detail on legislation
while it is being acted on in the Congress. So I will
limit myself to two observations about the bill as it now
stands.
First, our aim is to get a bill as close as feasible
to the terms of the President's proposal.
Second, on the basis of my own service in the Congress
and my years of dealing with the Congress as a member of the
Administration, I am confident that our legislators will
pass and send to the President a bill which will meet the
nation's needs.
Turning to interest rates and the money situation, the
Congress passed and the President signed a bill giving
more flexible powers to our monetary authorities to set
interest rate ceilings on consumer savings accounts.
The three regulatory agencies with responsibilities in
this area -- the Federal Reserve Board, the Federal Home Loan
Bank Board, and the Federal Deposit Insurance Corporation -then moved promptly to make good use of that authority. The
Federal Reserve Board and Federal Deposit Insurance
Corporation acted to reduce existing interest rate ceilings
on consumer savings deposits. The Federal Home Loan Bank
Board established a ceiling rate for the first time. The
response of the financial community to those measures has
been favorable.
We have also made progress in reducing and rearranging
government borrowing requirements. We are reviewing needs
of Federal lending agencies for new money and cutting back
wherever possible. We are going to meet remaining needs
without requiring the private market to take up additional
securities from Federal agencies.
The sale of participations in direct Federal loans,
which had been tentatively scheduled for September, was
cancelled. We announced that no such sale would be held
this year unless the market improved. It was announced that

- 9 the Export-Import Bank would not sell any additional
participations in the market for the rest of the year.
announcements also had a favorable market impact.

These

We in the Treasury began last month to meet our
additional money needs for the balance of the year in ways
that will have the minimum impact on the market. Federal
Reserve actions have been coordinated with the program
in order to gain the greatest effect in reducing interest
rate pressures. The result of all this activity is that
we have seen a decline in long-term Treasury, corporate,
and municipal bond yields since the highs that were
reached in late August.
So there is already evidence justifying the confidence
which the President's anti-inflation program inspired.
Of course, there is no way of telling in advance
whether the President's program will be sufficient to avert
further inflationary danger. As he pointed out in
outlining his program, and I quote:
"Decisions made elsewhere will influence
our defense needs in Vietnam. Because we
cannot control or predict these outcomes,
we cannot blueprint our fiscal measures
in the months ahead. But should additional
fiscal measures be required to preserve
price stability and maintain sound fiscal
policies, I will recommend them."
And, I will add, only time will tell whether further
action will be necessary. Certainly, the prospect for
improvement is very good under the program going into
effect now.
We know, of course, that not all of the President's
proposals are popular in all circles and fields of activity.
There has been vigorous dissent, for example, with the
proposals to suspend the two tax incentives, the
investment credit and accelerated depreciation. Not to make
too fine a point of it, I expect it might be fair to say
that many of you may regard those proposals as crimps in your
plans.

- 10 The President had a clear idea of what the reaction
might be when he made his recommendations. But he made them
anyway, because he knew the economy -- and our prosperity -required them.
Let me quote him briefly just once more:
"By continuing on a prudent course in
our private and public policies and by
preserving our capacity for stable
economic growth, we can look forward to
continuing progress. We can make that
progress within the framework of a free
economy. We do not want to resort to
controls. If we take the necessary actions,
next year should bring new heights in
consumer living standards, in savings for
the future, in our progress toward the
Great Socie ty."
What the President is saying is that, in exchange for
the right to enjoy prosperity in a free nation, we must all
be prepared to put aside or postpone some of our enjoyment
and some of our free volition in order to preserve and
protect that prosperity when it is threatened.
It is an essential part of our political maturity that
we discuss economic policy as a public issue, open to
debate by all concerned. We in the Administration encourage
that debate.
But it is also an essential part of our political maturity
that we accept the sacrifices which a free society requires
of us. Our prosperity makes those sacrifices supportable,
and our responsibilities to the future demand them.

000

TREASURY DEPARTMENT
Washington

FOR RELEASE MORNING NEWSPAPERS
SATURDAY, OCTOBER 15, 1966
REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
IN THE ANNUAL LECTURE SERIES SPONSORED
BY THE NEWCOMEN SOCIETY IN NORTH AMERICA
AT THE UNITED STATES COAST GUARD ACADEMY
NEW LONDON, CONNECTICUT
FRIDAY, OCTOBER 14, 1966, 8:00 P.M., EDT
I am sure that every Secretary of the Treasury before
me felt -- as I feel -- that no aspect of that office
affords greater pleasure or pride than its association with
one of America's most distinguished organizations -- the
United States Coast Guard.
And to come here tonight to this fine Academy under
the auspices of so unique and outstanding an institution
as the American Newcomen is a rare pleasure indeed.
I know that over the years the Newcomen Society has
maintained the closest association with the Coast Guard
Academy -- and I find it hard to imagine a more appropriate
or complementary relationship. For the interests and
endeavors of the American Newcomen center upon "material,"
as distinguished from political, history -- upon, as you
have summarized it in one of your publications, "the
background of those factors which have contributed or are
contributing to the progress of Mankind." And in all of
American history, there are few better examples of how the
inventions of man can be used to further the welfare of man
than the United States Coast Guard.
During its long history as well, the Coast Guard -which has contributed so much in so many ways to the growth
of American commerce -- has served as an excellent example
of that typically American institution -- a public service
Whose efforts continually nourish and stimulate the
progress of private institutions and private enterprise.
In recent years we have seen the emergence of vast new
fields of human endeavor embracing technology and the
engineering sciences in a kind of public and private
partnership which is proving our most productive

F-662

- 2 -

means of discovering and developing. Atomic energy, space,
supersonic transportation -- these are but a few of these
fields that hold forth such enormous challenge and promise.
And one of the newest and most promising of these fields -which I will touch on a little later in this talk -- is the
field of oceanography, in which the Coast Guard has a very
real and growing role to play in the days and decades
ahead.
Yet I cannot, as 1 ~tand here tonight, contemplate
the bright future of the Coast Guard -- or reflect upon
its long and great history -- without feeling a great deal
of sadness as well as pride. For as you know, the
Coast Guard is scheduled for transfer from the Treasury
Department to a new Cabinet-level Department of
Transportation.
So my appearance here tonight serves as a poignant
reminder of the fact that I may well be the last Secretary
of the Treasury whose privilege and pleasure it is to
oversee the peacetime activities of a Service .that was
fathered nearly two centuries ago by the nation's first
Secretary of the Treasury, Alexander Ha::lilton -- a Service
whose great traditions and illustrious accomplishments have
always served as a special source of pride for every member
of the Treasury Department.
Because tonight may be my last opportunity -- as a
Secretary of the Treasury responsible for Coast Guard
activities during peacetime -- to speak publicly here at
the Academy, I want to talk about the Coast Guard -- about
its past, its present, and its future.
I want, at the very outset, to make clear my firm
conviction -- founded upon some five years or so of close
association with the Coast Guard, both as Under Secretary
and as Secretary of the Treasury -- that, splendid as its
past has be.en, the future of the Coast Guard promises, in
every respect, to be even more splendid still. Nor have
I any doubt that the remarkable versatility of the
Coast Guard, the extraordinary adaptability and uniform
excellence it displays in such a variety of fields and
functions and under one unified command, shall in the days
and decades ahead continue to prove one of its greatest
strengths and most invaluable assets as a Service dedicated
to the cause of country and humanity.

- 3 -

This great versatility, so apparent in every aspect
of Coast Guard activities today, represents the fruition
of more than one hundred and seventy five years of growth.
First known as the Revenue Marine, later as the Revenue
Cutter Service, the Coast Guard was launched in 1790 when
the first United States Congress responded to the urgent
requests of the young Treasury Secretary, Alexander Hamilton,
for "ten boats • • • of from thirty-six to forty feet keel"
and "armed with swivels" to enforce the newly enacted Customs
laws. Hamilton computed" the first cost of one of these
boats, completely equipped" at "one thousand dollars."
Ten thousand dollars for ten boats -- that was the modest
beginning of the mighty Coast Guard fleet that today patrols
our waters -- indeed, that today patrols the waters off the
coast of Vietnam.
The first U. S. Congress also accepted 12 lighthouses
the colonies had built along the Atlantic seaboard, and
set up a Lighthouse Establishment which -- like the Revenue
Marine -- was placed under the Secretary of the Treasury.
Yet it was not until 1939 that the Lighthouse Establishment
became a part of the Coast Guard.
Search and rescue became a formal part of Revenue Cutter
duty -- although from the very first Cutter men had gone
to the aid of ships in distress -- in 1831 when the Secretary
of the Treasury ordered the Gallatin to cruise coastal
waters in search of "persons in distress."
Starting in 1848, the Revenue Cutter Service (then
called the U. S. Marine Bureau) established Houses of
Refuge for distressed seamen along the New Jersey shore.
Forty years later -- in 1878 -- this operation became the
independent U. S. Lifesaving Service.
Following the purchase of Alaska in 1867, Revenue
Cutters were sent to patrol Alaskan waters. In this remote
area, the Service became active, first in law enforcement
and aid to mariners, then in charting, exploring, sounding
and locating fishing areas, in ice-breaking, and finally
in administration of the Territory.
Since their invention in 1807, steamboats had been
blowing up with frightening regularity. Finally, in 1852
the Marine Inspection Service was established in the
Treasury Department -- as an agency apart from the Revenue
Cutter Service -- with authority to license engineers and

- 4 pilots, and to inspect hulls, boilers, lifeboats, signal
lights, and firefighting equipment. After transfer to the
Commerce Department, this agency was eventually merged with
the Bureau of Navigation to form the Bureau of Marine
Inspection and Navigation, which was later transferred to
the Coast Guard.
In 1915 -- in a world that technological and political
events had begun to make increasingly smaller, in a world
that saw pleasure boats multiply, that saw the invention
of the wireless and saw on the near horizon the prospects
of operational aircraft -- the Congress joined the seagoing
Revenue Cutter Service and the shore-based U. S. Lifesaving
Service under the name of the United States Coast Guard.
With the rapid advance of technology -- which, along
with cataclysms of World War I and II, thrust the United
States into the forefront of world affairs and world
industrial progress -- the Coast Guard expanded with
dizzying speed, assuming broad new fields of responsibility
and performing a variety of complex, new tasks.
In 1949, in response to the critical needs to catch
up to all these changes -- which for the most part had
occurred as the result of emergencies, and inevitably
without much design or direction -- the Congress enacted
Title 14 of the U. S. Code, which for the first time in
history specified the Coast Guard's " . • . responsibilities,
functions and spheres of activity."
This was an essential and important step toward
insuring the coherent and cohesive growth of the Coast Guard
in the years ahead. But as the next decade made clear
it was only a beginning.
For while this Act of Congress clearly spelled out
Coast Guard responsibility and authority, it left all the
details of operation, programing and funding to be worked
out by the Coast Guard and the multitude of cooperating
agencies throughout the Government. As a result -- when
Secretary Dillon took office in 1961, and I joined him
as Under Secretary -- we were without the clear overall
guidelines essential to making the major policy decisions
demanded by the growing breadth and complexity of Coast
Guard operations. We discovered as well that Coast Guard

- 5 facilities had been deteriorating rapidly, and that
replacement had become critical. To correct this situation,
and -- for the first time in history -- to define clearly
the scope and extent of Coast Guard responsibilities in
all areas, Secretary Dillon ordered an exhaustive interdepartmental study of Coast Guard roles and missions.
To quote a statement by Secretary Dillon at the conclusion
of that study:
"Ever since assuming my duties as
Secretary of the Treasury in January 1961,
I have been concerned about the critical
problem facing the United States Coast
Guard because of the obsolescence of much
of its equipment and facilities. A review
of long-range requirements for vessels,
shere stations, and aircraft indicated a
need for a phased program of capital
expenditures totaling more than $1 billion
in order to provide adequate operating
tools for the men of the Coast Guard.
"I concluded that comprehensive study
of the Coast Guard's roles and missions,
together with a review of existing policy
and operational guidelines, would be helpful
in deciding our course of action. Accordingly,
a study of the Coast Guard's 10 major
missions was begun by an inter-agency group
composed of experts from the Bureau of the
Budget, the Department of Defense and the
Treasury Department. This study, lasting
8 months, was concluded in June 1962, and
resulted in 80 recommendations. I have now
directed that action be taken on 76 of them.
" • • • Some of these actions will be
taken immediately; others will take effect
only in phases extending over a number of
years. The results of the study should
prove to be extremely beneficial to the
United States Coast Guard and to the people
it serves."

- 6 -

The recommendations this study produced were designed
to strengthen the Coast Guard's capabilities in carrying
out all of its ten major missions. Briefly, those
missions are:
1.

To maintain the security of the nation's
ports in time of war -- and in time of
war no domestic consideration is more
vital.

To maintain full military readiness at all
times -- for even in peacetime the Coast
Guard must be fully prepared for immediate
call to military duty in the event of war.

To develop and employ most effectively the
most up-to-date aids to navigation.

To play an active and major role in the
National Oceanographic program.

To carry out most efficiently and effectively
its responsibility for the enforcement of all
Federal laws upon the navigable waters of the
United States and its possessions, and on the
high seas.

To save lives and property on our waters, or
off our shores or on the high seas by
maintaining the most effective Search and
Rescue operations possible -- this is the
Coast Guard's primary mission.

To maintain ocean stations, which are an
important part of our overall national and
international effort in communications,
safety in sea and air travel, acquisition of
scientific data, and national defense.

To enforce our laws dealing with safety of
our Merchant Marine.

To maintain an ample reservoir of skilled
reserves to supplement the regular Coast
Guard in time of war or national emergency.

10.

To maintain its icebreaking operations, which
serve not only as aids to commerce and
navigation, but as important elements in the
~C(j.anographic and other programs.

- 7 Simply to cite these ten major missions is to illustrate
most graphically how far-reaching and complex the Coast
Guard's job is -- and how versatile and invaluable a
Service it is.
We see that versatility in what is perhaps the Coast
Guard's most unique characteristic -- it is both a military
service and a humanitarian agency.
Today, for example, in the coastal waters of Vietnam,
the 26 eighty-two foot cutters of Coast Guard Squadron One
are helping to bar the movement of men and materials from
North Vietnam to communist units in the South.
Squadron One has been in Vietnam since July, 1965.
Together with Navy units, it constitutes what is called
the Coastal Surveillance Force, and serves to supplement
the naval forces of the Republic of Vietnam.
During its more than a year in action, Squadron One
has accounted for at least 75 Viet Cong killed, wounded or
captured, and has inflicted an unknown number of unconfirmed
casualties upon the enemy. It has detained and turned over
to South Vietnamese authorities hundreds of suspects. It
has destroyed or captured 22 enemy junks, including
steel-hulled vessels, and seized or otherwise denied to the
enemy weapons, ammunition and supplies upwards of 350 tons.
In more than 40 gunfire missions, the Squadron has lent
support to friendly forces ashore and has damaged or
destroyed numerous enemy structures, fortifications and
positions.
The Coast Guard also supervises the loading and
unloading of explosives on the docks of Vietnam, and
trains Vietnamese to handle this delicate job. It is
extensively engaged -- and that engagement is growing
in furnishing various aids to navigation for the new
harbors we are helping the Vietnamese to build.
In short, the active participation of the Coast Guard
in the Vietnamese war is great and growing.
In the meantime, here at home and in addition to all its
other activities the Coast Guard is playing a special role
in the new natio~al effort to develop a coordinated and
comprehensive program covering all aspects of marine science.

- 8 -

The Coast Guard has a natural interest and involvement
in shaping the future direction of any national oceanographic
program, since for nearly 100 years it has been engaged in
specific oceanographic projects. And more recently -- in
1961 -- the Congress authorized the Coast Guard to conduct
such general oceanographic research as might be in the
national interest. In response, the Coast Guard has
expanded both its operations and its capabilities in the
oceanographic field.
I had the pleasure and privilege recently of attending
the first meeting of the National Council on Marine Resources
and Engineering Development -- chaired by Vice President
Humphrey and established by the "Marine Resources and
Engineering Development Act of 1966" passed by the Congress
only three months ago.
That Act -- and I quote -- "declared to be the policy
of the United States to develop, encourage, and maintain
a coordinated, comprehensive, and long-range program in
marine science for the benefit of mankind, including the
enhancement of commerce, transportation, and national
security and rehabilitation of our commercial fisheries."
In the words of Vice President Humphrey, "This Act
reflects an intention not only to nourish our scientific
capabilities and maintain U. S. leadership, but also to
translate these into an imaginative, productive ocean
technology, with an engineering capability to permit
operations anywhere in the ocean, at any depth, at any time."
And it envisions the accomplishment of these objectives
through the marshalling of all the relevant resources at the
nation's command -- in both the private and the public sphere.
What this Act signifies, therefore, is a new national
awareness that the vast sea around us, which encompasses
70 percent of the earth's surface, lies largely unknown
and unexplored -- that its secrets lie largely un~ocked
and its enormouS potential as a source of food, m~nerals
and other resources lies largely untapped. And above all
it signifies a new national determination to illuminate the
mysteries of the sea, to harness its energies a~d harvest
its resources for our benefit and for the benef~t of men
everywhere.

- 9 Through the progress of recent years, we have the
technological tools -- new structural materials, miniaturized
electronics, computers, nuclear power, underwater vehicles,
and the like -- to enter into a broad, coordinated program
of ocean research and exploration that promises -- not only
physical and intellectual adventure -- but immense practical
results.
There is the promise of great wealth in oil, minerals,
and fish -- and of discovering new ways of extracting,
expanding and employing these resources.
There is the promise of new knowledge -- which only the
ocean can give us -- which will materially advance our
ability to forecast? modify and control the weather.
There is the promise of turning salt water into fresh -and doing it economically and on a large scale.
hold
And these possibilities -- and countless more
forth the further possihilities of new industries and new
technologies and new jobs -- of a whole new dimension of
human endeavor.
These are the possibilities oceanography presents to
us -- possibilities now coming within our reach -possibilities which the Coast Guard, along with other
public and private organizations of many kinds, will help
bring to fulfillment in years to come.
These, then -- the Coast Guard's involvement in
Vietnam and in oceanography -- are two current examples of
how the modern Coast Guard is continuing to carry out,
with signal success, its dual mission to help preserve its
country's security as well as the safety of human life at
sea.
I take great pride in the fact that, as a result of
our efforts over the past five and a half years, we in
Treasury have played a part in helping insure that success.
One of the Coast Guard's most critical needs when
Secretary Dillon and I first came to the Treasury in 1961
beyond the need for the study and the actions I have
described -- was for physical rehabilitation and
modernization. In connection, therefore, with the study

- 10 of Coast Guard roles and missions, we developed a series
of lO-year physical rehabilitation programs -- touching the
entire range of Coast Guard activities. As a result of
those programs -- and despite the fact that, because of the
Vietnam War, they have been stretched out somewhat -- we are
making real progress toward improving the physical
capabilities of the Coast Guard.
We at Treasury take pride, too, in the knowledge that
we have had a hand in this accomplishment.
It is not hard, then, to understand the profound sense
of loss we at Treasury experience when we contemplate the
impending transfer of the Coast Guard to another Department.
That sense of loss is tempered only by the knowledge that
we have had a share, for over a century and three quarters,
in the accomplishments that have made the Coast Guard
known and honored among men everywhere -- in the knowledge that
the Coast Guard will move to the new Department as an entity,
that it will preserve the identity and integrity that are the
irreplaceable product of its proud past and one of its
most indispensable assets as an organization -- in the
knowledge that, by our actions over the past five and a half
years, as over recent months, we in Treasury have had the
opportunity to help insure for the Coast Guard a future in
every way worthy of its past.
We know that -- whatever the challenge, whatever the
Department to which it is attached -- the Coast Guard will
continue to stand as a surpassing example of the way in
which skilled and dedicated men can employ the material
products of progress -- the technologies and techniques
of man's endless invention -- for the welfare of mankind.

