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L1BRARY
P0nM 5030
JUN 1 51972.
TREASUR'f OEPAR1MENl
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TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
TUESDAY, OCTOBER 1, 1968
REMARKS OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY OF THE UNITED STATES
AND
UNITED STATES GOVERNOR OF THE INTERNATIONAL MONETARY FUND
AND
THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
AT THE
JOINT ANNUAL DISCUSSION OF THE BOARDS OF GOVERNORS
OF THE INTERNATIONAL MONETARY FUND AND
THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
AND ITS AFFILIATES
SHERATON PARK BOTEL, WASHINGTON, D.C.
TUESDAY MORNING, OCTOBER 1, 1968
Fellow Governors and Honored Guests:
We meet once again in the noble cause of international
cooperation. Our works -- the works of peace -- embody the
hopes and dreams of all men.
It is my pleasure to welcome my fellow Governors and
other guests to Washington once again after our memorable
and enjoyable meeting last year in Rio de Janeiro.
I offer congratulations to our two world organizations
and the countries they represent in the quality of leadership secured in the year past for the years ahead. In the
election of President McNamara of the Bank and the reelection
of Managing Director Schweitzer of the Fund, we in the free
world are fortunate.
I am happy to welcome the entry into membership of
Botswana, Lesotho, Malta and Mauritius during the past
year.
F-1366
- 2 I
At this meeting we can for the first time speak of the
Special Drawing Rights in terms of formal legal amendments
approved by the Board of Governors now in the process of
acceptance by member governments. The SDR facility makes
a timely entrance on the world's stage. It is increasingly
evident that there is a clear need for a supplementary
reserve facility of this character. The events of the past
year have already shown that monetary authorities can act
with greater confidence because of the prospective establishment of this facility.
My Government has been proud to act promptly both to
ratify the amendments establishing the Special Drawing
Rights facility and deposit its instrument of participation.
I earnestly hope that all of the members of the Fund
will approve and join in the new facility. Indeed, the
monetary system as a whole would benefit if the requisite
number of governments completed the process of ratification
and certified participation to the Fund by the end of this
calendar year. The Fund could then, early in 1969, consider
the activation of the facility to provide supplementary
reserves in the years ahead.
For the first time in the world's history, we shall be
looking to the leadership of an international institution to
provide conscious direction in recommending the amount of
growth in world reserves which the international community
needs to facilitate trade and development.
Article XXIV sets forth general guidance to the Fund
on discharging its responsibility under the new amendments:
!fIn all its decisions with respect to the
allocation and cancellation of special drawing
rights the Fund shall seek to meet the longterm global need, as and when it arises, to
supplement existing reserve assets in such
manner as will promote the attainment of its
purposes and avoid economic stagnation and
deflation as well as excess demand and
inflation in the world.
- 3 -
"The first decision to allocate special
drawing rights shall take into account, as
special considerations, a collective judgment
that there is a global need to supplement
reserves, and the attainment of a better
balance of payments equilibrium, as well as
the likelihood of a better working of the
adjustment process in the future."
Already the Executive Dir.ectors of the Fund have
concluded that "action in the area of reserve creation might
well become an essential element in international cooperation
aimed at achieving a lasting international payments
equilibrium in a world environment of satisfactory economic
growth and of resumed progress toward liberalization of
current and capital transactions. 1I
The Annual Report of the Fund examines recent developments
in world reserves and concludes with these words:
"In sum, reserve developments over the past
several years have been dominated by special and
erratic influences that, on balance, have led to
a substantially slower accumulation of countries'
official reserves than in prior periods. Such
developments could not, over the longer run, be
expected to provide the basis for a satisfactory
performance of the world economy."
During the years 1966 and 1967, global reserves rose
only slightly more than $3 billion. Monetary gold reserves,
in fact, declined substantially. The upward secular trend
of reserves was maintained only by an increase of over
$5 billion in foreign exchange and in claims on the Fund.
With both the United States and the United Kingdom having
taken vigorous measures to reduce their deficits, reliance
on accumulation of these currencies for increases in world
reselVfS would be unwise. The maj or indus trial countries,
excluding the U.S. and U.K., in fact have added only about
$500 million to reserves during the l2-month period from
July 1, 1967, to June 30, 1968. This is not· enough to
assure the continued high growth of world trade, world
capital movements, and world income.
- 4 It is fortunate, therefore, that we can look forward to
the Special Drawing Rights to provide the needed secular
growth in reserves. I believe that in the months ahead the
need to activate this facility -- and on a large enough
scale -- will be a very urgent matter on our agenda.
The principles and considerations bearing upon
activation of Special Drawing Rights also suggest an
examination of the substantial progress now being reported
by the two major reserve currency countries in their
efforts to achieve balance of payments equilibrium in their
own accounts.
We have reason to be heartened by the signs of progress
now emerging in the economy of the United Kingdom. We look
forward to continuation of this trend as the realistic
program employed by the British Government makes its full
mark upon the international transactions of that oountry.
As far as the United Ststes is concerned, I am pleased
to report that our accounts are moving towards equilibrium.
Since our meeting in Rio, the devaluation of the pound
sterling, the subsequent run on the monetary gold stock,
and a deterioration in the U.S. balance of payments, caused
the United States to reassess its contribution to the
balance of payments adjustment process.
President Johnson, in a Message to the Nation on
January 1, launched an Action Program designed to strengthen
both the current and the capital accounts of our balance of
payments. With the first six months' statistics already in
hand and with early indications on the third quarter, there
is clear evidence that substantial progress is being made
towards the President's target.
The delay in the imposition of the tax bill until the
end of June will certainly influence our timetable but not
the result. With the passage of the fiscal restraint
package in June of this year, the economy was put on a more
sustainable path of expansion. The fiscal package will cut
some $20 billion from the Federal budget deficit in fiscal
19690
As this strong medicine works and our economy moves into
better balance we anticipate an improvement in our trade
position. Our private capital account has already shown a
remarkable improvement.
- 5 Results so far this year from the overall balance of
payments program are gratifying. On a seasonally adjusted
liquidity basis, the first quarter deficit of $660 million
was down substantially from the fourth quarter 1967 deficit
of $1,742 million. The second quarter showed a continuing
favorable trend with a deficit of $170 million o One of the
most striking developments has been the substantial surplus
on official reserve transactions during the first half of
this year. Results, so far in the third quarter, are
encouraging.
Whatever the outcome of our election, I am confident
that the United States has arrived at a fixed and determined
policy to bring our balance of payments into equilibrium as
a national and international responsibility of the highest
priority and to move in a determined way toward restoring
price stability in an atmosphere of balanced growth. This
is a major source of my confidence in the future of our
international accounts.
The decisive vote to increase taxes and to decrease
projected public expenditures -- both unpopular measures in
an election year -- should go far to sustain confidence in
the dollar, the economy on which it is b"l:ed, ;:;10 our system
of government.
This vote was a momentous decisio~ -- to pay our
nation's bills and order our economic arid financial affairs
in such a manner as to reduce sharply the twin deficits in
our Federal budget and in our international balance of payments.
I believe that this action will m~~e possible and probable
a return to far better balance in our F~~2ra1 ~udget, in our
international payments, and in our economy during the fiscal
year 1969, which began on July 1.
This action by the President and the Congress of the
United States to impose fiscal restraint was designed in
large part to protect and strengthen thr_ Financial system
of the free world and discharge the responsibilities of the
United States in making the adjustment process work.
- 6 -
I join the Hanaging Director in his observation that:
"The renewed momentum in the world economy
over the past year has depended too much on the
overly rapid expansion in the United States. It
is vital that, as the U.S. advance slackens, those
countries for which expansion is indicated on
domestic and external grounds should take up the
role of pacemaker. In the meantime, I am happy
to note that it has recently proved possible
for some leading European countries to generate
a larger outward flow of long-term capital."
Over the longer run, our task will be to extend the
record of vigorous economic growth that has been established
during the 1960's. With the economy and the national finances
now coming into better balance, our domestic expansion, with
its unprecedented duration of 91 months, has been placed on
a much more secure basis -- with promising effect on our
balance of payments.
Apart from the unilateral efforts of the United States
and the United Kingdom to strengthen the position of the
reserve currencies and provide balance to the economies on
which they are based, the functioning of the international
monetary system has been strengthened by impressive
developments in international financial cooperation.
Notable examples are the enlargement of the "swap"
networks among a number of major financial nations and their
proven effectiveness in dealing with several potentially
destabilizing short-term capital movements, the arrangement
recently announced to strengthen the position of sterling,
and the decision of the participants to maintain their
commitments under the General Arrangements to Borrow.
An even more significant and far-reaching step was the
agreement on measures to arrest the decline of monetary gold
reserves and to insulate the international monetary system
from the destabili~ing influences of the private gold market
and speculation in gold. I refer to the agreement on gold
policies of the central bank representatives of the active
gold pool nations meeting in Washington on March 17 and the
.3
- 7 subsequent expressions of support from most of the rest of
the world. The meeting of the Group of Ten at Stockholm
provided additional underpinning to that consensus and to
the monetary system as a whole.
I had the occasion, in an address on September 24, 1968,
here in Washington, to re-state the gold policies of the
United States and to set forth in some detail the important
relationship we see between these gold policies and the
stability of the international-monetary system. I refer
any interested Governor to the full text of that speech.
I will only repeat here a few paragraphs pertaining to the
operations of the International Monetary Fund:
" •••• The international monetary system has
a vital stake in maintaining the value of gold in
existing monetary reserves at $35 an ounce -neither less nor more. This provides assurance
both to the countries who hold a large proportion
of their reserves in gold and to those who hold a
small proportion of their reserves in gold. It is
clearly \vithin the capabilities of the system to
provide such an assurance, and the United States
believes it is important to the stability of the
system that this be done. But for gold producing
countries that assurance must run only to their
monetary reserves and only after they have disposed
of their newly mined gold, and any price stability
assurance that is provided should not apply to
newly mined gold or that held in private hands.
"In giving assurance on existing monetary
reserves, we will not accede to any proposal
that puts a floor under the private market,
thereby assuring the speculators who have built
up their hoards of gold that they may unload it
at no less than the monetary price."
I also said in that address and repeat here:
"Given the unique position of gold, as both
a commodity and a monetary instrument, special
problems could still arise in the twn-tier system.
It should be possible to devise s~l~tions for such
problems -- provided such solut:ons dre designed
to strengthen and do not threaten to weaken the
two-tier system for gold and the Mr~etary system as
a v}hole."
- 8 I would like at this point to venture a few remarks
about the future.
The new facility for Special Drawing Rights is a major
forward step in the evolutionary process of improving the
international monetary system. It has received wide support
among economists, academic, business and financial leaders
and, of course, among monetary officials. In the United
States it enjoys broad and enthusiastic bipartisan support
in the Congress. This happy situation is the result of the
thorough study and painstaking discussions of the problem in
international bodies, in legislative committees, in academic
circles and in the financial press during the period in which
the Special Drawing Rights plan evolved.
I would hope that further evolutionary changes in the
international monetary system would emerge in the same way.
The only appropriate way to seek improvement in the system
is through the same procedure of careful study, widespread
official and public discussions and carefully considered
action o
The further evolution of the system may not involve such
fundamental changes as we have seen in 1968, but, while
conserving our proven arrangements, we must be prepared to
consider change at all times and with an open mind. The
reason is very clear. The purpose of the international
monetary system is to make it possible for all of us to
produce more at home, to trade more with each other, to use
capital on the widest and most efficient scale, to visit
more with each other, and to help each other, in an
atmosphere of financial stability. The stronger the
monetary system, the better we can do these things; the
weaker the monetary system, the more we will have to
restrict ourselves -- at home and abroad.
Monetary officials must keep abreast of new ideas and
proposals and be willing to examine them in full and free
discussion. Such new proposals come from economists, either
in the academic or the business world, from the private
business community, from legislative committees and from
monetary officials themselves. For example, the Subcommittee
on International Exchange and payments of the Joint Economic
Committee of the U.S.
Congress recently suggested for study
some specific proposals to improve the monetary system.
- 9 Academic economists and others without operating
responsibilities in the international monetary system can
become troubled that many of their proposals do not seem
to receive a full hearing from monetary authorities. The
authorities, on the other hand, sometimes charge that these
proposals from outside sources are not properly grounded in
the problems and conditions of the real world. Without
careful official examination no one can say at present
whether, in the process of official and public discussions
and interchange of views, ideas on this important subject
will evolve into an area of common ground and constructive
actione
The central point is that if useful proposals do not
attract the interest of responsible monetary officials and
are not thoroughly assessed for feasibility, desirability
and acceptability they may fade into the background and be
lost. This we cannot afford.
For this reason, I approve most heartily the sentiments
expressed by the Managing Director in his opening remarks,
"The world does not stand still and the effort to improve
the monetary system which serves it is an unremitting task."
I take comfort in his position that, "standing as it does
at the heart of the system, the Fund is deeply committed to
this task e •• " /that/ "it will remain alert to those needs
and actively explore what contribution it might make to the
further strengthening of the world monetary system" /that/
"continuing attention will have to be paid to the workings
of the adjustment process, the long-term structure of
reserves, and the role of reserve currencies within that
structure. "
In a few months I shall leave my responsibilities as
Secretary of the United States Treasury and United States
Governor of the Fund. Therefore, it would not be
appropriate for me to launch specific initiatives with which
my successor would have to deal without his having participated
in the launching. For this reason I do not advance any
specific proposal; I take no stand in favor of or against any
particular proposal. But, may I suggest that the appropriate
institutional mechanisms he mobilized early next year to
work on further improvements of the international monetary
system in the context of the completion of the ratification
of the amendments for Special Drawing Rights.
- 10 -
I repeat my central point: We started with the strong
foundation built at Bretton Woods. We built an impressive
network of international cooperation on that foundation.
We built a major addition to that foundation in the Special
Drawing Rights Amendment. We must be prepared in the future,
as we have in the past, to approach together and to work out
together additional ways to strengthen the international
monetary system. To do less is to fail in our responsibilities
to maintain and advance our public trust.
II
I turn now to the field of development finance.
President McNamara's opening remarks yesterday were bold,
challenging and constructive. He has placed before us his
plan of action -- grounded in practicality and constructed
with VlSlon. We have heard from him how the Bank plans to
move along its course at an accelerated pace while probing
into new fields. I believe this plan is right. I have
confidence that as Governors of the World Bank we will respond
to his leadership. The urgent need to do so is rooted not
only in the hopes of hundreds of millions of people, denied
and deprived, but in the well-being of the interdependent
family of nations.
Over the years, the distinguished Presidents of the
World Bank, its senior management and staff have molded
the Bank into a solid lending institution of unquestioned
excellence. They have given the Bank worldwide stature as
a prime mover of development finance, as the best forum in
which to examine development problems, and as a source of
creative initiatives.
We welcome President McNamara's prompt move to obtain the
services of Lester B. Pearson of Canada to conduct a "grand
assize" of the development process. Such a comprehensive
appraisal will be a vital element in devising a broadened
international consensus on assistance to the developing
countries -- this consensus has suffered gravely in recent
years from the combined shocks of budgetary and balance of
payments difficulties in capital exporting countries,
compounded by international monetary disturbance and somber
events in a number of aid recipient countries. The Commission
will enjoy the fullest support and cooperation of the United
States.
- 11 -
\.]e have made maj or progress on many of the great problems
of development. We have created an institutional structure
for countries to join in the common purpose of helping to
improve the harsh conditions of life in which large segments
of the world's population exist. A viable institutional
framework for development now in fact exists. We have created,
extended and consolidated a framework embracing both multilateral and bilateral elements. that permits external
assistance resources to flow and be properly coordinated.
This great institution, the World Bank, has grown from a
single entity in the early postwar years to a healthy family
of specialized institutions. Regional banks have
emerged in Latin America, Africa and Asia as major financing
instruments, closely attuned to the needs and opportunities
in the specific regions they are designed to serve. Moreover,
as President Johnson, speaking of the Middle East said
on June 19, 1967,
"In a climate of peace, we here will
will do our full share in support of
regional cooperation."
In creating this complex of institutions we have not built
haphazardly. Our architecture has been coherent and innovative,
complementary, and responsive to needs.
We have also witnessed the response of the developing
countries to the need to organize themselves in order to
attract and efficiently exploit the external assistance
that \v'dS available. The extent of these efforts to upgrade
the capacity to apply aid effectively has varied from country
to country, but several elements have increasingly emerged:
the formulation of development objectives and multi-year
plans; improvement in the technical capacity to design well
and execute efficiently projects that are sound and economically
justified; institution of self-help measures that give
external donors assurance that domestic economic and human
resources are being diligently applied; and creation and
maintenance of a climate that attracts foreign private
investment, without which an unsustainable burden will fall
on official external financing. Although much has already
been done by many developing nations to bring about those
conditions that will yield a maximum flow of resources for
development, we must recognize that more remains to be
doneo
- 12 I turn now to a pressing development problem whose
solution \Jill require all our ingenuity and best efforts.
'1111:· l~; t[le financial resources problem; it will dominate
the development process in the decade ahead. By and large,
we know what must be done, and we have the instrumentalitie~
to do it. But the component that is still lacking is
the crucial one -- a sustained volume of financial
resources at a level high eno,ugh to do the job.
Finding the answer to this problem is a
formidffile task and the new replenishment of IDA is a
major element in this effort. Absolute top priority should
be given to the successful completion of the governmental
approvals necessary to bring this replenishment into
effect. I am hopeful that the United States Congress will
act soon to authorize U.S. participation in this
replenishment of IDA. An executive proposal to that effect
h2S been pending before the legislative body since last
spring.
The establishment of IDA and an earlier
replenishment of its funds received strong bipartisan
support from the United States Congress and three Presidents
Eisenhower, Kennedy and Johnson. The basic reason for this
record of support has been the conviction that a
multilateral approach to development assistance is a
desirable nati0nal policy and an essential feature of
international tinancial cooperation in the world in which
\..Je 1 i ve.
I can tell my fellow Governors that U. S.
participation in the new replenishment agreement has
received the overwhelming approval of the House Banking
and Currency CommLttee with bipartisan support and that it
is favored by a preponderant bipartisan majority of the
Senate Foreign Relations Committee. I express again my
continued hope that procedural difficulties and views
by a limited number of opponents will not block early
approval -- particularly in view of the fact that approval
by the United States is essential to the replenishment
agreement becoming effective .
..'..
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I would like now to mention a few of the ideas
bearing on the solution of the problem of assuring an
adequate volume of development finance on which I think
a broad agreement exists.
- 13 1. Strengthening the, Multilateral Approach -- It
is no longer open to question that a strong multilateral
approach holds the greatest promise for marshalling
major amounts of funds for development on an equitably
shared basis .
The multilateral financial institutions have a
well-earned reputation for efficient operations,
deriving in large part from the enlightened management
they enjoy and the cumpetent staffs they have assembled.
They maintain a rigorous objectivity in the financial and
technical assistance they render and they demand of their
borrowers economic performance based on dispassionate
comparison of efforts and potentialities. For all these
rea~ons, the multilateral institutions inspire confidence
on the part of governments and private investors alike that
they have the capacity to administer wisely the funds that
are entrusted to them.
Because of the confidence they now enjoy, the
multilateral institutions are in a unique position to
exercise constructive leadership in the critical proc~ss
of mobilizing development resources that will be adequate
in relation to the demands of the developing world.
The stronger their leadership becomes, the stronger
their potential for attracting financial resources in
\vorld markets. This means leadership in marshalling capital
for development finance, guiding the determination of needs
and priorities, in selecting the best approaches to the
development task, in encouraging both developing nations
and capital exporting nations to pursue sound and helpful
p()licies. It alst) means leadership in d~veloping
approaches and techniques to ensure that the balance of
payments of donor countries is taken fully into account in
arranging the flows of development funds.
This kind of objective leadership cannot and should
nnt be undertaken by any ~ingle n2tio~, either donor or
r~clplent.
Only by making full use of the leadership potential
of the international financial institutions can we mount
the most effpctive attack on the prcblen;~ of development
finance.
- 14 2. Broadening the Sources of Multilateral Development
Financing -- A truly multilateral approach to development
financing requires a broad multilateral ism in the source
of borrowed funds as well as in the capital structures of
the institutions. Excessive dependence on a single
capital market is not sustainable over the long term, nor
is it desirable from the standpoint of the institutions
themselves, which need the flexibility that can only come
from widely diversified sources of borrowed funds.
International institutions can'and should play an
important part both in developing capital markets and in
finding other ways of drawing resources from balance of
payments surplus countries. Their objective must be the
continued strengthening and expanding of the resource
base of development finance.
3. Improving the Mobilization of Domestic Resources
by Developing Countries -- A third factor on which the
solution of the resources problem of the seventies will
depend is the efficiency with which governments of the
developing countries mobilize their own resources. This
involves a tax system and a tax administration that is
oriented to balanced economic growth and a set of domestic
policies that is conducive to private savings and investment
and the avoidance of the disruptions and distortions
that characterize unchecked inflation. I would list among
the irreducible minimum of sound financial policies
necessary for growth a public expenditure program that
is formulated with clear priorities in mind, incentives
to balanced growth, stable prices, appropriate wage policies,
and maintenance of realistic exchange rates. These policies
and economic conditions are part of the essence of the self-help
concept.
Certainly of great importance in this connection
is the establishment of an effective and efficient tax
system. The developing nations themselves do -- and must
continue to -- provide the bulk of the resources needed
for their development
This is not only because unlimited
external resources are not available, but also because too
much reliance on external resources would bring an
intolerable debt burden. Revenues raised domestically,
therefore, are inevitably a first resource for development
and the pace of development will in consequence depend in
large part on the revenues yielded by the tax system.
7
- 15 Substantial international efforts such as the
Inter-American Conference of Tax Administrators have
already been devoted to encouraging ways to make tax
systems more efficient and thereby make revenues available
as a source of development finance. But more can be done.
For example, tax administrators and tax policy officials
in a particular geographic region can establish forums
for regular exchange of ideas and experience. The IMF,
the World Bank and the regional banks can add a new
dimension to their activities -by more active leadership
in fiscal operations. They can synthesize existing
bodies of experience and analysis and disseminate the
product widely in forms most useful and practical for
developing countries.
j
Beyond these steps, the multilateral development
finance institutions can, in their own lending operations,
give greater recognition to those countries making the
greatest relative effort to mobilize their domestic
resources.
4. ComEatibility of Multilateral Development
Finance with the Adjustment Process -- I have always
regarded it as axiomatic that the development finance
mechanism should function in a way that reinforces the
workings of a sound international monetary system. This
means that development finance must contribute to
expandifLg levels of trade and payments and the smoother flows
of international capital. It must also be consistent with
what ~.ve have come to describe as the balance of payments
adjustment process, This matter is closely related to the
central problem I am addressing in these remarks -- that of
assuring a flow of development finance that is both
sustained and adequate. We can expect such a flow only
if we can arrange that it function to ameliorate, rather
than exacerbate the imbalance in world payments and that it
exercise a stabilizing rather than a destabilizing influence
on world payments.
Development finance must therefore take into
account balance of payments considerations as these
considerations affect the ability of donor countries to
provide resources. I have already touched on the role of
the multilateral banks in mobilizing resources in the private
and public capital markets. I should refer here to the
recent IDA replenishment proposal as an excellent example of
the way safeguards for deficit donor countries can be integrated
- 16 into an international understanding without sacrificing
any of the fundamental principles that have been the
strength of such institutions.
5. Private Enterprise and Development -- I believe
it has also become clear even to those who may have had
lingering doubts that the adequacy of the flow of
resources depends in large measure on the attraction of
private investment, domestic and foreign, into development
channels.
Official financing, vital as it is and will be,
cannot be the major element in the financing of development.
Of key importance is the far greater volume of private
capital flowing internally and from abroad. In my own
vie~, and I know it is shared here, fostering conditions
for the full application of the creative energies of
private entrepreneurship is essential for accelerated
developmentc And it is also essential that these conditions
be attractive for foreign as well as domestic private
investment, for with the former come additional benefits
of new productive technology as well as management techniques,
One need look no further than the group of
countries that can be considered development "success stories"
to confirm that vigorous private enterprise development
plays a key role in practically all such countrieso Recent
U,N, figures show a close correlation between net private
capital inflows and high rates of growth
The lesson
should be plain.
0
Let me add a further thought regarding the
character -- rather than the volume -- of private investment
flows in the future. Just as the early post-war years
were ones in which new mechanisms evolved to channel the
flow of public development finance, so is the present period
one in which new mechanisms are evolving in the field of
private foreign investment. The multi-national operating
company, the multi-national management service company
and other structures now emergent represent the emerging
multilateralism in the private investment sector. It is
in the interest of all concerned that we facilitate movement
in these new and significant directions.
- 17 III
Last year in Rio, the Governors of the Fund and
Bank called on the staffs of the Fund and Bank for studies
on the problem of stabilization of prices of primary
products. Although it has not been possible for the
organizations fully to complete their work on this important
and demanding task, I compliment them on what they have
been able to do in examining this question. The analytic
part of the study which has been transmitted officially
to Governors contains a very full discussion of many
important aspects of this wide~ranging topic.
There is urgent need for more attention to the
root causes of market difficulties and to the possibilities
of better coordination of trade, production and
development policies. The case of coffee, where we can
have, five years of experience, has shown both that there
is scope for assisting developing countries through
price stabilization arrangements and that where success
is obtainable in such a price arrangement it hinges
ultimately on bringing supply and demand into balance, at
an equitable level and encouraging diversification.
It is well that the Bank and Fund staffs have
broken new ground in working together on this difficult
problem and it is urgently necessary that both become more
involved in this area in the future.
There can be no lasting improvemen:: in commodity
market conditions without more attention to helping the
developing countries make the necessary adjustment in
policies and plans
These are areas in which the Fund
and Bank, respectively, are already making important
contributions. These institutions are well-situated to
do more, with benefit to our collective interests, if they
are permitted and invited to play a more active role in the
international consideration of particular commodity problems
and in the framing of specific proposals to ameliorate them.
We shall look forward to the further work to come
with deep interest and sympathy. I am glad to support the
resolution which the President and Managing Director have
put forward to the Governors on behalf of the Executive
Directors.
- 18 IV
Fellow Governors, in this last meeting with you
as the United States Governor may I be permitted a
personal word.
For nearly four years as Under Secretary of the
United States Treasury and the last three and one-half
years as Secretary, I have been privileged to work with
many of you in the common cause of international
financial cooperation for peace, prosperity and development.
I am grateful to you, my colleagues, for the many kindnesses
and courtesies bestowed on me in countless meetings here,
in your countries, and at our other international
gatherings.
We have pursued together the development of ever
firmer policies and programs of international cooperation
which logically flow from the earlier foundations which
our countries built together in the years following
World War II.
The past seven and one-half years have been
fruitful in putting international cooperation in the
economic and financial area on an ever more intensive,
intimate, and productive basis.
Let us look back on a few examples.
-- The General Arrangements to Borrow and
the 1965 expansion of the resources of the Fund
which have given it a much more substantial
capacity to perform the task originally allotted
to it at Bretton Woods.
-- The creation of huge currency swap
networks, now totalling almost $10 billion, which
have proven valuable tools in minimizing the
destabilizing effects of short-term capital flows.
-- The quick, quiet, informal, and effective
means to assist nations that have found themselves
in temporary monetary difficulties -- Canada, Italy,
the United Kingdom, and, most recently, France.
- 19 -- The expansion of multilateral aid to the
developing nations through the enlargement of the
resources of the International Development
t, s,c)Ociation,
the Inter-American Development Bank,
2nd the creation of regional banks in Asia and
Africa.
The reciprocal r~duction of tariff
barriers in the "Kennedy Round".
-- The development in the Fund and the
OEeD of machinery for the multilateral
sllrveillance of the adjustment process and the
2reation of standards and guidance for the industrial
countries in the 1966 Report to the OECD on
lIThe Adjustment Process".
-- The development of a new facility in the
Fund for Special Drawing Rights to provide an
orderly expansion of world monetary reserves.
Cooperation on gold policies in the
interest of greater stability for the international
monetary system.
But looking ahead I am confident that the future holds
opportunities for even greater and mor~ significant progress
i:-1 this a.rea of our common aspirat ions. For the United
Stutes, participation in the creation of these building
LLJ_.:(S of international financial cooperation flows
logically from the basic policies laid down at the end
of T:Yor-ld War II and pursued- by Presidents Truman,
L;~c;!:-:-,hO\'Jer, Kennedy and Johnson, with the bipartisan
Slipp~rt of the U.S. Congress.
venture not only the hope but solid confidence
d" -L this pursuit of international economic and financial
: ~)(,i)eration \>.,7i1l be continued by theil!' successors because
~ t .t ; presents the deepest aspirations of the American people
for ~iving with their neighbors on this planetc
I
I have the same confidence in the future policies
the other member countries of the Bank and the Fund.
are born of the same aspirations.
cf
tCi
As President Johnson said yesterday:
bi::: wise".
000
They
"Let us not fail
TREASURY DEPARTMENT
/0
WASHINGTON, D.C.
October 2, 1968
FOR IMMEDIATE
R;~LR4.SE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this publJc notice, invites tenders
for two series of Treasury bills to thf! aggregate amount of
~,2,700,000,000, or thel~eabouts, for ca,3h and in exchange for
Treasury bills maturing Octobe:' 10, 1968, in the amount of
$2,602,052,000, as fvlJ.oWf!~
91-day bills (to natuL'lty d.ate) to be issued
in the amount of $1,600,000,000, or thereabouts,
additional amount of bills d~ted July 11, 1968,
mature January 9, 1969, originally issued in the
$1,102,029,000, the additional and original bills
interchangeable.
October 10, 1968,
representing an
and to
amount of
to be freely
182-day bills, for $ 1,110,000,000, or thereabouts, to be dated
October 10, 1968, and to mature April 10, 1969.
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 gt Federal Reserve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, October 7, 1968.
Tenders will not be
received at the Treasury De~artment, Washi~gton. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price orfe~ed 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 eupplied by Federal
Reserve Banks or Branches on application therefor.
Banklp.g 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 excppt for thetr own account. Tenders will be received
without deposit ~~om incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment 01' 2 ;,ercent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an ~ncorporated bank
or trust company.
F-1367
- 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 tnese reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on October 10, 1968, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing October 10, 1968. 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 pxcluded
from consideration as capital assets. Accordingly, the owne.~ of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department' Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained from
any Federal Reserve Bank or Branch.
000
TREASURY DEPARTMENT
WASHINGTON. D.C.
Oc tober 4, 1968
FOR IMHEDIATE RELEASE
UNITED ST;;.TES- UNITED KINGDOM INCOME TAX
TkEATY NOT APPLICABLE TO CAYMEN ISLANDS
Effective January 1, 1969, the income tax treaty between
the United States and the United Kingdom that was extended to
Jamaica (including the Cayman Islands) in 1959 will no longer
apply to the Cay~an Islands, the Treasury Department announced
today.
The termination does not affect any other aspect of the tax
convention between the U.S. and U.K.
TIle group of three Cayman
Islands are about 200 miles northwest of Jamaica.
Termination of the tax convention has been achieved In
accordance with procedure provided for in the convention.
Background
The tax convention of April 16, 1945, between the United
States and the United Kingdom, as modified by protocols signed
on June 6, 1946, May 25, 1954, and August 19, 1957, was extended
to a number of British overseas territories, including Jamaica,
as of January 1, 1959. The United States considered that the
extension of the treaty to Jamaica also made it applicable to
the Cayman Islands w!lich were then under the same administrative
organization as Jamaica.
Jamaica attained its independence on August 6, 1962, and
assumed all the obligations and responsibilities that had
previously been in force under the U.S.-U.K. income tax
treat yo The Cayman Islands, however, remained a dependent
territory under British jurisdiction.
F-i368
- 2 -
Feom time to time the Teeasury Depaetment has received
inquiries as to whether the U.S.-U.K. tax treaty, as extended
to Jamaica, continued to apply in the case of the Cayman
Islands.
The British Government's view is that the tax convention
never applied to the Cayman Islands, even though the islands
were administered together with Jamaica.
The United States considers the matter to be largely
academic, since the Cayman Islands do not impose an income
tax, and therefore such key provisions of the treaty as the
eeduced U.S. withholding tax on dividends would in any case
not be applicable.
Nevertheless, to eliminate any further questions concerning
the application of the convention in the future, the United
States, on June 30, 1968, gave notice to the British Government
terminating its application to the Cayman Islands after
December 31, 1968.
000
TREASURY DEPARTMENT
WASHINGTON. D.C.
FOR RELEASE 6:30 P.M.,
Monday, october 7, 1968.
RESULTS
or
'lUASURI' S WEEKLY BILL
omRIIG
'!be 'l!reasury Departaent announced that tbe tenders tor two series ot 'rreasury
bills, ODe series to be an ad4itional. issue ot tbe bills dated July 11, 1968, and tbe
other series to be dated october 10, 1968, vhich were ottered on october 2, 1968, were
opened at the Federal Reserve Banks todaYT 'D!Dders vere invited. tor $1,600,000,000,
or tbereabouts, of 91-4&7 bills aDd tor ,1,100,000,000, or thereabouts, ot 182-day
'bills. b details of the tvo serie. are as tollows:
RAIGE
or ACCEP'.5D
91-day
~a.ury
182-day ~asury bills
_turfy April 10, 1969
Apprax. Equiv.
Price
Annual Rate
97.:502 !/
5. !3!37J
S.386~
97.277
97.289
5.362~
1/
bills
COOETI1!IVE B.tm: --:;:-::=.;;tur:;::;:..;;i;;;;;lngIiil..",;;J;::;:au::::;:ua~ry&..-.;;;9.,-=l~96~9~
Approx. Equ1T.
Annual Bate
Price
5.236J
High
98.678
S.M.l.
98.650
Low
Average
98.666
5.277'"
!I
af Excepting 1 tender of $50,000
-g8~ ot the uount of 9l-c1ay bills bid for at the low price was accepted
S8~ ot the amount of l82-day bills bid tor at the low price was accepted
10TAL TElDERS APPLIED JOB AID ACCEPtED BY FEDIBAL RESERVE DISTRICTS:
District
BostoD
lew York
Philadelphia
Cleveland
Riclllllond
Atlanta
Chicago
St. Louis
M1nDeapolis
!'ansae City
Dallas
San Francisco
mruB
I.
I.
I
AP,Elied For
Acceltecl
$ 24,168,000 $',128,000
1,506,998,000 1,022,998,000
26,222,000
31,222,000
55,2:39,000
35,239,000
1:3,'32,000
13,432,000
53,160,000
56,160,000
166,791,000
166,791,000
52,695,000
57,795,000
22,518,000
ZZ,518,000
:32,864:,000
:32,864.,000
Z2, 091, 000
29,117,000
128,261,000
128,602,000
$llP1iSd For
;111,000
Accepted
$
8,811,000
1,409,7:32,000
16,919,000
35,855,000
1,015,000
26,9:30,000
14:2,594,000
22,912,000
19, 785,OQO
17,524.,000
22,508,000
1:30,366,000
825,832,000
6,919,000
25,835,000
1,015,000
16,130,000
92,594,000
11,712,000
17,785,000
15,524.,000
1:3,508,000
52,:306,000
$2,104:,906,000 $1,600,4:05,000 ~ $1,865,997,000
$1,100,037,000
.
~
Includes $324:,232,000 nODca.petitive teDders accepted at the average price ot 98.666
Includes $15:3,2'3,000 noncompetitive teDders accepted at the average price ot 97.289
~se raware on a baDk discount basis. 1l1e equi'ft1ent coupon is.ue yields are
5.42~ tor tbe 91-4&7 bills, aDd 5.5~tor the l82-day bills.
'.1369
TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
October 7, 1968
REMARKS BY THE HONORABLE FREDERICK L. DEMING
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
AT THE FIFTIETH ANNIVERSARY CONVENTION
OF THE AMERICAN GAS ASSOCIATION
CIVIC CENTER, PHILADELPHIA, PENNSYLVANIA
MONDAY, OCTOBER 7, 1968, AT 11:00 A. M. (EDT)
The United States is presently in a period of political
transition, with a new Administration scheduled to take office
in less than four months. Both major Parties have advisors
and task forces busily engaged in appraising the current scene,
domestically and internationally, delineating the problem
areas of today and tomorrow, and, hopefully, outlining policies
to deal with them.
I propose to discuss with you two key areas -- the domestic
economy and the balance of payments -- and to cite to you two
major financial problem areas of the future.
In a period like the present, it is useful to take a
double sighting -- one into the past and one into the future.
The present high ground we have reached gives us an excellent
vantage point to look back over the path we have traveled. It
is obviously more difficult to see the path ahead, partly because we have to look upward and partly because we have to
build the path as well as travel it.
The Domestic Ecollomy
At the conclusion of the 1950's, most people looked forward to the glowing prospects of the next decade -- the Soaring
Sixties. The major domestic economic problems of the 1950's
were slow economic growth -- stop and go economic expansion
with three recessions -- and either sharp or creeping inflation.
Not until late in the period was the inflationary situation
brought under reasonable control, and the decade ended with a
recession o In real terms, economic growth averaged just over
3 per cent from 1950 to 1960, which period includes the sharp
expansion of the Korean War. From early 1953 to early 1961,
the real growth rate was only 2 per cent.
F-1370
- 2 From early 1961 until now, the real growth rate has
averaged 5 3 per cent, as the economy picked up to its full
potential c This 92 month expansion has been the longest and
strongest in the Nation's historyo And this has been accomplished with an average price increase no greater than in the
previous eight years.
0
Of course, part of this acceleration in growth of output
was due to "make-up" from the recession trough of early 1961 -putting idle resources to work. With a full employment economy
and little, if any, slack, the growth rate for the next eight
years will be smaller, since it will have to rest almost
entirely upon growth -- both in quantity and quality -- of new
capacity and increased manpower. But, even so, this should
permit an annual rate of real growth in the 4 to 4-1/2 per cent
rangeo Whether we achieve that range depends upon how well
both the public and the private sectors manage their economic
affairs c
Let me illustrate what the costs of slower growth are and
what we have obtained from faster growth.
If the economy had grown from early 1961 through 1967 at
the growth rate of the previous seven years, output in real
terms would have run $120 billion below its actual level.
That figure is larger than the current total of Federal expenditures on goods and services o
If the economy can be kept on a growth path of 4 to 4-1/2
per cent for the next ten years, we can increase national output by more than $400 billion. That figure is more than the
current total output of the Common Market or the Soviet Union.
Strong U. S. growth in this decade so far has brought
great material gains both at home and abroad.
At home, since early 1961:
11 million new jobs have been created.
Average income per person, after taxes and corrected
for price changes, has risen by one-third.
13 million Americans have moved out of the poverty area.
In the past two years alone, more Negroes and other
nonwhites have risen above poverty than in the previous
six years.
- 3 -
Abroad, the more vigorous American economy in the 1960's
has meant a more vigorous expansion of world trade and a
faster rate of growth in world output. In an increasingly
interdependent world economy, the economic performance in each
country is linked, in greater or lesser degree, with the
economic performance of all countries.
So, the Soaring Sixties have been characterized by
economic growth. With proper policies, we should be able to
continue on that growth path. And, if we do, the American
economy, running at capacity cruising speed, can continue to
be a mighty engine of economic and social progress.
But there are some problems -- both old and new.
The current expansion was unique in the virtual stability
of costs and prices up to mid-1965. Since then, costs and
prices have risen far too rapidly and have threatened to disrupt the domestic expansion and to undercut our competitive
position internationally.
A major factor in the recent imbalance has been the
Federal budget deficit. We had near balance in the Federal
budget in fiscal 1965 and a deficit of less than $4 billion
in fiscal 1966. But, in fiscal 1967, the budget deficit was
$8.8 billion, and, in fiscal 1968, it was $25.4 billion.
These deficits, which had to be financed by borrowing, placed
heavy pressure on domestic money and capital markets already
under pressure from rising demands of private enterprise and
State and local governments. Interest rates rose sharply in
1966, receded temporarily in early 1967, and then rose to new
heights in the first part of this year.
There was some fiscal restraint and sharp monetary restraint
in 1966. We had a crunch in the financial markets in the late
Summer of 1966. In January, 1967, the President's Budget
Message called for increased taxes for fiscal 1968, and, in
early August, a specific request for additional taxes went
to the Congress. Action was slow, but finally a tax increaseexpenditure restraint program was enacted into law in late
June, 1968. While the program was delayed, it finally passed
strongly, with bipartisan support in an election year -- an
act of considerable political courage.
- 4 -
The legislation, plus certain other fiscal actions, will
reduce the Federal budget deficit by some $20 billion from
fiscal 1968 to fiscal 1969. This will mean a roughly equivalent reduction in Federal financing requirements and should
produce a significant lessening of pressures on the financial
markets and some reduction in interest rateso
It also should produce -- as it is designed to -- a needed
"cooling-off" in the economy, a measured slowing in the pace
of domestic expansion and a reduction in cost-price pressures.
Some observers profess to see dangers of fiscal "overkill"
in the program of fiscal restraint. While these dangers should
not be dismissed out-of-hand, they are unlikely to eventuateo
The move to fiscal restraint has restored a much better balance
of effort between fiscal and monetary policy. Adaptation of
the fiscal-monetary mix to changing circumstances can be done.
A major piece of unfinished business in the economic area
is an effective program for cost-price stability. The association of low levels of unemployment with price inflation is not
a problem peculiar to the United States. All major countries
have sought to devise some means to insure a workable pattern
of wage-price stability. None of these efforts can, as yet,
be regarded as completely successful. Some have worked very
well -- such as our own wage-price guideposts -- until subjected
to excessive demand pressures. But in no case has a completely
successful approach been devised.
Formerly, it had been hoped that effective use of monetary
and fiscal policy might be sufficient to achieve full employment without inflation. But both our own experience and that
of every Western nation suggest that monetary and fiscal policy,
alone, are not enough. A Cabinet Committee on Price Stability,
appointed by President Johnson, has been heavily engaged in a
study of how to effect a return to a workable pattern of wageprice stability. With fiscal restraints in place, the economic
environment next year should permit substantial progress toward
wage-price stability. The efforts of an incoming Administration
in this area will deserve full support.
Another set of problems -- not new, but newly recognized -is in the social area. Indeed, the contrast between affluence
and poverty, between promise and reality, has been sharpened by
the demonstration that the economy can produce relative abundance.
A rising tide of expectations has threatened at times to outpace
even the vast productive achievements of later years.
- 5 -
I shall speak later of specific financial problems in
this area. Here, I merely want to point out again that the
American economy, running at full cruising speed, has great
capacity to produce social as well as economic progress. It
will be the task of the new Administration to insure continued
capacity operation.
The Balance of Payments
I have spoken elsewhere, and in some detail, about the
history and anatomy of the United States balance of payments.
Here, it is necessary only to give a brief backward glance.
In any real sense, the United States did not have a
balance of payments problem until the late 1950's. We did
have statistical deficits in eleven of seventeen years between
1941 and 1958, but the cumulative defiCit, all the liquidity
baSiS, was less than $10 billion, or not quite $600 million
per year. We actually gained gold reserves in that period.
The entire deficit, and more, was financed by increased dollar
holdings of foreigners. The dollar was not only as good as
gold; it was better, because the dollar holder earned interest.
The basic reaso~for our balance of payments strength
were our overwhelmingly strong economy, relative to a world
just recovering from the ravages of global war, and our equally
overwhelming strength in our international reserves. We had a
large surplus on trade and services and a modest surplus on
capital account, if we consider the income on foreign investment as well as the outflow. We spent heavily on foreign aid
both grant and loan -- and we carried almost all of the burden
of Free World defense.
In other words, we acted the part of a great, a strong, and
a responsible nation.
But, after 1957, there was a changed situation. The rest
of the world had grown stronger and more competitive -- particularly the industrial countries of Western Europe and Japan.
Our surplus on trade and services shrank. We managed to cut
back some on Government and military expenditures abroad, but
we continued to carry a disproportionate burden of Free World
defense. And capital flowed out in increasing volume o Even
with rising returns on our foreign investment, we went from
surplus to deficit on capital account -- a deficit which totalled
$2 5 billion in 1964, the worst year.
0
- 6 -
In just three years, 1958-1960, we had a balance of payments deficit of more than $11 billion -- more than the total
for the previous 17 years. From 1961 through 1964, the deficit
was cut back, mainly by reduced expenditures abroad for military
and Government account and by a better trade surplus, as our
costs and prices were held steady. The average deficit for
1958-60 was $3.7 billion; for 1961-64, it was $205 billion.
The balance of payments programs of 1965 and 1966 led to
improvement in the capital account, and the deficits were cut
again -- to an average of $1.3 billion. Then, in 1967, a whole
series of events -- most particularly the uncertainties in the
international exchanges, a rise in capital outflows and in the
foreign exchange costs of Vietnam, and some deterioration in
our trade and service account -- brought the deficit back to
$3.6 billion.
The President's January 1, 1968, program was deSigned to
bring us back into balance of payments equilibrium, to restore
confidence in the dollar, and to strengthen the international
monetary system.
The program was in two primary parts. First, and of key
importance, was the President's call for tax increase and
expenditure control, wage and price restraint, and the avoidance
of crippling strikes that would inhibit exports and increase
imports. Second was a series of five programs: two designed
to lessen net capital outflow for direct investment, portfoliO
investment, and foreign loans; one aimed at further net reduction in our expenditures abroad on Government and military
account; one aimed at export expansion; and one aimed at
reduction in our tourist expenditures abroad.
All parts of the program were and are necessary, We, and
the rest of the world, have learned that proper fiscal and
monetary poliCies are a necessary -- vital, if you will -but not sufficient condition for balance of payments equilibrium.
A lot of capital outflow, military expenditures, and tourist
expenditures are not responsive to fiscal and monetary policies.
Here it is important to recognize three facts.
First, we should not weaken our security efforts in any
substantive or real sense, but we should work toward full
implementation of the prinCiple that the foreign exchange costs
of the common defense should be neutralized -- there should be
no windfall gains or losses. We have done a lot in this field,
but we need to do more -- our net costs are still far too high.
- 7 Second, the program on direct investment has not aimed
at reducing gross investment abroad but at reduction in the
financing flows from the United States. The volume of our
direct investment has continued to increase substantially, but
more of it is being financed by borrowing abroad. The goose
that lays the golden eggs is very much alive
and the eggs
have gotten bigger.
Third, our net deficit on tourist account was about $2
billion last year. The long-run solution is to increase
tourism by foreigners in the United states. But it is important
to cut the net drain now.
Our payments position has shown sharp improvement so far
in 1968. On a reasonally adjusted liquidity basis, the last
quarter 1967 deficit was $1.7 billion. In the first quarter
of 1968, it dropped to $660 million and, in the second quarter,
to $170 million. Preliminary indications for the third quarter
are encouraging.
Thus, the program -- to the extent it has been carried
out -- is working well. I have already noted that the fiscal
program'was not put into force until mid-year. It had an
immediate effect on confidence, and it should have a favorable
effect on the trade balance, as it works to cool off the
economy. With an overheated economy in the first half of this
year and with strikes, or anticipated strikes, in key areas
on the docks, in copper and in steel -- our imports rose
sharply, and our trade surplus was virtually destroyed. It
should improve in future months, as a better balanced economy
reduces the excessively swollen volume of our imports. But
we need to improve exports as well. That means we must hold
and improve our international competitive position.
The gains we have registered so far this year have come
mainly in the capital accounts. We have reduced the outflow
from bank lending and on direct investment account -- the
latter, as noted, by borrowing abroad. We have benefitted
solidly by the heavy inflow of foreign capital into American
equities -- reflecting confidence in the U. S. economy and in
the dollar. And we have had considerable success in reducing
the net foreign exchange costs of Government and military
spending abroad.
- 8 -
But it is both premature and immature to talk of dismantling any elements of the balance of payments program.
We need large and sustained improvement in our trade surplus;
we need effective action to contain the travel deficit; and
we need fuller cooperation to neutralize the foreign exchange
costs of our military and Government expenditures abroad. It
would be the height of irresponsibility to relax any part of
our program now.
The strength of the dollar internationally, and the
structure of the international monetary system, require that
we reach sustainable and reasonable balance in our international
accounts.
Gold
Following the devaluation of sterling in November, 1967,
the gold markets came under heavy speculative pressure. Of the
total U. S. gold outflow last year of $102 billion, more than
$1 billion came in the fourth quarter.
In the first quarter
of 1968, the outflow increased to $1.4 billion. In March,
the United States and her Gold Pool partners took action to
arrest the drain on monetary gold stocks and the Washington
Communique of March 17 effectively separated the private gold
market from the monetary gold circuit.
On September 24, 1968, Secretary Fowler, in a major
speech, restated the United States' position on the international
monetary system and the role of gold in the system. He noted
that the international monetary system rests on four pillars:
"
A strong and well-balanced U. S. economy with a
strong dollar ••••
A fixed $35 per ounce official price of gold and
a dollar convertible into gold at that price by
monetary authorities.
of other currencies into dollars
at stated rates of exchange.
Conve~tibility
Adequate international reserves and credit facilities
to support the system."
- 9 The Gold Pool countries recognized these pOints in their
Washington Communique when they stated that "as the existing
stock of monetary gold is sufficient in view of the prospective establishment of the facility for Special Drawing Rights,
they no longer feel it necessary to buy gold from the market."
Two weeks later at Stockholm, the Ministers and Governors of
the Group of Ten countries "reaffirmed their determination to
cooperate in the maintenance of exchange stability and orderly
exchange arrangements in the world 1'Jased on the present official
price of gold."
In his September 24 speech, Secretary Fowler said:
liThe internati.onal monetary system has a vital stake
in maintaining the value of gold in existing monetary
reserves at $35 an ounce -- neither less nor more •
It is clearly within the capabilities of the
system to provide such an assurance, and the United
States believes it is important to the stability of
the system that this be done. But, for gold producing
countries, that assurance must run only to their
monetary reserves and only after they have disposed of
their newly mined gold, and any price stability assurance
that is provided should not apply to newly mined gold
or that held in private hands.
•
00
"In giving assurance on existing monetary reserves,
we will not accede to any proposal that puts a floor
under the private market, thereby assuring the speculators
who have built up their hoards of gold that they may
unload it at no less than the monetary price.
"
"Given the unique position of gold as both a commodity
and a monetary instrument, special problems could still
arise in the two-tier system. It should be possible to
devise solutions for such problems -- provided such
solutions are designed to strengthen and do not tJ reaten
to weaken the two-tier system for gold and the rronetary
system as a whole."
The two-tier gold system has worked well since its birth
last March o In large part, that has been due to the widespread
support for the system among the countries of the Free World,
as well as those countries which issued the Washington and
Stockholm statements. In part, it has been due to the strengthened
confidence in the U. S. economy and the dollar.
- 10 The signatories of the Washington and Stockholm Communiques
recognize the point made by Secretary Fowler that there may be
some special problems that could still arise in the two-tier
system for gold producing countries, and particularly for South
Africa, which depends heavily on gold as an export product.
Last Friday, in Waslnngton, they issued the following statement:
"The Central Bank Governors of Belgium, Canada, Germany,
Italy, Japan, the Netherlands, Sweden, Switzerland, the
United Kim~dom, and the United States met during the
meetj,ngs of the Bank and Fundo Representatives of the
International Monetary Fund and the Bank for International
Settlements also attended the meeting.
"The Governors unanimously agreed on a common position
based on the Washington declaration of March 17, 1968,
regarding the disposal of newly mined gold.
It has,
however, not proved possible to reach agreement with
South Africa at tl1is meeting."
The statement, of course, speaks for itself. The central
point is the unanimous agreement on a common position based
on the Washington declaration. These important countries are
united and, I am sure, are supported by the vast majority of
countries belonging to the IMF.
Financial Problems of the Future
During the next ten years, two major problem areas of
finance will challenge the best efforts of the United States
and one, perhaps both of them, will require concentrated
attention by other advanced countries of the world.
For the United States, the first problem -- bigger by
far than the second in terms of financial requirements -- is
to find ways to provide capital finance for public purposes
designed to strengthen and improve what might be called social
welfare infrastructure. By this term, I mean urban redavelopment, the renovation of the ghettos, the proviSion of public
housing, the enlargement of public education and health
facilities, the restructuring of transportation facilities,
the provision of clean water and air.
In one sense, the problem is not a new one; in a more
realistic sense, it is a brand new one by virtue of its
recognition and by virtue of the very size of its financial
requirements. Let me give you some indication of its size.
- 11 Net State and local debt in 1947 was less than $15
billion. Last year, it was $113 billion -- almost $100
billion larger than 20 years earlier. Mere continuance of
that trend would make it $240 billion ten years from now.
Add in the new programs noted above, and it is not difficult
to visualize another $150 billion requirement. It is clear
that requirements of this order of magnitude will demand the
most efficient, imaginative, and sound means of mobilizing
capital that we can devise.
I have spoken elsewhere of one approach to this problem
a National Urban Development Bank. Other suggestions have
been made -- for a Municipal Bond Guarantee Corporation; for
a Community Development Bank; for a Domestic Development Bank.
Each is aimed at the basic objective of providing an efficient
means of mobilizing the Nation's capital resources. We shall
need to come to a consensus on a particular approach.
That approach should embody two basic principles:
Development of one efficient marketing instrument
with broad investment appeal.
Coordination of issues and control over programs
requiring finance.
A development institution would issue its own securities,
backed by Federal guarantee, and relend the proceeds to program
agencies -- either Federal lending agencies or directly to
State and local agencies, depending on Congressional decisions
as to individual program structure and control. Aside from
the Federal guarantee, which would help marketing and minimize
interest costs, a Federal Government contribution, to the extent
necessary and desirable, could come from interest rate subsidies
clearly identified -- provided by direct Congressional appropriations.
The second problem, which will affect both the United
States and other advanced countries, is to find ways to provide
increased developmental capital finance for the less-developed
countries of the world -- both for infrastructure and for
expansion of the agricultural and industrial base o
The financial requirements for the United States, or for
any other country, are significantly less than those for
domestic social welfare infrastructure, but there are other
problems -- perhaps most notably the balance of payments problem.
- 12 -
must be devised to f1 t these financing needs into
halance of payments adjustment process so that, when a
c~~I_~r' is in surplus, it can export more capital to developlng countries and, when in deficit, it can export lesso At
the same time, it is desirable to increase the total amount
of capital eAport and aS6ure that volume for a period of time o
Metlt~,ds
ttiP
The Uni ted States p;.'oposed an 8.pproach of this type in
the current reple~ishment of funds ~or the International
D~V810nment Association.
The Organization for Economic
C08~~~~~lO~ arld Development, composed of some twenty countries,
suggested, in a 196h report on the adjustment process g that
3u:cplus countries or-en their capital markets more freely to
borrowings by intern~tional financial institutions, such as
the World Bank or the regional development banks. Both of
these approaches need further development and implementation
through international agreement o Both will lead to more
multilateralization of development finance, which should be
more efficient, both in terms of raising the capital and in
~8rrns of channeling it where it can do the most good.
Finally, I shouJ.d note two points. Both of these financial
problems -- domestic social welfare infrastructure and development finance -~" can be resolved only wi thin a framework of a
strongly expanding domestlc and world economy. That is an
absolute requi~ement to generate the savings and the tax
revenues for the needed finance~ And growing economies, themseJve3~ need the thrust of dynamic new investment, which, itself, requires high savingso
--000--
m'aTEO STATES SAVmGS BONOS ISSUED AND
RED:::~MED
THROUGH
September 30, 1968
(Dollar amounts in millions - rounded and will not necessarily odd to otals)
DESCRIPTION
AMOUNT ISSUED.v1
!.J
AMOUNT
OUTSTANDING
Y
A-1935 thru D-1941
F and G-UJ-l1 thru 1952
J and K-1952 thru1955
-
5,003
?9,521
3,156
4,996
'29,477
3,131
7
44
25
.14
.15
.79
1,875
8,279
13,323
15,5),0
12,206
5,531
5,2L.4
5,419
5,3L.5
4,672
L.,0L.3
L.,237
4,836
4,928
5,133
4,955
L.,662
4,538
4,252
4,254
4,292
4,135
4,606
4,491
4,392
4,722
4,673
2,285
620
1,650
7,299
11,778
13,645
10,540
1!,590
)!,193
4,232
4,096
3,528
3,054
3,172
3,530
3,519
3,599
3,423
3,14L.
2,905
2,651
2,533
2,396
2,262
2,329
2,271
2,150
2,085
1,768
421
7L.7
225
979
1,545
1,895
1,667
941
1,051
1,187
1,2L.9
1,14L.
989
1,065
1,306
1,409
1,534
1,532
1,518
1,63L.
12.00
1,7';1.
1,896
1,873
2,277
2,220
2,242
2,637
2,905
1,864
- 128
157,490
113,510
43,979
27.92
3,168
1,390
2,316
5,393
L2.?2
79.51
12,268
4,558
7,710
62.85
169,757
118,068
51,689
30.L.5
597
497
100
37,680
170,355
208,03L
37,603
118,565
156,169
76
51,789
51,R65
UNMATURED
Series E!../:
1941
1942
1943
19H
19-15
1946
1947
19-18
1949
1950
1951
1952
1953
195-1
1955
1956
1957
1953
1959
1960
1961
1962
1963
1964
1965
1966
1967
19GB
Unclassified
Total Series
Series
% OUTSTANDING
OF AMOUNT ISSUED
I
YA TURED
Series
Serif's
Series
AMOUNT
REDEEMED
H
H
E
(1952 thru MaY,1959).Y
(June, 1959 thru 1968)
Total Series
H
Total Series E and
Series J and
K
H
(1956 thru 1957)
{Total
All Series Total unmatured
matured
Grand
Total
5,485
6,783
I
11.83
11.60
12.19
13.66
17.01
20.oL
21.90
23.37
2L..49
2L..46
25.14
27.01
28.59
29.89
30.92
32.56
36.01
37.68
40.46
44.18
45.30
49.44
49.43
51.05
55.8L
6?17
81.58
1,60~
-
!/
1C1~des accrued dis count.
'urrent redemption value.
t option of owner bonds may be held and will earn interest for additional periods after original maturity dates.
lcludes matured bonds which have not been presented for redemption.
Form PO 3812 - TREASURY DEPARTMENT - Bureau of the Public Debt
16.75
.20
)O.bO
24.93
TREASURY DEPARTMENT
WASHINGTON, D.C.
October 9, 1968
FOR IMMEDIATE RELEASE
'l'FillASURY MARKET TRANSAC'l'lONS IN SEPTEMBER
During September 1968, market transactions in
direct and guaranteed securities of the Government
investment accounts resulted in net purchases by
the Treasury Department of $45,132,950.00.
000
F-1371
TREASURY DEPARTMENT
,
WASHINGTON. D.C.
Oc tober 9, 1968
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
~2,700,OOO,000, or thereabouts, for cash and in exchange for
T~easury bills maturing October 17,1968,
in the amount of
$ 2,703,718,000, as follOWS:
91-day bills (to maturity date) to be issued
in the amount of $1,600,000,000, or thereabouts,
additional amount of bills dated July 18,1968,
mature January 16,1969, originally issued in the
$ 1,100,618,000,the additional and original bills
interchangeable.
