Full text of Press Releases of the United States Department of the Treasury : Volume 157

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LIBRARY
POOM 5030

JUN 1 ~ 1972

TREASURY DEPARTMENT
~.UG

15 1967

TREASURY DEPARTft1ENT

UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH February 28, 1967
(Dollar amounts in millions - rounded and will not necessarily add to totals)
DESCRIPTION

AMOUNT ISSUED..!!

MATURED
Series A-J935 thru D-194J ________
Serif's F and G-1941 lhru J 952
Series J and K-1952 thru

1954

AMOUNT
REDEEMED

AMOUNT
OUTSTANDING

'7n OUTSTANDING
OF AMOUNT ISSUED

5,003
29,521
2,236

4,994
29,461
2,193

9
59
43

.18
.20
1.92

1,861
8,217
13,223
15,424
12,103
5,469
5,170 5,334
5,259
4,597
3,979
4,169
4,754
4,840
5,039
4,854
4,556
4,421
4,134
4,130
4,159
4,004
4,449
4,)43
4,247
4,124

1,618
7,166
11.565
:.3 ,377
II) 302
4,453
4,030
4,068
3,935
3,379
2,924
3,031
3,352
3,320
3,367
3,165
2,858
2,624
2,422
2,310
2,178
2,OL.O
2,046
1,938
1,741
1,007

243
1,050
1,657
2,047
1,801
1,015
1,111
1,266
1,325
1,218
1,055
1,138
1,402
1,520
1,671
1,689
1,699
1,797
1,712
1,821
1,981
1,964
2,40)
2,405
2,1)06
3,117

1).06
12.78
12.53
13.27
11.88
18.56
22.07
23.73
25.19
26.50
26.51
27.30
29.49
31.40
33.16
34.80
37.29
40.65
41.41
44.09
47.63
49.05
54.01
55.38
59.01
75.58

773

855

-82

147,634

105,072

42,562

28.83

5,485
6,02)

2,731
941

2,754
5,083

50.21
84.39

11,508

3,672

7,836

68.09

159,112

108,744

50,399

31.67

1,511

1,006

505

36,760
160,653
197.413

36,648
109,750
146.398

50,903

UNMATURED
Series E}j:

1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967

Li
,,_ :'\. '-""!-I'. \
'

,~"

;

RGOi~

5D30

111-:: 1 !)-IYh 7
l'

U H \ Ut.t'Al:llll'; l:.l'J

Unclassified
Total Series E
Series H (1952 thru May, 1959)}j
H (June, 1959 thru 1967)
Total Series H
Total Series E and H
Series J and K

(1955

thru 1957)

{Total matured
All Series

Total unmatured
Grand Total

III
~1.011

Includes arcrucd discount.
Current redemption value.
_
_
__
,
, _
,
4t option of owner bonds may be held and Will earn InlNest for addlllOrl.'," pertods after ongwal matuflty dales.
fncludes matured bonds which have not been presented inr redemptiun.
Form

PO 3912 - TREASURY DEPARTMEN7 - Bureau af the Public Debt

33.42
.30
31.69
~5..ill.l

UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH

i1arch

31, 1967

(Dollar amounts in mi lIions _ rounded and wi II not necessarily add to totals)
DESCRIPTION

AMOUNT ISSUED.!!

MATURED
Series A-1935 thru D-1941 ___
Series F' and G-1941 thru 1952
Series J and K-1952 thru 1954

5,003
29,521
2,236

4,995
29,463
2,200

'70 OuTSTANDING
OF AMOUNT ISSUED
-

.18
.20
1.61

9
5B
36

---

UNMATURED
SNies E}j:
1941
1942
1943
1944
1945
1946
1947
1948
H)49
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967

1,862
8,220
13,231
15,427
12.107
5,472
5,174
5,338
5,263
1:,600
3,982
u,173
4,759
u,8hS
5,045
4,861
4,S65
4,)~27

4,139
4,137
u,16(,
4,011
4,456
4,350
4,255
4,511
2hh

Unclassified
Total Series E
Series H (1952 thru May, 1959)..v
H (June, 1959 thru 1967)
Total Series H
Total Series E and H
Series J and K (

1?55 thru

{Total matured
All Series

AMOUNT
OUTSTANDING

AMOUNT
REDEEMED l j

Total unmatured
Grand Total

1957)

1,621
7,180
11,587
13,406
10,327
h,h69
4,Oh8
4,085
3,952
3,394
2,938
3,Oh~

3,370
3,342
3,392
3,196
2,884
2,649
2,h39
2,326
2,201
2,059
2,072
1,966
1,783
1,21)

?)lO
],040

12.89
12.65
12.43
13.10
14.69
18.31
21.7r,
23.47
24.93
26.22
26.'22
27.01
29.19
31.04
32.75
34.21
36.82
hO.19

l~kr'
~
"

~,O21

1,779
1,002
1,126
1,2.53
1,312
1,206
1,Ouu
1,127
1,389
1,504
1,652
1,M3
1,681
1,779
1,702
1,811
1,965
1, 9~1
,2,384
2,J84
2,h72
3,295
244

43.78
u7.1?
)l8.61l
53.50
54.80
58.10
73.04
100.80

1.~1.12

577

575

.35

148,1ge

105,524

42,f)74

28.50

5,L85
6,0'15

2,752
968

2,733
5,107

49.83
54.07

11,560

3,720

7,thO

()7.82

159,758

109,243

~o,514

31.~2

1,511

1,036

475

36,760
16J,269
193,029

36,657
110,2P.O
1461 937

102
50,990
21.092

!.I

Includes accrued discount.
Current redemption villue.
At option of OI_(Jnrr hond8 may be held and will earn intprest for additional periods after original maturity dClles.
Includes matured uorlds which have not been presented for redpmption.

F"u.. PO 3812 - TREASURY DEPARTMENT _ Bureau of the Public Debt

31.lili
.28
31.62
21).80

UNITED ~ [AT ~S S",\fINGS BONDS ISSUED AND REDEEMED THROUGH April 30, 1967
(Dollar amounts in mil!ions - rounded and will not necessarily add to totals)
DESCRIPTION

AMOUNT ISSUEOl!

MATURED
Series A-) 935 thru D-1941 -Serit's F' and G-1941 thru 1952 _ _ _ _
Series J and K-1952 thru

19S4

5,003
29,521
2,236

AMOUNT
REDEEMED

AMOUNT
OUTSTANOING2j

% OIJTSTANOING
OF AMOUNT ISSUED

.16
.19
1.39

4,995
24,464
2,205

UNMATURED

---

57
31

-.c

---

239
1,037
1,642
2,012
1,773
999
1,122
1,250
1,)08
1,203

12.eh
12.61
12 .L.o
13.04
14.64
18.25
21.67
23.40
24.e3
26.13
26.12
26.92
29.06
30.91
32.59
34.01
36.61
40.GO
41.00
43.66
46.96
48.L6
53.14
54.1..7
57.63
70.72

Series E}j:

1,862
8,223
13,238
15,43C
12,110
5,47S
5,178
5,3h2
5,267
4,604
3,985
4,176
4,7 63
4,850
5,050
4,866
4,570
4,L3.?

1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967

4,119
4,143

4,172
4,0]1
4,464
4,358
4,262
4,559
566

Unclassified
Total Series E

1,623
7,186
11,596
1),tI8
10,338
4,476
4,056
4,091
3,959
3,401
2,91w
3,052
3,379
3,351
3,403
3,211
2,897
2,660
2,448
2,334
2,213
2,069
2,092
1,983
1,806
1,335
18

582

148,690

105,921

l,Oul

1,124
1,384
1,499
1,646
1,655
1/73
1,773
1,701
1,809
1,959
1,945
2,372
2,)74
2,456
3,224
548

I
!

96~52

42,7 69

28.76

I
--

Series H (1952 thru May, 1959)21
H (June, 1959 thru 1967)
Total Series H

5,847
6,756

2,888
871

2,959
L.,886

50.61
72.32

11,603

3,759

7,844

67.60
-

Total Series E and H
Series J and K (

1955

thru 1957)

{ Total matured
All Series

Total unmatured
Grand Total

1.60,293

109,680

50,613

1,512

1,063

449

36,760
161,805
198,565

36,663
llO,743
147,406

96
51,062
51,159

31.58
~

Includes arcrued discount.
: Current redemption value.
A t option of owner bonds may be held and will earn interest for additional periods after originaL milturity dates.
Includes matured bonds which have not been presented for redemption.
Form PD 3812 - TREASURY DEPARTMENT _ Bureau of the Public Debt

29.70
.26
31.56
25.76 -

COR R E C T ION

I N
STATEMENT BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ON TITLE V OF H.R. 5710 RELATING TO
THE TAX TREATMENT OF THE ELDERLY
MARCH 1, 1967

On Page 5, in paragraph number 3 (retirement
income), the first sentence should read:
"This complex provision grants a maximum credit
against income tax equal to 15 percent of an
individual's first $1,524 of eligible retirement
income and 15 percent of the first $2,286 for a
married couple where only one spouse qualifies."

(Not the first $2,268 for a married couple)

000

TREASURY DEPARTMENT
Washington

STATEMENT BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE COMMITrEE ON WAYS AND MEAl'JS
HOUSE OF REPRESENTATIVES
ON TITLE V OF H.R. 5710 RELATING TO
THE TAX TREATMENT OF THE ELDERLY
MARCH 1, 1967

Mr. Chairman:

I appreciate this opportunity to present the

details of the President's recommendations for improving the income
tax treatment of the elderly which he included in his Message on
Older Americans.
Congress has been mindful of the financial problems associated
with old age and has created far-reaching direct programs, such as
the Social Security and Medicare systems, aimed at their solution.
Another significant form of assistance to the elderly has been
provided by special income tax benefits to those over the age of 65.
This tax program costs the Federal Government approximately $2.3
billion a year in tax revenues.

Yet it has been developed in a piece-

meal fashion over the years -- part administratively, part by committees
other than this one -- without ever having been subject to an over-all
review by this Committee and by Congress to assure that the system is
achieving its objective in an equitable and uniform manner.

When

viewed comprehensively, it seems clear that the present system of tax
benefits for the elderly is not directed where the benefits would be

F-830

2
- 2 -

most effective in solving the financial problems of this group.
The present system is subject to criticism on many grounds:
-- It grants more relief to those We have retirement
income -- pensions, dividends, interest, rents -- than to
those who continue working past the age of 65 and whose income, therefore, is in the form of wages and salaries.
-- It is of sUbstantially more value to those elderly
with higher incomes than it is to those in the lower income brackets.
-- It is exceedingly complex.
Recognizing that special tax provisions for the elderly are
based upon the special financial needs associated with old age, the
task then becomes one of directing the tax relief -- in a simple,
fair, and uniform manner -- to those who are in the most need of it.
It is to this goal that the President's proposals I am discussing with you today are directed.
These proposals will not change the aggregate revenue cost of
the benefits available to the elderly.

Rather, they represent a re-

structuring of the system within the present revenue cost.

This

would be accomplished by replacing the present complex and discriminatory provisions with a flat exemption -- $2,300 for single
persons and $4,000 for married couples -- available to all lower income and middle income elderly alike.

3
- 3 There are about 20 million persons over the age of

65.

Of these, about 4 million pay income tax or join in the filing
of a return on which income tax is paid.
The President's proposals will not change the tax-free status
of almost 16 million elderly who now pay no tax.

Of the remaining

group of elderly, about 2.8 million will have tax reductions.

Thus,

for the great majority of the elderly -- over 18.5 million persons,
more than 92 percent of the total -- the President's recommendations
will not change their position of being free of income tax burdens,
or they will result in a tax reduction.
The tax liabilities for the remaining group of individuals will
be increased and thereby brought more in line with those of taxpayers
under age

65 with similar amounts of income.

For all of the elderly, the new system would be simple and
straightforward.
Present Law
The details and explanation of the tax benefits available to the
elderly under present law are these:
1.

An extra $600 personal exemvtion -- and a related $100 mini-

mum standard deduction

are allowed to each person 65 or over.

This

provision is obviously of increasing benefit to higher bracket taxpayers.

This extra exemption reduces the taxes of those in the highest

bracket by $420 but is worth only $98 to a taxpayer in the lowest
bracket.

4
- 42.

Social Security and Railroad Retirement benefits are excluded

from income tax.

The exclusion from the tax base of these items also

is of most benefit to those in the higher tax brackets.

A top bracket

taxpayer receiving $1,000 a year from social security retirement payments enjoys $700 of tax relief by reason of the exclusion, while one
in the lowest brackets may benefit by only $145 from the same exclusion.
There is no sound tax principle that supports a complete exclusion for social security and railroad retirement benefits.

These

benefits are essentially in the nature of retirement income benefits
and are comparable to those paid from a private retirement plan.

The

exclusion of social security retirement benefits is a tax anachronism
granted administratively in the days when benefits were low, and the
social security system was in its infancy and viewed as a "welfare"
program.

The exclusion of railroad retirement benefits was granted

by a different committee to create parity of treatment with social
security.

To continue these exclusions as benefits grow will accen-

tuate (1) the greater tax benefits given to the wealthy and (2) the
arbitrary differences in tax treatment of elderly individuals with
the same total incomes which now result from taxing various kinds of
income differently.
As I have already indicated, the major purpose of the President's

proposal is to :reTJlace these exclusions· -

well as tha, other oom-

plicated special tax benefits now available to the elderly -- with a

5
- 5 flat special exemption available to all lower and middle income
elderly alike.

Under the proposal, however, no elderly person whose

income consists only of social security or railroad retirement benefits would become taxable -- either on the basis of the present levels
of these benefits or those which have been proposed by the President.
Furthermore, on an over-all basis, the proposal leaves 90 percent of
the present social security recipients untaxed, and reduces taxes
for an additional 5 percent on the basis of present levels of social
security.

3. A retirement income credit is allowed. This complex provision grants a maximum credit against income tax equal to 15 percent
of an individual's first $1,524 of eligible retirement income and 15
percent of the first $2,268 for a married couple where only one spouse
qualifies.

The sole justification advanced for the retirement income

credit is that it provides tax benefits to individuals receiving pension or investment income -- but little or no social security benefits

somewhat comparable to the exclusion

for social security.

This credit, however, discriminates most unfairly against those
who continue working after reaching age 65.

This arises because

wage income is not eligible for the retirement income credit and,
in addition, wage income reduces the amount of that credit available

6
- 6 for investment and pension income.

Consequently, an individual over

65 whose entire income consists of dividends, interest, and private
pension benefits, can under present law receive an unlimited amount
of this income and still qualify for the retirement income credit.
If single, he does not start paying tax until his income exceeds
roughly $3,100.

On the other hand, for a single person up to age 72

who is forced to supplement a small pension by working after retirement, the maximum allowable retirement income credit begins to
diminish as his wages exceed $1,200 and is completely eliminated if
he earns as little as $3,000.

He would start paying taxes at $1,600

if his income consisted solely of his wages.
This difference is unwarranted.

The elderly person who by

economic circumstances is required, or who out of a desire to be
active and productive chooses, to continue working should not have
withheld fram him the tax relief available to one living on dividends
and interest or a substantial pension.
Furthermore, the retirement income credit is one of the most complex provisions of the Internal Revenue Code which is applicable to a
broad range of individual taxpayers.

Its detailed and complicated

rules require an entire page on the tax return.

Experience indicates

that it is so complicated that many of the elderly do not understand
it and therefore lose the benefits to which they are entitled.

- 7 -

This present complex, confusing, and discriminatory system -which is far more favorable to the retirement income of the elderly
than to their wages and salaries -- is not a rational structure.
This structure of taxing the elderly seems to have been dictated by
a chain of events rather than by a considered judgment of this committee or the Congress.

As I previously mentioned, the exclusion

for social security benefits was established by administrative ruling
while the railroad retirement benefit treatment was acted upon by a
different committee.

The retirement income credit has generally

been discussed only in the narrow context of attempting to equate
the tax treatment of other forms of retirement income with that
already granted to social security benefits.
The President's Proposal
The proposed revision of the income tax treatment of the elderly
would eliminate these unfair and complex features of existing law and
would provide, instead, a relatively simple and uniform method of
giving tax relief to all elderly taxpayers in relation to their need.
The exclusions for social security and railroad retirement benefits,
the retirement income credit, and the extra $600 personal exemption
and $100 minimum standard deduction -- the entire present structure
would be replaced by a uniform special exemption.
Persons who have attained the age of 65.--The proposal would
allow a special exemption of $2,300 to all single taxpayers who have

8
- 8 attained the age of 65 and a special exemption of $4,000 to a married
couple where both are over the age of 65.

-y

In the case of a mar-

ried couple where one is over 65 and one is under 65, the allowable
exemption would be $2,300.

These taxpayers would, of course, still

retain the personal exemption of $600 and the minimum standard deduction, applicable to all taxpayers.
These special exemptions would be reduced dollar-for-dollar for
the amount of income -- including social security and railroad retirement benefits

received during the taxable year in excess of $5,600

in the case of a single individual and $11,200 in the case of a married couple.

However, in order to reflect the retireets own con-

tributions to the social security or basic railroad retirement system,
the amount of his special exemption would, in no case, be reduced
below an amount

e~ual

to one-third of the amount of these benefits

included in his income for tax purposes.

For a taxpayer without

social security or railroad retirement benefits, the special exemption would phase out at the income level of $7,900 for a single
person and $15,200 for a married couple.
Additional particulars under the proposal are:
The $2,300 special exemption is numerically e~uivalent to the
present maximum primary social security benefit ($1,600 rounded)
and the extra $600 personal exemption and its related $100 minimum
standard deduction. To arrive at the $4,000 married couple's exemption, there is added $800 representing the wife's social
security benefit and $700 representing her extra $600 personal
exemption and related $100 minimum standard deduction, with the
total rounded to $4,000.

- 9(1)

Only those social security and railroad bene-

fits which are paid as retirement benefits would no
longer be excluded.

Thu~

disability benefits, lump-sum

death benefits, and children's benefits would remain excludable from income.

The exclusion for these benefits

essentially parallels the tax treatment of similar payments made under a private arran§8ment.
(2)

The provision which, under certain conditions,

permits a taxpayer to claim an exemption for an elderly
parent he is supporting would be revised to allow the
parent to receive up to $1,200 -- rather than the
present $600 -- of gross income before the exemption
is disallowed.

This change would reflect the fact that

by virtue of being included in income, social security and
railroad retirement benefits would be included for the
first time in applying the income test.

(3)

The minimum income limits for filing a return

in the case of individuals over age 65 would be raised
from $1,200 to $2,800

gJ to reflect the higher income

levels at which individuals would be completely exempt
The figure $2,800 represents the value of the new special exemption ($2,000), the $600 personal exemption, and a $200 standard
deduction available to a married taxpayer filing a separate return. It represents the smallest possible dollar combination
(on a rounded basis) of these benefits in the case of any taxpayer. Due to a drafting error, the bill erroneously reflects
the new filing level as $2,600 rather than $2,8000

- 10 from tax under the proposal.

For married couples, the

$2,800 would be in terms of their combined income in
recognition

ttmt their joint income is

conside:Lel~

in :),p-

plying the phase-out rules for the new special exemption.
Persons under the age of 65.--Under existing law, persons under
age 65 need not include their social security or railroad retirement
benefits in income and, in addition, those individuals receiving a
pension under a public retirement system are eligible for the retirement income credit.

In keeping with the recommendations for

those over age 65, the proposal would eliminate these preferences.
It would substitute instead, for the individuals involved, a
special deduction equal to the lesser of (1) the actual amount of

such benefits recelved or (2) $1,600. -

The $1,600 limitation

on the amount of the deduction would be reduced dollar-for-dollar
to the extent that income received exceeds $5,600 in the case of a
single taxpayer or $11,200 in the case of a married taxpayer, but
not below an amount equal to one-third of any social security or
railroad retirement benefits included in income.

The $1,600 deduction ceiling is numerically equivalent to the
present exclusion for the maximum primary social security benefit ($1,600 rounded) and is more than adeq\.<ate to reflect the
value of the retirement income credit (15 percent of the first
$1,524 of retirement income). It represents the same value assigned to these benefits in constructing the special exemption
for persons over the age of 65.

- 11 -

Effect of the Proposal
The proposed revision of the tax treatment of all elderly and
retired persons represents a balanced revenue program of tax simplification and reform.
Eliminating the retirement income credit while at the same time
extending comparable benefits to individuals in the lower and middle
income groups -- regardless of the nature of their income -- will:
-- Vastly simplify the tax computation for most
individuals receiving retirement income;
-- Eliminate the existing discrimination against
those who continue working after age 65.
The loss in tax revenues which will result from extending the
uniform special exemption to all lower and middle income persons over
age 65 without regard to the source of their income will be balanced
by removing the benefits of this special exemption from those individuals whose income levels demonstrate that old age has not created
financial hardship.
Under the proposal, all single persons with incomes -- from all
sources including social security and railroad retirement benefits
of

$3,22~ or less would be exempt from income tax. All married

couples, where both are 65 or over, with incomes of $5,7772/ or less
This reflects the special exemption of $2,300; a personal exemption
of $600, and the 10 percent standard deduction of $322 on $3,222 of
income.
This reflects the special exemption of $4,000, two personal $600
exemptions, and a 10 percent standard deduction of $577 on $5,777
of income.

12
- 12 -

would be exempt.

These results obtain regardless of source of in-

come -- wages, pensions, social security or railroad retirement
benefits, or investment income.

This will mean that almost a half

million older persons of the 4.2 million persons now taxable will be
completely relieved of any income tax liability.
Of the elderly persons above these income levels, nearly all
single persons over age 65 with incomes up to $5,800, and nearly all
married couples where both are over 65 with incomes up to $11,600,
will obtain tax reductions.

In addition, many elderly single persons

with incomes over this level and up to $1,300, and many elderly married couples with incomes up to $14,000, will also receive tax reductions depending on the composition of their income.

In total, of

the elderly above the new fully exempt level, nearly 2.3 million
would have their income taxes reduced in varying amounts depending
on the nature of their income and its consequent treatment under
present law.
The remaining 1.4 million older taxpayers will have their taxes
increased.

They will lose the special tax benefits now available to

them since they have no demonstrable need for special tax relief.

course for many of these the increased social security benefits proposed by the President will completely or materially offset the tax
increase.

13
- 13 Since railroad retirement benefit levels are considerably higher
than the social security levels, the present tax benefits extended
to railroad retirees through the exclusion of their benefits from
income tax are likewise greater than for elderly persons receiving
social security or other forms of retirement income.

For this reason,

the income levels at which railroad retirees will be unaffected or
will receive tax reductions or will have tax increases under the
proposal are somewhat lower than in the case of other elderly persons.
The effect of the proposal is thus to place these railroad retirees
in the same tax position as social security recipients or other
elderly with the same total income.

As stated earlier, the proposal

leaves completely free of tax those persons receiving only railroad
retirement benefits.
Of the 14.5 million aged persons receiving social security benefi ts, 90 percent would not pay any tax under the President's proposals
so that their social security benefits will, in fact, remain nontaxable, assuming the present level of benefits.

Another 5 percent of

the recipients presently taxable because of other income would have
their taxes reduced.

For this group also the effect of the proposal

will be to continue the exemption for their social security benefits.
If there is an increase in social security benefits of the nature
recormnended by the President, tax increases will be realized by only
an additional 1.5 percent of the social security recipients -- about

14
- 14 200,000 persons.

Moreover, as stated earlier, no elderly person re-

ceiving only social security benefits, either at present or under the
President's program, will be subject to tax.
In summary, the President's proposal has been carefully designed to correct three major problems that presently exist under
our tax treatment of the elderly:
-- The proposal will simplify the tax return and
tax filing problems of all older people.
It will end the unfair and serious discrimination
against those older perons who, by force of circumstances
or desire, continue working after age 65.
-- Finally, it will insure that the benefits extended through our tax system to the elderly -- vlhich
will remain at their present $203 billion level -- will
go to those who, because old age has imposed particular
financial problems, need tax relief the most.

It)
TITLE V -- TAX TREATMENT OF THE AGED

Technical Explanation
of Retirement Benefits Received Under the Social Security
&nd Railroad Retirement Systems in Gross Income.

I~clusion

At present all social security benefits (by administrative ru~ing) and
railroad retirement benefits (by law) are excludable from gross income.
Paragraph (a) of Section 503 of the bill creates a new section 82 of the
Internal Revenue Code which provides for the inclusion in gross income of
virtually all social security and railroad retirement benefits which are
in the nature of retirement benefits.
More specifically, the basic retirement annuity paid to a covered
"I.'orker) as well as the benefit paid to his wife if she is not otherwise
eligible on her own right are includible in income for tax purposes. On
the other hand, the following types of benefits would not be includible
in income:
(1) Disability pensions paid to workers and their families. Under
the social security system, a disabled worker and possibly members of his
family are entitled to benefits out of the disability fund until the worker
reaches age 65. These would be nontaxable. Payments to him and other
members of his family after he reaches age 65 convert to retirement
benefits payable out of the Old Age and Survivors Insurance Trust Fund, and
as such (with the exception of child's benefits) would be includible in
income. This treatment corresponds with the rrsick pay" provisions applicable to disability payments received under private plans.
(2) Payments to the minor children of a retired, disabled, or deceased employee.

(3)

Lump sum death benefits.

16
- 2 -

Dependency exemption. A taxpayer may claim a personal exemption for
any dependent with less than $600 of gross income and for whom he provides
half the support. Frequently, this exemption arises in the case of a
taxpayer supporting an elderly parent. At present, in applying the "$600
gross income test," social security and railroad retirement benefits are
ignored because they are not included in gross income for tax purposes.
This would no longer be true under the bill, with the result that the
gross income of elderly taxpayers receiving social security will
automatically be increased by the ~ount of these benefits, and, thus,
if no change were made the possibility would exist that many elderly
persons formerly claimed as dependency exemptions by their children or
by others could no longer be so claimed. This result is not per se
improper, since social security and railroad retirement benefItS are as
much economic income as are private retirement pension benefits. Nonetheless, in order to prevent in many cases the loss of a dependency exemption
by relatives who support an elderly social security or railroad retirement
pensioner, section 504(b) of the bill ~ends section 15l(e) of the Internal
Revenue Code to provide that persons aged 65 or over may receive up to
$1200 of gross income and still be claimed as dependency exemptions.
The bill contains two technical amendments with respect to the
inclusion of social security and railroad retirement benefits in gross
income. Section503(b) of the bill is a clarifying amendment intended
to foreclose the possible applicability of section 101(b) of the Internal
Revenue Code (which provides for an exclusion from income of certain
employee death benefits) to social security or railroad retirement
annuities paid to the survivors of deceased insured workers. Most annuities
paid to survivors of covered workers are paid by reason of the age of the
recipient; they are the s~e annuities as would be paid to the worker's
spouse or parents if the worker were alive at retirement. In other words)
these annuitd..e~ arE; esse'ntlc~,Jly in the nature of retirement benefits and
should be -taxed as such.

section 506(c) of the bill conforms the Railroad Retirement Act
by modifying the provision exempting railroad retirement benefits from
all taxes, so as to reflect their inclusion in gross income for Federal
income tax purposes.

- 3 110

Repeal of the Retirement Income Credito

Section 501 of the bill provi&es for the repeal of section 37 of the Internal Revenue Code, the retirement income credit. The retirement income
credit is a very complex provision intended to extend tax benefits, somewhat
comparable to the tax benefits resulting from the exclusion of social security
and railroad retirement from gross income, to retired individuals who are not
covered (or only partially covered) by the social security and railroad retirement programso
The retirement income credit is, basically, a credit against the taxpayer's tax e~ual to 15 percent of his first $1524 of retirement income. The
$1524 base is raised to $2286 in the case of a married couple with both
spouses over 65 but where only one has retirement income or otherwise qualifies for the credit. Retirement income eligible for the credit includes, in
the case of a person over 65, pension benefits, rents, interest, and dividends; in the case of a person under 65 it includes only pension benefits
received from a public retirement system. The $1524 maximum base is reduced
by the amount of social security or railroad retirement benefits received.
The reason that the retirement income credit is so complex is that,
because it is intended to parallel the social security exclusion, it incorporates limitations upon the credit comparable to those that the Social
Security Act imposes upon the amount of and entitlement to maximum social
security benefitso Thus, the credit is only allowable if the individual had
received earned income in excess of $600 in each of any ten calendar years
before the year in question. In addition, the $1524 base is reduced, pursuant
to a specified formula, if wages in excess of $1200 ($900 in the case of an
individual under age 62) are received. This $1200 level was intended to
equal the level at which social security benefits begin to be cut back because
of earned income. The $1524 and $2286 maximum credit bases were derived from
the maximum annual social security retirement annuities receivable by a
covered worker and by a covered worker and his spouse, respectively, under
the Social Security Act as amended through 1958.
III.

Repeal of the Extra Personal Exemption and Related Minimum Standard
Deduction.

Section 504 (a) repeals the prOV1Slon allowing each taxpayer over the
age of 65 an additional $600 personal exemption. This will automatically
result in the elimination of the $100 minimum standard deduction that is
related to that personal exemption. Taxpayers over the age of 65 will still
be eligible for the basic $600 personal exemption allowable to each taxpayer.

- 4 IV.

Special Exemption for Individuals Over Age 65.

To replace the tax benefits described above, section 504 (c) of the bill
£reates a new special exemption (section 154 of the Internal Revenue Code)
for persons aged 65 or more. To ~ualify for the exemption the taxpayer must
have attained age 65 before the close of the taxable year involved. For a
single person the annual special exemption is $2300. For a married couple
where both are over 65, each may ~ualify for a $2000 annual exemption -- for
a total of $4000 on a joint return. Section 153 of the Code is applicable in
determining marital~9tatus. If the spouses file separate returns each takes
a $2000 exemption. g; For married couples where only one spouse is over age
65, the one over age 65 may ~ualify for a $2300 exemption (i.e., the same as
a single person), whether or not a joint return is filed. The one under 65
is not entitled to a special exemption but may be entitled to the new retirement income deduction if she is receiving social security, railroad retirement, or public retirement system benefits (see item. V for description
of this proposal).
The special $2300 exemption which the bill provides for the single
person over 65 is approximately e~ual to the total tax benefits resulting
from the following provisions of existing law, which would be eliminated:
1. Exclusion of social security benefits, u~ to the present annual
max1muro of $1600 (rounded), from gross income. tSection 503 (a) of the bill
el1miE~testhe social security and railroad retirement exclusions).
2. The extra $600 personal exemption allowable to individuals over
age 65 (Section 504 (a) of the bill repeals this exemption).

3. The extra $100 minimum standard deduction that is related to the
extra $600 personal exemption (Section 504 (a) of the bill also has the effect of eliminating this extra minimum standard deduction).
The special exemption does not replace, but is an ad~ition to the regular
$600 personal exemption which is available to all taxpayers at any age.
The $4000 total exemption which the bill provides for a married couple
both over 65 is slightly greater than the total tax benefits resulting from
the following provisions of existing law, which would be eliminated:
1. The exclusion of the worker's social security benefits, up to the
present annual maximum of $1600 (rounded), from gross income.
2/ If both spouses are over age 65 but only one spouse has gross income and
the other spouse is not the dependent of another, then the spouse with the
gross income may claim a total $4000 special exemption (i.e., his own $2000
plus his spouse's $2000) even on a separate return. This provision parallels
the existing section 151 (b) of the Internal Revenue Code, which allows one
spouse to claim the other spouse's personal exemption even on a separate return -- as long as the non-filing spouse has no income and is not the dependent
of another.

19
- 5 2. The exclusion from gross income of the spouse's social security
benefits, up to a maximum of .$800 (rounded), whieh represent the maximum
receivable by a spouse who does not qualify for benefits in her own right.

3. The two extra $600 personal exemptions plus the two $100
minimum standard deductions that are related to these extra exemptions.
The total $4000 exemption slightly exceeds the total of these
benefita. This gives some recognition to the fact that some spouses
will receive, as a result of their own work experience, social security
benefits greater than one-half of the other spouse's benefits.
The special exemptions are allowed as deductions from adjusted
gross income. However, there is no requirement that the individual
itemize his deductions in order to qualify for the special exemption.
This method of handling the special exemption -- which is· the same as
that followed for the $600 personal exemption -- will permit the
standard deduction to be computed on an income base which includes
social security or railroad retirement benefits but which has not yet
been reduced by the offsetting special exemption. This will, in effect,
result in an added benefit to many of those taking the standard deduction.
The allowance of the special exemption is limited to taxpayers at
the lower and middle income levels. This is accomplished as follows: For
a single person, the special exemption is reduced dollar-for-dollar by
the amount of his adjusted gross income in excess of $5600. However,
it is never cut back to a figure below o~~-third of the basic social
security or railroad retirement benefit~he has included in his income
for that year. This represents a very rough -- and generous -- allowance
for recovery of the employee'B contributions to the social security or
railroad retirement programs.
Thus, for a single person with no social

}j Railroad retirement supplemental annuities though includable in gross
income, are not included for purposes of computing the one-third cutback
floor. No part of such benefits represents a return of the employee's
contributions since the supplemental annuity program is entirely noncontributory.

- 6-

20
security or railroad retirement benefits, the special exemption will be completely phased out at a $7900 adjusted gross income level. However, if his
taxable income includes $1500 of social security benefits, his special exemption will in no event be reduced below $500 (one-third of $1500) no matter
how high his adjusted gross income.
For a married couple filing a joint return, where one spouse is 65 or
over and the other is under 65 the special exemption will remain at $2300.
However, in this case the exemption will be cut back dollar-for-dollar for
adjusted gross income in excess of $11,200 (1. e. double the cut back level
for a single person) - but not below one-third of the social security and R.R.
retirement benefits actually included in income.
For a married couple filing a joint return where both spouses ar~ age
65 or over a total exemption of $4000 is allowable. This in turn is c t· back
dollar-for-dollar for adjusted gross income in excess of $11,20:,) but nOL
below one-third of the social security and railroad retirement benefits included
in the couplets income. Thus, for a couple with no social security or railroad
retirement income, the special exemption will be completely phased out at
$15,200 of adjusted gross income. However, if $2400 of their taxahle income
consists of social security benefits, their combined special exemptlcn \;ill
level out at $800 once they reach $14,400 of adjusted gross income.
For a married couple filing separate returns, the cutback is applied
separately to each spouse's exemption but on the basis of their combined incomes. That is, ~ach special exemption is cut back by the amount by which
one-half of their combined income exceeds $5600. The use of the combined
income in their case will remove any artificial incentive to file separate
returns in order to take advantage of an uneven distribution of income
among the spouses.
The social security and railroad retirement benefits that are being
included in income under the bill will also be included in the adjusted
gross income base for applying the cutback provisions.
Miscellaneous amendments. Section 506 (a) of the bill amends section 4
of the Internal Revenue Code to permit the Internal Revenue Service ~o prescribe optional tax tables reflecting the new special exemption. Section
506(b) of the bill is a technical amendment to section 144 of the Internal
Revenue Code. Section 144 of the Code presently provides that taxpayers with
less than $5000 of adjusted gross income may not use the standard deduction
unless they elect to use the optional tax tables. The bill adds an exception
to this rule for persons over 65 who, unless the Secretary or his delegate
issues tables, will not be permitted to elect the optional tax.

21
- 7-

Special Retirement Income Deduction for Persons Under

A~e

65.

Section 503(a) of the bill creates a new section 218 of the
Internal Revenue Code. Under this section, each individual under age
65 is entitled to a deduction equal to the amount of social security,
railroad retirement, and public retirement system benefits included in
his gross income -- subject to a ceiling on the deduction of $1600 and
a phase-out provision for higher-income taxpayers. The new section
contains a definition of "public retirement system" which is identical
with the definition presently in the retirement income credit.
This deduction is personal to the taxpayer receiving the specified
types of income; thus, married couples cannot combine their deductions
to permit the deduction of more than $1600 of benefits received by one
of the spouses. For example, if a retired teacher under age 65 is
receiving an aruma1 pension of $2000 and his wife, who is also under
65, receives 1:1.0 social security, railroad retirement or public retirement
system benefits, the husband may qualify for a deduction of no more than
$1600 and the wife is allowed no retirement income deduction -- even if
a joint return is filed.
Under the law of community property states, the husband and wife
in the above example would each be considered as having $1000 of
retirement income. In order to provide for equal treatment of all married
couples, no matter in what state they reside, the new section 218 provides
that their retirement income shall not be so prorated for purposes of
applying the new retirement income deduction. Thus, the result in the
above example will be the same in all states. Under present law, some
married taxpayers living in community property states are able, in effect,
to claim two retirement income credits, instead of the one credit available to married couples in non-community property states, under the facts
of the above example. This would be the case if neither spouse had
significant wage income. On the other hand, community property rules may
operate to the detriment of such a couple. If the retiree has retirement
income but his wife has ,rage income, her wage income will presently
operate to reduce his retirement income credit base. The proposed repeal
of the retirement income credit, and the special community income provision of the new section 218 will eliminate these anomo1ies.
section 502(a) of the bill amends section 62 of the Internal Revenue
Code to provide that the new retirement income deduction will be allowed
as a deduction in arriving at adjusted gross income. Thus, the retirement
income (social security, railroad retirement and public retirement pensions)
which is includable in gross income and then offset by the new section 218

22
- 8 deduction will not be included in adjusted gross income upon which the
10 percent standard deduction is computed. If this were not true, the
mere receipt of social security, railroad retirement, or public retirement system benefits could produce a tax lower than that which would
have been payable if this income were not received. On the other hand,
section 502(c) of the bill amends section 170(b)(1) of the Code and
section 502(d) of the bill amends section 213 of the Code to provide
that for purposes of computing the limitations on the charitable contribution and medical expense deductions, respectively, adjusted gross
income is computed without regard to the retirement income deduction.
Since the charitable contribution and medical expense limitations are
intended to represent a certain proportion of the taxpayer's spendable
income it would not be appropriate to reduce the base against which
they are applied by the retirement income deduction, which does not
represent a cost of acquiring gross income but is merely a special
benefit related to the particular source of the income. Furthermore,
if the retirement income deduction were to reduce adjusted gross income
for purposes of the medical expense deduction floor, in many cases the
undesirable situation would result that a taxpayer's medical expense
floor would increase when he reaches 65 and becomes entitled to the
$2300 special exemption (which does not reduce adjusted gross income)
instead of the retirement income deduction.
The new $1600 retirement income deduction replaces:
1.

The exemption from gross income of social security
retirement benefits received by a person under 65.

The comparable railroad retirement exemption.

The retirement income credit for persons receiving
pensions under a public retirement system.

The $1600 ceiling
a result of either the
of $1600 (rounded)) or
for the first $1524 of

represents the maximum benefits now available as
exclusion of social security from income (maximum
the retirement income credit (which is available
retirement income).

As in the case of the special exemption for those over age 65,
the $1600 retirement income deduction ceiling will be reduced dollarfor-dollar to the extent that adjusted gross income, including social
security and railroad retirement benefits, exceeds $5600 in the case
of a single taxpayer and $117200 in the aase of a married couple. The
deduction ceiling will never be reduced, however, to an amount leas than
one -third of any social security and railroad r~_tirement benefi ts in~luded
in the taxpayer's gross income. In the case of a married pe~son, the cutback is applied on the basis of one-half of the combined adjusted gross
income of both spouses.

2.-;
- 9 In either case, the cutback operates to reduce the deduction ceiling.
Thus, for example, if a single person under 65 has $6000 of adjusted gross
income, including $1000 of social security benefits, his retirement income
deduction will be $1000 even though his income exceeds the $5600 cutoff
levp.l by $400. This is because his deduction ceiling has only been reduced
to $1200 w.ich is still above his otherwise allowable deduction.
Since the new retirement income deduction is a deduction arriving
at adjusted gross income rather than an exemption, persons entitled to
the deduction may use the optional tax tables.
VI.

Filing

Re~irement.

Under existing law a person age 65 or over must file a tax return if
his income exceeds $1200. As a consequence of the present proposal this
requirement can be raised and a person 65 or over will only be required to
file a tax return if his income, together with his spouse's income if married,
exceeds $2800. Under no conceivable set of circumstances will any person
age 65 or over have tax liability if his income (or their income in the case
of a married couple) is less than this amount. ~1
VII.

Effective Date.

The new special exemption and retirement income deduction -- as well
as the repeal of the present provisions -- would apply to taxable years
beginning in 1968. This seems most compatible with the July 1, 1967 effective date for the social security increases.

!I Due

to a drafting error the bill sets the filing requirement at $2600
rather than the correct amount which is $2800.
The $2800 amount reflects the fact that a married t~r 65 or over
whose spouse is also 65 or over and who files a separate return is entitled
to only one-half of the couple's $4000 aged exemption, his $600 personal
exemption, and an additional allowance to reflect the 10 percent standard
deduction. The filing requirement was arrived at by rounding these three
elements to the lowest even amount that could appropriately represent a
filing requirement for all persons 65 or over.

24
March 1, 1967
APPENDIX
Illustrative Tables
Table of Contents
Table 1
Income Levels Below Which Taxpayers Over 65 Would Have a Tax
Reduction and Above Which Taxpayers Would Have an Increase
Under the President's Proposals, Single Persons
Table 2
Same as above, but for Married Couples.
Table A-I
Present Tax and Tax Change Under Proposal for Selected Taxpayers
With Wage Income Only as Compared to a Regular Taxpayer
Table A-2
Tax Changes Under Proposal for Taxpayers With Average Social
Security Benefits and Retirement Income, Single Individual,
Age 65
Table A-3
Same as A-2, but for Married Couple, Both Age 65.
Table A-4
Tax Changes Under Proposal for Taxpayers With Maximum Social
Security Benefits and Retirement Income, Single Individual,
Age 65
Table A-5
Same as A-4, but for Married Couple, Both Age 65.
Table A-6
Tax Changes Under Proposal for Taxpayers With Maximum Social
Security Benefits and Retirement Income, Married Couple,
Husband Age 65, Wife Under 65

2 ~.-.·
~.

- 2 -

Table A-7
Tax Changes Under Proposal for Taxpayers With Average Social
Security Benefits and Retirement Income, Married Couple,
Husband Age 65, Wife Under 65

Office of the Secretary of the Treasury
Office of Tax Analysis

26
Table 1
Income Levels Below Which Taxpayers Over 65 Would Have a Tax Reduction
and Above Which a Tax Increase Under the President's Proposals
Single Individuals

Income level
separating
tax cut
from increase

Income level above
Social :whichafter-tax income
security :decreases as a result
increase
of tax proposal and
proposed : Soc. Sec. increases lJ

{imum primary social security benefit

($1,630)

1. No retirement income credit

$5,833

$244

$ 6,580

=ra:e social security benefit

($1 008)

2;-

$5,988
6,393

$151
151

$ 6,485
6,793

1. Max. retirement income credit 5/
2. No retirement income credit ~

$6,041
6,825

$312
312

$ 6,975

1.
2.

Max. retirement income credit
No retirement income credit

1imum social security benefit

($5 2 8)

10,400

§j

social security benefits

1. Max. retirement income credit
2. No retirement income credit ~

'ice of the Secretary of the Treasury
)ffice of Tax Analysis

$6,095
7,300

$ 6,095
7,300
March 1, 1967

Present income level before social security increase. The calculations assume
use of the standard deduction. These levels are higher for itemizers.
The maximum which was received by a significant number of beneficiaries.
No retirement income credit because social security income exceeds $1,5 24 .
Average Primary retirement benefits for those receiving such benefits.
Maximum retirement income when earnings do not exceed $1,200 or taxpayer is
over age 72. No retirement income credit when eliminated by earnings.
Minimum primary retirement benefits.
For taxpayers using the standard deduction with incomes between $3,222 and
$3,234 there would be a slight tax increase which could be as much as $1.
This point is higher than other cases because the increase in social security
payment is relatively large and the change in taxable income relatively small.
In one case the $312 income increase is reduced by the lost $149 retirement
income credit while the other, having no RIC, is free to apply the full $312
to an increase in taxable income.

27
Table 2
Inc,)me Levels Below Which Taxpayers Over 65 Would Have a Tax Reduction
and Above Which a Tax Increase Under the President's Proposals
Married Couple, Both Age 65
Income level above
Social
which after-tax income
Income level
separating tax:security: decreases as a result
cut from
:increase: of tax proposal and
increase
:proposed: Soc. Sec. increases

social
1.
~verage

No retirement income credH

'1/

$11,635

$12,651

social security benefit

($1,530) !£l
1.
2.

Max. retirement income credit 5/
No retirement income credit ~/-

$11,875
12,470

$230
230

$12,590
13,056

$12,029
13,205

$467
467

$13,380
14,770

linimurn social security benefit ($792) ~I
1.
2.
[0

Max. retirement income credit 5/
No rettrement income credit 2;-

social security benefits
1.
2.

Max. retirement income credit 5/
No retirement income credit 2/-

Iffice of the Secretary of the Treasury
Office of Tax Analysis

$12,327
14,000

$12,327
14,000
March 1, 1967

/ Present income level before ,social security increase. The calculations assume
use of the standard deduction. These levels are higher for itemizers.
:/ Maximum which was received by a significant number of beneficiaries.
j No retirement income credit because social security income exceeds $2,286.
Assumes the husband receives retirement income and wife receives none.
I Average primary and supplemental benefits for those receiving such benefits.
:; Maximum retirement income when earnings do not exceed $1,200 or taxpayer is
over age 72. No retirement income credit when eliminated by earnings.
/ Minimum primary and supplemental retirement benefits.

Table A-l
Present Tax and Tax Change Under Proposal for
Selected Taxpayers With Wage Income Only l/

(1)

Wage
income

(2 )

(3)

(4)
(5)
(6)
(7)
Single Individual, Age 65
Present
Regular
:Difference:
:Difference in:
tax for
tax paid :in tax of
tax of over
elderly
by taxover 65
Tax
and under :Tax change
due to
:
tax- : payers
and
under
65 after
:payers
proposal
under 65
under 65
proposal
proposal

?J:

(3)-(2)

(3)-(5)

(8)

(10)
Married Couple
Regular
Difference
tax paid
in tax of
by taxover 65
payers
and
under 65
under 65
(9)

Present
tax for
elderly
taxpayers?/:

(5)-(2)

$329

$ -209

ll4

242

429

1,168

137

1,075

1,580

1,742

162

12,500

2,206

2,398

15,000

2,938

20,000

(12 )
(13)
(ll)
Both Age 65
:Difference In:
tax of' over
Tax
and under :Tax change
due to
under
65 after
proposal
proposal
: proposal

(9)-(8)

$ 200

$200

-315

290

501

686

1,742

162

192

2,398

3,154

216

3,154

4,666

4,918

252

50,000

18,874

19,230

100,000

47,774

48,182

(9)-(11)

(ll)-(8)

$200

2ll

501

$ -290

914

228

222

692

-464

1,ll4

1,342

228

58G

756

-528

192

1,567

1,831

264

1,256

575

-3ll

216

2,062

2,335

273

2,285

223

4,918

252

3,160

3,48)+

324

3,484

324

356

19,230

356

13,388

13,964

576

13,964

576

408

48,182

408

37,748

38,460

712

38,460

712

$ 3,000

$ 209

$ 32 9

$120

5,000

557

671

7,500

1,031

10,000

Office of the Secretary of the Treasury
Office of Tax Analysis

March 1,1967

Proposal to eliminate the retirement income credit and present age exemption, include social security benefits in AGI, and grant a new age exemption
of $2,300 for singles and $4,000 for married couples both over 65 to be reduced dollar-for-dollar for income in excess of $5,600 if single and $11,200
if married and both over 65 but not to go below one-third of social security benefits.

£/

Assumes standard or minimum standard deduction through $10,000 income and itemized deductions equal to 10 percent of' income above $10,000.

l"\.)

Table A-2
Tax Cbanges Under Proposal For Taxpayers With Averl3.~ Social Security
Benefits and Retirement Income !I
Single Individual, Age 65
(1)

Present
incane 2

(3)

(2)

(2L _

(4)

_.12)_

.. (7)

(8)

(9)

:Differenc& TaX unaer : Difference:
Tax -change due to
Regular: in tax of: eld-er:ty : in tax of
proposed tax law
: Present
proposal: ov""r and
Percent
Percent
: tax for : tax 1)aid : over 65
and
. prior to : under 65
of
of
elderly : by tax;unarr ;:'5
OAS!
aftpr
present
present
tax4:
increases : propos~l_
Dollars
tax
incCllle

(10)

(ll)

(12)

Total effect of proposed
tax law and OAS!
benefit increases
Net after-tax
e: inccune cbange

Tax increase due to
OAS! benefit
increas~s under
proposed tax law 5

$ 2,000

0
307

270
607

$ 110
270
300

6,000
7,500
10,000

479
754
1,276

792
1,089
1,648

12,500
15,000
20,000
50,000
100.000

1,845
2,526
4,172
18,212
47,012

2,290
3,033
4,777
19,028
47,954

3,000
5,000

llO

°0

llO

242

-65

313
335
372

481
1,075
1,648

311
14

2
321
372

0.4
42.6 II
29·2

445'
507

2,290
3,033
4,777
19,028
47,954

0
0
0

445
507
605
816
942

24.1
20.1
14.5
It.5
2.0

605

816
942

°°

Office of the Secretary of the Treasury, Office of Tax Analysis

270
365

-21.2%

-1. 31>

$ 0
0
23

0.0
4.3
3.7

55 §/
33
28

3.6

33
36
42
61
68

3.4
3·0
1.6
0·9

$J51~

(ll)

°°
-42

$ 151
151
193

57
354
400

94
-203
-249

478
543
647
877
1,010

-327
-392
-496
-726
-859

March 1, 1967

Pro~osal to eliminate the retirement income credit and present age exemption, include in income social security benefits, and grant a new age exemption

of $2,300 reduced dollar-far-dollar for income in excess of $5,600 but not to go below one-third of social security benefits.
Present income is AGI plus social security benefits ($1,008 average).
?J Tax
computation assumes standard or minimum standard deduction through $10,000 incomes, itemized deductions of 10 percent of income for incomes higher
])
than $10,000.
is the tax that would apply to a taxpayer under age 65 whose family situation is the same, married or single, and who received an ~mount of income
I::J This
equal to the total income of the aged reduced by one-third of social security, or railroad retirement as the case may be and has itemized deductions
equal to 10 percent of present income of the aged (Col. 1).
A 15 percent increase in social security income of $151 brings it to $1,159.
The age exemption phase-out accounts for a $55 tax increase being associated with a $151 increase in social security benefits. The effect on higher
incomes is not as great since the phase-out terminates at $7,514. At $7,514 and above taxpayers receive the $386 minimum age exemption equal to onethird social security income after benefit increases.
43 percent tax increase is due to the age exemption phase-out. At $7,564 and above the age exemption is reduced to ~ constant $136 so tax changes
1I The
due to the reduction are increasingly smaller fractions of present tax liabilities.

Table A-3
Tax Changes Under Proposal For Taxpayers With Average Social Security

Benefits and Retirement Income
Married Couple, Both Age 65

(1)

Present
Incane g;

$ 2,000
3,000
5,000

(6)
(7)
(8)
(9)
under :Difference:
Tax change due to
: Present
Regular: in tax cf: elderly
: in tax of
proposed tax law
: tax for : tax l'aid : over 65
proposal: over and
Percent
Percent
: elderly : .by· tax-:
and
prior to ~under 65
of
of
present
tax-' : :payers
:under 65
OASI: after
present
: payers U~-er E5 4} _
increases : propos~l_
Dollars
tax
incane
(3)-{2)
(~) (r)
(r) (~)
(2)

(3)

0
0
0

(4)

(5)

(11)

(10)

(12)

~ifferenC6 Tax

0
125
416

$ 0

125
416

0
0

125
416

0
0
0

$ a

$ 230

0
0

o
o

230
230

-40
-78
-113

270
308
343

206
635
720
1,253
1,499

24
-405
-490
-1,023
-1,269

6,000
7.500
10,000

97
332
739

567
818
1,245

470
486
506

28
222
586

539
596
659

-69
-110
-153

-71.1
-33.1
-20.7

-1.2
-1.5
-1.5

12,500
15,000
20,000
50,000
100,000

1,138
1,612
2,664
12,540
36,747

1,719
2,214
3,341
13,719
38,154

581
602

1,25(1
2,214
3,341
13,719
38,154

463
0

118

10.4

0.9
4.0
3.4
2.4
1.4

677

1,179
1 ;40'7

a
0
0

Office of the Secretary of the Treasury, Office of Tax ~a1ysis

602
677
1,179
1,407

37.31.1
25.4
9.4
3.8

Total effect of proposed
tax laW' and OASI
benefit increases
Net after-tax

Tax increase due to
OASI benefit
increasks 1.IDder
proposed tax law 5

40
33
43
74
92

March 1, 1967

1/ Proposal to eliminate the retirement income credit and present age exemption, include in income social security benefits, and grant a new age exemption
- of $4,000 reduced dollar-for-dol1ar for income in exces's of $11,200 but not to go below one-third of social seturity benefits.
2/ Present income is AGI plus social security benefits ($1,53 1 average).
3/ Tax computation assumes standard or minimum standard deduction through $10,000 incomes, itemized deductions of 10 percent of income for incomes higher
- than $10,000.
4/ This is the tax that would apply to a ~axpayer under age 65 whose family situation is the same, married or single, and who receives an amount of income
- equal to the total income of the aged reduced by one-third of social security or railroad retirement as the case may be and has itemized deductions
equal to 10 percent of present income of the aged (Col. 1).
5/ $230, a 15 percent increase in social security income to $1,761.
~/ The age exemption phase-out accounts for an $88 tax increase being associated with a $230 increase in social security benefits. The effect on higher
incomes is not as great since the phase-out terminates at $14,613. At $14,613 and above taxpayers receive the $587 minimum age exemption equal to
one-third social security income after benefit increases.
The 37 percent tax increase is due to the age exemption phase-out. At $14,690 and above the age exemption is reduced to a constant $5 10 so tax changes
due to the reduction are increasingly smaller fractions of present tax liabilities.

Table A-4
Tax Changes Under Proposal For Taxpayers With Maximum Social Security
Benefits and Retirement Income

Single Individual, Age 65

(1)

(3)

(2)

(4)
:Differenc~

: Present
Present
incane 2

$ 2,000
3,000
5,000
6,000
7,500
10,000

12,500
15,000
20,000

50,000
100.000

Regular: in tax (£:
: tax -paid: over 65
: by~ tax-:
and
:under 65

'+ :
$

79
235

3 - 2
$
79

(5)

(6)

(7)

Tax under : Difference:
elderly : in tax of
proposal: over and
prior to ~ under 65
OASI
after
increases

79
235
326

211°

568

235
297

449
708
1,213

747
1,044
1,594

298
336
381

481
1,044
1,59 4

266

1,748
2,404

2,224
2,959

L.76

2,224
2,959
4 6OlO
18:9 7
47,813

0
0

4.0flh

l/,929

46,666

19~~6~
47,813

555

i,147

242

°
°0
°

Office of the Secretary of the Treasury, Office of Tax Analysis

y
y

!:.I

f;
11

(8)

(9)

change due to
proposed tax law
Percent
Percent
of
of
present
present
tax
incerne

(10)

(11)

(12)

Tax

°0
$-29

Tax increase due to
OASI benefit
increas~s 1.mder
proposed tax law 5

Total effect of proposed
tax law and OASI
benefit increases
Net after-tax
Net tax chan
incCJ!lle change

2~4-(11)

-10.7%

-0.6%

32
336
381

7.1
47.5
31.4

0·5
4.5
3.8

476
555

27.2
23.1

1~.1

1,147

2.5

·5

3.8
3·7
4
.0
1.1

$ 3
37
88 §
30
41
52

58
68
94
110

0
3

$244
241
236

120
366
422

124
-122
-178

528
'613752
1,072
1,257

-284
-369
-508
-828
-1,013

March 1, 1967

Proposal to eliminate the retirement income credit and present age exemption, include in income social security benefits and grant a new agE exemption
of $2,300 reduced dollar-for-dollar for income in excess of $5,600 but not to go below. one-third of social security benefits.
Present income is AGI plus so(Oia~ security bEr..efi,·,,· ($1,6~o maxllnwn).
Tax computation assumes standard or minimum standard deduction through $10,000 incomes, itemized deductions of 10 percent of income for incomes highEr
than $10,000.
This is the tax that would apply to a taxpayer under age 65 whose family ~ituation is the same, married or single, and who reCEiVEs an ~ount of income
equal to the total income of the aged reduced by one-third of social security, or railroad retirement as the case may be and has itemized deductions
equal to 10. percent of present income of the aged (Col. 1).
A 15 percent increase in the maximum primary social security benefit equals $244.
The age exemption phase-out accounts for an $88 tax increase being associated with a $244 increase in ~or.ial security benefits. The effect on tigher
incomes is not as great since the phase-out terminates at $7,275. At $7,275 and above taxpayers receive the $625 minimum age exemption Equal to onethird social security income after benefit increases.
The 48 percent increase is due to the fact that the increase in taxable income resulting from the inclusion of maximum sQcial security benefits and
the phase-out is a large fraction of present tax. At higher incomes the social security inclusion is a constant and hence an increasingly smaller
fraction of present tax.

........

Table A-5
Tax Changes Under Proposal For Taxpayers With.MaximumSocial Security
Benefits and Retirement Income !I
Married Couple, Both Age 65

(I)

(2)

(3)

(:22

(4}

:Differenc~

.(6}

Tax under
elderly
proposal
prior to

: Present
Regular: in tax (£:
: tax for : tax "paid: over 65
: elderly : .by· tax,- ;
and
Present
:
tax; :payers
;under 65
OAS!
income gj ; J2ayers ]JlJl}der E5!±/; .
increases

m-{2)
$

0
0

$ 82

368

78
299
696

515
760
1,187

437
461
491

1,124
1,524
2,549
-12,214
36,330

1,652
2,147
3,256
13,573
37,971

528
623
707
1,359
1,641

3,000
5,000
6,000
7,500
10,000
12,500
15,000
20,000
50,000
100.000

: Dil i"erence:
: in tax of
:over and
:under 65
after
:propos~l_

I \

(

(7)

(8)
(9)
T ax change due to
EroEosed tax law
Percent
Percent
of'
of
present
present
Dollars
tax
incane
I \ ( \

0
0

$ 82
368

28
222
586

487
538
601

1,256
2,147
3,256
13,573
37,971

396

132
623
707
1,359
1,641

°
0°
0

Office of the Secretary of the Treasury, Office of Tax Analysis

(10)
Tax increase due to
OASI benefit
increas~s under
proposed tax law 5

0
0
50
- 77
-110

-64.1%
-25.8
-15.8

-0.8%
-1.0
-1.1

11.7
40·9
27·7
11.1
4·5

1.1
4.2
3·5
2.7
1.6

(n)

(12)

Total effect of. proposed
tax law and OAS! .
benefit increases
Net after-tax

0
0

o
o

$ 367

46
50
66

$- 4
27

- 44

371
394
411

274
677
775
1,4i6
1,788

93
-310
-408
-1,109
-1,421

142 6/
54 63
117
147

3(,7

March 1, 1967

Proposal to eliminate the retirement income credit and present age exemption, include in income social security benefits and grant a new age exemption
of $4,000 reduced dollar-for-dollar for income in excess of $11,200 but not to go below one-third of social se~urity benefits.
2/ Present income is AGI plus social security benefits ($2,445 maximum).
3/ Tax computation assumes standard or minimum standard deduction through $10,000 incomes, itemized deductions of 10 percent of income for incomes higher
- than $10,000.
4/ This is the tax that would apply to a,taxpayer under age 65 whose family situation is the same, married or single, and who receives an amount of income
- equal to the total income of the agen reduced by one-third of social security, or railroad retirement as the case may be, and has itemized deductions
equal to 10 percent of present income of the aged (Col. 1).
5/ A 15 percent increase in the maximum primary and supplemental social security benefit equals $367.
b/ The age exemption phase-out accounts for a $142 tax increase being associated with a $367 increase in social security benefits. The effect on higher
- incomes is not as great since the phase-out terminates at $14,263. At $14,263 and above taxpayers receive the $937 minimum age exemption equal to
one-third social ~ecurity income after benefit increases.
.
11 The 41 percent tax increase is due to the age exemption phase-out. At $14,385 and above the age exemption is reduced to a constant $815 so tax changes
due to the reduction are increasingly smaJler fractions of present tax liabilities.

"-.:.

Table A-6
~AX

(1)

(3)

(2)

. (4)
:Differenc~

Present
incerne

Changes Under Proposal For Taxpayers With Maximum Social Securit,y
Benefits and Retirement Income
Married Couple; Husband Age 65, Wife Under 65

(5)

(6)

Tax under : Difference:

: Present
Regular: in tax cr: elLlerly : in tax of
: tax for : tax -paid: over 65
proposal: over and
: elderly : .by' tax-;
and
prior to : under 65
:
tax: :payers
:under 65
OASI
after
payers. ~~Qd-€r f8~: _ .
increases : propos9-1 ,

y :

(7)
(8)
(9)
Tax change due to
proposed tax law
Percent
Percent
of
of'
present
present
income
DOllars
tax

(10)
Tax increase due to
OASI benefit
increas~s under
proposed tax law 5

(12)

Total effect of' proposed
tax law and OASI
e

(3)~

$ 0
120
261

0
23

$ 244
244
221

8
-2
2

236
246
242

203
407
475
887
1,080

41
-163
-231
-643
-836

5,000

150

6,000
7,500
10,000

301
532
949

562
8ll
1,239

261
279
290

275
492
905

287
319
334

- 26
- 40
- 44

-8.6
-7.5
-4.6

-0.4
-0.5
-0.4

34
38
46

12,500
15,000
20,000
50,000
100,000

1,346
1,835
2,902
.12,894
37,151

1,712
2,207
3,332
13,703
38,134

366
372
430
809
983

1,468
2,207
3,332
13,703
38,134

244
0
0

122
372
430
809
983

9·1
20.2
11.4
6.3
2.6

1.0
2·5
2.2
1.6
1.0

81
35
45
78
97

0
0

$ 0

0
120
4n

$ 2,000
3,000

(11)

1)~0

120
271

- 10

-6.710

-0.210

°0

Office of the Secretary of the Treasury, Office of Tax bnalysis

$ 0

§j

March 1, 1967

1/ Proposal to eliminate the retirement income credit and present age exemption, include in income social security benefits and grant a new age exemption
- of $2.~OO reduced dollar-for-dollar by the amount which one-half of income exceeds $5,600 but not to go below one-third of social security benefits.
2/ Present income is AGI plus social security benefits ($1,630 maximum).
3/ Tax comrutation assumes standard or minimum standard deduction through $10,000 incomes, itemized deductions of 10 percent of income for incomes higher
-4/ This
than $10,000.
is the tax that would apply to a taxpayer under age 65 whose family situation is the same, married or single, and who receives an amount of income
- equal to the total income of the aged reduced by one-third of social security, or railroad retirement as the case may be, and has itemized deductions
equal to 10 percent of present income of the aged (Col. 1).
5/ A 15 percent increase in the maximum primary social security benefits equal $244. The wife does not qualify for any social security benefits and has
-

fl..!

no retirement income.
The age exemption phase-out accounts for an $81 tax increase being associated with a $244 increase in social security benefits. The effect on higher
incomes is not as great since the phase-out terminates at $14,550. At $14,55 0 and above taxpayers receive the $6 2 5 minimum age exemption equal to
one-third social security income after benefit increases.

vu
(~

Table A-7
Tax Changes Under Proposal For Taxpayers With Average Social Security
Benefits and Retirement Income

Married Couple, Husband Age 65, Wife Under 65

{2}

{1}

(3)

{42

(52
Tax under
Present
Regular : in tax c£: elderly
tax for : tax -paid: over 65
proposal
elderly : by' tax- :
and
prior to
tax-: ;payers ;under 65
OASI
12a:lers 31lJIld-er &5 !:J:
increases
O1-=r2)
~ifferenc~

:
:
:
Present
income gj :

$ 2,000
3,000
5,000

0
0
167

6,000
7,500
10,000

324
551
979

12,500
15,000
20,000
50,000
100.000

1,400
1,895
2,981
13,115
37,4]4

9
150
444

9
150
277

0
0
140

{6}
:Difference:
: in tax of
:over and
:under 65
: after
;propos~l

(

)

(

)

9
150
304

{7)
(8)
(2)
Tax change due to
proposed tax law
Percent
Percent
of'
of'
present
present
Dollars
tax
: income
I \ ( \

0
0
- 27

-16.2%

-0·5%

(10)

0
0
$20

597
851
1,278

215
492
905

322
359
373

- 49
- 59
- 74

-15·1
-10.7
- 7.6

-0.8
-0.8
-0·7

21
24
29

1,757
2,252
3,390
13,803
38,258

357
357
409
688
824

1,468
2,23 8
3,390
13,803
38,258

289
14
0
0
0

68
343
409
688

4.9
18.1
13·7
5.2

824

2.2

0·5
2·3
2.0
1.4
0.8

38
28
48
61

(12)

Total effect of proposed
tax law and OAS!

Tax increase due to
OAS! benefit
increas~s under
proposed tax law 5

273
300
299

Office of the Secretary of the Treasury, Office of Tax Analysis

(11)

0
0
7

151
151
158

- 28
- 35
- 45

179
186
196

118
381
437
736
885

33
-230

-286
-585
-73YMarch I.,. 1967

y
y

Proposal to eliminate the retirement income credit and present age exemption, include in income social security benefits and grant a new age exemption
of $2,300 reduced dollar-for-dollar by the amount which one-half of income exceeds $5;600 but not to go below one-third of social security benefits.
Present income is AGI plus social security benefits ($1,008 average). Wife does not qualify for any social security benefits and has no retirement income
computation assumes standard or minimum standard deduction through $10,000 incomes, itemized deductions of 10 percent of income for incomes higher
JJ Tax
than $10,000.
1:) This is the tax that would apply to a ~axpayer under age 65 whose family situation is the same, married or single, and who receives an ~mount of income
equal to the total income of the aged reduced by one-third of social security, or railroad retirement as the case may be and has itemized deductions
equal to 10 percent of present income of the aged (Col. 1).
A 15 percent increase in social security income of $151 brings it to $1,159.
The age exemption phase-out accounts for a $50 tax increase being associated with a $151 increase in social security benefits. The effect on higher
incomes is not as great since the phase-out terminates at $15,028. At $15,028 and above, taxpayers receive the $386 minimum age exemption equal to
one-third social security income after benefit increases.

-A.

TREASURY DEPARTMENT

March 1, 1967

bills (to maturity date) to be issued March 9, 1967,
in the amount of $1,300,000,000, or thereabouts, representing an
additional amount of bills dated December 8,1966, and to
mature June 8, 1967,
originally issued in the amount of
$1,000,599,000, the additional and original bills to be freely
interchangeable.
182 -day bills, for $1,000,000,000, or tt1ereabouts. to be daten
March 9, 1967,
and to mature September 7, 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 Standard
time, Monday, March 6, 1967.
Tenders will not be
received at the Treasury De~artment, WaShington. Each tender must
be for an even multiple of $1,000, and 1n 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 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 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-831

- 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 prke
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 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 March 9, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing March 9, 1967.
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 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 t~e 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 tM
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (currer:: revision) and this
notice prescribe the terms of the Treasury bil L, and govern the
conditions of their issue.
Copies of the circular may be obtained from
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
9

FOR IMMEDIATE RELEASE
RHODESIAN TRANSACTION REGULATIONS
The Treasury Department announced today it has issued
regulations governing trade with Southern Rhodesia, under an
Executive Order of January 5, 1967, by President Johnson.
The Rhodesian Transaction Regulations prohibit, unless
licensed by Treasury:
Imports into this country of Rhodesian products
named in a U.N. sanctions resolution of December 16~
1966. These Rhodesian products include asbestos,
hides, skins and leather, meat and meat products,
chromium, copper, iron ore, pig iron, sugar,
tobacco and certain by-products items,wherever made.
Dealings abroad in these products by Americans and
by Rhodesian subsidiaries of U.S. firms.
Exports from abroad to Rhodesia, by Americans, of
arms, aircraft, oil, motor vehicles, and some
other products not of U.S. origin, directly or
through a third country for transhipment to
Southern Rhodesia.
(Control of exports of arms and other goods of U.S. or~g~n to
Southern Rhodesia falls under export controls exercised by the
State and Commerce Departments).
Penalties for violation of the regulations call for imprisonment
for not more than 10 years, a fine of not more than $10,000, or both.
The Treasury said that in line with the President's Executive
Order of January 5, it would license imports or other dealings in
the products involved which had been exported from Southern
Rhodesia prior to December 16, 1966. In addition, it said it
would in general license in those cases where payment had been
made by Americans prior to January 5, 1967. This provision was
made to avoid cases of undue hardship arising from transactions

F-832

- 2 -

made before the date of the Executive Order. Applications for
such licenses must be filed with the Federal Reserve Bank of
New York.
The Rhodesian Transaction Regulations apply only to the
products mentioned and related financial and commercial
transactions.

000

TREASURY DEPARTMENT

March 1,
t IMMEDIATE RELEASE

TREASURY OFFERS ADDITIONAL $2.7 BILLION IN JUNE TAX BILLS
The Treasury Department, by this public notice, invites tenders for
,700,000,000, or thereabouts, of 101-day Treasury bills (to maturity
:e), to be issued March 13, 1967, on a discount basis under competitive
1 noncompetitive bidding as hereinafter provided.
The bills of this
~ies will be designated Tax Anticipation Series and represent an
litional amount of bills dated October 18, 1966, to mature June 22, 196~
Lginally issued in the amount of $2,006,632,000 (an additional
)0,885,000 was issued December 12, 1966). The additional and original
LIs will be freely interchangeable. They will be accepted at face
Lue in payment of income taxes due on June 15, 1967, and to the extent
~y are not presented for this purpose the face amount of these bills
Ll be payable without interest at maturity. Taxpayers desiring to
)ly these bills in payment of June 15, 1967, income taxes have the
Lvilege of surrendering them to any Federal Reserve Bank or Branch or to
~ Office of the Treasurer of the United States, Washington, not more
in fifteen days before June 15, 1967, and receiving receipts therefor
)wing the face amount of the bills so surrendered. These receipts may
submitted in lieu of the bills on or before June 15, 1967, to the
)trict Director of Internal Revenue for the District in which such taxes
~ payable.
The bills will be issued in bearer form only, and in
lominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000,
1 $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to
~ closing hour, one-thirty p.m., Eastern Standard time, Tuesday,
~ch 7, 1967.
Tenders will not be received at the Treasury Department,
,hington. Each tender must be for an even multiple of $1,000, and in
~ case of competitive tenders the price offered must be expressed on
~ basis of 100, with not more than three decimals, e.g., 99.925.
lctions may not be used. It is urged that tenders be made on the printed
~s and forwarded in the special envelopes which will be supplied by
leral Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
ltomers provided the names of the customers are set forth in such
tders. Others than banking institutions will not be permitted to
)mit tenders except for their own account. Tenders will be received
:hout deposit from incorporated banks and trust companies and from
:ponsible and recognized dealers in investment securities. Tenders

- 2 from others must be accompanied by payment of 2 percent of the face 4IIo~
of Treasury bills applied for, unless the tenders are accompanied by 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 t:
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 Standard time, Tuesday, March 7, 1967.
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 rangeoi
accepted bids. Those submitting tenders will be advised of the acceptant
or rej ection thereof.
The Secretary of the Treasury expressly reserves
the right to accept or rej ect any or all tenders, in whole or in part,
and his action in any such respect shall be final.
Subject to these
reservations, noncompetitive tenders for $400,000 or less without stated
.price from anyone bidder will be accepted in full at the average price
(in three decimal s) 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 March 13,
1967, provided, however, any qualified depositary will be permitted to
make payment by credit in its Treasury tax and loan account for not more
than 50 percent of the amount of Treasury bills allotted to it for itsell
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 tht
Internal Revenue Code of 1954. The bills are subject to estate, inhff"
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 thereof by any State, or any of the possessions of the United
States, or by any local taxing authority.
For purposes of taxation ~E
amount of discount at which Treasury bills are originally sold by the
United States is considered to be interest. Under Sections 454 (b) a~
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 a
excluded from consideration as capital assets. Accordingly, the owner ~
Treasury bills (other than life insurance companies) issued hereunder 7.:
include in his income tax return only the difference between the pr~e
paid for such bills, whether on original issue or on subsequent purcha::
and t~e amou~t actually received either upon sale or redemption at
"
matur~ty dur~ng the taxable year for which the return is made
as ordl~~
gain or loss.
'
T:;:'easury Department Circular No _ 418 (current revision) and this ~c:
pre ~cr~be the terms of the Trea sury bills and govern the conditions 'ot
thelr issue.
Copies of the circular may be obtained from any Federal
Reserve Bank or Branch.
000

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
COSTS OF PRINTING CURRENCY REDUCED
The Treasury said today that its Bureau of Engraving
and Printing has got the cost of printing United States
currency down to less than nine tenths of a cent per note.
And -- thanks to technological improvements in printing
processes -- the cost should go even lower during the
next two years.
During Fiscal Year 1966 the Bureau delivered
2,281,648,000 currency notes at a cost of $19,208,344.
This price included material, labor and overhead. The
resultant unit cost, $8.42 per 1,000 notes, compares with
$9.92 per unit cost in Fiscal Year 1951.
The Bureau, on the basis of current
believes it can reduce this unit cost to
current 1967 fiscal year which ends June
drop even lower -- to $8.11 -- in Fiscal

cost information,
$8.30 during the
30. It should
Year 1968.

The Bureau has converted from flat bed printing presses
to modern high-speed rotary presses, contributing to cost
reduction in printing currency.

000

F-834

TREASURY DEPARTMENT

March 1, 1967
FOR Il-'ll,1EDlATE RELEASE

SALE OF TAX ANTICIPATION BILLS

The Treasury Department announced today the sale of $2.7 billion of
tax anticipation bills maturing in June 1967.

The bills are in addition to

the $2.8 billion of June tax bills already outstanding.
The bills will be auctioned on Tuesday, Ivlarch 7, for payment on Monday,
Harch 13.

Commercial banks may make payment of up to 50 percent of the amount

of their own and their customers' accepted tenders by credit to Treasury tax
and loan accounts.
The bills mature on June 22, 1967, but may be used at face value in payment of Federal taxes due on June 15, 1967.
The Treasury indicated that after this sale of tax bills it contemplates
no further open market borrowing to raise new cash durinG the balance of this
fiscal year.

000

F-835

TREASURY DEPARTMENT
March 3, 1967
FOR IMMEDIATE RELEASE
UNITED STATES FOREIGN GOLD TRANSACTIONS IN 1966
Monetary gold transactions between the United States and
foreigners in 1966 resulted in net sales amounting to
approximately $431 million.
As shown in Table I attached, aggregate purchases by
France totaled about $601 million, all of which took place in
the firstnine months of the year. In the absence of these
sales to France and of $141 million in sales for domestic uses,
the United States gold stocks would have shown a net increase
from all other monetary gold transactions of $170 million for
the year.
During the fourth quarter U. S. net gold sales to
foreign countries amounted to $86 million, and sales to domestic
users to $35 million. Fourth quarter transactions included
the sale of $60 million of gold to Italy, which restored
Italian gold reserve holdings to their approximate level at the
beginning of 1966.
Data in Table II attached, show transactions with member
countries of the International Monetary Fund associated with
payments of the gold portion of their quota increases. Sales of
gold for this purpose are deposited by the International
Monetary Fund with the United States and the effects upon the
U. S. gold stock of the quota increases are mitigated. No further
transactions took place in the fourth quarter.

000

F-836

TABLE 1

UNITED STATES NET Ua.lETARY GOLD TRANSACTIDI'JS WITH
FOREIGN COUNTRIES .AND INTERNATICHAL INSTITUTIDI'JS
January 1, 1966 - December 31, 1966
(In millions of dollars at $35 per fine troy ounce)
Negative figures represent net sales by the
United States: positive figures, net purchoses
Third
Fourth
Second
First
Quarter
Quarter
Quarter
Quarter
1966
1966
1966
1966
Afghanist.:m
-1.2
Argentina
Brazil
-0.9
+100.0
Canada
Ceylon
-0.1
Chile
Colombia
+7.0
Costa Rica
-0.1
Denmark
-5.0
Dominican Republic
-0.1
Egypt
-1.1
France
-102.9
Greece
Haiti
*
Honduras
*
Irel&nd
-0.4
Italy
Jamaica
-1.0
Lebanon
-10.8
Liberia
-1.2
Mexico
Nicaragua
-1.0
Pakistan
-0.2
Philippines

-1.5

-3.0

-0.1

-1.5
-0.4
-0.1

*
*
-220.7

-0.1

-0.8

+7.0
-1.4
-0.1
-0.5
-18.9
-0.1
-0.9
-0.1

-277.3

+9.6

*
*
-0.9

-0.6
*
*

-0.4
-60.0

-0.1

*
-0.2

-0.1
-0.2
-2.5
-0.1
-2.5
-20.0
-0.2
-0.1

-D.l

Sudan

Surinam
Switzerland
Syria
Tunisia
Turkey
United Kingdom
Uruguay
Yugoslavia
All Other

-0.1
-10.6
-0.5

+50.0

-0.5
-10.9
-0.6
+50.0

-1.9

+11.0
-0.2
-1.5
-1.8
-7.2
-0.1
-0.6
-0.1

+126.0
-0.1
-0.6
-0.1

-143.5
-167.2
Total
-34.0
Total U. S. Gold
-173.2
-208.6
Outflow:
-68.3
(Inc luc.ing dor::es( -29.7)
tic transactions of: ) (- 34. J) (-41.4)
Figures may not add to totals due to rounding.
*Less than $50,OCXJ.OO.

-0.1
+10.0
-0.1
-0.2
+10.0
0.1

Calendw:'
Year
1966
-3.7
-21.5
-2.8
+200.0
-0.1
-6.0
+6.6
-0.4
-5.0
-0.3
-1.1
-600.9
+9.0
-0.1
-0.1
-1.7
-60.0
-1.0
-10.8
-1.5
+10.0
-1.2
-0.8
+7.5

-0.3

-0.1
-0.7
-0.1

-2.5
-2.0
-2.0
-1.8
-12.5
+79.8
-0.4
-2.8
-0.4

-85.9

-430.6

-121.0

-571.2

(-35.1)

(-14 0•6 )

-0.2
-0.1
-10.2
-20.1

4")UTABLE

UNITED STATES 1-.10N1t.1'ARY GOLD TRANSACTICNS ;'lITH FOREIG~ COUNTRIES
MITIGATED THROUGH SPECIAL DEPOSITS BY TH2 D.1F
(Millions of U.S.$)
1966
Fourth
Second
Third
First
Quarter
Quarter
Quarter
Quarter
Country
-0.8
Algeria
-17.5
N
Argentina
-25.0
Austria
-0.2
Cameroon
-0.1
Central African Republic
-4.0
Ceylon
-0.1
Chad
-0.6
Congo (Kinshasa)
0
-1.3
Costa Rica
-0.1
Dahomey
-B.3
Denmark
Dominican Republic
-0.4
-1.3
Ecuador
-1.0
Ethiopia
-0.1
Gabon
-10.0
Greece
N
-1.0
Guinea
-0.2
Haiti
-1.0
Honduras
-4.0
Iraq
-0.2
Ivory Coast
-1.5
Jamaica
-56.3
Japan
E
-1.3
Korea
-1.0
Liberia
-1.0
Malagasy
-1.0
Mali
-0.1
Mauritania
-0.9
Morocco
-1.0
Nicaragua
-0.1
Niger
-B.B
Philippines
-0.1
Republic of Congo (Brazzaville)
-0.2
Rwanda
-0.9
Somalia
-3.0
Sudan
-18.7
Sweden
-2.0
Syria
-l .. B
Tunisia
-0.1
Upper Volta
-0.3
Vietna'TI.
-28.6
-17.9
-130.7
IarAL
+28.6
+17.9
+130.7
IMF DEPOSIT
TOTAL

GRAND TOIAI.

1966
1965

+177.2
+34.3
211.5

TREASURY DEPARTMENT

RELEASE 6:30 P.M.,
day, March 6, 1967.
RESULTS OF TREASURY'S WEEKLY BILL OFFERrnG
The Treasury Department anno·-.mced that the tenders for two series of Treuury
11, one series to be an additional issue of the billa dated December 8, 19bG, and the
er series to be dated March 9, 1967, which wwre offered on March 1, 1967, were
ned at the Federal Reserve Banks today. Tenders were invited for $1,300,000,000,
thereabouts, of 91-day bills and for $1,000,000,000, or thereabout., of IB2~
.18. The details of the two series are as follows:

ACCEPI'ED
PETITlVE BIDS:

91-day Treasury bills
m&turing June 0, 1967

iGE OF

Ib2-day Treasury bills
maturing Septamber 7, 1967
AFprox. Equiv.
Price
A.;mual Rate

----------~~--~~~~Approx. EqL.i.iv.

PriCE;

h.nnuti Rate

98.915
98.892
98.902

iiigh

Low
Average

4.292%
4.383%

4.341.%

·•
~/

97.830
97.792
91.80'

4.292%
4.367%
_.340%

44% of the

amoll.'1t of 91-ctay bills bid for at the low price was accepted
14% of tLe aalount of lJ2-da;y bills bid for at the low price was accepted

Jistrict
30aton
~ew York

AEP1ied For

San Francisco

24,664,000
1,3.56,706,000
25,209,000
47,551,000
17,115,000
55,166,000
312,256,000
60,990,000
19,099,000
26,520,000
23,953,000
118,I+g3,,000

TOTALS

~p2,Oi)7, 712,000

Philade1phi.
::leveland
=1.ichillond
AUanta
Chicago
St. Louis
Minneapolis
Kans.as City

Dallas

Accepted

AEElied For

Accel,:ted

1,809,000
$
1,221,618,000
12,329,000
22,978,000
8,646,000
36,700,000
216,782,000
39,992,000
12, A) 4, 000
9,502,000
16,977,000
135,636,000

14,664,000

779,986,000
12,759,000
1.~4,551,OOO

11,115,000
50,166,000
137,200,000
51,990,000
1,,099,000
26,070,000
21,953,000
118,48),OOO

·
·

$1,300,036,000 :/ $1,801,181,000

7,809,000
633,218,000
4,329,000
22,978,000
8,646,000
31,708,000
81,182,000
39,492,000
12,204,000
9,502,000
12,971,000
135,636,000

$1,000,281,000

Includes $260,423,000 noncompetitive tenderi accepted at the average price of 98.~2
Includes $108,423,000 noncompetitive tenders accepted at the average price of 97.806
These rates are on a bank discount basis.

The equivalent coupon issue yields are

4.47:t for the 91-day bills, 2'ld 4.51% for the l82-day bills.
F-837

45
ADDRESS OF THE HO\JORMLE ROBERT A. v/ALLACE
ASSISTN~T SECRETARY OF TREASURY
BEFORE THE U. S. SAVINGS B()!\lD LUNCHEON
LELAt\JD MOTOR HOTEL, SPRINGFI ELD, I LU['JOI S
MARCH 7, 1957

THE OVERALL PERFORi'14J\1CE OF THE NATIONAL
TO OUR EARLY J,l\NUARY EXPECTATIONS.

CQ\!SU~1ER

ECONO~~Y

IS IN GENERAL CQ\!FORl'-tllNCE

SALES ARE RUNNING LO\I/ER, BUT

HOME CONSTRUCTIONAJ'JD INVENTORY PURCHASES ARE HIGHER TH,l\N 'dE HAD PROJECTED.
RECENT PRIVATE SURVEYS AND THE HEAVY DEtv1A!\lD FOR CORPORATE BORRO'tIiNG LEAD
US TO EXPECT NO HA.JOR SURPRISE IN BUSINESS INVESH'1ENT INTENTIONS.
THE CONTINUED HIGH RATE OF INVENTORY ACCUr'1ULATION HAS BEEN
BY SOME AS A DISAPPOINTl'-1ENT.

VIE\~ED

vJHILE THIS PR08ABLY ,..,lEANS LESS DEfv1.l\.t\lD FOR

PRODUCTIO'-l IN THE FUTURE THERE ARE, NEVERn-iELESS, THO HEALTHY FACTORS:
(1) THE DEPRESSING EFFECT OF LO,/ER CURRENT CCNSUt·1ER SALES IS OFFSET, N\ID

(2) THE PRICE PRESSURES EXPECTED LATER THIS YEAR \'JILL BE Iv'ODERATED BY l.ESS
NEED TO INCREASE INVENTORIES.
OF COURSE, THOSE OF US HHO STUDY ECONm-1IC TRENDS POSSESS NO POdERS TO
FORESEE ALL EVENTUALITIES.

IN THE ABSENCE OF SUCH PO'tlERS, \'iE MUST DEPEND

ON THE SIMPLE TOOLS OF LOGIC AND THE BEST STATISTICS vJE C.AN MUSTER.

THUS,

WHILE CO\lSUMERS ARE NOT CURRENTLY BUYING AS f.1UCH AS v,lE THOUGHT THEY \vOUlD,
THE FACT REW\INS THAT PERSONAL INCmJIE 1S HIGH ,£lIND GROVI1NG "fELL.

SINCE

THE PUBLIC IS ACQUIRING FElt/ER AUTOMOBILES A"JD HOUSES, PEOPLE OBVIOUSLY ARE
SAVING MORE, AS EVIDENCED BY THE RISE OF ACCOUNTS IN THE NATION'S THRIFT
INSTITUTIONS.

SO THE BUYING POHER IS THERE AND HE f'1UST STILL EXPECT A

RESU"1PTION OF A HIGHER RATE OF HIGH ACTIVITY IN THE SECO>m HALF OF 1967.

- ? -

THIS LEAV[S

UI'KH/~\lGED

OF A [, PER CENT TA0
SHOULD BE tv'v'I.DE UP,
THAT ARE STILL VERY

THE CALCULUS UPO\j \!HICH l'iE S,L\SED OU2 PRorOS/\L

SURCH/\~GE,
~lO\.'J,

EFFECTIVE t\T

~IID-yc!\R.

l'lE DO :·!OT H-mW

AGAH-lST THIS PROPOSAL UPO\l THe SASIS OF

F~f~ASO:1A[3LY

CLOSE TO THOSE

UPO~'l

\-/HICH THE

r·n~ms

D:'::W::LOPi',c:~ns

~![ED

FOR A HID--

YEAR TAX INCREASE \-IAS PROJECTED: A SLUGGISH FIRST HALF DLJRIt-1G v/HICH STf/V'i
GATHERS FOR A PI CK-UP IN TilE SECOND Hr'\LF.
EXTRA DEFENSE COSTS

8E FU'!NICED

~/IUsT

PERHAPS vIE COULD HAVE BEEN AE3LE TO GET THROUGH A

CO;·'i?/\RATIV~LY

PERIOD OF HEAVY DEFENSE EXPEr--1DITURES ViITHOUT TAX INCREASES.
NEVI TAX INCREASE IS

RECOi/~'}ENDED

BRI EF

BY THE TIHE THE

TO TAKE eFFECT, HO'.-!EVER, VIE I'JI LL HP,VE KAD T\-/O

YEARS OF THESE EXPEf·mITURES Nm THEY WILL CONTINUE TO RISE AS THE FISCI\l_ 1968
BUDGET SHO''!IS.

NEXT SUt"w'1ER, THEREFOR:'::, THE TH"i:::

TAg FOR THE FISCAL 1968 INCREASES.

~'iILL

CQi\'C TO PICK UP THE

IF I'/E FAIL TO DO SO, BUDGET DEFICITS HILL

GROll) BEYOND THE BOUNDS OF PRUDENCE AND NE\'! If'JFLATIOr-.!ARY FORCES VII LL BE U\lLEASHED.
WE ARE HOPEFUL THAT IT \'II LL NOT BE NECESSARY TO EXPERIENCE
PRESSURES BEFORE ACTIO\! Q'J THE TAX PROPOSAL C,l\f"J

r~E\'1

TAKEN.

THERE HAS BEEN sor·1E TALK THAT PERHAPS CIVILIAN EXPENDITURES
BY $5-1/2 BI LLIQ\l, THE A~OUNT OF THE TAX INCREASE.
WOULD ALL BE HI\PPY.

INFLATIOI'J.t;RY

CN~

BE CUT

\'IERE THI S POsS I BLE, VIE

HO:JEVER, THE PRES I DE~n HAS .D..LREADv PARED CIVI LINI

EXPENDITURES TO t\ POINT \-JHERE FURTHER REDUCTIONS OF $5-1/2 BILLION \,,rOULD C/I.USE
REAL

D~_GE

A POINT
THEM.

TO VIT/\L PROGRAJ'1S.

~"'HERE

THAT

~II

THE PRES I DENT HAD CUT THE BUDGET LAST

YEA~

CO\JGRESS, RATH2:R THf'oJ'J SLICING THE REQUESTS, ACTUALLY .ADDED TO
LL BE A PR03LEt-1 THIS YEAR, TOO.

EXPEt~DITURES ~1UST

BE HELD DO'..lN

TO BUDGET LEVELS DURING THE COJ''1ING FISCAL YEAR, OR THE ANTI-HlFLATIO\lARY T/\,X
fv1EASURES vllLL BE AT LEAST PARTIALLY NULLIFIED.

- 3 -

DURING THE PAST 20 YEARS OUR COUNTry HAS
REDUCI~

~·1JI,DE

GREAT STRIDC:S ItJ

THE BURDEN OF THE NATIOi\jI\L DEBT VklICH HAD GRO\'/N TRU'H;DOUSLY

DURING HORLD VJAR I I.
PRODUCTIO~L

19L~G,

THE DEBT REPRESENTED 1341'6 OF TOTAL NATIONAL

THIS RATIO HAS BEEN I'JHITTLED DOI.'N TO AN ESTIi'"\.'\TED 41 % IN

FISCAL 1958.

IN SIZE, IT HAS GROI·1N ABOUT 19% SINCE 1946, 'tIHILE CORF)ORATE

DEBT HAS RISEN BY 4 Lt0 9oj STATE AND LOCAL DEBT BY 550% At\m THE DE8T OF
INDIVIDUALS BY 710%.
THIS RECORD OF HOLDlt\G DO\'i'N THE DEBT HUST BE CONTINUED.
IS A 6% SURCHARGE TO Flf\lANCE ADDED DEFEf\lSE SPENDH~G ASKIN:; TOO fvlUCH
OF AMER I CAI\!S?

HERE VIE SHOULD BEAR IN l'<11 ND TI'/O PO I NTS :

PRESIDENT JOHi\lSON'S TAX REDUCTIO'~ PROGRt,'v\S OF 19G4 JlND 1955

REDUCED OUR TAX PAYI"lENTS BY $20 BILLION AT CURRHH INCa'\E LEVELS.
A 6% SURCH/-\RGE HOULD REDUCE THIS TAX SAVING TO $15 BILLIO'L

THREE-FOURTHS

OF THE TAX CUT v!OULD REfvtAIN IN FORCE.
2.

AMERICA1\lS ENJOY THE LO'..:EST TAX BURDEN OF ANY MAJOR INDUSTRIAL

COUt\JTRY IN THE \oJORLD -- AND THIS INCLUDES TAXES LEVIED AT ALL LEVELS OF
GOVERNMENT.

TilE ESTIt1tl.TES OF THE ORGNHZATION FOR ECONO'1IC COOPERATION AND

DEVELOPfv1ENT SH0\1 THAT AS A PROPORTION OF TOT.4L NATIONL\L PRODUCTION, FRENCH
CITIZENS PAID 38.5% H~ TAXES; GERJ~1AJ\IY, 3l f.4%;

ITALY, 29.6 90; GREAT BRITI'. . IN, 28.6 95;

AND THE U.s." 27.3%.
THESE FIGURES ARE NOT CITED TO IMPLY THAT N/,ERICANS ARE

HAVI~K;

IT EASY.

THE MAIN PURPOSE OF THE 1964 AND 1965 TAX CUTS HAS TO PErJ·1IT THE PRI VATE
SECTOR OF OUR ECONQ\1Y TO FLOURISH BY ALLEVIATING THE BURDEN OF HIGH T,nXES.
BUT THE FIGURES DO

SHOl,~

THAT \'JE CA"J AFFORD TO PAY FOR OUR RISING DEFENSE

COSTS AND KEEP OUR ECONO'·1Y HEALTHY.

- 4 --

RE CENT ECOI'Kli'·1
I C pr·~(1Gr~ES S
-----------OUR NATION I-I;\S TOO HUCH AT STAKE TO RISi<
FAR FRO"1 PERFECT, VIE HAVE GREATLY It..JCREASED

H~FLATIO~lr\RY

OUf-~

EXCESSES.

ilHILE

KNOI/ILEDGE OF ECCNO"HC

PHENO\1ENA I"vf\JD \'JE MUS T HAVE THE COUR!\GE TO i,tM-E USE OF Til I S KNOI/LEDSE.
THE EN'\CT1'-1ENT OF THE EHPLOYi-1HJT P,CT IN 194G V/P..5 A HI LESTO~'~E
COUNTRY f S POll T I CAL ftND
DEAL MORE IN THE

ECO~la'11

INTERVENI~G

C DEVELOP;vlENT,

21 YEARS.

AI~D

OUR

VIE HAVE LEA.RNED A GREAT

Tt-It: FI",CT THAT

ECOf~O"lIC

STAGNATIOi\j

MARKED THE 1950'S, AS H~DICATED BY THE RECORD OF THREE RECESSIor'-JS, SLUG(:ISH
CROlllTH AND, AT THE SN1E TIhE, THE V!ORST PE,..,\CETH·iE INFLATION YEARS IN RECENT
HI STORY, HAS SO\tETHING TO DO HI TH THE FP,cr THAT r1ANY OF THE ECOj\lO\HC TOOLS
WE HAVE EMPLOYED IN THE S IXTI ES vn TH CONS IDERA8LE SUCCESS \'JERE THEN Oi\jL Y
THEORIES.

EVEN TODAY THESE ARE STILL BEING Ii'HJROVED UPOhL

VIE I-V-\vE LEARi£D
SI~1PLY

THAT DEALJI.!G vlITH THE BUSINESS CYCLE INVOLVES t,1UCH MORE THAN
FOLLO\'lING THE CONVENTIONAL APPROACH TO CQ-iPENSATORY

MO~lETARY

AND FISC,'\L

POLICIES imlCH IN PRACTICE HAS tv1EANT HAINLY RELIANCE ON THE SO-CALLED
AUTOVtATIC STABILIZERS.
THE KEY POLICY DEVELOPr1ENTS IN THE SIXTIES \'1ERE THE
REDUCTIONS OF 1962, 1964 AND 1955.

EVEN BEFORE THE VIET

EXPANSIOr~ARY

t~Nl

TAX

ESCALATI ON,

THESE POLICIES t1ADE POSSIBLE ~N ENVIRONHENT FAVORABLE TO 4-1/2 YEN6 OF
UNINTERRUPTED PEACETIiv1E ECONO"lI C EX PANS 10:'J -- THE LONGEST AND

STROi~GEST

IN HISTORY -- WITH THE tvtOST STABLE PRICES OF Al'JY INDUSTRIALIZED NATION IN
THE

\~ORLD.

LAST YEAR, WITH THE HEAVY BURDEN OF VIET NPI'1, DEFINITE ANTI·~INFLATIOt~ARY
POLICIES BECA"lE NECESSARY.

THESE \'!ERE CARRIED OUT \'/ITH r",ODEPJ-\TE P-ESTRAIIH

IN NON-DEFENSE EXPENDITURES AND t-1EASURES HHICH RAISED REVEt-\UES BY SPEEDH!G

49
- 5 UP TAX COLLECTIONS

N~D RESTORlf\~G

CERTAIN EXC I SE Trl\X REDUCTI O(~S.

ACTION BECAVlE NECESSARY LAST SU'-lt1[R AND IN

SErJTEt~BER,

ADDI TIOi'JAL

THE PRESIDENT P;:OPOSED

A $3 BILLION CUTBACK IN NE~'/ CIVI LIAI'J SPENDH,JG PROGP,6j'1S AND A TB·1PORARY
SUSPENSION OF THE INVESTHENT TAX CREDIT.
THESE f-1EASURES

~':ERE

EFFECT! VE.

THE AVERi\GE LEVEL OF CCNSUv1ER PRI CES

ROSE 2.9 PER CENT BET\'/EEN 1965 J1ND J 9GG -- LESS TH/\N SEr,':EEN THE PEACET!fvlE
YEARS 1956 AND 1957.

THI S PRICE INCR[ASE CO'~PARES VERY FAVOR6,BLY vII TH

THOSE IrIHICH OCCURRED IN OTHER f'LAJOR COUNTRIES \'IHICH
PRESSURES OF INTENSIFIED DEFENSE spalDING.
N.Af.1

a'~

\'~ERE

NOT SUBJECT TO THE

COi'JSIDERING THE BURDEN OF VIET

TOP OF A FULL Et'lPLOYHENT ECONO\1Y, A PRJ CE HlCREASE OF LESS THMJ 3

PER CENT CAN ONLY BE CHARACTERI ZED AS A

RE~''ARKAL3LE

PERFOPJ·tL\J\JCE.

GROSS NATI O~JAL PRODUCT JLHPED $S8 BI LLIOi~ OVER 1955 -- AN INCREASE
OF 8-1/2%.

EVEN AFTER ADJUSTING FOR THE UN1;iANT[D PRICE INCREASES THE

REAL GAIN "lAS 5-1/2% -- BETTER THAN OCCURRED IN THE (vI/\JOR COUNTRIES OF EU~OPE.
UNEMPLOYHENT STAYED AT OR BELO':! 4% ALL YEAR.

TOTAL

ca..jPE~JSATION

OF H1PLOYEES

AND NET INCQ\1E PER FAR1'1 ROSE 10% ~'!HILE CORPOP/-\TE PROFITS CLHtlBED 8%.
NOR HAVE THE DISADVANT;\GED BEEN LEFT BEHIND.

UN8tlPLOYHENT Nv10f'\G NEGRO

MEN h'HI CH HAD REACHED 12% IN 1961 FELL TO LESS Tf-1A"J 5%.

DURING THE SA'''lE

6-YEftR PERIOD, THE NL1'1BER OF AREAS OF SU3STNHIAL UNEt"1PLOYI"IENT DECliNED
OVER A HlNDRED TO EIGHT AND THE NLJ"1BER OF N·1ERICANS

7 MI LLION.

tt\EAN\'/HI LE, PRODUCTIVITY J OR OUTPUT PER

I1~
~'tPN

FRCiv~

POVERTY FELL BY NE,6RLY
HOUR LEAPED 19 PER

CENT AI\[) $220 BILLION HORTH OF BUILDWGS, EQUIPi'tlENT, IHPROV5'v1ENTS AND
INVENTORY WERE ADDED TO OUR GROSS STOCK OF PRIVATE PRODUCTIVE

CAPIT.~L.

~II

..JV

- 6 OF COURSE, MUCH REMAINS TO BE Da~E.

EVEN A 2.9 PER CENT PRICE INCREASE

IS TOO MUCH AND THIS RATE MUST BE BROUGHT DOvJi'l.

MOREOVER, HHI LE MOST OF

THE 3 MI LLION JOBLESS PERSONS AT THE END OF THE YEAR COULD BE CALLED
"FRICTIONALLY UNEtvlPLOYED," THERE ARE ABOUT ONE ~lILLION ~'JORKERS h1HO FIND IT
EXTREMELY DIFFICULT TO FIND A STEADY JOB.

THESE ARE THE "HARD CORE"

\J\lEMPLOYED -- LACKING SKILLS; THE VICTIMS OF DISCRIMINATION; THOSE

UN~~ILLING

OR UNABLE TO lvtOVE TO NE\'J AREAS AND OCCUPATIONS; THE PHYS I CALLY OR EMOTI ONALLY
HANDICAPPED.

FLJRTHER, EVEN N-1Qi\lG THOSE EMPLOYED SQ\1E 2 MI LLION

BREADyJIN~JERS

DID NOT EARN ENOUGH TO SUPPORT A MINIMLJv1 STANDARD OF DECENT SUBSI STENCE.
HQ\1E CONSTRUCTION, THE SECTOR OF THE ECONOMY HARDEST HIT BY TIGHT
MONEY LAST YEAR, IS STILL IN A DEPRESSED STATE, ALTHOUGH THERE ARE SIGNS
THAT RECOVERY IS LNDERHAY AS t10NEY CONDITIO\lS EASE.
MOVING INTO 1967, VIE SEE EVIDENCES THAT THE ECQi\lOMY IS NOT NEARLY SO
BOQ\1ING AS IT WAS A FEVI MONTHS AGO.

YET, UNEMPLOY1'-1ENT REt-1AINS Lm,!, STATE

AND LOCAL EXPENDITURES CONTINUE A HEALTHY RISE AND DEFENSE SPENDING IS
EXPECTED TO CONTINUE CLIMBING.
THE PRESIDENT'S NEH BUDGET
IN

DETE~"'INIi'~

THE BEST FISCAL POLICY IN HIS BUDGET FOR FISCAL 1958, THE

PRESIDENT CONFRONTED A DI LEt'il'tIA.

THE ECONC'MY CLEARLY NEEDED MI LD STIMULATION

IN THE EARLY fv10NTHS OF THIS CALENDAR YEM, IN ORDER TO PERMIT ECONOVlIC
ADJUSTMENTS SUCH AS ALLO'dING TIME FOR EASIER CREDIT CONDITI()!\!S TO RESTORE
HOUSING.

YET WITH DEFENSE SPENDING CONTINUING TO RISE, ALONG WITH STATE

AND LOCAL ACTIVITY, AND HIGHER SOCIAL SECURITY BENEFITS BEGINNING AT MID-YEAR,

- 7 THE DEGREE OF STIMULATION HOULD CLEARLY NEED TO TAPER OFF.

THE PROBLEM

\~AS

SOLVED BY RECC1vMENDING A NE\l/LY DEVELOPED TAX POLICY -- FLEXIBLE ENOUGH
TO PERI'lIT ADJUSlMENTS BUT EFFECTIVE ENOLGH TO CONTAIN THE PRESSURES OF THE
ADDED DEFENSE SPENDING DURING THE FISCAL YEAR BEGINNING NEXT JULY.
THUS 1 THE PRESIDENT'S

RECa~~ENDATIONS

CALL FOR A MODEST NATIONAL

INCO~E

BUDGET DEFICIT OF $3.8 BILLION FOR FISCAL 1967, DECLINING TO $2.1 BILLI~~
FOR FISCAL 1958.

QUARTER BY QUARTER, THE NATIONAL INCOfv1E BUCGET SHOULD REACH

A BAlANCE, OR EVEN SURPLUS, BEFORE THE END OF FISCAL 1958.
HE BE LI EVE TH IS FI SCAL PROGRN"l WILL PROVI DE THE PROPER ENVI ROi'l1·'1ENT
FOR STABLE EXP,L\NSION.
$47 BILLION.

vIE EXPECT A 1957 GNP OF $787 BILLION, A RISE OF

PRICE RISES CANNOT BE SHUT OFF CQ\1PLETELY, BUT VIE EXPECT TO

BETTER THE 1966 RECORD BY A GOOD fvV'-RGIN.

GI'lP IN REAL TERMS -- ADJUSTED

FOR PRICE INCREASES -- SHOULD GROW AT A RATE CLOSE TO 4 PER CENT.

THIS IS

LESS TH/IN THE 5-1/2% GRO\1TH LAST YEAR, BUT ltHTH CURRENT HIGH LEVELS OF EMPLOYMENT AND PLANT UT I LI ZAT I ON, I TIS ABOUT AS HIGH AS VIE C.AN PLAN ON I F HE ARE
TO CONTAIN INFLATIONARY PRESSURES.
PROFITS .AND INCO'-1ES SHOULD CONTINUE TO RISE, BUT THE LACK OF SLACK "JILL
KEEP THE INCREASES BELOH THOSE ATTAINED LAST YEAR.

UNEMPLOYi'-1ENT SHOULD STAY

AT THE CURRENT, RELATIVELY FULL EMPLOYMENT LEVELS, AND THERE SHOULD BE
SCME UPGRADING AS HORKERS FIND Et-1PLOYMENT IN fY10RE PRODUCTIVE JOBS.

HE ALSO

HOPE TO MAKE INROADS Ch'J HARD CORE UNH1PLOYfv'IENT THROUGH '-1ANPO'tJER TRAINING
PROGR.AMS.

- 8 WE SHALL CONTINUE TO FACE BALANCE OF PAYiv1ENTS PRESSURES BECAUSE OF OFFSHORE VIET tW1 EXPENDITURES AND OVERSEAS TROOP REQUIREMENTS, BUT NE\f! EFFORTS
WILL BE tv10UNTED IN THIS AREA.
MEANHHILE, THERE IS t·1UCH THE PRIVATE CITIZENS CAN DO.

~frlEN

PRESIDENT

JOP.NSON ANNOUNCED THE TREASURY DEPARTMENT'S NEH "FREEOOV1 SHARES" ON FEBRUARY 21,
HE TERt-1ED THEM t:A CHEERFUL CO'1PA"lION TO THE POPULAR SERIES E SAVIl\iGS BOND",
AS YOU KNO\'J, "FREEOO'vi SHARES" WILL BE AVAILABLE ONLY TO THOSE HHO
REGULARLY BUY SAVINGS BQ"mS THROt.X;H PAYROLL SAVINGS DEDUCTIONS WHERE THEY
\'-10RK OR BOi'JO-A-fv\OhlTH PLANS i'lHERE THEY BANK.
THE NHI NOTE -- LIKE THE SERIES E SAVINGS BOND -- \'JILL BE SOLD AT A
DISCOUi-H AND \'IILL ACCLJv1ULATE INTEREST OVER ITS LI FE,

THE SMALLEST DENa4INATION

WILL BE SOLD fOR $20.25 lIND \lJILL PAY $25 AT THE END Of 4-1/2 YEARS.