000

TREASURY DEPARTMENT
Washington

FOR USE SUNDAy NEWSPAPERS
OCTOBER 16, 1966
REMARKS OF THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
AT
SA INT PETERS CHURCH, ALBANY, NEW YORK
SUNDAY, OCTOBER 16,1966,11:00 A.M., EDT

A question that is frequently put to men or women
in public life often goes like this: "What do you do
when there is a clear conflict between your moral
conviction and your duty to the State?1l There is nothing
new about the question.
It was propounded 2,000 years ago to Christ himself,
and we learn his answer in St. Matthew - Chapter 22:
verse 21.
" . . •. Render there fore unto Caesar the
things which are Caesar's; and unto God the
things that are God's."
Like so much of the Christian religion, or for that
matter any of the great religions, the intent is clear,
but the precise application is difficult. The question:
"What is God's and what is Caesar's" must be painfully
decided by each human being.
It has been my personal good fortune in seven years
of public service to have had very few occasions when
this type of conflict rose up before me.
But one of these few occasions was a matter that
troubled me very deeply_ It is this moral problem in
the execution of official duty, and its resolution, that
I want to discuss with you today.
Just a year ago at this time I was a member of a
small group to whom the President entrusted the question
of the Federal Government's authority to prevent racial
discrimination in housing.
F-663

- 2 -

If you will think back, you will remember that during
the campaign of 1960, President Kennedy made the remark that
the problem of segregated housing could be abolished by
"a stroke of the pen." However, when it came to implementing
this promise -- something the late President very much
wanted to do -- technical examination of the laws raised
many questions. Pending further study, President Kennedy
was forced to the conclusion that he could go no further
than to issue an Executive Order that would prohibit
racial discrimination in housing projects which were
financed by the Veterans Administration or by the Federal
Housing Administration, that is, housing which was directly
financed or insured by the Federal Government. This Order,
issued in 1962, covered roughly 20 percent of aJl the
housing that was being built at that time. It did not cover
housing that was financed by commercial banks, savings and
loan institutions and insurance companies.
Last year, President Johnson asked us to start again
from the beginning with the question whether he possessed
sufficient authority, under the law, to extend the Executive
Order to housing financed by savings and loans and
commercial banks whose deposits were insured by the Federal
Government.
An extension of the Order along this line would have
covered all but some 30 percent of the housing transactions
of this country against discrimination.
I can recall no other time in my public career when
I entered a research project with such a definite bias.
This bias arose from the fact that as a Member of Congress
I had been the elected servant of approximately 90,000
Negroes in my Congressional district. I was the one to
whom they naturally turned when they had problems. I
was the one who could make their voice heard in decisions
of the Federal Government. It was this relationship which
gave me at least some understanding of the problems they
confronted and which brought me to a deep abiding hope
that I could help strike down one of the last remaining
barriers to a rather complete involvement in the American
life by our Negro citizens.
In the Civil Rights Acts of 1957, 1964, 1965, and
in the Supreme Court decision of 1954, the nation had
gradually moved to give our Negro citizens the right
to vote and the r~ght to a comparable education. In the

- 3 main, this legislation was directed to practices that
existed in the Southeastern part of our country. However,
in ~ parts of this nation our Negro citizens were still
denied by practice or by understanding the right to purchase
a home in an area of their choice. This last barrier applied
to all of us. The guilt of i~ was equally shared in nearly
every section of the country. I felt then -- as I feel
today -- that this last barrier is intolerable, and that
sooner or later it must be banished from our land. So I
must admit that I approached with a deep bias, and an
eagerness to right a clear moral wrong -- the task which
the President had assigned me.
The legal literature on this particular subject is
voluminous. Since 1960 scores of learned legal authorities
have probed every facet of the various statutes affecting
savings and loans and commercial banks. Men of goodwill,
men of wisdom, had taken positions on both sides of the
issue. Some argued that the President could by "a stroke
of the pen" erase all discrimination against housing that
was financed through Federally insured institutions. Others
argued with deep conviction that the President would be
vastly exceeding his authority if he by-passed the Congress
and issued such an executive order. Afte.r weeks of careful
study and deliberation, our group came to its own
conclusion: a reluctant but unanimous agreement that the
President's legal authority was dubious at best.
Grasping the nettle, we made our recommendation in
favor of a government of laws and against a government of
men. We recommended to the President that he propose
legislation to the Congress to establish clear legal
authority for the Federal Government to ban discrimination
in housing.
I was heartsick at this conclusion, because I was
fully aware of the political difficulties that were
involved in attempting to pass legislation in this
extremely sensitive area. And the President was under no
illusions on this score. Experience in the State of
California during the 1964 election all too clearly indicated
the difficulties that lay ahead of this legislative
approach.

- 4 Nevertheless, the President never hesitated. He
made no suggestion that we hedge on our conclusion.
patiently accepting our recommendation, the President
requested that we draft the legislation we had said was
necessary.
The history of this legislation fully bore out our
most dire forebodings. It involved a l2-day debate in the
House of Representatives in which at least one crucial
vote was carried by a margin of one. However, because of
the great courage and great parliamentary skill displayed
by both parties in the House of Representatives, this
legislation was finally passed by the House by a vote of
259 to 157 on August 9. Few, if any, pieces of legislation
have ever posed a more difficult dilemma to men of good will.
Many new Members in Congress were convinced that a vote to
support this bill would mean their certain defeat, and
history may prove them correct.
By summertime 1966, one city after another was
experiencing disorders as the moral problem of discrimination
took
0n the immoral aspect of taking the law into
private hands. It was with this background that this
difficult legislation came to the United States Senate,
and the events of the summer had sealed its fate. In
consequence, the proposal died in the Senate on September 19.
I was disappointed and grieved, but not surprised,
at the outcome. In the succeeding weeks I often asked
myself whether we should have cut the corners and told
the President that he need not go through this legislative
travail but could solve the problem by "a stroke of the
pen." But I have concluded that I, for one, would not
change that decision. I have concluded this on the grounds
that the problem of race, over which this country has agonized
far too long, is not amenable to" a stroke of the pen"
solution. It is only amenable, in the sense of any
permanent and viable solution, to a settlement that is
consistent with the basic morality of the nation: the
fact that ours is a government of laws. Once we have
clear legal recourse, then we should, in my opinion, put
the full vigor of the government into just and fair
enforcement. To move in this particular area, we must have
the consent of the American people, and the basis for that is to
be found in agreement in our lawmaking bodies.

- 5 -

So in retrospect, I have concluded on balance that
we gave the President correct advice -- even though our
advice resulted in a temporary legislative failure.
In this particular situation we in the North do not
come off too well. It is one thing for us to lecture
our fellow citizens in the Southeastern States; it is
quite another for us to face up to the same challenges
in our own neighborhoods.
As the President remarked quite simply:
be another day."
There will be another

"There will

day~

There will be other debates. We will be faced again
with decisions in this area of intolerance. I hope you
will forgive me if I pay the following tribute to the
President whom I have ~rved during his entire tenure.
He has shown us the way toward the viable solution of this
particular problem. You take no short cuts beyond the law.
You 100k for no gimmicks. You throw your trust on the
constitutional processes of this nation. You press your
fight as skillfully as possible in the country and in the
Congress. And you trust to the basic morality of the
American people to acknowledge the problem. Then, under
our democratic processes, you use the full powers for
leadership of the Federal Government to mobilize the moral
force of the American people to bring about an early and
clearly constitutional decision.
So, in this great problem of housing, we will
"render unto Caesar" by adhering to Caesar's laws. We
will press the fight through the legal framework of legislative
reform and not through a quasi-legal "stroke of the pen."
And this will make it possible to "render unto God
the things that are God's": with your help we shall
fight for racial equality, for this is surely one of
"Gad's things."

000

TREASURY DEPARTMENT
(

FOR IMMEDIATE RELEASE
ROBERT J. MOODY RECEIVES TREASURY AWARD
Robert J. Moody, who is leaving the Treasury Department
today to become Director of Taxes for the FMC Corporation,
San Jose, California, has been presented the Office of the
Secretary Honor Award by Secretary of the Treasury Henry H.
Fowler.
During the past 15 months, Mr. Moody has been a
Special Assistant to the Secretary and Director of the
Treasury's Executive Secretariat, the central coordinating
staff serving top Treasury officials.

The award was in

recognition of Mr. Moody's outstanding contributions to the
Department.
Mr. Moody, 38, an attorney, was born in New York City
and is a graduate of Washington and Lee University and
Indiana University Law School.

He also holds a Master of

Laws degree from Wayne State University.

Mr. Moody previously

was on the staff of the Joint Internal Taxation Committee and
served in the Office of the Chief Counsel of the Internal
Revenue Service.

From 1955 to 1961, he held a number of

positions with the Chrysler Corporation.
000

TREASURY DEPARTMENT
:

October 14,

FOR IMlvIEDIATE RElEASE

TREASURY DECISION ON STEEL WELDED WIRE MESH
UNDEH THE ANTIDm1PING ACT
The Treasury Department has determined that steel welded wire ffiesh for
concrete reinforcement from

Ita~

is not being, nor likely to be, sold at

less than fair value within the meaning of the Antidumping Act, 1921, as
amended.

A "Notice of Intent to Discontinue Investigation and of Tentative

Determination Tr>..at No Sales Exist Below Fair Value," was published in the
Federal Register on August 5, 1966, stating that price revisions with respect to steel welded wire

mesh for concrete reinforcement imported from

Italy were considered to be evidence that there are not, and are not likely
to be, sales below fair value.
The merchandise under consideration consists of lightweight concrete
reinforcement mesh for buildings.
The complainant submitted a written request for an opportunity to present views in person in opposition to the above-mentioned notice.

The op-

portunity was afforded to the complainant, and all interested parties of
record were notified and were represented at the hearing.
All written and oral argument presented in opposition to such notice
were given full consideration.
Customs officers are being instructed to proceed with the appraisement
of this merchandise from Italy vTi thout regard to any question of dumping.
Imports of the involved merchandise received during the period September 1, 1964, through June 30, 1966, were valued at approximately $775,000.

TREASURY DEPARTMENT
;
FOR RELEASE 6:)0 P.M.,

Monday, October 17, 1966.
RESULTS OF TRF'.J\SURY I S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series of Treasury
bills, one series to be an additional issue of the bills dated July 21, 1966, and
the other series to be dated October 20, 1966, which were offered on October 11,
1966, were opened at the Federal Reserve Banks today. Tenders were invited for
$1,),:)0,000,000, or thereabouts, of 91-day bills and for 01,000,000,000, or thereabouts, of 182-day bills. The details of the two series are as follows~
RANGE OF ACCEPTED
COMPETITIVE BIDS:

High

Low
Average

9l-day Treasury bills
maturing Janua!:l19 z 1967
Approx. Equiv.
Price
Annual Rate
;; .4007"b
98.635
98.626
5.436~
98.629
5.424%

:
:
:

182-day Treasury bills
maturin~ A2ri1 202 1967
Approx. Equiv.
Price
Annual Rate
97.152
97.137
97.143

5.633%

5 .663~&

5.651%

63% of the amount of 9l-day bills bid for at the low price was accepted
28% of the amount of 182-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR A.1IfD ACCEPT:zn BY FEDERAL RESERVE DISTRICTS:

District
BOston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
st. Louis
Minneapolis
Kansas City
Dallas
San Francisco

TOTALS

!I InclUdes

Acce2ted
For
$
21,899,000 $ 11, [,99,000
1,621,581,000
876,641,000
16,999,000
34,279,000
27,910,000
213,795,000
25,243,000
19,743,000
31,179,000
50,709,000
279,520,000
103,260,000
68,708,000
47,608,000
12,468,000
17,523,000
26,288,000
26,325,000
17,811,000
27,811,000
100.576,000
236.086.000
A~lied

$2,438,479,000 $1,300,982,000

··•
·•
:
·•
·

A~;elied

For
22,812,000
$
1,277,580,000
15,785,000
34,035,000
11,957,000
41,836,000
247,879,000
••
48,462,000
•
13,605,000
19,480,000
17,446,000
J 115,7)5,000
&

·
!I

$1,896,612,000

Acce2ted
$ 12,812,000
672,757,000
7,785,000
23,635,000
10,907,000
21,336,000
138,869,000
19,762,000
11,605,000
19,480,000
17,446,000

1,),650 ,000

$1,000,044,000 !y

$283 602 000 noncompetitive tenders accepted at the average price of 98.629
~ Includes $189;965;000 noncompetitive tenders accep~ed at the aver~ge pri~e of 97.143
fj These rates are on a bank discount basis. The equ~ valent coupon ~ssue Ylelds are
5.58% for the, 91-day bills, and 5.90<,t for the 182-day bills.

F-664

TREASURY DEPARTMENT
(

October 18,1966

The attached Memorandum for President
Johnson from Secretary of the Treasury
Henry H. Fowler, was distributed by the
White House Press Office on Sunday, October 16,
1966.

000

FOR IMMEDIATE R.ELEASE

OCTOBER 16, 1966

Office of the White House Press Secretary

.:n-IE WHITE HOUSE
MEMORAN.c UM FOR THE PRESIDENT
FROM SECRETARY FOWLER
Before your departure to Southeast Asia to consider regional reconstruction
and development in that area, you wanted an up-to-date report on the
economic and financial situation at home.
A review of the most recent developments leads me to conclude that the
United States economy b in l'CoJlhy and robust condition. There are some
imb&lances. but measures designed to correct them have been mounted.
The economy can absorb the reaAonably foreseeable demands of the Viet-Nam
conflict and essentiv.l civilian needs within the framework of a free market
economy -- without resort to the harsh economic controls that have characterized past wars.
As a former Director of L(~fense Mob:lization during the Korean conflict ca.lled
in one YCilr '.iter t!J;:·,t war was under ,-,'ay to help administer all the paraphernalia
of limited mo/-. 17,ltj,,,,, L cUll Uu.i<: by the present record. It is one of
remarkC'1ble «chiever.lent in which both government and the private sector can
take considerable satisfaction. This situation reflects the ability of our people
to adapt to shifting needs __ to make effective USe of the na.tion's productive
ca.pacity to meet changing and enla rged requirements. It also reflects the
prudent adaptation of rnondary and fiscal policies which have dampened
inflationary forc,)s and minimized the ine·.ritable iri'lbalances that characterize
a. market economy operating under heavy and shifting pressures. One of
these adjustments __ in residential conlltruction -- has been too drastic -. but
both legislative and administrative measureS have been taken recently to
ease this special problelu.
You will recall that our reCf'nt assessment of the economy led to your
September 8 recomrncr.(:at~r;ns I to supplement our earlier anti-inflationary
acEons. Congress is !'learying enactment of its part of this program. The
inL~)act of the total prog ram has already been felt, particularly in relaxing
the strain on our rnor..ey markets and maintaining confidence that the econorny
is moving into less turbulent waters.
A·nerica.'~ capacity to produce. combined with the demonstrated determination
of the Administration ~;:) pur3ue healthy growth and reasonable price stability,

con~il1uing

to payoff:

-~ The $:3.7 billion rise in gross national product during the third quarter
extended the period of solid advances scored during the current, record.
breakIng expansion. But it also reflected a welcome moderation from the
feverish rate of late 1965 and early 1966 that produced both imbalance and
excess demand with their accompanying price pressures. At a rnore sustainable
pace we are still surpassing most of the other industrial countries not only in
the total value of production and incomes but in the real rate of growth as well.
Corporate profits and personal income -- both before and after taxes -continue to riSe extending the most steady, sustained increase in modern
times. Alter-tax household income is seven per cent higher than a year ago,
generating a substantial rise in real purchiLsing power.

._ Unemployment rates have been at or below four percent every single
month this year •
• • 0;')'::" continued incre3ses in capit~l fa::iliti.?~, skCled ~~npower .. nd
productivity have made it possible for u3 to shoulder the burdens of Viet-Nam
without giving up rising living standards or measured advances 'to our
social goals. Our strong, stable rate of growth should continue during 1967,
enabling us to meet our responsibilities both at home and abroad without
undue strain.

-- Our recent price performance shows encouraging signs. The index of
ra.w materials prices, which moves far in advance of wholesa.le and consumer'
prices, has dropped thirteen percent since March. Wholesale industrial
prices have held 8te~dy since July. The rise in wholesale food prices has
been reversed in recent weeks. These developments should be favorably
reflected in consumer prices in corning months.
Despite the added demands of Viet-Nam with their psychological unsettlement,
price stability during the present expansion is superior to that of the longest
expansion of the 1951)1s, 1954-57, when there was no conflict or dislocation
resulting from war, The a.verage level of consumer prices durin~ .;-at periqd
rose excessively but these jumps would have been st~ll hi,gher ha.l _ not been
for declines in farm products and foods. Durir.g the curren. ~>~?:~·'bion.
consumer prices rose less, even though this time we were ai.:.;orbing increa.ses
in farm and food products.
Our record of price stability in the fact of the impact of a.ctive hostilities and
persistently enlarging defense needs is the envy of nations throughout the world.
Indeed, a major part of the consumer cost of living increases has not
resulted from inflation in our industrial economy but from the adjustment
upward of the income of those who have worked the land and provided services
at income levels well below those in the industrial sector •
•• Even with ever.higher wa.ge incomes. rising productivity has resulted in
stable labor costs per unit of output in manufacturing during the current
expansion, in sharp contrast to the 1954-57 period when these costs rose
strongly.
Thus, the ability of American industry to compete in international markets,
shackled by rising production costs built in during the mid-1950's. has been
set free during the 1960's, Merchandise exports have grown every year since
1960 and are continuing to expand, while there was 1..':> net growth at all
between 1957 and 1960.
~espite

the substantially increased foreign exchange costs of our military
expenditures associated with the enlarged activity in Southeast Asia, we are
holding our balance of lAfments deficit to the reduced level of 1965 which
was half the average of the preceding years.
Early indications are that the balance of payments results in the third
quarter will be even n"lore encouraging. However, this is a sector of our
financial life which will reqUire the closest continuing attention and effort.
We cannot afford increas ed foreign exchange burdens and must constantly
seek arrangements for our external activities that will minimize cash
outflows and enable us to regain the equilibrium that is basic to a stable
world monetary system so dependent on the dollar.
-- The decline in stock market averages appears to reflect more the
conditions of money and credit, the very attractive yields on debt securities,
and uncertainties over the courSe of events in cor.nection with developments
relating to Viet-Nam, than a pessimistic economic outlook generally.