October 17,1968,
representing an
and to
amount of
to be freely
182-day bills, for $1,100,000,000, or thereabouts, to be dated
October 17,1968,
and to mature April 17, 1969.
The bills of both series will be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and at
mRturity their face amount will be payable without interest. They
will be issued in bearer form only, and in denominations of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches
up to the clOSing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, October 14, 1968.
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-1372
- 2 Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announcement will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on October 17,1968, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing October 17, 1968. 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 orily the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department' Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained from
any Federal Reserve Bank or Branch.
000
TREASURY DEPARTMENT
Washington
FOR RELEASE UPON DELIVERY
FRIDAY, October III 1968
REMARKS OF THE HONORABLE JOSEPH W. BARR
THE UNDER SECRETARY OF THE TREASURY
AT THE 38TH ANNUAL BANK MANAGEMENT
CONFERENCE OF THE NEW ENGLAND COUNCIL
TO BE HELD AT THE STATLER HILTON HOTEL
IN BOSTON, MASSACHUSETTS
FRIDAY, OCTOBER 11, 1968, at 1:00 P.M.
HOH FOREIGN INVESTORS AND BANKERS LOOK AT THE UNITED STATES
In July of this year I read a story in the Wall Street
Journal which described a European-born New York couple
who had suddenly become terribly concerned about economic conditions in the United States.
This couple had
managed to save $10,000, and they decided that the safest
thing to do was to take their money out of their bank
account in the United States and invest it in Europe.
At that particular time in July we had only fragmentary statistical data on the second quarter balance of
payments, but I had enough to tell me that this couple was
in the classical position of the odd-lot trader
were swimming against the stream.
While they were moving
their funds out of the United States, there was a
F-1373
they
-2tremendous inflow allover the world into our security
markets, into our real estate, and into our banks.
In other
words, the view of the United States that was held by this
New York couple was not shared by the rest of the world.
It was not until August that we had complete data on
the balance of payments for the first half of 1968, and
then the evidence was quite clear.
As you all know, for
the second quarter of 1968 our trade surplus was minute,
but it was offset by a huge flood of capital that poured
into this country.
Although I shall not indulge in the
luxury of predicting, I am led to believe that this flow
of capital probably is continuing through the third quarter
of the year.
It is never easy to put one's finger on the precise
reasons why capital moves from country to country.
How-
ever, last week we had a magnificent opportunity to
conduct our own private opinion poll among the distinguished men and women who were delegates or guests at the
latest of the annual meetings of the International
Monetary Fund and the World Bank, held in Washington.
There were 111 nations represented, and Secretary Fowler,
-3Under Secretary Deming, Assistant Secretary Petty or I
talked to representatives of all or nearly all of them
at one time or another.
The conversations at these
meetings among officials of the Central Banks and Finance
Ministries of various nations always reminds me of the
song, "How Are Things in Glocca Morra?"
If you would
substitute the exotic names of Kabul, Kuala Lumpur, Abidjan,
and Caracas for the equally exotic words Glocca Morra,
then the opening words of the conversation would follow
precisely the lines of the song.
We, being Americans, and
sharing the somewhat masochistic traits of all Americans,
were never content to leave it at this point.
We would
inevitably ask, "What do you think about the United States?"
"How do you account for this enormous inflow of capital
that we have been receiving during the past six months?"
The answers we received, of course, varied from country to
country, but they followed a remarkably similar pattern.
The responses that I am going to detail for you
today were gleaned from many sources, but I will ascribe
them to a person whom I will call "Old Composite."
-4"Old Composite" represents the views of Swiss bankers,
German manufacturers, Dutch shippers, Malaysian rubber
planters, Argentine cattle barons, and the Middle East
oil sheiks, to name just a few.
specific question
When queried on the
of why we were having this huge inflow
of capital into the United States, "Old Composite's"
answers would tend to be along these lines:
First of all, "Old Composite" would argue that the
United States was one of the few really secure places
in the world
and he means physical security.
The
disturbances in France, and the invasion of Czechoslovakia,
sent a pronounced tremor through the world investment
community.
Investors allover the world came to the sudden
conclusion that the world was not quite as safe as they
had thought.
When they came to this conclusion, they also
decided to increase the percentage of portfolio investments
which they held in America.
Although there have been occasions when I have become
restless at the necessity for getting up $1.6 billion per
week for the Department of Defense, I-must admit that this
investment seems to have paid off handsomely in recent
-5months.
But I must also state, with some sadness, that
these decisions reflected not only confidence in the
United States but
a deep and serious concern over the
collective security arrangements for Europe and the rest
of the world.
Second, "Old Composite" mentions a fact that should
be obvious to most of us, but which we often tend to
overlook -- the fact that on the continent of North America,
the United States, Canada and Mexico seem to live in
peace and understanding with each other.
This may come as
a bit of a shock to those of us who engage in the sometimes
vigorous discussions among these three nations as we work
to keep an economy moving on this continent despite the
political boundaries bisecting the economy on the north
and on the south.
Whatever the reaction, I can tell you
that we in the Treasury take great satisfaction in this
particular response.
We have labored mightily with our
colleagues in Canada and in Mexico to de-fuse the economic
issues which could so easily divide us.
Thirdly, "Old Composite" would mention the fact that
our democratic institutions seem viable and strong.
Let
-6-
me tell you to what, precisely, he refers.
He refers to the
fact that we had the sheer courage to raise our taxes in
an election year and the raw honesty to pass a fair housing
law which guarantees that a black man's money is as good
as a white man's money when it comes to buying one of the
simple needs of life -- a home.
The Finance Minister of
one of the most disciplined countries that I know stated
that he was amazed that we could raise taxes in an
election year.
He stated that it would not be easy to
duplicate this feat in his own country.
Fourthly, "Old Composite" refers to the incredible
strength of the American economy.
In that connection,
"Old Composite" was almost absolutely representative.
Every
Finance Minister talks about the strength of the United
States economy in envious terms, and his envy is often
related to the enormous educational lead that the United
States has over every country in the world.
To those of
us in the financial world who are inclined to think in
terms of fiscal discipline, rational monetary policies,
stable price levels, and orderly security markets, this
may seem surprising.
However, if there is one refrain that
-7ran through nearly all conversations, it was to the effect
that the United States possesses an enormous and educated
labor force beyond comparison with any in the world.
For his fifth item, "Old Composite" says that only
in the United States of America could he find a set of
markets with enough breadth and depth to enable him to
take a position, or to liquidate a position, without an
undue effect on the price level.
And lastly, "Old Composite," speaking more in the role
of a European investment banker than in any other
character, acknowledges that the hard work done by the
then Under Secretary Fowler and Ambassador Robert McKinney,
who worked on the Foreign Investors Tax Act, and the
successful passage of this
legislation,~
impact on his investment decisions.
had a great
The study and this
legislation cleared away much of the tax debris that was
impeding the free flow of investment funds into this
nation.
And he refers in this context to the enormous
investment in time and salesmanship that we have made in
bringing this legislation to the attention of the investment
-8-
counselors, the bankers, the finance ministers, and central
bankers of the developed world.
After we had listened to this series of comments on
why foreign capital waS flowing into the United States, we
inevitably raised some additional questions.
One of
the first questions that we usually asked was whether or
not these distinguished gentlemen were disturbed by the
unrest that waS all too apparent in our universities.
If
we expected any comfort or any consolation, we were sorely
disappointed.
Many of the distinguished finance ministers
who were conversing with us found this to be a hilarious
question.
Quite a few of these gentlemen, especially those
from Latin America and Asia, seem to have been student
leaders in their own college days.
When we asked about
student unrest, they would reply that in their opinion it
was high time that the American students learn that there
was more to life than football, panty-raids and goldfish
swallowing.
For those of you in this audience who are
trustees of academic institutions, I can only convey the
impression of these distin,guished financiers that student
-9unrest is merely a phenomenon which the North American
continent should have been expecting to appear for some
time past.
When we asked whether they were not concerned about
the racial disturbances that had perplexed our cities,
these distinguished gentlemen inevitably became much more
serious.
Racial tensions are not unique to the United
States.
As a matter of fact, they persist in many parts
of the world.
But the balanced observers among those with
whom we talked seemed to hold the opinion that we are
attacking the problem of race in a rational and open manner
not sweeping the issue under the rug.
We are making
efforts, they say, to bring into the productive stream of
our economy those people who are disadvantaged by race,
education or by background.
They feel that this process
must inevitably be beset by friction, social difficulties
and sometimes violence.
But they go on to point out that
friction, misunderstanding and even occasional outbursts
of violence, are vastly preferable in an open society to
the repressions of a closed society which inevitably lead
to an explosion.
-10-
All of these gentlemen could see continued friction
in our society.
None of them could see an explosion.
This, in short, is my attempt to summarize for you
what our foreign colleagues think about the United States.
/
Their opinion of us is possibly much higher than our own
opinion of our achievements and our position in the world
today.
Let me recount a conversation with one extremely
knowledgeable central banker.
He was aware, because I had
informed him, that Secretary Fowler has named me
the Treasury officer responsible for coordinating the
machinery for the orderly transition of our Department to
a new Administration in January.
He remarked to me that
the new Administration is going to receive a remarkably
strong and going financial system.
These were the items
that he ticked off -- and he is absolutely correct.
He said, number one, you are going to turn over a
Federal budget that is shifting towards balance -- from a
huge deficit of $25.4 billion.
-- You are going to turn over a nation whose balance
of payments accounts are at least manageable -- although
your trade account is dreadful.
-11-
-- You are going to turn over a Treasury that is
dealing with money markets that are relatively stable
and orderly.
You are going to turn over a dynamic, growing
economy with the best educated labor force in the world.
Your swap lines (our lines of credit to other
nations) are almost clear.
-- Your gold cover has been removed and your gold
reserves are clear.
The
snR
will probably be approved by the IMF and
will be awaiting activation.
You will have only one demerit against you at
the moment -- and that is your recent record on prices
and wages -- but even here your record is still one of
the best in the industrial free world.
Taken all in all, this gentleman concluded, you are
turning over a Treasury with enormous assets of reserves
and credits, an economy with great attraction to the
investment capital of the free world, and a democratic
system that enjoys the respect of the world for its lasting
strength and resourcefulness.
000
TREASURY DEPARTMENT
,
October 10,1968
RELEASE ON RECEIPT
TREASURY SECRETARY FOWLER NAMES A. CLEWIS HOWELL
AS SAVINGS BONDS CO-CHAIRMAN FOR STATE OF FLORIDA
A. Clewis Howell, President, Marine Bank and Trust Company,
Tampa, Florida, has been appointed by Secretary of the Treasury
Henry H. Fowler as volunteer State Co-Chairman for the Savings
Bonds Program in Florida, effective immediately.
Mr. Howell -- along with V. H. Northcutt, Honorary Chairman
of the Board, The Broadway National Bank of Tampa, who has served
as State Chairman since October 1946 -- will head a committee of
state business, financial, labor and governmental leaders. The
committee -- working with the Savings Bonds Division -- will assist in promoting the sale of Savings Bonds and Freedom Shares
throughout the state.
Mr. Howell was born in Ithaca, New York, on January 7, 1924.
He moved to Florida in 1927, attended local schools and the Asheville
Preparatory School. He entered the University of Florida in 1942,
was called into the Navy the following year and was discharged as
an ensign in 1946. He received a B. S. Degree in Business Administration from the University of Florida in 1949.
He has been with the Marine Bank and Trust Company since 1949,
serving as Assistant Secretary, Assistant Vice President, and Executive Vice President. In June 1960, he succeeded his father, the
late George B. Howell, as President.
Mr. Howell has been serving as Savings Bonds Chairman for Hillsborough County. He is a director of the Florida State Fair Association, Florida State Chamber of Commerce, the Marine Bank and Trust
Company, Reeves Fences, Inc., Founders Life Assurance Company, and
- 2 -
Commercial Bank of Tampa. He is Chairman and President of Midway
Bank at Tampa, and Secretary of Myrtle Hill Memorial Park, Inc.
He is also a member of the Executive Council of the American
Bankers Association.
Mr. Howell has served as President and Director of the Tampa
Chapter of the American Red Cross, President of the Exchange Club,
Commodore of the Tampa Yacht and Country Club, President of the
Tampa Clearing House Association, President of the Greater Tampa
Chamber of Commerce, and Director of the United Fund and Merchants
Association.
Mr. Howell is married to the former Wynnette Bowden White of
St. Petersburg. They have three daughters -- Wynnette, Hilary and
Heidi.
000
TREASURY
DEPART~J1ENT
~~~~-:3~jr..~v-r..\.l~~_·... '·'~"'~IT..\l._~Z~~~~t.!{!_d".l.~~...~
---...
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WASHINGTON, D.C.
FOR n,E,lEDgTE REIEAS.-!
October 10, 1968
SALE OF JUNE TAX ANTICIPATION BILLS
The Trea.sury Department anno"t1-llced today the forthcoming auction
of
$3
billion of tax anticipation bills maturing in June 1969.
The bills will be auctioned on Thursday, October 17, for paYTclcnt on
Thursday, October 24.
Commercial banks may make payment of their own
~md
their cnstomers' accepted tenders by credit to' Tree,sury ta.x and lean
acceunts.
The bills ma.ture on J'une 23, 1969, but ma,y be used at fact:! value in
payment of Federal income taxes due on June 15, 1969.
F-1374
TREASURY DEPARTMENT
WASHINGTON. D.C.
FOR Jl.IHEDIATE RELEASE
October 10, 1968
TREASURY OFFERS $3 BILLION IN· JUNE TP:l. BILLS
The Treasury Department, by this public notice, invitee tenders for $3,000,000,000,
or thereabouts, of 242-day Treasury bills, to be issued on a discount basis under
competitive ~Jd noncompetitive bidding as hereinafter provided. The bills of this
series will be dated October 24, 1968, and 'Till mature June 23, 1969. They will be
accepted at face value in payment of income taxes due on June 15, 1969, and to the
extent they are not presented for this purpose the face amount of these bills ,viII
be payable "lithout interest at maturity. Taxpayers desiring to apply these blils in
payment of JUne 15, 1969i income taxes may submit the bills to a Federal Reserve Bank
or Branch or to the Office of the Treasurer of the United States, Washington, not
more than fifteen days before that date. In the case of bills submitted in payment
of income taxes of a corporation they shall be accompanied by a duly completed Form
503 and the office receiving these items vlill effect the deposit on June 15, 1969.
In the case of bills submitted in payment of income taxes of all other taxpayers, the
office receiving the bills will issue receipts therefor, the original of which the
taxpayer shall submit on or before June 15, 1969, to the District Director of Internal
Revenue for the District in which such taxes are payable. The bills will be issued
in bearer form only, and in denonlinations of $1,000, $5,000, $10,000, $50,000, $100,000,
$500,000 and $1,000,000 (mattITity value).
Tenders '\-1ill be received at Federal Reserve Banks and Branches up to the closing
hour, one-thirty p.m., Eastern Daylight Saving tirr.e, October 17, 1968. Tenders will
not be received at the Tree.st'!.:ry Department, Hashingt-on. Each tender must be for an
~ven multiple of $1,000, and in the case of conpetitive tenders the price offererl mnst
be expresGed on the basic of 100, ",ith not more than three decimals, e. G., 99.925.
}'ractions may not be used. It is urged that tenders be made on the printed forr:1s ano.
forwarded in the special envelopes . ."hich vlill 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 Hill not be permitted to submit tenders except for their m/I1 account.
Tenders will be received without deposit fro!1l incorporated banks e. nd trust compe.nies
and from responsible and recosnized dealers in investment securities. TendE!rs from
others must be accompanied by payment of 2 percent of the fa.ce amount of Treasury bills
applied for, unless the tenders are accompanied by an express guaranty of payment by
an incorporated b811k or trust company.
All bidders are required to agree not to purchase or to sell, or to make any
agreements with respect to the purchase or sale or other disposition of any bills of
this issue at a specific ro.te or price, tt.'1til after one-thirty p .r,1" E3.8t;.ern DayliGht
Saving tlme, October 17, 1968.
F-1375
- 2. -
Irnmediately after the closing hour, tenders v1ill be opened at the Federal
Reserve Bru1ks and Branches, follm;ing which public announcement v1ill be made by
the Treasur""J Department of the amount and price range of accept eo_ bids. Those
submitting tenders 1'7ill be ad':ised of the acceptance or rejection thereof. The
Secretary of the Treasury expressly reserves the right to accept or reject any or all
tenders, in "YThole or in part, w-:.c1 his action in any such respect sha.ll be final.
Subject to these reservations, noncompetitive tenders for $400,000 or less vlithout
stated price from anyone bidder ,-Jill be accepted in full at the averaee price (in
three decimals) of accepted competitive bids. Payment of accepted tenders at the
prices offered must be made or completed at the Federal Heserve Bank in cash or other
immediately available flmds 'on October 24, 1968, provided, hOl'lever, any qualified
depositary i-1ill b~ permitted to r:ake payment by credit in its Treasury tax and loan
account for Treasury bills allotted to it for itself 8~d its customers up to any
amount for ,\>lhich it shall be qualified in excess of existing deposits "t'lhen so
notified by the Federal Reserve Bank of its District.
The income derived from Treasury bills, '\>lhether interest or gain from the sale
or other disposition of the bills, does not h~we any exemption, as such, snd 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 arc subject
to estate, inheritance, gift or other excise taxes, whether Federal or state, but
al'e exempt from all taxation now or hereafter lliposed on the prinCipal or interest
thereof by any State, or any of the possessions of the United states, or by any
local taxing au.tho:;:oity. For purposes of taxation the amount of discount at "'hlch
Treasury bills are originaJJ.y sold by the United States is considered to be interest.
Under SectioTlS 154 (b) encl 1221 (5) of the Internal Revenue Code of 1954 the amount
of discolmt at i'lhich bills issued hereunder e.re sold is not considereo. to accrue
until such bills are sold, redeemed or otheIl'lise disposed of, and. such bills are
excluded fron consideration as capital assets. Accordingly, the mmer of Treasury
bills (other thc.n life ins 1).rance companies) issued hereu..'1der need include in his
income tax return only the difference betvleen the ])rice paid 1'01' such bills)
whether on original issue or on subsequent purchase, and the amount actually
received either upon sale or redemption at maturity durine the taxable year for
1'1hich the return is made, as ordinary gain or loss.
t
Treasury Department Circula:c lIo. 418 (current revision) Dnd this not.ice,
prescribe th~ tern!s of the Treasul'Y bills and eovern the conditions of their issue.
Copies of the circula.:c may be obtained from any Federal Reserve Bank. or Branch.
TREASURY DEPARTMENT
WASHINGTON, D.C.
October 11, 1968
FOR IMMEDIATE RELEASE
TREASURY HONORS EMPLOYEES
ANNUAL AWARDS CEREMONY
In its Fifth Annual Awards Ceremony, the Treasury Department
today honored 132 employees for outstanding service and significant
operational contributions.
In the fiscal year ended last June 30, Treasury employees
received more than $620,000 in awards for adopted suggestions for
improved Treasury operations and other outstanding service.
Estimated first year benefits to the Treasury, in the form of
cost reductions and increased efficiency, have averaged $3.3
million annually over the past four years.
Among those recognized at the awards ceremony, held at the
Departmental Auditorium, Washington, D.C., were:
Two persons who received the Alexander Hamilton Award
for demonstrating outstanding leadership while working closely with the Secretary.
60 persons, who during the year had received either
of the Treasury's two top awards, for Exceptional
Service or for Meritorious Service.
31 employees who, through outstanding suggestions or
service, contributed to significant monetary savings,
increased efficiency, or distinct improvements in
government service.
29 employees for excellence in furthering special
administrative programs.
Ten supervisors, for notable achievements in
encouraging employee contributions to efficiency
and economy.
F-1376
(MORE)
- 2 -
In addition, the awards ceremony, honored 15 long-time
career employees of whom eight have served more than 40 years,
three more than 45 years, and four more than 50 years.
The program also carried the names of 21 prominent citizens
upon whom the Secretary had previously conferred the Department's
Distinguished Service Award.
The Awards were presented by the Sec~tary of the Treasury,
Henry H. Fowler, who also honored six Treasury bureaus. The
Bureau of the Mint was cited for outstanding participation in the
performance phase of Treasury Department's Incentive Awards
Program. The Bureau of Accounts was recognized for oustanding
achievement in its suggestions program. The Bureau of Customs
was commended for its action to improve communications and
services to the public, especially at port facilities. The
Inter-nal Revenue Ser-vice was singled out for leadership in cost
r-eduction and management improvement resulting in fiscal year
savings of more than $16 million dollars. The U.S. Secret
Service was r-ecognized for- its safety record among bureaus with
1,000 or more employees. The U.S. Savings Bonds Division earned
the pr-ivilege of permanently retaining the plaque for safety for
its r-ecor-d among bureaus with less than 1,000 employees.
Attached is a list of those r-ecognized, and their citations.
EMPLOYEE SUGGESTIONS AND SERVICES
Recognition by the Secretary of outstanding suggestions or exemplary
services which served to effect significant monetary savings, increased
efficiency, or improvements in Government operations.
SAM R. BLAND (Retired), Formerly Supervisory Accountant, Bureau
of Accounts
For outstanding contributions in the development and improve~
ment of central financial reporting of the Government, including
the recent implementation of recommendations of the President's
Commission on Budget Concepts. Special Service Award-$500.
BENNIE L. COOPER, Supervisory Tax Examiner, Southeast Service Center, Internal Revenue Service, Chamblee, Ga.
For suggesting elimination of IRS Form 2889 furnished to the
Social Security Administration, since she recognized that they
were already receiving a computer printout containing the information; thereby saving many man-hours spent in preparing this
form. Estimated savings-$16,OII. Suggestion Award-$655.
WILLIAM H. HAGER, Administrative Clerk, Office of the Assistant
Secretary for International Affairs
For significant contributions to the Office's worldwide supply and
property accounting operations. Superior Work Performance
Award-$500.
CHARLES E. HARTMAN, Jr., Assistant Foreman, Coil Processing, Postage
Stamp Division, Bureau of Engraving and Printing
For initiative, ingenuity and resourcefulness in making major
improvements in the layout for wrapping and packaging postage
stamp coils. Estimated savings-$30,754. Special Service Award$805.
5
MARTIN W. HASKELL,
cisco, Calif.
Jr., Special Agent, U.S. Secret Service, San Fran-
For excellent performance and outstanding courage in a situation
of extreme public importance, involving great personal danger.
Special Service Award-$500.
HARVEY L. JONES, Formerly Tool and Die Maker, U.S. Mint, Denver,
Colo.
For suggested improvements in coinage operations which resulted
in the reduced maintenance and increased life of blanking die
sets, improved quality of cut blanks and a considerable reduction
in the grinding time of coinage die bodies. Estimated savings$51,706. Suggestion Award-$1,750.
TONY Z. KENNEDY, Machinist, Construction and Maintenance Division, Bureau of Engraving and Printing
For developing a method which substantially reduced inking time
on presses used to print serial numbers on currency. Estimated
savings-$43,995. Suggestion Award-$870.
GERALD H. LIPKIN, National Bank Examiner, Office of the Comptroller of the Currency, New York, N.Y.
For outstanding competence and resourcefulness in recruiting and
developing a large number of Assistant National Bank Examiners
during a period of dynamic banking growth. Special Service
Award-$500.
BERNICE H. McALLISTER (Retired), Formerly Tax Technician, Cleveland District, Internal Revenue Service
Through her diligence she uncovered fraudulently filed Federal
individual income tax returns. Estimated savings-$lOO,OOO. Special Service Award-$500.
RUBY K. PETERSON, Technical Assistant to the Director, Interpretative
Division, Office of the Chief Counsel, Internal Revenue Service
For the highly exemplary manner in which she discharged her responsibilities, thereby increasing the operational efficiency of the
Division. Superior Work Performance Award-$500.
6
CHARLES E. PHILLIPS, Industrial Engineering Technician, Engineering
Division, Bureau of Engraving and Printing
For proposing and developing an idea which increased the production of Food Coupons by approximately 14.3 percent. Estimated savings-$UO,OOO. Special Service Award-$1,160.
BRENTON G. THORNE, Assistant Regional Commissioner (Alcohol and
Tobacco Tax), Western Region, Internal Revenue Service, San
Francisco, Calif.
For a suggested procedure to insure compliance with licensing
regulations issued under the Federal Firearms Act. Estimated
savings-$10,OOO. Suggestion Award-$500.
JOHN J. WEISS, Representative in Trusts, Office of the Comptroller of
the Currency, Chicago, Ill.
For outstanding technical competence, resourcefulness and ingenuity in formulating a revision of trust department examining
procedures. Estimated savings-$16,025. Suggestion Award$655.
JOHN M. WROTH, Criminal Investigator, Bureau of Customs, Miami,
Fla.
For alertness and intuition which resulted in the arrest of two
persons and eventual seizure of approximately 25 pounds of
heroin. Special Service Award-$750.
RICHARD J. WYCHE, Machinist, Construction and Maintenance Division, Bureau of Engraving and Printing
For modification to die bars on postage stamp perforating-coiling
machines which tripled their usage. Estimated savings-$15,115.
Suggestion Award-$630.
MICHAEL J. LAPERCH, Jr., Special Investigator
HENRY D. PYLA, Formerly Special Investigator
Alcohol and Tobacco Tax Division, North Atlantic Region, Internal
Revenue Service, New York, N.Y.
For their outstanding performance on an undercover assignment
relating to the operations of a dangerous extremist organization.
Group Special Service Award-$800.
7
PLASSIE WILLIAMS, Spttial Investigator, Alcohol and Tobacco Tax
Division, Central Region, Internal Revenue Service, Cincinnati,
Ohio
JAMES F. COLLINGTON, Special Investigator
JOHN H. WADDOCK, Special Investigator
Alcohol and Tobacco Tax Division, North Atlantic Region, Internal
Revenue Service, New York, N.Y.
For their outstanding performance on an undercover assignment
relating to illegal traffic in firearms. Group Special Service
Award-$l,OOO.
JAMES LANE, Special Agent
LEROY MARTIN, Special Agent
ALBERT REIDER, Special Agent
JOHN B. SIDDALL, Special Agent
JAMES ZIEMBA, Special Agent
NICHOLAS GAGLIO, Special Investigator
MARTIN PASCALE, Special Investigator
JAMES A. TAYLOR, Special Investigator
TERRY LATORE, Shorthand Reporter
JEAN SPONOSKI, Clerk-Stenographer
Intelligence Division, Newark District, Mid-Atlantic Region, Internal Revenue Service
For their unusual performance as a special investigative team
which resulted in the indictment and successful trial of the principal operators of a large wagering combine. Group Special Service Award-$3,900.
8
AWARDS TO SUPERVISORS
Recognition by the Secretary of notable achievements by supervisors
in encouraging employee contributions to efficiency and economy.
These supervisors were selected from Bureau nominees after consideration of such factors as the size of groups supervised, the value of
contributions, and the nature of action by the supervisor.
ARTHUR R. ADAMS, Assistant Regional Commissioner for Administration, Bureau of Customs, Chicago, Ill.
For his significant contribution in leading his Region to the highest position in the Customs Service in suggestions.
SEYMOUR BERNETT, Foreman of Plate Printers, Plate Printing Division,
Bureau of Engraving and Printing
For outstanding personal leadership in promoting the use of the
Incentive Awards Program to reduce operating costs as manifested by the many significant contributions made by his employees.
JEROME F. BRYAN, Chief, Coin Branch, Cash Division, Office of the
Treasurer, U.S.
For developing a keen sense of cost consciousness and maintaining
high employee morale resulting in a 25-percent increase in production with no increase in personnel.
LAVERGNE G. CELESTINE, Supervisor, Claims Branch, Chicago Disbursing Center, Division of Disbursement, Bureau o~ Accounts
For her success in developing in employees a sense of the trUe
importance of their assignments, thus achieving a high level of
cooperation and efficiency.
ELIZABETH C. DOACHOK, Supervisor, Card Punch and Examination
Unit, Issue and Retirement Processing Section, Bureau of the Public
Debt, Parkersburg, W. Va.
For exceptional leadership in promoting employee morale and
for the efficient utilization of manpower and machines which enabled her unit to increase productivity and process a continuing
increased workload.
318-639--68----2
9
MARY N. HALLER, Administrative (Personnel) Officer, Administrative
Branch, Kansas City Disbursing Center, Division of Disbursements,
Bureau of Accounts
For significant achievements in employee motivation through
expert training and guidance and for dedicating herself to the
fullest performance of her total supervisory responsibilities.
DOLORES E. HILL, Supervisor, Payment Processing Section, Diversified
Payments Branch, Waoh;ngton Disbursing Center, Division of Disbursement, Bureau of Accounts
For significant achievements if. :rlining and encouraging employees to improve production coincident with implementation of
a new check processing method.
ROBERT E. LAHAYNE, Foreman, Machine Shop, Construction and
Maintenance Division, Bureau of Engraving ad Printing
For leadership in promoting strong employee interest and active
participation in the Incentive Awards Program, resulting in his
employees making substantial contributions to increased efficiency
and improved work operations.
OLIVE G. McDUFFIE, Supervisor, Reconcilement and Reports Section,
Control Branch, Check Accounting Division, Office of the Treasurer, U.S.
For achieving outstanding effectiveness in encouraging employees
of her section to process a substantially greater workload with a
very minimal increase in staff.
HARRY A. RICHARDSON, Guard Supervisor, Security Division, Bureau
of Engraving and Printing
For commendable leadership and genuine interest in effectively
encouraging employee participation in the Incentive Awards Program, resulting in increased efficiency and improved security.
10
SPECIAL AWARDS FOR EXCELLENCE IN
FURTHERING SPECIAL ADMINISTRA·
TIVE PROGRAMS
Recognition by the Secretary for outstanding contributions to furtherance of a number of administrative programs "'n which the President
has asked for special attention and extra effort from the Executive
Branch of the Government.
MICHAEL A. ALTIERI, Chief, Personnel Branch, Buffalo District, Internal Revenue Service
For outstanding leadership in the Equal Employment Opportunity Program and placement and training of the disadvantaged
in the Buffalo-Niagara Falls area thus providing needed manpower and improving the image of the Internal Revenue Service.
ELSIE M. BOYD, Examiner-Reviewer, Correspondence and Ruling Unit,
Claims and Ruling Section, Division of Loans and Currency, Bureau
of the Public Debt, Chicago, Ill.
For her noteworthy contribution in improving communications
and services to the public by her outstanding ability in the preparation of correspondence and the high caliber of her writing.
HENRY W. COHEN, Inspector, Office of Inspection and Audit, U.S.
Secret Service
For noteworthy contribution in developing and maintaining improved communications and services to the public, involving the
promotion and enhancement of the image of Federal, State and
local law enforcement agencies with civic and business officials
and community leaders, as well as the general public.
ERMA F. CORDOVER, Personnel Officer, U.S. Savings Bonds Division
For providing outstanding guidance and leadership which made
possible meaningful summer assignments for disadvantaged youth
in the numerous small offices of the Savings Bonds Division
throughout the country.
11
EUGENE A. DABNEY, Placement Officer, Personnel Branch, Southeast
Service Center, Internal Revenue Service, Chamblee, Ga.
For outstanding contributions in the placement and training of
the handicapped including the mentally retarded, the blind,
mentally restored, deaf, amputees, and epileptics.
WILLIAM H. DARLINGTON, Superintendent, Melting and Refining
Division, U.S. Mint, Denver, Colo.
For demonstrating outstanding leadership in furthering and
developing the Equal Employment Opportunity Program and the
Program for Improved Communication and Service to the Public.
E. DICKINSON, Assistant Chief, Returns, Receipts and Contact
Branch, Los Angeles District, Internal Revenue Service
LoIS
For outstanding contributions in improving Internal Revenue
Service communications with tax practitioners during the initial
stages of converting the processing of individual income tax
returns from a manual operation to the Automatic Data Processing System.
HERBERT C. DIXON, Jr., Special Agent in Charge, Eisenhower Protective Division, U.S. Secret Service, Gettysburg, Pa.
For noteworthy contribution in developing and maintaining improved communications and services to the public, involving
the diplomatic and effective coordination of public contacts with
former President Eisenhower.
JAMES P. FOGARTY, Program Manager, Office of the Assistant Regional
Commissioner, Data Processing, Mid-Atlantic Region, Internal Revenue Service, Philadelphia, Pa.
For the development of a program which helps to insure that the
public receives prompt, courteous, accurate responses to inquiries
concerning refunds, balance due notices, and Service Center
correspondence.
12
HILDRED H. HANTEL, Administrative Assistant-Office Manager. U.s,
Savings Bonds Division, San Francisco, Calif.
For contributing to the effectiveness of the Saving. Bonds Program by providing intelligent, accurate and prompt information
and services in a pleasing, courteous and helpful manner to the
general public, Government agencies and Savings Bonds volunteers throughout Northern California.
ADELINE N. JORDAN, Section Chief, Office Audit Branch, Los Angeles
District, Internal Revenue Service
For. outstanding efforts in improving the Equal Employment
Opportunity Program and participation in numerous community
activ ities.
ARmOR H. KLOTZ, Director, Appellate Division, Internal Revenue
Service
For leadership in fostering cost reduction and management improvement in the disposal of appellate cases at a saving in 1968
of $6.7 million when compared to 1962 efficiency.
GLENARD E. LANIER, Major, White House Police Force, U.S. Secret
Service
For noteworthy contribution in developing and maintaining improved communications and services to the public rdating to
special and public tours of the White House.
CLEBURNE MAIER, Regional Commissioner, Bureau of Customs, Houston, Tex.
For excellent in furthering the Cost Reduction and Management
Improvement Program, the Equal Employment Opportunity Program and special placement programs.
MARJORIE B. MAKI, District Director, Bureau of Customs, Minneapolis,
Minn.
For outstanding service to the public, the Bureau of Customs, and
to the Federal establishment as Chairman of the Minneapolis-St.
Paul Federal Executive Board.
13
KATHLEEN H. MEIKLE, State Director, U.S. SavingJ Bonds Division,
Salt Lake City, Utah
For her ability to communicate and establish good relations with
volunteers whose support and cooperation are needed to promote
a successful Savings Bonds Program for the state.
CLIFTON A. MOORE, Group Supervisor, Collection Division, Provi·
dence District, Internal Revenue Service
For outstanding accomplishments in Equal Employment Oppor.
tunity, civic affairs, and placement and training of the disadvantaged throughout the state of Rhode Island.
GERALD MURPHY, Systems Accountant, Systems Staff, Bureau of
Accounts
For his leadership of projects for reducing costs and effecting
management improvement in the Bureau of Accounts as well
as for projects that have had an impact on improving financial
management throughout the Government.
RUEBEN H. NELSON, Chief, Personnel Branch, Admjni~tration
visiQn, Phoenix District, Internal Revenue Service
OJ-
For outstanding leadership and implementation of the Equal
Employment Opportunity Program for the Phoenix District and
50 other Federal agencies located in Maricopa County, Arizona.
M. OHANIAN, Supervisory Digital Computer Systems Analyst,
Division of Disbursement, Bureau of Accounts
ALICE
For developing procedures which have expedited payment service to social security beneficiaries, vendors and other recipients
of Government checks and for accelerating' communications to
the public on check payment matters.
FLOkENCE H. PENLAND, Supervisory Information Receptionist, Office
of the Director, Bureau of Engraving and Printing
For outstanding performance, over a period of years, as receptionist for the Bureau of Engraving and Brinting. The efficiency ..
patience, courtesy and tact she displays to the thousands of visitors
have greatly enhanced the Bureau's public image.
14
JANE PERKINS, Management Analyst, Management Analysis Office,
Office of the Treasurer, U.S.
For a high level of leadership and professional ability that has
been a major factor in the success of the cost reduction and management improvement program.
EMORY P. ROBERTS, Assistant to the Special Agent in Charge, Presidential Protective Division, U.S. Secret Service
For noteworthy contribution in developing and maintaining
improved communications and services to the public, involving
the diplomatic and effective treatment provided the White
House Staff and all callers at the entrance of the Office of the
President.
SIDNEY S. SOKOL, Commissioner, Bureau of Accounts
For leadership in fostering managerial practices and a work
environment highly favorable to the furtherance of true equality
of opportunity for employment in the Bureau.
HAROLD M. STEPHENSON, Chief, Division of Loans and Currency,
Bureau of the Public Debt
For accomplishing significant improvements in the quality and
responsiveness of correspondence with the security holding public
and in providing service to the financial community.
KATHLEEN TALTY, Administrative Officer, Washington Disbursing
Center, Bureau of Accounts
For demonstrated leadership and outstanding effectiveness in
planning, administering, and coordinating activities in placement
and training of the disadvantaged and the handicapped.
ROBERT H. TERRY, Director, Western Region Service Center, Internal
Revenue Service, Ogden, Utah
For outstanding leadership in furthering the objectives of the
Equal Opportunity Program and the promotion of fair housing in
the Ogden area.
15
D. WALTER, Office Management Specialist, Securities Division,
Office of the Treasurer, U.S.
MARIE
For exemplary performance in serving the public and stimulating
effective employee relations with the public in the processing of
Government securities transactions.
McRAE WILLIAMS, Laboring General Foreman, Plant Services Division, Bureau of Engraving and Printing
For outstanding contributions to the Youth Opportunity Program
in assigning 90 disadvantaged youths to meaningful and worthwhile job duties as well as his effective utilization of the services of
retardates, helping them to become useful members of society.
16
THE SECRETARY'S ANNUAL AWARDS
Th~ Secr~tary
r~cogniz~
of the Tr~asury presents honorary awards ~flch y~ar to
bureaus for outstanding performance in fI number of areas.
SECRETARY'S AWARD FOR INCENTIVE
AWARDS PROGRAM (PERFORMANCE)
Bureau of the Mint
For the best overall results in effectively recognizing employee
performance which significantly exceeded normal job requirements. Over 7 percent of all personnel of the Bureau of the Mint
received cash awards and 8.7 percent of eligible personnel received
within-grade pay increases for high-quality performance during
fiscal year 1968.
SECRETARY'S AWARD FOR INCENTIVE
AWARDS PROGRAM (SUGGESTIONS)
Bureau of Accounts
For the best overall results in the suggestion program during fiscal
year 1968. For each 100 employees on its rolls, the bureau adopted
20 suggestions and had estimated savings of $1,877.
SECRETARY'S AWARD FOR EXCELLENCE IN
IMPROVING COMMUNICATIONS AND
SERVICES TO THE PUBLIC
Bureau of Customs
For a variety of actions taken on a broad front by headquarters
and field employees to improve port facilities and services, to establish new mechanisms for the exchange of information with the
importing public, and to take every possible means to inform and
educate the public on Customs requirements.
17
SECRETARY'S AWARD FOR SIGNIFICANT
ACCOMPLISHMENT IN THE COST
REDUCTION AND MANAGEMENT
IMPROVEMENT PROGRAM
Internal Revenue Service
For creative and effective leadership that resulted in the best
overall cost reduction results in fiscal year 1968. Savings during
this period exceeded $16 million and surpassed the annual goal by
$6 million.
SECRETARY'S AWARD FOR SAFETY
US. Secret Service
For showing the greatest reduction in the frequency of disabling
injuries over the preceding 4-year average among bureaus with
more than 1,000 employees. The Service reduced its rate to 1.6
injuries per million man-hours worked, a reduction to 33 percent
of the previous 4-year average.
US. Savings Bonds Division
For showing the greatest reduction in the frequency of disabling
injuries over the preceding 4-year average among bureaus with
1,000 or fewer employees. The Division reduced its rate to 0.9
injuries per million man-hours worked, a reduction to 22 percem
of the previous {-year average.
18
CAREER SERVICE RECOGNITION
Recognition by the Secretary of employees in the Washington, D.C.,
area who attained 50, 45, or 40 years of Federal Service during fiscal
year 1968.
50 Years of Federal Service
Mary E. Barrett
Lawrence Fleishman
Rachel E. Fox
T. Leroy Greer (Retired)
Office of the Treasurer, U.s.
Bureau of Customs
Bureau of the Public Debt
Office of the Treasurer, U.S.
45 Years of Federal Service
Robert A. Dillon
Edward F. Ferneyhough
Rae R. Zaontz (Retired)
Office of the Secretary
Office of the Treasurer, U.S.
Internal Revenue Service
40 Years of Federal Service
Wilbur E. Beall (Retired)
Katie M. Devine
George C. Harris
Oscar T. Neal
Paul F. Schmid
Floyd E. Wagner
John C. Walter
Joseph Zlotshewer
Office of the Treasurer, U.S.
Office of the Treasurer, U.S.
Office of the Treasurer, U.s.
Internal Revenue Service
Internal Revenue Service
Bureau of Engraving and
Printing
Internal Revenue Service
Bureau of Customs
19
MERITORIOUS SERVICE AWARD
The Meritorious Service Award is next to the highest award which
may be recommended for presentation by the Secretary. It is conferred on employees who render meritorious service within or beyond
their required duties.
MICHAEL D. BIRD, Formerly Finnncial Economist, Office of Tax Analysis, Office of the Secretary
For significant contribution in the analysis of problems in the
field of individual income taxation.
UNUM BRADY, Assistant Special Agent in Charge, Kansas City Office,
U.S. Secret Service
For outstanding service, unusual competence and personal dedication in the protection of the obligations of the United States
from counterfeiting and forgery.
BURKE, Assistant Special Agent in Charge, Vice Presidential Protective Division, Office of Protective Force5, U.s. Secret
Service
ROBERT R.
For outstanding service, unusual competence and personal dedication in arranging protection for Vice President Hubert H.
Humphrey during his October 1967 visit to Viet Nam to represent the President of the United States at the inauguration of
President Thieu and Vice President Ky of Viet Nam.
THOMAS G. DESHAZO, Deputy Comptroller of the Currency
For outstanding contributions to the growth and development
of the banking industry during a period of unprecedented bank
expansion.
20
WILLIAM B. DUNLAP, Jr., Chief, Internal Audit Division, Office of
the Secretary
For exceptional initiative in directing the internal audit program and in innovating and developing modern methods of
conducting audit operations.
R. COLEMAN EGERTSON, Regional Administrator of National Banks,
Office of the Comptroller of the Currency, Philadelphia, Pa.
For outstanding technical competence, ingenuity, and sustained
superior performance in formulating and maintaining unusually
high standards of bank supervision in the Third National Bank
Region.
ERNEST M. GENTRY (Retired), Formerly Assistant Commissioner,
B urea u of Narcotics
For exemplary performance and dedicated service as Assistant
Commissioner and as District Supervisor, Bureau of Narcotics.
J. ELTON GREENLEE, Director, Office of Management and Organization, Office of the Secretary
For the execution of major management studies which have led
to more effective Departmental programs to reduce costs and
strengthen management controls.
VICTOR H. HARKIN, Officer in Charge, Fort Knox Bullion Depository,
Bureau of the Mint
For the superb leadership he provided a special priority project
and for the general excellence of his performance.
PAUL T. HENNINGER (Retired), Formerly Senior National Bank Examiner, Office of the Comptroller of the Currency, Denver, Col.
For his outstanding professional competence, thoroughness, and
continued high quality performance for 40 years as a National
Bank Examiner
M. HUGHES, Director, Office of Security, Office of the
Secretary
THOMAS
For effective leadership in directing the Treasury's security
program and providing protection to the Department's interests
with a responsible mixture of forcefulness and compassion.
21
MELVIN C. JOHNSON, Supervising Customs Agent, Bureau of Customs,
Los Angeles, Calif.
For outstanding contributions to customs enforcement programs
during 29 years of dedicated service to the Bureau.
J.
MARVIN KELLEY (Retired), Formerly Regional Counsel, Southwest
Region, Internal Revenue Service, Dallas, Tex.
For outstanding executive leadership and significant contributions toward the more efficient handling of all legal matters and
cases in the Region.
HAZEL B. KERN (Retired), Formerly Assistant for Administrative
Management to the General Counsel, Office of the Secretary
For her contribution to the high morale, efficient management
and smooth operation of the Office of the General Counsel.
ROBERT L. LARSON, Director, Kansas City Disbursing Center, Bureau
of Accounts
For exceptional management ability which contributed to significant cost reductions and advances in productivity in conjunction with high employee morale, and strong leadership tn
enhancing the image of the Federal Government.
WILSON LIVINGOOD, Special Agent, Presidential Protective Division,
Office of Protective Forces, U.S. Secret Service
For outstanding service, unusual competence and personal dedication in arranging physical protection for Vice President Hubert
H. Humphrey during his February 1966 visit to Viet Nam.
ALLEN F. MARSHALL, Assistant Director of Personnel (Employment),
Office of the Secretary
For unusual contributions to the growth of sound personnel management in the Treasury Department, especially in furthering the
President's program for placement of the handicapped and other
special employment programs.
22
LILLIAN C. McLAURIN, Treasury Department Librarian, Office of Administrative Services, Office of the Secretary
For outstanding manage-ment and leadership qualities in transforming the Treasury Library into a first-class service capable of
meeting the requirements of high-level professional personnel.
DONALD E. MILLER, Formerly Chief Counsel, Bureau of Narcotics
For exemplary leadership and unusual competence in furtherance
of domestic and international narcotic controls, in contributing
towards addict rehabilitation, and in directing public education
concerning marihuana abuse.
DOLORES D. MORGAN, Personnel Officer, Bureau of Accounts
For dedicated and sustained performance as a staff adviser and
leader, resulting in the continuing improvement of personnel
management within the Bureau.
L. DAVID Mosso, Assistant Commissioner, Bureau of Accounts
For inspired and dedicated leadership in the Bureau and for exemplary performance in representing the Treasury's efforts to
improve financial management throughout the Government.
T. PAGE NELSON, Director, Office of International Gold and Foreign
Exchange Operations, Office of the Assistant Secretary for International Affairs
For outstanding competence and resourcefulness in planning and
directing activities relating to international gold and foreign exchange operations.
MARY F. NOLAN, Director, Employment Policy Program, Office of the
Secretary
For her aggressive leadership of Treasury's Equal Employment
Opportunity Program and her dedication to the principles of
equal opportunity.
21
EDWIN M. PERKINS, Assistant to the Commissioner, Internal Revenue
Service
For consistently demonstrated superior ability and exemplary
service as a special adviser and consultant to the Commissioner on
tax administration problems and plans of national significance.
RICHARD L. POLLOCK, Formerly Financial Economist, Office of Tax
Analysis, Office of the Secretary
For major strides and analyses which led to the development of
better understanding of the effects Gf tax policies in business
investment and in the economy.
WILLIAM A. ROBSON, Regional Administrator of National Banks,
Office of the Comptroller of the Currency, Memphis, Tenn.
In recognition of the outstanding professional competence, devotion to duty, and extraordinary ability displayed while planning
and directing the broad activities of the Eighth National Bank
Region.
GABRIEL G. RUDNEY, Chief, Personal Taxation Staff, Office of Tax
Analysis, Office of the Secretary
For major contribution to the formulation of tax and fiscal policy
in support of major tax legislation.
WALLACE A. RUSSELL (Retired), Formerly Assistant Director, Alcohol
and Tobacco Tax Legal Division, Office of the Chief Counsel,
Internal Revenue Service
For exceptional contributions in developing legal plans, legislative
programs, and management procedures for the Alcohol and
Tobacco Tax activity.
LOUIS B. SIMS, Assistant Special Agent in Charge, Intelligence Division, U.S. Secret Service
For outstanding service, unusual competence and personal dedication in arranging for Vice President Hubert H. Humphrey during
his October 1967 visit to Viet Nam to represent the President of
the United States at the inauguration of President Thieu and
Vice President Ky of Viet Nam.
24
NORMAN E. SIMS, Jr., Deputy Director, Office of Budget and Finance,
Office of the Secretary
For the high quality of his leadership and individual contributions
to the effective financial management of the Department.
STANLEY L. SOMMERFIELD, Chief Counsel to the Office of Foreign
Assets Control, Office of the Secretary
For demonstrated outstanding ability and unusual devotion to
duty in areas of law and policy important to the national security
of the United States.
ROBERT H. TAYLOR, Deputy Assistant Director, Office of Protective
Forces, U.S. Secret Service
For outstanding service, unusual competence and personal dedication in arranging protection for Vice President Hubert H.
Humphrey during his February 1966 visit to Viet Nam to confer
with leaders of Southeast Asian countries.
THOMAS A. TROYER, Formerly Associate Tax Legislative Counsel,
Office of the Secretary
For major contributions to the development and successful completion of significant and complex tax legislation.
HOWARD A. TURNER, Deputy Commissioner for Central Accounts and
Reports, Bureau of Accounts
For outstanding technical and managerial achievements in
developing and implementing the Treasury's Government-wide
accounting and financial reporting innovations embodied in the
recommendations of the President's Commission on Budget
Concepts.
THOMAS W. WOLFE, Director, Office of Domestic Gold and Silver
Operations, Office of the Secretary
For exemplary service and contributions as an economics expert
on monetary policy and debt management, and as a former
Director of the Executive Secretariat.
25
EXCEPTIONAL SERVICE AWARD
This is the highest award which may be recommended for presentation by the Secretary. The award is conferred on employees who distinguish themselves by exceptional service within or heyond their
required duties.
RICHARD D. BARKER (Retired), Formerly Supervisory Digital Computer Systems Analyst, Office of Fiscal Assistant Secretary
For major contributions to the simplification, modernization and
efficient performance of technical fiscal operations of the Treasury
Department, and for high professional competence in the application and design of electronic data processing systems for these
operations.
GERA1lD M. BRANNON, Director, Office of Tax Analysis, Office of the
Secretary
For his exemplary leadership and accomplishments in providing
the substantive and quantitative economic analyses that are key
ingredients in formulating Treasury tax policies.
MANSEL R. BURRELL (Deceased), Formerly Criminal Investigator,
Bureau of Narcotics, Chicago, Illinois
For outstanding courage and devoted service which resulted in
his death during an undercover assignment.
TRUE DAVIS, Formerly Assistant Secretary of the Treasury
For extraordinary leadership and diplomacy in his supervision
of the Bureau of Customs, the Bureau of Engraving and Printing
and, until its transfer to the Department of Transportation, the
United States Coast Guard.
26
HENRY L. GIORDANO, Formerly Commissioner, Bureau of Narcotics
For extraordinary contributions in leading the war against illicit
narcotics.
RUDY P. HERTZOG (Retired), Formerly Associate Chief Counsel (Litigation), Internal Revenue Service
For exceptional legal and managerial ability while occupying a
number of very responsible positions within the Office of the Chief
Counsel, Internal Revenue Service.
JAMES F. KING (Retired), Formerly Assistant to the Secretary for
Public Affairs
For providing the Secretary of the Treasury with sagacious advice,
backed by rapid execution of programs designed to place Treasury
decisions fully and accurately before the public of the United
States.
WINTHROP KNOWLTON, Formerly Assistant Secretary for International
Affairs
For outstanding contributions to this country's efforts to overcome
its balance-of-payments problem, maintain the international
strength of the dollar and meet its vital international economic
and financial responsibilities.
CEDRIC W. KROLL, Government Actuary, Office of Debt Analysis,
Office of the Secretary
For the expert technical advice and contributions on actuarial
matters that he has provided the Treasury Department and the
Federal Government, especially in facilitating progress in consideration of the Truth-in-Lending bill.
JEROME KURTZ, Tax Legislative Counsel, Office of Assistant Secretary
for Tax Policy
For performing a major role on the Treasury Department's fiscal
policy team.
27
MICHAEL E. MCGEOGHEGAN, Deputy Commissioner-in-Charge of the
Chicago Office of the Bureau of the Public Debt
For outstanding contributions to the modernization and effective
management of the record keeping, accounting, and auditing of
savings bonds and other public securities.
PETER D. STERNLIGHT, Formerly Deputy Under Secretary of the
Treasury for Monetary Affairs
For invaluable contributions in the field of debt management
and in the overall formulation of domestic policy especially in
connection with legislation for raising the limit on the national
debt and on the tax surcharge proposed in August 1967.
MELVIN I. WHITE, Formerly Deputy Assistant Secretary for Tax Policy
For contributions in shaping the thinking, within and without the
Treasury, on the nature and structure of tax changes to meet
swings in the economy and in the area of tax reform.
28
ALEXANDER HAMILTON AWARD
This award is conferred by the Secretary to individuals personally
designated by him to be so honored. It is generally restricted to the
highest officials of the Department who have worked closely with the
Secretary for a substantial period of time and who have demonstrated
outstanding leadership during that period.
Chairman of the Advisory Committee on Internanational Monetary Arrangements and Formerly Secretary of the
Treasury
DOUGLAS DILLON,
For his wisdom and sound advice in the development of the
Special Drawing Rights Plan from a mere concept to a formal
international agreement. This plan will pennit the world for the
first time to create the monetary reserves needed to sustain international trade and finance by the exercise of a considered and collective judgment.
SEYMOUR
-
E. HARRIS, Senior Consultant to the Secretary of the Treasury
For significant contributions to the economic and fiscal policies
that have brought unparalleled prosperity to the American people.
29
DISTINGUISHED SERVICE AWARD
The highest Treasury recognition which may be conferred by the
Secretary on an individual not employed by the Department for
unusually outstanding assistance to the Department.
FRANCIS M. BATOR, Professor, John F. Kennedy School of Government,
Harvard University, Cambridge, Mass.
EDWARD M. BERNSTEIN, President, EMB (Ltd), Washington, D.C.
KERMIT GORDON, President, The Brookings Institution, Washington,
D.C.
WALTER W. HELLER, Professor, Economics Department, University of
Minnesota.
ANDRE MEYER, Lazard Freres
&
Company, New York, N.Y.
DAVID ROCKEFELLER, President, Chase Manhattan Bank, New York,
N.Y.
ROBERT V. ROOSA, Brown Bros. Harriman
&
Co., New York, N.Y.
FRAZAR B. WILDE, Chairman Emeritus, Connecticut General Life
Insurance Company, Hartford, Conn.
For distinguished service as members of the Advisory Committee
on International Monetary Arrangements.
HAROLD BOESCHENSTEIN, Chairman, Owens-Corning Fiberglas Corp.,
New York, N.Y.
For distinguished service as Chairman of the Treasury Consulta·
tive Committee of The Business Council.
30
EUGENE N. BEESLEY, President, Eli Lilly
&
Co., Indianapolis, Ind.
ROGER M. BLOUGH, Chairman, Uaitld States Steel Corp., New York,
N.Y.
BERT S. CROSS, President, Minneeota Mining
Minn.
&
Mfg. Co., St. Paul,
PAUL L. DAVIES, Chairman, FMC Corp., San Jose, Calif.
FREDERIC G. DONNER, Chairman, General Motors Corp., New York,
N.Y.
G. KEITH FUNSTON, Chairman, Olin Mathieson Chemical Corp., New
York,N.Y.
THOMAS S. GATES, Jr., President, Morgan Guaranty Trust Co., New
York,N.Y.
FRANK R. MILLIKEN, President, Kennecott Copper Corp., New York,
N.Y.
DAVID PACKARD, Chairman, Hewlett-Packard Co., Palo Alto, Calif.
SIDNEY J. WEINBERG, Partner, Goldman, Sachs & Co., New York, N.Y.
HENRY S. WINGATE, Chairman, International Nickel Co., Inc., New
York, N.Y.
ALBERT L. NICKERSON (Ex officio), Chairman of the Board, Mobil Oil
Corp., New York,N.Y.
For distinguished service as members of the Treasury Consultative Committee of The Busineu Council.
31
••••• ~YERNIIE"T 'RIMTIN' OFFICI,
,U.
Program Supplement
5th Annual Awards Ceremony
Awards listed below were approved subsequenT to the printing of the regular program
EMPIDYEE SUGGESTIONS AND SERVICES
JAMES D'AMELIO, Special Agent, U. S. Secret Service, New York, N.Y.
For outstanding performance in a series of highly hazardous
undercover assignments leading to a number of successful
prosecutions and the recovery of a sizeable amouat of counterfeit bills.
Superior Work Performance Award - $500.
MERITORIOUS SERVICE AWARDS
DONALD S. CHADSEY, Criminal Investigator, Enforcement Branch,
Alcohol and Tobacco Tax Division, Internal Revenue Service
For exceptional technical and managerial ability in the
drafting and review Gf legislation and regulations in
connection with the recently enacted "Omnibus Crime Control
and Safe Streets Act of 1968."
JOHN W. COGGINS, Director, Alcohol and Tobacco Tax Legal Division,
Internal
Reven~
Service
For exceptional technical and managerial ability in the
drafting and review of legislation and regulations in
connection with the recently enacted "Omnibus Crime Control
and Safe Streets Act of 1968."
3]
CHARIES C. HUMPSTONE, Deputy Special Assistant to the Secretary
(for Enforcement), Office of the Secretary
For his important contributions to the effective discharge
of the Department's enforcement responsibilities.
SAMUEL M. JONES, III, Deputy to the Assistant Secretary (Congressional
Relations), Office of the Secretary
For his invaluable assistance to the passage of Treasurysponsored legislation.
THURMOND E. SHAW, Chief, Technical Branch, Alcohol and Tobacco
Tax
Legal Division, Internal Revenue Service
For exceptional technical and managerial ability in the
,
drafting and review of legislation and regulations in connection
vi th the recently enacted "Omnibua Crime Control and Safe
Streets Act of
1968."
EDWARD P. SNYDER, Director of the Office of Debt Analysis, Office
of the Secretary
For outstanding contributions in developing Treasury policy on
new legislation for Federal Credit programs and financial
guidelines for management of loan programs.
JOSEPH L. SPIlMAN, JR., Deputy to the Assistant Secretary (Congressional
Relations), Office of the Secretary
For his invaluable assistance to the passage of Treasurysponsored legislation.
MARK A. WEISS, Special Assistant to the Under Secretary
For highly important staff assistance which contributed
significantly to the making and execution of Treasury
policy.
EXCEPl'IONAL SERVICE AWARDS
RAYMOND J. ALBRIGHT, Assistant to the Secretary for National
Security Affairs
For exemplary
assistance in the achievement of a
coordinated and significant effort by the United States
Government to minimize the foreign exchange costs of our
international
se~ity
arrangements.
JOHN H• .AlJTEN, Director, Office of Financial AnalYSis, Office
of the Secretary
For exemplary service to the Secretary and other officials
through his lucid analyses of economic and financial
developments, his exceptional contributions in the drafting
of public statements, and his mature and balanced judgment.
ROY T. ENGLERT, Deputy General' Counsel
For outstanding contributions to the Treasury Department
for more than 17 years, as an attorney, Chief Counsel
to the Comptroller of the Currency, Assistant General
Counsel and in his present position.
35
T. PAGE NELSON, Director, Office of International Gold and
Foreign Exchange Operations, Office of the Assistant Secretary
for International Affairs*
For outstanding competence and resourcefulness in
planning and directing activities relating to international
gold and foreign exchange operations.
JAMES J. ROWLEY, Director, U. S. Secret Service
For carrying out far-reaching changes in the organization
and operations of the Secret
~ervice,
substantially
enhancing the ability of the Service to cope with the
nation-wide increased incidence of criminal activity
and violence.
*Listed in error under the Meritorious Award category in the
regular program.
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR RELEASE 6: 30 P.M.,
Monday, October 14, 1968.