NOTES

WITH MATURITY VALUES Of $50, $75 AND $100 WILL ALSO BE AVAILABLE.
TI-lE EFFECTIVE RATE OF INTEREST FOR "FREEDO''i SHARES" -- \-JHEN HELD TO
MA.TURITY -- VII LL BE 4.74 PER CENT.

SERI ES E BONDS, \'JHI CH MATURE IN 7 YEARS,

PAY AT THE RATE OF 4.15 PER CENT, HHEN HELD TO t''iATURITY.
"FREEDa1 SHARES" MUST BE HELD AT LEAST ONE YEAR BEFORE THEY MAY BE
REDEE!'1ED.

SERIES E BONDS t-iAY BE REDE8'1ED IN 60 DAYS.

THERE IS AN ANNU\L LIt<tITATION OF $1,350 ON "FREEDOM SHARES".

THE PNNUAL

Ut-1ITATION ON SERIES E HOLDINGS IS $20, 000.
THE ACTUAL MECHANICS OF THE PLAN ARE SIMPLE.

IF YOU INVEST $39 -- $18.75

FOR A $25 E BOND liND $20.25 FOR A "FREEDQ\1 SHARE" -- liND HOLD BOTH TO l'-iATURITY -YOU WILL GET BACK $50 -- HALF OF IT IN 4-1/2 YEAAS, THE REST IN 7 YEAAS.

- 9 _.
IF, FOR EWLwLE, YOU NO,'J ALLOT $G. 25 Fr~Of'l YOUR PAYCHEC}~, THUS
PURCHASING A $25 SERIES E BOi'ID EVERY THREE PAYDAYS, YOU tl!JW INCf<.U\SE YOUR
DEDUCTIO\J TO $9.75 AND BUY Of\lE $2) E GONO Nm O'~E $25 f1Fr~EEDo!l SHARE"
EVERY FOUR PAYDAYS.
IN Lr\LNCHH~G THE 1957 "SHi\RE IN FREEDOI''1l1 CN'1PAIGI~, PRESIDErn JCkl~~SO:~
SAID -IIFREEDOH t/lUST P,T ALL TIJ-'E5 BE DEFENDED J GECAUSE IT I S AT ALL
TIj\'ES BESIEGED.
FIELD.

NOT ALL OF US ARE CALLED TO FIGHT

f'tL\NY OF US

~1UST,

THE BATTLE-

QUIETLY ,liND FIRI"ILY; DO \yHAT HE CAN N,lD

ALL THAT ViE MUST HERE AT HOI'/iE.

BUYING BO"ms, REGULARLY, IS

AS IVtPORT,lINT TO THIS NATION IN THE LO:\jG REACH OF HISTORY AS
ALf'10S T ANYTH I NG \'IE C,lIN DO.
1I\'iE CAN DO t'm LESS THA\J THOSE vT!'iO FJ GHT ,liND Dl E FOR OUR FREEDOr1S.

LAST YEJ\R, AYlERI C.AN SERVI CEt"'!EN

BOUGHT AU-lOST $350 HI LLIO\J

'tJORTH OF SAVINGS BONDS -- CLOSE TO $90 HI LU O'J IN THE LAST
QUARTER ALC'NE.

BATTLE Ho.'JORS COi'-1E HARD IN VIETNN1, BECAUSE

THE PRI CE OF HOi'mR I S OFTEN THE PRI CE OF LI FE.

YET, IN JLNGLE

A\lD HNvlLET -- 0\1 SH I PBOARD AJ\JD ,lI.I RF IE LD --- THERE I 5
EVERY AJvlE'RICA'~ UNIT PRIZES.
THE

t-m~UTE t1N~

O'~E

TROPHY THAT

IT IS NOT THE ENE~W'S FLAG.

IT IS

FLAG THAT SWiBOLI IES gO PER CENT OR BETTER

PARTICIPATICN IN THE PAYROLL SAVHJGS PLPN. 11
DURING THE CLOSED-CI RCUIT TELECAST ~'/HI CH ORIG I Nl'l.TED IN \':;\SHI:'lGTO;-.J AND
I NAUGUPATED THE NE','/ 19 G7 PROGRAM TO LEADE RSH I P Gr-~OUPS Ir'>l 32 CIT I ES AROUND
THE NATIQ\J, GENERAL
FORCES IN

VIETNN~,

HILLIJl~\1

C. \;'ESTi>10RE1JlND, COi.'JvtANDER OF THE LNITED STATES

REPORTED TI-lAT 72 PER cnlT OF THE t)tEN IN HIS

BUYING SAVINGS BO\lDS REGULARLY.

CO'/w"W~D

ARE

II/11'J INVESTt'ENT If~ THE FUTURE OF lV'llERI CA

- 10 IS NOT A GAM3LE, ITIS A SURE THING," THE GENERAL S.4.1D.

TREASURY SECRETARY

HENRY H. FOtlLER POINTED OUT THAT THE NEH "FREEDO'1 SHARES!! V,IERE DESIGNED
TO ATTRACT NEH SAVINGS, NOT TO CAUSE SHIFTS IN EXISTING SAVINGS.
"FREEDOt'1 SHARES" -- WHICH GO ()\J SALE Q'\J MAY 1 -- VlILL BE OFFERED FOR
Q\JLY

n~o

LO~GER

YEARS OR U'-JTIL THE END OF THE VIETNAIvl v{AR, WHICHEVER IS THE

PERIOD OF TIME.

(l\I

FEBRUARY 23, 1967, THE EXECUTIVE COlNCIL OF THE AFL/CIO PASSED

A RESOLUTION CALLING UPON ALL l1\lIO\J
IN FREEDOM" CAl'v1PAIGN A SUCCESS.

~'Efv'3ERS

TO HELP t·1AKE THE 1967 "SHARE

PRESIDENT GEORGE MEANY, IN URGING ALL
PROG~l

SEGMENTS OF THE AFL/CIO TO GIVE FULL BACKING TO THE SAVINGS BONDS

SAiD, "THE U-.JITED STATES IS ENGAGED IN A PAINFUL ~JAR IN DEFENSE OF FREEDOI'~ -THE FREEDOM OF A NATION TO SEEK ITS, ay'lN DESTINY, SECURE AGAINST AGGRESSION.
EACH DAY, .AJY1ERICANS GIVE THEIR LIVES TO THAT CAUSE.
DRIVE

\~ITH

BY SUPPORTING THE BCND

DOLLARS, \'/E AT HOME CN'>! DEMO\JSTRATE IN AT LEAST A

S~1.A.LL

HAY OUR

WILLINGNESS TO 00 OUR PART • • • AS INVEsn'lENTS, THE SONDS OFFER ABSOLUTE
SECURITY AT A\l ADEQUATE INTEREST RATE. II
RENO ODLIN, A PAST PRESIDENT OF THE AMERICAN BA\lKERS ASSOCIATICN,
RE~RKED

"THERE f S NOTHING MAGIC A'30UT SAVINGS BONDS, BUT THERE IS MAGIC

IN PAYROLL SAVINGS".
Q\J

HIS VIEH HAS U'-JDERSCORED BY A FACTORY \~ORKER IS COI'i',1ENT

THE PAYROLL SAVINGS PLAN -- "IF YOU DON'T SEE IT, YOU DG-J'T SPEND ITlI.
VICE PRESIDENT HUBERT H. HUivlPHREY, CLOSING SPEAKER ON THE TELECAST,

CAUTIO\JED THAT TITHE ROAD TO FREEDOM IS NOT A FREE SUPERHIGH\'IAY.

THERE ARE

SOME TOLL STATIONS ALONG THE HAY."
THROUGH YOUR SUPPORT AND PARTICIPATIOhl, VIE CAN t1INIMIZE THOSE TOLLS.
SIGN UP FOR ALL THAT YOU CAN.

AS THE 1967 CAMAPIGN SLOGAN SAYS -- IN

REFERENCE TO OUR FIGHTING t'iEN IN VIETNN1 -- "BUY \'/HERE YOU It-IORK -- THEY DO."
00 00 00

--."

TREASURY DEPARTMENT
(

RELEASE 6:30 p.r.,
~day, Barch 7, 1967.
RESULTS OF TrlEASURY I S OFFER OF ADDITIONAL $2.7 BILLIOlJ IN JUNE TAX SILLS

The Treasury Department announced that the tenders for an additional ~2,700,OOO,OOO,
thereabouts, of Tax Anticipation Series Treasury bills dated October It, 1966,
.Iring June 22, 1967, were opened at the Federal Reserve Banks today. The additional
llIlt of bills, which were offered on Narch 1, 1967, will be issued l-'Iarch 13, 1967,
1 days to maturity date).
The details of this issue are as follm·lS:
Total a0plied for - $3,923,799,000
Total accepted
- $2,702,560,000

(includes :$22).+, 5~):), om enter2d on a noncompetitive basis and accepted in full
at the average price shown beloN)

Range of accepted competitive bids:
High
Low
Average

- 98.641
- 96.788
- 90.795
(61;~

Equivalent rate of discount approx. 4.1.3l"per annum
II
II
II
II
4.320;; 11
II

•
It

4.29~

of the amount bid for at the low price vias accepted)

Federal Reserve
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
I1inneapolis
Kansas City
Dallas
San Francisco
TOTAL
This is on a bank discount basis.

F-S38

Total
Aoolied for
~·"162,982,000
1,665,972,000
119,420,000
l44,654,000
56,690,000
133,715,000
667,110,000
124,475,000
161,920,000
73,260,000
197,801,000
395,800,000

Total
Accetted
$" lId,Or~4,OOO
1,169,992,000
58,420,000
101,654,000
41,090,000
104,145,000
423,090,000
63,225,000
11 7 , 647 , 000
65,587,000
27,071,000
327 ,S~IS , 000

$3,923,799,000

~2,702,56(),OOO

The equivalent coupon issue yield is 4.'-1.2%.

FOR RELEASE AFTEru~OON NEWSPAPERS OF
THURSDAY, MARCH 9, 1967
TREASURY DEPARTMENT
Washington

REMARKS BY ARNOLD SAGALYN, DIRECTOR
OFFICE OF LAW ENFORCEMENT COORDINATION,
U. S. TREASURY DEPARTMENT, AND U. S. REPRESENTATIVE
INTERNATIONAL CRIMINAL POLICE ORGANIZATION - (INTERPOL)
BEFORE THE NATIONAL SYMPOSIUM ON LAW ENFORCEMENT SCIENCE AND
TECHNOLOGY -- SESSION ON WEAPONRY
CHICAGO, ILLINOIS, THURSDAY, MARCH 9, 1967
THE POLICEMAN'S GUN IS BACKFIRING

Approximately 100 years ago, Gilbert and Sullivan
innnortalized the refrain, "A policeman's lot is not a
happy one.

We have not done very much to improve it

since then.
This neglect is exemplified in our primitive,
inadequate police weapons.

To protect himself and the

community and to maintain law and order, a police officer
today must still depend on the sarne weapons which were
standard equipment for our police nearly 100 years ago
the police stick and a lethal gun.

Science and Technology

come back from the moon, and look at our urban craters!
For the limitations and ineffectiveness of the police
officer's weapons leave him dangerously exposed to the

hazards he faces in his work.

Today, every time a police

officer responds to a call for assistance, every time he
stops a person who has violated a law, he faces the risk of
physical injury and death.
Statistics compiled by the Federal Bureau of Investigation indicate that one out of every ten police officers, more
than 20,000 men, will be assaulted this year.
attacked, 40% will suffer personal injury.

Of those

During the six-

year period between 1960-1965, 278 police officers were killed
in the line of duty.

Incomplete reports

far indicate that

more than 50 men died from injuries in 1966.

An equal, if

not larger, number of officers will lose their lives this year.
Our obsolescent, 19th century police weapons are jeopardizing the safety of more than just our police.

They are also

posing a danger to the peace and welfare of our urban communities.

In the past few years there haa been increasing

evidence that the employment of these same defensive weapons -particularly the gun -- to enforce the law and maintain civil
order is creating far worse problems than those the police
are attempting to solve.

For the police officer's basic weapon, his gun, lacks
the flexible response capability needed to deal with the
specific type of problem involved.

The inability of

the police officer to control the degree and deadliness of
this physical force in proportion to the nature and quality
of the threat has put him -- indeed the entire community -in a critical dilemma.
Let us look at some of the problems our police face
when they have to rely on conventional police weapons.

The

need to use physical force and weapons often develops when
an officer is making an arrest.

If there is resistance,

the officer may be physically assaulted or threatened with
a dangerous weapon.

Under such circumstances the officer

feels compelled to take effective counter-measures to defend
himself, as well as to secure the arrest and custody of the
violator.
Take the case of resistance which does not appear to
involve a threat of physical injury.

This is often the

situation encountered in dealing with drunks.

The police

officer currently has no effective capability to handle the

,
re.isting person without the u •• of so•• physical forc.
that may prove injuriou..

H. must .ither qrappl. with

the per.on and seek to re.train hi. bodily, or h. muat try
to incapacitate him with his police stiCk.
If the police officer faces the ri.k of .erious injury,
whether it be fro. phy.ical a ••ault, a knife, or a gun, he
has no really effective alternative to shooting hi. assailut
in .elf defense.
If the problem involve. a person who tri.. to flee,
either on foot or by car, the police offic.r i. strongly
motivated to prevent the escape.
the fugitive by shooting him.

This often means stopping

Such shootings have beeft the

cau.e of severe critici •• in many communities lately.

Thi.

has heen particularly true when the persona who are injured
or killed are not hardened or habitual criminals, but instead
are juveniles and youths.

Por public policy and our laws

regard such young people in a special way.

We hold out

greater hope for their rehabilitation and return to society
as lawful, productive members of their communities.
The police officer also faces public condemnation When

he shoots a person whose offense is of a relatively minor
nature and does not involve a crime of violence.

Moreover,

shots fired at a fugitive, even when they are just warning
shots, have sometimes injured or killed innocent bystanders.
The resulting unfavorable community reaction has further
aggravated the problem of the police in their relations with
the public.
The police face another serious dilemma in dealing with
individuals and crowds involved in demonstrations.

This is

particularly true when such demonstrations may start out
peacefully, but later develop into lawlessness and acts of
violence.

Since the persons participating in lawful demonstra-

tions are not criminals and tend to include women and children,
and considering the fact that many innocent spectators may be
drawn to the scene, the absence of any appropriate, effective
alternative to the use of conventional police weapons to control
such situations poses an appalling problem for the police as
well as for the entire community.

Riot sticks and guns -- in

fact, any type of injurious physical force -- are recognizably
a very unsatisfactory way of dealing with such law enforcement

6
problema.
Aa you can .ee, the police are forced to make a fearful choice.

The weapona and physical force now available

to them result in either too much or too little restraint.
At the present time, they have no safe and effective capability to control improper human behavior or to neutralize
various types of physical threat without inflictinq some
temporary or permanent physical injury on the victims.

indicated earlier, in dealing with the wide range of law
enforcement problems with their varying degree. of seriousnesl
and danger, our police officers have a critically limited
and inflexible spectrum of defensive and offensive options
from which to choose.
The result has been increasing accusations of excessive,
unnecessary police force and a serious worsening of communitypolice relations in many urban areas.

More and more the

police officer who resorts to the use of his police weapons to
deal with offenders of varying degrees finds himself abused
and threatened with physical assault by the victims of his
enforcement action, aa well as by hostile sympathizers in

the area.

In some communities police force has tended to

incite retaliatory violence.
An

analysis of recent riots by the staff of the

President's crime Commission led to the observation that the
use of conventional police force and related police practices,
while lawfully employed, were often the incendiary factor
that ignited the widespread disorders and rioting

~ihich

have

taken place in a number of our cities during the past few years.
The following specific examples illustrate very sharply
the important considerations and consequences involved in
using injurious police force in many urban communities today:
July 16, 1964 -

A New York police detective is

confronted by a knife in the hand of a 16-year-old
boy.
youth.

In defending himself, he shoots and kills the
Public indignation and anger spark five days

of rioting that result in one death, 118 injuries,
millions of dollars in property damage, and an
embittered community.
September 6, 1966 - In Atlanta, Georgia, a police
officer shoots and injures a youth

susp~cted

stealing a car.

As a result of the .hooting,

protest demonstrations are organized which erupt
into rioting.
september 27, 1966 - In San Franci8co, California,
a juvenile fleeing from a car believed to ha•• been
stolen is shot and killed by a police

office~.

This

shooting ignites three days of rioting and violenc ••
If the purpose and justification of our polio. weaponry
is to protect lives and property, maintain public order,

and enforce compliance with our laws, we need to ••k ourselves whether our present policy and methode of applying
physical force are proving counter-productive.

ror when

the use of police force to deal with a law enforo. . .at problem
results in far greater harm to the public .afety aad welfare
of the community than the offense in who •• name it wag
employed, it is time to reevaluate the value and wi.dam of
auch a police practice.
While such physical force may temporarily auppr... a
violation of the law or counter a threat to individual or
public safety, in the long run the employment by the police

of injurious and lethal force will only aggravate the
unsatisfactory police-community relations currently existing in so many urban areas.

To the extent that our police

weapons serve to engender counter-violence and inflame the
community, their continued use as now employed will pose
grave consequences for our domestic tranquility.
The legal justification governing the use of deadly force
against a person suspected of a felony appears to be based
on the historical precedent that at one time every felony
was punishable by death.
ator wrote:

In this connection one legal comment-

"The rule that an officer or a private person

may do all that is reasonably necessary to effect an arrest
for an atrocious felony, even to the taking of the life of
the arrestee, is of ancient origin.

Originally it was based

upon the theory that such a one had forfeited his life to
the community, for all felonies were punishable by death
at the time."
Today there are few crimes in the united States which
are punishable under the law by death.

Indeed, there has

been an increasing number of states which have abolished

capital punishment or e1s. severely restricted it. application.

Only one person was executed durinq 1966 in the entire

United States.

MOreover, the report of the President·s Crime

Commie.ion states:

MAll available data indicate that judq.s,

juries, and governors are becoming increasingly reluctant to
impose or authorize the carrying out of a death sentence."
Insofar as its deterrent effect is concerned, the Commission found that there was no discernible correlation between
the availability of the death penalty and the homicide rate.
In the light of the changes which have occurred in recent
years to restrict if not eliminate capital punishment, it
would seem appropriate and prudent to limit the police use
of firearms and deadly force to those situations where it is
necessary to save a life or to prevent serious bodily harm.
In the absence of any serious physical danger to the police
officer or any other person, the use of a gun or other means
of deadly force to effect an arrest or maintain law and
order does not seem justified.

Such a policy and prohibition

would clearly be in the best interest of the police as well
aa the public, and would eliminate the source of many grievance.

that now aggravate police-community relationa.
This is the time, also, for all of us concerned with
the processes and philosophy of the law to ask:

Can a

civilized democratic society based on due process of law
countenance the physical injury or killing of a person
without due process?

Particularly when the offense is of

such a nature that the person so convicted in a court of law
would not suffer a penalty worse than the 108s of some
property or only his liberty for a relatively short period
of time?
As a practical measure, a great deal can be done to
bring police practices in the use of deadly force into
accord with the realities of present attitudes toward capital
punishment.

This can be accomplished by police administrators

through the issuance of proper guidelines on the use and
justification of physical force and lethal weapons in dealing
with specified violations or threats an officer may encounter
in the course of duty.

The failure of responsible officials

to provide clear guidelines and policy as to when police
may employ physical force has placed an unreasonable burden

12
and responsibility on the individual officer.

The absence

of such instructions has undoubtedly encouraged the police
practices which have generated charges of unnecessary police
force and led to retaliatory violence.
While the police officer is instructed on the proper
care of the gun and is taught how to shoot, he is generally
given little, if any, guidance as to when he should shoot.
The relatively few police departments that have any written
policy or guidelines governing the use of firearms tend to
limit them to merely counseling officers to "exercise the
greatest possible caution U or lito use good judgment".

essence, the decision to shoot -- and perchance to kill -is left entirely up to the discretion and judgment of an
officer.
In the Federal Government, the Federal Bureau of Investigation and the Treasury law enforcement agencies have a firm
written policy that a firearm is not to be used exeept in
the defense of a life.

However, in most local conmunities today,

a police officer is authorized to use his firearm in dealinq
with felony situations where no threat to life is involved.

~')
\./

13
And many law enforcement agencies permit the use of a
gun in apprehending peraona whose offense may involve at

best only a suspicion of a property crime or even a misdemeanor.

The practice of shooting to stop a speediftg

motorist, for example, is far from an isolated occurrence.
The President's Crime Commission took special note
of this dereliction when it commented on the failure in
most cities to provide police officers with guidance as to
when firearms may be drawn and used.

In its report to the

President a few weeks ago, it made the following recommendation:
"A comprehensive regulation should be formulated by
every chief administrator to reflect the basic policy that
firearms may be used only when the officer believes his
life or the life of another is in imminent danqer, or when
other reasonable means of apprehension have failed to prevent
the escape of a felony suspect whom the officer believes
presents a serious danger to others."
A

similar prohibition on the use of deadly force is

proposed in the Model Penal Code of the American Law Institute.

14
While the promulgation of needed guidelines on the
use of his weapons will lead to improved community-police
relations, they will not help the individual police officer
who will still be exposed to serious personal injury from
assault and dangerous weapons.

For his present weapons are

often ineffective in countering and neutralizing the physical
threats he faces.

Be needs -- and needs urgently -- new and

more effective means of assuring his and the public' s protection
and of keeping the peace _

He needs a weapon capable of control-

ling the wide range of law enforcement problems he must deal
with every day_
The application of science and technology now makes it
possible to develop alternative, non-injurious methods which
will provide a police officer with equal if not superior security

to his gun and his police stick.

Such a weapon should be

capable of immobilizing and neutralizing an assailant or
offender for a short period of time, without any harmful aftereffects.

It should have an additional capability to mark a

person or vehicle seeking to escape from the officer with a
readily identifiable color, odor or other recognition feature,
thereby helping to assure the identification and apprehension
of the fugitive.
We hope eventually to be able to look forward with some

confidence to a single, all-purpose weapon that will
provide the police officer with a highly effective offensive
as well as an assured defensive capability.

It should be a

weapon that will safely, harmlessly neutralize physical
threats: and it must enable the police officer to control
unlawful and violent behavior of persons in a way that will
earn the confidence and support of the entire community.
In the final analysis, it is important that we all
recognize that the real source of police power is derived
from public support and cooperation.

Without the respect and

cooperation of the public, the police cannot function successfully.

While they may continue to enforce the law and maintain

law and order through fear and physical force, they will do so
at the cost of an increasingly hostile, alienated community in
which there can be no real security or peaceful orderly progress.
The applications of science and technology have created
fantastic new defensive capabilities and sources of strength
for our national security.

They can play an equally important

role in helping our law enforcement agencies assure the civil
security in our urban communities.

TREASURY DEPARTMENT

March 8, 1967

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 March 16, 1967, in the amount of
$2,303,920,000, as follows:
91 -day bills (to maturity date) to be issued March 16, 1967,
in the amount of $1,300,000,000, or thereabouts~ representing an
additional amount of bills dated December 15,19b6, and to
mature June 15,1967,
originally issued in the amount of
$1,000,868,000,the additional and original bills to be freely
interchangeable.
182-day bills, for $1,000,000,000, or thereabouts, to be dated
March 16,1967,
and to mature September 14,1967.
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 Standard
time, Monday, March 13, 1967.
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-839

- 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 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 March 16, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills ma turing March 16, 1967.
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 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 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(J
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

March 8, 1967
FOR IMMEDIATE RELEASE
WI'mHOLDING OF APPRAISEMENT ON
PIG IRON

The Treasur,y Department is instructing customs field officers to
withhold appraisement of pig iron from Romania 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 (19 U.S.C.
160 et seq.).

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.y 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 January 19, 1967.

Pursuant

to section 14.6(d), Customs Regulations (19 CFR 14.6(d», an "Antidumping
Proceeding Notice" pertaining to this merchandise was published on page
3404 of the Federal Register of March 1, 1967.

66
TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
REMARKS BY THE HONORABLE STANLEY So SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE TAX EXECUTIVES INSTITUTE
17TH ANNUAL MID-YEAR CONFERENCE
AT
THE SHOREHAM HOTEL, WASHINGTON, DoC
THURSDAY, MARCH 9, 1967,2:15 P.Mo,EST
o

(Delivered by Richard O. Loengard, Jr.,
Special Assistant for International Tax Affairs)

CURRENT DEVELOPMENTS IN THE UNITED STATES
TREATMENT OF INTERNATIONAL TAX MATTERS
I appreciate this opportunity to give you a survey of
developments relating to international tax matters. I
shall be talking about significant changes taking place
as a result of continuing efforts to provide the proper
framework for the tax treatment of transactions that cross
our borders. The Treasury welcomes your comments, which
will, I can assure you, be closely studied.
We may start with the legislative changes. Last year
saw the enactment of the Foreign Investors Tax Act, the
first comprehensive revision of our tax treatment of foreign
investors. It accomplished the purpose sought: a more
rational tax structure for foreigners with United States
income that would be consistent with international standards,
reflect a proper balance of tax treatment for our own citizens,
and eliminate irrational and unwarranted barriers to foreign
investment in the United States.
The Act was drawn up carefully to achieve its objectives
without offering improper tax incentives to attract investment
here that would have led to matching or even greater
incentives by other countries, in a fruitless scramble for
investment dollars. Nor does the Act seek to claim an undue
F-840

- 2 -

share for the United States out of the income generated by
international investment -- a claim that not only could have
placed obstacles in the way of our obtaining a proper part
of that investment but also could have led to excessive
demands by other countries regarding the earnings from our
investments overseas.
This Act broke new tax ground in several of its
approaches. It met the problem of how unilaterally to
rationalize our structure for taxing foreigners -- without
thereby losing our bargaining power to obtain through tax
treaties proper treatment for our citizens who invest or
trade abroad -- by delegating authority to the President
to withdraw our unilateral concessions if he found our
rules were not being reciprocated. This preservation of
bargaining power was also strengthened by giving the
President authority to raise income tax on foreigners
to the extent and in the way necessary to combat any
discriminatory action by foreign countries against our
taxpayers.
Next, as insurance that the liberality, in contrast
to prior law, of some of the new rules applicable to
foreigners, especially the estate tax rate reductions and
the confinement of our income tax to the withholding rates,
would not lead to tax-motivated expatriation by our citizens,
the Act applies for 10 years the rates applicable to our
citizens to the United States property and income of such
persons.
The Act dealt with the increasing tendency of foreigners
to take advantage of the mechanistic and precise formulation
of our rules regarding the source of income -- and hence
the scope of our asserted jurisdiction to tax foreigners -by developing arrangements that avoided United States tax on
certain business activities conducted by them in the
United States, and thus in some cases utilizing the
United States as a tax haven. The solution devised is
that of increasing the jurisdictional scope of our income
tax to reach certain described income that is "effectively
connected" with such business activities, again carefully
described,in the United States. This step places our
jurisdictional rules -- and thus our ability to assert a
proper claim for our share of tax in these situations -- on
a parity with those of most other countries, which had long
used similar rules.

3 -

There are, however, some doctrinal hazards in the
Act as it emerged from the Congress. The extension of
the jurisdictional scope of our tax system to reach these
business activities, through the concept of "effectively
connected," left our traditional source rules unchanged.
Other countries bring such income within their tax
jurisdiction by treating it as having its source within
their country. As a consequence, we use more structural
building blocks than these countries do in applying their
tax to these types of income. On the other hand, our
approach lends itself more easily to our allowance of a
foreign tax credit against our tax on this income.
In addition, the jurisdictional test of "effectively
connected" in these cases unfortunately uses terminology
similar to that applied to meet a different situation -that of whether certain investment income, whose source
is traditionally regarded as being from within the United
States, is so related ("effectively connected") to a trade
or business in the United States so as to be taxed along
with the income of that trade or business rather than
being taxed separately under the rules relating to
investment income. But hopefully Regulations, and
commentators, will be able to allay any confusion that might
result from these doctrinal hazards. These Regulations
are now in process.
The other important legislation involves the
Interest Equalization Tax and the bill just reported by
the House Ways and Means Committee. The purpose of the
Interest Equalization Tax is to insert a tax wedge in the
international transactions by which foreigners borrow or
otherwise obtain our capital that compensates for the
differential betWeen our lower interest rates and the
higher rates that are charged abroad. This is done so
that the amount of our capital that goes abroad will not
be materially increased as the result of our policy to
maintain lower interest rates for our domestic economy.
This purpose of the Interest Equalization Tax must be
achieved in a world where interest rates in various
countries are to a large degree the reflection of a variety
of domestic fiscal and monetary policies constantly changing
in response to a variety of economic conditions.

- 4 -

The monetary powers of modern governments are exercised
in a highly flexible fashion. Consequently, a tax wedge
whose amount is rigidly fixed will not always be able to
perform its task -- the wedge may at different times be
too little or too large. The task is to achieve a
mechanism that permits the wedge to expand or contract as
the differential itself varies in response to monetary
policies here and abroad. Only in this way can we permit
our monetary policy to perform its important tasks without
undue distortion by balance of payments considerations.
In response to this objective, the new legislation as
reported by the Ways and Means Committee gives the
President authority to vary the rates of lET tax so that
their effect on international interest differentials can
vary from 1 percentage point to 1-1/2 points, rather than
remain at a fixed rate.
When we turn to administrative activity, developments
largely relate to a number of Regulations and rulings
which are now being brought to a final conclusion. Most
important here are the Regulations relating to
Sections 482 and 861 of the Code, involving allocations
of income and expenditures in international transactions.
A large number of helpful comments have been received and
we are in the process of reviewing them.
These Regulations clearly plow new tax ground in the
attempt to formalize the rules of allocation that should
govern the relationships between taxpayers and the United
States Government and between the United States ,Government
and foreign governments. We believe that one of the major
advantages derived by taxpayers and the Government from
publication of the guidelines in these Regulations will
be the element of certainty injected into the application
of these provisions of the statute.
We realize that in the past the statute has not
always been applied consistently, especially in the foreign
area. This inconsistency of approach was, of course, the
reason for granting the relief found in Revenue Procedure 64-54.
This aspect can be even more significant in situations where
there are delays in completion of United States tax audits,
as a result of which Section 482 issues may be decided years
after the events to which they relate took place and have an
impact on transactions in all of the intervening years which
remain open. One of the major purposes of the Regulations
is to give taxpayers the opportunity to plan their affairs

- 5 -

7. '
I

•. :

in such a way as to reduce substantially the risk of
adjustment on audit and the consequent long-term uncertainty
on the finality of their overseas transactions.
The Regulations thus mark the closing of one chapter
of tax administration, characterized by taxpayer arrangements made and IRS agent scrutiny conducted without the
discipline of guidelines, and the opening of a new chapter
involving that discipline through an integrated set of
guidelines. But we are hopeful that the Regulations will
also mark the path to further developments in this field.
We believe they will add impetus to the growing efforts
of management to obtain objective methods of measuring
the achievements and progress of the v.arious components
of our larger international enterprises.
It is the fate -- and responsibility -- and opportunity
of tax measures and regulations to give a formal structure
to many of the somewhat formless and more loosely conceived
rules that guide business interrelationships. But once
management and their advisors see their working rules
of thumb captured in a formal structure and set down with
greater sharpness and particularity, they are generally
induced to focus more intently on those rules and their
objectives. This r~sult is all to the good, for it can
only lead to progress in developing our tools and processes
for the task of measuring profits and performance, a task
that is of vital importance to modern business.
Equally, we are hopeful that this effort on the
part of the United States will cause other countries to
look with similar care at their own rules in this area.
To move this process along, we are proceeding within the
DECD Fiscal Committee both to explain our rules and then
to ask other Governments questions of this nature: Will
you allow as deductions the payments which the marketing
or manufacturing subsidiaries in your jurisdiction would
need to make to its United States parent under our rules?
Would you be satisfied to obtain payments from marketing
or manufacturing subsidiaries in our country to your parent
companies in accordance with these' rules? Where we are
both agreed on the operative rule -- say, an arm's length
sales price or a charge of services at cost -- but may
initially reach variant results on applying the rule to
the facts of a particular case, how will we harmonize our
approaches? In this fashion we can achieve the coordination
among Governments necessary for fair international treatment
of taxpayers.

- 6 -

Closely tied in with these efforts is the study we
are making of the competent authority procedure. Modern
tax treaties -- and tax treaties under modern conditions
place increasing reliance on an efficient and informed
working of this procedure. These treaties, like any tax
statute, require an alert and effective administration and
the competent authority procedure is the administrative
agency for our tax treaties. Here also we are combining
a study of our own effectiveness with efforts in the OECD
Fiscal Committee to consider these same issues on the
international level.
More closely related to our domestic tax rules is
the proposed Revenue Procedure on the operative effects
of Section 367. The published proposal has brought forth
many helpful comments which are now being studied. Work
is also proceeding in a companion area, that of the
application of Section 351 to transfers of know-how to foreign
subsidiaries. We recognize the existing dissatisfaction
with the present rules and are seeking an appropriate
solution.
Let me now turn to our international tax treaties.
We will shortly sign the revision of our income tax
treaty with France •. This is far more than a simple
revision, and really represents a whole new treaty. It
is our first negotiation with a country desirous of staying
as closely as possible to the DECD model draft in
structure and terminology. As is to be expected, active
negotiation around a model develops a number of probing
questions with respect to the model that were not
surfaced in its formulation. The French negotiation has
resulted in an adaptation of that model in its technical
aspects to a concrete treaty between two countries with
tax structures that differ in a number of ways. In
large part the French treaty should prove to be a model
we can use in negotiations with other countries that lean
strongly to the OECD draft.
~

Two events last year marked our tax relations with
the South American countries. We negotiated an interim
treaty with Trinidad and Tobago as a step toward the
complete revision that was initiated as a consequence of
changes in their domestic tax system. Honduras terminated
its treaty with the United States. This was the first
treaty that had been negotiated with a less developed
country -- in 1956 -- and its termination grew out of its

72
- 7 inadequacies. While we are quite desirous of negotiating
a new treaty, we are also conscious of the need to have our
treaties with Latin American countries develop along a
common basic pattern.
We hope that this year we will be able to make
substantial progress toward starting a tax treaty network
with the Latin American countries. We have been engaged
for some time in negotiations with Brazil and are
encouraged by their progress. We are also currently
negotiating a tax treaty with Jamaica. The current treaty
with that country is an extension of the former United
Kingdom treaty. As stated above, negotiations with
Trinidad and Tobago are also scheduled for this year. We
are also hopeful other Latin American countries will be
entering into discussions with us to explore the feasibility
of negotiations.
There is great awareness in Latin America of the
desirability of tax treaties -- an awareness which we
share in this country and an interest which is matched
in many industrialized countries seeking increased trade
and investment with that area.
These tax treaties can playa most useful role in
the economic development and integration of that area.
Moreover, treaties by Latin American countries with
industrailized countries of other continents will in turn
facilitate the negotiation of a network of treaties among
the Latin American countries themselves. Such a network -long ago accomplished within the European economy -- is
one of the steps needed to achieve a common Latin American
market and a harmonization of their tax structures.
Our steps to modernize and expand our treaties with
the industrialized world and to extend our tax treaty
relationships to the less developed world must be matched
by steps to coordinate the many new treaties that have
resulted and are in progress. One aspect of the latter
task is to proceed, as far as the realities of the
negotiating process permit, with basic models -- principally
one for industrialized countries, with some variations
depending on the attraction possessed by the DEeD model
in some of its aspects, and one for less developed
countries.

?-I

- 8 -

The realities of negotiation often produce certain
differences in language and structure. However, these
differences frequently are not intended also to produce
changes in substance. As a consequence,we believe that
coordination depends finally on develbp.h:I~: a master set
of treaty regulations that will delineate both the
substantive rules that are common to the various treaties
and the variations in those rules. In this way we would
identify those cases where changes in terminology are
intended to have substantive significance. In addition,
we can also coordinate the interpretation of those new
statutory rules introduced last year which embody similar
concepts. We have made considerable progress in developing
this approach to treaty regulations and are hopeful our
goal can be achieved.
We are also preparing for ac tivity in the es tate tax
treaty area now that the OECD has finished its formulation
of a draft model for these treaties. There is considerable
interest in a number of countries in estate taR treaties
and we share that interest. We would be aided by your
examination of the OECD model, and we invite your comments.

000

74
Statement of Fred B. Smith
Generq,l Counsel of the Treasury Dcp[(rtm'2nt
To the Subconunittee on Administrative Practice and ProcedUl":;
of the Senate Judiciary Cc:nlmi ttee on S., 518, r;~J,rch 7, 1967

I velcome the opporhmity to appear before the Sub c orrlmi ttee
on Administrative Practice and Procedure on behalf of the 'l.'reas-·
ury DepartmEnt, on S. 518, and to comment on this revised legislation to amend the Administrative Procedure Act of 1946.

you know, representatives of the General. Counsel's office have
participated. actively in the consideratLm by this Subcommittee
of

s. 1663

gress.

in the 88th Congress and of S. 1336 in the 89th Con-

We also participated in the Symposium on S. 1336, held

December 1, 1966, under the sponsorship of the Special Committee
on a Code of Federal Administrative Procedure of the America,n
Bar Association, with a panel on which your staff was represented.
We are gratified that the consideration by this Subcommittee
of these past presentations has resulted in substantial and
valuable revisions of the legislation to meet many of the serious
objections advanced on behalf of this Department.

Our past

criticisms have been directed towa.rd those provisions of the
prior bills which we have believed would handicap the efficient,
fair and effective administration of the laws within the 1'esp::msibili ty of the Treasury Department, particularly, the laws
governing internal revenue taxation and customs duties.

Also,

some of these provisions, by delaying the administrative process,
would have operated against the interests of our citizens.

- 2 -

7r:.
,

My comments toclay are presented in the

S8.me

spirit.

welcome all the cha.nges that no\-[ distin[:;uish, S. 518 fr8Dl S. 1336.
HOiVever, there remain a fe"r basic problems
sufficient iml)Ortancc to explain to the

1,..7}~j('h

CO;:li'::

we consider of

Ltee at

SO;:l:;

lenGth,

in the hope and expectation that these IJroblems also Tn!ly be
satisfactorily resolved.

The basic problems respecting aujudication thr:)ughout S. 518
stem from the ambiguous and circular definitions in section 2 of
, a d'd'''''
' " " aaJUGl-, ,'
f our k ey wor d s re 1 a t Ing
~o
JU lca~lon -- " procee d
J.ng,
rI " or d er, " an d" par t y. "
'
ca t lon,

These definitions appear,
1

logical order, in subsections (g), (d) and (b) of secti::m 2. ~
It will be observed that "proceeding" is defined, in relevant.
part, as adjudication; "adjudication" means 8.gency process for
the formulation of an order; 'brder" is defined as the final disposition in a proceeding involving named parties, and "party" is
1

Ii(g) 'Agency proceeding' means any agency process as defined
in subsections . . . (d)
of this section."
"(d) 'Adjudication' means agency process for the fonnulatLm,
amendment or repeal of an order. rI
rI(d) 'Order' means the whole or any part of the fjnaJ disposition . . • by any agency in any proceeding, including
licensing, to determine the rights, obligati:ms and privileges
of named parties."
!feb) 'Party' includes any pers::m or agency named or a:1"1itted
as a party, or properly seeking and entitled as of right to
be admitted as a party, in any agency proceeding."

- 3 defined as a person named or admitted in a

;proceedi~s.

The defini-

tions, therefore, lead in a circle back upon themselves.
I am pointing this out, not as an exercise

j 11

semantic s, but

because the intelligent administration of at lc&st seven

w~jor

provisions of this legislation is dependent upon a

and

form understanding of these four key words.

cle~r

These seven major

provisions are the following:
Section 3(b) requires every agency to make avail13-ble for public inspection and copying, and to index
with jdentifying infolmation "all orders made in the
adjudication of cases."
Section 5(b) requires that "in all other cases of
adludication [i. e., not required t8 be decided on the
record after opportU11ity for a hearing] the agency
shall by rule pr:wide procedures 'which shall promptly,
adequately and fairly inform the agency and the

~arties

of the issues, facts and arguments involved."
Section 5(c) requires every agency to "afford all
parties an opporbmi ty, at- such time in advance of the
proceedings . • . or, . • . at any time thereafter
to submit and have considered offers for the settlement
or adjustment of the questions presented."
Section 6(a) provides that "[eJvery parll 8h211 be
accorded the right to appear in person or by or

~.d th

counselor other duly qualified representative in any
agency proceeding or investigation."

U11~

- 4-

Section 6( e) requires every aGency, UJlless oUlerwise provided by statute, to "iSS"lle SUbpCIW.S

upon request

to any party to an ~udicat).~~."
Section 6(h) requires every agency to make available,
apparently in all 1?roceedinSE"

depositions and discovery,

either to the same extent as in Federe.l district court
proceedings or as otherwise proYided by published rule.
Section 9(b) places penalties up::m agency publicity
which a court. finds was issued to discredit "a

12ar~

to an

II
.
agency procee d lng.

I should hope that the fair implication derived from

t11E~

definitions of the four key words in section 2 and their usage
in the above sections would be that adjudication is an agency
process in which a named party participates in the presentation
of issues of fact, law or discretion, which process culminates
in a final decision (which may be accompanied by findings of
fact and conclusions of law, namely, an "opinion" under section
2(d)), thus constituting a relatively formal quasi-judicial
proceeding.
However, the definitions of the key words relating to adjudication may actually include under adjudication a wide variety
of additional agency actions which constitute determinations of
the rights, obligations, and privileges of named persons, where
under authority of law the agency reaches these determinations
unilaterally solely on the basis of documents submitted, or facts
otherwise before it, without participation by the person concel'ned.

- 5Characteristically, this type of agency action results only in
an initial determination which is subject to, protest or appeal
either within the agency or to a court, but which is final if
not protested or appealed.

For example, the vast quantity

of customs and internal revenue determinations are made on the
basis of the docwnents submitted by the person concerned, with
the statutory right of protest to the agency or to the specialized Customs Court or Tax Court.
Apparently all initial determinations are considered by
the drafters of this legislation to be adjudications because the
new last sentence of section 5(b), pertaining to what ~~y be referred to as informal adjudications, provides that the subsection
"shall not apply to initial determinations vii th respect to public
property, loans, grants, benefits, contracts, inspections, tests
or elections."

Since initial determinations by the Customs

Bureau and the Internal Revenue Service of assessments of duties
and taxes are not included in this exemption, it certainly could
be argued that they are covered.

However, they may in fact be

excluded by the new opening clause of this subsection "[ uJnless
expressly otherwise provided by statute," since the procedure
for the assessment of duties and taxes is covered in the Customs
and Revenue laws.

(We would hope, however, that at a minimwn a

statement would be put in the Committee Report to this effect,
in order to be sure of the availability of this clause in such
customs and revenue cases.)

- 6However) even j.f section 5(b) did not require semi-

adversary proceedings in the countless millions' of initial determinations of duties and taxes, it would still be necessary to
decide the application to these determinations' of the other provisions of S. 518, which I have listed, for the public disclosure
of all final opinions and orders in the adjudication of cases,
for providing an opportunity for

settlement," for the appear-

ance of parties and counsel, for the required issuances of subpenas, etc.

The application to the initial determinations de-

scribed of procedural privileges and requirements designed for
adversary proceedings is clearly inappropriate, but seems to be
required by the use of the key words pertaining to adjudication
throughout

s. 518.

To cure the ambiguity and circularity of the legislative
definitions, I recommend that the definition of adjudication in
section 2(d) be restricted to the type of proceeding which the
Committee appears to have in mind.

One means of accomplishing

this would be the addition of an exclusionary sentence stating
that "adjudication does not include the initial determination
which an agency is authorized by law to make unilaterally on the
basis of documents submitted, or facts before it."

AIl

alterna-

tive method would be to re-define the term "adjudication" to
mean "agency process for the receipt and examination of evidence
and argument on disputed issues of law, fact, or discretion, and
for decision resulting in the formulation, amendment or repeal

8' I

- 7 of an order. II

..J ''''

Drafts of these alternative Cimendwcnts, and of

amendments later prolX)scd to other sections, aTe a LtG.cheLl to my
written statement.

There are three areas in section l~ Gn rulemnking in vihic~l
this Department strongly recornmencls clal'ificatior; to prt'veht
confusion amonG interested pers::ms and the agendc:s and needless
litigation, and to carry out the apparent intent of the
of this legislation.
1.

1nese areas are the

d~~i:l.fters

followinl~:

The legal effect of a petition "Thich, under sUDsecti:xl

(g), any interested I,erson may make for the issuance,

8JY!2,Jru;1C::L '. ;

exception f:rom or repeal of a rule needs to be mlJ.de definite.
The proposed wording of subsection (b), referring to "l'ulemaking
to be ll..l1dertaken by the agency on its

mID

motion or pursuant

t~,

petition," might be taken to require the initiation and completion
of rulemaking procedures pursuant to any petition received, regardless of its merits.

The chaotic effect of such an inter-

pretation may be seen clearly, for example, in revenue operations where the stability and reliability of promulga.ted rules
are of cardinal importance.

Revenue rules 'would be in a con stant

state of upheaval if rulemaking were required on the strength of
every petiti8n.

We recommend that the text of section 4(b) or

the Committee report make clear that rulemaking

'p'1rS'12.nt

petition is to occur only with the consent of the 2gency.
2.

Subsection (d) on emergency rules contai~lS a provision

on the extension of eInergency rules which is if. ;oIlsistent vrith

- 8-

the eX])lane.tL:m given by the Senate Co!maittee in its rq)ort on
this provision in S. 1336.

The provision reads:

"The agency m:ly

extend such emergency rule for a pe:t'ic.1d not to exceed one year
only by commencement, prior to the e:h:pirati,)ll of the ori[,;ina1
effective period, of a ru1emaking proceeding . . . "

This sentence

is generally read to me8.n that an emergency rule may be ext.ended
only for a period not to exceed one year despite the completion
of the new rulemaking procedures.

The Senate Conunittee Report

on S. 1336, hen'lever, (page 11) explains that the agency 'dill have
a year in which to complete the proceeding and re-issuance of the
emergency rule or a successor ruJ.e covering the situation.

the strength of the explanation, it is reconmended that the

~lrase

"for a period not to exceed one yearH be deleted from its present
position and added as a limitation on the rulemaking proceeding
described in the latter part of the sentence.

The final phrase

might then read "upon giving notice reQuired by subsection (b)
of this section, and by completing the rulemaking proceeding
within a period not to exceed one year from the original date
for the expiration of the emergency rule."

3.
tion (h).

The Treasury welcomes the new exemption (6) in subsecThis addition exempts from the notice and public proce-

dure provisions of section 4 "rulemaking that relates solely to
,"
the establishment or revision of monetary ra t es or po 1 ley.
is important, however, that this exemption be lillderstood

-v

t~ e~~

brace the various monetary and fiscal operations set forth in

- 9-

the statement regarding this exemption which is being proposed to
the Judiciary Committee for its report by, the Com:ptroller :)f the
Currency, the Board of Governors of the

Fec'lel'~l

Reserve System,

the Federal Home Loan Bank Board, and the Federal Deposit Insurance Corporation,

This statement is to the effect that the ex-

emption is intended to cover "actions establishing, maint'aininc,
or modifying interest, dividend, or credit rates, terms and conditions, or reserve balances, and actions involving debt issuance
or management or the formulation of directives as to securitiE's
or currency transactions, the execution of which is related to
the implementation of effective monetary or fiscal policy."

The

Treasury endorses this proposed statement for the reasons ad';s.nced
by these four agencies, specifically, the disruptive effect on
financial markets and financial institutions of prior published
notice and public participation in proposed financial regulation.
I should like to add at this point that the Treasury also
endorses and supports the other proposed amendments and Corrrrnittee
report suggestions which the four banking agencies have jointly
submitted for the Committee's attention.
III.

Emergency action
The provision for emergency action in section 5(a)(7) ap-

plies only to formal adjudication under section 5(a).

However,-

it should also be available in the much larger area of so-called
informal adjudication covered by 5 (b), particularly if the definition of adjudication is left as broad and indefinite as it is.

- 10 The Treasury Department needs to take emergency action, for example, in the administration of sectio;) 5 of the "Trading vti th the
Enemy Act (50 U.S.C. App. 5).

The Office of Fo~~e:1.gn Assets Con-

trol must be in a position promptly to bloc}: assets in the United
States from movement to proscribed areas, such as CO!Ylpnmist Cl::ina,
Cuba and North Viet Nam, action Vlhich vrould be vitiated if the
Office had to inform the o\Vner of the assets in advance of the
"issues, facts and arguments involvec1" in the blocking action.
ConseQuently, we strongly recommend that the emergency action
provision be made a separate subsection of section 5.
IV.

Ancillary matters
The Treasury recomrnends the amenQment of three of the sub-

sections of section 6, in the interest of effective enforcement
of criminal and revenue laws.
1.

Subsection (a) on appearance provides in its second

sentence that every party shall be accorded the right to appear
in person or by or Vlith counsel in any agency proceeding or
investigation.

Since the term "party" is defined only in terms

of an agency proceeding, it is' not clear Vlho must be accorded
the right to appear in person or by counsel during an investjgation.

If the provision means that any person \Vho is

th~

subject

of an investigation must be accorded the right to appear, the
provision would cripple law enforcement activities where investigations must generally proceed without disclosure to the
subject to investigation.

person~

The testimony and even the lives of

informants may be jeJpardized by the appearance in the

- 11 -

investigation of the suspected law violator.

Furtherworc, a tax-

payer might argue tbat this second sentence. entitles him to be
present, either personally or by counsel, c1udng questioning of
witnesses 'before the Service.

These results cannot have be(;n in-

tended by the drafters of the lec;islation.

The reference to in-

vestigation in this sentence should be dropped.
2.

Section 6(d) on investi8ation provides that every per-

son who voluntarily or involuntarily submits data or evidence
shall be entitled to retain or procure a copy or transcript
thereCJf.

Our objection is that this subsection OP.1its the further

provision in secticm 6(b) of the APA that in a nonpublic investigatory pnceeding the witness may, for good cause, be limited to
inspection of the official transcript of his testimony.

The value

of the present provision lies in the well lmovlD fact that a witness
may vo1untarily or invohmtarily make his CJpy of the transcript
available to the person under investigation, partic 11larly in a
criminal investigation, and thus prejudice the Government's case.
The intimidation of witnesses by prospective defendants has occurred with particularly horrible results in connection with the
enforcement of the narcotics laws.

At present there is no

criminal statute to preclude possible intimidation of a witness
at the investigative stage.

In the absence of such a statute it

is believed that the present restriction on

furnis~iEg

transcdpts

to witnesses in nonpublic investigations should be preserved.

Section 6(g) provides a new computation of time but makes

the termination dependent upon whether the last day of the period

- 12 ..
is a holiday or half-holiday.

This leaves open the question of

what constitutes a holiday in the given circLUnstances.
clarification provided by the Internal

Reven,~lC'

The

CDde orl this

point, 26 U.S.C. 7503, suggests th~t the cxi~~ence of a holiday
or half-holiday should depend upon "There the determinative act
or event occurs, in the District of Columbia or a partlcular
state.

Amendment of this section is reconIDlended for this purpose,

The foregoing statement attempts to single out those provisions of S. 518 of particular concern to the Treasury Deps,rtment.
This does not mean that vle do not share in other 8,drrdnistrative
problems embodied in S. 518 vlhich Irlay be discussed by other
agencies.

VIe are grateful to the Committee for its attention

to our statement and respectfully urge that the recommendations
we have advanced be carefully considered.
Attachment

Recommendations for Amendment ,of S. 518
Submitted by Fred B . Smith, General Counsel, Treasury De::;-Y::l.ltm2nt
To the Subcommittee on Administrative PrD,ctice and Procedure
At its Hearings, !'i.l.rch 7, 1967
Definition of Adjudication
Alternative 1:
ing sentence:

At the end of section 2(d) add the follo'tr-

"Adjudication does not include the initial deter-

mination which an agency is authorized by law to w3ke unilaterally
on the basis of documents submitted or facts before it. It
Alternative 2:

Strike the last sentence of section 2(d) aJld

substitute the follovTing:

"'Adjudication' means agency process

for the receipt and examination of evidence and argurrlent on disputed issues of law, fact or discretion,and for decision resulting in the formulation, amendment or repeal of an order. 1I
Ru1emaking .Provisions
In section 4(b) insert the vtords "with its consent" following the words "on its own motion or" on line 15 of page 19.
In section 4(d) strike the second sentence and substitute
the following sentence:

"The agency may extend such emergency

rule only by commencement, prior to the expiration of the original effective period, of a rulemaking proceeding dealing with
the same subject matter as did the emergency rule, upon giving
notice required by subsection (b) of this section, and by completing the rulemaldng proceeding wi thin a period not to exceed
one year from the original date for the expiration 'Jf the
emergency r ul e. "

- 2 -

Q
7
v I

Emergency Action
Omit paragraph (7) in section 5(a), insert the provisions of
paragraph (7) following section 5(c) as section 5(d), and change
the word "subsection" to "section" at the end of tre first sentence.
Ancillary Matters

In section 6(a) Appearance, strike the words "or investigation" at the end of the second sentence.
In section 6(d) Investigations) strike the period at the
end of the section, insert a comma, and add the follo\<ling clause:
"except that in a nonpublic investigatory proceeding the wit!1ess
may for good cause be limited to inspection of the official
transcript of his testimony."
In section 6(g), insert at the end thereof the following
sentence:

"Holiday or half holiday means a holiday or half

holiday in the District of Columbia or, if the determinative
act or event occurs else\-lhere, in the state in which such act
or event occurs."

TREASURY DEPARTMENT

March 13, 1967

FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN FEBRUARY

During February 1967, market transactions
in direct and guaranteed securities of the government for Government investment accounts
resulted in net purchases by the Treasury Department of $5e·5 ,355,500.00.
000

F-841

TREASURY DEPARTMENT

March 13, 1967
FOR IMMEDIATE RELEASE

TREASURY DECISION ON SHOES
UNDER THE ANTIDUMPING ACT
The Treasury Department has determined that leather shoes from Romania,
including men's and boys' of welt construction, and also shoes other than
men's and boys' of welt construction, are not being, nor like~ to be, sold
at less than fair value wi thin the meaning of the Antidumping Act, 1921, as
amended (19 U.S.C. 160 et seq.).
Notices of intent to discontinue investigation and to make a determination that no sales exist below fair value were published in the Federal
Register on November 8, 1966. The notice with respect to men's and boys'
shoes of welt construction stated that the termination of sales and the exporter's assurances that future sales, if any, would not be below fair value,
were considered to be evidence that there are not and are not likely to be
sales below fair value. The notice with respect to shoes, other than men's
and boys' of welt construction stated that price revisions and the exporter's
assurances that future sales would not be below fair value, were considered
to be evidence that there are not and are not like~ to be sales below fair
value.
No persuasive evidence or argument to the contrary was presented within
30 ~s of the publication of the above-mentioned notices in the Federal
Register.
Customs officers are being instructed to proceed with the appraisement
of this merchandise from Romania without regard to any question of dumping.
Imports of leather shoes from Romania, men's and boys' of welt construction, received during the period May 1, 1964, through December 31, 1966,
were valued at approximately $360,000.
Imports of leather shoes from Romania, other than men's and boys' of

~elt construction, received during the period April 1, 1965, through Decem-

Jer 31, 1966, were va.lued at approximately $425,000.

TREASURY DEPARTMENT

March 13, 1967
FOR IMMEDIATE RELEASE
TREASURY DECISION ON FUR FELT HAT BODIES
UNDER THE ANTIDUMPING ACT
The Treasury Department has determined that fur felt hat bodies from
Czechoslovakia are not being, nor likely to be, sold at less than fair
value within the meaning of the Antidumping Act, 1921, as amended (19
U.s.C. 160 et seq.).

A "Notice of Intent to Discontinue Investigation

and to Make Determination That No Sales Exist Below Fair Value," was published in the Federal Register on November 30, 1966, stating that, because
of price revisions, and because of unconditional assurances given by the
exporter that no future sales of the merchand.ise will be made to the
United States at less than fair value, there were not, and were not likely
to be, sales of such merchandise below fair value.
The complainant submitted a written request for an opportunity to
present views in person in opposition to the above-mentioned notice.

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 this notice
were given full consideration.
Imports of the involved merchandise received during the period January 1, 1965, through October 31, 1966, were valued at approximately $332,000.

TREASURY DEPARTMENT
(

t RELEASE 6 :30 P.M.,
March 13, 1967.

Lday,

RESULTS OF TREASURY'S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series ot Treasur,y
one series to be an additional issue of the bills dated December IS, 1966, and
! other series to be dated March 16, 1967, which were offered on March 8, 1967, were
!ned at the Federal Reserve Banks today. Tenders were invited for $1,300,000,000,
thereabouts, of 9l-day bills and for $1,000,000,000, or thereabouts, of 182-da.y
.1s. The details of the two series are as follows:
~sJ

raE OF ACCEPl'ED
rPETITIVE BIDS:

High
Loll'
Average

91-day Treasury bills
maturing June lSI 1967.
Approx. Equiv.
Price
.Annual Rate
98.920
4.273%
98.908
4.320%
98.911
4.308% Y

182-d.ay Treasury bills
maturing September 14, 1967.
Approx. EqUiv.
Annual Rate
•
Price
; --9-7.....8~S6~4.241%
97.841
4.271%
97.844
4.265% Y

84% of the amount of 91-day bills bid for at the low price was accepted
27% of the amount of 182-day bills bid for at the low price was accepted
'AL TENDERS A?PLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISmCTS:

listrict

,tlanta
:hicago
:t. Louis
[inneapolis
:ansas City
lallas
:an Francisco

APE1ied For
AcceEted
I 20,282,000 $ 10,282,000
1,542,227,000
792,294,000
27,970,000
15,920,000
41,355,000
28,598,000
22,422,000
16,182,000
70,967,000
53,947,000
339,246,000
119,916,000
SS,8U,OOO
32,035,000
21,104,000
12,872,000
35,229,000
35,141,000
25,466,000
18,226,000
166,098,000
250,238,000

TOTALS

$2,452,317,000 $1,301,511,000

\aston
York
)hilade1phia
:leveland
few

181i1oDd

Accepted
AEElied For
$ 12,509,000 #
2,,09,000
1,915,872,000
875,914,000
15,130,000
6,67.3,000
29,748,000
17,768,000
14,210,000
4,210,000
37,693,000
10,163,000
3U,107,000
41,333,000
37,171,000
11,21l,OOO
10,471,000
5,531,000
10,187,000
10,087,000
17,248,000
6,998,000
259,215,000
9,010,000

$2,670,561,000

$lJlOO1,~1,000

Includes 8287,108,000 noncompetitive tenders accepted at the average price of 98.911
Includes $.116,894,000 noncompetitive tenders accepted at the average price or 97.844
These rates are on a bank discount basis. The equivalent coupon issue yields are
4.43% for the 91-day bills, and 4.43% for the 182-day bills.
F-842

TREASURY DEPARTMENT
Washington
Statement by the Honorable Henry H. Fowler
Secretary of the Treasury
Before the House Banking and Currency Committee
Monday, March 13, 1967 10:00 a.m.
Mr. Chairman, I welcome the opportunity to appear before this
distinguished committee.

In today's session, I hope to provide you

with an overall view of the nation's general economic posture from a long
range perspective as background for your legislative consideration of areas
under the jurisdiction of this committee.
Other committees of Congress exercise specific jurisdiction over
taxes and appropriations.

However, this committee must be concerned with

the results of fiscal policy because of its impact on the nation's financial
markets and over-all economic stability.
first on the public debt.

Therefore, I would like to touch

Then I shall discuss recent fiscal, economic and

balance of payments developments.

After that I shall be glad to answer

questions.
Total defense costs will rise $5.3 billion in fiscal 1968.

To cover

these additional defense expenditures, the budget proposes that income
tax payments be increased by $5.5 billion in fiscal 1968.

While providing

adequately for our national security overseas, the President's fiscal
recommendations conserve and maintain programs underpinning economic
security and opportunity here at home.
Deficits Caused by Viet Nam
Total expenditures for the fiscal years 1966, 1967, and 1968 are, of
course, very large.

However, Chart 1 shows that aside from the special

costs of Viet Nam in the three fiscal years ending with 1968, we would be
running large and increasing surpluses, assuming, of course, the additional
resources of men, materials and production facilities employed because of

F-843

- 2 -

the Viet Nam conflict could be transferred to other uses in our economy and
not be merely idle.
In fiscal 1966, with Viet Nam costs removed, the outlays would come
to $100.9 billion compared with receipts of $104.7 billion giving a surplus
for that year of $3.8 billion.

Even if we subtract the $1.2 billion extra

revenues from the Tax Adjustment Act of 1966, which was enacted because of
Viet Nam, there would still be a surplus of $2.6 billion.
In the current fiscal year, 1967, we expect a jump in Viet Nam costs
to $19.9 billion, which if eliminated, would yield a surplus of $10.2 billion.
Again eliminating the extra revenues produced by last year's Tax Adjustment
Act, $4.6 billion in fiscal 1967, we would still wind up the year with a
large surplus -- $5.6 billion.
The fiscal 1968 budget includes $22.4 billion in special Viet Nam costs.
Were this to be eliminated, we would have a gigantic surplus of $14.3 billion.
Since the new tax recommendations are being made to help finance a part of
these costs we should eliminate the $5.5 billion in revenues from this
source.

Even after this is done, however, the surplus would still come to

$8.8 billion, which would be the highest surplus in our history.
These surpluses, eXCluding Viet Nam costs, are potential surpluses.
They could have been used to reduce tax rates, retire debt, or possibly
to undertake or expand programs that have had to be passed up or restricted
because of Viet Nam requirements.

- 3 -

The Public Debt in Perspective
The projected budget deficits resulting mainly from increased defense
costs will, of course, require the Federal debt to rise.

There is no

question, however, of the capacity of our economy to carry the extra burden.
In the first place, the Federal debt has grown at a much slower rate
than the economy.

From the peak of more than one and one-third times the

GNP in fiscal 1946, as shown on Chart 2, the pub lie debt has steadily
declined, dropping to 58% in 1960 and to 45% in 1966.
will fall further to about 41% in 1968.

This would compare with 51% in 1940,

before the large wartime debt rise began.
Federal debt

We estimate that it

By this measure, the size of the

a steadily lessening strain on the carrying capacity of the

economy.
While the dollar amotmt of the Federal debt was growing slowly -- and
declining relative to GNP -- State and local debt and private debt of
businesses and individuals was growing rapidly.

As Chart 3 shows, in the

20 years since 1946 the public debt increased by 27% while the debt of
other borrowers increased to between 5 to 8 times their 1946 levels.

consequence the Federal share of total indebtedness in the cotmtry, as
indicated on Chart 4, declined from 58% at the end of 1946 to 29% by
December 31, 1960, and was only 22% at

th~

end of last year.

During most

of the postwar period, this relative decrease in the Federal debt enabled
the private economy to expand sharply without overstraining our resources.
The burden of the Federal debt on each individual has also been sharply
reduced since 1946.

The growth in our populntion has substantially exceeded

the increase in the Federal debt and as a

re~ult,

dropped from $1,909 in 1946 to $l,62R In 196b.

the debt per person has

Adjusting the per capita

q ..

- 4 -

debt for changes in the price level, in Chart 5 we used 1957-59 dollars, the
burden per capita has declined from $2,849 to $1,439 -- or almost 50 percent.
Using current dollars the decline would be less than $1,000.
An even more striking story is told when we relate the debt per person

to income received.

As shown in Chart 6 the decline in Federal debt per

capita from $1,909 in 1946 to $1,628 in 1966, is contrasted with disposable
income.

Per capita disposable personal income -- the income left after

Federal as well as State and local taxes -- rose from $1,132 in 1946 to
$2,567 in 1966.

In relative terms therefore, the debt has declined from

169% of disposable income in 1946 to 63% in 1966.
SecondlY, while the debt burden has been decreasing relative to the
economy, so has the interest burden.

Despite the rise in debt and interest

rates, interest on the debt as a percent of GNP declined from 2.3% in 1946
to 1.9% in 1960, and even after the sharp 1966 rise in rates is still about

1.8%.
Interest on the public deht is shown relative to receipts In Chart 7.
In 1946 it was 12% of receipts, rising to 16% in 1950, and in 1968 are
estimated at 11%.

Thus even on this least favorable basis the interest

burden has declined.

In terms of all these measures, it would seem that,

despite the increasing total of the national debt since World War II, the
nation is able to bear the present burden of the existing public debt without
impairment of the private economy.

- 5 -

Each of these measures shows that the burden of the public debt has
been reduced during the past two decades.

I want to stress this trend.

In terms of all these measures, it is abundantly clear that we are today
well able to bear the present and prospective burden of the public debt.
The Tax Burden in Perspective
All Administrations since World War II have worked hard and consistently
to hold down civilian expenditures and get maximum efficiency out of every
dollar of Federal spending.

Before the step-up of our activities in

Viet Nam, these efforts were successful enough to permit substantial tax
reductions in 1962, 1964 and 1965.
The 1962 tax reduction included the investment credit.

In 1964 the

reductions in personal and corporate income taxes made cuts averaging 20%.
The 1965 Act removed excise taxes on over 200 separate items.

As shown

in Chart 8, these tax actions resulted in saving taxpayers nearly $23 billion
a year at fiscal 1968 income levels.
Largely as a result of these tax reductions, Americans enjoy the lowest
tax burden of any major industrial country in the world -- and this includes
taxes levied at all levels of government -- Federal, State and local.

shown in Chart 9 the estimates of the Organization for Economic Cooperation
and Development show that as a proportion of total national production, French
citizens paid 38.5% in taxes; Germany, 34.4%; Italy, 29.h%; Great Rritain, 28.6%;
and the U.S., 27.3%.
These figures are not cited to imply that Americans are having it easy.
The main purpose of the 1964 and 1965 tax cuts was to permit the private
sector of our economy to flourish by alleviating the burden of high taxes.

97
- 6 -

But the figures do show that we can afford to pay for our rising defense
costs and keep our economy healthy.
National Economic Performance
The response of the National economy to these public finance po1i,cies
of recent years is shown in Chart 10.

In the 1955-60 period our annual

rate of growth was only 2.2%, far lower than virtually all of the other
major countries.
4.7%.

In the 1960-65 period, it more than doubled, rising to

Thus, while most of the major European countries were experiencing

falling growth rates, -our own was rising to a position of leadership.
The truly remarkable thing about our growth during this period was
that it was achieved with the most stable price level of any major
industrialized country in the world.

This is shown in Chart 11.

Between

the 1955-60 period and the 1960-65 period, the rate of price increase in
the United States declined from 2.0% to 1.3%, accompanying a tremendous
rise in production.
The United States continued its world leadership in growth and price
stability in 1966 despite the impact of the war in Southeast Asia.

shown in Chart 12, our growth rate of nearly 5-1/2% exceeded that of all the
major nations in Europe.

Moreover, as shown in Chart 13, the United States

had one of the best price records among the industrialized nations despite
the heavy demands on the economy resulting from our activities in Viet Nam.
Keeping consumer price increases below 3% under circumstances of great strail
was obviously a significant achievement.

- 7 The gains ln both growth and stability during the period SInce 1961
are illustrated in Chart 14.

This shows that our average growth rate stepped

up from 2.2% in the 1955-60 period to 4.7% in the 1960-65 period.
add 1966 to that 5-year period, the growth rate reached 4.8%.
improvement in price movements was also marked.

If we

The

Thus price increases, as

measured by the GNP deflator, averaged 2.6% in the 1955-60 period, but
dropped to 1.4% in the 1960-65 period.

Even if we add the Viet Nam year

of 1966, average price increases were only 1.7%

still considerably less

than the 1955-60 interval.
In the 18 month period from June, 1965 to December, 1966, the
United States absorbed an extra $15 billion in expenditures as a result of
our activities in Viet Nam.
on prices.

Ohviously such a burden has added to pressures

In presenting his Budget a year ago, the President recognized

that pressures would be great.

That is why he proposed not only holding

civilian expenditures at minimum levels, but also an increase in revenues
through the Tax Adjustment Act of 1966.
Selective fiscal restraint in the form of a $3 hillion deferment of
expenditures and a suspension of the investment tax credit, was proposed
and adopted later in the year.

Thus, while price rises hegan to accelerate

during 1966, these pressures slackened in the final months of the year.
Monetary policy moved away from stringency as did fiscal policy.

Last week

the President recommended lifting the investment credit suspension because of
the reduced pressures on the economy.

Q~
V'-..J

- 8 -

How well the economy has performed during the first 18 months of Viet

Nam compared with its performance in other l8-month periods is shown in
Chart 15.

During the first 18 months of the Korean conflict, consumer

prices jumped 11.1%.
of Viet Nam.

This compares with 4.2% during the first 18 months

Such an increase is unwelcome, but remarkably moderate,

considering the pressures of an extra $15 billion defense expenditures during
that period.

The record was even better than the 18-month peacetime period,

June 1956 to December 1957, when consumer prices rose 4.6%.
Chart IS also compares wholesale price and wholesale industrial price
movements during the Viet Nam period with earlier periods.

Again, recent

price performance was better than either the Korean or the non-war period.
The stability of these prices is vital to the maintenance of our balance
of payments position.
Balance of Payments Progress
I come now to the balance of payments situation which has been a source
of national and international concern since the late 1950's with massive
deficits and serious declines in our gold reserves in 1958, 1959 and 1960,
resulting in the mounting of a diverse program to deal with the problem in
1961 which was intensified in 1963 and, again, in 1965.
goal of payments equilibrium was well within sight.

By mid-1965, our

Since then, the Viet Nam

conflict has, of course, had a significant adverse impact.
Despite these extra costs, we have held our ground.
balance and gold losses are shown in Chart 16.

Our "liquidity"

The liquidity balance treats

changes in liquid-dollar holdings of private foreigners as part of the
measure of our deficit.

On this basis, last year's deficit was somewhat

- 9 -

over $1.4 billion -- roughly $100 million more than in 1965.

This minor

increase should be viewed against a far greater rise in direct foreign
exchange costs associated with Viet Nam and an increase in indirect costs
due to sharply higher imports.
year.

Gold losses amounted to $571 million last

This was much below the $1.7 billion in 1965 which included a $259

million payment in connection with the increase in IMF quotas.
Chart 17 views the "official reserves transaction" balance which places
the change in private foreign holdings of liquid dollars "above the line",
and focuses on official holdings of reserves.

On the other hand, it includes

changes in certain of our non-liquid liabilities to foreign official institutions
which are not part of the liquidity deficit.

On this basis, we actually

showed a slight surplus of about $175 million on the basis of preliminary
figures.

This was the first such surplus since 1960, when we began to keep

figures in this fashion.

The surplus was due in large part to the tight

credit situation -in the U. S. and the unsettled condition of sterling during
part of the year.

As a result, dollars which might otherwise have moved

into foreign official reserves remained in private hands.
On trade account, our surpluses declined by a little more than $1 billion
in 1965 to about $3.7 billion last year.
Chart 18.

The trade results are shown in

As you will notice, our exports continued to rise strongly

more than 11 percent.

But, imports rose hy almost 19 percent primarily

because of the faster pace of the economy and rising military orders.
growth in imports is expected to taper off this year.

The

In fact, imports showed

practically no change between the third and fourth quarters of last year.

- 10 -

101

An improving trade balance wi 11 be very important in the advance toward
equilibrium.

Therefore, we are stressing the need for an early return to

cost-price stability.

As I have indicated earlier in my remarks, the price

record in the past 18 months was a very good one, judged by previous standards.
Now, the President's over-all fiscal and financial program is designed to
keep the economy moving ahead steadily and safely while we make a prompt
return to relative stability in our costs and prices.
Much is made of the U. S. balance of payments deficits, and properly
so because they are a real threat to the position of the United States as
the world banker and the dollar as the leading reserve currency because of
the lessening liquidity in our position.

But, there is another side to this

story which reflects the continued growth in our international financial
strength.

The fact is that while foreigners have been increasing their

assets and investments in the United States, our own businessmen and to a
much lesser extent, our government financial arms, have been increasing
United States assets and investments abroad at a much higher rate.

Chart 19,

for example, shows that in 1961, the United States position abroad rose
$3.5 billion while foreigners position here rose only $2.2 billion.

In 1962,

the United States position jumped $5.3 billion while foreigners dropped
six tenths of a billion.
period of the '60's.

This situation has been maintained throughout the

At the end of 1965 United States assets and investments

abroad totaled $106.1 billion whereas foreign assets and investments in the
United States added up to only $5R.9 billion.

- 11 In 1961 our assets and investments abroad totaled $75.0 billion
and foreign assets and investments in the United States totaled $46.9 billion.
Thus between 1961 and 1965 United States assets and investments abroad rose
$31.1 billion while foreign assets and invcstments in the United States
grew only $12 billion.
Since the dollar is vital in its use as a worldwide reserve currency,
it is important that wc constantly strive to bring our balance of payments
into equilibrium.

Nevertheless, the United States has continued in a very

strong worldwide financial position as indicated in the Chart.
Mr. Chairman, this completes my statement.

Thank you very much.

- 11 In 1961 our assets and investments abroad totaled $75.0 billion
and foreign assets and investments in the United States totaled $46.9 billion.
Thus between 1961 and 1965 United States assets and investments abroad rose
$31.1 billion while foreign assets and investments in the United States
grew only $12 billion.
Since the dollar is vital in its use as a worldwide reserve currency,
it is important that we constantly strive to bring our balance of payments
into equilibrium.

Nevertheless, the United States has continued in a very

strong worldwide financial position as indicated in the Chart.
Mr. Chairman, this completes my statement.

Thank you very much.

With and Without Viet Nam Programs
$Bi1.

$Bil.

Without Viet Nom *----....,

Surplus
+4

o
-3.4

-4

Ii
Deficit

-8

1964

1965

With Viet Nom ·x-

-12 I

-4

-8.1

-8.2

1966

1967

1968

1-12

*/nc/udes both tax and expenditure programs.
Office of the Secret8J) of the Treasury

8- 215-A

134
Percent

f25

Public Debt
as a Percent of Gross National Product

J-I.

1942
Fiscal Years

1945

0/0

800

••
.
.-.

End of Calendar 1946 = 100

•••

.-.

..,

700

••••

•••
••

600

Slole and Local , ••••••
••

Individual '\ •••••••

..-...

•••

••••

.....-•••~
---"~

•• ••

,,- __ fIII"

Office of the Secretary of the Treasury

-,"

500
400

""til"

.-.-

,,"
~Corporale

",'"

300

-,,,-200

I 100 ~

Federal \

zr~

1946

••

••
•
••
••••

"~'

I
1950

1955
December 31

1960

1966
I

8-1535

%of
Total

of Total

100 '-t
13
+

I
60r41

40~

~ I-~

1,,~c~l~

~......l

---.

~-"

20~ I ~~FlJdl!ro/~~~-l

Il~
1946
\.

Office of the Secretary of the Treasury

1950

~.
1955
December 31

1960

1966
./

8-1534

DOLLARS
~

2,849

2,000

1,000

'-A

(

~=:J

1955

~---------------------June30----------------------~

Office of the Secretary of the Treasury

8-1537

PER CAPITA FE.DE.RAL DEeT AND O'£'PO~ABLE
PERSONAL INCOME
DOLLARS

Debt as %of Income

Dollars Per Capita
.12,567

2,000 1,909

Federal
Oebl*

••
•
••
••

....

••

200

•••••

1690/0

.....•

•••••

awy~3m L)))wMI,628

150

100
1,000

63%
50

"-_\

K<Y<4«Y<l«V<K«<=<Y/V~

1946 '50

'55

'60

'66

"*June 30, each year.
Office of the Secretary of the Treasury

'::)
"r

«"««<'VA/:<K<4«J({{«K{(({{""'"1

I94SV/'50

'55

'60

'66

"'Calendar years.
8-1532

16%

15
'~~n

::....

..:::
....
~

~~~~

::11
!!!I II II
........
...... ..

::::::::::::
....... .

:
: : : ::: : :: ...
...........

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

;.. .\

~i. ...
~~ ~i. n
...H
.
,

~~':. . .
.

5
'.

f--'

1 · · 1 ...

+......

1946
l

-I ..H! ........ +.HH

1950

.!.H ........ !. ...... H.. l

..... j

...... !'

1955

1960

Fiscal Years

1965

'68
)

Note: /967(Jnd '68 estimoted
Office of the Secretar} of the Treasury

8-1536

Chart 8
EstLffiated Effect on Fiscal Year Receipts (Administrative Budget) of Tax Changes Since 1962
($ billions)

1963

Fiscal years
~64:_ J.90
1966

1967

1968

Revenue Act of 1962:

+ 0.8

- 1. 6

- 1. 9

+ 0.8

- 1.4

- 1. 5

-.1.

- 1. 7

- 1. 8

- 2.4

- 8.7
- 1. 5
+ 1.0

-12.4
- 2.9
+ 2.0

-14.1
- 3.2
+ 2.0

-15·5
- 3.2
+ 2.2

Revenue Act of 1965: Excise reduction ..... , ..... ,.

- 2.2

- 3·7

- 4.l

Tax Adjustment Act of 1966
Graduated withholding and increase declaration
70 to 80 percent ........................... .
Acceleration of corporate payments ......•.....
Excise tax increases .....•............•.......

+ 0.1
+ 1.0
+ 0.1

+ 0.4
+ 3.0
+ 1.2

- 0.2
- 1. 3
+-1:.:...2.

-17.0

-17.4

-22·9

Investment tax credit ..................•......
Other provis ions ....•.........................
Depreciation guidelines of 1962

1 -

1.1

- 1.

- 1.4

- 2.1]11 - 1. 3 ]1
+0.8
+0.8

Revenue Act of 1964:
Individuals .........................•.........
Corporations ................................. .
Acceleration of corporate payments .. '" ...... .

Total, enacted to date ...........•..•.. I - 2.4

+ 0.3

- 4.1

-ll·5

Proposed Legislation
Individual ...............•..............•.....
Corporation .................................. .
Excises .....•.............•...................
Total, enacted and proposed ............ 1 - 2.4

+ 3.4

+ 0.2

+ 2.1

- 0.4
- 4.1

Office of the Secretary of the Treasury, Office of Tax Analysis

-ll·5

-17·0

-17.2

-17.8

February 3, l~

Note: This table is presented only for nistorica1 background. Although figures for any one year are believed
to be reasonably accurate approximations, with possibility of duplication, they cannot be used for
estimateo of year-to-year Changes.
~

Including effect of Investment Credit Suspension Act of 1966.

t-'"
/--ol

;.-

Total Taxes For All Levels of Government as 0/0 of GN P
0/0

0/0

40 I

38.5

140

34.4

1--1
-

29.6

V-'-'..,-'..,..,A - - -

----------------~I

11f@f{(fflt]

II!

#--A

r-...
N

rc
1

France

Office of the Secretary of the Treasury

Germany

Italy

U.K.

u.s.
FO~422

0/0

'955-'60~1!!1-'960-~5

.{{

:.;-:-:.;

-----------------------------

16
~

5~1

:}»>I

:::::::::::::::::1
:»~:>~~

nu::tm

:::;:;:;:;:;:::;:
::::::::

-";..-

:::·:u:/]-:::::::::::

L:::!:.H:i!:I----He?}

~:::::

--------11

;:;:::;:;:::;:;:

i:::::I:::':. __-~

-------l12

;:;:;:;:;:::;:::

j>--!.
~~

...._.
t'

United
States

France

Germany
(F.R.)

United
Kingdom

*Rea/ GNPat market prices.
Office of the Secretary of the Treasury

FO-407-1

1955-00

_11~i111960-~5
[j:j:ji~[j[

------------------~14

f - I- - - - - - - - -

-----112

1f - - - - -

~
~

ii.i.!!!!!!:!·I:

w///j::i:::i:::::::::.
United

States

all<<4.....,

France

r««<!'"

Germany

( F.R.)

V««J':-:-:-:-:-:'::-'

Italy

WPA':';-:i':-:::'

United
Kingdom

Source: OECD and Economic Report of tile Preslden!
Office of the Secretary of the Treasury

FO-408-4

0/0

GROWTH

5Y2

"""
5

I~~

:--1
\J

V«<<aG""

"'""'"<<<'I

r«<<<<<<<<4

Wff«<H<A

W/P'/{///4

U.S.

Ito Iy

France

Germany
(F.R.)

United
Kingdom

Office of the Secretary of the TredSury

FO-420

1965 to 1966

0/0

3
=;:;:::;:;:;:::;::::::::::::::::::::::::::::=::::::::::::::::1

:.:.:-:.:.:-:«.;-:.;:::::: .

)::::):::::;:;:;\:::;j

))::))):'2'.:9':))):):::

: :i'i': :?~·~§: ;li:!i:!

•••••••••••••••••••••••••••••••

~:~: ~:~:~:~: ~:~: ~:~:~:~:~: ~ :~:~:
:::::::::;:::::::::::::::::::,:

1::::::i!::2:::3::'~::::::

~
~

(y-'

u. s.
Office of the Secretar) of the TrCdsuC)

U. K.

Germany

France

Italy

FO-421

"'I~r-

unvw

I H AND PRICE

COMPARISONS

1955 -'60, 1960-'65 and 1960-'66

Annual Rate of Real GNP Growth

Annual Rate of Price Change *

6
+4.7%

+4.8%

I
+2.6%
...........•.

+2.2%

RSR
~
~

--...\

IBM

IH:HHU:::y:::::m::!,:]

[:,!.!.,!:::::::,:':::::UU:::::!]

1::!!::::U!:::::::mU::::U::1

1955-'60

1960-'65

1960-'66

1955-'60

1960-'65

1960-'66

*GNP Price Deflator.
Office of the Secretary of the Treasury

C-1I33

- Non-war - - - - - - t - Vietnam

--------------~I

+3.8%
DS';';'::

-"
'-...J

M?lX"

r«««?

t·;·:.;·:·:·:.;.:.:·:··"

'X'¥'NS'

r«««?

p••••.•••••••.••••;.;.:.;,!

r?OOOO9OI

["'<<ZQ

,:-:.:.;.;.;.;.;:=:=:;:-.

June '50 - June '56 - June '65 - June '50 - June '56 - June '65 - June '50 - June '56 - June '65 Dec.'SI
Dec:57
Dec.'66
Dec:51
Dec.'57
Dec.'66
Dec.'51
Dec:S7
Dec.~66
*All commoddies other thon form ondprocessed foods.
Office of the Secretary of the Treasury

C-1I32

AND GOLD SALES
$Bil.

$Bil.

-41

/-4

-31-

------------------------------------------~1-3

~~~~
:-:.;.:.;.;.:.

~;i; _
1958

111~il_

'59

'60

-2.7
-2.2 - -

'61

'62

'63

*Prelimnary estimate.

Office of the Secretary of the Treasury

FO-417-A-1

TRANSACTIONS BASIS" AND GOLD SALES
$Bil.

$Bil.

-31-

-2

------------------------------------------------------~1-3

Officiol
Reserve Tronsocllons

f--

B%nce \

-2.7

-------11

(Jfftes

- - mm>-::!:!:l:::::!,

~<»::-!:l:::::i>:ii
a;vvv.......:

-1.5

-2

I-I

-1.3 -1.7

-.9 :

ol!

.....

-.I

*
+1 1

1960

'61

'62

'63

'64

'65

'66

*Preliminary estimate.

Office of the Secretary of the Treasury

FO-416-3

SBiI.'---

\$Bil.

Aid_I "nr'mports

30t--1- - Exports:

Com'l

251--1- -

--------------------------------~130

;\ \ \t~\: :

"·.':':-::::'f\m~~
:':1 "'" Surplus

201

• • • • • • 1-

48
1_

15~_1
..O
3.3 ~~~
::::::f}~' -

ii' -125

';0:0:';.;.1----1

~~f

r;}

::::;::

1:::::::::%::

ols~~FU"U ~:.:::'~6~2~~'~6'3illLJI!!ILJI'-IIl~1I1J

*Prelirninory estlmote.

Office of the Secretary of the Treasury

FO-401- A-2

II'IVt:.::S I M~NT

POSITION, 1961-'65
$BiI.

$8il

+10.8

+10

------------------------------~I+IO

t - I- - - - - - - - - - - - - - -

----------------------------------;1

r l- - - - - - - - - - - - - - - - - - - - - - -

+7.0
+6
+4

f-- +

r l- - - - - - -

Pi"

In wi

3.5

: : : : : : : : :~ 1::i:~~r:U:iml-11

IIf

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

ll8S8Sl

As Increase in u.s.
'Sets IJ Investme. t.
/
'
Abroad 1l:S ---1 +6
-----~1+4

[I I I [ I I I II r!dl
f---

:.:!·!: i:·! !:

o::::::::::::::::::t::::·::II~:::I:::::::::ImH:::::t:::::::~

Increase in Foreign
Assetsinathe
Investments
../
u.s.

-0.6
1

-2

19 61

'62

'63

'64

'65

-2

Memo: At end of1965: U.S assets and investments abroad total $1061 bl/lion.
Foreign assets and investments in U.S lotol $589 billion.
Source: Deportment of Commerce.
Office of the Secretary of the Treasury

FO-423

TREASURY DEPARTMENT
Washington

123

STATEMENT BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE THE HOUSE WAYS AND MEANS COMMITTEE
ON H. R. 6950

TUESDAY, MARCH 14, 1967, 10 A.M. EST
Mr. Chairman and Members of the Committee:
I welcome this opportunity to discuss the recommendation

for reinstating the 7 percent investment credit and accelerated
depreciation presented in the President's Message of March 9,

1967 and to express the Treasury's views on the bill before
you, H. R. 6950.
I also want to thank the Committee for the promptness
with which it arranged to hold these hearings.

Once again

the Congress is demonstrating its ability to act speedily and
responsibly to meet the requirements of sound economic policy.
I favor the immediate restoration of the investment credit
and accelerated depreciation.

As members of this Committee

are well aware, I have always been a strong exponent of the
investment credit.

Since its

ince~tion

in 1962, the credit

has unquestionably made a substantial contribution to promoting high levels of investment and economic growth, and to the
generally remarkable performance of our economy in recent years.

F-844

- 2 -

It is an essential, and should be an enduring, part of
our tax system.
As members of this Committee also know, I carne to the
decision last September that suspension was an appropriate
measure only after very careful consideration.

I made clear

in my testimony before this Committee, and elsewhere, that
I regarded the suspension bill as a temporary measure.

The

suspension legislation itself emphasized the temporary nature
of the suspension by providing for automatic restoration of
the credit and accelerated depreciation on January 1, 1968.
However, it was never my view that the January 1 date was in
any way binding or immutable as a termination date.

Rather,

it was my full expectation that the suspension period would
actually be terminated whenever economic, or other conditions
made such action appropriate.

As I stated before this Committee

in answer to a question from Congresswoman Griffiths:
"I think the expression of the date li.e., Jan. 1,
19687 is really an expression of the intent and
purpose of both the President and the Congress to
renew the credit when the economic circumstances
and surroundings are more propitious. I don't
think there is anything magic about the January 1,
1968, date or the 16 months' period. It is simply
a planning period."

12~J
- 3 -

This view that it would be desirable, indeed obligatory,
to reinstate the credit as soon as conditions warrant it,
was expressed both by the President and the Congress.

In his

signing statement the President said:
"If . . . any earlier reinstatement would be
appropriate, I shall recommend prompt legislative action to accomplish that result."
The reports to the Congress of both the House Ways and
Means Committee and the Senate Finance Committee stated:
"If military requirements in southeast Asia
should decrease before January 1, 1968, or
if for some other reason it should become
apparent that suspension of the investment
credit and suspension of the use of the
accelerated depreciation methods with respect
to buildings are Q£ longer necessary to
restrain inflation, the Congress can promptly
terminate the suspensions. The Administration
has also indicated that it would recommend
terminating the suspension period before
January 1, 1968, under such conditions."
In brief, the Administration and the Congress fully
intended that the suspension of these important investment
incentives should be terminated just as soon as the objectives
of the suspension had been accomplished.

Their objectives

have been accomplished and therefore the incentives should
be restored.

12b
- 4 The Aim and Purpose of the Suspension
In my statement before you last September, I emphasized
that the suspension of the investment credit was not a revenue
measure.

It was an economic measure, with a limited, well

defined purpose:

namely, to relieve the excessive pressures

that were clearly observable in the capital goods sector,
which in turn were causing strains in the financial and money
markets and the highest interest rates in 40 years, and depriving the homebuilding industry of needed credit availability.
The suspension legislation was rot intended as an overall,
across-the-board, measure of fiscal restraint.

Its focal

concern was specifically to curb the excessive boom in the
market for capital goods.

It was to do this by inducing

business firms to postpone the placing of orders for -- or
starting the construction of -- machinery and equipment, and
commercial and industrial building.
Mission of the Suspension Law Accomplished
On the basis of the evidence that we have been observing,
analyzing and carefully appraising, we can now state without
qualification that the mission assigned to the suspension of
the investment credit and accelerated depreciation has been
accomplished.

- 5 -

l!! the market for capital goods:
New orders for machinery and equipment have, beginning
in October, declined steadily, reaching a level in
January of this year of 7 percent below September
1966.

Moreover, in January shipments actually ex-

ceeded orders 17 percent and this was the first
month that backlogs actually fell since June 1963.
The average rate at which capacity is being utilized
in the machinery industry has dropped noticeably to
a healthier and more efficient rate.

In electrical

machinery, for example, it has declined from 97 per·
cent to 91.5 percent.
The shortages of skilled labor are not so nearly
acute today as they were last summer.
And, looking ahead, the recent Survey of Investment
Plans for 1967, conducted by the Department of
Commerce and the Securities and Exchange Commission
shows a modest increase of less than 4 percent.
This is within the growing productive capabilities

- 6 of our machinery industries.

It is in sharp contrast

to the increases of 16 percent and 17 percent which
occurred in 1965 and 1966.
Thus, while demand for capital goods remains at a high,
even record level, it now reflects a healthy buoyancy in the
capital goods industries and not the excessive, threatening,
boom conditions that prevailed last summer.
One important result of this favorable development is in
the area of our balance of payments.

During 1965 and the

first three quarters of 1966, imports of capital equipment
jumped by an average of 13 percent per quarter.

In the fourth

quarter of 1966 the rise in imports of capital equipment was
only 3.9 percent and this in part reflected deliveries on
orders placed in earlier quarters.

There is an excellent

prospect of a levelling off of imports, now that domestic
producers can take care of demands.

19 the financial and money markets:
A dramatic dectme in interest rates from the
highest levels in 40 years has occurred.
Three-month Treasury bills are down one and
one-quarter percentage points, from 5.60 percent to 4.35 percent.

128
- 7 -

Ten-year Treasury securities are down about
seven-eighths of a percentage point.
Short-term Federal agency securities are down
one and three-eighths percentage points.
New corporate Aa bonds are down nearly seveneighths of a point.
New municipal bonds are down two-thirds of a
point.
The net inflow of funds to savings and loan institutions is now proceeding at a much more healthy rate.
In the four months ending January, the inflow was
at an annual rate of $8 billion.

Last summer the

annual rate of inflow was as little as $0.1 billion.
Credit availability for homebuilding has improved and
mortgage rates have started to come down.

In October

the seasonally adjusted annual rate of housing starts
had sunk to a low of 848 thousand units; in January
starts had reached one and a quarter million units
~easonally

adjusted, annual rates).

Corporate financial demands, while strong, are being
accommodated in an orderly manner and yields are down.

.0:,1

\../ \

...,

- 8 Preliminary estimates suggest that for the
first quarter of this year corporate issues
are running below last year.

This contrasts

with the first three quarters of 1966 when
corporate security offerings were substantially
above the year earlier levels.
While the situation has considerably improved in our
financial and money markets, I do not want to give the impressian that further substantial easing is unwanted or unnecessary.
Far from it.

There is room for further declines in interest

rates, in our own financial markets, and in that of other
countries.

I hope and expect to see those declines realized,

and I expect that credit will continue to become more readily
lvailable, particularly for homebuilding.
In the currently improved financial market environment,
I believe that restoration of the investment credit is entirely

:onsistent with maintaining good balance in the financial
narkets in the months ahead, and it is conistent with achieving
Eurther improvement in those markets.

There is the important

)roviso, however, that the Federal Government's own demands
Ln the credit markets must be kept within measured bounds.

- 9 -

In view, then, of the moderate and sustainable pace at
which investment is now proceeding, and in view of the clear
trend toward ease in our financial and money markets, continued
suspension of the investment credit is no longer appropriate.
This valuable incentive to business investment -- and the
accelerated methods of depreciation -- should be restored
at the earliest possible date.
The bill before you provides for such restoration.
Explanation of the Bill
The suspension statute adopted by Congress last fall
generally denies the investment credit for property ordered,
acquired, or placed under construction during the suspension
period.

Similarly, the statute denies use of the forms of

accelerated depreciation introduced into the tax law in 1954
primarily, the double declining balance and sum of the yearsdigits methods -- for real property which does not qualify
for the investment credit if the construction of the property
begins during the suspension period or is ordered during the
suspension period.

The statute defines the suspension period

as the period beginning on October 10, 1966, and ending on
December 31, 1967.

- 10 Section 1 of H. R. 6950 amends the definition of the term
"suspension period" to provide that the period terminates on
March 9, 1967, rather than December 31, 1967.

As a consequence,

property ordered after March 9, property acquired after March 9
(except that acquired pursuant to a suspension period order),
and property whose construction is begun after March 9, would
qualify for the investment credit or 1954 Code accelerated
depreciation under the usual rules governing those tax benefits.
Section 2 of the bill amends both the investment credit
and the accelerated depreciation portions of the suspension
statute for property whose construction (by a self-builder or
self-contractor) is begun during the suspension period, but
not completed during that period.

Under these amendments, the

portion of the basis of the completed property attributable to
construction which is performed after the suspension period,
and which was not ordered during the suspension period, will
qualify for the investment credit or 1954 Code accelerated
depreciation, as the case may be.
This section was not included in the President's recommendation for restoration of the investment credit and

- 11 accelerated depreciation.

It is minor in its impact, and

I have no serious objection to its inclusicq if it is not
to become the basis for exceptions to the operation of the
suspension and its termination on the terms provided in the
legislation enacted last year.

If, however, it should become

a basis for exceptions, I would, then, urge its removal.
The general effect of the bill, then, is to restore the
investment credit and accelerated depreciation for property
ordered, acquired, or constructed after March 9, 1967.
Relation to the Surcharge
The question naturally arises as to what bearing the
termination of the suspension has on the President's recommendation for a surcharge on corporate and individual income
taxes.
The two measures, however, are essentially quite different
in design and purpose.
As I have already indicated the suspension of the investment credit was not a revenue measure and had a specific and
limited objective -- to dampen the excessive boom in the market
for capital goods.

The excessive boom is over, and there is

no reason for continuing the suspension.

- 12 The surcharge, on the other hand, is an overall acrosSthe-board fiscal measure designed to cope with the economic
and budgetary situation as we anticipate it for the latter
half of 1967 and throughout 1968.
be in

need~

We expect the economy to

overall restraint during that period.

We will

certainly not want a resumption of monetary strains then either,
and this will require that the Government's own demands on the
credit markets be kept in bounds.

The surcharge will help

achieve both these major objectives.
Conclusion
In conclusion let me emphasize the need for prompt,
favorable action on H. R. 6950. Delay will only do harm to
the economy, and the more delay the more the harm.

Also,

let me advise strongly against any exception to the terms
provided in the bill for the termination of the suspension.
To make exceptions would be a serious breach of equity and
impair the good faith of the Congress and the Executive
Branch of the Government.

TREASURY DEPARTMENT
;
IMMEDIATE RELEASE

INCOME TAX TREATY WITH BRAZIL SIGNED
The Treasury Department today announced the signing of an income
treaty between Brazil and the United States. It is the first
orne tax convention between this country and a South American
ntry.
The treaty, signed March 13 in Rio de Janeiro, is expected to
sent shortly to the Senate. If ratified this year, it will take
ect January 1, 1968.
It is anticipated that negotiations with several other South
rican countries will be undertaken in the course of the year.
Provisions of the treaty include:
-- Allowance of a 7 percent investment tax credit for
investment in machinery and equipment in Brazil by
United States firms. The credit is modeled after
the investment tax credit applicable under the
United States Internal Revenue Code.
The investment tax credit would be allowed under the
same conditions as those applicable to the domestic
investment tax credit. Consequently, this aspect
of the treaty would apply only when the domestic
credit is operative in the United States.
The treaty limits Brazilian withholding tax to 20
percent on dividends flowing to the United States
from direct investment in Brazil.
The Brazilian withholding tax on interest paid to
financial institutions in the United States and on
royalties paid to United States licensors is limited
to 15 percent.
In general, other prov1s10ns of the treaty parallel prOV1S10ns in
~ tax conventions between the United States and European countries.
Details of the agreement will be made public when the treaty is
to the Senate for advice and consent to ratification.
000

TREASURY DEPARTMENT
Washington

~ ...
1 VV

FOR USE IN AFTERNOON NEWSPAPERS OF
THURSDAY , MARCH 16 , 1967

REMARKS OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE A
LUNCHEON MEETING OF THE NORTHERN CALIFORNIA
INDUSTRIAL PAYROLL SAVINGS COMMITTEE
AT
THE ST. FRANCIS HOTEL, SAN FRANCISCO, CALIFORNIA
THURSDAY, MARCH 16, 1967,12:30 P.M., P.S.T.

Buying and holding U. S. Savings Bonds are actions more
important to our nation's economic stability today than ever
before
These bonds not only support our fighting men in
Vietnam and our commitment to the defense of freedom throughout the world, but they strengthen our economy at home and
guard against the forces of inflation.
0

In the days and months to come, all of us -- in government,
in banking and finance, in industry and commerce -- must
share an extra burden of responsibility in maintaining a
steady economic footing while we continue to move ahead
v

Now, more than ever before, it is essential that we
finance our debt in the soundest possible way; that we do
'all we can to place more of the debt in the hands of savers
You well know that participation in the Savings Bonds
program is a measurable and effective means of accomplishing
both these objectives, because you -- as Savings Bond
volunteers in Northern California -- have done an outstanding
and admirable sales job. The following few statistics
speak loudly of your accomplishments:
v

In 1966 your sales
passed this and went on
of your quota
You set
ne\-] savers for the same
v

F' u46

dollar goal was $136,600,000. You
to $148,252,000, making 108.5 percent
your sights on a target of 35,700
year, but you nearly doubled it --

- 2 -

137

adding 73,704 new savers for a whopping 206 percent of your
goal. You have every right and reason to be proud of this
accomplishment. I can tell you that your Government is
proud of it.
But I must also remind you that more is needed, and will
have to be accomplished. Your coming sales battle will be
tough.
You are challenged by a 1967 sales goal of $244,600,000
and a quota of 136,500 new payroll savers. But remember:
While you knock on doors, thousands of our valiant men will
be wading through rice paddies and slugging it out with an
elusive enemy in the jungles of Vietnam.
We are giving you what we feel certain is a valuable
assist in meeting this challenge: a new, attractive product.
This is the "Freedom Shares," sales of which begin
May 1. We have an unmatched sales organization -- all
volunteers -- to put this Savings Note and the familiar
Savings Bonds into the financial backstops of our Payroll
and Bond-A-Month savers.
Let me mention just a few:
Mr. George Meany and the Executive Council of the
AFL/CIO have enthusiastically endorsed our new "Freedom
Shares" product. They are actively engaged in an expanded
program to promote the campaign. Other volunteers are to
be found in depth throughout the leadership of business and
industry. Their hub of endeavor is the U.S. Industrial
Payroll Savings Committee so ably directed by its Chairman,
a Californian -- Dan Haughton, President of the Lockheed
Aircraft Corporation. It is a pleasure to pay respect
here today to Dan Haughton's distinguished service to this
program.
There are many others, here and elsewhere, such as
Jack Countryman of California Packing Corporation, your
Area Chairman, who is calling the signals for your awn
important campaign. And let me mention Jim Haight,
Chairman of the Board of FMC Corporation, 1966 Chairman;
and Reed Hunt, Cha irman of the Board of Crown -Ze llerbach,
our 1965 and 1964 Chairman.

F-846

- 3 -

13~

We should also recognize the great achievement of
Mr. Hornby Wasson, President of Pacific Tel and Tel whose
record was 86 percent participation among 90,000 employees
number one job in the whole Bell System; and Gene Treffethen,
Executive Vice President of Kaiser Industries, whose record
was among those above the 50 percent mark.
In the various states, there also are volunteer State
Chairmen for Savings Bonds drawn largely from the field of
banking and finance -- like Paul Hoover, Chairman of the
Board of Crocker-Citizens National Bank, who works closely
with our Regional Director, Harold Stone, and our State
Director, Newton McCarthy. Finally, and very important,
cooperating with our volunteer State Chairmen as Honorary
State Chairmen are the Governors of the States. We can
not be stopped with such a team.
At the outset of my remarks, I mentioned the fact we
all have an extra burden of responsibility in maintaining a
steady economic footing under current circumstances. President Johnson's admini~tration has taken the lead in responsible economic conduct through economic policies in the
difficult and uncertain months of the recent past. I want
to give you just a little background on the conduct of economic policy in the last 15 months because it is a necessary
background to the understanding of our current policy stance.
I think that when we are able to look back upon 1966 in
historical perspective, it is quite likely that 1966 may
stand out as a year when the United States economy went
through one of the most remarkable adjustments of all time
It witnessed a tremendous, fast-moving, surging drive of
political, financial, and economic pressures which threatened to overload our economic circuits. And it witnessed
the actions which were taken to meet and contain that drive
to make the adjustments which averted the threat -- and to make
these adjustments more smoothly, with less harm to the worthwhile
directions of the total economy, than was ever the case under
similar circumstances in the past.
0

In 1966 our nation faced:
For one thing, a business expansion boom of historic
proportions at a time of nearly full employment and utilization
of industrial capacity;

F-845

- 4 -

139

Second, and the result of an emergency that history will
mark as a great watershed of the second half of this century,
the intensification of the war in Vietnam, with all of its
real and pyschological disturbances.
Viewing this situation last spring, I described the
outlook in the following terms:
I~e

have essentially two questions before us.
The first is how best to shift smoothly to a lower
level of real growth from the high levels of 1964
and 1965 in the current atmosphere of economic
exuberance, aggravated by Vietnam.
"And the second question is, once we have made
this transition, how do we best sustain and employ
our growth, at full employment and with stable
prices
0

•••

F-846

- 5 -

14u

contradictory development: weaknesses in the stock and bond
markets followed by weakness in vital sectors of the economy
auto production, housing and consumer durables.
Gnawing uncertainities were aroused by the hints in the
forepart of the year that beneath the boiling surface of the
economy there were congealing cool spots. When we take account of the massive size of the forces that were at work
within and upon the economy last year, it appears to me that
we met and passed rugged and unusual tests with dislocations
that were perhaps as small as could be expected under the
circumstances.
A welter of argument is of course aroused by a year of
such change, uncertainty and large scale developments
This
tends to obscure the fact that grave dangers were avoided.
Even more important, it also tends to hide accomplishments.
Therefore, let me recount for you, if only very briefly,
some of the very great achievements of the year just past:
0

First, two achievements that influenced all the rest:
-- Our gross national product increased by the
extraordinary amount of some 5~ percent, after allowance
for price rises.
-- The already enormous productive power of the United
States economy was further bolstered by a record increase in
industrial capacity, reflecting, in large part, the successful
use in past years of investment incentives.
This added capacity, and millions of new workers added to
the employed labor force,were critical to the successful
transition of 1966', without them we could not have dealt
successfully with the strong rise in defense and civilian
production of 1966 with only about a 2 percent rise in the
industrial component of the wholesale price index. Let me
note, in contrast, that:
industrial prices rose more than 10 percent
between 1950 and 1951 under the pressure of
the Korean build-up;
and by more than last year's 2 percent in
both 1956 and 1957 in the midst of the last
sizable expansion, when no comparable defense
build-up took place.
F-846

14.L
- 6 In this setting these further achievements were made in
1966:
At home:
Industrial production rose 9 percent;
Net income per farm rose more than 10 percent;
2 million more workers found employment;
Unemployment averaged below 4 percent;
Corporate profits climbed 8 percent.
And internationally:
We held our own, and made some progress, in
bringing our balance of payments problem under
control despite the substantial increase during
1966 in our foreign exchange costs due to the
war in Vietnam.
Our gold loss was cut by more than 50 percent
below the previous year: except for French
purchases we would have added nearly $200
million of gold to our stocks.
Perhaps most remarkable of all -- and as important as any
other factor
all this was accomplished without the imposition
of those price, wage, and materials controls that have been
found necessary in past similar national emergencies.
There was -- and is -- a further national dividend from
our experience in 1966. This is, that the fact of having met
and coped with such large-scale and highly volatile problems
of free enterprise at one of its moments of excess gives us
confidence thdt in the future also we shall be able to deal
with big, fast economic adjustments without being forced to
resort to the use of controls. This new knowledge of the
capabilities of the American free enterprise economy may in the
end turn out to be the greatest of all our many substantial
gains in 1966. For this confidence is in itself a major factor
in the future successful use of moderate measures even in
situations of great urgency and pressure. One of the darkest
F-846

- 7 clouds that overhung events in 1966 was fear, based with good
reason on past experience, that in the end we might have to
suspend freedom of economic choice temporarily.
Further, the knowledge gained from 1966 will permit
better coordination, better timing, better foreknowledge of
what is likely to happen, so that the inequities and price
increases of 1966 can be much further reduced in future times
of economic stress.
Now for the current year:
Let us note, first of all that in the coming period, as
in that just past, we will be living with the Vietnam
situation, with all the uncertainty and potential change that
this or any other war situation ever known implies. We must
live with the fact that even the most carefully considered
plans may be upset by the imponderables of war until the time
comes -- whenever that may be -- that this emergency cools
down.
Secondly, we should note that 1967 will in all likelihood
witness further economic shifts and changes. These will require
the most prudent handling, such as President Johnson's Budget
and tax policies strive to provide.
It was these considerations that led the President to
say, in his Economic Message of a few weeks ago:
"Our task for 1967 is to sustain further sound
and rewarding economic progress while we move toward
solutions for the problems we met in 1966. It will
require a flexible and delicate balance of economic
policies."
The tax and spending programs in the President's Budget
are designed to deal, flexibly and with good balance, with the
economic developments that the year 1967 is expected -- now
as when the Budget was issued -- to produce. In the large,
this is: a first half that is sluggish by comparison to
recent experience, and a second half in which the tempo picks
up again. Thus, government policy is designed to be
stimulative in the first half and moderating in the last half.
F-846

- 8 But the first big move in the new year -- the President's
recommendation now before the Congress to restore the tax
incentives to investment suspended last fall -- was made not
for the above reasons but to keep a promise.
The view that it would be desirable, indeed obligatory,
to reinstate the investment tax credit as soon as conditions
warranted it, had been expressed both by the President and the
Congress. In his statement upon signing the suspension
legislation the President said:
"If . . . any earlier reinstatement would be
appropriate, I shall recommend prompt legislative
action to accomplish that result."
The reports to the Congress of both the House Ways and
Means Committee and the Senate Finance Committee stated:
"If military requirements in southeast Asia
should decrease before January 1, 1968, or if for
some other reason it should become apparent that
suspension of the investment credit and suspension of the use
of the accelerated depreciation methods with respect
to buildings are no longer necessary to restrain
inflation, the Congress can promptly terminate the
suspensions. The Administration has also indicated
that it would recommend terminating the suspension
period before January 1, 1968, under such condition."
In brief, the Administration and the Congress fully
intended that the suspension of these important investment
incentives should be terminated just as soon as the objectives
of the suspension had been accomplished. Their objectives
have been accomplished and therefore the incentives should be
restored.
On the basis of the evidence that we have been observing,

analyzing and carefully appraising, we can now state without
qualification that the mission assigned to the suspension of
the investment credit and accelerated depreciation has been
accomplished.
Here is some of this evidence:
F-846

- 9 -

In the market for capital goods:
New orders for machinery and equipment have,
beginning in October, declined steadily, reaching
a level in January of this year of 7 percent
below September 1966. Moreover, in January
shipments actually exceeded orders 17 percent
and this was the first month that backlogs
actually fell since June 1963.
The average rate at which capacity is being utilized
in the machinery industry has dropped noticeably
to a healthier and more efficient rate. In
electrical machinery, for example, it has declined
from 97 percent to 91.5 percent.
The shortages of skilled labor are not so nearly
acute today as they were last summer.
And, looking ahead, the recent Survey of
Investment Plans for 1967, conducted by the
Department of Commerce and the Securities and
Exchange Commission shows a modest increase of
less than 4 percent. This is within the growing
productive capabilities of our machinery industries.
It is in sharp contrast to the increases of 16
percent and 17 percent which occurred in 1965 and
1966.
Thus, while demand for capital goods remains at a high,
even record level, it now reflects a healthy buoyancy in the
capital goods industries and not the excessive, threatening,
boom conditions that prevailed last summer.
One important result of this favorable development is in
the area of our balance of payments. During 1965 and the first
three quarters of 1966, imports of capital equipment jumped by
an average of 13 percent per quarter. In the fourth quarter
of 1966 the rise in imports of capital equipment was only 3.9
percent and this in part reflected deliveries on orders placed
in earlier quarters. There is an excellent prospect of a
levelling off of imports, now that domestic producers can take
care of demands.