3
.. - The over-all level of interest rates, which had risen so sharply this year.
has recently eased. Lo"nger tc:rm Treasury, corporate and municipal bond
interest rat€3 have declmcd ~,0r~ the high levels rea.ched in August.
-- Looking ahead, the nation need not fea.r recession when Viet.Nam hostilities
come to an end. It can look forward to continuing overall economic growth.
Sources of increasing denl.2.nd are clearly observable. In the private sector
they are derivative from inc:reasing personal income t more jobs I and rising
population in the fami! y-forrr..ing sector, and surging plant and equipment
requirerr..ents responsive to a burgeoning technology that calls for a continuing
modernization as well as expansion in capacity. Moreover, a resurgence in
resider.tial housi:lg sho'..lld follow easier monetary policy and the dip in housing.
The outlook for increased state and local expenditures is clear. You are
familiar with the need to hold back and defer worthwhile federal expenditures
which can be released after the termination of ITlajor hostilities.
Moreover, tax reductions can be employed to offset reduced military
expenditures and help keep demand growing in line with our productive
capacity. The percent3. ge of GNP devote.d to Viet.Nam expenditures is much
smaller than was t~e case duril:3 VTorid War II and Korea, assuring a much
easier transition period. Therefore, peace in Viet-NaITl can lead to even
greater progres s in living standards.
I am pleased to report, therefore, that the national economy is vigorous
and thriving. But we l"lC 13t continue our unceaSing vigilance to guard against
any development of imbalances. We m.ust con:.inue to foster appropriate
policies in keeping with national economic requirements, including tax,
budgetary, and monetary policy changes if excessive inflationary or
deflationary tendencies becorne evident.
l

Particularly, the federal budget on the national income and product accounts
basis -- our best measure of the economic impact of fiscal policy -- should
continue -- as long as the:::-e are inflationary threats -- as it has this year,
to remain in balance or in surplus.
In addition to avoiding excessive or deficient demand, economic stability
and continued prosperity will require the earnest efforts of those responsible
for price and wage determination to avoid the cost-push inflation that can
arise not from excessive den"land, but from excessive greed and abuse of
monopolistic power.
I am firmly convinced that the eCOnOIT1Y poss ess es the capacity and the health
necessary to continue rapid and stable growth under our free enterprise
system without resort to the rigidity of over-all controls which we have
sUccessfully avoided.

# # #

TREASURY DEPARTMENT

October 19, 1966
FOR IMMEDIATE RELEASE
WITIDIOLDING OF APPRAISEMENT ON
TUBELESS TIRE VALVES

The Treasury Department is instructing customs field officers to
withhold appraisement of finished tubeless tire valves from Italy
pending 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.

This withholding order will apply to importations

entered, or withdrawn from warehouse, for consumption after publication of the order, which will appear in the Federal Register in the
near future.
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

justif,r 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 April 26, 1966.

This infor-

mation was the subject of an "Antidumping Proceeding Notice ll which was
published on page 9751 of the FeQeral Register of July 19, 1966, pursuant to section l4.6(d), Customs Regulations.

TREASURY C:::PARTMENT

mR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
the aggregate amount of
cash and in exchange for
rreasury bills maturing October 27,1966, in the amount of
~2,30l,043,000, as follows:

~or two series of Treasury bills to
~2,300,OOO,000~ or thereabouts, for

9l-day bills (to maturity date) to be issued
In the amount of $ 1,300,000,000, or thereabouts,
lddltlonal amount of bills dated July 28,1966,
nature January 26,1967, originally issued in the
51 ,001,781,000, the additional and original bills
lnterchangeable.

October 27, 1966,
representing an
and to
amount of
to be freely

182 -day bills, for $1,000,000,000, or thereabouts, to be dated
ktober 27,1966,
and to mature April 27,1967.
The bills of both series will be issued on a discount basis under
:ompetltive and noncompetitive bidding as hereinafter provided, and at
laturity their face amount will be payable without interest. They
rill be issued in b~arer 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 Daylight Saving
ime, Monday, October 24, 1966.
Tenders will not be
'eceived at the Treasury De~artment, Washington. Each tender must
'e 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
orwarded in the special envelopes which will be supplied by Federal
eserve Banks or Branches on application therefor.

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
ubmit tenders except for their own account. Tenders will be received
lthout deposit from incorporated banks and trust companies and from
!Sponsible and recognized dealers in investment securities. Tenders
rom others must be accompanied by payment of 2 percent of the face
nount of Treasury bills applied for, unless the tenders are
:companied by an express guaranty of payment by an incorporated bank
t' trust company.

F-665

- 2 Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announce.
ment 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 Treasu~
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 Bank on October 27, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing October 27, 1966. Cash and excharige te~~
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
es~ate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed 00
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 bi lIs are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereu~er
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 whicht~
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and ~
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained fill
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
Washington

FOR USE AT 7: 00 P. M., EDT
THURSDAY, OCTOBER 20, 1966

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT

THE ANNUAL DINNER OF THE ANTI-DEFAMATION LEAGUE
NEW YORK HILTON HOTEL, NEW YORK, NEW YORK
THURSDAY, OCTOBER 20, 1966, 7:00 P.M., EDT
A PROGRAM FOR A NEW STEP FORWARD IN
REALIZING THE AMERICAN DREAM
I count myself privileged to be here this evening as
the guest of the Anti-Defamation League, whose members have
contributed so much over so many years to the recognition of
man's inherent dignity. Your fine work for the past 50 years
in fighting discrimination through education is well known.
Therefore, I can think of no more appropriate group with
which to discuss the prospects and perils we face in our
present efforts to build a Great Society that must inevitably
rest upon and draw its strength from that same human dignity.
What is it that we have been trying to accomplish here
in this country over the past 200 years, if it is not the
extension to all our citizens of the basic rights that man's
dignity demands? We have been striving from our beginnings
to build an entirely new kind of society in which the road
to advancement is open to all -- a society based on an
18th Century revolution that was unique in history because
it did not require for its success or survival the sacrifice
of any class, the destruction of property rights, or the
separation of any segment of its people from the protection
of the law.
What emerged from the American War for Independence was
the world's first society truly open to the fulfillment of its
people's potential. The remarkable array of dissenters who
created this new polity deliberately left open to dissent
the entire political spectrum -- from the conservatism of

F-666

- 2 -

Hamilton who sometimes doubted the wisdom of the people, to
the liberalism of Jefferson who mistrusted the power of
government. And in so doing, they released the extraordinarily
creative genius of the American people, freed it to explore every
channel of innovation in their political, social and economic
order.
Today, under our 36th President, we are still carrying
forward the unfinished business of that Revolution; we are
still searching out new ways to enlarge the American Dream
of a society fully open to the full potential of all its
people.
The Great Society toward which President Johnson leads
the nation today is yet another step forward in the
creative process that began two centuries ago. NOW, in this
generation, we are struggling for new forms of freedom -freedom from war and poverty and sickness and ignorance.
Now we are fighting to do away with the degradation of
racial discrimination, to end the human and economic waste
of involuntary poverty, illiteracy and avoidable'illness.
Now we are calling on our creative genius to raise the
quality of American life, renew the beauty of the land, and
clear the poisons from its air and waters.
All this is in the realm of the possible, if man can
now find the means to free himself from the threat of war
that shadows these tragic times.
President Johnson is in the Far East tonight, exploring
still another avenue of honorable peace, in the certain
knowledge that without peace all prospect of real human
betterment is a mirage.
In the President's own words, we seek peace not alone
for ourselves but for all peoples everywhere, East and West,
North and South, for the communist world as well as for the
non-communist world. And we will persevere in that quest.
We have no illusions about the price we must pay for
this creative 20th Century Revolution that we call the
Great Society. It will be costly in terms of our human
resources, and it will test the private and governmental
strengths of our society. But the cost is well within our
reach and the attainment of our goal will enrich us beyond
measure.

- 3 -

It is a demonstrable fact that we ~ safely undertake
the enormous tasks we have set for ourselves, at home and
abroad, without straining our economy to the breaking point.
The partnership in economic responsibility that has been
built up between your government and the private sector during
the past five years shows clearly that we can generate the
productive and economic growth that will be needed to pay as
we go for all our programs.
The successful experience of that partnership during
the prosperous and productive 1960's proves beyond all
reasonable doubt that we possess the resources, the
capacity, and the institutional genius to fashion a steady
sustained economic advance.
We stand today in a position of very great strength,
far stronger than many of our fellow-citizens seem to realize.
Before his departure to Southeast Asia to consider
regional reconstruction and development in that area, I
reported to the President, that:
a review of the most recent developments
leads me to conclude that the United
States economy is in healthy and rebust
condition;
that there are some imbalances, but
measures designed to correct them have
been mounted, and,
that the economy can absorb the reasonably
foreseeable demands of the Vietnam conflict
and essential civilian needs within the
framework of a free market economy -without resort to the harsh economic
controls that have characterized past
wars.
Here are some up-to-date readings on the current state
of the economy:
Personal Income after taxes; up 6.5 percent
from a year ago, and up 43 percent from five
and a half years ago, in early 1961. Real
Personal Income -- disposable personal income
adjusted for price changes -- up 3.3 percent from
a year ago and up 32 percent from 1961.

- 4 Manufacturing Wages; up 4.2 percent from
a year ago, and up 18.8 percent from
early 1961.
Corporate Profits, after taxes; up
11.2 percent from a year ago, and up
99.6 percent from 1961.
Dollar value of Gross National Product:
up 8.7 percent from a year ago, and
up 48.1 percent from 1961. Real Gross
National Product -- The increase in output
of goods and services -- up 5.2
percent from a year ago, and up 34.8
percent from 1961.
Employment; up 2.4 percent from a year
ago, and up 11.1 percent from 1961.
Unemployment; down 11.1 percent from a
year ago, and down 38.4 percent from
1961.
The fact is that the American people and the American
economic structure are substantially better off than they
were just a year ago, and incomparably better off than when
we embarked on this expansion program in 1961.
And the second equally important fact is that we have
been thoroughly alert from the very beginning to the
probability that the very success of our expansionist
policies would, at some point, necessitate counter-measures
to moderate the advance and prevent inflation.
We did not happen in a fit of absent mindedness upon the
choice of economic policy that helped bring us to our present
high level of prosperity. This carefully balanced range of
economic policy drives took into account the contingencies
that might develop when we reached a stage, as we did of
relatively full employment and full use of our productive
capacity.

- 5 We did not suddenly discover the threat of inflation
last night or last month, as some would have you believe.
Following the inauguration of a more restrictive monetary
policy last December, there was a series of fiscal steps
beginning in January to bring about a measured cooling off
of excessive demands upon our economy. Federal measures are
siphoning off $10 billion of excess purchasing power in
this calendar year through additional Social Security and
Medicare taxes, by deferring planned reductions in excise
taxes on automobiles and telephone service, by graduated
withholding of income taxes, and by a speed-up in corporate
tax payments.
More recently, the President announced a $3 billion
cutback in low-priority federal spending, and he has asked
State and local governments to take similar action. He
has also recommended temporary suspension of special tax
incentives originally authorized to stimulate private
business expansion, and Congress has accepted this
recommendation.
The prudent use of economic policies, flexible in
method but firm in purpose, produced remarkable results in
stimulating the American economy throughout the 1961-65
period. Applied now as a moderating influence, these policies
have begun to ease the inflationary pressures and level out
the inevitable imbalances that are bound to occur in a free
market economy stretched out to capacity and distorted by
war.
Let us see, very briefly, what has happened to create
a need for restraint, and what that restraint is
accomplishing.
During the eight quarters preceding the President's
announcement of July 28,1965 that the United States would
have to step up its defense of freedom in Vietnam the nation
had enjoyed a generally smooth and evenly phased expansion,
averaging about $11 billion per quarter.
Under the material and the psychological impact of
the military build-up for Southeast Asia, the quarterly
expansion jumped to nearly half again what it had been, to
an average of about $16 billion per quarter. This has used
up a major share of the country's then unemployed and underutilized productive capacity and has placed the economy
under inflationary strains.

- 6 -

As a result of the change of economic policies from
stimulation to restraint, we have returned to much more
moderate rates of gain: $11.1 billion and $13.7 billion
respectively in the past two quarters. This is a more
sustainable pace.
This cooling down is beginning to have its effect on
the price structure. The price of raw materials, for
example, has dropped 15 percent since last March.
Wholesale industrial prices have been stabilized since
July. And wholesale food prices have turned down in recent
weeks, which should have a favorable effect on the cost of
living in the months ahead.
It is notable also that the easing in price pressure
has been accompanied by a modest drop in interest rates
from the high level of late August and early September
and that, despite the direct and indirect foreign exchange
drain of the extensive military operations in the Far East,
we have succeeded in holding our international balance of
payments deficit to the 1965 level, which was about half
that of the preceding five years.
Taken with the fact that unemployment has been held at
or below 4 percent of the working force in every single
month of 1966, the record certainly demonstrates that we
are successfully maintaining our forward progress. We
are in the stage of moderate restraint, but we are neither
static nor in retreat. We are continuing to move ahead.
To get a valid measure of our present position, it
might be well to look back and see how far we have come.
At the beginning of the current expansion, in early 1961,
our economy was emerging from its fourth post-war recession.
Unemployment was intolerably high. Business investment had
for years lagged far behind the rate needed to generate
vigorous growth and to protect our competitive position in
world markets. At the same time, a series of balance of
payments deficits averaging more fuan $3-1/2 billion a year
for three years had left the dollar vulnerable and
threatened the international monetary system which the
dollar supported.

- 7 -

Prices had .remained relatively stable since 1958,
but not as a result of positive and productive growth.
The nation had bought that price stability at the sacrifice
of our other major goals -- economic growth, and full
employment. In the process a serious disequilibrium
in our international balance of payments had developed.
The price stability of that period was an anemic stability
not an indicator of economic health.
In 1961 we set out to fashion a new mix of economic
policies that would enable the nation to move forward
simultaneously toward the separate but inter-related
goals of price stability, full employment, economic growth,
and international exchange equilibrium.
We rejected then, and we reject now, the notion
that these goals are inherently incompatible and that to
secure one or two of them we would have to sacrifice the
others.
But we also recognized then, as we do now, that
conflicts between those goals could arise -- that' we
might well come to a point where it would be difficult
to pursue full employment and price stability at one and the
same time, a point where success on one front might seem
to involve falling back or slowing down on another.
And that is exactly why our first fiscal measures at
the beginning of this expansion centered upon encouraging
productive new business investment. It was felt that
investment in larger and more modern capacity would not
only stimulate employment and growth but would also
bring about the greater productivity and lower costs so
essential to continued price stability and to progress in
meeting our balance of payments problem.
Those measures were accompanied by a pioneering
program of training and re-training for unskilled and
semi-skilled workers that would make them more employable
and more productive. From the very beginning there was
awareness that the nation would one day arrive at the
stage where growing demand alone could not continue to
reduce unemployment without undermining our productive
efficiency or straining our price stability. As a result
of efforts in this area, over the past five years,

- 8 -

beginning with the landmark Manpower Development and
Training Act of 1962, there is now underway the most massive
attack ever mounted on the problem of structural
unemployment.
At the same time that we employed those dual measures
aimed specifically at insuring both greater growth and
greater productivity -- a dual approach was adopted
on the overall economic level. On the one hand, we sought
to increase demand in the private sector of the economy,
through massive and across-the-board income tax reductions.
On the other, through the wage-price guideposts, we sought
to encourage voluntary wage-price restraint within the
context of our free enterprise system.
The end result was both rapid and real economic growth,
that is, rapid growth of actual production of goods and
services. And today, when voices are raised to demand that
those guideposts be abandoned, it might be well to have a
clear understanding of how much the nation's economy
progressed so long as wages and prices were reasonably
geared to the guideposts.
Let me just cite a few relevant statistics which
the guidepost critics frequently find it convenient to
ignore. During the five years from 1961 to 1965, nearly
all of which were covered by the guideposts, corporate
profits after taxes rose about 65 percent from $27.2
billion to $44.5 billion. In the previous five-year period,
when we had no guideposts, corporate profits after taxes
fell by 2 percent, from $27.2 billion to $26.7 billion.
And in the same five years before the guideposts,
employee compensation rose about 20 percent, from
$243 billion to $294 billion, which would appear to be a
healthy increase until you compare it with the 30 percent
jump in employee compensation that occurred during the
five-year guidepost period -- from $303 billion to $393
billion.
Even more remarkable is the behavior of prices. During
the five years before the guideposts, when unemployment
was increasing and our industrial plant was slowing
down, consumer prices rose by about 9 percent. But
during the five guidepost years, when the trend in
unemployment and industrial production had reversed, prices
rose by only three-fifths as much, or by 5-1/2 percent.

- 9 As a result, price rises cancelled out almost half of
the workingman's gains in the 1956-60 period, so that in
real terms his compensation went up by only about
11 percent. In the 1961-65 period, on the other hand,
the rise in employee compensation far exceeded the consumer
price rise, so that the worker actually gained more
than 20 percent in real spending power.
What those comparisons make vividly clear is the
fact that the wage-price guideposts, or something like
them, must occupy an important place in any successful
effort to secure real growth in the economic abundance
we share today. Paradoxically, restraint is a most
important part of our progress.
The record of the 1960's is one of remarkable progress
toward the simultaneous attainment of the four paramount
goals I have mentioned: economic growth, reasonable
price stability, full employment and equilibrium in our
international balance of payments.
No great and free people in all history has ever
come so close to the attainment of such ambitious
goals. Shall we then build upon the policies that have
brought us within reach of them? Or shall we revert to the
timid and demonstrably ineffectual policies of the more
distant past? Would we, for example, accept a high rate
of unemployment and an inadequate rate of economic
growth for the sake of price stability? Would we abandon
stability and balance of payments equilibrium for the
sake of marginal increases in employment and growth?
To ask these questions is to answer them. Throughout
the past five years we have consistently refused to bargain
away one or another of our goals at the expense of the
others.
Our task today is the same as it has been all along:
to sustain our progress on all fronts. But today, as you
know, that task has been made more difficult and more
delicate by the added demands of the Vietnam conflict on an
economy already close to full employment and full
production.

- 10 -

The present situation is unique and was quite
unforeseeable. When we charted our original course, we
contemplated a peacetime economy, and thoughts of a
country engaged in hostilities on the present scale were
far from our minds. But hostilities can cut ruthlessly
across many plans and procedures designed to meet the
problems of a nation at peace. We are deeply committed
to an extensive military operation in Southeast Asia
which shows no signs of early termination.
The economic impact of Vietnam is in no way comparable
to the vastly greater and different strains imposed by
the Korean War, but nevertheless its effect is clearly
evident and it has introduced a large element of
uncertainty into our situation. And it has heightened
the pressures on interest rates, prices and wages.
While the price and interest picture is somewhat
more reassuring than it had been earlier in the year,
there can be no denying that it remains a matter for
concern. Cost-of-living increases particularly create
pressures for larger wage increases which could indeed
upset the stability that has been maintained in the
unit labor costs of manufacturing industries.
Whether industrial management and labor have the
understanding and self-discipline to face and solve this
problem will have an important bearing on the future
course of our economy and 00 the fiscal and monetary
policies of your government.
Public fiscal and monetary policies will fail
in maintaining stability unless businesses and unions
carry their full burden of responsibility for avoiding
inflationary price and wage rises.
We have set our sights high -- higher than any
other nation has ever dared to do. But in the past six
years we have come a long, long way toward the
realization of our national potential.