RESULTS OF mEASURY' S WEEKLY BILL OnERIBG
'!he Treasury Department announced that the tenders for two series of Treasury
bills, one series to be an additional issue of the bills dated July 18, 1968, and the
other series to be dated October 17, 1968, which were offered on October 9, 1968, were
opened at the Federal Reserve Banks today. Tenders were invited for $1,600,000,000,
or thereabouts, of 91-day bills and for $1,100,000,000, or thereabouts, of 182-day
bills. The details of the two series are as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing January 16, 1969
Approx. Equiv.
Price
Annual Rate
98.667
5.273'11
98.638
5.388~
98.649
5.345~
182-day Treasury bills
April 17 , 1969
Approx. Equiv.
Price
Annual Rate
IIf1 turing
97.284
97.250
97.256
Y
5.372J
5.44~
5.428~
Y
98~ of the amount of 91-day bills bid for at the low price was accepted
94~ of the amount of 182-day bills bid for at the low price vas accepted
'ro'lYlL TENDERS APPLIED :roR AND ACCEPTED BY FEDERAL RESERVE DIS1'RICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
'roTALS
AEElied For
Acce~ted
$ 22,559,000 $2,559,000
1,759,365,000 1,082,165,000
18,448,000
33,448,000
35,293,000
35,293,000
14,094,000
14,094,000
43,363,000
36,363,000
176,042,000
150,740,000
46,428,000
55,428,000
19,881,000
19,881,000
34,701,000
34,701,000
28,776,000
35,776,000
111,480,000
116,480,000
--
AEE11ed For
$ 14,474,000
1,576,973,000
17,260,000
40,670,000
5,486,000
32,144,000
160,781,000
27,793,000
18,168,000
17,404,000
21,888,000
186,129,000
$2,346,430,000 $1,600, 928,000a/ $2,119,170,000
AcceEted
$ 14,474,000
759,623,000
7,260,000
27,670,000
5,486,000
23,611,000
110,481,000
18,763,000
If,048,000
16,344,000
12,828,000
88,869,000
$1,101, 457, OOO:?/
af Includes $332,136,000 noncompetitive tenders accepted at the average price of 98.649
~ Includes $162,433,000 noncompetitive tenders accepted at the average price of 97.256
Y
These rates are on a bank discoo.nt basis. 'lbe equivalent coupon issue yields are
for the 91-day bills, and 5.66~ for the 182-day bills.
5.4~
1'''-1377
TREASURY DEPARTMENT
,
WASHINGTON. D.C.
October 16, 1968
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
t 2,700,000,000, or thereabouts, for cash and in exchange for
'l'reasury bills maturing October 24,1968,
in the amount of
~ 2,701,807,000, as follOWS:
91-day bills (to maturity date) to be issued
1n the amount of $1,600,000,000, or thereabouts,
additional amount of bills dated July 25,1968,
mature January 23,1969 originally issued in the
$1,100,161,000, the additional and original bills
~nterchangeable .
October 24,1968,
representing an
and to
amount of
to be freely
182-day bills, for $ 1,100,000,000, or thereabouts, to be dated
October 24,1968, and to mature
April 24,1969.
The bills of both serl~s will be issued on a discount baais under
competitive and noncompetitive bidding as hereinafter provided, and at
'Hturity their face amount will be payable without interest. They
11111 be issued in bearer form. only, and in denominations of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches
to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, October 21,1968.
Tenders will not be
received at the Treasury De~artment, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the baSis of 100,
with not more than three decimals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application therefor.
up
Banking institutions generally may submit tenders for account of
customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
rrom 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
)r trust company.
F-1378
- 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 tnese 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
rlecimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on October 24,1968, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing October 24,1968.
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 froo t
any Federal Reserve Bank or Branch.
000
TREASURY DEPARTMENT
October 16, 1968
FOR RELEASE TO A.M. NEWSPAPERS
THURSDAY, OCTOBER 24, 1968
SECRETARY FOWLER NAMES ROCHE OF GENERAL MOTORS
AS 1969 CHAIRMAN FOR PAYROLL SAVINGS CAMPAIGN
James M. Roche, Chairman of the Board of Directors and Chief
Executive Officer of General Motors Corporation,has been appointed
Chairman of the Uo So Industrial Payroll Savings Committee for 1969
by Secretary of the Treasury Henry H. Fowler.
Mr. Roche served as a member of the Committee and as Chairman
of the Committee's campaign in the Automotive Industry in 1967 and
1968
Under his leadership, his industry and his company achieved
outstanding records in the enrollment of Payroll Savers for the
purchase of U. S. Saving's Bonds and Freedom Shares.
0
The U. S. Industrial Payroll Savings Committee was established
in January 1963 by then Secretary of the Treasury Douglas Dillon to
encourage the thrift habit of regular savings by employees of industry through the regular purchase of Savings Bonds o
Mro Roche succeeds William Po Gwinn, Chairman of United Aircraft Corporation, who will remain active in the 1969 Committee
campaigno Other members of Mr. Rochels Committee include Daniel
J. Haughton, Chairman of the Board, Lockheed Aircraft Corporation,
1967 Chairman; Lynn Ao Townsend, Chairman of the Board, Chrysler
Corporation, 1966 Chairman; Dr. Elmer W. Engstrom, Chairman of the
Executive Committee, Radio Corporation of America, 1965 Chairman;
Frank Ro Milliken, President, Kennecott Copper Corporation, 1964
Chairman; and Harold So Geneen, Chairman and President, International
Telephone and Telegraph Corporation, 196~ Chairman.
In thanking Mro Roche for his willingness to
Savings Bonds capacity, Secretary Fowler observed
the business leaders who will serve with him will
tribution to the stability of the economy and the
cial period o
(more)
serve in this key
that Mr. Roche and
be making a concountry in a cru-
- 2 Mr. Rochels Committee will organize a nationwide Payroll
Savings campaign to increase the number of employees regularly
buying Series E Bonds and Freedom Shares.
During the past six years, the Committee -- which is composed
of the chief executives of America's leading companies -- has conducted highly productive campaigns which have made a major contribution to the sound management of the debt and the Government's
efforts to stabilize the value of the dollar o
The annual sale of the $25-$200 denomination Savings Bonds
and Freedom Shares is now at a level of $3 08 billion -- a record
for the post-World War II period, and a billion dollars higher
than when the Committee was organized in January 1963.
Mro Roche began his General Motors career in 1927 when, at
the age of 21, he took a job as a statistician at the Cadillac
Motor Car Division Chicago sales and service branch. Within a
year, he was named assistant to the Chicago branch manager o
He was transferred to New York in 1931, as assistant region
a1 business manager o In °1933, he was transferred to Detroit as
assistant manager of the Cadillac Business Management Department.
Two years later, he was appointed National Business Management
Manager for Cadillac.
Q
When Cadillac converted to defense production during World
War II, Mro Roche was appointed director of personne10 In 1949,
his area of responsibility was broadened to include public relations o The following year he became general sales manager o
On January 1, 1957, he was appointed general manager for
Cadillac and a vice president of General Motors o He was named
vice president of the General Motors Marketing Staff on June 1,
1960 0 On September 1, 1962, he was elected an executive vice
president and a member of the Board of Directors. He became
General Motors' 13th president in 1965, and assumed his present
post on November 1, 19670
His 1ong~time community participation was recognized in
December 1966 when he received the 1966 Brotherhood Award presented by the Detroit Round Table, National Conference of Christians and Jews o
- 3 -
He is a member of the Board of Directors of the Automotive
Manufacturers Association and the Economic Club of Detroit o He
is a trustee of the National Safety Council. Other memberships
include the Society of Automotive Engineers, the Engineering
Society of Detroit and the American Ordnance Association o
Among his recent civic and community responsibilities are
membership on the New Detroit Committee -- a committee which came
into being following the Detroit civil turbulence in the summer of
1967 -- and the presidency of the Detroit Press Club Foundation o
Mro Roche holds four honorary degrees -- a doctor of laws
from Michigan State University, East Lansing, Michigan; a doctor
of laws from John Carroll University, Cleveland, Ohio; a doctor
of science from Judson College, located in his home town of Elgin,
Illinois; and a doctor of laws from Fordham University, New York
City.
Mro Roche is married to the former Louise McMillan of Elgino
The Roches have three married children, a daughter and two sons o
000
TREASURY DEPARTMENT
!
WASHINGTON. D.C.
R RELEASE 6: 30 P.M.,
ursday, october 17, 1968.
RESUL'l'S 0., mEASURY'S OFFER OF $3 BTI.IJON OF ~ TAX BILLS
TreaSUl7 Depart1lent announced that the tenders for $3,000,000,000, or
ereabouts, at 24.2-day !reasury 2Bx Anticipation bills to be dated October 24,
68, and to JIIlture June 23, 1969, which were offered aD October 10, 1968, were
ened at the Federal Reserve Banks today.
'l!le
The details of this issue are as tallows:
Total applied for - $6,9.0,551,000
Total accepted
- $3,000,231,000
Ba~
ot accepted competitive bids:
!I
Equivalent rate ot discount approx. 5.14.~ per annu.
"
" II
"
" 5 .193;"
"
"
It
"5.17a;""
"
..
Excepting one tender at $3,000,000.
(5~ at tbe amount bid tor at the low price was accepted)
High
- 96.54.5
Law
ATerage
- 96 •509
- 96.519
!I
(includes ~,351,000 entered on &
noncompetitive basis and accepted in
full at the aTe rage price shown be low )
Federal Be serve
Oistrict
Boston
Ilew York
?h1lade 1phia
~leveJ.and
RichJlond
~tlanta.
:hicago
3t. Louis
lirmeapolis
WlsaS City
)aUas
Ian Francisco
1bis is on a bank. discount basis.
9
'!be
Total
Applied Por
• 289,210,000
S,Oe,S93,OOO
295,175,000
-'64.,555,000
85,84.5,000
241,735,000
825,587, 000
204,295,000
272,330,000
132,331,000
160,870,000
94.5,225,000
Total
Accepted
• 211,310,000
923,943,000
171,575,000
189,825,000
$6,9£0,551,000
$3,000,231,000
39,5~,000
1'1,4.35,000
515,537,000
130,655,000
1~,130,OOO
83,481,000
50,070,000
396,725,000
equivalent coupon issue yield 1s
5.4~
TREASURY DEPARTMENT
•
WASHINGTON, D.C.
October 17, 1968
FOR IMMEDIATE RELEASE
TREASURY TO END $5 U.S. NOTE ISSUE;
WILL DISTRIBUTE $100 ~OIES INSTEAD
The Treasury Department announced today that it will soon
stop issuing 55 IJnited States Notes -- the only denomination
of such notes now distributed -- and begin issuing SlOO United
States Notes.
The Treasury explained that the change has nothing to do
with the amount of currency available to commerce but only with
cutting the cost of sorting notes unfit for continued
circulation.
The Federal Reserve System, whose currency comprises
99 percent of pClper lr.oney in circulation, will continUE:: t,
issue the familiar federal Reserve Notes in all present
denominations. Uni ted States Notes make Up less than one
percent of circulating currency and the change will have no
practical effect on money users.
In fiscal year 1967, 340 millin~ unfit 85 notes of both
types -- United ~tates and Federal Reserve -- \Vere t-etired
compared to only 5.5 million in the SlOO denomination. With
elimination of $5 United States Notes there will be fewer notes
to sort by type for retirement and thu~ a cost saving.
By law, the Treasury must keep $322,539,016 of United
States Notes outstanding, but retired llotes ;-nay be replaced bv
any denomination. Eventually, $100 will be the only denomination
in which both Treasury and the Federal Reserve Banks issue
cUJ:rency.
Like the current $100 Federal Reserve Note, the new SlOO
United States Note will bear a portrait of Benjamin Franklin.
Differences in the two notes -- including designations on the
front side and colors in which seals and serial numbers are
printed -- will make them easily distinguishable.
000
F-1380
lREASURY DEPARTMENT
WASHINGTON. D.C.
October 17, 1968
FOR IMMEDIATE RELEASE
TREASURY'S MONTHLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
~l,500,OOO,OOO, or thereabouts, for cash and iri exchange for
Treas:1ry bills maturing October 31,1968,
in the amount of
~4,20l,432,000, as follows:
27~day bills (to maturity date) to be issued
in the amount of $500,000, 000,
or thereabouts,
additional amount of bills dated July 31,1968,
mature July 31,1969,
originally issued in the
$1,000,963,000, the additional and original bills
interchangeable,
October 31,1968,
representing an
and to
amount of
to be freely
36~day bills, for $1,000,000,000,
or thereabouts, to be dated
October 31,1968, and to mature October 31,1969.
The bills of both series will be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and at
maturity their face amount will be payable without interest. They
will be issued in bearer form only, and in denominations of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches
to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Thursday, Oc tobe r 24, 1968,
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. (Notwithstanding the fact that the one-year bills ~ill
run for 365 days, the discount rate will be computed on a oank
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.
up
Banking institutions generally may submit tenders for account of
customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
F-1381
- 2 -
responsible and recognized dealers 1n investment securities. Tenders
from others must be accompan1ed 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.
Irnmed ia te ly after the c los ing hour, tenders wi 11 be opened at the
Federal Reserve Banks and Branches, following which public announcement will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on October 31, 1968, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing October 31,1968.
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 01'
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 froDI
any Federal Reserve Bank or Branch.
000
TREASURY DEPARTMENT
Washington, D.C.
REMARKS BY THE HONORABLE WILLIAM F. HELLMUTH, JR.
DEPUTY ASSISTANT SECRETARY FOR TAX POLICY
BEFORE THE
81st ANNUAL MEETING OF THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
MAYFLOWER HOTEL, WASHINGTON, D.C.
WEDNESDAY, OCTOBER 16, 1968, 10:00 A.M.
THE CRITICAL ISSUE OF PRIORITIES
Much attention in these last weeks before the election
is centered on the probable differences between the future
policies of the United States
dependi~g
upon whether Vice
President Humphrey or Mr. Nixon is elected President on
November 5.
Let me emphasize that regardless of who the next
President is, the pressures on the Federal budget are enormous
and they will continue to grow.
This is a fact of the
political economy, which no President, no Administration,
no Congress can ignore or escape.
These pressures for budget resources result from the
development of new claimants as well as from expansion of
existing programs.
A decade ago, the major interest groups
were the military, the veterans, the farmers, and those
- 2 benefitting from public works.
During the Administrations
of President Kennedy and President Johnson, major new
programs have been introduced in the fields of health and
education.
In 1965 Congress enacted the Elementary and
Secondary Education Act which for the first time provided
major Federal assistance to all the school districts in the
country.
In the same year, Congress also passed the landmark
legislation establishing Medicare and Medicaid.
Thus two large and powerful groups -- those interested
in education and health -- have become successful and major
claimants on Federal budgetary resources.
And many people
interested in education and health will continue to press their
demands for additional Federal support.
Probably none of the
22,000 school boards in the U.S. thinks it has the funds it
needs to educate our children as the parents, teachers, and
school administrators would like.
In addition, there are the
increasing thousands of college and university students who
strain the financial capacity of these institutions forcing
trustees and college presidents to seek additional Federal
support.
As Under Secretary of the Treasury Joseph W. Barr
- 3 -
has said earlier this year* the demands for Federal funds
for education will be clamorous and insistent, and pressed
with the ferocity of a tiger -- no matter which political
party is in power.
No doubt the demands for additional funds for medical
care will grow.
This has been the history of medical care
and health insurance costs in the budgets of other great
industrial nations, most of whom adopted such legislation
before the
u.s.
did.
Thus while education and health are two powerful and
relatively new claimants on the budget, the traditional
claimants are potent also.
National defense, as we all know, is currently taking
almost $80 billion, of which $28.6 billion is estimated as
the cost of Vietnam.
With the end of fighting, however,
only a part of this $28 billion amount is likely to be saved.
Some military forces now in Vietnam will be relocated, some
perhaps disbanded, others may remain in Vietnam.
The military
will seek to catch up in those areas where their budgets have
*Speech made before the Town Hall of California, Los Angeles,
California, June 25, 1968, Treasury Release F-128l.
- 4 been curtailed since 1965, such as construction,and
research and development.
From another approach, the Defense budget in fiscal year
1964 before the large American build-up in Vietnam was about
$54 billion a year.
By fiscal year 1970 inflation will have
added about 15 to 20 percent or roughly $9 billion. to
the pre-Vietnam costs, bringing a 1964 defense effort to about
$63 billion.
This total would be about $15 billion -- or
about half the estimated cost of Vietnam -- below the current
budget level for Defense.
The current budget amounts for Defense and International
Affairs and Finance, of course, reflect the current diplomatic
and security objectives of our Government, and the mission
of these agencies relative to these objectives.
Thus it is
difficult to see how this part of the budget can be much
changed beyond the reductions resulting ftom the hoped-for
peace in Vietnam, given our present objectives and the world
situation.
The recent Soviet occupation of Czechoslovakia
and the Pueblo incident are developments which create more
pressure on the Defense budget.
- 5 -
The other traditional budget claimants are not fading
away:
Veterans (with costs growing with the addition
of the Vietnam veterans)
Farmers (with costs up this year due to an
abundant harvest)
Public works (including in a current definition
of public works not only an expansion of the
interstate highway system, but also space
exploration, and the supersonic transport plane)
Other new claimants are already vymg for support through
the Federal budget.
One need reflect only on the public
pronouncements from all sectors of the community, or the
Republican or Democratic platforms, about meeting the problems
of the cities and of the poor.
Housing, transport congestion
on the ground and in the air, revisions in our welfare and
income maintenance programs, and pollution control are other
programs with popular appeal, political muscle, and large
dollar needs.
Some favor solutions through direct Federal
spending programs, others through generous sharing of Federal
- 6 revenues with the State and local governments, and still
others through tax credits to yield Federal revenues to
subsidize private sector actions.
State and local governments can be expected to continue
their requests for more Federal aid.
Various versions of
expanded grants, greater Federal responsibilities, ·tax credits
for State and local taxes, or revenue sharing to assist the
State and local governments will undoubtedly receive serious,
and in some cases favorable, consideration over the next few
years.
The fiscal year 1970 budget projections indicate the
normal increase in costs of continuing programs in an expanding economy with a growing population.
For example, the normal
grcMth of government services and related costs include three
billion more pieces of mail to deliver; three million more
tax returns to process, and 20 million more travelers to visit
national parks.
Social security benefits increase as a natural
result of a growing number of persons over 65, to say nothing
of the periodic increases in benefits.
This normal growth
will account for about $6 billion of additional expenditures
- 7 in fiscal year 1970.
(In addition legislation has already
been passed authorizing a pay increase to make Federal pay
scales competitive with private employment at a cost of
$3.5 billion in fiscal 1970.)
Thus the new President and the new 9lst Congress will
face large demands and an almost irreversible growth in the
Federal budget.
Fortunately, the receipts from the Federal
tax system rise automatically with the growth in the economy.
Economic growth of about 4-1/4 percent a year together with
high employment and healthy profits will generate an increase
of $12ro $15 billion a year in receipts from our Federal tax
system.
This "fiscal dividend" or "growth dividend" makes
possible and practical the meeting of the higher priority
demands for more public goods and services, as well as
financing the normal growth in Federal spending.
Tax Credits and Other Special Tax Provisions
The current fad in tax proposals is the tax credit.
Tax credits are offered as panaceas to solve most of our
country's economic and social problems.
proposals would include tax credits for:
A partial list of
- 8 Housing for low- and moderate-incomes
New factories in ghettos and rural poverty areas
Job training for the hard-core unemployed
Additional costs of employing older persons
Air and water pollution control equipment
College tuition and fees
The costs of underground installation of
electrical transmission lines
Political contributions
We even had one letter proposing tax credits for married
couples who have celebrated their 25th wedding anniversary.
Tax credits are offered as a cure-all for almost everything.
Now almost all the items on this list are important
problems, and the Federal Government has a significant role
to play in seeking solutions to most of these problems.
The crucial question is how to attack these problems most
effectively and most efficiently; in other words, how to
get the greatest benefit for the budget resources used.
The Treasury does not take a doctrin,aire
position
against tax credits -- witness the investment credit which
- 9 the Treasury recommended and supported.
But the Treasury does
urge that direct spending and loan programs be considered
carefully and thoroughly as alternatives to tax credits.
Tax credits are not all bad -- nor all good -- just as
expenditure programs are not all bad nor all good.
Each
should be judged on its merits -- what it accomplishes compared
to what it costs and whether any alternative would yield a
more favorable benefit-cost ratio.
The case for the invest-
ment credit differs from most other tax credits.
The intent
of tax credits for investment in machinery and equipment is
to promote economic growth, to improve productivity and
efficiency for all businesses and industries.
It has a broad
economic objective, not limited to specific industries or
geographic locations.
There is a mythology about tax credits that they do
not cost anything.
The major reason for this myth seems to
be that tax credits are relatively hidden; they do not appear
in the budget; their cost is not included in the budget totals
or in the functional areas to which they apply; often their
cost is not known.
- 10 Generally tax credits in the Internal Revenue Code
continue for indefinite periods.
Unlike direct spending
and loan programs, there is no periodic legislative review
to determine whether they continue to match national objectives and whether their cost in terms of revenue foregone
fits the benefits obtained from the credits.
The tax credits
are generally open-ended, available to all taxpayers who meet
the conditions prescribed.
There is no statutory limit on
the amount of budget resources they use.
On one occasion an advocate of a particular credit stated
that he was seeking a tax credit because the Congressional
committee which dealt with the expenditures in that area had
turned down the direct spending approach.
Should a tax credit
be acceptable for a purpose for which a case cannot be successfully made for direct spending?
As accountants, you favor clear and full disclosure of
all relevant financial information.
That is what we at the
Treasury favor for tax credits (and other special tax provisions) -- that each one be clearly identified with the
functional objective it is supporting and that each such
- 11 -
credit be costed to show the revenue foregone.
Also in assist-
ing your clients who may be deciding between different types
of machinery, different methods of financing, or expansion
into new markets, you would price out the costs and probable
returns of the different choices.
That is what the Treasury
urges in considering alternative methods of solving various
serious and difficult problems with tax credits, direct spending, or loans.
We urge that there be the same tests of cost effectiveness, contribution to national objectives, full disclosure
in the budget, periodic review, and revision with changing
objectives, as are applied to the spending and loan programs.
It is relevant, and encouraging, to note that Congressman Wilbur D. Mills, Chairman, Committee on Ways and Means,
has taken a strong position against the extension of tax
credits to other objectives, however worthy.
It is also
relevant and encouraging to note that Congressman John W.
Byrnes, ranking Republican member of the Committee on Ways
and Means, has generally taken a position in opposition to
tax credits.
- 12 A new approach, or a fuller development of this approach
of cost effectiveness of special interest to accountants, is
the tax expenditure budget.
Such a budget treats the revenue
cost of special tax provisions as a tax expenditure, an
expenditure through the tax system.
Tax expenditures become
a third means to influence or direct economic activity, in
addition to the two now appearing in the budget, namely,
direct expenditures and net lending.
In a full presentation,
tax expenditures would be presented by budget functions along
with direct spending and net lending directed toward the
same objective.
For example, the Federal budget under the functional
heading of Housing and Urban Development shows about $4 billion
of direct spending and net lending, but nowhere in the budget
appears the revenue foregone through special tax provisions
for the same objectives.
The revenue cost is estimated at
$1.9 billion for the deductibility of interest on mortgages
on owner-occupied homes; $1.8 billion for the deductibility
of property taxes on these same homes; and some additional
millions due to accelerated depreciation on residential real
estate along with a relatively weak recapture provision.
- 13 Comparable examples of special tax provisions are
found in most functional categories in the budget, including
special provisions for the aged, for extractive industries,
for commercial banks and mutual financial institutions, for
certain employee fringe benefits, and for agriculture.
The tax expenditure budget then would include for each
program or function in the budget the full costs no matter
whether direct spending, net lending, or special tax
pro-
visions were the method (or methods) chosen to support the
program or function.
Coordination of Revenue and Expenditure Decisions
The recent long but finally successful battle for the
tax surcharge which resulted in the Tax and Expenditure
Control Act of 1968 raised questions about the budget making
procedures in the Congress when the President submits his
budget each January.
As you know, any requests for tax changes go to the
House Ways and Means Committee and then to the Senate Finance
Committee.
The money bills are considered by the Appropria-
tions Committees in both Houses.
At no point does the
- 14 Congress consider the entire budget, or the relation of
expenditures, loan programs, and taxes to each other, and to
the current and projected economic situation.
The 1968 Revenue and Expenditure Control Act is unique
among recent acts of Congress because it includes in a tax
bill limitations on expenditures and on new obligational
authority.
The Congressional negotiations before this legis-
lation was passed included close contacts between the taxwriting Committees and the Chairmen and other representatives
of the Appropriations Committees.
These consultations were
on an informal basis in 1968, but they did accomplish an
important objective of coordination of revenues and expenditures.
Secretary of the Treasury Fowler pointed out earlier
this year that the Congressional Reorganization Act of 1946
provided for a Joint Legislative Committee on the Budget.
This Joint Committee was made up of all members of the House
Ways and Means Committee, the Senate Finance Committee, and
the House and Senate Appropriations Committees.
The function
- 15 of this Committee was to consider the financial position of
the U.S. Government in light of the President's budget recommendations and set a maximum figure for total expenditures.
The Committee would present this figure as a concurrent
resolution to both Houses.
If adopted, the amount in the
resolution became Congress' instruction to itself to limit
total appropriations.
The Joint Legislative Committee on
the Budget was active during 1947 and 1948, and a concurrent
resolution setting an upper limit on appropriations was
adopted in 1948.
Since then, the Committee has been inactive.
In view of theincreasing importance of the budget for the
economy and to determine Federal programs, a revival of the
Joint Legislative Committee on the Budget -- inactive since
about 1948 -- would be one way to insure better coordination
between the revenue and appropriation legislation.
A regular-
ization of the informal consultations which evolved in the
spring of 1968 would be another path to coordination, without
the formality of a joint resolution required by the Congressional Reorganization Act of 1946.
- 16 For the Treasury, let me commend your interest in tax
policy and tax reform.
I invite you to join in the appraisal
of our present system, using your professional competence
to analyze and evaluate carefully and logically the reform
proposals when they are presented, suggesting improvements
in the recommendations you find weak or misdirected, and
supporting publicly those which your analysis shows will
strengthen and perfect our tax system.
000
TREASURY DEPARTMENT
WASHINGTON, D.C.
R RELEASE 6:30 P.M.,
oday, October 21, 1968.
RESUL'l'S
or
TREASURI I S iflElI.I BILL OnERIlIG
Tbe Treasury Department announced that the teDders for two series of Treasury
115, one series to be an ac1ditioDal issue at the bills dated July 25, 1968, and the
Iler series to be dated October 24, 1968, which were offered on October 16, 1968, were
~ned at the Federal Reserve .,nt' today. ~nders were invited tor $1,600,000,000,
thereabouts, of 91-day bills and tor $1,100,000,000, or thereabouts, of 182-day
11s. The details ot the two series are as follows:
91-4&y !reasury bills
mturing January 23, 1969
Approx. Equ1v.
Price
Amma1 Rate
98.651
S.337i
98.623
5."7j
98.636
S.39G;
MGE OF ACCEPTED
4PETITIVE BIDS:
High
Low
Average
3~
4:5~
182-day Treasury bills
mturing April 24, 1969
Approx. Equiv.
Price
Annual Rate
5.4:14,J
97.263
97.234
5.4:71~
97.24:1
5.~7~
ot the a.ount ot 91-clay bills bid for at the low price was accepted
ot the 8lIlount ot 182-day bills bld tor at the low price vas accepted
rAL TENDERS APPLIED lOR AID ACCEPl!ED IX FEDERAL RESERVE DIS'l'RICTS:
)istrict
:laston
.iew York
?hilade lphia
!leveland
iichmond
~tlanta
!h!cago
Louis
linneapolis
~t.
(ansas City
)allas
)an FranCisco
TO~
Accepted
Appl1ed ror
Applied lor
Accepted
$
5,865,000
$
16,863,000
22,193,000 •
22,193,000:
843,733,000
1,513,258,000
1,693,05',000 1,064,054,000 :
5,323,000
15,323,000
34,426,000
19,426,000. :
34,897,000
39,097,000
39,4:73,000
39,473,000
4,811,000
4.,811,000
12,251,000
12,251,000 :
27,550,000
37,187,000
38,668,000
'0,768,000
58,035,000
136,335,000
150,59i,000 :
177,094:,000
17,702,000
27,402,000
44,689,000 :
4:9,789,000
19,249,000
13,649,000
22,340,000
22,340,000
16,551,000
22,651,000
3S,77~,OOO :
35,775,000
12,134,000
21,134,000
21,428,000
29,128,000
59,829,000
242,776,000
129,316,000
137,316,000
r
$2,293,605,000 $1,600,205,000
!I $2,096,086,000
$1,100,077,000 ~
Includes $307,222,000 Donca.petltive teDders accepted at the average price of 98.636
Includes $146,763,000 DODca.petitive teDders accepted at tbe average price of 97.241
~ese rates are on a bank discount basis.
!lhe equivalent CoopOD issue yields are
5.5~ tor the 91-day b111s, and S.6~ for the 182-day bills.
382
TREASURY DEPARTMENT
October 21, 1968
FOR IMMEDIATE RELEASE
BANKS AND OTHER FINANCIAL INSTITUTIONS
AUTHORIZED TO REDEEM "FREEDOM SHARES"
Secretary of the Treasury Henry H. Fowler today announced
that legislation enabling banks and other paying agents for
u.
S. Savings Bonds to redeem Savings Notes (Freedom Shares)
has been signed by the President.
Formerly, Freedom Shares had to be taken or forwarded to
a Federal Reserve Bank or the Treasurer of the United States for
redemption.
Freedom Shares, which must be bought in combination with
Series E Bonds of the same or larger denomination, were first
placed on sale May l, 1967.
They must be held for one year after
the issue date before they can be redeemedo
000
F-1383
TREASURY DEPARTMENT
WASHINGTON. D.C.
October 23,1968
FOR IMMEDIATE RELEASE
TREASURY OFFICIAL ELECTED
VICE PRESIDENT OF INTERPOL
James Pomeroy Hendrick, Special Assistant to the
Secretary of the Treasury (for Enforcement) ,was elected
Vice President of the International Criminal Police
Organization (INTERPOL) at its recent General Assembly
in Tehran, Iran.
Hendrick, who assumed his present post in April
1967, had previously served Treasury in various enforcement capacities during 14 years as a Deputy Assistant
secretary.
His wartime career included intensive work
on internal security, administration of the Code of
Military Justice and confinement and rehabilitation
of American military prisoners as an assistant to Brig.
Gen. Edward S. Greenbaum and later to Secretary of War
Robert P. Patterson.
Hendrick was the principal U.S. advisor to the
United Nations Human Rights Commission at the time of
drafting and approval of the Universal Declaration of
Human Rights to whose spirit the INTERPOL constitution
specifies adherence in services rendered.
F-1384
(MORE)
- 2 -
Established in 1923, INTERPOL includes 103 member
countries whose enforcement officers meet yearly to
discuss dealing with crimes involving more than one nation.
The INTERPOL Secretariat in St. Cloud, France, provides
year-round service in the exchange of information that
can lead to apprehension of international criminals.
It also conducts symposiums and studies on the techniques
and practices of enforcement.
000
TREASURY DEPARTMENT
-
AF
WASHrNGTON. D.C.
October 23, 1968
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
$2,700,OOO~OOO,or thereabouts, for cash and
exchange for
Treasury bills maturing October 31, 1968, in the amount of
$4,201,432,000, as follows:
in
9 Lday bills (to maturity date) to be issued
in the amount of $ 1,600,000,000, or thereabouts,
additional amount of bills dated August 1, 1968,
mature January 30,1969, originally issued in the
$1,100,928,000, the additional and original bills
interchangeable.
October 31, 1968,
representing an
and to
amount of
to be freely
18~day
bills, for $1,100,000,000, or thereabouts, to be dated
October 31, 1968, and to mature May 1, 19690
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, October 28, 1968.
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-1385
- 2 Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, foll~'ing 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 tnese reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on October 31, 1968, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing October 31, 1968. 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 01'
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 1055.
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 froG
any Federal Reserve Bank or Branch.
000
I
THEASURY DEPARTMENT
Washington
FOR HELEASE ON DELIVERY-'HO~~ORABIJE fHEDERICK IJ, DEMING
UNDER SECRETAllY O}' THE TRE/~SURY FOn MONETARY AFFAIRS
REMAHKS BY THE
AT THE NATIONAL CONVENTION OF
THE BAN1( ADMINISTRATION INSTITUTE
REGENCY HYATT HOUSE, ATLANTA, GEORGIA
WEDNESDAY, OCTOBER 23,
1968, 10:45 A.1L, EDT
THE SHORT A1'.TD LONG OF IT
My talk today deals with the short-run outlook for
Federal finance and with some long-term aspects of the growing
capital requirements for public purposes.
lhe short-run
period is fiscal 1969 -- July 1, 1968, through June 30, 1969.
The longer period cannot be so precisely defined in tcrll1s of
time but may be thought of as covering the next ten to twelve
years -- through the 1970's.
Both short and long-term aspects are important.
They
both have implications for markets, for interest rates, for
debt management, for fiscal policy, and for monetary policy.
The Short-Run Outlook for Federal Finance
To comprehend the short-rnn outlook for Federal finance,
it is highly important to grasp two fundamental background
points -- one substantive and the other technical.
F-1386
- 2 The substantive point is that the Federal Government's
budgot defici t "li 11 swing from $25.4 bi Ilion in fiscal 1968
to less tho.n
~;5
bi Ilion in fiscal 1969
0
That is the key
economic point which I want to develop in detail.
The technical point has to do with the new unified budget
concept introduced in JalLua:J.:'y of this year, based on the
recor,lPlendations of the
Presid~ntially
appointed Commission
on Budget Concepts chaired by David M. Kennedy, Chairman of
the Conti nental I lltnois National Banlt and Trust Companr
0
In general, the new unified budget makes it much easier to
analyze and understand the impact of Federal fiscal policy
decisions on the money and capital markets.
Nevertheless,
since some Federal lending agencies were in the budget in
fiscal 19G8 but either arc or will be out of it in fiscal
1969, when I talk of the differing market impact of Federal
finance in these two fiscal years, I shall do some reconciliation.
I'll go into that point in a bit more detail
later.
Let us loo}: first at the key point of substance.
Enactment and approval in June of the Reve.me and
Expenditure Control Act of 19G8 initiated a major turnabout·
in the fiscal position of the Federal Government and a reversal
of its i.lUpac t upon the money and capi tal markets.
- 3 -
The budget deficit for fiscal 196B was $25.4 billion.
The January Budget Message estimn.ted the fiscal 1969 deficit
at $8 billion, with expenditures projected at $186 1 billion
0
and revenues at $178.1 billion.
The latter figure assumed
legislative passage of the requested 10 percent surcharge
on corporate and individual income tAxes, continuation of
the excise taxes originally scheduled for reduction on April
1, 1968, and the scheduled increase in Social Socprity taxos
on January 1, 1969
0
As passed, the legislation included the surcharge and
excise tax actions o
Italso included a ceiling on expenditures
for fiscal 1969 and required, in addition, a $10 billion cut
in new obligational authority.
The
ceilin~
on fiscal 1969 expenditures, in effect,
requires a $A billion cut in
spendin~.
By the time the
legislation was passed, the original expenditure estimate of
$186 1 billion, which included net Federal lending, had been
0
raised by $4.4 billion, due mainly. to increased costs in
four categories -- Vietnam ($2.3 billion), interest payments
($900 million), veterans' benefits ($400 million), and various
payments from Social Security trust funds ($800 million)
0
While the spending ceiling was set in the legislation at $180.1
billion, increases in these areas were exempted, so that the
effective ceiling became $184.4 billiono
- 4 Subsequent exer1pt1ons were gi vell certain TV A expendi tures,
Commodity Credit progra.ms, and certain matching grants to
the States for social welfare.
The exemptions moan that
noneXClllpted pl'ogl'an:s will not have to be cut further if
exempted expenditures run above estimates.
But cuts of $6
billion have to be ma.de in the nonexempted spending categories.
The midyear budget review, completed just a month or so
ago, estimated fiscal 1969 outlays, including Federal lendinG,
at $18104 billion -- the effective ceiling level.
Revenues
were estimated at $179.4 billion, up from the original estimate
mainly because late passage of the tax legislation had the
effect of throwing some revenue originally expected in fiscal
1968 into fiscal 1969.
The deficit for fiscal 1969 thus was
forecast at $5 billion.
That figure is .likely to be reduced.
Even with the
exemptions noted above, it is expected that fiscal 1969 outlays will stay roughly in line with the ceiltng figure and
run in the neighborhood of $185 bil;ion.
Revenues in
September and October, however, have been running significantly
higher than expected.
Therefore, I expect the fiscal 1969
deficit to be appreciably below $5 billion.
I shall note
later what effect this has on our borrowing plans for the
remainder of this calendar yearo
- 5 -
A budget swing of more than $20 billion will have a
major effect UpOl1 the course of the economy in fiscal 1969,
as well as on the volume of Federal financial demand in the
money and capital maJ'1;.:ets ~
I
certainly do not expect the
economy to shrug off, without notice, the tax-expenditure
packa.ge any more than I expect it to be thrown into a recossion by fiscal overkill.
The economy vms and is stronger than was believed v:hen
fiscal overkill was talked about.
Such weaknesses as were
stressed seemed to be transitory, rather than fundamental.
The~'
probably reflected as much as anything the undesirable
imbalance ill our policy measures which resulted from the
long delay in enactment of the
tax-c~penditure
legislation.
Certainly no one responsible for policy expects
recession to come from the fiscal measures.
The goal is to
slow down the economy to a safe cruising speed -- not to slam
on the brakes for an abrupt stopo
be proceeding smoothly, rather
proceeding.
th~n
The adjustment seems to
abruptly, but it is
The third qua'rter GNP increase was down from
the second quarter rise, but by less than I had hoped.
quarter fiGures should indicate further slowdown.
Fourth
I expect
indeed, we should all hope -- that the retardation will be
gradual but also positive and effectivee
- 6 -
I turu now to the second background"point -- the
technical one.
The new unified budget draws all Federal accounts into
oue budget.
It thus is much more meaningful than the former
budget presentations in measuring the over-all economic
impact of Federal fiscal operations.
The new unified budget includes in its outlay totals
the net lending of Federal agencies -- but only those agencies
ill which there is an element of Federal ownership.
From a
budget standpoint, the net lending concept is measured by
the difference between loan disbursements and repayments.
The latter includes prepayments and direct sales of assets.
It docs not include the issuance of participation certificates, which arc treated as a means of financing, rather
than as negative expenditures.
From a broad economic viewpoint, there is another concept of net lending by Federal agencies.
That concept
recognizes that, while agency activity affects the over-all
allocation of credit, on a net basis it is essentially neutral.
What is borrowed in one sector of the market is used to supply
funds to another.
For my purposes, I shall treat the total of Federal
finance demand on the markets as including direct Treasury
borrowing and agency borrowing without reference to it being
inside or outside the budget.
- 7 The Federal Land Banks and the Federal Home Loan Banks are
not included in the budget totals because they are outside
the budget -- since there is no Federal ownership involved.
The Budget Commission's test for inclusion or exclusion was
Federal ownership.
Government
0
That recommendation was accepted by the
The fiscal 1968 and 1869
bU~Get
include the activities of these two agencies.
totals do not
Nevertheless,
I include their borrowings in my figures on Federal finance
A complicating factor is that Fannie Mae's Secondary
Marl~et
Operations went pri va
Itt,/ September.
Its net lending
consequently is in the fisca~ budgot totall, but the acti vi t.y
of only one quarter is in the 1969 budGet total I have given
you.
Just passed legislation permits the Federal Inter-·
mediate Credit Banks and tho Banks for Cooperatives to retire
their Government-owned stock, and they are expected to be
outside the budget by year-end, although their activities
are included in both the fiscal 19G8 and 1969 totals I have
cited.
But, for my purposes, I include these agency borrow-
1ngs in the total of Federal finance demand.
By these inclusions, I conform more to market appraisal
than to real economic impact or to budget concept.
In this
transition period, this approach -- for market purposes -seems appropriatc o
- 8 -
Now, wi th thonc inlportant
baclq~;l"ou~Hl
points out of the
way, I turn to the specifics of the short-run outlook for
l"ec.le:t'l.'!..l fi no..nce.
It is useful to look at this in half-year periods,
simply
bcc(lu~~e
on revenues.
thero is a strong sCF.sona,l f;:;',ctor operu ting
The first half of each fiscal year -- the July _
Decembor period -- typically sees only about 45 percent of
the entire fiscal year revenues.
January - June period
TIle second half -- the
brings in the other 55 percent.
Apnrt from any rising or fnlliu3 trend, expenditures are
spread fairly evenly throughout the fiscal year.
Thus, even
with a budget in balance, there would bG a deficit in the
July - December period, matched by a surplus in the January June period c
The Treasm:y v.'ould
year and repay in the second.
bOl'~ow
in the fil'st
hal~
This is a major reason why Vie
finance a lot of our first half requirements with tax anticipation bills.
NOw, let us look at the contrast between the two balfyears of fiscal 1968 and the two half-years of fiscal 19690
Remember that the budget deficit for
billion.
fi~cal
1968 was $25.4
While I expect the ].969 deficit to be less than
$5 bi Ilion, I usc the $5 bj,llion figure because it is the
latest official figure.
- 9 -
The swinr; bcb'/cen tho t\'.'o full fisca.l yearf; thus is
$20.4 billion, and it is dividod about equally between the
The dofici t between July - December, 1967, was
lu=tJ.f-yeaJ·s.
$19.7 billioJl; this half-year, va
esti~ate
it at $10.1
billion, a favorable swing of $0.6 billion.
In tho January -
June, lS38, period, the deficit was $5.1 billion; in tho
fj,J.'s t 11:).1.:(
of calonc1ar 18(;9,
Wf~ CX1)(~C t
a curp ltlS of $5. I
b:i.llicli., a fav01'able s\?ing of $10.8 bilJion.
Vie lWCcl
operations.
chanr;es
:i.n
to trans 1a te these bu::1zet
Tiu~t
r:'tCz"!lS
Treasury cash
t1uvt
Fe
:r iGures
into
r.1arl';:ct
!lave to adjust them for
po~i tion,
for
sale~~
of
~;ecuri
ties
ma.inly specials or nonmarkctables -- to the Government
lnves tr:lcll t Accounts, for s:1.1cs of nonmarketa.ble secur i ti os
to other holders, and for Federal Reserve Open liarket
tions.
In
adCition~
op~ra
it will be useful to split borrowings
between direct Treasury issues and agency issues
and add
in not only the agoncy issues that are reflected in the bud.get
but those outside the budget also •. As noted, the latter
adjustment is made solely for
marl~et
impact comparabi Ii ty
the market still tends to view all agency finance as part of
over-all Governmeut finance deinand, whether or not it is
technically
\'1i
thin or wi thout the budget.
- 10 -
The first
cOlllpari~~on
is between July - December, 1967,
and the saMe period in 1968.
After all of the adjustments
noted above, the net market dema.nd of Federal finance
direct Treasury borrowings, plus agency borrowings
both
in and out of the budget -- was almost $15 billion in the
10G7 poriod,
~s
against an estimated $8.5 billion in the
19G3 period -- a swing of more than $6 billion.
Net Treasury
bon:'o\:'ings in the last six months of calendar 19G7 were
about $13 billion; in the similar period of 1968, they will
be just $5.5 billion.
Agency borrowings net in the two
peJ:locls were or will be $1. 7 and $3.1 billion.
But ths real differonce shows up when we break down
the figures into quarters.
In the third quarter of calendar
1967, net market borrowings on direct Treasuries and agencies
totalled about $8 billion.
The third quarter of 1968 saw
comparable borrowings of close to $7 billion -- not much less
than in the same period of the previous year.
But, in the
fourth qual'ter of last year, not Treasury and agency borrowings combined were almost $7 billion.
In the fourth quarter
of this year, they will net out to about $1 billion.
It is highly important to note this pointo
demand of Federal finance on the markets is over.
The peak
The
Treasury has already raised all of the net new cash it
needs in calendar 1968.
- 11 -
In effect, all it needs to do for the
is to rollover its maturing debt.
b~lance
of this year
This afternoon, the
Treasury will announce its debt operations for tho remainder
of 1968.
That announcement
~ill
indicate that, in view of
increased revenues, net cash borrowing for the remainder of
1968 will be unnecessary.
The picture for January - June, 1969, is even more
fHvorable.
In the first six months of this yen.r, direct
Troasury borrowinG, plus agency borrowing -- both inside and
outside the budget -- was almost $3 billion.
In the first
half of calendar 1969, it will be only $1.5 billion.
And,
after adj us tment for Treasury cash, inves tr,len t of Government
Investment Accounts, assumed Federal Reserve Open Market
purchases, and sales of nonmarketables, the swinG will be
almost $9 billion.
That is, Federal finance, in effect, will
be repaying the market $8 billion in the first six months of
calendar 1969, rather than the net borrowing of about $1
billion in the comparable period of 1968.
To summarize, fourth quarter 1937, plus first half 1968,
resulted in net market demand for Federal finance of about
$9 billion.
This was after adjustment for Treasury cash,
purchases of Government Investment Accounts and the Federal
Reserve, and sales of nonmarketables.
It included all direct
Treasury finance, plus all agency borrowings, whether within
or without the budget.
- 12 -
Fourth quarter 19G3, plus first half 1969, will result
in a net market paydown of about $7 billion -- on the same
bo.sis.
I~
Thn t swing of $t.6- bi Ilion in lessened market
~easurcs
financc o
the real impact of the fiscal package on Federal
It is a real swing, and a very
si~nificant
Given this picture, what is the outlook for
rates?
one.
inter(~st
P.t a mintliluln, it is certainly h{)xd to see upward
pJ:c::;:.;sun-:; on them.
runnill~
del~land
In f(1.ct, wi til the ccono:::y
e;~pcctcd
to be
at a lower and safer speed, and \':i th the sharply
lessened requirements for Federal finance, it would seem
reasonable to ey.pect somcwhat lower rates ovcr the next six
to nine months.
This should be healthy for the ecollorny and for Fodera 1
finance.
Financing Public RcquircLlcnts Over the
Longel~
Term
The preceding discussion clearly suggests that, over
the ncar-term future, the pressure on the securities market,
exerted by the public sector should, in the aggregate, diminish
very markedly.
The technical task of financing these reqlrlre-
ments, moreover, should not present undue difficulties.
When we look ahead to the longer term, however -- for
the next
t~n
years or beyond -- the picture is different.
- 13 For here, the financing requirements that can be envisaged
are truly formidable, and there is a pressing need for
finding more imaginative and efficient means of mobilizing
the needed capital.
The area that presents the greatest challenge relates
to the financing of what I call the infrastructure for social
welfare.
In this area, needs have risen with dramatic force
in the recent past -- and promise to advance even more
sharply in the years ahead.
I include in this category
urban redevelopment and renovation of ghettos, enlargement
of public housing, restructuring of public transportation
facilities, combatting air and water pollution, and enlarged
and improved education and health facilities.
Some of these tasks involve continuation of past activities.
Others are essentially
new in character.
But, in
the total, the magnitude of the financing requirements will
be massive.
It may almost be said that the change in quantity
is prospectively so great as to make the financing problem
a change in kind, as well as in amount.
Some of the activities I have cited may be undertaken
and financed entirely by State and local governments.
Some
others may be wholly within the sphere of Federal responsibility.
But, for the most part, these activities will require
some form of Federal assistance to, and Federal partnership
with, the State and local governments.
- 14 What is needed now -- and is, indeed, beGinning to tnkc
place -- is a
this
sea:rchin~
p~l.l'tncrship
SCOiJ8
will cal}
:[01'
amounts of the
direction and financial discipline
local incbpendc:nce and flexibility.
101'
broad clecisjons
1:.C\'!
look as to hm'l
It will require a proper balance
o}~dorly over-~ll
and nmplc
comprchen~~i ve
be developcd in the Illost effecti ve and
CD.Il
satisfactory fashion.
bctv,'ecn
and
011
It
the absolute and relative
needs to bo fin?nced directly from
tl:Xil'-
timl 2.nd thc.; extent to which they can be lJlct ini tially by
bOrJ.'o\'/in:;.
,",'here tax;::.tion is involved, em optimum sharing
of the burden betwcen the Fcderal Governncnt and States anc1
locali ties is required.
In the
C2c;je
of borrowing, questions
arise as to the optimum mix between direct Federal borrowing,
traditional State and local debt financing, and resort to
other, and partly new, types of
~n
borro~ing
arrancements.
all cases, there is a need to search for the most
efficient, economical, and equitable means of financing -means that will optiuize the bGl1ci;Lts and minimize the overall costs to the taxpayer, moans to permit the raising of
funds in the capi tal marl:ets at the lov/est cost feasible,
and means that can be flexibly 2.d:lptcct to chanGing needs.
And, in my
juclp:H:~nt,
it is important thnt the financing
procedu:re be clear and visible, so that intelligent choices
alT.ong 2,ltcrn:1.tivG l';1cthods can be
can be clearly identified.
I;'!::-;'C:O
and subsi dy elemcnts
- 15
~
Let me concentrate here on those spending needs that
are likely to be financed, at least in the first instance,
the issuance of debt, rather than oy tax
largely
throut~h
fuuds.
Clearly, a major share of the emerging needs will
have to be financed in this way.
Th8. t does not mcan, of
course, that the Federal share can be met without a significant contribution from the tax sidc o
contribution n,ty
CUlilC
This tax-financed
about in the for1l1 of dobt service
grants, involvinG payments of interest or of capital -- or
both -- on locnlly issued debt; it may entail outright taxfinanced Federal subsidies granted for projects that also
require lal'gc public borrcHI:i.nr.;; l t may result siw.ply because
States and localities can issue
tax-c~empt
securities.
IIow large arc the cap:i.tal nC0ds of the types considered
here that arc
J.il~(;ly
to arise ovcr tho next few years?
can they bost be financed?
I{oV/
And what impact is such financing
likely to exert on capital markets generally?
The Magnitude oJ the Task.
In 1947, net State and local debt was less than $15
billion.
By 1957, it had Grown to $47 billion; and,
it stooel at
~;113
billion.
last year,
A rac:I.'C continuance of this growth
trend would ra.ise the lovol of outst8.nding State and local
debt ten
1~~rs
from now by about $120 billion -- to a level
of $210 billiono
- 16 But this is only part of the story.
On top of the
norm3,l grO\','th proj ccted, it appears that there will be a
very suu;"tantL:.l increa.se ill State and local deut as a result
of new and expo, llctcd
assis Ltnce.
pr()f~l':ll;lS
i
l1VO 1 vJ 1113
Federal financial
E8 t i :,Iatc;j of the 111:01 y lilagni t.ude of this in-
crease vary widely, not only because the costs of different
progr~~,hs
to s01vc Ollt' Ul't;(?))t socia.l and
environm~ntal pl'oblcll~.
arc oftcn vel')' difficult to project, but ah;o because of
diffel'cnt asscssm.:mts as to hoy/ fully the States and localitics will actually seek to mccct those probler.ls.
Let me j1. v ..;t etto one typo
this point.
0:[
the COll[J'css
calculation that illustrates
cn~Lcted,
or cauw close to
enacting, provision::; fOJ.' FcdcTal c<lpi tal n.ssistance :in the
form of debt service grants for a
expanded State and local programs.
s8~ie3
of new or
~reatly
It is useful to look at
the Copgressional authorizing legislation for such assistance
and them to cctlcu18. tc ""hat it
impli es for the growth of
State and local c1el)t financin[;o
For excunple, Congress authorized addi tional debt service
grants for puulic
next h:o yell's
0
housin~
This wi 11
of $150 million a year for the
[;1;:>.;::8
possi ble a total of about
$3 hi Ilion a ye3x in acldi tional local debt fin,ancing for
thi s purpose.
I fane
aSSW1CE:;
that addi tional COllGi:ess ional
authorizations wi 11 be maintDined 2.t the salile level over the
- 17 next decade, the total added debt frO];l this program alone
would come to $30 billion.
Federal
as~~istan('.e
I am not including projected
to 10Vl incoMe housing unde:;.' tIliE headir,g
this would bc a much larr;er
private as well as public
SUIll,
since it v'ould
CUCCI,I PC:L!::S
housin~.
Using simi lar calculation:::> for three other program
areas on which Congress completed action in 19G8, one
fin~s
a potential net increase in State 2nd local debt over the
next dccz:.de of about $20 billion for colleGe housing, acaclenic
facili tics, and the vocational education progralil, although
some of this will presumably be for private nonprofit institutions.
The debt sel'vice grant approach v/Us also authorized
for the anti-water pollution program in legislation which
passed both the House and the Senate this year, though it
did not survive the adjournment rush o
Assuming a continua-
tion of the annual level of new dollar authorizations in the
enabling legislation, the potential increase in State and
local debt for these
purp6~es
over the next decade is $40
billion.
In addition, the Senate passed a bill in 19G8 which
authorized debt service grants on obligations issued by
State and local bodies, as well as nonprofit institutions,
for hospital modernization.
The needs in this area have been
estimated at over $10 billion.
- 18 Thus, assuming that the Congress follows through on
the debt service grant approach in just these six program
areas, tho potential increase in State and local debt over
the next decade is about $100 billion.
To this amount, one would need to add new financing
require;nents for mass 'transi t, other urban redevelopment
activities, municipal airports, anti-air pollution efforts,
and other areas in which Federal programs have been established and are expected to be increased.
Taking all this
into account, it is not at all difficult to visualize a
total rise ill State and local debt over the next ten years
of $150 billion or more, in addi tion to the "normal" gl'owth
of $120 billion cited earlier.
That would mean that, in
ten yoars, State and local debt would be rising by $30 to
$35 billion or more a year, rather than by $10 billion, or
less, as at present.
To some extent, the new programs cited may substitute
for what I have counted as "normal" growth.
But this overlap
may not be large; the new programs cited will deal essentially
with new types of needs.
Also, the annual new dollar authori-
zations which Congress has now provided for the next few years
may not be continued at the same level for a decade.
Given
the pressure of underlying needs, however, it seems at least
as likely that, on balance, we will see increases rather than
reductions in Congressional authorizations as the decade
progresses.
- 19 lar~e
In citing these potentially very
figures, it has
not been my purpose to suggest that the indicated requirements cannot be financed through debt issues,
My hunch is,
in fact, that, in a strongly crowing economy and with continued progress iu tapping new sources of savings, the task
will, in the end, prove manageable,
If the economy expands
at a rate in real terms of 4 to 4-1/2 percent over the next
decade -- which is quite practicable under intelligent
economic policies in both public and private sectors working
togethe)~
we would have a GNP in 1978 of some $1. 3 tri Ilion,
which would Generate a lot more tax revenues and a lot more
savings,
Dut there can be no doubt that I evell so, the
tasl~
will be more manageable only if we have major improvements
in methods of mobilizing capital.
The Need for New Financing
Approacl~es.
In calling for such i Illprovements, I assume that the
traditional means of financing State and local government
needs will have a continued role, particularly in the financing of tasks that have customarily been entirely in the
province of such governments.
But I do not think that these
means alone will be adequate to cope with the
demands generated by new types of programs
h~ge
additional
or that they can
fully satisfy the criteria of maximum efficiency and economy.
- 20 As I hn.VG inuicatGu p:':'0vioLJsly, by far the IU()st
pl'or,li:3iz 1 :; apprc)1.eh fo:c mobilizinG the needed new capi tnl
in a more
tnG!lt
e~~fic:~(jn.t
m::mncr v:ould seeril to lie in the establiGh-
of a new central fj.nancinr; insti tution for domestic
development -- such as a National Urban Development
E~nk.
Many (Efferent pl"oposals for such a central devclopn18nt
financin~
institution have recently baen offered, and the
neeel is to reach
~.LTeCJl1Cllt
on the more precise characte:dstics
of such an institution.
As I see it, the new il1"S ti tu tion would
i~,sue
its
OW11
securities, backed by Federal guarantee, and relend the
proceeds to
pro~rarn
agencies -- either to Federal lending
agencies or directJ.y to State and local bodies, depending
on
Con~ressional
ancl contX'o 1.
help
decisions as to individual program structure
Asi de
1'\~l..rtctinG
f.l'OlTl
the Federal guarantee, which "iOuIcl
and minimize intel'est costs, a Fede:t'8.1 con-
tri l)'..ltio11, to the e):tcnt nccessa:l.'y 3.nd def;irable,
fl~OU
cOl~lc1 COj!10
clc?_l'ly identified intc:cest r.ate subsidies given bon.'o\','C'l'S
f).'ol;) t:lO iDstitution and p'rovid8d by direct Congressiorlrl.l
appl'opria tions.
The advan t().~';es oJ the nc\",' apprortcll v.'ould be lJ1ani fold.
Fi 1'S t, the nC';! l n~~ ti tn t ion could d 8ve lop one c:f fie i en t
market in~ i
n~:J tru~ilcn t
_.- or
broad 8pPc8.1 to various
f~mi
ly of i IlS trumen ts -- wi tIl
inv~stor
classes.
- 21 It could thus tap a much widor marhet than the many instruments now being issued by a great variety of Federal agencies
and State and local agencies receiving Federal assistance.
The market for such instruments would also be likely to
attain much greater depth than alternative financing means
for urban dovelopment purposes,
Thus, secondary markets
should develop which would allow ready "shiftability" of the
securities among investors.
In speaking of "one" efficient
marketing instrula811t, I do not nccessari ly mean that the
institution would issue only- a Single type of instrument.
It could offer a number of closely related types of securities,
but tailored in ways that broaden the range of reachable
investors, similar to the spectrum of offerings now used in
Fedoral debt management, itself.
But these instruments
should be carefully designed to fit into a cohel'c:at whole.
Probably variations in types should be relatively few for
some time; and their relation to the Treasury's debt, itself,
would have to be carefully
conside~ed.
Second, in contrast to the present fragmentation of
financing efforts, the new institution would automatically
provido for coordination of issuos and
requiring finance.
cont~ol
over prozrams
- 22 'f'lnl;::;,
a centra.l
fin~ncinG
insti tuU.on y/oulcl
h:~ve
the grca 1.8st
J
flexibility in goins to tho mal'J:et a.t the best time and with
the vo 1 Uij1~,
!]';t tUl'i
ti c::.~, and oth01' term:::) and coudi tioils which
would enable it to borroTI at a significantly lower inter8st
ra.t.e than could bo obtained by several smaller, special purpose iDstitutions,
tit;1in~,
season~tl
each with its own special problems of
f'1.ctors, and other
progJ.~am
considerations.
I do not think, incidontally, that tho answer to the
financi.ng probl€Jtns over the next decade will be to establish
a separate new institution for each problem area, such as an
education bank, a pollution control banh:, a
ban1:, ctc.
rfhe d:i.lfic\.11 ty wi ill this
tr~.nsportation
app~~oach
-- in addi tion
to tho duplication of effort and the problem of finc1ing that
much fillClllcing talent ._- is the proli:feriltion of financinu
jnfjtr11111(~nts
v:hich \','ould devolop and the problem of coor.cl:i.n:>..tin:;
these issues in the
marl~et.