F-846

- 10 -

145

In the financial and money markets:
A dramatic decline in interest rates from the
highest levels in 40 years has occurred.
Three-month Treasury bills are down one and
one-quarter percentage points, from 5.60
percent to 4.35 percent.
Ten-year Treasury securities are down about
seven-eights of a percentage point.
Short-term Federal agency securities are
down one and three-eights percentage points.
New corporate Aa bonds are down nearly
seven-eights of a point.
New municipal bonds are down two-thirds of
a point.
The net inflow of funds to savings and loan
institutions is now proceeding at a much more
healthy rate. In the four months ending January,
the inflow was at an annual rate of $8 billion.
Last summer the annual rate of inflow was as little
as $0.1 billion.
Credit availability for homebuilding has improved
and mortgage rates have started to come down.
In October the seasonally adjusted annual rate
of housing starts had sunk to a low of 848
thousand units; in January starts had reached
one and a quarter million units (seasonally
adjusted, annual rates).
Corporate financial demands, while strong, are
being accommodated in an orderly manner and yields
are down.
Preliminary estimates suggest that for the
first quarter of this year corporate issues are
running below last year
This contrasts with
the first three quarters of 1966 when corporate
security offerings were substantially above the
year earlier levels.

F-846

- 11 -

While the situation has considerably improved in our
financial and money markets, I do not want to give the
impression that further substantial easing is unwanted or
unnecessary. Far from it. There is room for further declines
in interest rates, in our own financial markets, and in that of
other countries. I hope and expect to see those declines
realized, and I expect that credit will continue to become
more readily available, particularly for homebuilding.
In the currently improved financial market environment,
I believe that restoration of the investment credit is entirely
consistent with maintaining good balance in the financial
markets in the months ahead, and it is consistent with achieving
further improvement in those markets. It will, of course,
continue to be necessary for the Federal Government to keep its
own demands in the credit markets within measured bounds.
The question naturally arises as to what bearing the
termination of the suspension has on the President's
recommendation for a surcharge on corporate and individual income
taxes.
In this respect, it is necessary to note, firsc, that the
two measures are quite different in design and purpose.
First, the suspension of the investment credit was not a
revenue measure and had a specific and limited objective -- to
dampen the excessive boom in the market for capital goods.
The excessive boom is over, and there is no reason for continuing
the suspension.
The surcharge, on the other hand, is an overall across-theboard fiscal measure designed to cope with the economic and
budgetary situation as we anticipate it for the latter half of
1967 and throughout 1968. We expect the economy to be in need of
overall restraint during that period
We will certainly not want
a resumption of monetary strains then either, and, as I have
indicated, this places more than the usual bounds upon government
demands. The surcharge will help achieve both those major objectives
In closing let me express a debt of gratitude from Treasury
to you who are doing so much in the promotion of the sale of
Savings Bonds. The growing stockpile of Savings Bonds assists
the Treasury materially in managing the nation's finances -maintaining a stable economy at home, and a strong economic
position internationally, to back our stand for freedom in Vietnam
and elsewhere in the world.

F-846

- 12 The fact that so many Americans participate in the regular
purchase of Savings Bonds is irrefutable and inspiring evidence
of the effective energies and talents that you leaders of
business, labor and industry have put into our programs to
promote the buying and holding of these bonds. This has been
a primary factor throughout the more than 25 years that the
Savings Bonds Program has been in effect.
In promoting Savings Bonds, you have contributed -- as
you will be contributing again this year -- not only to the
nation's economic defense, and hense its military strenght, but
to its spiritual well-being in addition.
President Johnson summed it up when he said, in announcing
the new Freedom Shares program last month:
"We can do no less than those who fight and die
for our freedoms, Last year, American servicemen
bought almost $350 million worth of Savings Bonds -close to $90 million in the last quarter alone.
Battle honors come hard in Vietnam, because the price
of honor is often the price of life. Yet in jungle
and hamlet -- on shipboard and airfield -- there is one
trophy that every American unit prizes. It is not the
enemy's flag. It is the Minute Man Flag that symbolizes
90 percent or better participation in the Payroll
Savings Plan. II

000

F-846

14r
TREASURY DEPARTMENT
Washington
FOR USE IN AFTERNOON NEWSPAPERS OP
FRIDAY, MARCH 17, 1967
REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE
THE 14TH ANNUAL MONETARY CONFERENCE
OF
THE AMERICAN BANKERS ASSOCIATION
AT
THE DELMONTE LODGE, PEBBLE BEACH, CALIFORNIA
FRIDAY, MARCH 17,1967,1:30 P.M., P.S.T.
A
FOR A
- WORLD MONETARY SYSTEM --GREATER SOCIETY OF NATIONS
I am grateful for the privilege of addressing for the
second time this distinguished Monetary Conference,
representative of so many important nations. Last year at
Granada, Spain, my emphasis was on the emergence of new
opportunities to foster international economic cooperation.
My message here today is that new national political
decisions to realize these opportunities must be taken
promptly and decisively in our community of nations to
assure continued progress, security and growth. The
changed circumstances in which many, rightly or wrongly,
feel released from those wants and fears that once bound
them solidly together are all the more reason for
zealously sharing in the common responsibility for an
effective world monetary system.
This is not only my personal view -- should we fail to
act, and act soon, to renew and strengthen international
economic cooperation. My hopes -- and fears -- are widely
shared in this country. As evidence, permit me to cite the
following words from a Report of the Subcommittee on
International Exchange and payments of the Joint Economic
Committee of the U. S. Congress, issued last Fall and
significantly entitled: "Twenty Years After: An Appeal for
the Renewal of International Economic Cooperation on a
Grand Scale." It said:

F-847

- 2 -

"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."
I can tell you that the misgivings expressed in those
words are shared by many in the Congress -- and elsewhere
in the United States -- beyond the circle of highly
important legislators who wrote that Report. And I am
sure that in many other countries also there is an upwelling
of this same feeling that unless we act soon and
affirmatively, we may find in a very short time that we
have let pass away from us one of those tides
" .... in the affairs of men which, taken at
the flood, leads on to fortune ...• "
All eyes focus this month and next on the Kennedy Round
of trade negotiations. An early and successful outcome is
vital if the nations involved are to avoid a grave risk of
binding the world into sterile knots of timid, self-limiting
national or regional restrictionism.
Equally decisive moments are ahead for efforts to build
a more effective world monetary system.
Despite some shortcomings, a network of national and
international arrangements has financed successfully in the
last twenty years a collective economic growth and expansioo
in trade and development that is a landmark in history.
Indeed, while there
or a halt in other areas
collaboration, the field
financial cooperation is
activity.

is much evidence of a pulling apart
of established international
of international monetary and
flourishing at a flood tide of

But there is no doubt in the minds of knowledgeable
men -- public and private -- that, despite all this
activity, some significant and decisive improvements are
necessary if retrogression is to be avoided and continufug
progress assured toward a world monetary system for a
greater society of nations.

F-847

- 3 -

"j 4~
'...I

....___

I shall discuss three areas where improved arrangements
are vital, timely and attainable:
1. National economic and financial policies
designed for growth with stability,
improved capital markets, and a balance
of payments adjustment process that
supports, rather than strains, the
international monetary system.
2. A U. S. balance of payments program
designed to achieve long term
equilibrium in a manner that adds to
rather than takes from free world
security, trade, exchange and
deve lopment.
3. A satisfactory means of deliberate and
adequate creation of international reserves.
I.

National economic and financial policies designed for
growth with stability, improved capital markets, and
a balance of payments adjustment process that supports
rather than strains the international monetary system.

It has become clear that, in important parts of the
Atlantic Community, there is now a problem of maintaining
full employment and vigorous economic growth, and not only
a problem of maintaining stable prices in the presence of
full employment and rapid growth.
In the United Kingdom, of course, restrictive but
necessary measures have been taken to promote the objectives
of sterling stability and the restoration of balance of
payments equilibrium.
The prospects for economic growth in Continental Europe
this year fall short of the 4.1 percent annual rate consonant
with the target established by the Organization for Economic
Cooperation and Development for 50 percent growth in national
product during the decade of the 1960's.

F-847

- 4 Only last November, in its publication, The Observer,
the OECD projected that the real growth of domestic product
in OECD Europe would fall to 3~ percent this year, as
compared with 4 percent in 1965 and an estimated 4 percent
again last year. Now, deterioration in the economic
outlook in some countries suggests that the estimate for
1967 should be scaled down from that figure.
This threat of a slowdown in Europe's growth reflects
many factors. Among the underlying causes are:
First, as the industrial economies moved through the
rapid growth payoffs of the modernization of their
productive systems, resulting in large part from war
reconstruction and access to larger market areas, they found
in moving up to full utilization of their manpower and equipment that they were confronted by a serious problem. This
problem was: how to keep their growth advancing satisfactorily
without fast rising prices and without unsettling their
balance of payments current accounts.
Second, there was a political disinclination to employ
fiscal policy, actively and flexibly, as a countercyclical weapon, or to forge an effective incomes
policy.
Third, caught between fear of inflation and a feeling
that other policy courses were too difficult, public
authorities in many European countries have largely
concentrated on general monetary restraint, reflected until
very recently in ever higher interest rates and tightness
of credit.
We need now to renew the de termina tion we expressed in
the OECD in 1961 to aim -- by our individual and our
collective efforts -- at not less than a 4 percent rate of
economic growth in our community of nations.
Despite the doubts of the timid that we could, or should,
aim so high, the OEeD countries as a whole achieved a gr~th
rate in the first half of the 1960's of 4.9 percent in
real terms.
Consequently, it is time to re-emphasize that many of
our hopes rest upon a vigorously rising growth curve. It
should bemderscored that a valuable weapon against
inflation is rising production at stable or lower unit costs,

F-847

- 5 made possible by new investment and continuous and generous
outlays for education and training of the workforce.
This is not to discount the active control of the supply
of money and cred it as a key element in any program to
achieve sustained and adequate growth with reasonable
price stability.
But it is designed to emphasize the importance of
other related policies:
Policies that promote rapidly increasing
efficiency;
Policies that appropriately relate
government spending and the level of
taxes;
Policies that appropriately relate the
rate of increase in government spending
and the rate of economic growth.
Countries that shield themselves from inflation behind
a long maintained wall of interest rates so high, or a
shortage of credit so great, as to unduly and persistently
discourage borrowing and investment risk the danger of
economic stagnation.
The trouble with the stagnation cure is that, by
discouraging investment and public outlays that tend to
lift the productive skills of the workforce, productivity
also stagnates and unit costs go up.
Consequently, first among the resolves of our community
:)f na t ions in 1967 - - and for the year s ahead - - mus t be a
firm intent to engage in those public policies, and encourage
those private policies, that promote a healthy rate of growth
Jy keeping demand in balance with capacity, and raising
rroductivity so as to permit both profits and wages to
i.ncrease in a sustainable relationship to productivity. On
:uch a tide, we can embark to greater things.
Among policies that can contribute to healthy economic
rowth are policies -- public and private -- tending to keep
he cost of money within reason and keep credit available.
t was to this end that I me t in January with several other
inance ministers at the country home of the British Prime

847

- 6 Minister. We resolved there that we would, each accordi~
to conditions in his own country, aim consciously at a
of monetary and fiscal policies designed to deal with
inflation and the balance of payments adjustment process
that would tend to keep interest rates from rising to t~
point where investment -- the goose from which all golden
eggs must come
is arrested.

Moreover, it was agreed tha t economic pol icy choices in
a given country should have regard to their effect in other
countries. The prime example of what we were concerned
about is, of course, a country with a balance of payments
equilibrium or surplus which concentrates on high interest
rates to restrain domestic inflation, thereby pulling in
funds from the outside to add to surpluses with
potentially unbalancing
effects in other countries.
Given this situation, the other countries affected will
escalate their own interest rates as a holding operation,
impose other res traints on the flow of capital, or go into
a deficit.
The Chequers meeting was an attempt to give effect,
upon a multi-national scale, to the use of national economic
policy to smooth and ease the processes of adjustment of
international payments balances along the lines suggested last
August by the Economic Policy Committee of the Organization
for Economic Cooperation and Development in the very excellent
Working Party Three Repor t on the Balance of Payments
Adjustment Process.
Only a little reflection is needed to see that if the
joint and separate efforts envisaged at Chequers are
successful in keeping money rates within reason generally,
we will have struck a blow effective in all the directions
the OECD Report suggested -- toward more efficient economies,
toward better balance and more flexible and selective use
of both fiscal and R10netary policies, and very specifically
toward capital markets much better able everywhere to amass
savings and channel funds to the points of investment
needs.
On the same weekend of the meeting of Finance MinisterS
at Chequers there was an equally significant conference of
60 private bankers and industrialists from Europe, North
America and Japan at Cannes, France under the sponsorship
of the Atlantic Institute and the Business and Industry
Advisory Committee of the OECD. This conference focused OIl
these main points:

F-847

149
- 7 -

1. The improvement of national capital
markets;
2. Means of improving international linkages
and capital flows;
3. The impact of government policies on
capital markets.
Both the Background Papers and the Recommendations
opted at the conclusion of the Conference are required
ading for all public officials and private persons who
are the convictions stated in the opening paragraphs of
,e Recommendations:
Increased investment is required to
assure a rapid increase of production and
productivity. With monetary stability and
a high level of employment, this brings
higher real wages and incomes for all. This
sequence is the essence of sound economic
growth. Both governments and private
enterprise require ever greater quantities
of investment capital as a consequence of
the growth of population and the quickening
pace of technical progress. At the same
time OECD member countries ought to increase
their flow of capital to developing countries.
This growing demand for capital is not
being met by comparable increases in supply.
To meet the additional needs, measures must
be taken to improve capital markets.
Moreover, recourse must be had to more
effective use of budgetary policy and adequate
self-financing for public and private enterprise.
The January meetings at Chequers and Cannes, as well as
Ls meeting here, are encouraging illustrations of continued
:ort to bring coordinated national economic and financial
.icies to bear effectively so as to promote healthy
>nomic growth, improved capital markets and a payments
ustment process that supports rather than strains our
~ernational mone tary sys tern.

- 8 -

II.

A U. S. balance of payments program designed to achieve
long term equilibrium in a manner that adds to rather
than takes from free world security, trade, exchange
and development.

The U. S. balance of payments, and programs designed to
affect it, must be viewed in several perspectives.
Whether enjoying surpluses or coping with deficits, the
u. S. balance of payments adjustment process has become a key
element in the political, military, diplomatic and
international economic policies of the United States and of
major concern to the world at large. This is true for
several reasons:
First, the key role of the United States in free
world security, trade, exchange and economic development;
Second, the important role of United States generated
capital, public and private, and the business activity that
flows from it, in many countries outside the United States;
Third, the special position of the dollar as a
reserve and transaction currency on a world wide scale,
making it the keystone of the international monetary
system on which free world trade and development depend.
Another perspective is the long series of deficits in
U. S. payments. Beginning in 1958, rising claims upon
our gold stock signalled the end of the world's almost
total postwar dependence upon the dollar, the increasing
strength, desirability and convertibility of other
currencies, and the availability of sufficient dollars in
foreign official holdings to permit a shift in the mix of
monetary reserves in favor of gold.
The series of heavy deficits in the three years
1958-60, averaging $3.7 billion per year, on the
"liquidit y " bas is, and accompanied by gold outflows averaging
nearly $1.7 billion per year, signalled the need for a
program to bring
U. S. payments into substantial
equilibrium.

F-847

- 9 -

JJt

Beginning in 1961 the U. S. government initiated a
series of measures to reduce the deficit without disrupting
trade and trave1,and without abandoning its key role in
free world security and deve lopment.
This effort was thrown off target by at least four
developments, each transitory and somewhat unpredictable:
1. The Berlin crises with the necessary
force build-up in 1961-2;
2. A
sharp upswing in the levels of
private foreign borrowing in 1962
and 1963;
3. A sharp increase in private capital
outflows between 1962 and 1964;
4. The rapid increase in military foreign
exchange costs in late 1965 and in 1966
resulting from stepped-up military
operations in Southeast Asia.
Despite these adverse developments the deficit,
easured on a liquidity basis, fell from the average of $3.7
illion in the years 1958-60 to an average of $2.5 billion
n the years 1961 through 1964. In 1965 and 1966 it
as further reduced to $1.3 billion and $1.4 billion respectively.
his occurred despite an increase during that time in net
ilitary expenditures outside the United States because
f Vietnam costs exceeding $950 million and a decrease in
ur trade surplus from the peak level of 1964 by $1.9
illion in 1965 and by $3 billion in 1966.
On the official settlements basis, there was an average
of $0.5 billion in 1965-66, compared to $2.2 billion
the preceding five years.

~ficit
1

I am not going to dwell today on the short term or
measures being used to restrain or moderate private
lpital flows. We are relying on them to keep our deficit
Ider control during the period of our special commitments
l Southeast Asia, the period required to realize the
~nefits of our long-range program.

~mporary

847

- 10 -

There is already too much emphasis in public discussion
on this holding opera non , tending to obscure both the
existence and strategy of the long range program we are
employing in the balance of payments adjustment process.
That program -- for coming into, and maintaining, a
sustainable equilibrium -- is essentially a long term one,
aimed at solving the problem,
not by a resort to restrictions or
withdrawals that are damaging to free
world security, trade, exchange and
development,
but by making use of this nation's
unexampled economic strength in the
context from which that strength has
been derived: competitive free
enterprise.
The success of this strategy and program, it should be
understood by all concerned here and in other countries,
depends importantly on (1) an open, competitive and
cooperative international economic order and (2) substantially
strengthened multilateral arrangements to insure the
financial viability of programs for free world security and
aid to developing nations.
I continue to find it necessary and relevant to
emphasize to my colleagues from other countries that the
way in which this nation handles its balance of payments
problem depends in large measure on the cooperation it
receives from other countries in the process, and upon the
way in which other important financial nations act in
dealing with their own domestic and international monetary
problems. I find it also necessary to emphasize that
this cooperation is not a rna tter of helping the U. S. deal
with its problem, but a matter of enabling the United States
deal with its problem without: undermining the
international monetary system, subjecting that system, by
unilateral action to radical and undesirable change, or
withdrawing from commitments involving the security and
development of others.
The United States' long term balance of payments
objective -- stated most simply -- is to reach and sustaw
~he degree of equilibrium necessary to preserve confidence
~n the stability of the dollar, both as a transaction and
as a reserve currency.
F-847

- 11 -

Our long term measures for achieving sustainable payments
equilibrium are not matters for the future. They are in
being as a program of action that is already showing effects.
The success of this program requires, at home, general
recognition, and acceptance in action, of the proposition that
this is a problem requiring the attention and energy not
just of the government but of both the public and private
sectors,
throughout the nation. Abroad, it is necessary
for the realization to grow that if the United States is to
carryon its balance of payments adjustment process in a
constructive rather than a damaging manner, it will require
not only our own action but the cooperative response of others
as well.
Our long range approach to our payments problem
upon the following propositions:
1. The United States must continue to export
Government capital for bilateral economic
assistance, and ~9r contributions to
multilateral development assistance
institutions.
2. The United States must continue defense
expenditures abroad for mutual security
in the Free World.
3. The United States must continue, over
time, to export private capital.
This is practical; it is sensible; it
is necessary. Moreover, the dividend
and royalty receipts for past
investments must continue to be brought
home -- and in increasing amounts -- to
reward the stockholder and benefit the
balance of our payments.
4. The United States must continue to
discharge its worldwide respons~biliti~
to the international monetary system
through its reserve currency and
transactions currency roles.

-847

rests

- 12 -

In order to support continued, even though fluctuat~
governmental and private outflows, the United States wil1~_
to earn a large current account surplus to accommodate
those outflows -- certainly larger than it earned in 1966 or
in 1965.
Industrial nations, particularly those in surplus,
must assume a greater share of the burden of adjustment
as well as of economic assistance.
Now let me give you an outline of what our long range
program includes, looking first at what is being done to
increase receipts from abroad.
Exports
First and foremost, we must maintain levels of costs
and prices necessary for a strong competitive position
in world markets.
In the export promotion field the Commerce Department
is now engaged in a host of important and productive
works which have a direct beneficial impact on exports
today and provide even greater promise for tomorrow.
Commencing several years ago the Commerce Department
expanded its Trade Mission and Commercial Fairs Program.
The figures of attendance and sales concluded demonstrate
that these slow germinating efforts are now bearing excellent
fruit. Information available to the business community at
the Commerce Department provides a valuable index and
guide to export~minded firms. Further, through the
National Export Expansion Council more companies are being
made aware of the opportunities available in selling
abroad.
The Export- Import Bank has a new red iscount £ae ility,
and it is steadily streamlining its lending and guarantee
programs.
More needs to be done in the export field. To this end,
a number of questions are being raised: Has the Govern~nt
simplified its regulations -- tax and otherwise -- and its
financial facilities enough? Is American business
throughout the world as imaginative and aggressive as it
might be? Must more be done -- perhaps directly -- to

F-847

- 13 -

1 v,_
r; 'j

stimulate the interest of our commercial enterprises to sell
abroad? Have we done enough to compete at home, on a fair
and nonrestrictive basis,with goods now imported? We must
constantly ask ourselves such questions and re-evaluate the
answers.
Travel
The President has announced that he will shortly appoint
a Special Travel Task Force to recommend means by which the
u. S. Government, working in cooperation with the private
sector,can accelerate foreign travel here. Although the
travel gap has been widening ($1.8 billion in 1966
compared to $1.3 billion in 1960), receipts from overseas
visitors have doubled since 1960. A well-financed, joint
Government-private sector effort can surely bring results.
Foreign Portfolio Receipts
By the Foreign Investors Tax Act, the United States has
attempted to help make the tax treatment of investors in this
country more equitable. The Treasury is now working with
TIembers of the financial community to spread the
realization that U. S. corporate securities are one of our
nost promising export products.
In the financial fie1d,severa1 countries have invested
:I. portion of their reserves in longer term United States
tnvestments. The yields earned by these investments in
long term instruments -- purchased with varying maturities
:0 provide for liquidity needs - - make them a produc tive
lanner in which to carry official reserves .
. nve s tmen t Inc orne
We come now to a point at which our basically long range
iew of our payments problem, and what we can and should do
bout it, shows through in our short term program. It is a
ital part of our long term payments outlook that our income
rom investments abroad should steadily increase, and
hould be regarded as a bulwark of long range U.S. balance
f payments strength.

-847

- 14 Now, let me make

two

points:

First, our voluntary program does not seek to cut
off the flow of United Sta tes private investment overseas.
What we do seek is to moderate those outflows by means tMt
mitigate their impact upon our international payments
accounts.
Second: From 1960 through 1965 American investment in
Europe in manufacturing, petroleum, mining and smelting
enterprises has averaged $2.7 billion annually. By and
large, fixed investment expenditures were more than
covered by direct outflows of funds from the United States,
retained earnings and depreciation allowances. Financing
from foreign sources has covered only working capital
requirements.

S. contributions to European prosperity in the form

of new plant have come basically from the U. S. On an
overall basis, there is no reason why local funds should
not finance part of the fixed investment as well as local
working capital needs.
On a world -wide basis, plant and equipment expenditures
overseas came to $6.2 billion in 1964,and 39 percent of it
was financed directly from the U. S. Retained earnings
and depreciation allowances approximately financed
the remainder. The gross figure for 1967 may come to
$10 billion, with the amount directly financed from the
United States less than 30 percent, so that the net direct
investment outflow figure should be no higher than it
was in 1964.
Improving Foreign Capital Markets
Increased efficiency of foreign capital markets is a
vital ingredient in the successful working of the
international adjustment process -- which is in essence
what I have been discussing.
The need for this development is dramatically
illustrated by several facts. Between 1958 and 1965 t~ ,
United States was a net exporter of capital in the amount 0;
billion as a result of foreign issues on the domestic
market less domestic issues abroad. In the same perioo

F-847

15,1
- 15 the Common Market countries were net importers through
security issues, and indeed on overall capital accounts
had a net influx of almost $1 billion. In these 8 years
these EEC countries were running surpluses on current
account amounting to $13.5 billion. Thus, in that case,
not only was there a failure to export capital, but imports
of capital were defeating the balance of payments adjustment
process.
The importance of the issue need not be dramatized to
this audience. Nor do I have to point out that great
strides forward are not taken quickly. Nevertheless many
forces are working in the direction of freer and larger
markets, and results indicated by one index, the volume
of international issues, increased substantially. Local
markets too have participated in this expansion and, perhaps
more importantly,financia1 interests, both government and
private in developed nations,seem to want to move in this
same direction. Efforts are underway to improve the
gathering of savings and the efficient employment of these
funds in improved and freer capital markets. This is
responsibility in the private area exactlyana1ogous to
responsibility inthe world of public economic assistance and
mutual security.

Moderating Foreign Exchange Costs of our Overseas Commitments.
Better Burden Sharing
The determination of the share a nation should bear in
helping to meet the economic assistance requirements of the
less-developed world and the security requirements of our
community of nations requires difficult and continuous
decisions on a host of issues. These issues cannot be
resolved solely on the basis of domestic resources or
budgetary considerations.
I believe the Asian Development Bank represents the kind
of burden-sharing necessary if the industrial nations are,
together, to promote economic progress in the 1ess-devSoped
world in the decades ahead. The Bank has capital of nearly
a billion dollars, of which $200 million came from Japan,
$200 million from the United States, $415 million from other
regional donors, and $150 million from Western Europe and
Canada.
F-847

- 16 While no absolute prec~s~on is suggested in the
relationship of these numbers, they reflect a realization
on the part of many nations that they have responsibilities
that they must meet them, and that the United States should'
not and cannot bear the whole burden, or even a majority
of it any longer.
We will be asking the Congress this year for new funds
for the Inter-American Development Bank, the International
Development Association, and the Asian Development Bank. In
making each request, we have asked and will continue to ask
our selves:
(a) What are other donor countries
contributing?
(b) How aggressively have the institutions
in question attempted to borrow in the
capital markets of other donor countries?
(c) What are the recipients doing, through
self-help efforts, to utilize the
money efficiently? (This is one of
their key roles in "burden-sharing. ")
(d) What safeguards are the institutions
providing for donor countries that
may from time to time be in balance of
payments difficulty themselves?
In another area, AID is making a diligent effort,
through progressively-refined tying techniques, to ensure
that our overseas economic assistance is provided, to
the greatest extent possible, in the form of U. S. goods
and services. Net dollar outflows on government grants
and capital have been reduced from $1.1 billion in 1961
to an estimated $736 million in 1966. In addition there
is increasing effort to make sure that Government-financed
exports do not substitute for commercial exports that would
have been purchased in any event. In the long term this
should contribute substantially to the development of
commercial markets.
the military side, we are seeing now the
difficulties that ensue when alliances, although effective
militarily and politically, lack viable financial
formulations.
On

F-847

- 17 This cannot happen again, and our long-range program
involves a maj or effort to see that it does not.
Between 1961 and 1965 net military foreign exchange
expenditures were reduced from $2.5 billion to $1.6
billion despite the Bprlin Cris is build up. In 1966) because
of Vietnam, the gap
widened again. But even without
Vietnam the burden on the United States balance of payments
from its contribution to international security could be
large. The United States has vast resources -- we have been and
are willing to utilize them freely in the defense of
freedom -- but the foreign exchange problem adds complications.
Improved Financial Arrangements

Ways must be found to neutralize these foreign exchange
costs. Alliances which rest on important political,
social, economic and military plans should not be made
vulnerable because foreign exchange financing problems have
not been resolved.
We should be able -- indeed we must find ways
to work constructively with our allies on forms of
mltilateral financial arrangements designed to
neutralize the foreign exchange consequences of the
locations of our troops and those of our allies. The
arrangements should be long term and provide financial
viability to our alliances. Discussions now under way
between the United States, the United Kingdom and the
Federal Republic of Germany designed to work out security
and financial arrangements in a trilateral setting may
point the way to designs that could embrace other
multilateral arrangements.
Looking back over the elements of the U. S. long range
program for balance of payments adjustment, it can be fairly
stated that its realization would, as I have indicated it
should, support, rather than strain, the healthy working
of the international monetary system and free world security,
trade, exchange and development.

F-847

- 18 III.

A time for decision on contingency planning
for adequate international reserves

Whatever may be our resolves in favor of economic growth,
whatever else we may do to make more rational use of the
economic resources available to us, however we may strive to
improve the processes of adjustment of our international
payments balances, whatever we may do to share more equitably
the tasks of defending the peace and encouraging the
processes of economic growth beyond our own borders, all our
good resolves and all our efforts can be frustrated for lack
of adequate growth in world reserves.
Yet, the facts are that:
During the past two years the traditional
processes by which world reserves are
increased have not yielded a growth of
liquidity;
Such inadequate growth of reserves as
has occurred in the past two years was
due to ad hoc, uncontrolled and impermanent
special tactors, that cannot be projected
to the future.
Only one conclusion can be drawn from this picture of
prevailing uncertainty as to the future of reserve growth
through presently available processes, and that conclusion
is the heart of my message to this international monetary
conference:
We can no longer take continued reserve growth
for granted. Consequently, since we want our
economies to continue to grow at healthy rates,
there is no time to waste before we agree upon new
means for adding to the world's ability to increase
monetary reserves. We should therefore make it our
conscious aim to arrive at agreement, in our
negotiations during the next few months, on the
structure and major provisions of a contingency plan
for reserve creation, a plan sufficiently developed
to be presented for approval to the Governors of
the International Monetary Fund when they meet at
Rio de Janeiro in September.

F-847

-19 -

If we take a conservative view of the time that would be
required after IMF action to attain ratification by the
legislatures of the scores of nations that would be parties
to such a plan, the machinery could not come into being for
about a year.
Whether that is, or is not, an adequate time schedule
for getting the machinery in place to make the creation of a
new reserve asset a practical possibility depends upon the
course of events. Let me make it entirely clear that I am
talking about the need to complete and approve contingency
planning for reserve creation, and not about the activation
of the machinery we agree upon. Agreement on the plan would
in itself be reassuring to the markets.
But the uncertainties surrounding the future growth of
reserves, with the means now a hand, are so great, while the
need for increased liquidity to finance a continued healthy
growth in our domestic economies and in world trade is so
certain, that the desirability of having new means available
to create reserves, for use when needed, has become
uncontestable and current.
I want to examine this need for agreed-upon facilities
for keeping the growth of world liquidity consonant with
world economic growth against the background of the principal
arguments that have been advanced for delay.
Before that, however, let me say that one of the most
compelling reasons for current agreement upon a contingency
plan for reserve creation is the fact that it would lay to
rest the malaise that now afflicts the international system
as it contemplates a growing world confronted by increasing
uncertainty about the future adequacy of reserves

F-847

-20 -

We must attribute to the current uncertainty as to
how new reserves are to be supplied to the international
monetary system in the future the suggestions heard recently
that the official price of gold be increased.
This
suggestion is regarded by the great preponderance of financial
and economic opinion as undesirable, inequitable and impractical.
By official statement, the United States has made it
unequivocally clear that the price of gold will not exceed
what it has been since 1934 -- $35 an ounce -- and that any
suggestion to the contrary -- either to meet needs for
additional international liquidity or for any other reason -is completely unacceptable to the United States.
One of the principal causes of the drift, that I noted
at the outset of these remarks,away from the processes of
international economic collaboration and liberalization
and in the direction of national and regional restrictionism
must also be attributed at the root to uncertainty as to
whether, in the future, mechanisms will exist that will
dependably supply liquidity when needed.
Such agreement would
serve the very important purpose of giving assurance that we
shall be able in the decades ahead to complete and extend the
great work of world economic and social betterment of the
past two decades marked by the growth of international
economic cooperation, trade liberalization and return to
currency convertibility.
Finally, let me just state plainly a plain truth:
All countries wish to increase their reserves
This is not possible unless the total of
reserves increase.
The following are the disagreeable implications of that
plain truth:
In a situation in which reserves are not
increasing and in which it is not clear how
or how much they can increase in the future,
it is only possible for some countries to

F-847

-21 increase their reserves at the expense of losses
by other countries. In an international competition designed to gain reserves, C01.:.ntries rely
upon defensive beggar-thy-neighbor measures that
restrain international trade and investment, and
domestic growth.
It is difficult to see how, in these circumstances, there
can be any question as to the need for an agreed contingency
plan for adding to world reserves when and as needed.
The idea that the United States looks to reserve
creation as a means of solving balance of payments deficits
ours or any other country's -- is false. The obvious fact
is that such abuse of the new asset would quickly weaken, and
soon destroy, its usefulness as a monetary reserve. It
should be abundantly clear to all that we would not seek the
means to create reserves only to destroy the usefulness of the
new assets.
Let me restate our position:
First, we seek a way for the nations of the world to
supplement monetary reserves with a deliberately created
asset in order to be able to deal with the world's real and
demonstrable need for additional reserves, when and to the
extent that need makes itself evident. This would of course
be the global need.
Second, we seek the means for doing this upon the basis
of the informed and responsible judgment of the monetary and
financial authorities, arrived at through due deliberations
of the members of the International Monetary Fund, with
appropriate consideration for the responsibilities of the
principal capital-generating nations.
Third, as I have indicated in the foregoing section of
these remarks, we are striving for agreement on contingency
plans for reserve creation in the context of an insistent
program -- long term and short term -- for curing our balance
of payments deficit that is achieving its objectives, excepting
for the time being, the abnormal and impermanent foreign
currency costs of the war in Vietnam. Our balance of payments
program must for the present make use of short term measures
to compensate for the foreign exchange cost of Vietnam, so
long as they persist. The problem of arriving at a sustainable
payments equilibrium position now lies chiefly in a transition
to long term from short term measures for dealing with our
foreign exrhange balances.
F-847

- 22 -

We look~ in this matter, to our own program for balancing
~)ur fore ign exchange cos ts - - and to such improvements in
international financial arrangements as better capital markets,
fairer burden sharing and better adjustment processes
Reserve creation is a necessity above, beyond and separate
from the payments ~roblem.
It is sometimes asserted that the very existence of
P. S. balance of payments deficits implies increases in world
reserves, and that, therefore, so long as we have deficits)
another means for increasing reserves would be redundant and
perhaps even harmful.
The facts are the following for 1965 and 1966:
The traditional means for increasing reserves -chiefly additions to world monetary gold and additions to
foreign exchange held as reserves other than by special
transactions -- resulted in a decline of just over $1 billion
~n world reserves.
There was a modest growth of reserves in these two most
recent years, amounting to about $2.5 billion all told, but
this was due entirely to special transactions, largely to
special borrowing from the IMF, swap arrangements, conversions
by the United Kingdom of dollar investments into dollar reserves
and other special factors.
In considering the implications of current developments
for the future of reserve growth, it should be kept in mind
that much of the reserve growth of the past two years resulted,
as I have just indicated, from borrowings of various kinds.
These will be -- indeed, are being -- repaid. As they are
repaid, existing reserves are cancelled out.
Also in considering the future prospects for reserve
growth by the means presently at hand, it must be asked,
what has happened recently to the traditional sources of reserve
increases?
First, the flow of gold into official reserves, which
averaged ralf a billion dollars a year in 1960-64, has stopped.
In 1965, official reserves got only a quarter of a billion
dollars additional gold.
In 1966, gold in official hands
actually declined -- perhaps by as much as $100 million -for the first time in modern history.

F-847

- 23-

Second, it must be asked, why did not continued dollar
balance of payments deficits increase reserves, even though
we did not get gold additions?
The answer lies in the fact that conversions of dollars
into gold have more than offset dollar additions to official
reserves in the past two years.
To the extent that dollars are used to draw down our
gold stocks, world liquidity is decreased. This happens
because our reserves are in the form of gold. Consequently,
when France -- to mention the chief, but not only purchaser
of U.S. gold -- uses some of its dollar reserves to purchase
our gold, Fren~h reserves remain the same in amount although
changed in form, but our reserves decline, and consequently,
total world reserves are diminished.

It cannot be said that current circumstances
altogether rule out any further growth of reserves
through traditional processes. But that is not
the point. The point is that the reserve needs
of the world -- including the need to reverse
the long downtrend in the reserves of the United
States -- will substantially exceed any such
remaining flexibility that traditional reserves
can provide. We should not -- indeed, must not
wait to set up the machinery for creation of a
new reserve asset.
The time to do so is now, this Spring and this Summer.
The technical experts of the Group of Ten and the IMF have
labored long and, to their everlasting credit, have corne up with
the main provisions of the technical solution to the problem.
There are only a few major issues yet to be treated. Their
work will be embodied in reports to be issued later this year.
It is our hope, expectation and position that.at the
Annual Meeting of the International Monetary Fund ~n September
of this year the Governors will approve the structure and
major provisions of a specific plan.

F-847

- 24What is needed now is simply the realization that the
time of need is not far off, and the political will to assemble
the parts of the solution that lie before us, and agree
upon the assembled whole as a contingency plan.
There are very serious risks, should we permit the doubts
of one or two governments to keep the rest of uS from doing
what we know should be done. We have noted, in an
earlier portion of these remarks, an assessment of the nature
of those risks. We have glimpsed their potential for world
economic, social and political trouble.
Let me conclude this part of our discussion with a
statement of what it is that we seek. We seek to assure
ourselves -- and the rest of the world -- that when in the
course of our economic and social growth we have need of
reserves as an essential base for international finance in all
its aspects we shall not have to retreat into stale and timid
and destructive restrictionism, for want of means to make
liquid reserves available.
We seek an open, competitive, fruitful world economy, made
up of open, competitive and fruitful national economies, as the
indispensable means that will permit us, and the rest of the
world, to get on with the work of building, upon the basis of
our individual better societies, a Greater Society of Nations.

000

F-847

15S
TREASURY DEPARTMENT
Washington
FOR USE IN AFTERNOON NEWSPAPERS OF
WEDNESDAY, MARCH 15, 1967
REMARKS OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE A LUNCHEON MEETING OF THE SOUTHERN CALIFORNIA
INDUSTRIAL PAYROLL SAVINGS COMMITTEE
AT THE AMBASSADOR HOTEL, LOS ANGELES, CALIFORNIA
WEDNESDAY, MARCH 15, 1967,2:00 P.M., P.S.T.
When President Johnson announced our new "Freedom
Shares" less than a month ago, he set off a new surge of
energy in the campaign for buying and holding u.S. Savings
Bonds. This surge is needed, because this year the
Savings Bonds program is more important to our economic
stability than ever.
There is today an impelling need for a greatly stepped
up bond program to help finance the Vietnam War in the
soundest possible way, and to promote a healthy, stable
economy. The bond program, with your help, has done well
in the past year. Holdings of Savings Bonds now stand at
a record high of more than $50 billion. But sales this
year must be even larger. And with the addition of the
"Freedom Shares," which President Johnson has called "a
cheerful companion" to the regular Savings Bonds, the
bigger sales and holding figures will be reached.
We all bear special responsibilities, in the context of
the special conditions of 1967, for a high level of
responsible economic conduct. One facet of this, as I have
just indicated, will be found in a new and more urgent
application of your time, talent and energy to Savings Bonds
sales assisted by the availability of an attractive new
product -- the Savings Note.
But we will also need special care and responsibility
on the part of all to pick our way successfully through the
changeable economic terrain we expect to encounter this
year.
F-848

- 2 -

159

I want to discuss the prospects with you, but to
understand better where we are going, we must first look
back to where we have just been.
I think it is likely that 1966 may stand out in
historical perspective as a year when the United States
economy went through an economic adjustment that was both
remarkable and significant. The year witnessed a large
scale, fast-moving drive of political, financial, and
economic pressures which threatened to overload our
economic circuits. And it witnessed a series of actions
which were taken to meet and contain that drive, more
smoothly, with less harm to the worthwhile directions of
the total economy, than was ever the case under similar
circumstances in the past.
In 1966 our nation faced:
For one thing, a business expansion boom of historic
proportions at a time of nearly full employment and
utilization of industrial capacity;
Second, and the result of an emergency that history will
mark as a great watershed of the second half of this
century, the intensification of the war in Vietnam, with
all of its real and psychological disturbances.
Viewing this situation last spring, I described the
outlook in the following terms:
"We have essentially two questions
before us. The first is how best to
shift smoothly to a lower level of real
growth from the high levels of 1964 and
1965 in the current atmosphere of
economic exuberance, aggravated by
Vietnam.
"And the second question is, once
we have made this transition, how do we
best sustain and employ our growth, at
full employment and with stable prices ....

F-848

- 3 -

"While we cannot expec t in the years
immediately ahead to maintain the
unusually high growth rates of the past
several years, neither can we welcome a
return to the very much lower rates of
growth we have had throughout much of this century ....
"Our effort today - - as it was a year
ago -- is to try to make the transition to
a sustainable rate of growth as smooth as
we can, to slow down without stalling.
But today the circumstances are far different
than they were a year ago -- and, with the
advent of Vietnam and all the uncertainties
surrounding it, they are far more difficult
to assess."
Now, in early 1967, a very considerable part of that
difficult passage has been negotiated. But we had to
confront along the way complicating and contradictory
problems.
Let me give you an idea of the contrariness of economic
events as seen from the policy maker's seat:
Excessive credit demands combined with stern but
necessary monetary restraint led by early summer 1966 to
demands for credit in which the cost of money seemed at
times not to matter to many borrowers. But simultaneously
there was a sharply contradictory development: weakenesses
in the stock and bond markets followed by weakness in vital
sectors of the economy -- auto production, housing and
consumer durab1es.
The surface of the economy was boiling. But hints
kept coming in that the boiling surface concealed
congealing cool spots below.
One of the outstanding products of such a year is bound
to be a welter of controversy. So far as 1966 is concerned
this conceals two highly important facts: first, that grave
dangers were avoided, and, second, that there were solid
accomplishments. Therefore, I want to take a few moments to
look beneath the currently boiling surface of controversy to
the inside story of what really happened in 1966.

F-848

"' 6'.L
.1
- 4 First, two overall achievements that made all the rest
possible:
Our gross national product increased by
the extraordinary amount of some 5~
percent, after allowance for rising prices.
The already enormous productive power of
the United States economy was further
bolstered by a record increase in
industrial capacity, reflecting, in large
part, the successful use in past years of
investment incentives.
This added capacity, and millions of new workers added
to the employed labor force, were critical to the successful
transition of 1966; without them we could not have dealt
successfully with the strong rise in defense and civilian
production of 1966 with only about a 2 percent rise in the
industrial component of the wholesale price index. Let me
note, in contrast, that:
industrial prices rose more than 10 percent
between 1950 and 1951 under the pressure of
the Korean build-up;
and by more than last year's 2 percent in
both 1956 and 1957 in the midst of the last
sizable expansion, when no comparable
defense build-up took place.
In this setting these further achievements took place
in 1966:
At home:
Industrial production rose 9 percent;
Net income per farm rose more than
10 percent;
2 million more workers found employment;
Unemployment averaged below 4 percent;
Corporate profits climbed 8 percent.

F-848

- 5 -

And internationally:
We held our own, and made some progress, ~n
bringing our balance of payments problem
under control despite the substantial
increase during 1966 in our foreign exchange
costs due to the war in Vietnam.
Our gold loss was cut by more than 50
percent below the previous year: except
for French purchases we would have added
nearly $200 million of gold to our stocks.
And now I come to something that, in my opinion, cannot
be too strongly emphasized:
Perhaps most remarkable of all -- and
as important as any other factor -- all
this was accomplished without the imposition
of those price, wage, and materials controls
that have been found necessary in past
similar national emergencies.
There was -- and is -- a further highly significant
national dividend from our experience in 1966.
This is, that the fact of having met and coped with
such large-scale and volatile problems of free enterprise
at one of its moments of excess, without resort to heavy
handed measures and despite the advice of many to be
heavy handed, gives us confidence that in the future also
we shall be able to deal with big, fast economic adjustments v.Jith"ut
departures from the context of free enterprise. This new
knowledge of the capabilities of the American free
enterprise economy may in the end turn out to be the
greatest of all our many substantial gains in 1966. For
this confidence is in itself a major factor in the future
successful use of moderate measures even in situations of
great urgency and pressure.
Further, the knowledge gained from 1966 will permit
better coordination, better timing, better foreknowledge of
what is likely to happen, so that the inequities and price
increases of 1966 can be much further reduced in future
times of economic stress.

F-848

16 . /,
.

\.,1

- 6 -

Now for the current year:
Let us note, first of all that in the coming period, as
in that just past, we will be living with the Vietnam
situation, with all the uncertainty and potential change
that this or any other war situation ever known implies.
We must live with the fact that even the most carefully
considered plans may be upset by the imponderables of war
until the time comes -- whenever that may be -- that this
emergency cools down.
Secondly, we should note that 1967 will in all
likelihood witness further economic shifts and changes.
These will require the most prudent handling, such as
President Johnson's Budget and tax policies for 1967 strive
to provide.
It was these considerations that led the President to
say, in his Economic Message of a few weeks ago:
"Our task for 1967 is to sustain
further sound and rewarding economic
progress while we move toward solutions
for the problems we met in 1966. It will
require a flexible and delicate balance
of economic polic ies ."
The tax and spending programs in the President's Budget
are designed to deal, flexibly and with good balance, with
the economic developments that the year 1967 is expected
now as when the Budget was issued -- to produce. In the
large, this is: a first half that is sluggish by
comparison to recent experience, and a second half in which
the tempo picks up again. Thus, government policy is
designed to be stimulative in the first half, and
moderating in the last half.
But the first big move in the fiew year -- the
President's recommendation now before the Congress to
restore the tax incentives to investment suspended last
fall -- was made not for the above reasons but to keep a
promise.
The view that it would be desirable, indeed obligatory,
to reinstate the investment tax credit as soon as conditions
warranted it, had been expressed both by the President and
the Congress. In his statement upon signing the suspension
legislation the President said:
F-848

- 7 "If .... any earlier reinstatement would
be appropriate, I shall recommend prompt
legislative action to accomplish that result."
The reports to the Congress of both the House Ways and
Means Committee and the Senate Finance Committee stated:
"If military requirements in Southeast
Asia should decrease before January 1, 1968,
or if for some other reason it should
become apparent that suspension of the
investment credit and suspension of the use of the
accelerated depreciation methods with
respect to buildings are no longer
necessary to restrain inflation, the
Congress can promptly terminate the
suspensions. The Administration has also
indicated that it would recommend
terminating the suspension period before
January 1, 1968, under such conditions."
In brief, the Administration and the Congress fully
intended that the suspension of these important investment
incentives should be terminated just as soon as the
objectives of the suspension had been accomplished. Their
objectives have been accomplished and therefore the
incentives should be restored.
On the basis of evidence that we have been observing,
analyzing and carefully appraising, we can now state
without qualification that the mission assigned to the
suspension of the investment credit and accelerated
depreciation has been accomplished.
Here is some of this evidence:
In the market for capital goods:
New orders for machinery and equipment
have, beginning in October, declined
steadily, reaching a level in January
of this year of 7 percent below
September 1966. Moreover, in January
shipments actually exceeded orders
17 percent and this was the first month
that backlogs actually fell since June 1963.

F-842,

- 8 The average rate at which capacity is
being utilized in the machinery industry
has dropped noticeably to a healthier
and more efficient rate. In electrical
machinery, for example, it has declined
from 97 percent to 91.5 percent.
The shortages of skilled labor are not
so nearly acute today as they were last
summer.
And, looking ahead, the recent Survey
of Investment Plans for 1967, conducted
by the Department of Commerce and the
Securities and Exchange Commission shows
a modest increase of less than 4 percent.
This is within the growing productive
capabilities of our machinery industries.
It is in sharp contrast to the increases
of 16 percent and 17 percent which
occurred in 1965 and 1966.
Thus, while demand for capital goods remains at a high,
even record level, it now reflects a healthy buoyancy in the
capital goods industries and not the excessive, threatening,
boom conditions that prevailed last summer.
There is an important result of this development in
the area of our balance of payments. During 1965 and the
first three quarters of 1966, imports of capital equipment
jumped by an average of 13 percent per quarter. In the
fourth quarter of 1966 the rise in imports of capital
equipment was only 3.9 percent and this in part reflected
deliveries on orders placed in earlier quarters. There is
an excellent prospect of a levelling off of imports, now
that domestic producers can take care of demands.
In the financial and money markets:
A dramatic decline in interest rates from
the highest levels in 40 years has occurred.
Three-month Treasury bills are down
one and one-quarter percentage points,
from 5.60 percent to 4.35 percent.
Ten-year Treasury securities are down
about seven-eights of a percentage point.
Short-term Federal agency securiti~s are dawn
one and three-eights pertentage po~nts.

- 9 New corporate Aa bonds are down nearly
seven-eights of a point.
New municipal bonds are down two-thirds
of a point.
The net inflow of funds to savings and
loan institutions is now proceeding at a
much more healthy rate. In the four
months ending January, the inflow was at
an annual rate of $8 billion. Last
summer the annual rate of inflow was as
little as $0.1 billion.
Credit availability for homebuilding has
improved and mortgage rates have started
to come down. In October the seasonally
adjusted annual rate of housing starts
had sunk to a low of 848 thousand units;
in January starts had reached one and a
quarter million units (seasonally
adjusted, annual rates).
Corporate financial demands, while strong,
are being accommodated in an orderly
manner and yields are down.
Preliminary estimates suggest that
for the first quarter of this year
corporate issues are running below
last year. This contrasts with the
first three quarters of 1966 when
corporate security offerings were
substantially above the year earlier
levels.
While the situation has considerably improved in our
financial and money markets, I do not want to give the
impression that further substantial easing is unwanted or
unnecessary. Far from it. There is room for further
declines in interest rates, in our own financial markets,
and in that of other countries. I hope and expect to see
those declines realized, and I expect that credit will
continue to become more readily available, particularly for
homebuilding.
F-848

- 10 -

. .·6-"
t

In the currently improved financial market environment,
I believe that restoration of the investment credit is entirely
consistent with maintaining good balance in the financial
markets in the months ahead, and it is consistent with
achieving further improvement in those markets. It will,
of course, continue to be necessary for the Federal
Government to keep its own demands in the credit markets within
measured bounds.
The question naturally arises as to what bearing the
termination of the suspension has on the President's
recommendation for a surcharge on corporate and individual
income taxes.
In this respect, it is necessary to note, first, that
the two measures are quite different in design and purpose.
First, the suspension of the investment credit was not
a revenue measure and had a specific and limited
objective -- to dampen the excessive boom in the market
for capital goods. The excessive boom is over, and there
is no reason for continuing the suspension.
The surcharge, on the other hand, is an overall
across-the-board fiscal measure designed to cope with the
economic and budgetary situation as we anticipate it for
the latter half of 1967 and throughout 1968. We expect
the economy to be in need of overall restraint during that
period. We will certainly not want a resumption of monetary
strains then either, and this will require that the
Government continue to watch its own demands on the credit
markets. The surcharge will help achieve both these major
ob j e c t i ve s .
It is clear that in the 1967 setting buying and holding
U.S. Savings Bonds are actions more important to our nation's
economic stability than ever before. These bonds not only
support our fighting men in Vietnam and our commitment to the
defense of freedom throughout the world, but they strengthen
our economy at home and guard against the forces of
inflation.
Now, more than ever before, it is essential that we
finance our debt in the soundest possible way; that we do all
we can to place more of the debt in the hands of savers.

F-848

- 11 You well know that participation in the Savings Bonds program
is a measurable and effective means of accomplishing both
these objectives, because you -- as Savings Bond
volunteers -- have done an outstanding and admirable sales
job.
We are giving you what we feel certain is a valuable
assist in meeting this challenge: a new, attractive,
product. This is the "Freedom Shares," sales of which
begin May 1. We have an unmatched sales organization -all volunteers -- to put this Savings Note and the familiar
Savings Bonds into the financial backstops of our Payroll
and Bond-A-Month savers.
They include:
Mr. George Meany and the Executive Council
of the AFL/CIO have enthusiastically
endorsed our new "Freedom Shares" product.
They are actively engaged in an expanded
program to promote the campaign.
Other volunteers are to be found in depth
throughout the leadership of business and
industry. Their hub of endeavor is the
U. S. Industrial payroll Savings Committee
ably directed by its Chairman, a
Californian -- Dan Haughton, President of
the Lockheed Aircraft Corporation.
Many others, such as Jim Haight, Chairman
of the Board of FMC Corporation, 1966
Chairman; and Reed Hunt, Chairman of the
Board of Crown-Zellerbach, our 1965 and
1964 Chairman.
Mr. Hornby Wasson, President of Pacific
Tel and Tel whose record was 86 percent
participation among 90,000 employees -number one job in the whole Bell System;
and Gene Treffethen, Executive Vice
President of Kaiser Industries, whose
record was among those above the 50 percent
mark.
The volunteer State Chairmen for Savings
Bonds, drawn largely from the field of
banking and finance -- men like Harold Stone,
our Regional Director, and our State Director,
Ne\v ton tvfcCarthy.

- 12 I have left to the last, because he is the Chairman
for this area, mention of Tex Thornton. It is my pleasure
to pay tribute here today to his distinguished
participation in the effort to increase investment in
Savings Bonds. He is the kind of man who makes things go.
With a 1966 sales dollar goal of $192 million, you sold
$205 million in the Southern California area -- reaching
107 percent of your quota and marking the first time that
your sales results had gone over the $200 million mark in
the 11 counties of your area. Your 1966 target for new
savers was 62,000. Instead you added 130,000 new savers,
more than double your goal. Our country needs these new
savers, and these individuals themselves are fortunate
indeed in having embarked on a program of systematic savings.
In 1967 you are challenged here in Southern California,
by a goal of $244,600,000 Savings Bonds sales -- and of
adding 136,500 new payroll savers to your lists. With
Tex Thornton calling the signals, I have no doubt you will
do it.
Let me close with these remarks by President Johnson,
when he announced the new "Freedom Shares" program last
month:
"We can do no less than those who fight
and die for our freedoms. Last year,
American servicemen bought almost $350
million worth of Savings Bonds -- close
to $90 million in the last quarter alone.
Battle honors come hard in Vietnam, because
the price of honor is often the price of
life. Yet, in jungle and hamlet -- on
shipboard and airfield -- there is one
trophy that every American unit prizes.
It is not the enemy's flag. It is the
Minute Man Flag that symbolizes 90
percent or better particpation in the
payroll Savings Plan."
F-848

000

TREASURY DEPARTMENT

March 15, 1967

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 March 23,1967,
in the amount of
$2,305,959,000, as follows:
91-day bills (to maturity date) to be issued March 23,1967,
in the amount of $I., 300 ,000,000, or thereabouts, representing an
additional amount of bills dated December 22,1966, and to
matureJune 22, 1967,
originally issued in the amount of
$1,006,055,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $1,000,000,000, or thereabouts, to be dated
March 23, 1967,
and to mature September 21, 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, March 20, 1967.
Tenders will not be
received at the Treasury ve~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 ir. 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-849

- 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 March 23, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing March 23, 1967.
Cash and exchange tender
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 ft,
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

March 16, 1967

IN ANSWER TO INQUIRIES:
In response to requests for comment on
the further reduction of the British bank rate,
announced today, the U. S. Treasury said that
it welcomed this additional move in the
direction of lower interest rates, as further
evidence of improvement in Britain's international financial position.

000

TREASURY DEPARTMENT

Washington

IMMEDIATE RElEASE
FRIDAY, MARCH 17,1967

F-850

The Bureau of Customs announced today prelimina~! figures on imports for consnmption of the following commodities from the beginning of the respective quota
periods through March u, 1967:
: Un it of :Imports as 0 f
:
_co_m_rn_o_di_t_Y_ _ _ _ _ _ _ _ _.;.....P_e.-r_i_o_d_an_d--:,Q'_llan_t_i_t.:,.y__ -_-=..::.!S.uanti ty : March 4, 1967
1'a.ri:f-Rate Quotas:
tI • • • • • •

Calendar year

1,500,000

Gallon

,vhole Milk, fresh or sour ••

Calenjar year

3,000,000

Gallon

CreA.Jll, fresh or sour

Cat':,}e" 700 1bs. or :tIore
ea~~j - (o:"he:- than dairy
$

••••

.,""

•••

396,u97

Jan. 1, 1967 -

........ 0

C:;.ttle, less thai 200 lbs.
each •••••••••••••• 0 • • • • • •

31, 1967

120,000

Head

1966

200,000

Head

Cal£:ndar year

24,883,313

Mar.

12 mos. from
Ap.:-il 11

?'ish, fresh or frozen, fi1-

lctei, etc., cod, h~jdock,
hake, pollo~k, cusi, and
ro 38 fi 5 h "(: ~ ••••••• " ••• e
q

011

Pound

Quota fillec¢/

announced

Pound

10,797 ,877

Du,OOO,OOO

(~uot~

filled
filled

fi.lled

To be

Tuna Fish •• " •••••••••• ,..

•

or Irish potato~s:
Cer"ti fied seei •••••• " ••••
Other •••••

Calendar year

~~ite

Sept. 15) 1966

LS,ooo,OOO

84,000,000

Pieces

~uota

0 •• 0.0 •••••

No'l. 1, 1966 Oct. 11, 1967

••••••••••••••• ~

Calendar year

1,}30,00('

Number

.L,

•••••••• 0 ••••••

Calendar year

2,L60,GOO

Number

1, 1.3 ~ , 1//}./

ea • • • • • • • •

••

Knives, forks, an,d SPOO:lS
1,rith st'3.inles3 steel
handles •••••••
~i~Jhiskbrooms

Other brooms

QUl)t~

Pound
Ponnd

12 mns.

from

' 26 r:'.),4) SL'l./

----------------------,-----------------------------fer
~/ Ir::p')l't;:;
con3~~iiptio;) at the quota rate ::tre lim.i ted to 5,220,828 pounds
iuring t~e first? months of r,he c:liendar year.

~I
D

Imports:1s of March 10, 1967.

TREASURY DEPARTMENT
Washington

IHMEDIATE RELFASE

FRIDAY, MARCH 17, 1967

F-851

The Bureau of Customs h~s announced the following preliminary
figures showing the imports for consumption from JanuarJ 1, 1967, to
March U, 1967, inclusive, of commodities under quotas established
pursu~t to the Philippine Trade Agreement Revision Act of 1955:

Commodity
Suttons •••••••••

Established Annual
Quota Quantity
S10,OOO

Unit of
Quantity

=Imports as of
:March U, 1967

Gross

25,234
1,860,690

•••• o •••••

120,000,000

Number

Coconut oil •••••

268,800,000

Pound

6,000,000

Pound

1,9u3,446

3,900,000

Pound

301,100

Ci~ars

Cordage

•••••••• 0

Tobacco •••••••••

Qu ota

filled

...........U!L1.L.I-I..L l!.

FRIDAY, MARCH 17, 1967

F-852

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 amen1ed, am. as modified by the Tariff Schedules of the
United StAtes which became effective August 31, 1963.
(The country designations in this press release are those specified in the appeniix to the Tariff Schedules of the
Uni ted States. There is no political connotation in the use of outlooded names.)
COTTON (other than linters) (in pounds)
Cotton urrler 1-1/8 inches other tha.1'l rough or harsh umer 3/4"
Imports September 20. 1966 - March 13. 1967
Cmll1try of Origin

Egypt and Sudan ••••••••••••
Peru. •••••••••••••••••••••••
In1ia and Pakistan •••••••••

China ••••••••••••••••••••••
Mexico •••••••••••••••••••••
Brazil •••••••••••••••••••••
Union of Soviet
.30cialist Republics ••••••
Al' gentina ••••••••••••••••••
H~.i ti ..................... .
Ecuador ••••••••••••••••••••

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

Country of Origin

Imports
50,4~

11,241

475,124
5,203
237
9,333

11
~I
~

Established Quota

Honduras ••••••••••••••••••••
Paragu~ ••••••••••••••••••••
Colombia ••••••••••••••••••••
Iraq ••••••••••••••••••••••••
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, a.n:i Tobago.
Except Nigeria and Ghana.
Cotton 1-1/8" or more
Established Yearly Quota - 45.656.429 1bs.
Imports August 1. 1966 - March 13. 1967
Staple Length
1-3/8" or more
1-5/32" or more and under
1-3/St' (Tanguis)
l-l/St' or IOOre and umer
1-3/St'

Allocation
39.590,778

Imports
31,295,569

1,500,000

120,625

4.565,642

4,130,101

752

871

124
195
2.240

71,388
21,321
5,377
16,004

Import~

COTTON WASTES
(In pounds)

COTTON CARD STRIPS made from cotton having a staple of less than 1-3/16 inches in length, COMBER

WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VALUE: Provided, however, that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more
in staple length in the case of the following countries: United Kingdom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy:

Country of Origin

Established
TOTAL QUOTA

Total Imports
Sept. 20, 1966, to

_ _ _ _ _ _ _ _ _ _~_ _ _ _ _ _~:~M~~~c~h~1~3u,~1~9W
United Kingdom ••••••••••••
Canada ••••••••••••••••••••

France ••••••••••••••••••••
India and Pakistan ••••••••
Netherlands •••••••••••••••
Switzerland •••••••••••••••
Belgium ................... .
Japan •••••••••.•••••••••••

China ..................... .
Egyp t ••••••••.••.•••••••••
Cuba ••••••••••••••••••••••
Germany •••••••••••••••••••

Ita ly ......••.•...•.......

4,323,457
239,690
227,420
69,627
68,240
44,388
38,559
341,535
17,322
8,135
6,544
76,329
21,263

34,048
67,453
31,583
16,058

5,482,509

149,142

Established
33-1/3% of
futa1Qoota

Imports
Sept. 20, 1966
toM~~~,~~

1,441,152

34,048

75,807

31,583

22,747
14,796
12,853

25,443
7,088

Other, including the U. S.

11 Included in total imports, column 2.
Prepared in the Bureau of Customs.

F-852

1,599,886

65,631

TREASURY DEP AR'lNENT

Washington
IMMEDIATE RELEASE

FRIDAY, MARCH 17, 1967

F-853

The Bureau of Customs announced today the following preliminary
figures on imports entered for consumption under the absolute import
quotas provided for in section 12.71, Customs Regulations, for coffee
grown in nonmember countries of the International Coffee Organization
for 12-month period beginning November 15, 1966.
COFFEE
(Green - In pounds)

Country

Established
Quota

Total Imports as
of Mar. 13, 1967

Bolivia

1,850,800

967,121

Guinea

1,454,200

QUo ta filled

Liberia

2,511,800

1,535,640

Paraguay

2,644,000

Yemen

1,850,800

110,628

BasketY'

6,610,000

1,529,099

Basket quota allocated to unlisted nonmember countries and to
listed nonmember countries after respective quota filled.

NOTE:

Honduras and Kenya are now members of the International Coffee
Organization. Therefore, Honduran and Kenyan coffee is no
longer subject to quota.

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE

RICHARD O. LOENGARD, JR. RECEIVES TREASURY AWARD
Richard O. Loengard, Jr., who is leaving the Treasury
Department today to resume private law practice as a partner with
Strasser, Spiegelberg, Fried, and Frank, of New York City, has
been awarded the Department's Meritorious Service Award by
Secretary of the Treasury, Henry H. Fowler.
During the past 2~ years Mr. Leongard has been Special
Assistant for International Tax Affairs to Stanley S. Surrey,
Assistant Secretary of the Treasury for Tax Policy. Mr. Loengard has
also been Deputy Tax Legislative Counsel for International Tax
Affairs in the Office of the Tax Legislative Counsel.
Mr. Loengard received his award from Assistant Secretary Surrey,
who cited Mr. Loengard's work in helping to formulate the Treasury
Department's legislative proposals leading to the Foreign Investors
Tax Act of 1966, his work on Interest Equalization Tax legislation,
and his participation in negotiations between the United States the
United Kingdom, and France on international income tax treaties.
The award citation said:
"He .•.. was able with perceptive insight and
remarkable patience, to keep coordinated the many
strands of concept and doctrine that ran through
those activities."
Mr. Loengard, 35, attended Phillips Exeter Academy, completed
undergraduate work at Harvard College in 1953, and received a law
degree from Harvard Law School in 1956.
He is a member of the American Bar Association.
Mr. Loengard, a native of New York City, is married to the
former Janet Sara Senderowitz, of Allentown, Pennsylvania.
They have a daughter, Maranda Cecilia.

~-854

000

STATEMENT BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE THE SENATE FINANCE COMMITTEE
ON H. R. 6950
MONDAY, MARCH 20, 1967, 10 A.M., EST

Mr. Chairman and Members of the Committee:
I welcome this opportunity to discuss the recommendation
for reinstating the 7 percent investment credit and accelerated
depreciation presented in the President's Message of March 9,
1967 and to express the Treasury's views on the bill before
you, Ho Ro 6950.
I am very appreciative of the promptness with which you
and the House Ways and Means Committee arranged to hold hearings on this important matter.

The Congress is once again

demonstrating its ability to act speedily and responsibly to
meet the requirements of sound economic policy.
I favor the immediate restoration of the investment credit
and accelerated depreciation.

As members of this Committee

are well aware, I have always been a strong exponent of the
investment credit.

Since its inception in 1962, the credit

has unquestionably made a substantial contribution to promoting high levels of investment and economic growth, and to the
generally remarkable performance of our economy in recent years.

-'17I P
_

- 2 -

0·0

The investment tax credit is an essential, and should be
an enduring, part of our tax system.
As members of this Committee also know, we came to the
decision last September that suspension was an appropriate
measure only after very careful consideration.

I made clear

in my testimony before this Committee, and elsewhere, that
I regarded the suspension bill as a temporary measure.

providing for automatic restoration of the credit and accelerated
depreciation on January 1, 1968, the legislation itself emphasized
its temporary nature.

However, it was never my view that the

January 1 date was in any way binding or immutable as a termination date.

Rather, it was my full expectation that the sus-

pension period would actually be terminated whenever economic,
or other conditions made such action appropriate.

As I stated

before the House Ways and Means Committee last September in
answer to a question from Congresswoman Griffiths:
"I think the expression of the date Li.eo, Jano 1,
1968/ is really an expression of the intent and
purpose of both the President and the Congress to
renew the credit when the economic circumstances
and surroundings are more propitious. I don't
think there is anything magic about the JanU8y.y 1._.
1968, date or the 16 months' period. It is slmply
a planning period. rt

- 3 -

And again, as I stated before this Committee last October
in response to a question from Senator Williams:
"The Administration will be alert to any change in
the situation and will be prepared to recommend
terminating the suspension period before January 1,
1968, if a change in circumstances makes that at
all possible, and I would hope that the Congress
would, in turn, be willing to entertain such a
reconnnendation o "
This view that it would be desirable, indeed obligatory,
to reinstate the credit as soon as conditions warrant it,
was expressed both by the President and the Congress o

In his

statement upon signing the investment credit suspension the
President said:
"If
any earlier reinstatement would be
appropriate, I shall recommend prompt legislative action to accomplish that result."
0

•

The reports to the Congress of both the House Ways and
Means Committee and the Senate Finance Committee stated:
"If military requirements in southeast Asia
should decrease before January 1, 1968, or
if for some other reason it should become
apparent that suspension of the investment
credit and suspension of the use of the
accelerated depreciation methods with respect
to buildings are no longer necessary to
restrain inflation, the Congress can promptly
terminate the suspensions. The Administration
has also indicated that it would recommend
terminating the suspension period before
January 1, 1968, under such conditions."

- 4 In brief, then, the Administration as well as the Congress
fully intended that the suspension of this important investment incentive should be terminated as soon as it became
apparent that the conditions giving rise to the suspension
no longer prevailed.
It is now clear that those conditions necessitating
suspension are no longer prevalent and the investment credit
should be restored.
The Reason for the Suspension
In my statement before you last October, I emphasized
that the suspension of the investment credit was not a revenueproducing measure.

It was an economic measure, with a limited,

well defined purpose:

namely, to relieve the excessive pressurel

that were clearly obser,.Table in the capital goods market,
which were compounded cf enlarged military demands superimposed
on a vigorous expansion of civilian business investment.

turn, these pressures were causing strains in the financial
and money markets resulting in the highest interest rates in
40 years, and depriving the homebuilding industry of needed
credit availabilityo

The suspension legislation was not

It was an economic measure, with a limited,

well defined purpose:

namely, to relieve the excessive pressures

that were clearly observable in the capital goods market,
which were compounded of enlarged military demands superimposed
on a vigorous expansion of civilian business investment.

The suspension legislation was not

- 5 -

intended as an overall, across-the-board, measure of fiscal
restraint.

Its focus was specifically concerned with curbing

the excessive boom in the capital goods sector and alleviating credit tightness.

It was to do this by inducing business

firms to postpone the placing of orders for -- or starting the
construction of -- machinery and equipment, and commercial
and industrial building.
Su~ension

Law no Longer Justified

On the basis of the economic evidence that is available
to us, which I can assure you we have prudently and carefully
appraised, we can now affirm that the special conditions
giving rise to the suspension legislation no longer exist,
and therefore the investment credit and accelerated depreciation should be restored.
Here is some of this evidence:
In the market for capital goods:
New orders for machinery and equipment have, beginning
in October, declined steadily, reaching a level in
January of this year of 7 percent below September
1966.

Moreover, in January shipments actually ex-

ceeded orders and the order backlog fell for the
first time since 1963.

- 6 The average rate at which capacity is being utilized
in the machinery industry has dropped noticeably to
a healthier and more efficient rate.

In electrical

machinery, for example, it has declined from 97 percent to 9105 percent

The shortages of skilled labor are not so nearly
acute today as they were last summer.
And, looking ahead, the recent Survey of Investment
Plans for 1967, conducted by the Department of COlnrnerce
and thp Securities and Exchange Commission shows
a modest increase of less than 4 percent.

This

is within the growing productive capabilities of
our machinery industries.

It is in sharp contrast

- 7 One important result of these developments is seen in the
area of our balance of

£~ent~o

During 1965 and the first

three quarters of 1966, imports of capital equipment jumped
by

an average of 13 percent per quarter.

In the fourth

quarter of 1966 the rise in imports of capital equipment was
only 3.9 percent and this in part reflected deliveries on
orders placed in earlier quarters.

The current prospect of

a levelling off of imports, now that dJmestic producers can
take care of demands, is excellent.

A dramatic decline in interest rates from the
highest levels in 40 years has occurred.
Three-month Treasury bills are down one and
three-eighths points, from 5.60 to 4.240
Ten-year Treasury securities are down more
than one full point.
Short-term Federal agency securities are down
one and seven-eighths points.
New corporate Aa bonds are down three-fourths
of a point.
New municipal bonds are down seven-tenths of
a point.

- 8 -

The net inflow of funds to savings and loan institutions is now proeeeding at a much more healthy rate.
In the four months ending January, the inflow was at
an adjusted annual rate of $8 billion.

Last summer

the annual rate of inflow was as little as $0.1 billion.
Credit availability for homebuilding has improved and
mortgage rates have started to come down.

In October

the seasonally adjusted annual rate of private housing
starts had sunk to a low of 848 thousand units; in
the first two months of this year starts (seasonally
adjusted, annual rates) averaged nearly one and onefifth million units.
Corporate financial demands, while strong, are being
acconnnodated in an orderly manner and yields are down.
Preliminary estimates suggest that for the
first quarter of this year corporate issues
are running below last year.

This contrasts

with the first three quarters of 1966 when
corporate security offerings were substantially
above year earlier levels.

- 9 -'
While the situation has considerably improved in our
financial and money markets, I do not want to give the impression that further substantial easing is unwanted or unnecessary.
Far from it.

There is room fo'+ furthe'r declines in interest

rates, in our own financial markets, and in the financial
markets of other countries.

Particularly, there is room for

the recent welcome declines in rates on short-term Treasury
issues to spread to other types of securities and borrowing
rates.

I hope and expect to see those declines realized,

and I expect that credit will continue to become more readily
available, especially for homebuilding.
In the currently improved financial market environment,
I believe that restoration of the investment credit is entirely
consistent with maintaining sound balance in the financial
markets in the months ahead, and it is consistent with achieving further improvement in those markets.

There is the important

proviso, however, that the Federal Government's own demands
~n

the credit markets must be kept within measured bounds.
In

v~ew,

then, of the moderate and sustainable pace at

which investment is now proceeding, and in view of the clear
trend toward ease in our financial and money markets,

-wcontinued suspension of the investment credit is no longer
appropriate.

It is incumbent upon us, therefore, to restore

the credit to the normal, long-run role it is designed to
fulfill in the tax structure.
Relation to the Economic Outlook and the Surcharge
The termination of the suspension of the investment credit,
of course, restores some incentive to investment that was
inoperative during the suspension period.

I do not, however,

consider that such action is being taken for the purpose of
stimulating the economy.

Rather, I view it as simply restor-

ing to its normal, functioning role what is essentially an
integral part of the permanent tax structure, which, whenever
reimposed would have a stimulating effect.
We are, of course, undergoing some adjustment downward
from the hectic pace of advance that characterized the economy
during much of 1966.

This was only to be expected, and it

was expected in the analyses and fiscal program presented by
the Administration earlier this year.

But it is also my

expectation that due to factors such as a levelling of inventory investment at a sustainable rate, a rising level of

- 1'1 consumer buying and recovery in homebuilding -- reflecting
the basically expansionary impact of current fiscal and monetary
policy -- the pace of activity is expected to step up by the
second half of 1967.

Nevertheless, we will continue our close

watch on economic developments just as we have been doing
right a10ngo
The question naturally arises as to what bearing the
termination of the suspension has on the President's recommendation for a surcharge on corporate and individual income
taxes.
The answer essentially is that the two measures are
quite different in design and purpose.
As I have already indicated, the suspension of the investment credit was not a revenue measure.
and limited objective

It had a specific

to dampen the excessive boom being

experienced last year in the market for capital goods.

The

excessive boom is over, and there is no reason for continuing
the suspension.

- 12 The surcharge, on the other hand, is an overall acrossthe-board fiscal measure designed to cope with the economic
and budgetary situation and outlook as we anticipate it for
the latter part of 1967 and throughout 1968, assuming the
implementation of the President's other recommendations and
the continuation of hostilities on their current scale in
southeast Asia.

We will want to reduce our budgetary deficits

in fiscal 1968 from the projected levels of fiscal 1967 if
the economic outlook permits.

We will certainly not want to

risk a "resumption of monetary strains and a return to higher
interest rates then either, and this will require that the
Government's own demands on the credit markets be kept in
bounds.

The surcharge will help achieve these objectives.

Explanation of the Bill
The suspension statute adopted by Congress last fall
generally denies the investment credit for property ordered,
acquired, or placed under construction during the suspension
period.

Also, the statute denies use of the forms of accelerated

depreciation introduced into the tax law in 1954 -- primarily,

- 13 the double declining balance and sum of the years-digits
methods -- for real property, not qualifying for the investment credit, if the construction of the property began during
that period.

The statute defines the suspension period as

the period beginning on October 10, 1966, and ending on
December 31, 1967.

The law prescribes 11 exceptions from these

general rules, allowing the investment credit or accelerated
depreciation to property

orde~ed,

acquired, or constructed

during the suspension period if various conditions are met.
It also permits each taxpayer a $20,000 exemption for investment credit purposes and a $50,000 exemption for accelerated
depreciation purposes.
Section 1 of H. R. 6950 amends the definition of the
term "suspension period" to provide that the period terminates
on March 9, 1967, rather than December 31, 1967.

As a con-

sequence, property ordered, acquired, or placed under
construction after March 9 would qualify for the investment
credit or 1954 Code accelerated depreciation under the usual
rules governing those tax benefits.

- 14_

Section 2 of the bill as passed by the House makes two
further changes in the suspension statute enacted last fall.
First, for the original rule disqualifying property altogether
for the investment credit or accelerated depreciation if
construction was begun during the suspension period, this
section would substitute a rule denying the credit or accelerated
depreciation only for that portion of the basis of property
which is attributable to construction during the suspension
period.

For example, where a taxpayer began construction of

a building during the suspension period but did not complete
it during the period, he would be permitted to elect the 1954
Code methods of accelerated depreciation for the portion of
the basis of the building attributable to construction performed after the close of the suspension period.

Secondly--

and of much wider application -- section 2 would delete the
provisions of the original suspension statute which disqualified
property for the investment credit or accelerated depreciation
by reason of orders placed during the suspension period.

- 15 It would allow a full credit or accelerated depreciation for
all property delivered after the suspension period regardless
of when the property was ordered.
The bill, thus, does not restore the investment credit on
the terms provided by the original suspension legislation.
Rather, it retroactively grants the credit to many taxpayers
who would, because of their involvement in stipulated activities
during the suspension period, be ineligible for the credit
under the existing law.

This is not in accord with the

President's recommendation, which called simply for early
termination of suspension but no other change in the terms
of the suspension law.

In not following the President's

recommendation, the bill seems to me to cause inequitable
treatment of those taxpayers who did refrain from placing
orders or starting projects during the suspension period.
They have lost their place in their suppliers' line and have
foregone profits from the early use of new equipment.

I would

prefer a bill which would simply carry out the President's

- 16 recommendation restoring the investment credit on the terms
provided by the original suspension legislation.
Conclusion
In conclusion, I believe delay at this stage may produce
uncertainties that would only be harmful to the economy.
Therefore, I emphasize the need for prompt action on terminating the suspension.

000

TREASURY DEPARTMENT

IR REL&ASE 6:30 P.M.,
Illciq,

}.larch 20, 1967.
, RESULTS OF TREASURY'S 'WEEKLY BILL OFFERING

The Treasury Departaent announced that the tenders for two series of Treaaur.r
Us, vne series to be an additional issue of the bUla dated Decaaber 22, 1966,
,d the other series to be dated March 23, 1961, whioh were offered on ){arch 15, 1967,
re opened at the Federal Reserve Banke today. Tenders ore invited for $1,300,000,000,
thereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of 182-dAy
Us. The details of the two series are a8 follows:
91-day Treasury bi11s
... turi~ June 222 1967
Approx. !quiv •
Annual Rate
Prie.

HUE OF ACCEPl'ED

IlPETITIVE BIDS:

High

98.911
98.959
98.963

tow
Aver&ge

4.071%
4.118%
4.102%

:
:

182-ds.y' Treasury bills
..turins se;etember 21a 1967

Price
97.988
97.968
97.915

.lpprox. Equiv.
.lImul Rate
3.980%
4.019%
4.. 005%

42% of the amount of 91-day bUls bid for at the 1011' price was accepted
57% of the 8lI.ount ot 182-day bills bid tor at the 1011' price was accepted
~AL

TENDERS APPLIED FOR AND ACCEPTED BY FEDIRAL RESERVE DISTRICTS:

listr1ct
'oston
n York
hUade1phia
leve1and
1chmond
tlanta
tlicage
~. Louis
lDneapolia
lJlSas

City

Lllll
Franois co

111

'ro'lALS

Applied For
23,134,000
1,690,851,000
25,948,000
39,745,000
18,046,000
&:J,918,OOO
331,013,000

163. 1 ],'.000

lcceEted
12,634,000
894,190,000
13,848,000
30,877,000
12,046,000
33,065,000
129,557,000
41,568,000
21,485,000
33,833,000
11,458,000
59.fxn.OOO

$2,494,915,000

$1,300,164,000

•

54,~,ooo

28,739,000
35,913,000
23,258,000

For
$ 13,416,000
1,576,585,000
14,793,000
13,029,000
10,333,000
33,049,000
294,444,000
24,519,000
10,183,000
10, 500 J 000
11,852,000

Applied

•

Acee,eted
3,416,000
$
814,435,000
4,943,000
ll,437,OOO
4,333,000
1l,372,OOO
72,507,000
11,929,000
6,883,000
10,450,000
6,809,000

195,216,000

..4l..6.J 6, (0)

$2,208,039,000

$l,OOO,l)O,CXX>

mcludes $292,798,000 noncompetitiTe tenders accepted at the &Terage price of 98.963
meludts $1l2,115'000 noncompetitive tenders accepted at the aTerage price ot 97.975
The.1 rates are on a bank discount balis. The equiTalent lJoUPOft issue yie1da art
~.21% for the 91-day billl, and 4.16% tor the 182-da1 billllG

- 855

TREASURY DEPARTMENT

March 20, 1967

FOR IMMEDIATE RELEASE
The Treasury Department's Cost Reduction-Management
Improvement Program is expected to yield an estimated
record saving of over $130 million for the 12 months
ending June 30, 1967.
The estimated total of $130.5 million in
savings, and avoided costs, expected for this fiscal
year is described in detail in a semiannual cost
reduction progress report which the Department has
submitted to the President.
The savings estimates include $50.5 million from
improvements in the internal operating functions of
the Department, and $80 million from improvements in
fiscal operations. The $80 million benefit from
improvements in fiscal operations represents cost
avoidance derived mainly from the effects of earlier
availability and steadier flow of funds resulting
from accelerated collection and deposit of revenue
liabilities of businesses and individuals
0

000

F-856

TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY

REMARKS BY THE HONORABLE JOSEPH W. BA.RR
UNDER SECRETARY OF THE TREASURY
AT THE
NATIONAL INSTALMENT CREDIT CONFERENCE
OF THE AMERICAN BANKERS ASSOCIATION
CONRAD HILTON HOTEL, CHICAGO, ILLINOIS
WEDNESDAY, MARCH 22, 1967,10:15 A.M., CST
(Delivered by Edward P. Snyder, Director,
Office of Debt Analysis)
THE GUARANTEED STUDENT LOAN PROGRAM
How to finance a college education for their children is a
very common problem of concern to growing millions of American
families. I am sure that many of you here share a personal,
practical interest in this subject.
I also have a strong feeling, if I can persuade you that the
allocation of some of the resources of your banks to the guaranteed
student loan program makes sense, that we will jointly have made
a significant contribution to a solution to a basic problem in
our soc ie ty.
In inviting me to address this National Instalment Credit
Conference, Charly Walker said two things:
First, this is a highly important group of
bankers from an operational viewpoint for
the guaranteed student loan program.
Second, it is probably the most outspoken
group of bankers as regards the unprofitability
of student loans under the present program and
in existing money markets.

- 2 -

a....:
\,J .... J

This gathering, therefore, provides a peculiarly appropriate
forum for a discussion of the program, and for some comments on
what we in Government are prepared to do to see that the program
will work, and why we believe this is so important.
As a Treasury official, I have most frequently addressed my
remarks to the great subjects of the United States' posture in
its balance of payments, its economic outlook, its system of
taxation, and its monetary policy. These are inextricably tied
up with our level of education.
Compared with the rest of the world, our most significant
national advantage probably lies in our educational level -the so-called technological and management gap which so disturbs
our competitors around the world.
Education is closely allied with our economic outlook. As
the Council of Economic Advisers pointed out in its recent annual
report, some studies indicate that over one-fifth of our economic
growth in the past 3 or 4 decades can be. directly attributed to
education, and perhaps another fifth can be attributed to the
general advance of knowledge.
If education lifts us all to a higher level of real income,
some of the most basic assumptions of tax policy may have to be
re -examined.
Finally, a highly affluent society with a high level of
education is surely a society that will use to the fullest the
credit resources that are available in this nation.
In emphasizing these economic consequences, I am well aware
that the most significant end-product of education is a rise in
our level of civilization -- an increase in our capacities to
elevate the quality of our lives.
So, in speaking on a subject which may seem somewhat o~t of
the mainstream of the usual Treasury interest, I am address1ng
a basic issue affecting our current and potential national
economic power.
I also am speaking about a subject that directly involves
my current responsibilities and yours.
The stakes are big and our goal is big: to assure that
every student accepted for enrollment into college will be
able to meet the costs of his college education.

- 3 This will take a concerted effort by all of us
believe that the guaranteed student loan program is a
fundamental part of this program.

and r

To achieve our goal -- and by 1972 we are aiming to have
some $6.5 billion in loans outstanding to over 2 million
student borrowers -- I know that we will have to overcome many
obstacles. As the President said, however:
"If administra tive changes in the program
are necessary, we will make them. If 3ny
amendments to the legislation are in order, we
will submit appropriate recommendations to the
Congre s s . "
The loans themselves, however, must be made by the banks and
other lending institutions of this country, so in a very basic
sense it will be up to you whether this program succeeds.
The Need We Face
We as Americans have traditionally been imbued with a desire
to give our children the best education available.
Our whole history as a nation, from the Northwest Ordinance
of 1787 down to the Higher Education Act of 1965, has reflected
our continuing determination to educate our children the best
way we know how. But the time span from the end of the Second
World War to date has marked a dramatic change in our attitudes
toward higher education.
Just a few figures will illustrate the remarkable change in
recent years. In 1930, total expenditures on a higher education
in this country were about $630 million. A few years after the
Second World War, the figure was more than four times greater
about $2.7 billion. In the current year, 1967, the
expenditures are expected to reach a level of approximately
$16.8 billion -- almost 30 times the 1930 level.
In the decade from 1955 to 1965, the total enrollment in
our institutions of higher education increased by just over
3 million students. In the next decade we are anticipating an
even larger increase -- 3-3/4 million students -- and this is
probably on the conservative side.
How do we meet this problem?

- 4 How do we, as individual parents, raise the money to meet
the expenses of college -- expenses that have risen steeply in
recent years and show little or no sign of leveling off in the
future?
How do we, as citizens, allocate our resources to pay
the teachers and to build the classrooms and laboratories and
housing needed to accommodate this surge of young Americans
into the colleges and universities?
The two questions cannot be easily divided. The need to
finance the required growth of the institutions will almost
inevitably be reflected in higher costs to the students and
their families. I do not intend by this comment to take sides
in the argument over free State tuition. I merely regard it as
prudent to assume that at least a portion of the cost of
enlarging and improving our colleges will be borne by the
current crop of students. I might add that if we are to
preserve our private institutions of higher learning -- and
I am sure all of us want to -- this trend toward higher costs
then surely becomes a problem we inevitably must confront.
If we are faced with the problem of ever-higher costs when
American families currently are groaning under what they
consider to be an extremely heavy burden, then what is the
answer? There are several alternative courses of action
one
of which is currently on our statute books. Let me list for you
some of the proposals that are circulating in the public domain,
with my own personal comments on their utility. Then I should
like to discuss with you the potentials of the guaranteed student
loan legis la t ion.
The Tax Credit Proposal
One of the more politically attractive proposals currently
being discussed is a plan to give a tax credit to those
families who are incurring the costs of higher education.
The Senator from Connecticut, Mr. Ribicoff, has advocated
just such a proposal. Congressman Ford, has also thrown his
support behind this approach.
I must say that the first reaction of most people to the
idea of a tax credit for the expenses of their children in
College, is enthusiasm. But this enthusiasm is tempered by a
closer look.

- 5 -

Senator Ribicoff's proposal would allow the parents of a
college student a maximum of $325 each year as a credit against
taxes. The credit would be less if the student's tuition and
books totaled less than $1500. And of course if the family had so
little income that they owed no tax, they would get no benefit
at all from the cred it.
This plan would cost the nation roughly $1.5 billion the
firslt year (according to Treasury estimates) and up to $2 billion
a year within a few years. These are nee small sums of money.
But laying aside the parochial Treasury concern about spending
such large sums, Senator Ribicoff's proposal seems to have two
basic defects:
First, it operates as a sort of "reverse" scholarship -that is, it gives the highest reward to the families with the
highest incomes sending their children to the most expensive
schools. I know of no college which would give its aid funds
in such an ups ide -down fashion.
Second, in spite of the substantial cost to the Federal
Government, $325 per student is not nearly enough to meet the
current and the prospective burden that faces so many
American families.
Senator Ribicoff argues that his plan is designed to provide
money for the institutions, through higher tuition, as well as
to ease the burden on families. I sympathize and concur in this
dual objective. However, increased tuition may merely widen the
educational opportunity gap between families of moderate means
and those with ample means. On balance, I think there are
better means of using our Federal resources in the area of
financing higher education.
The Loan Guarantee Plan
The program which, to my mind, currently offers the
United States the greatest "bang for a buck" is the guaranteed
student loan program enacted into law in the Higher Education
Act of 1965.
The program is relatively new; it has many bugs as you
know tha t mus t s till be worked out; but in my opinion it
offers great promise to millions of American families.

- 6 -

This program starts from a premise that we have been very
slow to accept in this nation -- that an investment in
education is as sound, if not sounder, than investment in a
house or in a car.
It now is an accepted fact that a college education is an
income-producing asset. For that reason, our traditional
reluctance to go into debt to finance an education seems a bit
peculiar and unreasonable. However, as the costs of
education continue to spiral, the American people, in their
pragmatic way, are finding for themselves that perhaps it does
make sense to borrow to finance the education of their
children. Perhaps they have begun to borrow for education
simply because they have found it impossible to meet these
costs out of current income or current savings; but it is my
personal opinion that it is an eminently sensible decision.
How does the guaranteed loan program work? In principle, it
really is quite simple. It merely extends into this area the
concept of a government guarantee to back up a loan made by a
private financial institution.
I believe that the potential in the area of education is
as promising as it has proved to be in the area of housing.
Let me trace through the idea: Any American boy or girl who
can get admitted to a college should be able to go to this local
commercial bank, savings and loan association, mutual savings
bank, or credit union to submit a loan application. The lending
institution is willing to make the loan, the State student loan
guarantee agency then will guarantee the loan up to $1,000
per year (or in some states up to $1500 per year).
Repayment of the loan will begin 9 to 12 months after the
student leaves college or graduate school. If his family's
"adjusted family income" is $15,000 or less, while the student
is in school the government will pay the interes t. When
repayment begins, the interest rate to the student runs at
3 percent if his family's income is below the specified level,
with the government paying the balance. If the family income
is above that level, the student pays the full 6 percent.
Despite the complete and enthusiastic cooperation of the
American Bankers Association, the two savings and loan
association leagues, the Association of Mutual Savings and
Banks , and the credit unions' association (CUNA International),
the program has had a difficult beginning.

- 7 After it was enacted into law in the fall of 1965, it took
the Office of Education about 6 months to really get started.
Many states had to enact enabling legislation and state
legislatures did not rush to appropriate their share of the
guarantee funds with the enthusiasm that we might have
expected.
Paper work was another complicating factor -- almost
inevitable in any new government program. But the troubles
largely can be traced back to the "tight money", which began to
be evident in April last year. Tight money made life
extremely difficult for the savings and loans and the mutual
savings banks, and, to a lesser degree, for the credit unions
and the commercial banks. It made most financial institutions
think twice about committing themselves to new and untried
loan programs. Lenders also discovered that the costs of
getting these loans on the books were more than they had
antic ipa ted.
All of these difficulties, with the exception of tight
money, are almost inevitable with any new program. Despite
them, we still succeeded in the Fall semester of 1966 in
getting out loans totaling $173 million to nearly 211,000
students. For the full 1966-1967 year, our original target
was loans to 962,000 students, totaling $700 million. At the
moment, we are guessing that we will actually hit a level of
300-350,000 loans totaling $250-300 million. All in all, this
is not a bad beginning for a first year effort under adverse
conditions.
But it is not good enough. The need is now. Based on the
results in four states with loan standing programs, the demand
is close to our estimates and it appears many potential
borrowers in most parts of the country are not yet able to find
loans.
We had been aware that the program was not developing as
rapidly as we had hoped it would, but I think Charls Walker
and the American Bankers Association deserve a lot of credit for
coming to us to tell us the reasons for the difficulties, as
they saw them. Their presentation persuaded us that we had to
look into the way in which the program is operating to find ways
to simplify and streamline the paper work and to assure maximum
lender participation under changing market conditions. On
January 23, with the approval of Secretary Gardner and
Secretary Fowler, I put together a Task Force composed of the
Treasury, the Office of Education, and the Bureau of the Budget,
to see what we could de to move the program ahead.

- 8 The Task Force met with commercial bankers, mutual savings bankers
and representatives of other financial institutions; it looked
'
closely and conscientiously at administrative costs, paper work,
pooling of resources, the creation of a secondary market,
improvement in State participation, and -- perhaps most
important -- from your view point -- what can be and should
be dane to assure that lenders will be able approximately to
cover their costs, including the cost of money, so that
guaranteed student loans will be reasonably competitive with
other loans, as was the intention when the Higher Education Act
of 1965 was enacted. With regard to lender returns, the
Task Force focused on three alternatives.
First, the proposal that interest income from student loans
be exempted from Federal income taxes. From your view point,
this is an attractive alternative; from our point of view,
however, it has a number of serious drawbacks. We hope, for
example, to bring into this program other lending institutions
in addition to commercial banks. Tax exemption would not
provide them the same incentive to participate.
Second, the possibility of increasing the interest rate
in the program. This would mean legislation to permit the
interest rate to be changed from time to time in accordance
with changing market conditions. From your point of view,
this alternative could result in conflicts with State usury laws.
From our point of view, the added cost -- if it were paid
by the Federal Goverpment -- would be spread over the whole
term of the loan.
Third, the payment of placement fees. Under this proposal you
would receive some compensation at the time you incurred the cost
of putting a loan on your books. On the other hand, the first year
budgetary costs would be somewhat larger than under the second
alternative. The Office of Education has also indicated that it
would like to see a part of these fees paid at the time the loan is
converted to a payment status. This would be to encourage prompt
reporting of the changes in status and the reduction in the interest
benefit payable by the Federal Government.
I should also mention another point. The guaranteed loans under
this program are eligible as collateral for Treasury Tax and Loan
Accounts. Their use for this purpose should give you somewhat more
flexibility in the management of your resources.
The Task Force's recommendations are now going forward to be
reviewed by Secretary Gardner, Secretary Fowler, the Budget Director,
Mr. Schultze, and Chairman Ackley of the Council of Economic Advisers.
We are all aware that time is of the essence. There are only three
months remaining until the end of June. Before we know it the 19671968 school year will be at hand and students throughout the country

- 9 -

will be seeking guaranteed student loans in larger volume than ever
before. This means that we cannot delay taking th9 actions wbfch will
affect the program for the 1967-1968 schoolyear. There is tim~
enough, but not too much time.
The college students of today will be your best customers
tomorrow. This should be reason enough for you to want to
participate as fully as possible. Our interest in the success
of this program is also clear.
(1) This program unquestionably gives
us the greatest leverage in the use of the
financial resources of the United States.
A tax credit plan providing a maximum benefit
of $325 per family would cost us a billion
and a half dollars a third year. This loan
program, if it progresses as we think it can,
could make 6-1/2 million loans totaling $6.7
billion available at an annual interest
subsidy cost to the Federal Government of
only a fifth that amount.
(2) Through loans of as much as
$1,000 to $1,500 a student, this program
offers meaningful financial assistance. In
fact, if it gets under way as I think it will,
and if college costs increase as I predict,
these limits may have to be raised.
(3) The program is intimately involved
with all sectors of the financial community,
the academic community, and State government.
To many, this spells chaos, cumbersome
operations, and endless argumentation. I do
not look at it that way. There is a lot of
arguing and negotiation ahead before we hammer
out a completely satisfactory program, but
this is precisely the sort of "creative
federalism" that President Johnson has continually
emphasized. For the price of some difficulties
to start, in the long run the broad-based support
that will be generated will pay magnificant
dividends in the interests of all of us.
If history is any indicator, the problem of financing the
costs of higher education, both the costs to students and the
costs to the institutions, will be met -- no matter what the
cost may be, and no matter what party controls our political
destiny. I would recommend to you the study of the alternatives.
I would hope that you would agree with me that the guaranteed
loan program provides the most promising solution currently
available to-mee-t-·~ pr..oblem of financial assistance to the student.

- 10 I believe that we are getting much closer to our goal
of being able to say to every American boy and girl, "If you
can get admitted to a college, the financial resources
that you need will be available." Implementation of this
program should make this promise a reality. It should make
the financial burden of education a tolerable burden for
American families. It should provide at least part of the
financial basis that American colleges and universities now
need and will need. And, finally, it should enable us to reach
into the ghettos and the pockets of rural poverty, to draw out
and to educate those disadvantaged Americans to whom a higher
education a few years ago was literally unthinkable.
I have confidence that the American banking industry,
joined in a cooperative effort with other lending institutions,
the States and private guarantee agencies, and with the Federal
Government will help us solve a problem that involves one of
the fundamental aspirations of millions of American families.

000

TREASURY DEPARTMENT
=
March 21, 1967

FOR IMMEDIATE RELEASE

Secretary of the Treasury Henry H. Fowler
today sent the following letter to
Senator George A. Smathers.

Copies of the

letter were also sent to other members of the
Senate Finance Committee.

Attachment

F-8S7

COpy

March 21, 1967

Dear Senator Smathers:
My purpose in writing this letter is to make quite
clear my position on the restoration of the investment credit
and the House bill, H.R. 6950, now before the Senate Finance
Committee. I believe it is appropriate for me to do so at
this time in the light of the events and discussion bearing on the question of restoring the credit which have
occurred since the President's recommendation to the Congress
on March 9, 1967.
There are two paramount concerns involved in the restoration of the investment credit: one is to assure restoration
of the investment credit to its long-run functioning role
in our tax structure, now that suspension has served its
purpose, which the Congress and the Administration assumed
the obligation to do when enacting the suspension legislation.
The other major concern is to protect revenues and the budgetary position of the Federal Government.
Consistent with these overriding concerns I, therefore,
strongly believe that the investment credit and accelerated
depreciation should be fully restored as of March 10, 1967.
No retroactive change or modification, however, should be
made with respect to the rules provided in the suspension
legislation governing eligibility for the investment credit
for property ordered, acquired or placed under construction
during the period October 10, 1966, through March 9, 1967.
With regard to the provision for raising the limit on
the use of the investment credit from the present 25 percent
of tax liability to 50 percent, I believe this liberalizing
provision should not go into effect until January 1, 1968.

COpy

-2The revenue loss from this approach would be considerably less than that involved in H.R. 6950. For the fiscal
years 1967 and 1968 together, the loss would amount to
$605 million compared to a loss of $1.28 billion under
H.R. 6950. The difference between the two losses, amounting
to $675 million, is attributable to two factors: the granting
of the credit to property ordered but not delivered during the
suspension period, which accounts for $395 million; and the
application of the liberalized ceiling on March 10, 1967 rather
than January 1, 1968, which accounts for the remaining
$280 million.
An even greater loss, amounting to $1.53 billion would be
involved in the proposal, advocated by some, to completely
roll back the suspension to October 10, 1966, and also make
the ceiling liberalization effective on that date.
As you know, the projected deficit in the administrative
budget for Fiscal 1967 is $9.7 billion and for Fiscal 1968
$8.1 billion, assuming the enactment of the six percent surtax
income tax on individuals and corporations proposed by the
President. For Congress to carry out the obligation undertaken
at the time of the enactment of the suspension of the investment
credit, namely, to restore it when economic circumstances make
that appropriate, will add an additional $605 million to the
deficits for these two years or require some adjustment upward
in the proposed surtaxes. This additional cost is inescapable
as a price we have to pay for restoring the credit in timely
fashion to its place as a part of our permanent tax structure.
However, there is no need in equity or for any other reason,
from the standpoint of the Treasury, for Congress to change the
rules it established for eligibility for the credit when the
suspension period was over which are specifically prescribed in
the suspension Act of last year. Thus, there is no need for any
further revenue loss in connection with this legislation. I
cannot stand by lightly and watch these budget deficits increased
merely to give a windfall to taxpayers who had no basis for
assuming they would get the investment credit on orders placed
during the suspension period. Neither do I think it is necessary
or obligatory to make available the liberalized limit on the
credit from 25 percent from taxes to 50 percent before January 1,
1968.

-3-

Following the Administration's proposals on these two
points, as compared with the House bill approach, will save
the Government $675 million in these fiscal years in which
we are facing these sizable deficits; as compared to a proposal
now being considered in the Committee to lift the suspension
back to October 10, 1966, the date of the original enactment,
the difference is nearly $1 billion.
The course of fiscal responsibility under these circumstances is very clear. I strongly urge the Committee to tak~
the necessary action to implement the approach I have here
outlined and thus minimize either the need to incteas~
the national debt, finance a larger deficit by going to the
public markets for money or laying additional tax burdens
through the income tax route.
Sincerely yours,
(Signed) Henry H.
Henry H. Fowler

The Honorab Ie
George A. Smathers
United States Senate
Washington, D. C. 20510

Fow~er

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE

TREASURY'S MONTHLY BILL OFFERING
The Treasury Department, by this public not1ce, 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 March 31,1967,
in the amount of
$1,400,808,000, as follows:
275-day bills (to matur1ty date) to be issued March 31, 1967,
1n the amount of $ 500,000,000,
or thereabouts, representing an
additional amount of bills dated December 31,1966, and to
mature December 3l,1967,originally issued in the amount of
$901,030,000,
the additional and original bills to be freely
interchangeable.
366-day bills, for $900,000,000,
or thereabouts, to be dated
March 31, 1967,
and to mature March 31, 1968.
The b1lls of both series will be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and at
maturity their face amount will be payable without interest. They
will be issued in bearer form only, and in denominations of $1,000,
$5,000, $10,000, $50,000, ,100,000, $500,000 and $1,000,000
(maturi ty value).
Tenders will be received at Federal Reserve Banks and Branches up
to the closing hour, one-thirty p.m., Eastern Standard time, Tuesday,
March 28, 1967. 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 usedo (Notwithstanding the fact
that the one-year bills will run for 366 days, the discount rate will
be computed on a bank discount basis of 360 days, as is currently the
practice on all issues of Treasury bills), It is urged that tenders be
made on the printed forms and forwarded in the special envelopes which
will be supplied by Federal Reserve Banks or Branches on application
therefor.
Banking institutions generally may subm1t tenders for account of
customers provided the names of the customers are set forth in such
tenders. Others than banking 1nstitutions 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
F-858

- 2 responsible a~d 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.
Immediatelv after the closing hour, tenders will be opened at the
Fvderal 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 March 31, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing March 31,1967.
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 ter~s of the Treasury bills and govern the
c~nd~tions of their issue.
Copies of the circular may be obtained froc
2~~ :ederal Reserve Bank or Branch.

TREASURY DEPARTMENT
Washington
STATEMENT BY THE HONORABLE IIENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE THE SENATE S~lALL BUSINESS COH~llTTEE
WEDNESDAY, t.tARCll 22, 1967, 10:00 A. ~1.

I am very pleased to appear at these important hearings.

The efforts

of your Committ.ee to learn more about the present position of small business,
and its outlook, and hO\oJ it can be kept vigorous and dynami c deserve the

fullest support throughout the Government and the public.
Prosperous and growing small business enterprises are vital to the
maintenance of a strong, free and competitive economy.

I can assure this

commi ttee that this basic premise as an important factor in all the economic
policy actions of the Administration.
The Small Business Stake in an Expanding Economy
While there are in existence a number of programs designed to promote
small business

and others being proposed -- the primary influence upon

small business is t.he overall condition of the economy.