- 11 -

What we are discovering is the fact that the society of
fully open opportunity brought forth in America in 1776
has profound economic as well as political consequences; it
is the high road to durable prosperity and strengh for
individuals and for the nation -- when the goals of a Great
Society are honestly and comprehensively pursued.
In the pursuit of the further implementation of the
great American ideal of a society open to the fullest
realization of the potentials of all its members we in this
country are doing more, in more ways, to make more lives
better than have all the great revolutions of the past put
together.
Nor have we hoarded up the benefits to ourselves only.
We have used our economic might to create a military shield
which helps not only the United States but people in many
parts of the world to fashion their own destinies ~ccording
to their own national determination.
What we in America have accomplished is the product of
a creative society, capable of mending its defects and
regenerating itself, and gifted with a unique capacity for
cooperative action by the public and private sectors.
The plain historical truth about the American society
is something all too often forgotten by the latter-day
Cassandras.
This truth, evident to anyone who will look without
bias at our history is that cooperative, public-private
action is in the oldest American tradition. Alexander
Hamilton, who preceded me in my present office by some
175 years, was properly recorded as a political economist
who saw his problem as one of using the fiscal and monetary
powers of the new Republic to promote national security and
growth. And his successors of various political bents used

- 12 -

fiscal policies, tariff regulation, and the financing of
roads, canals and railroads to playa central role in the
great age of business expansion that marked the first twothirds of the 19th century.
What distinguishes our experience from that of others
is the fact that in this country the Government has always,
as it does today, used its economic policies to strengthen
and perpetuate private enterprise, not the contrary. We
had no overall economic scheme, no five-year plans, no
explicit national targets for production and consumption.
But at an early time we did adopt national policies
deliberately intended to promote national development through
the joint efforts of the people and their Government.
This has resulted in the evolution of a free enterprise
system operating in an openness completely unknown to the
Old World, an economy thrown open to every kind of stimulus,
ready to exploit every sound suggestion for change and
improvement. There has emerged a productive fruitfulness
that has made the American standard of living a wonder to
the world, standing half again as high as its nearest
competitors in the better-developed countries, Sweden,
Switzerland and Canada, and twice as high as the per capita
product of such other industrialized countries as France,
Britain, Belgium, and West German.
In the course of this progress, and contributing
enormously to it, came successive waves of immigrants from
other lands, most of them completely alien to the original
British inheritance of the Colonies.
Our nation made of each wave of newcomers a new source
of strength, even though each wave had to strive for
acceptance from those already benefitting without special
restraints from American opportunity. Let us not forget
that it was not long ago that the sign "No Irish Need Apply"
hung in the streets of Boston, as well as on Pennsylvania
Avenue. But they were integrated as were, before or after
them, the German, the Scandinavian, the Jewish and the
Slavic immigrants who today give America the unexampled
richness of its culture and its talent.

- 13 -

Now, the latest "outsider" is rapping at the gates,
asking for its rightful share of the American heritage.
And the present Administration, under the inspiring leadership
of President Johnson, is leading the nation in obtaining
full acceptance for the American Negro, in seeing to it that
the Negro and his children receive the benefits of the
Great Society which they have merited, and that America
receives from its Negro population the nation's rightful, and
far too long denied, heritage of culture and talent lying
fallow in these citizens.
If the case for the American Negro rested on humanitarian,
moral grounds alone, that would be more than sufficient to
warrant his entry into full American citizenship.
But to those who would deny such moral justification,
let me point out the enormous material benefits that will
accrue to our society, and not just to the Negro, when we open fully
the doors of equal opportunity to the American Negro. It is
the same story that has been told a dozen times before as the
nation has reaped the benefits of opening its door.s to the
hungry, the poor, the cast off, who composed our previous
waves of immigrants.
The 21 million Negroes in the United States today spend
over $27 billion in the marketplace each year, despite the
fact tha t their incomes lag far behind those of white
families and their unemployment rate is almost twice the
national average.
Measured in dollars and cents alone, the price the nation
pays for the lack of economic opportunity for the American
Negro is a staggering one. He represents a potential market
of $50 billion or more for the goods and services of
American business and a wealth of unused talents, skills,
and energies for our society. In a very real sense, the
Negro market is perhaps the last frontier of American
expansion, the last of our great untapped resources.
The task of training and retraining unskilled Negro
workers, of educating Negro youth for rewarding careers, is
huge in magnitude. But can we honestly afford to waste the
human talents, the latent abilities that lie hidden in the
Negro slums of our cities today? The Johnson Administration's
massive program to uncover and utilize the potential of the

- 14 American Negro is not simply an act of charity or welfare,
but a practical effort in the oldest American tradition
that will repay the whole American society over and over
again for generations to come.
President Johnson's ideal of a Great Society is a
bright link in the chain of progress that began with our
first creative revolution almost 200 years ago. Were we not
to continue forward toward that realization, we would in a
very real sense be betraying our history. We would be
turning our backs on the overwhelming evidence of our past
that it is the opportunity our society offers for each
American to achieve his own potential, that set this nation
apart from every other nation.
The Great Society is a program to enlist the talent and
the energies and the devotion of all Americans, without any
remaining exception, and keeps the doors of opportunity
equally open to the legitimate aspirations of every American,
without any remaining exception.
With the help of fine organizations like the Anti-Defamation
League, which has long worked in this field, and the
responsible support of all our fellow-Americans, we shall
achieve it.

000

TREASURY DEPARTMENT

October 19, 1966
FOR IMMEDIATE RELEASE

TREASURY'S MONTHLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of $1,400,000,000,
or thereabouts, for cash and in exchange for Treasury bills maturing
octover 31, 1966, in the amount of $999,948,000, as follows:
273-day bills (to maturity date) to be issued October 31, 1966, in
the amount of $500,000,000, or thereabouts, representing an additional
amount of bills dated July 31, 1966, and to mature July 31, 1967,
originally issued in the amount of $994,844,000, the additional and
originial bills to be freely interchangeable.
365-day bills, for $900,000,000, or thereabouts, to be dated
October 31, 1966, and to mature October 31, 1967.
The bills of both series will be issued on a discount basis under
~ompetitive and noncompetitive bidding as hereinafter provided, and at
naturity their face amount will be payable without interest. They will
)e issued in bearer form only, and in denominations of $1,000, $5,000,
?10,OOO, $50,000, $100,000, $500,000 and $1,000,000, (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to
:he closing hour, one-thirty p.m., Eastern Daylight Saving time, Tuesday,
lctober 25, 1966. Tenders will not be received at the Treasury Departmen~
1ashington. Each tender must be for an even multiple of $1,000, and in
:he case of competitive tenders the price offered must be expressed on the
~sis of 100, with not more than three decimals, e. g., 99.925.
Fractions
lay not be used.
(Notwithstanding the fact that the one-year bills will
un for 365-days, the discount rate will be computed on a bank discount basis
f 360 days, as is currently the practice on all issues of Treasury bills.)
t is urged that tenders be made on the printed forms and forwarded in the
pecial envelopes which will be supplied by Federal Reserve Banks or
ranches on application therefor.
Banking institutions generally may submit tenders for account of
Jstomers provided the names of the customers are set forth in such
:nders. Others than banking institutions will not be permitted to submit
~nders except for their own account.
Tenders will be received without
~posit from incorporated banks and trust companies and from responsible
Id recognized dealers in investment securities. Tenders from others must
! accompanied by payment of 2 percent of the face amount of Treasury bills
F-667

- 2 -

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 $2PO,OOO 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 Bank on October 31, 1966, in
cash or other immediately available funds or in a like face amount of
Treasury bills maturing October 31, 1966. 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, a
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 0
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 a~
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 retun
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 conditi~
of their issue. Copies of the circular may be obtained from any Federal
Reserve Bank or Branch.
F-667

TREASURY DEPARTMENT
Washington

FOR USE IN AFTERNOON NEWSPAPERS OF
FRIDAY, OCTOBER 21, 1966
REMARKS OF THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE
THE HOME BUILDERS STATE ASSOCIATION OF IOWA
ANNUAL CONVENTION
IN
THE ROOSEVELT HOTEL, CEDAR RAPIDS, IOWA
FRIDAY, OCTOBER 21, 1966, AT 12 NOON, CDT

The American economy, now in its longest peacetime
period of expansion in our history, is in healthy and
vigorous condition.
Our gross national product -- the measure of goods and
services produced throughout the nation -- rose $13.7 billion
in the third quarter of the year to its newall-time high:
a seasonally adjusted annual rate of $746 billion, according
to the preliminary Department of Commerce estimates.
This advance was greater than the $11.1 billion second
quarter increase but substantially less than the $16.8 billion
rise in the first quarter of the year. We believe the trend
is definitely toward a rate of growth which the economy can
sustain under stable conditions.
During the third quarter of the year, personal income
rose to an annual rate of $585 billion. This was an increase
of $11.5 billion from the second quarter, an advance that was
equal to the average of quarterly gains over the past year.
When you compare those figures with our gross national
product of $504 billion in 1960 and personal income of
$401 billion in 1960, you readily see just how healthy and
vigorous our economy is.
F-668

- 2 -

By any broad measure -- farm income, which rose 23 percent
last year and has moved on to higher ground this year;
corporation profits after taxes, which are nearly double
what they were in 1960; to cite two examples -- our economy
is demonstrating remarkable strength and resilience.
But there are some soft spots, as you know better than
most. To speak in broad terms again, there are three clearly
discernible areas of pressure in the economy and the
financial system:
in the money and financial markets, excessive
demands for credit, together with monetary
restraint, have created severe tightness and
a sharp rise in interest rates, with an
unfortunate and highly selective impact on
several sectors, particularly single-family
housing;
in the market for capital goods, the evermounting flow of new ord.ers by business
firms, coming on top of an unprecedented
rate of outlay for plant and equipment, is
pushing up prices and wages, creating
shortages of some skilled labor, and adding
sharply to the large demands for capital
from banks and the securities market;
the demands of our commitment to the defense
of freedom in Vietnam have been rising.
There is a close relationship among these three sources
of pressure:
Higher defense spending generates credit demands -- by
the government itself and by private firms which receive
government orders and work on borrowed funds to fill new
contracts.
Tight money itself causes additional government spending,
particularly to help finance areas of important economic
activity -- such as homebuilding -- from which the supply of
private capital has been diverted.

F-668

- 3 -

To be more specific, our banks this year, in order to
meet the heavy business demand for loans, have bid up the
interest rates on certificates of deposit very aggressively.
Commercial bank loans to business rose at an annual rate
of 19 percent in the first eight months of this year.
Meanwhile business borrowing has been exerting a
substantial direct impact in the capital markets. Net funds
raised through corporate bond issues were at an annual rate
during the first half of this year that was 8Q percent
heavier than in 1965.
In this entire process, interest rates on Treasury
issues and other securities have risen. In late August and
early September, many interest rates reached their highest
levels since the 1920s.
This is not to say that business borrowing has been
the only source of pressure on the markets. But it has
been a very prominent one. Treasury borrowing has not been
a major factor. Increased Federal agency borrowings and sales
of participations in pools of direc t government loans did exert
some pressure. But much of the increase in agency debt during
the first half of this year reflected borrowings to fill
credit needs in the mortgage area.
For surely the most unfortunate effect of the tightness
in the money market has been the smaller supply of funds
available for the home mortgage market. Governor Maisel of
the Federal Reserve Board has likened the situation to the
old game of "crack-the-whip." As the financial market has
responded and adjusted to shifts in credit expansion, the
flow of funds has varied among institutions and they, in
turn, have altered their commitment policies. The mortgage
market has stood at the end of the financial line. Pressure
has increased as it passed down the line, and the effect at
the end of the "whip" has been dras tic.
We find that we have solved the problems of a sluggish
economy, which required so much of our time and energy a few
years ago, only to face a whole new set of problems that
prosperity has brought with it.
As President Johnson observed last January, "We have
learned how to achieve prosperity ... now we must sustain it,
deal with its problems, and make the most of the opportunities
it presents." That is what we are trying to do.

F-668

- 4 The condition we face is that of an economy operating
very close to the limits of its productive powers. Putting
it another way, to continue under the pressures I have
cited would be to try to do too much, too fast.
On September 8 President Johnson announced a program
designed to exert a moderate restraint on the economy at the
pressure points -- to reduce our rate of expansion to a
sustainable level. Here are the main points of the program:
First, the President promised strong measures to reduce
lower priority Federal expenditures.
When we take account of the needs of defense and other
amounts in the fiscal 1967 budget which are fixed by law
or otherwise uncontrollable, we find that only about
$31 billion is actually subject to direct Presidential
control.
Our best present estilnate is that a reduction of some
10 percent -- about $3 billion -- '\vi11 be required from
that part of ;..:b£: budget. R.ealistically, of course, we cannot
determine the exact amount that can be cut in that limited
portion of the budget until we have analyzed all the
appropriation bills passed by the Congress.
Although the costs of the Vietnam conflict are uncertain,
to be on the safe side and to insure adequate support for our
men there, we must take account of the likelihood that we
will have to order additional material and equipment for our
defense of freedom in Southeast Asia.
Federal civilian agencies have been directed to defer,
stretch out, and otherwise reduce contracts, new orders, and
commitments. Each major agency has been given a savings
target, with orders to meet that target.
But, in a time when individual incomes and corporate
profits are at record heights, the President does not intend
that these economies be made at the expense of programs for
alleviating poverty, ill health, and inadequate education.
Both justice and sound economic consideraticns require
that we do not allow inflation to levy its pernicious tax
on the American people or on their business activities.
But those same considerations demand that we do not avert
inflation at the expense of the young, the old, the ~ll, and
the deprived by denying them their chance for educat~on, health,
opportunity, and security.

F-668

- 5 Second, the President recommended that the Congress
suspend the 7 percent investment tax credit, making it
operative again on January 1, 1968.
Our machinery and equipment industries cannot
the demands currently thrust upon them. There has
a ten-month average backlog on machine tool orders
many machine tools, the order backlog has exceeded

digest
been
alone. On
15 months.

Our capital markets are clogged with exc~ssive demands
for funds to finance investment. These demands bid interest
rates higher and higher and draw too large a share of credit
from other important uses.
Temporary suspension of the investment credit will
relieve excessive pressures on our capital goods producers
and on our financial markets. Our high-employment, highprofit economy will still provide abundant incentive for
growth in capacity sufficient to produce the goodswe need,
to modernize facilities, and to maintain a strong international competitive position.
Third, the President recommended that the Congress
suspend until January 1, 1968, the use of accelerated
depreciation on all buildings and structures started or
transferred after a cut-off date.
The reasoning here was the same: we must not give a
reward in the form of a tax advantage to investment which
contributes to the pressures on the economy.
Fourth, the President asked the Federal Reserve Board,
in executing its policy of monetary restraint, to cooperate
with him and the Congress to lower interest rates and to
ease the inequitable burden of tight money. He called on
our large commercial banks to join in this effort.
Fifth, the President disclosed that we in the Treasury
were reviewing all potential Federal security sales and
would take action to keep them at the minimum in the months
ahead.
In those five points the President mobilized the
resources of the Federal government to relieve inflationary
pressures in the economy.
F-668

- 6 But he went still further, calling on the entire nation
to act responsibly to preserve the prosperity we all share
and enjoy.
He called on the banks to allocate credit fairly and
without extracting excessive profits. He urged them to
rely less on high interest rates to price some borrowers
out of the market and to rely more on placing of appropriate
ceilings on credit.

He called on the Federal Reserve Board and the entire
financial community to seize the earliest opportunity to
reduce interest rates while allocating existing supplies
of credit more equitably.
He called on business to base their credit demands on
genuine needs rather than on speculation about future
scarcities or higher costs.
He also asked business to set prices on the basis of
real costs, rather than building into them the assumption
of future inflation.
He called on labor to avoid wage demands that would
raise the average level of costs and prices and to adopt
work rules and standards for entry into its trades that are
appropriate for a full-employment economy.
He also asked labor to cooperate with business to raise
productivity, so that pay increases will be matched by
increases in production.
That is the President's anti-inflation program, in
brief. I am pleased to be able to report that, in addition
to work already underway on reduction of expenditures, which
I mentioned earlier, we have made important progress on all
the other points of the program. Foremost, of course, is the
fact that the Congress has passed the legislation requested
by the President to suspend the investment credit and accelerated
depreciation.
Turning to interest rates and the money situation, the
Congress has passed and the President has signed a bill giving
more flexible powers to our monetary authorities to set
interest rate ceilings on consumer savings accounts.

F-668

- 7 -

The three regulatory agencies with responsibilities in this
area -- the Federal Reserve Board, the Federal Home Loan Bank
Board, and the Federal Deposit Insurance Corporation -- have
moved promptly to make good use of that authority. The
Federal Reserve Board and Federal Deposit Insurance Corporation
have reduced existing interest rate ceilings on consumer
savings deposits. The Federal Home Loan Bank Board has
established a ceiling rate for the first time. The response
of the financial community to those measures has been
favorable.
We have also made progress in reducing and rearranging
government borrowing requirements. We are going to meet
remaining needs without requiring the private market to take
up additional securities from Federal agencies.
Federal Reserve actions have been coordinated with the
program in order to gain the greatest effect in reducing
interest rate pressures. The result of all this activity
is that we have seen a decline in long-term Treasury,
corporate, and municipal bond yields since the highs that
were reached in late August.
I want to stress the specific ways in which these and
other activities of the Administration have been brought to
bear against the tightness in the home mortgage market:
First, the promptness of the monetary authorities in
establishing interest rate ceilings. Their action is already
moderating the escalation of interest rates and permitting
larger savings flows to institutions which specialize in mortgage
financing.
Second, the Federal National Mortgage Association has
continued its secondary market purchases at a substantial
rate during the last half of calendar 1966. Fannie May's
secondary market purchases totalled a record $1.3 billion in
the first half of the year.
Third we have obtained legislation enlarging the borrowing
authority ~f the Federal National Mortgage Association, so that
Fannie May can continue to carry out its secondary market
operations and provide funds for additional mortgage activity.
Fourth
the Federal Home Loan Bank Board has been able to
--~~,
obtain sufficient funds to provide net advances of about
$1.5 billion this year to savings and loan associations, which
are, of course, a major supplier of mortgage market funds.