Of course, even a central financ-
ing institution could decentralize its lending activities,
oi the)..' in terms of loan purpose or f,80graphic region.
But
I think thETC is a pe:t·sl.n.s~ ve case f01' a centralized npr\j~oC1.ch
to
~obilizin~
Third,
capital funds.
the new approach pC1'ui ts the fliost ccono[:dcal
financinc; of tho Growing new lloads,
lo:>};:(~d
vie\,lpoint of the Federal GovernLlcnt or
State and local governments.
f1"0111
at 01 thor
frOll!
the
the vicv!point of
- 23 -
If all of these new needs were to be financed in the
tax-exempt municipal bond market, which, by its very nature,
is limitod in capacity, the additional volume of financing
would tend to have the effect of significantly increasing
State and municipal borrowing costs, not only for these new
programs but across-tho-board for all State and municipal
government program3.
The proposed new institution would
avoid these problems by operating in a far broader market.
The net cost to the Federal budget, moreover, would bo
minimized through the use of the proposed development bank,
which would issue taxable securities.
'l'hese considerations gi ve the Federal Goverl1ljiCnt and
State and local governments a community of interest in
finding the financing means that will be DoSt economical
for all levels of government combined.
And I am confident
that means can be found which will not iQpinge in any way
on the ultimate fiscal independence of State and local
governments, which now rely mainly on the tax-exempt concept.
Sor::c Implica tion~.
Even if the
fo_r~_~api ta I
bur~conillg
Mar~cts.
new needs that we now
cllvisa~e
arc financed in a much more efficient fashion than is now
the caso, such financin3 vill be bound to have a major impact
on capital and securities markets generally.
- 24 Added to continuing large private requirements -- and
notably the likelihood that new housing needs will exert
much greater pressures on the general capital markets than
in the past -- it will almost certainly mean that the average
level of long-term interest rates will be higher than in the
1950's and early 1960's, when they were quite low.
'i'll).S
their
i;:; r1('-(::
VG1'y
to ililply
that ratcs will
But i t
hiLh J:'Gcord: levels.
as to ho~ lon~ ~o can afford
when a vcrazc i ntcrcst rates
levels indicated
rn~d.nt(';n0.ncc of
fo)~
\':(;T8
It suggosts that continued
th8 Ltatuto!.'Y ~.-·J./1 p2TC(~nt
you 11:: v c thc
r;hu:ct-.l'UJl,
the
p.l:c:;s\'~l'e
clil:1ini~~h sh:n'ply 1
1'2..tcs,
OVC~l'
tJJc:
ceilinG on
lO~lg··
m"-n8.~:;encnt.
CO;-;1lnCnt
sl!CJ).'t Cl.ud
of Fc(ic:!'al
lon[':
fin~.nce
of
it.
clcm~nd
For the
will
y:i th consequently lcs~.-, Pl'cssl1.:ce on int(:j:U/~
l(J:~~c.':
J'UD,
il1fr~tst:nJ.c "Lurc \"::1.11 plac~
SUCCCS:'30::S
raise qnostiOllG
substall tiaJ.ly b8J 0\'1 the
thc intEl'c.
Cone 1 udillf"';
th81'C
(~08G
to continue accepting attitudes
60;;lC ol:::;taclc to :.icnmd I'ccl(;l'al ct8bt
So
not COTilO do'o':':'l fr.OLI
the
118C(;0
vO::l.'y hcztvy
r.-el1 in LC:ctine the
000
h~I.('d
3m:
f~ocial
c~sLanc1s
v:c1:;','.).'(:'
ontl)c
capit~.l
firranci<"1.1 problCi:Js of
TREASURY DEPARTMENT
-
WASHINGTON. D.C.
October 23, 1968
The Treasury today announced that it is offering holders of the no~c0 and
bonds nl",['urins Nover::bcr 15, 19G8, and the bonds maturinG DeccJl~ber 15, 19G8, the
rieht to exch<'.Tl[';e their holdint;s for an 18-month note or a 6~ycal' note.
The sect1l'ities eligible for exch"mgc are as fol10Hs:
5-1!4~~ Treo'0ul~ ~Iotcs of Series D-1968, maturing November 15, 1968,
Tre[t~u:cy Bonds of 1968, maturing November 15, 1958, and
2-1/2? Treasury Bonds of 1963-68, r:laturing December 15, 1968.
3-7/U%
The notes being offered are as fol1o'V1S:
5-5/e~ Treasur'J Notes of Series B-1970, dated November 15, 1968, due
~lay 15, 1970, at 99.85 to yield about 5.73%, and
an C',dditionc.l amount of 5-3/4~ Treasury Notes of Series A-1974, dat.ed
Novcr.lber 15, 1967, due Nove~Ilber 15, 1974, at par. About $1,652
million of such notes are outstanding.
In the case of excl1a.'1Ges for the 5-5/8~ notes subscribers will recci V2
payment of ~l. 50 per $1,000.
C',
co.~l:
In the case of exch::U1e;es of the 2-1/2~ bonds interest will be aJju::;teJ '15 of
Decer,ber 15, 1968: (1) subscTibers submitting silbscriptions for the 5-5l:'J:,~ notes
..Till be cil~;r8ed (¢.!:.S6l60 per $1,000) interest from November 15 to Decerober 15,
1958, on such notes and credited "lith ~12.50 per $1,000) interest frOM Ju.'1C 15 to
Dece,;:bcr 15, 1968, on the 2-l/2~ bonds plus the cash payment (~1.50 per $1,000)
on accoID1t of ~r.e issue price of the notes, for a net payment to then of ~9.33C~O
per $1,000; e.nd (2) subscribers sub:ni ttine; subscriptions for the 5-3/4:j~ notc3 'I':ill
be Charged ($4.76519 per ~1,000) interest from lTovember 15 to DeceMber 15, 19C;8,
on such notes r..nrl credited ',<lith ($12.50 pel' $1,000) interest from June 15 to
DeccE'.bel' 15,1968, on t:o.<2 2-1/2% bonds for a net payment to them of $7.73481 pSI'
$1,000.
The public holds about $5.6 billion of the securities eligible for exchanGe,
and. about ¢G.:3 billion is held by Federal Reserve a!1d Govern:;:ent accoill1ts.
Cash subscriptions for the new notes will not be received.
The boo~<:s -.:ill be eyen for three days only, on October 28 thrOUGh Octooer 30,
for the receipt of sub~c:dptions. Subscriptio:1s DclJI'2S~ed to a, Fcc>=:rc:',l R·.~:- :..r'/t; 3: ,,:---:
or Bl'c'J:~h, or to the O::~:i.ce of the Trcc.surer of the ~jnited StJ.tes, ar.d pb.cei in
the I!lail bc:.~o::::-e ::ddnic;hJc OC'cober 30, I-iill be considered as ti~:ely. The ?Cl.y:.',~:.t c ;j
deUvery date for tr.e notes 'dill be Hoverr,oer 15, 1968. ~hc notes Hill be rr'.1.d-2
F-13J7
- 2 -
available in registered as well as bearer form. All subscribers requesting
registered notes will be required to fUrnish appropriate identifying numbers u
required on tax returns and other documents submitted to the Internal Revenue
Service.
Coupons dated November 15, 1968, on the securities maturing on that date
should be detached and cashed when due. The November 15, 1968, interest due on
registered securities will be paid by issue of interest checks in regular course
to holders of record on October 15, 1968, the date the 'transfer books closed.
Coupons dated December 15, 1968, on the bonds due on that date must be attached.
Interest on the 5-5/8~ notes will be payable on May 15 and November 15,
1969, and May 15, 1970. Interest on the 5-3/4% notes will be pB\Yable on May 15
and November 15 until maturity.
TREASURY DEPARTMENT
WASHINGTON. D.C.
R RELEASE 6:~0 P.M.,
ursday, October 24, 1968.
RESULTS OF TREASURY I S MOBTBLY BILL OFFERING
1he Treasury Department announced that the tenders for two serie s of Treasury
11s, one series to be an additional issue of the bills dated July 31, 1968, and the
series to be dated October 31, 1968, which were offered on October 17, 1968, were
ened at the Federal Re serve Banks today. ~nders were invited for $500,000, 000, or
ereabouts, of Z7~-day bills and for $1,000,000,000, or thereabouts, of 365-day bills.
e details of the two series are as follows:
~er
NGE OF ACCEPTED
mTITIVE BIDS:
High
Low
Average
273-day Treasury bills
maturing July 31, 1969
Approx. Equiv.
Price
Annual Rate
95.883 ijJ
5.42§iJ
95.859
5.461~
95.870
5.446~ 11
~ Excepting 3 tenders totaling $2,591,000;
365-day Treasury bills
maturing October 31, 1969
Approx. Equiv.
Price
Annual Rate
5.38~
94.536 flI
94.506
5.41~
94.524:
5,401,
:
Y
'EI
Excepting 1 tender of $2:38,000
96" of the amount of 273-day bills bid for at the low price was accepted
6~ of the amount of 365-day bills bid for at the low price was accepted
eAL TENDERS APPLIED FOR AND ACCEPTED BY FEIERAL RESERVE DIS'mICTS:
)istrict
:hicago
It. Louis
linneapolis
Ansas City
1a118s
:an FranCisco
AEl21ied For
AcceI:!ted
23,000
$
23,000 $
411,549,000
1,055,189,000
573,000
5,573,000
499,000
3,499,000
931,000
931,000
9,155,000
6,155,000
22,051,000
96,131,000
17,170,000
25,170,000
2,400,000
10,400,000
744,000
744:,000
5,910,000
11,910,000
118 z395 z000
32 z183.z000
Applied For
$ 31,330,000
1,514:,607,000
11,604,000
23,514,000
1,978,000
22,892,000
136,447,000
4:0,666,000
10,4:86,000
7,592,000
12,073,000
174 z 953 z000
IDw.s
$1,317,120,000 $ 500,188,000
sI $1,988,14:2,000
~oston
~w
York
~hi18de 1phia
:ieve1and
lichmond
~t18nta
AcceI:!ted
$
330,000
889,250,000
1,604,000
11,864,000
1,978,000
8,044,000
25,447,000
34:,666,000
486,000
6,592,000
2,073,000
17,2753Z0oo
$1,000,087,000 ~
Includes $16,4:79,000 noncompetitive tenders accepted at the average price of 95.870
Includes $37,171,000 noncompetitive tenders accepted at the average price of 94.524
These rates are on a bank discount basis. The equivalent coupon issue yields are
5.71~ for the 273-day bills, and 5.11~ for the 365-day bills.
i-1388
TREASURY DEPARTMENT
,
WASHINGTON. D.C.
October 25, 1968
FOR A.M. RELEASE
SATURDAY. OCTOBER 26, 1968
TREASURY DEPARTMENT ANNOUNCES
PROPOSED REGULATIONS ON RESTRICTED STOCK PLANS
The Treasury Department today announced the
pllblicativn of proposed regulations affecting the
taxation of restricted stock plans.
The proposed regulations, published in the Federal
Register of Saturday, October 26, 1968, relate to the
rules for determining when and how much compensation
is to be included in the taxable income of an employee
\cr an independent contracter) as a result of a transfer
to him of stock or other property subject to
restrictions which substantially reduce the value of
that property. An example of such a restriction is a
provision that the employee cannot sell the stock before
retiring from the company.
The proposed regulations would not apply to stock
which has been transferred on or before October 26, 1968
Background
Since the Congressional tightening of the rules
relating to stock options in 1964, a growing number of
employers are turning to alternate deferred compensation
arrangements, such as restricted stock plans
The
intended tax effect of these plans is to defer the time
when the employee must pay tax on the compensation
represented by the stock until the restrictions lapse,
often many years after the stock is issued to him, but
then to have the amount of compensation to be taxed limited,
despite this deferral, to the value of the stock (without
its restrictions) at the time it was issued, Thus, all
appreciation subsequent to the issuance of the stock would
be excluded in determining the employee's taxable compensation
and, if taxed at all, would be taxed at capital gain rates
F-1389
- 2 These plans may involve the use of the employer's
own stock or, as has recently developed, the use of stock of
a completely unrelated company or companies. These
arrangements in effect are designed to allow
an employee to use part of his compensation to build up
an investment portfolio, which may even be deversified,
under extremely favorable tax conditions, i.e., without
paying tax on the funds invested over the period the portfolio
is growing and then, when tax is due, paying that tax only on the
value at the time the investment was made, without regard to
appreciation which has taken place in the intervening period o
EXQlanation of Proposal
The Treasury Department has re-examined its rules
in this area to insure that they are consistent with the
tax results of comparable transactionso As a result of
this examination, it has become apparent that the
present rules concerning the issuance of restricted
stock are not consistent with the rules now in effect
for a closely comparable transaction, that of the
issuance of non-qualified stock options. (A non-qualified
stock option is an option issued to an employee which does not
meet the conditions for special tax treatment established
by the Revenue Act of 1964.)
In the latter case, the amount of compensation is measured
by the value of the stock at the time it comes fully
under the employee's control rather than by referring back
to the lower value at an earlier date as under restricted
stock plans. The proposed regulations would achieve
comparable results by measuring the amount of compensation
under a restricted stock plan by the value of the stock
at the time the restictions lapse.
The non-qualified stock option rules are based
on judicial interpretation, including a Supreme Court
decision, (Commissioner v. LoBue, 351 U. S. 243, 1956),
of the applicable statutory provisionso These same
provisions are equally applicable to restricted stock plans
with the result that the same tax treatment should applyo
The Congress has permitted rules different from the general
rules regarding compensation to apply only when specified
conditions are met, as in the qualified stock option rules
revised in 1964. Restricted stock plans do not meet these
special conditions.
- 3 -
Submission of Comments
Those wishing to comment on the proposed
regulations will have a period of 30 days (until November 25,
1968) to submit written statements to Commissioner of
Internal Revenue, Attention: CC:LR:T, Washington, D. C. 20224
A public hearing on the matter will be held starting on
Tuesday, December 3, 1968, at 10:00 AoM. EST, and
continuing if necessary on Wednesday, December 49
.in Room 3313, Internal Revenue Service Building, Constitution
Avenue between 10th and 12th Streets, N.W., Washington, D. C.
Persons who plan to attend the hearing should notify the
Commissioner of Internal Revenue, Attention: CC:LR:T,
Washington, D. C. 20224. Notification of intention to
attend the hearing may be given by telephone, 202-96403935.
000
TREASURY DEPARTMENT
Washington
FOR RELEASE UPON DELIVERY
MONDAY, OCTOBER 28, 1968 PST
REMARKS BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE
FIFTH ANNUAL DEVELOPMENT FORUM
URBAN AMERICA INC.
INTERNATIONAL HOUSE, UNIVERSITY OF CALIFORNIA
BERKELEY, CALIFORNIA - 10:00 AM PST
TAX ASSISTANCE FOR HOUSING
ITS IMPLICATIONS FOR THE FEDERAL TAX STRUCTURE
AND THE FEDERAL BUDGET
Introduction
I appreciate the opportunity to address this dis tinguished group, concerned in its various ways with the
tremendous tasks facing this country in the field of housing
and urban development.
As you know, in the next three decades or so, urban
population and urban area will double.
In this span of time
we are literally confronted with the challenge of building a
second and greatly
advanc~d
America.
This means putting in
place as much housing, educational buildings, office space,
industrial and commercial construction, and their infrastructure as have been accumulated since settlement began
early in the 17th century.
F-1390
- 2 The achievement of this goal will place demands on our
know-how and resources, including our ability to focus
intelligent and rational monetary and fiscal policy in
support of the efforts of the architect, the engineer, the
builder, the financier, and the urbanologist.
Income Tax Assistance and Housing:
A Dilemma
In order to plan our future in a rational and effective
manner, we should be aware not only of the magnitude of the
urban growth trend and the needs it involves, but also of
the vital but often not recognized interrelationship between
housing or construction generally and the Federal tax system.
This interrelationship -- or at least some critical
aspects of it -- is what I would like to discuss with you
today.
The purpose of my remarks is to pose to you the
dilemma which I believe now exists and which plagues our
approaches to the solution of our lower-income housing
problem.
The nature of this
di~emma
can be stated very briefly:
more and better lower-income housing is a prime
goal of national policy
some have suggested that a prime instrument to
achieve this goal is tax assistance, tax subsidy,
tax credits, or what you will
- 3 but careful examination of the tax assistance
presently provided shows difficulties -- even
glaring defects
that have been created by
that assistance with respect to both (1) a
fair tax system and (2) proper budgetary control.
This points to a problem of Choice, of national decision
making.
This dilemma can be avoided.
There are effective non-
tax route methods available to assist and support our housing
efforts:
direct grants, loans, loan guarantees, interest
subsidies, rent supplements, the creation of new financial
institutions such as an urban development bank, and the
strengthening of the existing structure of savings and credit
institutions.
It is our hope, therefore, that the dilemma
can be resolved by using a combination of non-tax routes
to our housing goals.
Let me describe in greater detail" both the dilemma and
some of the reasons for tRis urgent hope that it can be
resolved.
Tax Assistance for investment in rental housing
It is a familiar fact that income tax laws now provide
preferential treatment in the housing field which subsidizes
- 4 both rental real estate operators and housing consumers.
It
is the rental housing investment aspect of this tax subsidy
with which I am primarily concerned today.
The total revenue cost of this tax assistance system to
rental housing investment is difficult to estimate because
of the limitations of available data on housing investment
activity and the complex interplay between the relevant tax
provisions and housing transactions.
runs into very large amounts.
Nevertheless, the cost
Before reckoning the dollar
amount more exactly, let us take a closer look at the tax
assistance now given for investment in all buildings, including rental housing.
The income tax law allows accelerated depreciation methods
which the Treasury considers unrealistic for investors in
buildings.
For new buildings, as on machinery and equipment, the
law permits the use of the 200 percent declining balance and
sum of the years-digits methods.
The former permits the
annual write-off of the original cost of a building at a rate
equal to twice the corresponding straight line rate.
An
approximately similar pattern of write-off is allowed under
the sum of the years-digits method.
Under the 200 percent
- 5 declining balance method, the tax write-off in the first
full year on a 40-year building is 5 percent of cost (twice
the 2-1/2 percent straight line rate).
the
be
years-digi~method
Under the sum of
the corresponding percentage would
40 or about 4.88 percent.
820
For used buildings, the law and regulations permit the
150 percent declining balance method, which provides a rate
equal to 150 percent, the corresponding straight line rate.
The write-off in the first year on a 40-year building would
thus be 3-3/4 percent of cost in the first year.
The following brief summary indicates the first year,
first 5-year, and first lO-year write-off as a percentage of
a building's cost under 25- and 40-year lives and the four
major alternative depreciation formulas:
:
200 percent
: 150 percent
declining
Sum-Of-~h~
declining
:
:
balance
: years dlglt:
balance
:25-year :40- y ear :25-year: 40-y e ar: 2~-year :40- y ear: 25-year :'"4-=-O--y-e-a-r
life
life
life
life
life
life
life
life
Straight-line
Year 1
4%
25
8 %
%
"
5
7.7%
%
4.9%
6.0%
3.75%
First 5-year
total
20
12·5
34.1
22.6
35.4
23.2
26.6
17.4
First la-year
Total
40
25
56.6
40.1
63.1
43.3
1[6.1
31.8
-
-~"
;::x
-
!:C".......
-~
-;r----;~
~~-=-~
~p--
- 6 After accelerated depreciation begins to run low, the
real estate may be resold subject to capital gain rates.
(At the time of sale there is only a limited recapture
i.e., taxation at ordinary rates of a part of the gain on
disposition reflecting a portion of prior depreciation
deductions taken on the property
ation on real estate.
of this excess depreci-
As a result of the limited recapture
the gain representing the excess depreciation is subject
primarily to capital gains tax though the depreciation had
offset income taxed at ordinary rates.)
The seller can then
repeat the accelerated depreciation process on another new
building.
The buyer can recommence depreciation with a
stepped-up basis on the old property using the 150 percent
declining balance method, but with a generally shorter tax
life which may give about as favorable a rate as the 200
percent declining balance rate on the original investment.
In combination \\lith leveraging --. use of a high ratio
of mortgage debt to the property's cost -- the accelerated
depreciation advantages are concentrated on a relatively
thin equity capital commitment, giving rise to the familiar
real estate tax shelter.
Under this arrangement, depreciation
- 7 and mortgage interest not only wipe out the taxable rental
income from the property but also give rise to depreciationcaused "tax losses" which can be applied against other
income.
Real estate investors also enjoy advantages of tax
deferral on their gains through the tax-free swapping rules,
installment sale provisions, and the refinancing to withdraw
equity capital growth as tax-free borrowing proceeds.
They
also enjoy the ability to obtain an early return of a major
part of their equity commitments almost at the outset through
the deduction of interest costs on construction loans and
local property taxes on the entire project.
It is difficult to estimate the over-all revenue cost
of the real estate tax shelter in its various forms and
arrangements, taking into account the fact that while the
capital gains tax provides a partial recoupment of excess
tax depreciation it also encourages repeated cycles of sales
to restore tax basis and r.enew the accelerated write-of
process.
i
Looking at the accelerated depreciation provisions
by themselves, it is evident that where allowable tax depreciation exceeds the actual rate at which buildings are used
up and become obsolescent, income tax liabilities are
- 8 deferred.
The accelerated depreciation tax schedules pro-
vide a faster write-off than this economic erosion process,
and considerably faster in the early years than the rate of
mortgage debt amortization under the typical level payment
plan.
It is conservatively estimated that for all buildings,
the revenue cost of allowing tax depreciation methods that
write off the cost faster than straight line amounts to some
$750 million annually.
For residential buildings, the
revenue cost would amount to about $250 million annually.
Effects of present tax assistance for housing
What do these millions of tax assistance -- actually a
form of Federal outlay -- accomplish?
The difficulty of
answering that question is one of the key objections to the
present system.
There are no reliable quantitative estimates -- and it
may be virtually impossible to obtain them
of the effect
of the present preferential tax provisions on building and
housing investment, production, and maintenance.
We are
spending hundreds of millions of dollars annually, billions
over the years, but we don't really know what we are getting
- 9 for this tax money.
Lacking quantitative assessment of
what we are getting for this tax assistance, what are the
qualitative effects?
In broad outline, the experts tell us, the effects of
the Federal income tax assistance seem to show the following pattern:
the tax assistance provided, through accelerated
depreciation and capital gain treatment, for housing
investors and landlords presumably tends to encourage rental housing supply in the aggregate but who
know how much; the a priori effect one would logically expect -- after all, millions of tax dollars
are being provided annually -- cannot be reliably
measured either in terms of buildings in the aggregate, housing generally, or low-income housing
the tax stimuli are probably more effective for
luxury- and moderate-income rental housing where
profitability and appreciation prospects relativE:
to risk are inherently more attractive than in
lower-income housing
the "trickle-down" supply effect for the lowerincome rental housing market is apparently slow and
uncertain in a growing general housing market
- 10 capital and other resource demands engendered by
the existing tax stimuli probably tend to expand
luxury housing, commercial, office, motel, shopping
center and other forms of more glamorous investment,
squeezing out lower-income housing
the investor tax stimuli depend on and are sensitive
to favorable financial leverage and interest rates
relative to rents, so that they are turned on and
off abruptly with abrupt changes in monetary policy;
as a consequence, investors apparently rank loan
term factors high and ahead of taxes in deciding
whether to invest
the tax benefits are not focused on new construction
but are spread over repeated turnover of older
properties; this may support the market and prices
for older housing but the beneficial feedback to
new construction incentive iS'probably not proportionate to the revenue cost
the present treatment seems to create a tax environment favorable to frequent turnover which tends to
discourage long-range "stewardship" and adequate
maintenance
- 11 -
the tax stimuli probably aid new construction more
than improvement or remodeling of existing housing
since it appears that remodeling of risky lowincome projects cannot be conventionally financed
as well as new housing
We have looked at rough estimates of the revenue cost of
this tax assistance.
We have examined qualitatively some of
the patterns of effect and they are not reassuring.
We have
noted that there are no quantitative assessments of the
effect.
This lack of clear, positive values on the benefit
side is one of the defects of the present tax assistance
system.
Now let us take a look at how the tax subsidy route
fits with the standards of a fair tax system.
Incompatibility of tax assistance with an equitable tax system
The cost of tax incentives for building -- residential
and other -- cannot be counted solely in terms of revenue
aggregates.
It has a compelling significance in terms of its
impact on individual taxpayers, on the sharing of government
costs under a system supposedly dedicated to progressive and
equitable tax principles, and on the phenomenon which so frequently discredits the American income tax system -- the
- 12 individual with millions of dollars of income who makes
little or no contribution to the Nation's revenue resources.
Here we literally "come down to cases."
Real estate operators
The Treasury recently examined a sample of tax
returns of taxpayers
more aptly to be termed "non-
taxpayers"-- engaged in real estate operations who
enjoyed substantial income receipts.
As an illustration of what this examination showed,
out of one group of 13 individual returns for the year
1966, depreciation "losses" reduced the Federal tax
liability of 9 of them to zero and of 2 others to less
than $25.
In the aggregate, the 13 taxpayers studied --
all of whom had very substantial gross incomes -- reported
capital gains on real estate of $1,260,000, depreciation
deductions of $462,334, and net rental "losses" of
$370,000 after deducting all expenses and depreciation.
Over a 7-year
pe~iod
one real estate operator had
capital gains (chiefly from real estate sales) of over
$5-1/2 million, and dividends, management fees, and other
income of nearly $2 million -- a total income of about
- 13 -
$7-1/2 million.
Yet because he had real estate "losses"
arising from depreciation deductions, he paid only
$800,000 in taxes, an average effective rate of 11 percent.
Eleven percent is the effective tax rate paid
annually by a married wage earner (two children) with
around $10,000 of income.
"Passive" investors in real estate
The above tax returns represented individuals actively
engaged in real estate operations.
What about the larger
group of "passive" real estate investors -- investment
bankers, corporate executives, stockbrokers, and other
"high-bracket" individuals -- who participate in syndicates leasing buildings of various kinds?
The Treasury examined the returns of a number of
passive real estate investors for 1964.
Almost without
exception, the real estate investments were made through
syndicates or limited partnerships which leased the
property, often to
su~stantial
business enterprisl
On the average, these taxpayers showed a wage or
salary income of $140,000 and reported real estate deductions in excess of real estate income of $77,500, which
- 14 deductions offset other income.
On
the average, these
real estate investors paid tax on only 53 percent of
what would have been their taxable income except for
these real estate "losses."
This average "loss" of
$77,500 resulted in average tax savings of about
$45,000 per taxpayer or 58 percent of the "loss."
Depreciation and interest expenses amounted to $1.46
for each dollar of real estate income reported.
These investors presumably systematically sought and
exploited unreal "tax losses" from real estate.
The
unreality of these "tax losses" is indicated by the
fact that the cash rentals exceeded all cash expenses
plus mortgage amortization payment so as to provide a
favorable cash return to the taxpayers, calculated at
over 10 percent on equity, on the basis of reasonable
assumptions as to the depreciable base and financing.
Capital gains on disposition
The Treasury has also studied a number of sales
transactions in which gains on real estate were reported.
Nearly all of the properties had been depreciated under
accelerated methods and had operated at a "loss" for tax
- 15 purposes during an average holding period of 4 years,
The properties were sold at an average price in excess
of original cost.
Many of the gains reflected pre-1964
depreciation not subject to "recapture" under the
limited recapture rules adopted in 1964 for post-1963
depreciat-i on.
But even if
thos\~
limited recapture rules
had been [u11y applicable to the gains, about two-thirds
of the prior depreciation deductions would not have
been recaptured at ordinary rates but would have been
reported as capital gain. To be more specific, if the
limited recapture had been applicable to the pre-1963
deprecia;:ion as well, about 70 percent of the gain would
still have been capital gain and about 70 percent of
that capital gain would have been attributable to prior
depreciation deductions on the properties.
1/
This indi-
cates the inadequacy of the limited recapture under the
present statute.
Incompatibility of tax assistance with Budget control
and efficient expenditure allocatio~
Let us turn from the effect on the fairness of the tax
system of this special tax assistance and consider the effect
11
In effect, 80 percent of the gain represented prior depreciation.
- 16 -
011
the Federal Pudget.
We necessarily hear much and concern
ourselves much these days, and properly so, with the need
for effective budgetary control and modern scientific budgetary procedure.
This means counting costs clearly and
accurately and weighing them against the benefits bought with
the taxpayer's dollar.
As we have seen, the present special tax provisions for
buildings are costly to the government.
They result in an
annual revenue reduction of approximately $750 million -perhaps more.
This is roughly the amount of tax expenditures
the revenues foregone -- due to these special provisions.
The direct expenditures (exclusive of net lending) in the
Federal Budget to assist private building construction come to
about $500 million.
Thus the amount of budget resources used
for buildings in the form of tax expenditures is about one
and one-half times as large as comparable direct expenditures.
The general defects of "tax expenditures" as distinguished
from direct spending are well known.
The tax expenditures:
elude periodic scrutiny by the Executive branch and
the substantive Congressional committees in the
particular spending field
- 17 their cost is buried in tax returns and hard to
calculate before or after the event
they escape disclosure to a public which has every
right and need to know what is done with their tax
dollars.
This is not idle rhetoric.
A Congress which spent months
in poring over the details of the new Housing Act of 1968 and
in scrutinizing and setting the appropriations for housing in
the 1969 Budget did not spend one minute in considering the
hundreds of millions of dollars spent through the tax system
on building and housing.
Yet we know that this money has not
given us the kind of housing we want, where we want it, and
when we want it -- indeed, as we have seen, we do not know
what it has given us.
And the fault lies not with the Congress
but with the system, for these millions are literally hidden
they do not appear anywhere in the Budget or in the Internal
Revenue Service's Statistics of
Incom~.
Out of sight, out of
mind.
To sum up on the effects of the present system of accelerated depreciation and related tax treatment of real estate
operators and investors -- the real estate tax shelter
the system
,
- 18 is costly and inefficient as a means of getting
more housing or other construction
offers no assurance that construction resources are
directed to priority needs; indeed
surmised
it may be
it diverts promotional talent, capital,
and other resources into forms of building which are
less essential than many basic housing needs
is basically incompatible with the operation of a
fair tax system and the important objectives of tax
reform
is also incompatible with budgetary responsibility
since it involves substantial tax-expenditure commitments via the revenue side of the budget which escape
the tests and controls of sound modern budgetary
procedures.
Some Historical Background
These observations on the wisdom of the present depreciation system for buildings.are reinforced by its historical
background.
The present accelerated methods were initially adopted
in 1954 with industrial machinery and equipment primarily in
- 19 in mind.
Acceleration of depreciation for buildings in 1954
appears to have been a happenstance, coming along as an
inadvertent appendage to the liberalization directed at
machinery and equipment.
No conscious decision was made to
adopt the present system as a useful device to stimulate
building or to provide us with more or better housing, let
alone lower-income housing.
The present tax system for
1/
buildings just happened.
This "inadvertency" in the extension of accelerated provision to buildings, however, has created a variety of
unanticipated problems.
Because of the typically high rates
1/ Dan Throop Smith, one of the prime architects of the 1954
liberalization, has said, in commenting on the need for
further liberalization for machinery and equipment as of
1961 (prior to the 1962 guideline revision and the investment credit): "It is not needed for real estate, depreciation allowances on which are probably too liberal. These
allowances might even be reduced, though the repeal of the
capital gains provision may take care of the worst of the
present unfair tax advantages achieved through real estate
transactions." Smith's remarks clearly indicate the primary concern in 1954 with liberal tax depreciation on
machinery and equipment., in his words "the most important
form of depreciable property from the standpoint of
industrial productivity." Dan Throop Smith, Federal Tax
Reform, McGraw-Hill Company, New York, 1961, Chapter 6,
p. 157
- 20 -
of debt financing in real estate, the advantages of acceleration based on the entire
depreciabl~
relative to a thin margin of equity
cost loom much larger
ca~ital.
The availability
of the accelerated methods for buildings has thus created a
variety of tax problems:
deferral of tax, conversion of
ordinary income into capital gain, tax-free dividends, spillover of depreciation losses against other income, the
phenomenon of the negative tax on real estate earnings with
the result that the after-tax income from real estate is
greater than the before-tax income, and the development of
all the exaggerated forms of tax avoidance inherent in the
debt-financed real estate tax shelter.
Tax Incentive Proposals for Lower-Income Housing
The present system of tax incentives for building works
badly.
Nevertheless, daily we hear of new plans and proposals
to apply tax incentives to help build lower-income housing.
Lower-income housing -- particularly in ghetto areas -seems to require a higher rate of return than other construction.
The present tax rules themselves tend to direct the
main flow of capital toward higher-income housing where the
tax shelter is most attractive.
Moreover, because of inherent
- 21 income and market limitations on lower-income housing it
would be hard to make it competitive with other more attractive forms of real estate investment.
Tax incentives for
lower-income housing therefore would have to go to extreme
lengths and be highly selective in a form which
provides offsets against other income
limits the investor appeal to wealthy seekers after
the tax shelter
costs more than a direct expenditure approach
Any type of tax incentive based on the cost of the asset
acquired, whether it be a credit or acceleration of depreciation, involves difficulties where there is disparity between
the total cost or basis on which the incentive is calculated
and the equity capital portion of that basis. These problems
would be particularly great (as shown by the experience with
accelerated depreciation) in the case of lower-income housing,
or indeed any real estate, where (1) a substantial part of
construction cost is typically financeq by debt and (2)
leveraging provides returns to equity investors which are
far out of proportion to the equity capital they put up.
Suggestions have been made to get around the leveraging
problem by scaling the incentive down as debt increases or
- 22 basing it in effect on equity capital.
But this would give
rise to problems of tracing the source of equity capital
since financially strong investors can borrow on their
general credit or on other security to
that formally qualifies rs
~ll-equity
~cquire
financed.
an asset
If tracing
is given up as impracticable, scaling the credit up in proportion to equity or down in proportion to debt financing
would then discriminate against those not in a position to
acquire the property without specific debt financing.
Moreover, tax credits and similar incentives for lowerincome housing or any real estate only help persons with
"other" and taxable income.
Thus they do not help smaller
and "local" investors or tax-exempt organizations.
Need for re-examination of present tax assistance for building
With this background, we feel that the facts and financial
logic cast doubt on the desirability of any new tax credits or
similar incentives for housing.
Indeed 1 it seems evident that
our public policy should proceed with a careful re-examination
,..If what we already have in the tax law for building.
The Government -- and the lower-income tenant -- would
both be better off if action were taken to recapture some of
- 23 the $750 million of lost revenue now being used for building
and to apply it in a direct and affirmative way toward the
lower-income housing we so desperately need.
This restruc-
turing of the Budget would make these millions directly
available to carryon present and potential new programs
for lower-income housing and other needs of the cities.
There are means available to provide Federal assistance
directly to private housing activity through:
loans
loan guarantees
interest subsidies
rent supplements
~idies
for site costs
direct purchase and delivery under contract (turnkey
programs)
the creation of an urban development bank dedicated
to financing housing and
simi~ar
urban improvements
the bolstering and expansion of the capability of
the present financial institutions such as banks
and savings and loan associations.
Indeed, Vice President Humphrey a few days ago suggested
a comprehensive housing program combining a number of these
- 24 -
methods.
We would therefore not be left without formidable
resources if we were to relinquish the tax incentive route
as the method for government assistance.
The millions of
dollars we now spend on tax assistance to building could
thus be wisely spent
and we do not have millions of
dollars to waste.
The t:iJiguitous tax incentive -- and the "overworked tax machine"
Let us return to tax incentives and the problems associated with our present system of tax assistance to housing.
My earlier remarks are not intended to single out building
for the problems of tax incentive plans are not limited to
building. The issues involved and my comments apply across
the entire spectrum:
manpower training, pollution control,
education, ghetto industries, regional economic development,
employment of the handicapped, and the various other meritorious objectives for which tax incentives have been advocated.
These incentives have been advanced most recently in full
panoply in the Republican Party Platform -- a platform which
involves tax incentives costing well over $5 billions -- and
in Mr. Nixon's policy positions.
During the past week, The Wall Street Journal in its
editorial column commented very cogently, I believe, on the
- 25 Republican Presidential candidate's proposals for a system
of tax credits in attacking the problems of the cities.
The editorial observed that the tax credit method:
further complicates an already complex tax
structure
provides tax benefits the results of which are
impossible to determine
buries its costs among thousands of tax returns
tends to become imbedded in the tax law after the
need which may have called it into existence has
passed
is especially weak in the area of urban problems
since by itself a hunger for tax savings is a
flimsy basis for building a workable effort
The editorial concluded that "it would be worthwhile to
explore alternatives before cranking up the overworked tax
machine and sending it off in yet another direction."
Mr. Nixon recently submitted written answers to questions
put to him by the Editors of The New Republic.
They asked if
he felt he had explained with sufficient clarity that the tax
incentives he had proposed are forms of Federal subsidy and
- 26 -
are not substitutes for Federal expenditure.
His reply sug-
gested that the difference lay in the ability of tax
incentives to use and strengthen private institutions, disperse administrative responsibilities to lower and more local
levels, and allow
flexibil~ty
and experimentation rather than
"perpetuating over-rigid Federal directives."
His answer touched on and I believe exposed the essential
weakness of the specialized tax incentive idea for furthering
particular objectives.
In such fields as lower-income housing
standards are needed, expert approval of projects is required,
the government must have assurance that it is gettihg something
for the taxpayer's money being used to assist private investors.
If these safeguards are not present, waste and failure to
achieve objectives will result. The receipt of tax assistance
without standards and criteria of performance is understandably attractive for tax-shelter seekers; but it should be
recognized for what it is in a specialized field like housing
a wasteful method of government procurement.
In spending Federal funds, the government is acting to
obtain things in return -- specific, tangible things,. in specified quantities, and in forms which meet specifications.
- 27 ~
Spending cannot be willy-nilly.
If willy-nilliness is
desired as part of the idea of a working partnership with
private enterprise, if we don't want to impose specific
standards, we can make direct expenditures just as willynillyas tax incentives.
Some businessmen -- and Mr. Nixop in his answer to the
New Republic -- apparently see the tax incentive as a simple,
automatic and self-enforcing method in contrast with other
ways of dealing with the Federal Government.
But they have
been misled I think in their approach to tax incentives for
social welfare purposes by the experience of business under
the 7 percent investment credit for new machinery and equipmente
That credit does work simply and automatically, for
its purpose and concept are far different in nature from the
tax incentives now being suggested.
The only questions
involved under the allowance of the investment credit are
whether it is a new machine, what is its cost, and is its
depreciable life more than a certain number of years.
The
answers to all these questions, we must remember, were
determined by already existing tax ruleso
Internal Revenue Agents do not ask:
Is the purpose of
the machine to meet a special need in the business; is it
- 28 -
in:! illg
used only for that purpose; it is really effec tive
for that purpose -- the kinds of questions they would have
to decide under an anti-pollution incentive.
Agents do not ask:
Is the machine to be used in a
depressed rural area, or an area of urban employment; was
it a "run-away" machine from another area; is its operation
so automated that it will not encourage significant employment -- the kinds of question they would have to decide for
the business as a whole under a tax incentive for location
in depressed rural or urban areas.
Agents do not ask:
Is this a special type machine; is
the machine being properly used and properly cared for; what
are its daily maintenance costs; what overhead costs are
allocable to it as compared with ordinary machines; did it
displace another machine; was it obtained from a qualified
supplier; what was being done with it when it temporarily
broke down -- the kinds of questions they would have to
decide for employees under a manpower training incentive.
Agents do not ask:
will the machine turn out a product
at a cost that customers with limited funds can afford to
buy; will the products be of the type and design and character
- 29 -
that we desire those customers to have; are other machines
better equipped or designed to turn out that product more
efficiently -- the kinds of questions they would have to
decide under a tax incentive for lower-income housing.
The purposes and concept of the investment credit and
its relationship to the effect of our tax system on incentives to invest were thus served by the broad, blanket
approach of that credit.
But no one is prepared to urge
that such a blanket approach would be appropriate for these
social areas.
We will find the same complexity, and the same inadequacy
of any simple, automatic tax incentive solution, wherever we
turn in these areas.
There are inherent difficulties and
inefficiencies in the use of tax incentives to cope with the
specific characteristics of these social problems.
Take as a simple but important illustration the proposal
in the Republican Platform that "the
fo~er
100 percent income
tax deduction will be restored for medical and drug expenses
for people over 65."
Even this most humanitarian type of
tax incentive -- for medical care for the elderly -- cannot
stand up under close analysis.
It is innocuous on its face
- 30 and who can be against this generosity to the elderly?
it costs $200 million.
But
More importantly, who gets the
$200 million:
45 percent would go to taxpayers with incomes
over $50,000 -- 3 percent of the aged.
70 percent would go to taxpayers with incomes
over $20,000.
4 percent would go to the aged with incomes
under $5,000 -- who constitute about
30 percent of the aged.
A very strange way to distribute $200 million worth of medical
assistance to the aged -- and a way no one would follow if
the $200 million were spent directly.
And so it is with all these fields.
Once we pass the
phase of urgent stereotyped pleas for a tax incentive, of
wrapping up these huge social problems in the paragraph or
two, or even the single sentence, of
incentive," and we move
OR
'~et's
have a tax
to the exploration of the problems
in depth and of the alternatives available -- when this occurs
we then see the beginnings develop of a needed manifold approach.
- 31 -
Rr--as\\esaw earlier in the discussion of tax assistance
to housing -- there are available a wide arsenal of programs
and methods outside the tax system by which the Government
can provide direct assistance to meet our social needs.
Moreover, these direct measures do not have the potential
for making tax-free millionaires as do tax incentives -- as
we saw in the concrete cases considered under the present tax
treatment for building.
The use of tax incentives in company
with any efforts at Federal tax reform would thus be a case
of one step forward and two steps backwards.
The possibilities for assistance outside the tax system
are indeed far wider than the normal dialogue in this field
has indicated.
Thus, Secretary Clifford's recent speech on
the many ways in which our vast military procurement can
contribute to the social needs of our country opened up
whole new vistas -- concentrated research in lowering the
cost of housing through advances in technology and design;
the construction of a whole new generation of model hospital;
the use of the military school system as a catalyst to develop
our new educational technology; the use of procurement procedures to attack the problems of hard-core unemployment.
- 32 nli. of tllese steps would involve a cooperative effort with
priyate industry.
And industry itself is recognizing that
tttere are many possible ways in which it can join with
Government in meeting our social needs, ways that do not
require special tax benefits.
One further word on the budgetary aspects of these tax
ir'centive proposals is in order.
Those who see the need for
expenditure control, so that our Budget resources are wisely
husbanded and spent, also see tax incentives for what they
a:ce -- hidden spending.
They are, after all, expenditure
programs -- channeled not through the regular legislative
and appropriation committees of Congress but through the tax
committees -- House Ways and Means Committee and Senate
Finance Cormnittee.
Will the doors of those two committees
J'vJing wide open to these spending programs?
The Ways and
l'leans Cormnittee in the House, led by Chairman Mills, fought
and won the battle of expenditure control in connection with
[he 10 percent surcharge.
In 1967 Mr. Mills, in a statement inserted in the Congressional Record (December 13, 1967), strongly attacked tax
incentives as "backdoor spending" and had only harsh words to
- 33 -
say about them.
In a recent speech, October 16, 1968, he
again referred to these incentives as "backdoor spending"
and their high cost in revenues -- in a speech which also
emphasized the need for strong expenditure control.
Congressman Byrnes, the ranking Republican on Ways and
Means who is on record against the investment credit, has
not favored the use of tax incentives.
Senator Long, Chairman of the Senate Finance Committee,
said in a speech this year:
"Tax reform in the shape of new tax credits and
deductions are also being advocated today as the best
means of solving unemployment in the ghettos and in
rural areas like Appalachia, or for getting new housing
in the slums.
"Tax credits are also hailed by many Congressional
figures as the solution for air and water pollution.
"I am reluctant to go the tax credit route to
achieve the promised land these bills describe. I do
not feel that we should puncture holes on our Federal
income tax structure by means of tax incentives if we
can find other ways of achieving the desired ends."
Conclusion
We have seen the dilemma posed by the tax assistance
approach to housing and other social problems.
caught within the confines of that dilemma?
trary.
But are we
Quite the con-
Our appraisal of existing tax provisions for building
- 34 ha~
disclosed hidden budgetary resources which can be
diverted directly and affirmatively to the housing sector.
Our examination of new tax incentives suggests that tax
incentives are the wrong route -- a route incompatible
I,fith a fair tax system and tax reform and incompatible
',vith responsible budgetary control.
Moreover, in the light
of the variety of competing tax incentive claimants, this
is almost certainly a self-defeating approach.
There are
a variety of methods, including the fascinating new prospect
of a National Urban Development Bank, which will broaden
the spectrum of techniques at our disposal and promise a
more fruitful partnership between the whole private sector
aleC.
government in dealing with housing and other inner city
needs.
REASURY DEPARTMENT
WASHINGTON, D.C.
t RELEASE 6 :30 P.M.,
day, October 28, 1968.
:RESULTS OF TREASUn' S WEEKLY BILL OPFElUBG
ibe 'ft'easury Department announced tbat the teDders for two series of Treasury
.1s, one series to be an aclditional issue ot the bills dated August 1, 1968, and the
ler series to be dated October 31, 1968, which were offered on October 23, 1968, were
!ned at the Federal Reserve Banks today. iencJers were invited for $1,600,000,000,
~reaboutB, ot 91-day bills and tor $1,100,000,000, or thereabouts, of 182-day
.1s. The details of the two series are as follows:
rGE OF ACCEPTED
IPETIrIVE BIDS:
High
Low!
Average
!I
6~
5~
~
91-day Treasury bills
maturing January 30, 1969
Approx. Equiv.
Price
Annual Rate
98.625 !I
5.44~
98.612
5.491~
98.617
5.471~
182-day Treasury bills
maturing May 1, 1969
Approx. Equiv •
Price
Annual Rate
97.250
5.44Oj
5.495~
97.222
97.253
5.473~
11
Excepting one tender of $1, 300,000
of the amount of 91-day bills bid tor at the low price was accepted
of the amount of 182-day bills bId for at the low price was accepted
TENDERS APPLIED FOR AlID ACCEPrED BY FEDERAL RESERVE DISTRIC'l'S:
listrict
leston
ew York
hllade1phia
leveland
1cbmond
,tlanta
hicago
t. LOUis
inneapolis
ansas City
e.llas
an FranCisco
1Umrs
AEl!lied For
AcceEted
$ 27,941,000 $ 17,941,000
1,806,906,000 1,150,106,000
17,974,000
32,974,000
31,034,000
31,034,000
14,691,000
16,191,000
29,461,000
44,741,000
155,581,000
198,586,000
38,675,000
53,475,000
12,242,000
22,242,000
25,359,000
26,359,000
18,552,000
25,952,000
90 J 5'Ei,OOO
172,146,000
··
··
AEElied For
23,326,000
$
1,396,947,000
18,872,000
54,994,000
7,150,000
28,493,000
141,465,000
30,745,000
19,212,000
11,967,000
21,574,000
132,219,000
$2,458,553,000 $1,600,168,000 ~ $1,886,964,000
AcceEted
,
13,326,000
803,647,000
8,812,000
40,514,000
7,150,000
21,993,000
96,593,000
20,305,000
11,212,000
11,967,000
12,094,000
52,719,000
$1,100,392,000 ~
Includes $296,298,000 noncompetitive tenders accepted at the average price of 98.617
Includes $143,106,000 noncompetitIve tenders accepted at the avera81 price of 97.233
ihese rates are on a bank discount basis. 1'be equivalent coupon issue yields are
5.6~ tor the 91-day bills, aDd 5.71~ far the 182-day bills.
F-1391
TREASURY DEPARTMENT
Washington, D.C.
FOR RELEASE
UPON
DELIVERY
REMARKS BY THE HONORABLE WILLIAM F. HELLMUTH, JR.
DEPUTY ASSISTANT SECRETARY FOR TAX POLICY
BEFORE THE
39th ANNUAL MEETING OF THE
INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA
STATLER-HILTON HOTEL, DALLAS, TEXAS
TUESDAY, OCTOBER 29, 1968, 9:30 A.M., CST
TAX EXPENDITURES AND TAX REFORM
We at the Treasury Department welcome your interest in
Federal taxes and tax legislation.
The Independent Petroleum
Association of America properly makes its views known on tax
matters which affect it directly.
I expect the other speakers
this morning will focus on tax matters dealing primarily with
oil and gas.
Therefore I will talk about two different issues,
which provide some of the background for discussion of taxation as it relates to the petroleum industry.
The Tax Expenditure Budget
Tax expenditures, my first topic, refer to the array
of special provisions of. tax exemptions; deductions, exclusions, credits, and
prefer~ntial
rates which use budget resources
through the tax system to provide incentives and support for
various activities in the private sector.
F-1392
This subject is
- 2 most timely because of the references in both the Democratic
and Republican Platforms to tax incentives, and especially
the emphasis in the Republican Platform to the importance of
tax credits and other tax incentives.
Let me emphasize that regardless of who the next
President is, the pressures on the Federal Budget are enormous,
almost irreversible and they will continue to grow.
This is
a fact of our political economy, which no President and no
. Congress can escape or ignore.
The budgetary pressures result from the problems and
tensions, the hopes and aspirations of the country and world
we live in and which we help to shape.
Our defense and inter-
national expenditures reflect the world situation and our
commitments to economic and military security for ourselves
and other nations.
At home, the traditional claimants on
the budget besides the military
the farmers, the veterans,
benefeciaries from public works
have been joined in recent
years by new and powerful
claimants for the aged, for educa-
tion, for health, and perhaps the poor, and the disadvantaged
- 3 -
who are still in the process of developing their political
muscle.
And ahead are still more claimants for urban transit,
clean air and pure water, and income maintenance -- all of
which will certainly generate popular and political appeal
for budget resources.
Although we are a wealthy and prosperous country with a
record of more than seven years of uninterrupted prosperity,
neither as individuals nor as a society do we have the resources
to do all the things which need to be done and which we want
to do.
This is abundantly clear when we look at the Budget
of the Federal Government.
Even with the end of the war in
Vietnam -- which hopefully will be soon -- the pressures on
the Federal Budget will not end, but only will shift emphasis
to other programs.
With the prospect then of severe budgetary pressures for
years to come, all of us would agree that we should use our
budgetary resources to meet the most important and pressing
needs, and that we should insist that budgetary resources be
used as effectively and efficiently as possible.
- 4 The Federal Budget has two sides, with expenditures and
net lending on the outlay side and tax receipts on the income
side.
Our procedures for a close, careful, and annual scrutiny
of outlays are very well developed both in the Executive
branch and in the Congress, to determine that the program
merits support and that the appropriations are used efficiently,
to serve the intended purpose.
The appropriations and spend-
ing for most programs are reviewed every year and usually
increased or reduced to meet changing conditions.
The income from tax receipts is the other side of the
budget.
Tax legislation is examined with care both by the
Executive and Congress when changes are proposed and adopted.
But here the similarity to the outlay side ends.
Most pro-
visions in the tax system, once adopted, remain in effect
almost indefinitely.
The tax laws contain dozens of special
provisions to support and encourage activities in the private
sector.
These are not subject to the automatic, regular,
periodic review which is typical of expenditures and net
lending.
Many of these special tax provisions represent
alternatives to direct government expenditures or loan
programs to accomplish certain objectiveso
- 5 An example of government spending and special tax provisions for the same general objective could be found in the
Federal programs to assist the aged.
The budget presents
line items for the Department of Health, Education and Welfare
detailing expenditures, including retirement benefits and
medicare for the aged.
But the budget contains no line item
for the $2.3 billion expended through the tax side of the
budget to aid the elderly in the form of an additional personal
exemption, the retirement income credit, and the exclusion
of social security benefits from income tax.
Numerous other special tax provisions, which do not appear
in the budget, are used rather than direct expenditures or
loan programs fully presented in the budget to aid certain
activities -- for example, to assist natural resource industries,
to encourage homeownership, to aid financial institutions, to
subsidize charitable contributions, to support certain employer
financed fringe benefits, to reduce the interest cost of state
and local borrowing, etc.
"Treasury Assistant Secretary
Stanley S. Surrey has labelled all these special tax provisions
as'~ax
expenditures'. He summarizes this idea as follows:
- 6 -
"Through deliberate departures from accepted
concepts of net income and through various
special exemptions, deductions, and credits,
our tax system does operate to affect the
private economy in ways that are usually
accomplished by expenditures -- in effect to
produce an expenditure system described in
tax language."
The current fad in suggestions to meet our social needs
is the tax incentive.
Tax incentives -- in the form of tax
credits or special deductions -- are offered as panaceas to
solve most of our country's economic and social problems.
A
partial list of proposals would include tax credits for:
Housing for low- and moderate-income families
New factories in ghettos and rural poverty areas
Job training for the hard-core unemployed
Additional costs of employing older persons
Air and water pollution control equipment
College tuition and fees
The costs of underground installation of
electrical transmission lines
Political contributions
We even had one letter proposing tax credits for married
couples who have celebrated their 25th wedding anniversary.
Tax incentives are offered as a cure-all for almost everything.
- 7 Now all the items on this list involve important
problems, and the Federal Government has a significant role
to play in seeking solutions to most of these problems.
The
crucial question is how to attack these problems most effectively and most efficiently; in other words, how to get the
greatest benefit for the budget resources used.
The Treasury does not take a doctrinaire position against
tax credits -- witness the investment credit which the Treasury
recommended and supported.
But the Treasury does urge that
direct spending and loan programs be considered carefully and
thou:q~hly
as alternatives to tax credits.
Each tax credit
proposal should be judged on its merits -- what it accomplishes
compared to what it costs and whether an alternative expenditure
or net lending approach would yield a more favorable benefitcost ratio.
The case for the investment credit differs from
most other tax credits.
The intent of tax credits for invest-
ment in machinery and equipment is to promote economic growth,
to improve productivity and- efficiency for all businesses
and industries.
It has a broad economic objective, not limited
to specific industries or geographic locations.
- 8 -
There is a mythology about tax incentives and tax
credits that they do not cost anything.
The major reason for
this myth seems to be that tax incentives and tax credits
are relatively hidden; they do not appear in the budget;
their cost is not included in the budget totals or in the
functional areas to which they apply; often their cost is
not known.
The Republican Platform recommends that tax credits
and other tax expenditures be used to combat pollution, to
provide incentives for worker training, to attract industrial
plants to urban and rural poverty areas, to offset partially
the costs of a college education.
If adopted, these special
tax provisions would involve a revenue cost of at least
$5til1ion a year.
Such legislation will be as significant
quantitatively in using budget resources and perhaps adding
to a Federal deficit as an equal amount .of direct Federal
spending.
In an editorial, liThe Overworked Tax Machine", the
Wall Street Journal of October 23, 1968, referred to
proposals to adopt a system of tax credits to enlist greater
- 9 help from business in attacking the problems of poverty and
the cities.
"Tax credits are of course only a form of sub-
sidy" said the editorial.
It concluded " .•• it would be
worthwhile to explore alternatives before cranking up the
overworked tax machine and sending it off in yet another
direction."
When public opinion and Congressional attention focus
on control of government spending, the itemized expenditure
side of the budget receives close scrutiny but the tax expenditures are not subject to the same review.
For example,
earlier this year when Congress, apparently reflecting the
public mood, was much concerned about Federal spending and the
size
of the prospective deficit, little, if any, attention
was given to a review of tax expenditures.
In other words,
there is a double standard between direct expenditures and
net lending on the one hand which have to clear the hurdle of
budgetary review every year, and tax expenditures on the
other hand where there are no more hurdles once the tax
provision is adopted.
The Independent Petroleum Association of America would
be most interested in how the Natural Resources section of
- 10 a tax expenditure budget might appear.
This budgetary
function would include as tax expenditures the revenue cost
of the special tax provisions applicable to natural resources.
It might identify as special tax provisions the excess of
percentage depletion over cost depletion, the expensing of
certain exploration and discovery, and intangible drilling
costs, and the capital gains on coal and iron ore royalties.
The revenue cost of these provisions is estimated at $1.6
billion a year.
A tax expenditure budget might report the
budget resources used for Natural Resources in fiscal year
1968 as follows:
Billion
Direct expenditures ....••.••••..• $ 2.4
Net lending ••.•..•.••..••••.•••.
*
Tax expenditures .•••.•...••.••..
1.6
1 otal ..............
fi
•
•
4.0
*$16 million
There would, of course, be similar sections for the other
functions -- Agriculture, Education, Health, Labor and
Welfare, etc.
- 11 Please remember that no value judgment is made here that
these amounts or these forms of aid are good or bad.
Each
special tax provision, just like each government expenditure,
should be evaluated on its merits -- the benefits it provides
compared to the costs.
Rather we are suggesting full dis-
closure of resources used so that the Congress, the Executive
agencies, the interest groups involved, and the public will
be well informed in the interest of proper budgetary controls
and resource allocation.
Proponents claim that tax incentives are to be preferred
to direct spending or net lending, in that the tax incentives
decentralize decisions, enlist private initiative, allow
variety, and are automatic and self-administering without the
delays and burdensome paperwork of government contracts.
The
Government carries out most of its activities by contracts
with and purchases from private business.
Why is it suddenly
different in dealing with social 'tlelfare. activities froll
contracting for such things as post office building, the
Apollo VII spacecraft, and Department of Defense purchases?
- 12 If we are to have sound budgeting, Congress, the
Executive branch, and the public are going to expect and
probably insist upon a review of the relation of benefits
to costs. For tax incentives, the review would be done by
the Internal Revenue Service, while with expenditure and
contracts the negotiation is with a program agency, such as
the Department of Defense, Housing and Urban Development,
or Transportation.
If tax incentives were used to encourage such objectives
as job training for hard-core unemployed, pollution control
equipment, and location of plants in low-income urban areas,
an Internal Revenue agent would be expected to review the
tax deductions claimed for these purposes.
He would have
to check, for example, whether the job trainees were from
the hard-core unemployed, what the applicable training costs
were, what overhead costs, if any, are applicable, the duration
of the training, and many other questions relevant to the
program.
There would be comparable questions under pollution
control, location of plants in poverty areas, and the other
programs.
- 13 The Internal Revenue agents are qualified and experienced
in accounting and financial matters.
in the
ar~a~ ofth~
In the customary matters
training, there must be determinations in
such areas as depreciable lives, the allocation of profits
between domestic and foreign subsidiaries, the unreasonable
ac'cumulation of corporate profits, and other matters.
As you
know, these matters may involve disagreements between taxpayer and the Internal Revenue Service.
There would necessarily
,be elements of discretion or judgment in administering tax
credits for these new programs.
In such fields as manpower
training and pollution control, the Internal Revenue agents
would be required to review programs in which they are not
expert or experienced.
On the other hand, the program agencies
such as the Departments of Labor, and Health, Education and
Welfare have the expertise and competence in these fields.
Thus if there is review for budget control and efficiency,
the tax incentive provisions would not be automatic and selfenforcing.
If they are not subject to review, then there
would be the obvious risks of creating inequities in the tax
system without achieving the intended social purpose.
- 14 In effect, the Treasury is suggesting a full reporting
of tax expenditures on a basis consistent with outlays and
loan programs.