Swings in aggregate

economic activity tend to have more than a proportionate effect on smaller
enterprises.

This has been evident in past recessions.

For example:

During the 1954 recession, pre-tax earnings of the smallest manufacturing
corporations (those with assets under $1 million) declined by nearly 29 percent,
while earnings of larger corporations dropped by 12 percent.

Again, In the

1958 recession, earnings of the smallest corporations declined by 31 percent,
compared with 19 percent for larger corporations.

This effect is seen even

during the relatively mild 1960 recession, when earnings of the small
corporations fell 22 percent, compared wi th 7 percent for the larger corporations.

F-859

- 2 -

It is of special importance to a healthy small business community
in our economy that this phenomenon operates also in the other, and positive
sense: smaller enterprises tend to make greater gains in a peirod of
general prosperity than do the larger businesses.
During the six uninterrupted years of economic expansion since 1960
we have seen remarkable and widely shared gains in economic progress and
welfare in the United States.

Small business has participated greatly in

this prosperity -- whether measured by growth in number of firms, increases
in number of firms, increases in absolute value of sales and profits, rates
of return on capital or the share of total purchases and contract awards
by the Federal Government.

For example:

-- The earnings of the smallest manufacturers over the past six years
increased at a more rapid rate than those of larRer manufacturing corporations.
For the first three quarters of 1%6, profi ts l)cforc taxes of these
corpor:ltions marc than tripled the level of six years earlier, compared
with the

l:.1r~er

corporations whose profits douhlcd over the same period.

-- After-tax earnings of small corporations rose significantly
both absolutely and in comparison with larger corporations.
The relatively superior performance of small corporations in these
years. in part, may reflect the ability of such companies to expand
operations without commensurate increases in costs.

Certain special tax

advantages I \vill discuss later. also helped to provide a relatively
greater increase in after-tax earnings of small corporations.

- 3 -

All these factors contributed to a significant trend rise in beforeand after-tax rates of return on capital to small business.

During the

third quarter of 1966, pre-tax profits per dollar of sales in small-size
corporations reached 6.1 cents, up from 5.0 cents a year earlier.

The

rate of pre-tax profit on stockholders I equity reached a postwar high of
32 percent in this latest quarter, compared with 26 percent a year earlier.
Strong advances also were made by large corporations, but not to the same
degree.
Another clement contributing to the impressive sales and profit
performance of small business was the solid record of fair allocations of
Federal contracts to small business.

During 1966, Department of Defense

prime contracts for procurement to small business amounted to 21 percent
of the total value.

This was higher than the 20 percent share in 1964 and

1965 and 16 percent in 1963.

In civilian executive agencies, the fiscal

year 1966 small business share amounted to 22 percent of the total value of
procurement.
It is of further particular importance to the small businessman that
despite the demands brought on by the hostilities in Vietnam we have not
resort~d to the broad range of controls on production and defense materials

such as occurred during the Korean War.

As hearings of this Committee

have well documented, small business has been at a relative disadvantage
under extensive production and materials control systems in the past.

- 4 There are other aspects of the small business picture which, on the
surface, are less encouraging.

While the number of small businesles

continues to grow -- achieving a 1-1/2 percent annual increase in the
past two years -- their relative share in the total number of U. S.
business concerns has slipped.

manufacturing~

the smallest corporations

those, to repeat, with assets of less than $1 million -- registered sales
during the first three quarters of 1966 which were nearly SO percent
higher than in 1960.

But this was not as great as the increase in sales

of larger corporations, which rose nearly three-fifths over this period.
The latest available comprehensive sales figures, those for the third
quarter of 1966, show sales for the smallest corporations up 12.3 percent
above a year earlier, while sales of larger sized corporations increased
13.6 percent.
The share of national income going to small business has probably
diminished over the last decade.

But, by and large, the position of small

business has strengthened appreciably during the current economic expansion.
Recent months have witnessed a leveling off in sales to consumers
which has undoubtedly been noticed by both small and large businesses.
However, personal income has continued to rise and unemployment remains low.
We believe that when these factors are coupled with still higher expenditures
for defense and for state and local improvements, and also easier credit
conditions which will be of particular benefit to homebuilding, the pace
of economic expansion wi 11 pick up again.

Indeed, the slower pace of

expansion in this current half year period was anticipated in the economic

- s program set out by the President at the start of the year.

It is in light

of this pattern that current fiscal planning is in terms of a tax surcharge
to take effect later this year, and not in the current period of lesscneu
exuberance.
Small Business and Taxation
A numher of

ne\~

or strengthened provisions of the tax law in the last

six years recognize particular problems faced by smaller businesses.

These

provisions are:
Reversal of corporate normal and surtax rates.
1964 reduced the tax rate applicable to the first

The Revenue Act of

~~2S,OOO

of corporate

income from 30 percent to 22 percent, a 27 percent reduction at a time
when the tax rate on corporate income in excess of $25,nOO was being reduced
by slightly over 8 percent.

The annual tax saving for the 500,OnO corporate

firms with taxable incomes of $25,000 or less totaled about '<;270 million
beginning in 1964.
Accomplished through the reversal of the corporate normal and surtax
rates, this special reduction for small husiness represented a long-sought
reform in the corporate rate structure to ell courage the growth and
survi val of small companies.
General rate reduction.

The Revenue Act of 1964 gave neh' meanIng and

content to the national policy declared by the Congress in the Employment
Act of 1946.

At a critical stage in our economic development this tax

reduction legis lation gave the private economy a boost.

Small business

- 6 -

had a vital stake in this maj or legis lation both in its capaci ty as taxpayer
and in its capacity as beneficiary of enlarged purchasing power for its output of goods and services.
Small business benefited consiuerably from the cuts in indiviuual income
tax rates in 1964 \vhi ell averaged 20 percent.

TIlCse rate cuts applied to

the O\'/'ners of about four mi Ilion unincorporated husinesses.
Small business benefits in a special \vay from a fiscal policy aimed
at increasinr, economic stability because small businesses with limited
financial resources are most likely to be adversely affected in a recession.
The successful economic policy directed at maintaining high employment
over the last six years has greatly reduced the failure rate of small
businesses and [las made possible the launching of ncVl ventures which could
not have heen successfully launched unuer recession conditions.
Income averaging.

A number of small unincorporated businesses in a

variety of traues ano industries have wiuely fluctuating incomcs.
fi rms wi 11 bencfi t from the income-averaging provision
l~cvcnue

Act.

Such

of the 1064

It applies to any individual whose ordinary income for the

taxable year increases by more than one-third (but at least $3,000) over
his average income for the prior four years.

In effect, the taxpayer

is alloweu to treat any amount over the one-thi rd increase as though
he had earned it over a five-year period -- and his overall income for
that year is thus taxed at a considerably reduced rate.

- 7 -

For example consider a businessman whose business profit and
corresponding taxable income for the five years 1962-1966 were as
follows:
Profit

Taxable income

1962

$30,000

$25,000

1963

5,000

1,000

1964

33,000

26,000

1965

30,000

23,000

Subtotal

IOO,OOa

1966

75,000
90,000

Without averaging, this businessman, assuming he were
married, would be subject to a marginal rate of tax as high as
60 percent on his 1966 income, and would pay a total tax for 1966
of $39,180.

I~ith

averaging, however, the marginal rate will range up

to 4S percent, and his total tax on 1966 income \vill amount to
$32,120.
of $7,060.

Thus, averaging provides this businessman with a tax saving

- 8 -

Income averaging is particularly advantageous to small businesses
and has provided them with very substantial tax savings.

In 1965, more

than hal f of the tax reduction from income averaging went to individuals
whose principal source of income was from business, partnership, or
profession net profit.

Their tax savings totaled nearly $86 million of the

$168 mi Ilion savings for all taxpayers.

Averaging was used by nearly

135,000 taxpayers whose principal income was from these sources.
The investment credit.

Several features of the investment credit law

enacted in 1962 provide particular advantage to small business.

In general.

the investment credit has been limited to an amount equal to 25 percent of
the annual tax liability.

This limitation will be increased to SO percent

effective for periods after January I, 1968 if Congress enacts the President's
recommendations to lift the suspension of the credit.

However, in recognition

of the problems of small business this limitation is not imposed on the
first $25,000 of tax liability.
A 3-year carry back and a 5-year carry forward of unused investment credit
were provided in the original legislation.

The carry forward was recently

extended to 7 years, further protecting the firm with uneven earnings or
uneven investment against waste of unused credit benefits.

These carryover

provisions are likely to be of particular benefit to smaller firms which
frequently have uneven patterns of earnings and investment.

In addition,

the amount of used property that may be counted for investment credit purposes
is limited to $50,000 in a year.

This covers the full purchases of small

and medium sized businesses but restricts the investment credit of used
property acquisitions by a large business.

- 9 -

Investment credit suspension.

When it became necessary to suspend

temporarily the investment credit and the accelerated depreciation methods
on buildings in 1966. special exemptions were designed to help small business
and farmers.
and equipment.

These provisions exempted up to $20.000 the cost of machinery
They also exempted from the suspension of accelerated

depreciation a building or buildings costing no more than $50,000.

These

exemption rules were specifically deSigned to help small business enterprises
and independent farmers.
Effect of investment credit combined with other tax measures.

The tax

treatment of new investment for machinery or equipment may be illustrated in
terms of the percentage of the cost of an asset subject to tax writeoff or
equivalent charges against income in the year of acquisition.
In the case of a 10-year asset costing $10.000, purchased by a firm subject
to the 22-percent corporate normal tax rate, the following deductions or
equivalents may be taken:
20-percent initial allowance (1958 law)

$2,000

7-percent investment credit expressed
as an equivalent deduction from
income

3,182

First-year depreciation (double-declining
balance depreciation, 10-year life)
Total

1,600
6.782

As these figures demonstrate, the various allowances under present law
and the proposed reinstatement of the investment tax credit would in effect

permit tax free recovery of two-thirds of the cost of a machine or other
equipment item with a IO-year life in the year of its acquisition.

To the

extent the depreciable life is shorter than the 10-years assumed in the example,
the proportion of capital recovery would be still greater.

- 10 -

The average IS-percent reduction in tax lives resulting from the 1962
liberalization of depreciation guidelines is assumed to be already reflected
in the la-years used here.

Prior to this reduction, the tax life would have

been 11.75 years, with the result the first years double-declining balance
depreciation would have been $338 less than the $1,600 indicated.
Measures such as liberalized depreciation, the special low corporate
tax rate and the proposed reinstatement of the full investment tax credit
all serve to increase the internally generated flow of cash needed to make
new investments.

This is especially important to the capital scarce and

growing small firm.
There are several problem areas in the current tax law which call for
remedial legislation for the benefit of small business.

Changes dealing with

these prob lem areas should be made.
Abuses in the Exempt Organization Area.

The Treasury Department has

recently recommended legislative action upon two problems in the exempt
organization area
Foundations.

f concern to small business.
Advantages whicll tax exemption confers upon private

foundations has made some of these organizations formidable and successful
competitors \'Ji th taxable businesses.

Defects in the present tax on the

unrelated business income of private foundations make it possible for many
foundations to arrange their business enterprises so as to largely or entirely
immunize the profits from tax. Even if the present unrelated business income
tax contained no avenues of avoidance, the commercial enterprises conducted
or controlled by private foundations would still possess significant competitive
advantages over those owned by taxable entities.

- 11 -

Because contributions to foundations are deductible, the capitalization
of foundation businesses is accomplished with tax-free dollars, rather
than after-tax dollars.

The tax immunity of dividends, interest J and

other proceeds stemming from passive sources enables foundations to supply
capital to their business endeavors with exempt income.

Experience with

foundation-owned businesses has shown that they are frequently free from
demands for current distributions of earnings -- often an important
competitive advantage.

Because of these competitive problems, and other

unfortunate consequences attendant on foundation involvement in business,
the Treasury Department has recommended that Congress adopt legislation
requiring private foundations to dispose of substantial business interests
which are unrelated to exempt activities.
Investment Borrowing by Exempt Organizations.

In 1965 the Supreme

Court approved capital gains treatment for persons who sold a business to
a tax-exempt organization under an arrangement designed both to immunize
the business profits from tax and to provide payment of the purchase price
only from those profits.

The decision provides a powerful incentive

for the owners of businesses and other classes of productive property to
sell to exempt organizations, rather than taxable purchasers, because the
tax exemption of the proceeds being used to finance the purchase price makes
it possib Ie for the exempt entity to pay a substantially higher price than

anyone else can afford.
small enterprises.

This tax incentive thus stamps out many promising

And it places taxpaying business enterprises at a

substantial competitive disadvantage in acquiring other businesses.

To deal

with this problem and related difficulties flowing from the Supreme Court

- 12 decision, legislative proposals are being developed -- similar to bills upon
which the Ways and Means Committee held hearings last year -- which would
restore competitive parity in this area.
The advantage employed by large chains of corporations using multiple
surtax exemptions.

The advantage enjoyed by large chains of corporations

using multiple surtax exemptions is a serious burden on small business
competitors.

The special provisions, including a 6 percent penalty tax

enacted in 1964 applicable to corporations using multiple surtax exemptions,
did not appreciably reduce the special tax advantage of the large corporate
chains.

Further steps are necessary to reduce the ability of the large

multiple corporate chains or complexes to pre-cmpt a large portion of the
benefits intended to assist small corporate business.
Some $150 million of unintended tax windfalls to multiple groups is
involved.
Revision of the tax option corporation provisions.

The 1958 legislation

providing tax benefits for small business is not trouble free.

In particular,

the provisions penni tting corporations to elect not to pay
corporate tax in a manner "somewhat like partnerships" are complex.
result it has been difficult for small business to use this election.

As a
These

provisions now arc being explored by the Treasury staff in discussions with
an American Bar Association Section on Taxation committee and the staff of
the Joint Committee on Internal Revenue Taxation. These discussions should
prove fruitful and result in a proposal to revise this special election

- 13 -

to make it more available to small business by eliminating the complexity
in the way the election operates, as well as some unintended hardships and
some unintended benefits.
The use of industrial development bonds by states and municipalities.
Abuses of the tax exempt borrowing privilege extended to our state and
local governments are becoming a source of major concern to everyone interested
in industrial financing and to everyone interested in the integrity of our
federal taxing system.

In 1960 when only 13 states authorized industrial

development bonds the total of new issues in that year amounted to only
$70 million.

By 1966 the annual volume of new issues had increased over

sevenfold to $500 million and the number of states that sanctioned some form
of this abuse of their borrowing status had increased to 35.
The industrial development financing technique was originally developed and
used as a means of attracting relatively small industrial concerns to rural
areas.

In recent years, however, it has been used to create multi-million

dollar facilities for some of the largest industrial corporations in the
country.

Tax-exemption has thus been utilized for the benefit of large

industrial concerns which do not face the major problem confronting small
business firms, that is, securing loan funds at a reasonable cost.

In either

case the practice represents a costly and uncontrolled waste of federal tax
dollars that should be stopped.
I think this review suggests that the tax advantages already available
to small business are such that caution is in order in considering any new
special tax advantages for small business.

Such benefits may, despite the

- 14 best intentions, turn out in practice to be of greatest benefit to large
weal thy enterprises and thereby worsen the competi ti ve position of small
business.

They may go beyond any demonstrated genuine need for financial

assistance through the tax system.

Their costs to the revenue system may

outweigh scattered and hard-to-measure benefits.
As a very practical case in point, consider the existing special low
rates on the first $25,000 of corporate earnings.

As we have just seen,

the spread between the 22 percent rate and the general 48 percent corporate
rate creates the problem of multiple incorporation whereby benefits intended
for small business frequently misfire and give large corporate chains an
unfair advantage.
While there may be particular instances in which tax relief is the sound
way of dealing with a particular small business prob lem, the substantial
use already made of the tax system for this purpose suggests that further
steps require increasing caution and increasingly careful examination of
the existing framework of tax benefits.
Small Business and Financial Markets
The bulk of small business financing is done in private financial
markets.

While there does not seem to be any particular reason to believe

that the legitimate financial needs of sma1l business are going unmet. this
is an area where our statistical information is meagre.
In 1958 the Federal Reserve Board published the results of a major
study on the availability of financing for small business.

The study included

the various needs of small business for financing and sources of funds, and
a detailed statistical study of bank lending to small business in an effort

- IS to determine whether tight money had a discriminatory impact on small business.
The Federal Reserve's study still stands as the most thorough examination of
small business financing that has been undertaken.

However, in the course

of the intervenin g 10 years from the end of the period examined there have
been important changes in the financial environment in which American business.
large or small. operates.
The 1958 study

su~gested

that \vhile short-tern financing through banks

and trade sources was generally adequate. there appeared to be some gaps in
the avai lalJi 1i ty of longer-term and venture capital.
in 1959 and 1960

Two subsequent surveys

described in Chairman :--tartin '5 recent statement to your

Committee -- confirmed that small business firms encountered greater
difficul ty in satisfying their financing needs in the areas of long-term
debt and equity capital.

In an effort to plug some of the gaps. Congress

in 1958 expanded the authority of the Small Business Administration and made
it a penn anent agency.

In connection with the demonstrated need in the area

of long-term financing and equity capital, the Small Business Investment Act
established the Small Business Investment Company Program in 1958.

While

the program has not been problem-free and many SBIC's have encountered
financial difficulties, the program has contributed to an increased flow of
venture capital to small business.
Since the Small Business Investment Act of 1958, Congress has on several
occasions expanded the tools and lending programs of the SBA.

The participation

sales legislation, strongly supported by the Treasury and enacted last year.
provides an efficent and orderly method for transferring to the private sector
financial assets held by the Small Business Administration and other Federal

- 16 -

agencies.

As Mr. Boutin pointed out in his statement before your Committee,

the participation sales program enables the Small Business Administration ,
through the Federal National Mortgage Association, to market participation
certificates based upon loan pools and thus obtain funds for its lending
programs.
During the past five years or so there has emerged a more competitive
climate in banking and finance.

This relates in part to increased competition

for time and savings deposits and the need to put them to work profitably.
It relates also to relaxation of some of the restrictions on the lending
undertaken by various financial institutions and to the increased number of
branches of financial institutions and the number of bank charters.

The

prepared statement of Comptroller Camp to your Committee has pointed to the
structural changes in banking that have occurred in recent years and their
importance for small business financing.

As a result banks and other lenders

have taken a more positive attitude toward making loans and toward taking
risks, and the general availability of funds to small business firms
increased appreciably.

This greater credit availability has contributed to

the improved performance of small business discussed in Mr. Boutin's statement
of March 1 to this committee.
A question explored in the Federal Reserve's earlier study of small
business financing and one that has been the source of considerable practical
and theoretical interest is whether small business is subject to discrimination
under tight money conditions.

- 17 In periods of monetary restraint previous to our most recent experience,
the impact of restraint fell heavily on commercial banks and their customers.
Bank credit grew only slightly and banks were forced to ration their lending.
Rationing sometimes took the form of restricting credit to customers in less
powerful financial condition, usually smaller firms.
But even ignoring this aspect of monetary restriction, the burden may
fall most heavily on smaller firms because they do not have ready access to
impersonal credit markets.

Larger fi nns, not ab Ie to find adequate

accommodation at commercial banks. could bid for funds in the open market
smaller finns could not.

To some extent, of course, by relying on trade

sources for financing, smaller firms could tap nonbank sources indirectly.
In more recent years banks have been able to compete strongly for time
deposits, thus expanding their business loans long into a period of monetary
restraint.

Because banks could compete effectively for time deposits, much

of the burden of monetary restriction was shifted to impersonal credit
markets and to the thrift institutions.

The latter development was not

altogether desirable, for it placed a heavy burden on the mortgage market
and the homebuilding industry.

However, it docs appear that elsewhere in

the economy smaller business finns

fared reasonably well in competing for

credit in 1966 and they appeared to be under considerably less pressure than
during past periods of monetary restriction such as in 1956-57.

- 18 -

Small Business and the Balance of Payments.

A strong competitive

position in world markets is essential for our balance of payments.

Our

balance of payments programs recognize the contribution that small business
can make, particularly in the export field.

Mr. Linder has described to

your Committee how the financial programs of the Export-Import Bank are
designed to increase the participation of small and medium-size firms in
this country's export trade.

Mr. Trowbridge has explained the comprehensive

programs of the Department of Commerce which help our small businesses to expand
their sales abroad, and to enter foreign markets for the first time.

The

Small Business Administration is also actively pursuing the goal of greater
participation by smaller business.

The participation of these smaller firms

is frequently in the form of supplying components to major exporters -- making
their contribution relatively inconspicuous but no less real.
Small business can also help our balance of payments in such areas as
tourism, banking, and finance.

Through their own efforts and by contributing

to a generally more competitive atmosphere at home, small businesses help to
insure our ability to meet import competition.

We must make certain that we

take full advantage of the resources of the small business community in all
of these areas.
Conclusion
In concluding, I would return to my earlier stress on the controlling
fact that the greatest assistance we can give to small business flows from
policies encouraging an open, competitive, prosperous economy, making the
fullest practicable use of all its resources, including the invaluable
resources of small business.

We do need to study the changing nature of the

- 19 -

problems faced by small businesses and to insure that our programs move
adequately with the times.
It seems to me that the further question is not, what more -- other than
maintenance of such favorable general conditions
business, but, rather, the question should be:

should we do for small
Are we doing through public

policy, everything that we can, and should, do to avoid any loss of the
benefits of an open, competitive and prosperous economy to small business
due to lack of information, lack of financial strength or other possible
disadvantages of small size.

think we should be energetic in seeking to offset any such penalties.

I think that if we are, we will find that we free small business from the
need for special advantages.
Therefore, the leadership provided by your Committee and the Small
Business Administration is extremely welcome.

r am sure that all branches

of the Government will be working with you to determine how we can best
insure that small business remains the vital force in our economy that it
has been in the past.

TREASURY DEPARTMENT

March 22, 1967

FOR IMMEDIATE RELtASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notlce, lnvites tenders
for two serles of Treasury bills to the aggregate amount of
$2,300,000,000, or thereabouts, for cash and in exchange for
Treasury bliis maturing March 30, 1967,
in the amount of
$2,304,771,000, as follows:
9~day bills (to maturity date) to be issued March 30 1967
in the amount of $1,300,000,000, or thereabouts, representing an'
additional amount of bills dated December 29, 1966, and to
mature June 29, 1967, originally issued in the amount of
$1,001,292,000, the additional and original bills to be freely
interchangeable.
18~day

bills, for $1,000,000,000, or thereabouts, to be dated
March 30, 1967,
and to mature September 28,1967.
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
(mat uri ty value).
Tenders will be received at Federal Reserve Banks and Branches
up to the cloSing hour, one-thirty p.m., Eastern Standard
time, Monday, March 27, 1967.
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-860

- 2 -

Immediately after the closing hour, tenders will be opened at t
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 Trea~
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 March 30, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing March 30, 1967.
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 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 to
estate, inheritance, gift or other excise taxes, whether Federal ~
State, but are exempt from all taxation now or hereafter imposed oc
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 ~
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 aD
sold, redeemed or otherwise disposed of, and such bi lIs are exc1uch
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereun
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 which t
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and t
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
any Federal Reserve Bank or Branch.

TREASURY DEPARTMENT
;

FOR RELEASE 12:00 NOON,
THURSDAY, MARCH 23, 1966
SECRETARY FOWLER ANNOUNCES APPOINTMENT OF GLEN R. JOHNSON
AS NATIONAL DIRECTOR, U. S. SAVINGS BOND DIVISION
Secretary of the Treasury Henry H. Fowler today announced
the appointment of Glen R. Johnson as National Director of the
U. S. Savings Bonds Division.
Mr. Johnson has been State Director of the Savings Bond
Division in Minnesota since 1962. Under his direction
Minnesota's annual percentage gain in Savings Bonds sales rose
from 48th among the states to first.
Mr. Johnson was born in Lake Lillian, Minn., May 2, 1929.
He attended Gustavus Adolphus College and the Minnesota School
of Business between 1946 and 1949. His first federal job was
as aU. S. pos tal clerk in the early 1950' s.
In 1949 he founded the Lake Lillian Crier, a weekly
newspaper, of which he was editor and publisher until 1961. He
also published Fishing and Boating News, a sporting publication.
Mr. Johnson was appointed Deputy Director and Area Manager
of the Minnesota U. S. Savings Bonds Division in May, 1961, and
became State Director in January, 1962.
He has been President of the Lake Lillian Chamber of
Commerce; Chairman of the Kandiyohi County United Fund and of
the county Mental Health Association; organizer and President
of the Kandiyohi County Press Association; Secretary of the
Congregation of the Lake Lillian First Lutheran Church, and is
an Honorary Member of the Minnesota Newspaper Association. He
has been active in the Red Cross, March of Dimes and Cancer
Drive.
Mr. Johnson was named Twin City Civil Service "Employee
of the Year", in the leadership category, in 1965 -- one of
three Federal employees selected from a field of 16,000. That
same year, he won Treasury's Certifl_cate of Merit Award.
F-861

Mr. Johnson is married to the former LaVonne Corley of
Lake Lillian. Mr. and Mrs. Johnson have three children,
Vicki, 17; David, 13; and Lori, 12.
Mr. Johnson's parents are Mr. and Mrs. Oscar Johnson of
Lake Lillian.

000

TREASURY DEPARTMENT
4

FOR IMMEDIATE USE

UNDER SECRETARY OF THE TREASURY JOSEPH W. BARR
AND CONGRESSIONAL ADVISERS
TO VISIT AFRICAN COUNTRIES
Under Secretary of the Treasury Joseph W. Barr is departing
for Africa today for discussions with the Tunisian Minister
of Planning and National Economy, Ahmed Ben Salah, the Ethiopian
Minister of Finance, Menasse Lemma, the Minister of Finance of
Kenya, J. S. Gichuru and the Minister of Finance of the Ivory
Coast, Konan Bedie.
The Treasury Under Secretary will discuss with the four
African Ministers their experience with the International
Development Association and the International Finance Corporation.
He will also consult in Abidjan, Ivory Coast with President
Mamoun Beheiry of the African Development Bank and his colleagues.
TheU. S. Government is considering ways in which the United States
could appropriately respond to the request of the African Development
Bankfur United States participation in a special fund to finance
worthy projects beyond the means of the Bank's ordinary capital.
These discussions will be carried out in the light of
President Johnson's statement that United States aid policy toward
~frica will encourage the African activities of the World Bank
and its affiliates, direct more resources into projects and
programs involving more than one African country and seek
breakthroughs in private investment in Africa.
Under Secretary Barr will be accompanied by members of
~ngress concerned with U. S. financial participation in the
Jperations of the World Bank, the International Development
\ssociation and other multi-national development institutions.
They are:
From the House Banking and Currency Committee: Rep. Abraham J.
1ulter; Rep. Seymour Halpern; Rep. Leonor K. Sullivan;

862

- 2 -

Rep. Albert W. Johnson; Rep. Robert G. Stephens, Jr.; Rep.Chester L.

Mize; and Rep. Tom S. Gettys.
From the House Appropriations Committee:
and Rep. Silvio O. Conte.
From the House Foreign Affairs Committee:

Rep. Jeffery Cohelan
Rep. Donald M. Fraser.

Mr. Barr will also be accompanied by Assistant Secretary
Knowlton and staff officials from the Treasury, the State Department,
the Agency for International Development and interested
Congressional committees.
Mr. Barr will be in Tunis March 24-27, in Addis Ababa,
March 27-29, in Nairobi, March 29-April 2 and in Abidjan April 3.
lie will return to Washington April 3.

000

TREASURY DEPARTMENT

lR RELEASE 6:30 P.M.,
lndq, March 27, 1967.

RESULTS OF TREASURY I S WEEKLY 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 December 29, 1966,
ld the other series to be dated March 30, 1967, which were offered on .March 22,
~67, were opened at the Federal Reserve Banks today_
Ter'ciers were invited for
L,300,OOO,OOO, or thereabouts, of 91-day bills and for tl,iiOOO,OOO .. OOO, or there)outs, of 162-day bills. The details of the two series are as follows:
UfGE OF ACCEPTED
)},(PETITIVE BIDS:

91-day Treasury bills
maturing June 29 , 1967

---------~L-~A-p-pr~o~x~~~E-qUl~·V-.

Price
High
Low
Average

182-day Treasury bills
maturing September 28, 1967
Approx. Equiv.
Price
Annual Rate

98.955
98 .. 947
98 .. 951

Annual Rate

4.134%
4.166%

4.1S~

97.957
97.930

4.041%
4.095%

97.941

4.073%

55% of the amount of 9l-day bills bid for at the 10. pr:...ce was accepted
44% of the amoWlt of 182-da.y bills bid for at the lo\\f price was accepted
lTAL

'~.lNDERS

APPLIED FOR AND ACCEPTED BY FEDERAL RL.'SERVE DISTRICTS:

District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
st. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS

AEElied For

Acce.eted

AEElied For

11,088,000

$ 20,188,000 $ 10,188,000
892,787,000
1,679,203,000
18,348,000
30,348,000
28,866,000
28,866,000
13,980,000
13,980,000
28,889,000
54,303,000
lhl,017,OOO
334,117,000
39,374,000
50,409,000
14,356,000
19,546,000
29,498,000
35,505,000
14,L14,ooo
24,764,000
68,737,000
233,827,000

15,398,000
3,051,000
28,3lili,ooo
293,717,000
13,792,000
9,784,000
9,592,000
14,727,000
_J82.B?6 i OQQ

$2,525,656,000 $1,300,L54,OOO

$1~ 795,910,000

1,201~981,OOO

11,610,000

ACC9.eted

1,088,000
690,521,000
3,610,000
15,398,000
3,051,000
17,104,000
153,717,000
9,092,000
9,2841 000

9,592,000

4, "(27,000

82,938,000
~l !)I}')() ,122,000

Includes $273,667,000 noncompetitive tenders accept'] At the averc:-,ge pricE:.' of 98.951
Includes $ 94,905,000 noncompetitive tenders accepted at the average iX''-:'~ of 97 .9L!J
I

These rates are on a bank discount basis.

4.26% for 'the 91-day bills, and 4.23% for
F - 863

The equivalent coupon issue yields are
the 182,-cAY Dills.

TREASURY DEPARTMENT

FOR Th1MEDIATE RELEASE
TREASURY DECISrCN 00 FISHERY PRODUCTS
UNDER THE ANTIDUMPING ACT
The Treasury Department has determined that shrimps, lobster
tails, and lobsters, fresh frozen or cooked frozen, from the
U.S.S.R. are not being, nor likely to be, sold at less than fair
value within the meaning of the Antidumping Act, 1921, as
amended (19 U.S.C. 160 et

~.).

A "Notice of Tentative Determina-

tion," Vias published in the Federal Register on January 31, 1967.
All written submissions received in opposition to the tentative determination were given full conSideration, but none contained
persuasive grounds justifying a different conclusion.
v~s

No request

made of the Secretary of the Treasury for an opportunity to

present views.
Customs officers are being instructed to proceed with the appraisement of this merchandise from the U.S.S.R. vdthout regard to
any question of dumping.
Imports of the involved merchandise received during the period
January 1, 1966, through October 31, 1966, were valued at approximately $500,000.

There have been no reports of importations of the

merchandise under consideration subsequent to the foregoing period.

TREASURY DEPARTMENT
(

RELEASE 6 :30 p.)1..,
28, 1961.

~sday, )larch

RESULTS OF TREASURY'S MONTHLY BILL OFFERING

The Treasury Department announced that the tenders for two series of Treasury
L1s, one series to be an additional issue of the billa dated December 31, 1966, and
, other series to be dated March 31, 1967, which were offered on March 22, 1961, were
Ined at the Federal Reserve Banks today. Tenders were invited for $500,000,000, or
Ireabouts, of 275-day bills and for $900,000,000, or thereabouts, of .366-day billa.
details of the two series are as follows:
IGE OF ACCEPTED

IPETITlVE BIDS t
High
Lf)w

Average

275-day Treasury bills
December .31, 1967
Approx. Equiv.
Price
Annual Rate
96.899
4.059%
96.872
4.095%
96.885
4.078% Y

maturin~

·
·

366-cia.y Treasury bills
maturing March 31l 1968
lpprox. !qUiy.
Price
Annual Rate
9$.870
4.062%
95.839
4.093%
95.858
4.07~ Y

35% of the amount of 275-day bills bid for at the low price was accepted
56%

of the amount of 366-day bills bid far at the low price was accepted

III. TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

lstrict
)stOn

!WYork
tiladelphia

Leveland

Lemond
ilant.
licago
;. Louis

JIIleapolis
illSas City
:llaB

n Franciaco
TOTAlS

s Flied For
A;eE11ed For
AcceEted
I
20,000 :
30,L.86,OOO
20,000 $
1,131,£91,000
917,948,000
395,959,000
9,188,000
4,)24,000
324,000 •
:
10,416,000
24,004,000
25,416,000
760,000
7f:iJ,OOO
7,737,000
16,062,000
5,484,000
15,484,000
34,961,000
305,307,000
201,769,000
9,698,000
4,952,000 :
8,252,000
1,146,000
3,579,000
U,146,ooo
2,928,000
1,549,000
1,549,000
12,079,000
6,550,000
11,550,000
116,z173,z009
95.z205.z000
37 1 95°,,002

·
·

$1,299,423,000 $ 500,071,000

$1,669,132,000

AcceEted
I 19,166,000
666, h)1, 000
1,188,000
8,974,000
1,737,000
6,062,000
110,307,000
6,598,000
1,859,000
2,926,000
8,079,000
66 1673 1000
$ 900,002,000

noncompetitive tenders accepted at the average pr~c~ ot 96.885
fucludes $40 127 000 noncompetitive tenders accepted at the average pr~ce of 95.858
These rates ke ~n a bank discount basis. The equivalent coupon issue yields are
4.2$% for the 275-day bills, and 4.28% for the ,366-day bills.
Includes $18,1l6,ooo

864

TREASURY DEPARTMENT

Ulal"ch 20, 1967,

FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL

,Jli

t, KING

The Treasury Department, by this pub11·:: not:!;,:;€':, >l:' i,'CS tenders
for two series of Treasury bills to the aggregate amount of
$2,300,000, 000, or thereabouts, for c ash and :to exchar'f~ -, ~o r
Treasury bills maturing April 6,1967,
in ~r,e amOi..H~t o;~
$2,300,427,000, as follows:
1

91-day bills (to maturity date) to be is':LA€':
in the amount of $ 1,300,000,000, Jr' thereabcltlts
additional amount of bills dated January c,", 196 7 ,
mature July 6,1967,
originally iSSll,ed in ';-he
$ 1,001,157, 000 ,the additional and oY-if2,inal billa
interchangeable.
J

April 6, 1967,
representing an
and to
amount of
to be freely

182-day bills, ror $1,000,000,000, or thereaj)U~3, to be dated
ApriI6,1967,
and tr) mature Octobt:: S, 196i.
The bills of both series will lJe lssued O~1 a dlscou;-lt basiS under
competitive and noncompetitive bidding as hereinaftpJ:" pro.,ided, and at
maturity their face amount will be payaole without .. nterest • . 'l'hey
will be issued in bearer form only, and in denon:lnatlons of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000 ana $1,000,000
(maturi ty value).
Tenders will be received at Feceral Hesel"'ve Banks and Branches
to the closing hour, one-thirty p oIn., Eastern :Jtandard
time, Monday, April 3, 1967.
Ten~ers will not be
received at the Treasury De?artment, Washingtoi:. Each tender must
be for an even mu1r:lple of $1,000, and in the case of ccmpetttive
tenders the price offered must be pxpressed on the basis cf 1.00,
with not more than three declm~ls, e. g., 9So925. Fractions may not
be used. It 1s urged that t~nder2 be made on the printed forms and
forwarded in the sp-?c 1al envelopes wl~l:' :).fL.l be supplied by Fedp.ral
Reserve Banks or Branches on application :.11er0'f'or.

Banking instltutJons generally l11.a;/ sut.'r(,_, . . :"';=,,:de;:~; for account. of
customers provided the names of the cus~omerB ?re s~~ forth in such
tenders. Others than banking lnstltutl'Jns will no~lJ€'; perm:1t::eC to
submit tenders except for their 0'1/0 account.
L2nde:'2 'i :..11tx' re~€.ived
without deposit from incorporated banks aw' tri<~"')< ties 3,<;' from
responsible and recognized dealers in ~liVf,.'.IV.1C
'-':>" ur';.t:. ie;;.. .
"en.ders
from others must be accompanied bypo':'i~ "n" ':,..;
"~~~sl,.,,f th,~ fac'·
amount of Tre~l'3u.ry bills applied fo", ',~:.:L,,~:;n "-~
":(:.~;derc; 3 Y'f'
accompanied bJ.' an express guaranty of payment ~J1 3'1 inC0P'iJ':>r'ated -ank
or trust company.
2

F-865

- 2

Immediatelv 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 April 6, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing April 6, 1967.
Cash and exchange tender
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.
o

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
Treasu ry bills (other than life insurance c ompan ies) 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 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

~OR

USE IN MORNING NEWSPAPERS OF
fHURSDAY, MARCH 30, 1967

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT THE
LAUNCHING OF UNITED AIR LINES' 1967
DISCOVER AMERICA CAMPAIGN
STATLER-HILTON HOTEL, WASHINGTON, D. C.
WEDNESDAY, MARCH 29, 1967, 6:30 P.M., EST

I am indeed pleased this evening to be invited to the

inaug~rat~on of United Air Lines' extraordinary promotion
campa~gn

program.

1n support of President Johnson's Discover America

In its brief two year existence, Discover America, Inc.
has worked vigorous 1y to deve lop the Amer ican tour is t marke t.
Until 1965 the United States lacked a single organization
which could serve to coord inate the many diverse tourist
programs of private industries. Now, in Discover America
we have such an organization and I am confident that these
unusual resources will be properly developed.
There is another important reason this evening for my
enthusiasm over the programs of Discover America and
United Air Lines. This reason relates to one of our most
important national efforts -- achieving for this country a
proper balance of international payments.
In recent years, with the continually :-isin g leve~ of
income of the average American and the grovnng attract10n
of foreign -- particularly European -- travel, Am~r~cans
have tended to seek more and more travel opportunlt1es
abroad. The result has been a rapid growth in our
d
tourist expenditures overseas -- a gro~th which.has outpace
our receipts from foreign visitors com~ng to thlS country.
In 1955 our total travel payments to foreign co~ntr~es were
approximately $1.4 billion. In 1966 we are estvuatl.ng that
this dollar outflow will reach the $3.4 billion mark.

- 2 This figure in itself would not be significant were
it not for the wide gap between our own expenditures
abroad and our receipts from foreign visitors in the
United States. On the receipts side, we are now estimating
that in 1966 the total dollar inflow will total approximately
$1.6 billion, an encouraging rise from less than $1 billion
in 1961. The net result, however, is a tourist deficit in
1966 around $1.8 billion. When we compare this $1.8
billion deficit on tourism with our overall deficit on a
liquidity basis of $1.4 billion in 1966, we can understand
the vital role which our tourist expenditures play in our
overall balance of payments results.
The ultimate solution to containing our tourist deficit
lies in the success of efforts of private organizations such
as Discover America and United Air Lines. Tourism throughout
the world has become a major industry. The enormous tourism
boom in such areas as Western Europe, the Mediterranean,
Japan, Mexico, etc., is largely the result of vigorous
marketing efforts.
We in Government and private industry are only beginning
to realize the great potential which lies before the
American tourist market. American enterprise has traditionally
been quick and aggressive in seizing favorable market
opportunities for its products. Our product is travel in
America and our market consists of the many millions of travelconscious Americans and foreigners. Competition among
nations for this market is intense, and timing is highly
important. Unless we in the United States can act quickly to
capture a profitable share of this dynamic market, we may
find ourselves obtaining only marginal benefits from
international tourism.

The Administration fully supports the combined efforts
of organizations such as United and Disco~er Ame:ica to
develop a profitable tourist market
It lS our Judgment
that your initiative and imagination are by far the best
ways to help correct our unfavorable tourism balance.and
enhance our tourist market for Americans and non-Amerlcans
alike.
000

TREASURY DEPARTMENT
5
=
March 29, 1967
FOR IMMEDIATE RELEASE
DR. HOWARD GETS TREASURY'S
ALEXANDER HAMILTON AWARD
Secretary of the Treasury Henry H. Fowler today
presented the Treasury's Alexander Hamilton Award to
Dr. Frank Leland Howard, director of the Treasury's Office
of Domestic Gold and Silver Operations.
The Alexander Hamilton Award is the Treasury's highest
honor. It was established in 1955 to "give recognition for
outstanding and unusual leadership in the Treasury Department"
and "to be awarded those whose leadership in the Treasury is
such as to bring outstanding and unusual service and benefit
to the Government and so to the people of our Nation."
Dr. Howard leaves Federal service on March 31, after
nearly 33 years of service in the Treasury Department. He
began his employment with the Bureau of the Mint on
April 30, 1934. Beginning as an auditor he rose through the
ranks to become assistant director, and in several instances,
acting director of the Mint.
Dr. Howard's formal resignation took effect on
December 30. He agreed to remain for several months as a
consultant.
The award to Dr. Howard cited him for having "contributed
with distinction to the formulation and execution of Treasury
policies concerning the domestic control of monetary metals,"
and noted that his advice has been sought by other
Government agencies, Members of Congress and by foreign
governmen t s •
From June 9 to August 25, 1945, Dr. Howard served as
AdVisor to the Supreme Headquarters, Allied Expeditionary
Forces, directing the work of inventorying the precious
metals collected by the Nazis during World War II and stored
in the Reichsbank at Frankfort, Germany.

- 2 -

In 1948, he served as Advisor to the Commanding General,
Eighth Army, Yokahama, Japan, on matters relating to an
inventory of precious metals in Eighth Army's custody.
Under the Point IV program, he advised Peruvian officials,
during August and September 1951, on the organization and
modernization of the National Mint of Peru.
In the Spring of 1957 he was head of a special mission
to Pakistan and India, working out arrangements for the
return of Lend-Lease silver.
In November and December, 1965, Dr. Howard was a
Consultant to the Government of Australia on various monetary
and mint problems, particularly the decimal coinage system.
During that period he also inspected the Sudanese Mint and
conferred with Sudanese officials on matters related to
Coinage.
Born in Hodgenville, Kentucky, Dr. Howard, 59, received
his B.S. degree in Business Administration from the
University of Kentucky. He took his M.S. and Ph.D. degrees
in Economics from the University of Virginia.
He was Assistant Director of the Mint from 1938 until
1961. In October 1961, the Office of Domestic Gold and
Silver Operations was established and Dr. Howard was named
its first director.
Dr. Howard lives at 3413 Dent Place, N.W., Washington, D.C.
The citation to his award is attached.

000

elf,'
!~12:r,ander
l' ~:'.:m~(

TI;Jl~

I-rami 1 tou

~'~HCird

Lelauo Howard

a lunL-tiIll2 o::---=icial o~ the United State.s Treasury
i:i:cst as j\.ssistant Director ot the l"~int and later
as tne ~irst Director of the O££ice o~ Domestic Gold and Silver
lIpet"a tiolJ.s, you have eontr i.butcd ".,it~1 dis tine Lion \:0i::£12
_ v ~:r~ . u 1ft ~..LGl" ·3
~ .~ 1 ' .- i . . i ~-" ~).
rr~::: 2c~ .3 Ui":/ .:':<.... . 1 if'; .:'_::' .. 3 (;.c..r~~ 21:1 a ~1..11v til-..;
C('l-llestic control V_l,h.Jl,etary Iiletals.
L::'S

De~i::I.rtmeIlt)

t..it..

'_'

You h<:lve ueIllons tra ted 6rea t tecimica 1 LuowlC!u;;e and
astute jud6ment in cousistently providin2, sound l'econn •. enGCitiuns
and advice on the cielicatE: aGe comflex L1terrelatiollshLvs
bet\veen Ilioneta~-y metals and uOi.!lestic f).nd :i.oreion econoITLic
<lE::VelOphleuts. Your 1.1t.~lp has beel! sousht by otlwr GOVGrnli1ent
aGencies, l:embers OJ: Conoress and by ~orei6n governments, add
modernized currency sys te111S in several part~ oi the world
stand as lltOnlli1lCl1CS to Y0ur 2.ssistance.
Yuur record ot more dIan 30 fears O~ out~tan~~nb lendersai~
in tne Tre<.'. su::-y De~artli!ent DaLes you a \'\nrtny l.:ecir·icr t 0 . ':iH-:
.lexanci2~ .1.c1h:ilton /~~'I':!~C, tnc ~lit.il~St rel..~')::'Eitiol! \.;ri':·d~;_L, -;:ll(:
• .J

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I.

Treasury Department Fiscal Year 1968
Appropriation Hearings
General Statement of the Secretary

Mr. Olainnan and Members of the Treasury Subconuni ttee on

Appropriations, I am pleased to appear before you as the first
witness in support of the 1968 budget request of the Treasury
Department. Heads of each of the Treasury bureaus will appear
before you later to discuss in such detail as you may wish the
many important functions performed in the Treasury.
This year we do not have the Coast Guard with us. The
Department of Transportation is now established and transfer of
the Coast Guard has been completed.

Its association with related

activities in the new Department should do much to enhance its
opportunities and effectiveness.

We wish for the Coast Guard a

new era of ever finer achievement.
On March 20 the Cormni ttee on Appropriations of the House of

Representatives in House Report No. 144, reported H.R. 7501, making
appropriations for the Treasury Department for fiscal year 1968.
The Bill, as

ra~sed by

the House on r-.1arch 22, 1967, provides

$915,726,000 for regular annual operating appropriations. A reduction
of $12,147,000 was made in the budget estimates slwrnitted by the
President.

I would like to discuss generally the requests which we

included in the President's Budget and then comment on the effects of

.. 2 -

the reductions made by the House.
In the Treasury Department we are doing everything we can think
of to accomplish the tasks that have been assigned wi!h the fewest
possible people and at the least possible cost. These hearings give
us an opportunity to explain our work plans and to present the
financial plans we have developed to accomplish them.

We thank you

for the understanding and support of this Corrmittee over our many
years of association.

It is our intention to keep our affairs in

such order that your constructive interest will always be merited.
We welcome any suggestions you may have to improve service or save
money.
Requests for regular operating appropriations in the President's
Budget totaled $927.9 million for 1968 -- an increase of $30.7 million
over appropriations to date for 1967 and proposed supplementals
included in House Documents No. 83 and 91.

By comparison. the increase

we requested for these accounts last year was $56 million.
was tight.

This year is terribly tight.

Last year

This year hits a new low

in requests for increases to meet service workloads that inevitably
grow with population and economy.
The Departmental Management Improvement Program
This Committee has been watching and supporting our efforts to
deal with these ever-increasing workloads for years.

Since 1946 w~en

the fonnal Departmental Management Improvement Program was started,

- 3 -

$271 million have been saved as a result of aggressive efforts to
do the job for less cost.

Elimination of low priority work, reorgani-

zations. automation of repetitive tasks, work simplification, employee
training. an imaginative approach in the use of people, machines,
and space have been the means of the improvements.
In the year just past, fiscal year 1966, we have set a new
record for management savings.

Our goal under the President's Cost

Reduction Program -- the latest extension of our long tenn lvtanagement
Improvement Program -- was $34.1 million. We saved $44.5 million and
the equivalent of 3,600 man-years of employee effort.

We established

a goal of $50 million at the beginning of fiscal year 1967, including
savinis of the Coast Guard.
CAlr proll"- emphasizing cost-consciousness goes to every level
of supervision.

For exanqJle:

Employee suggestions of improved ways

to do things saved $2.9 million last year.

Productivity was increased

at the Bureau of Engraving and Printing by installing and perfecting
the use of new currency presses, savings were made in procurement
contracts, the useful life of old equipment was prolonged, more
economical engines were found to be satisfactory for five Coast Guard
cutters.

The list of major items is long -- there are 77 items.

These are some of the ways we keep our appropriation requests at
such low levels.

I know that other witnesses will be glad to go into

more detail on some of these items when they testify.

- 4 -

Planning, Programming and Budgeting System
This past year we instituted the Planning, Programming and
Budgeting System in the 1.)epartment. This approach looks at operations in terms of programs rather than organizational units and
evaluates them in terms of priorities, costs, and benefits.

Part IV

of the President's Budget contains summary data on the Department's
maj or programs, showing resources used and related output measures
the first time

su~~

data have been available.

This activity is

still in its developmental phase but has already proved a useful
adj Wlct to the budget making process.

Principal Chanses in

~propriations

The Bureau of the Mint is showing a substantial reduction from
its 1967 funding level for operating expenses.
The principal increases are $a3.S-million for Internal Revenue

Service. $2.1 million for the Bureau of Custans, $1.-3 million for the
Secret Service, and $1.5 million for the Bureau of Accounts.
in the other bureaus are very small.

Olmges

I would like to explain the

principal increase items briefly if I may, and comment in passing
on the remaining appropriation requests.
~mv
"

T nrp~ent for the record at
j,

thi~

noint. 5ummary statements
...

on the 1968 budget estimates for all the annual appropriation accounts
of the Department and a statement comparing the 1968 budget estimates
with the amounts provided in the House Bill.

- 5 TREASURY DEPARTMENT

Annual Appropriations for Treasury Department for 1967
and Estimated Requirements for 1968
(In millions of dollars)

1967
Appropriations

ReauJ.ar Annual Operating Appropriations:

Increase
1968
or
Budget
Decrease
(-)
Estimates

$7.1

$7.3

$0.2

33.0

34.S

1.5

21.4
6.3
53.8

90.4
14.6
6.6
52.1

-0.3
2.1
-6.8
0.3
-1.7

19.0
173.0
473.2

20.1
177.0
501.0
0.8

1.1
4.0
27.8
0.8

Total. Internal Revenue Service --

665.1

698.9

33.8

Office of the Treasurer, U. S. -.----U. S. Secret Service -----------------

6.3
15.6

6.6
16.9

0.2

Total, Re~l!r Annual Operating
ApproprIatIons -----------------------

897.2

927.9

30.7

Office of the Secretary -------------Bureau of Accwnts:
Salaries and Expenses -------------Fund for Payment of Government
Losses in Shipment --------------Bureau of Customs -----_.------------Bureau of the Mint ------------------Bureau of Narcotics -----------------Bureau of the Public Debt -----------Internal Revenue Service:
Salaries and Expenses -------------Revenue AccoWlting and Processing -Compliance ----.-.-----------------Federal Tax Lien Revolving FWld - - --

0.3
88.3

1.3

Note: Amounts are roWlded and may not add to totals.
y Includes $18.8 million for proposed supplementals for Public Law and wage
board pay increases, of which $5.1 million is to be derived by tr~~sfer
from the Bureau of the ~lint 1967 appropriation of $26.5 million. and
.
$2.0 million for proposed program supplementals for the Bureau of the Publlc
Debt, the U. S. Secret Service, and the Fund for Payment of. Go,:enunent
Losses in Shipment. Does not reflect $509 thousand approprlatlon transfer
to GSA for rental of general purpose space.

TREASURY OOPARTl>fENf

Comparative Statement of 1968 Budget Estimates
and House Allowances
(Dollars in thousands)

Bureau and Appropriation

Reaalar Annual Operating Appropriations:
Office of the Secretary -------------liueau of Accounts:
Salaries and expenses -.-----------Fund for Payment of Government
Losses in Shipment --------------Bureau of Customs -------------------Bureau of the ~tint:
Salaries and Expenses -----.-------Construction of ~tint Facilities ---Bureau of Narcotics ---------.-------Bureau of the Public Debt -----------Internal Revenue Service:
Salaries and Expenses -------------Revenue Accounting and Processing -Compliance -- •• --------------------Federal Tax Lien Revolving Fund ---Total, Internal Revenue Service -Office of the Treasurer, U. S. ------U. S. Secret Service:
Salaries and Expenses -------------Construction of Training FacilitiesTotal, Regular Annual Operating
Appropriations -----------------------

1967
Appropriation
(AdjustedY)

1968 Budget
Estimate

Av.P6s~-~j'ijiiount

Av~s~-AmOufit

House Bill Compared w:LtI!
Reconmended in
Restoration
1967
House Bill
Request
1968 Estimates
Aeeropriation
for 1968
Amount Av. Pos.
J\iiiOurit Av. - POs. - - .AIIIOunt
Av. Pos.
Miount Av. Pos.

557

Y $7 ,101

572

$7,317

552

$7,015

1,367

32,988

1,354

34,500

1,354

34,500

8,333

265
88,278

8,561

90,400

8,593

90,700

+32

2,205

21,393

1,443

14,600

1,373

14,000

-70

461
2,513

6,275
53,794

4.66
2,349

6,565
52,084

466
2,349

6,565
52,048

20,060 1,524
177,024 21,493
501,016 43,408
800

19,960
177,000
490,000
500

698,900 66,425

687,460

3/
1,484 3/ 18,959 1,531
21,201 - 172,966 21,493
473,207 44,408
42,624

65,309

665,132

67,432

1,201

15,631

1,274

82,697

897,205

84,223

751

6,348

772

6,588

772

6,588

16,919

1,274

16,850

927.873 33.158

915,726

$228

600

-5

-$86

-13

1,512

+300

260

-265
2,422

-600

-832

-7,393

-36

5
-164

290
-1,746

-1,000

-100
-24
-ll,016
-300

40
292
784

1,001
4,034
16.793
500

1,000

U,016

-1,007

-11,440

1,116

22,328

1,000

11,016

-69

1,219

-12,147

461

18,521

1,085

1l,8~4

-20

-7

-1,065

-$302

1/ Adjusted to reflect prO';1oscd strrplcment:t1 appropri:ltions incluJcJ in ,:ouse Document 83 and House Document 91.

240

1/ Reflects funds transferred from the Office of Emergency Planning for errergency preparedness functions of the Treasury Department.
Beginning in fiscal year 1968, it is proposed that th~se funds be appropriat~d. d~rect1y to the Of~ice of the Secretary.
3/ Reflects the transfer of the program eValuatIon functions from the Reports DIVISIon (Data ProceSSIng) to the Planning and
Analysis Division (Planning and Research).

- 7 INfERNAL REVENUE SERVI CE

We requested appropriations of $698.1 million for the operating
expenses of the Internal Revenue Service. This is an increase of
$33 million over the 1967 requirements.

increase to $21.8 million.

The I-louse Bill reduced this

Stating the increases in terms of the

three individual appropriations will highlight the budget actions
we planned and show the House Bill allowances.
Budget Estimate House Bill
tIn millions)
Salaries and Expenses ---

$1.1

$1.0

Revenue Accounting and
Processing ------------

4.1

4.0

Compliance --------------

27.8

16.8

$33.0

$21.8

Total increase in operating
expenses ---------------

We are requesting restoration of the House reduction of $11 million
in the "Compliance" appropriation. The reductions applied to "Salaries
and Expenses" and "Revenue Accounting and Processing" will be absorbed,
we hope, through additional managements improvements yet to be
identified.
Compliance Improvement
To meet the program requirements of all our bureaus within the
level of estimates which we have included in the 1968 Federal budget
posed some difficult decisions.

The determination on funding for

- 8 -

the Internal Revenue Service reflects a particularly careful
assessment of total Treasury responsibilities.

We determined to

trade off as many of the wants of the other Treasury bureaus as
possible to provide resources to increase the tax enforcement
effort. Additionally, within the Revenue Service we chose to lease
equipment for purchase later rather than purchase in 1968 in order
to provide still other funds for enforcement. As a result of
these actions, you will note that SZ7.S-million -- 84% of the IRS
increase -- 70% of the total Treasury increases requested -- was
allocated to Compliance improvement.

The Bureau of the Budget fully

concurred in this allocation of resources.
Public Confidence
The Internal Revenue Service is effecting gross revenue
collections at the phenomenally low cost of less than 50 cents per

$100.

It is able to do so principally because of an extraordinarily

high level of taxpayer compliance. This high level has been achieved
as a result of strong enforcement and taxpayer assistance programs
over a period of many years. These programs have been successful
in building public awareness and confidence that the tax laws are

being fully and fairly enforced, that there is a reasonable expectation
that cheaters will be detected and punished, and that the laws are
being applied equitably and reasonably to all classes of taxpayers
in all parts -of the country.

The public knows that compliance

- 9 -

assistance is available to those who need it, and that the tax
officials are firm, fair, and honest.

Without this public

confidence our self-assessment tax system could not exist and we
all know the disastrous consequences which would result to our
Federal financial structure.
Additional Revenues
Under the President t s Budget estimate, the Internal Revenue
Service would produce over $5-1/2 billion in direct enforcement
revenue from Service operations in 1968. This is an estimated
increase of $450 million over 1967 -- or over 13 times the total
increase of $33.8 million requested for the entire Service.

consider this direct revenue alone a highly profitable return on
the proposed investment.

But even more important than that is the

indirect revenue which is engendered from the spreading effect of
enforcement and taxpayer assistance programs.

In a sense, what

we have proposed here is an investment in "preventive maintenance."
We must not allow public confidence to be lost or the high level
of voluntary compliance to deteriorate.
Drop in Audit Coverage
Tax return audit coverage in the higher income categories has
dropped significantly over the past few years from the level achieved

- 10 -

in 1960 -- a level which we have considered to be a guidepost.
This is because of the rising number of tax returns. and the increasing
proportion of returns which are in the corporation, estate and gift,
and higher income individual brackets.

These higher incoJre. more

complex returns yield more revenue but take more time and require
audit in the field.

I have here a chart that depicts the gradual

decline in the field audit coverage from 1.4 percent of returns in
1960 to 1.0 percent of returns in 1967. We wished to improve to
1.2 percent of returns in fiscal 1968. The chart also shows how we
have tried to apply the less time consuming office audit techniques
to as many returns as possible.

Audits performed at the Internal

Revenue Service offices, however. can involve only the
investigations of transportable records.

s~ler

Revenues from these cases

amount to less than 10 percent of the revenues from field audit
of the larger more difficult returns although the number of audits
made in the office is very much larger.
The change in tax return workload is illustrated by these
figures:

Whereas from 1960 to 1970 the total number of returns

filed is expected to increase by 20 percent, individual returns
of adjusted gross income of $lOtOOO and above will increase 214 percent,
corporation returns 63 percent, estate and gift tax returns, 94 percent.

PERCENT OF TAX RETURNS AUDITED
%1

5
4.6

3.8

I-'

o
Field

~....... Audit
O!

, . f95?Si
1960
,

.!809S!

'61

Office of the Sec:tetary of the Treasury

.!888SI

'62

, . . . '888$1

'63

, ...•.•. '8888'

,»RSsgt

I· .• R§iI

l··· ..... ga

I •. .• 1888'

'64

'65

'66

'67

'68

Fiscal Years

Z-907

- 11 -

The returns that are increasing most rapidly are those that
place the heaviest burden on field audit.
The audit program provides for the examination of certain
percentages of the various types and classes of returns filed.
Sheldon Cohen will explain the program when he appears before you.
He will tell you that the drop in coverage of the higher income
returns has also been due to increased thoroughness of audit (which
pays off well in revenues and public confidence) and to the very
limited manpower made available.
The request made here for increased funding for compliance
operations will not restore the 1960 level of audit coverage, but
it is essential to halt the downward trend. That downward trend,
if not halted, is certain to lead to poorer compliance and a loss
in revenue far in excess of operating costs saved.
I would like to caution against any notion that the Master
File ADP System of tax return processing is so comprehensive that
the additional revenues we seek will be achieved without this
investment in enforcement.
has

It is true that the Master File System

had a sall.Jtary effect on voluntary compliance.

It has also

helped to limit our manpower needs in the Delinquent Accounts and
Returns area by facilitating offsets of refunds against delinquent
accounts, by automatically issuing second notices of unpaid amounts

due, ~~d providing leads to persons not filing returns. But those

- 12 effects have already been considered and we have included no
request for any manpower increase for collecting delinquent accounts
or securing delinquent returns -- despite sizeable workload
increases.
The Master File System is also assistiDg in illpnwiq tile

selection of returns for audit -- and that too has been taken
into accoWlt in our request.

But the Master File System. the

cOO1puters t cannot interview taxpayers, examine books and NC01"ds.
and make teclmical judgments.

It takes lumJan beings of intelligeau:e.

honesty. and thorough training to audit tax returns. bear ancl
resolve taxpayer appeals. make tax fraud investigations. anc1
represent the United States in litigation.

It is for these p1!pOMS

that this request is submi tted and it is because of the i.JIpn'tace
of accomplishing these purposes that I so strongly and eatDeStly
endorse this request and suggest that restoration of these funds
is a desirable and essential investment.
Finally, there should be no complacency regarding ec>q)liance
levels. high as they are.

Results of studies of errors on income

tax retums show a continuing disturbing level of noncompliance and
tax errors.
Technological Advancements
The amount of increase requested for the Revenue Service beyond
that for effectual enforcement is principally to continue our efforts

- 13 -

to modernize revenue accounting and returns processing.

It provides

for putting individual master file processing on a full year basis
in the final remaining regions of the country.

also includes

extension of single font optical scanning to the six remaining
service centers at a cost of approximately $1 million -- This the
CUlmination of a testing program provided in fiscal year 1967 and
conducted at the Southeast Service Center (Atlanta).

It inCludes

$2 million for the installation and lease of direct data entry
systems at six service centers. This system, too, was described
last year.

ConInissioner Cohen will give you the details on these

newest electronic means to reduce costs and increase efficiency.
Very briefly, however, what is involved is this:
gptical

S~g

System

This equipment can read documents which we prepare ourselves

and send out to the taxpayer for some information from him. lVhen
the documents are returned to us they can be re-read and the information transmitted direct to magnetic tape without an intervening
punching process.

The equipment will pay for itself within three

years.
Direct Data Entry System
This system is being tested at the Southeast Service Center.
It permits an operator to transcribe data from returns into equipment

- 14 -

which will automatically verify and convert it to magnetic tape
without intervention of the key punching process.

It results also

in considerable savings in key punch, verification, and error
resolution costs.

The Service is not requesting funds to purchase

direct data entry systems at the other six service centers in
1968, but simply to install them and lease. After testing,
evaluation, and modification in the Southeast Center. delivery
of the remaining six systems can be effected near the end of the
fiscal year 1968. The $2 million requested will provide $1.6 million
for installation costs and $400,000 for the lease.
Operation of the direct data entry system is expected to save
about $1 million a year at each of the service centers.

If the

system meets our expectations, as I have every reason to believe
it will, 1 will wish to request funds for purchase in the 1969
budget.
Not only will these technological advances pay for themselves
and result in savings, but they offer a practical way of keeping up
with the ever-rising flood of paperwork without adding enormously to
the staffs of key punchers and verifiers.
BUREAU OF CUST(M)

In 1968 the Bureau of Customs faces staggering increases in
the inward flow of merchandise, carriers, and persons. We ask for

- 15 small increases in manpower to meet the demands of this workload
and to strengthen foreign mail examination, where greatly increased
revenues are certain to be realized.
The 1968 estimate for the Bureau of Customs was $90.4 million,

an increase of $2.1 million over the 1967 requirements of $88.3
million. Action by the House provided an additional $300 ,000 for this
appropriation J which was obtained by a reduction in the same amount
from the new Federal Tax Lien Revolving Fund.

No adjustment has been

requested because we are keenly aware of Customs' problems, and,
at this time. we have no experience basis with the Tax Lien Fund.
Of the total increase, $1.6 million, is for costs built into the

present program.

These costs are for within·grade promotions,

trainee-to-journeyman promotions, additional 1968 costs of program
increases financed on a part-year basis in 1967, and the additional
cost in 1968 of the last year's pay legislation.
Measurable Workload
Determining the level of funding for the Bureau of the Customs
lends itself fairly well to the measure of resources provided and
results obtained.

Much of Customs workload is measurable and the

measures reflect the long term trend of more and more persons and
cargo entering the United States.

We can point to the quadrupling

of numbers, of merchandise entries and the six-fold increase in Customs

-16revenues in the last twenty years -- accomplished with only a
5 percent rise in employment.
Within the restricted budget we did all that we could to
provide additional resources for needs that are illustrated in the
following examples:

The volume of importations. people, and

carriers entering the United States, all of which must be processed
by Customs, continues to spiral upward at an almost unbelievably
rapid rate.

Aircraft arrivals from foreign countries are increas-

ing at the rate of nearly 15 percent per year.
entries are going up 10 percent per year.

Formal merchandise

During fiscal year 1966

the number of formal entries filed by importers total 2,011,000
and invoices received totaled 3,240,000 -- substantially more
than estimated in our 1967 budget submission.

The value of imports

rose from $19.7 billion to $23.3 billion, an almost unprecedented
increase of 18.2 percent.

Similarly, Customs collections reached

nearly $2.5 billion, up 20 percent over 1965. 'There is every
indication that similar increases are now being experienced and will
be experienced in the remainder of fiscal year 1967 and in fiscal
year 1968.

Workload increases of this magnitude cannot be processed

without additional manpower.
During fiscal year 1966 more than 192 million persons arrived
in the United States

our seaports, airports, and across our

- 17 land borders. More than ZOO million people will cross our borders
in fiscal year 1968, the equivalent of nearly seven people every
second. Additional inspectional manpower is urgently needed to
process this tremendous increase in arriving persons.

Carriers

arriving totaled more than 57 million in 1966 and are expected to
reach 64 million in 1968. Mail from foreign countries is flooding
Customs' facilities.
Mail Examination
The largest single program increase proposed is an intensification of foreign mail examination.

Frequently the great volume

of mail received makes impossible the examination of mail parcels
containing merchandise valued as high as $50 even though the statutory
limit is $10 for bona fide gifts and $1 for other merchandise.

this area we propose to increase our expenditures by $690,000, with
a resulting revenue increase of at least $7,000,000.

In addition to

increasing revenue collections, the additional mail examination will
provide an important increase in protection against the illegal
introduction of narcotics and many other kinds of prohibited or
restricted merchandise.

Recently we have seen increased efforts to

smggle marihuana by mail.

- 18 For the first time, as an adjunct to the new Planning, Programming,and Budgeting System, funds are requested for a small Customs
Headquarter's Program, Planning and Analysis Staff. A significant
start in the program structure development of the system has been
made, and we are now moving into the development of an infonnation
system to support the program structure.
BUREAU OF THE MINT

The estimate for Bureau of the Mint operating expenses for 1968
was $14.6 million -- a decrease of $11.9 million below the amount
originally appropriated for 1967. The 1968 request was a decrease of
$6.8 million from that appropriation as adjusted for a proposed
transfer out of $5.1 million under the pay increase supplemental.
This estimate was reduced $600 thousand by the House. A restoration
for the full amount is requested.
The coinage program for the fiscal year 1968 called for production of 6.6 billion domestic coins. We believe that this is the lowest
production that should be considered consistent with sound management
of the overall coinage requirements of the United States.

With the

continued heavy production during the fiscal year 1967 of the new clad
COins, it is expected that sufficient quantities will have been
produced to pennit substantial cutBacks in the dime and quarter
denominations in 1968.

- 19 Inventories of coins in the Federal Reserve Banks and Branches
have improved considerably in all denominations with the exception
of the half-dollar and pressures on the Mints have been greatly
relieved.

These inventories were built up partially as a result

of the program undertaken by the Mint to fill the urgent need for
coins and by the siImll taneous program of producing enough coins
of the new alloy to replace entirely the subsidiary silver coin
in circulation.

At this time. the program to produce the needed

replacement coin is about 50 percent complete.

We should continue

this program until we are assured that sufficient coins are available
to conduct the Nation's business.
All required funds to complete the new Philadelphia Mint have
been appropriated.

Construction which began on October I, 1965. is

scheduled for completion in January 1968.
Mint Operating Fund
For some time we have had under consideration a method of
financing for the Mint which would provide the flexibility to meet
sudden changes in demand for coin. A change in financing was proposed
by the General Accounting Office some years ago.

This legislative

proposal has been introduced under S. 1156 and referred to the
Banking and Currency Committee.

The 1968 Budget Document has been

printed in terms both of the regular appropriations for Salaries and
Expenses and Mint permanent aCcolDlts and the proposed "Mint Operating
Fund. "

- 20 If the proposed Mint Operating Fund has been approved prior
to the beginning of fiscal year 1968, appropriate action will be
taken on the request for the Salaries and Expenses appropriation.
UNITED STATES SECRET SERVI CE
The estimate for the U. S. Secret Service for fiscal year

1968 was $16,919,000. The House provided $16,850,000 -- an increase
of $1,219,000 over the requirements for fiscal year 1967.

I'm

sure that the Service can accept the challenge to find management
improvements to offset this reduction.
In my appearance before this Committee last year, I noted
the progress of the Secret Service in implementing the program
increases approved by the Congress.

Many of these objectives have

been accomplished and the protective capabilities of the Service

are being constantly refined.
Actions have been taken to comply with the recommendations of
the Warren Cormnission and this budget provides support to continue
development of the Secret Service in line with those recommendations.
The selection and appointment of additional personnel and the

initial training of the new Special

Agen~have

the remarkably short period of eighteen months.
objective reached a milestone.

been completed in
Another program

The automatic data processing

- 21 -

system began operation in the first quarter of fiscal year 1967
and is being refined and developed to provide vital intelligence
data to support the protective operations of the Service.
The enforcement activities of the Service have increased.

consistently with the rising crime trends associated with other
areas of law enforcement.

Investigation of counterfeiting and

forgery of Government obligations must counter a tide of riSing
volume in those criminal activities. This budget includes provisions
for this essential support in training, protective specialities and
added clerical assistance.
The White House Police have assumed additional security responsibilities that will require 37 additional policemen. This will increase
the force to the statutory employment limitation of 250 police
approved by the Congress.
BUREAU OF NARCOTICS

The estimate for the Bureau of Narcotics for fiscal year 1968
as approved by the President and the House is $6,565,000 -- an increase
of $290,000 over the requirements for fiscal year 1967.
Since 1964 , the illicit traffic in marihuana has been increasing
rapidly. Arrest statistics indicate that the problem has doubled
during the past two years.

In an effort to cope with the increased

problem, manpower has been diverted from the work on other illicit

- 22 -

narcotic traffic.

In order to contain the narcotic traffic and

attempt to restrict the growing problem in marihuana by utilizing our
manpower in the most economical manner, funds are requested for the
initial cost of automating records pertaining to permissive activities,
for two-way radios and for dictating equipment. An increase of
$100,000 has been earmarked for training of additional numbers of
state and local narcotic officers at the Bureau of Narcotics Training
School. This activity has met with enthusiastic response fram state
and local officials.

It has much potential benefit in dealing

with the narcotic problem.
The foreign enforcement program which strikes at the sources
of supply of narcotic drugs sent to the United States continues
to play an essential part in the total enforcement effort. Without
the foreign program, there is little question that the narcotic
problem in the United States would be far greater than it is today;
however. we will evaluate our current effort before requesting further
increases in this staff.
BUREAU OF ACCOUNTS

The estimate for'the Bureau of Accounts for fiscal year 1968

as approved by the President and the House is $34.5 million, an increase
of $1.5 million over 1967. Measurable workload for the disbursing and
depositary receipt activities is almost 4 percent higher than 1967;
but a one percent reduction in employment is nevertheless planned.

- 23 -

The increase of $1.5 million over 1967 includes $1.3 million. to
reimburse the Post Office Department for additional check mailings.
The remainder of the increase is needed to finance the Bureau's own

operating costs for added workload and additional functions.

If the

1968 program were to be accomplished at 1967 operating costs, an
additional $555,000 would be required. The 1968 estimate has been
reduced, however, by establishing a goal of saving $555,000 through
projected management improvements. These savings are expected to
result from planned modifications in the depositary receipt system
and further productivity advances in all other activities.

As an

example, a net reduction of 15 positions is planned for the disbursing
actiYity despite a workload increase of over 14.1 million items.
Productivity to be achieved in this function is projected at annost
5 percent above the 1967 rate.
We appreciate the encouragement of this Committee that has
helped us to achieve continuing increases in productivity through
the maximum use of automatic data proceSSing equipment.
OFFICE OF TIlE TREASURER, U. S.

The estimate for the Office of the Treasurer of the United
States for fiscal year 1968 is $6.6 million, an increase of $240
thousand over the amount required for 1967. This estimate was not
changed by the House.

The increase will provide 21 positions, such

as claims examiners, accountants, and computer programmers who are

- 24 -

needeu to keep abreast of the increasing workload related to
the payment of checks.

Eighty thousand dollars of the increase

will be used to purchase electronic equipment now being rented.
Almost 70 percent of the appropriation requested for this
Office will be used to fund activities concerned with (1) paying
the increasing volume of Govenunent checks, which now exceed
half a billion, and reconciling such payments to reports of issues
submitted by disbursing officers, and (2) processing the hundreds
of thousands of claims which invariably arise due to the lost,
theft, and forgery of GoverIlJOOnt checks.
The outstanding efficiency of the electronic data processing
systems used to handle this enormous and constantly expanding workload coupled with increased employee productivity resulting from
improved procedures has enabled this Office to handle effectively
what would otherwise prove to be an almost insurmountable paperwork
problem.
Computer automation is being further extended to encompass
additional programs when found to be feasible.

For example, advantage

is being taken of the unique capabilities of card-to-tape converting
equipment to record tax deposit information on reels of magnetic tape.
These in turn will be furnished to the Internal Revenue Service for
use in reconciling payments claimed by taxpayers with tax deposits.
The equipment is also used to process about ZOO million postal money
orders for the Post Office

Depar~nt

on a reimbursable basis.

- 25 -

BUREAU OF THE PUBLIC DEBT
For the appropriation "Administering the Public Debt" we
requested $52.1 million for fiscal year 1968. This appropriation
finances the salaries and expenses of the Bureau of the Public
Debt. estimated at $44.7 million, and the United States Savings
Bonds Division, estimated at $7.4 million.

The House reduced this

estimate $36 thousand to apply against the cost of maintaining
personnel in the Savings Bonds Division.

No appeal is made for

this item.
The estimates have been adjusted to include supplemental
requirements of $1.9 million for the fiscal year 1967, transmitted
by

House Document No. 83.

These additional amounts will provide

for expanded promotion and sales of the Series E savings bond, for
promotion and sale of the new savings instrument, for additional
workload now being experienced in the current program, and for
pay increase costs.

A budget amendment for 1968 to cover these new

costs is now pending in the Bureau of the Budget.
Work volume is increasing substantially. Volwoos of issues for
1967 are now estimated to be 128.7 million which is an increase of
8 million over previous estimates. The volume of issues for 1968
is now expected to reach 164.7 million.

U. S. SAVINGS BONDS DIVISION
The U. S. Savings Bonds Program, which has always played a
significant role in Treasury Department debt management, has assumed

- 26 -

even greater importance in view of the increased cost of the
conflict in Vietnam and the added inflationary pressures on the
economy.

Tens

of millions of Americans regularly invest in

Savings Bonds thus providing the Treasury with a very important
source of noninflationary financing.

The total of $50.2 billion

outstanding in Series E and H Savings Bonds as of December 31, 1966,
represents 23 percent of the publicly held portion of the Federal
debt.
The net gain in the value of bonds outstanding amounted to
$964 million including accrued interest during 1966.
Since the interest rate was increased in February 1966 from
3.75 percent to 4.15

percent~

sales of the Series E and H Bonds

have increased 10.4 percent over the corresponding period in 1965.
Sales of Series E Bonds during calendar year 1966 amounted to
$4.5 billion, the highest sales for any year since 1946. Much of
this increase in sales resulted from the enrollment of 2.2 million
new regular Payroll Savers during the course of a year.

Sales of

Series E and Ii combined were $4.9 billion, or the highest since
1956.
The program continues to enjoy the voluntary support of
business and industrial leaders, labor organizations t bankers, and
of the various advertisini media which anIUlally donate more than

- 27

$50 million worth of time and space to savings bonds.

This public

service performed at no cost to the Treasury, makes the Savings

Bonds Program compare most favorably with the cost of alternative
financing methods.

OFFICE OF THE SECRETARY
I will have to ask that most of the reduction made in the funds
for the Office of the Secretary be restored.

OUr principal increases

were $228,000 for 15 new positions and operating expense costs.
Ten of these new positions are for departmental direction of equal
employment opportunities activities. We plan to establish an office
whose functions will include the investigative, review and audit
work involved in the enforcement of laws, Executive Orders and
regulations relating to equal opportunity for employment in all areas.
The major workload will be in connection with contractual arrangements,
particularly those with banks serving as Government depositaries.
Two more positions are required for the workload of the
Office of the Under Secretary for Monetary Affairs which has increased
to the point that it cannot be handled with the small staff now
available.

This office llas added responsibilities in the capital

markets, securities analysis, participation sales, and other areas
closely related to the financing and management of the public debt.

- 28 -

The remaining three positions are required in the administrative
service area to handle increased workload.
We are requesting that $228,000 of the $302,000 reduction made
by the House be restored.

The remaining $74,000 was a request in

our appropriation for Civil Defense Mobilization functions.

understand from the House Report that these will be funded from
a single Government-wide appropriation
SlMMARY

In conclusion let

IDe

emphasize the serious need for restoration

of the three items of House reduction of which I have spoken: The
$11 million for "Compliance" Internal Revenue Service; the $600
thousand for the Bureau of the ?-lint, and the $228 thousand for the
Office of the Secretary.
The increase of $27.8 million for "Compliance" Internal Revenue
Service appears to be a large increase for a single year, but at the
time we required large sums to automate our processes and establish
the master file the audit phase of the work could not receive the
resources needed.

We all agree that the automation was essential and

has paid handsome dividends both in additional revenues and in
manpower savings.

It is now necessary to meet the audit workload

imposed by greater and greater numbers of returns and larger and more
complex returns.

Commissioner Cohen will tell you that he has

Completed studies showing the close correlation between accuracy

- 29 -

in the return made and the taxpayer's expectation of audit.
I am pleased with the reputation of the Internal Revenue Service

for efficiency and I am completely confident that the restored
fWlds will be prudently and effectively administered.
The Bureau of the Mint has overcome the coin crisis which we
faced two years ago.

I appreciate the assistance of this Committee

in that difficult period.

There is some danger in not completing

our goal of an inventory that is sufficient to all of the outstanding
subsidiary silver coin.

Restoration of the funds for the Mint

will provide additional protection against a sudden withdrawal
of silver coin from circulation.
In the Office of the Secretary we must assume new responsibilities
and accept added workloads.

These duties will have to be performed.

My staff at the current level cannot adequately meet all the demands.

CONCLUSIOO
Treasury bureaus are facing a very difficult year with the
funding levels we are requesting.

Principal officers are prepared

to appear before you to explain their programs in the detail you
may wish. This completes my overall statement on the Treasury's
1968 budget estimates.

I would like to make a comment on the 1967

supplemental requests and then I will be pleased to answer questions
and to discuss this budget and Treasury operations generally.

- 30 -

1967 SUPPLEMENTAL
In my statement I have compared our 1968 budget requests to
the 1967 amounts appropriated to date and proposed supplementals
included in House Documents Numbered 83 and 91.

I would like to

provide a table which shows the derivation of these amounts.

These

supplemental requests will provide funds to meet the cost of
Public Law 89-504 for classified employees, Public Law 89-810 for
White House Police, and costs of certain wage board rate increases,
and additional program requirements for the Secret Service and the
Bureau of the Public Debt.

They also will include an item to restore

the Fund for Payment of Government of Losses in Shipment, administered
by the Bureau of Accounts.
I have previously discussed the additional program reqirements
for the Bureau of the Public Debt. The additional program requirements for the Secret Service will provide for the cost of reimbursing
employees for moving expenses provided by Public Law 89-516 and
for increased costs of protective travel.

- 31 TREASURY DEPARTMENT

Statement of Pay Costs and Supplemental Requests
Fiscal Year 1967

Program
Requirements
ice of the Secretary ...... - .. --~au

of Accounts:
llaries and Expenses
md for Payment of Government
Losses in Shipment - .. - .... ----

--------

Total
Pay
Costs

AIoount of
Pay Costs
Absorbed

$181,250

$54,250

290,756

3,175,000

690,000

:au of the Mint ------------..

955,123

au of Narcotics ------ ........ --

172,000

35,000

au of the Public Debt

------

1,364,000

$127,000

265,000

$265,000

of Customs --------------

~au

Supplemental
Requested

2,485,000

137,000
1,900,000

536,000

mal Revenue Service:
laries and Expenses - .. -----~enue Accounting and
Processing ----------------~liance ---.---------------

525,000

229,000

296,000

4,106,000
12,756,000

606,000
1.649,000

3,500,000
11,107,000

:e of the Treasurer --------

206,500

Secret Service -- .. --------

389,000

lllaneous and Irus t FWld
:OWlts --- _. -- - -- -- - -- -- ----

Subtotal -----------------

2,018,000

619,505

24,137,134

5,335,134

20,820,000

5,107,000

-5,107,000

10,442,134

15,713,000

ption by transfer from the
eau of the Mint to Compliance,
emal Revenue Service .. -- .. -.

, Pay Costs and Adjusted
)lemental Requirements .... ---

30, 1967

2,018,000

1,003,000

614,000

24,131,134

TREASURY DEPARTMENT
RELEASE 6: 30 P.M.,
3.~, April 3 a 1967.
RESULTS OF TREASURY'S WEEKLY BILL OFP'ERmG

The Treasury Department announced that the tenders for two series of Treasury
one series to be an additional issue of the bills dated January 5, 1967, and
)ther series to be dated April 6, 1967, which were offered on March 29, 1967, were
!d at the Federal Reserve Banks today. Tenders were invited for $1,300,000,000,
lereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of 182-day
). The details of the two series are as follows:

91-day Treasury bills
maturin~ July 6 z 1967
Approx. Equiv •
Price
Annual Rate
99.002
3.948<%
98.990
3.996%
:
98.995
3.976% Y

I OF ACCEPTED

:TITIVE BIDS:

High
Low
Average

1B2-day Treasury bills
maturin~ October 5 z 1967
Approx. Equiv.
Annual Rate
Price
97 .988 ~
3.98011
97.967
4.021~
g7.579
3.998% 11

!I Excepting

13~of
~~ of

1 tender of $1.,000,000
the amount of 91-day bills bid for at the low price was accepted
the amount of l82-day bills bid for at the low price was accepted

TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

!£!
n
ork

delphia.
land
:md

ta
go
~uis

lpolis
3

City

~ancisco

TCYrAlS

Applied For
Acce:eted
22,284,000
$ 12,244,000
$
890,768,000
l, 680,179, 000
16,654,000
28,654,000
29,515,000
29,815,000
14,886,000
14,886,000
31,248,000
47,148,000
108,501,000
158,851,000
34,103,000
46,334,000
19,021,000
23,456,000
32,479,000
32,479,000
21,754,000
33,624,000
89,012,000
134,833,000

APElied for
$ 12,095,000
1,482,240,000
13,328,000
46,641,000
2,841,000
34,393,000
ll6,866,000
19,084,000
ll,782,000
9,382,000
14,925,000
100,346,000

AcceEted
$ 2,095,000
798,240,000
9,748,000
17 ,391,000
2,841,000
21,393,000
52,866,000
10,584,000
7,457,000
9,382,000
8,925,000
59,816 ,000

$1,300,185,000

£I $1,863,923,000

$1,000,738,000

$2,252,543,000

£I

:ludes $289,683,000 noncompetitive tenders accepted at the average price of 98.995
:lUdes $96 , 909 , 000 noncompetitive tenders accepted at the average
price
of 97.979
.
. Id
!se rates are on a bank discount basis. The equivalent coupon lssue YJ.e s are
18~ for the 91-day bills, and 4 .15~ for the 1B2-day bills.

F-867

TREASURY DEPARTMENT
(

April 3, 1967
FOR USE IN MORNING NEWSPAPERS OF

TUESDAY, APRIL 4, 1967
Secretary Fowler today announced the appointment of
James Pomeroy Hendrick as Special Assistant to the Secretary
of the Treasury (For Enforcement).
Mr. Hendrick will supervise or coordinate Treasury law
enforcement activities and direct the Treasury's
participation in the President's program to abate crime.
The Treasury has the most extensive law enforcement establishment in the governmen t •
Mr. Hendrick will have direct superv~s~on over the
U. S. Secret Service, the Bureau of Narcotics and the Office
of Law Enforcement Coordination (including the Treasury
enforcement school). As the principal adviser to the
Secretary on all law enforcement matters, he will coordinate
all enforcement activities of the Treasury and provide
policy and technical guidance for law enforcement operations
of the Bureau of Customs and the Internal Revenue Service.
Since June 1962 Mr. Hendrick has been Deputy Assistant
Secretary of the Treasury with supervisory responsibilities
in the fie Ids of Cus toms, Engraving and Printing, and the
U. S. Coast Guard. For 9 years previously he served in a
number of senior Treasury positions in these same fields.
Before joining the Treasury Department, Mr. Hendrick
was actively involved in the initial formulation of U. S.
policy both in the United Nations and the Marshall Plan.
From 1948 to 1953 he was with the Economic Cooperation
Administration and successor organizations and for 2 years
previously with the Department of State serving as principal
adviser to Mrs. Franklin D. Roosevelt both in the United
Nations General Assembly and the Human Rights Commission.
From 1941 to 1946 Mr. Hendrick was
Department firs t as a civilian employee
military capacity. He rose to the rank
a tour of duty as Assistant to the late
F-868

with the War
and later in a
of Colonel and served
Robert P. Patterson,

- 2 Under Secretary and later Secretary of War, who awarded him
the Legion of Merit.
Before entering government service Mr. Hendrick
practiced law with the firm of Winthrop, Stimson, Putnam &
Roberts in New York City.
Mr. Hendrick was born in Wainscott, New York in 1901.
He graduated from Groton School, Yale University (EA. 1923)
and Yale Law School (LLB. 1927) and also attended Corpus
Christi College, Cambridge, England, in 1924. He was an
editor of the Yale Law Journal.
Articles by Mr. Hendrick on the subjects of Customs and
Human Rights have been published in the American Journal of
International Law, the Department of State Bulletin and
Scribner's Dictionary of American History.
Mr. Hendrick is married to the former Elinor Sullivan.
They have two sons, Arthur and Robert, and one daughter,
Alice (Mrs. James Sutton Hardigg).

000

REASURY DEPt\RTMENT

=
April

1967

JR IVMEOIA TE RELEASE

Secretary of the Treasury Henry H. Fowler today sent the following
atter to Senator Russell R. Long.

April 4, 1967
Dear Senator Long:

ru.

i . in reapon •• to your request for the Treasury' 8

vi_ OIl propoaala to repeal tho Pre.1datt1al Election
C._ign lund AI:. t of 1966.

IDacCment of dhe Long bill, after public hearings at which
var10ua propoaala vere presentad, va. the flr.t tangible step
toward solving the problem of financing ever-mounting political
campaign coats. It. effect in forthcoming pr•• idential
elections .hould be to all.viate .ignificantly problema which
have long been the source of concem in the conduct of national
political campaigns: reliance of political parti.s on small
group. of walthy contributors; and lack of certainty that
.ufflcient funda will b. available to
partie. to aesure
the full and fr•• public discuasion of i.sue. Otic.lsary for an
informed electorate.

tho..

Clearly . . ahould not discard a law which ha& the potential
of malting a .ignificant contribution to our political prc,.c •• s

"lthout giving it a fair and re••onable trial.
Indeed, ita p . . .age hu already precipitated much thoughtful
.tudy and public couuentary directed toward improving tiw, basic
approach -a,odled in the Ac t. nu.. pub lie corurtem and awarene••
have b..:l benet icial.
It ~ resulted in many con.tructive IJuggellt1t?ru1 which merit
careful coasldarat1oa. lor example, I understand that YI,JU have
alrudy propo ••d certain chang... 'lbe CoBptrollar General a;.pd
the advl80ry cOlllllitt. . appointed by him pureuant to the Act, an
no. .tudying tbia law and are in the
of de~/.lop1ng
rapl.tiems 'Ulldar it.

proc...

169

- 2 -

The public hearings which you intend to hold concerning
po•• ible amendment. to thia measure will provide an opporturdty
for the consideration of constructive chang... '!be Treaaury
w1ll be pleased to participate 10 this effort and offer

whatever a8sistance may be nec •• sary.
Stncerely your••

ca~ HC"N"~

Henry

'!be

Honorable

Russell B. Long

United States Senate
Washington, D.C. 20510

r~·,..,.19t

R. Fowler

TREASURY DEPARTMENT

OR 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
l,300,OOO,OOO, or thereabouts, for cash and in exchange for
reasury bills maturing April 13, 1967,
in the amount of
~,302,903,000,
as follows:
91-day bills (to maturity date) to be issued April 13, 1967,
n the amount of $1,300,000,000, or thereabouts, representing an
:ldltlonal amount of bills dated January 12, 1967, and to
ature July 13, 1967,
originally issued in the amount of
.,000 1 205,000, the additional and original bills to be freely
,tercnangeable.
183-day bills, for $1,000,000,000, or thereabouts, to be dated
ril 13, 1967,
and to mature
October 13, 1967.
The bills of both series will be issued on a discount basis under
IInpetltive and noncompetitive bidding as hereinafter provided, and at
lturlty their face amount will be payable without interest. They
.11 be issued in bearer form only, and in denominations of $1,000,
iJOOO, $10,000, $50,000,
$100,000, $500,000 and $1,000,000
laturity value).
Tenders will be received at Federal Reserve Banks and Branches
to the closing hour, one-thirty p.m., Eastern Standard
me, Monday, April 10, 1967,
Tenders will not be
celved at the Treasury De~artment, Washington. Each tender must
for an even multiple of $1,000, and in the case of competitive
nders the price offered must be expressed on the basis of 100,
th not more than three decimals, e. g., 99.925. Fractions may not
used. It is urged that tenders be made on the printed forms and
Narded in the special envelopes which will be supplied by Federal
serve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
3tomers provided the names of the customers are set forth in such
mers. Others than banking institutions will not be permitted to
)mit tenders except for their own account. Tenders will be received
;hout deposit from incorporated banks and trust companies and from
Iponsible and recognized dealers in investment securities. Tenders
1m others must be accompanied by payment of 2 percent of the face
lunt of Treasury bills applied for, unless the tenders are
ompanied by an express guaranty of payment by an incorporated bank
trust company.

870

- 2 Immediatelv after the closing hour, tenders will be opened at th
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~
expres sly reserve s the right to accept or rej ec t any or a 11 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 comp leted a t the Federa 1 Reserve Bank on April 13, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing April 13, 1967.
Cash and exchange tendE
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
ga in from the sa Ie or other d ispos it ion of the bills, does not have
any exempt ion, as such, and los s from the sa Ie or other d ispos ition
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 ~
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 hereunde
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
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
Washington
STATEMENT OF THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE THE COMMITTEE ON THE JUDICIARY
OF THE U. S. HOUSE OF REPRESENTATIVES ON H.R. 5384
FRIDAY, APRIL 7,1967,10:00 A.M., EST
Mro Chairman, I welcome the opportunity to appear in
support of the enactment of the bill introduced by
Representative Celler as H.R. 5384, which I deem to be of
great importance to the welfare of this country and its
citizens.

Mr. Sheldon S. Cohen, the Corrnnissioner of Internal

Revenue is here with me.

He will discuss the Administration's

proposals in more detail than I can.
Let me begin, it I may, Mr. Chairman, with a brief
summary.
First, the main objective of this bill is to give the
federal government control over firearms in the areas of
interstate and foreign commerce where state governments have
no powers.
Second, we view this legislation as part of a joint
Federal~State

effort to bring about a needed improvement in

the nation's system of firearms regulation.
Third, the legislation we are proposing is in the spirit
of creative Federalism that pervades President Johnson's
March 17 Message to Congress on The Quality of American Government,
in which the President said:

F-87l

- 2 "Today the Federal system rests on an interlocking network
of new relationships and new partnerships among all levels
of government."
"Administration of programs which are the joint
responsibility of federal, state, and lccal governments
should be strengthened; II
It is against that background, Mr. Chairman, that I
offer the following observations:
The bill before you would repeal the Federal Firearms
Act now codified as Chapter 18 of Title 15, United States
Code, and would substitute a new and improved system of
Federal regulation of interstate and foreign commerce in
firearms under Title 18, United States Code.

The Treasury

Department would retain the responsibility of administering
these regulatory controls.

H.Ro 5384 implements legislative recommendations which
the President set forth in his Message to the Congress of
February 6, 1967.

It would put substantially into effect

the legislative program for Federal regulation of traffic
in firearms strongly urged by the President's Commission on
Law Enforcement and Administration of Justice in its February 1967
report titled "The Challenge of Crime in a Free Society."

- 3 -

This distinguished group of citizens, headed by
Under Secretary of State Nicholas Katzenbach, our former
Attorney General, included among its members nationally
recognized leaders in the judiciary and in the fields of
law, law enforcement, penology, and local government.
The Commission's study found agreement among police administrators
of major cities that easy accessibility of firearms is
a serious law enforcement problem.

The Commission found

that state and local laws intended to control traffic in
firearms tend to be nullified by the fact that firearms are
too often available in neighboring jurisdictions under less
restrictive legislation, or free from any regulation.
Accordingly, the Commission favored both the enactment
by the states of laws prohibiting acquisition and possession

of firearms by certain classes of persons who might be inclined
to use them for criminal purposes, and the enactment of
Federal legislation that would complement state and local
laws and assist state and local governments in achieving their
goals.
The bill before you for consideration is designed to
reflect the Commission's recommendations.

1 Bhould like

now to state briefly my understanding of what it would do and,

- 4 in order to eliminate misconceptions, what it would not do.
Among other things, H.R. 5384 would:
(1) Channel interstate and foreign commerce in
firearms through Federally licensed importers, manufacturers
and dealers -- thereby prohibiting the commercial mail-order
traffic in firearms (although licensees could ship interstate
to nonlicensed persons rifles and shotguns lawfully purchased
in person at the licensee's place of business and which the
consignee could lawfully receive and possess at his place
of residence);
(2)

Prohibit sales of firearms by Federal licensees

to persons under 21 years of age, except that sales of sporting
rifles and shotguns could continue to be made to persons of
at least 18 years of age;
(3)

Permit a Federal licensee to sell a firearm

(other than a rifle or shotgun) only to persons who are residents
of the state where the licensee is doing business;
(4)

Curb the flow into the United States of surplus

military weapons and other firearms not suitable for sporting
purposes;
(5)

Bring under effective Federal control the importation

and interstate shipment of large caliber weapons such as

- 5 -

bazookas and antitank guns, and other destructive devices·,
(6)

Provide for a licensing system with meaningful

standards and annual fees somewhat higher than those now
applicable under the Federal Firearms Act, so as to assure
iliat licenses will be issued only to responsible persons actually
engaging in business as importers, manufacturers, and dealers.
The dealer's first year annual fee, set at a figure higher
than the standard fee, would be available to help defray
the cost of applicant investigations;
(7)

Prohibit a nonlicensee from transporting into or

receiving in his state of residence a firearm (other than a
shortgun or rifle), purchased outside that state, or a rifle
or shotgun which it would be unlawful for him to purchase or
possess in that state or political subdivision thereof;
(8)

Provide for adequate record-keeping by licensees

(to include data indentifying purchasers) and for authority
to furnish record information to state and local law enforcement
authorities; and
(9)

Retain the penalties now provided in the Federal

Firearms Act for interstate transportation of firearms to or
by

felons and the interstate transportation of firearms which

have been stolen or had their identifying number removed;

-6and in addition would punish interstate transportation of
a firearm with intent to cOImnit a felony therewith.
H.R. 5384 is not in any sense "anti-gun" legislation.
(1)

The bill would not outlaw possession or use of

firearms by law-abiding citizens.
(2)

No requirement of this bill would be violative of

the Second Amendment to the Constitution.

Those opposed to

firearms controls have created a misconception of this
constitutional provision by asserting that the amendment
provides that "the right of the people to keep and bear arms
shall not be infringed."

However, the complete amendment

must be considered to determine the right granted to whom.
I understand that the Attorney General will file a brief

with this subcommittee on this point.
(3)

The bill would not prohibit the acquisition of

firearms for sporting purposes, or for any other legitimate
use.

Sportsmen will continue to be able to obtain firearms

although under the bill they would need to procure them from
local licensed dealers and manufacturers and thus be subject
to the requirements of their respective state and local laws.

Indeed, they can travel to another state and purchase a
rifle or shotgun from a licensed dealer there and bring
it home with them without interference if the purchaser's

- 7 state and local law does not forbid the purchase and possession
of such a firearm.
Only two minor restraints are laid upon the sportsmen
of this country.

They will not be able to travel to another

state and purchase a pistol or concealable weapon, and they

will not be able to obtain a mail-order shipment from another
state of a rifle or shotgun, unless they made the purchase
in person and the purchase and possession is legal in their
home state and locality.
Such minor inconveniences cannot be avoided if the
legislation is to make it possible for the states to regulate
effectively the acquisition and possession of firearms.
Obviously, state authorities cannot control the acquisition
and possession of firearms if they have no way of knowing
or ascertaining what firearms are coming into their states
through the mails or, in the case of concealable weapons,
by

personally being carried across state lines.
(4)

The bill would not interfere with interstate

transportation of firearms by the ordinary citizen hunter,
marksman or householder.

Neither would it preclude the

interstate shipment of a gun to a licensee for adjustment or
repairs, nor the return or replacement of such a gun by the
licenseeo

- 8 -

(5)

The bill would not prohibit possession or use of

firearms by those too young to purchase them.

It is

recognized that some parents may wish their minor children,
who are sufficiently mature to be entrusted with them, to
enjoy the use of firearms for recreational purposes.
(6)

The restriction on imports would not preclude the

importation of all surplus military rifles.

Some of these

weapons are suitable for or readily adaptable to use in
hunting and could be brought in for that purpose.
(1)

The bill would not interfere with activities of

collectors of antique firearms.

"Antique firearms," as

defined in the bill, are not subject to the bill's controls
since they are specifically excluded from the definition of
"firearm. "

- 9 -

As I have already indicated, the major purpose of the
bill is to institute Federal controls in areas where the
Federal Government can and should operate, and where the
state governments cannot, the areas of interstate and foreign
commerce.

Under our Federal constitutional system, the

responsibility for maintaining public health and safety is
left to the state governments under their police powers.
Ba8ieally, it is the province of the state governments to
determine the conditions under which their citizens may acquire
and use firearms.

I would emphasize that it is one of the

important objectives of this legislation to strengthen and
make more effective the exercise of the powers of the state
and local -- governments to regulate the sale of firearms in
the public interest.

I expect this Federal legislation to inspire

more adequate state and local legislation -- and to make that
more adequate non-Federal

reaulation enforceable where it is

now all tooeasy to evade and will always be easy to evade in the
absence of such Federal regulatory controls as H. R. 5384 sets up.

- 10 -

The bill would correct serious weaknesses of the existing
Federal Firearms Act concerned with licensing and record keeping.
Under existing law, anyone other than a felon can, upon the
mere allegation that he is a dealer, and open payment of a
fee of $1.00, obtain a license.

Some 104,000 dealer licenses

were outstanding as of January 1, 1967.

Approximately 25 per cent

of these were held by people not actually engaged in business.
The purpose of licenses by these people puts them in position

to obtain personal guns at wholesale or to avoid laws that
prohibit mail shipment of concealable weapons and prohibit
shipment into states that require purchase permits.

This is a

wide open situation in which licenses can be obtained by
irresponsible elements, thus facilitating the acquisition of
weapons by criminals and other desirables.

The bill before

you, by increasing license fees and imposing standards for
obtaining licenses, will go a long way toward rectifying this
situation.

Commissioner Cohen, whose organization is responsible

for the administration of the Federal Firearms Act, will discuss
this aspect in more detail.

He will also supply facts and

figures illustrating the problems encountered in enforcing
existing law because of incomplete or inaccurate licensee

- 11 -

records and the need for more effective record-keeping requirementl.
This bill cannot, of itself, eliminate crime.

However,

let us not lose sight of the fact, stated by the President
in his February 6 Message to the Congress, that "Any effective
crime control program requires the enactment of firearms
legislation.

***

This legislation is no panacea for the

danger of human irrationality and violence in our .ociety.
But it will help to keep lethal weapons out of the wrong hands."
Today, the people of the United States are living under
the most nearly ideal conditions ever achieved by any society.
Yet, their peace of mind and security is threatened by the
spreading cancer of crime and juvenile delinquency.

It is

absolutely essential that steps such as those proposed in
this bill be taken to bring under control one of the main
elements in the spread of this cancer, the indiscriminate
acquisition of the weapons most frequently utilized in crimes
of violence.

- 12 -

Right now, any person can acquire firearms with ease.
This includes criminals, juveniles without the knowledge or
consent of their parents or guardians, narcotic addicts,
mental defectives, armed groups who would supplant duly constituted public authorities, and others whose possession of
firearms is

s~ilarly

contrary to the public interest.

This

situation is a matter of serious national concern.
The Treasury Deparcment's experience with the Federal
Firearms Act has resulted in a feeling of frustration since
the controls provided by it are so inadequate.

The drafters

of H. R. 5384 had in mind these inadequacies and have, I
believe, designed a bill which, when enacted, will provide
effective regulation while presenting a minimum of inconvenience to the law-abiding citizen in the acquisition, ownership
and use of

firea~

for legitimate purposes.

These light

restraints are surely a small price to be borne by sportsmen

gun owners when weighed against the potential benefits to
the citizenry generally.
There are indications that those opposed to additional
firearms regulation will assert that the present Federal

- 13 -

statutes controlling firearms are adequate, but that these
statutes are not adequately enforced.

Thus, it will be

inferred that any present deficiencies in firearms controls
result not from lack of statutory authority, but from lack
of proper enforcement.

Let me remind you that the Attorney

General has already advised the Subcommittee that existing
Federal firearms laws are largely ineffective and inadequate.
Within these recognized limitations, I can assure you that
the Treasury Deparcaent has vigorously enforced the provisions of the present .ational Firearms Act and Federal Firearms

Act.

Commissioner Cohen will offer statistics covering

same aspects of the firearms enforcement program.
As the President so aptly stated:

"To pass strict

firearms control laws at every level of government is an act
of simple prudence and a measure of a civilized society.
Further delay is unconscionable."

I strongly urge that this

Committee report H. R. 5384 to the Kouse of Representatives
at an early date.

00000

TREASURY DEPARTMENT
Washington

FOR USE IN MORNING NEWSPAPERS OF
TUESDAY, APRIL 11, 1967

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT THE
ANNUAL MEETING OF THE KENTUCKY CHAMBER OF COMMERCE
BROWN HOTEL, LOUISVILLE, KENTUCKY
MONDAY, APRIL 10,1967,7:00 P.M., EST
THE USES OF TAX POLICY
I am truly glad to be back in Louisville tonight, and
particularly happy to be accompanied to your distinguished
gathering by Congressman John Watts. He is one of the most
influential and respected members of the Congress, and I can
testify that in his execution of his duties as a member of
the House Ways and Means Committee he is one of the most
informed Members of the House. I prize his advice and I
value his friendship. However, since he doesn't always
agree with the Treasury, don't blame him for my mistakes.
Tonight I want to talk to you from the viewpoint that
you, as representatives of private enterprise, and I, as a
representative of your government, share together as partners
in the responsibility for progress in our nation's affairs
and particularly for its economic progress. One of the
personal beliefs to which I adhere very strongly is that
there can be no true progress in America unless it is based
on a true partnership between the national government and
the private sector -- business, labor, finance and
agriculture.
For my part, I feel that this partnership is working
out very well indeed. But ,lest I be accused of special
pleading to prove this, let me, before I turn to my specific
Subject for this evening, cite you some evidence from two
organs of public opinion which are not always necessarily in
agreement with the views of this Administration -- the
~ York Times and the Wall Street Journal.
-=;.;;.:.;;..~

F-872

- 2 The New York Times, in its Sunday Magazille of March 19,

1967 , notes-that the manufacturing capacity of the United
.
States has doubed since 1951. We have added as much ~n the way
of new plant and machinery in the last 15 years, says the
article, as we built during the first 150 years of the
nation's industrial history. And we may well double that
capacity, says The Times -- and the actual output -- again
in another 15 to 20 years.
The Wall Street Journal, in a January 31, 1967 article,
said, and I quote:
"In one sense, there is an almost
monotonous sameness about the country's
economic record in recent years.
"Business has become better and better
and better. Employment has gone up and
up, American affluence, already the
envy of foreign lands, has grown and
grown and grown."
This is true. The threat of economic stagnation -that used to plague our economy with slow growth and
recurrent recessions and cause our foreign friends and
enemies to think that the United States and the free
enterprise system were losing their drive -- is no more.
It has disappeared in the wake of 74 months -- over six
years of dynamic growth.
To give you a picture of how well our industrial giant
is progressing, let me cite some familiar economic indexes
covering the recent past. In a period of three years under
President Johnson's Administration, civilian employment
that is, new and additional persons at work -- has
increased by 5 million, 133 thousand -- a figure which
nearly matches the employment gain of the entire previous eight years.
The additional numbers of persons at work in the last three
years exceeds the total employment increase from 1953 to
1961. The unemployment rate during thre three-year period
decreased by 1.9 percent, as against an increase of 1.3
percent in the previous eight years. The real Gross
National Product, in 1958 dollars, increased by about

- 3 -

$97 billion, not too far from the $113 billion of the
previous eight years. It is as though we had annexed the
rate of the output of economies of the present size of
Italy and the Netherlands in the last three years.
There are three other figures which are closer to home
for you: real per capita disposable income, in constant
1958 dollars, increased by 281 dollars in that three-year
period, as against 218 dollars for the previous eight years.
Industrial production increased by 26 percent, in the
three-year period as against a 29 percent increase during
the preceeding eight years. And corporate profits after
taxes increased during the shorter period by $15.3 billion
as against a $6 billion increase for the entire previous
eight year figure.
I think these illustrations tend to show that our
partnership in this country is working out pretty well.
My subject tonight is "The Uses of Tax Policy." And I
am fully aware that any subject dealing with taxation
particularly when discussed on a day which falls so close to
April 15
involves some very tender feelings.
Let us all take some consolation, however, in some
little-known facts: In the past five years, we have had
personal and corporate income tax cuts averaging 20 percent.
In 1962 with the legislative enactment of the investment tax
credit and the liberalization of depreciation, new and
powerful incentives for investment were provided. In 1965,
over 200 separate items had excise taxes removed from them.
All told, the tax reductions effected in that period will
save taxpayers nearly $23 billion a year at fiscal 1968
income levels.
Largely as a result of these tax reductions, the U.S.
today enjoys the lowest tax burden of any major industrial
nation in the world. Again, this is not my own figure,
but that of the Organization for Economic Cooperation
and Development, representing the industrialized nations.
The OECD's estimates show that as a proportion of total
national production the citizens of France are paying
38 5 percent in taxes. The Germans are paying 34.4 percent.
In Italy the figure is 29.6 percent. In Great Britain it
is 28.6 percent. And, finally, lowest on the list, the
U. S. pays 27.3 percent. And this is for taxes at all
levels of government -- Federal, state and local.
0

- 4 I feel, in brief, that our federal tax policy can be
used to help achieve what all of us want: continued
prosperity, price stability and growth for the· United States.
I share the views of the distinguished Chairman of the
House Ways Committee, the Honorable Wilbur Mills, who
defined the problem very ably in a recent speech, from which
I quote:
" . . surely we can all agree that the
primary or overriding role of the Federal
tax system is-to raise in a fair and
equitable manner the necessary revenues
without which government cannot operate.
At the same time there also is a widening
agreement that with moderation our tax
system can also be used to provide economic
stability and growth for the private economy."
With this background, I want to focus my remarks tonight
on several areas in the use of federal ta~ policy which are
of immediate and basic interest to all of us. They are:
First, the need for a flexible tax
policy in dealing with sharp adjustments up
and down in the economy as a result of war,
recession or other substantial de-stabilizing
influences, giving rise to conditions where
resort to flexible fiscal and monetary policy
is the alternative to dra~tic measures of
government control or int~rventiQn Qr suffering
severe economic illnesses.
Second, the need and prospects for tax
reform in the near future, and,
Third, the longer-orange outlook for tax
rate realignment and reduction at a time -whenever it may be -- when we can look beyond
the demands of the situation in SQutheast
Asia.