F-668

- 8 The benefits of these and many other efforts by the
Johnson Administration to the mortgage market and the homebuilding industry constituted a principal underlying factor in
the generally optimistic outlook in the report on the state of
the economy which Secretary of the Treasury Fowler sent to the
White House shortly before the President's departure on his
Asian trip.
Qf course, there is no way of knowing whether the program
the President announced on September 8 and th~ other actions
of his Administration will be sufficient to avert further
inflationary danger. As he pointed out in outlining his
program; and I quote:
"Decisions made elsewhere will influence
our defense needs in Vietnam. Because
we cannot control or predict these
outcomes, we cannot blueprint our fiscal
measures in the months ahead. But should
additional fiscal measures be required to
preserve price stability and maintain
sound fiscal policies, I will recommend
them. "
And, I will add, only time will tell whether further
action will be necessary. Certainly, the prospect for
improvement is very good under the program going into
effect now.
We know, of course, that not all of the President's
proposals are popular in all circles and fields of activity.
There has been vigorous dissent, for example, with the proposals
to suspend the two tax incentives, the investment credit and
accelerated depreciation.
The President had a clear idea of what the reaction
might be when he made his recommendations. But he made them
anyway, because he knew the economy -- and our prosperity -required them.
Let me quote him briefly just once more:
"By continuing on a prudent course
in our private and public policies and by
preserving our cap?city for stable
economic growth, we can look forward to
continuing progress. We can make that
F-668

- 9 progress within the framework of
a free economy. We do not want to
resort to controls. If we take the
necessary actions, next ~ear should
bring new heights in consumer living
standards, in savings for the future,
in our progress toward the Great
Society. "
In a time of adversity, it is not always easy to look
ahead. But we must keep on looking ahead. The curtailment
of expansion in mortgages this year is a short-run phenomenon.
It is in sharp contrast to most of our post-war experience.
It is not consistent with any of our expectations for the
coming years.
With our expanding population and our great need to
improve housing throughout the nation, housing demand and the
importance of mortgage funds are sure to increase.
A recent study by the National Planning Association
suggests that in 1975 the American nation's expenditures for
housing should reach an annual rate of $62 billion if we are
to meet our housing goals. That figure is in 1962 dollars.
It is more than double -- actually III percent -- of our
actual spending for housing in 1962.
Another National Planning Association study predicts
that it will take $2.1 trillion over a 20-year period to make
our cities "viable" places to live. A great deal of that
sum must go for housing. There have even been suggestions to
create as many as 1,000 "new cities" allover the country.
These would be modern cities, designed for Twentieth Century
America and located where people would enjoy living. The
housing construction involved in such a scheme excites
the imagination.
Neither I nor anyone else can predict that the United
States will follow such a plan. But I can predict that the
trends already well-established -- the trend of home ownership,
the trend toward realization of each family's aspiration for
better housing, the tend of urban expansion, the trend of
renewal in the heart of our old cities, the upward trend in
personal income -- will continue.
The concept of the Great Society embodies a firm belief
in the need for better housing. Meeting that need will be
your task in our society and economy, tomorrow just as it is
today.
F-668

000

TREASURY DEPARTMENT
4

FOR IMMEDIATE RELEASE
TREASURY APPOINTS SPECIAL CONSULTANT
TO THE SECRETARY FOR SAVINGS BONDS PROMOTION
Secretary of the Treasury Henry H. Fowler today announced
the appointment of James S. Fish as Special Consultant to the
Secretary for Savings Bonds Promotion.
Mr. Fish is Vice President for Advertising and Marketing
Services of General Mills. He will serve on a part-time
basis, without compensation.
Mr. Fish will help prepare a stepped-up 1967 Savings
Bonds campaign. He will provide Secretary Fowler with advice
on marketing procedures, advertising and promotional activities.
He will also act as liaison between the Treasury Department
and the Advertising Council, which helps promote national
causes. He will work closely with the Treasury's Savings Bonds
Division headed by William H. Neal.
In announcing the appointment, Secretary Fowler stressed
that: "The Treasury wants to increase Savings Bonds sales
primarily by increasing the total amount of savings, rather
than by attracting a bigger share of the existing amount of
savings into Savings Bonds. Thus, the Savings Bond product
and campaign -- marketing, promotion and advertising -- must
be designed to accomplish this dual purpose. The reason for
this approach is that we need additional savings to help
contain inflationary forces."
The Savings Bonds program is now in its 26th year.
There are now outstanding almost $50 billion in Savings
Bonds.
Mr. Fish was born September 8, 1915, in Mt. Pleasant,
Iowa. He was graduated from the University of Minnesota in
1937 with a B.A. degree. He later took graduate courses at
Northwestern University's School of Business Administration.
Mr. Fish served in the U.S. Navy from 1943 to 1945. He
is married to the former Dorothea Merritt of Minneapolis,
Minnesota. They live at (108 Chevy Chase Drive) Waysata,
Minnesota. They have three children.

F-669

000

TREASURY DEPARTMENT
=

FOR IMMEDIATE RELEASE

October 21, 1966

TREASURY DECISION ON CEMENT
UNDER THE ANTIDUMPING ACT
The Treasury Department has determined that wi te portland cement
from Japan, manufactured by Onoda Cement Co., Tokyo, Japan, is not
being, nor likely to be, sold at less than fair value within the meaning of the Antidumping Act, 1921, as amended.

A "Notice of Tentative

Determination," was published in the Federal Register on July 30, 1966.
White cement is used instead of gray cement where the purity of
color is a paramount consideration.
The complainant submitted a written request for an opportunity
to present views in person in opposition to the tentative determination.
The opportunity was afforded to the complainant, and all interested
parties of record were notified and were represented at the hearing.
All written and oral argument presented in opposition to the
tentative determination were given full consideration.
Imports of the involved merchandise received during the period
March 1, 1965, through August 31, 1966, were valued at

$608,000.

approximate~

TREASURY DEPARTMENT
Washington

FOR USE AT 11:00 A.M., EDT
SATURDAY, OCTOBER 22, 1966
REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE
THE BUSINESS COUNCIL
AT
THE HOMESTEAD, HOT SPRINGS, VIRGINIA
SATURDAY, OCTOBER 22, 1966, 11:00 A.M., EDT
Were this the October of, say, 1957, or 1958, or 1959,
or 1960, I doubt that there would be a single economic
observer, of whatever persuasion, who could look back at
the performance of our economy since July of last year and
assess it as anything less than the most spectacular in our
entire economic history in terms of its combination of
strength, of stability and of freedom from excess or
imbalance.
And were it the October of 1951, or 1952, he would have
to regard it as the most remarkable fact of all -- absolutely
without parallel in the history of this or any other nation
that we achieved this extraordinary strength and stability
in the framework of a free market economy -- free of the
harsh economic controls on prices or wages or resources that
have characterized past wars -- even though we were involved
in a sizable war overseas.
As a former Director of the Office of Defense
Mobilization and a former colleague of many of you on the
War Production Board, I know you share my view that this is
a remarkable achievement in which both government and the
private sector can take considerable pride.
I propose such a perspective, not because we have no
problems, for we have some very real problems. I propose
it because I feel we often become so absorbed in these

problems that they seem to us far larger than they really
are.

F-670

- 2 -

We cannot ignore the problems of the past year, some
of which are still with us today in varying degrees -reflected in the price trends of the last year or so, in
the excessive exuberance of the capital goods sector and
excessive weakness of the housing sector, and inflationary
pressures of both the demand-pull and cost-push varieties.
But to exaggerate them can be equally as harmful as to
ignore them.
So today I would like to try to take a balanced, and
brief, look at some of our major areas of economic concern
areas of concern to you and I, and to all Americans.
We have to begin, I think, by understanding several
very simple -- but very basic -- facts about our economy
today and over recent months.
One of these facts is that we are operating virtually
at levels of full employment of both manpower and industrial
capacity -- goals we have been striving toward for decades
and whose accomplishment presents us with an entirely
1
unprecedented set of problems.
Another is that, while our economy does exhibit
distortions that rightly engage our concern, these distortions
have two remarkable characteristics. The first is that
these distortions are far less than one might have expected
in a full employment economy which bears the burdens of a
large conflict abroad, and does so without the application
of Government controls.
The second is that, because our economy is so robust
and resilient, there is not on any horizon we can now
foresee the slightest prospect that controls will be required.
On the contrary, we have every reason to expect that
together government and the private sector can handle any
current, or currently conceivable, problem within the
framework of a free market economy.
Where, then, do we stand?
In July of last year -- when the President asked Congress
for additional defense funds for Vietnam -- we stood in the
52nd month of the longest peacetime expansion in our history.
During that period, our real Gross National Product had
grown by about one-fourth. That added growth -- that

- 3 -

expansion in our real national output
is equal in amount
to the total real national output, for all of 1965, of
France and Italy combined. Unemployment had fallen to 4~ percent
from a 7 percent high in early 1961. The average operating
rate of our industrial capacity had risen to 90 percent from
a recession low of 78 percent in early 1961. Average
consumer prices were only 6 percent higher than they were
in early 1961 -- and prices of nonfood commodities were
only 3 percent higher. And on the average whole prices
for manufactured finished products were less than 1 percent
above the level at the start of the expansion.
That progress, as you know, was very largely the result
of a fiscal policy which combined substantial Federal tax
reductions -- both to increase overall private demand and
to heighten incentives for new and productive business
investment -- and a tight rein on the growth of Federal
expenditures.
In mid-1965, therefore, we seemed on the threshold of
an entirely new era of economic experience -- an era of
unparalleled peacetime prosperity, at full employment and
with stable prices. The prospect was that we would enter
this era gradually, and our purpose was to insure that we
did so.
But with the intensification of hostilities in Vietnam,
the tempo picked up sharply. Partly through the impact of
additional defense spending -- but even more, I think,
through the impetus of the bullish psychology engendered
by this new turn of events -- our economy began to climb
steeply.
GNP had been advancing for eight quarters at an average
rate of $11 billion per quarter -- but between the second
quarter of 1965 and the first quarter of 1966 it rose by
a quarterly average of $16 billion. Our annual rate of real
growth rose to an astounding 7.2 percent. Unemployment
fell sWiftly -- in February dropping to 3.7 percent, the
low point of our expansion thus far.
Faced with the danger of excessive economic exuberance
and taking into account the actions of the Federal Reserve
Board early last December -- we shifted from a stimulative
fiscal policy toward one of moderate restraint. Through

- 4 that shift, as President Johnson has pointed out, we have
siphoned off $10 billion of excess purchasing power from our
economy during this calendar year:
$6 billion through increased payroll
taxes for social security and medicare.
$1 billion through restored excise taxes.
$1 billion through graduated withholding
of individual income taxes.
$1 billion through a speed-up in corporate
tax pa ymen ts •
$1 billion through an administrative
acceleration of tax payments.
In addition, throughout this calendar year the Federal
budget on the national income accounts basis -- our best
measure of the economic impact of fiscal policy -- has been
in surplus or in balance.

On an overall basis, the impact of these measures has
been by and large what we hoped and expected it to be -- in
the last two quarters our economy has advanced at a more
moderate and sustainable pace.
The $13.7 billion GNP rise during the third quarter -and the $11 billion rise in the second quarter -- not only
extended the pattern .of solid advances that has characterized
the current, record-breaking expansion, but also reflected
a welcome moderation from the feverish rate of late 1965
and early 1966 that produced both imbalance and excess
demand with their accompanying price pressures. At a more
sustainable pace we are still surpassing most of the other
industrial countries both in the total value of production
and incomes and in the rate of real growth. Corporate
profits and personal income -- both before and after taxes -continue to rise and thus to extend the most steady,
sustained increase in modern times. After-tax household
income is seven percent higher than a year ago, generating
a substantial rise in real purchasing power.

- 5 -

But while on an aggregate basis we had achieved
satisfactory progress, by the beginning of September it
became clear that we had to act to relieve severa] specific
pressures that threatened to develop into severe economic
distortions. These pressures were making themselves felt
in three basic areas of our economy:
in our money and financial markets, where
the combination of excessive demands for
credit, monetary restraint and high
interest rates has had little or no impact
on our booming capital goods sector while
all but choking off the flow of funds to
our housing industry.
in our market for capital goods, where the
ever mounting flow of new orders by
business firms coming on top of an
unprecedented rate of outlays for plant
and equipment is generating rising prices,
rising wage rates and shortages of some
skilled labor as well as swelling already
large demands for capital from our banks
and security market.
the rising rate of total government
expenditures -- Federal, State and
local -- highlighted by steadily expanding
defense and public works outlays, which is
rapidly adding to overall demand.
On September 8, as you know, President Johnson announced
a program specifically designed to alleviate the pressure in
all of these three areas.
That program included:
1.

An urgent call to the Federal Reserve
Board and our large commercial banks
to follow the actions of the
Administration and the Congress -- both
in the fiscal area and in the credit
area -- to do all they can to lower

- 6 -

interest rates and "ease the inequitable
burden of tight money." The Congress,
as you know, has enacted legislation aimed
at h~lting excessive interest rate
escalation in the field of consumer
savings. And the Administration has taken
several steps to lighten as much as
possible the burden of Federal finance on
our money markets.
2.

A strong program for further reductions in
lower priority Federal expenditures.

The temporary suspension of the 7 percent
investment tax credit for machinery and
equipment and of the option to elect
accelerated depreciation on buildings.

As everyone here knows, I have been a strong exponent
of the investment credit, having worked strenuously to
secure its original enactment in the Revenue Act of 1962,
along with the administrative liberalization of depreciation.
Our experience to date has justified the faith I had in
1961-2 in the efficacy of the investment credit, and my
belief that it should become a permanent part of our tax
structure. Since then industrial production has increased
three times as fast as in the previous decade, real business
fixed investment has increased nearly four times as fast,
and our economic growth generally has far surpassed its
previous rate. This remarkable achievement is not solely
the result of the investment credit, but I firmly believe
the investment credit has contributed substantially to it.
Moreover, looking to the long-term future I am convinced
that the encouragement provided to business by the credit
to modernize and expand its use of capital equipment is
essential to maintaining full employment with stable prices,
and to keeping our industry competitive with foreign goods.
The President and his Administration fully share these
views.
It was therefore, only after very careful study and with
great reluctance that we reached the conclusion that
suspension of the investment credit is an appropriate
measure at this time. I stress suspension -- and not
repeal -- since the credit should be regarded, as President
Johnson's Message indicated, as an essential and enduring
part of our tax structure.

- 7 -

The investment credit is a basic part of our tax
system that should be suspended only in times of active
hostilities at least on a scale such as characterizes the
present situation. Even under such circumstances, I
would, as I have made clear in the past, be chary of
suspending the investment credit unless the combination of
a rapidly expanding civilian economy and increasing and
special defense needs made this course compelling. I am
opposed to treating the investment credit as a countercyclical device, to be suspended and restored with the
normal ups and downs in our economy.
The present situation is unique and was quite
unforeseeable when the credit was adopted and stress was
put -- and properly so -- on its permanent character. We
then contemplated a peacetime economy and thoughts of a
country engaged in hostilities on the present scale were
far from our minds. But hostilities can cut ruthlessly
across many plans and procedures designed to meet problems
of a country at peace. We are deeply committed to an
extensive military operation in Southeast Asia which shows
no signs of early termination. Its effects on our economy
are clearly evident. We are also confronted with a monetary
situation of almost unparalleled tightness, which is
producing distortions in our economy and the highest levels
of interest rates in more than 40 years.
Early in the year when the question of suspending the
credit was raised in the Senate, we hoped that this change
in the law could be avoided. In March the President
invited to the White House more than 100 chief executives
of companies which, together, are responsible for making a
large portion of business plant and equipment outlays. At
that dinner the President made a strong personal appeal to
those present to carefully review their investment plans
with the objective of screening out and setting aside for
deferral whatever projects and expenditures they possibly
could. Many of the executives did just that and wrote
letters to the President confirming their plans to moderate
their investment outlays.
Nevertheless, the level of investment in both plant
and equipment has remained too high under present
circumstances and it is taking place despite sharp increases
in interest rates paid by corporate borrowers which some
thought would restrict capital expenditures. Undoubtedly
the increase would have been larger without the influece of the

- 8 President's appeal for restraint. But, according to the
latest Commerce-SEC Survey -- made public in early September
and based on reports from business in late July and
August -- plant and equipment outlays for this calendar
year were still expected to rise by the 17 percent forecast
in the spring. This made clear the need for temporary
suspension of special investment incentives, including
accelerated depreciation as well as the investment tax
credit.
We expect that this program -- along with all the
other measures we have adopted -- will help to remove some
of the pressures that have contributed to the 3% percent
rate of price increase we have experienced over the past
year at both wholesale and retail. That rate of increase
is larger than we can tolerate over any extended period -and, in the year ahead, it must be a major goal of both
public and private economic policy to restore reasonable
price stability.
At the same time, it is important that we keep these
price increases in proper perspective. For example, during
the year that ended this July, consumer prices increased by
2.8 percent and wholesale prices by 3.4 percent. Yet these
were smaller rises than we experienced becween, say, July
1956 and July 1957 -- a period of expansion during which we
were not involved in any hostilities abroad.
Or to take a more current, and even more cogent,

comparison: our record of consumer price stability from
the first half of 1965 through the first half of this year
is matched by only cwo other major industrial nations in
the Free World -- France and Italy. Yet both France and
Italy have been able to dampen their rate of consumer price
increase only by retarding their rate of growth. Moreover,
both countries rely heavily upon direct controls to hold
down the rise in the cost of living. Italy, for example,
controls 80 percent of rental prices included in its
cost of living index. And France exerts surveillance and
control over a wide range of consumer prices.
My point is simply that -- while we must do all we
can to return to the levels of price stability we
experienced earlier in this decade -- the price rises we
have thus far experienced have not been unduly damaging.

- 9 -

In fact, our recent price performance shows encouraging
signs. The index of raw materials prices, which moves far
ahead of wholesale and consumer prices, has dropped thirteen
percent since March. Wholesale industrial prices have held
steady since July. The rise in wholesale food prices has
been reversed in recent weeks. And these developments should
be favorably reflected in consumer prices in coming months.
We must also recognize that a major part of the consumer
cost of living increases has resulted, not from inflation
in our industrial economy, but from the adjustment upward
of the income of those who have worked the land and provided
services at income levels well below those in the industrial
sector.
Even with ever-higher wage incomes, r~s~ng productivity
has resulted in stable labor costs per unit of output in
manufacturing during the current expansion, in sharp
contrast to the 1954-57 period when these costs rose
strongly.
Thus, the ability of American industry to compete in
international markets, shackled by rising production costs
built in during the mid-1950's, has been set free during the
1960's. Merchandise exports have grown every year since
1960 and are continuing to expand, while there was no net
growth at all between 1957 and 1960.
I want to stress as well the very simple fact that -in the framework of a free market economy, which we now have
and which we are all determined to preserve and to further
the responsibility for price and wage stability rests
primarily upon the shoulders of our businesses and our
unions. And the greatest single threat to price stability
remains a regression to the self-defeating practices of
earlier decades when the various sectors of our economy
tried to seek gains at each other's expense -- instead of
working together, as they have throughout most of this
decade, to enlarge the share of each by enlarging the share
of all.
In recent months, as you know, the wage-price guideposts
have been favored with numerous obituaries. I think we
in the Administration would be the first to admit they are
far from perfect. But I have yet to see a better method
proposed -- consistent with our free enterprise system -for expressing the imperative public interest in the price
and wage making processes of our economy, and for
emphasi~'ns the fact that anyffiort-run gains that may come

- 10 -

from excessive wage settlements or unwarranted price rises -or from a failure to translate reduced costs into reduced
prices -- are very quickly wiped out by the cumulative
inflationary pressures these excesses and failures set in
motion.
It may well be that, in the months ahead, fUrther
restraints will be required in Federal fiscal policy. I
cannot -- and will not -- speculate on what further fiscal
steps we might take.
As Chairman Ackley of the President's Council of
Economic Advisors recently declared, the goals for fiscal
policy in 1967 are very clear.
First, we must maintain the growth of real GNP in
line with the growth of our capacity to produce -- which
means a real annual rate of about 4 percent.
Second, we must do all we can to slow down the rate
of price increase and return to price stability as rapidly
as possible.
Third, we must do all we can to relieve the current
distortions in our economy -- which lie principally in the
capital goods, housing and financial sectors.
Although specific measures can help achieve these
results, the most fruitful approach would seem to be
to shift the mix of policy so as to permit some easing of
monetary policy.
Already there has been some response to the shift
in policy mix embodied in the President's Message of
September 8. The overall level of interest rates, which
had risen so sharply this year, has recently eased. Longer
term Treasury, corporate and municipal bond rates have
declined from the high levels reached in August.
And I assure you we will do all we can and must do to
achieve these goals. As President Johnson put it in his
Message of September 8.
"Decisions made elsewhere will influence
our defense needs in Vietnam. Because
we cannot control or predict these
outcomes, we cannot blueprint our fiscal

- 11 -

measures in the months ahead. But
should additional fiscal measures be
required to preserve price stability
and maintain sound fiscal policies
I will recommend them.
'
"By continuing on a prudent course
in our private and public policies and
by preserving our capacity for stable
economic growth, we can look forward
to continuing progress. We can make
that progress within the framework of
a free economy. We do not want to
resort to controls. If we take the
necessary actions, next year should
bring new heights in consumer living
standards, in savings for the future,
in our progress toward the Great Society."
Looking ahead, the nation need not fear recession
when Vietnam hostilities come to an end. It can look
forward to continuing overall economic growth.
Sources of increasing demand are clearly observable.
In the private sector they. come from increasing personal
income, more jobs, and rising population in the familyforming sector, and surging plant and equipment requirements
in response to a burgeoning technology that calls for a
continuing modernization as well as expansion in capacity.
Moreover, a resurgence in residential housing should follow
easier monetary policy and the dip in housing. The outlook
for increased state and local expenditures is clear. And
there is an ample amount of worthwhile federal expenditures
now held back and deferred which can be released after
the termination of major hostilities.
Moreover, tax reductions can be employed to offset
reduced military expenditures and help keep demand growing
in line with our productive capacity. The percentage of
GNP devoted to Vietnam expenditures is much smaller than
was the case during World War II and Korea, assuring a much
easier transition period. Therefore, peace in Vietnam
can lead to even greater progress in living standards.