Such a presentation should be done annually,
presenting the tax expenditures by categories together with
direct expenditures and net lending.
Such reporting would
exhibit in a single document the full cost of each program,
including direct expenditures, tax expenditures, and net
lending.
Such a presentation would lead to better under-
standing, budget choices based on more complete information,
and improved control.
Identification and evaluation of the various special
tax measures might well turn up some which should be terminated,
others which should be replaced by direct expenditures to
promote the objective more effectively, and perhaps still
others which should be expanded.
We urge that there be the same tests of cost effectiveness, contribution to national objectives, full disclosure
in the budget, periodic rev1ew, and revision with changing
objectives, as are applied to the spending and loan programs.
- 15 It is relevant to note that Congressman Wilbur D. Mills,
Chairman, Committee on Ways and Means, in a speech entitled
"Back Door Spending", in the House of Representatives on
December 13, 1967, strongly opposed the extension of tax
credits to other objectives, however worthy.
It is also
relevant to note that Congressman John W. Byrnes, ranking
Republican member of the Committee on Ways and
M~ans,
has
generally taken a position in opposition to tax credits.
... 16 ...
Tax Reform
Tax reform is an important and timely subject.
The
Treasury Department has a continuing interest in all fiscal
policy and tax matters, including tax reform.
We use tax
reform here to_mean the structure of our tax laws, particularly
the provisions which define taxable income, rates of tax,
and the administrative requirements of reporting and payment.
In structural tax reform, we do not include here fiscal policy
-
which makes use of taxes, spending, and debt management to
influence the level of economic activity.
Nor do we include
policies and programs as to how the revenues are to be spent
or distributed.
It should also be clear that structural tax reform is
not primarily tax reduction.
Income tax reduction was
accomplished by the Revenue Acts of 1962 and 1964, which
reduced tax rates on individuals by an average of 19 percent,
and corporate rates, including the effect of the investment
credit, by approximately an equal percentage.
- 17 The Excise Tax Reduction Act of 1965 reduced excise
taxes substantially by repealing many of the excises and
providing for the gradual reduction of some others.
Rate
reductions on autos and telephone service were removed by
subsequent legislation.
In addition to tax reduction, the 1962 and 1964 legislation included a number of significant reform provisions for
individual and corporate income taxes.
Some of the more
, important of these reforms included:
Information returns on dividends and interest
Restrictions on certain travel and entertainment
expenses
Recapture of gains on depreciable personal property
Limited recapture of gains on sale of real estate
Fuller taxation of foreign tax haven corporations,
cooperatives, and mutual fire and casualty insurance
companies
Strengthened personal holding company provisions
Limited deductions of tax-free reserves of savings
and loan associations and mutual savings banks
- 18 --
Revised taxation of certain employee fringe benefits,
including sick pay, group life insurance premiums,
and stock options
Repealed dividend credit
Limited deductibility of certain state and local
taxes for nonbusiness purposes.
The 1965 legislation simplified the Federal excise taxes
by repealing taxes on many items from mechanical pencils and
cosmetics to electric appliances.
With subsequent changes,
the major Federal excises are now limited to those on, tobacco,
alcoholic beverages, motor vehicle fuel, autos, trucks and
parts, telephone service, and air travel.
The Treasury Department has for many months given priority
to the preparation of tax reform proposals.
Secretary of
the Treasury Henry H. Fowler in a speech* last month summarized
the recent development of plans for tax reform as follows:
"After the reforms of the Revenue Acts of 1962
and 1964 and 1965, the Treasury Department
undertook a major effort to prepare tax reform
proposals of a comprehensive nature in 1966 and
1967. The plan was to launch a major legislative effort on the heels of the enactment of
*Speech made before the National Industrial Conference Board,
New York, New York, September 20, 1968, Treasury Release
F-l354.
- 19 -
the temporary surcharge legislation. Because
of the delays in enacting the surcharge legislation and the fact that substantial tax reform
requires extensive legislative consideration,
there was no suitable opportunity to push these
proposals on to the legislative calendar."
Recognition of the desirability of tax reform is not
limited to those in the present Administration.
Both the
Republican and Democratic Party Platforms endorsed tax reform.
The Republican Platform plank states:
"The imperative need for tax reform and simplification will have our priority attention ... "
The Democratic Platform says:
"The goals of our national tax policy must be
to distribute the burden of government equitably
among our citizens and to promote economic
efficiency and stability. We have placed major
reliance on progressive taxes, which "are based
on the democratic principle of ability to pay.
We pledge ourselves to continue to rely on such
taxes, and to continue to improve the way they
are levied and collected so that every American
contributes to government in proportion to his
ability to pay.
"A thorough revamping of our federal taxes has
been long overdue to. make them more equitable
as between rich and poor and as among people
with the same income and family responsibilities.
All corporation and individual preferences that
do "not serve the national interest should be
removed. Tax preferences, like expenditures,
must be rigorously evaluated to assure that
the benefit to the nation is ~orth the cost."
- 20 -
There are several objectives to seek in tax reform.
The Federal tax system should be made more equitable -individuals and families should be taxed on the basis of
ability to pay, persons with equal incomes and similar family
responsibilities should be taxed equally and, other things
equal, persons with higher incomes should pay more tax than
those with smaller incomes. The tax system should be neutral;
decisions should be made on business and economic grounds,
not for tax reasons.
The tax system should as far as possible
protect incentives and promote efficiency.
Tax reform should
strive for simplicity.
A number of tax reform proposals have been suggested by
members of Congress, tax practitioners and scholars, and
Treasury officials.
posals.
Let me describe several of these pro-
Please understand that these proposals are not
limited to those on which the Treasury has taken a position
and should not be taken as a forecast of tax reform recommendations.
Income Taxes and Poverty.
One concern is the income
taxes which fallon persons below the poverty income levels.
- 21 The Department of Health, Education and Welfare has determined
poverty guidelines which, adjusted to 1968 levels, establish
an income of about $1,700 for an individual, $2,200 for a
couple, and $3,500 for a family of four as the minimum£vels
to avoid poverty.
The burden of income taxes on those in
poverty should be lifted.
There are now an estimated 2.2
million family units who have incomes below the poverty level
who now pay Federal income taxes.
Through the introduction
of the minimum standard deduction in 1964, the point at which
the income tax begins was raised from $667 to the present
$900 for an individual, but this is only slightly more than
half the poverty level of $1,700.
For example, an individual
with $1,700 of wages under present law pays $115 of Federal
income tax.
Comparably, a couple becomes subject to tax if
income exceeds $1,600, although still $600 below the poverty
line.
How would you deal with this problem?
One possible
solution would be an increase in the minimum standard deduction to remove or lighten tne income tax burden on the poor
and the near poor.
- 22 High Income Recipients.
Another problem arises at the
higher side of the income scale.
Due to various special tax
provisions, there is a wide dispersion in effective rates
applicable to persons receiving high incomes, say $200,000
and above a year.
Materials have appeared in the Congressional
Record and in Congressional Committee hearings documenting
the wide range of effective tax rates on these high incomes.
For example, material presented in Senate Finance Committee
hearings* revealed that on 20 tax returns reporting more than
$500,000 of adjusted gross income in 1959 there was no income
tax.
Wide publicity has been given to the fact that some
high-income recipients pay little or no income tax while
others with the same incomes pay average effective rates
above 60 percent on adjusted gross income.
I believe you will agree with me that it is not fair
that different persons with the same levels of incomes should
pay such widely different taxes.
It is 'inequitable and
lndefensible that a small nYmber of persons with incomes
)ver $200,000 should pay no taxes at all, while the typical
~U.S.
Senate, Committee on Finance, 88th Congo 1st. Sess. Revenue Act of 1963, Hearings, p. 28.
... 23 ...
family of four generally pays some tax on all income above
$3,000 a year.
Senator Russell B. Long, Chairman of the Senate Finance
Conunittee, followed by other legislators, has suggested a
minimum tax so that no American with a large amount of net
income could avoid paying some income tax.
Platform supports a minimum tax.
The 1968 Democrati':2
The various proposals for
a minimum tax generally require that the taxpayer must pay
at least a specified percentage of income defined more broadly
than the present statutory income definition, and thus
include some currently excluded sources of income.
The minimum tax could be calculated by applying to the
broader base a new special rate schedule lower than the present
rate schedule.
Of course, if present law indicates a higher
tax, the tax liability would remain at the present level.
Taxation of the Aged. Taxation of the elderly is another
area of concern both for equity and for simplicity.
Of the
20 million persons over 65 in the United States, about 4.8
million pay Federal income tax.
Special tax provisions which
benefit the elderly include the exemption of social security
- 24 benefits from tax, the retirement income credit and the
extra exemption of $600.
The revenue cost of these provi-
sions is $2.5 billion.
These tax provisions have grown piecemeal over a long
period of years and only recently have been subject to a
systematic review.
The present provisions fail to meet the
tests of fairness, efficiency, and simplicity on three
counts:
(1)
They discriminate against the older person who
continues to work after age 65.
income and the
s~e
Given the same amount of
family situation, the elderly worker pays
a much higher tax than an elderly retiree.
For example,
an elderly couple, both over 65, reciving $6,000 of income,
including average social security benefits and other income
from sources other than wages and salaries, would pay $138
of income tax, while another couple with the same income all
from wages would pay $450 of tax.
(2)
The benefits of the current special provisions are
most valuable to those in the highest income brackets.
The
special deductions and exclusions provide tax savings which
rise as tax rates rise.
- 25 (3)
The present special provisions for the elderly are
so complicated and detailed that most elderly persons need
assistance to fill out their returns to qualify for existing
tax benefits.
The Treasury last year recommended major revisions to
simplify and make fairer the tax provisions for the aged, and
also to eliminate the existing tax discrimination against the
aged who continue to work.
The proposal provided for taxa-
tion of social security benefits and repeal of the double
exemption and the retirement income credit, and provided
instead a special exemption of $2,300 for single taxpayers
over 65 and $4,000 for married couples when both are over
65.
Under this proposal, approximately 500;000 taxpayers
over 65 would no longer pay any income tax and another 2.5
million would have received tax reductions.
This proposal
was presented as part of the Administration's 1967 Social
Security bill, but Congress decided not to consider this
important income tax revisibn as part of social security
legislation.
approach.
The Treasury continues to support this general
- 26 Transfers of Appreciated Property at Death.
Under present
law, appreciation on capital assets which is transferred at
death is not subject to income tax.
As you know, the heir
is allowed to take the assets' value at time of death of the
donor as his basis.
Thus the appreciation in value of the
securities, real estate, or other capital assets which occurred
during the deceased's lifetime is forever exempt from income
tax.
It is, however, included at market value in calculat-
. ing the estate tax, but so are other assets in the estate on
which income tax has been paid.
This exclusion from income
tax of these gains creates inequities between those taxpayers
who hold capital assets until death, those who realize their
gains while alive, and those who have no capital gains.
This
exclusion also serves to lock in the middle-aged or senior
citizen holding assets which have substantially appreciated
in value.
If he sells, he pays capital gains tax on the gains.
If he continues to hold the assets, there is no capital gains
tax on the appreciation in value, and his heir acquires the
higher basis.
- 27 The Treasury has called attention to the desirability
of revisions in the rules relating to the transfer of property
by death or gift, to achieve both a more rational tax treatment of appreciated assets so transferred and a more equitable
estate and gift tax system with less tax distortion in family
disposition of property.
Conclusion
To sum up, tax incentives in the form of tax credits
and other special provisions will serve to lower taxes for
the recipient and possibly may encourage some of the recipients
to undertake an effort toward a national objective which he
otherwise would not have done.
By and large, however, the
various tax expenditures are relatively inefficient uses of
budget resources -- primarily because they are hidden, and
there is no accounting for or review of their benefits, effects,
and costs.
They distort the allocation of resources which
would result from the operation of a free market in association with a neutral tax system.
They are generally incompatible
with equity in the tax system and with effective budgetary
control.
- 28 -
Tax reform on the other hand aims to make the tax system
more fair and equitable, to remove barriers to work, investment, and saving,to improve neutrality so that the free market
and price system allocate resources, to simplify understanding
and compliance, and to adopt transition rules which arefuir
to those who made plans based on existing law.
000
TREASURY DEPARTMENT
(
WASHINGTON, D.C.
October 29, 1968
FOR IMMEDIATE RELEASE
COUNTERVAILING DUTY INVESTIGATION ANNOUNCED
ON CERTAIN STEEL MILL PRODUCTS FROM ITALY
The Treasurv Department announced today that it LS
initiating a countervailing duty investigation with respect
to certain steel mill products imported from Italy.
The notice of investigation, which will be published in
the Federal Register of October 30, 1968, reports that the
Treasury is investigating a complaint of subsidization of
a number of steel mill products exported to the United
States from Italy. The products under investigation are
enumerated in the countervailing duty proceeding notice.
Under the United States countervailing duty law, if
the i'rC'<tsury Derartment finds that a "bounty or grant"
(within the mecilling of the law) is being paid, it is
requi tOed to as ses s an equivalent coun te rvai1ing duty.
The notice of countervailing duty proceeding allows
]0 days for submission of data, views, and arguments
concerning the existence or nonexistence and the net
amount of a bounty or granto
During the p~riod January through June 1968 exports
from Italy of the steel mill products under investigation
totaled approximately $17 million.
000
F-1393
TREASURY DEPARTMENT
WASHINGTON,
D.C.
October 30, 1968
~OR
IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
ror two series of Treasury bills to the aggregate amount of
t2,700,000,000, or thereabouts, for cash and
exchange for
Tr~as:lry bills maturing November 7,1968,
in the amount of
~2,702,015,000, as follows:
in
91-day bills (to maturity date) to be issued
in the amount of $ 1,600,000,000, or thereabouts,
additional amount of bills dated August 8,1968,
mature February 6,1969, originally issued in the
$1 103,181,000, the additional and original bills
inGercnangeab1e.
November 7,1968,
representing an
and to
amount of
to be freely
182-day bills, for $ 1,100,000,000, or thereabouts, to be dated
November 7,1968, and to mature May 8, 1969.
The bills of both series will be issued on a discount basis under
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,
$~,OOOJ $10,000, $50,000,
$100,000, $500,000 and $1,000,000
(maturity value).
~~mpetltive
Tenders will be received at Federal Reserve Banks and Branches
to the closing hour, one-thirty p.m., Eastern Standard
time, Monday, November 4, 1968.
Tenders will not be
~'ecelved at the Treasury Del'artment, Washington.
Each tender must
be for an even multiple of $1,000, and in the case of competitive
Lenders 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
Heserve Banks or Branches on application therefor.
up
Banking institutions generally may submit tenders for account of
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
~r trust company.
~ustomers
F-1394
- 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 I
final. Subject to tnese 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 December 2, 1968
cash or other immediately available funds or in a like face amount
of Treasury bills rna turing November 30 1968
Cash and exchange tenders
will receive equal treatment. Cash a~justmentswi1l 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 01'
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
cond it ions of the ir issue. Copies of the circular may be obtained fr()£l'
any Federal Reserve Bank or Branch.
000
TREASURY DEPARTMENT
WASHINGTON. D.C.
October 30, 1968
FOR IMMEDIATE RELEASE
TREASURY DEPARTMENT ANNOUNCES REDUCTION IN
COUNTERVAILING DUTY ON FRENCH EXPORTS
The Treasury Department announced today that the
rate of countervailing duty to be assessed on dutiable
products exported from France on and after November 1, 1968,
will be reduced from 2 5 to 1.25 percent of the f.o.b.
price of the merchandise
The reduction is based upon the fact that under the
provisions of French Decree 68-581, as amended, the
French Goverr~ent is making an equivalent reduction in
the subsidy being paid on the export of this merchandise.
All dutiable French oroducts subject to the
subsidy program in France have been subject to a
countervailing duty of 2.5 percent since September 14, 1968,
under the provisions of Treasury Decision 68-192 which
was published in the Federal Register on August 14, 1968.
The new rate will remain in effect until the subsidy
program is discontinued or until the amount of the subsidy
is again modified.
Notice of the new rate will be published in the
Federal Register of November 1
000
F-1395
TREASURY DEPARTMENT
(
WASHINGTON. D.C.
November I, 1968
IMMEDIATE RELEASE
PRELIMINARY RESULTS OF CURRENT EXCHANGE OFFERING
Preliminary figures show that about $10,077 million, or 84.5%, of the $11,929
.ion notes and bonds maturing November 15 and December 15 have been exchanged for
two notes included in the current offering.
Subscriptions total $7,768 million for the 5-5/8% notes of Series B-1970 and
5-3/410 notes of Series A-1974, of which $2,432 million for
5-5/8% notes and $1,266 million for the 5-3/4% notes were received from the
.ic.
;09 million for the
Of the eligible securities held outside the Federal Reserve Banks and Government
)unts $2,919 million, or 73.7% of an aggregate of $3,963 million, of November 15
lrities and $779 million, or 49.1% of an aggregate of $1,587 million of December
~aturities were exchanged:
Following is a breakdown of securities to be exchanged (amounts in millions):
ELIGIBLE FOR EXCHANGE
Securities
Date
Due
SECURITIES TO BE ISSUED
5-5/8%
5-3/4'10
Notes
Notes
B-1970
A-1974 Total
Amount
$6,631
557
580
$7,768
'4% notes, D-1968
11/15/68 $ 8,984
'8% bonus, 1968
1,158
11/15/68
1,787
'2~ bonds, 1963-68 12/15/68
,1
$11,929
$1,664
246
399
$2,309
$8,295
803
979
$10,077
UNEXCHANGED
Arnount --L
$ 689
7.7
355 30.7
808 45.2
$1,852 1 5.5
-
Details by Federal Reserve Districts as to subscriptions will he announced later.
000
F-1396
TREASURY DEPARTMENT
WASHINGTON. D.C.
RELEASE 6: 30 P')(.,
!II lovellDer " 1968.
RESULTS OJ' 'l.'m!ASURy I S WEElCLY BILL OJ7ERIlG
1he Treasury DepELl'tment aDllOWlced that the tenders for two series of Treasury
5, one series to be an additional issue ot the billa dated August 8, 1968, and the
r ser1es to be dated November 71 1968, which were ottered. on October 30, 1968, were
ed at the Federal Reserve Banks today. Tenders were invited tor $1,600,000,000,
bereabouts, of 91-day ~il18 and tor $1,100,000,000, or thereabouts, ot 182-day
8. ibe details of the two series are as follows:
91-dal Treasury bills
1118 ~j}l6 February 6 J 1969
Approx. Equiv •
Price
Annual Rate
E 01 ACCEP.DW
ETITIVE BIDS:
98.~!7
11gb
Low
98.588
98.596
Aver&i'!
!I Excepting
65~
----s7rn~
5.586~
5.55~
182-day Treasury bills
ma turing Mal 8, 1969
Price
97.184
97.154t
97.161
11
;g
Approx. Equ1v.
Annual Rate
S.57()iJ
5.62~
5.616~
Y
1 tender of' $10,000
ot the amount ot 91-day b:Uls bid for a t the low price was accepted
ot the aaount ot 182-day billa bid tor at tOe low price was accepted
7,.
L mDEI'CS APPLIED FOR AID ACCEP'JED BY FEDERAL RESERVE DISTRICTS:
.tr1et
Istoo
v York
dl.&delphia
.Inland
cbaond
il.aDta
dcago
Louis
i.
.maeapolis
.oa. City
.11u
oil
lrancisco
m'llLS
ApE lied For
•
Z3,765,000
1,800,637,000
56,528~000
38,811,000
18,839,000
31,506,000
182,029,000
40,370,000
22,391,000
23,867,000
29,373,000
135,0021 000
Acce~ted
$ 3 , 165,000
1,1:31,887,000
21,528,000
38,817,000
18,839,000
29,006,000
156,229,000
34r,020,000
20,391,000
25,86'7,000
24:,023,000
77,652,000
$2,383,124,000 $1,600,024,000
!I
A12E11ed For
12,321,000
1,623,747,000
11,810,000
57,924.,000
4,231,000
20,341,000
125,397,000
21,150,000
16,967,000
13,716,000
19,626,000
111,822,000
•
$ccePted
$2,0~,052,00O
$1,101,055,000 ~
12;-3Zi;000
829,861,000
7,733,000
4t9,654,000
3,987,000
16, 34rl, 000
75,397,000
15,815,000
11,461,000
13,316,000
12,626,000
52,531,000
.Deludes $298,965,000 nonccapet1tiva tenders accepted at the average price ot 98.596
Aol.u4e. $128,432,000 Ilollcaapeti ti ve ten4ers accepted at the average price of 97.161
hi •• rates are on a. bank discount basis. TIle equivalent coupon issue yields are
;. n~ tor the 91-day bills 1 and 5. a6~ tor the 162-day bills.
F-1397
TREASURY DEPARTMENT
,
WASHINGTON. D.C.
November 4, 1968
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
~2,700,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing November 14,1968, in the amount of
$2,701,242,000, as follOWS:
91-day bills (to maturity date) to be issued November 14,1968,
in the amount of $ 1,600,000,000, or thereabouts, representing an
additional amount of bills dated August 15, 1968, and to
mature February 13,1969, originally issued in the amount of
$1,101,147,000, the additional and original bills to be freely
interchangeable.
182 -day bills, for $1,100,000,000, or thereabouts, to be dated
November 14,1968, and to mature May 15, 1969.
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 Standard
time, Friday, November 8, 1968.
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-1398
- 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 I
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed a t the Federal Reserve Bank on November 14,1968, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing November 14 1968. 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 01'
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 11s 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 froo'
any Federal Reserve Bank or Branch.
000
TREASURY DEPARTMENT
,
WASHINGTON, D.C.
November 6, 1968
FOR IMMEDIATE RELEASE
MINT TO STOP ORDERS FOR 1969 PROOF COIN SETS
Eva Adams, Director of the United States Mint, said
today the Mint will stop accepting orders today
November 6, 1968 -- for 1969 proof coin sets.
The Mint's maximum production of more than three
million sets has been reached, Miss Adams added, and
all orders received after today will be returned o
Proof coin sets consist of one each of the five
denominations of circulated coins -- the half dollar,
quarter, dime, nickel and cent.
These coins are produced
at the Mint's San Francisco Assay Office, where production
and manpower limitations preclude production of additional
1969 sets.
They are sold only in sets, with a limit of
20 sets per order.
The price of $5.00 per set includes
first class registered mail fee.
Production of the 1969
sets will not begin until January, 1969, and mailing will
continue throughout the year.
000
F-l399
TREASURY DEPARTMENT
,
WASHINGTON, D.C.
November 6, 1968
~OR
IMMEDIATE RELEASE
TREASURY ANNOUNCES AGREEMENT ON ESTATE TAX
CONVENTION WITH THE NETHERLANDS
The Treasury Department announced today that agreement had
)een reached on the substance of the first estate tax convention
)etween the United States and the Kingdom of the Netherlands.
The new convention covers the Federal estate tax and the
~etherlands inheritance taxes.
It is part of an effort to
~stablish an estate tax treaty network complementary to the
~xisting income tax treaty network which includes almost all
nember countries of the Organization for Economic Cooperation and
)evelopment (OECD). Twelve estate tax conventions now are in
~ffect between the United States and other countries.
The U.S.-Netherlands convention is based on the model estate
:ax convention published in 1966 by the OECD, and will be the
first negotiated by the United States since enactment of the
foreign Investors Tax Act of 1966. This Act encourages foreign
)ortfolio investment in the United States. While it retains
J.S. estate tax jurisdiction on foreign portfolio investments in
:he United States, with reduced rates and increased exemptions,
:he treaty process is available, as in the case of the income tax,
:0 negotiate further reductions or exemptions for foreign investors
m a recipropal basis with countries having effective death taxes.
Under Netherlands law and the OECD model convention the
~state of a decedent who was only temporarily present in the
!ountry may be subject to estate or inheritance tax. Such tax
~ules in the past have posed problems for American businessmen
~n Europe working for a branch or corporate affiliate of an
ooerican firm. The proposed convention will permit executives of
me country to reside in the other country for a reasonable
leriod of time without being subjected to the estate or
~nheritance tax jurisdiction of the latter should they die while
:here. This approach, included for the first time in a United
;tates estate tax treaty, thus meets a problem not dealt with in
:he aEeD model convention.
~-1400
(MORE)
- 2 It is expected that the convention will be signed before the
end of the year and sent to the Senate for ratification. It
will have effect with respect to estates of decedents dying on or
after the date instruments of ratification are exchanged.
000
UNITED STATES SAVINGS BONDS ISSUED AND l:EDEEMED THROUGH
October 31
(Dollar amounts in milliofts - rounded and will not necessarily add to totals)
AMOUNT ISSUEOP
DESCRIPTION
IRED
'Ies A-1935 thru D-1941
~if'S F and crt 941 thru 1952
~ies J nnd K-1952 thru 1955
AMOUNT
REDEEMEDY
AMOUNT
OUTSTANDING
1968
,
Y
"lo OUTST ANDING
OF AMOUNT ISSUED
.11
5,003
29,521
3,156
4,996
29,477
3,132
7
u3
2u
.15
.76
1,816
8,282
13,330
12,210
5,534
5,2u7
5,u23
5,3u9
4,676
4,046
4,240
4,840
4,932,
5,137
h,960
4,667
h,543
4,251
4,261
4,30,2
4,lh,2
4,614
4,499
4,400
4,731
h,682
2,683
608
1,652
7,306
11,789
13,658
10,551
4,597
4,200
4,242
4,104
3,537
3,061
3,180
3,539
3,529
3,611
3,h35
3,1$8
2,921
2,665
2,550
2,409
2,275
2,343
2,289
2,170
2,115
1,829
573
661
22u
975
1,541
1,885
1,659
937
1,041
1,181
1,245
1,139
985
1,060
1,301
1,403
1,527
1,525
1,509
1,622
1,593
1,711
1,893
1,867
2,271
2,210
2,229
2,616
2,853
2,110
-53
11.94
11.77
11.56
12.13
13.59
16.93
19.95
21.78
23.28
2u.36
24.35
25.00
26.88
28.45
29.73
)0.75
32.33
35.70
37.42
40.15
44.00
45.07
49.22
49.12
50.66
55.29
60.9h
78.64
158,013
113,9h9
44,064
27.89
5,h85
6,816
3,190
1,417
2,295
5,399
41.84
79.21
12,301
4,607
7,694
62.55
170,314
118,556
51,758
30.39
598
508
37,680
170,912
208,591
37,605
119,064
156,669
,TURED
~Ies 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
:1968
1~,543
I
Unclassified
Total Series E
ries H (1952 thru May, 1959) 11
H (June, 1959 thru 1968)
Total Series H
Total Series E and H
ries J and K (
1956 thru 1957)
{Tot.l mat.red
I Series Total unmatured
Grand Total
9011
74
51,848
51,922
u accrued d;,coUiu.
I~ redemption wlue.
,~~" :1,ownl~~Jd' II1II1. be held and will earn in',real (or adJilioMI period, a(kr original maturity date ••
we __ I w/aid /tow
ftO' hu,. p,• .,,.,ed lor redemption.
Eeaa-PJtDll~
TREASURY DEPARTMENT - Bur.au" th. Public D.bt
-
15.05
.20
30.)4
?h.89
TREASURY DEPARTMENT
Washington, D. C.
November 7, 1968
MEMORANDUM FOR THE PRESS
Secretary Fowler will attend the NATO Meetings
in Belgium on November 14, 15 and 16, as a member of
the U.S. delegation.
Before and after the NATO sessions he will visit
the United Kingdom, The Netherlands, France, Italy and
Germany to exchange final views with the Finance Ministers
with whom he has worked in the last few years,
particularly on the outlook for the creation of Special
Drawing Rights, the U.S. balance of payments, and
problems in the trade area arising out of non-tariff
barriers.
His itinerary calls for him to be in London on
November 9, 10 and 11, Paris on November 12,
The Hague on November 13, Brussels on November 14, 15
and 16, Rome on November 17 and 18, and Bonn on
November 19, returning to Washington that day.
He will be accompanied by Under Secretary for
Monetary Affairs Frederick L. Deming; Edward R. Fried,
of the White House Staff; George H. Willis, Deputy to
the Assistant Secretary for International Monetary Affairs;
Douglass Hunt, Special Assistant to the Secretary;
Mrs. Mary E. Harris, Confidential Assistant to Secretary,
and myself.
~~~
G6~hn F. Kane ~
Assistant to the Secretary
(Public Affairs)
TREASURY DEPARTMENT
WASHINGTON. D.C.
'R RELEASE 6: 30 P.K. I
iday, loveJlber 8, 1968.
RESULTS
or
TREASURY'S WEILY BILL OJTERIJIG
'Dle Treasury Department announced tbat the teDders tor two series ot Treasury
11s, ODe series to be an additional issue ot the bills dated August 15, 1968, and
e otber series to be dated Bove!lber 1', 1968, which were offered on lovember 4,
168, were opened at the rederal Reserve Banks today. i\!wrs were invited tor
,600,000,000, or thereabouts, ot 91-day bills and tor $1,100,000,000, or tberelouts, ot 182-clay bills. The details ot the tvo series are as tollows:
91-clay Treasury bills
maturing February 13, 1969
Approx. iquiv.
Price
Annual Rate
98.624
5.4'"
5.50:3j
98.609
98.614
5.483~
Y
IGE OJ' ACCEP.mD
NPmTIVE BIDS:
High
Low
Average
182-clay Treasury bills
maturing May 15, 1969
Approx. Equiv •
Price
Annual Rate
97.186
5.566~
97.160
97.168
5.618j
5.602~
!I
2'~ ot the amount ot 91-day bills bid tor at the low price was accepted
6~ ot tbe aaount ot 182-day bills bid tor at the low price vas accepted
1'JlL 'l'DDIRS APPLIED lOR Am> ACCEP'lED BY lEDEBAL EESERVE DISTRICTS:
District
Boa ton
lev York
Philadelphia
Cleveland
RicblloDd.
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
m'mLS
1,074,206,000
13,343,000
25,672,000
1',294,000
33,397,000
21',196,000
35,282,000
23,777,000
2','92,000
17,000,000
109 z'14., 000
AE;21ied lor
$ 6,720,000
1,4.66,084,000
15,865,000
64,456,000
4,840,000
30,391,000
130,823,000
27,175,000
16,522,000
11,513,000
19,954,000
148.z642,OOO
Accepted
$ 15,720,000
793,154,000
5,865,000
$2,429,107,000 $1,600,239,000
!I $1,942,985,000
$1,100,117,000
AE,E1ied For
•
Accerted
2$,236,600 $5,166,000
1,769,806,000
28,343,000
25,672,000
14,294,000
42,'27,000
254,132,000
46,042,000
23,777,000
26,'92,000
25,000,000
147,&886,&000
46,1~,000
4,840,000
21,933,000
75,823,000
18,820,000
15,867,000
11,213,000
14,644,000
86.z092 z000
!I
Includes $265,591,000 noncOlllpetitive tenders accepted at the average price ot 98.614,
Includes $127,288,000 nODcaapetit1ve tenders accepted at the average price of 97.168
::'lese rates are on a -Ilk discount basis. ibe equivalent coupon issue yields are
5.6'~ tor the 91-day bills, and 5.85~ tor the 182-day bills.
'-1hm
TREASURY DEPARTMENT
:
WASHINGTON. D.C.
November 12, 1968
NOTE TO EDITORS:
Attached, as released by the Hhite House, are
copies of Secretary Fowler's November 5 letter of
resignation and the President's letter of acceptance.
Also furnished as being of possible interest is a
copy of the enclosure to Secretary Fowler's letter
which summarizes "the current economic and financial
situation which our successors are inheriting as I
see it today.·'
E. A. Comee
Acting Assistant to the Secretary
for Public Affairs
Enclosure
F-1402
- NOVE MBER 8, 1968
FOB IMMEDIATE RELEASE
Office of the White House Press Secretary
-. - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - THE WHITE HOUSE
TEXT OF THE LETTEl~ TO TEE
PRES:DENT FR OM SECRET AR Y
OF THE TREASUR Y HENRY H.
FOWLER
A year and a half ago we discur:sed some personal circumstances which
caused me to cor..clder a return to private life. In the light of the economic
and financial problems then confronting the nation at home and abroad, I
deferred my departure.
Now the situation is quite different. Today, the nation's current economic,
fiscal and financial posture and near-term outlook seems reasonably
satisfactory and stable. On March 31 you announced your retirement as of
January ("0, 1969, and today, November 5, a new President will be elected.
You have been understanding and sympathetic with my need to relinquish
my official responsibilities sometime before the end of the year, so that
I may make some definite personal decisions for private life.
In this context. I am submitting my resignation as the Secretary of the
Treasury and. with your consent, will leave that office on or about
December 20.
Of course, after December 20 I would expect to mak~ myself available to
you, the acting officials of this Department, and the officials of the new
Administration for whatever time would be desirable to complete the
process of orderly transition for which we are making careful preparation.
In this connection, it may be useful to sumrnarize the current economic
and financial situation which our successors are inheriting as 1 see it
today.
May I reassert what is implicit from our relationship after my previous
resignation as Under Secretary in April 1964 and my service since )'lou
recalled me to this office - - my personal loyalty and devotion to you, my
deep admiration for the extraordinary ability, courage and dedication with
which you have ennobled the office of the Presidency, and my gratitude
for letting me share with you and my Cabinet colleagues the unprecedented
accomplishments, as well as the difficulties, of the national government in
these recent years.
It is my conviction that your Presidency is one in which the national
government fulfilled, to an unusual degree, the purpose and promise of the
Preamble of the Constitution for those living and generations to come.
In leaving, may I thank you and Mrs. Johnson and your staff for the
personal kindness and unfailing friendship which Trudye and I will always
treasure.
And, needless to say, I hope that when we have returned to private life
and are no longer just across the street, there will be opportunities for two
grandfathers to enjoy relaxing together as we recall the strenuous times.
God bless and keep you, Mr. President.
####
FOR IMMEDIATE FE LEASE
NOVEMBER 8, 1968
Office of the White House Press Secretary
.------
-- - - .. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - TEE WHITE HOUSE
TEXT OF THE LETTER FROM THE
PRESIDENT TO SECRETAR Y OF THE
TF.EASURY HENRY H. FOWLER
For three and one-half years you have sat at my side at the Cabinet table
while we met the tests of our time.
1 really know that the great adventure we have shared is drawing to a
close when I accept your lette r of re signatlon.
You leave behind you a legacy to all the American people that few men
could claim.
When the gold crisis threatened to destroy the world's monetary system,
your firm leadership helped to avert disaster and assure the strengtr. of
the dollar. You were the grand architect of the most significant reforms
in the international monetary systerri since Bretton Woods.
You were the man at the bridge who steerf''i through Congress the ~nL
inflation tax so es sential to our prosperity. And that prosperity - - without
parallel in the history of nations -- will forever bear your mark. Men
who know your reputation, and children who have never heard your name
inherit that gift which you have labored so hard to fashion.
1 know, Joe, a.t what personal cost you have served the people of America
well beyond the period of your initial commitment. You are one of the
American great, who will be long remembered as the Secretary who
thought of financial values in the broader context of human values.
Lady Eird and I have always treasured the strength which you and
Trudye have given us through the bleesin~ of your friendship. We. look
forward to drawing on that streng1', 111 the rears ahead.
####
FOR IMMEDIATE RELEASE
NOVEMBER 8, 1968
Office of the White House Fress Secretary
THE Vv'HITE HOUSE
MEMORANDU!\ii FOR THE FRE3IDENT FROM
HENRY H. FOWLER. SECRETARY OF THE
TREASURY
The economy continues to grow at a substantial pace maintaining its
record performance of 93 months of uninterrupted prosperity. Unprecedented economic success in the years of your Administration
have stretched the expansion that began under Fresident ¥.ennedy in 1961
from a bit over the average 30-month duration to one now in its 93rd
month - - with general expectations for an indefinite continuation, given
continuity in the policies now being followed.
This unprecedented growth and prosperity is amply reflected in all the
indices of a dynamic economy -- output, income before and after taxes,
production and business activity, employment, unemployment. wages
and profits.
Employment is reasonably full and unemployment remains under the four
percent level that has characterized recent years. Our free enterprise
economy continue s to generate jobs at a rate commensurate with the
entry of trained young people into the labor force. At the same time it
is steadily modernizing its plant and equipment to increased levels of
producti vity.
The growth rate accompanying this expansion has added nearly $370 billion
of annual Gross National F roduct to the approximately $503 billion annual
rate that existed in 1960. In other words, in the course of this 93-month
expansion it is as though the nation had annexed territory and population
with an economy in excess of the total national product of all the nations
in the European Economic Community or roughly comparable to the total
Gross National Froduct of the Soviet Union last year.
The nation has met in the year past an even sterner test than moving from
a stagnant economy to a dynamic one -- the imposition of necessary restraint.
In the last fiscal year strains and pressures threatened this sustained
prosperity, the strength of the dollar, and our international monetary
system -- as an excessively exuberant economy coincided with increasing
military expenditures, a deteriorating balance of payments and a devaluation
of the E ritish pound with resulting instability in the gold and foreign
exchange markets.
The remedial measures you proposed in August 1967 in your Tax Message
and your New Year's Day Balance of F-ayments l'l~essage have been largely
adopted and are being executed, to the extent authorized by law.
- MORE -
- 2 They are proving successful. Intolerable deficits in our budget and
international payments in the last fiscal year are being eliminated.
We are approaching b~ance in our Federal budget and equilibrium in our
international payments in the fiscal year 1969 that began last July 1.
The Revenue and Expenditure Contrail ct, enacted belatedly last June,
has locked Federal finances into an appropriate posture through next
June 30, 1969.
Shifting from a fiscal stimulus to moderate fiscal restraint, the fiscal
policy of this Act, coupled with the appropriate monetary policy being
pursued by the Federal Reserve Foard, is making possible the achievement
of other desired ends -- avoiding excessive growth with its excess of demand,
arresting an inflation, and enabling the economy to move back toward
reasonable price stability, given accompanying voluntary restraint in private
price and wage decisions.
N!Oreover, the shift away from a huge prospective Federal deficit has
eliminated the overhang of large Federal financing demand on the money
markets. This has resulted in more orderly markets and some decline
in interest rates from peak levels of earlier this year, with somewhat
lowe r rate 5 Qventue.lly in prospect.
The execution of your r-:.ction f rag ram announced last January has
substantially improved our balance of payments situation. It has
moved from a huge deficit in 1967 to near equilibrium in the second and
third quarters of this year on the liquidity hasis of measure. There is
a substantial surplus thus far this year on the official settlements basis.
There is reasonable prospect of continuing improvement next year,
assuming, as I hope will be the case, that there is no dismantling of your
Action I rc'~ram and the initiatives launched in that F rogram to improve
our trade rourplus and reduce the net deficits in government military expenditures abroad and private travel are vigorously pursued until a durable
surplus or long term equilibrium is assured.
There are favorable prospects for the future of our current account. The
sharp decline in the trade surplus resulting from a flood of imports has
bottomed out and !1as been rising steadily in recent months. And there is
some pro1:ability of reduction in the net drain of military expenditures in
the Far East. An effective attack to prevent an increasing travel deficit
awaits legislative action.
Eecause the fundamental measures have been taken, even in the forbidding
climate of an election year, the dollar is strong and confidence in it is
reflected not only in the recent Pnnual lvleeting of the International lvionetary
Fund, but in the decisions of private investors and the conduct of central
bankers the world over.
This underlying strength is supported by factors in addition to the
fundamental measures, such as:
1.
The bottoming out of the long term decline in
the level of our monetary re:::erves, with a substantial
increase in gold holdings since last March.
- lviOilE -
·3·
2.
The paydown in our borrowing from the IMF,
thereby freeing all but $200 million of our gold
tranche of $1, Z90 million of automatic credit
for financing.
3.'
The increase in the "swap" network between the
Federal Reserve Bank of New York and the
monetary authorities of other powerful financial
nations and institutions to an availability level of
$10. Z billion for the United States.
4.
The t'll'actical clearing of U. S. ca1ls on the "swap"
network necessitated by the short term dollar flows
into central banks last faU and winter.
5.
The removal of the gold cover limitation on the use
of reserves.
An intangible but nonetheles s significant source of strength and stability
for the world economy, of which the United States and the U. S. dollar
is an integral part, is the recent progress that has been made for
enlarging and intensifying the scope, scale and nature of international
financial cooperation. This progress, evolutionary in character, has
involved measures of accord for international financial cooperation to
maintain and improve a functioning international monetary system. These
measures had a variety of objectives:
(a) Avoid the panic and disruption that normally accompany
war and special strains on the currencies of important trac1ing
nations.
(b) Forge a new international monetary facility to provide an
orderly expansion of world monetary reserves, and
(c) Establish and maintain arrangements for cooperation on
gold policies in the interest of greater stability for the system.
Quick, quiet, informal and effective means to as sist nations that have
found themselves in temporary monetary difficulties this year -- the
United Kingdom and, most recently, France ~- give confidence for the
future.
The successful development and operation of the so-called two-tier
system for gold since the agreement on gold policies of Central Bank
representatives of the gold pool nations meeting in vVashington last
March 17, and the subsequent expressions of support of most of the
rest of the world, now reveal that agreement as a most significant
and far-reaching step. It has arrested the decline of monetary gold
reserves and insulated the international monetary system from the de~
stabilizing influences of the private gold market and speculation in gold.
The agreements reached at Rio de Janeiro last September and in Stockholm
last lvlarch for the creation of a new facility for .special Drawing Rights in
the International Monetary :Fund are the culmination of years of intensive
study and negotiation. Acting in concert, the world I s leading nations have
taken the long step toward the provision of an international monetary system
in which reserve needs can be met through conscious and deliberate action.
This constitute s the greate st forward step in the improvement of the
international monetary system since the creation of the International
IVionetary Fund itself.
MORE
- 4 •
An amendment to the Articles of A greement of the Fund providing the
new Special Drawing Rights facility has been completed pursuant to the
decisions at Rio de Janeiro and Stockholm. It was submitted to governments
last May 31 with the near unanimous approval of the Governors of the member
nations of the Fund. Since that time ZO countries out of the 67 necessary,
possessing 43 percent of the weighted vote of the 80 percent necessary, have
ratified the amendment. It has not been formally rejected by any membe r
government. Information indicates the likelihood of completion of the ratification process by the end of the year or early January.
The most serious problem confronting the economy is to carry through the
process of disinflation now under way and restore price stability without
excessive unemployment or slow and inadequate growth too long endured.
VIe have turned the corner toward price stability. But the turn and
improvement, limited in time and quantity, leaves a price and wage performane far from satisfactory.
Maintaining the proper mix of fiscal and monetary policies is the fundamental
and essential element. IvIoreover, the nation must continue to expand
training and retraining programs to improve the match of labor skills
to market needs and facilitate the mobility of workers an,d jobs.
In addition to these measures we must continue to encourage the high levels
of investment and co('rdination to improve efficiency that have characterized
recent years, vigorously apply the anti-trust laws, and carry through on
the reduction of tariff barriers without imposing quotas on imports.
A supplementary anti-inflation program has been in preparation for six
months by the Cabinet Committee on Price Stability. It is designed to deal
with inflation-prone sectors, such as medical services and construction
costs and to provide new proposals for securing responsible wage and
price behavior on a voluntary basis in those sectors of the economy where
there is a substantial national interest in wage and price decisions.
#
#
#
TREASURY DEPARTMENT
WASHINGTON. D.C.
November 12, 1968
FOR A.M. RELEASE
WEDNESDAY, NOVEMBER 13, 1968
TREASURY A:-JNOUNCES FINP-L REGULATIONS ON INTEGRATION
OF PRIVATE PENSION PLANS \tJITH SOCIAL SECURITY BENEFITS
The Treasury Department today ann01..1nced publication of
regulations on the inte~ration of private pension and other
retirement plans with Social Security benfits. The regulations
will appear in the Federal Register of Wednesday, November 13,
1968,
At the same .time, the Treasury announced that the Internal
Revenue Service will publish shortly a supplemental revenue
ruling to assist interested parties in applying the new
regulations.
The regulations generally concern t!1e provlslon of the
Internal Revenue Code that a private pension plan, as a prerequisite to obtaining the special tax treatment accorded to
qualified plans, may not discriminate in favor of officers,
shareholders, supervisory personnel, and highly compensated
employees. They provide specific standards for determining
whether a pension plan designed to supplement the Social Security
system meets this statutory nondiscrimination rule. The
regulations are needed to adjust the income tax rules in the
light of changes :in the Social Security system made through the
legEiation of 1965 and 1967.
The final Treasury regulations are based on proposed
regulations issued on July 6, 1968. The final version of the
regulations adopts the fundamental principle in the proposed
regulations that 30 percent represents the proper integration
percentage under the current Social Security program. The
integration percentage is the maximum rate at which a pension
plan, which does not provide benefits on compensation covered
by Social Security, may provide benefits on compensation over
the level covered by Social Security, without violating the
statutory non-discrimination requirement. The prior integration
percentage was 37-1/2 percent
u
F-l403
- 2 Transition Rules
The regulations provide liberal transition procedures for
changing over to the revised rules in order to avoid any major
disruption of retirement plans:
(1) No change whatever is required oefore January 1,
1972. Since nany employers will undoubtedly in
any event up~rade their pension plans over the
next three years, they will be able to adjust to
the ne1;v rule.c::: hd thout unexpected costs and
additional administrative workload.
(2) Even after that date, no change is required with
respect to the benefit structure under a plan for
employee service existing prior to January 1, 1972.
Thus, an employee may receive a benefit determined
under the old 37-1/2 percent integration percentage
for his service prior to 1972 even though that
benefit is computed as a percentage of the wages he
is earning at the time of his retirement after 1972.
(3) Finally', an employer may guarantee an employee that,
as a minimum, he will receive a pension no smaller
than what he would receive based an the plan's
existing benefit formula and his current wage level.
Thus, the portion of his pension to which the
employee has developed the strongest expectations -i.e., what he will receive under the plan based on
his current wage level -- need not be affected.
Hence, employees close to retirement will feel little
or no effect from the new rules.
In summary, the Treasury regulations adjust to the changes
in the Social Security situation and eliminate potential
discrimination with a minimum of disruption to the private
pension system.
Principal Changes From Proposed Regulations
Written comments on the proposed regulations and those made
at the public hearings September 16 and 17, brought out some
practical problems that would have been created for pension
plans under the proposed regulations. The final version of the
regulations contains the following principal revisions with the
objective of removing as many of these problems as is possible
consistent with the basic requirement of nondiscrimination.
- 3 -
(A) The effective date of the new rules, as they relate
to existing plans, is delayed from January 1, 1971,
until January 1, 1972. This revision will allow
more time for plans to develop and make any changes
needed to meet the new rules o
(B) Provisions have been added to give the employer more
flexibility in setting his integration level (i.e.,
the wage level above which he intends to supplement
Social Security benefits)o Under the proposed
regulations, if an employer wanted to use a uniform
integration level for all employees (instead of a
level which varied according to the employee's age
in line with the method for determining Social
Security benefits), his choices were substantially
limited. Comments were received to the effect that
a varying integration level procedure would cause
practical problems and that more flexibility should
be permitted in adopting a uniform level. This
flexibility has been added in the final regulations
by allowing an employer to use any wage level he
desires as a uniform integration level. However, if
an employer chooses an integration wage level which
will restllt in any group of employees receiving
neither Social Security benefits nor private plan
benefits on a band of their wages, he must make an
appropriate reduction in the integration percentage
to adjust for this fact.
For example, if an existing plan which provides
no benefits on wages below its Social Security
integration level is amended to conform to the new
rules as of January 1, 1972, it may adopt a benefit
formula which provides a pension equal to 30 percent
of an employee's wages in excess of any specified level
up to $6,000. The employer may set his integration
level above $6,000, if he makes a proportionate
reduction in his 30 percent benefit formula.
(C) A provision has been added to permit employers to keep
existing funding arrangements intact during the
transition to the new integration percentageo Even
though plans generally gear their benefits to an
employee's rising compensation, many presently fund
this benefit under a basic contract providing a
benefit based on the employee's wage level at the time
the contract is entered intoo
- 4 When an employee's wages increase, a supplemental
contract is purchased to provide the additional
pension. Under this type of plan, it is likely that,
even if an employer adapts to the new integration
percentage by reducing his benefit schedule, most
employees will, by reason of increased wages,
ultimately receive larger benefits under the new
schedule than are being funded under the basic contract.
Under a new procedure added in the final regulations
which allows an employer to guarantee an employee at
least what he would have received under the plan as now
in effect based on his 1967 wage level -- the basic
contract would not have to be cancelled although it may
technically provide an excess benefit until the
employee's wages increase sufficiently. This new
procedure would not apply, however, to the owners of a
business (i.e., those who own more than 10 percent of
the stock) since their basic contracts often will in
fact prove to be discriminatory. This is because the
salaries of this group tend to level off as the earnings
are left in the business. When this occurs, if the
benefits' under the basic contract are based on a
discriminatory integration percentage, they will exceed
those computed under the new 30 percent standard.
CD) As has been the rule for many years under the prior
regulations, a plan may continue to utilize a normal
retirement age for women which is below age 65 -but not less than age 60 -- without having to make an
adjustment in the 30 percent integration figure to
reflect the fact that the Social Security program sets
age 65 as the normal retirement age. Thus, for
example, a plan will not be considered discriminatory
in favor of the highly paid merely because it provides
women employees a 30 percent benefit -- beginning at
age 60 -- on wages in excess of the Social Security
wage base and no benefit on wages below the wage
base. The proposed regulations would have required
integrated plans to conform to the age 65 normal
retirement age under Social Security. The fact that
a normal retirement age for women of less than age
65 will not be considered discriminatory in favor of
highly-paid employees under the Internal Revenue Code
does not, of course, have any bearing on whether such
a provision as to retirement age violates any Federal
or State law, such as Federal and State fair
employment laws.
- 5 -
For example, it should be noted that Title VII of the Civil
Rights Act of 1964, as interpreted by the Equal Employment
Opportunity Commission, prohibits differentials in mandatory and
optional retirement ages for men and women, with limited
exceptions for existing practices which are now being brought into
compliance.
Each of these revisions in the proposed regulations
was made to meet a practical problem which pension plans
would otherwise have faced in conforming to the new
integration rules o They will thus materially ease the
transition to the new rules.
Background of the New Regulations -- Non-Discrimination Rules
The Internal Revenue Code specifically provides that as
a condition to qualifying for the tax benefits reserved for
qualified pension plans, the employer must establish a plan
which does not discriminate in favor of officers, shareholders,
supervisory personnel or other highly paid individuals. The
objective of this condition is to insure that the special tax
benefits flow to a broad range of employees. In its simplest
terms, the non-discrimination requirement means that if an
employer is going to provide an employee earning, say,
$15,000 a year with a pension equal to 50 percent of his
pre-retirement salary, an employee earning $7,000 must likewise
be provided a pension equal to at least 50 percent of his
pre-retirement salary, if the pension plan is to qualify for
the special tax benefits o
The Internal Revenue Code and regulations have long provided
that in determining whether an employer's plan meets this nondiscrimination test, consideration may be given to the benefits
provided (other than by the employee) under the Social Security
program to the end that if the combined package of those
Social Security benefits and the private plan benefits are nondiscriminatory, the plan will qualify under the Code.
To apply this provision, two steps are necessary:
(1) The Social Security benefits have to be valued; and
(2) Since both the employer and his employees contribute
to the Social Security system, a determination has
to be made as to what portion of the benefit package
may be fairly credited to the emp10ye r o
For example, suppose an employer sets up a pension plan
under which he is going to provide a pension equal to 37-1/2
percent of an employee's wages in excess of the Social Security
wage base and no pension on wages below that level. The
employer can j~tify this obvious apparent discrimination in
his pension plan in favor of the higher paid employees only by
asserting dIal lIe is prOViding an equivalent 37-1/2 percent
- 6 pension on wages below the Social Security wage base through the
Social Security system. The essence of the Treasury Department
regulations is to provide rules for determining whether he is,
in fact, doing this. For if the employer is not providing a
comparable pension for his lower-paid employees under the
Social Security program, then the inescapable conclusion is
that his plan is discriminating agains t these employees in
violation of the tax qualification rules.
In this situation, the mere fact that the excluded employees
will receive a comparable amount of Social Security benefits is
not enough to prove non-discrimination. This is because, while
the employer is paying the full cost of the pension he is
providing his higher-paid employees under his private plan, his
employees are required to share with him the cost of their
Social Security benefits. Thus, in judging whether nondiscrimination exists, a fair allocation of an employee's
Social Security benefits must be made between the employee's
contributions and those of his employer and only the portion
allocated to the employer taken into account.
Under prior regulations, a 37-1/2 percent pension had been
determined to represent a fair valuation of what the employer
should be credited with under Social Security. Thus, even
though a private plan gave a 37-1/2 percent benefit on wages
in excess of those covered by Social Security, and no benefit
on wages below this level, the plan was not considered to be
discriminatory because the employer was deemed to have provided
through Social Security a comparable 37-1/2 percent benefit on
the lower wage band o However, if the plan provided a larger
differential than 37-1/2 percent between the benefit on wages
in excess of those covered by Social Security and the benefit
(if any) on wages covered by Social Security, it was
discriminatory.
These regulations were written in 1958. Since then, two
significant sets of Social Security amendments have been
enacted and the system itself is 10 years older. The question
behind the issuance of the new regulations is whether, in light
of these factors, a 37-1/2 percent pension still represents a
fair valuation of the pension an employer should be credited
with under Social Security. The new regulations conclude that
it does not, and that under the current situation, a 30-percent
r-:ension is much nearer the true measure of the employer-provided
So~ial Security benefit.
- 7 As a consequence of this change in the Social Security picture,
an employer's plan which is now integrated under the existing
37-1/2 percent concept is, in fact, discriminating in favor of the
higher-paid employees, since that employer is giving his lowerpaid employees only a 30 percent pension under Social Security.
Under the new regulations a plan has various alternatives
for removing this discrimination which is clearly in violation
of the statutory provisions. It may pay a benefit of 7-1/2
percent under the private plan with respect to wages below the
Social Security wage base (so that the 30 percent Social Security
benefit plus the plan's 7-1/2 percent benefit equals the plan r s
37-1/2 percent benefit for wages above the Social Security wage
base); or it may reduce the pension payable with respect to
earnings above the Social Security wage base by 7-1/2 percent.
An alternative course would be to do a little of each, which
would permit the plan to remove its discrimination and yet
maintain its current cost level. In any event, the fact that
the plan r s existing formula may have provided equality 10 years
ago does not alter the fact that it does not today and thus
does not provide a legal basis for allowing it to continue to
discriminate.
What Caused the Integration Percentage to Change?
Considering that Social Security benefits as well as
Social Security taxes have continued to increase, what has happened
to warrant a change in the amount of Social Security benefits
that employers are considered to be providing? The primary
reason for the change is that at present employees are in fact
paying through their contributions for a greater portion of their
Social Security benefits than they did 10 years ago. In testing
:liscrimination, therefore, the employer should be given credit
for a lesser portion than in the past.
In the early days of the Social Security program, in order
to provide adequately for their retirement, employees who were
:::lose to retirement when the program began were generally
5ra nted benefits near the maximum, even though because of the
lewness of the system neither they nor their employers would
::ontribute significant amounts towards the funding of these
)enefits
This practice was also followed with respect to the
:>ubstantial benefit increases which have been provided through
the years as the system was brought to its current levels.
Q
- 8 Thus, in the past an employee's Social Security benefit was
only partially funded through contributions based on his earnings.
The excess was made up out of money contributed by younger
employees and their employers. Nevertheless, in constructing the
integration rules, the historical approach has been to determine
the portion of the Social Security benefit paid for by an
employee's contributions and to give his employer credit for the
remainder even though the employer, in fact, paid for only a
part of this remainder. At the time of the 1950 amendments, the
contributions of the average employee then in the work force
would pay for only about 6 percent of his benefit, and the
Social Security integration percentage was set by crediting the
employer with 94 percent of Social Security benefits. Even by
1958, although the average employee may have been contributing to
Social Security for his whole working c~reer, he was still paying
for substantially less than half of his benefit because he was
entitled to benefits at almost the maximum level permitted under
the 1958 amendments despite the fact that he would contribute the
increased taxes associated with the increased benefits for only
a portion of his working career. Accordingly, the Social Security
integration rules continued to credit the employer with
considerably more. (78 percent) than one-half of the total
Social Security package.l/
This situation has changed over the past 10 years. Even with
the enactment of the 1965 and 1967 benefit increases, there has been
a sharp increase in the portion of the Social Security benefit
which is actually being paid for by the employees. For example,
the average-age employee (approximately 40) who is entitled to the
maximum Social Security benefit under the 1967 amendments will
contribute 5002 percent (assuming a 3-3/4 percent interest rate)
of the cost of his Social Security benefits, and the employer only
49.8 percent. On the other hand, contrary to the situation in the
past, there has not been an offsetting increase in the size of
the Social Security benefit for an employee entitled to the
maximum benefit. Consequently, there has been an overall reduction
(to the neighborhood of 30 percent of wages) in the Social Security
benefit which an employer can now reasonably be considered to
be providing
0
!l
Although the percentage of Social Security benefits allocated to
the employer decreased from 1950 to 1958, the size of the benefit
to be allocated increased to an offsetting extento The result has
been a level integration percentage of 37-1/2 percent.
- 9 Conceptually, there has always been a serious question as to
nether the prior concept of attributing more than 50 percent of
ne cost of the Social Security benefit to the employer makes
ational sense since, in fact, the employee has contributed
qually with the employer, the payroll taxes on employers and
mployees being at the same rate. Now that a mathematical computation
roduces an almost even split, it is app~opriate to shift from the
athematical computations and to allocate on a 50-50 basis
onsistent with the contribution pattern.
Thus, in lieu of the past practice of precisely determining
hat the employee pays for under Social Security and giving the
mployer credit for the remainder, the new regulations adopt
50-50 allocation of the benefit between employer and employee
ontributions. As indicated above, this change in concept has
effect on the end result reached in the regulations, since
:ollowing the historical mathematical approach would also produce
. 50-50 allocation under the existing facts (50.2 percent for the
~ployee and 49.8 percent for the employer).
Moreover, the adoption of the 50-50 allocation does not
represent a marked departure from past policy. This was
recognized as a logical future step in 1951 in Mimeograph 6641
J95l-l CB 41) which pointed out:
"Actuarial cost estimates • • • indicate that the
aggregate employer and employee contributions under
the scale provided in /the Federal Insurance
Contribution/ Act as a;ended will, in the long run,
approximate the cost of the OASI benefits. Since
the employee and employer contributions under the
Act are equal, it may be considered that in the long
run contributions of employees will in the aggregate
pay approximately half the cost of the OASI benfitso"
(Emphasis added.)
In summary, the new regulations set forth a rate of 30 percent
is the new integration percentage. This percentage is consistent
dth the present Social Security situation and represents the maximum
Talue which an employer should, in constructing his pension plan
)rogram, be able to assign to the benefits he provides his employees
mder the Social Security program and still maintain a nonliscriminatory plan.
The final regulations were approved by Stanley S. Surrey,
\ssistant Secretary for Tax Policy, and Sheldon S. Cohen,
~onunissioner of Internal Revenue.