Indeed, a rapidly changing pattern of tax policy
characterized the other experiences along with direct
controls You will recall that just before the Korean War,
Secretary of the Treasury Snyder proposed a reduction in
excise taxes which passed the House in a bill that would
have reduced excise taxes by about one billion dollars.
Then the Korean War intervened, and a bill passed with a
$5 billion tax increase, and instead of there being any
reduction of the excise taxes, they were maintained and
increased.
So, changes in circumstances quite properly justify
changes in fiscal and monetary policy_ Policies cannot be
static in a world as rapidly changing as ours. We must
adapt them to meet new problems and needs. This, I believe,
is what we have done.
To illustrate specifically, let me refer briefly to
the Tax Adjustment Act of 1966, the suspension and
restoration of the investment tax credit, and the
President's proposal for a temporary six percent surcharge
on existing income taxes.
The accomplishments of the Tax Adjustment Act, since
it was passed early in 1966, have been somewhat obscured
by the daily shuffle of headlines. This legislation
increased the revenues needed for the Vietnam War in
1966-67 by a total of about $6 billion. In so doing, it
introduced graduated withholding taxes on individual
taxpayers and shortened the previously-scheduled transition
period to put corporate tax payments on a pay-as-you-go
basis comparable to that affecting individuals.
The suspension of the investment credit last Fall was
not a revenue measure. It had a specific and limited
objective -- to dampen the excessive boom in the market for
capital goods, with its inflationary impact leading to high
interest rates and damage to our balance of payments in the
form of heavy imports of machinery_ The excessive boom is
now over and there is no reason for continuing the
suspension. The President recommended it be lifted and the
Congress is acting.

- 5 -

It has been suggested in some quarters that the fiscal
monetary and budgetary proposals of the Administration ~ .
the last eighteen months present to the American public a
posture of an alternating or gyrating economic policy. Thl'
short answer is that the unusual demands of tne war in
Southeast Asia, coming on top of a burgeoning economy, gaVE'
rise to the need for a flexible use of fiscal and monetary
policy.
There is a marked dis tinc t ion to be made be tween the
present situation and our earlier experiences during
World War II and Korea, periods when direct controls
price, wage and salary controls, priorities and allocation
of materials and facilities to restrict civilian demand
were used in order to expand production and keep the
economy from getting out of bounds.
It was my privilege to participate in the mobilization
programs of World War II, and to be in charge of the
Defense Production Administration and the Office of Defense
Mobilization in the latter part of the Korean War. 1 know
from first hand experience how confining and burdensome
the direct controls can be to any business, and how, in
those periods, small businesses and new businesses were
clearly at a disadvantage.
In the current situation, dealing with Vietnam, we are
proceeding generally within the framework of a free market
economy, in which there is an absence of the direct
controls that were used in the other two experiences. In
the Vietnam situation, we have dealt with the econom~
aberrations that are always a consequence when there is a
rapid increase in demand by relying on a flexible use of
fiscal and monetary measures to permit us to keep a free
en terprise economy unmarked by d irec t government controls.
I want to make it clear that I have no apologies in
saying in September, fiLet us suspend our investment tax
credit," and, in March, "Let us put it back."
This is prec ise ly one of the example s of the use of
fiscal policy that make it possible for the private sector
of the economy to make the necessary adjustment without dr·
direct government controls. And I think one of the prime
accomplishments during this particular period has been the
fact that the adjustment of this strong and well-balanced
econor.1Y \vas accomplished within the context of flexible
r:1onetaryand fiscal restraint, and without the impositi~
of price, \'iage and ma terial ('~ols 'illJ::.h as were found lTI
past similar national emer~~ncies.

- 8 When one speaks of tax reform, I suppose it is
inevitable that the phrase should call to mind the existence
of inequities in a tax system and their elimination. Quite
apart from the existence of such inequities, however, I
like to think of the subject of tax reform in a positive
sense; in the sense that tax reform should truly mean the
way in which we can reduce the rates of tax as well as
providing for both equity and simplicity.
The Revenue Acts of 1962 and 1964 marked a real turning
point in tax reform in a structural, as well as an "economic"
sense. The revenue raising or base broadening structural
changes which had come about as a result of all the
Revenue Acts passed prior to the 1962 and 1964 Acts -- from
the year 1940 on -- totalled only approximately $600 million.
The total which was raised by such changes from 1953 to 1961
was less than $200 million. But the 1962 and 1964 Acts
contained nearly $1.7 billion in so-called base broadening
revenue raising changes. And at the same time, they not
only increased the equity of the income tax system -- by
eliminating or reducing some special preferences -- but they
turned the increased revenues back into rate reductions and
investment incentives for all. Thus, they accomplished a
good measure of "economic" tax reform in addition to that
which was achieved through net tax reduction.
Let me give you some examples of structural reforms
occasioned by the 1964 Act. It included limitations on tax
preferences accruing from group term insurance, bank loan
insurance, sick pay exclusion, casualty loss deduction,
utilization of personal holding companies, multiple
properties for charging depletion, and realization of
capital gains on quick sales of real estate in connection
with excessive depreciation. It also eliminated deductions
of certain State and local taxes which were difficult of
uniform and equitable administration, as well as the
dividend credit which was providing a great advantage for
the large inves tor.
Many similar structural reforms could be cited in
connection with the 1962 Act.

- 7 -

The six percent surcharge proposal, on the other hand,
L'ncUmpassl's an overall, across-the-board fiscal measure
UL'S igncd to c ope with the economic and budge tetry situation
as we anticipate it for the latter part of 1967 and
ttroughout 1968, assuming the implementation of the
President's other recommendations and the continuation of
hostilities on their current scale in Southeast Asia. We
need to pay for the increased cost of war projected for t~
next fiscal year. We will want to reduce our budgetary
deficits in fiscal 1968 from the projected levels of
fiscal 1967 if the economic outlook permits. We will
certainly not want to risk a resumption of the monetary strain
of tight money and a return to higher interest rates at that
time and this ,-,viII require that the Government's own demands
on the credit markets be kept in bounds. The surcharge will
help achieve these objectives.
I have tried to illustrate, by these examples, how
tax policies can be used in times of substantial adjustment
with positive results for sustaining high levels of
employment and without a resultant damaging inflation.
And, of course, a flexible tax policy can be used to
promote economic stabilization when the economy is
threatened by recession as well as by inflation. However,
due to the fact that we are enjoying the seventh year of
a continually expanding economy, we have not had occasion
to use a "quickie" tax cut for that purpose.
I come now to the second of the three things I want to
talk about this evening: the need for and the prospects of
tax reform in the near future.
Later this year, the President's Message on Tax Reform
will be submitted to the Congress. In his Economic Message
to the Congress for this year, the President hailed the
American tax sys tem as one in which we can take pride and
one which, in most of its elements, is unsurpassed by any
other tax system in the world today. He also made it
clear that the system can be -- and should be -- improved.
I t seems clear tha t our tax laws, as they stand today,
impose burdens on some of our citizens which are clearly
unfair. In other cases, they grant special preferences to
ind i v idua Is and groups which are jus t as clear ly inequitablE

- 10 -

imbedded in the Constitution, it is not the experts but
the elected representatives who decide the shape and
substance of these reform proposals. The President submits
his recommendations in a Tax Message. With the
Constitution providing that revenue proposals originate
in the House, it is the function of the House Ways and Means
Committee, of which Congressman Watts is a key member, to
make the initial determinations which are voted upon
by the entire House, reviewed and revised by the Senate
Finance Committee and the entire Senate, then become the
subject of a conference between ranking members of the two
committees and finally passed back to the President for his
approval or rejection.
Much remains to be done by all of these groups and
bodies, following the traditional processes. For example,
while much attention has been devoted to the income tax
structure, corporate and individual, and to the inequities
of the former crazy-quilt pattern of excise taxation, the
whole realm of estate and gift taxation has not had any
major legislative review or overhaul since 19420 Rate
schedules and basic exemptions in the estate and gift tax
laws have thus remained unchanged for 25 years. Complexities
and inequities in this important area have crept in through
a long series of piecemeal changes by statutory amendments
and court decisions. The present structure places a high
premium on the form and timing of the transfer of property.
A comprehensive reexamination of these provisions of the law
to reduce the complexities of estate planning and correct
rules which work inequities or induce taxpayers to dispose
of their property in ways which they would not otherwise
choose, is long overdue.
This comment by no means implies that the income tax
structure could not still bear substantial improvement.
Because we emerged from the period 1962-1964 with an improved
tax structure, this is no reason why we should call a halt
to future steps toward tax reduction and a more equitable
and simplified tax structure which is more fully consistent
with sustained full employment and vigorous growth. Our
present
system , however improved it may be over older ones,
.
1S still capable of stalling or holding back our economy
at a "somewhat higher altitude." It still tends to take
too large a proportion of the increases we have enj oyed over
the past six years in personal and business income. We

- 9 The 1962 and 1964 Acts eliminated a good deal, but not
as much as the President and the Treasury recommended, of
the special preferences which led to an erosion of the tax
base. The Act of 1964 also represented a commendable switch
from the old pattern of opening even more loopholes in order
to combat top-heavy rates on taxable incomes.
It set the
desirable design of the future -- the provision of necessan
revenues at the lowest possible tax rates whenever tax
.
reduction through base broadening opportunities are presen~d
The Act of 1964, however, was not our last major tax
reform. In 1965, the repeal of the highly discriminatory and
unfair system of selective excise taxes which had developed
as emergency measures in World War II and the Korean War and
even earlier, gave a substantial added measure of equity
and simplicity to our tax system.
Indeed, in the Tax Adjustment Act of 1966 and the
separate administrative measures taken last year to speed
collections, the inequities of collecting from some
taxpayers on a pay-as-you-go basis and from others on a
deferred basis, were eliminated, and the tax system was
greatly improved by the actior.
For us to get to the point at which such beneficial
actions as these can be taken, much hard work must be done.
Chairman Mills made this abundantly c lear in a recent speech
in which he said, and I quote, 11 • • • tax reform requires
a vast amount of preparatory work, both technical and in
terms of education of the American people. Many of the
re forms which were accompl ished in 1964 ac tually represented
the culmination of work which had been done quite some time
before that date. . . tax reform cannot be achieved overnigh
Let us look behind that statement.
At the Treasury Department, an able and expert group of
hard -working people, economis ts, lawyers, accountants and
other specialists, led by Assistant Secretary for Tax pol~Y
Stanley Surrey, has labored, and is laboring, to help pro v1d
suggestions for achieving the best possible system we need
for the times. This team works together with a similar
.
dedicated staff of experts which operates under the directl(
of the Joint Committee on Internal Revenue Taxation of the
Congress. But, in the final analysis under our system,

- 12 -

local agency, are fixed to meet the issuing agency's
interest payments and the amortization of the principal of
the bonds. In other words, the corporation is in effect
borrowing from the public, but obtaining a tax exemption
for the interest. This means that the interest rate which
the corporation obta'ins will be below the market rate
which it would otherwise have to pay.
Now, more and more, this device is being used by
corporations which are financially strong and quite capable
of obtaining their funds through normal market channels.
When they turn to the local issuing agency for these funds
they -- and the local agency -- are getting into an
arrangement which distorts the tax-exemption privilege and
which, in the long run, simply forces the Federal tax system
to support their financing. This is indeed a far cry from
the original intent of the exemptions -- which was to
encourage corporations which lacked capital of their own to
set up businesses in areas of high unemployment, generally
in rural areas.
In another example, there is no doubt whatsoever that
there are abuses of the tax system by tax-exempt private
foundations. Those foundations which are created solely
to keep intact a family's control of a business enterprise
are clearly distorting the original intent underlying the
tax benefits and exemptions granted for charitable contributions
and philanthropic organizations.
Now, I repeat: let no one take this recital of these
particular examples, or others mentioned earlier, as an
outline of the President's forthcoming tax reform proposals,
upon which much preparatory work has been done on which
there is still work in progress. I cite them only as
evidence of the fact that tax reform, a complicated matter,
has many facets that can be explored.
Despite all this, during the last five years we have
made a strong beginning in the use of tax reform as the means
of achieving what I feel we want to achieve -- the things I
have stressed earlier: tax reduction, equity and
simplicity.

- 11 -

have to seek to keep the tax structure's revenue capability
[rom growing too fast -- as the
private incomes and
economic capacity of the nation enlarge, as I know they will.
In short, we must still go a far way if we are to
rid our tax structure -- and our income tax in particular
of its impediments to an efficient flow of capital, its
unlike treatment of like incomes, and its excessive burdens
on small incomes.
Le t us remember, in cons idering the burdens of people
with small incomes, that they represent the area of the tax
brackets where the customers of business and agriculture
live. The people with $10,000 a year, and less, account for
almost 85 percent of all taxable returns. They are the
people who will put a large part of any tax reduction into
the stream of spending -- help create the healthy demands
upon our economy which can call forth new techniques and
technologies, create new jobs and make new investments
profitable.
Horeover, we have become increasingly aware that tax
reform must be responsive to changing situations.
Without in any way getting into a discussion of what
the President might recommend, but solely to point up some
of the thorny problems inherent in tax reform, let me cite
some examples of inequities and economic distortion which
arise from provisions of our tax laws which, however
justified at the time of their enactment, have become
subject to certain abuses.
Very often, of course, there are good business reasons
for the creation of affiliated corporate groups. But the
good reason for an affiliated group does not make sense as
a good reason for giving that group multipe corporate tax
exemptions. A single enterprise is involved. If it is
divided in to sub-groups which are ca lled "subs id iaries ,"
rather than divided into branches or divisions of the
business ,that does not rationally entitle the enterprise to
be the recipient of a host of tax exemptions.
Similarly, changing patterns have occurred with tax
exempt industrial development bonds, rapidly growing in
numbers and amounts, and being sold, in effect, on the
credit of a private corporation which has bought or leased
a facility from the issuing local agency. The rents, or
sales installments, \vhich the sP*,poratjon pays to the

- 14 The fact is that -- quite apart from the vicissitudes
of the moment -- Vietnam or no Vietnam -- tax increases or
tax cuts -- the American economy has reached a stage of
strength, efficiency and power for good, the maintenance of
which will depend, in great part, in the future, upon the
wisdom with which all of us choose to use it.
And, I firmly believe, it is a very fortunate thing
that this has come about during a period in which there is
a broader acceptance by all of us -- in Government, in
business, and in all walks of life -- of the responsibility
for the general well-being that each one of us bears,
individually and in our occupational and economic groups,
for the conduct of our economic affairs and in the
expression of our political will.
What will the future be like? No man alive knows the
answer to that in any detail. But any sensible man will
admit that there are three elements of great responsibility
which lie ahead of us, as Americans, in at least the next
ten years.
They are:
1. The defense of freedom and peace.
2. Preserving and strengthening the
free enterprise system.
3. Joining with other nations who bell"eve
in these things in building a Grea t er
Society of Nations, within wh~ch there
will be opportunity for securlty and
for self-expression.
For us to engage in these tasks means that our economy.
will have to operate close to its full capacity for produ~tl0n
and growth. To achieve this full production and g:-owth wl11
four equlpment and
mean full use of our manpower, f u 11 use 0
"and
management methods full use of all of the technolog1~s
,
techniques that management
an d I a b or c an discover or 1nvent.
We will have to continue to learn how to sus:ain a ~igh
" growt h ,cu tt"1ng down inflatl0n as
rate of real economlC
. 1t ith
might appear and fighting any deflationary interruptlo~s'hw
the tools at' our command. Our tax policy will be one 0 t e
most powerful of these tools.

- 13 We know that any tax system, unless it is periodically
rev ie\ved and re formed, can become slipshod, can deve lop
grave defects, such as those I have mentioned, and can
become obsolescent in a way which can both act as a barrier
to sound economic growth and at the same time shake popular
faith and morale.
Your government does not intend to let this happen.
Now here is the third item on my agenda for this evening's
talk: the longer-range outlook for tax rate realignment
and reduction. We must look beyond the revenue consuming
demands eX resisting Communist aggression in Vietnam to the
time when instead of devoting increased revenues to
national security we can make a desirable allocation of the
additional revenues that flow from economic growth under an
existing tax structure between tax reduction, reduction of
the public debt and increased government civilian
expend itures.
This prospective decision gives rise to a number of vital
economic and fiscal policy questions which are of the highest
importance in the decade ahead. How can our tax policy be
used, given a reasonable amount of peaceful times over the
years in our immediate future, to continue and strengthen
the long, healthy upward climb of the American economy?
What influences can we expect will be brought to bear upon
it from other economic sources?
These questions bring us back full circle to the
Revenue Act of 1964 and its immediate aftermath which added
a new, but little understood dimension to the importance of
coordinating tax policy with other matters -- budget
expenditures, monetary and credit policy, and debt
management.
I ask you to look behind the jargon of the moment -the talk of "the new economics" or "f iscal dragn or "fiscal
dividend" or '!gap analysis" or "policy mix," etc., and
view this range of our national economic decisions as the
late President Kennedy and President Johnson have viewed
them.
Pre s ident Kennedy once observed tha t our economic decision
should involve not so much the clash of grand ideologies as
the sober and dispassionate treatment of a marvelously
productive modern economic machine.

- 16 -

But, let me return to the forecast of the Joint Economic
Committee of the Congress: Very wisely, the study opens
with a sensible warning, and I quote:
"This higher rate of growth will not be
achieved automatically, but will require
improvements and adjustments in economic policies,
both public and private, if it is to be achieved
in a manner that does not generate undesirable
inflationary byproducts."
In brief, to reach this level, or any other higher
standard of living than we have now, we must have priorities.
There will be, given the increased gross national product,
an annual increase in public revenues. This dividend must
be fed back in some part, and in some manner, to sustain
the private sector which delivers it -- to feed the goose
which lays the golden eggs.
To this end -- the maintenance of a strong economy
free from repressive taxation -- we will want to adopt
tax reduction, with emphasis upon rate reduction, as a
conscious long-term policy. Only in this way can we
avoid fiscal drag and ensure that the fiscal dividend
payable out of growth can be reinvested in the "growth
business" of our economy. Without this consc ious
determination, our economy can almost unaware be saddled
with 1966 tax rate levels and an expanding public sector,
decade after decade, so that it is constantly squeezed by
a growing tax load in relation to a proportionately
shrinking private sector which must, after all, pay for our
defense, our consumer needs, and our public improvements.
In plainer words, at some point in the future there
lies ahead of us the opportunity for tax rate reductions
not today, nor tomorrow, nor, for all we know, next year or
the one after it. That depends on the coming of peace in
Asia. But the day will surely come when tax reduction will
become an important economic step for us to take. We must
be ready to take that step when the opportunity offers.
Already economic plans for the post-Vietnam period
are being developed in the Executive Branch pursuant to
an instruction by President Johnson in his Economic Message
in January calling for a "maj or and coordinated effort to
review our readinesso" The first of six items on the agenda
was the request "to consider possibilities and priorities for
tax reduction."

- 15 l ~m not endorsing any particular foreca~t of any group
forecasters 3S the U. S. goal for the next ten years. Yet
it is interesting to note that three such forecasts seem to
point out requirements and conclusions that are remarkably
a 1 ike.
l)[

In one instance, the National Planning Association report
titled "Goals, Priorities and Dollars," done late last year,
concludes that if we are to do what we want to do by 1975
,',Ie will need a gross national product by that year of over
$1 trillion (in 1962 values) -- or more than half again as
much as we have now.
Second, a study under the auspices of the Life Insurance
Association of America calculates that we can maintain an orderl
growth, in constant dollars, of 4-1/2 percent fron now until
1976, allowing for an annual average increase of about
1 percent in consumer and wholesale prices.
Now, over the past six years we have averaged an annual
produc t ion increase in cons tant dollars of s lightly less than
5 percent, while our economy absorbed large numbers of
unemployed people and gave them jobs and put a great amount
of unused production facilities to work.
And here is a third forecast for our economy for the
period from now on: a study by the Joint Economic
Committee of the Congress projecting U.S. economic growth
to 1975. This study concludes that we have a potential for an
economic growth rate of between 4 and 4~ percent per year
between 1965 and 1975.
I t is intere sting to note tha t even if we average less
growth over the next 10 years than we have over the past
six, we would still be able to lift our gross national
product to $1 trillion in 1975, and still be dealing in an
American dollar which is the strongest and most stable unit
of currency in the world.
Now, 1 repeat, I am not endorsing the conclusions of
any of these studies as a national goal. But should this
growth b2 reached, and I firmly believe it can be reached,
it is likely that in 1975 the average American family can
enjoy an income, in today's dollars, of something more than
S10,000 a~nua1ly com~a~ed to the approximately $7,000 of
last year.

- 18 to get people to work -- to get the machine producing more.
But when the economic machine is working at the high level
of performance we can reasonably expect over the future
years, we have to use great care and yet maximum flexibility
in our approach to keep that growth at a sustainable pace
not so fast as to induce inflation and not so slow as to
invite stagnation or recession.
The action of tax policy toward maintaining a high growth
rate, high productivity and high employment, along with
reasonably stable prices, cannot do the job alone. It must
be reinforced by expenditures and policies which will raise
the quality of our products and increase our efficiency in
producing them. I am referring to wr need for increasing
the skills of our workers through training programs, and
the need for encouraging education,Iesearch and private
technology.
The contributions of the millions of people in this
country who are either unemployed or underemployed must be
called forth. Their talents must be developed. Their
education must be improved. This is primarily a matter of
sheer morality; the very close secondary reason is that we
simply cannot afford to go without the skills they can
supply.
And some of our tax revenues must go toward expenditures
for this purpose. We must accept this not as a burden, but
as an opportunity.

If there is one thing about taxation that we have
learned as Americans of this generation, it is that there
is no s~ch thing as a tax policy for all seasons. Conditions
and needs change. Disaster overtakes those who are callous
toward, or indifferent to, the signs of obsolescence in
their businesses; so, with our economy, we must keep a weather
eye open for the changes of the times and gear our tax system
to fit them.

- 17 Now, let me make it clear that tax reduction does not
necessarily mean corresponding revenue loss. From 1955 to l(
there was no significant tax reduc tion, ye t budge tary receipl
rose only $17.6 billion -- an increase of 29 percent. Yet it
fiscal years 1961 through 1966, with individual and business
income taxes reduced on an average of some 20 percent and rno!
Federal excise taxes eliminated, receipts increased by
$26.9 billion, or 35 percent.
But the possibility of tax reduction -- at some point
in our future -- is only one element to which we will have
to addressourselves.
We must also seize opportunities to use the fiscal
fruits of growth to reduce the national debt and its burden
on the budget. Debt reduction, as well as debt management
and monetary policy, has a role to play in holding down
or decreasing the cost of carrying the debt, thereby
re leas ing revenue s for tax reduc tion or increased expenditur
Moreover, like debt management, debt reduction can be handle
in a manner that is stimulative to the private sector. It
need not be associated with a restraint on the economy.
We mus t also look forward to increas ing our expenditure
for the public sector, for all of the worthwhile humanitari,
programs and benefits of which our nation is capable.
The task is this: As our revenues grow, along with
our gross national product, there is going to be a multitud,
of demands for the extra money. We must decide, calmly,
carefully, patiently and skillfully, where it is to go. If
we do everything that everybody will want to do -- if we
appropriate all of it for expenditures which are more
desirable than necessary -- we will miss the opportunity fo
a better life, a more secure and happy life, for all of us
the years ahead. This is why the concept of Federal
expenditure control is an interrelated part of a sound tax
policy for growth.
To make the most of our opportunity, we are going to n
the virtues of restraint and prudence, and we are going to
have to work, with pa tience and unders tand ing, at complex
tasks. When things are not going too we 11 with our economy
when times are tough, to use the vernacular -- when the .
economy is slack -- the people who guide it have pretty SlIT
choices to make. There is nothing very complicated about t
h 1 0rk which is done then.
The job is to perk things up --

- 19 I can assure you here tonight that we will maintain a
vigilant survey of economic developments in order to determine
what tax actions are necessary. They will be prudently and
carefully appraised and brought to the attention of the
Congress to permit it the proper time for th0rough evaluation
and debate.
And as for the responsiveness of the Congress to
changing economic conditions, and its ability to act
re.sponsibly, the Joint Economic Committee Report says:
"Congress has the ability to act rapidly
on tax matters and has demonstrated this
ability on many pas t occas ion."
Such responsible actions have time and again been
demonstrated, most recently by the speedy consideration in
both chambers of President Johnson's request for the
restoration of the Investment Tax Credit on machinery and
equipment purchases and the accelerated depreciation
allowances for new buildings.
A tax structure is like an investment portfolio. It
is not something which we can acquire, and then stowaway
in a safe and forget.
It needs watching and revising.
The task of alert surveilance over our tax system, of
using it as one of a series of measures to tend to that
marvelous, productive machine -- the American economy -- is
one that every responsible group, like your awn, and every
thoughtful citizen, must share with the government, in
partnership, if we are to obtain the best results, the full
promise, of the American economy in the decades ahead.

000

TREASURY DEPARTMENT
(

R RELEASE 6 :30 P .)1.,

ndal, April 10 I 1967.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series of Treasur.y
11a, one series to be an additional issue of the bil1~ dated January 12, 1967, and
e other series to be dated April 13, 1967, which .-ere offered on April S, 1967, were
ened at the Federal Reserve Banks today. Tendere were invited for $1,300,000,000,
thereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of 18,-day
11s. The details of the two series are as follows:
91-day Treasury bills
J?lY 13 2 1967
Approx Equiv.
Price
Annual Rate
99.0l.a
3.770%
99.033
3.825%
99,,037
3.810% y'

NGE OF ACCEPTED

maturin~

MPETITIVE BIDS:

High
Low

Average

·
:
•
:

·
·

183-day Treasury bills
October 13 t 1967 _
Approx. Equiv.
Price
Annual Rate
98.050 !I
3.836%
98.034
3.868%
98.040
3.856% 11
matur~

Excepting 1 tender of $4,055,000
, of the amount of 91-day bills bid for at the low price was accepted
, of the amount of 183-day bills bid for at the low price was accepted
rAL TENDERS APPLIED FOR AND ACCE?I'ED BY FEDERAL RESERVE DISTRICTS:

)istrict

lOstOn

lew York

AEElied For

22,792,000

:hicago
:t. Louis
linneapo1ie
:ansae City
ellas
an Francisco

1,743,702,000
24,915,000
33,307,000
18,374,000
64,933,000
273,168,000
73,601,000
22,391,000
40,281,000
32,474,000
184,219,000

TOTALS

$2,534,169,000

hllade1ph1a
:leve1and
tiehmond
,tlanta

12,702,000 ··

Acce!ted

782,759,000
12,704,000
32,557,000
18,374,000
45,813,000
128,028,000
63,)87;000
19,277,000
40,281,000
20,914,000
123,864,000

$1,300,726,000

ApE1ied For

S 25,682,000

1,388,18),000
13,210,000
44, 591,OCO

3,762,000

·
·

£I

34,107,000
279,396,000
30,944,000
13,172,000
1l,463,OOO
17,592,000
140,354,000

$2,002,456,000

Accel$ed

•

,682,000

688,323,000
5,210,000
20,941,000
3,762,000
17,101,000
115,936,000
24,624,000
11,301,000
11,L63,OOO
7,862,000
78,274,000
$1,000,485,000 ~

Includes #310 446 000 noncompetitive tenders accepted at the average price of 99.037
~cludes $107:597:000 noncompetitive tenders accepted at the average price of 98.040
These rates are on a bank discount basis. The equivalent coupon issue yields are
3.91% for the 91-day bills, and 4.00% for the 183-day bills.

TREASURY DEPARTMENT
(

FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN MARCH
During March 1967, market transactions
in direct and guaranteed securities of the
government for Government investment accounts
resulted in net purchases by the Treasury
Department of $75,279,500.00.
000

F-874

TREASURY DEPARTMENT

(

F-874

rREASURY DEPARTMENT
4

?OR IMMEDIATE RELEASE

TREASURY DECISION ON PLASTIC CONTAINERS
UNDER THE ANTIDUMPING ACT
The Treasury Department announced today that it is issuing
notice of intent to close its investigation with resDect to
;he possible dumping of plastic containers from Canada-manu'actured by Reliance Product s Ltd., Winnipeg, Canada.

The notice, which will be published in an early issue of
;he Federal Register, announces that the investigation is being
:losed with a determination that these plastic containers are
lOt being, nor likely to be, sold at less than fair value within
he meaning of the Antidumping Act of 1921, as amended
19 U.S.C. 160 et seq.).
Two types of plastic containers were imported from that firm,
lamely industrial type and consumer type.
Purchase price was found
o be not lower than the adjusted home market price with regard to
,11 except 5-gallon industrial containers.
The 5-gallon industrial
ontainers represented the bulk of the imports of this type.
Promptly after being advised of the existing margins as to
hese 5-gallon containers, the manufacturer revised its prices and
ave assurances that there would be no future sales at less than
air value regardless of the disposition of this case.
The complainnt was advised of this and subsequently withdrew its complaint.
Appraisement of the above-described merchandise from Canada
anufactured by Reliance Products Ltd., Winnipeg, Canada, will coninue to be withheld pending further determination.
Imports of the involved merchandise received during the period
lnUary 1, 1966, through October 31, 1966, were valued at approxiltely $58,000.

TREASURY DEPARTMENT

~DIATE

RELEASE
TREASURY'S WEEKLY BILL OFFERING

The Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
~2,300,000,000,or thereabouts, for cash and in exchange for
rreasury bills maturing April 20,1967,
in the amount of
~2,302,437,000, as follows:
~or

9l-day bills (to maturity date) to be issued April 20, 1967,
In the amount of $1,?300 ,000 ,000, or thereabouts, representing an
ldditional amount 01- bills dated January 19,1967, and to
~tu~ July 20,1967,
originally issued in the amount of
il ,000 ~ 906,000, the additional and original bili.~. to be freely
.ntercnangeable.
182 -day bills, for $ 1,000 ,000 ,000, or therea!.)outa, to be dated
t\pril 20,1967,
and to mature Oc tober 19, 1967.
The bills of both series will be issued on a discount basis under
ompetitive and noncompetitive bidding as hereinafter provided, and at
laturity their face amount will be payable without interest. They
'ill be issued in bearer form only, and in denominations of $1,000,
5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
maturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
p to the closing hour, one-thirty p.m .. Eastern Standard
ime, Monday, April 17, 1967.
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 ar.d
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
~bmit 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 paymedt by an incorporated bank
t' trust company.

F-875

Immediately after the closing hour, tenders will be opened at the
Federa 1 Re serve B~ nks and Branc he s, f 0 11 ow ing, wh ich pub 1 ic announcemenl 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 [rom anyone
bidder wi 11 be accepted in fu 11 a t the average pr ice ( l l l three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or c omp le ted a t the Federa 1 Re serve Bank on April 20, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing Apri120,1967v
Cash and exchange tender
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.
Thv income derived from Treasury bills, whethe~ 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 bi lls are excluded
from consideration as capital assets. Accordingly, the owner of
Treasu ry bills (other than 1 ife insurance c ompan ies) is sued 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 Departmen t Circu lar No. 418 (current revis ion) and thi:
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained £1
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

Washington
IMMEDIA TE RELFASE

rHURSDAY, APRIL 13, 1967

F-876

The Bureau of Customs announced today the following preliminary
figures on imports entered for consumption under the absolute import
quotas provided for in section 12.71, Customs Regulations, for coffee
grown in nonmember countries of the International Coffee Organization
for l2-month period beginning November 15, 1966.
COFFEE
(Green - In pounds)

country

Established
Quota

Total Imports as
of AEr. 10, 1967

Bolivia

1,850,800

1,027,056

Guinea

1,4%,200

Quota filled

Liberia

2, t;ll, 800

Quota filled

Paraguay

2, 61~h,GOO

Yemen

1,ct;0,800

185,740

Basket~/

6,610,000

3,,301,720

Basket quota allocated to unlisted nonmember countries and to
listed nonmember countries after respective quota fillect.

TREASURY DEPARTMENT

Washington

Il1·LEnIATE RELEASE

THURSDAY, APRIL 13, 1967

F-877

The Bureau of CUstoms has announced the folloldng preliminary
figures shm-ring the imports for consumption from January 1, 1967, to
April 1, 1967, inclusive, of commodities under quotas established
pursuant to the Philippine Trade Agre€ment Revision Act of 19~~:

GOl11llloriity
Buttons •••••••••

. Established Annual
'~uota

Quantity

~10,000

Unit of
Quantity
Gross

:Impo:'ts as of
: fl.pril 1, 1967
44,874

120,000,000

Number

Coconut oil •••••

268,800,000

Pound

Quota .:'illed

Cordage •••••••••

6,000,000

Pound

2,1403,168

Tobacco

3,900 ,000

Pound

356,100

Cigars

••• 0 0 •••••

••• 0000.0

2,351,240

F-B7B
Pre.l.1m1na.ry data on imports for consumpUon of cotton and cotton waste chargeable to the quotas estAh11 sbed b;y
Presi.dential Pl'Oclalllation No. 2.351. of September 5, 1.939, as lUI8l1dad, am as JIIOdif'i.ed h7 the Tarif'f Schedules of' t.he
United States which became effective August .31, 1.963.

'The country designations in this press release are those specified in the appen:i1x to the Tariff' Schedules of the
tnaited. States. There is no political connotation in the us of outmoded names.)

"
C9!Jnt17 ot Or!&:!!

Egrpt and Sudan••••••••••••
Peru •••••••••••••••••••••••
lJdia and Pakistan •••••••••

China ••••••••••••••••••••••
Mexico •••••••••••••••••••••
Brazil •••••••••••••••••••••

Established Quota

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

Argentina ••••••••••••••••••

Hatti ••••••••••••••••••••••
~r ••••••••••••••••••••

1I ~cept Bubldos. Benula.
Y Eltcept Nigeria cd Ghana.

Established Quota

Honduras ••••••••••••••••••••

••••••••••••••••••••
Co~a.b1a ••••••••••••••••••••
Iraq ••••••••••••••••••••••••
British East Africa •••••••••

50,h87

Par~

87,175

Union of Soviet

Socialist Republics ••••••

Country of Origin

Imports

475,124
5,203
237
9,333

~I
~

Inionesia and Netherlanis
New Guinea••••••••••••••••
British W. Indies •••••••••••
.1geria•••••••••••••••••••••
British W. Africa•••••••••••
Other. i ncl"'htg the U.s ....

Jaaica. Trinidfd, and Toba&o.
Cotton 1-~8tt or .,re
Established Yearlr Quot( -

45.656;420

Ths.

Ig!ortB Augyt 1. 1966 - April 10.1967
Staple Length
or more
1-5/32!' or mre am unler
1-)18" (Tanguis)
l-1/sn or mre ant urder

1-3/an

Allocation

Impnrts

39.590,""8

31,753,233

1.500,000

120,625

4..565.642

4,1)0,101

752
871

l24

195
2.240

n,388
21,321
5.717

16,ooz..

!rret"ts

- 2-

COTTON WASTES
(In pounds)

corrON CARD STRIPS made from cotton having a staple of less than 1-3/16 inches in length, COMBER
WASTE, LAP WASTE, SLIVER HASTE, AND ROViNG \~ASTE, WHETHER OR NOT HANUFACTURED OR OTIlERWISE
ADVANCED IN VALUE· Provided, however, that n0t '··,ore than 33-1/3 percent of the quotas shall
be filled by cotr~on wastes other than comber wastes made from cottons of 1-3/16 inches cr more
in staple length in the case of the foll~wing countries:
United Kingdom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy:

------------ ------------_._---_.
Es tab l i shed
Total Imports
TOTAL QOOTA

Country of Origin

Sept. 20, 1966, to

April 10, 1967
United Kingdom..

•••

Canada..........

••

. •.

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

4,323,457
239,690
227,420
69,627

• •••

Cuba •••••••••••••••
Ge rmany. • . .
• .•...•.•...

Italy .................... .
Other, including the U. S.

5,482,509

1nc~uded

in total

31,~83

16,OS8

68~240

44,388
38,559
341,535
17,322
8,135
6,544
76,329
21,263

Belgium ••.. ., .........••..•
Japan •.•...•....•........•
China •••
Egyp t. • •

34,oLe
67,LS3

imports,

column 2.

Established
33-1/3% of
Total Quota

Impnrts
1/
Sept. 20, 1966
to April 10, 1967

1,441,152

34,oL8

75,807

31, ~83

22,747
14,796
12,853

11,691

25,443
7,088

160, ,333

1,599,886

65,031

TREASURY DiPARTMmr
Washington
IMMEDIATE RELEASE

THURSDAY, APRIL 13, 1967

F-879

The Bureau of CUstoms announced today preliminary figures on imports for conof the following cOMmOdities from the beginning of the respective quota
periods through April 1, 19671

~t1on

S
I

'ilmmodity
~arirf-Rate

,Unit

Period and Quantity

Quotas:

fresh or sour •••••••

Calendar year

1,500,000

Gallon

Thole Milk, fresh or sour ••

Calendar year

3,000,000

Gallon

:attle, 700 lbs. or more
each (other than dairy
cows) ••••••••••••••••••••

Jan. 1, 1967 Mar. 31, 1967

~ream,

attIe, less than 200 Ibs.
each •••••••••••••••••••••

12 mos. from

April 1, 1966

ish, fresh or frozen, filleted, etc., cod, haddock,
hake, pollock, cusk, and
rosefish •••••••••••••••••

Calendar year

Fish ••••••••••••••••••

Calendar year

lite or Irish potatoes:
Certified seed •••••••••••

651,129

120,000

Head

4,707

200,000

Head

125,42~1

24,883,31~/·pound
To be

:Imports as of

:Quantity :April 1, 1967

Quota filled

announced

Pound

13,971,635

111,000,000
45,000,000

Pound
Pound

Quota filled
Quota .filled

Quota filled

other ••••••••••••••••••••

12 mos. from
Sept. 15, 1966

lives, forks, and spoons
with stainless steel

Nov. 1, 1966 -

hmdles ••••••••••••••••••

Oct. 11, 1967

84,000,000

Pieces

~skbrooms

••••••••••••••••

Calendar year

1,380,000

Number

1, 297,11J./

her brooms •••••••••••••••

Calendar year

2,460,000

Number

1,523,9#1

•

Imports as of March 31, 1967.
Inports for consumption at the quota rate are limited to 6,220,828 pounds
during the first 3 months of the calendar year.
Imports as of April 7, 1967.

-2-

Comnodity

Period. and Quantity

:Unit cf :Imports as of
:Quantity :April 1, 1967

',csolute Quotas:
?utter substitut3s
containing over h~j
of hutterfat and
butter oil .•••••.••••••

Calendar year

r.ihers of cottor. processed
b'l t not spun •••••••••••

12 mos. ~rom
sept. 11, 1966

PPRnuts, shelled or not
shelled, blanched, or
utnenvise prepared or
preserved (except peanut
butter) •••••••••••••••••

F-879

1,200,000

Pound

1,000

Pound

1,709,000

Pound

Quota filled

12 mos. froTr.
P.ug. 1, 1966

Quota filled

STATEMENT OF JOSEPH W. BARR
UNDER SECRETARY, U. S. TREASURY DEPARTMENT
BEFORE THE SENATE COMMITTEE ON BANKING AND CURRENCY
ON S.S (TRUTH-IN-LENDING ACT OF 1967)
Thursday, April 13, 1967

Mr. Chairman and Members of the Committee:
The President, in his message of February 16, 1967, to
the Congress on Consumer Protection, recommended legislation
be enacted to require lenders and credit sellers to provide
consumers with full and complete information on the cost of
credit.

The President said:

"I recommend the Truth-in-Lending Act of 1967 to assure
that, when the consumer shops for credit he will be presented
with a price tag that will tell him the percentage rate per
year that is being charged on his borrowing.
"We can make an important advance by incorporating the
wisdom of past discussions on how the cost of credit can best
be expressed.

As a result of these discussions, I recommend

legislation to assure -"Full and accurate information to the borrower; and
"Simple and routine calculations for the lender."
I am pleased to appear before you to support Senator
Proxmire's Truth-in-Lending Bill, 5.5, which would carry out
the President's recommendation.

F-880

- 2 -

s.s

is a realistic, practicable, and workable bill.

Its

most important feature, the requirement to state the finance
charge as an annual percentage rate, in addition to its
statement in dollars and cents, will provide for uniform disclosure of finance charges for the first time in this Nation's
history.
This purpose is clearly within the tradition of our
economic system which relies on the discretion of informed consume~to

express their preferences in the market.

poorly in-

formed consumers, or even well informed consumers who are unable to communicate effectively in the market because of the
jumbled terminology, cannot be good citizens in a free economy.
5.5 will give the American consumer the information he
needs to compare the costs of credit from different sources
with what he can earn on his savings and to make an intelligent
credit decision.
The practical application of the annual rate requirement
has been studied at length, both by this Committee and by the
Administration.
We have concluded that such a requirement will impose no
significant burden or difficulty with respect to the overwhelming majority of credit transactions in the United States.
We do not agree with critics of this legislation who argue
that the complexity and variety of credit transactions make accurate disclosure of finance charges very difficult, if not
impossible.

- 3 We believe that most creditors will find it both practical
and desirable to employ standard tables specifying the annual
rate applicable to their particular credit plans.
I want to come back to this point because the question of
workability was a legitimate

objection in the past.

It no

longer is and should no longer be an excuse to delay action.
I want to emphasize the workability of S.5 because I believe no member of this Committee or of the Congress and no
legitimate lender or credit seller really is opposed to the
disclosure of the true cost of credit if this can be done without
imposing excessive hardships or burdens.
Consumer credit is essential to the American way of life
and our economic system.

Consumer credit is used to finance a

large proportion of durable goods purchases and a sizeable part
of nondurable purchases.

Last year, outstanding consumer

credit, excluding mortgage credit, totaled $95 billion.

Judg-

ing from the fact that new instalment credit made in a year
roughly equals the amount outstanding, it appears that consumer
credit financed about $100 billion of individuals' purchases in
1966.

This is more than one-fifth of total personal consumption

expenditures as recorded in the national income accounts.
Again leaving aside mortgage credit, consumers last year
paid in interest and other credit charges approximately $13
billion for the use of consumer credit.

This is a large sum

it is approximately as large as our interest payments on over

- 4 $300 billion of Federal debt -- it is more than consumers
spent for men's and boys' clothing

for furniture and ap-

pliances -- for electricity, gas and water -- for doctor and
dentist bills -- for alcoholic beverages -- almost as much as
for gasoline and oil

over half of what was spent on women's

and children's clothing -- and about half

new and used

automobile purchases.
While the consumer has some knowledge of the goods and
services he is buying, and in almost all cases knows the price,
few consumers are really aware either of the dollar cost or
of the annual percentage rate paid for the use of credit.

This

lack of knowledge has certainly contributed to the abuse of
credit.

For this, we need only look to the rising tide of em-

ployee bankruptcies -- cases filed in U. S. District courts in
1965 were 66% above the number in 1960 and over 500% above 1950.
It is clearly evident that the consumer now finds it impossible to select from all the credit sources available that one
which is cheapest or best for his needs.

The array of practices

makes a rational choice among the alternatives almost impossible.
This Committee has had abundant testimony on this point in the
past.

This is an area in our economy that has grown so fast it

has created its own language.

Much of it is beyondcomprehensi~n

for most who are even very sophisticated in finance and who find
difficulty in distinguishing add-on, discounts, precomputer,
Rule of 78's, service charge, finance charge, interest, term
price differential, sales price vs. cash price, etc.

The variety

of rate ~.vtations is peyond belief and sometimes ridiculous.

- 5 Even a financial expert, who knows the ins and outs of credit,
would find the correct solution difficult in the absence of
uniform standards for disclosure.

such confusion in a $13

billion consumer purchase category is not in the national interest.
Credit can be described as the lubricant of our economy.
When either the use or the supply gets out of kilter, the
economy suffers.

S.5 will promote the efficient flow of

credit, since it will give consumers an adequate basis to determine and choose the most economical source of credit.
S.5 seeks to supply the consumer with essential information on the total cost of borrowing.

It will enable the con-

sumer to come to an intelligent decision as to which source of
credit is cheapest by putting the cost quoted by all sources
of credit on the same basis.

This could be done in a number

of ways, if this were the only objective.

But many con-

sumers also have another choice -- they can borrow the money
or they can use existing savings.

In the latter case, con-

sumers need to compare the cost of credit with the earnings
on their savings.

In financial practice the earning power of

savings is traditionally expressed as a percent per annum.
Thus, it is reasonable to apply this same standard of comparison to consumer credit, to have the total cost of credit -including interest and other credit charges -- expressed as a
percent per annum on the unpaid balance.
basis called for in 5.5.

This is exactly the

- 6 -

Finally, the required disclosure of an annual percentage
rate of finance charge would in no way prejudice lenders under
the usury laws of the States in which they operate.

S.s covers

only the rate of finance charge and does not deal with interest rates, which are properly regulated by the States.
I believe that no merchant or banker or other legitimate
lender really objects to the principle that his customers should
know the truth about what they are paying for the use of credit.
As I read the record, the objections that have been raised are
that the bill would lay an onerous burden on legitimate lenders
and sellers on credit.
I firmly believe, however, that the tables that have been
furnished the committee have solved that problem.
Need For The Legislation
Let us remember that consumer credit, as it is known
today, is largely a post World War II phenomenon.

It has grown

up after most of the other credit regulatory agencies of the
Federal Government had become well established.

So we as a

Nation find ourselves with no agency principally responsible
for the consumer credit industry as it affects the public.

The

bill makes no provision for such, but it does assign responsibility for establishing the rules and regulations regarding
credit disclosure to the Board of Governors of the Federal
Reserve System.

The Board is the primary source of consumer

- 7 -

credit statistics and origin of the major consumer credit
studies.
Once the bill is established and its provisions made
known as to all major conditions, and, with the assistance
of a united financial industry using the same terminology
and methods of expressing finance costs and rates, it is
reasonable to assume that the bill will become largely
self-enforcing.

Consumers will be able to utilize in their

credit experiences the same rate concepts they have learned
to use in savings experiences.

Thus, there is reason to

expect a greater alertness on the part of consumers and
creditors to the basic facts of credit living.
S.S will apply to anyone who extends credit to the consumer, whether a bank, merchant, department store, finance
or loan company.

But it would not control or limit the amount

of their finance charges in any way.
Moreover, S.5 would not displace State action in this
area.
While many States, in addition to Massachusetts, regulate
consumer credit and call for the disclosure of certain kinds
of credit information for certain kinds of credit transactions,
the overall picture in this field is widely

dive~gent

and un-

satisfactory from the standpoint of the consumer who needs a
uniform basis for comparing finance Charges.

- 8 -

The Federal Government must act to fill this need to
enable the average American to obtain credit on the beat
terms for his particular needs and financial resources.
Far from displacing State action, the passage of S.5
will actually encourage existing and prospective approaches
at the State level.

It is our expectation that Federal

action now will help pave the way for States to adopt similar disclosure measures, perhaps along the lines of a
Uniform Consumer Credit Code, which is now under study.
With truth-in-lending a settled national policy, State
action to assure full credit disclosure, as well as to provide other safeguards in the consumer field, could be more
easily and quickly enacted.
As I noted earlier, the legislation specifically provides that the administrative agency shall exempt any class
of credit transactions from the requirements of the Truthin-Lending Act where it determines that such transactions
are effectively regulated by State law.
Thus, a clear priority is given State" legislation.
I would emphasise again that S.5 is a disclosure law
only and will not in any way limit or otherwise control the
rate or amount of finance charges.

These matters are left to

State law and to competition of the market place.
This legislation would:

- 9 -

(1) require every individual or firm engaged in the
business of extending credit to furnish every prospective
consumer of credit a clear, written statement of the amount
of the finance charge to be paid for the extension or use
of credit.
(2)

enable consumers to compare the relative cost of

credit by having creditors state finance charges in terms of
dollars and cents and in terms of an approximate annual percentage rate.
There are, however, basic exemptions for:
(1)

Business credit.

(2)

Credit transactions involving the purchase and sale

of stocks,bonds, and other securities which are already under
the jurisdiction of the securities law.
"Credit" is clearly defined to mean consumer credit.

defined in 5.5, it clearly does not include credit to business
firms.

As a rough rule, this would mean that credit incurred

in the purchase of "depreciable property," as interpreted by
the Internal Revenue Service would be exempt.
exempts credit with government

The bill also

agencies, and their

instrumentalities and credit transactions with a broker-dealer
registered with the 5. E. C.
"Finance charge" includes all the charges which result
from the consumer's use of credit and from which he would be
free if he had paid cash or not borrowed from the lender.

The

- 10 general guideline -- to which I would subscribe

is that

finance charges include all of the charges that accompany credit
and which the consumer becomes liable for if he opts to borrow
rather than not borrow, or to buy on credit rather than pay
cash.
Two areas of concern, of which I am aware, are credit life
insurance and housing closing costs:
With respect to insurance, some creditors carry this risk
at no direct cost to the individual borrower.

Until 1955, for

example, small loan companies, operating under the Russell Sage
philosophy that the customer should be quoted one credit charge
only -- to eliminate the temptation to disguise the cost of
credit in a subterfuge of additional charges -- were expressly
prohibited from making additional charges, including any charges
for insurance.
Credit unions typically insure their borrowers for life
and disability; the cost is included in the interest rate paid
by the borrower.
Some other financial institutions also follow this practice
of carrying blanket policies.

Others, however, give consumers

the option of carrying insurance.

And a third group makes the

insurance coverage a condition of the loan extension.
Clearly the latter class of creditors should include
premiums in the finance charge.

In those cases where insurance

is clearly optional or, as stated in the Department of Defense
directive, neither the credit vendor or lender has a direct

- 11 interest in the sale of the insurance, then the insurance
premiums would not be part of the finance charge.

What remains

admittedly, is a grey area which would bear further study of
prevailing practices to determine their rightful placement.
with regard to housing costs, I resubmit for the record
the two statements supplied in previous hearings by the Federal
Housing Administration which satisfy me that guidelines are
sufficiently clear for the administrative a§ency to prescribe
rules and regulations which would be within the intent of the
bill and would be welcome by the housing finance industry.
(1962-pagella; 1963-64-pages lIb - lld)
The total amount to be financed needs no discussion, but
the next three terms do.

Taken together they define in practi-

cal, operational terms the actuarial method for computing the
true rate.
The definition is liberal in that it does not prescribe
any specific time period, but allows each creditor and consumer
to select the payment period of greatest mutual convenience
daily, weekly, biweekly, monthly, quarterly, annually.

there are irregular time periods in the contract, it may be assumed
that the most frequent payment period would be the appropriate
time unit.

The ratio of the finance charge for the period to

the unpaid balances for this lapsed time is the rate, not only
for the period but the rate prevailing throughout the total life

- lla -

190

TRUTH IN UlllDING-19U

FoUowinliJ the claulbtlOIl :
Itemt

1. ~adIIr" ,..__ ._._ ••••••••••••••••~ •••••••••••••••• _•• _.-. __ •••••••••• ~_ ••••• X •••• ___ •

t~ 8~':e~1=:r
.\.ar,,:~~~~~~r)~~~~I_~_~~~~~~:.~.~~~~~::::::::: 'X::::::::: X.
~p~ liii.---· .. -.-.-.·.· ••• ·.·-..•• · .....•.••.•••.... --••••• -............ X......... .
• ODS rllC D loaJ»-lupectioD and escrow company oharaes._.............. X ......... .
,: ~1~~~~t101L •••••••••••••••••••••••••••••••• -.-.-.- •••••••••••••• ~... X •••••••••

go"erace o~ mortcace ~OUDI ••••••••••••••••••• - .. -.....................

X •••••••••

•. Prep.::a'i[:J~f~~ eQulty_ ••••• --.-.-•• --••••••••••• -- •• -.-••••••••••••••• -•• -. X.

~e:,~ga'e::::::::::::::::::::::::::::::::::::::::::::::::::::::.:::::::.: -X:::':""

e. SettlelMnt cbarl8 (assumln, tbla 11 a tee for preparln, tbe settlement .tate:

ment and related lervices otber tban attorney·s).
10. Recording costs:

•.••.• :.::::

~:J~~~~:::::::::::::::::::::::::::::::::::::::::::::::::~:::::::::::::: .:::::::::: x.

11. Apportionment ottues and _mentS .......... _..................................... , X.
II. APPOrtionment of lnltlat premium for fire and ca.sualtylnBurance ....................., . X.
11. Broker's fee (it broker obtains ftnanclni for borrower or some tervice of tbat X ••••••• :.
nature).
tor future payment. 01 t8:188. InsIlJ1lJlC8 (including both casualt)' •••••••••••• X.
and ute of borrower).
11. Adjustments 01 purchase price resUltln, from supplemental BgreelDlntl _..... __ ••• , X.
between vendor and vODdile, or vendee and others (additions to or .ubtractions from purchase Price because 01 Inclusion or exclualoll of ltamt,

n. Escrows

~Ibt::~:f: ~r:rro!~"iues ................................._......................

It ~!ft;~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ :~~~~~~~~~

It.

17. Notary lee:

::
~~'f~:~:.,~~::::::::::::::::::::::::::::::::::::::::::::::::::::::::: ~:::::::::
II. blsurnnce property over term of mortJ8i8 ............................................
QD

II. Maintenance and lIIPIIn••• _ ........................... · ••••••• • ........................ X.

, FHA and VA do not permSt bam, purcbaseJ1l to pay discounts.

1 hope that th18 information will be ot assistance to your committee in ibl
eollsideration of the truth·in·lending bill
Sincerely JOUla,
MILTON P. 8&KU, Gtmertll Oo.,n.eJ.

Senator BENNETT. Just for the record, some of these charges whieh
we agree are incident are not included in the statement that you

have made, are not included in the printed form that Mr. Hardy
presented to us. They: are outside it.
There is just one other area on which I would like to build a very
brief record.
Mr. SEHER. Senator Bennett, if you are going to turn to something
else, I think it might be helpful on this point to show: What should
a roster of items be to which your question should be directed' I
think that i s Senator BBNNETI'. That is what I am trying to get at.
Mr. SEHER. Because you have a. closing sheet there which might
have some local jargon in it which might not be typical.
Senator BENNE'rl'. Right. I am Just interested in a general list
which can be generally applicable.
Mr. SEMER. Yes.
In response to a question in a letter that Senator Douglas sent us
on December 21 of la.st year, "What kinds of charges are permitted
under State laws ¥" This is what we were referring to earlier--

- lIb -

1251

3. Differences in the Types and Costs of Fees and Charges Levied
by Different Types of Institutions Extending Housing Credit
No information is available on the t~es and amounts of fees and
charges levied by different types of institutions in making mortgage
loans. It should be noted in this connection, however, that many oC
the charges paid at the time of the loan closing are not under the
control of the lender and are not collected by or for him, such 8.8 for
title insurance, property survey, Federal and State stamps on deeds;
recording of mortgage and deed. Some of the other charges made
may reflect work performed by employees of the lender or hr. outsiders,
such as, the appraisal of the property. The mortgagee's imtial service
charge, however, is under the control of the lender.
Credit Unions
Credit unions are limited, under the Federal Credit Union Act, to a
maximum interest rate of 1 percent per month on unpaid balances, and
this fate must include all charges meident to making the loan. We
understand that Federal credit unions make very few mortgage loans,
probably because the maximum 5-year maturity permittei on 'loans
they may make limits their operation8 in this relpect.
The following information provided by the Bureau of Federal Credit
Unions, Department of Health, Education, and Welfare, explains the
specific chargee which are mauded or exCluded from. ~ 1 pereent
per month rate.
.

lIe

1252

TRUTH IN LIlNDING-l De3-Of

None of the following coste incident to making & loan ma, be
charged to the borrower if it results in a total coat of more than 1
pereent per month (or 12 percent per annum) on unpaid bai&I'cea:
1. Inspecting and appraising real or personal property.
2. Recording of chattel mortgages, real eatate mortgagee or
other lien instrumente.
'
a. Title search.
4. Bringing ahatract of title to real estate up to date.
5. Attorney's opinion as to title and validity of credit union',
lien.
6. Title insurance.
7. Title certificate.
S. Preparin~ deeds of trust, mortgages, or other lien inatrumentl.
9. Chattel hen nonfiling insura.nce.
10. Credit investigation and credit reports.
11. Credit life (borrower's protection), dilAbiIity, health, or
Rcciden t insurance.
12. Filing assignments of personal property such &I life insurance
policies, mortgages, etc..
Items of cost related to the following have been held to be outside
the limitation of interest ch argea , and the borrower may he required
to pay them:
1. Preparing release of mortgage or other lien instrument.
2. Recording release of lien.
3. Hazard insurance on the property, such u fire, theft, liability,
collision, windstorm, or other casualties.
4. Restoring clear title to borrower .

.... Fees or Charges Paid by the Borrower on a -Housing" Credit
Transaction Which Should Be Regarded as Incident to the
Credit Transaction
While some of these individual items may be considered as incident
to the credit transaction, and some may not, there are others which
may fall in either category or be divided between the two categories,
depending upon tbe particular circumstances involved.
The listing presented below represents an attempt to classify into the
categories desired, the individual items of loan closing costs which
appear in ta.ble 4 in the information provided in answer to question 2.
It should be noted that many of these charges which are paid at the
time of loan closing, are not under the controi of the lender and are
not collected by the lender.
1. Items which may be considered as incident to the credit tra.nlaction:
Photos
FHA examination fee
Mortgage tax (in the nature of a
Mortgagee initialle"ice fee
stamp tax, etc.)
Mortgagee appraiaal fee
Survey (of property)
Credit report

- lId -

TRUTH IN LENDING--1963-64

1253

2, Items which may not be considered as incident to the credit
transaction:
Title search.
Title abstract.
Escrow fee (usually a charge by an attorney to bold moneys involved
in the settlement, such as for paying off an existing second mortgage
or other liens, and thereby assures clear title).
Revenue stamps (on the deed).
Title tmnsCer tax.
(Prepaid items, such as for real estate taxes, special assessments,
ground rents, hazard insurance premiums, and the initial FHA mortgnge, insurance p~emiu!ll nre e~cluded f!om these FHA data, 8.8 was
prevIOusly explamed m the mfonnatIon presented in answer to
question 2.)
'l'itle insurance, Where required solely for the benefit of the lender
and in amount equal to the mortgage amount, the charge shouJd be
included in category 1 above. Where the insurance is also provided
for the protection of the owner and may also be extended to cover his
equity in the {>roperty, part of the charge should be included in category 2 above.
Preparation of deed and documents, Would include preparation of
the deed and mortgage, and therefore should be divided between
categories 1 and 2.
Attorney's fees. Practices appear to differ among communities in
the way this item appears on the settlement statements at loan closing.
In some areas, the attorney's fee may also include title search if conducted by him and possibly preparation of the deed and the mortgage, Thus, part DC this fee may be included under category 1 and
pa.rt under category 2, depending upon what items are covered.
Closing fee. Attorney services for the borrower at closing. Generally, this does not include preparation of deed a.nd mortgage, but in
some cases may include this. Probably should be divided in 80me
manner between categories 1 and 2.
Notary fees (for mortgage and deed). Should be divided between
categories 1 and 2.
Recording fees (for mortgage and deed). Should be divided between categories 1 and 2.
Broker's commission. Under FHA regulations this is optional with
the borrower. He may, if he so desires, negotiate with a broker to
Il.ITange financing or to represent his interests at closing. This
charge occurs infrequently, but to the extent it does, it belongs in
ca.tegory 1 or 2 depending upon the eircumstances involved.
Adjusted interest. This adjustment for interest is made to cover
the interest for the period between the time the loan is closed and the
date of the first monthly payment on the mortgage. This 'represents,
in effect, a prep~yment of lDter~t on the 10l!-n and would represen$
oart of the total mterest to'be 'palC;l over the life of theloan,"

- 12 -

of the contract.

For purposes of comparison with other annual

rates this periodic rate is expressed in an annual rate.

r would like to emphasize that this annual rate becomes
i~al

and true as it is actually applied to bhe periodic credit

balances.

As each payment is made, this rate ib applied to

determine the portion of the payment that is applied to the
finance charge, with any remainder of the payment used to
reduce the principal.

This procedure is strictly in accordance

with the United States Supreme Court decision in 1839 and is
generally known in consumer finance as the United States Rule.
Although the actuarial rate is no stranger to horne financing or to the business and financial community generally, it
has failed up to now to gain widespread acceptance in the
consumer credit field, in part because tables were not readily
available for short terms and for the wide range of rates which
are charged.

Also, consumer loans are frequently made to persons

whose wages and salaries are irregular and whose ability to repay may also be irregular, thus presenting special problems.

r am exceedingly pleased and proud of the tables that have
been produced by our Government Actuary.
These tables can be used to find the actuarial rate for
any contract, however irregular the payments may be.

Only the

common facts normally required in a contract need be known:

The

schedule of payments, the finance charge, and the amount financed.
The tables can be used equally well to find the finance charge,

- 13 -

if the rate, amount to be financed and payment schedule are
known.

And, some dealers may use such tables to find the

payments required to payoff an amount to be financed at a
given rate and finance charge.
This is a recital of what most of us learned in seventh
grade arithmetic, namely, that there are four parts to the
equation !=Prt and if three of the four terms are known, the
fourth can be computed.

This was simple arithmetic for straight

single payment loans, but for instalment loans, unless one starts
with the rate and constructs a schedule of payments using the
United States Rule, a table is needed.

We now have such a

table~

It has been predicted that the necessary set of tables would
be the size of the Manhattan telephone directory.

I have here

in my hand a 20-page table covering a range from 8-7/8% to

14-7/8% for periods of one to 60 months.

The complete set of

booklets for ranges from 0 to 42% with a 3% overlap in books
would number only 260 pages.

Few creditors would need more

than two books.
Gentlemen, I also wish to point out that a major portion
the
of/table is for values needed only to accomodate irregular
payments.

We published these books to prove, however, that

irregular payments present no technical obstacle to the disclosure of credit cost and annual rate, and that such a set
of rate tables could be produced.

Having proven this, we

believe greater simplification is possible.

I am impressed

- 14 by several facts which convince

me that we need not burden

the industry with this detail:
(1)

First, our best information indicates that fewer

than 5% of credit contracts are irregular.

Many of these

could be treated as regular contracts without greatly affecting the accuracy of the rate calculation.
(2)

A majority of the states, which have retail instal-

ment sales and small loan acts, require payments to be made

in "substantially equal periods of time and substantially
equal amounts."

This is essentially the law in at least 22

States.
(3)

Many of the States tolerate certain minor irregular-

ities or provide convenient interpretations that avoid the
necessity of counting days and allow slight deviations in
payment, especially the final payment.

One State,for example,

counts any time lapse of 15 or more days as one month, so that
all payments can be considered to be monthly for

purposes~of

computing the rate.
(4)

The U. S. Department of Agriculturetwhich is responsible

for extension of considerable amounts of farm credit, and therefore should be aware of any special problems of farmers whose
repayment schedules are timed to the sale of cash crops and not
to a monthly salary, has not raised any problems related to
irregularities in scheduled payments.

Farmers and school teachers

are the groups more frequently cited as needing special considerations.

Teachers credit unions use the actuarial rate quotation

with no apparent problem.

- 15 -

(5)

The Department of Defense Directive is based on

a monthly repayment schedule, and to my knowledge has not
created special problems for creditors.
I conclude, the regulatory authority should be able
to find ways to accomodate most of the irregularities, and
still preserve the objective of the bill to require disclosure of
a reliable comparative rate as well as cost, in ways which will
make it possible to reduce the 260 pages to one page.

And I

submit this one page table, which you will recognize as the
table Treasury supplied to the Department of Defense.

I esti-

mate that this one page can handle all but a small minority
of contracts.

Creditors wishing to accomodate customers with

very peculiar credit requirements can "tailor make" contracts
using the detailed tables or by constructing a schedule of
payments.
Forms of Credit
The disclosure of finance charges is given in two sections.
The first pertains to contract or closed-end credit, and the
latter to revolving or open-end credit.
There seems to be a disposition to tag these two forms
of credit to the credit vendors and lenders who developed the
forns.

That is, some refer to the open-end form as "retailer"

credit and the contract form as cash loan instalment purchase
credit.

- 16 Such references are both inaccurate and unnecessary.
They are inaccurate because open-end credit is no longer
used exclusively by stores.

Banks are rapidly including

this form of credit extension in their services.

Contract

credit is not limited to financial institutions but is a
major form of retail credit.
This terminology is unfortunate, for it relates to
the sources of credit and not to the purpose of the bill
to disclose essential information to the consUmer.
The two types of credit recognized by the bill
reflect the facts:

m~rely

Consumers may contract for an amount

of credit at a certain cost to be repaid by meeting a fixed
schedule of ?ayments, constructed at a certain rate.

That

is all four components are known and embraced in the contract.

Or, the consumer may contract for a "line of credit"

to be repaid under broad repayment guidelines, with the rate
known but the finance charge not known until the credit is
actually used.

Consumers need and business can supply both

closed-end (contract) and open-end (revolving) credit.

Both

ar.e legitimate and desirable forms of credit; each requires
comparable disclosure.
Sec. 4(a) of S.5 requires disclosure of the basic elements
of the closed-end contract, allowing both parties to agree in
subsection (9) to terms which would be imposed in the event of
deviation from contract terms.

This might provide both parties

- 17 an opportunity to make suitable accornodations to minor irregularities.
We have worked out examples of various types of contract
credit to prove the workability of the table, and we have also
reworked these problems, waiving the irregularities, to indicate how simplifying rules do not greatly affect the disclosure.
Sec.

4(b),apply~o

straightforward.

open-end credit, seems to me also to be

I appreciate the fact that many creditors

now quoting a monthly rate of 1-1/2% would prefer not to quote
18%.

But if this is a requirement for all, its impact on any

one creditor will be fair.

I am not convinced by the argument

that this higher rate disclosure will affect their sales.

far as I know, there is no evidence that full disclosure
requirements in any area have adversely affected the interests
of legitimate businesses engaged in that area.
The Dollar Rate
I should also like to discuss the argument advanced that
consumers do not understand percentages or rates, but do understand dollars.

The argument is made that credit should be ex-

pressed as a dollar add-on rate and not as a percentage rate.
1.

The dollar cost of a credit contract is unique to

that contract: it is not comparable with contracts of other
amounts and duration.

Some help is afforded if the facts are

- 18 expressed as finance charges per $100 of the contract.
is the term needed for use of our tables.

This

This does not

provide comparable information because of different durations.
2.

The dollar

per hundred per year.

add-on

rate is usually quoted as dollars

I am disposed, however, to argue that

even casual readers of highway signs and newspaper and TV
advertising are more familiar with the % sign as an expression
of rate.

Furthermore, the finance industry must find percentages

to be meaningful or it would not spend such large sums in advertising percentage rates.
3.

But I understand that the proponents of dollar add-on

mean something more than this:

They propose that the dollar

add-on expresses the rate to be applied to the amount to be
financed and not to the credit used.

Since in instalment

credit the amount used is approximately 1/2 the beginning
amount of credit extended, the actuarial rate is approximately
twice the dollar add-on rate.

It is, perhaps, because this

half-rate seems so economical that the creditors are inclined
to view this as the type of rate consumers seem to understand.
Why should we have a double standard?

Why should a finan-

cial institution quote dollar amounts to the public when lending
money and percentage amounts when borrowing money from the
public?
If dollar add-on is what ought to be quoted, this single
standard of disclosure would require that a bank currently

- 19 -

paying 4-3/4% on savings would be required to advertise:
"Our dollar add-on rate on savings is $2.59".
This may seem ridiculous, but that is the way I view
the entire dollar add-on argument.
I am convinced that we should stop thinking in terms
of a double standard of one set of terms for credit customers
and another for many of those same people when they are
depositors.

- 20 Workability of S.S

I want now to return to the question of workability, and
to nail this down once and for all.
The Committee has been provided with a set of tables prepared by the Government Actuary, and I would like to go
through some examples with the Committee, first demonstrating
that with relative ease even an ex-Congressman can find the
annual rate for any credit transaction with a high degree of
accuracy.

Then I want to demonstrate that with an acceptable

degree of tolerance, even these calculations can be greatly
simplified except for the most extraordinary and improbable
kinds of credit deals.
Example 1.

My first example is the most usual type of

instalment credit transaction -- a series of equal or level
payments.

This is the ordinary type of instalment credit con-

tract that a consumer enters into when he buys, for example,
a refrigerator or a washing machine or an automobile on time.
This is Example 1 on page 1 of the blue book.

The con-

sumer buys an automobile for $2,500, pays $500 down, and has
a balance of $2,000 to finance.
months are $67.22.

His monthly payments for 36

36 times $67.22 is $2,419.92.

The finance

charge is the difference between this and $2,000, or $419.92.
The finance charge per hundred is $419.92 divided by the number
of hundreds in $2,000; this gives $21.00.

- 21 Now to find the annual rate of finance charge, all we
have to do is to look down the first column in the table (page
9) to 36 months:

Look across to find $21.00, which lies be-

tween $20.65 and $21.08, and read up to 12-3/4 percent.
there's our answer.

And

That wasn't hard.

Example 2 is a variation of Example 1.

In some cases

the arithmetic on an instalment credit contract doesn't work
out exactly and the last payment is adjusted either up or
down.
So let's look at Example 2 on page 1 of the blue book.
Here we have a television set which is sold for $395.
The finance charge is $39.50 and the instalment contract is
for 18 months.
The first 17 payments are level -- $24 each.

The final

payment is $26.50.
First we calculate the finance charge per hundred.

is $39.50 divided by the number of hundreds in $395.

This

gives $10.00.
Since we have an odd last payment, we need to turn to
page 25 of the blue book to the Odd Final Payment Table.

look down the first column to $25 -- the amount of each level
payment -- and across to $26.50 -- the amount of the last pay-

ment.

This falls between $26.25 and $28.75, so we read up

between these two figures and find a string of +.1 adjustments

- 22 in the little table at the top.

The first column in the

little table tells us that if we have over 12 payments we
use the correction on the bottom line, which is +.1.
this to the number of monthly payments.

We add

This makes it 18.1

months.
Now we turn to the Annual Percentage Rate Table (page 7),
look down the first column to 18.1 months, read across to the
finance charge per one hundred -- $10.00.
$9.93 and $10.14.

This lies between

We read up and find the approximate annual

rate is 12-1/4 percent.
That wasn't very hard either, and it gets easier when
you've done it two or three times.
Example 3 is a series of level payments, but the first
payment is not due for 3 months and 24 days.

Ordinarily in

an instalment contract the first payment is due in one month,
so in this case we have an extension of 2 months and 24 days
beyond the normal first payment date.
First, let's calculate the finance charge per hundred.
The loan

maybe to a teacher who is paid on a nine months

schedule and won't have any income coming in until school reopens

is for $200.

There are 12 payments of $18 each.

The

total is $216, so the total finance charge is $16 or $8 per
hundred.
Now we turn to page 23 to get the amount of the extension
in decimals.

The table is set up so you don't even have to

- 23 calculate the extension.
payment

Just look up the time to the first

down the first column to 3 months and across to

24 days to find the adjustment factor -- 2.80.
Now let's turn to the Annual Percentage rate table (page
5) •

Read down the first column to 12 months.

Move over to

the second column -- the equivalent point in months.

This

equivalent point is the weighted average time that the loan
is outstanding.
ment -- 2.80.

Find the value there -- 6.44.

6.44 plus 2.80 is 9.24.

Add the defer-

Look down the second

column to find the value closest to this number.

9.22 is a

little closer than 9.27, so we read across the table from

9.22 to locate the finance charge per hundred -- $8.00.
falls between $7.87 and $8.07.

This

Read up and the approximate

annual rate is 10%.
I'm going to skip Example 4.

This is just a combination

of Examples 2 and 3.
Example 5 on page I of the blue book is a single payment
loan.

When we've covered this, we will have covered probably

95 percent or more of all consumer credit contracts.
In this case we have the purchase of $250 of merchandise
to be paid for in 3 months and 21 days with a single payment
of $257.50.
The finance charge is $7.50 -- $257.50 minus $250.
finance charge per hundred, then, is $7.50 divided by the
n~er

of lOOts in $250.

This gives $3.00 per hundred.

The

- 24 -

Now let's turn back to the Deferment Table on page 23.
The payment is due in 3 months and 21 days.
the first column to three months.

Look down

Read across to 21 days.

The deferment is 2.70.
Turn to the Annual Percentage Rate Table.
payment -- first column.

We have one

The equivalent point for one pay-

ment is, of course, 1.00

second column.

factor -- 1.00 plus 2.70

and read down the second column

to the nearest value to 3.70.

Add the deferment

3.68 is a little closer than

3.73, so we read across from 3.68 to find the values between
which the finance charge per hundred lies.
$2.99 and $3.07.

$3.00 is between

Read up to find the approximate annual

rate -- 9-3/4 percent.
Now I'm going also to skip Examples 6, 7 and 8.

These

and Example 9, which I want to go through, are not problems
they are demonstrations of the ways in which the table can be
used by lenders in setting their finance charges.
Example 9 illustrates the add-on rate which is very commonly used in automobile finance.
What we have here is a finance charge of $6 per hundred
per year.

There are 18 monthly instalments -- a year and a

half -- so the total finance charge per hundred dollars is

1-1/2 times $6, or $9 per hundred, which is what we need for
the tables.

- 25 Now we turn to the Annual Rate Table (page 7).
month line is at the top of the page.

The 18

Read across to find

the values between which $9 per hundred lies -- $8.83 and
$9.04.

Read up to 11 percent.

By interpolation, a more accurate

rate is 11.08 percent, but the tables are set up so that the
answer should generally be within 1/8 of 1 percent without
this additional step.
The Committee might also be interested in the annual percentage rate for a 6 percent add-on for a two year instalment
contract.
The finance charge per hundred is $6 times 2 or 12 dollars.

We look down column 1 in the Annual Rate Table (page 7)

to 24 months.

Read across to $12.00, which he hit on the

button this time.

Read up.

The approximate annual rate is

exactly half way between 11 and 11-1/4 percent, so it is precisely 11-1/8%.
Now I've also got some more complicated examples, and
then I want to go back and rework all of these examples using
the one page Defense Department rate table.

Then I want to

talk about the simplest problem of all -- revolving credit -and conclude with some comments on mortgage credit.
Example 1 on page 2 of the blue book is a balloon payment.

These are prohibited by law in many States, but even

so they seem to be fairly common.

- 26 The example is complicated because we've also assumed a
deferment, but I thought I should show you that these complications can be handled easily.
in financial mathematics.

It doesn't take a graduate degree

Any clerk who is allowed to set up

an instalment contract can handle the tables.
In this case we have 10 payments of $50 each beginning
in 1 month and 28 days.

The 11th payment -- the final pay-

ment -- is $150, due at 11 months and 28 days.
First, we calculate the finance charge per hundred.
is the fundamental calculation.

This

10 payments of $50 each is

$500 plus one payment of $150 is $650.

The cash price is

$610, so the finance charge is $40 -- $650 minus $610.

The

finance charge per hundred is just $40 divided by the number
of hundreds in $610.

This isn't the easiest calculation with-

out paper and pencil; but the answer is $6.56 per hundred.
The main point to bear in mind in solving these cases
that are really irregular is that the main schedule is a combination of "sub-schedules".

Here we have a sub-schedule of

10 equal payments, and another one of just one payment.

deal with them separately.
Second step.

Looking at the first sub-schedule of 10

payments, let's find the decimal equivalent of the 28-day
extension.

Remember we don't actually have to calculate the

extension.

The Deferment Table (page 23) is set up so that

all you need to look for is the time to the first payment --

- 27 1 month and 28 days.

The table is based on a 30-day month;

this is conventional and is a practice followed by most
lenders in dealing with fractional parts of a month.

The

decimal deferment value for 1 month and 28 days is 0.93.
All right.

Now we go to the Annual Rate Table.

Our first

level payment sub-schedule is for 10 payments (page 5).
down the first column to 10 months.
column to find the equivalent point.
0.93 to get 6.39.

Look

Look across to the next
This is 5.46.

Add the

Move on down the second column to find

this value; in this case we have it exactly.

Then look across

to column 3 to get the equivalent factor -- .610.
Next, we have our second "sub-schedule" of one payment
of $150 which is not due for 11 months and 28 days.

We go

back to the Deferment Table on page 23 and find the decimal
deferment value -- 10.93.

Turn to the Annual Rate Table (page

3), look down the first column to one month -- we have just
one of these payments.

Go across to the second column to find

the equivalent point -- we should have remembered this would
be 1.00 -- add the deferment factor to get 11.93, look down
the second column (page 7) -- hit it again

and across to the

third column to find the equivalent factor

1.108.

Now we have to do some multiplications

This makes it a

little more complicated, but this is a complicated credit
transaction.

Not only that, but it's too compli~ated really

- 28 to be believable.

I can't imagine very many cases of this

kind.
Multiplications:

We have ten payments of $50.

gives a $500 total for the first "sub-schedule".

This

We mUltiply

this times the equivalent factor -- .610 -- to get $305.
In the second "sub-schedule", we have one payment of $150
times its equivalent factor -- 1.108 -- or $166.20.

The sum

of $305.00 and $166.20 is $471.20.
We divide this by the total payments -- $650 -- and
$471.20 divided by $650 is .725.

This is the weighted equivalent

factor, so we turn back to the Annual Percentage' Rate Table
(page 5), and look down column 3.

.725 is closer to .727 than

to .722, so we read across on the .727 line.

The finance

charge per hundred -- $6.56 lies between $6.50 and $6.66.
Read up, and the approximate annual rate is 10 percent.
Now I'm going to do one more example -- example 3 on
page 2 of the blue book.

Examples 2 and 4 are simply varia-

tions of Example 3 and other examples we've already gone
through.
Example 3 is just to illustrate that the tables do work,
since I've never heard of an instalment contract like this
and my staff hasn't been able to explain to me how a credit
seller or a credit borrower could get involved in this kind
of arrangement.

- 29 Anyway, we have this schedule:
a
a
a
a
a
a

payment of $100.00 at 1 month and 9 days
payment of $100.00 at 2 months and 1 day
payment of $75.00 at 4 months and 10 days
payment of $65.00 at 5 months and 9 days
payment of $25.00 at 8 months and 6 days, and
final payment of $51.83 at 10 months and 8 days.

Total payments amount to $416.83.

If the cash price is $400,

the finance charge is $16.83 and the finance charge per hundred
is $4.21.
Now we need to make up a table, listing the amounts of
each payment (see table p. 31).

Then we turn back to page 23

to the deferment table and read from it for each payment the
decimal deferment value.

1 month and 9 days, 0.30; 2 months

and 1 day, 1.03; 4 months and 10 days,
days,
9.27.

4.30~

3.33~

5 months and 9

8 months and 6 days, 7.20; 10 months and 8 days,

And we set these values down next to the payments.
Now we go to the Annual Percentage Rate Table.

The equiva-

lent point for 1 payment is 1.00 so we add 1.00 to each of the
deferment values.

Then we look down column 2 to the adjusted

deferment values and look across to column 3 for the equivalent
factors which we need to copy down because we are going to
multiply each payment by its equivalent factor.
Going down the line in column 2 we find that 1.30 in
column 2 gives us .127 in column 3, 2.03 in column 2 gives us
.199 in column 3, and so on.
Now we mUltiply the equivalent factors by their corresponding payments.

That is .127 times the first payment of $100 is

12.70 • • 199 times $100 is $19.90 etc., down the column.

- 30 Now we add up all of these products -- $12.70 plus 19.90
plus 31.28 plus 33.15 plus 19.40 plus 49.91 -- and get the
total of $166.34.
ments

We divide the total by the sum of the pay-

that is $166.34 by $416.83 -- and get the weighted

equivalent factor -- .399.
Then we go back to the Annual Percentage Rate Table
(page 3) read down column 3 to the nearest figure to .399
.398 -- read across to the finance charge per hundred -$4.21 -- this is between $4.15 and $4.24 -- read up to the
annual rate -- 12 percent.
Anyone who would go to the lengths of designing an
instalment contract like this surely deserves to have to do
this amount of work.

But it really wasn't that hard and would

be a lot simpler with a proper work sheet.

- 31 -

payment

Deferment 1 month
value

0.30 + 1.00

1.03 + 1.00

3.33 + 1.00

4.30 + 1.00

7.20 + 1. 00

9.27 + 1.00

=
=
=
=
=
=

Equivalent
points

Equivalent
factor

1.30

.127

$100.00

$12.70

2.03

.199

100.00

19.90

4.33

.417

75.00

31.28

5.30

.510

65.00

33.15

8.20

.776

25.00

19.40

10.27

.963

51. 83

49.91

$416.83

$166.34

$166.34 divided by $416.83 equals .399

Amount

Product

- 32 Now I want to go back through these same examples to
illustrate that the determination of the annual percentage
rate can be made even easier if we allow a reasonable degree
of tolerance in the statement of the rate.
First of all, the blue book is a formidable looking document.

I have here, the Department of Defense Table for com-

puting approximate annual percentage rates for level monthly
payment plans.
books.

This is one sheet instead of 11 of these blue

Here are copies of the Defense Department Tables for

the Committee.
It is not as precise.
The rate intervals are wider -- 1/2 of 1 percent to a full
1 percent and more -- and the periods are in whole numbers,
not in tenths.
Even so, I am going to demonstrate that good results can
be gotten from this one page table, covering rates from 5 percent to 36 percent and 1 to 60 payments which compare favorably

with an acceptable degree of tolerance -- with the

more accurate rates determined with a good deal more labor
from the blue books.

And I am going to do this using some

additional simplifications.
Example 1, page 1, is easy.
the blue book.

It works just like it did in

Take the Defense Table.

Look down column 1 to

36 months, read across to the finance charge per hundred --

$21.00 -- between $20.43 and $22.17.

Read up to 13 percent.

33 -

Our answer before was 12-3/4 percent, but I don't see any
reason to complain about that.

If we interpolated, we would

get 12.83% identically from either table.
Example 2.

The odd final payment is $26.50, the level

payments are $24.00.

At a glance we can see that the odd

final payment is closer to 1 level payment thah it is to 2,
so we call it I level payment.

Add I to the 17 level pay-

ments

18 payments.

Table

incidentally I should tell the Committee that the

Read down column 1 of the Defense

Defense Table was also prepared by the Government Actuary,
Mr. Kroll -- read down column 1 to 18.

Read across to the

finance charge per hundred, $10.00, read up to the rate 12
percent.

We got 12-1/4 percent when we used the blue book.

Example 3.

Here we have a deferment -- and right here

I would like to give the Committee a,sheet containing the
rules we are following.

This is labelled Form No. I.

The

rules will take care of deferments and odd final payments,
except for large balloons.

Single payments are also covered.

The finance charge per hundred is $8.00, we calculated
that before.
24 days.

The first payment is not due for 3 months and

That is, the first payment is extended for 2 months

and 24 days.

Double this

to the nearest month

4 months and 48 days.

6 months.

Add the 6 to the number of

payments -- 12 payments plus 6 equals 18 payments.
to 18 months.

Round it

Read down

Read across to the finance charge per hundred.

34 -

Read up to the rate -- 10 percent.
we got from the blue book.
Example 4.

This is the same answeI

Not hard.

We skipped that before.

The finance charge per hundred is $6.29.

It's easier now.
The first payment

is due in only 21 days instead of a full month.
days early.
months.

This is 9

Double that to get 18 days which rounds to .6

We have to go to tenths of months here because we

have a double adjustment, one for deferment and one for odd
final payment.

The last payment, $7.80 is less than one-half

of the level payment amount of $20.

With a quick division

we find that it comes to .4 of a level payment.

- 35 -

Now if we add our adjustments to the number of equal
payments, 10, we get 10 -.6 + .4

9.8 payments.

We used

a minus .6 because the first payment was early, you will

recall.

Now we round our 9.8 to 10 and read down the first

column to 10.

Read across to the finance charge per hundred

$6.29 -- read up to the rate of 13-1/2% (half way between 13%

and 14%).

The blue book rate is 13-3/4% in this case, so we

have a discrepancy of 1/4%.
I"wQ~ld

like to add at this pOint that various degrees

of refinement can be used as the regulating agency sees 'fit.
Converting days to decimal parts of a month is simple enough.
You need only divide by 3 and move the decimal 1 place to the
left.

An Gdd final payment table is not a particular burden.

The Defense Department Table could be made with slightly
finer intervals. What I am demonstrating now is what might
be considered as a starter with respect to the tolerances
which might eventually be set down by the regulating agency.
Example 5, a single payment.
got a rate of 9-3/4%.

From the blue book, we

The payment is due 3 months and 21 days,
so the extension is

2 months and 21 days.

Double this -- 4 months and 42 days.

This rounds to 5 months.

Add 5 to the number of payments -- 1.

Enter the table at 6, read across to the finance charge -- per
hundred -- $3.00.
of 1%.

Read uptolO%.

The difference is one-quarter

- 36 -

We can skip the rest of the examples on page 1,
since as I explained before they really are there to
illustrate how a lender can use the tables to set up payment
schedules.
Now I want to take up the more complicated examples on
page 2 of the blue book.

Then I'll corne to revolving credit.

Example 1 involves a balloon payment which is three
times the normal payment.

I have here Form No. II, which

gives the rules we have to follow in this case.

- 37 -

The level payments don't start for 1 month and 28 days,
so the extension for these payments is 28 days.
56 days -- round to the nearest month -- 2 months
this down on paper.
below it - 11.

Double this
~~

and put

Put the number of level payments down

The final balloon payment of $150 is three

times one of the normal level payments -- put down 3.

Add

up 2, 11 and 3 to get 15 -- in effect treat the payment
schedule as a schedule of IS-level payments.
Defense table to 15 months.

Read across to the finance charge

per hundred -- $6.56 -- read up to 10%.
we got before.

Now go down the

That's the same rate

- 38 -

Now I'm not going to go through the other three examples
on page 2 of the blue book unless the committee wants me to.
I do have the answers worked out, and 'r would like to submit
See page 38a.
a comparative table for the record./ It shows this: That the
approximate method using the Defense tables gives results which
are acceptable even within narrow tolerances in terms of the
more accurate results that can be gotten from the blue books.
Now I want to conclude by talking about revolving credit
this is the department store credit with which all of us are
familiar.
I have heard the arguments:

that some consumers don't

have to pay any service charges because they pay within thirty
days.

That the average rate the consumers pay

is only 8 or

9%, even though the store is charging 1-1/2 percent per month.
We need to get this in focus in terms of the purpose of
the bill, which is to assure that consumers are fully informed
of the cost of credit so that they can make intelligent decisions about how to use credit.
In these terms, it is not important that the consumer buys
a shirt on the 3rd of April, is billed on the 17th of April,
and has until the 17th of May to pay without incurring any credit
charges.

This is a cash transaction, up to that point.

The point

at which it becomes a credit transaction, ~o far as the purpose
of this bill is concerned, is the point at which the consumer
becomes subject to credit charges.

- 38a-

Annual Rate Calculation Comparisons
Blue
book

Short
method

Difference

Page 1
Example 1

12-3/4

+1/4

12-1/4

-1/4

13-3/4

13-1/2

-1/4

9-3/4

+1/4

Page 2
1

10-3/4

+1/4

-1

13-1/2

-1/2

- 39 -

This is the only thing that concerns him.

He surely

is not going to borrow elsewhere to pay off his revolving
credit, unless it is to avoid paying service charges.

He's

not going to draw on his savings except for the same reason.
This is why I say that revolving credit is the simplest
kind of credit to handle for the purposes of this bill.

the store charges 1-1/2% per month, the annual percentage
rate is 12 times 1-1/2 or 18%.

If it charges 2% a month,

the annual percentage rate is 2 times 12, or 24% a year.
Finally, I want to say a word about mortgages.
here a set of Mortgage Yield Tables.

I have

This is publication

No. 135 of the Financial Publishing Company.
Let me show you how easy this is.
This is why I left it to last, because it is so easy.
Suppose our homebuyer wants to buy a$25,000 house, and
he's looking for a $20,000 mortgage.

So he goes to the lender

and arranges a 6% 25 year mortgage for $20,000, and then he goes
to settlement and discovers that he's being charged two points,
$400, and that there are additional settlement charges which are
directly related to the fact that he's getting a mortgage -mortgage recording fees, title insurance, etc. -- amounting to
another $450.

This is another 2-1/2 points, so altogether

Our homebuyer is in for 4-1/2 points.

- 40 -

Let's just take the Mortgage Yield Table, turn to page
343, he's in effect paying 4-1/2 points so we look at a price
of 100 minus 4-1/2 or 95-1/2, go over to the last column which
is the yield to maturity, and read off 6.49.

This is the

annual percentage rate that this credit is costing him.

- 41 5ummary and Conclusion
I have spent a lot of the committee's time on the
actual computations needed under 5.5.

I hope I have

demonstrated to your satisfaction that there is no credit
transaction that cannot be solved with relative simplicity
by the tables before you.
I want to remind the committee again that some 95%
of all the credit transactions in this Nation can be computed
easily under the first four simple 2xamples I have cited.
But my experience in Government has shown me that the Congress
is unwilling to place even moderately harsh burdens on only
five percent of the business community.

For this reason, I

have been at pains to demonstrate that even the more complicated examples can be handled with relative ease using the
Defense Department table and some simple adjustment rules.
I would like to conclude with this simple statement:
In my opinion, there is no real debate in the Congress or
in the country over the desirability of the objectives
specified in this legislation. The workability factor seems
to have been the chief stumbling block in the past.

I hope

the effort that the Treasury has put forward has effectively
demolished this objection.

TREASURY DEPARTMENT
(

mEASE 6:.30 P.M.,
"1& April 11, 1961.
RESULTS OF TREASURY' S WEEKLY BILL OFFERING

announced that the tenders tor two series of Treasury
5, one series to be an additional issue of the bills dated January 19, 1961, and the
~ series to be dated April 20, 1967, which were otfered on April 12, 1967, were
~d at the Federal Reserve Bank8 today.
Tenders were invited for $1,.300,000,000,
~eabouts, of 9~ay bills and for $1,000,000,000, or thereabouts, ot l82-day
I. The details of the two series are as fo110"'-8:
The Treasury Department

91-day Treasury billa
maturing J~ 20 1 1967
Approx. EqUiv.
Price
Annual Rate
99.016 Y
.3.893~
99.009
.3.920%
99.01~
.3.905%
!I

t OF ACCEPTED
i'TITlVE BIOO :

High
Low

Average

••
:
r

182-day Treasury bills
maturing Ootober 19, 1967
Approx. EqUiv.
Price
.Annual Rate
98.009
3.938%
97.998
.3.9~
98.003
3.950%
11

Exc~ting 1 tender of $150 000
of e amount of 91-day biils bid for at the low price was accepted
8% of the BIlount of 182-day bUls bid for at the In price li\i"U accepted
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

tr10t

tOn

York
hde1phia
veland
bmond

ant.
cago
Louis

aeapolis
sal City'
las

Francisco
TOTALS

Applied For
Applied For
AcceEted
19,554,000 : $ 22,441,000
29,554,000 I
1,481,838,000
1,682,441,000
849,067,000
19,084,000
1.5,241,000
27,U7,OOO
29,.310,000
29,44l,000
29,341.,000 :
12,250,000
12,034,000
3,719,000
25,641,000
40,855,000
25,144,000
334,116,000
146,896,000
345,556,000
4.5 , 808 ,000
21,54h,000
58,996,000
10,861,000
11,617,000 :
17,137,000
11,220,000
25,168,000 :
29,108,000
19,279,000
14,873,000
25,441,000
195, 447,zOOO
212 2555 2000
10$1 645 2000 :

$2,510,751,000 $1,300,448,000

£I

$2,174,566,000

AcceEted
I
1,741,000
653,888,000
5,284,000
13,064,000
3, 779,0CJ0
9,416,000
23.3,538,000
11,444,000
5,107,000
9,965,000
9,179,000
44 z17302 000
$1,000,518,000

Leludes $273 195 000 non COIlpe ti tiTIt tenders accepted at the average price of 99.01)
lelUdes n07' t:l:J9' 000 noncompetitive tenders accepted at the average price of 98.003
tel' rates ':'e o~ a bank discount buis. The equivalent coupon issue yields are
,01% for the 91-day h1118, and 4.1O,C for the 182-dq bill••

TREASURY DEPARTMENT

April 19, 1967
IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
~2,300,OOO,OOO,or thereabouts, for cash and in exchange for
rreasury bills maturing April 27, 1967,
in the amount of
~2,303,803,OOO, as follows:

~or

9~day

bills (to maturity date) to be issued April 27, 1967,
or thereabouts, representing an
ldditional amount of bills dated January 26, 1967, and to
~ture July 27, 1967,
originally issued in the amount of
1999,932,000,
the additional and original bills to be freely
.nterchangeable.

In the amount of $1,300, 000, 000,

18~day
~pril

bills, for $1,000,000,000, or thereabouts, to be dated
27, 1967,
and to mature October 26, 1967.

The bills of both series will be issued on a discount basis under
ompetitive and noncompetitive bidding as hereinafter provided, and at
,aturity their face amount will be payable Without interest. They
111 be issued in bearer form. only, and in denominations of $1,000,
5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
maturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
one-thirty p.m., Eastern Standard
lme, Monday, April 2 4 , 1967.
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
3nders the price offered must be expressed on the basis of 100,
lth 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
)rwa~ed in the special envelopes which will be supplied by Federal
!serve Banks or Branches on application therefor.

p to the clOSing hour

Banking institutions generally may submit tenders for account of
lstomers provided the names of the customers are set forth in such
!nders. Others than banking institutions will not be permitted to
:bmlt 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
Om others must be accompanied by payment of 2 percent of the face
ount of Treasury bills applied for, unless the tenders are
companied by an express guaranty of payment by an incorporated bank
trust company.

882

- 2 -

Immediately after the closing hour, tenders will be opened at tt
Federal Reserve Banks and Branches, following which public announcement will be made by the Treasury Department of the amount and prke
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the Treasu:
expre s s ly re serve s the right to accept or re j ec t any or a 11 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.
Se tt lemen t for accepted tender s in accordance wi th the b ids must be
made or completed at the Federal Reserve Bank on April 27, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing April 27, 1967.
Cash and exchange tend
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 ~~
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 ~
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 exclud
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunc
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 which tl
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and tl
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.
050

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE

TREASURY'S MONTHLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
tor two series of Treasury bills to the aggregate amount of
$ 1,400,OOO,000,or thereabouts, for cash and 1n exchange for
T~asury bills maturing April 30,1967,
in the amount of
~,401,513,000,
as follOWS:
275~day bills (to maturity date) to be issued May 1, 1967,

in the amount of $ 500 ,000,000,
or thereabouts, representing an
add1t1onal amount of bills dated January 31, 1967, and to
mature January 31,1968, originally issued in the amount of
~OO,967,000,
the additional and original bills to be freely
interchangeable.
366-day bills, for $900,000,000,
or thereabouts,. to be dated
April 30, 1967,
and to mature April 30, 1968.
The bills of both series will be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and at
matur1ty their face amount will be payable without interest. They
~111 be 1ssued in bearer form only, and 1n denominat1ons of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
(matur1 ty value).
Tenders will be received at Federal Reserve Banks and Branches up
o the closing hour, one-thirty porn., Eastern Standard time, Tuesday,
pril 25, 1967. Tenders will not be received at the Treasury
e~rtment, Washington.
Each tender must be for an even multiple of
1,OOO,and in the case of competitive tenders the price offered must
e expressed on the basis of 100, with not more than three decimals,
.g.,99.925. Fractions may not be used. (Notwithstanding the fact
hat the one-year bills will run for 366 days, the discount rate will
e computed on a bank discount bas is of 360 days, as is currently the
cactice on all issues of Treasury bills.) It is urged that tenders
~ made on the printed forms and forwarded in the special envelopes
tich will be supplied by Federal Reserve Banks or Branches on
)plication therefor.
Bank1ng institutions generally may submit tenders for account of
Qstomers provided the names of the customers are set forth in such
enders. Others than banking institutions will not be permitted to
lbm1t tenders except for their own account. Tenders will be received
lthout deposit from incorporated banks and trust companies and from

F-883

- 2 responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of :' pt-rcent 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.
Immed iate ly after the c los ing hour, tenders wi 11 be opened at tr
Federal Reserve Banks and Branches, following which public announcement will be made by the Treasury Department of the amount and pr~e
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 Treasul
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 May 1, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing April 30, 1967.
Cash and exchange tend
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 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 bi lIs are exclude
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereund
need include in his income tax return only the difference be~een
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 th
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revis ion) and th
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
any Federal Reserve Bank or Branch.

TREASURY DEPARTMENT
Washington
FOR RELEASE: UPON DELIVERY
REMARKS OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT THE 14TH ANNUAL INTERNATIONAL
AZALEA FESTIVAL LUNCHEON
GOLDEN TRIANGLE HOTEL, NORFOLK, VIRGINIA
THURSDAY, APRIL 20, 1967, 12:30 P.M., EST
It is a great pleasure for me to have the opportunity
to speak here at the headquarters of the NATO Atlantic Fleet.
It is an official pleasure because NATO, while it is a key
part of our international security, is something more than
that. It also has important political and economic aspects
in today's world, and I am officially deeply interested in
the economic side of NATO.
Apart from this, it is a great personal pleasure for
me to take part in this Azalea festival, and join you in
honoring the charming young ladies who grace it. In
connection with NATO, I feel that it is a most fortunate
coincidence that the young lady who has been selected as
Queen of the festival this year comes to our shores from
Belgium -- an ally small in territorial size -- great in
power -- rich in wisdom -- and courageous in time of
adversity.
The military headquarters of NATO in Europe has moved
this year to Belgium, as you know, and I feel that it is
a happy quirk of history that here at the Atlantic Fleet
Headquarters at this time we are honoring a lovely
representative of the Belgian nation.
At the last NATO Ministerial meeting, Belgian Foreign
Minister Harmel introduced a resolution, which has since
become known as the Belgian Resolution, or the Belgian
Initiative, to set up, within NATO, a high-level commission
for the review and examination of the future course of NATO
in view of changing conditions. This commission will be
particularly concerned with political and economic aspects
of the alliance. It will make a preliminary report to the
Ministerial Meeting to be held in June, and will make its
final report in December.
F-884

- 2 -

To conduct such a review is indeed a wise move at this
point. For we are looking today at a NATO which is in
process of change -- and that change is a tribute. to the vast
economic and industrial advances which the nations of Europe
have made since the end of World War II and the days of the
Marshall Plan.
It is against this current, up-to-date backdrop that
I would like today to take a look at NATO in the context
of the Atlantic Community.
The Atlantic Community has come about for very
good reason -- principally the need for free men to band
together for protection of their freedomo Many of
the underlying factors which brought about the creation
of NATO in the first place continue to grow apace -and despite the headlines, they continue to knit our
nations together.
Time and distance continue to shrink.
Businessmen and technicians continue to weave their
intercontinental links. The jets are loaded these days with
them coming from or going to another continent for some
commercial or scientific purpose. The seats they do not
occupy hold tourists bent on visiting countries other than
their own for reasons of kinship, culture, scenery or sheer
pleasure. The health of our economy is associated with the
health of the economies on the other side of the ocean. And
we know that commerce has become so international that one of
my big problems as Secretary of the Treasury is to work out
with finance officials of other nations improved
international monetary arrangements to avoid restrictions
on this commerce and facilitate the free flow of goods,
tourists and capital.
There are countless and meaningful links of history,
culture, religion and blood. And, of great significance, we
share a history of parliamentary democracy. Ideas of
government and of the freedom of man have flowed back and
forth across the Atlantic. The colonial philosphers drew
much of their inspiration and many of their ideas from the
writings of ancient Greece and Rome as well as their
continental and British contemporaries. Basically we share
the same kind of economic and industrial organizations. We

- 3 -

have stable and abundant economies, the kind which, if
properly harnessed, could do much to dispel hunger and
misery not only in our own countries but in the less developed
areas of the world.
We are truly interdependent -- militarily, economically and
politically. We are a small world and we are becoming more so
every day, despite those who would like to turn the clock back
to a past when the nation-state was supreme. Never has the old
cliche, "Time waits for no man" been more true than it is today.
The clock has passed nationalist thinking.
The North Atlantic Alliance is designed to establish
and maintain security for the region. The treaty signed
on April 4, 1949, opened a new era in the diplomatic history
of the United States, so different from our past history of
aloofness and non-involvement that stretched back to our
beginnings as a nation. May I add it was also a new era
for Western Europe, marking the organization of the mutual
security of that war-torn area on a basis far different
from the haphazard, and often unsuccessful arrangements
of the past.
In the military field, NATO is achieving its basic
purpose. It has prevented any further Soviet encroachment
in Europe. It has helped create an important by-product of greater
reasonableness in Soviet policy toward the West.
It has achieved and, despite French military withdrawals,
maintained an integrated planning and command staff and
logistic structures. In short, if we are enjoying today a
"thaw" in East-West relations, NATO is the peace insurance
which helped bring it about -- and this is no time to drop
that insurance.
In the rightful current emphasis on making NATO "more
than a military alliance" let us not forget that we would
be worrying about other and more tragic problems if NATO
had not been a successful defensive military shield behind
which we could nourish our great prosperity and strengthen
our institutions. No doubt we need some changes and
modifications in the Fire Department we created eighteen
years ago o That recognition of need for change should not
suggest that we need a weaker Fire Department in a world where
violence and force and the threat of force remain so sadly
widespread in the world around us. Let me suggest that it is
fitting and only fair that the allocation of the costs of

- 4 the modernized Fire Department among those protected should
be considered at the same time that the question of forces
and other strictly military matters are considered.
I would like to turn briefly now to some of the economic
and monetary aspects of NATO and the Atlantic Community
which it serves.
All our eyes, these days are turned toward the Kennedy
Round negotiations in Geneva. These negotiations are moving
toward their late April-early May deadline. The United
States' cards are on the table. We want freer trade on a
reciprocal basis. We hope that the barriers will continue
to fall. And it would tragic -- and there be grave
repercussions -- if the Kennedy Round were to fail.
To sustain this trade, we must also assure a
financial viability for the Atlantic Community. And, in
the context of NATO, an important step is being taken to
assure this financial viability. Since last fall, a series
of trilateral meetings have been held by the governments
of Germany, Great Britain and the United States. One of the
purposes of these meetings has been to find a fair solution
to one element of the problem of assuring financial
viability for the Alliance and the Community it serveso
These trilateral discussions came about partly because
of Germany's expectation that in the coming year her purchases
of military supplies from the U. S. and Britain will be
substantially less than in the past. Prior to this, we had
found a solution to the foreign exchange cost of
stationing troops in Germany -- where NATO needs them most -through these German purchases. These so-called" offset"
purchases helped to offset the pressure on the U. S. balance
of payments at the same time that they enabled Germany to
satisfy equipment needs for its NATO commitments in the most
efficient manner.
Now, as a matter of fairness, no ally, ideally, should
suffer a balance of payments loss or receive a balance of
payments gain as a result of participating in NATO. Just
as the nations of this alliance work together to provide
the men and the weapons which all of us must have for our
safety -- so should they cooperate in order to achieve
fairness in the financial consequences which the need for
these men and weapons bring about.