- 12 Our success in meeting the challenges before us on
the domestic economic front is, as you know, essential to
our success in meeting the challenges before us in the
international economic and financial arena. Earlier this
morning, Secretary Connor discussed with you some of
our problems and prospects in our balance of payments.
Time does not permit a thorough analysis here today
of the other elements of our program to improve the
Free World system of financial and economic cooperation,
to which our balance of payments is importantly related.
But may I note that there are at least four related
areas of economic negotiation and policy in which developments
in the year ahead will be crucial: trade in the Kennedy
Round; aid to the less developed countries particularly
through the multi-lateral institutions such as the World
Bank, Inter-American Development Bank, and the new
Asian Development Bank to be formally organized in Tokyo
in late November; the development of adequate capital
markets in the developed countries; and international
monetary reform.
We in the United States are proud of our initiatives
and national contribution in the last owenty years in these
areas. We believe their spirit, their motivation and their
scale serve to give a measure of what must exemplify the
role, not just of the United States, but of other nations
individually as they regain and achieve strength and stature,
and of our family of free nations all together, if
international economic and financial cooperation is to assume
ever greater dimensions that are required for the last half
of this century.
The recent meeting of the International Monetary Fund
and World Bank in late September marked very real progress
in one of these vital areas.
We are about to enter the second stage of negotiations
aimed at improving international monetary arrangements -following the successful conclusion of the first stage,
last July at The Hague, when the Ministers and Governors
of the Group of Ten announced agreement on basic points
of contingency planning for the deliberate creation of
international reserves.

- 13 Nearly all the Governors who addressed the Bank and
Fund meetirtg last month endorsed the creation of such a
contingency plan -- with the outright opposition from only
two countries, France and Chad. The Managing Director
of the IMF, Mr. Pierre-Paul Schweitzer, recommended a
series of joint meetings of the Executive Directors of
the IMF and the Deputies of the Group of Ten, on the
creation of such a plan, and such meetings have been
scheduled.
This second stage of negotiations would thus include
representation of the full membership of the International
Monetary Fund -- as well as of the members of the Group
of Ten. It is our earnest hope that these negotiations
will result in the development of a specific contingency
plan for deliberate reserve creation in time for
presentation at the next annual meeting of the Bank and Fund.
In the months ahead, the United States will continue
its efforts to bring these negotiations to a successful
and timely conclusion -- as well as to secure all possible
progress in improving international cooperation in aid and
trade, together with a better working of the adjustment
process in international payments balances.
In the international economic and financial area,
therefore -- as in our domestic economy -- we are meeting
the problems and challenges before us. And I have every
confidence that we will continue to meet them, with good
success, in the year ahead.

000

TREASURY DEPARTMENT
Washington

REMARKS BY SECRETARY OF THE TREASURY HENRY H. FOWLER
AT THE BUSINESS COUNCIL MEETING, OCTOBER 22, 1966,
IN RESPONSE TO ENQUIRES ON THE TREASURY'S POSITION ON
THE INTEGRATION OF PRIVATE PENSION PLANS
WITH SOCIAL SECURITY.

Considerable misunderstanding seems to have arisen about
what the Treasury and the Internal Revenue Service had in
mind last month in publishing a notice requesting background
information for our use in developing a formula applicable to
those pension, annuity, profit sharing, and stock bonus plans
which are integrated with the old age and survivors insurance
benefits provided under the Social Security Act. An "integrated
plan" is one that takes into account Social Security benefits.
As you know, our Income Tax Regulation in accordance
with the standards of the Internal Revenue Code have, for some
years, contained a formula which employers must follow in
designing such plans. Each time there are significant changes
in the Social Security law, it is necessary for us to reexamine this formula, since it is closely tied to the Social
Security benefits and wage base.
Let me illustrate. The present Treasury Regulations
reflect the Social Security provisions prior to the 1965
changes. Under these regulations a private pension plan may
provide employees with a pension equivalent to 37.5 percent of
their wages or salary over $4,800 without providing any pension
benefits based on the first $4,800 of wages and salary.
The basis for this is that the employer is considered to
be providing an equivalent benefit on the first $4,800 of
wages through the Social Security system -- hence the private
plan is considered to be "integrated" with the Social Security
system. This formula is based on the amount of wages subject
to the Social Security tax, the level of Social Security
benefits, and the portion of those benefits which are considered
to be acquired through the employer's contribution.

- 2 The Social Security amendments of 1965 raised the
maximum amount of wages subject to Social Security tax from
$4,800 to $6,600 and, in addition, made very significant changes
in both the contribution and benefits structure of this
program. This made it necessary for us to re-examine the
existing formula covering these integrated plans.
It would appear that extending the old formula on a
mathematical basis to the new situation would involve
significant new effects. Therefore, we decided to seek the
ideas of business and labor, and all other interested parties
in this area. The Revenue Service consequently asked last
month for information on the costs and other effects that may
be involved, and for any fresh ideas.
Let me make it clear that illustrations set out in the
Revenue Service's announcement seeking information and comments
are not a Treasury proposal. In fact, the Treasury has no
proposal. We will have none until we get considerably more
information upon which to base sound judgments.
The Revenue Service has twice postponed the date for the
submission of comments. The new date is November 30. The
background information we have requested will be evaluated
carefully. We will then be in position to issue a Treasury
proposal. As is customary, suitable time will then be allowed
for comment.
Meanwhile, let me commend the business community for its
spirit of cooperation. If you have not already done so, now
is the time for you to ask your experts to take a careful and
objective look at this matter. I would emphasize that we are
seeking constructive ideas and careful analyses of alternative
possibilities. We welcome the attention you are giving to this
matter, and that you will give it. We will give thoughtful
consideration to the material we received.

000

TREASURY DEPARTMENT
Washington

FOR USE IN AFTERNOON NEWSPAPERS
OF MONDAY, OCTOBER 24, 1966
REMARKS OF THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE
THE 18TH ANNUAL
INTERNATIONAL MUTUAL FUND DEALERS CONFERENCE
IN
THE SHERATON-PARK HOTEL, WASHINGTON, D.C.
MONDAY, OCTOBER 24,1966, AT 11 A.M.,
EDT
As we enter the last months of this year, it is natural
to turn our attention to economic and financial prospects in
the year to come. Already the private forecasting season is
in full swing, and before too long the Administration will be
completing its own appraisal, which in due course will be reflected in the President's Economic Report, in the Budget for
fiscal 1968, and in the Administration's legislative program.
Needless to say, I am not here in October to unveil the
Administration's fiscal plans for the coming year. I do want
to review some past developments with you, because I think it
may help to explain "why" if not "what" we will be recommending in the fiscal area.
By July, 1965, the economy had completed its 52nd month
of expansion, the longest in our peacetime history.
You will recall that a new emphasis on investment
incentives had begun in 1962 with the investment tax credit
and the administrative liberalization of depreciation. The
more active use of fiscal policy was carried a step further
in 1964's general tax reduction, whose overwhelming success
was soon demonstrated. A burdensome legacy of wartime excise
taxes was successfully pruned, demonstrating in the process the
ability of Congress to move promptly on tax legislation.
This more active use of fiscal policy was coupled with
a generally expansionary monetary policy -- but a monetary
policy that was always closely responsive to the emerging

F-67l

- 2 -

needs of the balance of payments situation. Most remarkable
of all, the steady expansion of the 1960s occurred within the
framework of cost-price stability, whereas the intermittent
expansions of the 1950s -- as in the case of most of our
previous experience -- had been marred by rising'costs and
prices.
I would like to read an appropriate passage here from
the Economic Report of the President. I quote:
" .•. business and labor leadership have
the responsibility to reach agreements on wages
and other labor benefits that are fair to the
rest of the community as well as to those persons
immediately involved. Negotiated wage increases
and benefits should be consistent with productivity
prospects and with the maintenance of a stable
dollar. And businesses must recognize the
broad public interest in the prices set on
their products and services.
"The full burden of avoiding price inflation,
which is an ever present hazard in an expanding
economy operating close to capacity, cannot be
successfully carried by fiscal and monetary
restraints al~ne •.••. The successful extension
of prosperity with price stability must be a
cooperative effort in which the policies of
individuals and economic groups and of all
levels of Government are consistent with one
another and mutually reinforcing."
One could hardly ask for a better summary of the current
situation and the current need. Yet these are not the words
of any exponent of the so-called "New Economics" -- they are
not the words of any defender of the wage-price guideposts.
They are not even words written in 1966. They are the words
of the Economic Report President Eisenhower transmitted to
the Congress in January of 1957.
They reflect a searching for a technique which ultimately
resulted in the wage-price guideposts established during the
Kennedy Administration and carried forward with substantial
if not unbroken success during the Administration of President
Johnson.

- 3 As a result of the much better cost-price record in the
1960s, steady progress was made toward our full employment goals.
For example, between the second quarters of 1963 and. 1965, real
output grew at an average annual rate of more than 5-1/2 percent
and the over-all unemployment rate declined from 5.8 percent to
4. 7 percent.
The economy was able to expand in real terms at rates of
5 percent and more by putting to productive use not only new
capacity and new entrants into the labor market, but also idle
capacity and the unemployed. Consequently, the rate of
expansion in output was somewhat above the 4 percent or so that
is our estimated potential when resources are fully employed.
But the rate of expansion was by no means excessive.
Fiscal and monetary policy were consciously employed to maintain
a rate of expansion high enough to reduce unemployment, yet
not so high as to disrupt the environment within which cost-price
stability had flourished. The Administration's wage-price
guideposts became a significant factor encouraging noninflationary wage bargaining and pricing policy.
Cost-price stability was required not only to avoid
domestic inequities and imbalances, but also to preserve and
strengthen an international competitive position that had
suffered in the 1950s. I will not take the time today to
review the Administration's continuing effort to bring our
international payments into secure balance. However, I do
want to emphasize the striking gains that have been achieved
by President Johnson's voluntary balance of payments program
initiated in early 1965.
In the second quarter of 1965, our accounts swung into
substantial surplus on both the liquidity and official settlements definitions. Indeed, the $904 million annual rate of
surplus,: on ,the liquidity basis, was the largest such quarterly
surplus since 1957. While there were some special favorable
nonrecurrent causes, the fact remains that just prior to July
1965 we were in clear sight of payments balance.
In short, at mid-1965, economic and financial policy were
Successfully attuned to the needs of both the domestic and
international situations. However, my seven years in public
service have taught me an inescapable fact of life: the
solution of one set of problems, the attainment of a particular
goal, usually uncovers a whole new group of perplexing issues
for which there are no easy answers.

- 4 On July 28, 1955, President Johnson called on the Congress
for supplementary funds to meet our increased commitments in
Southeast Asia. From that point on, economic and financial
policy began to operate in a different environment as we faced
new challenges to domestic stability and international balance.
National defense expenditures, as recorded in the
administrative budget, had been reduced by $4 billion in fiscal
year 1965 -- the fiscal year ending just prior to July 28, 1965.
Because of the larger Vietnam effort they were to rise by
$7.5 billion in fiscal 1966 -- the fiscal year that ended last
June 30.
At the same time, business investment programs had
gathered momentum, testifying to the success of the earlier
policy of tax reduction and investment incentives. Inevitably,
the pace of expansion quickened.
Gross National Product, the measure of the goods and
services produced in our nation, had increased at an average
annual rate of $11 billion per quarter from mid-1963 to mid-1965.
During the same period, wholesale industrial prices increased
by less than 1 percent per year, and the consumer price index
rose at an annual rate of about 1-1/2 percent.
The larger demands attributable directly and indirectly
to Vietnam pushed the Gross National Product advance to an
average $16 billion per quarter between the second quarter of
1965 and the first quarter of 1966. Industrial prices began
to edge up a little faster, and consumer prices rose somewhat
more, chiefly because of temporary supply problems in farm
and food products.
There was still considerable leeway for rapid increases
in real output. Between the second quarter of 1965 and the
first quarter of 1966, Gross National Product at constant
prices grew at an annual rate of more than 7 percent. The
unemployment rate fell by a full point, from 4.7 percent in
June 1965 to a 3.7 percent low in February of this year.
But, if this pace of overall expansion had been allowed to
continue, costs and prices would have been driven up sharply,
and in time the expansion of the 1960s might well have
followed a pattern that became all too familiar in the 1950s.
In order to sustain the expansion and meet the 9rowing
needs of the Vietnam effort within a free market envlronment,

- 5 -

it was essential for the Federal Government to shift from an
overall policy of stimulating demand to one of moderate
restraint.
Following the Federal Reserve action last December
increasing the discount rate, the Administration moved early
this year to restrain the growth of demand by fiscal means.
Under the Tax Adjustment Act of 1966 and related measures,
the Federal Government is taking an additional $10 billion
in excess purchasing power out of the economy this year,
relative to last year.
The Federal budget on national income and product account
which best measures the economic impact of government -- moved
into sizable surplus -- about $3 billion at an annual rate -in the first half of this calendar year after running in
deficit in the last half of calendar 1965. Available information suggests that the accounts remain in balance or surplus.
Despite the shift to fiscal restraint, the pressure of
demand has remained strong, particularly in the capital goods
sector. Monetary restraint has helped to hold the economy on
course, but could not relieve selective demand ryressures in the
plant and equipment area without inflicting an intolerable
burden on the homebuilding industry. As it is, we have been
faced with a monetary situation of extreme tightness and the
highest level of interest rates since the 1920s. Special
measures, including an expansion in the financial resources
of the Federal National Mortgage Association, have been set in
motion to ease the adjustment in residential construction.
Because monetary restraint could not be pushed too far
without exerting disruptive effects, the President announced
his five-point anti-inflationary program on September 8. The
key fiscal elements in the program were the promise of strong
measures to reduce lower priority Federal expenditures and the
Suspension of the 7 percent investment tax credit and accelerated
depreciation on buildings and structures. As more of the burden
of restraint was to be assumed by fiscal measures, the President
urged that interest rates be reduced at the earliest opportunity.
The Congress has passed and the President has signed a
bill requested earlier giving more flexible powers to our

- 6 monetary authorities to set interest rate ceilings on consumer
savings accounts.
The three regulatory agencies with responsibilities in this area -- the Federal Reserve Board , the
Federal Home Loan Bank Board, and the Federal Deposit
Insurance Corporation -- have acted promptly to make good use
of that authority.
We have also made progress in reducing and rearranging
government borrowing requirements. We are reviewing needs
of Federal lending agencies for new money and cutting back
wherever possible. We are going to meet remaining needs
without requiring the private market to take up additional
securities from Federal agencies.
Thus we have renounced
further sales of participations in pools of direct government
loans for the rest of this calendar year, unless there is
marked improvement in the market.
These activities have had a favorable market impact,
reflected in the receding of key interest rates from peaks
reached in August and in a much better atmosphere in the
financial markets themselves.
We in the Treasury have been implementing plans to meet
our additional money needs for the rest of the year in ways
which will have minimum impact on the market.
Federal Reserve
actions have been coordinated with the rest of the program to
gain the greatest effect in reducing interest rate pressures.
Finally, as you all know, the Congress has approved the
Suspension of tax incentives to business investment which the
President requested.
From the Tax Adjustment Act of 1966, proposed last
January in the State of the Union Message, to the program
the President announced on September 8, these have been
measured steps that have been taken in the direction of fiscal
restraint.
Some would have had us take a giant stride. But
the Administration has been cautious -- and rightly so, in my
opinion -- recognizing the danger of taking harshly restrictive
fiscal ac t ion.
As it has turned out, Gross National Product has been
held to an average $12.4 billion advance in the past two
quarters after surging forward by an average $17.4 billion
in the p~evious two quarters before the program of moderate

- 7 restraint took hold. Real output is estimated to have grown
at about a 4-1/2 percent annual rate in the quarter just
ended.
Moreover, the portion of the third quarter Gross
National Product increase that was accounted for by rising
prices was less than in the first half of the year. Recent
trends in raw material and other wholesale prices are quite
encouraging.
But the pressure of rising demand is still strong, and
additional fiscal restraint may very possibly be needed in
the coming year. That decision can be reached only when the
financial results of the current Congressional session are
tallied, when future financial requirements for Vietnam and
essential civilian programs are reasonably firm, and when
a final assessment can be made of the likely pace at which
the economy will be moving next year.
Considering the direct and indirect effects of Vietnam on
our balance of payments, performance in that area has been
very encouraging this year, with preliminary indications suggesting a good third quarter Showing. But the need for further
balance of payments progress will also weigh in any decision
as to the appropriate degree of restraint domestically.
The Administration has demonstrated beyond doubt that
it can employ fiscal policy effectively to moderate an
expansion which threatens to proceed too fast. Earlier we
showed the power of fiscal action to rouse a sluggish economy
from its lethargy. The President has avowed his determination
to take still further action if other measures prove to be
necessary.
I appreciate the
most people to figure
economy leaves them.
to know, on the price
income and taxes?

fact that it is rather difficult for
out just where all this talk about the
How does all this bear, most people want
of food or an automobile, on jobs and

The best way to judge the management of the economy is
by the results. The results are at every hand. We are in

- 8 the sixth year of our longest period of peacetime economic
expansion. The United States today is living in unprecedented
and unparalleled prosperity.
From the fourth quarter of 1955 to the first quarter
of 1961, our Gross National Product grew by about $95
billion, or 23 percent. From the first quarter of 1961 to
the second quarter of 1966, it grew almost $229 billion, or
45 percent.
Corporate profits after taxes, which went down almost
14 percent, or almost $4 billion, in that 1955-1961 period,
have shot up more than $24 billion -- almost 100 percent -in the 1961-1966 period we are talking about.
Personal income grew by $86 billion, or about 27 percent,
in that period 1955 to 1961. In the 1961-to-1966 period, it
grew by almost $167 billion, or 41 percent.
Disposable annual personal income per person
again speaking
for the fourth quarter 1955 to the first quarter 1961 -went up $241, or about 14 percent. From the first quarter
1961 to the second quarter 1966, disposable personal income
per person went up $601: almost 31 percent.
Let us refine those figures further and put them on
a still more personal basis. One of the best measures of
economic progress is how long you have to work in order to
pay for something. So let us consider the case of a typical
American factory worker who has a wife and two children.
In 1960 he had to work 14 minutes to earn the price of
a half-gallon of milk. Today it takes him 12 minutes -two minutes less.
In 1960 he worked 20 minutes to earn a pound of butter.
Today it takes him 18 minutes -- two minutes less.
He worked 16 minutes in 1960 to earn a dozen eggs.
he works only 12 minutes -- four minutes less.