000
TREASURY DEPARTMENT
WASHINGTON. D.C.
November 13, 1968
FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN OCTOBER
Duri~g
October 1968, market transactions in
direct and guaranteed securities of the Government
investment accounts resulted in net purchases by
the Treasury Department of $405,748,000.00.
000
F-1404
TREASURY DEPARTMENT
WASHINGTON, D.C.
November 13, 1968
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
$2,700,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing November 21,1968, in the ,amount of
$2,701,648,000, as follows:
91.day bills (to maturity date) to be issued
1n the amount of $.1.,600 I 000,000, or thereabouts,
additional amount of bills dated August 22,1968,
mature February 20,1969,originally issued in the
$ 1,101,172,000,the additional and original bills
interchangeable.
November 21,1968,
representing an
and to
amount of
to be freely
182-day bills, for $ 1,100,000,000, or thereabouts, to be dated
November 21,1968, and to mature May 22, 1969.
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 fo~ 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, Monday, November 18, 1968.
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-1405
- 2 Immediately after the closing hour, tenders will be opened at th
Federal Reserve Banks and Branches, following which public announce- e
ment will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders
in whole or in part, and his action in any such respect shall be '
final. Subject to tnese reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on November 21,1968, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing November 21 1968. Cash and exchange tenders
will receive equal treatment. Cash adjus'tmentswill 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 ition 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
c and it ions of the ir issue. Copies of the circular may be obtained fron '
any Federal Reserve Bank or Branch.
000
TREASURY DEPARTMENT
t
WASHINGTON, D.C.
November 14, 1968
FOR IMMEDIATE RELEASE
STATEMENT BY ACTING SECRETARY OF THE TREASURY
JOSEPH W. BARR
"I am proud that a Treasury official, Assistant
Secretary for Administration Artemus E. Weatherbee, has
won a 1968 Rockefeller Public Service Award. I have
watched Mr. Weatherbee at work for some years now and
so can confirm from personal knowledge the judgment of
Princeton's Woodrow Wilson School of Public and
International Affairs in conferring the honor upon him.
"But I am pleased for yet another reason, namely
the confirmation thus afforded that the ability to make
scarce budget resources work with maximum effectiveness
is worthy of recognition and acclaim. Not nearly
enough good things have been said about public servants
like Mr. Weatherbee who can move into a large
organization like Treasury to tighten up its management,
get things done and save money at the same time.
"Happily, there are many men like Mr. Weatherbee
in our government -- men who like him can and do
successively and effectively serve such disparate agencies
as the State Department, the Post Office and the Treasury
whose high competence has so much to do with making it
work and work well. In honoring him, the award also
spotlights the breed he represents. This is something
that should happen more often."
000
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
FRIDAY, NOVEMBER 15, 1968
STATEMENT OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
ON THIRD QUARTER BALANCE OF PAYMENTS RESULTS, 1968
In the third quarter of this year, the United States
continued in the pattern of the two previous quarters to
make substantial progress toward achieving equilibrium in
its international balance of payments.
In the third quarter, the U.S. had a small surplus of
$35 million, measured on a seasonally adjusted liquidity
basis. This is the first quarterly surplus on the liquidity
basis that we have had since the second quarter of 19650 In
the third quarter, we had a surplus of $439 million
(seasonally adjusted), measured on the official settlements
basis.
For three successive quarters, the deficit of the
United States has moved toward equilibrium with the impetus
provided by President Johnson's Action Program for the
Balance of Payments announced New Year's Day. The huge
deficit of $1,742 million (liquidity basis) in the fourth
quarter of 1967 was reduced to $680 million in the first
quarter of 1968 as the program got unde~ay, moved downward
to $160 million in the second quarter and now for the third
quarter has changed to a surplus.
The results are no less impressive in the official
settlements measure. In the fourth quarter of 1967, the
deficit on this basis reached the very high level of
$1,082 million o However, this deficit declined to $552
million in the first quarter of 1968 and changed to surpluses
of $1,523 million and $439 million, respectively, in the
second and third quarterso
F-1406
- 2 -
For the first nine months of 1968, we had a deficit of
$805 million, measured on the seasonally adjusted liquidity
basis and a large surplus of $1,410 million, measured on the
official settlements basis. This compares with a nine-month
liquidity deficit of $1.8 billion and a deficit of $2.3
billion measured on the official settlements basis for the
similar period in 1967.
As I mentioned on August 16 in commenting on the second
quarter results, this progress, however welcome, is somewhat
unbalanced and elements may to some extent be transitory.
Therefore, we cannot let up in our efforts to implement all
of the balance of payments measures contained in President
Johnson's Action program o We must continue with this program
in the months ahead and must assure that all segments of the
economy share proportionately in this effort until equilibrium
is established on an enduring basis.
We have had success in most of the areas covered by this
comprehensive program. However, two significant aspects of
our international balance of payments, trade and tourism, are
not at all satisfactory, despite the improving trade balance
in the third quarter as compared with the second quarter.
In these areas, as well as the control of government
expenditures overseas, we must intensify our efforts. Only
by pressing through on these longer-term measures will we be
able to do what we all want to do -- relax and eventually
remove restrictions on the free flow of capital without
endangering equilibrium.
Trade
The trade account showed some improvement from the
second to the third quarter. However, our trade surplus for
the first nine months of 1968 was only $307 million (seasonally
adjusted), or $409 million at an annual rate as compared to
annual surpluses of more than $4 billion in recent years. In
the fourth quarter further improvement may be expected, but
our trade results for the year as a whole will not be
satisfactory. Our efforts to restrain an over-heated economy
which sucked in imports at an unusually high rate, and to
expand exports, should yield further improvement in next year's
trade picture o However, we face a prolonged effort to rebuild
the trade surplus to a satisfactory level. In pursuing this
effort we must not back away from our firm resolve to seek
equilibrium in our balance of payments in the year ahead.
- 3 -
Tourism
As I have repeatedly pointed out, the United States must
take action to reduce the widening tourist deficit, I put
forward a detailed long-term program for promoting travel to
the United States which unfortunately the 90th Congress did
nbt approve. This plan called for a temporary tax based upon
expenditures of U.S. travelers made outside the Western
Hemisphere and for a ticket tax. A portion of the revenue
to be obtained from these levies would be used to create a
Special Fund to finance a program to encourage foreign travel
to the United States. This fund, under the direction of the
President, would provide the resources for a five-year
program, including both Government actions and Government
support of private sector activities aimed at increased
tourism to this country.
On July 31, 1968, I wrote to Senator Long, Chairman of
the Senate Finance Committee, about the vital nature of this
proposal to deal with the ever-widening travel gap. I said:
"It is imperative that the Government of
the United States make a positive, vigorous
start on a solution to this problem of arresting
and reversing the trend of increasing deficits
in our balance of payments attributable to
foreign travel."
I hope that the next Congress will understand the longrun needs and be more receptive to such a plan to finance
the imaginative recommendations set forth by Ambassador
McKinney's Travel Task Force.
Government Expenditures Overseas
On New Year's Day, President Johnson emphasized that
"we cannot forego our essential commitments abroad, on which
America's security and survival depend. Nevertheless, we
must take every step to reduce their impact on our balance
of payments without endangering our security." Recent
events in both Europe and Asia underscore our continuing
resolve to meet these needs. While we have taken major steps
to reduce the costs of Government personnel overseas,
benefits from these efforts will accrue only gradually in
the months ahead. We must continue to work with our NATO
allies to minimize the foreign exchange costs of keeping
American forces in Europe. Both in Europe and in Asia we
have made progress in neutralizing our military costs but
- 4 much more remains to be done. Achievement on this account
is necessary to assure long-run mutual security with
sustainable foreign exchange costs.
The improvement of $195 million in our balance of payments
in the third quarter over the second quarter was more than
exceeded by the $290 million improvement in the trade account.
The quarterly trade balance changed from a deficit of
$20 million in the second quarter to a surplus of $270 million
in the third. Exports increased 6.5 percent over the second
quarter to a seasonally adjusted annual rate of $35.4 billion,
while imports rose by only 3.0 percent to an annual rate of
$34.3 billion. This is a welcome trend in contrast to the
first two quarters of this year in which imports increased
much more rapidly than exports.
Other significant transactions during the third quarter
on which information is now available included:
A seasonally adjusted increase in U.S. bank
claims on foreigners of $197 million.
An increase of long-term deposits by foreigners
in U.So banks of $99 million.
Purchases by foreigners of U.S. securities,
other than Treasury issues, of $933 million,
of which $425 million was net purchases of
U.S. stocks and a further $422 million
represnted bonds issued abroad by U.So
corporations to finance direct investment
activities
0
Purchases by official foreigners of $410 million
in non-convertible medium-term Treasury securities,
of which $250 million were bought by Canadian
authorities.
Purchases by U.S. citizens of $366 million of
new foreign securities, after seasonal adjustment,
about two-thirds of which were Canadian issues.
Gains of $74 million in U.S. gold holdings.
- 5 -
For the first three quarters of 1968:
Purchases of UoS. securities by fureigners totaled
$2,708 million, (versus $982 million during the
same period last year), of which $1,509 million
represented bonds issued abroad by U.S o corporations
to finance direct investment activities and
another $1,238 million represented net purchases of
U.So stocks.
Long-term deposits by foreigners in UoS. banks
amounted to $346 million, down $474 million from
the same period last year o
U.S. banks reduced their claims on foreigners by
$305 million on a seasonally adjusted basis,
whereas during the same period in 1967 they
increased them by $554 million.
U.S. residents' purchases of new foreign securities,
seasonally adjusted, were $1,052 million
($205 million less then similar purchases last
year), over four-fifths of which were Canadian
issues or issues of international institutions
which were offset by redeposits by these
institutions.
Foreigners purchased $1,445 million in nonconvertible medium-term U.S. Treasury issues;
in 1967 they bought $335 million during the
first nine months.
While we may be heartened by the 1968 results to date,
we cannot be satisfied that our balance of payments has yet
reached sustainable equilibriumo We have achieved the
first order of business in the President's Action Program
to deal positively with the balance of payments deficit
and to assure confidence in the American do11ar o Responsible
fiscal and monetary policies have contributed greatly to this
confidence
The Revenue and Expenditure Control Act of
1968, passed after too long a delay, demonstrated the will
of the United States to handle its affairs responsiblyo
0
- 6 Apart from these fundamental and continuing efforts, the
notable progress achieved in 1968 has necessarily relied
primarily on temporary measures. For example, the longterm measures to increase exports, to reduce non-tariff
barriers and to increase foreign investment and travel in
the United States have only begun to have an impact o Moreover,
the continuation of a high level of military expenditures in
the Far East has limited our ability to neutralize Government
expenditures abroad. Until the full effects of these measures
materialize, we cannot abandon the program through which we
are building a base for sustainable equilibrium in our
international accounts.
To this end, the Secretary of Commerce announced today the
extension of the mandatory Foreign Direct Investment Program
into 1969. The program will be continued with modifications,
(1) to provide additional flexibility for companies with
limited or no foreign investment experience; (2) to reduce
the administrative burden by an increase in the minimum
annual investment which is generally authorized; (3) to
assist firms which have unusually low investment quotas in
relation to the earnings of their foreign direct investments;
(4) to remove impediments to increased exports to the foreign
affi1:iates of U.S. firms and (5) to meet the unique problems
of a few industries o These changes add clear incentives based
upon earnings and remove inequities which became apparent
this year. At the same time, they will p reserve the balance
of payments gains achieved in the field of direct investment.
Some have argued that the mandatory restraints on direct
investments, by reducing capital outflows, are "killing
the goose that laid the golden eggs". This has not
been and need not be the case. Total foreign direct
investment of U.S. firms has continued to grow and to yield
greater remitted income to the companies and increased
returns to the U.S. balance of payments. This has been true
and it will be true in the future. These firms have financed
their foreign expansion out of foreign financial sources to a
greater degree than before because of the program.
It is clear that plant and equipment expenditures
abroad by U.S o firms have continued to increase in 1968.
Even in continental Western Europe, where the restraints
have been most severe, U.S. firms have been able to increase
their expenditures. Thus, in 1968 the foreign direct
- 7 -
investment program will achieve its objective -- to shift the
financing of direct investment increasingly to foreign sources.
This has been accomplished with no reduction in the volume of
investment, with no undue pressures on international capital
markets, and with major benefits to the U.S. balance of
payments.
Rather than undermine the very substantial progress
made in 1968, with all its benefits to the international
monetary system, we must redouble our effort to take care
of the unfinished business in the President's Action Program.
These needs will be no less compelling for the new
Administration and the new Congress in the year ahead than
they are today.
For that reason, we consider it desirable to move forward
on all segments of the Action Program in the coming year.
The modifications in the Foreign Direct Investment Program
have been announced at this time to facilitate the investment
planning of about 3,000 business firms which the program
affects. In the near future, we will announce an ovel:'-all
balance of payments program for 1969 affecting Government
expenditures as well as other segments of the economy,
including revised Federal Reserve guidelines for lending
institutions.
The temporary measures have served us well. They have
brought the necessary immediate improvement in our balance
of payments and have given renewed confidence in the
strength of the United States dollar and its role in a
strong fl:'ee world economy
These temporary measures,
appropriately modified, are needed for some additional period.
In time, I am confident that as the longer-tel:'m measures
instituted this year yield increasingly large benefits,then
the restraint achieved by the temporary measures may be
phased out.
0
President Johnson said on New Year's Day: "The
action program I have outlined in this message will keep
the dollar strong. It will fulfill our responsibilities
to the American people and to the free world". In
noting our progress since that message, we must not lose
sight of these responsibilities.
000
)R IMMEDIATE REU':ASE
November 14,) 18G8
CU}~.BE.i\JT
SUBSCRIPTION li'IGUI1LS I'On
EXCHJ-UJGE
O}TJI'EHn~G
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DEPARTMENT
Washington
TREJ~SURY
FOR RELEASE ON DELIVERY
REMARKS BY JOHN C. COLMAN
DEPUTY ASSISTANT SECRETARY OF THE TREASURY
AT THE HARVARD BUSINESS SCHOOL CLUB OF CLEVELAND
MID-DAY CLUB, CLEVELAND, OHIO,
TUESDAY, NOVEMBER 19, 1968, 12:00 NOON, EST
THE INTERNATIONAL CHALLENGE TO AMERICAN BUSINESS
Today I would like to talk to you about the international
challenge to American business.
My title is deliberate -- it
is a variation on the theme, The American Challenge, the title
of the most widely read new book in Europe and perhaps all of
the Western World in the last two years.
The author of this book, Jean-Jacques Servan-Schreiber,
is a highly respected French journalist much concerned with
the seemingly overwhelming vitality of American business
operations in Europe.
He holds out the prospect that American
business in Europe may soon become the third ranking industrial establishment in the world following only the United
States itself and the Soviet Union.
I find refreshing his perspective about the dynamic
aspects of the American economy and American business methods.
Perhaps one day we may look back and find his understanding
of the American economy as perceptive as de Toqueville and
Lord Bryce were in their writings about American life nearly
a century ago.
In particular!
- 2 -
In particular, I think it useful to draw upon his views
in discussing what is one of our most perplexing economic
problems, the international balance of payments of the United
States.
Let us review first the history of the problem and
efforts to deal with it.
Then with the
ins~ghts
of this
European commentator, we might look at the role of American
business in possible solutions of the problem.
The United States has had a deficit in its international
balance of payments almost continually since the end of World
War II.
In the immediate post-war years, these deficits were
welcomed both here and abroad.
It was a matter of conscious
policy of the United States to run a balance of payments
deficit as a corollary of the massive efforts to rebuild
viable economies in Western Europe and Japan so necessary for
political stability.
As a result, these countries have
prospered, achieved political stability and remained allies
in the post-war period.
We may now chafe that these countries have become our
principal competitors in world commerce, including American
markets.
But as businessmen you know that these countries
also comprise most of our principal trading partners.
They have/
- 3 -
They have become regions offering some of the most attractive
markets for direct investment as well as exports.
Indeed
world trade, so largely dependent upon commerce among the
major industrial countries, has consistently grown more
rapidly than national production.
In balance of payments terms, we paid a high price to
assist in the reconstruction of the Free World.
I think
rightfully so -- in a cost/benefit context, we can truly say
both political and economic returns have been enormous.
We
transferred real resources without strings, igniting and
fueling the great economic engines outside North America.
As the singular financial power in the early post-war period,
we nurtured the international monetary system to its present
strength as the lubricant for unprecedented levels of multilateral trade and investment.
We were exceedingly generous
in trade negotiations, giving primary impetus to the steady
reduction of trade barriers.
These are policies not to be
abandoned even though our challenges today are different.
By the close of the 1950's, European economies had been
well launched.
Currency convertibility became a fact.
and investment began to soar.
Trade
And the so-called dollar
shortage vanished from the newstands.
Instead for the first
time, we heard that the United states had a balance of
payments/
- 4 payments problem.
Our continuing deficits led to expanding
dollar holdings larger than some countries were willing to
have in their official reserves.
We were caught between the
stones of declining gold reserves and rising liabilities to
foreigners.
It is useful to look at the numbers.
From 1941 to 1957, the United States had an average
annual deficit of less than $600 million.
We had a surplus
from trade and services of $5.2 billion per year, almost
enough to finance the average annual deficit of $6.6 billion
on military and Government transactions -- a period which included World War II, the Korean War and the Marshall plan.
In the following ten years, the story changed dramatically.
The United States had a cumulative deficit of $27
billion, an annual average of over four times that in the
1941-1957 period.
We financed this deficit first by the sale
of $11 billion of gold and then mostly by increasing dollar
claims against us.
In the ten years ending in 1967, our surplus on trade
and services declined to an average of $2.6 billion per year.
The deficit on military and Government account, however,
still ran at a high level averaging $5.5 billion per year.
Our capital/
- 5 -
Our capital account, which had average surpluses of $800 million per year in the 1941-1957 period now was only slightly
above break even.
What has happened in those sectors involving American
business?
Our trade surplus, which averaged about $3 billion
per year in the 1950's, rose above $5 billion annually in the
first half of this decade.
Since then it has fallen sharply
to $3.5 billion in 1967 and perhaps only $1 billion this year.
Exports have continued to grow at a very respectable rate
despite an overheated domestic economy.
But imports have
mushroomed because of temporary shortages of certain raw
materials, rapidly expanding consumer incomes, greater appetites for foreign goods by consumers and industry and
improved distribution by foreign manufacturers in the- lush
American market.
In the service account, we have experienced a steadily
increasing deficit in the past two decades, reflecting
mainly rising net expenditures on travel and transportation.
The negative balance has grown from $600 million per year in
the early 1950's, to $1.3 billion in the early 1960's, to
$2.6 billion last year.
Here too we see the effects of
rapidly increasing disposable income in the United States.
The resu1ts/
- 6 -
The results on capital account have been more e rra t'lC
ti
--
su::pj_I.U1 averaging $1 billion per year in most of the 1950's
and
t'.
Jefici t of similar magnitude in the early 1960' s.
deficits
~~re
These
largely due to the surge in foreign direct in-
vestment by American business, frem less than $1 billion per
year after World War!I to over $6 billion in 1964.
By the
same token, the increasing stock of direct investment has
yielded increasing income, including fees and royalties -from about $1 billion per year in the late 1940's to close to
$6 billion last year.
Overall, the capital
aCCOU:lt
turned to a strong surplus
CIa
in the last three years has
a ::asul t of the balance of pay-
menta programs of the United Stilt•• Government.
These
programs, including the temporalY restraints which have
affected American busine.s, havf kept our balance of payments
problems manageable.
With a reluced trade surplus, with
heavy foreign exchange costs of military requirements within
Europe and Asia, with a businees rush to make foreign investments and with a burgeoning
con~urner
appetite for foreign
travel and foreign goods, these restraints have been necessary
to buy the time to work out mer. fundamental adjustments.
Over the years, the United States Government has dealt
with the problem in a variety of ways.
In the latter years
of the Eisenhower Adrniniatratiol, we began tying our
forei~
assistance/
- 7 -
assistance to u. S. procurement and introduced arrangements
to reduce the balance of payments effects of American military
forces in Europe.
Following the 1960 gold rush, president
Kennedy laid out the first detailed program to minimize
balance of payments deficits.
Further programs, largely
voluntary in the restraints called for from the private
sector, were introduced in 1963 and 1965.
Finally, in the
wake of the sterling devaluation last fall, President Johnson
on New year1s Day introduced a comprehensive set of measures
affecting both the public and private sectors, including
mandatory restraints on foreign direct investment.
At each stage, the programs have advocated a combination
of short-term restraints and long-term positive measures for
seeking adjustment in our balance of payments.
Temporary
measures to restrain bank lending and direct investment abroad
have been mixed with long-term programs to improve our trade
account, to increase tourist receipts, to foster foreign investment in the united States and to improve the international
monetary system.
At the same time, we have sought greater
burden sharing in the protection of the Free World and
complementary adjustments from those ·countries having persistently heavy balance of payments surpluses.
The results/
- 8 -
The results so far this year have been very encouraging,
For three successive quarters, the deficit has moved toward
equilibrium with the impetus of President Johnson's Action
program.
The huge deficit of over $1. 7 billion l.n the fourth
quarter of 1967 has been successively reduced in the following periods.
In the third quarter of 1968, the United States
had a small surplus of $35 million (seasonally adjusted),
measured on the liquidity basis -- the first quarterly surplus
since 1965.
In commenting on those results last Friday, Secretary
Fowler said:
"While we may be heartened by the 1968 results
to date, we cannot be satisfied that our balance of
payments has yet reached sustainable equilibrium.
We have achieved the first order of business in the
president's Action Program to deal positively with
the balance of payments deficit and to assure confidence in the American dollar.
Responsible fiscal
and monetary policies have contributed greatly to
this confidence.
The Revenue and Expenditure Control
Act of 1968, passed after too long a delay, demonstrated the will of the united States to handle its
affairs responsibly.
- 9 -
"Apart from these fundamental and continuing
efforts, the notable progress achieved in 1968 has
necessarily relied primarily on temporary measures.
For example, the long-term measures to increase
exports, to reduce non-tariff barriers and to increase foreign investment and travel in the United
States have only begun to have an impact.
Moreover,
the continuation of a high level of military expenditures in the Far East has limited our ability
to neutralize Government expenditures abroad.
Until
the full effects of these measures materialize, we
cannot abandon the program through which we are
building a base for sustainable equilibrium in our
international accounts •••.•
"Some have argued that the mandatory restraints
on direct investments, by reducing capital outflows,
are 'killing the goose that laid the golden eggs'.
This has not been and need not be the case.
Total
foreign direct investment of U. S. firms has continued to grow and to yield greater remitted income
to the companies and increased returns to the U. S.
balance of payments.
be true in the future.
This has been true and it will
These firms have financed
their foreign/
- 10 their foreign expansion out of foreign financial
sources to a greater degree than before because
of the program.
1I
Quite clearly a major aspect of our balance of payments,
on both sides of the ledger, has been the drive of U. S.
business to capture foreign markets.
Servan-Schreiber terms
the European Community the new frontier of American business.
His reference is to the recent boom of American direct investment in Europe, more rapid there than anywhere else both
at home or abroad.
He points out that U. S. firms control,
for instance, 15 percent of consumer goods production, 50
percent of semi-conductor production, and 80 percent of computer production in Western Europe.
He emphasizes that the
giant U. S. firms, not the medium-sized ones, have played the
major role in penetrating Europe.
He underscores the im-
portance of size in sponsoring research and development.
In describing the plight of European firms in the face
of this competition, Servan-Schreiber concludes that size,
technological superiority and
the real sources of strength.
financi~l
reSOurces are not
The disparity, in his view,
stems rather from the American art of organization, the
mobilization/
- 11 mobilization of intelligence and the talent to innovate in
the development of products and markets.
This innovative
talent, in turn, he believes stems from American emphasis on
social mobility, individual responsibility and investment in
educ~tion.
The importance of the giant sized American firms in
direct investment is clearly stated.
From our own figures
we know that some 100 firms account for roughly three-fourths
of all foreign direct investment by united States business.
Approximately one-fourth of all direct investment is accounted
for by less than a score of companies in the extractive industries, particularly oil.
Among all the large corporations
of the Free World, in each size category, American firms
generally out-number all of the others by a factor of three
or four times.
The multinational corporation is a relatively new
phenomenon which has grown rapidly in recent years.
It is
estimated that total world direct investment is in the
neighborhoOd of $85 billion and that total commerce emanating
from these investments is about $170 billion annually.
Of
the total direct investment, over 60 percent is American.
By 1975, it is estimated that 25 percent of the approximate
$1 trillion gross national product of the rest of the Free
World will come from branches and subsidiaries of u. S.
corporations.
In looking/
- 12 In looking to the future, we must question whether the
dominance of U. S. corporations in multinational business ,
and particularly in direct investment, is likely to accelerate,
Over 3,000 American direct investors, representing more than
20,000 incorporated businesses, presently report to the
Department of Commerce under the Foreign Direct Investment
Regulations.
Since only the first 100 account for such a
large portion of the total amount of American foreign investment, is it probable that direct investment flows will
accelerate as the balance of the 3,000 firms try to emulate
their big brothers in going after foreign markets?
I believe
that this is not likely to be the case.
Analysis of the effects of foreign investment on domestic
firms and foreign business is extremely complex and presently
froth with controversy.
Many groups of economists have tried
to discern whether foreign direct investment by American
firms is displacing exports and thus over the long run
aggravating our balance of payments problems and reducing
domestic employment opportunities.
I will not attempt to
debate with the economists on macro-economic grounds.
However, I think we should look at the record of particular companies.
one can draw some inferences from
statistics about the leading corporations published by
Fortune
- 13 Fortune magazine.
It appears that the major firms which are
the largest foreign direct investors do not have the highest
returns on capital.
Indeed, a recent Fortune list of 25 "big
players in the global game" showed that most of these firms
had returns on capital generally at or below the median
returns in their respective industries.
Those American firms
which in recent years have shown the most consistently
superior performance in terms of return on capital have
generally not been large foreign direct investors.
Those
companies with the highest returns on capital are generally
leaders in either technological or marketing innovation.
Case studies indicate that many of these tap foreign markets
by exporting,licensing or franchising as much as or more
than by foreign direct investment.
Practically none of our
great merchandising firms has any foreign activity.
Finally,
the newest category among American corporations, the large
conglomerates, have almost no representation in international
business.
The National Foreign Trade Council has recently studied
the relationships of foreign direct investments and exports
among some 600 American firms.
One of the interesting con-
clusions is "that in most situations, a prerequisite for the
making of a foreign investment has been the loss or absence
of ani
- 14 of an export market •••
They stress the importance of a fall
in exports resulting from either government action, or from
other suppliers becoming more competitive ••• "
The study con-
tinues that government restriction induced direct investment
more often in less developed countries; in Europe, increased
local competition more frequently induced direct investment.
Interestingly enough in the last five years while direct
investment has boomed at 13 percent per year, U. S. exports
have grown at a very respectable rate of over 8 percent per
year, faster than gross national product.
out'side of the
special case of Canada, export gains were greatest in trade
with the less developed countries despite the alleged restrictions.
Furthermore, despite increased competition from
foreign manufacturers, the strongest growth in exports in the
last five years has been in finished manufactured items.
Clearly American business in the aggregate has not lost its
ability to compete in export markets.
The point of all this is simple.
I think the time has
corne for each business manager to question whether foreiqn
direct investment is the best road to high returns on investment for U. S. firms competing in foreign markets.
we had too much of a fad?
Have
Will the high profits forecasted
for foreign plants shrink as competition grows keen?
Did thes e/
- 15 -
Did these profits really materialize in the first place?
Will
the fixed assets overseas become liabilities for particular
firms five or ten years hence because they do not have the
size, the technical strength and the innovative capacities of
their American parents?
Can foreign direct investment dollars
offer higher rewards in marketing than in production
facilities?
In many cases, I would surmise the answers to these
questions will increasingly militate against major foreign
direct investments at least in fixed assets. Rather we may
find that U. S. firms will come again to prefer to compete
in foreign markets by exporting products or exporting knowhow by licensing.
united States goods are still highly com-
petitive; United States firms with their great innovative
talents, even more so.
swing to exporting.
I would expect that the pendulum will
This has been the case before.
With
large and' rapidly growing markets abroad, with rapid communication and transportation now available to all parts of the
globe and with the taste of foreign markets that over 3,000
U. S. direct investors now have, I think the reestablishment
of a favorable trade surplus will not take long as the
pendulum swings.
The possibilities/
- 16 The possibilities for American firms in foreign markets
are enormous.
These are just beginning to offer both the size
and the demands typical to the great North American markets.
united States firms excel not only in the high technology
industries but also in the service industries, in mass
merchandising and in mass distribution, the equally great
frontiers in world business.
In meeting the challenge of these markets, American
business will serve itself and will help the balance of payments.
As in direct investment, so it is in exporting that
a few hundred U. S. firms account for the bulk of our international business.
I believe the second and third tiers of
u. S. firms, giants by any standards other than our own, will
find that exporting to these markets will offer high returns
and maximum corporate flexibility_
If I am correct, then I believe we will experience a
marked improvement in our balance of payments.
The trade
surplus of former years can readily be reestablished, returns
on capital account will continue to grow and direct investment will account for a proportionately smaller outflow.
These swings should provide the increased foreign earnings
necessary to cover the ongoing costs of our international
responsibilities.
- 17 We hear a great deal about foreign competition in
American markets and ominous calls for protectionist measures.
Many aggrieved parties may attempt to justify tariffs Or
quotas or other barriers on balance of payments grounds.
These are ill-founded arguments.
American business and American workers have far more to
lose than to gain by a return to the protectionism of the
1930's.
I do not belittle the dislocation that foreign com-
petition may bring in certain areas.
I do not wish to
minimize the need for us to press vigorously for the removal
of foreign trade barriers and unfair trade subsidies.
We should not lose sight, however, of our great size and
strength.
In slightly over three years, the increase in our
gross national product has been greater than the total GNP of
anyone of our trading partners.
The 20 largest U. S. in-
dustrial firms have aggregate capital greater than the
reserves of all the rest of the countries of the Free World.
We devote less than four percent of our gross national
product to export markets.
Most of our emerging giant business
firms have yet to apply their innovative skills to foreign
marketing.
I have no doubt that American business, in its
own enlightened self-interest, can readily face the international challenge.
TREASURY DEPARTMENT
WASHINGTON. D.C.
!LEASE 6::30 P.)1. ,
'1.1 November 18, 1968.
RESULTS
or
i'REASURY' S WEEKLY BILL OFFERING
'lhe ~easury DepartDEnt &DDounced that the tenders for two series of Treasury
" one series to be an additioDa1 issue of the bills dated August 22, 1968, and
Ither series to be dated lfovember 21, 1968, which were oftered on November 13,
were opened at the Federal Reserve Banks today. ~nders were invited for
)0,000,000, or thereabouts, of 91-day bills and for $1,100,000,000, or there;8, ot 182-day bills. '!be details of the two series are as follows:
: OF ACCEPTED
:'1'l'n:VE BIDS:
High
Low
Average
91-day Treasury bills
matU,fiK February 20, 1969
Approx. Equiv.
Price
Annual Rate
98.623
5.447~
98.610
5.49~
98.614
5.483~
Y
182-day Treasury bills
maturins May 22, 1969
Approx. Equiv.
Annual Rate
Price
97.144 f}}
5.64§J
97.120
5.697~
97.129
5.67~
Y
~ Except 1 tender of $1,000.
27~
72~
J
of the amount of 91-day bills bid for at the low price was accepted
of the amount of 182-day bills bid for at the low price was accepted
TENDERS APPLIED FOR AID ACCEPTED BY I'EDERAL RESERVE DISTRICTS:
Itr1ct
ston
f York
lladelphia
!ve1and
!hmond
lants
Lcago
. Louis
meapolis
lsas City
las
1
Francisco
'mTALS
Applied For
Acce12ted
$ 25,641,000 $ 15,2:31,000
1,867,228,000 1,151,578,000
15,521,000
30,521,000
28,845,000
29,925,000
13,676,000
13,676,000
20,885,000
:39,257,000
206,402,000
251,862,000
36,041,000
50,541,000
19,118,000
25,118,000
24,601,000
24,626,000
14,275,000
2&,875,000
74,261,000
156,695,000
AE121ied For
$ 7,846,000
1,656,298,000
15,911,000
60,399,000
5,225,000
31,899,000
166,425,000
26,576,000
21,392,000
15,535,000
20,485,000
__115,905,000
$2,559,963,000 $1,600,434,000 ~/ $2,145,894,000
AcceEte~-
$
7,846,000
815,098,000
5,911,000
33,059,000
5,225,000
14,246,000
114,883,000
17,740,000
16,252,000
14,889,000
10,485,000
44,815,000
$1,100,449,000 c/
lcludes $284,199,000 noncompetitive tenders accepted at the average price of 98.614
lcludes $142,446,000 noncompetitive tenders accepted at the average price ot 97.129
:lese rates are on a bank discamt basis. ']he equivalent coupon issue yields are
.6'~ tor the 91-4&y bills, and 5.95~ tor the 182-day bills.
TREASURY DEPARTMENT
t
WASHINGTON, D.C.
JMMEDIATE RELEASE
November 18, 1968
TREASURY'S MONTHLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
or two series of Treasury bills to the aggregate amount of
L,500,000,OOO
or thereabouts, for cash and in exchange for
reasury bills maturing November 30, 1968,
in the amount of
1,500,519,000
as follows:
-day bills (to maturity date) to be issued
$ 500,000,000
or thereabouts,
dditional amount of bills dated August 31, 1968,
,ature
August 31, 1969,
originally issued in the
1 000,387,000
the additional and original bills
nterchangeable.
272
n the amount of
December 2, 1968,
representing an
and to
amount of
to be freely
365 -day bills, for $1,000,000,000
or thereabouts, to be dated
ovember 30, 1968,
and to mature November 30, 1969
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
maturity value).
Tenders will be received at Federal Reserve Banks and Branches
p to the c lOSing hour, one-thirty p.m., Eastern Standard
lme, Friday, November 22, 1968.
Tenders will not be
ecelved 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
e used. (Nat.withstanding the fact that the one-year bills will run for 36:-)
ays, the discount rate will be computed on a bank discount basis of 360 days,
s iG currently the practice on all issues of Treasury bills.) It is urgen that
enders be made on the nrinted forms and forwarded in the special envelopes
hich will be suppliedoy Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of cust~mers
rovided the names of tne customers are set forth in such tenders. Others than
anking institutions will not be permitted to submit tenders except for their 0wn
ccount. Tenders will be received without deposit from incorporated banks and
rust companies and from responsible and recognized dealers in investment secri ties. Tenders from others must be accompanied by payment of 2 percent of th,:
ace amount of Treasury bills applied for, unless t.he tenders are accompanied by
n express guaranty of payment by an incorporated bank or trust company.
-1409
- 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 I
final. Subject to tnese 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 December 2, 1968
cash or other immediately available funds or in a like face amount
of Treasury bills rna turing November 30 1968
Cash and exchange tenders
will receive equal treatment. Cash a~justmentswi1l 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 01'
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
cond it ions of the ir issue. Copies of the circular may be obtained fr()£l'
any Federal Reserve Bank or Branch.
000
TO BE DEt!VE'RED BY:
FOR RELEASE UPON
CHARLES R. HARLEY, DIRECTOR
OFFICE OF INTERNATIONAL FINANCIAL POLICY
COORDINATION AND OPERATIONS
DELIV~RY
RElvtARKS BY THE HONORABLE JOHN R. PETTY
ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS
BEFORE THE
BANKING AND FINANCE SENINAR
OKLAHOMA STATE UNIVERSITY
STILLWATER, OKLAHOHA
TUESDAY, NOVE~·mER 19, 1968, 12 Noon, EST.
THE POLITICAL ENVIRONMENT OF
BALANCE OF PAYMENTS DECISION MAI(-ING
Introduction:
If these remarks can make any contribution to a broader
understanding of the balance of payments adjustment process,
it will be because they will reflect the point of view
of a practitioner rather than the vision of a
theo~etician.
Many fertile and experienced minds are actively at work
attempting to broaden our knowledge of those processes by
which payments imbalances are removed.
wi thin that groi',j.ng
framework I would like to discuss some of the practical
problems encountered in attempting to implement a balance of
payments program.
We are discovering that the application of
economic prescriptions can indeed do a great deal for
the general health of national economies and for the
world economy.
But I believe many of us are becoming a
little more humble with respect to the ability to apply
public policies with precision and exactitude of timing.
Among other lessons, we are learning that the older
2
title of "political economy" has real meaning when we try to
apply economic programs through governmental procedures in \'lhich
political influences -- in the broadest sense of the term -are inevitably present and frequently dominant.
The problem of international imbalance illustrates
both the lack of precision in implementation of policies
and the importance of political limitations.
It involves
in an extraordinarily complex way political influences,
not in just one nation but in more than a hundred individual
countries.
Perhaps, it is remarkable under these circum-
stances that the imbalances are as small as they are.
For example, in doing a study in the Treasury Department
on the need for
intern21tion::~l re~crves,
"le found that
the aggregate total of the gross reserve gains of all reserve
gaining countries averaged only a little over 3 percent
of world imports annually during the years 1954-66. That
is, one can say that the disequilibrium to be covered
by reserve additions was no more than 3 percent.
true that these data may not be too meaningful.
It is
It is
almost tautological to say that, apart from reserve acquisitions
or losses, capital movements will in some way offset other
items in a country's balance of payments.
'1'0
have any useful understanding of the problems of
disequilibrium we must look beyond statistics and must also,
perhaps, give up the pleasures of dealing with aggregate
3
totals.
We must grub into the balance of payments accounts
of individual countries.
And, vie will find that for each
country satisfactory equilibrium will represent a unique
pattern of current account and capital account items.
We knm."
hOvlever, that if a country is persistently
facing exchange pressures, and having to resort to borrm';'ing
official reserves, there is something wrong.
If this
persists a long time, we conclude in an .empirical way
that corrections are needed in that country's balance of
payments pattern.
On the other hand, if a country is
continually faced with an influx of reserves and has to
resort to special techniques in an effort to push these
reserves out of the country, we may conclude that it is
suffering from some kind of persistent surplus.
One of the facts \-lhieh becomes clear under this
rough rule of thumb approach is that there are significant
differences among capital movements:
that under some
condi tions capital imports are not inconsistent \'1i th a
lasting equilibrium, while in other cases they are inconsistent.
For the surplus countries, some capital exports are
consistent with a lasting equilibrium, and others are not.
The basis for distinguishing among types of capital
movements requires further technical analysis as a first
step, and further absorption into the \';orking philosophy of
government officials as a second step.
4
The other side of the coin is that
oUJ~
intense concen-
tration on balance of payments problems in recent years
has also led to increased attention to those bare bones
aspects of the accounts -- trade, tourism, military expendi tures, aid trans fers •
We have been asking what is the
appropriate structure of a country's noncapital balance of
payments
appropriate to its stage of economic develop-
ment and appropriate to its responsibilities in the world.
These efforts should further improve our understanding of
the process by which payments imbalances can be adjustede
The Monetary Frame\vork of Adjustment Process
Before touching upon some of the political problems in
reducing imbalances, I should. like to glance backward over
the history of international imbalance in the past 20 years.
By the time of the Bretton Woods Conference in 1944
many economists were convinced that it was no longer possible
to apply the full discipline of the earlier gold standard
theory because this might require excessive deflation and
unemployment in deficit countries.
No doubt this belief
was heavily influenced by the experience of the United Kingdom
in the t",enties "'hen severe deflation accompanied an effort
to make viable the prewar parity of the pound sterling at $4.86,
despite the heavy inflation and economic losses of World
War I.
The British undenvent great hardship during the
twenties in attempting to compete with Continental countries
whose exchange rates had been established at much more
favorable levels, relative to internal wage and other
costs.
5
It is worth remembering that the Articles of Agreem2nt
of the Fund did not assume convertibi Ii ty for capital
transactions.
In effect, the framers of those Articles
recognized that a system of stable exchange rates might be
threatened by large scale capital movements, and the
founders at Bretton Woods were perhaps most immediately
concerned \·li th preventing competitive exchange depreciation
\'lhich had proved so disruptive in the intervlar p8xiod in
the field of trade in goods and services.
They \'lere quite
prepared to see capital movements restrained if this was
necessary to maintain stability.
Furthermore, the Articles also made provisions, in
conjunction Hi tIl tho G!'..TT I for the tc:nporary applicutioTl
of import quotas and exchange controls on current transactions,
when this was justified by a temporary balance of payments
problem.
If the maladjustment in the current accounts
appeared to be more than temporary, then the Fund Articles
contemplated that a "fundamental disequilibrium" \'lould be
found to exist and that this could be corrected by an
exchange adjustment, with the approval of the Fund.
Finally,
there was inserted in the Articles the so-called "scarce
curren~i
clause" procedure, which was designed to penalize an
excessively strong surplus country by permitting deficit
countries to discriminate in their trade and exchange
restrictions against such a
~trong
surplus country.
In effect this system made allm·mnce for the political
problem of national resistance to excessive deflation.
It
6
was also designed to meet the fears resulting from the
experience of the thirties that countries might resort to
competitive depreciation in exchange rates that would have a
serious effect on international trade.
This fear of
competitive depreciation was very strong.
It was hoped that
competitive depreciation could be avoided by the pressure
of world opinion in 'the Fund, by providing machinery for
supplying reserve credit, and by permitting temporary trade
and exchange restrictions.
The Bretton
~Joods
system thus attempted to counter
some major difficulties that had been experienced in the
inteI'\tJ'arpcriod.
Not surprisingly, the problems of the
posb;ar period were not entirely the same as those of the
interwar period and in fact the monetary system did not
evolve in the \'lay it \-laS expected to evolve at Bretton
Woods.
Instead of current account convertibility, the
world proceeded first to external convertibility on both
current and capital account, and then to a large degree of
resident convertibility even on capital account.
The balance
of payments provisions permitting the use of quotas and
exchange restrictions for temporary adjustment purposes
were seldom called upon, partly because new fears had arisen
that such measures would become lasting restrictions of a
protectionist character.
Along with this, discrimination
developed, not as a me~ns of penalizing surplus countries under
7
the scarce currency arrangements, but primarily as a means
for promoting European integration among a group of Continental
European industrial countries, which became the major surplus
region of the world.
Nevertheless, despite the failure of history to f01lm'1
the plans of the Bretton Woods planners, those planners did
,
foresee correctly tLat the post\'lar world would face very
impo:L"tant political limitations on the adjustment process.
Adjustment and the Political Environment
In considering the elements which make up the political
environment in ,·;hich adjustment process decisions are made
I would like to consider (1) general political limitations,
(2) some characteristics of the U. S. political environment,
and (3) some characteristics of the political environment of
the surplus countries of Western Europe.
General Limitations
There are three broad and basic considerations of political
policy that have narrowed the scope for the adjustment of international imbalances in '-:lays other than through movements of
relatively liquid capital.
1.
Major countries are reluctant to apply deflationary
measures and to incur unemployment in the interest of international adjustment, unless such measures are also needed to
contain domestic inflation.
The German Hininter of Economic Affairs, Karl Schillc::c',
acknouledged this point and made an additional one \:lhen he
spoke ahout certain political implications of the a~justment
8
process at the Annual Heeting of the International Honetar.y
Fund and the Horld Bank this fall.
He said:
" ••. no nation
should be urged to accept unemployment as a means of
restoring balance of payments equilibrium.
But neither
should any nation be forced to sacrifice its mm price
stability merely bec(.ruse other nations are in an inflationary
process."
2.
As illustrated by Minister Schiller's statement,
su.rplus countries C.re um'lilling to inflate excessively in
order to eliminate their surpluses.
It is quite understandable
that surplus countries may be reluctant to permit incomes and
prices to rise domestically as rapidly as in the rest of the
world, particularly if they think the rest of the world is
undergoing excessive inflationary pressure.
standable.
This is under-
In terms of the adjustment process, is it
practical?
The classical gold standard adjustment mechanism
worked through a combination of deflationary pressures in the
deficit country and inflationary, or at least expansionist,
pressures in the surplus countries.
There is now rather broad
agreement that the deflationary side of thfs adjustment
process must clearly have some limits -- althou9h there may
be less agreement on the application of this policy.
The
wide recognition of the need for a deficit country to
avoid inflationary developments is more than just a "tip of
9
the hat" to the deflationary prescription of an earlier
age.
For the other side of the adjustment process it is
recognized there must also be some effective response on
the part of those surplus countries
reserves and other
\.,hos~
forms of liquid asset holdings are grovling persistently.
Such countries should consciously seek a more rapid rate of
economic e;=pansion as one method of bringing their international position into equilibrium.
rapid ?
ll
That is the question.
target be noticeably affected?
HOvl
rapid is "more
Should the price stability
If it isn't, is there enough
of a contribution to the adjustment process?
3.
There is strong political resistance to any change
in exchange rates.
This resistance npplies both to appreciation
and depreciation, though for some\'1hat different reasons.
Devaluation is interpreted unfavorably politically \.,hile
revaluation incurs the concerted opposition of domestic
producers.
This resistance, up to the point of fundamental
disequilibrium, of course, is highly
desir~ble.
'l'he Political Environment of the U. S. Adjustment Process
The political environm3nt in vlhich
U.
s. balance
of
payments adjustment decisions are made is governed by our
political system, by the nature and diversity of our economy,
by our political and social vision of the type of world \'ihich
\'1e
believe should exist and by our conception of the role
the United States should play in helping to shape this type
of world.
10
Our t"lO-party system,
ar..d
the clear division of
responsibility between the Executive Branch and the
Legislative Branch, strongly influence the decision making
process.
lvhen the Executive Branch develops measures \Ilhich
may ultimately involve legislation, careful and frequent
consultations are made to sound out the vim'ls of Cong1:€!SS.
Perhaps the quickest and clearest way of emphasizing
that important legislation requires a meeting of minds in
the Executive and Legislative branches is to cite the period
of time between tha President's announcement in January of
1967 of his intention to seek a tax surcharge and passage
of the legislation by the Congress in June 1968, a period
of seventeen months.
'J.1his delay
\'laS
costly in terms of time,
and in the balance of payments adjustment process time is
frequently the most precious of all conu-nodi ties.
He have
found that \.;hen our economy is overstretched, \·,hen the rate
of growth becomes too fast,
\-Ie
experience a surge in imports
which moves the ratio of imports to gross national product
well above the expected trend line.
Such a surge in imports
may have lasting effects long after inflationary pressures
are brought under control.
In the same ,-lay, distortions
created in the \vage and price level are only absorhed over
a period of time considerably longer than that involved
in bringing those distortions about.
11
Leadership Role
The role of world leader in which the U.S. finds itself
involves the assumption of many national objectives which are
given high priority.
The liberalization of world trade over the last 20 years
has been championed by the U. S. and the lead this country has
taken in its trade negotiations and general policies have
occasioned the tremendous growth in world trade Hhich the
world has enjoyed.
In the trade area \"here the computation of trade
effects of given actions is a science of insufficient exactitude I political conside:cations play their role in determining
the final bargain.
This has been an acceptable price to pay
for the contribution our trading policy has made to the creation
of a freer world trading community.
Because the United States believed that the unification of
Western Europe \'71 th full participation of Gennany was the road
to political and military st2bility in Europe, it spurred
the European countries to establish the Common Jvlarket.
It
\'laS
clearly recognized that this would involve closer trading
relationships among the members and a strengthening of the
economies of nations which are our major competitors for export
markets.
r7hether the benefits to the U. S. economy from
the faster rate of growth in European markets exceeds the
12
losses
frGL\
the reduction in the U. S. share of thcso
markets caused by EEC preferential arrangements may never be
determined.
The United States has supported the creation of mutual
security nrrangements in several areas of the \<lorld.
t'le
-----,'thu~c
believe
tht-;se arrnngements are required for a \\Torld order in Hh:Lch
free people may make their mm decisions regarding the course
tlwir countries are to follm., and the typo of lGl1dcrship tlwy
arc to have.
Aggrandizement and externally sponsored rebellion
have no place in a ,..,orld of this type.
These mutual security
arrangements are for the common good of the free world and they
come about through the common agreement of the participating
cOUlli;ries.
It is clear that these arrangements affect the
payments of the United States.
b~lance
of
In the framework of NATO, for
example, it made sense for the burden of defense expenditures
in Europa to fall upon the U.S. balance of
after the \'lar.
pal~ents
for a period
European countries Here themselves having very
difficult balance of payn;ents· probl€ms end struggling to rebuild their reserve positions.
But it has been clear for some
time that this is no longer sensible.
We now
\li tness
the curious
situation of a deficit area paying out dollars to add to the
reserves of European countries that are in strong surplus
positions, "'hile at the same time providing defensive forces to
support the security of Uestern Europe.
13
Moreover, and this is too frequently overlooked, the existence
of U. S. troops in Europe has 5.n itself provided an important
additional advantage to these countries by allowing them
to use more of their own manpoHer and financial resources on
economic pursuits rather than maintaining substantially
larger armed forces,
Similar benefits accrue to Japan as
well.
The situation requires a change in posture.
That
is why such vigorous efforts are undenray to establish
more equitable financial arrangements within the NATO
alliance.
But the point I am making this morning is that
our mutual security objectives I which ",ere accorded the
highest priority long before high priority was accorded
to the objective of balance of payments equilibrium,
involves balance of payments costs of sUbstantial
magnitude.
These priorities result from political
decisions:
not only political decisions made in
Washington, but political decisions of our allies that
these costs must be incurred to keep the world free.
is clear that balance of
pa~nents
It
adjustment process
deCisions must be considered in the broad context of our
nrutual security obligations.
The development of viable economies in the less
~eveloped
countries of the world is another objective that
this country is seeking to champion both by our
01-111
efforts and through our influence in world affairs.
The
14
volume of funds employed in foreign aid over the years is
ample testimony to the will and desire Qf this nation to
support development.
In order to reduce the impact of
foreign assistance on our balance of payments,
\'le
have
tied our aid to procurement of goods in this country -- a
clear effort to accommodate
b10
high priority objectives.
In all candor, we must admit that the tying of economic
assistance has not decreased the cost of goods purchased
by the
LDCrs with these monies.
On the other hand, we
have been able to maintain a higher level of assistance
than would other"lise have been supported by the Congress.
!
have mentioned only a fe,., of many examples of the
political problem of reconciling high priority
objective~
which, ",hile not necessarily conflicting, are certainly
competing for attention and for resources.
In the
balance of payments adjustment context the issue is
this:
To what extent do the policies and responsibilities
of the United States as a world leader conflict with its
responsibilities -- both to itself and to the other
countries of the world -- to maintain a strong and viable
balance of payments position in order that the dollar, the
key currency of the world, shall remain unassailable?
At what point would our measures of balance of payments
correction stop becoming beneficial for the \-lOrld and
start becoming harmful?
To \vhat extent is it desirable
that our capacity for ",orld leadership --- which peoples
15
of the free world encourage us to exercise
be con··
strained by balance of payments disciplines?
We have
demonstrated a remarkable capacity to subdue these con-·
flicting objectives and take the necessary decisions.
The size of the U. S. economy and its share in
",orld trade is so great that balance of payments actions
desirable in themselves -- in terms of balance of
payments progress for the United states -- can only be
taken, if at all, after due allowance has been made for
their economic impact on other countries.
Specific
balance of payments measures adopted by the united States
have been modified to temper their impact on certain
economies overseas.
The history of the Interest
Equalization Tax in 1963 with respect to Canada is a clear
example of this.
, 'U. So Balance
p
of Payments and the Domestic Economy
-
A
-
final point which affects the political environment
surrounding balance of payments decisions in the
United states involves the relatively low visibility of
the balance of payments in our economy.
trade represents only
se~en
International
percent of the united States GNP.
With the exception of a few localities and industries,
foreign trade is not looked upon as a major source of
livelihood for either the companies or the workers of
this nation.
In the minds of the Congressional constituents,
the balance of payments is a matter less understood, less
16
relevant and less interesting than the Local School
Board bond issue and it probably doesn I t get as much
conscious attention as even that neglected issue.
The impact of this fact becomes apparent when government
witnesses appear before Congressional Appropriations
Committees seeking funds for the promotion of export trade
fairs, encouragement of foreign tourism, balance of payments
statistical improvements, and minimum staff support for
the foreign direct investment program.
If I have exaggerated in cataloguing some of the
political barriers to what might appear to an outside
observer to be the relatively easy task of balancing the
international accounts of this country, I have done so
to guard against any tendency to ignore their presence.
I
hope I have not indicated that these barriers are necessari-
ly bad.
The political priorities this nation adopts
are chosen by the people of this country in the most
democratic way and they have general support.
aware
~-
I am fully
as you are -- that the meshing of conflicting
objectives is indeed a primary function of government.
What I find both important and encouraging is the
fact that wi thin the confines of a
comple)~
of other national
objectives -- we have been able to carry out a series of
meaningful balance of payments programs over the past
eight years _ These have been adopted to deal with rapidly
17
changing conditions,
They have not yet brought us into
sustainable equilibrium -- that is true.
But they have now
put us wi thin reach of our goal as lve expect tha.t the encouraging trend of the last three quarters ,,,ill continue.
Finally I \-,hat is most comforting is that even in an
election year, the national interest in a strong economy
and a strong dollar clearly took precedence over more
narrow political considerations.
I only need to record that
it ,,,,as by a vote of two-thirds of t,he House of Representatives and, more particularly, t\vo .... thirds of each party \ld thin
the Jlouse that the tax surcharge was passed.
I believe
the passage of this tax legislation demonstrates that the
influence of conflicting political forces is reconcilable and
these forces must therefore be kept in perspective.
Nevertheless ( their existence plays an 5.mportant role in
the shaping of a program, and this must be borne in mind,
lest a discussion of the subject become all too theoretical.
The Responsibilities of Surplus countries and Their Political
Enviro·nment· . ,
t
The issue of the burden of responsibility of the adjustment process and how this is shared bet,,,een surplus and
deficit countries is perhaps the most fundamental one facing
the international monetary system
no,,~
that arrangements have
been made for the creation of supplementary reserve assets.
~'he
science of balance of payments adjust:ment is relatively
new and the nature of the responsibility cf the
18
surplus countries is only beginning to be understood.
Therefore, it should not be surprising that there is no
broad body of agreement regarding the technology of adjustment -- that is, what type of balance of payments program
can be devised and put into effect by a surplus country in
view of the prevailing political environment.
We are indebted to a report by lvorking Party 3 of the
Economic Policy committee of the OECD published in August
1966 entitled "The Balance of Payments Adjustment Process"
for much of what we do understand regarding the adjustment
process.
In discussing the responsibilities of surplus
and deficit countries, paragraph 62 of the report says:
"Wherever possible, it is desirable that adjustments
should take place through the relaxation of controls and
restraints over international trade and capital movements
by surplus countries, rather than by the imposition of new
restraints by deficit countries."
to give than to follow.
The prescription is easier
The external forces which do so
much to create the atmosphere required to support a difficult political decisi.on are stacked against the deficit
country.
The surplus country experiences few such pressures.
In short, the surplus country suffers the embarrassment
of riches and the deficit country suffers the shame of
poverty.
~ore
There is ample evidence that one can tolerate
embarrassment than shame.
19
The balance of payments adjustmGnt process is so full
.
of subtleties that one can understand the
corr~on
failure
to comprehend that the system works best when each nation
operates at or around equilibrium.
It is too easy to relate
balance of payments accounting to every other form of
accounting where a surplus is a "good thing" and a deficit
the opposite type of thing.
Yet, a country in persistent
surplus may be as destabilizing to the system as a persistent deficit country.
This fact is not well understood beyond the realm of
a fe,., international monetary specialists.
This lack of
broad understanding of the obligation of the surplus
country contributes to a political environment in ",hich
polic~nakers
do not really feel the need for action on
their part.
Many still feel that getting rid of the
surplus is solely the problem of the deficit country.
The Working Party 3 report lists some of the areas
where contributions from the surplus countries should be
expected.
What political problems would implementation
of the recommendations .entai 1 ?
(1)
Increasing the level of domestic demand in the
surplus country is, of course, a first recommendation.
My earlier quotation from Minister
Schiller indicates the general limits that are
placed upon this
reco~~endation.
20
(2)
The
WP-3 study points out that it ,.;ould be
desirable for surplus
countrie~
to increase
their aid contributions both by facilitating
access of multilateral lending agencies to ti1cir
capital markets and by the extension of aid on an
untied basis.
Increasing the volume of
bilateral assistance, of course, involves a
budgetary cost whatever the balance of payments
position of the country may be.
therefore,
It is probable,
that improved access to the local
capital market may prove to be a more practical,
if less satisfactory, contribution in this area.
The question of reducing the extent to which
bilateral aid is tied gives free rein to domestic
interests which can be expected to argue that
tax money, if it is to be gi ven
a~."ay
to foreign
countries, should at least be spent within the
domestic economy.
Against the clamor of local
political voices, abstract considerations regarding
the responsibility of the surplus nation all too
often go unheeded.
(3)
The acceleration of tariff reductions is another
action surplus countries can reasonably take to
fulfill their adjustment process responsibili ties.
This policy
\-las
f0110Hed by some Euro-
pean countries in the 1960's in support of
21
measures to increase competition at home and counter inflationary pressures.
A more recent example
concerns the ,3.cceleration/deceleration proposal
with respect to the Kennedy Round \vhich '\-las worked
out earlier this year.
Basically, it has been
proposed that other countries accelerate their
negotiated Kennedy Round tariff cuts and the United
States slow down its cuts.
This would have the
effect of keeping up the momentum of the liberal
trade movement while facilitating the adjustment
process.
It is important that these proposals be
implemented.
(4)
The Working Party report implicitly recogni2es
the trade diversionary effect of some border tax
adjustments when it recommends that surplus
countries postpone changes in such taxes if the
likely effect would be to work against the
adjustment process.
The counseling of the
international monetary economists in this regard has
not prevailed against the counseling of domestic
revenue and fiscal advisers and political interests.
This is true with respect to the change-over in
the indirect tax system Germany implemented at
the first of this year, and it is true with
respect to the change-overs due in a fe,., weeks in
22
the Netherlands and, 1
Only a very few people are
the entire issue of the effect u1
taxes.
This fact breeds
misunde~
arena in both the direct tax
countries.
COD.
t
in Belgium.
in~ormed
concerning
rade of indirect
dings in the political
les and the indirect tax
The implicit assUil1pti:)11 in the GATT treatment of
border taxes -- that they have no trade diversionary effect -is fostered by protectionist interest in indirect
tax countries and the theoretical arguments of their fiscal
people reinforce the pOlitical attitude engendered.
Some interests in direct tax countries look upon a
border tax adjustment as exactly equal to a customs duty,
and they don't understand the implications of the price
shifting argumentation.
In each case domestic political
positions are reinforced, rendering more difficult the
equitable resolution of a problem which thoughtful analysts
agree exists.
(5)
Many surplus countries employ special tax and
other incentives to encourage foreign direct
investment in specified areas within their own
economies.
In
an effort to strengthen their
own economic position and all too frequently
without regard to their balance of payments
position and adjustment responsibilities,
countries continue to foster programs which
dole out tax incentives, tax holidays
23
long-term subsidized loans,
-I-
"lOrker-training~
subsidies, preferential contracts, etc.