- 5 -

The system of advance agreement among the allies for
purchase from each other of the arms they will need, in
prescribed amounts
the "offset" concept -- can be
discontinued, so that each nation can decide what military
procurement it wishes to make in the light of that
country's obligation to the alliance. However, the allies
should also find other ways to deal with the residual foreign
exchange effects caused by the basing of military forces
away from their native land.
In the tripartite talks which our government is
conducting with Germany and Britain, our position is that
decisions on the force levels each nation supplies should
be made jointly, in NATO, and not unilaterally, and that
they should be made on the basis of broad security
considerations. The talks were designed as a preliminary
to the NATO force level talks to be held this spring. They
are proceeding satisfactorily, and the three governments
will very likely have recommendations for NATO prepared in
a short time.
The tripartite talks could well constitute the takeoff point for longer-range arrangements. These should seek
to remove the foreign exchange constraints which if left
unsolved, will weaken the financial fabric on which our
community depends.
Earlier I referred to the well established fact that
during the eighteen years of the Alliance the economic and
financial power of the Western European members has been
greatly enhanced -- not only by the atmosphere of relative
peace and security that NATO has created, but by a developing
fabric of international economic and financial cooperation.
The monetary reserve position of Western Europe has expanded
to provide financial strength to the individual countries
and to the area. The United states, through its military
expenditures in NATO, has made a clear and tangible contribution
to the building up of the reserves which should be recognized.
The balance of payments adjustment process and new
international monetary arrangements are vital to the
maintenance of the Alliance and the Atlantic Community in
a sound and balanced financial posture.

- 6 -

Today the U. S., after many years of balance of payments
deficits and declining reserves, cannot, as it has in the
past, supply reserves to the rest of the world without
regard to its own reserve position. The supply of the
traditional types of reserve assets -- gold and the
national reserve currencies -- will fall far short of the
demand for reserves in the years ahead. A situation can
be foreseen in which countries will be able. to increase
their reserves only at the expense of losses by other
countries -- and a shrinkage of world reserves, just as
has been the case in the most recent year, can occur
unless a suitable plan for the creation of new reserves is
agreed upon.
It is our hope, expectation and position that at the
Annual Meeting of the International Monetary Fund in
September of this year the Governors will approve the
structure and major provisions of a specific plan. The
political will to bring them about is up for the test in the
forthcoming negotiations. We cannot permit the doubts of one
or two to prevent the rest of us from doing what we know must
be done.
What is it that we seek? We seek the assurance that
when there is a need of reserves as an essential base for
international finance in all its aspects this would not
lead to retreat into stale and timid and destructive
restrictions for want of means to make liquid reserves
available.
We seek an open, competitive, fruitful world economy
as the indispensable means that will permit us, and the
rest of the world, to get on with the work of building a
Greater Society of Nations.
We seek, in other words, the financial underpinning
that will be necessary for the Atlantic Community to do its
job in the world -- in relation to itself, in relation to
aiding the developing societies on toward the abundant
life, in relation to maintaining and furthering the detente
with the Soviet and its allies.
We seek, in short, to assure a better world at peace.
In playing your indispensable role in building this
better world you here at Norfolk have our hopes, our thanks
and our prayers.
000

TREASURY DEPARTMENT
5

April 20, 1967
FOR IMMEDIATE RELEASE
TREASURY ANNOUNCES APPOINTMENTS OF
ASSISTANTS FOR INTERNATIONAL TAX AFFAIRS
Secretary of the Treasury Henry H. Fowler today announced
·tbe appointments of Joseph H. Guttentag, as Special Assistant
'forlnternational Tax Affairs, and Robert T. Cole, as Deputy
Special Assistant for International Tax Affairs.
Mr. Guttentag and Mr. Cole will work in the office of
Assistant Secretary for Tax Policy, Stanley S. Surrey.
Mr. Guttentag will also be Deputy Tax Legislative Counsel
(International), and Mr. Cole will be Associate Tax Legislative
Counsel (International).
Mr. Guttentag, who is 38, was born in Brighton, Massachusetts.
He received an A.B. degree from the University of >·:i.chigan in
1950 and an LL.B. at Harvard Law School in 1953.
Before his Treasury appointment Mr. Guttentag was a partner
in the Washington law firm of Surrey, Karas ik, Gould and Greene.
~ar1ier he practiced law in Detroit, with McClintock, Fulton,
)ooovan & Waterman. From 1954 to 1957, he was in the United
,tates Air Force, Judge Advocate General's Department.
Mr. Guttentag is a former editor of the Harvard Law Review.
ie has written and lectured on various aspects of the U.S. Tax
iystem. He currently is Adjunct Professor of Law at Howard
Jnivers ity, Washington, D. C.
He is married to the former Merna Cohn of Detroit. They
.ive (at 3901 Harrison Street, N. W.) in Washington, D. C., with
:heir two sons.
Mr. Cole, 35, was born in New York City. He received a
.S. degree in Economics from the Wharton School of Finance
nd Commerce, at the University of Pennsylvania in 1953, and
n LL.B. from Harvard Law School in 1956. He also received an
cademic Post Graduate Diploma in Law from the London School of
conomics in 1959.

"885

- 2 -

Prior to joining the Treasury, Mr. Cole was with the
New York Law firm of Nixon Mudge Rose Guthrie Alexander &
Mitchell. From 1957-1959 he was in the United States Air
Force ,Judge Advocate General's Department.
A former editor of the Harvard Law Review, M·'. Cole was
United States Rapporteur, Congress of the Internatiunal Fiscal
Association, held in paris, in 1963.
Mr. Cole is married to the former Margaret Hall of Bury,
England. They presently make their home in Long Beach, Long
Island, and are soon expected to move to the Washington area.
They have two daughters.

000

TREASURY DEPARTMENT
Washington

FOR USE IN MORNING NEWSPAPERS OF
FRIDAY. APRIL 21, 1967
REMARKS BY THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE THE CONTEMPORARY CLUB
INDIANAPOLIS, INDIANA
THURSDAY, APRIL 20, 1967, AT 8:00 P.M., EST
I thought it might be useful to discuss with you tonight
some of the Treasury's thinking on one of the great problems
of our times: the need for a new level of international
cooperation in handling our international economic affairs.
I want to discuss with you two separate aspects of this
proo1em: the need for more adequate international monetary
reserves and the need for better means of handling the
world's balance of payments problem, including a more
cooperative approach to sharing the costs of world economic
improvement and world security.
It is almost two years ago now that Secretary of the
Treasury Henry H. Fowler drew the world's attention to the
need for a fundamental re-examination of the international
monetary system. At the heart of the suggestions made in
July 1965 by Secretary Fowler was a conviction that if we
are to continue the tremendous, and tremendously beneficial,
economic growth and improvement which has characterized the
free world in the post-war era, there would soon be a need
for more international reserves than were likely to be
supplied by additions to official reserves in the form of
newly available gold or U. S. dollars.
The negotiations that began almost two years ago, based
upon these suggestions, were at that time felt in some
quarters to be dealing with a problem that, while real,
would probably not become pressing for some time. But we
in the United States always felt this problem to be of a
more imminent nature than did many people in Europe.
F-886

- 2 Information which has recently become available about
the events during the past two years, very strongly confirm
our view. The facts are that:
During the past two years the traditional
processes by which world reserves are
increased have not yielded a growth of
liquidity;
Such inadequate growth of reserves as has
occurred in the past two years was due to
ad hoc, uncontrolled and impermanent special
factors, that cannot be projected to the future.
What, then, has happened recently to dry up the
traditional sources of reserve increases?
First, the flow of gold into official reserves, which
averaged half a billion dollars a year in 1960-64, has
stopped. In 1965, official reserves got only a quarter
of a billion dollars additional gold. In 1966, gold in
official hands actually declined -- perhaps by as much
as $100 million -- for the first time in modern history.
Second, even though U. S. balance of payments deficits
continued, these deficits did not show up as they had in
the past as additions of dollars to monetary reserves. Why?
The answer lies in another crucial fact: the fact that during
the past two years conversions of dollars into gold .chiefly by France -- have more than offset dollar additions
to official reserves.
Only one conclusion can be drawn from this picture of
prevailing uncertainty as to the future of reserve growth
through presently available processes, and that conclusion
is the following:
We can no longer take continued reserve
growth for granted. Consequently, since we
want our individual economies, and the world
economy as a whole, to continue to grow at
healthy rates, there is no time to waste before
we agree upon a new means for adding to the
world's ability to increase monetary reserves.

- 3 -

Let me emphasize that I am not saying that current
circumstances altogether rule out any further growth of
reserves through the traditional processes for reserve
growth. But that is not the point. The point is that the
reserve needs of the world -- including the need to reverse
the long downtrend in the reserves of the United States -will substantially exceed any such remaining flexibility
that traditional reserves can provide. Consequently, we
should not -- indeed, must not -- wait any longer to set
up the machinery for the deliberate creation of a new
reserve asset.
Now let us look at the balance of payments aspect of
the world monetary system.
The United States has had balance of payments deficits
in every year since 1950, with the exception only of 1957.
These dollar outflows have been the principal sources of
growth in world monetary reserves in the post-war era.
Reserves are increased when dollars that go abroad flow from
commercial channels into the possession of Central Banks and
become a part of a nation's monetary reserves.
By the late 1950's, our dollar outflows had become very
large, averaging $3.5 billion a year on the overall, or
liquidity basis, in 1958, 1959 and 1960. Since dollar
outflows become potential claims upon our gold stock when
those dollars come into the possession of official holders
abroad, these very large outflows built up dollar holdings
abroad to the point that the u.S. Government had to take
action to abate the further growth of such claims.
Beginning in 1961, the U. S. Government initiated a
series of measures to reduce the balance of payments deficit.
It has been -- and is -- our aim to bring our payments into
equilibrium without the use of restrictive measures that
would disrupt trade and travel, and without abandoning our
key roles in free world security and economic development.
Despite a number of adverse developments our deficits,
measured on a liquidity basis, have fallen from an average
of $3.7 billion in the years 1958-60 to an average of
$2.5 billion in the years 1961 through 1964, and, in 1965 and
1966, to $1.3 billion and $1.4 billion respectively. This
radical improvement in the last two years occurred despite

- 4 an increase in net military expenditures outside the
United States due to Vietnam costs exceeding $950 million,
and a decrease in our trade surplus -- also accountable,
in part at least, to Vietnam -- from the peak level of
1964 by $1.9 billion in 1965 and by $3 billion in 1966.
On the official settlements basis, there was an average

deficit of $0.5 billion in 1965-66, compared to a $2.2
billion average in the preceding five years.
In part we are using short-term, temporary measures to
dampen our dollar deficits by moderating private capital
outflows. We are relying on these holding operations to
keep our deficit under control during the period of our
special commitments in Southeast Asia and during the period
required to realize the benefits of our long-range program.
These, of course, may very largely be overlapping time
periods.
This short term holding operation tends to obscure both
the existence and strategy of the basic program we are
employing in the balance of payments adjustment process.
Our basic program -- for coming into a sustainable
equilibrium -- is essentially a long term one, aimed at
solving the problem by making use of this nation's
unexampled economic strength in the context from which that
strength has been derived: competitive free enterprise.
Let me stress that our long term measures for achieving
sustainable payments equilibrium are not matters for the
future. They are in being as a program of action that is
already showing effects. Let me summarize them:
EXPorts
First and foremost, we must maintain levels of costs
and prices necessary for a strong competitive position in
world markets.
In the export promotion field the Commerce Department

is now engaged in a host of important and productive works
which have a direct beneficial impact on exports today
and provide even greater promise for tomorrow.

- 5 The Export-Import Bank has a new re,discount facility,
and it is steadily streamlining its lending and guarantee
programs.
But we realize that more needs to be done in the export
field. To this end, a number of questions are being
raised: Has the Government simplified its regulations -tax and otherwise -- and its financial facilities enough?
Is American business throughout the world as imaginative and
aggressive as it might be? Must more be done -- perhaps
directly -- to stimulate the interest of our commercial
enterprises to sell abroad? Have we done enough to compete
at home, on a fair and nonrestrictive basis, with goods now
imported? We must constantly ask ourselves such questions
and re-evaluate the answers.
Travel
The President has announced that he will shortly appoint
a Special Travel Task Force to recommend means by which the
U. S. Government, working in cooperation with the private
sector, can accelerate foreign travel here. Although the
travel gap has been widening ($1.8 billion in 1966 compared
to $1.3 billion in 1960), receipts from overseas visitors
have doubled since 1960. A well-financed, joint Governmentprivate sector effort can surely bring results.
Foreign Portfolio Receipts
By the Foreign Investors Tax Act, the United States has
attempted to help make the tax treatment of investors in
this country more equitable. The Treasury is now working
with members of the financial community to spread the
realization that U. S. corporate securities are one of our
most promising export products.
In the financial field, several countries have invested
a portion of their reserves in longer term United States
investments. The yields earned by these investments in
long term instruments -- purchased with varying maturities to
provide for liquidity needs -- make them a productive manner
in which to carry official reserves.

- 6 -

It must be obvious to all concerned, here and in other
countries, that the success of this long term program depends
importantly on (1) the continued existence of an open,
competitive and cooperative international economic order and
(2) substantially strengthened multilateral arrangements to
insure the financial viability of programs for free world security
and aid to developing nations.
Although this should be obvious, we nevertheless continue
to find it necessary and relevant to emphasize to our
colleagues from other countries that the way in which the
United States handles its balance of payments problem also
depends on the cooperation it receives from other countries
in the process, and upon the way in which other nations with
major roles in world economic affairs act in dealing with
their own domestic and international monetary problems. We
find it also necessary to emphasize that this cooperation is not
a matter of helping the U. S. deal with its problem, but is
a matter of enabling the world to deal with its payments
problem without: undermining the international monetary
system; subjecting that system to radical and undesirable
change, or withdrawing from commitments involving the
security and development of others.
Let me give you an example.
It is a vital part of our long term payments outlook
that our income from investments abroad should steadily
increase, and should be regarded as a bulwark of long
range U. S. balance of payments strength.
To this end, our voluntary program for temporarily
moderating our private investment outflow avoids cutting off
the flow of United States private investment overseas.
What we do seek is to moderate those outflows by means that
mitigate their impact upon our international payments accounts.
However, permanent long term improvement here depends
importantly upon changes that must take place in other
countries. Why?
One reason lies in the fact that in too many
countries, governments have so pre -empted the flows of
saVings that private capital markets are thin and costly.

- 7 This results in calls upon American financing for
projects in foreign countries that can and should be
financed by foreign capital markets. To give you a
little insight on this problem and its importance:
Between 1958 and 1965, the United States was a
net exporter of capital in the amount of $7.9 billion as
a result of foreign issues on the domestic market less
domestic issues abroad. In the same period, the
Common Market countries were net importers through
security issues, and indeed on overall capital accounts
they had a net influx of almost $1 billion. In
conjunction with that, let us note that in these
years the EEC countries were running surpluses on
current account amounting to $13.5 billion. Thus, not
only was there a failure by these countries to help
adjust world payments by the export of capital, but, by
importing capital they were defeating the balance of
payments adjustment process.
As another example of the role of better
international cooperation in overcoming the world's
payment problem, let us look at the need for better
burden sharing.
The determination of the share a nation should
bear in helping to meet the economic assistance
requirements of the less-developed world and the security
requirements of our community of nations requires difficult
and continuous decisions on a host of issues. These
issues cannot be resolved solely on the basis of domestic
resources or budgetary considerations.
I believe the Asian Development Bank represents the
kind of burden-sharing necessary if the industrial nations
are, together, to promote economic progress in the 1essdeveloped world in the decades ahead. The Bank has capital
of nearly a billion dollars, of which $200 million came from
Japan, $200 million from the United States, $415 million
from other regional donors, and $150 million from
Western Europe and Canada.

- 8 -

While no absolute prec~s~on is suggested in the relationship of these numbers, they reflect a 'realization on the
part of many nations that they have responsibilities, that they
must meet them, and that the United States should not and
cannot bear the whole burden, or even a majority of it any
longer.
We will be asking the Congress this year for new funds
for the Inter-American Development Bank, the International
Development Association, and the Asian Development Bank. In
making each request, we have asked and will continue to ask
ourselves:
(a)

(b)
(c)
(d)

What are other donor countries contributing?
How aggressively have the institutions in
question attempted to borrow in the capital
markets of other donor countries?
What are the recipients doing, through
self-help efforts, to utilize the money
efficiently?
What safeguards are the institutions providing
for donor countries that may from time to
time be in balance of payments difficulty
themselves?

The U. S. Government has acted vigorously on its own
to reduce the foreign exchange costs of economic assistance
and military outlays.
Net dollar outflows on government grants and capital
have been reduced from $1.1 billion in 1961 to an estimated
$736 million in 1966. In addition, there is increasing
effort to make sure that Government-financed exports do not
substitute for commercial exports that would have been
purchased in any event.

- 9 -

Between 1961 and 1965 net military foreign exchange
expenditures were reduced from $2.5 billion to $1.6 billion
despite the Berlin Crisis. In 1966, because of Vietnam,
the gap widened again. But even without Vietnam the burden
on the United States balance of payments from its contribution
to international security could be large. The United States
has vast resources -- we have been and are willing to
utilize them generously in the defense of freedom but the
foreign exchange problem adds complications.
It comes down to this: alliances which rest on important
political, social, economic and military plans should not be
made vulnerable because foreign exchange financing problems
have not been resolved.
We should be able -- indeed we must find ways -- to
work constructively with our allies on forms of multilateral
financial arrangements designed to neutralize the foreign
exchange consequences of the locations of our troops and
those of our allies. The arrangements should be long term
and provide financial viability to our alliances. Discussions
now under way between the United States, the United Kingdom
and the Federal Republic of Germany designed to work out
security and financial arrangements in a trilateral setting
may point the way to designs that could embrace other
multilaterial arrangements.
It is not only the Treasury that is worried about
the kind of world that we are going to have in the near
future should we fail to act as a community of nations, and
to act soon, to renew and strengthen the types of international economic cooperation that I have been discussing.
Our hopes, and our fears, are widely shared in the Congress
and, I think it is safe to assume, therefore,in the country.
There is concrete evidence of this. Permit me to cite,
in support of my view, the following words from a report of
the Sub-committee on International Exchange and Payments of
the Joint Economic Committee of the United States Congress
issued last fall, and significantly entitled: "Twenty Years
After: An Appeal for the Renewal of International Economic
Cooperation on a Grand Scale". This said:
"The world is in trouble -- deep
trouble -- in at least five different
areas of economic negotiation and

- 10 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."
For many months now we have been asking for a rededication of the great community of nations embracing Western
Europe, the Americas, Japan, Australia and New Zealand to
the proposition that we shall each gain the most individually
when we cooperate to gain the most altogether. We have
reminded our friends and allies that if this rededication
is not very soon seen to be forthcoming in concrete terms
some rather unpleasant alternatives must be faced. These
pleas and warnings have been taken by some as a suggestion
that the United States is in the process of making a radical
change in its international monetary policies.
Nothing could be farther from the truth.
What has been changing, what has changed and what is
subject to even further change is our view of what other
nations can and -- in view of the very much improved economic
circumstances abroad -- what others should do. We think
they can and should do much more by way of cooperation than
they could have done in the past. We think that others
can and should now do unto the world economy as we have
done unto that economy ever since World War II.
Let me spell that our just a little.
We are exerting every effort in our discussion of our
balance of payments problem, in our programs to solve that
problem, and in our negotiatiore for the improvement of
international monetary arrangements to the end that there should
be no change in our basic international monetary policies.
With respect to gold, let me note two recent and
controlling statements by the Treasury:
On January 10, in response to inquiries with
respect to press reports from Paris suggesting that
study he given to raising the price of gold as one
of the means of meeting international liquidity
needs, the Treasury stated:

- 11 "The price of gold is determined
by its relationship to the United
States dollar. This relationship
has been fixed at $35 per ounce
since 1934, and will remain there.
Any suggestion that the price of
gold be raised -- either to meet
needs for additional international
liquidity or for any other reason -is completely unacceptable to the
United States. Future international
monetary arrangements must be based
on this fact. This has been made
clear to French financial authorities."
On April 11, in response to inquiries concerning statements made the week before as to the possibility of any
change in current U. S. gold policies, the Treasury said:
"(1) These statements have no official
standing or inspiration. They
were made by private citizens and
reflect only their avn views;
(2)1here is no contemplated change in
U. S. policy toward the buying,
selling or price of gold.
(3) This has always been our position
and remains so."
Perhaps our posture would be even better understood if
we spelled out just a little the roots of our international
economic policy as it stands today as an index of the
responsibilities of the rest of the world if we are to be
able to continue our policies unchanged.
In the 1930's and during World War II a vast part of
the world's monetary reserves flowed to this country.
In the two decades since World War II, the United States,
has operated as the world's banker, by reason of taking over
the responsibilities of the world reserve currency nation.
In this role the United States has recycled world reserves,
restoring a sound and balanced pattern of monetary reserves
among the nations, in good relation to the size of national
economies and the participation of nations in the world's trade.

- 12 Now the important thing here is to understand clearly
how this was done.
Reserve holdings were restored through the adoption and
long continued operation of a foreign economic policy which
is unparalleled in world history and which has resulted in
an unexampled era of world economic and social and political
improvement. The principal elements of U. S. foreign
economic policy by which a viable and, indeed, highly
beneficial international monetary system has been established
since World War II are the following:
1. A liberal trade policy, by which the U. S. has
permitted most of the world to lift itself
by its own bootstraps through ever more open
access to the largest, richest, and most
swiftly growing market in the world, the United
States market.
2. A liberal view of our responsibility for the
economic well-being of other countries, through
which we have laid out $15 billion for assistance
to Western Europe under the Marshall Plan and,
subsequently, through Fiscal Year 1966
$50.7 billion for development assistance to
the less developed countries.
3. A liberal and conscientious view of our
responsibilities -- in a world too weak to
defend itself -- for the defense of that world
against the dangers of aggression from the
Marxist world. We have borne the chief costs
of this burden and we still do so today.
In the defense of freedom, we have spent no
less than $860 billion from 1946 through 1967.
4. A liberal policy towards the world's need for
private capital under which U. S. bankers and
other businesses have been free to go almost
anywhere with their money without limitations
as to amounts.
It is the dollar outflows resulting from these policies
which rebuilt the world's reserves, chiefly the reserves of
ilie other industrially developed nations in Western Europe,

- 13 -

the British Commonwealth and Japan. The dollars that have
lodged in official accounts as a result of our trade, aid
and capital outflow policies have been used to the extent
desired by foreign governments to rebuild their gold stocks
because we have followed without change our policy of
converting official holding of dollars into gold at $35 an
ounce.
I think it is possible to summarize this whole rather
complex sweep of events fairly simply as follows:
We wound up World War II with a large monetary
reserve. Through open-handed trade, aid, and capital
outflow policies that have benefited the rest of
the world -- and the United States -- to an unprecedented
degree, we have recycled that surplus to fertilize
the world economy and make it grow as never before.
What we now say to the rest of the world may be summarized,
I think, as follows:
The work of rebuilding the world's reserves -- and in
this way reconstituting the world economy shattered by the
Great Depression and World War II -- has been done by the
United States.
The present and controlling fact is that the job is finished.
It is now up to the rest of the world to join with us in
keeping this good work going.
Nations that have continuing surpluses should be
aware that they are just as much out of balance as nations
that have continuing balance of payments deficits.
Nations with continuing surpluses should realize
that there is an obligation upon them to take positive action,
through liberalized trade, aid, defense burden-sharing, and
capital outflow policies to recycle their surpluses to do the
World's work, rather than to hoard their surpluses.
Finally, it should be realized by the world that it is
only in the presence of this two-way balance of payments
adjustment pattern that nations with continuing deficits can
expect, or be expected, to come into sustainable equilibrium
through the use of sound internal and external economic policies.

- 14 -

Let me just add that the plan for reserve creation
that we are seeking during this Summer is completely apart
from the balance of payments problem. No one in a reasonable
frame of mind can suppose that we would seek a new reserve
asset to supplement dollars and gold only to weaken the
value of that asset by attempting to use it to finance chronic
payments deficits. Our objective is to reach balance of
payments equilibrium by the virtues of our own economic
strength and through the soundness of our own economic policies,
operating together with the appropriate cooperative actions
of the rest of the world along the lines that I have just
mentioned.

000

TREASURY DEPARTMENT
!!

April 20, 1967
FOR USE AT NOON
THURSDAY, APRIL 20, 1967
TREASURY ANNOUNCES
COUNTERVAILING DUTY ORDER ON STRUCTURAL
STEEL UNITS FROM ITALY FOR
ELECTRICAL TRANSMISSION TOWERS
The Treasury Department announced today that it has
sent to the Federal Register for publication a notification
of countervailing duties to be imposed on importations from
Italy of steel units for electrical transmission towers.
The countervailing duties will be assessed on all
importations of these steel units entered following 30 days
after publication of the notification in the Federal
Register. These duties are intended to counteract subsidies
paid by the Government of Italy on exports to the United
States of the steel units in question.
The amount of the countervailing duties will be equal
to the amount of the subsidy. This was declared in the
Treasury Department's notification to be 13.67 lira per kilo.
At the current exchange rate of the lira, this is equivalent
to $22.40 per long ton (2240 pounds).
The countervailing duty action is the result of an
extensive investigation conducted by the Bureau of Customs
following a complaint of subsidization submitted by an
ad hoc committee of galvanized transmission tower fabricators.
The committee's complaint was filed pursuant to section
303 of the Tariff Act of 1930 (19 U.S.C. 1303).
The following fabricators were represented on the a~ hoc
committee:
Nashville Bridge Company, Nashville, Tennessee
United States Steel Corporation, Pittsburgh, Pa.
F-887

- 2 -

Lehigh Structural Steel Co., Allentown, Pa.
Bethlehem Steel Co., Pittsburgh, Pa.
Blaw-Knox Company, Pittsburgh, Pa.
Anchor Metals, Hurst, Texas
Muskogee Iron Works, Muskogee, Okla.
Creamer and Dunlop, Tulsa, Okla.
Flint Steel Corporation, Tulsa, Okla.

000

TREASURY DEPARTMENT

April 19, 1967
In response to inquiries, the Treasury Department said
today:
The Treasury has no comment on the Communique of
the Finance Ministers of the EEC nor on press reports
of the Ministerial meeting at Munich pending further
clarification.

Representatives of the EEC countries

will be attending meetings beginning next Sunday of the
Group of Ten and Joint Meetings of that body with the
Executive Directors of the IMF.

At those meetings, the

positions of the EEC countries can be more accurately
determined.

The U. S. position with respect to

international liquidity is unchanged.

The United

States continues to believe that there is a pressing
need for a plan that, when activated, will provide an
adequate supplement to monetary reserves of gold and
dollars, so as to insure the continued growth of a
sound world economy.

000

RELEASE ~Ifn

'f...

DAY, APRIL 21, 1967
Address of the lIonorable Robert A. Wallace .~, ~ ~.
Assistant Secretary of Treasury
Before the
Annual Seminar of the Municipal Treasurer's Association
Disneyland Hotel, Anaheim, California
April 21, 1967, 2:15 p.m. PST
\

.' ....J

THREE TAX ISSUES IN TilE NATIONAL ECONmW;
THE 6% SURCIIARGE, INDUSTRIAL BONDS AND REVENUE SHARING
One of the rare opportunities enjoyed by tllost" of us serving in
the Government is meeting from til"1c to t~me ,~ith distinguished groups
from different parts of t:le country. It is a special privilege for ne
to lfle0t tod.::ty ~vi t:l t:lC Treasury's municipal countcrp.::trts :lCrc ill
California, and to silare liith you some thoughts about T:lutters of nutual
concern.
T;lcrc has all..rays lJeen mUC,1

corm~lent

about t:le stepped-up acti vi ties
l!e)"lever, it S0eu:~ to 1'1(; t,lat
CVCI: gr~:lter changes have occurrc:J ill the H1Unicipalities, 'tJilere t,le vast
nc\V cliallcllteS of tOlby's J,o;Jilc society llCl1l::l.Jld dilibCIlt effurt an~
resuurcefulness froill cac:, of us. 'r:le sheer ;Hoxiilitj' of LUbe llumb,-"rs of
l)t'Ollle tHings sllcciul 1)ro~)lcI:1S and custs to citl ~:ovCrI1lncHts.
Your
particular jo;)S -- tae rcsponsL)ilitiBs as wdl as opportunities -can :)C \lell uescribcu wit:l one of t,lC neh'cr phrases: That's ,v(lere t:IC
action is.

anu L;rmving co);]plexity of Federal finances.

For exaIllj?lc, I al:l cOllfidcgt t:lat tile average CItIzen Joes not realize
just hOI, Tilucil Ilis own G.Cli:ands for lilUnicipal puLllic il'iprover.Jcnts and services
llave ~:ro'~ll ill tlw past 2,,/ rears. Local eX1lcn,"litures -- incluJi,lA eJucation,
transiJortation, cleaner l/ater, oj)jJortullitic:s for recreation, and ~Cr;la~lS
r,lost vital of aU, ecollomic 0t'IJortunity -- lcapeu frat:' S') billion in 19M;
to al)out S50 billioJl in 1:)6(,. 1\5 a consequence, locol taxes nave multiplied
as ilas local deht. Local deot :las bailooneu to six tir:les its size 20 years
ago \vhilc the Pcderal de~)t lJO".vLl -- even \~itjl i~orca and Viet i';arl -- il<lS
Jrift cd u}) only auout a .!::"ourt,\ -- less tJ1aIl OIle and a half I)(.:rccnt J. year.
"\lJJ, as you ~;nO\v Letter t;Wll anyone else, it is t:le T~l.micip::ll
treasurcr who must collect existing local taxes, elreara up ncw methods of
financing cor.1ffiunity improvements, anel nanagc growing ucbts. T;lis means
your responsibilitics nave piled up. Yuu need skilled tcc;micians to help
you meet the challenge. /\1lc.l -- perhaps more important -- you also necJ
political acumen to survive.

,'Jot t:wt I would bel itt Ie our feueral fin<1ncial pro;) lcms, even for a
minute. Twenty years ago t;ICY had already reac!.eJ (~2S0 billion. fortunately
our debt hasll't grown as fast as yours or l~e woule:. be stTIlggling to manage
a one and a half trillion dollar reueral debt. We have enougil troubles
\vitn the present "level of $331) billion.

- 2 -

This is my first visit to Disneyland, but I dare not tarry.
Otherwise, critics may claim that future Treasury policies originated
here in Fantasyland.
The Proposed 6\ Tax Surcharge
Last January, I think at least a few were firmly convinced that
we had already spent some time here. They apparently felt that only
Fantasyland could have spawned a proposal for a tax increase when the
national economy seemed to them to be headed for a recession. After
all, hadn't the last three months of 1966 witnessed a slowdown in
personal consumption expenditures, a piling up of unwanted inventories,
a deceleration of investment and housing starts at the lowest level
since 19571 How could the Administration project a surging economy
needing a tax hike in the face of such indicators?
I thought I overheard one observer remark that Treasury, rather
than Adam Clayton Powell, should have issued the record, "Keep the
Fai th, Baby."
Blind faith, of course, played no part in formulating our
recommendations. As Treasurers yourselves, you know that tax increase
proposals do not win popularity contests. So you also know that
such a policy would never be advanced without the most careful
analysis and thorough consideration.
When the 6% surcharge was proposed last January, we fully expected
that the first half of 1967 would be sluggish. What else could we
have anticipated with sales increases slowing down in the midst of
bloated inventories? Therefore, the April estimate of First Quarter
GNP showing only a $5 billion increase did not surprise us.
But, we estimated and still expect a very different picture in
the second half of 1967. That, of course, is the basis for the
tax proposal.

- 3 Of course, those of us who study economic trends possess no powers
) foresee all eventualities. In the absence of such powers, we must depend
1 the simple tools of logic and the best statistics we can muster.
We noted,
lr example, that while consumers had not been buying as much as usual, the
let remained that personal income was high and growing.
People obviously have been increasing their liquid assets as evidenced
,the jump in the amount of savings flows into the nation'S thrift institutions.
I the potential buying power is
there. And, we can still expect a resumption
. a higher rate of economic acti vi ty in the second hal f of 1967.
In the meantime, while individuals may temporarily be saving more than
Personal
ending for services has maintained a fast pace. Your own expenditures for
nicipalities -- in fact all expenditures of state and local governments -e still pushing strongly upward. The defense expenditures of the Federal
vernment will keep on rising, and higher transfer payments are sure to
ne from Social Security benefit hikes. Meanwhile, easier credit conditions
ve already begun to loosen the logjam that held back housing expenditures

ual, many kinds of expenditures have continued to move higher.

year.

All this means rising demand which should stimulate business investment
lestment that can be more easily financed in this year's money and capital
~kets .
The strong rise in demand, which our analysis indicates will occur
er in the year, could lead to growth at rates which cannot be sustained
hout inflationary pressures.
The recent spate of good news -- upturns in industrial production,
sing, retail sales and bank credit; the containment of price increases
unemployment levels -- supports our proj ections for a higher rate of
wth. Thus. our January projection of a slow first half and a hooming
ond half, which critics have panned is actually panning out. We were
fident that it would, but we have, nevertheless, maintained a safety
tor: the tax increase was not proposed to take effect until it will
tleeded, after midyear.
We are not attempting to predict exactly when the economy will shift
high gear or when we should start easing on the brake with a tax
:harge. I am sure that it will not be done until our projections of a
Inger second half of 1967 can be backed up with more statistical evidence.
I firmly believe that such evidence will become abundant.

- 4 -

liithout tax rate increases we have withstood $20 bi Ilion of extra
defense expenditures since the Viet Nam escalation began in July 1965 J
and ,,,e \-Jill spend an additional $S billion before June 30. But, total
defense expenditures will rise still another $5-1/2 billion in fiscal 19()8
and we are convinced that it must be financed out of current revenues if we
are to avoid new inflationary pressures. At the same time J proposcd
civilian expenditures have been held to minimum levels J and we hope very
much that Congress will not increase them. Thus, without the proposed
surcharge, we would face a budget deficit of some $13 billion -- clearly
inflationary when imposed on an economy with Ii ttle slack.
President Johnson's tax reduction programs of 1964 and 1965
cut our tax payments by $24 billion at 1967 income levels. A 6% surcharge
would reduce this tax saving to about $18 bi llion. Three-fourths of t!lC
earlier tax cuts would, therefore, remain in force.

In considering whether a 6°6 surcharge to finance added spending to
support our soldiers in Viet Nalll is asking too much of Americans J we should
~ear these points in mind.
Tax Exempt Industrial Bonds
Let me turn now to another subject of particular ,Lnterest to you as
municipal officials concerned wi til improving the economic and industrial
bases of your areas and to the Treasury which is responsible for tax policy.
This concerns the issuance of tax-exempt secun tles to finance aid to
pri vate companies locating in particular States and localities.
At present, State and local governments in about 32 States may
issue tax-exempt industrial development bonds in order to build facilities
for lease or sale to private companies, for purposes of attracting industry
into tile area. We estimate that through 19n6 more than one and a third

billion uo11ars of industrial developmcnt honus have been issued, most
of it since 1960. The recent increas es result from the fact that more States
anJ localities have begun to use ti1is device -- some to finance facilities
for use 'oy very large companies whose fixed capital re4uiremcnts arc quite
extens i ve .
OVer the years there has been considerable discussion concerning the
use of tax-exeTiliJt oonds for tllis purtl0se, and ti,is issue lIas become a

very significant one in ViC\1 of t:1C nWilber of States and locali ti td.es
involvcu anti as companies of considerable size are gaining advantage from
tile usc of funds secured tJ1rougll tax-exempt fi naneing.
As Secretary Powler pointed out in a statement ilefore tile \~hite ilouse
practice of

Conference for State Legislative LeaJers last June, tlle

- 5 industrial development bond financing is defended on the grounds that it
helps to bring industry and jobs to low-income, labor-surplus areas.
lIowever, thoughtful critics have prophesied that the practice would
eventually become self-defeating. The advantage to any State or
municipality decreases as more States and locali ties enter the field.
Recent experience appears to support this view. If this trend
continues, a situation will develop where large amounts of Federal funds
are being expended through the tax exemption feature with no corresponding
economic benefit. Industrial development bond financing is therefore a
high priority issue under active study by the Treasury Department.
Apart from the fact that no locality can attract finns with promises
of industrial development bonds, if all other localities are doing the
same thing, there is another serious problem in industrial development
bonds of \vhich you should be aware. This has to do with the mechani cs
of tax-exempt interest which causes interest costs to rise.
If there were in existence only a few tax-exempt bonds, one would
expect that these would be bought up by the few high rate taxpayers
\~ho would benefit most by tax exemption.
There are an appreciab Ie
number of individual taxpayers facing a marginal rate of 70 percent.
Thus, if we had only a few tax-exempt bonds, the competition between
these buyers would drive interest rates on these bonds down sharply.
probably to a level close to 70 percent below rates on comparable
taxable issues. In fact, however, there are already a lot of tax-exempt
bonds in the market; and the sellers have had to turn to buyers \~ith
much lower marginal tax rates than 70 percent. The marginal buyer
in a lower tax bracket determines the market rate on these bonds. The
bonds carry, therefore, a much lower discount compared to taxable bonds
than \'vould occur if there were only a few exempt bonds. Our own
recent cstir.late of this discount was only about 30 percent.
If the supply of tax exempts expand much further, this can only
continue to push down even more the discount which tax exempts carry
and thus increase borrowing costs for traditional State and local
functions.

- 6 -

Revenue Sharing
Finally, I would like to touch briefly on the rather delicate and
also extremely complex issues of revenue sharing. The attractiveness
of a new source of funds for State and local use cannot be denied.
Perhaps something may ultimately come of this, but not for some time
for two reasons: First, there are no current Federal budgetary
surpluses -- only deficits, and this will likely continue at least
as long as the Viet Nam conflict. Second, there are a great many
issues to be decided before any revenue sharing program can be
launched.
All of you are aware that the proposals for revenue sharing
take a variety of forms. Of the bills introduced in the 90th Congress,
some propose the return of a percentage of Federal income tax collections
(primarily income tax collections, but in some cases all tax collections)
to the States in which they are collected. Others, like the so-called
Heller-Pechman proposal, would return to the States on a per capita
basis an amount equal to 1 or 2 percent of the Federal individual income
tax base. Still others propose tax sharing to provide Federal assistance
for educational purposes only, others for education, health, and welfare;
and one bill would make the money available for law enforcement. Another
bill would tie the money to modernization of State. and local government
with each State's modern government program being reviewed by regional
coordinating committees and the Advisory Commission on Intergovernmental
Relations before it received a share of the funds.
As to the use of the money, some bills leave it completely unencumbered;
and some bills attempt broad directions as to use. Certainly, the deepest
cleavage as to use of the money lies in the different ways that cities
are provided for. Some bills leave the local distribution entirely to
the State. Others provide that a specific percentage should go to local
governments, although they are usually vague as to what local government
units are to share in the funds.
With such a variety of friends, the idea of revenue sharing hardly
needs any enemies.

- 7 -

The crucial nature of this problem is also highlighted by the
fact that the tent of revenue sharing includes those who want to see
it in addition to the expected growth of categorical grant-in-aid
programs plus others who want to see it instead of some future growth
in categorical grants. It would seem that the revenue sharing
question is subsidiary to a number of expenditure questions, that
must be settled beforehand.
Some supporters of revenue sharing argue that no matter how
expenditures develop some pressure needs to be taken off State and
local tax systems. This, however, is possible without revenue
sharing, for example, by a more generous credit device against Federal
taxes along lines that have been explored by the Advisory Commission
on Intergovernmental Relations. One advantage of these devices,
compared to revenue sharing, is that they preserve the identity
between the government that plans the expenditure and the government
that sets the tax rate. A major disadvantage of tax credits is that
they leave less room for equalization between States.
It has been a real pleasure to be with you here today.
you very much.

00 00

Thank

Supplementary Statement of Robert A. ~allace
Assistant Secretary of Treasury, before the
California ~lunicipal Treasurer's Association, Disneyland tlotel
Anaheim, California, April 21, 1967, 2: IS p.m.
20 QUESTIONS TO BE ANS\~EREO BEFORE DfCISIONS ON REVENUE SJ/AHING CAN DE ~'!ADE

1. Some revenue sharing proposals are based on an anticipated and continuous
growth in Federal revenues. 1I00v much growth in revenues can we be safe in
counting on, taking economic fl uctuations into account~
2. To the extent that there is such a dependable rrowth in Federal revenues,
how should it be divided as hetween (a) tax reduction, (b) greater expenditures for national programs, (c) deht retirement, and (d) more expenditures
for States and localities?
3. To what extent is there a fiscal imbalance between Federal and State
governments? Some studies indicne that State and local governments face
growing financial problems, hut others assert that their rrowing pro?,rams
can he financed without further extensive tax increases.
4. To what extent is revenue sharing merely a device to circumvent State
and local electorates \Vho have rejected new tax proposals designed to
finance additional spendinr?
5. \\:-tat would be the effect of revenue sharing on Federal fiscal flexihil i ty?
Would it be politically poss i hI e to cut back such a program if the nation were
to become involved again in a massive defense effort, or if inflation became
a serious problem?
6. Is it proper to separate the spending and taxing function, with Conpress
levying the taxes but others makinr the spending decisions?
7. \iould the granting of Federal tax credits to individuals for a percentarc
of State and local income taxes })e preferable to fund allocations?
8. Should revenue sharing replace existing grant-in-aid pro?,rmr.s or be in
addition to them?
9. If a partial replacement of existing proprams is contemplated, on what
basis should cutbacks be made?
10. Should fund allocations be made on the basis of annual Congressional
appropriations or direct disbursement?
11. If the appropriations process is followed, would this lead to great
uncertainties each year as to how much money will be made availahle?

- 2 12. If direct disbursement is used. would this be an abdication of the
Congressional power of the purse?

13. What general formula should be used for distrihution of funds?
Distribution of percentage of Federal income tax collections from each
state, per capita basis, proportionately more for the poorer states, or
some other method?
14.

Should funds be used for purposes of national policie.-: or should they
have strings attached?
If strings are attached, how would they be enforced?

15.

If funds are to be used for national purposes, Illhat should these purposes

be -- education, health and welfare, urban renewal, law enforcement or some

combination of these?
16. How should funds be allocated wi thin the States as between the State.
cities, counties, school districts. sanitary districts, park districts, etc.?
17. Should there be standards to assure honest ancl efficient use?
Ivhat should they be?

If so,

18. If stand<1Tds are to he enforced by the Pederal Government, what ap,ency
would enforce them?
19. If standards are to be enforced within the States, this could involve
50 di fferent groups. Would sllch a decentral1. zation of pI nnninr. una
administr:1tion of standards he efficient and appropriate?
20, r,llat <lbout Civil Ri,i,;hts requirements connected Illith
be extended or ignored?

~;rants?

l'iould these

TREASURY DEPARTMENT
q

'OR RELEASE 6::30 P. M. ,
bnday, April 24, 1967.
RESULTS OF TREASURY 1 S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series of Treasury
111s, one series to be an additional issue of the bills dated January 26, 1967,
ndthe other series to be dated April 27,1967, which were offered on April 19,
967, were opened at the Federal Reserve Banks today. Tenders were invited for
1,300,000,000, or thereabouts, of 9l-day bills and for $1,000,000,000, or thereoouts, of 182-day bills. The details of the two series are as follows:
UlGE OF ACCEPTED

)MPETITlVE BIDS:

H1gh
!ow
Average

9l-day Treasury bills
maturing July 27, 1967
Approx. Equiv.
Price
Annual Rate
3.691%
99.067 ~
99.058
3.727%
99.061
3.715%

182-day Treasury bills
matur1ng October 26, 1967
Approx. Equiv.
Price
Annual Rate
98.106
3.746%
980086
3.786~
98.093
3.772%

Excepting 1 tender of $300,000
92% of the amount of 9l-day bills bid for at the low price was accepted
50% of the amount of 182-day bills bid for at the low price was accepted

ITAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL rusERVE DISTRICTS:

District
Boston
New York
Philadelphia
Cleveland
Richmond
~tlant8

Chicago
3t. I()uis
liinneapolis
'{ansas City
)allas
>8.n Francisco

roTAIS

Accepted
A12121ied For
9,444,000
$
19,444,000 $
922,502,000
1,638,642,000
17,781,000
29,944,000
29,210,000
29,274,000
11,505,000
11,505,000
32,519,000
44,619,000
125,962,000
312,962,000
43,612,000
49,636,000
12,266,000
16,306,000
30,763,000
32,763,000
15,448,000
24,528,000
49 , 710 ,000
154,110,000

:
:
:
:
:
:
:
:
:
:
:
:

Applied For
Acce;Eted
$ 25,895,000 $ 15,895,000
807,991,000
1,382,991,000
5,880,000
17,880,000
24,338,000
29,338,000
2,626,000
2,626,000
15,502,000
29,102,000
52,816,000
253,816,000
21,665,000
24,015,000
7,318,000
10,068,000
9,905,000
9,905,000
7,134,000
14,634,000
29 , 269,000
65,619,000

$2,363 , 733,000

£I

$1,865,889,000

$1,300,722,000

$1,000,339,000

£I

Includes $259,206,000 noncompetitive tenders accepted at the average price of 99.061
~cludes $96 137 000 noncompetitive tenders accepted at the average price of 98.093
These rates ~re ~n a bank discount basis. The equivalent coupon issue yields are
3.8l~ for the 91-day bills, and 3,91~ for the 182-day bills.

188

TREASURY DEPARTMENT
Washington
FOR RELEASE:

UPON DELIVERY

REMARKS BY THE HONORABLE HENRY H. FOWLER
CHAIRMAN OF THE BOARD OF GOVERNORS
GOVERNOR FOR THE UNITED STATES AND
SECRETARY OF THE TREASURY
AT THE INAUGURAL SESSION, EIGHTH ANNUAL MEETING
BOARD OF GOVERNORS, INTER-AMERICAN DEVELOPMENT BANK
SHOREHAM HOTEL, WASHINGTON, D.C.
MONDAY, APRIL 24,1967,2:30 P.M., EST
behalf of the Government and the people of the
United States, it is an honor to welcome this highly distinguished
assemblage attending the Eighth Meeting of the Board of
Governors of the Inter-American Development Bank. It is a
great personal honor that has been given to me to preside at
this first meeting in Washington, the seat of the Bank. I
know that the heavy and extensive program of work laid out
for us this week will contribute to the continued success and
growth of this great institution.
On

As in all years, we are meeting to further a great
common cause -- the well being and improvement of our
hemisphere and the world. This year our meeting has a
special significance in the light of the just completed
historic session of our Presidents at Punta del Este,
Uruguay, where our Inter-American Development Bank has been
given major assignments in agriculture, education and health
activities, and in furthering multi-national projects.
These efforts are not only important in and of themselves,
but they are a basic prerequisite to success in achieving
~aningful economic integration and the development of a
great Latin American common market.
The Presidents of our countries already have set the
theme for this meeting when they recognized the benefits of
joint action to accomplish the goals of integration and
development, and stated:
Latin America will create a common market.

889

We will lay the physical foundations for
\atin American economic integration through
multinational projects.

- 2 -

We will join in efforts to increase
substantially Latin American foreign trade
earnings.
We will modernize the living conditions of
our rural populations, raise agricultural
productivity in general and increase food
production for the benefit of both
Latin America and the rest of the world.
We will vigorously promote education for
development.
We will harness science and technology for
the service of our peoples.
We will expand programs for improving the
health of the American peoples.
Latin America will eliminate unnecessary
military expenditures.
A great deal has transpired since we met in Mexico City
a year ago. There has been progress in the Hemisphere under
our Alliance for Progress, and the Bank has continued to
make its important contribution to that progress. We have
increased flaws of external assistance. Further, we have
increased self-help performance in mobilizing domestic
resources and in carrying out necessary reforms. We will
hear further during the next few days haw this institution
of ours, the "Bank of the Alliance," the "Bank of Integration,"
the Inter-Amer'ican Deve lopment Bank, has led the way in this
hemispheric war against special privilege and poverty. We
have come a long way since 1960, for we no longer have to
hold out hope with mere words. There are activities in
operation which further the economic and social being of
the peoples in the member countries. Our Bank, which has
passed the $2 billion mark for loan commitments, has touched
almost every facet of the economic and social fabric in this
Remis phere •
We truly have an historic meeting in front of us. The
Board of Executive Directors and the Management of the Bank,
under the outstanding leadership of President Felipe Herrera,
has had a record year and has developed a full tentative agenda
for our consideration to set the stage for the future. We

- 3 -

are called upon to respond to the needs and aspirations of
the peoples in this Hemisphere by requesting our governments
to expand the resources of the Bank, both in the Ordinary
Capital and the Fund for Special Operations. We have had
submitted to us a recommendation on the admission of the
first new member to this young institution. We are asked
to consider the steps which need to be taken to accelerate
resources from non-member countries to the Bank. Finally,
we will need to act on a new procedure for the election of
Executive Directors.
This is indeed a large task, but I am sure that when
the week ends we will have carried out our responsibilities
and will be able to present to our governments successful
fruits of our labors.
The wide respresentation at this meeting from every part
of the world, covering both public and private institutions,
is another sign of the importance of our institution and
these deliberations. These organizations and governments
have an important role to play in the development of the
Hemisphere. One of the reports placed before us by the
Board of Directors clearly sets forth the positive role many
of the industrialized countries of the world have played in
the development of the Hemisphere through the provision of
resources to the Bank. On the other hand, it also reports
conditions that call for correction where non-member
countries are benefiting from Bank resources without any
commensurate recognition of the Bank's capital needs and
requirements.
It is significant that we have present here
representatives of the foreign and domestic private sector.
We welcome them -- representatives of business, labor and
cooperatives -- and I am sure we do not have to stress before
this audience the truism that the free private sector in
each of the countries is the key to a successful development
effort. The flow of priva te inves tment, which has improved
recently, has not yet achieved the necessary level to
accomplish our broad objectives. It is important that all of
our governments take all possible steps to accelerate and
facilitate that flow. I hope that the Bank may be able to
playa more significant role in this area.

- 4 We should congratulate the Bank management on selecting
as the topic for the deliberations of the Round Table this
year, "Latin American Agricultural Development in the Next
Decade". There is no more crucial facet of the development
of the Hemisphere facing us today than the problems of rural
development.
We have been indeed fortunate in the United States to
have available an up-to-date penetrating survey and analysis
conducted in U. S. Congress on the problems of agricultural
development in Latin America and of the Bank's role. I
commend to the Governors two extremely valuable reports of
the Sub-committee on International Finance of the House
Banking and Currency Committee) under the able and inspired
leadership of Representative l-h'nry S. Reuss. These reports
conclude that the emerging 1;\lorld food crisis can be avoided
in Latin America, where indeed the prospects for expanded
food production are far more favorable than in other
developing areas of the world. Hhat is needed is additional
capital both from domestic and external sources, additional
investments and -- crucially -- more adequate and purposeful
comprehensive planning for agricultural development. The
Bank, too, has taken exceptional intellectual leadership
in dealing with this problem by undertaking a challenging
study entitled, "Agricultural Development in Latin America:
Current Status and Prospects ,11 and has carried this forward
by contuinuing here at the Shoreham Hotel for the rest of the
week the Round Table Discussions.
This year will be an historic year for our Hemisphere.
We have had the Meeting of the Presidents. We are inaugurating
here today our Eighth Annual Meeting of the Inter-American
Development Bank here in Washington. In Se ptember, our sis ter
institutions, the International Monetary Fund and the
International Bank for Reconstruction and Development will
meet in Rio de Janeiro, Brazil, to face some major
international financial issues.
In inaugurating our deliberations I believe we have a
responsibility to take into account the arena of international
financial problems in order to place our discussions in the
proper context. We are actively engaged in negotiations on
the future of the international monetary system and new
arrangements to assure the continued and adequate growth of

- 5 -

international liquidity. This is a matter of vital interest
to us all, and to the future of the Bank, which I am confident
will culminate in historic decisions in Rio de Janeiro.
Another financial problem of hemispheric concern is
the problem of the United States balance of payments.
The termination of the persistent deficit in the United
States balance of payments and the continued strength of
the dollar as the keystone of the international monetary and
trading system remain objectives of the highest national
priority to the United States. The report of the Executive
Directors before us at this meeting provides recognition
that these objectives are also of interest to the Bank,
and I am sure that my fellow Governors will agree that these
objectives are ofcritical interest for each of their nations
individually as well as for the Hemisphere as a whole. What
is required is a continuing cooperative effort, taking
account of the role and responsibilities of the United States
throughout the free world, and designed to avoid actions
which by threatening the United States balance of payments
would also endanger continued assistance to free world
development and the search for growth with stability.
I am pleased to note, as Governor for the United States,
the cooperative measures adopted in the Bank and the further
measures proposed by the Directors for our consideration
during the coming week in conjunction with redoubled selfhelp and mutual assistance efforts. The United States, for
its part, takes its responsibility very seriously -- both
toward the Bank, in which it is the major stockholder, and
toward the Hemisphere. By its actions in the past, and, I
can assure you, today the United States strongly supports
the concepts of multi-lateral assistance embodied in the
Charter, and the important place of Latin America in the world.
As an introduction to a most significant week I have
only sketched for you the highpoints. I am sure there will
be opportunity for all delgations, including the United
States, to comment on these and other important matters.
In addressing ourselves to the task before us in the
coming week, let us bear in mind the words which president.
.
Johnson at Punta del Este addressed to the youth of our nat~ons.
"The time is now. The responsibility is ours.
Let us declare the next 10 years the Decade of
Urgency
Let us match our resolve and our
resources to the common tasks until the dream of
a new America is accomplished in the lives of all
our people."
0

- 6 -

I again welcome all the delgations to my country
and dedicate ourselves to the task at hand which will
influence the future course of this institution.
I hereby declare the Eighth Meeting of the Board of
Governors of the Inter-American Development Bank inaugurated.

000

'REASURY DEPARTMENT
£

RELEASE 6:.30 P.M.,
2S, 1967.

!&, 'prll

RESULTS OF TREASURY'S MONTHLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury

.s, one Slrie8 to be an additional issue of the bills dated January 31, 1967, and
other 11l"1e8 to be dated April 30, 1967, which were offered on April 19, 1967:1 were
led at the Federal Reserve Banks today. Tenders were invited for $.500,000,000, or
'tabout., or 275-day bills and for t9oo,000,000, or thereabouts, of 366-day bills.
det&U. or the two series are as follows:
.g OF ACCEPl'ED
f:rITIVE BIDS:

High
Low
Average

275-day Treasur.y bills
maturing January 31, 1968
Approx. EQUlve
Price
Annual Rate
97.089
3.811%
3.870%
97.044
97.065
3.842% Y

·:
•

:
t

J6~ Treasury bills
maturing April 30, 1968
Approx. Equi v.
Price
Annual Rate
96.122!1
3.814%
96.066
3.870%
96.104
3.832%
11

af Excepting 3 tenders totaling $1,359,000
15% of the amount of 275-d.ay bills bid for at the low price was accepted
16% of the amount of 366-day bills bid for at the low price was accepted
L TENDERS APPLIED FOR AND ACCEPrED BY FEDERAL RESERVE DISTRICTS t

strict
aton

1 franCisco

AcceEted
AEElied For
$
200,000
200,000
410,202,000
946,952,000
4,045,000
5,045,000
655,000
655,000
1,559,000
1,559,000
5,116,000
7,116,000
29,283,000
227,783,000
940,000
2,940,000
8,.325,000
8,950,000
1,275,000
1,275,000
7,100,000
11,100,000
31,385,000
51,635,000

TOTAIS

$1,265,210,000 $ 500,085,000

York

iladelphia
eveland
almond

Lanta
Lcago

, Louis
lIIeapolb

lsas City
Uas

~cludes

•

·
:

£I

~1ied

For
36.328,000
1,102,996,000
10,712,000
13,705,000
5,827,000
8,367,000
267,603,000
8,085,000
3,332,000
4,367,000
11,375,000
62,427,000

$1,535,124,000

AcceEted
i 27,488,000
659,116,000
3,512,000
13,705,000
5,827,000
8,367,000
120,243,000
6,085,000
3,332,000
4,367,000
8,375,000
39 z58 7,000
c/
$900,004,000 -'

$14,924,000 noncompetitive tenders accepted at the average pri~e of 97.065
ncludes $32,688,000 DODcompetitive tenders accepted at the average price of 96.104
'hese rates are on a bank discount basis. The equivalent coupon issue yields are
\.OQJ for the 275-day bills, and 4.01%for the 366-ciay bills.

TREASURY DEPARTMENT
!

April 26, 1967
FOR 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 May 4,1967,
in the amount of
~2,302,827,OOO, as follows:

~or two series of Treasury bills to
~2,300,OOO,OOO,or thereabouts, for

9~day bills (to maturity date) to be issued May 4, 1967,
In the amount of $1,300,000,000, or thereabouts, representing an
Idd1tlonal amount of bills dated February 2, 1967, and to
tature Augus t 3, 1967, originally issued in the amount of
;1,002,103,000,the additional and original bills to be freely
.nterchangeable.
18~day

bills, for $1,000,000,000, or thereabouts, to be dated
1ay 4, 1967,
and to mature November 2, 1967.
The bills of both series will be issued on a discount basis under
ompetitive and noncompetitive bidding as hereinafter provided, and at
laturlty their face amount will be payable without interest. They
'111 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 c lOSing hour, one-thirty p.m., Eastern Daylight Saving
lme,Monday, May 1, 1967.
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,
lth 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
)~arded 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
lstomers provided the names of the customers are set forth in such
mders. Others than banking institutions will not be permitted to
Ibmlt tenders except for their own account. Tenders will be received
.thout deposit from incorporated banks and trust companies and from
!Sponslble and recognized dealers in investment securities. Tenders
'om others must be accompanied by payment of 2 percent of the face
lount of Treasury bills applied for, unless the tenders are
companied by an express guaranty of payment by an incorporated bank
trust company.

891

- 2 Immediately after the closing hour, tenders will be opened at tl
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 Treasu
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his ~ction 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 thre~
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on May 4, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing May 4, 1967.
Cash and exchange tend
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 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 authority
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to ~
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 a~
sold, redeemed or otherwise disposed of, and such bi lIs are exclude
from consideration as capital assets. Accordingly, the owner of
Treasu ry bills (other than 1 ife insurance c ompan ies) is sued hereund
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 tr
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and tI
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
any Federal Reserve Bank or Branch.

TREASURY DEPARTMENT
(

FOR USE IN MORN ING NEWS PA PERS
OF THURSDAY, APRIL 27, 1967

MAJOR STOVER, COMMANDING OFFICER,
WHITE HOUSE POLICE FORCE, RETIRES, APRIL 30
Major Ralph C. Stover, Commanding Officer of the White-House
police Force will retire April 30, 1967, after 34 years of
Government service. This was announced today by United States
Secret Service Director, James J. Rowley.
Major Stover, 56, was born in Elkhart, Indiana. He attended
North Central College, Naperville, Illinois, and the School of
Engineeringat Minnesota University.
Major Stover joined the Metropolitan Police Department
on August 1, 1936 and transferred July 1, 1940 to the White House
Police. During World War II he served in the United States
Navy and re turned to the White House Police Force in 1946. On
January 1, 1958 he was promoted to Commanding Officer of the
White House Pol ice.
Major and Mrs. Stover have three children; daughter
Judy is with United Airlines; daughter Bonnie is a Freshman
at Maryland University and 'son Jeff attends the Rolling Crest
Junior High School in Hyattsville, Maryland. The Stovers
live at 1303 Legation Road, Hyattsville, Maryland.

000

~-892

TREASURY DEPARTMENT
s
(

April 26, 1967
FOR USE IN MORNING NEWSPAPERS
OF THURSDAY, APRIL 27, 1967

NEW COMMANDING OFFICER OF
WHITE HOUSE POLICE APPOINTED
United States Secret Service Director, James J. Rowley, today
announced the promotion of Inspector G1enard E. Lanier of the
White House Police to Major, the Commanding Officer of this Force.
Inspector Lanier replaces Major Ralph C. Stover who is retiring
April 30, 1967.
A native of Petersburg, Virginia, Major Lanier, 52, was
appointed to the Metropolitan Police Department on October 1,
1940 and transferred to the White House Police on April 9, 1942.
On July 3, 1966 he was promoted from Captain to Inspector, the
second highest position on the White House Police Force.
Under the supervision of the Director of the Secret Service,
the White House Police Force is responsible for protecting the
Executive Mansion and the President and his immediate family while
in residence.
Major Lanier was the first member of the White House Police
to receive a Certificate in Police Administration, from American
University. He also received a Bachelor of Science degree in
Business Administration from American University and is a
graduate of the FBI National Academy.
He served in the United States Navy from July 1935 to
September 1939 and from July 1943 to July 1946.
Major Lanier is married to the former Frances Shutters of
Washington, D. C. Their daughter, Mrs. Sandra Rowlett, lives in
Hyattsville, Maryland; their son, Kenneth, attends the Richmond
Professional Institute. The Laniers live at 935 South Wakefield
Street, Arlington, Virginia.
000

F-893

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE

April 26, 1967

TREASURY ANNOUNCES $22.1 BILLION REFUNDING
The Treasury today announced that it is offering holders of the note issue
maturing May 15, 1967, and the certificate, note and bond issues maturing June
15 and August 15, 1967, an opportunity to exchange their holdings at attractive
yields.
The securities eligible for exchange and those being offered are as follows:
Securities eligible for exchange
and their maturity dates

Securities offered in exchange
and their maturity dates

4-1/4%
2-1/2i

4-l/4~ notes, C-1968
4-3/4~ notes, B-1972

a/15/68
5/15/72

4-3/4~ notes, B-1912

5/15/72

notes, D-1967
bonds, 1962-67

5/15/67
6/15/67
PREREFUNDING

5-1/4%

ctfs., A-1967
'3-5/4% notes, A-1967
4-7/8% notes, E-1967

8/15/67
8/15/67
8/15/67

The new 4-1/4% notes are being offered at 99.95, which proVides a yield of
4:.2~. The new 4-3/4% notes are being offered at par. Details showing cash and
interest adjustments for subscribers exchanging securities due June 15 and August
15 appear in Table 1. Approximate investment yields appear in Table 2. Both
ta.bles are attached.
The public holds $9.0 billion of the securities eligible for exchange, and
about $13.1 billion is held by Federal Reserve and Government investment accounts.
Cash subscriptions for the new notes will not be received.
The books Will be open for three days only, on May 1 through May 3, for
the receipt of subscriptions. Subscriptions addressed to a Federal Reserve Bank
or Branch, or to the Office of the Treasurer of the United States, and placed in
the mail before midnight May 3, will be considered as timely. The payment and
ielivery date for the new notes will be May 15, 1967. Interest on the securities
naturing June 15 and August 15, 1967, Will be adjusted as of May 15, 1967. The
lew notes Will be made available in registered as well as bearer form. All
3ubscribers requesting registered notes will be required to furnish appropriate
ldentifying numbers as required on tax returns and other documents submitted to
;he Internal Revenue Service. This is a taxable exchange.

894

- 2 -

Coupons dated May 15, 1967, on the securities maturing on that date should
Coupons dated June 15, 1967, and August 15,
.967, on the securities due on those dates must be attached. The May 15, 1967,
nterest due on registered securities will be paid by issue o~ interest checks
.nre~r course to holders of record on April 14,1967, the date the transfer
looks closed.

Ie detached and cashed when due.

Interest on the 4-1/4% notes will be payable on August 15, 1967, and on

'ebruary 15 and August 15, 1968. Interest on the 4-3/410 notes will be payIble on November 15, 1967, and thereafter on May 15 and November 15 until

)B.turity.

TABLE NO.1

Payments due to Subscribers in the May

1~67

Refunding

(In dollars per $100 face value)
Payment to (+) or by
(-) subscribers on
account of issue price
of offered securities

3ecurities to
,e exchanged

.
~-1/4~ Note 1/15/67

l-1!2% Bond 6/15/67
:-1/4~
~-i/2~
;-1!4~
;-'5/4~
:-7!8~

Accrued interest to :Net amount
May 15, 1967, on
:to be paid
securities exchanged:to subscriber
to be paid to
subscribers

For the 4-1/4' Note ;f 8/15/61

-------1.031088
For the 4-3/4~ Note of 5/15/12

Note 5/15/67
Bond 6/15/67
Cert. 8/15/67
Note 8/15/67
Note 8/15/67

+.050000
-.050000

--------

.050000
.981088

-------- !I

-.100000
+.300000
-.150000
+.200000

1.031018
1.290746
0.921961
1.198550

.931088
1.590746
. 771~61
1.39~550

j Interest will be paid in regular course.
TABLE NO.2

Investment returns in the May 1967 Prerefunding

Securities eligible
for exchange

Approximate investment
yield from
5/15/61 to maturity 1/

5-1/4% Certificate 8/15/67
3-3/4% Note 8/15/67
4-7/8% Note 8/15/67

4.12%
4.72
4.12

reinvestment
.. Approximate
rate of the
extension period
4.1910

4.71
4.79

efice of the Secretary of the Treasury

Yields to nontaxable holders (or before tax) on issues offered in exchange
based on prices of eligible issues (adjusted for payments on account of
issue price). Prices are the mean of bid and ask quotations at noon on
April 25, 1967.
I

Rate for nontaxable holder (or before tax).

TREASURY DEPARTMENT
Washington

FOR USE IN AFTERNOON NEWSPAPERS
OF SATURDAY, APRIL 29, 1967

REMARKS BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE
THE FEDERAL TAX INSTITUTE OF NEW ENGLAND
JOHN HANCOCK HALL, BOSTON, MASSACHUSETTS
SATURDAY, APRIL 29, 1967, 12:30 P.M., EST
CURRENT DEVELOPMENTS IN TAX POLICY
The topic of Current Developments in Tax Policy is best
approached by placing present tax policies in the broader
perspective of recent history and future prospects. In this
way we can see how our current tax policies fit into a longer
range program and a way of thinking about the uses of tax
policy. For it is the attitude regarding the uses of tax
policy that marks the main theme of tax policy in the present
and preceding Administration.
The main economic goal of these two Administrations has
been the high level utilization of our real resources within
a framework of reasonable price stability -- that is, to
achieve a growth in real Gross National Product that matches
our potential, with unemployment pushed to as low a level
as we can through appropriate fiscal and monetary policies,
supplemented by special training and related programs. Also,
it has been an important aim to maintain an appropriate
balance of payments position, so that accomplishment of our
domestic objectives will not be hindered by international
financial concerns.
The consistent theme of tax policy through seven years
has been to use tax policy in an affirmative manner to achieve
this economic goal. It will be the consistent theme in the
years ahead. The manner in which tax policy is so used -the substantive programs which reflect this use -- has changed

F-895

- 2 -

and necessarily will constantly change, as the economic
conditions in which the goal is being pursued themselves change.
For the goal is never won forever -- there is no permanent
trophy to be carried home for success in one year or three
years. Instead, the coming of each New Year relentlessly
challenges us to seek continued advancement toward our goal.
We are involved in a perpetual obstacle race, with new
obstacles constantly being introduced and old obstacles
rearranged to appear different. Insights once obtained must
constantly be re-examined and new insights sought if we are
successfully to negotiate each net set of obstacles.
In the first years of this decade the main obstacles to
be overcome were a growth rate lagging far behind our potential,
a discouraging pattern of recessions followed by recoveries
that quickly faltered into new recessions, and a consequent
high unemployment rate. Tax policy in this setting
was aimed at spurring investment, thereby generating a
higher productive capacity and more jobs. The substantive
tax program involved the adoption of an investment credit
to correct a tax structure imbalance that appeared to hamper
our obtaining the needed investment level. This credit was
supplemented by administrative measures removing restrictive
factors in the application of tax depreciation rules.
These 1962 measures were then followed by the massive
tax reduction of the 1964 Act, designed to produce a strong
consumer demand and the markets needed to encourage our
producers to push their investment plans. The reduction in
tax rates also acted to improve incentives to invest by
strengthening the ra te of re turn and cash flows.
This 1964 tax reduction was the first to recognize the
of our tax structure to generate such a strong revenue
intake in periods of ris ing economic ac tivity that the intake
soon exerted a drag on that very activity and made continuous
forward progress impossible. The 1964 tax reduction also
freed us from the shackles of a rigid budget balance posture
and enabled fiscal policy to provide a res ponse tha t would
reflect economic conditions rather than mathematically suit
a figure resulting from the additions of many disparate items
of expenditure and receipt in our budget. The need to
strengthen consumer demand was again reflected in 1965 in
the Excise Tax Act of that year, in which that need became
the opportunity for a major reform of a crazy-quilt excise
tax s truc ture •
p~er

- 3 -

These programs met with success -- a strong business
expansion, rising incomes and profits, a falling unemployment
rate, a GNP capable of sustaining broad social programs. But
then in the latter part of 1965 the obstacles changed -- the
demands of the Vietnam conflict showed us once again that no
economic forecasting is safe against the intrusion of external
events we cannot control. A high pace of Government military
expenditures demanded that a policy of fiscal stimulus be
switched to a program of fiscal restraint, but without clear
signs to chart the size or timing of that restraint.
Tax policy was therefore shifted from stimulus to
restraint, which called for increasing revenue collections
to dampen an inflationary potential. This need became the
opportunity to achieve desirable improvements in our current
collection procedures. The substantive programs of the Tax
Adjustment Act of 1966 reflected this dual target -- graduated
withholding, a speed-up in the transition to current payment by
corporations, and current payment of the self-employment
Social Security tax. This was accompanied by administrative
programs in both 1966 and this year speeding up the deposit
of withheld taxes and excise taxes. And there is still room
for further improvement, as reflected in the President's
current recommendations regarding thecorporate estimated tax.
As the year 1966 progressed, with a high level of economic
activity insured through strong private investment, strong
consumer demand and rising Governmental military expenditures,
fiscal policy had to cope with emerging price instability
and serious imbalances in the business expansion. Moreover,
the tasks of fiscal policy were conj oined by the
difficulties being experienced in charting the proper course
for monetary policy. These obstacles culminated in September,
1966, in a threatening financial situation, as interest rates
rose alarmingly, the money supply contracted, and business
investment still proceeded at an unsustainable level.
Suspension of the investment credit was the tax policy
response chosen, and another step in tax flexibility was
taken. But it was taken with an awareness that the particular
step was not without the problems of the two trans itions in
the step involved -- the transition from allowance of the
credit to suspension and the transition from suspension to
restoration. This step was therefore accompanied by a frank
recognition that only the unusual events of last September -a serious financial situation, an unsustainable business
investment boom, and wartime expenditures -- would call for
this particular response of tax flexibility. It was accompanied
by strong expenditure tightening.

- 4 The immediate goals sought were obtained -- the financial
tension subsided, the investment pace began to be more manageable, and monetary policy could begin to ease and adjust the
imbalances, as in housing, that had accompanied its tightening.
We thus come to the year 1967 a.nd a new set of obstacles,
even more challenging. The imbalances of 1966 are giving way
to an economic advance that will show a more even front, as
business investment moderates its prior pace and housing
starts to catch up. This moderation in business investment
signaled the end of the need for the suspension of the
investment credit, perhaps a bit earlier than had been foreseen.
The President accordingly recommended restoration of the credit,
with this step thus completing the application of tax
flexibility initiated last September. The differing views
on the terms of the restoration underscore the belief
expressed last year that only that combination of unique
circumstances would call for this form of tax flexibility.
The economic radars that scanned the horizon in January
forecast for the immediate months a pause in the economy, as
the components of the advancing economic front regrouped and
balanced their relationships. An important factor in this
pause has been the downward adjustment in inventory accumulation.
Other factors are the moderation in the growth in plant and
equipment investment and the low level of housing activity
which reflected the past period of tight money. Those
radars that scanned further ahead forecast that the economic
front would later gather momentum from a variety of
sources -- increased Social Security expenditures, the pace
of Government expenditures, resumed strength in housing, the
end of the inventory adjustment, and a pick-up in consumer
spending. In the absence of tax action, the Federal budget
would move more strongly into deficit and fiscal policy
would become highly stimulative. Instability in the form of
inflationary pressures would again threaten. It would be
desirable to meet that obstacle through tax policy rather
than through a resumption of monetary tightening lest we
become locked into a level of high interest rates.
This forecast in January thus called for over-all tax
restraint, in contrast to the specialized restraint in. the
business sector that was needed last September ~ The hearings
and discussions of last year on the techniques of tax flexibility, notably before the Fiscal Policy Subcommittee of the
Joint Economic Committee -- hearings that had been urged by
the Administration -- indicated that the most appropriate
application of tax flexibility for this purpose was a surcharge

- 5 on individual and corporate income tax liabilities. The
President in January recommended this course. For Budget and
revenue estimating purposes a precise starting date was needed
and July 1 was chosen. But tax flexibility and rational
economic policy obviously do not always demand rigid adherence
to dates based on prior economic forecasts. The task is
to match policy as closely as possible to current forecasts
as these forecasts sharpen and change -- not to rigidly
match action to a previously set timetable that was itself
only a forecast based on earlier and therefore less reliable
data.
The economic radars still indicate that in the months
ahead the predicted momentum will gather. While the radars
are still not equipped to pinpoint the exact month of change,
this summer is still the governing forecast. The important
point, however, is to recognize that as forecasts sharpen
and more clearly foretell the change, we should not be misled
by looking backwards or even around us at the figures that
reflect the pause we are now moving through. Instead, we
must concentrate on what is forecasted for the period ahead.
We must be willing to act on what that forecast implies, not
because it is infallible but because it is far better than
the unfounded assumption that the present condition will
continue simply because it is the present. We can be willing
to act on the forecast because the tax change that is being
recommended -- a temporary income tax surcharge -- is an
adjustment that after its adoption can be readily removed
earlier than the targeted date for its termination if the
economic radars then begin to forecast different and
unexpected signals.
We must remember that the aim is not always to see that
forecasts are borne out. Rather, it is to so alter economic
conditions that forecasts of undesirable instability ahead,
either of an inflationary nature or a downward trend, will
not turn out that way and that the forecasted instability
will instead be replaced by a more desirable economic
situation. The surcharge thus rests on a forecast of too
exhuberant an economy in the latter part of the year and an
intention to prevent that forecast from becoming actuality.
The recommendation of the surcharge was a frank statement of
Government opinion and policy -- what it expects will happen
Without policy action and how it plans to solve the problem.
If the problem starts to shape up differently, then of course
a different solution will be called for -- but as of now that
is not what our current knowledge tells us.

- 6 -

The use of tax policy is thus at present an exercise
in tax flexibility -- as we attempt to keep our high level
economy as close to optimum operating conditions as we can
in the face of the inevitable instabilities flowing from the
Vietnam hostilities. Necessarily tax flexibility means tax
change, to keep the economy on a proper course. Rigidity
in tax policy is an impossible course -- the policy that
brought success in one year can bring great difficulties the
next year. We must seek tax adjustments responsive to
predicted economic conditions, and attempt to stru~cure them
so that the change is accompanied by the least strain on
taxpayers and tax administration in applying and accommodating
to those changes. Change is necessary because rigidity
is disaster, but change should not itself cause needless
instabilities.
When Vietnam hostilities end, a new set of conditions
will appear and the use of tax policy will in turn have a
different content. A most likely use is that of tax
reduction, as the revenue structure will presumably have to adapt
to lower military expenditures. The nature of the adaptation -how much reduction, in what mix of temporary and permanent
change, in what mix of rate change and structural alteration
necessarily must await the events that condition the tax
response.
Let me turn now to another goal and another use of tax
policy. Whatever the ever-changing character of the economic
role of tax policy, we are always involved in the raising of
revenues to pay for Government expend itures as well as to
fulfill the revenue raising targets that the economic role
sets. Tax policy is charged with the task of raising those
revenues with fairness, with the least interference in the
efficient utilization of our resources, and with the lowest
possible level of difficulty in compliance and administration.
It is this use of tax policy with which tax reform is
concerned.
The achievement of this goal of tax policy is one of
constant efforts at improvement -- past decisions turn out
to have been misguided or no longer sensible under changed
circumstances; a new pattern of economic and social conditions
forces tax thinking into new areas; new compliance techniques
make certain steps feasible for the first time; perenially
intractable problems may yield to new solutions; a better

- 7 understanding is gained of the effects of taxation in a
particular area. The needs for improvement are endless and the
response must be continuous over many areas. This use of
tax policy in this decade has proceeded steadily, through
a variety of measures aimed at improving the tax structure-the Revenue Acts of 1962 and 1964, the Excise Act of 1965,
the Tax Adjustment Act of 1966, the Foreign Investors Tax
Act of 1966, the Federal Tax Lien Act of 1966. Along with
these major legislative measures have been many major
administrattve measures in Regulations and rulings -consolidated returns, the international tax area, unrelated
business income, for example -- and many minor legislative
measures.
But the effort must remain continuous. We are all
aware of the many possible areas of inquiry. We will have
different sets of priorities and different approaches and
different emphases -- but we are all seeking change in our
tax structure rather than embalmment. The Treasury has
often mentioned some of its current concerns -- industrial
revenue bonds, multiple corporations, private pension plans
and foundations, to name a few. It has called attention
to the fact that the estate and gift taxes represent the
only part of our Federal tax structure that has remained
unexamined by the Congress over a long period. The recent
parallel studies by the Brookings Institution on the economic
side and the American Law Institute on the legal side
clearly indicate that there are promising paths to improvement
of the se taxe s .
An area of reform now before the Congress concerns the
President's recommendations for revision of the income tax
treatment of the elderly. The existing income tax benefits
extended to the elderly cost about $2.3 billion annually in
tax revenues. The Administration's proposals for revision of
these tax rules would not alter this revenu~ cost. The proposals aim only to redirect this relief, in a uniform manner,
to benefit those elderly most in need of it and at the same
time to simplify the structure of the tax rules applicable to
the elderly. But these proposals appear to be surrounded by
a fog of confusion and misrepresentation.
Some critics portray in detail the suggested elimination
of the present $600 added exemption and the retirement income
credit. But they do not mention the substitution under the
proposals of a simple blanket special exemption of $2,300 for

- 8 -

a single person and $4,000 for a married couple where both are
over age 65. Other critics state that Social Security benefits will be subject to tax, and add that this is unfair
because the beneficiaries will have made payment of Social
Security taxes before retirement. But they do not mention
that the costs of those taxes will be taken into account
through the blanket exemption, which in no event would be
reduced below one-third of the benefits included in income.
Nor do the critics point out that about two-thirds of the
elderly now subject to income tax will rece~ve a tax reduction under the proposals -- almost all married couples below
$11,600 and single persons below $5,800.
There are about 20 million persons over the age of 65.
Of these, about 4 million now pay income tax or Jo~n in the
filing of a return on which income tax is paid. The President's proposals will not change the ta~-free status of the
almost 16 million elderly who now pay no tax. Of the remaining group of elderly, about 2.8 million will have tax reductions. Thus, for the great majority of the elderly -- over
18.5 million persons, more than 94 percent of the total -the recommendations will not change their position of being
free of income tax burdens, or they will result in a tax
reduction.
The tax liabilities for the remaining group of elderly
will be increased and thereby brought more in line with the
tax liabilities of those taxpayers under ~ge 65 with similar
amounts of income. This also has been criticized. But in
criticizing the increases that are involved for the wealthier
elderly, the critics do not indicate why a person with $20,000
or $50,000, or $100,000 of income, even though elderly, needs
the special tax benefits that Congress granted because of the
special financial problems associated with age. The financial
problems of most of the elderly come dm-vn essentially -- as do
all financial problems -- to a lack of in~ome. But -- where
the income levels are in these higher ran3es -- there is no
justification to apply a lower tax on a $20,000 or $50,000
income when received by a person over age 65 than when received
by a person under that age. To keep the matter in perspective,
an income of $20,000 a year is over twice the average family
income in the United States. In addition, many of the needs

- 9 -

that a younger family faces have already been met by the family
over 65 -- the house and furniture are paid for, and the like.
Editorials and similar comment critical of the taxation
of Social Security benefits may well have given those now receiving those benefits the impression that their wellbeing is
threatened. But the real facts are completely the other way
around. Under the proposed changes annual tax reductions of
approximately $220 million dollars would go to the taxpaying
elderly below $10,000, and the overwhelming number of Social
Security recipients are below that level.
Nor do the real facts end here. The proposed special
exemption ($2,300 for a single person and $1.'-,000 for a
married couple) take fully into account the present levels
of Social Security benefits. But this does not mean that
furutre Social Security benefit increases will automatically
be taxed to all recipients. The regular j.ncome tax exemptions
and deductions, which are allowable in addition to the special
exemption, will together with the special exemption shelter
from income tax payment future Social Security benefit increases for all who have only this source of funds and, indeed,
for most other recipients.
For example, the maximum Social Security benefit payable
to a married couple under present law is about $2,500 per year.
This would rise to about $2,700 under the President's Social
Security proposals. But this is not even half the amount of
income necessary before any income tax WOU 13t be due under the
proposed changes, since the couple would not owe tax until
their income exceeded $5,800 a year. In other words, for a
married couple living only on Social Security benefits, the
maximum benefit level would have to more than double before the
income tax would become a factor. If they are now rece~v~ng
average Social Security benefits (about $1,500 per year), their
benefits would have to more than triple b8fore they would owe
any tax. Viewed in another way, it is only the addition of nonSocial Security income tax that could cause a tax to occur and
here the leeway is also significant. Even if Social Security
benefits were to reach $3,000, there would still be a $2,800
leeway to absorb pension or other income before the recipients
became taxpayers.

- 10 In sum, for the overwhelming number of Social Security
recipients, the proposal will have no effect on their Social
Security benefits or will actually result in a tax reduction.
This will also be true well into the future. There are
14 million Social Security recipients. About 12.6 million
are now free of income tax, and would remain so. Only about
1.4 million are taxpayers now. Half of these would receive
tax reductions under the proposal. The rest -- 700,000 out
of 14 million recipients -- would have increases, but to do
so they must have an income of over about $6,000 if single
and about $12,000 if married. And for many these increases
would be offset by the increases proposed in Social Security
benefits.
It is therefore a pretty safe assumption -- keeping in
mind the kinds of people who are prone to be concerned about
anything touching their Social Security benefits -- that the
letters any newspaper, any organization, or any Congressmen
may be receiving from Social Security recipients who have
become concerned by what they read or hear about these proposals can be answered simply and clearly: "If you are not
paying an income tax today, you will still continue to be
free of tax -- if you are paying a tax, you will receive a
tax reduction."
To continue with our discussion of general tax reform,
the President in his Economic Report has stated that he
will submit a tax reform message later this year. He has
delineated several useful principles to apply at this time
to tax reform proposals -- they should be considered apart
from significant rate changes or tempo~ar.y tax increases or
decreases, such as the six percent surcharge, and they should
not occasion a significant net gain or loss in revenue.
While the various components would thus involve revenueraiSing or revenue-losing measures, over-all they would
balance out with no significant net change.
We may, of course, as respects this use of tax policy,
look ahead even beyond this reform message to notice that
many significant policy areas will be under study, in Government and in private research. We must learn more about the

- 11 -

relationship of the income tax system to those persons who
lie outside that system, and this involves the interrelationships between our Social Security system, our welfare system
and the proposals for negative income taxes and income guarantees. The President has stated he will appoint a Commission
to study much of this ground. We must also make sure that the
benefits of economic growth spread to all 2nd that all may
share in them, or the affluence we seek for our people will
become social injustice. We must strive to protect against
any unfairnesses that may result from the necessary uses of
tax flexibility, the necessary adJustments in monetary policy,
and the necessary reliance on macroeconomic measures. We must
not allow our tax system and its uses for economic policy to
be regarded as involving only sterile counters remote from the
human beings whose lives th~ affect. The measures to accomplish all of this will not, of course, lie entirely within the
tax system. But those who work with tax policy must aid in
joining tax policy with other economic and social measures to
achieve these desired objectives.
I have been considering the uses of ta~: policy. These
uses, as you can see, are many and varied, and perhaps to
some may even appear too ambitious or wide-ranging in what
is sought to be accomplished. But let me h8sten to assure
you that they are indeed modest alongside the claims that
some have made for the use of tax policy.
There are those who urge tax policy as the solution for
almost all of our social ills and problems. If you object to
polluted air or polluted water, then a tax incentive will clean
it right upo If a college eduction appears too costly to a
family, then a tax credit will open the college doors. If our
business firms are not training enough workers, then a tax
incentive will set them to improving worker skills. If private
enterprise and city officials will not eradi.cate our slums,
then a tax incentive will remove this urban blight. If businesses won't locate in depressed areas, then a tax incentive
will show them the way. If electric compan~.es will not place
their transmission lines underground, then a tax incentive
will turn the soil. If urban transportation is too slow and
too antiquated, then a tax incentive will make it fast and
attractive. Indeed, all you need to learn what is wrong with

- 12 America is to read the tax bills in Congress -- wherever you
see a tax proposal, that is where the action is.
Now, as Assistant Secretary for Tax Policy, I am not at
all sure why I should object to these suggestions that the
tax system can cure all our problems. For clearly I could
well become an economic czar were Congress to agree to this
course. I, and my small staff, could control all our new
social programs and the other Departments, such as Labor,
HEW and HUD, would have so little to do they could be merged
into one small Department and thereby simplify Government.
All this almost seems to be how the world v70uld look to a
Treasury Department official on an LSD trip.
But I do not use LSD and I have the cautious feeling our
social problems can not be so simple that a tax device
indeed the same tax device -- will solve all of them. I
suspect that there are better ways to clean our rivers and
skies, to eradicate our urban ills, to give a college education to all who are qualified. Those ways will require loan
guarantees, credit programs, direct subsidies and other
Federal expenditure programs, and our facing up squarely to
the costs involved.
A major appeal of the tax device is that it hides the
budgetary cost and, of course, this appeal is strong from
the standpoint of the private interests affected. But this
should not deter us from the rational calculations and
arialyses which must be made to weigh the benefits of alternatives expenditure programs. The sheer weight of the various
demands being placed upon Government makes it urgent we
obtain the utmost efficiency in the use of public funds, and
that we fully recognize the amount of funds allocated to each
demand. That efficiency and recognition cannot be obtained
by hiding the costs in the intricacies of our tax system.
Nor could that tax system survive the cumulative weakening
of its strength and its fairness that would be involved in
this massive use of tax incentives.
We must therefore be alert to the non-uses as well as
the uses of tax policy. Nor is this sentry duty assigned
solely to Government officials. Those who work daily with
the tax sys tern - - those lawyers and accountants and scholars

- 13 who know the strengths and the weaknesses of that system -must also stand their watch. For it is you who counsel daily
with a far wider audience of businesses and individuals than
the words of Washington can reach. Those businesses and
individuals have a vital stake in how our tax system is
shaped. Yours, then, is a vital role in explaining the issues
surrounding tax policy, in clarifying the choices.
No one
can ask for blanket agreement and conformity on the choices
to be made. But we can hope for an understanding of the concerns that must be weighed in reaching those choices. And it
is to this task that your talents can bring accomplishment.

000

TREASURY DEPARTMENT
Washington
FOR RELEASE IN MORNING NEWSPAPERS
OF SATURDAY, APRIL 29, 1967

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT THE
ANNUAL DINNER OF THE AMERICAN SOCIETY OF INTERNATIONAL LAW
STATLER HILTON HOTEL, WASHINGTON, D.C.
FRIDAY, APRIL 28,1967,7:15 P.M., EST
INTERNATIONAL ECONOMIC RELATIONS AND THE RULE OF LAW

-----

The common interest of those involved in international law
and a United States Secretary of the Treasury is a rapidly
developing one.
It was not always so. I daresay that the first Secretary of
the Treasury -- Alexander Hamilton -- found it rarely necessary t(
deal in international law. The only significant occasion I recalJ
was when his duties required him to negotiate some loan
agreements with Dutch bankers to provide some needed resources
for the fledgling nation.
But today it is far different. My concern with international law, and lawyers, and international legal institutions
is an ever growing preoccupation.
The chief financial adviser to the President naturally
shares with everyone else a desire for a greater degree of
world order and the rule of law. But he has a specialized
interest
The financial costs and dislocations involved in
maintaining security through armed conflict present major
dangers to economic stability. That is important in all
nations. But it is of particular importance in the nation
which, without imperial ambitions or a thirst for dominance,
fmds itself thrust into a position of world leadership and
responsibility for security with freedom.
0

F-896

- 2 j

The U. S. Treasury Secretary is also the United "States
Governor of the International Bank for Reconstruction and
Development, and its affiliates the newly created Asian Development
Bank and the Inter-American Development Bank which concluded its
Eighth Annual Meeting in Washington this week. In these
capacities he is aware of the increasingly important role
of legal processes and arrangements in promoting economic
development through public international banking institutions
which pool public resources and borrow private capital on
an international scale and lend it on internationally
determined standards to many public authorities or private
institutions sponsored by the member country.
And in that position one is even more aware than most that
public resources and initiatives cannot alone meet the challenge.
Therefore, I am deeply interested in the future of private
multinational companies. These engines of capitalism which
channel private capital, initiative and know-how into
development an an international scale should be enabled by
legal processes and principles to make their contribution to
a growing world economy. As the United States Governor of
the International Monetary Fund, I share, with most of my
colleagues, a desire to update and adapt the international
legal and financial procedures in the Bretton Woods Charter
to the increasing dimensions of world trade, thereby avoiding
a new wave of the restrictionism and economic stagnation
that marked the early Thirties.
It would not surprise you, I am sure, to know that over
half of my working hours are devoted to the international
financial affairs that flow from and make possible United
States involvement in international affairs in a framework
of law or legal arrangements.
That is why as a lawyer -- perhaps I should qualify
that -- a former lawyer -- I am delighted to bring the
Treasury into the proceedings of this great society.
My pleasure at being with you is only exceeded by the
difficulty I encounter in saying anything profound or useful
about our mutual interests.
Indeed, it is a hardy soul that ventures into this no
man's land -- that dangerous, unclaimed terrain that stretches
between international economics and the rule of law. One can
stand securely in one or the other of these disciplines. But
it is not easy to effect a happy joint venture.

- 3 -

Perhaps, as lawyers, we should blame the economists whose
leading spokesman, Lord Keynes, described their attitude most
succinctly.
He began his tribute to the legal advisers who made such a
brilliant contribution to the success of the Bretton Woods
Conference in 1944 by saying "I have to confess that, generally
speaking, I do not like lawyers." He went on to say that "too
often lawyers busy themselves to make common sense illegal . . •
and are men who turn our poetry into prose, and our prose into
jargon." Lord Keynes said he wanted the lawyers "to devise
means by which it will be lawful for me to go on being sensible
in unforeseen conditions some years hence." I think we would
acknowledge now, that the lawyers at Bretton Woods had made it
possible to go on being sensible in "unforeseen conditions
some years hence."
But let us not lay all the blame on the economists. Too
often, lawyers take a narrow technical approach to the
application of international law to international economic
affairs -- and in this light -- are inclined to the view that
very little has been or can be accomplished. A broader view of
international law in international economic affairs is needed.
We must not think alone in terms of those provisions which are
enforcible in a court of law -- but of all those rules and norms
of conduct which govern the activities of nations -- and
which they feel some compulsion to adhere to -- in their
dealings with each other, and in their treatment of foreign
citizens and enterprises. Viewed in this light, progress in
the past twenty-odd years has been great.
Let us not forget the economic framework that has been
established for international traders and investors. The
American Society of International Law and its Review and
Development Board have already made outstanding contributions
in this fie ld .
But, it would not be unfair to say, however, that over
the years diplomats, political scientists and lawyers have
mainly thought and written about and discussed the role of
the rule of law in internation"ll relations in the context
of the problems of peace-keeping and security. The
development and improvement of law and techniques for
adjudication of political disputes is necessary to the
survival of life and human institutions on this planet.
However, it has been demonstrated that a prerequisite to
establishment of the rule of law is an economic framework
Within which all countries -- developed and less developed
can make the most of-tnei.:r resources, human and economic.

- 4 This connection between peace and international economic
opportunity has firm roots in our own history. Wilson's
Fourteen Points included "removal so far as possible of all
economic barriers to the establishment of equality of trade
conditions among nations". From that dream to the reciprocal
trade program developed in part as a reaction to the dangers to
peace resulting from the discriminatory trade practices and
bilaterilization of trade of the 1930's, to the Atlantic
Charter of 1941, our country has made clear that a rational
world economy is an essential to peace. While the post
World War I settlement failed to establish the basis for a
rational world economy, even before World War II was over,
planning began on the institutions that would eliminate
restrictions on the free flow of trade and payments. The goal
was an open and competitive world operating in an atmosphere of
comity.
From these ideals grew the Bretton Woods institutions -the International Monetary Fund and the International Bank for
Reconstruction and Development -- and the General Agreement on
Tariffs and Trade. These multilateral economic organizations
and others patterned after them have grawn and flourished.
They have helped to bring closer to reality the rule of law
in international economic affairs.
The IMF Articles of Agreement represented a dramatic step
forward. For the first time a code of conduct for international
monetary relations was established. Perhaps most significant
in this code was the creation of formal exchange stability
obligations and the bringing of exchange rate changes under
international jurisdiction. In addition, Fund approval must
be obtained to impose restrictions on current payments and
all members must avoid discriminatory curr~ncy arrangements.
The framers of the TIMF remembered vividly that in the 1930's
predatory exchange depreciations and competitive restrictimls
~ current transactions had reduced international trade and
contributed to worldwide depression and even war. These
rules of international law contained in the Articles have
undoubtedly been a major factor in the unexampled prosperity
the Free World has enjoyed in the last two decades.
The International Monetary Fund was also provided a pool
of resources upon which countries could draw to help them
live up to the IMF code of conduct by aiding them in meeting
the strains of temporary imbalances. In administering this
pool of resources, the Fund has evolved a body of practices
under which fire Fund members have a clear idea of the

- 5 -

policies they must follow in order to obtain access to the
resources of the Fund. Thus, although not constituting,
strictly speaking, international law, guidelines have been
established under multilateral auspices which do constitute
mternational standards for the conduct of economic policy.
While exchange rate policies and restrictions on current
account payments were subject to international supervision,
capital flows were left unregulated by the IMF Articles. The
Codes of Liberalization of Capital Movements and Invisible
Transactions promulgated by the Organization for Economic
Cooperation and Development are aimed at the elimination of
restrictions in this area. One important result of these
Codes is the establishment of a forum in which countries'
restrictions may be reviewed aD tested in the light of their
impact on the world economy.
Parenthetically, it is not surpr1s1ng that the IMF Articles,
having made such a profound change in public international law,
have also had an impact on private international law.
Specifically, the Fund Articles make exchange contracts in
violation of exchange control regulations that are consistent with
the IMF articles unenforcible in the territories of any member.
This was a very significant change in legal thinking since in
many cases foreign exchange control laws were labeled as
"revenue" or "penal" laws and were unenforcible in the courts
of another country.
The decision of the Supreme Court in Kolovrat v. Oregon
made it clear that the United States' adherence to the Fund
agreement had established a public policy which an individual
State had to respect and against which it could not set up
its own public policy. On the other hand, the case of
Banco do Brasil demonstrates that private international law
cannot advance significantly beyond the area of agreement
among nations on norms of conduct in economic affairs.
The General Agreement on Tariffs and Trade has also been
an indispensible element in the development of the postwar
economic structure. It, too, has furthered the rule of law
in international economic affairs. Under the auspices of the GATT
tariffs have been reduced overall by about 45 percent.
Moreover, as the IMF has provided a code of conduct in monetary
affairs, the GATT has set down accepted rules of conduct in
trade relations. It has regulated resort to some nontariff
restrictions and has provided a forum for hearing complaints
and adjudication of disputes.

- 6 In a way similar to the IMF's role in setting guidelines for
mternationally accepted standards for the conduct of economic
policy, the International Bank for Reconstruction and
Development has also added to the framework of a rational
economic order. Member countries know what policies thE¥
must follow in order to obtain the assistance of the Bank and
of its affiliated institutions, the International Finance
Corporation and the International Development Association.
For instance, countries in default of their international
obligations or which are not making substantial efforts to
remedy defaults, are not eligible for loans from the Bank.
Bank members are keenly aware that failure to meet
international commitments will not only mean ineligibility
for Bank assistance, but will deter other private or public
capital inflow. Consortia of lenders under the auspices of
the Bank for the purpose of implementing approved development
programs have had an important demonstration effect in gaining
acceptance for agreed rules of economic conduct. Thus,
without estatlishing substantive rules of law, these
institutions have created internationally agreed norms for the
~nagement of economic affairs.
These activities of the Bank have also given support to
the lawyers endeavoring to settle the private aspects of
countries' international obligations. Additional progress in
this effort has been made in Latin America by the InterAmerican Development Bank. I believe the same will be true
of the Asian Development Bank, which is just beginning operations.
In one area the experience of the Bank with standards of
economic conduct has taken specific form. The World Bank,
~der the leadership of its illustrious past president,
Eugene Black, was in the forefront in working out means for
the settlement of investment disputes. In the beginning, this
was done on an informal, "good offices" bas is. That
experience led to agreement promoted by the current
President, George Woods, on a Convention for the Settlement
of Investment Disputes providing for the creation of a facility
as an affiliate of the Bank for the mediation and conciliation
of investment disputes. The Convention entered into effect
~ October 14, 1966, and the center opened its doors in
February of this year. Five developed countries and
~enty-three less developed countries have already adhered to
the Convention.

- 7 -

Every international lawyer should be aware of this new
facility for the orderly mediation or arbitration of problems
arising between investors and host governments. Like the
International Monetary Fund and the World Bank, the decisions
reached through the use of this facility are bound over time,
in my opinion, to add to the body of law and norms of
economic conduct which are so important in the development
of a rational and just world economic system.
Consideration is also being given to further embodiment of
economic practices into specific codes of conduct. The IBRD is
now studying a multilateral insurance scheme which would
provide insurance against political risks to investors in
foreign countries. The OECD has had under consideration an
investment code which would provide rules for the treatment
of private foreign investment by host governments. It is
too early to say whether insurance and investment codes can be
embodied in formal agreements. Much work remains to be done.
This is true particularly in the area of non-tariff barriers
to trade. Pnwever, it is encouraging that these subjects are
being given study.
We know from past experience that it is very difficult to
elaborate agreed practices into international law rules until
there has been long experience and general acceptance of
this experience. This principle has been aptly put by
Justice Cardozo. He said, "Life casts moulds of conduct, which
will some day become fixed as laws. Law preserves the moulds,
which have taken form and shape from life." It will be some
time before our experience with solutions to the new problems
we are now facing will be ready for codification into rules of
law. It is clear that we have now assimilated many of the
economic problems of the postwar world -- the dream of
Bretton Woods of a world generally free of payments restrictions
has largely been achieved.
Many of the new problems have been generated by our past
successes and result from an increasing integration of the
world e,conomy. This integration is both a cause and a
consequence of rapidly growing international trade -- now
exceeding $200 billion a year.
A solution to those problems resulting from a closer
mtegration of the world economy is patently not susceptible
at the present time and in all cases to embodiment in formal
codes of international conduct. Yet it is vitally important

- 8 -

that countries understand one another and consider the
mternational consequences of their economic policies. It is
not surprising, therefore, that institutional arrangements
have evolved allowing countries to keep abreast of the
economic policies followed by others and bring their influence to
bear so that the development of domestic economic policy will
also reflect the interests of the world economy as a whole.
For example, in Working Party Three of the GECD and through
the IMF consultations with member governments, "confrontations"
are regularly held in which countries must justify their
economic policies and be made acutely aware of the international
interests. Going beyond this, Working Party Three has
recently published a report on the Balance of payments
Adjustment Process in which guidelines are suggested for the
proper policies to be followed in meeting the problems of
deficit or surplus.
In the international monetary area, the problems of
financing deficits and surpluses also have an impact on the
entire international monetary system. Arrangements have been
made for a review and appraisal process of various elements in
international liquidity for financing of surpluses and
deficits. The purpose of this "multilateral surveillance ," by
Working Party Three of GECD, is to give a more comprehensive
up-to-date review of major trends and afford a better basis for
strengthening policy cooperation, as well as providing a forum
for discussing measures appropriate for each country.
Perhaps at some time in the future experience with these
procedures will lead to agreed rules or standards of
international economic conduct that will nearly approach the
status of international law, in the broad sense that term is
being used this evening.
The Treasury, under the leadership of Assistant Secretary
for Tax Policy Stanley Surrey, has been carrying on a series
of negotiations for new or improved tax treaties to bring
greater harmony, order and fairness to this important area.
Given the rates of tax whic~ are applied in the world of
today, the failure to apportion income from international
transactions among the countries involved, so that each might
grab what it can, would produce tax burdens of a magnitude
that would quickly bring to a halt international trade and
investment. Recognizing this, countries have tended to
exercise restraint in the international reach of their tax
systems
The rules incorporated in tax treaties are in part
a reflection of this restraint and have come about because
0

- 9

of the substantial uniformity of their national laws,
arising from a common legal system, common notions of equity,
and a common philosophical approach born of the same
literature, tradition, history, or the like. The
treaty rules, however, have gone beyond the national
laws, since there is not complete uniformity, and have
in turn produced changes in national laws. A treaty
agreement may be reached on the allocation of income from
a given transaction between two countries, but one
of the signatories may not be empowered by its law to
impose a tax on the income allocated to it. It would
have given up revenue without receiving anything in return.
Nations there-fore tend to adopt as internal legislation
the international treaty rules agreed upon. Treaty
rules are thus not merely ad hoc arrangements. They
must be entered into with an understanding of their
implications for our relations with other countries and
for our domestic policies if we are to build and maintain
a rational and consistent approach to the taxation of
international transactions.
Our tax treaties also make a contribution to the
development of international law by creating a mechanism
for the settlement of differences among the tax
authorities of the signatory countries. We have not yet
reached the day when disputes which cannot be settled by
the authorities themselves will be turned over to some
tribunal, but it may be coming. Consideration might also
be given to bringing increasingly other areas of
economic conduct within the sphere of international concern.
Promotion of exports, some coordination of monetary policy,
and antitrust policy are areas where fruitful work may be
done in bringing about an international concord which may,
if achieved, be embodied in rules of fair conduct
for governments or private parties as the case may be.
There are challenges that we now face that must be
solved if we are to progress in the future toward the
rule of law in international economic affairs: Can adequate
international reserves be provided through new collective
decision-making machinery? Can payments imbalances be
smoothly corrected under conditions of widespread
convertibility and free movement of capital? Can non-tariff
barriers to trade be reduced? Can adequate assistance be

- 10 provided to developing countries and can we have
steady economic growth without inflation? The answer to
each of these questions is not only an economic
challenge, it is a challenge to the ability of nations to order
their economic affairs in a rational way. In evolving an
economic order to meet these problems, there will eventually
have to be new international rules and new techniques.
Success in the Kennedy Round is of crucial importance to
the maintenance of the growth of world trade. The growth of
trade and payments is threatened by the possibility that there
will be insufficient international reserves. It is our hope
that agreement will be reached at the International Monetary
Fund Annual Meeting in September 1967 on an adequate plan for
the creation of reserve assets.
Finally, there is the acute problem of providing sufficient
resources for the growth of the less developed countries under
conditions that encourage self-help, promote the adjustment
process in the international balance of payments, and still
preserve broad competitive choices. The international development
institutions have made a significant contribution to this
development. But more must be done. They are sorely in need of
additional resources. The Inter-American Development Bank, the
International Development Association, the Asian Development Bank,
and the African Development Bank need additional funds with
. to finance their activities in the coming years. All
developed countries must contribute to this effort and ways and
means must be found for making this contribution. That was the
principal current concern of this week's meeting of the
Inter-American Development Bank.
The respect of nations for the role of private enterprise
in the international economic order should be one of the prime
objectives of international law in the last third of this century.

- 11 Private initiative in the international area depends upon the
existence of order, nondiscrimination, and due process. To the
lawyers dealing with international clients, the area of interest,
the problems confronted are very specific. For, in spite of all
of the developments I have cited, a corporation doing business
in a foreign country may still be confronted with the ofttimes
difficult problem of achieving some form of fair treatment along
the lines of our constitutional guarantee of due process.
The evolution and growth of the multinational corporation
is of major importance in the development of the world's resources.
Multinational corporations with their technological skills,
research facilities, capital, patents, equipment and experience
drawn from successful operations, serve a most useful economic
and social function in the countries of their operations. Their
growth is already a significant factor in the development of
the world's economy. In money terms, from the U. S. experience
we can get some idea of the contribution of these companies.
In 1950, U. S. exports were about $10 billion. In 1965, exports
had climbed to over $27 billion. My comparison, however, in
those same years, direct investment abroad by U. S. firms totaled
$12 billion in 1950 and had risen to almost $50 billion at the
end of 1965. Sales by U. S. foreign manufacturing affiliates
totaled over $42 billion in 1965, of which $34 billion were local
sales.
Add to these indicia of goods and services provided by
our foreign trade and investment a steady source of employment,
social stability, tax revenues, advances in technical knowledge,
and the growth of affiliated industries and services and one can
understand the desire on economic and social grounds of host
countries to accept the multinational corporation. Despite this
we all know of the many difficulties still facing the
multinational corporation in operating in a host country, including
restrictions on fields of endeavor, the necessity for foreign
management, expropriation without adequate compensation, compliance
with local regulations and laws contrary to the law of the
county of ownership, and, in some cases, strict limitations on
repatriation of earnings.
There are no simple, easy solutions to the problems which a
mUltinational corporation may face. ~or those of you whose
clients call for legal advice on how to overcome these problems,
I am sure there are many frustrations. You recognize and
understand, of course, the necessity for a multinational

- 12 corporation to adjust to the realities of the national policies
and laws of the host country; to establish itself as a good
citizen, paying just taxes, having an enlightened policy for the
benefit of employees within the social context of the host country.
You must be prepared to demonstrate to the host country the
benefits it will derive from the presence of the corporation.
The burden of the lawyer is indeed a difficult one in these
circumstances. He must be prepared to negotiate in advance the
necessary understandings and safeguards for his client's
establishment and operation; if they do not already exist in
the law. The difficulty is, of course, that often there are no
standards upon which such understandings can be made or judged.
It is in this area perhaps that the United States Government has
a responsibility to increase its efforts to convince nations of
the world to reach agreed-upon codes for the treatment of foreign
investment.
On the other hand, it is the responsibility of the host
country to recognize and understand that it, too, must adhere to
rules of conduct which would allow the successful operation within
its borders of a multinational corporation. Indeed, without
these rules of conduct, the economic progress of a less
developed country may be stifled because an investor is simply not
going to be attracted to an area where he is not wanted or where
there is a possibility of his becoming not wanted.
We cannot expect to achieve uniformity in the treatment of
multinational corporations throughout the world. Many countries
are at an early stage of their economic development by comparison
with the United States and, for example, the countries of
Europe. To be realistic, we have to recognize that, along with
their aspirations for rapid development, some of them are going
through a period of excessive nationalism which may inhibit the
attainment of the essentials of due process as we have come to
understand them. In part, therefore, the achievement of due
process will be dependent upon the acceptance of multinational
corporations as being desirable and upon our success in
alleviating their fears of undue foreign influence over the
development of their economies in the context of their social and
political institutions which may differ from ours.
We cannot expect solutions to come overnight. This is a
long-range goal on which both government and private efforts must

- 13 continue to be exerted. We have seen some advance. As I
mentioned, the Settlement of Investment Disputes Convention is a
step in the direction of due process. The approval of the
membership of the U. S. in that Convention was helped by the
support of organizations such as the Bar Association of New York,
the Philadelphia Bar Association, the National Association of
Manufacturers, and the National Foreign Trade Council.
Additional steps by way of international conventions are
only one way to provide for the multinational corporation the
due process which would allow most efficient economic
development. The interest and help of organizations of lawyers
and business are vital to help bring such conventions and
agreements to fruition. The great body of international law
which governs the economic dealings among nations has already
evidenced a connection with private transactions. It is my
conviction that the time is opportune to work on adding to the
solid structure of international economic order so that our
cherished belief in due process can be applied to private
international transactions.
In closing, may I express the hope, tinged by a residue of
professional pride, that, in the future, international economic
affairs may not become the exclusive preserve of economists
and diplomats -- but that lawyers may increasingly bring to this
field the beneficient balance that can come only with the rule
of law.