Today

In 1960 he had to work 17 minutes to earn a pound of
chuck roast; today it takes him 14 minutes, which is three
minutes less.

- 9 -

He worked 26 minutes in 1960 to earn a pair of nylon
stockings for his wife. Today it takes him 22 minutes __
four minutes less.
Back in 1960 he had to work 33 minutes to earn a six-pack
of beer. Today he works only 25 minutes -- eight minutes less
for the same purchase.
In 1960, if he wanted to buy an eight-cylinder, four-door
sedan, the price equalled his earnings for 28-1/2 weeks. Today
he earns the price of a better car in one week less.
It takes this typical worker 4.2 hours less work per week
today to earn all the goods and services included in the
conSumer price index than it did in 1960.
It is true that we have experienced some price inflation.
But the buying power of our income has risen appreciably
faster than prices have.
How do we stack up in comparison with other nations?

In the early part of the Kennedy Administration, the
economic growth rates of the Western European nations were
our envy. Since then, of course, their rates have slacked off
and ours have risen. But what about prices?
The American consumer has fared better over the past six
years than consumers have in any other principal industrial
nation.
Consumer prices in the United States have increased by
about 10 percent since 1960, compared with increases
ranging from almost 13 percent to more than 43 percent in the
11 other major industrial nations.
Consumer price indices in every country except Canada
and Belgium have risen at least twice as fast as the United
States index in that" period. Denmark and Japan, two prospering
nations, have experienced consumer price index increases of
38md 43 percent respectively since 1960.
With these figures I have tried to balance the assessment
of our economic conditions which I hope you will take away with
you.

- 10 It adds up to something like this: We have problems, yes.
But to have problems is the condition of mankind.
It is much more important to consider what kind of
problems we have.
Five years ago we were fighting the
problems of a sluggish economy, a rate of economic growth
which was inadequate to meet the needs of the American people
and nation.
Today, in contrast, we are confronting the problems of
prosperity.
It behooves us to consider carefully before we
bemoan the problems of a nation with a Gross National Product
running at a seasonally adjusted annual rate of $746 billion
and a seasonally adjusted unemployment rate of 3.B percent.
These are great accomplishments, and the problems we face are
not a "slough of despond;" they are a great challenge.
As President Johnson said in his annual Economic Report,
transmitted to the Congress last January:
"We have learned how to ach ieve prosperity. Now
we must sustain it, deal with its problems, and make
the most of the opportunities it presents."
I can suggest no better thought than that to leave with
you.

000

TREASURY DEPARTMENT
4

RRELEASE 6:)0 P. M. ,
~day,

October

24, 1966.
RESULTS OF TREASUiW I S

W'~Ia.y

BILL OFFERING

The Treasury Department announced that the tenders for two series of Treasury
Lls, one series to be an additional. issue of the bills dated July 28, 1966, and
3 other series to be dated October 27,
~ opened at the Fed~ra1 Reserve Banks

1966, which were offered on October 19, 1966,
today. Tenders were invited for $1,)00,000,000,
thereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of lb2-day
Lls. The details of the two series are as follows:

OE OF ACCEPT"ZD

·IPETITlVE BIDS:

High

Low
Average

91-day Treasury bills
maturing January 26, 1967
Approx. Equiv.
Price
A.nnual Rate
5.222%
98.680
5.265%
98.669
5.246% Y
98.674

182-day Treasury bills
maturing April 27 I 1967
Approx. Equiv.
Price
Annual Rate

97.209

5.521%

97.198
97.201

5.542%
5.536;16

73% of the amount of 91-day bills bid for at the low price was accepted
10% of the amount of 1t2-day bills bid for at the low price was accepted
AI. TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS,

listrict
loston

APE1ied For
$ 16,027,000
1,656,982,000
13, 73u,000
30, Ei4:i,000
21,555,000
)..j.1,607,000
31l,94e,ooo
52,734,000
13,155,000
15,646,000
12,637,000

Acce,f2ted
$ 11,027,000
773,291,000
5,734,000
27,024,000
6,555,000
15,C;69,OOO
4b,248,000
37,834,000
6,805,000
15,137,000
7,367,000

Acce~ted

an Francisco

Ap£lied For
$ 26,814,000
1,479,185,000
26,929,000
)2,621,000
15,962,000
48,928,000
274,422,000
60,866,000
22,464,000
41,796,000
18,223,000
158,474,000

69,8$6,000

!t5,J! aB,oOQ

rOl'AI,S

$2,206,684,000

$1,300,482,000 ~ $2,376,734,000

$1,000,479,000

lew York

'hiladelphia
leveland
ichmond
tlanta
hicago
t. Louis
iMeapolis
aneas City
all as

$$,564,000

851,607,000
14,897,000
32,086,000
14,692,000
26,683,000
122,230,000
45,596,000
17,894,000

.31,751,000

14,223,000
113,259,000.

£I

[ncludes $26),189,000 noncompetitive tenders accepted at the average pr~ce of 98.674
rncludes $157,128, 000 noncompetitive tenders accepted at the ave:age pr~ce ,of 97.201
rhese rates are on a bank discount basis. The equivalent c:>upon l.S5Ue yJ.elas are
;.39% for the 91-day bills, and 5.78% for the 182-day bills.

F-672

TREASURY DEPARTMENT
t
OR BEI.,EASE 6: 30 P .H.,
'uesciay, October 25, 1966.
RESULTS OF TREASURY'S }10NTHLY 3ILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
ills, one series to be an additional issue of the bills dated July 31, 1966, and
he other series to be dated October 31, 1966, which were offered on October 19,
966, were opened at the Federal Reserve Banks today. Tenders were invited for
,00,000,000, or tr.ereabouts, of 273-day bills and for $900,000,000, or thereabouts,
,f 365-day bills.
The detail~ of the two series are as follows:
273-day Treasury bills
maturin~ Jull 31,2 1967
Approx. Equiv.
Price
Annual Rate
5.540%
95.799
5.586%
95.764
5.567% !I
95.778

ANGE OF ACCEPT~D
·OMPETI TIVE BIDS:
High
Low
Average

365-day Treasury bills
maturin~ October 31J 1967
Approx. Equiv.
Price
Annual Rate
5.538%
94.305 ~/
914.374
5.549%
94.379
5.5144% ~/

a/ Excepting 1 tender of $2,000
of the amount of 273-day bills bid for at the low price was accepted
48% of the amount of 365-day bills bid for at the low price was accepted

14%

OTAL TEl-mEEtS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DIS'i.'RICTS:

District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
11inneapolis
Kansas City
Dallas
San Francisco
TOTALS

A;Eplied For

10,000
10,000 $
828,732,000 409,232,000
2,055,000
6,055,000
1,126,000
1,126,000
264,000
264,000
3,121,000
18,121,000
59,677,000
129,677,000
3,108,000
15,408,000
1,600,000
3,600,000
1,064,000
1,064,000
1,330,000
11,330,000
17,608,000
60,25 08 ,2000

$1,075,895,000 $500,195,000

I Includes $15 238 000
I
I

A,EElied For

AcceEted
:

11,043,000
1,713,19),000
11,097,000
7,822,000
2,618,000
29,769,000
321,371,000
28,437,000
7,646,000
2,525,000
13,393,000
123,129,000

$2,272,043,000

Acce12ted
~t

1,043,000
728,271,000
2,997,000
5,436,000
2,438,000
3,674,000
130,057,000
9,937,000
2,646,000
2,525,000
1,393,000
14,180,000

$9Q4,597,OOO

£I

noncompetitive tenders accepted at the average price of 95.778
InclUdes $42:371:000 noncompetitive tenders accepted at the average price of 94.379
These rates are on a bank discount basis. The equivalent coupon issue yields are
5.84% for the 273-day bills, and 5.87% for the 365-day bills.

F-673

TREASURY DEPARTMENT

FOR USE IN MORNING NEWSPAPERS
OF THURSDAY, OCTOBER 27,1966
PAKISTAN ADDED TO COUNTRIES WHERE UNITED STATES
CITIZENS MAY BUY LOCAL CURRENCY FROM UNITED STATES GOVERNMENT
The Department of State and the Treasury Department
announced today that United States citizens visiting or
residing in Pakistan may purchase that country's currency,
the Pakistani rupee, from the United States Embassy and
Consulates in Pakistan. Sales will be made at the official
rate of exchange, and no conversion fees will be charged.
U. S.-owned foreign currencies are now being sold to
American tourists, businessmen and residents in seven
countries. The others are Ceylon, Guinea, India, Israel,
Tunisia and the U.A.R. (Egypt).
Purchases of the currencies of these countries owned
by the U. S. Government relieve strain on the United
States balance of payments by reducing the flow of dollars
from U. S. to foreign hands. The United States Government,
therefore, urges Americans to take advantage of these
arrangements.
In Pakistan, Pakistani rupees owned by the U.S.
Government may be purchased at the United States Embassy
in Rawalpindi, the Embassy Branch Office in Karachi, and
at the American Consulates in Dacca, Lahore, and Peshawar,
in exchange for United States currency, personal checks
drawn on a bank in the United States or for United States
travelers checks. Purchasers must present their passports
for identification.
000

F-674

RE}fARKS OF THE HO;;rORABLE HENRY H. FOHLER
SECRETARY OF THE TREASURY

AT TESTIHONJAL DINNER FOR
CONGRESSi'1AN RICHARD H!\Nl'JA
DISNEYLAND HO'J'ET., ANAHEIH, CALIFORt-:Il\.
TUESDAY, OCTOBER 25, 1966, 8:15 P.H., PDT

It is a particular pleasure for me to be with

YOLl.

tonight to join in your tribute to Congressman Dick Hanna,

who in his four years as CongressnHln for Californ:La I

Thirty-Fourth District, has done so much to help his
District, his State and his nation.
1 spe8.k from firsthand experience v7hen I talk oE

Congressman Hanna I s accomplishments.

th~~

Secreta~-y

Treasury I have often had the privilege of \,vorking with

his and his fellow members of the House Ba::-iking and Curre:lcy

Committee, vlhich handles some of the most importa:1t

legislation to co~e before the Congress.

And that legislation

has never been more important: _.- anc} th<'l.t Committee has

nevzl' been more prodl1ctive

them during the past four years

of Congressman Hanna's service.
I suppose that to someonE': -unfnmiliar with the Congress
anu1

• th
W1

1. t S

C
·
,
omrrnttees
tile

'Ipl~ase

••
Be.nl\.lng
and Currency

CoITtrrd.Ltee" might conjure up a group of people concerned \vith

abstruse technical and financial matters that might affect
the'banking business but have little or no relevance to
anything else.
Yet 1 cannot L.'1lagine a grenter misconception of the
Banking and Currency Committee and of its concerns.

For, technical as those concerns might sometimes be,
they are concerns of very real and deep =- and often very
direct -- relevance to Americans throughout the countryo

For example, the Congress just ended passed some of
the most fonvard-looking hOl!sing legislation in

O';.lr

history .. -

3 -

and) in the House of Representatives, it was the I-louse
Banking and Currency Committee th8t handled that legisl2.tion.
It ,\\7as responsible in the House of Representatives

£01-

the Demonstration Cities Act which Congress passed last
week o

This new law will set in motion the first comprehensive

and coordinated effort in our history to

help cities meet

the enormous problems th[lt threaten to engulf them

Among other thines, it will help in planning, developing and carrying out locally designed programs for rebuilding
or restoring entire slum or blighted neighborhoocis, in
cities large and small -- and it will help in furnishing
facilities and servh:es to enable those living in our
cities to become useful productive citizens, no longer
dependent on public assistance.

Of equal irnpol:tdnce were the Rousing and Urban
Development Acts of the past t'",JQ years, which established ~
-- a

Cabinet~level

Department of Honsing und

Urban Development, giving our cities, for
the first time, a direct voice in the highest
councils of our government.
-- a rent supplement program designed to marshall
the resources of private enterprise to
provide decent housing for the needy.
These are bu t

t\VO

measures sponsored by the Banking

and Cm:rency C011W1ittees of the Congress

supported by Congressman Hanna, both in

COD~ittee

and strongly
and on

the floor of the House -- that generations of Americans
to come will count among the most significant accomplisrulle::1.ts

of this generation.

... 5 -

These are measures that represent new beginnings and
new paths tov ard a greater future.
7

But the future deptmds

not only on far-reaching measures such as these, but also
on hm·J well we meet the more immediate and temporary tasks
that confxont us day-by-day and month-by-rnonth.
The vigor and soundness of our financial institutions
are vital to the vigor and soundness of our economic expansian.

Actions to ease unnecessarily restrictive regulations

have been taken in the past; they have borne fruit'in
stronger eompet ition and a

mo~e

effie ient flO117 of funds from

savers to borrmvers \'.lith the most urgent needs.

Deve.lop:nent

of a $140 billion savings and loan industry in recent years
is a prime example, while our commercial banks have achieved
new heights of servi6e and participation as inte~mediaries

- 6 -

between savers and those who borrow for an infinite variety
of needs and uses.

But appropriate regulations were clearly required to
protect the safety of savings of

Am2~ican

f;-"lmil :Lc,s, to

assure the most efficient 8nd equitable regulation of
financial institutions, and to create still better channels
for the flow of funds to borrowers.
It was for these reasons that the President early this

year recommendcJ Congressional BeLLon on financial legislation
to:
-- arm 1:2gulatory agencies with a wider range of
effective enforcement remedies;
__ strengthen statutory provisions dealing with
savings and lOCln companies and associations;

- 7 -

for bank dt'pos its and savings and loan 8.ccourd:S;

provide safeguards against conflict of interests

in the

managc~~nt

thps~

iastitutions; and

u~kc

reg01ations applying to various types of

institutions as parallel as possible.

The enactment this very montb

Supervisory Act carried tbrough thi::

of the Financial Institutions

recomm~ndation.

Again

it was the handh70rk and contribut ion of the Banking and

Currency ComInittee of the Congress and you':' Congr-essmm)

Hanna played an important role.

Di(~k

- 8 -

Al~c1

no task imnl cdirltely before us is more v~Ltal thc":.n

maintaining both the strength and the stability of our

economy.
This is Dot the task we were faced with earlier in the
decace.

Indeed, five years ago) I\Then this dec2.cle began,

our economy VJas irli.red in its fourth poStl'7:;X recession.

And our perfo:cm3.nce in the past offered us litt] c hope for

the: future.

To look bClCk '(-las only to beCOine acute ly a"ivELre

that the three earl ier recess ions had been follm<!ed by

successively shorter and weaker recoveries, and that the

- 9 previous recessis on had produced ,,·Jhat still remains the
largest peacetime budget defi.cit in our hi3to1.'Yo
\-1e we.re faced, tIlen, "t\7ith the monumental task of trying
to put our economy on the pnth of strong and sustained
growth -- without recession, without inflation, and without
excessive unemployment.

There were those who insisted it

could not be done -- because it had never been done -never, at least during peacetime.
Yet, in July of last year

~ ..

when President Johnson

told the nation that Hanoi hnd stepped up its aggression
against South VietnClID, and that we had no choice but to
i.ncrease our aid to South Vietnam in terms of both men
and money -~ in that July we stood in the 52nd month
of the lO-'lgest pC2cetime expansicn in our history.

- 10 -

During that period, our real Gross National Product had
grmvn by about one-fourth.
a

st~ggering

We per-helps

achievement that was until we

not appreciate
re~lize,

~'lhat

for

that that one-fourth incre2se in our real national output -not the total, but just the iocrease over that four and a
half year period -- is equal ln amount to the total real
national output of France and Italy combined for the entire
year of 1965.

And that enormous groHth meant greater economic abundance
and opportunity for Americans in all walks of life.

During

that period unemployment fell to 4-1/2 percent from a 7 percent

high in early 1961.

Real disposable income grew by 24 percent --

compared with 10 percent

£Ol'

the prev ions L~-l / 2 year per iod.

After-tax corporate profi ts gre-.;;v by 80 percent - - compared

with a dr op

6 pe rcent for the pr'cvious 4 - 3. / 2 year per ioc1.

- 11 And the wage-earner' s pnrchas ing pO':vcr increased
substanUally:

for example) a manufacturing worker vV'ith

three dependents sa\v his weekly spenctsble earnings -- on the

average and after a1lo'\o7in8 for price increases

rise by a

full 15 percent over that period, compared with a rise of
only one percent over the previous 4-1/2 year period.
We accomplished these unprecedented gains from 1961

through 1965 through a fiscal policy that combined a program
of massive Federal tax reduction to boost private spending
and private incentives 'li7ith a program of stringent restraint

upon the grm,7th of Federal spending.

During this period; the

monetary authorities complemented this fiscal policy by
assuring an ample supply of money and long-term credit so

essential for domestic growth -- particularly in

o~r home-

building industry -- while trying to help our bu12nce of
payments by maintaining short.-term interest rates at levels

- 12 ..
comparable to those

~broad.

As a resulr of these policies we seemed -- in mid-1965 -_
on the threshold of an entirely pew era of economic experience
an era of unparalle led pcacet imc prosper"ity, at full employment
and with stable prices.

The prospect was that we would enter

this era gradually, and our purpose was to insure that we

did so,
But ,yith the", intensification of hostilities in Vietnam)
the tempo picked up sharply.

Partly through the impact of

additional defense spending -- but even more under the
impetus of the b'Jllisl1 psychology generated by this

ileiV'

turn of events -- our economy began to climb steeply.
The danger was that it would climb too steeply.

In fact,

from an average of $10-1./2 to $11 billion per quarter for the
previous eight quarters, oer Gross National Product jumped

- 13 to Bn average of $16 billion per quarter in late 1965 and
early 1966.