Inducements are offered to bring in foreign
technology, to relieve a surplus country of
import needs of a given product, to provide
the base for additional exports, and to create
local jobs,
We have, therefore, the anomalous
situation of the Government of a surplus
country urging deficit countries to adjust,
while at the same time subsidizing capital
outflows from the deficit country.
Conclusion
i
There are many other rigidities, historical holdovers
and specific structural factors that ,,,ork against rather
than for the attainment of equilibrium.
only a representative sample.
I have review'ed
Nevertheless, I cannot help
feeling that in addition to all of these specific hindrances
to adjustment is one very pervasive, understandable and all
too hUman difficulty.
This is the simple fact that having
attained a comfortable surplus position through a combination
of political and economic factors, any nation has an instinctive
tendency to preserve that position.
This is particularly true
with respect to countries that enjoy a strong trade and
current account position as this is instinctively felt to be
a more dependable and lasting position of strength than one
L-(
'/
24
which depends upon capital inflow.
!
I am afraid that this
tendency will not be easily reversed.
This will make the
proper functioning of the adjustment process more difficult.
What then is the answer to a situation where the demands
upon the balance of payments adjustment process will continue
and the competing (and at times conflicting) national objectives sometimes inhibit the timely and complete implementation of balance of payments measures -- a question as
pertinent to surplus as it is to deficit countries.
I feel sure that the answer for the future is to be
found in ever closer international cooperation.
We have
seen a truly remarkable advance in the past decade in the
willingness and ability of governmental authorities to seek
agreed solutions to the ever-changing problems which they
have faced.
The most striking example is found in the
very close working relationships which have been developed
in connection with the international liquidity discussions.
The best known result of that work is the agreement
for establishing a mechanism for the creation of Special
Drawing Rights.
But before that agreement was reached, a
habit of cooperation had been firmly established which
yi~lded practical results in the management of short-term
capital flows in the mutual interests of the cooperating
countries and in the establishment of medium term credits
designed to support world monetary stability.
25
perhaps the most remarkable result of all is the fact
that the concept of change itself has been accepted.
When
that concept has heen accepted by highly responsible leaders
it seems to me one can face with increased confidence
developments \vhich will no doubt evolve in the future.
Circumstances and leadership have now created an atmosphere
hospitable to inquiry and exploration and new approaches.
The annual reports of at least three of the central banks of
OECD members included the theme:
we are going through a
rapidly changing time in the evolution of the international
monetary system.
This outlook breeds preparation and
healthy adjustment.
I believe that we should now -- building upon the
reality of past cooperation -- concentrate increasingly on
improving the adjustment process.
We may find that we vlill
look with decreased priority upon the relatively easy
adjustments \'lhich depend upon cooperative management of
capital accounts and look for more persistent correctives
in the current account.
This hospitality to new approaches will encounter
t~e
understandable and politically influenced issue of
relative national priorities.
Progress toward the three
major economic goals -- growth, full employment and price
stability -- is determined by the type of fiscal and
monetary policies governments pursue.
The mix of these
26
policies varies not only vIi th current economic conditions
but more basically with the relative priority a nation
places, for example, on growth compared to price stability.
The ranking of these national priorities and the relation
to the adjustment process can only be appreciated in terms
of the political environment uhich sets these priorities.
The workings of the adjustment process will always be strongly
influenced by these political forces.
Quite apart from the problems of the political environme~t
which I have emphasized today,
understanding of the adjustment
\'le
suffer from inadequate
mechanis~
on the technical
level.
It is important that our consideration of the problem
be continued and expanded if we are to continue to be
prepared to respond constuctively to changing situations
as they arise.
REASURY DEPARTMENT
:
WASHINGTON, D.C.
November 19, 1968
IR
IMMEDIATE RELEASE
TREASURY ANNOUNCES AGREEMENT ON ESTATE TAX
CONVENTION WITH ISRAEL
The Treasury Department announced today that general agreement
lS been reached on the substance of the first estate tax convention
~tween the United States and Israel.
This agreement was negotiated during a series of meetings
U.S. and Israeli tax officials in Tel Aviv. The U.S.
~legation was headed by Stanley S. Surrey, Assistant Secretary
Jr Tax Policy.
~tween
The new convention covers the Federal estate tax and Israel
1heritance taxes. It is part of an intensive effort by the
1ited States to establish an estate tax treaty network which
ill complement our existing income tax treaty network. There is
c> income tax convention currently in effect between Israel and
he United States. Twelve estate tax conventions are now in effect
etween the United States and other countries.
The prospective U.S.-Israel convention is based on the model
state tax convention published in 1966 by the Organization for
conomic Cooperation and Development and will be the second
egotiated by the United States since enactment of the Foreign
nvestors Tax Act of 1966. On November 6, 1968, the Treasury
nnounced general agreement on an estate tax convention with the
etherlands. That treaty is expected to be signed before the end
f this year and sent to the U.S. Senate for ratification.
The Foreign Investors Tax Act of 1966 encourages foreign
ortfolio investment in the United States. While it retains U.S.
state tax jurisdiction on portfolio investments in the United
:tates, with reduced rates and increased exemptions, the treaty
Irocess is available, as in the case of the income tax, to
legotiate further reductions or exemptions for foreign investors
m a reciprocal basis with countries having effective death taxes.
(MORE)
- 2 Under Israeli law and the OEeD model conventions the estate
of a decedent who was only temporarily present in the country.y
be subj ect to estate or inheritance tax. Such a tax may impose
problems for American businessmen working abroad for a branch or
corporate affiliate of an American firm. The proposed conventi~
will permit executives of one country to reside in the other
country for a reasonable period of time without being subjected
to the estate or inheritance tax jurisdiction of the latter
should they die while there. This approach, therefore, meets a
problem not dealt with in the DEeD model convention.
It is expected that delegations from both countries will
meet next year in the United States to complete arrangements.
000
TREASURY DEPARTMENT
WASHINGTON, D.C.
IMMEDIATE RELEASE
November 19, 1968
TREASURY OFFERS ADDITIONAL $2 BILLION TIl JUNE TAX BILLS
The Treasury Department, by this public notice, invites tenders for
)00,000,000, or thereabouts, of 203-day Treasury bills (to maturity date),
Ie issued December 2, 1968, on a discount basis under competitive and non~titive bidding as hereinafter provided.
These bills will represent an
.tional amount of the series of bills dated October 24, 1968, to mature June
1969, originally issued in the amount of $3,010,446,000. The additional
original bills will be freely interchangeable. They will be accepted at
! value in payment of income taxes due on June 15, 1969, and to the extent
r are not presented for this purpose the face amount of these bills will be
ilile without interest at maturity. Taxpayers desiring to apply these bills in
1ent of June 15, 1969, income taxes may submit the bills to a Federal Reserve
c or Branch or to the Office of the Treasurer of the United States, Washington,
more than fifteen days before that date. In the case of bills submitted in
n.ent of income taxes of a corporation they shall be accompanied by a duly
?leted Form 503 and the office receiving these items will effect the deposit
June 15, 1969. In the case of bills submitted in payment of income taxes of
other taxpayers, the office receiving the bills will issue receipts therefor,
original of which the taxpayer shall submit on or before June 15, 1969, to
District Director of Internal Revenue for the District in which such taxes
payable. The bills \01ill be issued in bearer form only, and in denominations
$l~OOO, $5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity
ue) •
Tenders will be received at Federal Reserve Banks and Branches up to the closing
r, one-thirty p.m., Eastern Standard time, Tuesday, November 26, 1968. Tenders
1 not be received at the Treasury Department, Washington. Each tender must be
an even multiple of $1,000, and in the case of competitive tenders the price
ered must be expressed on the basis of 100, with not more than three deCimals,
., 99.925. Fractions may not be used. It is urged that tenders be made on the
nted forms and forwarded in the special envelopes which will be supplied by
eral Reserve Banks or Branches on applica~ion therefor.
Banking institutions generally may submit tenders for account of customers proed the names of the customers are set forth in such tenders. Others than banking
titutions will not be permitted to submit tenders except for their own account.
ders will be received without deposit from incorporated banks and trust companies
from responsible and recognized dealers in investment securities. Tenders from
ers must be accompanied by payment of 2 percent of the face amount of Treasury
ls applied for, unless the tenders are accompanied by an express guaranty of payt by an incorporated bank or trust company.
L411
- 2 All bidders are required to agree not to purchase or to sell, or to make any
agreements with respect to the purchase or sale or other disposition of any billa
of this issue at a specific rate or price, until after one-thirty p.m., Eastern
Standard time, Tuesday, November 26, 1968.
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 My or
all tenders, in whole or in part, and his action in any such respect shall be fl~
Subject to these reservations, noncompetitive tenders for *",00,000 or less without
stated price from anyone bidder will be accepted in t\111 at the average price (ill
three decimals) of accepted competi ti ve bids. Payment of accepted tenders at the
prices offered must be made or completed at the Federal Reserve Bank in cash oro~
immediately available funds on December 2, 1968, provided, however, any qualified
depositary will be permitted to make payment by credit in its Treasury tax and
loan account for Treasury bills allotted to it for itself and its customers up to
any amount for which it shall be qualified in excess of existing deposits when so
notified by the Federal Reserve Bank of its District.
The income derived fram Treasury bills, whether interest or gain from the B~
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 treat
ment, as such, under the Internal Revenue Code of 1954. The bills are subject to
esta.te, inheritance, gift or other excise taxes, whether Federal or State, but are
exet,lpt from all taxation now or hereafter imposed on the prinCipal or interest the1'l
of ny any state, or any of the possessions of the United States, or by any local
ta.xing authority. For purposes of taxation the amount of discount at which TreasUl'l
bills are ori~inally sold by the United States is considered to be interest. Under
Sedions 454 (b) and 1221 (5) of the Internal Revenue Code of 1954 the 8l!Iount 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
orj_ginal issue or on subsequent purchase, &nd 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, prethe terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
s~rlbe
BORDER TAX ADJUSTMENTS
MD
THE GENERAL AGREEMENT ON TARIFFS AND TRADE
by
THE HONORABLE JOHN R. PETTY
Assistant Secretary for International Affairs
united States Treasury Department
prepared for delivery to
The Canadian Tax Foundation 21st Annual Conference
Toronto, Canada
November 2G, 1968
to be
Published in
The Canadian Tax Journal's
Report of the Proceedings of the Conference
Papers for the Panel on
"Tariffs and Trade"
Introduction
Introducing my subject has been made immeasurably easier
as a result of a recent article in the September-October issue
l
of The Canadian Tax Journal. / Mr. Robert Latimer, the author,
has done an admirable job in defining "The Border Tax Adjustment Question," and lucidly pointing up the issues.
His article
provides an added timeliness to the need I see for a discussion
of this subject.
At the outset, let me say that the importance the United
States attaches to the issue of' border tax adjustments was
signaled by President Johnson in his 1968 New Year's Day Balance
of Payments Message, when he declared:
"In the Kennedy Round, we climaxed three decades
of intensive effort to achieve the greatest reduction
in tariff barriers in all the history of trade negotiations.
Trade liberalization remains the basic policy
of the United States.
"We must now look beyond the great success of the
Kennedy Round to the problems of non-tariff barriers
that pose a continued threat to the growth of world
trade and to our competitive position.
- 2 -
"American commerce is at a disadvantage because
of the tax system of some of our trading partne:t"::3.
Some nations give across-the-board rebates on exports
which leave their port and impose special border tax
charges on our goods entering their country.
"International rules govern these special taxes
under the General Agreement on Tariffs and Trade.
These rules must be adjusted to expand international
trade further."
I
believe it would be useful to provide the background for this
passage.
First, let me review the history of the border: tax
adjustment problem, and then go on to bring this subject up
to date by discussing the multilateral negotiations now under
way in GATT.
Background
The General Agreement on Tariffs and Trade was intended
to institutionalize the system of international trade
much as the International Monetary Fund was designed to provide
rules and order to the international financial system.
Both
sprang forth from the despair of war and the hopes kindled by
the prospects of peace.
Each has made a substantial
contributio~
to economic growth, trade and prosperity that exceeded e:;.;,p\:.:: •.•••
.:1 ( ..
- 3 -
However, the world of 1968 is a different world than
that of 1946.
New demands are now being made of th€sc
institutions and some are being met.
~~i2d
We are now in the process
p
for instance, of amending the articles of the IMP to make
provision for Special Drawing Rights which will better meet the
international monetary needs of the future.
A fresh look at the
GATT is called for, too.
Highest on the priority list for this fresh look are those
provisions pertaining to border taxes.
The problem here, in
brief, is this:
The GATT permits member countries to provide a fuil
.t tc.bdt~l;';
for indirect taxes levied on their exports and to impose equivalent border taxes on imports.
On the other hand, GATT prohibits
any rebate or import levy for direct taxes.
The basic premise underlying these provisions is now being
widely questioned.
At one time, theorists argued that the burden
or incidence of indirect taxes was entirely passed on to cons()mers
while direct taxes were wholly absorbed by producers.
rules reflect this supposition.
The GATT
However, it is increasingly
recognized today that this is not the case in actual pr-actice
and that as a result the border tax adjustment rules of GATT
bestow trading advantages on countries which employ multi'-::';
indirect taxes.
c",'~2
f
- 4 tlistory
The provisions in GATT relevant to border taxes, basically
Articles II, III and XVI, are drawn from the Havana Charter
of the 1940's which was intended to found the International
Trade Organization.
These provisions were themselves either
a compromise (for example, Article XVI) or were adapted from
provisions of numerous bilateral trade treaties, including
especially the U.S.-Canada reciprocal trade agreement of the
rnid-thirties.~/ There is no unified section of the GATT which
deals exclusively with border taxes and it is quite clear that
the provisions of the GATT which cover border tax adjustments
were not the product of a carefully reasoned theory, or of
experience molded in the crucible of extensive usage.
The
lack of precise or concentrated thinking about the border tax
problem is illustrated by the absence of explicit definitions
3/
of key concepts. .In view of the symmetry implied in border tax adjustments,
an interesting historical note is that the provisions on the
compensatory tax on imports and the relief of indirect taxes
on exports developed quite separately.
The GATT rules con-
cerning these two elements of border tax adjustments are found
in several articles of the General Agreement and in related
interpretive notes and Working Party reports.
The basis
- 5 -
for the application of compensatory taxes on imports is found
in Articles 111:2 and II:2(a), which deal primarily with the
relationship between internal taxation and imports.
The
provision with respect to exports is found in Article XVI,
which deals with subsidies.
This is hardly the handiwork of
a drafter intent upon transcribing the destination principle
of taxation into a permanent international agreement.
Import Tax Burdens:
Article 111:2 limits the imposition
of internal charges on imported goods to the amount of those
charges applied directly or indirectly to like domestic products.
By reference to Article 111:1, provision is made
that such charges on imports shall not be applied "so as
to afford protection to domestic production."
Article 11:2 (a)
explicitly provides that a limitation on increasing the tariff
on goods bound through international agreement does not prevent the imposition or increase of compensatory border taxes.
Export Tax Relief:
The 1946-47 version of Article XVI
only contained a notification and consultation procedure in
cases where the trade effects of subsidies are considered to
be serious.
It did not define subsidies nor how to limit
them.
It was not until the GATT Contracting Parties reviewed
the various articles of the General Agreement in 1954-55
that a partially successful effort was made to answer these
- 6 -
:wo questions.
In reaching partial agreement a rule with
respect to export tax relief was made by the following
lnterpretive note:
"The exemption of an exported product from duties
or taxes borne by the like product when destined for
domestic consumption, or the remission of such duties
or taxes in amounts not in excess of those which have
accrued, shall not be claimed to be a subsidy."
While the focus of this change limited the definition of
an expor t su bS1· dy th ere was, h owever, no e 1'"
1m1nat1on
0f
'
4/
su b'
S1 d 1es.-
Instead it was agreed that there would be no introduction
of new, nor extension of existing, subsidies on manuf actured
goods.
The long negotiation to find language to limit the use
under GATT of export subsidies achieved a breakthrough in 1960
when the United States and the other industrialized countries
in the GATT agreed in a Declaration to cease granting export
5/
subsidies on manufactured products.The Working Party
report which constituted the basis for the Declaration
contained a list of measures considered as forms of export
subsidies.
By indirection, this extended the interpretive
note to Article XVI by excluding from the definition of
an export subsidy the rebating or exemption of mUlti-stage
indirect taxes.
Clearly, the implications of this Declaration
- 7 -
were not adequately considered by the United States.
Part of
the reason was, perhaps, due to political considerations:
u.s.
the
did not want to appear to be raising obstacles to the
tax harmonization objectives of the European Common Market.
Nevertheless, there must have been some concern with the
interpretation of this article because a special provision
for review of the operation of the provisions of Article XVI
were inserted at the Review Session.
The drafters did not
seem content to rely on Article XXX which provides for the
review and amendment of all of the GATT Articles.
Conclusions on History
This brief review of the GATT articles demonstrates
that there is no consistent rationale behind the GATT rules
on border tax adjustments, nor clear-cut guidance on the
meaning of the GATT provisions.
Articles II and III were
incorporated almost in their entirety from existing prac6/
tices, probably modeled after a U.S.-Canadian commercial treaty.-
The separate treatment of the import duties and the history
of clarifying the status of export remissions confirms that
no consistent consideration was given to this subject;
certainly no specific economic theory was used as the underpinning for the treatment of border tax adjustments.
Instead,
it would appear that the matter of "border tax rules" was
not even a contentious issue.
codified certain practices.
Rather, these rules simply
- 8 -
It is not surprising that the drafters of the GATT were
willing to accept the status quo.
Problems quite apart from
the question of border tax adjustments demanded the attention
of the drafters.
In a postwar, exchange-control world, where
fixed exchange rates were at best approximations of reality,
concern voiced about the discrimination that would arise if
the world shifted to a buyer's market would probably have been
met by some retort such as "we'll worry about that problem if
and when it ever arises.
II
Little wonder.
In the late 1940' s
and early 1950's, border tax rates were low -- in the range of
2-4 percent -- and limited to around one-sixth of the goods
traded -- and then only in the case of a few nations.
Further-
more, a seller's market existed in which demand was highly
unresponsive to small price variations.
Finally, the $10 billion
commercial trade surplus of the United States in 1947 must have
had an effect on the attitude of the U.S. negotiators.
This is
best illustrated by the then prevalent and understandable U.s.
policy of deliberately encouraging a transfer of financial assets
to Western Europe in order to facilitate European reconstruction.
1953 DEEe Review
As early as 1953 there began to be some recognition of the
fact that border tax adjustments could create advantages for
nations using them.
The likelihood of this occurring tended
to grow as other barriers to trade fell, and the adjustments
- 9 -
were substantially increased.
This recognition came in the
Working Party on Artificial Aids to Exporters, part of the
OEEC Steering Board for Trade.
This Working Party discussed
the possible trade diversionary effect of the introduction
of the French value-added tax.
Some opposing views existed
and one of the participants (and then committee chairman)
offered a proposal designed to limit the distortion to trade
from full tax remissions.
The proposal was an attempt to
reach a compromise between divergent views and to prevent a
disastrous race between OEEC countries in the area of fiscal
incentives.
1)
The basic provisions of the proposal were:
Full relief of exported goods from a
single-stage indirect tax would be permitted;
2)
A limitation would be placed on the
total amount of relief exported goods could
obtain fram other forms of indirect taxes and
from direct taxes.
The limit would be set as
a percentage of the value of the goods at the
point of export;
3)
A transition period would be established
in order to permit nations to reach the common
limit; and
4)
A consultation procedure would be es-
tablished.
- 10 -
It is interesting to note that this proposal explicitly
recognizes a divergence of views concerning (a) the effects
of remissions of direct and indirect taxes; (b) the difference
between single-stage and multi-stage indirect taxes; and (c)
the need for some limitation to these adjustments.
The sug-
gested solution presented a pragmatic and arbitrary solution
to a difficult theoretical and political problem.
Unfortunately, there was not enough awareness of the significance of the proposal, and the other members of the Working
Party were unwilling to moderate their positions.
OECD Border Tax Consultations
In 1963, U.S. concern about the trade effects of border
taxes was further aroused by the decision of the member states
of the EEC to harmonize their tax systems, by adopting the
value-added tax (TVA).
The U.S. Government requested the OECD
to undertake a careful and comprehensive study of border tax
adjustments.
In making the proposal, the U. S. stated:
"A study
of this subject is particularly timely at the present moment.
A
number of countries which impose turnover tax adjustments at the
border are contemplating changes in the level of such compensatory
adjustments, others are considering a change in the method of
applying the tax (e.g., a change from the cascade to a value-added
type) and some countries which heretofore have not employed a
general sales tax by the central government are considering
introducing it ••• "
- 11 In order to create a better atmosphere in which to
review border tax adjustments, the U.S. sought agreement
in the OECD for a standstill (i.e., a temporary agreement
not to make border tax changes).
The Common Market countries
opposed the idea, arguing that agreement on a standstill
would interfere with their objective of attaining a
harmonized tax system by 1970.
They were, nevertheless,
prepared to agree to a notification procedure which would
keep the OECD countries informed about actual and contemplated
changes in border tax adjustments.
They also were prepared
to agree to consultation in the OECD on these changes.
This notification procedure was adopted as a second best
solution.
In 1967, at the request of the united States, an ad hoc
group of the OECD undertook a consultation with Germany on the
general trade and payments effects of the German Government's
announced switch to a value-added tax system scheduled for
January 1, 1968.
followed.
A series of carefully prepared meetings
The discussions in this OECD group revealed a
considerable difference of opinion on the effects on trade
of border tax adjustments.
The German delegation not only
argued that the TVA was perfectly trade neutral but also that
- 12 the shift from the then existing cascade type indirect tax
to a TVA system would not appreciably improve Germany's
competitive position.
Germany's EC partners.
This contention was supported by
This is curious, because during this
same period three of these countries -- France, Belgium, and
the Netherlands -- were simultaneously moving to increase the
level of their own border tax adjustments for the publicly
acknowledged purpose of combating the impact on their trade of
the German changeover. II
Ironically, the notification procedure
worked best for those countries which felt no necessity for it.
This explicit and public recognition by Common Market
governments of the trade effects of the German changeover
of their indirect tax systems destroyed the German contention
that the shift was of no
signi~icance
to international trade."
Testimony of European businessmen further demonstrated
the true picture.
The Business and Advisory Committee (BIAC)
to the OECD, gave practical evidence of the serious limitations
81
of the theory underlying border tax adjustments.-
Briefly,
the essence of their views was that "in a strongly competitive
situation the prices obtainable -- and hence the degrees of
tax shifting -- are substantially determined by the market
itself."
If this report is correctly interpreted, they hold
- 13 that there are a great variety and interdependence of factors
~hich
influence tax shifting, but primary importance is
attached to the market situation.
Of course, if economic
conditions are buoyant, there may be a greater possibility
of tax shifting than in a depressed and declining economy,
just as there is a greater possibility of increasing profits.
It seems to me that even though it is extremely difficult, if
not impossible, to measure the degree of tax shifting, it is
grossly inequitable to maintain, as the GATT rules do, that
indirect taxes are always fully shifted forward into product
prices.
By the same token it is wrong to hold that no direct
taxes are ever shifted -- forward -- to any degree.
Perhaps
most Significant, and for the economist most difficult to
measure, is the fact that today we have much more of a buyer's
market than existed during World War II and immediately
thereafter when the GATT rules were drafted.
Not only is there
increased competition among firms, but the freer trading world
fostered by GATT advances substantially the size and number of
competitors.
Moreover, the development of competitive products
(e.g. steel and aluminum) expands the range of competition.
Mounting Concern in the U. S.
In the United States, concern about the adverse trade
effects of border tax adjustments has been mounting steadily,
not only in the Executive Branch of the U. S. Government but
in industry and the Congress as well.
- 14 Individual companies have spent considerable time and
effort analyzing the effect of changes in border tax
adjustments on their exports.
Industry associations, such
as the Manufacturing Chemists Association (MCA) and the
National Association of Manufacturers (NAM), to name but
two, also have taken a hard look at the problem. 91
And
the key Congressional committees concerned with this
problem have looked into this subject.
In statements
recently submitted to the House Ways and Means Committee the
two trade associations mentioned above pointed to the
increasing awareness that United States exporters clearly
face a competitive disadvantage arising from the GATT rules
101
on border tax adjUstments.
In another indication of
concern, the Action Committee on Taxation of the National
Export Expansion Council, early in 1966, expressed the view
that the GATT rules on border taxes .. are discriminatory
111
against the United States " - and specifically called for
a renegotiation of GATT.
As for America's position at intergovernmental meetings,
the
u. S. representative to the OECD Consultations on
Germany repeatedly voiced concern about the trade effects of
the changeovers in indirect tax systems occasioned by the
EC tax harmonization.
He pointed out that increases in
border tax adjustments would compound the trade advantages
gained by the indirect-tax countries.
Moreover, he said, for
- 15 a country with a large balance of payments surplus
to undertake a changeover at that time was directly
contrary to its responsibility to the better working
of the process by which international balance of payments
adjustment is achieved.
The August 1966 report of Working
Party 3 of the Economic Policy Committee of the OECO
recoqnized the responsibility of balance of payments surplus
countries, and on this particular issue it said:
lilt was noted that on occasions when the
national structure or level of indirect taxation
was being reformed, the accompanying change in
export rebates or import levies or other adjustments can have an impact on international trade,
and that further
consider~tion
might be given to
the question whether countries could undertake to
take account of their prevailing balance of payments
situation in deciding on the timing of such changes
in 'border tax' adjUstments."l2/
Germany's January 1, 1968 changeover from a cascade
type turnover tax with a rate averaging 4 percent on each
turnover to a value-added tax of 10 percent on most commodities
perhaps did more than any other single act to solidify a
u.s.
Government attitude that more equity must be achieved in the
13/
GATT rules as they pertain to border taxes.--
- 16 Therefore, the U. S. pursued the issue in the GATT
forum itself.
Ambassador Roth, the President's Special
Trade Representative, called attention to our serious
concern over non-tariff barriers in his statement at
the GATT Ministerial meeting on November 23.
These
measures adversely affected our trade, and he asked
GATT to press ahead and organize itself for a timely
resolution of this problem.
This initiative resulted in
the GATT Ministerial Meeting agreeing to the formation of
groups to deal with:
(1)
Non-Tariff Barriers
(2)
Border Taxes
(3)
Subsidies and Countervailing Duties
It was believed that with these groups working concurrently,
each at a pace suited to its own purpose, a framework conducive
to achievement would be established.
On January 1, 1968, President Johnson called attention
to the disadvantage to u.S. trade posed by the provisions of
the GATT rules on border tax levies and rebates and called for
adjustment of these rules.
In March of 1968, the United States
reviewed the problem with the GATT Council and established the
terms of reference for a Working Party to examine the problem
of border tax adjustments.
began discussions.
On April 30, this Working Party
It is now under way in its task.
- 17 -
GATT Negotiations
At the initial meeting of the Working Party, April 30May 2, the U.S. raised three general problems which we
believed should be corrected.
rules are inequitable.
First, the GATT border tax
We questioned whether there should
be any border adjustments to compensate for differences in
taxation.
If there must be border adjustments, then they
should be designed to equate the price effect of all taxes
direct as well as indirect.
The current GATT rules on
border tax practices, limiting adjustment to indirect taxes,
(and then 100%) do not reflect adequately this principle.
The second general problem concerns the trade diversionary effect of changes in border adjustments; in addition, it is
concerned with the relationship of the timing of such changes
to the balance of payments adjustment process.
The third area of concern is the ambiguity in the
present rules which allows protective national practices
to be justified by interpretations that are at times selfserving.
This ambiguity illustrates the need for more pre-
cise definitions and a code of practices.
- 18 Elaborating on the first general problem associated
with the GATT, the present border adjustment rules apply the
origin principle to direct taxes and the destination principle
to indirect taxes.l4/
Under the destination principle pro-
ducts are taxed at the point of consumption.
Since exported
products are consumed abroad they should not pay the indirect
tax that would pertain if the goods were consumed at home.
Therefore, exports are relieved of the indirect tax burden.
Imported goods, on the other hand according to the destination
principle, should carry the same indirect tax burden to avoid
a "privileged position" over goods produced domestically.
Accordingly, tax frontiers are established at the border.
On the other hand, it is argued that regardless of the rate
of direct taxes, the sales prices of the products are unaffected.
Consequently, border adjustments would not be
justified, even if the destination principle were employed
for direct taxes because the direct tax is presumably not
passed on to the point of consumption.
In contrast, the origin principle states that goods
should be taxed at the point of production; thus, border
adjustments are not permitted.
It is the origin principle
toward which the Common Market is moving for transactions
between member states.
Interestingly, the Common Market
decision to harmonize tax systems and eventually to adopt
a common tax system was based on the desire to eliminate
- 19 tax frontiers.
The argument was advanced that such fron-
tiers constitute both a psychological and a real obstacle
to a truly free exchange of goods and services.
The origin principle must not be overlooked in seeking
a solution to the border tax problem.
Adjusting for in-
direct taxes means that one aspect of government policy
is singled out for special treatment.
There are no adjust-
ments for a wide range of other government measures which
directly affect prices.
Nor are there adjustments for many forms
of taxation which affect prices.
Frequently, government
economic policies affect private industry and trade but they
are not necessarily accompanied by offsetting action.
More-
over, many of the governmental services financed by indirect
taxes may be provided through the private sector in other
countries.
To this extent, the border tax adjustment rules
have an influence on the distribution of activities between
the government and private sector.
This is a wholly in-
appropriate by-product of the GATT rules.
Only in the
case of indirect taxes is there an institutionalized provision for offset.
Modern economic theory suggests that the distinction
implicit in the GATT treatment of direct and indirect taxes
is an extreme and arbitrary assumption which does not stand
- 20 -
the test of economic reality. lSI
While economists and
businessmen may disagree on the extent of the forward
shifting of indirect and direct taxes, they do agree that
the extreme assumptions which are necessary to make the
present GATT rules trade neutral are an inadequate
approximation of reality.
Therefore, a border adjustment
equivalent to the full internal indirect tax tends to
stimulate exports and provide protection against imports.l61
In brief, the present provisions of the GATT divert trade
and thereby disadvantage countries such as the United States
and Canada which rely primarily on direct taxes.
Not only are the GATT rules unfair, they are illogical
and unreasonable.
There is a contradiction between the way
in which direct taxes are treated in the provisions relating
to subsidies and in the provisions relating to border tax
adjustments on the import side.
If the remission of direct
taxes is considered a subsidy, this is presumably because
it is felt that this would have an effect on the price of
the exported products.
But if direct taxes had an
effect on price, it could be argued that adjustments
should be made in respect to them at the border.
Furthermore,
there should be no presumptions about the administration of direct tax remissions being more difficult than
v
- 21 indirect tax remissions and thus no additional concern about
the price effects of the former due to administrative problems.
The second general problem concerns changes by a nation
in its border tax adjustment practices.
There are three
categories of changes: (1) When the level of the indirect tax
within the country and at the border is changed by the same
amount.
Germany's 1% increase on July 1 is a case in point;
(2) When the amount of adjustment at the border is different
from the domestic level of the tax and this difference is
"corrected".
(A level of adjustment lower than the tax is "under
compensation"; a higher level of adjustment is "over
compensation").
Belgium's increase in border adjustments
in 1967 and 1968 are examples of a country moving from "under
compensation" to "full compensation".
The German border
tax change in November 1968 is an example of a move from "full
compensation" to "under compensation".
It is argued that
the German change on January 1, 1968, included a few cases
of "over compensation" going to "full compensation"; (3) The
third involves the changeover resulting from the adoption
of a new type of indrect tax.
Germany did this on January 1,
1968 and the Netherlands will do it a year later.
Within the three categories mentioned, changing
the degree of adjustment at the border without commensurate
- 22 -
changes in the relevant indirect tax brings about the most
striking effects on trade.
Other changes are considerably
more difficult to measure -- but frequently no less significant in their impact upon trade.
The increasing use of border adjustments suggests,
however, that governments actually believe there
are trade effects.
In any case, changes in border tax
adjustments to eliminate "under compensation" clearly have
favorable trade effects on the country making the change.
The increase in the export rebate and import surcharge can
be looked at as having exactly the same effect as a devaluation on the trade account -- it improves the competitive
position of the country making the change and thereby
strengthens their trade account.
Such actions by a trade
surplus country exacerbate the problems of countries working
towards balance of payments equilibrium and are directly
counter to the surplus countries' responsibilities to
assist the international adjustment process.
The third general problem with the GATT border tax
adjustment rules concerns the extent to which the lack of
trade neutrality is aggravated by techniques used in the
administration of border tax adjustments.
For example,
- 23 -
(a) the necessity of using averaging techniques to determine
the amount of adjustments, as is the case in any Cascade
Systeml8/; (b) by the inclusion of secondary indirect taxes
(taxes occul tes) which are not "borne by the produce", in border
adjustments; and (c) the arbitrary assumption of tax and
Bubsidy allocation on grain sales within the EC on agricultural
products.
These technical determinations are left open
to national judgment because of the lack of precision in the
GATT rules and by the complexity of the issues.
Assumptions
employed by fiscal and trade technicians are not likely to
err on the side of trade neutrality.
Due to the complexity of manufacturing processes, the
difficulty of cost accounting and the varying tax systems
of the countries making border adjustments it is impossible
to accurately determine the indirect tax actually borne by
domestic goods.
The "real number" is a changing number in
any event -- by product and in response to market factors.
This is likely to be more true of a multi-stage turnover tax
than a single stage retail tax.
As products undergo varying
stages of production, the tax burden will vary between
commodities.
In order to avoid the task of ascertaining the
tax burden on each commodity, averages are used to determine
a mean rate for a commodity class and the appropriate border
- 24 -
adjustment.
By their very nature, averages result in trade
distortion as some commodities receive adjustments in excess
of the domestic tax burden while other commodities are
"under compensated".
The GATT rules permit adjustment for taxes levied on
or borne by goods.
Although there is not much confusion
about the fact that GATT, as presently drafted, classifies
corporate income taxes as direct, there is a large controversy
about the status of other taxes.
Many countries adjust
for taxes on such items as gasoline, general overhead expenses, capital, etc., taxes which are difficult to consider as levied on a specific product.
We believe the
arbitrary adjustment for such taxes, often referred to as
taxe occulte, is contrary to the GATT rules and trade
diversionary in effect.
The combination of erroneous shifting assumptions, taxe
occulte, averaging and changes in border tax adjustments
combine to make the present GATT rules far from trade neutral;
in fact, they are damaging to your trade and ours.19/
The obvious next question is what alternatives exist
which are more neutral and less discriminatory.
- 25 Approaches to Solutions
One approach that has been suggested is that the U.S.
not seek a change in the GATT rules but, instead, adopt
its own Federal indirect tax system.
Here, I concur with Mr. Latimer's statement in his
article in the Canadian Tax Journal which I referred to at
the outset of my remarks.
He said:
"The essence of the border tax debate is that,
countries should be at liberty to choose the
structure and level of taxation consistent
with their notions of economic growth and
tax equity, without at the same time prejudicing
their international trading position.tl201
As a second approach, there have been some who argue
that the u.S. should disregard the GATT and make similar
border adjustments, with or without reference to our direct
taxes.
GATT is too vital a multilateral institution for such
a course of action to recommend itself.
A third approach involves multilateral negotiations
to reduce the inequities in the present rules, while harmonizing international tax practices as they pertain to trade
between nations.
In the last analysis, what is needed is a
- 26 -
sane, simple and practical way to resolve this problem.
A
workable set of rules can be devised and these rules could
promote the objectives of the GATT.
Such an approach would
be in the greater interests of the whole trading community
in serving to avoid practices prejudicial to the trade of
any contracting party.
Within this framework, the use of the origin principle
in trading has definite attraction.
It would eliminate an
unnecessary barrier to trade, remove a discriminatory feature
of the rules governing trade, and provide a consistent treatment for the trade effects of government tax and economic
policy.
many
Whatever its attractions -- and I think they are
the origin principle poses serious problems.
The
most prominent of these is how do you implement the principle
in the fixed exchange rate system we now have.
Other approaches, of course, could be based on the
destination principle.
However, under the present rules
we have seen broadly increased uses of border tax adjustments
resulting from changeovers in tax systems.
The present rules
have encouraged the adoption by other countries of indirect
taxes permitting border tax adjustments.
The proliferation
of "adjustable" indirect tax changes is startling, and in
trade terms frightening.
Moreover, present rules provide
- 27 -
no limit whatsoever to the degree of "adjustment" permitted
for indirect taxes.
If allowed to continue unrestrained,
this proliferation will work to undo much of the progress
towards freer international movement of goods, services
and capital.
In conclusion, the GATT rules must be improved in
such a way that they do not permit nations to achieve a
trade benefit through the adoption of one domestic tax system
over another.
A pragmatic and equitable solution must
emerge from the GATT negotiations now in progress.
Our
trading partners did not agree to a "standstill" on new
border tax adjustments while the existing rules were under
discussion.
The result has been that adjustments have
continued to mount, rewarding protectionist sponsors and
arousing the envy of others who might be tempted to take
similar trade restrictive actions.
for drawn-out deliberations.
There is no longer time
The proliferation of changes
and new border taxes gives great urgency to the GATT work.
Footnotes
!I
Robert Latimer, "The Border Tax Adjustment Question"
The Canadian Tax Journal (September-October 1968)
!I
49 stat 3960 (1936).
11
For example, the meaning of the phrase linking the import
charqe at the border with "charge ••• applied, directly, or
indirectly, to like domestic products" was not given.
!I
Although no attempt was made to define what was meant by
duties or taxes borne by the like product, examination of
the discussion at the Review Session related to Article VII
(dealing with customs valuation) provides some clarification. During these discussions it was agreed that the
note to Article XVI would permit the exemption from, or
remission of:
Effective May 14, 1936
"Only (i) internal taxes of the kind which are
levied directly on the goods exported (or directly
on the materials going into the manufacture of such
goods), as distinct from (ii) other taxes (income
tax, etc.)".
Although this provides som~ guidance on the question of
direct and indirect taxes, it does not indicate the status
of "hidden taxes" (i.e., those not imposed on the exported
product itself or on the materials incorporated in the
product) •
~
The 1960 GATT Working Party on Subsidies Report stated
that the governments prepared to accept this Declaration
agreed that, for the purpose of that Declaration a list
of certain enumerated practices "generally are to be
considered as subsidies in the sense of Article XVI:4."
This Report, which contained the direct/indirect tax
dichotomy in the list of practices was adopted by the
Contracting Parties, the most important representative
body within the GATT organizational structure. However,
the Contracting Parties did provide for a review of the
provisions of Article XVI. Paragraph S of Article XVI
states:
"The contracting Parties shall review the operation
of the prOVisions of this Article from time to time with
a view of examining it effectiveness, in the light of
actual experience, in promoting the objectives of this
Agreement and avoiding subsidization seriously prejudicial
to the trade or interest of contracting Parties."
!I
During the 1930's, when this treaty was written, exchange
rates fluctuated. There was probably little concern
about the price effect of the import adjustment as such
effects would be absorbed by exchange rate changes.
LI
See e.g., (a) French Finance Minister Debre's speech to
the OECD Ministerial Meeting, November 30, 1967; (b) Dutch
Finance Minister DeBlock, Memorandum to the Dutch
Parliament, October 4, 1967~ and (c) Belgian Cabinet
communique following their meeting at Knatte. To illustrate
the nature of these comments the following is an excerpt
from DeBlock's statement:
~They (ed: the government) feel, however, that Dutch
industries are right in fearing that they will be
adversely affected as a consequence of such a change
(ed: adoption of German TVA) in the situation in
Germany. '" there is sufficient reason to take
legislative measures ensuring that international
competitive position of Dutch industry does not
deteriorate too much."
These related actions demonstrate the tendency towards
proliferation inherent in the present GATT rules. The
absence of a limitation invites other countries to take
similar action.
In a recent official paper~ the German government
has in fact admitted that the changeover to the
value added tax had a substantial effect on export
prices.
" ••• in contrast to earlier Government expectations, the changeover to the value-added tax
system after all turned out to favor exports
from the point of view of prices. At any
rate, average export prices declined by 2.2
percent from January to September."
Ministry of Economics, "The Necessity for Protection
Against External Economic Influences" Section 1,
informal transa1ation by U. S. Embassy, Bonn, Germany,
November 29, 1968.
!I
Unpublished report dated June 1967.
!I
The Logic of the Border Tax Mechanism, Government Finance
Division, National Association of Manufacturers,
October 1965.
~
Heatings before the CQmmittee on Ways and Means, House
of Representatives, 90th Congress, Part 10, p. 4489.
11/ Taxation and Exports, Action Committee of the NEEC,
February 1966, p. 17.
-12/
-
13/
See U.S. Treasury Department, "Maintaining the
strength of the United States Dollar in A Stronq
Free World Economy" (Washinqton: Government Printinq
Office, 1968) p. 74.
For a brief discussion of the destination and origin
principles, see Carl S. Shoup, "Indirect and Direct
Taxes and Their Influence on International Trade, a
paper submitted to the House Ways and Means Committee,
June 1964.
~/
The material on shiftinq of general taxes has become
quite extensive. For a review of the debate, se.
John F. Due, "Sales Taxation and the Consumer II ,
American Economic Review (December 1963) pp. 1073-84.
-16/
Stanley S. Surrey, "Implications of Tax Harmonization
in the European Common Market II, a speech before the
National Industrial Conference Board, New York
(February 1968).
!y This was the case for inteqrated companies.
-18/
In a cascade system, the tax burden on a product
depends in part on the number of transaction. it
undergoes. As this will vary from product to
product, and even for different units of the aame
product, there is no sinqle estimate of burden which
can be universally applied. Therefore averaqes are
used.
For a theoretical discussion of the trade effects
of border taxes, see Richard Musqrave and Peg9Y
Richman, Allocation Aspects, DOmestic and International,
in John Due, editor, The Role, of Direct and InOirect Taxes in the Federal Revenue System (Princeton:
Princeton University Press, 1964).
W
Op.
cit., p. 409.
TREASURY DEPARTMENT
:
WASHINGTON, D.C.
November 20, 1968
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
~2,700,000,OOO,or thereabouts, for cash and in exchange for
'rreasury bills maturing November 29,1968, in the amount of
$2,699,896,000, as follows:
90 -day bills (to maturity date) to be issued
in the amount of $ 1,600 OOO,000, or thereabouts,
additional amount of bil t s dated August 29,1968,
mature February 27,1969, originally issued in the
$1,104,479,000, the additional and original bills
interchangeable.
November 29,1968,
representing an
and to
amount of
to be freely
18~day bills, for $1,100,000,000, or thereabouts, to be dated
November 29,1968, and to mature May 29,19690
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
w1jl 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, November 25,1968.
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 rece ived
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-1412
- 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 pric!
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 I
final. Subject to tnese 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
riecima1s) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on November 29,1968,1
cash or other immediately available funds or in a like face amount
of Treasury bills rna turing November 29,19680 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 disposition
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 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
tram consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunde
,eed include in his income tax return only the difference between
che 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
~otice prescribe the terms of the Treasu~y bills and govern the
conditions of their issue. Copies of (-he circular may be obtained tram
any Federal Reserve Bank or Branch.
000
TREASURY DEPARTMENT
4
WASHINGTON. D.C.
November 21, 1968
~OR
IMMEDIATE RELEASE
TREASURY DEPARTMENT ANNOUNCES COUNTERVAILING
DUTY ORDER ON SKI-LIFTS AND PARTS FROM ITALY
The Treasury Department announced today that it has sent to
~he Federal Register for publication, notification of countervailing
iuties to be imposed on importations of ski-lifts and parts from
[ta1y.
The countervailing duty action is the result of an investigation
~onducted by the Bureau of Customs following a complaint of sub,idization submitted by Hall Ski-Lift Company, Inc., Watertown,
~w York.
The matter arises under section 303 of the Tariff Act
)f 1930 (19 U.S.C. 1303)0
The Treasury Department's order \vill
lppear in the Federal Register on Friday, November 22, 1968.
The countervailing duties will be assessed on the importation
)f these products 30 days after publication of notification in the
~ustoms
Bulletin. The notification ~ill appear in the Bulletin
)f Wednesday, December 4, 1968, Thus the countervailing duty
vill become effective on Saturday, January 4,19690
Treasury representatives explained that the countervailing
iuties on ski-lifts and parts are intended to counteract
lubsidies by the Government of Italy on exports to the United
,tates of these produc ts.
Countervailing duties will be assessed only on shipments
vhich receive benefits from the subsidy program. The amount of
:he countervailing duties will be equal to the amount of the
';ubsidy.
Treasury representatives stated that the amounts of the
[talian subsidies in this case range from approximately $21.16
o $51.16 per short ton, depending upon the particular parts
leing imported.
000
TREASURY DEPARTMENT
-,-- ' ~ ;;
WASHINGTON. D.C.
'OR RELEASE 6: 30 P.M.,
'tiday, N:Jvember 22, 1968.
RESULTS OF TREASURY'S K>NTRLY BILL OFFERING
Treasury Department announced that the tenders for two series of Treasury
lills, one series to be an additional issue of the bills dated August 31, 1968, and
ib~ other series to be dated November 30, 1968, which were offered on November 18,
L968, were opened at the Federal Reserve Banks today. Tenders were invited for
~500,OOO,OOO, or thereabouts, of 272-day bills and for $1,000,000,000, or thereabouts
)f 365-day bills. The details of the two series ere as follows:
Dle
272-day Treasury bills
BIDS: __ma_tt_lr_i~n~g,-A_ugu;;;w..;;~s..;..t_3;;.;;1~'--.:;;.l9.;..;6::;..;9~
Approx. Equiv.
Annual Rate
Price
95.716
5.67OJ
High
5.71l~
95.685
Low
95.699
5.693~
Average
:lANGE OF ACCEPTED
~OMPETITIVE
Y
365-day Treasury bills
maturing November 30, 1969
Approx. Equiv.
Annual Rete
Price
94.370
5.5531'
94.328
5.594~
94.355
5.568~
)}
2~ of the amount of 272-day bills bid for at the low price was accepted
12~
of the amount of 365-day bills bid for at the low price was accepted
'roTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRIC'lE:
District
Boston
New York
Philade Iphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
KBnsas City
!MaUas
San Francisco
mTALS
Applied Far
$ 18,497,000
1,443,443,000
12,462,000
28,793,000
4, 372,bOO
15,515,000
174,945,000
16,856,000
12,951,000
10,100,000
31,802,000
202,068,000
Accepted
$ 2,076,000
825,002,000
2,4:62,000
3,691,000
1,872,000
3,630,000
82,145,000
6,416,000
951,000
6,600,000
1,802,000
63,368,000
$1,337,233,000 $ 500,033,000 ~/ $1,971,804,000
$1,000,015,000
Accepted
Applied For
$ 3,046,000 $ 3,046,000
398,302,000
988,302,000
1,464,000
12,464,000
2,785,000
14,985,000
1,062,000
3,562,000
4,719,000
18,019,000
21,052,000
81,552,000
4,295,000
6,795,000
5,455,000
12,455,000
2,660,000
4,160,000
1,482,000
11,482,000
1801 411,000
53,711,000
E/
~ Includes $21,166,000 noncompetitive tenders accepted at the average price of 95.699
~I Includes $46,747,000 noncompetitive tenders accepted at the average price of 94.355
11 These rates are on a bank discount basis. '!he equivalent coupon issue yields are
5.97~ for the 272-day bills, and 5.9~ for the 365-day bills.
F-1414
TREASURY DEPARTMENT
,
WASHINGTON, D.C.
November 22, 1968
FOR IMMEDIATE RELEASE
FRIDAY, NOVEMBER 22, 1968
STATEMENT BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY OF THE UNITED STATES
AT CONCLUSION OF G-lO MEETING IN BONN, GERMANY
FRIDAY, NOVEMBER 22, 1968
This meeting, called with my full support, was aimed at
finding, through multilateral consultations, means of dealing
with short-term destabilizing influences in the international
monetary s ys tern.
It has met that aim.
The leading financial countries in the world have come to a
common assessment of the current currency problems and reached a
common view on how the nations of the Group of Ten can act together to deal with it. This is the course which the free world
has built up carefully in recent years. It has served us well,
with fruits of continuing growth and prosperity for all.
The decisions of this gathering speak powerfully for the
combination of international monetary strength and multilateral
rationality which has been molded.
The contributions of the various governmenrnrepresented at
this meeting to this rational process streSs the fact that the
day of the narrow, nationalistic short-range view of international
finance has been replaced by one in which all of the partners have
come to recognize that the preservation of the whole cannot be
sacrificed to any of the parts.
The United States will do its full share to help effectuate
the measures to be undertaken by the Group of Ten.
000
F-1415
TREASURY DEPARTMENT
t
WASHINGTON. D.C.
November 22, 1968
~OR
IHMEDIATE RELEASE
;RIDAY, NOVEMBER 22, 1968
Bonn
CO~~NIQUE
OF THE MINISTERS AND GOVERNORS OF THE GROUP OF TEN
MEETING IN BONN 20 THROUGH 22 NOVEMBER 1968
1. The Ministers and Central Bank Governors of the ten
countries part ic ipat ing in the Gene ra 1 Arrangements to Borrow met
in Bonn on 20th to 22nd November 1968 under the chairmanship of
Mr. Karl Schiller, Minister of Economics, Federal Republic of
Germany. Mr. Pierre- Paul Schwe itzer, Managing Director of the
International Monetary Fund took part in the meeting, which was
also attended by the president of the Swiss National Bank, the
Deputy Secretary General of the OECD, the General Manager of the
BIS and the Vice President of the Commission of the European
Commun it ie s .
2. The meeting was called by its chairman, Minister Schiller,
on the proposal of several member countries. The Ministers and
Governors had a comprehens ive and thorough exchange of views on
the basic problems of balance of payments disequilibria and on the
recent speculative capital movement.
3. The participants agreed that international monetary
stability is the joint responsibility of all countries in the
international economic community. Both deficit and surplus
countries expressed their willingness to contribute effectively
to the stability of the international monetary system through
appropriate and concerted economic policies. They agreed on
measures to counter speculative capital movements.
4. Minister Schiller explained the decision of the Federal
Government of Germany to introduce immediate tax relief on imports
of 4}, of the va lue and a tax burden on exports of 4/0 of the ir
value. These measures will substantially reduce the German trade
surplus. The German government also intends to restrict certain
short-term transactions of German banks with non-res idents; and
the Federal Bank has dec ided yes terday to raise to 100% the
reserve requirement on additions to banks' liabilities to
foreigners.
F-14l6
- 2 -
5. After thorough discussion of the German measures the
Ministers and Governors agreed that these measures would make a
significant contribution to the stability of the monetary system
and the adjustment process. In the light of those measures, they
endorsed the decision by the Federal Government to maintain the
parity of the D-Mark.
6. The French Economic and Finance Minister explained the
sUuation of the French currency, the measures already taken
toward a restoration of internal and external equilibrium, and
the problems still to be solved.
7. It was decided to set up a new central bank credit
facility for France in the amount of $2 billion. This is in
addition to France's substantial drawing facility in the IMF.
8. The decision on the above mentioned credit facility underlines the determination of monetary autho~ities to counter speculation and to offset the effect on reserves of destabilizing shortterm capital flows. For the same purpose the Governors, together
with the BIS, will examine new central bank arrangements to
alleviate the impact on reserves of speculative movements.
9. The participants welcomed the measures taken which will
make a major contribution to the restoration of international
payments equilibrium.
000
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Document Type: Transcript
Number of Pages Removed: 16
Author(s):
Title:
Date:
CBS Television Network, "Face the Nation", Guest: The Honorable Henry H. Fowler, Secretary
of the Treasury
1968-11-24
Journal:
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
TREASURY DEPARTMENT
WASHINGTON, D.C.
roB RELEASE 6::30 P.M.,
~aaay,
-
love1lber 25, 1968.
RESULTS OF 'mEASURI I S WEEKLY BILL OFFERDG
'!be Treasury Department announced that the tenders for two series ot 'l'reesury
bills, one series to be an additional issue ot the bills dated August 29, 1968, and
the other series to be dated November 29, 1968, which were otfered Oil November 20,
1968, were opened at the Federal Reserve Jaw today. ~nder8 were invited tor
$1,600,000,000, or thereabouts, ot 90-day bills and tor $1,100,000,000, or thereabouts, of 181-day bills. 111e details ot the two series are as follows:
~
or ACCE~
COMPETITIVE BIDS:
High
Low
Average
3~
90-day freasury bills
_turing February 27, 1969
Approx. Equiv .
Price
Annual Rate
98.649
5.IOIJ
98.6:32
98.6:38
5.472j
5.448~
181-day ~easury bills
maturing May 29, 1969
Approx. Equiv.
Annual Rate
Price
97.208
5.553*
97.188
5.593~
97.198
5.573~
!I
Y
of the amount of 90-day bills bid for at the low price was accepted
agij of the amount of 181-day bills bid tor at the low price was accepted
row, TElDERS APPLIED FOR AID ACCEPTED II FEDERAL RESERVE DIS'l'RICTS:
District
Boston
lew York
Pbllade 1ph1a
Cleveland
Richmond
Atlanta
Chicago
St. LOUis
MiDDeapol1s
Kansas City
Jallas
San FranCisco
Applied For
Accerted
$ 26,904,000 $6,901,000
1,082, 2'B, 000
1,821,448,000
17,221,000
:32,221,000
3:3,947,000
:33,947,000
14,,066,000
14,066,000
35,784,000
39,824,000
142,823,000
179,091,000
40,624,000
50,344,000
27,885,000
29,245,000
35,141,000
35,141,000
17,549,000
26,229,000
135,835,000
185,775,000
roms
$2,474,2:35,000 $1,600,027,000
ApE lied lor
$ 10,180,000
!/
Acee,ted
$"0,180,000
1,531,842,000
16,566,000
55,32:3,000
5,241,000
26,713,000
1:33,336,000
32, 65l-,000
22,230,000
16,060,000
18,508,000
162,":3,000
785,5:32,000
6,566,000
30,713,000
5,241,000
16,263,000
73,336,000
25,121,000
21,510,000
16,049,000
8,508,000
101,138,000
$2,031,093,000
$1,100,157,000 ~/
~ Includes $284,031,000 noncompetitive tenders accepted at the average price of 98.638
~J Includes $151,208,000 nonccapetitive tenders accepted at the average price of 97.198
!:I !lese rates are on a bank discount basis.
Tbe equivalent coupon issue yields are
5.6~ for the 90-day bills, and 5 .81~ for the lSI-day bills.
'-1417
TREASURY DEPARTMENT
WASHINGTON, D.C.
t REI1'JSE 6: 30 P.M.,
leday, lovember 26, 1968.
RESULTS 01 mEASURY' SOFFER 01 ADDI'l'IOlfAL $2 BILLIOK
:m
JUlIE TAX BILLS
ibe Treasury Department announced that the tenders tor an additional $2,000,000,000,
tobereabouts, of i8x Anticipation Series Treasury bills dated October 24:, 1968,
~lDg JuDe 23, 1969, were opened at the Federal Be serve Banks today.
'!be add! tiom1
NIt ot bills, which were offered on Bovember 19, 1968, will be issued December 2,
is, (203 dals to _turi ty date).
b
details ot this issue are as follows:
Tote1 applied tor - $',370,993,000
Total accepted
- $2,000,403,000
age
(includes $356,153,000 entered on a
noncompetitive basis and accepted in
full at the average price shown below)
ot accepted competitive bids:
High
- 96.972!1
- 96.891
_ 96.905
Low
Average
Equivalent rate of discount approx. 5.37oj per annUll
"
"""
" 5 •5l3j"
"
II
""
It
"5.4:8~
II
"
( 3~ ot the amount bid for at the low price was accepted
Excepting 3 tenders totaling $600,000
!I
Federal Be serve
Distriet
IOstCll
Ie" tork
Philade lphia
Cleve laM
RiebaODd
Atlanta
Chicago
St. Lou1s
MiDneapolis
Jansas C1ty
181la8
SID lranc1sco
f ib1s 1s on a bank discalnt basis.
1'-1418
Total
Applied ror
$ 205,780,000
1,790,424,000
295,391,000
183,305,000
78,860,000
150,978,000
458,250,000
175,033,000
283,115,000
103,840,000
168,660,000
4:77,291,000
Total
Accetted
$4,370,993,000
$2,000,4.03,000
'Dle
equiva1e~.t
•
1~,1!§o,ooo
443,624,000
211,397,000
109,735,000
4.2,860,000
116,978,000
317,980,000
117,583,000
192,175,000
93,340,000
47,660,000
1'-5,291,000
coupon issue yield is 5. 73'/..
1:1
TREASURY DEPARTMENT
,
WASHINGTON, D.C.
November 27, 1968
FOR IMMEDIATE RELEASE
TREASURY'S ·wEEKLY BILL OFFERING
The Treasury O~ps.rtment, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$2 700,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing DecemDer 5,1968, in the amount of
$2,701,354,000, as follows ~
91-day bi 1~ ~ "." maturity date) to be issued December 5, 1968,
in the a~ount of $1,(100,000,000, or thereabouts, representing an
addltlom~.l lmount of bills dated September 5,1968, and to
mature March 6, 1969, originally issued in the amount of
$1,102,679,000, the additional and original bills to be freely
interchangeable.
182-day bills I f'')~' $1,100,000,000, or thereabouts
December 5, 1968, and to mature June 5, 1969.
J
to be dated
The bills of both series will be issued on a discount basis under
competitive and non~ompetitive 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, $'30,000, $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, December 2, 1968.
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 -:m the basis of 100 J
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
~ount of Treasury bills applied for, unless the tenders are
accompanied by an express gual·anty of payment by an incorporated bank
or trust company.
F-1419
- 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 Treasur
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 tnese 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 December 5, 1968, in
cash or other immed~~tely available funds or in a like face amount
of Treasury bills rna turing December 5,1968. 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 bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained from
any Federal Reserve Bank or Branch.
000
TREASURY DEPARTMENT
t
WASHINGTON, D.C.
November 27, 1968
FOR IMMEDIATE RELEASE
UNITED STATES-EAST AFRICAN COMMUNITY HOLD
PRELIMINARY DISCUSSIONS ON INCOME TAX TREATY
The Treasury Department announced today that as a
result of exploratory talks held recently between the
United States and the countries of the East African
Community it has been found that a basis exists for an
income tax treaty
0
At present the United States has such a treaty with
only one African country, the Union of South Africa o
The East African Community, comprised of Kenya, Uganda,
and Tanzania, has a Common income tax structure as well as
a cornmon tax administration. The discussions were held
with the Community tax authorities in Nairobi, Kenya. The
U.S. delegation was headed by Stanley S. Surrey, Assistant
Secretary for Tax Policyo
The primary purpose of the income tax treaty would
be to eliminate double taxation resul ting from the
taxation of the same item or items of income by both
countries and to establish procedures for mutual assistance
in the administration of income taxes.
Persons having an interest in such a
wish to offer comments or suggestions may
writing. Comments should be submitted by
to Stanley So Surrey, Assistant Secretary
Washington, D. C. 20220.