000

TREASURY DEPARTMENT
4

F.ELFASE 6:30 P.M.,

.ay, May 1, 1961.

RESULTS OF TREASURY'S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series of Treasury
s, one series to be an addiM,onal issue of the bills dated February 2, 1961, and
other series to be dated May 4, 1961, which were offered on April 26, 1961, were
.ed at the Federal Reserve Banks today. Tenders were invited for tl,300,OOO,OOO,
hereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of 182-d.ay
s. The details of the two series are as follows:

91-day Treasury bills
maturing August 3, 1961
Approx. Equiv.
Price
Annual Rate
99 •060
3. 719%
99.043
3.786%
99.047
3.770%
!I

L OF ACCEPI'ED

ETITIVE BIDS

High

Average

182-day Treasury bills
maturing November 2, 1967
Approx. Equiv.
Price
Annual Rate
98.038
98.016
98.025

3.881%
3.924%
3.907%

Excepting 2 tenders totaling $475,000

98% of the amount of 91-day bills bid for at the low price was accepted

3% of the amount of 182-day bills bid for at the low price was accepted
L TENDERS APPLIED FOR AND ACCEPl'ED BY FEDERAL RESERVE DISTRICTS:

3trict
ston
r York

lladelphia
;veland
:hmond
lanta
lcago
, Louis

meapolis
Isas City

las
I franCisco

TOTALS

AEElied For
AcceEted
AEElied For
$ 34,275,000
$ 19,679,000 $
9,629,000
1,1142,096,000
1,608,248,000
923,041,000
14,943,000
17,355,000
26,943,000
17,535,000
23,459,000 ·
23,459,000
3,253,000
8,464,000
8,464,000
18,161,000
33,181,000
41,213,000
149,133,000
174,L93,000
123,393,000 ·
14,235,000
32,285,000
41,891,000
8,633,000
14,746,000 :
15,146,000
8,038,000
21,957,000
22,009,000
17,921,000
lu,041,OOO
23,067,000
81,46$,000
81,241,000
97,731,000

·
·

$2,102,943,000 $1,300,686,000

$1,812,100,000

AcceEted
$
4,275,000
834,186,000
4,355,000
7,835,000
3,253,000
9,379,000
78,253,000
8,744,000
7,248,000
8,038,000
7,921,000
26, 612,000
$1,000,102,000

ncludes $234,306,000 noncompetitive tenders accepted at the average price of 99.041
ncludes $90,107,000 noncompetitive tenders accepted at the average price of 98.025
hese rates are on a bank discount basis. The equivalent coupon issue yields are
.87% for the 91-d.9.y bills, and 4.05% for the 182-ciay bills.

TREASURY DEPARTMENT

Washington

STATEMENT OF HONORABLE JOSEPH W. BARR
THE UNDER SECRETARY OF THE TREASURY
ON H. R. 7476
HOUSE BANKING AND CURRENCY COMMI'.r1'EE
MAY

1, 1967

Mr. Chairman and Members of the Committee:
I appreciate the opportunity to appear before you today in support
of H. R. 7476, a bill which would provide a basis for dealing with our
silver stocks in an orderly way.

To lay a foundation for understanding

the need for this legislation I should like, with the Committee's indulgence, to review briefly the history of our silver policy during the
last few decades.
Under various acts aDd proclamations relating to newly mined domestic
silver, and the Silver Purchase Act of 1934, we purchased, from 1934 to

1959, 3 billion ounces of
ounce.

silv~r

at an average price of 58.7 cents per

Until the second World War, world production of silver exceeded

consumption.

Thereafter, the trend reversed; however, it was not until

1959 that the combination of the needs of industry and others for silver
and the Treasury's increased use of it for coinage began appreciably to
exceed world production.

The gap widened steadily, but for a time the

Treasury was able to fill it by the sale in the market of silver from
its non-monetized stockpile.

The increased demand for silver for in-

dustrial and other use was in that way satisfied temporarily.

By November

of 1961, however, it became clear that the unrestricted sale fram our
non-monetized stockpile could not continue and on November 28 of that
year President Kennedy, upon the Treasury's recommendation, directed that

F-898

- 2 the sale of this silver be discontinued and that our coinage needs be
met by using silver released through the retirement of unfit silver
certificates of the $5 and $10 denominations.
As you know, the Treasury's monetary use of silver was not limited
to coinage.

By law a portion of the silver purchased under the Purchase

Acts was required to be used to back silver certificates, most of them
of the $1 denomination, the only currency of that denomination then being
issued.

Also, to the extent that the public's needs for $1 bills did

not require the use of all of our silver excess to·our coinage needs, we
had issued some silver certificates of the $5 and $10 denominations.

1961, it had become evident, however, that our existing stocks of silver
could not for long accomplish both purposes, that is, provide silver
for coinage and backing for silver certificates.

consequently, the

issuance of $5 and $10 silver certificates was stopped.
the drain on silver but not enough.

This reduced

Therefore, the Treasury proposed

and the Congress enacted the Act of June 4, 1963, Public Law 88-36, which
accomplished two things.

First, it authorized the secretary, at his

option, to redeem silver certificates with silver bullion instead of
silver dollars.

Our

supply of silver dollars, which had not been minted

since 1935, had dropped from more than 500 million at that time to 81
million by 1963.

Second, the Act authorized the issuance of $1 Federal

Reserve notes to be substituted for $1 silver certificates.
of that year they were in production.

In November

From November of 1963 until October

- 3 of 1964 both $1 silver certificates and $1 Federal Reserve notes were
issued.

By September of 1964 we were producing enoUgh $1 Federal Reserve

notes to satisfy the needs of the public and in early October the issuance
of silver certificates was stopped altogether.
In the meantime, because of the suspension of the unrestricted sale
of our silver to the market, the market price of silver began to rise.

From a price of $0.91 in 1961, it gradually rose until in 1963 it reached
the price of $1.29+ per ounce, the monetary value of silver.

We could

not allow the market price to rise much above its monetary value because
this would threaten the continued circulation of our silver coinage.

would become profitable to melt subsidiary coins for their silver content at about $1.40 an ounce.

Therefore, beginning on July 23, 1963,

the Treasury offered to the public silver bullion at its monetary value
in exchange for silver certificates.

It was not necessary to require,

however, that silver certificates be presented physically in exchange
for bullion.
out doing so.

A simple procedure made it possible to obtain silver withsubstantial amounts of unfit silver certificates were being

retired each day, and an arrangement was made whereby persons wishing to
acquire bullion would request the New York or San Francisco Federal Reserve Banks to purchase unfit silver certificates which were in the process
of retirement and exchange them for bullion.

This worked satisfactorily

and as bullion was released an equivalent amount in unfit silver certif-

icates was retired.

- 4Until recently, the rate of retirement of unfit certificates exceeded
bullion losses through this exchange method, and, since no new silver
certificates were being issued, we were able to accumulate a supply of
unencumbered silver in excess of 300 million ounces.
year and a half, however, that trend was reversed.

During the last
Bullion losses began

to exceed certificate retirements, and the sale of free silver at its
monetary value, as authorized by the Coinage Act of 1965, coupled with
the use of silver for COinage, has reduced our uncommitted silver to
about 90 million ounces.
After silver ceased to be used for the purpose of backing new
issuances of silver certificates, it became necessary to find a substitute for silver for coins.

After an exhaustive study, we recommended

and the Congress enacted the Coinage Act of 1965, which authorized the
substitution of nickel and copper for silver in our dimes and quarters
and reduced to

40~

the silver content of the half dollar.

This Committee

and the Congress as a whole quickly recognized the urgency of this problem
and acted responsibly and with alacrity.
We have now reached the point at which further action is necessary.
At the present time, we have total stocks of silver of about 520 million
ounces.

Of this amount, almost 430 million ounces are required by law

to be held as reserves for $555 million of silver certificates outstanding.
This leaves only about 90 million ounces of so-cal 1 e d "free
available.

S1·1ver II

- 5 We are asking the Congress, therefore, to authorize the secretary
of the Treasury to write off an amount of outstanding silver certificates
which he determines have been lost or destroyed, or are held in collections,
and will never be presented for redemption.

On the basis of past ex-

perience we know that not all of the outstanding silver certificates will
be returned for redemption. Many of them have been lost or destroyed
and many more can be expected to be held by collectors.

Experience would

indicate that at least $150 million could be written off immediately,
thus freeing about 116 million ounces of silver.

After further experience

with the trend of retirements of silver certificates we might be able to
write off an additional amount.
We are also asking the Congress to provide that holders of silver
certificates would have one year from the date of the legislation to
redeem their silver certificates for silver if they desire to do so.
Atter one year silver certificates would continue to be legal tender on
a par with Federal Reserve notes, but they could no longer be redeemed
in silver.

This is a perfectly reasonable provision which recognizes

the fact that we cannot permit one form of currency to acquire a speculative value in excess of that of other forms, but at the same time provides
an ample period during which those who presently hold silver certificates
may acquire silver if they wish.

Since the passage of the Coinage Act of 1965, our mints have accomplished an amazing feat of producing in the short space of 21 months the
unprecedented amount of

7.8 billion of the new subsidiary coins. At the

- 6 present time, we are approaching the limits of capacity of our facilities
for storage of new coins available to be issued if needed.

It is our

belief that we probably have in circulation, in inventory, and in production, a sufficient amount of the new coins so that if the existing
silver coins in circulation should begin to disappear, we would have
enough coins to meet the country's needs.

However, it is difficult to

estimate the total needs of the country for COinage, and we feel that
we can take no chances in this regard.

Accordingly, we are continuing

heavy production of the new coins at all of our mints to insure an amount
of the new coins in circulation and in inventory which, according to
every estimate, will be more than sufficient to meet any potential needs
of the country for coinage.
The Joint Commission On The Coinage established under the Coinage
Act of 1965, to which I will refer more later, will, of course, want to
satisfy itself that we have and are making enough coins to meet the needs
of the country.

During this interim period, particularly between now

and the end of this year, we must have available sufficient amounts of
free silver to sell to industry at the monetary value of $1.29+ per
ounce in order to maintain the market price within a narrow margin of
this figure.

Were we to stop selling silver, the market price could

be expected to rise rapidly.

Once it exceeded the price of $1.40 per

ounce, the silver coins in circulation would have greater value as silver
than as coins and would undoubtedly be withdrawn fram circulation in
substantial runounts.

- 7 The question may be asked as to whether the Administration, by
asking for this legislation, is not invading the province of the
Coinage Commission.

In our opinion, this legislation is necessary to

preserve the optiomwhich the Coinage Act of 1965 placed in the Coinage
Commission.

The Coinage Act instructed the Commission to review and

make recommendations upon such matters as the needs of the economy for
coins, the standards for the coinage, technological developments and
the availability of various metals, renewed minting of the silver dollar,
other considerations relevant to the maintenance of an adequate and
stable coinage system, and

'~he

time when and circumstances under which

the United States should cease to maintain the price of silver."

Enact-

ment of H. R. 7476 will make it possible for the Coinage Commission to
consider these and related questions in an objective way without being
placed under the pressure of dealing with an emergency situation.
The President will shortly announce his designation of members to
serve on the COinage Commission.

The Congress has previously designated

its representatives to serve on the Commission.

It is planned that the

Commission will be convened and commence its studies promptly.

Early

next year its findings and recommendations should be available to the
Executive branch and to the Congress, and may serve as the basis for

any ultimate legislation which may be needed with respect to silver and
oUr coinage.

In the meantime, the bill before you will make it possible

- 8 to maintain the status quo.

I strongly urge you to report favorably

on this bill and to recommend its enactment as being in the public
interest.

\.&1 ...

Calendar
Year

1958
1959
1960
1961
1962
1963
1964
1965
1966: Jan.
Feb.
March
April
May
June
July
Augus
Sept.
Oct.
Nov.
Dec.

1966
1967: Jan.

Bullion
Silver
exchanged
used in
for silver
coina~eL _certificate sl

I
I

-38.2
-41.4
-46.0
-55.9
-77.4
-111.5
-203.0
-320.3
-14.9
-8.2
-5.7
-3.7
-1.4
-2.5
-1.3
-2.7
-3.4 . II
-4.2 I
-2.3 i
-3.4 I
-53.9 !I
-3.9 :
-4.5 I

-19.0
-141.4_
-77.4
-3.3
-9.5
-11.1
-12.6
-15.4
-15.1
-12.4
-18.0
-17.0
-9.1
-11.1
-4.9 I
-140.6 I
-20.0 i
-10.4
£1-13.0
I

-L

Silver
dollurs
ni'lirl

()1Jt,

-12.7
-15.7
-16.2
-23.8
-27.4
-51. 5
-19.8

Ul.l.~~~ons

troy ounce s)

l.otal
OtherJl change
causes'
in
of
I silver
rhr'lnnp 1 stocks

+142.8
+10.8
-5.5
-49.8
+10.4
-2.0
-2.1
-16. 7
-.9
-1.5
- .1
-3.8
-2.3
-1.2
-.5
-2.2
-.8
+.2

9I
II +91.
-46.3

I -67.7
1-129.5
-94.4
'I -184.0
1-366.3
I -414.4 I
r
' -19.1 I
-19.2
-16.9
-20.1
-20.1
-18.8
-14.2
-22.9
-21. 2
-13.1
-14.2
-.8
-9.6
-1.3
-14.9 -209.4
-2.3
-26~2 I
-17.9 :
-3.0
-18.4 I
~t?! -+. G

SilverY'
stock
at
end of

2,106.2
2,0.59.9
1,992.2
1,862.7
1,768.3
1,584.3
1,218.0
803.6
784.5
765.3
748.4
728.3
708.2
689.4
675.2
652.3
631.1
618.0
603.8
594.2
594.2
568.0
550.1

Memorandum: Bullion equivalent of
silver certificatesYat end of period
He d y
In circuF.R. Banks \ Total

1,683.5
1,651.1
1,632.0
1,616.3
1,536.0
1,440.4

188.3
209.3
215.9
191. 2
177.5
105.4

952.3

82.1

503.4
486.4
478.3
471. 0
461. 3
456.4
449.8
444.8
440.4
437.8
436.3
433.9
431. 8
431. 8
427.9
426.5

24.7
29.4
26.0
20.3
19.7
13.0
13.4
13.4
12.3
10.2
7.2
5.9
6.8
6.8
7.9
6.8

1,871.8
1,860.4
1,847.9
1,807.5
1,113.5
1,545.8
1,034.4
528.1
515.8
504.3
491. 3
481. 0
469.4
453.2
458.2
452.7
448.0
443.5
439.8
438.6
438.6
435.8
433.3

Feb.
Mar.
PI -6.0
531.7
Includes purchases, lend-lease returns, net sules and transfers to Government agencies, sales to industry during
1959-1961, variation in the amount of subsidiary coin ond bullion held in the Treasurer's General Account, and a residual
discrepancy arising from the fact that coinage and bullion exchanges are shown here on a Mint accounting basis while the
total change in silver stocks is shown on the more widely available Treasury Daily Statement basis. YAs shown in the
Treasurv Daily Statement. The total includes approximately 64.8 million ounces held by certain agencies of the Federal
Government. ] / Issued after June 30, 1929. W Preliminary.

Source: Treasury Daily Statements, Circulation Statements and unpublished material.

TABLE l.--Estimated Free World Silver Consumption and Production, 1949-66
(In millions of fine troy ounces)
Coinage
Industry
and the
arts

Total
consumption
U.S.A.

Colr·ndllr
ye~lr

153.1
190.1
190.5
212.9
22/1.6

2J0.5
258.5
260.7
:.H)/l-,2
3L16.6

356.5

3().5

118.2

8/1.7

37.S

36.0

3(1. 2

I~ 1..

73.5
7').5

lil.4
ll().O

l15.0

ge) .l~

57.9
81.2
50.2

103.9

55.9
77 .4
111. 5
203.0
320.3
53.9

~/~.

lJ7.1

127 .6

1()6./~

1
55.3
53.H

7..67.1
375.6
107.7

()l~.

Indicated
deficit
(-)

Total
coin:lge

(2)

(1)

]949-53 average ...
lY~3-57 average .••
1958 .......•......
] 959 ........•.•.•.
1960 ...•.• '........
1961 (rev.) ....•..
1962 (rev.) .....•.
1963 (rev.) ..•....
1964 (rev.) •......
1965 ...... , .. , ...•
1966 ........•.•...

Coinage
foreign

New
production

Deficit
excluding
,111
coinage
delll;lIld
(-)

(3)

(4)

(5)

(6)

237.8
263.6
270.0
299.3
328.5
376.6
386.1
l~2 7 .1
571. 3
722.2
464.2

173.9
191.0
205.8
188.4
206.9
203.2
209.0
214.6
210.7
215.3
231.0

-63.9
-72.6

20.8
.9
15.3
-24.5
-17.7
-36.3
-49.5
-/~6. 1
-93.5

L-- -

-6/~.

-110.9
-121. 6
-173.4
-177.1
-212.5
-360.6
-506.9
-233.2

-131. 3

-125.5

Source: Co1wnns (1) .-mu (2) are frol1\ H.-mdy and 1l.1rman, Annual Reviews. Column (4) is derive,l from the ,,,arld
tot;) 11' puhl ished in the Annual Rcpor ill of the Dircc tar of the Mint and compiled by the Bure.1U of Mines, except for
1966 which is from Handy & llanll<1n'S 1966 Annu.1l Review. Production for the following countries has been subtracted
from the world totals: Czcchoslov.1J<i.1, East Germany, HunGLlry, Rwn.:l11ia, Poland, U.S.S.R •• China. and North Korea.

o:;uver CerUfica

Small Size

Issued, Redeemed, and Outstanding

Ca lendar Year
~

1J61
18G?
l ' 63
* 1~ 64
H 65
H 66
January
I
) February
March
Apr!l
May
June
July
August
September
October
November
December
Total - 1966
,nc..,

Issued
Equivalent of
ounces @ 1.29+
Amount

970,360,876
891,018,563
741,868,876
345,089,250

$1,254,608,000
1 , 152 , 024 , 000,
959,184,OOOj
446 , 176 , 000'

I
I

I
I
!,
1

II
I

I,
I

I
I,
I

Outstanding
End of Period
Equi va lent of
Amount
ounces @ 1 29+

Redeemed
Equivalent of
ounces @J 1 29+
Amount

988,842,671
987,827,293
907,975,733
857,322,949
510,502,262

$1,278,503,654
1,277,190,842
1,173,948,421
1,108,457,953
660,043,328

12,003,637
12,179,939 I
14,356,287 I
10,465,266
10,350,312
6,758,200 j
5,462,484 II
0,109,509
,
4,633,166

iI
I

I
I

hh7

C)Q7

2,707,306
January
February
3.164.1 357
2,239,816
March
.I
*Issue of silver certificates discontinued October 1964.

Source: Currency ledgers in U. S. Trea surer's Office.

I
I

15,519,854
15,747,800
18, 561,6641
13,530,849
13,382,222,
8,737,875 I
7,062,606
7,899,163
5,990,356
h

n1t:;

177

3,500,355 1i
4,091,290
2,895,924

1,817,424,234
1,720,615,505
1,554,508,648
1,042,274,949
531,772,687

$2,349,801,028
2,224,634,186
2,009,869,765
1,347,587,812
687,544,484

519,769,050
507,589,111
493,232,824 ,
482,767,558
472,417,246
465,659,046
460,196,561 ,
454,087, 052 1
449,453,886 I

672,024,630
656,276,830
637,715,166
624,184,317
610,802,095
602,064,220
595,001,614
587,102,451
581,112,095

L1.1L1

t:;7t:;

7flc::

QOQ I

437,255,151 I
434{090,794/
431,850,978

()7c:.

71Q

565,339,993
561,248,703
558,352,779

Table 4
Balance of Unobligated Silver
Fine troy ounce s

, ill!
Dec. 31

Fine troy ounce s
1966

9,316,071

Jan. 31
Feb. 28
March 31
April 30
May 28
June 30
July 31
Aug. 31
Sept. 30
Oct. 31
Nov. 30
Dec. 31

21,782,451
34,858,034
11,955,943
41,838,514
36,622,914
30,372,231
47,389,683
41,193,304
41,841,469
72,126,924
111,076,708
150,279,688

Jan. 29
Feb. 28
March 31
April 30
May 28
June 30
July 31
Aug. 31
Sept. 30
Oct. 29
Nov. 30
Dec. 31

173,453,081
207,456,180
237,534,851
272,833,253
272,630,144
295,181,641
301,790,451
325,158,600
310,038,501
298,109,717
282,281,615
271,845,717

Jan. 31
Feb. 28
March 31
April 29
May 31
June 30
July 29
Aug. 31
Sept. 30
Oct. 31
Nov. 30
Dec. 30

264,763,644
257,693,663
255,174,576
245,505,248
235,815,939
223,763,203
215,004,080
198,172,851
181,687,234
173,185,839
161,707,676
154,283,359

1967
Jan. 31
Feb. 28
March 31

130,757,145
116,043,701
99,851,803

Source: Daily Treasury Statements

'l'r)'()l(~

United Stutes currency v!ritten off pursuant to
Old Series Currency Adjust-ment Act, approved June 30, 1961
Public Law 87-66
___ • _ _ _ _ _

•

I
---l

__ ~ind of Currency

• • _ _ _ _ _ _ _ _ _ . . _ _ _ _ _ _ --------_~_~ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Cumulative
I
total i s s u e d !

Tlleasury Notes of 1890

$447,,435,0..00

G pld Certificate sis sued
!prior to July 1, 1929

_ _ ._

._~

______

.__

-_-~':---

Written Off

...: - -

August 19621 November 19G4l---.l1!OJLl.~..6..6_! __T_Qtfll

October 1961!

$1,000,000

13,447,187,300

$9,000,000

-.'

'-,

---'-:"':,-:::-

----,---.7_

I (Jutstandin:]

pee.

3l:_19.£.fi..

$100,000

$ 31,000

$1,131,00

$10,534

6,000,000

1,600,000

16,600,00

745,429

eiold Certificutes issued
July 1, 19~9 <mci sub~ ,;(~:.~ :;l'!t ..~!~ '.':~-:;to

?:SQ1,530,OOO

0:-~('(i!'t

7,350,000

'/;350(000

3,490,690

Series 1934
Silver

CCi'LiIic~LC:s iSSl!0d

12,374,855,800

15,000,000

14,500,000

230,000

29,780,000

HO,814

14,081,209,155

15,000,000

13,500,000

420,000

28,920,000

210,405

Federal Reserve Bunk Notes
issued prior to July I, 1929

761,9tl4,OOO

1,000,000

63,000

2,063,000

30,442

Federal Reserve Notes issued
prior to Ju! y 1, 1929

19,971,560,000

18,000,000

14,000,000

2,450,000

34,450,000

1,193,087

prior to July 1, 1929
National BanK Notes issued
prior to July 1, 1929

United SLCitC'.'; ?To;:cs is,;\)cc!

'rO'LiI!

Source:

e'l!l")I':; J.crl(I"r~;

e,903,12'1,8081

prior to July 1, 1929

U. S.

,-~)-;c).

1 nn

n~') I

'l'r".l:,1l·, ,.".0; ()~;;c:c.

noo ,0;0---' S8, 000

I _ 34 , Q.QQ.~9J.l.0 .. I_. __ LlL._QQ0: __ .. ]'1,~iL,.0_o_QI _ _ ._

:~:~-l-

'11.100

,o.Qo_.l

1 (,.3) G_,j)oQ

,__

.1'11\ ,1J.3G ,000'

7? ,111

_.~, . ;"~'J ;\L~.
,

United States Silver consumption and sources of supply
Calendar Years of 1949 through 1966
(In mi1l1:ms of fine troy ounces)

j Average,
11949 - 58

1959

1960

1961

19 63

1962

Industria 1 consumption
Less: New production

97.4
38. 1

Difference
Add: U. S. coinage

59.3
36.6

1101.0
; 23.- 0

102.0
36 . 8

--I

78.0·
41.4

95.9 - 1119.4

Total accounted for
Discrepancy ~inus va lues
imply net additions to
domestic inventory)

1-55.3
1-45.0
;-4G.3

-96.0

~145.6,

r===
I

- .1

137.0
1<LO

150.0
4LO

1110.0
_ 35.0

120.5
3 Z-0

75.0

83.5
203.0

98.0
320.3

108.0
53.9

286.5

418.3

161.9

+55.7

-12.2

+22.3

-366.3

-414.4

-209.4

-310.6 !-426.6

-187.1

65.2
46.0

70.6
55.9

74.1
77.4

I 111.5

111.2

126.5

151.5__

1186.S

-80.9
-30.5
+15.4

105.5
110.4
34 .1) _._36 . 3

Accounted for by Net commercia 1 imports
Lend-lease, returns (-)
Change in TWiJsury stocks

1966

(Rev. )

•

Equals: Indicated deficit

1965

-9.1
-10.4
1-129.5

-112.9

-149.0

1-166.0

-216.05

II -22.5

-14.5

-30.0

-63.3
-8.3
-94.4

I -32.5

. -29.5
! -15.7
1-67.7

....

,-184.0

I
;-27.2
I

-1.7

-24.1

-8.3

-25.2

Source: Const'mption, coinage, and prod'JcUon data from Annual Reports of the Director of the Mlnt, except for 1966
when const.:mption and production are from I-Iandy & Hnrman's 1956 Annual Review. Net commercial imports from Handy &
H<Jrm3n's Annual Reviews and Minerals Yearbooks. Lend-lease returns from Annual Reports of the Director of the Mint.
Change in Trca sury silver stocks from Trca sury Daily Stn'.:ements.

TREASURY DEPARTMENT

May 2, 1967
FOR IMMEDIATE RELEASE
TREASURY DECISION ON ALUMINUM SHEATHED COAXIAL CABLE
UNDER THE ANTIDUMPING ACT

The Treasury Department announced today that it is issuing
a notice of intent to close its investigation with respect to
the possible dumping of aluminum sheathed coaxial cable, also
known as insulated electrical conductor cable, imported from
Canada, manufactured by Canada Wire & Cable Company, Ltd.,
Toronto, Canada.
The notice, which will be published in an early issue of
the Federal Register, announces that the investigation is being
closed with a tentative determination that this merchandise is
not being, nor likely to be, sold at less than fair value within
the meaning of the Antidumping Act, 1921, as amended (19 U.s.c.160
et ~.),
The merchandise under consideration is commonly used to
conduct television signals from antennas to receivers.
Appraisement of the above-described merchandise from Canada,
manufactured by Canada Wire & Cable Company, Ltd., Toronto,
Canada, has not been withheld.
Imports of the involved merchandise received during the
period April 1, 1966, through January 31, 1967, were valued at
approximately $300,000.

TREASURY DEPARTMENT
Washington

FOR USE IN AFTERNOON NEWSPAPERS
OF TUESDAY, MAY 2, 1967
REMARKS BY THE HONORABLE WINTHROP KNOWLTON
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
AT THE
LUNCHEON MEETING OF THE WORLD AFFAIRS COUNCIL
SHERATON-PLAZA HOTEL, BOSTON, MASSACHUSETTS
TUESDAY, MAY 2, 1967, 12 NOON, EDT
THE UNITED STATES BALANCE OF PAYMENTS
PROBLEM:
I.

A LONG-RANGE STRATEGY

Introduc tion

I want to discuss with you today a problem that is
statistical; sexless; senseless, in the eyes of some;
and remote in the minds of most. In other words, the
United States balance of payments.
Despite these distasteful characteristics, the
subject has recently been embraced with considerable
conversational fervor; the light shed upon it appears
to vary in inverse proportion to the conversational heat.
You are all no doubt familiar with the problem in a
general way -- and many of you are familiar with its
intricacies. For every year but one of the last
seventeen, the United States has paid out more dollars
to foreigners than it has taken in. Some of these
dollars have moved into the hands of foreign monetary
authorities who can convert them into gold if they so
desire. In 1956 the amount of liquid dollars held by
foreign countries totaled $14.6 billion, and our gold
stock totaled $22.1 billion. By the end of 1966 foreign
liquid dollar holdings had grown to $27.9 billion
($13.7 billion in official hands), and our gold stock had
dropped to $13.2 billion.

F-899

- 2 -

As the problem persists, individual sectors of our
society tend increasingly to blame other sectors for the
deficit. The prescription of some (outside the
Administration) is to have us bring back our troops from
Western Europe or drastically to reduce our foreign
economic assistance programs. Some (not in the
financial business) would reduce or eliminate various
types of private capital outflows. Others (presumably
not members of the jet-set) select the American tourist,
conveniently pictured as sipping champagne and ogling barebosomed girls in a Paris night club, as the villain. And
still others (usually those doing poorly in trade) would
have us erect trade barriers. Each group views its ~
contribution to the deficit as morally sacrosanct and
economically viable in the long run -- even if costing
us a few dollars in the short run.
As if this chorus were not sufficiently diverting
for the policy makers, there is a simultaneous dialogue
in progress over whether the steady increase in U. S.
liquid liabilities and the steady decline in reserve
assets is really a problem at all. Here our advice ranges
from that of distinguished professors who view the process
as one of normal banking intermediation and exhort us
"not to do something but just stand there ll to the
disciplinary exhortations of foreign central bankers, who
pursue cure of the deficit with the religious zeal of
Captain Ahab in pursuit of the White Whale.
We are confronted, on the one hand, by those who
would have us break the link to gold (the only
question being whether to do it now, with $13 billion
left, or to let it all drain out first) and, on the other,
by those who would apply a good dose of old-fashioned
economic discipline, stagnate the economy, and, presto,
bring ourselves into equilibrium. Somewhere in between
are advocates of a lIdollar bloc. lI
None of these groups -- in my view -- lives in the
real world as it exists today, or as we want it to
exist in the future.

- 3 -

II.

Basic Assumptions

Today, I want to discuss United States balance of
payments problem -- and our strategy -- in what I
hope is a more frontal and pragmatic way. Time does not
permit me to discuss the closely-related problem of
international liquidity and the negotiations in progress
for the reform of the international monetary system.
With respect to the United States balance of payments
per se, I will assume that:
It is a problem.
The problem must be solved.
It can only be solved through effective,
long-range measures.
It need not be solved by restrictive measures
and can, as a practical matter, be solved
largely by a combination of increasing our
private balance of payments receipts and
exercising restraint over our Government
outlays.
It requires an organized approach in which
the talents and resources of the Government
and private industry are more effectively
coordinated.
And, finally, it cannot be solved without
positive action by other countries.
III

The Short-Term Strategy

I will comment on the short-run picture only in
passing by saying that shorter term measures include:
The Interest Equalization Tax, which we
are attempting to extend and strengthen;
the Vcluntary Federal Reserve Program to
restrain capital outflows from banks and
other financial institutions;

- 4 -

the Voluntary Commerce Program designed
to moderate direct investment outflows.
Like the shots of cortisone pumped into Sandy
Koufax's left elbow, these measures have enabled us to
produce a respectable balance of payments performance
during a difficult -- and presumably temporary -- period in which
Vietnam costs have had an important adverse impact. They
have enabled us to reduce our liquidity deficit i n the last
two years to $1.4 billion, on average, compared t o $2.8
billion, on average, in the preceding five years ; they
helped reduce our official settlement deficit to
$0.5 billion, on average, in the last two years,
compared to $2.2 billion, on average, in the preceding
five years ,
IV. The Long-Range Strategy
A.

Goal

The United States' long-range balance of payments
objective -- stated most simply -- is to reach and
sustain the degree of equilibrium necessary to preserve
confidence in the stability of the dollar as a
transactions and reserve currency. (I use the word
preserve advisedly. Confidence in the dollar exists today.
The fact that 94 percent of our gold losses to foreign
central banks in the last three years are attributable to
purchases by one central bank suggests these drains
relate to factors other than lack of confidence in our
currency.)
B.

Structure

We must achieve this objective in the right
way. I suggest that the most rational and desirable
profile for balance of payments equilibrium would be one
in which:
The United States would meet its fair share
of international commitments on behalf of
mutual security in the Free World and
economic development in the poorer nations
of the Free World.

- 5 -

The United States would export private
capital. We have the most efficient capital
market in the world; to deprive a world that
needs capital of access to this economic
resource would, over the long run, constitute
an act of economic perversity.
To cover these Government outflows and
private capital ouflows, the United States
would increase its balance of payments
receipts from a variety of sources, of
which the most important are exports of
goods and services, including travel;
direct investment income, including
royalties; and foreign portfolio investment.
C.

Implementation

Let me now suggest specific ways in which we can
increase the receipts and limit the payments in question.
As you will see, a.chievement of the des ired balance of
payments profile will require new actions, better planning,
and a greater sense of urgency on the part of many people.
It also requires, in my opinion, far greater self-confidence
in ultimate success than many analysts in Government,in
business, and in the academic community have lately
professed.
1.

Increasing Our Trade Surplus

The time has come for us to improve our trade surplus
by launching a powerful long-range export drive. Price
and cost stability are
essential ingredients of
success in this endeavor. After out-performing our
major competitors with respect to costs and prices in
the period 1960-65, we did no better than hold our own
in 1966. If we are to increase our market share in the
future, as we must, we must again out-perform our major
competitors in this important respect.
With respect to export promotion, the Commerce
Department has already greatly intensified its efforts.
U. S. Trade Missions, begun in 1954 largely
as goodwill tours, have been entirely recast
as vehicles for hard-selling of American
products, services, and investments abroad.

- 6 -

Attendance at Commercial Trade Fairs has
climbed from 1.6 million persons in fiscal
1963 to an estimated 5 million in fiscal
1967 to date. The number of U.S. firms
participating in these fairs has jumped
from 147 in 1963 to 522 thus far in 1967
and may well exceed 1,000 by the end of
the year.
Commerce is now storing in computers vast
new quantities of information on the international trading interests of 23,000 U.S.
corporations. Of these, 10,000 are not now
exporting but have indicated an interest in
doing so. Commerce helps these novice
exporters by suggesting a variety of
established channels for distributing their
products overseas.
The recent report of the National Export Expansion
Council (the so-called Kim~erly Report) struck just the
right note, in my view, when it stated:
"An export expansion program, projected for
ten years, should be planned to analyze the total potential
for American exports, market-by-market, based upon three
kinds of growth: (1) a normal growth based on an
expanding world economy; (2) a penetration growth based
on taking business away fLom foreign countries which are
competitors; and (3) the introduction of new products
and services which are presently unavailable in world
markets.
"There should be an expansion of electronic
data processing involving market information, trade
opportunities, identification of prospective exporters,
and the compilation of export data to permit tabulation
of results."
With respect to export financing, we have made progress
in the last year in streamlining the operations of the
Export-Import Bank. It has simplified its procedures.
It has a new rediscount facility. New loan authorizations
by the Bank are up 70 percent to an annual rate of
$3.7 billion in fiscal year 1967. Additional measures
to improve the quality and quantity of support the
United States can give exporters in the field of finance
are under active consideration by the Administration and the
Congress.

- 7 In the tax field, we have in the last year streamlined
regulations relating to exports. The Government has under
continuing review the relationship between tax systems
here and abroad; if differences exist or should materialize
that would put our exporters at an unfair disadvantage,
we intend to take appropriate measures to correct the
situation.
The United States is extraordinarily competitive
at the two extremes of the export spectrum -agriculture and advanced technology. The world food
outlook is such that we can be optimistic about the
demand for our agricultural production and our ability
to supply greater quantities of food to help meet it.
In advanced technology, our computer industry -- to
cite one example -- has in the last fifteen years
reduced the cost of making 100,000 calculations from
$1.38 to 3-1/2 cents -- the kind of price reduction that
does not show up in official statistics measuring national
competitiveness. The nature of modern technology is
such, furthermore, that it quickly "attaches itself"
to other, more II humdrum" manufac tured produc ts (the
machine tool is now often "computer-controlled") so
that our technological lead -- if maintained -- should
manifest itself across a growing range of export products.
Thus, given an economic policy in which cost and price
stability are emphasized, given adequate support by the
Government in the fields of promotion, finance, and
taxati.on, and given adequate interest by exporters
themselves, we ought to increase our trade surplus
substantially in coming years. We should certainly have
that as a major national policy objective.
A United States trade surplus $3-$4 billion higher
than the $3.7 billion of 1966 is not going to create
havoc domestically in an economy with a gross national
product of $760 billion or in an expanding international
trading world in which the exports of all countries
currently exceed $200 billion. We have had a trade surplus
of this magnitude before, in 1964. A return to such a
level -- or new high ground -- is essential to a healthy
solution of our paymens problems.

- 8 2.

Increasing Our Travel Receipts

As one Washington economist likes to point out,
a travel gap is really no different than a banana gap,
or a steel gap, or a widget gap. The kinds of
institutions and measures necessary to stabilize or
narrow the travel gap -- $1.8 billion in 1966 -- are,
in fact, similar to those necessary to increase our
merchandise trade surplus.
Last year, the U. S. Travel Service operated with
a minuscule $3 million budget -- a budget that compares
with $10 million for Canada, $10 million for Spain,
$7 million for Mexico, $5 million for France, and
$5 million for Greece.
Imagine what could be accomplished with a major
budgetary effort on the part of the U.S. Government -more funds not only for the U.S. Travel Service, but
also for improved customs and reception centers,
translation services, better park facilities, and so on.
One can let one's imagination run wild in terms of a
variety of actions -- governmental and non-governmental -that would increase foreign travel to the United States.
For example:
Why can't we have an attractive,
comprehensive guide book for the United
States, translated into a variety of foreign
languages?
Why can't we give foreigners "standby"
status on domestic airlines similar to
that given to students and military
personnel?
Why can't we fill thousands of empty
university dormitory beds at vacation
periods, pLovide revenues to the
universities in question, and law cost
lodgings to foreign student travelers?
Why can't we develop a system of certified
guides using U.S. students with a high
level of foreign language proficiency and
familiarity with U.Sv history and points
of interest?

- 9 Why can't our airlines fight harder at
international air conferences for
differential air rates encouraging traffic
to the United States?
Why can't we have a permanent World's Fair
of Science and Technology -- a scientific
Disneyland, located somewhere in the
United States -- that would attract
tourists and promote U. S. exports as well?
We need more interest, more action, and more
imagination by both the Government and the private
travel business. I am h9peful that the new travel task
force about to be appointed by the President will make
recommendations for institutional arrangements and for
increased budgetary support of such an effort.
3.

Increasing Our Direct Investment Income

There is much debate about the effect of direct
investment on our trade balance. Some Analysts contend
that the construction of manufacturing plants abroad
preserves markets and promotes American exports. Others
allege that the transfer of production from the
United States to the foreign country results in a loss of
U. S. exports.
One does not have to resolve this debate to reach the
conclusion that
at the very least direct investment
must be sufficiently profitable to permit corporations
to send home a steadily increasing stream of dividend and
royalty income. The surplus of income over direct investment
outflow must grow. Recent performance on this score has been
disappointing.
Since the beginning of 1960, U.S,-contro1led corporations
have invested $42 billion (net of depreciation) in new plant
and equipment and working capital outside
the United States.
The annual amount of such investments -- financed from earnings
retained from abroad, other foreign funds, and funds from the
United States -- rose from $3.7 billion at the beginning of the
decade to nearly $10 billion in 1966. According to our
estimates, this $42 billion investment has produced an
incremental return in the form of earnings and royalties of only
about 7 percent. (I include retained as well as repatriated
earnings in this calculation.)

- 10 Since only about 37 percent of the financing for this
investment came from the United States, the performance in
balance of payments terms has been better but still inadequate.
The annual excess of dividend and royalty income over direct
investment outflows doubled, from $1 billion to $2 billion,
in the period 1960-62. It has since remained on a $2-billion
plateau.
These poor results can be attributed, in part, to a
number of special factors -- hopefully largely non-recurring.
It would be difficult for corporate
managements to increase domestic investments
across a broad range of industries as
rapidly as these expenditunres have been
climbing abroad in recent years without
making mistakes. The business of making
investments abroad is inherently more
difficult than making them here -- there are
the added difficulties of language, distance,
finding personnel. Mistakes have undoubtedly
been made, and it seems reasonable to assume
that recent rates of increase cannot be
sustained on sound business grounds.
There has undoubtedly been an element of
"fashion" in recent overseas spending. A
study last fall by a New York investment
banking firm of 40 U. S. corporations
accounting for 70 percent of U. S. direct
investment in Western Europe indicated that
almost half gave the desire "to be a worldwide enterprise" as the most important
reason for making the investments in question;
only 10 percent gave the desire to "earn a
higher rate of return or profit margin" as
the most significant motivation.
Even the best conceived investments of the last
two years may not yet be providing maximum
potential rates of return because of
start-up costs.
Growth rates in certain important countries
have slowed; favorable results have thus
been delayed.
The cost of financing abroad is higher
than here. In response to the voluntary
~ogram6 administered by the
Department of. Commerce, firms have

- 11 been financing a larger percentage
of their investment with funds
obtained outside the United States
67 percent in 1966 as against 54
percent in 1960. The higher cost of
foreign financing should have only a minor
impact over the long run -- but it has its
most telling impact in the early states of
operation.
Past investment ought to become more profitable
as mistakes are corrected, and operating rates improve.
Future investment decisions by business should be more
selective and prudent. If these favorable trends can
be coupled with a moderate further reduction of direct
investment outflows from the United States as European
capital markets adjust to higher levels of overseas
borrowing by U. S. corporations, the excess of our
dividend and royalty receipts annually over direct investment outflows -- could and should increase by $2-$3
billion by the end of the decade.
Our present program and our long-range strategy are
based on this premise.
4. Increasing Foreign Portfolio Investment in the
United States.
Just as the United States travel industry must regard
the sale of U. S. travel facilities to foreigners as an
export, so the ,financial community should look upon U. S.
securities as exports.
In exercising its fiduciary responsibilities, the
investment community cannot, of course, put itself in the
position of never recommending sales of domestic securities
by foreigners. However, a number of the factors that make
the United States a natural exporter of capital (its
efficient money and capital markets make it cheap and
convenient for foreigners to raise funds here) also make it
a natural importer of certain types of foreign capital over
the long run. The breadth of trading in our securities, the
quantity and quality of information available on corporations,
the speed with which information is transmitted to stockholders,
the variety of investment instruments that are available
(a new kind of mutual fund has recently been invented) make
the United States a place where every long-term investor
should put a portion of his savings. If he does, then
outflows of other needed types of capital from the United
States will be offset, in part, by these inflows, and we will
have ~ more ratjonal~ ~if not perfectly balanced, two-way
flow of funds.
/

- 12 The Fowler Task Force Report of 1965 addressed itself
to this problem. Passage of the Foreign Investors Tax
Act, designed to end tax discrimination against foreign
investors, represents the latest and most important effort
of the Government to ~mplement the recommendations of that
group.
The financial community is already hard at work
selling securities to foreigners. It can probably do more.
Is there any way in which the industry
can organize itself, on a cooperative
basis, to provide foreign investors
with more up-to-date, consistent
information on changes in securities
regulations? to translate brokerage
material into foreign languages?
and to encourage more corporations to
translate reports into foreign languages?
Can foreign investment decision-makers
be brought here more often and in
larger numbers to visit companies
uniquely American in managerial approach
and in technological and merchandising
skill? If such visitors were interested
in obtaining first-hand exposure to
United States economic policy-makers
whose views are not irrelevant in
investment decision-making
top
government officials would be at their
disposal.
Looking to the more distant future,
should our stock and commodity exchanges
view themselves in more global terms,
open for longer hours, providing
material in all major languages, and
beaming quotations via communications
satellites to the major financial
centers of the world?

- 13 There may be considerable scope also for investment
in a variety of medium- and long-term U. S. instruments by
those stewards of central bank assets who are more
concerned with the creative utilization of their nation's
reserves than with the preservation of sterile and outmoded
traditions. As the Bible tells us, the steward who
buried his master's talent in the sand was dismissed; those
who wisely invested the talents entrusted to them earned
their master's trust and praise.
5.

Limiting Government Foreign Exchange Expenditures

We in the Government must not delude ourselves or
others that the balance of payments deficit will disappear
automatically when the Vietnam fighting stops and our
foreign exchange costs in Southeast Asia drop. They will
drop -- and hopefully quite substantially -- but like the
month of June, they may "bust out allover" again, in
other forms,unless we exercise self-discipline and insist
that other nations do their fair share -- in the military
and economic assistance field -- in meeting joint
responsibilities.
We have already made quite an effort to hold down the
foreign exchange costs of our military and economic
assistance programs.
We have tied our bilateral aid so that virtually all
of our aid money returns to us in the form of exports.
Our job now is to make sure that the exports we receive from
aid-tying do not simply substitute for exports we would
have received anyway. A Treasury-Cornmerce-State-AID team
will begin visits later this month to a number of major
aid-recipient countries to see how performance can be
improved.
We must intensify our technical assistance efforts,
training personnel in less developed nations in the skills
needed to sell and service U. S. products in their home
countries. The United States Government should consider
bringing more technicians from developing countries to the
U. S. for training, not only in order to obtain exports
while our aid programs are in progress but also after they
have phased out.

- 14 In the field of multilateral economic assistance, the
emergent Asian Development Bank with 20 percent of the
capital provided by the United States, and the rest by
Japan, Canada, Western Europe and other regional donors
represents the kind of burden-sharing necessary if the
industrial nations are, together, to promote economic progress
in the less-developed world in the decades ahead.
With respect to other multilateral institutions, an
increased U. S. contribution to the World Bank's soft loan
window (International Development Association) will be
contingent upon satisfactory balance of payments safeguards.
The Executive Directors of the Inter-American Development
Bank are looking at ways in which the balance of payments
burden of their operations can be more equitably distributed.
In the military field, the Defense Department has already
taken a broad range of steps -- in the handling of procurement,
construction, and personnel -- to minimize the balance of
payments costs of its activities. It has accelerated the
sale of military equipment. Trilateral discussions between
Germany, the United Kingdom, and the United States, the
results of which are to be announced today, have included
consideration of the problem of equitable financing of
required troop levels.
The determination of a nation's "fair share" of
economic and military assistance is not a simple matter. As
Secretary Fowler recently stated, this issue can no longer
be resolved solely by relating the size of a given country's
contribution to the size of its gross national product. The
form in which a donor provides aid, the terms of its aid,
and its internat~onal liquidity position must be taken into
account.
With U. S. negotiators approaching these critical matters
in this spirit, I am confident we will cut the foreign
exchange costs of our various overseas commitments from
present levels when the fighting in Vietnam stops.
V.

Surrunary
What I have been suggesting today is that a marginal

- 15change in world trading patterns, spearheaded by a well
organized, long-range U. S. export drive, can increase our
trade surplus by $3-$4 billion; that more profitable overseas
direct investment and a continuation of our present strategy,
which calls for financing more of that investment from
overseas sources, will lead to a $2-$3 billion gain in our
direct investment accounts; that a more vigorous effort in the
travel field will enable us, at worst, to prevent further
deterioration in the travel deficit; that better organized
efforts to sell U. S. securities by the U. S. securities
industry will lead to a secular uptrend in foreign portfolio
inflows compared to the flat trend of recent years; and that
governmental discipline and hard-headed negotiations on
burden-sharing will enable us to reduce official foreignexchange expenditures.
Together, these changes
which do not alter the
character of the United States' role in the international
world -- could bring a dramatic over-all change in our
balance of payments results.
It would be naive to expect all of these things to
happen quickly, or easily, or all of them to fall into place
together in a given year.
As we move toward equilibrium by reducing our deficits,
other countries with payments imbalances in the form of
surpluses must also move into equilibrium. The program that
I have outlined above for the United States calls for
adjustment in the trade surpluses of these countries,
improvement in their capital markets, and the export of more
capital from them on more generous terms to the less-developed
world.
Many countries have been seduced by the belief that time
alone would yield a solution to their deficit. Milton Gilbert
of the Bank for International Settlements has put it as
follows:
"In case after case in the post-war period
we have seen deficit countries procrastinate
and play around with half measures while the
situation deteriorated, while reserves were
drawn down, and while liquid resources were

- 16 borrowed from abroad -- not because the need
for policy action was not clear but because
political difficulties stood in the way of
firm action. And then, as the means of
financing the deficit became scarce and a cr~s~s
developed, such obstacles were brushed aside;
the policy actions previously claimed to be
impossible and unworkable suddenly became
possible and did work."
In the last resort, other deficit nations have invariably
turned to a variety of restrictive devices to solve this
problem: among them, controls on capital flows, on tourism,
on trade; deflationary measures that have slowed demand
for imports, increased exports, and at the same time thrown
hundreds of thousands of individuals out of work. Surely
these are not appropriate measures for the United States.
Surely the United States has the time to solve this problem
through the application of sound long-range measures.
Today, I have tried to list the kinds of positive,
expansionary measures that I believe will solve our problem.
Taken alone, certain of the measures I have described will
have a trivial impact. But the cumulative impact of all
these measures could be great -- resulting in better business
for the American businessman, greater long-range flexibility
for the United States Government in international affairs;
and a larger -- not a smaller -- economic pie for the world.

000

TREASURY DEPARTMENT
Washington

.'""

.:)

FOR RELEASE IN AFTERNOON NEWSPAPERS
FRIDAY, MAY 5, 1967
REMARKS BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY FOR TAX POLICY
UNITED STATES TREASURY DEPARTMENT
BEFORE THE
INTER-AMERICAN CENTER OF TAX ADMINISTRATORS
PANAMA CITY, PANAMA, FRIDAY, MAY 5, 1967

TAX POLICY AND TAX ADMINISTRATION
The topic we are discussing today is that of the
relationship between tax policy and tax administration. In
the first conference of tax administrators to be held by the
Inter-American Center of Tax Administrators such a topic is
a fitting one. It serves to remind us of the purpose of
the activities we are discussing at this conference.
Put simply, administration serves to carry out policies
and tax administration serves to carry out tax policy. The
operational task of tax adminis tra tion cons is ts of the
collection of tax revenues. Those revenues are to be
collected within the framework of the laws that represent
tax policy. Tax administration in the large consists of the
efficient and effective processing of paper and the conduct
of investigations to secure compliance in the payment of
taxes. Those taxes are the constituent elements of tax
policy.
Tax administration is thus the agent of tax policy.
Tax policy is therefore in the position of a principal
whose position may be improved or damaged by the strengths
or weaknesses of the agent. But the path runs both ways.
Tax policy must be premised upon a realistic understanding
and appraisal of the capabilities of tax administration.
My purpose, based on my background of experience in
the United States, is to explore some of the implications
resulting from this relationship between policy and
adminis tra tion.
F-900

- 2 -

First, tax administration serves as the bridge between
decided tax policy and the taxpayer. Tax administration
must therefore transpose tax policy to operations which are
understandable to the taxpayer -- and, indeed, make the
taxpayer understandable to the tax policy planners. The tax
administrator must take the decisions of tax policy, expressed
in the complicated form and language of legislation and
regulations, and present them to taxpayers in a comprehensible
manner that will enable taxpayers to understand and meet
their obligations. The basic tools of the tax administrator
for this purpose are the tax forms and instructions.
Tax policy planners will inevitably here cast a real
challenge to the tax adminis trators, for modern tax sys tems
are complex and in many respects growing more complicated.
It will take a high order of ingenuity, experimentation
and innovation to meet this challenge. Moreover, the path
of successful tax administration lies in having taxpayers
undertake as much of the paper work of taxation as is
possible -- filling out of tax returns and computation of
tax liability, withholding of tax on payments of income to
others, furnishing of information returns on such payments
of income, keeping orderly books and records in accordance
with proper accounting principles, and so on. This will
permit the tax administrator to concentrate his limited
resources on the tasks that his agency alone can perform
and thus increase its productivity. But success in this
effort lies in the administrator's ability to educate the
taxpayer to his responsibilities.
Essentially this task of the tax administrator as the
bridge between tax policy and the taxpayer is to simplify
the complexities of tax policy_ The often expressed goal
of tax policy -- tax simplification -- thus relies for its
achievement on the ability of tax administration to produce
the most important aspect of simplification -- a readily
understood and readily operative tax system.
Second, tax administration in implementing decided tax
policy must be fully consistent with the criteria of that
policy. It is, of course, obvious that good tax
administration can furnish more revenue than poor tax

- 3 -

administration and thereby provide a more favorable situation
for tax planning. But poor tax administration is more than
merely the collection of inadequate amounts of revenue. Poor
administration often means the concentration of effort on
one type of tax or one form of income to the neglect of the
rest of the tax structure.
Thus, for example, the administration of an income tax
that focuses on the collection of that tax on wages and
salaries, because it is easier to reach that form of income,
and neglects the application of the tax to investment income
or professional income or business income is not effective
tax administration, no matter how successful it is in taxing
wages and salaries. Its concentration on one form of income
distorts the policy of the income tax and turns it into an
inequitable measure. Even where tax administration
conscientiously seeks a fair application of the income tax,
outmoded or inefficient audit practices, both in the selection
of cases to audit and in the techniques of auditing, can
turn an equitable tax into an inequitable one because of
its uneven impact on taxpayers in the same general class.
The inability to spot new techniques of taK avoidance and
to cope with them has a similar consequence.
Of course, these defects of tax administration will
usually be reflected in inadequate collections. But the
point I wish to emphasize goes well beyond the poor showing
in collections. Rather, it cautions that the essential
structural characteristic of the income tax -- which
generally causes tax policy planners to view that tax with
favor -- that is, its equitable nature arising out of its
relationship to ability to pay, is greatly diminished if
in day-to-day administration this objective of the income
tai is not achieved.
Again, still using the income tax as an illustration,
poor administration may consist of the retention of outmoded
principles that can likewise affect adversely the fairness
of the tax. Thus, insistence on outmoded and inflexible
rules of depreciation, inventory practices, or accounting
methods, can mean that in actual practice a tax dependent
for its fairness on an accurate measure of net profits
will be inequitable because of distortions in the
determination of those profits. In countries where accounting
prinCiples are well advanced, much can be gained through
discussions between tax administrators and leaders in the

- 4 accounting profession to determine the causes of disputes
between tax administrator and taxpayer in the determination
of the tax liabilities of business taxpayers, especially
those utilizing the services of accountants.
Third, tax administration must aid tax policy planning
in as affirmative a way as possible. Up to this point I
have been discussing decided tax policy -- existing taxes
and tax laws -- and the responsibilities of tax administration
in carrying out decided policies. But tax policy planners
face the constant challenge of change -- change in
economic and social goals, change in economic conditions.
They must use fiscal policy in a responsive and responsible
manner, and this generally means frequent changes in tax laws.
New taxes, new adaptations of existing taxes through changes
in their structure or their rates, the discarding of some
taxes, these are the ways in which tax policy planners
respond.
But such response will not always be along a welltrodden tax path. New taxes and structural changes in
existing taxes should prompt the question to the tax
administrator -- Can you handle this plan, this suggestion,
this proposal? Can you administer this? It may be a new
withholding system, a system of current tax collection, a new
pattern of exemptions, a way of taxing income earned abroad,
a way of taxing foreigners, a method of taxing capital gains,
a new exc ise tax.
Whatever the change, these questions always invoke the
responsibility of the tax administrator. Indeed, they are
a challenge in the exercise of responsibility, for a sound
answer calls for the application of informed and open-minded
judgment. A tax administration afraid of innovation,
comfortable in the status quo and in familiar routines, is
likely to take the easier path by saying the new plan cannot
be administered and then dressing up the answer with a veneer
of administrative jargon and expertise.
But in so protecting
its comfortable existence it is false to its responsibilities.
For the task of the administration is to serve tax policy and
not to thwart it. These questions asked by tax policy
planners should be met by the fullest exercise of ingenuity and
innovative skill. The administrators should ask themselves,
"How can we make the plan work? Has it been tried elsewhere
and with what results? What are the possibilities of failure
and what are the weaknesses, and what changes in the plan and
the policy could offset them?"

- 5 -

This does not mean that every proposal of the policy
planners requires a yes answer as to its feasibility. Some
proposals can be unworkable. But the responsible tax
administrator will remember that his client is the policy
planner, and that the client will respect a no answer only if
he has confidence that the administrator is basically seeking
ways to make plans work rather than ways to find them unworkable.
Fourth -- and here I shift the focus of responsibility
to the policy planner -- tax policy has obligations to the
tax administrator. It must seek to avoid loading unnecessary
tasks on the tax administrator, or tasks whose performance
drains away too much of his resources. The tax policy planner
must therefore avoid structural factors in taxes that
involve too much complexity for mass operations and instead
must seek as far as possible to confine complexity to those
types of taxpayers that can themselves administer the
complexities. He must discard outmoded taxes, and alter tax
rules that breed constant litigation. He must moderate tax
rates where full and effective administration would make
them too onerous. And he must seek to formulate wherever
possible guidelines for administrators and taxpayers for
those areas of the tax law that are phrased in general terms.
A good part of recent changes in United States tax regulations
and rules has involved the furnishing of such guidelines
for example, in depreciation and in the adjustments of
the accounts of related taxpayers, such as parent and
subsidiary corporations or enterprises owned by the same
taxpayer.
Of course, the tax administrator must be alert to inform
the tax policy planner of these trouble spots and seek his
aid. Far too often tax administrators seem content year in,
year out to struggle, sometimes resignedly and sometimes with
spirit, with problems just not worth struggling about.
Instead, they should be counselling with tax policy planners
on how to surmount the struggle by a new policy that involves
a different approach.
The ta< planner must also be alert to provide tax
administrators through his tax policy with modern techniques
of tax administration -- such as withholding systems, current
collection of taxes, the use of information returns, and so
on. He must see there are no legislative impediments to the
use of modern accounting techniques to measure net profits.
And, above all, he should furnish the administrator with
adequate funds and adequate power to secure proper personnel,

- 6 -

to train them well, to provide them with good working conditions,
and to maintain ahlgh morale that induces competent and
honest performance.
Personnel in tax administration
occupy a key position in the affairs of government. The
policy planner must fully assist the tax administrator in
securing and retaining competent personnel desirous of
fulfilling that role.
Against this general background of
the broad aspects of the relationship between tax administration
and tax policy, it may be helpful to consider some specific
matters in that relationship which current and future
events indicate are likely to require the attention of tax
administrators. Put another way, given the likely path of
tax policy changes in the years just ahead, what should tax
administration be planning and preparing for.
Availability of Data to Measure Effectiveness of Tax
Policy. -- Tax policy planners are above all interested in
the effectiveness of their plans. They want first to be
able to predict as accurately as possible what will be the
consequences of their tax proposals and next to be able to
assess the actual effectiveness of those proposals that
have been enacted and thereby have become decided tax policy.
The fulfillment of both tasks requires adequate data. A
considerable part of the economic and statistical data
needed will come from outside the tax system. But much,
perhaps most, can and should be produced as a product of
tax administration.
Predictability of the results that alternative tax plans
will produce is greatly heightened by the degree of success
that has been achieved in administering existing tax laws.
A high order of success in the handling of existing tax
policy -- accomplished through competent personnel, good
methods and procedures, honest enforcement, a tax-paying
public informed as to its responsibilities -- will permit
the policy planner to have confidence that his revenue
predictions for a particular proposal will be borne out
in actual operation. He will be able to assume that a
Similarly competent administration will be accorded to the
new policy. On the other hand, weaknesses in the
administration of existing policies are likely to be reflected
in the handling of the new policies, absent specific policy
changes to meet the problems that caused those weaknesses.

- 7 -

Hence tax policy planners need the data that measure. the
nature of current operations -- and they need this data in
accurate, reliable and understandable form. What is the
degree of present voluntary compliance, what does it
indicate as to whether taxpayers can take on new duties and
obligations? What is the status of the processing of returns
and other documents -- and are there such backlogs that new
paper work will simply swamp the whole machinery?
With the tax policy planner thus in a position to predict
the degree of "administrative discount" that should be
applied to a new policy proposal, he must then look to the
tax administrator for whatever information the latter may
have that will assist in shaping the substantive content
of the new policy. Here he seeks a whole variety of facts
regarding the taxpayers and activities affected by the
proposal. The competence and currency with which data from
tax returns and like sources are gathered will determine
how fortunate he will be. Quite often, he will unhappily
find that the existing data are quite sketchy. Still, tax
policy must move ahead and the laws will be passed.
But this shortage of initial information in the formulation
of tax policy should be no excuse for a future lack of
data with which to judge the effectiveness of the
decided policy. Here the tax policy planner should
collaborate with the tax administrator and indicate at the
outset what data regarding tax effects under the new policy it
would be helpful to gather for this purpose. Tax forms
should be planned which will provide the data and the proper
tabulations should be scheduled.
Much of future tax policy will concern itself with
economic development. Many countries will experiment with
tax incentives and tax remissions, with special provisions
shaped to achieve economic or social goals. These countries
must be in a position to judge as well as possible whether
the ends sought are being obtained, or whether instead the
revenues foregone through tax incentives and remissions have
become revenues wasted. Such revenue reductions are but
expenditures of Government in another form. Like expenditure policies, their effectiveness must be assessed at
frequent intervals, or else the tax system will be a
collection of expensive but useless measures. It is well to
remember that tax administrators are often the only link
between the tax policy officials of one Administration to
the next, so that only the administrators can provide the
necessary
collection of data.

- 8 Planning For Broad-Based Taxes.-- In many countries tax
policy planners will be seeking to broaden the base of the
tax system and apply it to an increasingly larger portion of
the populaCbn. The tax administrator in these countries
must therefore constantly be assessing his organization from
the standpoint of its capability for expansion of operations.
He must not be content to see at present a smoothly purring
organization and let it go at that. Instead, he must ask
himself how well will the machinery be functioning a few
years ahead under a heavier and perhaps different workload. Will it be able to handle more returns, the processing
and audits of returns showing relatively small amounts
of income, a greater variety of taxpayers and a greater
variety of forms of income, and so an? How well will the
present system adapt to the new methods and new technology
in administration that lie just ahead?
Ownership of Capital.-- Tax policy planners will be
concerning themselves increasingly with the process of
capital formation and capital accumulation. Their concern
will involve many aspects and will in turn place many new
and varied demands upon administrators. Only a few examples
are needed to illustrate the point. The first example
relates to the corporation-shareholder relationship and the
evidence of that relationship. In the United states, the
United Kingdom and some other countries, the basic
corporation law requires essentially that shares of stock be
in registered form. As a consequence the tax administrator is
generally in a position to ascertain the ownership of a
corporation and obtain the identity of the :individual shareholders •. Where stock is registered in the name of a nominee,
the tax administrator has the authority to require disclosure
by the nominee of the true owner. The trend in bonds and
other debt obligations is also increasingly to the use of
registered instruments.
In other countries, however, bearer securities pzedominate
and the task of the tax administrator -- and the policy
planner -- is more difficult. In these countries
tax administrators will have to devise ways to cope with
the problems presented by bearer securities and work toward
the use of registered instruments. Techniques will have to
be developed, pertinent to the forms of security ownership
and to the pattern of corporate organization, that will
enable the tax administrator to trace stock and bond
ownership.

- 9 -

Problems of a somewhat similar nature relate to other
forms of private wealth. Thus some countries will be seeking, in connection with urban development, to dampen speculation in urban property and may turn to the tax system for
this purpose, particularly the taxation of gains from sales
of such property. Consequently tax administrators must
develop techniques to keep track of changes in the ownership and value of urban properties.
Indeed, tax administrators -- and the accounting and
legal professions -- increasingly will have to see that
the data pertinent to all important forms of wealth for
the purposes of a tax system are available, so that policy
planners are free to assess the policy implications of
various plans against a background that can assume the
general feasibility of their plans. Such data relate to
the tax cost of property, ownership and changes in ownership, changes in values and in the character of use, current
costs and capital improvements, and the like.
Land Utilization. -- Land utilization is another major
area to which policy planners will be directing their attention. There is often a tendency to defer agrarian reforms
until cadastral surveys are completed, but such a complete
survey need not be a prerequisite. Instead -- and until
more is done -- tax administrators must develop a capability
in measuring performance in the utilization of land and in
devising simple techniques for identifying parcels of property
so that their productivity can be determined and assessments
levied, if a policy calls for it, according to the degree of
utilization.
Multinational Corporations and Common Marketso -- Modern
international trade and investment have seen an accelerated
increase in the growth of multinational enterprises -enterprises with a corporate headquarters in one country and
with subsidiaries and branches located in many other countries.
Generally these enterprises have had their headquarters -the parent or top corporation -- in developed countries. But
the formation of a Common Market in Central America and Latin
America is likely, in turn, to give rise as well to Latin
American multinational enterprises with the corporate headquarters in one of the Latin American States and with the component units scattered throughout the other countries in the
Common Market area.

- 10 Tax administrators therefore will have to keep abreast
of developments in this movement for a Common Market and to
anticipate the problems of administration that will be encountered in their tax relationships with such multinational
enterprises. The problem, of course, exists even today in
connection with the multinational corporations operating in
Latin America which have their headquarters in developed
countries elsewhere.
Indeed, administrators throughout the industrialized
world are beginning only now seriously to grapple with the
problems of tax administration involved in such multinational operations. For example, the United States is in the
process of formulating the guidelines to govern the administration of the provision of its tax law requiring a proper
allocation of income and expenditures among the component
parts of these multinational operations. Moreover, the
provisions in international tax treaties relating to this
matter are now being more carefully analyzed and structured
so that they will provide appropriate methods of international
accommodation to the inevitable problems of allocation.
Consequently Latin American tax administrators will find, in
developing expertise and techniques to deal with the problems
of allocation that arise in the context of the application of
their tax systems to these enterprises, that they will also
be putting themselves in a position to handle with confidence
the issues arising under this aspect of double taxation
treaties.
Tax Flexibilityo
I have several times referred to
the necessity for tax policy planners to be alert to the
need for changes in tax policies. More and more it is being
recognized that tax policy has a major role to play in
promoting economic growth accompanied by reasonable price
stability. It is equally being recognized that the path
to this objective is not that of rigidity in policy. Economic
conditions, affected both by internal and international developments, can change rapidly and today's satisfactory tax policy
can quickly become the course of disaster under changed conditions.
The tax policy planner will therefore try to follow a
flexible tax policy and to that end will be seeking to deter-

- 11 -

mine which kinds of taxes and which variations in those taxes
lend themselves to such flexibility. For the most part policy
planners are still in the learning state as respects a flexible tax policy and the tax tools for its exercise.
The tax administrator must be in a position to accommodate his operations to this flexibility in policyo He must
be able quickly to implement a decision for a temporary increase or decrease in the rates of income taxes or in the
rates or scope of excise taxes. He must be able to cope
with a sudden decision to suspend particular tax incentives
and then to restore them just as quickly.
It is this area of the execution of a flexible tax policy
that the tax administrator and tax policy planner must work
in closest harmony, for it is here that each will find his
skills and insights placed under the greatest strain. The
tax policy planner has his problems of short-range economic
forecasting and of prediction as to the economic consequences
of alternative courses of tax policy. The tax administrator
will have his problems -- the load put on his operating resources through the need to implement sudden changes in
course, especially if the changes involve new approaches. He
perhaps can learn from the experiences of other countries
which have gone through similar situationso Conferences such
as this are one means of developing the communication of these
experiences among tax administrators and policy planners.
In conclusion, we can see that the overriding need in
the relationship between tax policy and tax administration is
a relationship of harmony, based on mutual understanding and
info~med communication.
Tax administration exists to carry
out tax policy. This essential function can only be successfully accomplished if both the tax policy planner and the tax
administrator share fully in a frank appreciation of the
problems and goals of each other.
The tax administrator must conscientiously strive to
execute the tax policies that have been decided upon. He
must, however, at all times give the tax policy planner a
frank realistic picture of the existing operations and future
capability. The tax policy planner must be realistic in the
tasks that he sets for the tax administrator as the result
of policy choices. Realism in the recognition of the problems

- 12 of tax administration will come far more readily on the part
of the tax policy planner if he feels in turn that the tax
administrator is using all of his resources of skills, imagination and innovation to accomplish in a positive manner those
courses of policy deemed appropriate by tax policy planners.
The degree to which tax policy can serve in procuring
satisfactory economic development and desirable social changes
thus rests on the success that the tax policy planner and the
tax administrator have in achieving this harmonious relationship.

000

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
UNITED STATES AND ARGENTINA
SIGN EXCHANGE AGREEMENT
Secretary of the Treasury Henry H. Fowler, the Ambassador
of Argentina, Alvaro C. Alsogaray, and the President of the
Central Bank of Argentina, Pedro E. Real, today signed a
$75 million Exchange Agreement between the United States
Treasury and the Government and Central Bank of Argentina.
The Exchange Agreement is for a one-year period. It is
designed to assist Argentina in its efforts to promote
economic stability and freedom in its trade and exchange
system. The Agreement provides for the conduct of exchange
operations, as deemed mutually desirable and advantageous.
The United States may purchase Argentine pesos with dollars
from time to time, and Argentina will subsequently repurchase
the pesos.
These operations will have as their objective maintenance
of the stability of the U. S. dollar/Argentine peso exchange
rate and, thereby, the promotion of confidence in the foreign
exchange market and increasing trade and other exchanges
between the two countries.
The Agreement signed today complements the $125 million
stand-by arrangement with Argentina announced on May 1, 1967
by the International Monetary Fund.

000

F-90l

May 2, 1967
FOR IMMEDIATE RELEASE
JOINT RELEASE OF THE TREASURY DEPARTMENT AND FEDERAL RESERVE
BOARD ON EXCHANGE OF LETTERS ON GERMAN RESERVE POLICY
Public announcements were made today by the u. S., British
and German Governments on the results of discussions among the
three countries concerning their military forces in NATO and
the balance of payments consequences of U. S. and U. K. troop
deployments in Germany. The U. S. press release refers to the
fact that the German Bundesbank, in agreement with the
German Government, has made known its intention to continue
its practice of not converting dollars into gold as part of
a policy of international monetary cooperation.
In this connection, the Treasury Department and the
Federal Reserve Board are releasing herewith the texts of
an exchange of le tters between the President of the Bundesbank,
Karl Blessing, and the Chairman of the Federal Reserve Board,
William McChesney Martin, Jr., concerning the Bundesbank's
general reserve policy. Also released was the text of a
letter to the Bundesbank from Chancellor Kiesinger, stating
that the German Government supports the Bundesbank's policy.

Attachments
000

F-902

Airmail
April 13, 1967.

The Honorable: Karl Dlcllsing,
P::csident,
Dcutuchc Bundellbank,
Ta.unu&a.nla~e 4 .. 6 u
Fl'tl.nluurt (Maln), Gc:zon1any.
Dear Ka.rl:

t am pl~aG cd to acknowled~o receipt or your leUe ..
30. 1967, toaetbcr with a copy of thi!r letter from
Chancellor Kicaingcr to you of the io.me <!atc.

or March

Your letter speaks Cor itsct! recn.rdin3 the
!lundc$oank'$ policy with. reli-pcct to convert.>lons of dollar.
into gold from the U. S. Treo,$ury. a.nci tbe aupport of tAg
Govcrn,ocJlt o£ the Federo.l RepubUc of Ocrmany £01' tbia
policy i~ made aroply clear in tae Chancellor'. letter.
1 am deeply g~atc(ul {or your ef£orta and &.mdel'13t:::.nding in bringing thi. about and 1 am ouro it. will prove

n-.utually very bGlpful. Please accept my warm appreciation.
Wlth aU i00d wiab •••

Sincerely your ••

Wm. Mc:C. MArtin. JI".

DEUTSCHE BUNDESBA.N,K..

CER PRAsJDENT

FRAHKJI'URT AJo\ MAlM.

March 30 t 1967

wr. Wm. Mce. Mar t i n , Jr.
Chairman of the Boa~d of Governors
of the Federal Reserve System
Was h i n g ton

D.C. 20551

Dear Mr. Martin,
There occasionally has been soma concern expressed in the
United States that DM expenditures resulting from the presence of American troops in Germany lead to United States
losses of gold.
In this connection we would like to point out three things.
(1) Changes in Bundesb~nk reserves reflect a combination of
developments in all p~rt6 of the Germ~ balance of paycentsJ
(2) Did expenditures for American troops in Germ3l1Y and compensating German military purch~3e8 in the United States
are only two factors in that balance; (3) German foreign
exchange reserves have ohown very little net change over
the past several years.
Furthermore, the situation should be viewed within the
context of the general reserve policy of the Bundesbank.
You are, of course, well aware of the fact that the Bundesbank over the past few years h~s not converted any of the
dollars accruing out of German foreign exchange surplusses
,J~J r~·~
into gold from the United Treasury. The increases in our
"gold reserves over these years came about mostly through
gold sales of the IMF in connection with the DM purchases
for the British drawings in the IMF and through our partiCipation in the Central Banks' Gold Pool.

By refraining from dollar conversions into gold from
the United States Treasury the Bundesbank haa intended to
contribute to international monetary cooperation and to
avoid any disturbing effects on the foreign exchange and
gold markets. You may be assured that also in the future
the Bundesbank intends to continue this policy and to
play its full part in co~tr1but1ng to international monetary
cooperation.

(TIUSUTIOI)

Fi':DEfU\i, REPUBLIC OF GERMANY
THT<', FEDSIU\L CHANCElLOR

Bonn, March 30, 1967

l'r. ](:-trl Blessinv,
Frcsidnnt of the German Federal Bank
(Deutsche Bundesbank)
p .0,' Box 3611
6 F ran k fur t /Mai n
Dear Nr. BlessinG:
The Federal Government has taken note of the letter of March 30,
1967 from t.ho Dundeshank to the Chairman of the Federal Reserve Board.
The Fedel'al Government approves of the content of this letter and supports
the policy of international monetary cooperation, reflected therein.

The

Federal Government bases its approval on the assumption that the American
partners will consider the Bundesbank's declaration of intent to he a cnntribution toward facilitating the progress of the offset negotiations with
respect to the period after July 1, 1967.
The Federal Government has also taken note of the intention of the
Bundesbank
.. to purchase with reserve funds U.S. Government medium-term securities

--.

in the total amount of $500 million in four equal quarterly instalments,
beginning July 1, 1967.
Very

sincere~

yours

[signed] K i e sin g e r

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 1.°00, or thereabouts, for cash and in exchange for
Treasury biils maturing May 11 1967
in the amount of
$2,300,030,000, as follows:
'
,
91 -day bills (to maturity date) to be issued May 11, 1967,
in the amount of $1,300,000,000, or thereabouts, representing an
additional amount of bills dated February 9,1967, and to
mature Augus t 10, 1967, originally issued in the amount of
$1,000,116,000,the additional and original bills to be freely
interchangeable.
182 -day bills, for $1,000,000,000, or thereabouts, to be dated
May 11, 1967,
and to mature November 9, 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
(maturi ty 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, May 8, 1967.
Tenders will not be
received at the Treasury DeFartment, Washington. Each tender must
be for an even multiple of ~l,OOO, 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.

- 2 Immediately after the closing hour, tenders will be opened at th
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 Treas~
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 May 11, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing May 11, 1967.
Cash and exchange tende
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 bi lIs are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunde:
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 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

TREASURY DEPARTMENT
(

FOR IMMEDIATE RELEASE
MICHAEL BENSON NAMED STAFF ASSISTANT
TO UNDER SECRETARY OF THE TREASURY
Michael Bensor. has been appointed staff assistant to
U~der Secretary of the Treasury Joseph W. Barr.
Mr. Benson has been a correspondent for Reuters
(News Agency) Ltd., since September, 1965. Prior to that
he had been Washington Bureau Chief of the American Banker.
Mr. Benson, 31, has written for Finance magazine and
the Christian Science Monitor. He began his career in
journalism with the New York Times.
He was born in New York City and attended public
schools there. He graduated from Queens College of the
City University of New York in 1958, and subsequently
attended New York University Graduate School of Business
Administration.
Mr. Benson has been a member of the White House
Correspondents Association, the National Press Club, the
New York Financial Writers Association and the National
Aviation Club.
Mr. Benson is single and resides at Arlington
(2115 North 18th Street) Virginia
His parents, Mr. and
Mrs. Joseph R. Benson, reside at Ardsley, New York.
0

000

F-904

STATEMENT BY THE HONORABLE TRUE DAVIS
ASSISTANT SECRETARY OF THE TREASURY
AND UNITED STATES EXECUTIVE DIRECTOR
OF THE INTER-AMERICAN DEVELOPMENT BANK
BEFORE THE SUBCOMMITTEE ON INTERNATIONAL
FINANCE OF THE BANKING AND CURRENCY
COMMITTEE, HOUSE OF REPRESENTATIVES
}MY 3, 1967, 10 A.M.

Mr. Chairman and Members of the Committee:
I am pleased to accompany Secretary Fowler and Assistant Secretary
Gordon on their appearance in support of the proposal for an increase in
the resources of the Fund for Special Operations of the Inter-American
Development Bank.

Secretary Fowler has presented you the reasons for

the proposed increase.

Assistant Secretary Gordon has given you the

political and economic context in which the Inter-American Development
Bank operates.

As United States Executive Director of the Bank I would

like to add some comments on the organization, management, and operations
of the Bank.

I might add that I make these comments against the back-

ground of one having come into governmental service after a long career
in domestic and international business.

Under the Bank's Charter, the Board of Executive Directors is
!lresponsible for the conduct of the operations of the Bank."

In the

fulfillment of this duty the Board takes an active, direct and continuous
interest in the affairs of the Bank.

As of April 15, the Board has

authorized from all available resources 407 loans, totaling $2.037 billion.
These loans are described in greater detail in the Report of the Executive
Directors recommending these increases in the resources of the Bank.
report is available as an annex to the present report by the National
Advisory Council.

F-90S

Suffice it to say that the loans cover the broadest

This

- 2 spectrum of activities -- agriculture, education, health, industry and
mining, water and sewerage, housing, transportation and electric power.
They cover governmental and private loans, technical assistance and preinvestment financing, mUlti-national loans and regional development.

short, the Bank is the single most comprehensive lending institution which
represents to our Latin American friends their Bank for the Alliance for
Progress.

This multitude of activities and responsibilities places a

heavy burden on the Bank's organization and management and, of course,
its Board of Executive Directors.
The Board is expected to be familiar with the details of all loan
transactions in order to determine whether or not they comply with the
letter and spirit of the Bank's Charter.

This involves a careful examina-

tion of the economic, financial and technical analyses of the project as
contained in the loan document.

If the loan is not fully satisfactory,

changes are proposed and referred back to the staff to negotiate with the
borrower.

Under provision of the Bank's Charter, loans from the Fund for

Special Operations can be granted only if the United states Director votes
positively for the proposal.

In addition to passing on loan applications

the Board makes determinations on matters of general policy and organization and is consulted on basic management problems by the management of
the Bank.
Under the Agreement, the United states appoints its Executive
Director.

The remaining six Executive Directors are elected by the

Latin American members without participation by the United States.

- 3-

As required by the Agreement, the Executive Directors are persons of
recognized competence.
When the procedures for the election of the Latin American Directors
were originally drafted in 1959, it was expected that Cuba would become
a member of the Bank.

When that country remained outside the Bank, the

balanced Latin American representation which the election procedures were
designed to assure was disturbed.

The proposed Resolution on election

to the Board of Directors would rectify this situation to the satisfaction
of the Latin American members and would in no way affect United states
representation or voting power in the Bank.

Since the proposed Resolution

involves an amendment to part of the Bank's Articles of Agreement, Congressional authorization is required in order that the United states
Governor may vote for the Resolution.
Since there are many development programs, national and international,
operating in Latin America, there is an unquestionable need to look at
coordination efforts.

Within the United States government, the National

Advisory Council is the forum where every loan is reviewed

and we achieve

effective coordination of this Bank's efforts with other United States
and international financing agencies.

With regard to the Bank, I am in

wholehearted agreement with the statements contained in your recent report,

Mr. Chairman, that coordination at the headquarters level and in the field
is an absolute necessity to avoid duplication of effort and insure maximum
Use of scarce capital resources.

I believe there have been notable improve-

ments in this area from the early days of the establishment of the Bank,

- 4 both in relating overall country programs and performance to the Bank's
activities and in approving and carrying out individual projects.
We now have the Inter-American Conunittee for the Alliance for Progress,
ClAP, which provides a multilateral framework to establish standards of
performance, to spur

self-help measures, and to evaluate institutional

programs, including fiscal and monetary reforms.

The CIAP also provides

the forum where the AID, the IBRD, the Export-Import Bank, and the IMF
and the IDB are able to meet together and exchange views and information
and concert their efforts.

The office of the Program Advisor represents

the Bank in these matters.

This office has in recent years moved into

developing multi-year programs as part of a total country development
strategy and has related these programs to the work of other external
financing agencies, particularly to the United states bilateral efforts.
Addi tionally, tIle Bank has been establishing and strengthening its
field offices so that the dialogue goes on in the field as well as
in Washington.

There have been gaps in the past and there continues

to be room for improvement.

However, the AID Mission Directors

in an annual meeting here in 1Nashington last week reported that the last

year has shown major improvements.
To assure that its organization and procedures are kept current
wi th the increasing workload and modern techniques, the Bank has
contracted with a leading United States management consulting firm.
The Bank has established within its Operations Department a division
of loan administration.

This unit is focusing attention on the

implementing actions needed to bring the loan into final fruition.

q
"

- 5 -

Also, a controller of operations with a small staff has been established
to spot-check all operations and delve into particular problem matters.
These organization units are additional to the usual internal auditor
and audits conducted by Price Waterhouse and Company.
The Baw<: has continuously been irrmroving its disbursement centrols
and procedures.

In order to hold out hope to the peoples of the Hemisphere

that actions were underway to deal with their pressing economic and social
problem.s, in the early stage of the Bank there were cases where perhaps
loans were authorized too rapidly.

As greater understanding of the

development process and of working with external financial agencies has
occurred, it has been possible to complete many conditions prior to the
authorization of the loan, rather than authorizing the loan and the funds
remaining unused until those conditions were fulfilled.

Authorization

of loans prior to contract signing enables the borrower to raise its
contribution to the project, to carry out the final stage of the complete
engineering plans, or to take other preliminary but essential action that
it would otherwise not take unless it had the assurance that financing
would be available.
The Bank has established mechanisms which provide that disbursements
will be made only as expenditures are incurred for specific goods and
services and the conditions upon which the loan is made has been met.
It is, therefore, possible to follow each item financed by the Bank from
the determination of specifications and the placement of an order to the
delivery of an item and its actual use in the project.

As a general

- 6 rule, the Bank engages the service of project engineers, consulting firms,
and other specialists required for proper inspection and supervision of
each operation with the borrower bearing these special costs.
The Bank continues to accelerate its disbursements within the bounds
of sound and careful management.

At the end of 1965, 38 percent of the

Bank's portfolio was disbursed; at the end of 1966 this was increased

W 42 percent.

The nature of many of the Bank projects in less developed

countries requires that the period of disbursement be much longer than
in the United states.

There are also cases where the halting or slowdown

of disbursements is necessary to accomplish the desired reforms, particularly
in the pioneering efforts of loans for agriculture and education.

addition, the Board conducts a detailed review semiannually of the slowmovine and problem loans in order to take the necessary action, including
cancellations.

The Board and the management agree that funds cannot be

earmarked and 'l1.'1spent with the needs of the Hemisphere so great and the
resources limited.
One important test of the ability of an organization is the calibre
of its personnel.

In general, the Bank has reason to be proud of the

dedicated Harth and Latin Americans on its payroll.

The Bank has at its top

levels leading specialists in the agricultural, education, legal, economic,
~d

engineering fields.

Here again we cannot be satisfied and need to

continue to improve the calibre of all personnel and representation of
the United states talent on the staff of the Bank.

As Secretary Fowler

said at last week's Board of Governors' meeting, "I believe each of our

- 7 -

governments equally has the responsibility of assuring that the Bank has
at its disposal - even if only for a relatively short time - the intellectual
and teclmical best that the Hemisphere can produce. II
I cannot close without calling your attention to the real accomplishments financed by the Fund for Special Operations and the Social Progress
Trust Fund, listed in the Bank I S report, Socio-Economic Progress in Latin
America, provided to the members of the Committee. There are listed the
success stories in houses built, roads constructed, jobs created, savings
and loan institutions established, school rooms being utilized, and
agricultural credits provided.
To summarize, the Inter-American Development Bank -- the Bank of
the Alliance, the Bank of Integration -- is a truly multilateral institution, where the United States has an important role to play.

a multi-

lateral institution it can do many things which are difficult to achieve
bilaterally and the United States will continue to obtain many benefits
from this arrangement.

We are certain that the necessary coordinating

arrangements and policies and control mechanisms are equal to the task
before us, and that the development process is so dynamic that the
necessary changes will be effected on the basis of experience and needs
of the Hemisphere.

STATEMENT OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON INTERNATIONAL
FINANCE OF THE HOUSE COMMITTEE ON BANKING
AND CURRENCY ON INCREASING THE RESOURCES
OF THE FUND FOR SPECIAL OPERATIONS OF THE
INTER-AMERICAN DEVELOPMENT BANK
MAY 3, 1967 - 10 A. M.

Mr. Chairman and Members of the Subcommittee:
It is a pleasure to appear before you today in
support of a proposal to increase the resources of the
Fund for Special Operations -- the FSO -- of the InterAmerican Development Bank.
The proposed legislation on this matter was transmitted to the Congress on April 28.

There has also been

submitted to the President and to the Congress a Special
Report of the National Advisory Council on International
Monetary and Financial Policies.

This Special Report

describes the background and the details of the proposal

F-906

- 2 and includes a recommendation of the Council that the
Congress act favorably on the proposal.

I have also

made available to the members copies of the Bank's
latest Annual Report, for the year 1966.
I have with me today the Assistant Secretary of
State for Inter-American Affairs, Mr. Lincoln Gordon, and
the United States Executive Director of the Bank,
Assistant Secretary of the Treasury, Mr. True Davis.
With your permission, I should like to make an intro·
ductory statement on the proposal, after which I will
call upon these gentlemen to supplement my remarks.
Mr. Gordon will provide you with information on the
general context in which the proposal is presented -- the
Alliance for Progress and, most notably, the recent
meeting of the Presidents of America

in Punta del Este.

- 3 Mr. Davis will testify regarding the Bank, and describe
its management and its administration of the tasks
entrusted to it by the inter-American community.

The Fund for Special Operations of the InterAmerican Development Bank was establi.shed as the socalled 'soft-loan window" of the Bank.

It has long

been amply clear that the less-developed countries
cannot assume on conventional banking terms the capital
required to advance their development.

The problems

of economic and social development are too vast, and
the resource

transfers required from the more-developed

to the less-developed countries are too great.

This has

been recognized in our own bilateral assistance programs,
which have long provided the more liberal terms appropriate for long-term development.

Among the international

- 4 institutions, the problem had been recognized prior
to the establishment of the Bank by the creation of
the International Development Association, IDA --

an essential partner of the World Bank, to make loans
on softer terms than was otherwise possible by the
World Bank.

As is the case with IDA, the funds to

support FSO lending activities can be obtained only
from member contributions.

There are no private

sources of funds on the soft terms required.
The United States has participated in the concessional lending activities of the Inter-American
Development Bank through two separate facilities -- the
Social Progress Trust Fund, created by the United States
and administered by the Bank, and the FSO.

Through 1964,

the United States contributed $525 million to the SPTF

- 5 -

and $150 million to the FSO.

In 1965, however, it

was decided to terminate further contributions to
the SPTF, to assign the functions heretofore performed by it to the FSO, and to increase the United
States contribution to the FSO as the sole remaining
soft-loan operation within the IDB.

In order to pro-

vide for this expanded level of activities, the
Congress authorized a U. S. contribution of $750 million
in support of FSO operations foreseen through calendar
year 1967.

* * *
It is now necessary to consider a further replenishment of the resources of the FSO.

The last

replenishment, as I have noted, was intended to provide

- 6 for operations through 1967.

The Governors of the

Bank at their meeting in Mexico City in 1966 instructed the Executive Directors to study the position
of the Bank's resources and possible needs subsequent
to 1967, and to prepare a report and recommendations
for consideration at the 1967 Governors meeting.

You

will find before you, as an Annex in the Special Report
of the National Advisory Council, the Report which the
Executive Directors submitted to the Governors at their
meeting here in Washington last week.

After considera-

tion of the Directors' Report, I joined the other
Governors in adopting a Resolution recommending that
the Bank's members take the necessary steps, under their
constitutional processes, to make effective an increase
of the resources of the FSO, as recommended by the

- 7 Executive Directors, beginning at the end of this
calendar year.
But in moving, as I have done, from the meeting
of the Bank's Governors in Mexico and their meeting
here last week, I have passed over a year of
historic consequence to Latin America and interAmerican cooperation.

This was a year of intense

activity which culminated in the meeting of American
Presidents three weeks ago, and the promulgation on
April 14th of the historic "Declaration of the
Presidents of America."
The development of the Inter-American Development
Bank in its brief existence has been profoundly
affected by two great milestone events in inter-American
cooperation.

The first of these was the Act of Bogota

- 8 of 1960.

This brought us to recognize the key role

of social development in economic improvement.

was the Charter of Punta del Este, establishing the
Alliance for Progress as the guide for all our
efforts toward the betterment of the Hemisphere and
the lives of our peoples.

The replenishment of the

Fund for Special Operations which we are now asking
you to approve would be the first concrete imp1ementation of the third landmark event -- the Declaration
of the Presidents, giving new vigor

~nd

new directions

to the Alliance of the Americas.
The Report of the Executive Directors, the deliberations and actions of the Governors, and the proposal
which is now before you have fully taken into account
the decisions of the Presidents at Punta del Este.

- 9 In accordance with these decisions, the Latin
American members of the Bank have again resolved to increase and strengthen their own self-help efforts.
This resolve finds its tangible expression in the
proposal to double the future contribution of the
Latin American members of the Bank to the Fund for
Special Operations.

For the three years 1965-1967,

their contribution in their own currencies was the
equivalent of $150 million; for the next three years,
they propose to make contributions the equivalent of
$300 million.

Moreover, the principle of self-help is

now being extended to that of mutual self-he1p_

The

four largest Latin American members -- Argentina,
Brazil, Mexico, and Venezuela -- propose to permit a
substantial portion of their contributions to be used

- 10 by the Bank to make loans to the other members, which
are relatively less industrialized and have relatively
weaker financial and resource capabilities.
As is m2de clear in the Report of the Executive
Directors, the future activity of the expanded FSO -- as
well as the activity of the entire Inter-American
Development Bank -- will be oriented especially toward
those problem areas singled out for special attention
by the Presidents.

The urgent problem of rural modernization and
improved agricultural production -- especially of
food -- will be given the highest priority,as it
deserves.

I would not miss this occasion to note the

extremely valuable contribution toward our understanding
of the critical issues at stake, for Latin America and

- 11 -

the entire world, which was made last Fall by this
Subcommittee and its distinguished Chairman.

Your

efforts have greatly influenced the approach to the
problem reflected in the Declaration of the Presidents
as well as in the policies of the Bank set forth in the
Report of its Directors.

Please accept my personal

appreciation of your contribution.
In addition to redoubled efforts in agriculture,
the Bank proposes an extension of its activities in
education and health in the directions laid down by
the Presidents.

And the Bank now proposes to move

forward even more vigorously in the new direction
agreed upon by the Latin American Presidents -- toward
the multinational infrastructure required for the
development of Latin America.

- 12 To this end, the Bank has already established a
"Pre-investment Fund" within the FSO to carry out the
urgently needed feasibility studies and other necessary
preparations for the execution of multinational projects.

The Bank proposes to devote annually up to

$100 million of its resources (both Ordinary Capital
and FSO) toward the financing of such projects.
Multinational projects will not only assist in bringing
the Continent together by improved transportation and
communications and beginning the exploitation of the
vast physical resources possessed in common -- such
as water and power -- but also further the Common Market
objective which the Latin American Presidents have set
for themselves.

- 13 It was to meet this new responsibility to move
forward with multinational projects that President
Johnson, in his message to the Congress of March 13th,
on the forthcoming meeting of the Presidents, proposed
an increase of $50 million in the annual level of our
contributions to the FSO, over and above the $250
million annual level of our contributions in the past.
The proposal before you thus seeks your authorization of a $900 million U. S. contribution to the FSO
over a three-year period.

Such a U. S. contribution

stands in a ratio of 3 to 1 to the proposed contributions
of the Latin American members, in contrast to the ratio of
5 to 1 which applied in the last increase of FSO resources

agreed in 1965.

- 14 As Secretary of the Treasury, as well as United
States Governor for the Bank, I have uad the responsibility
to assure myself that the operations of the Bank -- as
of the other international institutions -- are conducted in a manner consistent with our balance of
payments policy.

Beginning with their last expansion

in 1965, loans from the U. S. contribution to the FSO
were made subject to the same procurement regulations
applied in the SPTF.

Such funds must be spent in the

United States, except in cases where the Bank may
approve procurement in a Latin American member country
when this is considered advantageous to the borrower.
Dollar funds may also be used in the country of the
borrower to finance local project costs, but the
dollars must then be spent in the United States under

- IS -

special letter of credit procedures similar to those
of our

o~m

bilateral aid program.

The substantially

enlarged Latin American contribution to the FSO now
proposed will help to limit the use of dollars
necessary to finance local project costs, and the
Dank has also proposed to limit the use of dollars
for local costs -- except for agriculture and education -- to the levels achieved on the average in 1966.
The special letter of credit technique will also be
kept under

revi~l

to improve its effectiveness.

Taking

Clccount of these meoClSt'res to strengthen U. S. export
additionality associated with U. S. assistance, and on
the basis of our experience in the SPTF, we estimate
that about 90 per cent of FSO funds disburspd in the
future will return to the U. S.

- 16 I am happy to report to you that I have met
~17i.th

complete understanding and cooperation on the

part of the Bank in measures to safeguard the U.S.
baLm,:e of ?Ayments.

For example, I shoulc1 like

to quote for you some passages from the recent
Report of the Bank's Directors on the proposed
increase in resources:
"Many activities of the Fund require
a substantial amount of local currency
expenditure.

However, in relation to

the financing of local costs with dollars,
recognition must be Given to the problem
of the balance of payments of the United
States, and the Bank will attempt to hold

- 17 such financing to an appropriate
minimum.

The Bank is also striving

to improve the present procedures
whereby such local cost financing
is carried out with the least
effect on the United States balance
pa)~entso

In the light of these

problems, which should be regarded
as basically transitory in nature,
the Bank and its members fully
appreciate the difficulties inherent
in United States responsibilities in
the free world.

Accordingly, the Bank

proposes to cooperate in the greatest
possible degree with the United States

- 18 in meeting these difficulties by
suitable measures, which obviously
would be subject to review as conditions changed.
The percentage of dollar financing
for local costs will be established
in accordance with the nature and
priority of the projects but in such
a manner that, on the average, this
percentage, except in relation to
education and agriculture, will not
exceed the level which prevailed in

- 19 At last week's meeting of the Governors, I was
especially gratified to hear, in several of the
public speeches and in a number of privste conversations, expressions of understanding regarding
the U. S. balance of payments, of realization that our
problem in this respect is also one of vital interest
to the Bank and invididua1 countries, and of willingness
to cooperate with the U. S. in finding ways to meet
the problem.

The Governors understand that we can

afford to give assistance, bilaterally and through the
Bank, in the form of real goods and services and nor in
the form of financial transfers which might be used to
increase or maintain purchases from industrial countries
in payments surplus with the U. S. or for other purposes
damaging to the U. S. balance of payments.

- 20 -

Although not a part of the proposal before us
today, I should nevertheless like to inform the
Subcommittee of a new initiative related to the
Ordinary Capital resources of the Bank of considerable
interest for the U. S. balance of payments.

As the

Subcommittee is aware, procurement with Ordinary
Capital funds may take place anywhere in the free
world on an international competitive basis.

There

has been increasing concern in the Bank that this
procedure has benefitted a number of the industrial
capital-exporting nations out of proportion to the
resources these same countries have made available to
the Ordinary Capital in the form of long-term untied
loans or bond-issues in their markets.

At their

meeting last week, the Governors instructed the Directors

- 21 to study this situation carefully, explore alternative courses of action, and adopt or propose
corrective measures for implementation no later
than January 1, 1968.

A report of the Directors

on this matter indicates that one of the basic
principles underlying such measures must be the
establishment of a link between the benefits which
non-member countries derive from the Bank and the
resources they provide, by limiting procurement to
those countries making an adequate contribution to
the resources of the Bank.

In concluding this statement, Mr. Chairman, let me
stress the following thought:

- 22 -

If the Inter-American Development Bank is to
continue to playa key role in this venture, and
to take on the new challenge and responsibilities
laid down by the Presidents last month at Punta del
Este, it is essential that it have resources equal
to the tasks it faces.

That is the reason for the

request we are making to replenish its Fund for
Special Operations.
I urge that you act favorably on this legislation
at an early dnte.
Thank you, Hr. Chairman.

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
SECRETARY FOWLER CALLS FIRST MEETING
OF THE JOINT COMMISSION ON THE COINAGE
Secretary of the Treasury Henry H. Fowler has
called the first meeting of the Joint Commission on
the Coinage for Wednesday, May 24, at 10:00 a.m. in
Room 4121 of the Main Treasury Building, Washington.
Secretary Fowler is Chairman of the Commission,
which was created by the Coinage Act of 1965 to
advise the President, the Secretary of the Treasury
and the Congress on implementation of the coinage
program; needs of the economy for coins; standards
for coins; technological developments and other
considerations relevant to maintaining an adequate
coinage system, minting of silver dollars and official
maintenance of the price of silver.

F-907

- 2 -

Members of the Commission represent the public, the
Executive Branch and the Congress.

They are:

The Honorable Henry H. Fowler
Secretary of the Treasury
Chairman
The Honorable Alexander Trowbridge
Acting Secretary of Commerce

Mr. Julian B. Baird
St. Paul, Minnesota

The Honorable Charles Schultze
Director, Bureau of the Budget

Mr. Amon Carter, Jro
Fort Worth, Texas

The Honorable Eva Adams
Director, Bureau of the Mint

Mr. William C. Decker
New York, New York

The Honorable John Sparkman
Senate Banking and Currency Committee

Mr. Samue 1 M, Fleming
Nashville, Tennessee

The Honorable Wallace F. Bennett
Senate Banking and Currency Committee

Mr. Edward H. Foley
Washington, D. C.

The Honorable Wright Patman
House Banking and Currency Committee

Mr. Harry Francis Harringron
St. Louis, Missouri

The Honorable William B. Widnall
House Banking and Currency Committee

Mr. Eugene S. Pulliam
Indianapolis, Indiana

The Honorable John O. Pastore
United States Senate

Mr. Harry E. Rainbolt
Norman, Oklahoma

The Honorable Alan Bible
United States Senate
The Honorable Thomas H. Kuchel
United States Senate
The Honorable Peter H. Dominick
United States Senate
The Honorable Ed Edmondson
United States House of Representatives
The Honorable Robert N. Giaimo
United States House of Representatives
The Honorable
United States
The Honorable
United States

Silvio o. Conte
House of Representatives
James F. Battin
House of R~presentatives
oUo

TREASURY DEPARTMENT
(

May 4, 1967

MEETING OF JOINT COMMISSION ON THE COINAGE

At the request of Chairman Patman of the
House Banking and Currency Committee the first
meeting of the Joint Commission on the Coinage
has been changed to Friday, May 26 from
Wednesday, May 24, 1967.

000

F-907A

STATEMENT OF HONORABLE JOSEPH W. BARR
THE UNDER SECRETARY OF THE TREASURY
ON S. 1352
SENATE BANKING AND CURRENCY C(l.1MI'rl'EE

MAY 4, 1967

10:00 A. M.
Mr. Chairman and Members of the Committee:
I appreciate the opportunity to appear before this Committee in support
of S. 1352, a bill which would provide a basis for dealing with our silver
stocks in an orderly way.

To lay a foundation for understanding the need

for this legislation I should like, with the Committee's indulgence, to review
briefly the history of our silver policy during the last few decades.
Under various acts and proclamations relating to newly mined domestic
silver, and the Silver Purchase Act of 1934, we purchased, fram 1934 to 1959,

3 billion ounces of silver at an average price of 58.7 cents per ounce. Until
the second World War, world production of silver exceeded consumption.

Tbere-

after, the trend reversed; however, it was not until 1959 that the combination
of the needs of industry and others for silver and the Treasury's increased
use of it for coinage began appreciably to exceed world production.

The gap

widened steadily, but for a time the Treasury was able to fill it by the sale
in the market of silver from its non-monetized stockpile.

The increased demand

for silver for industrial and other use was in that way satisfied temporarily.
By November of 1961, however, it became clear that the unrestricted sale fram
our non-monetized stockpile could not continue and on November 28 of that
year President Kennedy, upon the Treasury's recommendation, directed that

- 2 -

the sale of this silver be discontinued and that our coinage needs be
met by using silver released through the retirement of unfit silver
certificates of the $5 and $10 denominations.
As you know, the Treasury's monetary use of silver was not limited
to coinage.

By law a portion of the silver purchased under the Purchase

Acts was required to be used to back silver certificates, most of them
of the $1 denomination, the only currency of that denomination then being
issued.

Also, to the extent that the public's needs for $1 bills did

not require the use of all of our silver excess to'our coinage needs, we
had issued some silver certificates of the $5 and $10 denominations.

1961, it had became evident, however, that our existing stocks of silver
could not for long accomplish both purposes, that is, provide silver
for coinage and backing for silver certificates.

Consequently, the

issuance of $5 and $10 silver certificates was stopped.
the drain on silver but not enough.

This reduced

Therefore, the Treasury proposed

and the Congress enacted the Act of June 4, 1963, Public Law 88-36, which
accomplished two things.

First, it authorized the Secretary, at his

option, to redeem silver certificates with silver bullion instead of
silver dollars.

Our supply of silver dollars, which had not been minted

since 1935, had dropped from more than 500 million at that time to 81
million by 1963.

Second, the Act authorized the issuance of $1 Federal

Reserve notes to be substituted for $1 silver certificates.
of that year they were in production.

In November

From November of 1963 until October

- 3 of 1964 both $1 silver certificates and $1 Federal Reserve notes were
issued.

By September of 1964 we were producing enough $1 Federal Reserve

notes to satisfy the needs of the public and in early October the issuance
of silver certificates was stopped altogether.
In the meantime, because of the suspension of the unrestricted sale

of our silver to the market, the market price of silver began to rise.
From a price of $0.91 in 1961, it gradually rose until in 1963 it reached
the price of $1.29+ per ounce, the monetary value of silver.

We could

not allow the market price to rise much above its monetary value because
this would threaten the continued circulation of our silver coinage.

would become profitable to melt subsidiary coins for their silver content at about $1.40 an ounce.

Therefore, beginning on July 23, 1963,

the Treasury offered to the public silver bullion at its monetary value

in exchange for silver certificates.

It was not necessary to require,

however, that silver certificates be presented physically in exchange
for bullion.
out doing so.

A simple procedure made it possible to obtain silver withsubstantial amounts of unfit silver certificates were being

retired each day, and an arrangement was made whereby persons wishing to
acquire bullion would request the New York or

san

Francisco Federal Re-

serve Banks to purchase unfit silver certificates which were in the process
of retirement and exchange them for bullion.

This worked satisfactorily

and as bullion was released an equivalent amount in unfit silver certificates was retired.

~illion

ounces.

year and a half, however, that trend was reversed.

During the last
Bullion losses began

to exceed certificate retirements, and the sale of free silver at its
monetary value, as authorized by the Coinage Act of

1965, coupled with

the use of silver for coinage, has reduced our uncommitted silver to
about 90 million ounces.
After silver ceased to be used for the purpose of backing new
issuances of silver certificates, it became necessary to find a substitute for silver for coins.

After an exhaustive study, we recommended

and the Congress enacted the Coinage Act of

1965, which authorized the

substitution of nickel and copper for silver in our dimes and quarters
and reduced to

the silver content of the half dollar.

This Committee

Of this amount, almost 430 million ounces are required by law

to be held as reserves for

$555 million of silver certificates outstanding.

This leaves only about 90 million ounces of so-cal1e d "f ree
available.