Faced \;:]. t h the danger of excf'S s ivc: economic exube:c ance __

and taking "into account the tu:cn of the Federal Reserve Board

early Insc December to a policy of monetary restraint -- we

shifted from a stimul2.ti'le fiscal policy to one of moderate
restraint.

Througl'l that shift, as President Johnson has

pointed out, we have siphoned off some $10 billion of excess

purchas ing pO'iver:- from our economy during this calendar year.
At the srune time) the Federal budget on the national lncome
and accounts basis -- our best measure of the economic impact
of fiscal policy -- has been in surplus or balance throughout

this calendar year.

- 14 -

Ovel-all, the impact of these measu.-ces has been by and

large what we hoped and expected it to be.

The $11 billion

rise in GNP during the second quarter of this year -- and
the $13.7 billion rise in th2 third quarter -- not only
extqnded the pattern of solid advances that has
characterized the current, record-breaking expansion, but

also reflec ted a we lcome moderat ion from the fever'ish
rate of late 1965 and early 1966 that produced both
imbalance and excess dem9.nd with their accompanying price

pressures.

- 15 At this more sustainabJ.e pace we are still surpassin8

most of the other industrial cOLlntries both in th8 to\:":[d
value of production and incomes and in th2 rate of real
ro·-·'t
,
\v 1..••

Corporate profits and persona] income -- both

before and after taxes -- continue to rise and th0S to
extend the most steady, sustained increase in modern times.

After-tax household income is seven percent higher thou a
year ago, generaling a substantial rise in real purchasing
power.

Unemployment rates have been at or below four per-

cent every single montil this year.

And ?ltogetbcr, our

continued increases in capital facilities, skilled mRnpower
and productivity have made it possible for us to shoulder
the burdens of Vietnam v ithout gjving up rising living
7

standards or measured advances.

- 16 ..

But while on an overall basis

beca~ne c lcc-1\'

L"in!

action beyond chc

'\\'2

held to

step~

tel ke

have been achieving

:irnmC' d:La 1:12 addit :Loua1

we took at the

be~inning

DC i:

ion

of the year --

to relieve several specific press"ures and resuJting imbalances
that threatened to develop into severe
These pres s un~ s

v.;'e r8

econo~ic

distortions.

making thems e Ive s fe 1 t in three spec inl

areas of our economy:

in our money

alld

financial mad\.ets, \vhcre

the combination of excessive demands for

credit,

n~nGtary

restraint and high

interest }:ates has had little or no impact
on our booming capital goods sector while
sharply reducing the fl0\-7 of funds to

housing industry.

Ol]r

17 -

in our ID8rket for capital goods, 'where the

ever mounting flow of new orders by business
firms coming on top of an unprecec1ented
rate of outlays for plaut and equipment

is generating rising prices, rising wage
rates and shortages of some skilled labor as
well as S\'Je1.1ing already large demands for
capital from our banks and security m3rkets.
in our rising rate of total government
expenditures -- Federal, State and local -highlighted by steadily expanding defense and
public vlOrk outlays, which is rapidly adding

to overall demand.

On Septembe3: 8, therefore, President Johnson announced
a program specifically designed to alleviate the pressures in

- 18 all of these areas.
That program included:

A strong program for further reducticn in
lmvcr prj ority Federal expenditures.

The temporary sllspension of special invest-

ment incentives in the 7 percent investlnent
tax credit for the purchase of machinery and
equipment and the option to elect accelerated
depreciation on buildings.
3.

An urgent call to the Federal Reserve Board
and our large

commerci~l

banks to fol10H

the actions of the Administration and the
Congress -- both in the fiscal area and in
the credit area -- to do all they can to
lmver interest rates and "ease the
inequitable burden of tight money."

- 19 It is this third port of the President's program that

I want to stress today -- for it is in this area that
CongressIflac\ Hanna

2Iln

the Banking and Currency Committee

have attRcked the discriminatory impact that

t~eht

money and

inordinately high interest rates have had on hrnnebuyers

and

hOTIl'2buildcrs allover All1erica.
As this year progressed, it became very clear that the
policy of monetary restraint initiated by the Federal Reserve
Board in December of last year to head off the inflationary
threat accompanying the Vietnam build-up was having little
or no impact on the booming capital goods sector of our
economy while severly squeezing our mortgage market and our
homebuilding industry.

It became clear that -- while there

was a real need for the monetary restraint that would be
accompanied by some rise in interest rates -- interest rates
had, in fact, soared to the highest levels in decades and

- 20 -

were, in the process, exerting restraint \'7here it

l>7aS

least,

rather th8.n most, needed.
As a result, the Administration -- and members of
Congress such as Conet"esSfIlcln Hanna·-- became increasingly
concerned over the distortlons in our financial markets
and their impact on our homebuilding industry.
Monetary policy is, of course, the province primarily
of the Federal Reserve Board -- which is an independent
agency created by Congress and responsible to Congress.
But both the Administration and the Congress together took
several actions aiIll2d at halting excessive interest rate
escalation in the field of consumer savings, at lightenir1g
as much as possible the burden of Federal finance on our
money markets, 8.nd paving the ,yay for c:m easing of the
pressures of tight money and high interest rates upon our

- 21 mortgage market and homebuilding industry.

These actions included:

Legis lation to permit the Federal agf'.:'ncies

which regulate financ i2 1 ins t i tnt icms to

fix ceilings on consllmer-type time deposits

thereby halting the excessive rate competi-

tion for savings that

\\13S

driving up the

cost of !noney and channeling it m'lay from

the institutions and borrm'lers in the borne-

building sector -- legislation

stron~ly

supported by CongresSln&n B8nna both In

Corrmittee and on the floor of the House.

- 22 ..

Prompt administrative action on the part
of these Federal regulatory agencies to
carry out this purpose by establishing
such ceilings -- thereby moderating the
escalation of interest rates and permitting
larger savings floHs to institutions which
specialize in mortgage financing.

.. 23 -

3. Legislation cn12rging

thf~ bor-!~o\l:Lns

authority of th0 Federal National
Nortgazc Association t.o ceoblc it to
carry out its secondary market operations
anel thus to furnish funds for aciditiol1o.J.
mortgege activity.

This, again) Has

legislation strongly supportc2 by
CongreSSTllcm Hanna) both in Committee and

on the floor of the House.

A~ministrative

netion to reduce th0 volume

of Federal agency bOTTov!ings in our finm\ciAl
rr.arl."~et,

thus reducing pressuTes on interest

rates.
These are some of the steps we in the bdministration -togetr:e1.' vlith Congre~;SlEan Henna and other IL~2n~1)ers vf Congress -.~

h[ve tdcei1 to free the hom2building industry from the unduly
rest~icttve

monetary and credit restraints that havc hampered

its grOl'lth this yea:r. and to hEllt tl12 climb in interest rates.
Already these steps -- along with the other IDsasures in the
President's program -- have begun to bring results.

The

overall level of interest rates, which had risen so Sharply

this year, has recently eased.

Longer-term Treasury, corporate

and municipal bond interest rates have declined from the high
levels renched in August and early SeptEmber.
But the interests and efforts of Congressman Hanna

and the HousE..: Banking and Currency Commi.ttee reach beyond
even these areas of vital concern to this District, this
State and this nation.
dependent world.

For we live in a deeply inter··

No one knows that better than you here

- 25 in California. \vho live on the rim of the vast Pacific world.

And I should not be surprised if in the decades to come the
nations and peoples of this Pacific world do not look Lack
to one great act -- to one great measure in whose adoption
Congressm~m

Hanna and the HOLlse Banking and Currency Committee

played a leading role -- as the beginning of a new era of
progress and pr.osperity for the entire Pacific and the
bordering lands of the Asian mainland.

That act is embodied

in the Asian Development Bank -- whose first annual and
organizationaL meeting I will have the great privilege of
attending next month in Tokyo.
The

all1!

of this Bank -- a venture in 1dhich the

Unitc:~c1

States has joined with 31 other nations, including 12 nations
outside Asia -- is to marshall and channel the capital

resources required to hasten the day when the peoples of

Asia

CRP

fully

sh~re

21> .,

in the socjal

proB~8s3

Rnd the cnonnous

econo:mic abur.dancc thc:;t so much of -;:h(., Lest of

th~

vJOrlrJ now

takes for granteJ.
O~l

}';::;.rch :t6) \,lhcn fresideD1: Johrtson signed the

legislation author1zing United States

participation in

the: B3alc, he: turned to the Amba.sso.cJors of the. /\8 Lorn mcn:bers

of the Bonk and sc.id:

c: mO:il1ent in \"hich 'histo'.rY and

hop.,? rnc:et and move on as par.tners.

This

act is an economic Magna Carta for the

'- otd J"..V2rSE': ] ,ElIlO::'

#.8l·...
n,
n.

't.C:::
ph ".r',·.c1.' l_]·.n.k,s
.... ~ '-'
0

31 COl'llt'cLes in a union against the

involuntm:-y economie servitude irnposec1
on the people of Asia by

.L_~
C
-' - ,
C ..L':rCl"IJr:'t-=>nC't'>

tirlK'

and

a'ld lJy nei co;hbo',L4 Dnd Tl8ture

- 27 ...

There is also a deeper meaning.

billion dollAr bank is a

s~ubol

This

that the

t\vain have met, Dot ns Kipling predicted)

liAt God's great Judgment Seat," but at the

place of man's shc1rcd needs."

I have e-'7ery confidence that history will more thc-m

bear out those words

bear out, the \·Jisdom of

I have every confidence that it will

mOD

like Congressman Hanna v7ho have

not been afr8id to look to the possibilities of the future

as well as to tead to the pressing problems of the preseilt.

I knoid that Congressman Hanna has done far more than

I have been able to talk to you about today, for I have

only tclked about his record as I knoH it from firsthand

experie'll.ce ... - from \'JOrking "lith him on wetters of joint
concern to the Treasury D~partnl('nt and the House Du.oking

- 28 and Currency Committee) matters that

indi(!3ted, of gre.at

COnC2Yll

a:cc~

also,

8.S

I have

to this Dist::r.ict, this St3te,

this nation and the world in which we all live.
And that record shm\?s th;lt he "larks - .. that he vJOrks

hard and effectively

.~ ..

for t:he people he represent.s in

terms both of today and tomorrow, of their immediate
world and the larger world shared by all men.

oOe

TREASURY CEPARTMENT

Oc tober 26, 1966

flJR IMMED IA TE 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
$2,300,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing November 3,1966, in the amount of
$2,290,053,000, as follows:
91 -day bills (to maturity date) to be issued November 3, 1966,
1n the amount of $ 1,300,000,000, or thereabouts, representing an
additional amount of bills dated August 4,1966,
and to
mature February 2,1967, originally issued in the amount of
$1,000,684,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $ 1,000,000,000, or thereabouts, to be dated
November 3,1966,
and to mature May 4,1967.
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
to the closing hour, one-thirty p.m., Eastern Standard
time, Monday, October 31,1966.
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 oasis 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 spec ial enve lopes whic h will be supplied by Federal
Reserve Banks or Branches on applic ation 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 institutiJns 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
~ount of TreasUry bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.
F-675

- 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 Bank on November 3, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing November 3,1966. 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 fr~
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

FOR USE IN MORNING NEWSPAPERS OF
THURSDAY, OCTOBER 27, 1966

ADVISORY COMMITTEE ON CUSTOMS ADMINISTRATION
DISCUSSES NEW PROBLEMS
Assistant Secretary of the Treasury True Davis said
today that the first meeting of the Treasury's Advisory
Committee on Customs Administration wrestled primarily
with the problems faced by Customs as a result of new trends
in international trade.
The Advisory Committee was organized with the
approval of Secretary of the Treasury Henry H. Fowler.
It
is intended to provide a forum for new ideas on simplification and streamlining of Customs procedures.
Its members
comprise Treasury Department and Customs officials and
representatives of organizations engaged in international
commerce.
Assistant Secretary Davis, who is chairman of the
Committee, emphasized to the members that improved service
to the business community is basic Treasury Department
policy and that an important element in this concept must,
of necessity, be a two way flow of ideas and recommendations.
Mr. Davis said that the Committee considered practical
measures which Customs might adopt to deal with the growing
trend to package international shipments in enormous
containers.
"Containerization," he stated, "is already with
us, and we must find a solution to the problem, acceptable
to the business community."
Mr. Davis indicated that the Committee also addressed
itself to the problems confronting the Customs Service with
the forthcoming advent of giant-size planes capable of
carrying up to 500 passengers; expected to enter into service
by about 1970.

F-676

- 2 United States Commissioner of Customs, Lester D. Johnson,
told the group that in order not to defeat the economies to
business involved in shipping goods enclosed in large
quantities in jumbo containers,Customs will have to place
inspectors at some inland points near the final destination
of the goods.
The Commissioner pointed out that such a
dispersal will aggravate the problems currently faced by
Customs because of shortages of personnel. Commissioner
Johnson told the group that the Bureau has completed the
essential preliminary steps in the agency's reorganization
into a career service established along regional lines.
He said that this has resulted in reduced paperwork, speedier
classification and appraisement procedures and generally
improved service.
Members of the Committee expressed general satisfaction
with the way in which the reorganization is being carried
out.
Among those attending the meeting were: I. M. Bomba,
President, National Council of American Importers, New York,
New York; Ralph Casey, President, American Merchant Marine
Institute, Inc., New York, New York; J. Bradley Colburn,
President, Association of Customs Bar, New York, New York;
J. Edward Day, (former Postmaster General of the United
States), Sidley, Austin, Burgess & Smith, Washington, D.C.;
Ralph Dewey, President, Pacific American Steamship Association,
San Francisco, California; Walter J. Mercer, President,
National Customs Brokers and Forwarders Association of
America, New York, New York; and James J. Murphy, President,
National Customs Service Association, Edgewater, Maryland.
Treasury officials at the meeting included True Davis,
Assistant Secretary of the Treasury, serving as Chairman of
the Advisory Committee, and James Pomeroy Hendrick, Deputy
Assistant Secretary of the Treasury. The Bureau of Customs
was represented by Commissioner of Customs Lester D. Johnson
and two Assistant Commissioners.

000

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE

October 27, 1966

TREASURY ANNOUNCES NOVEMBER REFUNDING TERMS

The Treasury will borrow $~.1 billion, or thereabouts, through the issuance
of 15-month and 5-year Treasury notes, at par, for the purpose of paying off in
cash a like amount of Treasury securities maturing November 15, 1966.
The notes to be issued are:
$2.5 bilXion of 5-5/8~ Treasury Notes
November 15, 1966, and to mature
$1.6 billion of 5-3/8~ Treasury Notes
November 15, 1966, and to mature

of Series A-1968, to be dated
February 15, 1968; and
of Series B-1971, to be dated
November 15, 1971.

The maturing securities are:
$1,265 million of 3-3/S% Treasury Bonds of 1966, dated March 15, 1961;
$1,672 million of 4% Treasury Notes of Series E-1966, dated
February 15, 1965; and
$1,135 million of 4-3/4% Treasury Certificates of Indebtedness of Series
A-1966, dated January 19, 1~66.
Interest will be payable on the 15-month 5-5/si notes on February 15 and
August 15, 1967, and February 15, 1968, and on the 5-3/8% 5-year notes semiannually
on May 15 and November 15.
The notes will be made available in registered as well as bearer form. All
subscribers requesting registered notes will be required to furnish appropriate
identifying numbers as required on tax returns and other documents submitted to
the Internal Revenue Service.
Payment and delivery date for the notes will be November 15. Payment may be
made in cash, or in 3-3/8~ bonds of 1966, 4i notes of Series E-1966, or 4-3/4%
certificates of indebtedness of Series A-1966, which will be accepted at par, in
payment or exchange, in whole or in part, for the notes subscribed for, to the
extent such subscriptions are allotted by the Treasury. The notes may !!£i be paid
for by credit in Treasury Tax and Loan Accounts.
The subscription books will be open ~ ~ TUesday, November 1. Subscriptions
with the required deposits addressed to a Federal Reserve Bank or Branch, or to
the Treasurer of the United states, and placed in the mail before midnight,
November 1, 1966, will be considered timely.
Subscriptions from commercial banks, for their own account, will be restricted
in each case to an amount not exceeding 50 percent of the combined capital {not

F-677

- 2 -

includini capital notes or debentures), surplus and undivided profits of the
subscribina bank.
Subscriptions from commercial and other banks for their own account,
Federally-insured savings and loan associations, 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, dealers who make primary markets in
Government securities and report daily to the Federal Reserve lank of New York
their positions with respect to Government securities and borrowings thereon,
Government Investment Accounts, and the Federal Reserve Banks will be received
without deposit.
Subscriptions from all others must be accompanied by payment of 2~ (in cash,
or Treasury bonds of 1966, Treasury notes of Series E-1966 or Treasury certificates of indebtedness of Series A-1966, maturing November 15, 1966, at par) of
the amount of notes applied for not subject to withdrawal until after allotment.
The Secretary of the Treasury reserves the right to reject or reduce any
subscription, to allot less than the amount of notes applied tor, and to make
different percentage allotments to various classes of subscribers; and any action
he may take in these respects shall be final. The bases of the allotments will
be publicly announced, and allotment notices will be sent out promptly upon
allotment.
Subject to the reservations in the preceding paragraph, all subscriptions
from States, political subdivisions or instrumentalities thereof, public pension
and retirement and other public funds, international organizations in which the
United States holds membership, foreign central banks and foreign States, Government Investment Accounts, and the Federal Reserve Banks, will be allotted in full
if a statement is submitted certifying that the amount of the subscription does
not exceed the amount of the three maturing securities owned or contracted for
purchase for value, at 4 p.m., Eastern Daylight Saving time, October 27, 1966.
Any such subscriber may enter an additional subscription subject to a percentage
a.llotment •
All subscribers are required to agree not to purchase or to sell, or to make
any agreements with respect to the purchase or sale or other disposition of any

of the notes subscribed for under this offering at a specific rate or price until
after midnight November 1, 1966.
Commercial banks in submitting subscriptions will be required to certify that
they have no bene~icia1 interest in any of the subscriptions they enter for the
a.ccount of their customers, and that their customers have no beneficial interest
in the banks' subscriptions for their own account.

TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
REMARKS BY THE HONORABLE FREDERICK L. DEMING
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS,
AT THE INTERNATIONAL FINANCE SESSION
OF THE 53RD NATIONAL FOREIGN TRADE CONVENTION
IN THE GRAND BALLROOM OF THE WALDORF-ASTORIA HOTEL
ON MONDAY, OCTOBER 31, 1966, AT 3:00 PM (EST)
THE INTERNATIONAL MONETARY AND PAYMENTS SYSTEM

Introduction
I am pleased and honored at the opportunity to lead off

this year's session on International Finance.

With every

year that passes, it seems to me that monetary and payments
questions have attracted more attention.

What I intend to

do today is to look at these questions particularly from the
perspective of their significance in the growth of world trade.
To focus most sharply from this perspective, let me pose
three questions and suggest some factors that must be considered in answering them.
1.

What has been happening to the American balance
of payments and what are the implications of
these developments?

How can the management of the present international
payments system -- the gold exchange standard -be improved?

F-678

- 2 -

What is the relationship to world trade of
contingency planning for new reserve creation?

The first question attempts to focus attention on the
structural factors in the United States balance of payments,
the steps which have been taken to correct imbalances in it
and the implications