S~°1ver II

- 5We are asking the Congress, therefore, to authorize the Secretary
of the Treasury to write off an amount of outstanding silver certificates
which he determines have been lost or destroyed, or are held in collections,
and will never be presented for redemption.

the basis of past ex-

perience we know that not all of the outstanding silver certificates will
be returned for redemption. Many of them have been lost or destroyed
and many more can be expected to be held by eollectors.

Experience would

indicate that at least $150 million could be written off immediately,
thus freeing about 116 million ounces of silver.

After further experience

with the trend of retirements of silver certificates we might be able to
write off an additional amount.
We are also asking the Congress to provide that holders of silver
certificates would have one year fram the date of the legislation to
redeem their silver certificates for silver if they desire to do so.
After one year silver certificates would continue to be legal tender on
a par with Federal Reserve notes, but they could no longer be redeemed
in silver.

This is a perfectly reasonable prOVision which recognizes

Since the passage of the Coinage Act of 1965, our mints have accomplished an amazing feat of producing in the short space of 21 months the
unprecedented amount of 7.8 billion of the new subsidiary coins.

At the

- 6 present time, we are approaching the limits of capacity of our facilities
for storage of new coins available to be issued if needed.

It is our

However, it is difficult to

estimate the total needs of the country for coinage, and we feel that
we can take no chances in this regard.

Accordingly, we are continuing

The Coinage established under the Coinage

1965, to which I will refer more later, will, of course, want to

sat!sfy itself that we have and are making enough coins to meet the needs
of the country.

During this interim period, particularly between now

Were we to stop selling silver, the market price could

be expected to rise rapidly.

Once it exceeded the price of $1.40 per

ounce the silver coins in circulation would have greater value as silver
than as coins and would undoubtedly be withdrawn from circulation in
substantial mnounts.

- 7 The question may be asked as to whether the Administration, by
asking for this legislation, is not invading the province of the
Coinage Commission.

In our opinion, this legislation is necessary to

preserve the options which the Coinage Act of 1965 placed in the Coinage
commission.

The Coinage Act instructed the Commission to review and

Enact-

ment of S. 1352 will make it possible for the Coinage Commission to
consider these and related questions in an objective way without being
placed under the pressure of dealing with an emergency situation.
The President has recently announced his designation of members to
serve on the Coinage Commission.

The Congress had previously designated

its representatives to serve on the Commission.

It is planned that the

Commission will be convened and commence its studies promptly.

The first

meeting of the commission has been tentatively set for May 24, 1967.

Early

next year its findings and recommendations should be available to the
Executive branch and to the Congress, and may serve as the basis for

any ultimate legislation which may be needed with respect to silver and
our coinage.

In the meantime, the bill before you will make it possible

- 8 to maintain the status quo.
Before closing I should like to refer to one additional issue
which has been raised in connection with this proposed legislation.

That

is the issue of setting aside silver for the national stockpile of strategic
metals.

Since it is necessary at present for us to continue to hold the

price of silver at $1.29 in order to protect our coinage, and since we will
remain obligated for a period of one year to redeem all silver certificates
presented for redemption, we cannot transfer silver to
immediately.

stockpile

However, we are as certain as we can be that a very large

percentage of the outstanding silver certificates will never be presented
for redemption with the result that we will have at the very least 200 to
250 million ounces of silver remaining after one year, when we will no

longer be obligated to maintain silver as a reserve for silver certificates.
Therefore, we would have no objection to an amendment to

1352 which

would provide for the transfer at the end of one year of 165 million ounces
of silver to the national stockpile.
draft amendment which would acccmplish this purpose.

This . . . . .eat. 18

identical with that adopted by the House Banking and CUrrency Committee
this week.
I strongly urge you to report favorably on this bill and to recommend
its enactment as being in the public interest.

Attachment

Amendment to S. 1352
to provide for transfer of silver
to the stockpile

Page 2, at the end of line 5 insert:
"upon the expiration of one year after the date of enactment of this Act,
the Secretary of the Treasury shall transfer to the General Services
Administration not less than 165,000,000 fine troy ounces of silver as
a reserve for national defense purposes.

The disposition of such silver

shall be governed by section 5 of the Strategic and Critical Materials
Stockpiling Act, as amended (53 stat. 8ll; 50 U.S.C. 98a-h). "

Page 2, line 12, inunediately after "States" insert:
"(other than silver held subject to section 5 of the strategic
and Critical Materials Stockpiling Act)".

Analysis of Chanqes in U. S. Treasury Silver Stocks Since 1958

(In millions c

Bullion
exchanged
for silver
certificates

Calendar
Jear

1958
1959
1960
1961
1962
1963
1964
1965
1966: Jan.
Feb.
March
April
May
June
July
August
Sept.
Oct.
Nov.
Dec.

1966
1967: Jan.

-38.2
-41.4
-46.0
-55.9
-77.4
-111.5
-203.0
-320.3
-14.9
-8.2
-5.7
-3.7
-1.4
-2.5
-1.3
-2.7
-3.4
-4.2
-2.3
-3.4
-53.9
-3'.9
-4.5

-19.0
-141.4
-77.4
-3.3
-9.5
-11.1
-12.6
-16.4
-15.1
-12.4
-18.0
-17.0
-9.1
-11.1
-4.9
-140.6
-20.0
-10.4

Silver
dollars

OtherJl
causes
of

troy ounces)

'lotal
change

SilverY
stock
atti
end of

h 1 ..--

Memorandum: Bullion equivalent of
silver certificatesYat end of period
He d Y
F .R. Banks
Total

+142.8
+91.9
-12.7
-46.3
-15.7
+10.8
-16.2
-67.7
-5.5
-23.8
-49.8 -129.5
+10.4
-27.4
-94.4
-51. 5
-2.0 -184.0
-19.8 ,
-2.1 1-366.3
-16.7 1-414.4
-.9 Ii -19.1
-1.5
-19.2
-16.9
- .1
-20.1
-3.8
-20.1
-2.3
-1.2
-18.8
-.5
-14.2
-2.2
-22.9
-.8
-21.2
+.2
-13.1
-.8
-14.2
-9.6
-1.3 I
-14.9 [-209.4
-2.3 I -261"2
• I
!
-,3.0
-17.91
-18.4 .
!
.21 +.6

1
I
I

2,106.2
2,059.9
1,992.2
1,862.7
1,768.3
1,584.3
1,218.0
803.6
784.5
?65.3
748.4
728.3
708.2
689.4
675.2
652.3
631.1
618.0
603.8
594.2
594.2
568.0
550.1
531.7

1,683.5
1,651.1
1,632.0
1,616.3
1,536.0
1,440.4

952.3
503.4
486.4
478.3
471. 0
461.3
456.4
449.8
444.8
440.4
437.8
436.3
433.9
431. 8
431. 8
427.9
426.5

188.3
209.3
215.9
191. 2
177.5
105.4
82.1
24.7
29.4
26.0
20.3
19.7
13.0
13.4
13.4
12.3
10.2
7.2
5.9
6.8
6.8
7.9
6.8

1,871.8
1,860.4
1,847.9
1,807.5
1,113.5
1,545.8
1,034.4
528.1
515.8
504.3
491. 3
481. 0
469.4
<153.2
458.2
452.7
448.0
443.5
439.8
438.6
438.6
435.8
433.3

Feb.
Mar.
EI -6.0
E/ -13.0
,
Includes purchases, lend-lease returns, net sales and transfers to Government agencies, sales to industry during
1959-1961, variation in the amount of subsidiary coin und bullion held in the Treasurer's General Account, and a residual
discrepancy arising from the fact that coinage and bullion exchanges are shown here on a Mint accounting basis while the
total change in silver stocks is shown on the more widely available Treasury Daily Statement basis. VAs shown in the
Treasurv Daily Statement. The total includes approximately 64.8 million ounces held by certain agencies of the Federal
Government. Y Issued after June 30,1929. EI Preliminary.
Source: Trei3sury Daily Statements, Circulation Statements and unpublished material.

Table 2

TABLE l.--Estimated Free World Silver Consumption and Production. 1949-66

(In millions of fine troy ounces)
Co inane

Deficit

Industry
and the
arts

Total
conswnption
U.S.A.

CDlrndlir
ye~lr

(1)

Coinage
foreign

New
production

Indicated
deficit
(-)

excluding

(4)

(5)

(6)

all
coinage
dem.11l<)
(-)

Total
coin,1gc

(2)

(3)

.-.1949-53 average ...
1<JYl-57 average.,.
1958 .... ..............
1959., ......•..•. \

153.1
190.1
190.5
212.9
22l,. ()

1%0 ..... , . . . . . . . .
1CGi
' -,.
'.t rev
- • \.1., •••• , I,
1 ~' () 2 ( ,_~ c v • ) . ~ . • ~
0

2:.\').5

:')3.5
U)O.7

(j: ," \/ . ) , . • " . . .

: '. i ()l

1 {)e,/, (l· ...·V. i .......
1 {) () 5
~
~
i
0

{o(-l)
J'

•

'\Dif

.,;. i

• :)

G. ()
5

3:·~,

•••••••••••••••

-------SOllrt'\,:

Column~;

3().5
37.5
:W.2
1,1.4
I, (). 0
55.9

77 .4
111. 5
20J.0
320.3
53.9

t.S.2
36.0
/f 1.3
f,·5.0
57.'J
S1.2
50.2
r,/f . 9
(,L,. 1
55.3
53.i)

8/,.7
73.5
7lJ.5
H() ./f
103.9
137.1
127. ()
H,() . If
267.1
375.6
107.7

237.8
261.6
270.0
299.3
328.5
376.6
386.1
lf27. 1
571. 3
722.2
464.2

173.9
191.0
205.8

188.4
206.9
203.2
209.0
214.6
210.7
215.3
231.0

-63.9

20.8

-72 .6
-61L 2
-110.9
-121.6
-173.4
-177.1
-212.5
-360.6
-506.9

-233.2

.9
15.3
-24.5

-17.7
-36.3
-49.5
-/f6. 1
-93.5
-1.31.3
-125.5

----

(1) :mu (2) are

11'011\

lI:mdy "nd 1I.1rman, Annual Revi.ews.

Column (4) i.s uerived from the \oIor1d

LOt,lls l'uhlisht·J in the Annual j{cporlso[ the Director of the Mint and compiled by the Bure.lu of Mines, except for
}')6G which :is from H.mely E, 11;1l11l~m's 1966 Annu:l1 Review.
Production for the following countries has been suhtr,'cted

frol11 the world totals:

C;:echoslov;-.)<i,1, E.:1st Cerlll.1ny, lIunGary, Rum,:mia, Poland, U.S.S.R., Chin,1, and North Korea.

Table 3
S11 vee Certifica
Sma 11 Size
Issued, Redeemed, and Outstanding

Gi'lendar Year

1961
196?

1963
1914
19'5
191>6
January
February
March
April
May
Tune
Tuly
August
September
October
November
December
Total - 1966

Issued
Equivalent of
ounces @ 1.29+
Amount

970,360,876
891,018,563
741,868,876
345,089,250

Redeemed
Equivalent of
Amount
ounces @ 1 29+

$1,254,608,000
1,152,024,00°
959,184,000
4 4 6 , 1 7 6 , 0 0 O'1

I
I
I
I

I
I

1967

988,842,671
987,327,293
907,975,733
857,322,949
510,502,262

Source:

Currency ledgers in U. S. Trea surer's Office.

1,817,424,234 $2,349,801,028
2,224,634,186
1,720,615,505
2,009,869,765
1,554,508,648
1,347,587,812
1,042,274,949
687,544,484
531,772,687

$1,278,503,654
1,277,190,842
1,173,948,421
1,108,457,953
660,043,328

12,003,637
12,179,939
14,356,287 ,
10,465,266
10,350,312
6,758,200
5,462,484
6,109,509
4,633,166
4,667,987
2,711,123
I
2,112,320 I
91,810,230 I

2,707,306
January
February
3,164./357
2,239,816
March
*Issue of silver certificates discontinued October 1964.
-----~

Outstanding
End of Period
Equi va lent of
Amount
oun~es (a) 1 29+

I
I

15,519,854
15,747,800
18,561,664
13,530,849
13,382,222/
8,737,875
7,062,606
7,899,163
5,990,356
6,035,377
3,505,290 I
2,731,080
118,704,136

3,500,355 I

4~091,290t

2,895,924

519,769,050
507,589,111
493,232,824
482,767,558
472,417,246
465,659,046
460,196,561
454,087,052
449,453,886
444,785,899 1
442,074,7771
439,962,457 I
439,962,457 !

672,024,630
656,276,830
637,715,166
624,184,317
610,802,095
602,064,220
595,001,614
587,102,451
S 81 , 112,095
575,076,718
571,571,428
568,840,348
568,840,348

437,255,151
434(090,794
431,850,978

565,339,993
561,248,703
558,352,779

---

Table 4
Balance of Unobligated Silver

Fine troy ounce s

Fine

trOY

ounce s

1966
Dec. 31

9,316,071

Jan. 31
Feb. 28
March 31
April 30
May 28
June 30
July 31
Aug. 31
Sept. 30
Oct. 31
Nov. 30
Dec. 31

21,782,451
34,858,034
11,955,943
41,838,514
36,622,914
30,372,231
47,389,683
41,193,304
41,841,469
72,126,924
111,076,708
150,279,688

Jan. 29
Feb. 28
March 31
April 30
May 28
June 30
July 31
Aug. 31
Sept. 30
Oct. 29
Nov. 30
Dec. 31

173,453,081
207,456,180
237,534,851
272,833,253
272,630,144
295,181,641
301,790,451
325,158,600
310,038,501
298,109,717
282,281,615
271,845,717

Jan. 31
Feb. 28
March 31
April 29
May 31
June 30
July 29
Aug. 31
Sept. 30
Oct. 31
Nov. 30
Dec. 30

264,763,644
257,693,663
255,174,576
245,505,248
235,815,939
:23,763,203
215,004,080
198,172,851
181,687,234
173,185,839
161,707,676
154,283,359

1967
Jan. 31
Feb. 28
March 31

130,757,145
116,043,701
99,851,803

Source: Daily Treasury Statements

'1';) b l~)

United Stutes currency '.'!fitton off pursuant to
Old Series Currency Adjustment Act, approved June 30, 1961
Public Law 87-66

---CUmulau-;;;--l---.-----.---.---------- ------

_J~ind of Currency~_____

Treasury Notes of 1890

r=-october 196!1

total issued

$447,.435,000

Gold Certificates issued
prior to July 1, 1929

--w~itt-;~

- - -. --j

Outsca~di,;';-

August l~ November 1964l.-.-.ill[lJ><-_l9..f)J)___ 1__T_Q1;I---~---ll:_L9Jlli..

$1,000,000

13,447,187,300

-Off'-'- ------ -.- --

$9,000,000

$100,000

$31,000

$1,131,00

$10,534

6,000,000

1,600,000

16,600,00

745,429

Gold Certificutes issued
Jul~/

19~9

iwd

:-:,~C:~~:;l~t ~!~01-":'tOI

SLlb-

r>'\.:('''r't

?:5 Cll ,SflO,OOO

Seri0;, 193t1

7,350,000

/;350,000

3,4%,690

Silver C'ci.\..lfic~L(;s iS~llcd

prior to July 1, 1929

12,371,855,800

15,000,000

14,500,000

280,000

29,780,000

I Ii 0,814

14,081,209,155

15,000,000

13,500,000

420,000

28,920,000

210,46-5

Federal Reserve BiJnk Notes
issued prior to July 1, 1929

761,9<14,000

1,000,000

63,000

2,063,000

30,442

Federal Reserve Notes issued
prior to July 1, 1929

19,971,560,000

18,000,000

14,000,000

2,450,000

34,450,000

1,193,087

Ni'ltionul Ban)( Notes issued
prior to July 1, 1929

Uniied Sliitcs jToi:cs i S;'llCd
prior to July I, 1929

8,903,1\2'1, 808 1
7? :5'/9.1 ""
.
..-

'J'OLU 1

Source:

C1.lf(;IICY J.cd(v~n;

U. S.

n<;'"ll

'frl!U~;\I"(:r's o~r;cc.

1 •

___ I__ ?:.~_!..Q.Q_~L9...Q_~__.I_._.L4.!L_OPJ)__ ;__.J_1...,_L1.£,_QOQ

f)0~., ~_;o-~T~,~,'_~9~~~OO t..

'/1.1_00 ,_Q.QQ.

J 2_, 3_1 (l_.JJ9.Q '__ J.'H ,."J.n, 000

,1__ .__ 7.?, .~ll
,~tl?.
_. S

,:)0<)

Table 6

United States Silver consumption and sources of supply
Calendar Years of 1949 through 1966
(In mil1i:ms of fine troy ounces)

I Average,
,

Industria 1 consumption
L9SS: New production

97 • 4
38.1

1101.
0,Ii 102.
0
; 23.0
36.8

59.3
36.6

I 41.4
7B.O

I--~--~j--

Difference
l\dd: U. S. coinage
Equa Is: Indicated deficit

Accounted for by Net commerci<ll imports
Lend-lease, returns (-)
Cha nge 1,n TreD sury stocks
Totol accountea for

95.9

-BO.9.

~S.2

(Rev.)

II 0 . 4

34L9_~,~_36~

I--~---T-

70.6
55.9

1966

74.1
77.4

110.0

120.5

131.0

150.0

35---.Jl

17.0

19~0

A?O

75.0
111.5

83.S

203.0

98.0
320.3

108.0
53.9

! 119.4

111.2

,1-55.3'

,-29.5
I -15.7
-67.7

1-45.°,
j-46.3
,
I

I
I
I

I, 126.5

!-112 • 9

1B(;.5

151.5

-30.5

:-145 .6

16.0

i
I

+15.4

-96.0

105. 5

/1.

1965

418.3

-9.1
-10.4
1-129.5

-63.3' -32.5

+55.7

-12.2

+22.3

-366.3

-414.4

-209.4

-310.6

-426.6

::l.£!7~

-8.31 ....

-94.4

I
I

;-184.0

,
I

1-149.0

-166.0

[-216.5

,-~.--------,

-'-.-~

Discrepancy 6ninu5 values
imply net additions to
domestic inventory)

-.1

j
I

1- 27 • 2
I

-1.7

-22.5

-14.5

-30.0

-24.1

-8.3

-25. Z--':-.

Source: Const'mption, coinage, and proG'.JcUon datu from Annual Reports of the Director of the Mlnt, except for 1966
when const.:mptlon und production are frorn Handy & Horman's 1956 Annual Review. Net commercial imports from Handy &
H Qrmo n' s l\nr:ua 1 r~Gview sand Minera Is Yearbooks. Lend-lea se returns from Annua I Re~orts of the Director of the Mint.
ChQnge In Trcusury silver stocks from Treasury Daily Stu:ements.

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE

PRELIMINARY RESULTS OF TREASURY REFUNDING
Preliminary figures show that $11,718 million, Or 52.9%, of the $22,142 million
securities of the five issues eligible for exchange have been exchanged for the two
new notes included in the current refunding offer. About $10,379 million, or 92.9-/0
of the $11,177 million outstanding, were exchanged by holders of securities due May
15 and June 15, and $1,339 million, or 12.2/0 of the $10,965 million outstanding,
were exchanged by holders of securities due August 15.
Subscriptions total $6,431 million for the 4-1/4% notes of Series C-1968 and
$5287
, million for the 4-3/4% notes of Series B-1972, of which $2,001 million for the
4-1/4% notes and $2,711 million for the 4-3/4% notes were received from the public.
,

Of the eligible securit.ies held outside the Federal Reserve Banks and Government
accounts $ 3,429 million, or 81.510 of an aggregate of $4,207 million, of May 15 and
June 15 maturities and $1,283 million, or 26.5 10 of an aggregate of $4,839 million,
of August 15 maturities .Tere exchanged.
Following is a breakdown of securities to be exchanged for the new notes (amounts
in millions) :

Amount

SECURITIES TO BE ISSUED
4-3/4%
4-1/4%
Notes
Notes
Total
B-1972
C-1968

$ 9,748

~i)5, 793

1,4.29
$11,177

638
$6,431

ELIGIBLE FOR EXCHANGE
Date
Due

Securities
4-1/4% notes, D-1967
2-1/2% bonds, 1962-67

Total May

5/15/67
6/15/67
June maturities

PREREFUNDING
5-1/4% ctfs., A-1967

8/15/67
3-3/4% notes) Ji-1967 8/15/67
4-7/8% notes, E-1967 8/15/67
Total prerefunding maturities
Grand Totals

293
833
213
$1,339

5,919
2,929
2,z117
$10,965
~22

z142

$3,493
455
$3,948

$6 z431

$5 z 287

UN EX CHANG ED
Amount

-L

$ 9,286 $

462
336
798

4..7
23.5
7.1

5,626
2,096
1,904
~~ 9,626

95.0

$11,718 $10 z424

4,7.1

lz093
$10,379
293
833
213
$1,339

(!.
y

71.0

89.9
87.8

Details by Federal Reserve Districts as to subscriptions will be announced later.

F-908

TREASURY DEPARTMENT

0'"
·
'_'~ ~('i~.

WASHINGTON. D.C.

.~.
.•••

May 5, 1967
FOR IMMEDIATE RELEASE
TREASURY SECRETARY FOWLER NAMES ROBERT WILLIAM (BOB) FELLER
AS NEW SAVINGS BONDS CHAIRMAN FOR THE STATE OF OHIO
Robert William (Bob) Feller, former big league baseball
star and now an insurance and investment consultant of Cleveland, Ohio, was today appointed by Treasury Secretary Henry
H. Fowler as volunteer State Chairman for the Savings Bonds
Program in Ohio.
Mr. Feller began his professional baseball career in 1935
with the Cleveland Indians. He retired at the end of the 1956
baseball season. During his long career, he pitched three "nohitters".
He was voted the Indians' IIMan of the Year" twice, and
played on 9 All-Star teams, including the Service All-Stars
of 1942. He also participated in two World Series. His
record of 348 strikeouts in one season is still the American
League record. He was inducted into Baseball's Hall of Fame
in July 1962.
During World War II, he served in the Navy -- enlisting
two days after Pearl Harbor attack. Most of his 44 months in
the Navy were spent on board the USS Alabama, where he earned
8 battle stars in the gunnery department.
At the time of his retirement in 1956, he purchased an
insurance agency in Cleveland and is still working in this
field as an independent insurance and investment consultant.
Mr. Feller has written two books and numerous articles
for newspapers and magazines and has appeared frequently on
radio and television.
He has received honorary degrees from Rollins College,
Winter Park, Fla.; Morningside College, Sioux City, Iowa;
and the University of Dubuque, Dubuque, Iowa.
Mr. Feller married Virginia Winther of Waukegan, Illinois,
in 1943. They have three sons, Steve, 21; Ma:ty, ~9; and Bruce,
16. The Fellers have lived in Gate Mills, Oh10, S1nce 1948.
000

TREASURY DEPARTMENT

R RELEASE 6:30 P.M.,
D?:q, May 8, 1967.
RESULTS OF TREASURY I S WEEKLY BILL OFFERING
The Treasury Depart&ent announced that the tenders for two series of Treasury

lis, one series to be an additional issue of the bills dated February 9, 1967, and
e other series to be dated May 11, 1967, which were offered on May 3, 1967, were

ened at the Federal Reserve Banks today. Tenders were invited for $1,300,000,000,
thereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of 182-day
lis. The details of the two aeries are as follows:
NGE OF

ACCEPl'ED

MPETITIVE BIDS:

High
Low

Average

·
·

91-day Treasury bills
•
maturing August 10 2 1961
t
Approx. EqUiv. •
Price
Annual Rate
:
:
99.079
3.6411%
:
99.069
3.683%
!I:
99.012
3.671%

182-day Treasury bills
November 92 1961
Approx. Equi v •
Annual Rate
Price
3.820%
98.069
98.056
3.845%
98.063
3.831%
Y
maturin~

98% of the amount of 91-day bills bid for at the low price was accepted
13% of the amount of 182-day bills bid for at the low price was accepted
rAL TENDERS APPLIED FOR .AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

District
Boston
~ew York
Philadelphia

~leveland

iichmond
~tlanta
~hicago

3t. Louis
tinneapolis

(ansas City
lallas
>an Francisco
TOTALS

Accepted
: Applied For
Applied For
8,998,000
$ 12,307,000
$ 18,998,000 I
889,795,000
1,333,556,000
1,636,339,000
13,107,000
20,880,000
26,001,000
38,574,000
33,437,000
39,084,000
14,339,000
2,529,000
14,339,000
29,~7,ooo
47,477,000
68,337,000
123,927,000
181,916,000
178,127,000
42,263,000
24,205,000
49,464,000
12,290,000
11,699,000
17,630,000
27,725,000
10,070,000
29,370,000
15,209,000
18,571,000
25,409,000
108
66,460,000
121 2240,000
2319,000

Accepted
$
2,307,000
736,706,000
6,880,000
23,387,000
2,529,000
20,735,000
107,444,000
21,831,000
9,529,000
9,970,000
11,701,000
47,079,000

!I $1,786,946,000

$1,000,098,000

$2,224,344,000 $1,300,164,000

£I

Includes $255 415 000 noncompetitive tenders accepted at the average price of 99.072
Includes ~104:367:000 noncompetitive tenders accep~ed at the aver~ge price ~f 98.063
These rates are on a bank discount basis. The equJ.valent coupon usue yielos are
3.77% for the 91-day bills, and 3.97% for the 182-day bills.

:-909

TREASURY DEPARTMENT
Washington
FOR USE IN MORNING NEWSPAPERS
OF WEDNESDAY, MAY 10, 1967

REMARKS BY THE HONORABLE TRUE DAVIS
ASSISTANT SECRETARY OF THE TREASURY
AND
UNITED STATES EXECUTIVE DIRECTOR
OF
THE INTER-AMERICAN DEVELOPMENT BANK
BEFORE
THE INTERNATIONAL TRADE CLUB
OF
GREATER KANSAS CITY
COMMERCE TOWER, KANSAS CITY, MISSOURI
TUESDAY, MAY 9, 1967, 8:00 P.M., CDT
OPPORTUNITIES AND RISKS IN TRADING AND
FINANCING WORLD PROGRESS
It is always a pleasure for me to meet with businessmen who
are engaged in trade, who are concerned with trade, and who
realize the importance of trade to a nation's economy and a people's
welfare. The free flow of trade -- of a country's products and
services -- is essential for a country's economic growth and
development. Without this -- sustained economic growth and
development -- no country can long maintain a decent standard
of living for its people, or raise the standard of living so
its people may enjoy the technological benefits of our age.
Our job -- yours and mine -- is both challenging and
exhilarating. For we are building bridges between peoples and
countries over which may pass not only a free flow of goods
to enrich the human body, but also a free flow of ideas to
enrich the human mind and spirit. We should never lose sight
of the fact that wherever there flow between countries
unimpeded rivers of commerce, nurtured by common interests
and mutual goals, there also flow rivers of communication that
develop friendship between peoples, understanding between
diverse minds, and respect and tolerance for each other's
culture. The tangible goods and the intangible ideas flow
together, for they are inter-related. The suppression of one,
or the nurturing of one, affects the life-flow of the other.

- 2 -

There are many ingredients necessary for healthy trade
growth, the most important of which is peace. More than a
hundred years ago, Ralph Waldo Emerson, in discussing trade and
conditions which nurture its growth, said that "trade is a
plant which grows wherever there is peace, as soon as there is
peace, and as long as there is peace." Since the end of
World War II we have had two decades of relative peace. The
growth and expansion of world trade during this period is
unprecedented in the long history of man. Ten years after the
end of World War II world exports amounted to $103.6 billion.
Last year, two decades later, world exports had climbed to
$204 billion, almost doubling those of 1956.
This clearly substantiates Emerson's statement. Yet when
we examine these world trade figures we find some disquieting
facts. We find, for instance, that the share of the low-income
countries in the world exports decreased from 24 to 19 percent
during the period 1956-66. And of all the Latin American
countries, onlywo, Peru with a 14 percent increase and
Mexico with a 7 percent increase, substantially improved their
position in the world of foreign trade and commerce. Peace
alone, then, does not insure the trade growth or development
of a country. There are other essential ingredients -- such
as capital for investment in plants and equipment, technical
knowledge, a high degree of literacy and education, the
absence of discriminating tariff barriers inhibiting a country's
flow of goods and services, and a desire, above all else, on
the part of wealthy, industrialized nations of the world to
assist less developed countries so they may compete more
evenly, and more equitably share the fruits of man's
achievements.
Our thoughts at the moment are riveted South -- to
Latin America, where 240 million people now reside, and where,
by the year 2000 if the present population rate continues, some
625 million people will live
How they live is of
vital
importance to the pe~ and stability of our Western Hemisphere.
0

For too long the people in most Latin American countries
have been condemned to underdevelopment. Adjacent to
portions of new cities that have witnessed an architectural
renaissance are some of the worst slums in the world. The
disease of illiteracy afflicts tens upon tens of millions of
people. Unemployment, which breeds misery and anguish, exists
in the largest cities and the smallest villages. Not only is
the potential of human resources not achieved throughout the
Americas , but much of their natural resources are undeveloped.

- 3 -

Conditions in many countries until recently prevented political
stability and political continuity -- the sine qua ~
of sustained economic progress.
Last month it was my good fortune to accompany President
Johnson to Punta del Este where he met with other Presidents
of the Americas. The problem they faced, conditioned by an
air of urgency and a feeling that time is running out, was to
forge a plan of united action that would accelerate the speed
of social reform and the pace of economic development. Toward
this end, they forged the "Declaration of the Presidents ," which
I would like to briefly summarize for you in light of its
significance and the participating role that we will play. The
Presidents agreed:
1.

To create and support a Latin America Common
Market, which will facilitate the free movements
of goods and services;

To expand Latin American trade to other countries
of the world;

To lay the physical foundations for Latin American
economic integration through multi-national
projects that will bind the nations of the
hemisphere in great transportation, power, and
river developments, opening the way for the
movement of both people and goods throughout
the continent;

To modernize living conditions of rural populations
and substantially increase food production to
feed their expanding population;

To vigorously promote education for development,
expand programs for improving the health of
Latin Americans, and harness science and
technology for the services of all; and

To eliminate unnecessary military expenditures.

Creating a Common Market for Latin America will not be an
easy task. It will begin in 1970. It will take another
fifteen years of patient negotiation before barrie:s are
removed to permit the unimpeded flow of goods, cap~tal,
manpower, and technology so essential for the economic progress
of all countries.

- 4 -

During the past ten years Latin America's share of world
commerce has steadily declined, while Africa's has increased.
The value of Latin American exports during the same period only
grew at an average annual rate of 3.9 percent, while the
average yearly growth rate for world exports was twice as great.
On the one hand, the need for development money in Latin America
rapidly increases, while income from exports, which are vital
to every country's balance of payments position, continues to
lag.

As we increase our trade to Latin America and as Latin
America increases trade among themselves and betvleen us and
other highly developed nations there will arise many problems
and conflicting opinions in the complicated area of tariff
and trade. Concessions will have to be made by all countries
including us. We have already committed ourselves to exploring
with other industrialized countries the possibilities of
temporary preferential tariff advantages not only for Latin
America but also for other developing countries in the markets
of industrialized nations. Traditional nationalistic barriers
in the Americas will also have to give way to regional and
hemispheric goals. The ~.]ealthier countries of the world will
have to work together to help developing countries increase
their trade and accelerate their rate of economic grOfNth.
The renaissance Latin Americans must undertake in what
President Johnson calls the "Decade of Urgency" staggers the
imagination. Each year over a million new homes must be
built. At least 140 million new jobs must be created.
Hundreds of thousands of new classrooms must be constructed.
Somehow there must be trained and educated hundreds of
thousands of teachers, technicians, doctors, dentists,
agronomists, and other scientistso Although the challenges
are formidable, they are not overwhelming. There is not one
problem we in the Americas face that cannot be overcome as long
as we are unswerving in our resolution. The assistance that
we in the United States can render will be useful, as President
Johnson emphasized, only as it reinforces the determination of
Latin Americans and builds an their achievements. I was
particularly impressed with a phrase used by President Johnson
at PlUlta del Este, when he said that "this is not a job for
sprinters, but long distance runners."
The contemplated view of future plans must be correlated
with achievements of the past. Since the beginning of the
Alliance for Progress in 1961, these achievements have
benefited the economy of individual countries and millions of

- 5 -

Latin Americans. We agreed, in 1961, to provide Latin America
with a billion dollars a year in grants, food, and technical
assistance. We also promised to promote foreign investments
in those countries that promised to undertake necessary
financial and social reforms and mobiliz e their resources for
essential economic development. We undertook these commitments
at a time, you will recall, when Latin America seemed on the
verge of violent social and political revolution, when
Communist activity disrupted governments and spread terror and
violence among millions of people, when riots were regular
occurrences, and money fled the countries for safe havens
abroad -- money that should have remained in Latin America
to help its economic development.
A few statistics will illustrate the extent and type of
achievements accomplished by our programs. In the area of
education -- 28,000 classrooms were built, 160,000 teachers
trained, and more than 15 million textbooks distributed.
Some 13 million school children and 3 million pre-school
youngsters participated in school lunch programs. In the
area of housing -- 350,000 units were built, 2,000 rural wells
dug, and over a thousand portable water supply systems built
to benefit 20 million people. In the area of public health
deaths caused by malaria fever dropped in 10 countries from
over 10,000 to less than 3,000 in only three years' time.
Today over 100 million people are protected from malaria.
More than a thousand health centers, including hospitals and
mobile medical units, are in operation. In the agricultural
area -- 16 countries passed legislation dealing with vitally
needed land reforms. With our assistance over a million acres
of land have been irrigated, and over a hundred thousand acres
of land reclaimed. More than 700,000 agricultural loans have
directly benefited more than 3-1/2 million people.
The Inter-American Development Bank -- the Bank of the
Alliance for Progress, the Bank of Integration -- is the
institution through which we have channeled, and will
continue to channel, much of our financial assistance to
Latin America. The Bank has seven directors, six of which
are elected by Latin American members. The United States appoints
its Executive Director, and in this capacity I have served since
being nominated by President Johnson and confirmed by the
Senate last year. The Board of Directors take an active, direct,
and continuous interest in the affairs of the Bank. As of
April 15, it had authorized from all available resources 407
loans totaling over $2 billion. These loans cover the
broadest spectrum of our activities throughout Latin America
agriculture, education, health, industry and mining, water and

- 6 -

sewerage, housing, transportation and electric pawer. In short,
the Inter-American Development Bank is the most comprehensive
lending institution which represents to our Latin American
friends their bank for the Alliance for Progress.
Within the Bank itself there are two types of lending
activities: First, we have loans from the Ordinary Capital
Resources which are similar to commercial bank loans, with
interest rates of 6 percent plus and for normal length of
duration as found in commercial banking circles; then we
have the Fund For Special Operations which was established as
the so-called "soft loan window" of the Bank. It has long
been amply clear that the less developed countries cannot
assume on conventional banking terms the capital required
to advance their development. The problems of economic and
social development are too vast and the resource transfers
required from the more-developed to the less-developed
countries are too great. This has been recognized in our
bilateral assistance programs, which have long provided the
more liberal terms appropriate for long-term development.
These loans bear interest rates of from 3 to 4 percent with
longer periods of time for repayment.
As I mentioned earlier, the Bank has made over 400
loans totaling more than $2 billion. One of the most
effective means by which Latin Americans have been
hastening their own technological development, economic
growth, and social progress has been through the wise
application of these loans. But these bank loan figures,
however, do not tell the whole story -- for they helped
finance projects that cost over $5 billion. The difference
of some $3 billion represents the amount Latin Americans
have invested in their own progress. Of this total
expenditure of more than $5 billion, over $2-1/2 billion
went into developing agriculture, industry and mining.
Expenditures for electric power, housing, and water and
sewerage systems accounted for almost another $2 billion.
The remainder was channeled into educatiOn, pre-investment
and export financing.
Through 1964 we contributed to the Social Progress
Trust Fund of the Inter-American Development Bank $525 million,
and another $150 million to its Fund for Special Operations.

- 7 -

In 1965 -- because of the success of the Bank's operations
and the pressing need for more capital to expand its
level of activities -- the Congress authorized a U. S.
contribution of $250 million a year to the Bank's FSO
through 1967. Only last week Treasury Secretary Fowler
and I appeared before a Congressional committee in support
of the President's desire to increase our aid to the
Bank by $50 million a year over and above the $250 million
annual level of our contributions in the past. These
increased funds can help finance a portion of the cost of
multi-national projects, such as hydro-electric plants,
modern communication networks, bridges, dams and roads -all of which are essential to bring Latin Americans closer
together as partners in hemispheric progress.
The United States contribution of $900 million over
a three-year period stands in the ratio of three to one to
the proposed contribution of the Latin American members.
This is in contrast to the ratio of five to one that
applied in the last increase of FSO resources agreed upon
in 1965, and the ratio of eleven to one when the Bank
began.
Over the past six years, as contributions to the Bank
by partners and non-partners increased, disbursement of loans
and technical assistance authorizations have steadily
increased. Latin American countries have consistently
contributed more of their own resources to the execution of
development projects. By so doing, their governments have
intensified their own involvement with the future destiny of
their people. If the remarkable achievements of thepast
six years are to be accelerated to keep pace with the
future's essential requirements, it is imperative that
the Inter-American Development Bank obtain additional
capital resource contributions from other countries of the
free world, and by borrowing in the world's capital market
through short and long-term bond issues. This will not be
especially easy, since the competition among developing
nations for capital is vigorous. It increases, moreover,
in proportion to a country's desire to sustain achievements
already made, support their investments that made these
achievements possible, and build upon them. More and more,
Latin America will be looking to private·capital investment
from the industrialized cOlmtries of the world.

- 8 What has our contribution been to Latin America in terms
of dollars since the Alliance for Progress started a little
more than six years ago? We pledged to invest a billion
dollars a year -- and we have kept our pledge to our neighbors.
Most of this money went out through AID -- United States
Agency for International Development -- in the form of bilateral
assistance programs. These loans provided more liberal terms
appropriate for long-term social and economic development.
When the Alliance for Progress was created, we set as a
target goal $300 million of new U. S. private investment
annually in Latin America. Our private capital investment
since 1962, when foreign investment had reached a ten year
all-time low, has paralleled the increased aid to Latin
America through international and U. S. Government financial
agencies. As political stability and economic sensibility in
Latin America prevailed over economic indifference and political
apathy, creating an atmosphere of confidence and integrity,
foreign U. S. investments gradually increased.
The evidence from actual performance is no less dramatic.
During the past six years the gross investment of the Latin
countries approximated $91 billion, of which $80 billion -about 88 percent -- came from within Latin America itself.
It is easy to forget that the Latin countries are carrying by
far the greater share of the burden of their own development.
It could not and should not be otherwise, as the Latin American
Presidents were clearly aware at the Summit Meeting.
Our Government, as I earlier emphasized, not only will
continue to invest in Latin America's future -- which is an
investment in the peace and stability of the Western Hemisphere
but will increase this investment in the years ahead. The
important partner to Government investment is private investment.
One cannot do the job alone, nor can one be substituted for the
other. Each type of investment complements the other, and both
types are vitally necessary. Conditions during the past five
years, as well as the philosophy underwriting agreements reached
by the Presidents of all the Americas at Punta del Este last
month, clearly indicate to me that the climate is propitious for
substantially increased private investments through Latin
America -- and we should take advantage of this opportunity now,
Looking back from where we are now, I would assume that
150 years ago, the Mississippi Valley and the Amazon Valley
offered the same opportunity with the same risk of investment.

- 9 History has shown that the investment placed in the Mississippi
Valley made a handsome profit for the investors who were
willing to take the risk. Now the Amazon Valley -- as well as
other parts of the Americas -- is potentially ready to return
a handsome profit to those who are willing to invest there.
Businessmen now recognize, I believe, that private
enterprise, capably managed and operated for both the benefit
of individual Latin American inhabitants of a country and for
company stockholders, can flourish and prosper under a wide
variety of socialistic governments. Enlightened Latin American
leaders, deeply concerned with increasing the rate of social
and economic development in their countries, are just as
conscious as enlightened American businessmen of the mutuality
of interests that unite them. Both are working toward common
goals. A prosperous, thriving economy now is essential for
future peace and prosperity. To the extent that private capital
creates and nurtures economic growth and development, to that
extent does it enrich the institution of private enterprise
and strenghten the foundations upon which it rests.
The United States will maintain its $300 million annual
contribution for the next three years to the IADB's Fund for
Special Operations -- in addition to increased contributions in
other areas of our economic and cultural partnership. At the
same time, we expect other industrialized nations of the world
to increase their aid to Latin America, as well as other
developing nations -- both in the form of direct aid to individual
countries and in the form of capital resources to regional
development banks.
It is my firm conviction, as well as our Government's, that
countries which are accumulating savings in the form of reserves
should, if they are to accept their proper responsibilities to
the welfare of mankind, permit public and private capital to flow
to the less developed countries in reasonable magnitude and on
reasonable terms. The industrialized countries should share
their surpluses by giving -- as the United States has -multilateral and regional financing institutions liberal access
to their capital markets.
The richer nations of the world not only must continue aid to
Latin America, but the degree of their aid must be appreciably
increased if we are to accelerate the pace of technological and
economic development. And accelerate we must in the years ahead
in light of anticipated population increases and the pleas of
human beings for more help so that they can ultimately better help
themselves.

- 10 -

We are so closely allied in the fraternity of nations
and the brotherhood of mankind that the weakness of one
country, no matter how small, directly or indirectly affects
the strength of all. The free world's ability to act in
unison and harmony, to bring its moral strength and purpose
of conviction to bear on the resolution of international
problems, ultimately rests on the physical strength of every
country and the moral strength of its people. To the extent
that richer countries accelerate economic growth and
development in underdeveloped and developing countries, to that
extent do we strengthen the innumerable ties that unite
us as free sovereign nations and as free human beings.

000

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN APRIL
During April 1967, market 'transactions
in direct and guaranteed securities of the
government for Government investment accounts
resulted in net purchases by the Treasury
Department of $180,0)2,900.00.
000

F-910

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 May 18, 1967,
in the amount of
$2,302,320,000, as follows:
91-day bills (to matur1ty date) to be issued May 18, 1967,
in the amount of $1,300,000,000, or thereabouts~ represent1ng an
additional amount of b1lls dated February 16, 1'j67, and to
mature August 17, 1967, or1g1nally issued in the amount of
$1,00L,414,000, the additional and original bills to be freely
Interc tlange able .
182-day bills, for $1,000,000,000, or thereabouts, to be dated
May 18, 1967,
and to mature November 16, 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, May 15, 1967.
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
~sponsible 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-911

- 2 Imm~diately

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 May 18, 1967, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing May 18, 1967,.
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 fro~1
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
Washington.

FOR RELEASE IN MORNING NEWSPAPERS
OF FRIDAY, MAY 12, 1967

REMARKS BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE
AMERICAN PENSION CONFERENCE
HOTEL NEW YORKER, NEW YORK, NEW YORK
THURSDAY, MAY 11, 1967, 8:00 P.M., EDT
I very much appreciate this opportunity to meet with you to
discuss recent developments in the field of employee benefits.
While there are many interesting facets of this area, I would
like particularly to consider some of the issues concerning the
private pension system which were raised by the 1965 Report of
the President's Committee on Corporate Pension Funds.
As you know, this Report looks at the private retirement
system from many aspects to see how it is fulfilling its
expectations and responsibilities. While the Report concludes
generally that the private retirement system is serving an
important function in the over-all retirement program of this
country, it does point up several areas where improvement seems
necessary if the system is to continue to meet its responsibilities.
Although the Report had been carefully considered within the
Government for about three years, the Administration realized that
the complexity and importance of the issues involved warranted
close examination and analysis of the Report by the business
community, labor organizations, and others before affirmative
action was taken in the nature of legislative proposals. Thus,
the Report was released in January 1965, not as a catalog of proposed
legislation but rather for the purpose of initiating public
discussion of the issues with which it dealt. The Report has
succeeded in its objective of stimulating considerable public
interest and discussion. Many companies, organizations, and
individuals have submitted critiques to the Government. While
the comments from the business community have contained some
interesting and provocative thoughts, many of us in Government
were somewhat disappointed that most of the comments were
negative in tone and merely indicated general opposition to any
:hange. There have been few positive suggestions for improvements
ln the existing statutes or regulations. I recognize that this

F-912

- 2 -

was only a temporary and initial response, and that more
constructive views are gradually being formulated and advanced.
Before discussing what has been going on within the Government,
let me briefly set forth some over-all views on the matter of
pension plan reform. While I, of course, cannot speak for them,
I believe that they also represent the views of other Government
officials involved.
We believe that the private retirement system is fulfilling
a major role in our economy as a vital supplement to the basic
social security system.
We recognize that flexibility in the private system is
desirable so that it may serve the particular needs of
individual companies and their employees. However, we think
there are areas where the system is failing to come up to the
standards necessary for it to meet its basic objectives. These
are areas where improvements appear appropriate and needed. We
are anxious that the improvements be made in a way which will
not needlessly disrupt existing and future plans.
At the present time, the situation within the Government
is as follows:
The Inter-Agency Staff Committee was reactivated almost a
year ago. Its main activity has been to hold a series of
meetings with knowledgeable groups to discuss certain of the
recommendations in the Cabinet Committee Report. The discussions
centered on the recommendations relating to: (1) vesting,
(2) funding and reinsurance, (3) broadening of employee coverage,
(4) fiduciary responsibility, and (5) additional disclosure.
These were the particular areas in which it was thought that the
issues had been refined to the point where detailed discussions
would be helpful. The discussions did not deal with broad
philosophical points but rather with the considerations which
must be taken into account in developing concrete proposals.
The groups with whom meetings were held included employers,
unions, representatives of jointly trusteed multi-employer plans,
actuaries, accountants, banks, and insurance specialists.
We on the Government side found these meetings extremely
helpful. For example, many comments made at these meetings vJere
reflected in the eventual proposals on fiduciary responsibility
and disclosure which were submitted by the President to Congress
in his Consumer Message in February of this year.
F-9l2

- 3 -

Furthermore, as a result of these meetings, we have dropped
from our current agenda one of the earlier recommendations _ ..
that is, the proposed elimination of the option to limit plan
coverage to the salaried and clerical group. We found that the
Cabinet Committee's rather broad recommendation for mandatory
coverage of all employees did not take adequate account of
the wide variety of situations where such a requirement may not
be realistic -- as, for example, where a particular group of
employees indicate a preference for a different type of retirement
plan or, perhaps, for a cash wage' increase or another type of
fringe benefit. For this reason, it was decided that it would
not be appropriate to proceed with this recommendation at this
time.
These meetings, as well as the staff work following them,
have also brought us considerably further along in our thinking
with regard to minimum vesting and funding requirements, and on
the question of whether a practical reinsurance proposal can be
developed. In fact, fairly specific staff proposals for
legislation on these points have now been developed. I think
it would materially advance the discussion in this area if the
broad aspects of these proposals were made available to you -for your consideration and constructive criticism.
As you will note, the staff proposals differ in some
important respects from those set forth in the Cabinet Committee
Report. This is the result of a careful re-evaluation of each
of the original proposals in light of the comments and criticisms
which have been received. The new proposals contain definite
structural improvements -- and as a consequence represent an
example of the mutual benefits to be gained from an open exchange
of ideas between Government and the private sector. For
example, these new proposals have been carefully developed with
the aim of making certain that they would not involve Government
interference with individual plan decisions on the investment of
pension funds or the selection of specific actuarial methods and
assumptions.
I hope that each of you will evaluate the proposals in a
constructive manner and within the context of the objectives of
the private retirement system -- that is, from the standpoint not only of individual employers and employees but also of
society as a whole.
Let me mention some of the building-blocks in these
proposals.
F-9l2

- 4 -

First on the matter of vesting:
(1) Vesting of pension benefits is a desirable and needed
part of the structure of private pension plans. Our modern
society -- involving dynamic changes in industries, businesses,
and products and great mobility in individuals' working
lives -- requires the stability accorded by vesting of
benefits if the private pension system is to work properly.
Without vesting of benefits, employees can find themselves
devoting large portions of their'working lives to an
employer only to find when a move is necessary, that those
years have bought nothing toward their security on retirement.
We must recognize that the necessity for a move can, under
today's conditions and those likely in the future, originate
as well in the career plans of the employee and his family as
in the business plans of an employer.
I have found very little genuine disagreement with the
principle of vesting. The issue is how to devise the mechanics
of a vesting standard and the mechanics of transition to that
standardu
(2) As to those mechanics: The staff proposes that
participants in private pension plans be granted vested rights
after 10 years of service with the employer.
This recommendation is based on the principle that 10 years
is a sufficiently extended period of time for the value of an
employee's service to be explicitly recognized for pension
purposes
It represents about one-fourth of the typical working
life of an employee. Loss of benefits for such a period of
service, were an employee to move elsewhere, would therefore
represent a substantial reduction in his retirement security.
0

The 10-year period would generally begin to run at the
time the employee is first hired. However, in order not to
require the vesting of relatively small benefits, an employee's
service before age 25 could be disregarded if that service is
not taken into account under the pension plan.
The required vesting standard would only apply to the
normal form of retirement benefit, such as a straight life
annuity or a life annuity with a term certain. It would not
haVe to be applied to other benefits under the plan, such as
special early retirement allowances.

F-91

- 5 -

The amount of benefit which should be vested in an
employee leaving before retirement age would be a specific
portion of the benefit he would have received at retirement,
determined by the ratio of his actual credited service to the
credited service he would have had had he remained until
retirement age.
The staff carefully considered but rejected allowing
vesting to be deferred until a certain age. With an age
requirement set at 45 years or above -- which seem to be the
levels suggested by some -- too large a segment of an
employee's working life could be excluded from pension
coverage if he were to change employment before he reached age

45.
(3) Transitional features would be provided so that
employers may build up gradually to the maximum increase
in plan costs. I believe that this matter of transition is a
basic concern of the business community in the area of vesting.
Certainly this concern is understandable. But fortunately it
can be fully met by a recognition, first of the need for a
period of transition, and second of the desirability of as
much flexibility as possible in the mechanics of the transition.
A broad transitional rule which would seem appropriate -at least for many plans -- would provide that the new vesting
standard need only be applied with respect to benefits for
service after the new requirement goes into effecto In
other words, only benefits for future service -- service
after the effective date of the change -- need be vested o
But service prior to that date would count toward the 10 years
required service before benefits are to be vested.
This would not be the only transitional path under the
staff proposal. There are undoubtedly employers who would be
unwilling to differentiate between future and past service
since, to do so, would not distinguish between long-service and
short-service employees. They may prefer a transition more
favorable to long-service employees. Accordingly, optional
arrangements to phase-in the 10 year vesting standard would be
made available under which that standard would not become fully
applicable until 10 years after the legislation becomes
effective.

F-9l2

- 6 -

One such alternative would permit a plan to adopt a
20-year vesting standard -- applicable to the full benefit
earned to the date of termination -- for employees who leave
during the first year after the legislation becomes
effective, and then systematically to reduce this standard so
that after 10 years all employees leaving with more than
10 years of employment would receive vested rights. Under
another alternative, the lO-year standard would apply
immediately but only with respect to a specified percentage
of an employee's benefits depending on when he left the
company: if he left in the first year after the effective date
of the legislation, only 10 percent of his benefit would need
be vested; if he left in the second year, 20 percent, and so
forth. Under either of these alternatives, however, there
would be no distinction between past and future service
benefits, unlike the broad transitional rule earlier
mentioned.
There may, of course, be other transitional arrangements
which might better meet the needs of particular plans, and
the staff would certainly explore them.
In any event, no change in plan provisions would be
required for the first two or three years after a bill is
enacted in order to allow time for renegotiation of labor
contracts. Thus, the total transitional period would really
be in the nature of 12-13 years.
Any evaluation of the lO-year vesting standard proposed
by the staff must be made within the context of these
transitional rules. The staff proposal does not call for
10-year vesting tomorrow or the next year. Instead, it is
really suggesting this standard for 12 or 13 years from
now and, in this respect, appears to recognize the
eVolutionary process that is constantly at work within the
plans themselves. Thus, in comparing the staff proposal
with actual plan experience, the proper point of reference
is not the present but rather what is likely to be the
attitude 12 or 13 years from now.

F-9l2

- 7 -

(4) New plans -- another aspect of real concern to
many in the business community -- would not be required to
meet any vesting standard for employees leaving during
the firs t five years the plan is in e ffec t. This de lay would
recognize that often plans are initially set up to meet
the situation of a few long-service employees nearing
retirement age. It may not be feasible, jn this situation,
for an employer at once to meet the cost of providing
for these employees and also the cost of vesting for
other employees leaving during the first few years.
Our meetings with the outside groups were very helpful
in pinpointing the problems and considerations relevant
for new plans.

On the matter of funding of benefits and reinsurance:
(1) Reasonable assurance that accrued pension
benefits will actually be paid is also a desirable and
needed part of the structure of private pension plans. A
pension plan is nothing more than an empty promise to an
employee if years of service spent in the belief that he is
adding to his security on retirement turn out to be
years of illusion because the promise turns out to be only
words on paper and the funds to make it real are lacking.
No amount of fine print in a pension plan explaining that
a vested benefit may be something different in the end from
an actual paid benefit will assuage the feeling of
unfairness and indeed of deception on the part of the employee.
Nor can it meet the real hardship that deprivation of a
vested and therefore expected, benefit may mean.
An employee will thus inevitably -- and understandably
indict his employer and the Government for any failure of funds
when he seeks to exchange his promise of a vested benefit for
actual payments. Just as the beneficiaries of life insurance
and the depositors in savings institutions clearly expect a
rational and modern society to protect their reliance on the
institutions of that society, so will the beneficiaries of
pension plans expect similar protection.

F-91 ?

- 8 -

It is thus really inescapable that employers and the
Government have a common obligation, and thus a common goal, to
provide for the security of the employee by assuring the
resources from which benefit commitments can be met. Here also
therefore the issue is not whether there should be adequate
protection but how to devise the mechanics for that protection
without unduly interfering with 'the operations and flexibility of
the private retirement system.
(2) As to those mechanics, the staff proposal would
measure a plan's funding adequacy by comparing its assets with the
liabilities to which it is committed
that is, its liabilities
for vested benefits. This relationship would be reported to the
Government every three years.
In recommending this approach, the staff concluded that
the relation between assets on hand and liabilities for vested
benefits is a meaningful test of the ability of a plan to honor
its benefit commitments. An employee is not particularly
concerned with actuarial methods and rates of funding accrued
liabilities; rather, he is most interested in the relationship
between the benefits promised by the plan and the funds available
to meet those benefits. Substantially this same measure of
funding adequacy is being used by the Pension Research Council in
its study -- under the leadership of Professor Dan McGill of the
University of Pennsylvania -- of the funding status of a broad
range of plans.
(3) While the ultimate goal of such a funding standard
would be "assets equal to vested liabilities", plans would be
given 25 years in which to reach this goal. This approach
recognizes that plans generally begin with large past service
liabilities that can realistically be funded only over an
extended period of years. More specifically, a plan would each
year have a funding target -- in terms of a percentage of assets

F-912

- 9 -

measured at market value to vested liabilities -- which it must
meet, and this target would be increased at an annual rate equal
to four percent of vested liabilities. Adjustments in the
schedule would be permitted to account for amendments to the plan
which substantially alter liabilities. Furthermore, to ease the
transition for existing plans, a more gradual schedule would be
applied for the first few years after the legislation is enacted.
(4) Such a stretching out of funding by the employer for
vested benefits, so that full funding would not have to be
reached for a number of years, will meet a genuine concern of
employers and others that the requirement of full funding not be a
drain on their resources. But this solution for the employer's
problem will be no answer to an employee seeking actual payments
in cases -- hopefully rare -- in which the gradual funding proves
insufficient to meet actual claims in the event of a termination
of the plan in the interim period. Such an employee can rightfully
state that a solution which leaves him empty-handed is not a
rational solution. He will still view the private pension system -employers -- and society derelict in their trust.
As a consequence, the staff proposes the establishment of a
common fund which would be available to meet any particular plan's
unfunded liabilities in the event of its termination while moving
towards full funding. Under the staff proposal, each plan would
make contributions to the common fund based on the amount of its
unfunded vested liabilities. If a plan is terminated for business
reasons, amounts from the common fund would be available to make
up the difference between its funding target and its vested
liabilities which cannot be covered by the assets in the plan. In
this fashion, employers as a group would be providing the
difference between target funding and full funding of the vested
benefits of the private pension plan system.
To preserve the integrity of each separate private plan the
termination protection would not apply to the extent an employer
has not met his prescribed funding target, whether because of a
deficiency in contributions or an abnormal drop in the value of
the assets in the fund. Moreover, penalties would be applied to
a plan if it remained below its funding target for more than three
years.
Th~se are some of the building blocks which our staff people
believe will make for sound vesting and funding-reinsurance
proposals. Let me reiterate, however, that these building blocks
are not official Government proposal s, either of any Department

F-912

- 10 or of the Cabinet Committee. They are under study -- just as
I hope you and others interested may study them.
I assure you that we do not feel that all wisdom in the
world on this or any other issue rests with the Government. It is
often difficult for us in the Government to appreciate fully the
varying practical problems which necessarily arise over the wide
spectrum of business. The managers of private plans in turn may
recognize that being close to th9se problems can make the
problems loom larger than they really are. They may find it
beneficial therefore to see what can be accomplished when one turns
from recognizing problems to a genuine effort to solve those
problems. I, therefore, hope you will share your constructive
thoughts with us as we consider these staff proposals. I can
assure you that we will receive any suggestions with an open
mindo While we may not go along with all of your thinking, I
can't help but believe that such sharing of ideas would be mutually
beneficial to the Government and to industry.
That is the primary message I have for you today. I wanted you
to know that we are moving ahead towards formulating our
recommendations respecting private pension plans, and that you
should not mistake our considered deliberations for any slackening
in our feeling that the private pension plan system can be
strenghtened.
Before concluding I would like to take a few minutes to discuss
the present status of our review of the rules for integrating private
pension plans with the social security system. Here also we appear
to face a situation in which the policy objective seems clear,
that of requiring plans which take credit for social security
benefits to do so under an approach that will insure their basic
fairness and non-discriminatory character. The task, again, is one
to devise the mechanics of integration in a way which avoids
discrimination yet does not involve private plans in a constant
process of change and difficult adjustments.
As you may be aware, we have announced the appointment of an
Advisory Panel of experts to advise us on this matter. That Panel
held its initial meeting with us late last month. It is
assisting us in evaluating the large number of comments which have
been received from interes~ persons in response to the Internal
Revenue Service Announcement requesting background material. The
Panel is also considering the effects on integration of further

F-9l2

- 11 -

possible changes in the social security system. In view of the
major social security changes which the President has proposed, and
which are now being considered by the House Ways and Means
Committee, I believe that any final results respecting this
integration matter must, of necessity, await Congressional action
on the pending social security measure.
Again, I appreciate very much the opportunity to meet with
you today. Your chosen careers lie in the formation and
management of private pension plans. You have thus undertaken
to be responsible for the retirement security of many millions
of American workers. I know you are fully aware that this is a
very large responsibility. Society can rightly look to your
skills and your talents -- and your genuine sense of concern,
indeed your conscience in your chosen profession -- and hold you
accountable to it in meeting that responsibility. It knows
that you will be faithful to that trust, for it is the
accomplishment of that faithfulness which is your reward -- in a
real sense the knowledge of that accomplishment will be your
retirement security in your professional careero
000

F-9l2

TREASURY DEPARTMENT
Washington
FOR USE IN MORNING NEWSPAPERS
OF FRIDAY, MAY 12, 1967

REMARKS BY THE HONORABLE JOSEPH W. BARR
THE UNDER SECRETARY OF THE TREASURY
BEFORE THE
UNIVERSITY OF CHICAGO'S GRADUATE SCHOOL
OF BUSINESS (EXECUTIVE PROGRAM COURSE)
CHICAGO, ILLINOIS
THURSDAY, MAY 11, 1967, 7:00 P.M., CST
PUBLIC REGUlATION OF BUSINESS:

A TREASURY VIEW

I am delighted to have the opportunity tonight to join
in a discussion of an important subject with the students and
faculty of a very distinguished school.
I would venture a guess that many of you, when you think
of the Treasury, instinctively think of taxes -- that vital
but universally distasteful subject. I suspect that you have
been counting on me to inject this topic into your discussions.
If so, then at least on this one occasion I shall not disappoint
my listeners.
It is particularly appropriate to come to the University
of Chicago to comment on tax policy. The "Chicago School"
in economics has some very definite views on policy in this
area.
I will say right at the outset that I propose to
disagree emphatically with some of those views at the same
time that I agree with others.
I should like to discuss two different aspects of the
overall problem of tax policy as it presents itself to one
Who has spent most of the years since 1960 in the United
States Treasury.
First, the use of tax policy in the
regulation of business in the broadest
sense, that is, as an instrument of
overall economic policy.

F-9l3

- 2 -

Second, the more particularized use of
tax policy to regulate business by
encouraging specific business decisions.
On the first point, I shall have to take issue with my

distinguished friend, Professor Milton Friedman, on the
relative roles of fiscal and monetary policy. On the second
point, I find myself much more in agreement with Professor
Friedman and his colleagues of the "Chicago School".
I.

Broad Economic Policy

We all can agree, I believe, that the United States
is committed -- and properly so -- to the goals of economic
growth, full employment, and price stability. Having said
that much, we may well be at the end of near-universal
agreement on this subject. For there are some who believe
that our capability for understanding and predicting the
course of the United States economy is so limited that it is
futile to attempt by government action to keep the economy
on a steady course toward our agreed objectives.
Most observers do not accept that dismal conclusion. And
certainly in practice the government has not accepted it. Our
abilities as seers certainly do have limitations. But at the
same time we have been able to make economic projections of a
fair degree of reliability. Under these circumstances it runs
against the grain, for most of us, to adopt a passive,
fatalistic view. We must take the best judgment available as
to the trend of the economy and, when that judgment requires,
act to avoid anticipated economic dislocations.
This brings me, then, to the unpleasant need to disagree
with Milton Friedman. If we have accepted the necessity of
attempting to act upon our economic projections to achieve the
goals we seek, just how shall we do so? The strong emphasis
of the "Chicago School" is on the use of monetary policy. I
believe that public support for this emphasis is gradually
shifting.
Let us look at the most recent historical evidence.
1966 was most certainly a trying -- although instructive
year for government officials concerned with economic policy.
We faced rising civilian demand in an economy already
approaching full utilization of capacity. On top of this
situation was added (starting in late 1965) a sharp increase
in defense expenditures required by our commitments in
Vietnam. We thus operated a booming civilian economy and

- 3 -

carried on a substantial war effort, all without the
government controls that generally have been associated
with previous military actions of this magnitude.
The task of regulating the economy in these difficult
circumstances fell upon fiscal and monetary policy. We had
much more fiscal restraint than most people realize. The
various fiscal measures applied -- accelerated collection of
taxes, restoration of certain excise taxes, and suspension
of the investment tax credit -~ probably added up to something
in the order of $10 billion of fiscal restraint.
Monetary policy, however, also played an extremely active
role, as you know. According to some estimates, the amount of
economic restraint induced last year by the policies of the
Federal Reserve Board fell roughly in the same order of
magnitude as the $10 billion of fiscal restraint that I have
already mentioned. Secretary Fowler and I had the unpleasant
experience of being advised, from one source or another,
almost every week that we were presiding over the highest
interest rates in 40 years.
At any rate, I have come to the tentative conclusion that
last year the burden of restraint was shared in roughly equal
proportions by fiscal policy and monetary policy.
The question now before us would be, "What does last
year's history indicate for current and future policy decisions?"
I have never believed that an operating official of the
United States Treasury can indulge himself very far in the
pleasurable pursuit of economic theory. I interpret my
responsibility as trying to discern the directions in which
we should move and trying to ascertain whether or not we have
enough support in the country and in the Congress to move in
those directions. I will defer -- until after my
responsibility in the Treasury has ended -- any attempt to
go deeper into the pursuit of theoretical objectives.
With this as a guideline, just where do we stand in
the Congress and in the country on the question of utilizing
fiscal pol icy to aEfse t economic swings. I be 1 ieve there is
a broad consensus in the country and in the Congress that
it is most appropriate for us to keep our tax sys tern under
co~tinual scrutiny to make certain that its long-range
application can result in steady and sustainable economic
growth. I emphasize "continual scrutiny" because we must be
alert to anticipated developments that would cause our tax
structure to become a hindrance to satisfactory economic
growth.

- 4 -

The harder question arises when the nation is confronted
with a demand situation of such magnitude and inflationary
potential that resort either to direct controls or to a
dangerously tight credit policy is the only alternative to
tax action. If I read the country and the Congress correctly,
I believe that if the nation were to be confronted with this
situation, it would probably be possible to persuade the
Congress to take tax action. Last year's history tends to
support this viewpoint.
On the other side of the coin, if we were confronted with

strong recessionary tendencies, I believe that the country
would accept tax reduction, as well as some of the more
traditional anti-recession measures, as a means of combatting
the waste of human and material resources which inevitably
accompany a severe economic downturn. I can say that we in
the Treasury would have great difficulty in standing passively
by while major distortions in the economy were taking place.
Thus, it would seem that we clearly have at hand the use
of tax policy for long-range economic objectives. I believe
we have at hand the use of tax policy to counteract major
economic disturbances when the alternative corrections (direct
controls, dangerously tight credit policies, or abnormally
large expenditure swings in the Federal budget) might well
prove more distasteful than adjusting to a tax change. I do
not believe that there is agreement on the use of frequent
changes to correct minor fluctuations in the business cycle.
This is my estimate of where we stand today. We ought to
have the support necessary to finance the Vietnam War and
our domestic objectives without being forced to resort to either
controls or dangerously tight credit policies to avert the
dangers of inflation. I think that we ought to have the
support for tax reduction after the fighting has stopped if
such action fits rationally into our postwar planning.
We have not arrived at any theoretical utopia. I will
depend upon others to continue the discussion incident to
moving towards that objective. But we as a nation have moved
far when we recognize that there is an alternative to the use
of direct controls or monetary policy in periods of excess
demand. I am confident that we will at least consider the
use of tax policy if we are confronted with a serious
deficiency of demand in the post-Vietnam era.

- 5 This is a long step forward, but realistically it leaves
to the Federal Reserve Board at this moment the major burden
of responsibility for" fine tuning". We can accomplish a
minor portion of this responsibility by adjusting Federal
expenditure levels, but this process involves so many time
lags that it must realistically rank quite low when compared
with the tools available to the Federal Reserve System.
Thus, while I would not argue that Professor Friedman
has been routed from the field', still I would submit that
there has developed in the nation strong support for the
thesis that the use of fiscal policy as an alternative or
as a supplement to monetary policy should be considered in
times when the nation is threatened with violent economic
dislocations.
II.

Specific Regulation through the Tax System

Let me turn now to another aspect of tax policy -- one
that is more obviously related to the subject matter of public
regulation of business. Here I believe I shall have the
pleasure of being in fundamental agreement with the views
of the "Chicago School".
My subject here is the tax code as a vehicle for specific
programs aimed at particular economic or social objectives.
We have had, currently have, and no doubt will continue to
have many proposals for tax incentives -- the incorporation
into our tax laws of provisions intended to induce businessmen
to make various business decisions in a way that the proponent
of the incentive deems desirable. On the general run of these
proposals, the traditional Treasury position -- which I
heartily endorse -- is oppositiono
As the distinguished Chairman of the House Ways and
Means Committee has put it, " .•. the primary or overriding
role of the Federal tax system is to raise in a fair and
equitable manner the necessary revenues without which
Government cannot operate." In doing so, I believe that
our objective should be to strive for "neutrality" in the
impact of the tax system on business decisions.

- 6 -

Fundamentally I feel that it is poor policy to have
the tax code interfere with the normal competitive operations
of the market place in allocating capital to various segments
of the economy. This is the "philosophical" underpinning for
the goal of neutrality. There are, however, a number of very
practical reasons for opposing the use of the tax code as an
instrument for detailed regulation of business. Let me
delve into these for a moment.
We in the Treasury are as'saulted daily with a variety
of plans for special tax incentives. The goals are almost
invariably commendable ones - - education, manpower training,
pollution control, and assistance to depressed areas, to
name just a few. In a sense it would be most comforting
to think that problems such as these could be solved simply
by enacting some tax incentive. But these answers, in my
opinion, are too simple to be satisfactory. Here are some
of the reasons:
1. Assistance through the tax law is a hidden form of
assis tance. If the Government has an expenditure program
to achieve some non-revenue objective, it is subject to
careful annual scrutiny in the budget process and the
appropriation process. We make serious efforts to determine
whether we get what we pay for. An "expenditure" made through
a special benefit in the tax law, however, tends to become
permanent and immutable. There is not the same opportunity
to evaluate its efficacy -- except for occasional forays by
some crusader, such as your former Senator, Paul Douglas,
who often questioned whether particular tax provisions were
doing what they were supposed to do.
2. Tax credits must be administered by revenue agents
who, in general, do not have the specialized expertise to
make the judgments called for in what is really a non-tax
program. The proposals for tax credits for worker training
are a good example. The bills that have been introduced
refer generally to worker training programs, but what is
training is not so obvious. Could an employer set up a
program of so-called training and use it for routine work
aSSignments? It would take some expertise to distingUish
practice work and just plain work. The bills also would
deny the credit for training in supervisory, managerial, or
scientific skills. Recognizing these features in borderline
cases is no easy matter.

- 7 -

3. With a tax incentive, it usually is impossible to
distinguish between efforts that are the result of the
incentive and efforts that would have occurred even without
it. This means that some part -- frequently a large part -- of
the Government's revenue loss may go as a windfall to those
who were prepared to take action without regard to the
incentive. In the on-the-job training program of the Department
of Labor (OJT) an effort is made to negotiate contracts for
specific expansions in training programs in which the Labor
Department is in a position to make whatever financial
commitment is necessary to bring about the expansion. In some
cases this may require more than the flat credit provided in
the bills (10 percent), in other cases less.
4. Tax incentives must rely exclusively on the profit
motive. From a social standpoint, in a society which is
concerned with poverty and unemployment and which has some
aversion to paying the idle poor, one proper goal in
designing training programs is to make employable a person who
would otherwise be unemployable. The business profit motive
would tend to be concerned with the increased productivity of
the trained worker and might tend to concentrate on raising
semi-skilled workers to the skilled category; it might show
little direct concern for the unemployable. I think that
although there may be some indirect benefits for the unemployable
from the general upgrading of labor, a better combination can be
achieved by covering both objectives of training in specific
government programs such as OJT and Youth Corps where a tax
credit approach gives scant recognition to the problem of
the unemployables.
5. A tax credit approach is limited to providing
incentives for firms with taxable incomes. It could be
of little use to a new employer with uncertain prospects.
It would be of no use to nontaxable groups, such as labor
unions and community organizations or trade associations,
that have set up useful training programs under OJT.
The short of it is -- as the manpower training example
shows -- that tax devices generally turn out to be quite
inefficient and ineffective as methods for regulating
specific business conduct. This, added to the fundamental
desirability of neutrality in the tax system, seems to me
to necessitate an effort to resist most special tax
incentives, and to eliminate those that already have crept
into our tax code.

- 8 This has been much of the gist of tax reform in recent
years. The Treasury has made persistent efforts -- some
successful and some not so successful -- to get the tax
system out of the business of encouraging particular types
of business activities or particular types of business
organizations:
In the late 1950 l s the specially-favored
tax position of the life insurance industry
was substantially' cut back.
The tax favoritism accorded to mutual and
cooperative forms of businesses has been
reduced, particularly for savings and
loan associations, mutual fire and
casualty insurance companies, and farm
cooperatives.
Important steps have been taken to reduce
the distorting effects upon investment of
the favored position of foreign tax havens.
These items are of course only a sampling. My personal
view is that, even in those instances in which our tax
reform proposals have not been adopted, the game has been
well worth the candle. I believe that it is a usefUl
and constructive step for us to lay before the Congress
and the people our views on these matters, and to encourage
increased debate and public understanding of the goals
of tax policy.
I am hopeful that we will soon have further proposals
before the Congress. The President announced in his
Economic Report that he intends to make recommendations
this year for further tax reform. These recommendations
again will include areas in which, if the Congress concurs,
we can move forward in the direction of tax neutrality
toward "non-regulation" of business through the tax
system.
I cannot leave this subject without emphasizing
one important qualification upon the objective of tax
neutrality. Our tax system cannot operate in a vacuum,
because our economic system itself does not operate in
a vacuum. We live in a world in which the economy of one
country increasingly is affected by the economies of other
countries. In this context, our tax system cannot truly
be neutral unless it takes into account the tax systems
of other nations, and their resulting effects upon
tnternational c9mpetition. This was a main rationale behind the
lnve~~ment crea~t.

- 9 However, with this one qualification I would insist
that a neutral tax policy provides the best economic
climate for intelligent decisions on the allocation of
our Nation's resources. It makes good sense from the
standpoint of equity as well as economics. And finally,
while taK burdens are rather grudgingly accepted by all
of us, the degree of acceptance drops rapidly if certain
sectors of the economy feel that they are carrying more
than their fair share of the load. Therefore, I should
like to assure my good friend~ Professor Friedman, that
in my personal opinion a neutral tax policy is not only
good economics -- it is good politics.

000

,"'

TREASURY DEPARTMENT

, ,J

FOE IMMEDIATE HELEASE
TREASURY DECISION ON TUBELESS TIRE VhLVES
UNDER THE ANTIDUHPIHG ACT
rrhe Treasury Department announced today variouE actions it, plans to
tate in connection "Ti th its investigation of the possible dumpinc; of valves,
tubeless tire " finished from West Germany and f'rom Italy. The actions will
be published in two documents) one pertaininB to Hest Germany and OrlC pertaininc; to Il:.aly, which will appear in an early issue of the Federal Register.
'rhe Federal ReGister document vrith reGard to \{est Germany "'ill cover D.
n.oLice of intent to discontinue ::nvcsUgation as to certain valves. The
docwnent will also cover a tentative neBative determination that certain
val ves are not being) and are not lj.kely to be) sold at less than fair value
and a tentative affIrmative determination that otncr valves are being; or
are lil;:ely to be; sold at less than fair value. The Federal Ree;istcr docur,lent ,,riCh rq;ard to Italy will be a notice that valves from tl1at country
are beine, or e.rc lil:ely to be, sold at less than fair value.
'rllese action::: are tal,en under the Antidumping Act) 1921, as amended
(lS' V.S.C. 160 et seq.).
The intent to discontinue ir..ves tigation vrill apply to val veE TR 41 1f,

4lU, 420) 423 and lj25 produced by ERA Ventilfabrik, Muhlheim Am l'1ain, West
Germany) as to whieD. the manufacturer has terminated shipments and civen
assurances thac there would be no future sales at less than fair valu.e reGardless of the disposition of this complaint.
The negative part of the tentative determination will apply Lo (1)
val ves TR 413 and 415 produced by ERA Ventilfabrik, Muhlheim Am Main;
West Germany; if purchased in quantities of over 33;000 units per month
over a significant period of ti.me and (2) valves 413 and 415 produced
by Alligator Ventilf'abrik, Hurttemberg) Germany.
The affirmative part of the tentative determination as to West Germany
w1ll apply to all other finished tubeless tire valves from that ~ountry.
As noted above, the tentative deterr.lination as to Italy is affirmative as
to all finished tubeless tire valves.
The withholding of appraisement notices which "Tere published in the
Federal Register of October 12, 1966, as to West Germany and on October 20,.
15166) as to Italy will continue in effect pending further determination.
Imports of the involved merchandise from West Germany received during
the period November 1) 1965, through November 30) 1966) were valued at approximately $112,000. The information with regard to Italian imports of the
involved merchandise covers the period March 1 through December 31, 1966.
These imports were valued at approximately $250,000.

TREASURY DEPAR'IMmr
Washington, D. C.

IMMID lATE RELEASE

F-914

FRIDAY, MAY 12, 1967

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 amerxied, 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
United States. There is no political connotation in the use of out.mxied names.)

C)f

the

COTTON (other than linters) (in pounds)
Cotton urrler 1-1./8 inches other than rough or harsh under 3/4"
~I1-s S®tember 20. 1966 - May 8 .. 1967
Country of Origin
Egypt and Sudan ••••••••••••
Peru. ••••••••••••••••••• ~ •••
India and Pakist~~ •••••••••

Brazil •••••••••••••••••••••

783,816
21+7,952
2,003,483
1,370,791
8,883,259
618,723

Union of Soviet
Socialist Republics ••••••
~rgentina ••••••••••••••••••

475,124
5,203

China •••.•..•.••••••••••
Mexico ••••••••••••••••••

iI • •
$

••

Haiti ••••••••••••••••••••••
Ecuador ••••••••••••••••••••

!I Except

Established Quota

Honduras ••••••••••••••••••••

50,487

Paragu~

93,043

9,333

am.

••••••••

8 •••••••••••

752

871

Colombia ••••••••••••••••••••
Iraq ••••••••••••••••••••••••

124

British East Africa •••••••••
lrrlonesia and Netherlands

2,240

New Guinea ••••••••••••••••

British W. Indies •••••••••••

Nigeria •••••••••••••••••••••

237

Barbados, Bermuda, Jamaica, Trinidad,
and Ghana.

~ Except Nigeria

Country of Origin

Imports

Established Qqota

British W. Africa•••••••••••
Other, incl.uding the U.s ••••

Tobago.

Cotton 1-1/8" or more
Established Yearly Quota - 45.656.420 1bs.
!mPOrts Aug:\St 1. 1966 - MaY 8. 1967
staple Length
1-)/8" or more
1-5/32" or more ani urxier
1.-3/gt, (Tanguis)
l-l/B" or more and under

Allocation

Imports

39,590,778

33,682,87h

1..500.CXX>

1.51.,695

195

n,388

2l,J21

5,377
16,004

lIDpgrts

- 2-

COTTON WASTES
(In pounds)
COTTON CARD STRIPS made from cotton having a staple of less than 1-3/16 inches in length, COMnER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED Or,. OruERWISE
ADVANCED IN VALUE: Provided, however, that not more than 33-1/3 percent of the quotas sha 11
be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more
in staple length in the case of the following countries: United Kingdom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy:

Country of Origin

Es tablished
TOTAL QOOTA

Total Imports
Sept. 20, 1966, to
May

United Kingdom ••••••••••••
Canada. • • • • • • • . • . • • .•••.
France .•.••...•...........

India and Pakistan ••••••••
Netherlands •••••••••••••••
Switzerland •••••••••••••••
Belgium •••••.••••.••.•••••
Japan •••••••••••••••••• " ••

China ••••••••••••..•.•••••
Egyp t ••••.•••.••••••••••••

Cuba ••••••••••••••••••••••
Germa.ny •••••••••••••••••••

Italy ......•.••...•......•
Other, including the U. S.

4,323,457
239,690
227,420
69,627
68,240
44,388
38,559
341,535
17,322
8,135
6,544
76,329
21,263
5,482,509

11 Included in total imports, column 2.
Prepared in the Bureau of Customs.
F-914

8, 1967
3L,OL8
67,L53
31,583
16,OrJa

Established
33-1/3% of
Total Quota

Imports
Sept. 20, 1966
to May 8, 1967

1,441,152

3L,OL8

75,807

31,583

22,747
14,796
12,853

33,839

25,443
7,088

22,1L8

182,981

1,599,886

87,779

TREASURY DEP AR'lME)lT

Washington
IMMEDIATE RELEASE

FRIDAY, MAY 12, 1967

F-915

The Bureau of Customs announced todq preliminary figures on imports for conmmption of the following commodities fro. the beginning of the respective quota
periods through April 29, 1967:

COlIIIJ¥)dity

:Period and Quantity

:Unit of : Imports as of
:Quantity : Apr. 29, 1967

Tariff-Rate Quotas:
Cream, fresh or sour •••••••

Calendar year

1,500,000 Gallon

Whole Milk, fresh or sour ••

Calendar year

3,000,000 Gallon

Apr. 1, 1967 June 30, 1967

120,000 Head

495

each •••••••••••••••••••••

12 mos. from
April 1, 1967

200,000 Head

21,842

Fish, fresh or frozen, filleted, etc., cod, haddock,
hake, pollock, cusk, and
rosefish •••••••••••••••••

Calendar year

24,883,31311 Pound

Tuna Fish ••••••••••••••••••

Calendar year

69,472,200

Pound

17,635,140

White or Irish potatoes:
Certified seed •••••••••••
Other ••••••••••••••••••••

12 mos. from 114,000,000
Sept. 15, 1966 45,000,000

Pound
Pound

Quota filled
Quota filled

Knives, forks, and spoons
with stainless steel
handles ••••••••••••••••••

Nov. 1, 1966 Oct. 11, 1967

84,000,000 Pieces

Quota filled

Whiskbrooms ••••••••••••••••

Calendar year

1,380,000

number

Other brooms •••••••••••••••

Calendar year

2,460,000

Number

Cattle, 700 lbs. or more
each (other than dairy
cows) ••••••••••••••••••••

Cattle, less than 200 lbs.

664,954

Quota filled

1, 911, sooY

Imports for consumption at the quota rate are limited to 12,441,656 pounds
during the first 6 months of the calendar year.

Imports as of May 5, 1967.

-2-

CoJlD)di ty

Period and Quantity

:Unit of :IDIPorts as of
:Quantitl:Apr. 29, 1967

Absolute Quota;:
Butter substitutes
containing over 45%
of butterfat and
butter oil •••••••••••••

Calendar year 1,200,000

Pound

Fibers of cotton processed
but not spun •••••••••••

12 mos. from
Sept. li, 1966

1,000

Pound

Peanuts, shelled or not
shelled, blanched, or
otherwise prepared or
preserved (except peanut
butter) ••••••••••••••••

12 11K) s. from
Aug. 1, 1966

1,709,000

Pound

Quota filled

TREASJRY DEPARTmT

Washington

IMMEDIATE RELEASE

FRIDAY, MAy 12, 1967

The Bureau
figures showing
April 29, 1967,
pursuant to the

F-916

of Customs baa annDllllced the following preli.minary
the imports for consumption from January 1, 1967, to
incluSive, of commodities under quotas established
Philippine Trade Agreement Revision Act of 1955:

Comodit,.

Annual
.: Established
Quota Quantity
.•

Unit of
Quantity

sIl!pOrts as of
sApr. 29, 1967

Buttons •••••••••

~10,OOO

Cigars •••••••..•

120,000,000

RwIIber

Coconut oil •••••

268,800,000

Pound

Quota rUled

Cordage

.........

6,000,000

Pound

2,894,788

Tobacco

.........

3,900,000

Pound

W.3,6OO

Gross

84,477
3,O49,26~

TREASURY DEP AR'IMENT
Washington
IMMEDIA TE RELEASE

FRIDAY, MAy 12, 1967

F-917

The Bureau of Customs announced tod~ the following preliminary
figures on imports entered for consumption under the absolute import
quotas provided for in section 12.71, Customs Regulations, for coffee
grown in nonmember countries of the International Coffee Organization
for 12-month period beginning November 15, 1966.
COFFEE
(Green - In pounds)

Country

Established.
Quota

Total Imports as
of May 8, 1967

Bolivia

1,850,800

1,670,404

Guinea

1,454,200

Quota filled

Liberia

2,511,800

Quota filled

Paraguay

2,644,000

Yemen

1,850,800

229,834

BaskeJi

6,610,000

4,652,775

Basket quota allocated to unlisted
listed norJnember countries after

nonmemb~r countrie~
respect~ve

quota

and to

f~11ed.

TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
(EXPECTED AT 12:30 P.M. FRIDAY,
MAY 12, 1967)

REMARKS OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
TO THE NATIONAL MACHINE TOOL BUILDERS ASSOCIATION
STATLER HOTEL, WASHINGTON, D. C.
FRIDAY, MAY 12, 1967, 12:30 P. M., EDT
It was nearly five years ago when I last had the opportunity
to discuss with you the importance to our national economy of a
healthy machine tool industry and an adequate rate of investment
in capital goods in general, as a means of increasing productive
capacity and of modernizing existing capacity in line with the
lastest achievements of technology.
Our last previous visit together
in September, 1962 -came at a most significant time for your industry and for the
national interest in increasing investment and technological
development. The Treasury Department had just inaugurated new
and improved depreciation guidelines. The initial version of
the investment tax credit was on the verge of adoption by the
Congress after a long and difficult struggle for its
adoption in the interests of making our capital recovery tax
structure adequate to encourage economic growth and in the
interests of making United States industry modern and
competitive.
At the Treasury -- where I was Under Secretary -- we
recognized that these sweeping changes in tax policy would
pay benefits for many years to come -- benefits to business
and to all of our citizens through a more rapidly growing
and efficient economy.

- 2 -

I need not review for this audience the fruits of those
decisions and the follow-up changes in our national economic
mix centered around the Revenue Act of 1964.
Let me just note the following, very briefly. The
investment tax credit was adopted toward the end of 1962, a
few months after the administrative announcement of new
depreciation guidelines. In that year business expenditures
for plant and equipment came to a little over $39 billion.
Plant and equipment outlays had grown by about 14 percent
in the four years, 1959-62. In 1966, the fourth year after
passage of the investment tax credit, capital expenditures
stood at $60.5 billion -- a four-year growth of more than
62 percent.
Meanwhile, nonfarm output per man-hour grew very nearly
half again as fast in the four years, 1963-1966,as
productivity increased in 1959-62.
Having some familiarity with the ups and downs of the
capital goods industry and its vital machine tool sector
over the last 25 years, I know it is not enough to look back
on these past accomplishments and the escape from the relative
stagnation in this sector in the late Fifties and early Sixties.
It is not enough to escape for a few years from an antiquated
capital recovery system. This vital spark in the U.S.
economy ought not fall prey again to the ills of the past that
have afflicted this highly cyclical industry. We all
remember the period after World War II and the Korean War
when, as a result of having passed the peaks of defense
production and being confronted by surplus equipment in
stocks and surplus capacity in place, this industry and,
indeed, the whole capital goods sector fell upon the inevitable
lean years.
Therefore, I would propose today that we look ahead into
the post-Vietnam period, whether that be near or far, to
consider what private and public policies would be conducive
to enabling this industry, and the entire capital goods
sector, to play fully its vital role in our national life.
But before doing so it may be useful to review again just
why it is important as a matter of national policy -- tax or
otherwise -- to be concerned on this score.

- 3 -

February of 1961. The endurance of this period of prosperity
and economic and social improvement of every kind so far
beyond the two to three year period that seemingly become
the best to be expected by the early 1960s is therefore
coincident with the existence of the investment tax credit
and the general lightening of the tax overburden on the
United States economy that took place under the Kennedy and
Johnson Administrations.
The second general benefit to be expected from stimulating
capital investment, I said in 1961, was the fact that
increasing investment levels in machinery and equipment would
do double duty in increasing our rate of economic growth.
The figures previously cited, suggesting a relationship
between equipment investment and economic growth,
merely reflect the proposition that expanding the production
base, or improving its efficiency, or both, should lead to
higher output. As investment in plant modernization and
expansion contributes to a larger export trade for our
nation, as it puts people to work in the capital goods
industries, as it preserves and expands our domestic market
through competitive efficiency, it contributes to the
eCOD0my's long-term growth.

- 3 -

I tried to cast up this account in the Fall of 1961,
and I will go back to that analysis, if I may, for most of what
I said then seems relevant today as we peer ahead into the
post-Vietnam era. My comments then were as follows:
"First, increasing investment levels in machinery and
equipment in the years ahead will help make our present economi
recovery a vigorous and long lasting one. Additional
expenditures on machinery and equipment and the plants and
facilities necessary to house it will create more jobs in the
capital goods industries. There is a startling association
between vigorous and lengthy upswings in the economic cycle
and a healthy increase in the levels of capital goods
expenditures. Our last three recoveries have lasted forty-five
months, thirty-five months and twenty-five months, respectively:
in that order. Since World War II approximately 14 quarterly
periods, or 23 percent of the total, have been periods of
recession. Already some economic forecasters are warning that
the rising economy may level off in mid-1962 or early 1963,
and that there is a real danger of another slump. The
projection of a healthy increase in investment levels for
machinery and equiprilent, whether for modernization or for
expansion, would be added insurance that the current recovery
would reverse the trend to ever shorter up-swings and give
promise for a heal thy and more enduring recovery."
Let us note, at this point in 1967, that we are presently
ill the 76th month of an economic expansion that began in
February of 1961. The endurance of this period of prosperity
and economic and social improvement of every kind so far
beyond the two to three year period that seemingly become
the best to be expected by the early 1960s is therefore
coincident with the existence of the investment tax credit
and the general lightening of the tax overburden on the
United States economy that took place under the Kennedy and
Johnson Administrations.
The second general benefit to be expected from stimulating
capital investment, I said in 1961, was the fact that
mcreasing investment levels in machinery and equipment would
do double duty in increasing our rate of economic growth.
The figures previously cited, suggesting a relationship
between equipment investment and economic growth,
merely reflect the proposition that expanding the production
base, or improving its efficiency, or both, should lead to
higher output. As investment in plant modernization and
expansion contributes to a larger export trade for our
nation, as it puts people to work in the capital goods
industries, as it preserves and expands our domestic market
through competitive efficiency, it contributes to the
economy's long-term growth.

- 4 -

In this respect, we can note in 1967 that in the four
years after 1962 the U. S. economy grew, in real terms, by
22 percent, whereas in the four years 1959-62 the economy
grew in real terms by only half as much -- approximately
11 percent.
As the third general point with respect to the
desirability of investment incentives I noted that increasing
investment in ,the modernization of machinery and equipment is
vital to a long-term solution of our newest economic problem
bound up in the phrase''balance of payments." If the nation
is to finance the maintenance of our military forces overseas,
as well as finance our investment abroad, and that minor
portion of our foreign aid which is in dollars, it must sell
more merchandise abroad than it buys -- at least $6 billion
more. This places a high premium upon the competitive
position of U. S. based production in relation to foreign
manufacturing. The simple truth is that the U. S., to a large
extent, is depending on the aggressive, competitive drive of
American business to meet the underlying problem behind our
balance of payments deficits without diminishing our national
security world position.
We cannot report victory here, and I shall have more to
say later about our balance of payments problem as it stands
today. Vietnam has knocked the chance to overcome this
problem out of our hands for the time being. Nevertheless,
our trade balance must be one of the most important elements
of any desirable long range solution when in the post-Vietnam
period we shall be able to reach sustainable equilibrium in
our foreign payments. And we can take heart from the fact
that with the investment credit and other tax incentives to
investment in being, our trade surplus rose to a historic
high in 1964 of $6.7 billion, before Vietnam intervened.
Now, neither here nor in any of the other aspects of
the investment problem that I am discussing do I mean to be
understood as implying that the tax incentives to Dlvestment
worked a lone miracle in the United States economy during
the 1960s. But I think that it is obvious that the
incentives given to investment in the United States in the
last few years have been an important element, indeed
one of the most important policy elements, in the growth
of the great economic strength that we have witnessed in our

- 5 country in recent years. The contrast with the economic
stagnation of the late 1950s, and the coincident fact that
in those years investment in particular was lagging, simply
cannot be overlooked.
Obviously, therefore, in investment incentives we have)
if not a genie, a very good and faithful servant, in whose
presence our affairs have greatly prospered. And yet there
are hazards in the way of keeping them on the books -- in
fact the investment tax credit, as everyone here is keenly
aware, is presently off the books and we are trying hard to
get it back in place. We will succeed in that, and promptly,
I am confident.
But, there are those who think the investment tax credit
can properly be used as a countercyclical tool. I would like
you to understand my position on this score.
In a speech prepared for delivery to the Business
Council last October, the very week the investment credit
suspension was enacted in the Congress, I said:
"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 reach 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.
"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.

- 6 -

"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."
And during my appearance before the Senate Committee on
Finance this Spring for the restoration of the credit, I was
asked if it would not be likely that if another boom developed,
suspension of the credit would again be requested. I replied:
"Well, given the same unusual set of
circumstances that existed late last August
and early September, my answer would have to
be in the affirmative. However, it would be
my expectation that it would be most unlikely
that such a situation would ever occur except
perhaps at a time when there would be a war
that should emerge suddenly at a time when the
economy was in a state of full employment and
capacity was being utilized up to the hilt.
I would think that in such an emergency this
is the kind of a move that would be under
cons ideration.
"Only in the event of a return of tha t
unusual set of conditions would I ever
personally foresee a position in which a
further suspension would be requested."
Our position that the investment tax incentive is a part
of the fabric of our tax system, to be taken out, if at all,
only under such highly unusual conditions as we faced last
Fall, will, I think come to be more readily and more
generally accepted in the post-Vietnam future than it has
been in the past.

- 7 -

I believe this will be the case because the tax incentive
to investment is a step in the direction of reducing the tax
burden the American economy carries, and I am convinced that
after Vietnam both public and private economic policy will be
based upon a general acceptance of the idea that general and
sustained tax reduction is desirable.
In such a context, the logic of keeping the tax overburden upon the investment process -- which lies at the root
of economic growth -- will be obvious. It was not obvious
in the past when there was widespread belief that the only
way to keep the government's revenues at an adequate level
was to keep taxes high.
Acceptance of the idea that we can -- and should -operate with generally lower tax rates will result, I think,
from the currently growing awareness of two high important
and closely inter-related facts that can now be demonstrated
but that have in the past been doubted and debated:
First, the benefits to tre economy of lightening
its tax load are so great, and are made evident so quickly
in an upswing in the economic growth curve, that the
Government gains revenue by reducing tax rates quickly enough
to make the risk of adding to deficits from tax rate
reductions very temporary, and swiftly overcome.
Second, the Federal government has the will to recognize
and operate upon the basis of the corollary to tax rate
reduction: that spending must be controlled, on a priority
basis, so that any initial deficits from tax reduction are
not exacerbated, and so that the succeeding increases in
revenues become fiscal dividends available for us, not just
in increased outlays, but across the board, for further tax
rate reduc tion, to offse t revenue los ses from tax re form,
to retire Federal debt when that is of a high payoff nature
in terms of the future growth and efficiency of the
American economy and society.
Let us look very briefly at the record of the past few
years, for it is this record of economic growth, and increasing
revenues flowing from tax reduction, together with a record
of highly responsible control of Federal spending that, I am
convinced, has laid the groundwork for the continuation -including the use of tax incentives to investment -- of the
process of tax rate reduction in the post-Vietnam period.

- 8 Since the passage of the Revenue Act of 1964, tt~t is,
during the four fiscal years that have been completed or
budgeted since then, we have had the following results:
There have been declining deficits -- or surpluses
in every year except 1961 in the Administrative
and the National Income Accounts Budgets. In the
third budget system in use, the Cash Budget, the
deficit declined l:1Vo years and rose two years.
In the Administrative Budget, during the
four fiscal years, revenues rose by
$37.5 billion, while spending roses
$37.3 billion.
In the Cash Budget, revenues are up by
$52.6 billion, while spending is up by
$52.1 billion.
In the National Income Accounts Budget,
revenues are up by $51.6 billion, while
spending is up very slightly more, by
$52.3 billion.
Now, let me emphasize that that record includes the
swift and very substantial rise of Vietnam outlays estimated
to total somE' $48.5 billion in Fiscal Years 1966, 1967
and 1968.
Obviously, there would be growing surpluses in these years
if these special and temporary costs were elimated. This would
be true even if the revenues resulting from the tax increases
enacted or proposed to help finance Vietnam -- estimated at
$10.8 billion including the proposed 1968 surtax -- were
also eliminated. And there would still be surpluses even
if effect is given to the increase in revenues attributable to
the general economic stimulus of production for Vietnam.
Thus, such as been the excellence and speed of the results
upon Federal revenues of tax reduction in 1964, and sllch has
been the tenacity and effectiveness of President Johnson's
control of Federal outlays, that, with only very modest tax
increases, we have been able during the four fiscal years for
which he is responsible, including three years of accelerated
spending in Vietnam, for the most part to hold increases in
Federal outlays below increases in revenues, and to keep our
deficits declining -- or to have surpluses -- almost all
years.

I think that is a record-t6at will lead to continued tax
reduction in the post-Vietnam period as a principal feature of
governmental economic policy. In turn this policy should stimulate
turning the fruits of technology into new products and new processes
which should keep investment levels in machinery and equipment on
an increasing scale.
Finally, let us look at the importance of keeping up
a strong flow of investment in capital goods -- thereby
keeping the level of American technology high and rising by
comparison with any other in the world, with respect to
one of our most persistent and important national problems:
our balance of payments.
During the Vietnam conflict, we are holding this
problem in check by the use of various cooperative measures
by which the business community and American lenders
voluntarily limit their outflows of dollars abroad, and by
stringent control of the foreign exchange costs of American
economic and military assistance abroad. But these measures,
particularly to the extent that they interfere with the
flow of private capital across international frontiers, are
less than ideal, and we do not look to them for the long
range solution to our payments problem, after the economic
pressure and distortions caused by Vietnam are behind us.
The most rational and desirable profile for long range
balance of payments equilibrium would be one in which:
The United States would meet its fair share
of international commitments on behalf
of mutual security in the Free World and
economic development in the poorer nations
of the Free World.
The United States would export private
capital. We have the most efficient
capital market in the world; to deprive
a world that needs capital of access to
this economic resource would, over the
long run, constitute an act of economic
perversity.
To cover these Government outflows and
private capital outflows, the United States
would increase its balance of payments
receipts from a variety of sources, of
which the most important are exports of
goods and services, including travel;
direct investment income, including
royalties; and foreign portfolio investment.

-10 The United States is extraordinarily competitive at the
two extremes of the export spectrum -- agriculture and
advanced technology. In advanced technology, our computer
industry -- to cite one example -- has in the last fifteen
years reduced the cost of making 100,000 calculations from
$1.38 to 3-~ cents -- the kind of price reduction that
does not show up in official statistics measuring national
competitiveness. The nature of modern technology is such,
furthermore, that it quickly "attaches itself" to other,
more "humdrum" manufactured products (the machine tool is
now often "computer-controlled") so that our technological
lead -- if maintained -- should manifest itself across a growing
range of export products.

A United States trade surplus $3-$4 billion higher than
the $3.7 billion of 1966 is not going to create havoc
domestically in an economy with a gross national product of
$760 billion or in an expanding international trading world
in which the exports of all countries currently exceed $200
billion. We have had a trade surplus of this magnitude before,
in 1964. A return to such a level
or new high ground -is essential to a healthy solution of our payments problems.
We can expect to get back to a trade surplus of near
$7 billion more only if American goods are competitive
throughout the world in price, are available in sufficient
quantity so that orders are promptly filled, and are equal to
or better than the highest quality elsewhere. This is merely
another way of saying that our trade surplus depends upon the
maintenance in the U. S. of the leading edge of technology.
And we can only have that if we maintain our incentives to
invest.

000

TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
(EXPECTED AT 11:30 A.M. SATURDAY
MAY 13, 1967)

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT THE
BUSINESS COUNCIL
IN HOT SPRINGS, VIRGINIA
SATURDAY, MAY 13, 1967, AT 11: 15 A.M., EDT
Fiscal Policy and National Goals After Vietnam
I want to discuss with you today one of the least
noticed but most important parts of President Johnson's
Economic Report to the Congress for this year.
The President notified the Congress that he had instructed
his principal economic policy advisers to begin at once a major
and coordinated effort to work out plans for an orderly
economic transition from war to peace after the fighting
dies down in Vietnam. He directed that initial reports be
prepared, and that they be kept up to date pending the time
near or far -- when our efforts succeed in bringing peace to
Vietnam on an honorable basis.
President Johnson's instructions for post-Vietnam
planning have set afoot the most explicit, detailed and
inclusive effort the nation has ever made to plan during time
of war for the return to peace. This effort is going forward
in a context entirely different from the setting in which
post-war economic planning has previously been enmeshed during
World War II and the Korean conflict.
Many of you here can remember the fears for the economy
that mingled with the nation's prayers for peace during
World War 110 War production had transformed the United
States from a country still partly feeling the paralysis of

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the Great Depression into a country producing at the uttermost
stretch, with many millions of its men off the labor market
and in the armed forces. In the language of those years, the
post-war economic problem could be summed up in the anxious
question: "What is the country going to do when Uncle Sam
stops paying $100 billion a year for war?"
Everyone here remembers -- some of you probably very
vididly -- the disturbing face of the post-Korea economic
problem. The problem was: how to climb down from the
excessively high tax rates that had been the chief means of
financing the war, and, secondly, how to restore economic
freedom to a country that had mobilized for war production
by the imposition of price, wage and production controls.
To bring out the almost startling contrast, as we look
forward to peace after Vietnam, I need to cite only a few
words from the "After Vietnam" section of President Johnson's
recent Economic Report. He gave the following as the context
for post-Vietnam planning:
"When hostilities do end, we
will be faced with a great opportunity,
and a challenge how best to use that
opportunity. "
We look forward to the return of the time when all our
efforts can be directed, as we wish them to be, to the
productive and creative pursuits of peacetime, without the
nagging fear of idleness and depression that darkened our
thoughts of peace in World War II.
Nor do we face the difficulties and dangers of hacking
our way back to freedom of enterprise out of a jungle of
repressive taxation and economic controls, as after
Korea.
It is my purpose here today to develop the proposition
that instead -- given the smooth and effective transition in
the post-Vietnam period, presumably a time of diminishing
levels of defense expenditures, that good policies and a
firm awareness of our economic and social goals can provide
we can have in the post-Vietnam years an expanding economy
giving us fiscal dividends, in the form of growing revenues,

- 3 -

that will make available choices among several attractive and
beneficial courses of action. The challenge to us, as
President Johnson noted, will be how best to use our
opportunities.
Important to the best use of these opportunities ahead
is a full realization of the relationship of conditions of
adequate economic growth, high employment and reasonable
price stability to a renewal of the pre-Vietnam policy mix
that included the control of increases in Federal spending,
tax reduction and diminishing deficits. I want also to
emphasize that the balanced free market economy with which
we can expect to emerge after Vietnam, barring any radical
departures from present conditions in that conflict, is the
result of some little noted facts -- chiefly, the facts that
during the conflict, except for special Vietnam outlays,
Federal spending has been held well below increases in
revenues, economic controls of the type that characterized
previous wars have been avoided, and drastic tax increases
have not been imposed.
I.

Fiscal Policy and National Goals Before Vietnam

It is very likely that the Revenue Act of 1964 will come
to be regarded as one of the watershed events in the
evolution of u.s. economic policy. One of the principal
reasons for thinking so is the new directions the Act gave
to the uses of fiscal policy. These new directions at long
last freed us from concepts that had dominated our efforts to
escape from the Great Depression and succeeding recessions,
and the high-tax hangovers of World War II and the Korean
conflict.
Let me quote from those deeply concerned with the
enactment of this legislation.
The change in direction was very well described in a
statement by Chairman Mills of the House Ways and Means
Committee in the Fall of 1963, while the Revenue Act of 1964
was still being debated. Chairman Mills said:
"There are two roads the Government could
follow toward a larger, more prosperous
economy -- the tax reduction road or the
Government expenditure increase road. There
is a difference -- a vitally important
difference -- between them. The increase
in the Government expenditures road gets us
to a higher level of economic activity with
larger a~d larger shares of that activity

- 4 initiating in Government -- with more labor
and capital being used directly by the
Government in its activities and with more
labor and capital in the private sector of
the economy being used to produce goods and
service on Government orders. The tax
reduction road, on the other hand, gets us
to a higher level of economic activity -- to
a bigger, more prosperous, more efficient
economy -- with a larger and larger share
of that enlarged activity initiating in the
private sector of the economy -- in the
decisions of individuals to increase and
diversify their private consumption and in
the decisions of business concerns to
increase their productive capacity -- to
acquire more plant and machines, to hire
more labor, to expand their inventories -and to diversify and increase the efficiency
of their production.
"Section I of the bill is a firm, positive
assertion of the preference of the United States
for the tax reduction road to a bigger, more
progressive economy.
"The further meaning of Section I of the
bill is that no Government activity is to
depend for its justification on the amount it
contributes to the total spending of the
economy, because we prefer to reduce taxes
and allow individuals and business concerns in
their own right to make their contribution."
Next, let me cite a few words from a speech on the
proposed Revenue Act that I gave in Philadelphia early
in 1963:
"The increased revenues that will flow
from a stronger, faster growing economy will
not bring us to a balanced budget or surplus
unless the Executive and the Congress practice
expenditure control . . . That is why the

- 5 -

President, in his Budget Message (for Fiscal
1964) stressed the matter of expenditure
control policy firmly and specifically. He
rebutted any notion that rising Federal
revenues in the years ahead mean that Federal
outlays should rise in proportion to such
revenue increases. He established a practical
doctrine of expenditure control consistent
with other national requirements by asserting
that, as the tax cut becomes fully effective
and the economy climbs toward full employment,
a substantial part of the revenue increases
must go toward eliminating the deficit."
In signing the Revenue Act which he had labored so manfully
to have enacted, President Johnson said:
"This is a bold approach to the problems of
the American economy. We could have chosen to
stimulate the economy through a higher level of
Government spending. We doubted the wisdom of
following that course. Instead we chose tax
reduction and at the same time we made
conscientious and earnest attempts to reduce
Government expenditures and we are constantly
looking a t those expend iture s . "
Not only was expenditure control espoused as the corollary
of this historic Act -- after passage of the Act, expenditure
control was practiced by President Johnson and his
Administration, and it will continue to be.
It is chiefly due to this control of Federal non-Vietnam
spending that we can expect to emerge from the present conflict
barring radical and unforeseen changes -- with a balanced and
healthy economy, an economy ready to generate large fiscal
dividends at tax rates that spending control has permitted
to be held at moderate levels.
The contrary -- that Federal spending has proceeded
unbridled in recent times -- is often assumed or asserted.
But successful control of Federal expenditures is a fact
that can be demonstrated by examination of the record. Let
us, then, look at the factual record of the Government's
income and outgo since passage of the Revenue Act of 1964.

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Full text of Press Releases of the United States Department of the Treasury : Volume 157

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