000
F-1420
convention who
do so in
December 20, 1968,
of the Treasury,
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
SPEECH OF THE HONORABLE JOSEPH M. BOWMAN, JR.
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE AMERICAN MANAGEMENT ASSN., INC.
MONDAY, NOVEMBER 24, 1968, NEW YORK CITY, N.Y.
It is a pleasure to be here today to participate in the
same program with such a distinguished group of financial
experts. Let me make it clear, however, at the outset that
I do not place myself in the category of a financial expert.
I am not an economist, but a Georgia lawyer who happens to
have had eight years experience working with the United
States Congress. When asked to comment on the Congressional
prospects in those areas with which the Treasury has jurisdiction, namely the fiscal and monetary areas, my visceral
reaction was that any comment could only be speculation and
conjecture. Those of us who have worked with the Congress
are always the most hesitant when it comes to projecting a
possible result on any issue. An illustration of my role as
an Assistant Secretary of the Treasury can best be made by
citing an incident which occurred a few days before the
President's recent message calling for surtax legislation
was sent to Capitol Hill on August 3, 1967. On that particular
day I was called into Secretary Fowler's office and I was
asked point-blank by the Secretary if the tax increase
could be passed by the Congress. I immediately launched
into the pros and cons of whether or not we needed a tax
increase. Secretary Fowler immediately interrupted me and
said: "Joe, that was not my question. I asked simply, can
this Bill pass the House and the Senate." I answered in the
affirmative, though I must admit that my opinion changed no
less than twenty times during the ensuing months. I only
cite this example to make it clear from the start that my
role at the Treasury has been that of a liaison officer with
the U.S. Congress and if it has, in fact, influenced the
making of fiscal policy, it has done so only insofar as my
judgment has been relied upon in those cases when I was
asked to analyze Congressional reaction to measures sent
to the Hill by the Treasury.
- 2 -
In the course of contemplating what I intend to say
today, I am convinced that a firmer and less speculative
prognosis can be made this year than perhaps ever before
in recent history. I have one very good reason why I am
more confident in this, and I will corne to that in just a
moment. The major unknown factor, of course, will be what
the new Administration will decide and what new policies
they will follow in the economic area. I will not attempt
to give advice or to speculate on these matters, nor do
I think anyone can at this time, other than the Presidentelect and his closest advisers. The point is that whatever
is presented to the Congress in the fiscal and monetary
areas, I think the result will be fairly predictable. Most
of the Congress, though Democratic in makeup, will give
the new Administration reasonable and conscientious cooperation and will accept most of what is offered by the Nixon
Administration in this area so long as the Ways and Means
Committee and the Finance Committee are convinced that
those proposals are for the economic good of the country,
and that will be determined not only by the persuasive
powers of the cabinet and sub-cabinet officers, sent to
the Hill by the new Administration, but by the economic
situation existing in the world at that time, and the
Administration's ability to predict the result of Congressional action or inaction and make the Congress believe
those predictions.
In order to demonstrate to you why I believe the new
Administration will be moderately successful with the
Congress in the economic area, I must discuss a few specific
issues which have arisen in the past and which will most
assuredly arise during the 9lst Congress. The most obvious
issue is the question of the surtax and the present
Administration's handling of that legislation and the
difficulties it encountered in passing it. As you .all
know the present tax surcharge will expire on June 30,
1969 and the question in the forefront in the economic
news is what will happen thereafter. That prognosis can't
be discussed without reviewing its recent passage by the
Congress and the effect of that passage not only on the
immediate economic situation existing at that time, but
the precedent it set for future taxation legislation.
At the same time one might look at the difficulty
the Administration had in getting the tax surcharge enacted
during the 90th Congress. I remember well when we first
- 3 -
polled the Congress immediately after sending the tax
message to the Hill on August 3, 1968. Although representatives of many conservative business groups joined in
supporting this increase and the great majority of
economists said that it was necessary, and although
Treasury secretary Fowler, Budget Director, Charles Schultz,
Chairman of the Counsel of Economic Advisers Gardner Ackley,
the American Bankers Association, and others testified in
their support of this Bill, a head-count on August 27 showed
only 61 Democrats firmly in support of it. 42 others
supported it only if it were supported by spending cuts
and 13 others refused to support it unless tax reform were
added to the surcharge. A few days later 58 Republicans
were polled and out of those 58, only 7 supported the Bill
unequivocably and 22 promised their support if it were
accompanied with spending cuts. The reason for this lack
of support was obvious to those of us who were talking to
these members of Congress. They were purely and simply
afraid of the political reaction in their districts to a
tax increase. They could not believe that a member of
Congress could vote for a tax increase and survive an
election. One phrase was heard over and over again from
the members as we in the Treasury asked for their support.
"I am getting 50 letters a day
they said, from people
who write in on lined paper with pencils who say they'll
never vote for me if I support this bill. These letters
aren't coming from special interest groups. They're coming
from individual citizens, writing voluntarily with no urging
from anyone". It was the following year before the Bill
came to the floor of the Senate on April 2, passing with a
vote of 53-35 and to the House floor on June 20, only five
months before the election. The Bill passed the House
268-150 with 154 Democrats voting in favor of it and 114
Republicans voting in favor of it. A no more difficult
climate could ha~e existed in which to raise taxes. Every
excuse imaginable was given to representatives of the
Administration by members of Congress--they said, "you
should have called ita war tax" (we did, by the way) ,
"you should have brought it up sooner", they said; "I
can't be re-elected if I vote for it", they said. But
nevertheless, we passed it, after nearly a year of intensive
work and substantial modification. There were periods of
time from August 1967 to June 1968* (*the date the Bill was
passed), when we could only get a handful of votes and could
not see where the votes for passage were coming from no
matter how much we argued for fiscal responsibility and
no matter with what urging we predicted impending disaster.
II ,
II
- 4 There were many times during the year 1968 when only
one man in this countr~ refused to accept what was then
thought to be the political reality that it was impossible
to pass a tax bill in ,--.1 election year, and who thought and
felt that this Bill wO' ld be enacted, and that man was my
boss, secretary Fowler. Those of us who were skeptical had
actually, in our most confidential conversations, begun to
doubt that our system (f government could adequately function
ln the type of emergenc 1 that existed.
Well, we passed the Bill, and let us look at the politica.
record. The fact of the matter is that the tax bill had
little or no effect on the outcome of the Congressional
election. There is a net increase of only four Republicans
in the new Congress and it is to the everlasting credit of
the Republican party that it laid aside partisanship and
supported this Bill. How many incumbent Republicans were
defeated because they voted for the tax bill? The answer
is that not one Republican was defeated for re-election
.because of voting for the surtax. Only two Republicans
were defeated for re-election and both of them voted against
the tax bill. How many Democrat incumbents who voted for
the tax bill were defeated for re-election? The answer is
four. But three Democrat incumbents who voted against the
tax bill were defeated for re-election. It simply was not
an issue.
Many of the defeated incumbents were thrown against
other incumbents because of Congressional redistricting.
Representative Vanik defeated Representative Bolton, and
both voted against the tax bill. Rep. Steed, who voted for
the surtax defeated Rep. Smith (Okla.), who voted against
the surtax. Rep. Broyhill (N.C.) defeated Rep. Whitener
and both voted for the tax bill. Rep. Roush, who was
defeated by Rep. Adair, is the only example of an incumbent
who voted for the surtax being defeated by an incumbent who
voted against it. In New Mexico, both incumbent Democratic
Congressmen were defeated for re-election by newcomers.
Both ran at large throughout the entire state. Yet Rep.
Walker voted against the tax bill while Rep. Morris voted
for it. It is clear that the tax bill had little or no
effect on the Democratic incumbents and I believe more
members of Congress recognize that the question of tax
legislation, so long as that legislation is considered
critical, does not have great political impact so long as
the American people are made aware of the necessity for
the legislation. This educational process is one of the
- 5 -
most difficult tasks of all, however, and it was only a
series of events, all of which made headlines across the
country that succeeded in making Americans aware of the
necessity for action. Despite the testimony and efforts
of leading American businessmen, economists and professional
associations, it was escalating prices and interest rates
that were most readily understood by the American people.
Devaluation of the British pound was announced on November 18,
1967. The London gold market was closed the weekend of
March 17, 1968, after the Administration had succeeded in
removing the gold cover on the 15th of March. By that time,
there was general awareness in the Congress and in the country
that the letter-writers who opposed the surtax must either
be converted or ignored. In my opinion, no Congressman
when he returns to his district to run for re-election will
run on one issue alone--taxes, Viet Nam, or crime in the
streets. He will, in most instances, run on the service
he gives his constituents-~and this is what most incumbents
proceeded to do.
In the winter and spring of 1969 when the new Congress
is organized it will not be faced with the immediate prospect
of re-election and it will have much less political concern
about taxes. There will be a calm atmosphere totally
different than that which always prevails during the second
session of a Congress. But it will be more tranquil not
only because it is the beginning of the Congress, and two
years from the next election, it will be calmer because the
Congress will have realized that a 10% surtax, legislation
that to many was considered politically fatal, was enacted
during an election year with virtually no effect on the
makeup of the Congress. A precedent will have been set, and
though the setting of that precedent was difficult, as the
setting of most precedents is difficult, the preced.ent will
have been set, and precedents are more easily followed than
established, and less blood-letting will occur when the
need for action again arises. Congressmen are becoming
better economists. Their conversations are more sophisticated,
they are more anxious to learn and they are more willing to
listen to what economists and businessmen say. The upshot
is that they are going to listen to the advice given by the
new Administration's top economic advisers whether they are
Democratic or Republican, and they will act or not act on
a continuation of the tax surcharge in accordance with that
advice, and the recommendation of the Ways and Means
Committee, which is in itself the most highly regarded, and
certainly the most powerful, fiscal policy body on Capitol
- 6 -
Hill. What else does all of ttli 1-3 prove? It proves that tile
new economics are here to stay. There was a time durinq the
difficult months of trying to enact a tax bill when many of
us, and I exclude Secretary Fowler, were saying the new
economics were fine in theory, but simply not practicably
applicable. We were saying that half of the new economics
would work. You could lower taxes when you needed to lower
them (although you will remember it took us
months to get
the tax cut through Congress), but that when the time came
to increase taxes it could be done. Well, that cynical
observation has been proved false. Taxes were raised. The
Congress will react to the best economic advice it can
receive, and the President-elect is the type of person in
my opinion who will certainly pretty much adhere to present
economic policies. The new economics will certainly be on
the conservative side. Chairman Mills, of the Ways and
Mean. Committee, has said that if the tax surcharge i8
extended he will insist upon expenditure reductions, employee
ceiling restrictions and a small budget. There has been a
great deal of talk and a great many articles about the
President-elect's proposals for tax incentives and insinuations that Chairman Mills would oppose them. It is my
opinion, after working with Chairman Mills for some time,
that if tax credits are viewed by the Ways and Means solely
on the basis of tax policy, one would say that this Committee
would reject them. But don't forget that the Committee has
written other tax incentives legislation, such as investment
tax credit, because the overall purpose of that legislation
outweighed limiting its consideration to tax policy alone.
Of course, all of the tax incentives brought before the
Ways and Means are not going to be enacted, but again it
is my opinion that the Committee will weigh each one of those
billa individually and it will weigh each one of them in
the light of all of the factors involved, not just tax policy.
Perhapa the Committee will decide that taxTncentives for
the purpose of improving the situation in the ghettos far
outweigh any negativism about tax incentives. On the other
hand, perhaps the Committee will decide that the problem of
the ghettos would be better solved by other means. My point
is that I do not believe that the incoming Administration
and the Ways and Means Committee, and the Finance Committee
ar 7 going to be immediately at loggerheads, but are instead
g01ng to greet each other in much more of a spirit of
cooperation than anyone expects.
000
TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
EXPECTED AT NOON, PST,
MONDAY, DECEMBER 2, 1968
REMARKS OF THE HONORABLE JOSEPH W. BARR
THE UNDER SECRETARY OF THE TREASURY
AT THE SIXTH ANNUAL BUSINESS AND ECONOMIC OUTLOOK CONFERENCE
OF THE PORTLAND STATE COLLEGE SCHOOL OF
BUSINESS ADMINISTRATION AND THE PORTLAND CHAMBER OF COMMERCE
PORTLAND HILTON HOTEL, PORTLAND, OREGON
MONDAY, DECEMBER 2, 1968
It is a great pleasure for me to be in Oregon again
not only because of the people who live here in such
magnificent natural surroundings, and in a vigorously
independent political climate, but because it is almost as
far as you can get from Washington and still stay in the
country.
Getting out of Washington is the best kind of
medicine for federal officials, even though in exactly seven
weeks they will be former federal officials.
Places like
Portland, Oregon, and not Washington, D. C., are what the
United States is about.
F-142l
- 2 I have been asked to talk about the business
and financial outlook but I find that
order.
a
very large
Of courSe I can say that it is good -- which
it certainly is, provided we have learned the lessons
of the past.
But I sense that since such recitations
are more than common these days you will not object
if I address myself to an aspect of the long-range
business outlook that is almost never discussed at meetings
like this.
The
importance to our domestic economy of
a sound and expanding pattern of international trade and
finance is, I take it, beyond dispute.
Yet as I
move among businessmen and academicians I almost never
hear them discuss the close inter-relationship of these
fields and the world-wide security posture of the
United States.
- 3May I pose this
s~ple
and stark question:
How can
one look realistically at the problems of world trade and
investment without taking into account the security
arrangements that provide the environment for trade and
investment, and the huge sums of foreign exchange that we
as a nation are spending around the world in support of
these arrangements?
This year we are spending nearly $3.5 billion in
foreign exchange because of our troop deployments in
Europe, Japan and Southeast Asia and
~Jr
in the Mediterranean and the China Sea.
naval deployments
For the seven
years, 1961 - 1967, the net foreign exchange costs of our
military deployments totaled $17.4 billion -- only slightly
less than the direct investment outflow of $17.7 billion
over the same period and slightly more than the total
$16.3 billion liquidity deficit sustained in this sevenyear span.
No other country in the world could hope to earn such
a staggering amount of foreign exchange through its commercial
transactions.
So it is really impossible to be "realistic"
about the problems of foreign trade and foreign investment
unless we first came to grips with this huge sum of foreign
-4exchange in our military accounts.
The foreign exchange we spend must be earned one way
or another by our exporters, our lenders, and our
investors; and after the exchange has been earned,
competition inevitably develops as to its allocation.
As
we all know, over the past eight years the competition
for foreign exchange has forced government intervention
the Interest Equalization Tax of 1963, the voluntary
restraints on lending and inve8tment of 1965, and President
Johnson's Action Program of January 1 of this year with its
mandatory investment controls, as well as programs in the
areas of exports, travel and government expenditures.
I hope that I will not be a Cassandra if I predict
flatly
tha~
without some .ort of discipline, in the years
ahead we will not be able to meet all the demands for
foreign exchange from our Government and our private
economy.
I just do not think it realistic to assume that
in the near future we as a nation will be able to say to
the military, "Forget about foreign exchange costs U ; to
AID, "Don I t bother wi th tying our development assistance
to U. S. goods and services"; to our allies, "Don't worry
-5-
about doing your fair share in mutual security"; while at
the same ttme telling U. S. lenders, investors, importers
and travelers, "Spend, lend, invest or buy what you want
where you want."
The pent-up demands, in my opinion,
would swamp the foreign exchange earnings that I can
foresee.
Therefore I believe that private importers,
lenders, investors and travelers must resign themselves
to some competition for foreign exchange with the
Government -- and in major part, that means the military.
At the Los Angeles Town Hall in June, I pointed out that
over the past few years we have built into our Federal
budget significant outlays for education, transportation,
housing, pollution control, crime control.and health
insurance that for the first time post a severe challenge
to the defense establishment for the domestic tax dollar.
In much the same way business will also compete with the military to
allocate the available pool of foreign exchange.
But
business will not be battling alone.
Secretaries Anderson and Gates under PresidEI1 t
Eisenhower; Secretaries Dillon, Fowler, McNamara
and Clifford under Presidents Kennedy and Johnson;
and the Joint Chiefs of Staff under all three
-~
Administrations, have worked with vigor and Lmagination to
hold down and to offset the exchange costs of our military
operations.
Were it not for these effort., the $17.3
billion total I mentioned earlier easily could have
exceeded $25 billion over the past seven years.
These
efforts are continuing.
What I want to suggest today is not a solution but
an approach.
Over the past fev years I have often wondered why
the people who were most concerned in this area of
foreign trade and foreign invesbDent never speak out on
this vital and intimately related issue.
When we ask
corporate executives about the financial and econami.
aspects of our mutual security arrangements, usually what
we get is a blank stare.
As I read through Congressional hearings, I never
notice anyone from the private sector addressing htm.elf
to these issues.
The hearings on foreign relations are
replete with conflicting arguments as to the military and
diplomatic effectiveness of our policies; they are
Singularly silent on the exchange costs.
-7-
To be perfectly fair, I suppose that the reasons that
this huge item of foreign exchange is ignored or at least
not referred to are several.
would include the
(1)
I would imagine that they
following~
A sheer lack of knowledge.
It is not customary
for this nation, or any nation for that matter, to broadcast its estimates of the military capabilities and
intentions of nations who may be hostile.
Therefore same
of the evidence upon which a corporate executive could
develop an opinion is not easily available.
(2)
I suppose there is a general reluctance to
challenge the diplomats and the military on their own
ground.
(3)
Any attempt to discuss the exchange costs of
our military deployments inevitably risks a series of
charges from certain quarters of public opinion.
min~
At a
it could be charged that the discussions were
subordinating security affairs to financial considerations.
At the worst, the old cry of "soft on coamunism" could be
raised.
These are telling reasons for keeping silent in
this highly sensitive area.
But I suggest that this
-8-
.ilence . .y be a luxury that the United State. bu.ine••
and fivri.l
c~ity
no laager c.n .fford; that this
.ileac. i. not nec ••••rily in the best inter•• t. of the
DDit.d State.; and that this .ilence i8 Dot n.c ••••rily a
halp to tho.. leader. -- both .tlit.ry aDd civilian -- who
ar. cbar.ed with the defen.e of the United State ••
Let
~
11
',~.trate
what I mean by theae point..
Anyone
who looka at tbe hi. tory of international finance in the
year. 1961 and 1968 mu.t certainly be impre •• ed with the
~
ironic fact that the Soviet Union ill an intran.ilent .cod
in it. ·relationa with Europe unintentionally can be a very
araat help to our balance of payaent..
Even the indom.table
Aaarican traveler tends to forego hi. European vacation
vben the Soviet UDiOll rattle. the .aber.
iDVe.~t
that
fund. are even
~e
.enaitive.
'l1le flow of
The point i.
a, di.cu•• ioa of tr.de and invea t8eDt IIU. t
proceed
on the ".UllptiOll that we are living in a world of re•• onable
p..c. ad reasonable order.
I would .eriou.ly doubt that
.uch a world 1. pos.ible unle.. the United State. picka up
it. .bare of peace-keepinl re.pon.ibilitie. and the re.ultinl coat ••
-9tOn
the other side of the coin, the military is well
aware indeed that it is not deploying Roman legions who
are going to li""e off the lande
On
the contrary, our forces
overseas must pay their way with dollars that end up as
exchange earnings in the country in which they are spent.
The military is aware that it would be impossible for them
to meet their responsibilities unless they are supported
by a dollar that is strong and viable in international
financial markets.
So the interests, it seems, are mutual.
There is no
basic conflict on objectives between the business and the
financial community on the one side and the defense
establishment on the other.
Moreover, let me venture that the store of knowledge
available to the business and financial community on
conditions in various parts of the world is huge and
rapidly growing.
There is no reason why this information
and the ideas and opinions it should generate, should not
be shared with the Executive and wtth the Congress.
A
decade of public service has convinced me that governments
have no monopoly on information or insight.
On the
contrary, we in the Treasury have been particularly fortunate
-l~
that the business, financial, labor and academic leaders
of this nation feel absolutely no hesitancy in speaking
bluntly to us on matters in which they are concerned.
Sometimes these blunt comments sting a bit, but they still
are enormously helpful.
It would seem to me that to approach this whole
subjecL
~ealistically,
it would be perfectly appropriate
for business leaders to ask representatives of State,
Defense,and the Joint Chiefs of Staff to discuss with them
some of the following issues:
(1)
Are there any reasonable alternatives to the
foreign exchange costs that we currently are incurring
for military bases in Japan?
(2)
If a decision is reached to maintain security
forces in various parts of the Far East, what can these
countries do to minimize the foreign exchange burden we
carry as a result of these deployments?
(3)
Do the transportation capabilities of the new
generation of military aircraft promise any hope of
reducing our European and Asian deployments?
(4)
What can European nations do to help offset the
exchange costs (in excess of $1 billion) of our deployments
- 11 -
on that continent?
(5)
What sorts of alternatives do we face when the
United Kingdom pulls out East of Suez and what is the
cost of these alternatives in terms of foreign exchange?
I see no reason why the economic and financial aspects
of these issues should be discussed only behind closed doors
and under the title of security.
The key figures are
available in public testimony for anyone who is interested,
and certainly the business community should be interested.
I therefore suggest that there is every reason for
corporate leadership to seek more open discussions with
military, defense and diplomatic leaders and with the Congress
on the inter-relationship between our security posture around
the world and our policies on international trade and investment
Diplomacy and warfare are demanding disciplines in which
an amateur is easily exposed.
On the other hand, inter-
national finance is an equally demanding discipline whose
spokesmen can and should speak to the diplomats and military
leaders with candor and with assurance.
I can assure them
that if they stay with the subject they know, they will
be listened to and respected.
In urging a more open
0
- 12 discussion of the economic issues that are inextricably
intertwined with our diplomatic and military policies, I
will repeat that such a discussion in my opinion, would
be good for business, good for the military and the
diplomats, and good for the country.
000
I
TREASURY DEPARTMENT
~,
.~l
WASHINGTON. D.C.
.,
.
Ii RELiASE 6: 30 P.J(.,
!!!!II Deeeaber 2, 1968.
RESULTS OF TREASURI'S WEEKLY BILL Ol'J'ERIIG
'1!1e !reasUl7 Depart.nt aDllOUDced that tile tenUre tor two aerie. ot ~e..U17
.lis, 0111 series to be an additional iSBue ot the bills dated Septe... r 5, 1968,
III the other series to be dated Decellber 5, 1968, which were ottered OIl .Oftllber
, 1968, were opeDf>.'tI. at the Federal Reserve BaDks today. '.atD4er. were iDV1ted tor
600,000,000, or thereabouts, ot 91-day bills aDd tor $1,100,000,000, or tbereIOO.ts, ot 182-day billa. 1'he details ot the two eeries are ae tollows:
a or ACCIP'5I)
1lPEi'I'fIVE lIDS:
91-day !reasur, bills
_turiy March 6. 1969
Approx. Equiv.
Price
Annual Rate
11gb
98.585
5.598J
Low
Average
98.567
98.576
5.669j
5.633j
182-4&1 ~e..U17 bills
.aturinS JUne 5. 1969
Apprax. Equiv •
Price
.Annual Bate
97.120 !I
5.697J
97.092
5.752~
5.73(1/,
97.103
11
11
yExcept1Dg 1 tender ot $S, 000
16j ot the uount ot 91-4&)' bills bid tor at the low price vas accepted
92j ot the &IIOUDt ot 182-day bills bid tor at the low price vas accepted
)TA!. '1DDERS APPLIED FOR .AID ACCEPrED BY FEDERAL RESERVE DISmICTS:
District
Boston
lev York
Philade lphia
Cleveland
Ricbaolld
Atlanta
Chicago
St. Louis
lI1DDeapol1s
fauas City
Dallas
SaD Prancisco
roTALs
~ InCludes
Applied For
Accefted
$ 31,517,000 $9,517,000
1,778,765,000 1,110,765,000
12,505,000
27,505,000
37,656,000
37,656,000
11,4.05,000
11,4.05,000
30,121,000
35,121,000
192,609,000
199,309,000
4:3,768,000
36,516,000
22,4.97,000
24:,4.97,000
29,093,000
27,093,000
17,798,000
27,798,000
134..z650l 000
81.z 682l 000
$2,381,084,000
$275, 738,000
AEl!lied For
$
5,825,000
1,433,481,000
17,4.71,000
4:2,070,000
5,04.5,000
23,64:5,000
125,856,000
25,672,000
18,284:,000
15,349,000
20,575,000
14:2.z772 l 000
$1,600,164,000 ~ $1,876,045,000
nonc~titive
Acce;2ted
•
5,825, 000
812,281,000
12,071,000
31,990,000
5,045,000
16,04.5,000
115,856,000
18,4.72,000
12,624.,000
13,349,000
10,575,000
4:6 z132 1.OOO
$1,100,265,000 ~
tenders accepted at the average price ot 98.576
I InCludes $14.1,556,000 nonccapetitive tenders accepted at the average price ot
97.103
~:: rates are on a be.nlt disc::>unt basis. 1he equivalent crupon issue 11e1ds are
.7J~ tor the 91-4&1 bills, and 5.98j tor the 182-4&y bills.
TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
(EXPECTED AT 8:00 P.M.,EST
MONDAY, DECEMBER 2,1968)
ADDRESS OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT
THE ANNUAL JOINT MEETING OF THE NATIONAL
AND
STATE BANK DIVISIONS OF THE AMERICAN BANKERS ASSOCIATION
MADISON HOTEL, WASHINGTON, D.C.
MONDAY, DECEMBER 2, 1968, 8:00 P.M., EST
I understand that somewhere in the White House a member
of the President's staff has put up a sign that reads:
"Work harder.
The end is near." If 30, the man who
conceived it has nicely grasped the realities of the situation o
The end is indeed near. But notwithstanding a common
impression that very little is happening in Washington these
days, a lot of people in the Johnson Administration find on
the contrary that there is not much choice about working hard. __
They are working hard on preparations to make the transition
to a new Administration as smooth and efficient as possible.
And there is plenty to do on other counts in the always
pressing ongoing business of winning the peace in Southeast
Asia, pursuing our national security in other key areas,
moving forward at home on the urgent problems of poverty and
the general welfare, and advancing the work of national and
international prosperity with progress.
Of especial interest to the economic and financial
community there are the responsibilities under law
to take such actions as submitting a budget for fiscal
year 1970and coming up with several presidential messages
to the new Congress, including President Johnson's last
State of the Union address and his final Economic Report.
F-l423
- 2 And finally there is the fact that the modern world simpl
will not mark time while Americans sort themselves out in
a shift of leadership. As an illustration, I need only
cite my own activities in recent weeks which, among other
things, found me spend in g 14 long - - and, as you may have read
entirely placid -- days in Europe.
Apart from the period at the end of my stay, I was
there, together with Secretaries Rusk and Clifford, to help
formulate the NATO alliance response to the new challenge
of the Soviet Union, symboliz ed by what has happened in
Czechoslovakia
The measures agreed to, after all, are going
to cost something.
o
The time was ripe for pressing a vital matter.
This was the need to "institutionalize," on a NATO-wide
basis, the assl~ptions and practices involved in European
offsetting of the U.S. balance of payments deficit
component incurred as a result of the substantial
continued presence of U.S. forces in W~stern Europe and
the Mediterranean.
The problem has been around a long time, of course,
but the approach to managing it has lacked a policy framework,
multilaterally developed and accepted, in which bilateral
negotiations could more realistically and effectively proceed.
Plainly, the time when NATO turned to toning up the muscle
that deters Soviet adventureswas also the time to do something
about making the Alliance viable in the financial as well as
the military and political sense.
In paragraph 8 of the communique of the North Atlantic
Council Ministerial meeting on November 15 and 16, the
following multilateral policy declaration is included:
"They (the Ministers) also acknowledged
that the solidarity of the Alliance can be
strengthened by the cooperation between members
to alleviate burdens arising from balance of
payments deficits resulting specifically from
military expenditures for the collective defense."
Thus, a national policy announced by president
Johnson
in his New Year's Day message on the balance of
payments becomes a NATO policy, adding,for the future, both
strength to the Alliance and to our ability to discharge
our commitments to it consistent with the maintenance of
a strong dol lac
- 3 -
While I was on the continent, I also seized the
opportunity to talk with various fellow Finance Ministers about
early ratification and activation of Special Drawing Rights in
the International Monetary Fund as well as the increasingly
nettlesome matter of non-tariff barriers to trade that 100m
large as the execution of the Kennedy Round reduces the more
familiar tariff schedules.
The immediate relevance of the former to future operation
of the international monetary system was underscored during my
visit by disquieting developments in the exchange market for
French francs and German marks.
It is important to ratify and activate promptly the
Special Drawing Rights amendment so as to be sure there are
adequate reserves for world trade and development, ease the
adjustment process between surplus and deficit countries, and
avoid a damaging scramble for reserves.
Early and adequate activation would lessen three
dangers to the monetary system:
1. There would be less pressure for restrictions
on trade and other international transactions,
resulting from severe competition among
countries to retain or build up reserves.
2. There would be less upward pressure on
world interest rates.
3. An adequate growth of world reserves would
lessen exchange pressures which arise from
time to time and place a heavy burden on
international credit faci1ities o
- 4 -
Moreover, this action will clear the decks for
preparing a new agenda of work on needed improvements in
the international monetary system other than the orderly
provision of increasing reserves to the world supply.
And non-tariff barriers to trade, of course, are one of
the big reasons for fearing that this country and its chief
trading partners may be on a collision course of mutually
damaging protectionism.
There was another aspect of the informal bilateral
exchanges with my counterparts in the nations of Western
Europe. It provided an opportunity for me to express my
appreciation to them for their participation in the many
acts of financial cooperation in which we had joined together
over recent years, perhaps on the most intensive scale in
history, and to bespeak their continued intimate cooperation
with my successoro
We were all conscious of the need to pursue,
diligently and persistently, ways and means of improving
international monetary arrangements on the evolutionary
basis which characterized recent years and was climaxed in
the development of the Special Drawing Rights amendment and
the two-tier gold price system. There were expressions of
concern about the instability in the foreign exchange markets
involving certain currencies and the determination to act
affirmatively to avert a crisis or deal with ito
- 5 But, as is sometimes the case in the world of finance,
events in the markets overtake quiet diplomacy and prompt
public and affirmative action by governments and central
banks becomes the order of the day.
This was the situation which developed in the latter
part of the week of the NATO meeting and with which we were
confronted on our long planned and fortuitously scheduled visit
to Bonn, in West Germany, beginning on the evening of
Monday, November 18.
At this time I will not expand on what I have already
said publicly -- on national television and to a news
conference in Washington a week ago today -- concerning the
recent meeting in Bonn of the so-called Group of Ten
nations and the developments that followed.
It is at such a time of rapid movement in what surely
is my last talk as Secretary of the Treasury under the
auspices of the American Bankers Association that I would
like to offer a report that might be labeled "Where
We Stand," describing some of the strengths of our economic
and financial underpinning and some of the spots that should
receive our attention if the structure is to remain solido
I believe this to be appropriate, without preempting
or anticipating the proposals of the outgoing or
incoming Presidents, because we may take it that the
new administration leadership is at one with the old
leadership and the leadership of this great organization
in understanding that uninterrupted prosperity does not
just happeno
Where, then, does the American economy stand on the
eve of this Administration's turning over to other hands
such instruments of control or influence as are at the
federal government's disposal?
The answer begins, I should think, with the most
impressive statistic of all. We stand at the opening of our
country 's ~th consecutive month of prosperity, a span of
nearly eight years of continuous good times o
- 6 -
We can get some idea of the accomplishment this
represents for the economy by remembering that the average
duration of previous good times was 30 months. This means
that the period of prosperity in which we find ourselves -and no economist that I know has predicted that its end is
imminent -- already has lasted more than three times longer
than the economic bookies of eight years ago would have
been likely to bet on.
Wherever one looks among economic indices he sees the
statistical detail that adds up to the conclusion that
continuing growth and prosperity are impressive. Here,
very briefly, are some of the signals that tell us this is so:
o
On an estimated third quarter showing the gross
national product was running at an annual rate
of $871 billion with the third quarter annual
rate of growth in constant prices a shade above
five percent •
• A gross national product rate of $871 billion
is some $370 billion higher than it was in
1960, a gain that is larger than the total
1967 GNP of the European Common Market and
roughly equal to that of the Soviet Union in
the same year. It is a familiar comparison,
I know, but I like it because it so graphically
illuminates the gargantuan scale of this
country's economic performance.
• Personal income is up to an annual rate of
$694 billion, rising some $16 billion in the
third quarter o After the impact of increased
taxes, the disposable portion of that resource
is still up at a respectable $6 4 billion
compared to a $12 billion average rise in the
second quarter. This translates to a $593
billion rate in what people have to spend or
save, up some $46 billion in the past year.
0
- 7 -
• The production index has risen, on the basis
of recent revision, in the last two months and
by October was nearly five percent above its
level a year earlier. The unemployment rate in
September and October was 3.6 percent, while the
economy continues to effectively absorb trained
young persons. Moreover, investment in plant
and equipment is on the rise after a brief second
quarter dip and is adding to our productive capacityo
• Finally, corporate profits have been running
beyond a record breaking $90 billion before
taxes and $50 billion after taxes.
Now there is one short word for the economy I
have been describing in the indices I have cited, and
that is dynamic. The prime mover in this dynamism,
it goes without saying, is the bustling productivity of
the American industrial and commercial apparatus and the
energy and talent of the men and women who make it goo
But at the same time I would not leave any doubt -and I know that bankers, above all, do not need to be
reminded of this -- that government policies have more
than a little to do with making the economic machine tick
along at proper speeds o Thus, I think I can safely assert
that eight years of sustained growth is proof enough that
the frequent periods of economic stagnation such as marked
earlier periods in our history can be avoided if the
right policies are followed in Washington. The test of
these policies over the last eight years was a stern one.
Essentially what was accomplished in the first five
years of the decade was an excercise in those adjustments
that tend to liberate rather than restrain an economy,
adjustments consisting, to a large extent, of selective
but nonetheless important reductions in taxes.
But as you all know there came a time when the strains
and pressures of growth called into serious question our
capacity to maintain a sound prosperity, together with
world respect for the dollar and its place as the key trading
and reserve currency. Not only was the economy bounding
along at a rate faster than was safe, but the cost of
maintaining military operations in Vietnam while meeting
commitments elsewhere was going up, with consequent effects
on government spending and inflation.
- 8 Concurrently, the U.S. balance of payments deficit
was getting worse and the devaluation of another reserve
currency, the British pound sterling, severely shook
the gold market and the exchange arrangements which are
at the heart of the international monetary system.
It was time, in short, to bite the bullet of economic
restraint, which meant raising taxes, and to move in
force and on a broad front against the payments deficit.
The response to these challenges in an election year
is now history and very significant historyo
The remedial measures proposed by president Johnson,
in his Tax Message in August 1967, and in his New Year's
Day Balance of Payments Message, have been largely adopted
and are being executed, to the extent authorized by law.
They are proving successful. Intolerable deficits
in our internal budget and international payments are
being eliminated. We are approaching balance in our
federal budget and equilibrium in our international payments
in the fiscal year 1969 that began last July 1.
The outlook today is a far cry from a year ago when
the nation was confronted with a budget deficit for
fiscal 1968 of $25 billion and a balance of payments
deficit for calendar 1967 of about $3.5 billion.
This change was strikingly reflected in attitudes
toward the dollar at the annual meeting here of the
International Monetary Fund in late September and the
emergency meeting of the Group of Ten in Bonn, Germany,
ten days ago. At no time was the strength of the dollar,
the cornerstone of the international monetary system brought
into question.
This feeling was responsive to a substantial correction
of our fiscal position, an accompanying policy of monetary
restraint, the substantial improvement in our balance of
payments, and a general belief that our excessive economic
expansion is coming gradually under control without being
snuffed out.
- 9 -
The Revenue and Expenditure Control Act, enacted
belatedly last June, is being faithfully executed. It has locked
federal finances into an appropriate posture through next
June 30, 1969. Coupled with the appropriate monetary policy
n~ being pursued by the Federal Reserve Board, the shift
from fiscal stimulus to moderate restraint is not only
appropriate but necessary.
Maintaining the proper mix of fiscal and monetary
policies after next June 30 is the fundamental element in
the task of meeting the most serious problem confronting
the economy -- carrying through the process of disinflation
now underway and restoring price stability without
excessive unemployment or slow and inadequate growth too
long endured.
An encouraging turn in the direction of price stability
in the third quarter was followed by discouraging figures
in October. They all add up to a turn and improvement,
limited in time and quantity, leaving a price and unit labor
cost performance far from satisfactory.
But if the nation persists in a policy of prudent
restraint in governmental fiscal and monetary policies
coupled with the same voluntary attitude on the part of
private persons and organizations making wage and price
decisions, the desired result is surely obtainableo
On the balance of payments front, it was a pleasure
to announce, the week before last, that for the first time
in three~years there was a quarterly surplus on both the
liquidity and official settlements bases of measure
0
- 10 This achievement reflects the distinct trend toward payments
equilibrium that began when the President announced his
Action Program last New Year's Day. The deficit of $1.7
billion on the liquidity measure that was registered in the
last quarter of 1967 was reduced to $680 million in the
first quarter of 1968, to $160 million in the second quarter,
with a $35 million surplus registered in the third quarter.
This progress, though welcome, is also spotty and Some
of it may be transitory. It is spotty because two big
elements in our payments account -- trade and tourism
are far from satisfactory -- and a third, a reduction in
net deficit in government military expenditures in
Southeast Asia, is difficult to effect under present
circumstances.
There is reasonable prospect of continuing improvement
next year. This assumes, as I hope will be the case, that
there is no dismantling of President Johnson's Action
Program and that the initiatives launched in that Program
to improve our trade surplus and reduce the net deficits
in military expenditures abroad and private travel are
vigorously pursued o
The Secretary of Commerce recently announced the
Foreign Direct Investment Program for 1969, with s~me.
.
adjustment of the previous regulations to help avo~d ~ne~u7ties.
In a short time from now, we expect to announce the rema~n~ng
features of the Action Program for 1969.
The underlying strength of the dollar is supported
by factors emerging during the last year other than these
fundamental balance of payments measures.
Let me cite a few:
First of all, it appears that the long term decline
in the level of our monetary reserves is bottoming out;
a trend marked by substantial increase in our gold holdings
since last March. Further, all but $200 million of our gold
tranche of $1.3 billion ($1,290 million) in automatic
financing credit in the International Monetary Fund is again
free.
- 11 On top of this, some $10.2 billion is available to the
United States in consequence of broadening of the "swap"
network arrangements of the Federal Reserve Bank of New Yorko
Our calls on the network of last fall and winter, caused by
short term flows into central banks, are practically clear.
And of course our use of reserves is no longer restrained
by the gold cover limitation o
In our relations with what may be called our chief
monetary allies we have supported and engaged in endeavors
that quickly, quietly, informally and effectively put the
resources of all behind those who found themselves in
temporary difficulties
It happened once in the case of
the United Kingdom and it has happened twice in the case
of France.
0
Surely a highlight in cooperation came last March 17
when we -- meaning the United States and the participating
countries in the Gold Pool -- were able to conceive and
place in operation the so-called two-tier gold system. Not
only has the arrangement since drawn general support in
both word and deed but it has worked by abruptly stemming the
diminution of monetary gold reserves while insulating the
monetary system from the private gold market and those
who speculate in it.
The last year was also marked, of course, by the
actions in Rio de Janeiro and Stockholm setting in train,
after years of painstaking preparation, the provision of
a new international monetary reserve called Special Drawing
Rights
The ratification of the amendment to the Articles
of Agreement of the International Monetary Fund establishing
this facility is proceeding satisfactorily, and when, in 1969,
as I confidently predict, this process has been completed
and drawing levels determined, the world will have taken the
most fundamental progressive step in monetary affairs si nce
Bretton Woods. As matters stand, ratification has been
accomplished by 23 of the needed 67 countries, which
translates into 44~ percent of the weighted vote of 80 percent
ultimately required o
0
- 12 This brings me to the very important matter of where we
stand in relation to the international monetary system and
indeed to that system itself, since you are all aware that
I participated in the Group of Ten meeting at Bonn when
the latest crisis again put the system to another test.
To me, the important thing about the Bonn meeting, and
about the actions taken by governments principally involved
in the latest monetary emergency, is the further gain made
for the principle of cooperative multilateral action in
financial affairs affecting major countries and major
currencies
It was for this reason that I urged that the
meeting be convened o The acceptance of that principle in
the international monetary field means that any major
destabilizing influences should be considered and
assessed not by one nation alone, or by two nations, but
by all of the nations that have a major stake in the
functioning of the system.
0
Maybe the assessment and action agreed will involve
compromise or not go as far as some would wish o That is often
the nature of dealing between sovereign nations. But the
important fact is that the approach to the problem at Bonn
was multilateral and every effort was made to concert
rational policies, and reach common decisions with
financial partners.
What happened in Bonn represented another step away from
the narrow, nationalistic and short range view of
international finance and toward true world cooperation in
the interest of eve~y nation. As such it was a logical
development in the history of fruitful multilateral teamwork
which our nation has helped write in recent years o
'These recent events, highlighting some of the difficulties
of the working of the so-called "adjustment process" between
strong currencies and weak currencies and countries with
balance of payments surpluses and those with deficits, have
renewed attention to the desirability of pursuing further
evolutionary changes in the international monetary systemo
I made the need for this pursuit the subject of my
valedictory comment at the recent Annual meeting of the
International Monetary Fund and the World Bank on
October 1.
- 13 -
These comments seem worth reviewing in the new perspective
of the events of November 15-22. In recent days the
question has been posed: "Do you favor convening a new
international monetary conference to examine the workings of
the system?" Moreover, since the Bonn meeting there has been
a good deal of press commentary on the need for reform of the
international monetary system and the crash calling of- a crash
conference to that end.
In my concluding comments at the annual meeting of the
International Monetary Fund I noted the approval of a
new facility for Special Drawing Rights as a major forward
step in evolutionary 'process of improving the international
monetary system, resulting from the thorough study and
painstaking discussions of the problem in international
bodies, in legislative committees, in academic circles and
in the financial press. I expressed the hope that
"Further evolutionary changes in the
international monetary system would emerge
in the same way. The only appropriate way
to seek improvement in the system is through
the same procedure and careful study,
widespread official and public discussions,
and carefully considered action."
As a departing elder, I took the liberty of adjuring
my colleagues on the need to consider change at all times and
with an open mind, saying "Monetary officials must keep
abreast of new ideas and proposals and be willing to examine
them in full and free discussion."
These were not empty words. The Treasu~y Department,
in collaboration with representatives of the Federal
Reserve System, the Department of State, the Council of
Economic Advisers and the White House staff, had for some
time been studying some of the concrete proposals being
advanced. In so doing it had benefitted from the advice
and experience of members of the Advisory Committee on
International Monetary Arrangements.
- 14 Citing the sources of some specific new proposals, I
then joined with approval Managing Director Schweitzer of the
Fund in his opening remarks that "The world does not stand
still and the effort to improve the monetary system which
serves it is an unremitting task" -- that the Fund would
"actively explore what contribution it might make to the
future <itrengthen:i ~l(,' of the world monetary system";
that I'continuing attention will have to be made to the
workings of the adj'1stment process, the long term structure
of reserves, and the role of reserve curcenoies within that
structure."
Noting an intention to leave my responsibilities as
Secretary of the Treasury and U.S. Governor of the Fund
within a few months, I stated that, "It would not be appropriate
for me to launch specific initiatives with which my successor
would have to deal without his having participated in the
'aunching" saying further: "For this reason I do not advance
dny specific proposal; I take no stand in favor of or
against any particular proposal. But, may I suggest that
the appropriate institutional mechanisms be mobilized early
next year to work on further improvement in the international
monetary system in the context of the completion of the
ratification of the amendment for Special Drawing Rights."
My concluding comment on the subject was:
"I repeat my central point: We started with
the strong foundation built at Bretton Woods. We
built an impressive network of international
cooperation on that foundation. We built a major
addition to that foundation in the Special
Drawing Rights Amendment. We must be prepared
in the future, as we have in the past, to approach
together and to work out together additional ways
to strengthen the international monetary system.
To do less is to fail in our responsibilities to
maintain and advance our public trust."
In maintaining the momentum for improving the international
system by assuring adequate liquidity which has
pro ~ed the Special Drawing Rights Amendment and the two-tier
golu agreement, it may be well to repeat once again what was
sai~ at the launching of that effort in July 1965:
mon~rary
- 15 "I am privileged to tell you this evening that
the president has authorized me to announce that the
United States now stands prepared to attend and
participate in an international monetary conference
that would consider what steps we might jointly take
to secure substaneial improvements in international
monetary arrangements. Needless to say, if such a
conference is to lead to a fruitful and creative
resoluuion of some of the free world's monetary problems,
it must be preceded by careful preparation and
international consultation.
"To meet and not succeed would be worse than not
meeting at all. Before any conference takes place,
there should be a reasonable certainty of measurable
progress through prior agreement on basic points."
It was against this background th~t last week I commented
on calls for a new international monetary conference to examine
the system as follows:
"I believe, with the completion of the work
on Special Drawing Rights, there will be a good
deal of study and comment by experts both outside
government circles and inside government circles
on what are the next steps and measures for
improvement. I don't believe this should be
approached with a great big international monetary
conference called, and I would want my successor
in the office of Secretary of the Treasury to be
in at the take-off rather than at the landing,
and I would think that his judgment as to the
nature of the negotiations, the pace of the
negotiations, and the subject matter of the
negotiations is the important thing. And, as I
said at the meeting of the International Monetary
Fund in September, I believe that we are by no
means satisfied with the workings of the existing
system and that we must constantly concert our
brains and our experience and our efforts to a
steady evolutionary development."
- 16 Which brings me to the end of what I have to say tonight,
with a single exception that is partly personal and partly
official. Taking the official aspect first, I want, as
Secretary of the Treasury, to again thank the members of
the American Bankers Association for the way in which you have
stood at our side in the common cause of keeping the American
economy healthy and vigorous, maintaining a strong dollar, and
discharging our national and international responsibilities to
achieve equilibrium in our balance of payments. To take
an example, without the ABA, in common with parellel support
elsewhere in the business and financial community, the
essential passage of the surtax legislation on which so much
hinges might well have been impossible.
On the personal side I will simply say that my association
with the ABA has been completely rewarding in the sense of sheer
satisfaction that comes from working effectively and
progressively with the fine people for gOJd ends.
000
TREASURY DEPARTMENT
,
2.59
WASHINGTON. D.C.
December 3, 1968
FOR IMMEDIATE RELEASE
UNITED STATES FOREIGN GOLD TRANSACTIONS
FIRST THREE QUARTERS, 1968
The Treasury announced today that the United States
made net purchases of monetary gold from foreign countries of
approximately $73 million during the third quarter of 1968.
As shown in Table 1, attached, the major purchases by the
United States were from France ($240 million). The largest
sale by the United States was to Algeria ($49.9 million).
Following the large loss of $1,362 million in the first
quarter, there has been a small net gain of gold of about
$50 million in the succeeding six months.
Table 2, attached, shows quarterly sales of gold by the
United States to other countries during the first three
quarters of 1968 to enable them to pay the gold portion of
their quota increases in the International Monetary Fund.
Deposits of like amounts of gold were made by the IMF with
the United States to mitigate effects upon the U.So gold stock
of quota increases.
negligible.
F-1424
Transactions in the third quarter were
TABLE 2
UNITED STATES MOOETARY GOLD TRANSACTIOOS
WITH FOREIGN COUNTRIES
MITIGATED THROUGH SPECIAL DEPOSITS BY THE IMF
(Millions of U.S.$)
January 1 - September 30, 1968
Area and Country
Lat1" Ame1:1gl
Chile
Daninican Republic
Total
First
Quarter
Second
Quarter
Third
Quarter
-603
-0.4
Total
-6.3
-0.4
--6.6
-6.6
AiiI
Burma
Jordan
Malaysia
Total
Africa
Algeria
Cameroon
Central African Rep.
Chad
Congo (Brazzaville)
Dahomey
Gabon
Ivory Coast
Mauritania
Worocco
Niger
Rwanda
Upper Volta
-2 0
-0.4
-2.0
-0.6
-103
-3.8
0
-0.2
-1.3
-1.4
-
-
-204
-0 08
-0.2
-0 01
-0.1
-0.1
-0.1
-0.1
-0.2
-0.1
-0.9
-0.1
-0.6
-0.1
-0.8
-0 0 2
-0.1
-0.1
-0.1
-0.1
-0.1
-002
-0.1
-0.9
-0.1
-0.6
-0.1
Total
-0 02
-303
-0.1
-3.6
Total
-8.2
-507
-0.1
-14.0
+8.2
-11.3 ,,(
+0 01
-3.0
D4F Deposit
*
Reflects IMF deposit of $5.7 million and withdrawal of
$17 0 million
0
2 ~?
I.; L.
TREASURY DEPARTMENT
Washington, D. C.
MEMORANDUM FOR THE PRESS
December 3, 1968
Secretary Henry H. Fowler, responding to press queries
concerning his future plans, today stated that he intends to
Join the investment banking firm of Goldman, Sachs & Co., New
York City, on January 1, as a general partner.
The Secretary's resignation was accepted by the President
on November 8, to take effect on December 20.
Copies of the Secretary's biographical resume accompany
this memorandum.
Copies of his letter of resignation and the
President's reply, which were distributed to the press on November
8, are available at the Treasury Public Affairs Office, Room 3423,
Main Treasury Building, Phone WOrth 4-2041.
~.~
• Kane
he Secretary
c Affairs)
HENRY H. FOWLER
SECRETARY OF THE TREASURY
AND PlACE OF BIRTH:
Roanoke, Virg in ia, September 5, 1908.
Jefferson High School, Roanoke, Virginia.
Roanoke College, 1925-29, A.B.
Yale University Law School, 1929-33, LL.B. (1932)
J.S.D. (1933)
1933-41 Attorney in private law practice in Wash.,D.C.,
EER:
with Covington & Burling and with various
government agencies.
1941-44 Assistant General Counsel, Office of Production
Management and War Production Board.
1944
Economic Advisor, U.S. Mission for Economic
Affairs, London.
1945
Special Assistant to Administrator, Foreign
Economic Administration.
1946-51 Private law practice as senior member of Fowler,
Leva, Hawes and Symington, Washington, D.C.
1951
Deputy Administrator, National Production
Adminis tra t ion.
1952
Administrator, National Production Authority.
1952-53 Administrator, Defense Production Administration.
1952-53 Director, Office of Defense Mobilization, and
Member of National Security Council.
1953-Feb.Resumed private law practice as senior member of
1961
Fowler, Leva,Hawes and Symington, Wash. ,D. C.
Fe b . 3, 1961Apr.10,1964
Under Secretary of the Treasury.
Apr.
1964
Returned to private law practice as senior member
of Fowler, Leva, Hawes and Symington,Wash.,D.C.
Mar.18,1965
Nominated by President Johnson to be Secretary
of the Treasury.
Mar.25,1965
Confirmed unanimously by the Senate.
Apr. 1,1965
Took the oath at the White House as Secretary of
the Treasury.
HER ASSOCIATIONS:
Member of Commission on Money and Credit, 1958 to
1961; National Committee on Government Finance of
the Brookings Institution, 1960-61. Trustee of
Roanoke College, the Funds of the Protestant
Episcopal Church in the Diocese of Virginia.
NORARY DEGREES:
Roanoke College, Salem, Virginia, Wesleyan
University, Middletown, Connecticut, and the
College of William & Mary, Williamsburg, Virginia.
,RRIED:
Trudye Pamela Hathcote,'October 19, 1938, of
Knoxville, Tennessee.
Children: Mrs. Roy Campbell Smith IV,Upper Montclair,
New Jersey; Mrs. James Francis Gallagher,
New York City. Three grandchildren.
;SIDENCE:
209 South Fairfax Street, Alexandria, Virginia.
:ATION:
APRIL, 19b7
BIOGRAPHICAL SKETCH OF
SECRETARY OF THE TREASURY HENRY H. FOWLER
Henry H. Fowler took the oath of office as Secretary of the
easury at a ceremony held at the White House on April 1, 1965.
Mr. Fowler, who has spent half of his career in Government service,
'eviously served as Under Secretary of the Treasury from February 3 ~
161, until April 10, 1964, when he returned to private law practice
; senior member of the Washington firm of Fowler, Leva, Hawes and
,mington. As Under Secretary, Mr. Fowler served as a general deputy
J Secretary Dillon, playing a crucial role in the,shaping and in the
~etment of the Revenue Acts of 1962 and 1964, the liberalization of
epreciation procedures. and the cool:'dination of related programs
~signed to promote the economic expansion of 1961 to date.
On October 3, 1963, Mr. Fowler was appointed head of a
residential Task Force to seek ways of meeting our balance of payments
roblem by encouraging greater foreign investment in Ameri.:an
eeurities as well as greater foreign financing for American
orporations operating abroad. On April 27, 1964, the Fowler Task
oree reported its recommendations to President Johnson. The President
as submitted to Congress legislative proposals issuing from that
eport, and a large measure of the current voluntary program to mee t
he balance of payments prob lem is based on its recommenda tions .
A graduate of Yale Law School and a lawyer by profession,
Ir. Fowler ·first entered Government in 1934, when he joined the legal
itaff of the Tennessee Valley Authority, where he assisted in the
lreparation and successful conduct of the four year litigation
!stablishing the constitutionality of that program. By 1939, he had
:isen to Assistant General Counsel of the TVA and subsequently served
IS Chief Counsel of a Subcommittee of the Senate Committee on EducaU.on
Ind Labor. Prior to and during World War II mobilization, from 1941 to
1944, he was an Assistant General Counsel of the Office of Production
1anagement and a fterward of the War Produc t ion Board. therea fter
nrforming missions in Great Britain and Germany in 1944 and 1945.
~fter spending the next five years in private law practice, he
returned to Government service from 1951 to 1953 -- to work in the
.nobilization build-up following the outbreak of hostilities in Korea.
He held successive posts as Administratpr of the National
Production Authority, Administrator of the Defense Production
Administration, Director of the Office of Defense Mobilization and
member of the National Securi ty Counc il. Mr. Fowler then resumed
private practice until his appointment as Under Secretary of the
Treasury in 1961.
(OVER)
- 2 Mr. Fowler served as a member of the Co~~ission on Money and
Credit from 1958 to 1961, and of the National Committee on Govern~n
Finance of the Brookings Institution from 1960 to 1961. HE is a
Trustee of Roanoke College and of the Funds of the Protestant
Episcopal Church in the Diocese of Virginia.
Mr. Fowler has received distinguished alumni awards from
Tau Kappa Alpha and from Roanoke College, as well as the highest
Treasury Department honor -- the Alexander Hamilton Award.
Mr. Fowler was born in Roanoke, Virginia, September 5, 1908,
the son of Mac': Johnson and Bertha Browning Fowler. He graduated
from Jefferson Hig~ School, Roanoke, Virginia in 1925 and from
Roanoke College in 1929. He received his bachelor of Laws degree
from Yale University Law School in 1932, and his doctorate of lurid1
Science in 1933. He holds honorary degrees from Roanoke College
Salem, Virginia, Wesleyan University, Middletown, Connecticut, and
the College of William & Mary, Williamsburg, Virginia.
Mr. Fowler is married to the former Trudye Pamela Hathcote of
Knoxville, Tennessee. They have two daughters, Mrs. Roy Campbell
Smith IV of Upper Montclair, New Jersey; and Mrs. James Francis
Gallagher, New York City, and three grandchildren.
Their home is in Alexandria, Virginia.
APRIL,1967
TREASURY DEPARTMENT
;
=
'!"?
WASHINGTON. D.C.
December 4,1968
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
$2,700,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing December 12,1968,
in the amount of
$ 2,701,428,000,
as follows:
91-day bills (to maturity date) to be issued December 12, 1968,
in the amount of $1,600,000,000,
or thereabouts, representing an
additional amount of bills dated September 12, 1968,
and to
mature March 13, 1969,
originally issued in the amount of
$1,100,203,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,100,000,000,
dated December 12, 1968,
and to mature
or thereabouts, to be
June 12, 1969.
The bills of both series will be issued on a discount basis under
competitive and noncompetive 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, December 9, 1968.
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 de~imals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
fo~arded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application the refor.
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
S~bmit tenders except for their own account.
Tenders will be received
without deposit from incorporated banks and trust companies and from
F-1425
- 2 -
responsible and recognized dectler~
from others must be accompanied :")y
amount of Treasury bills applied f 0
accompanied by an express gU8Ld.!lty
or trust company.
in investment securities. Tenders
payment of 2 r:'':> '-rent of the face
r, unless thp tenders are
of p8 ylTlent by an incorporated bank
Immediatelv after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches} Eollowing which public announce.
ment will be made by the Treasw:-y Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rej ec tioi' t:l':' reaf. 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 act~on 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 fu11 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 December 12, 1968, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing December 12, 1968. 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
thp principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 0bO~ranch.
TREASURY DEPARTMENT
,
"'6~
v
t:..
WASHINGTON. D.C.
December 4, 1968
FOR IMMEDIATE RELEASE
TREASURY SECRETARY FOWLER HONORS EIGHT IN
RECOGNITION OF LEADERSHIP, SERVICE
Secretary of the Treasury Henry H. Fowler today presented
the Department's highest awards to eight men in recognition of
their services to Treasury and the nation.
Mr. Fowler presented the Alexander Hamilton Award for
outstanding leadership in the work of the Department to
Frederick L. Deming, Under Secretary of the Treasury for
Monetary Affairs, and George H. Willis, Deputy to the Assistant
Secretary for International Monetary Affai ~s.
The Exceptional Service Award for distinguished performance
of duty was conferred upon John R. Petty, Assistant Secretary
of the Treasury for International Affairs; William B. Dale,
U.S. Executive Director of the International Monetary Fund and
Special Assistant to' the Secretary of the Treasury; and
Livingston T. Merchant, U.S. Executive Director of the
International Bank for Reconstruction and Development and its
affiliates and Special Assistant to the Secretary.
Mr. Fowler presented the Distinguished Service Award, the
highest recognition Treasury can give to non-Treasury employees,
to Edward R. Fried, Special Assistant to the President on
foreign economic and financial policy; William McChesney Martin, Jr.,
Chairman of the Board of Governors of the Federal Reserve System;
and Robert M. McKinney, who has been a leader in government efforts
to increase foreign investments and foreign travel expenditures
in the United States.
Mr. Deming, former president of the Federal Reserve Bank
of Minneapolis, was cited for "a brilliant and outstandingly
successful record in meeting extraordinary challenges in the
areas of international and domestic finance during the past
several years and in serving as a principal architect of major
reforms in the international monetary system."
F-1426
- 2 -
"S-(
f'..
Mr. Willis, a senior Treasury career officer, was commended
for his work in the successful negotiation of the Special Drawing
Rights facility in the International Monetary Fund.
Mr. Petty, a former vice president of the Chase Manhattan
Bank, was cited for his major contribution to the nation's
1968 balance of payments program and his role in international
financial and trade negotiations.
Mr. Dale, former Deputy Assistant Secretary for
International Affairs in the Department of Commerce,was honored
for his "exceptional contl-ibutions to the international monetary
programs and policies of the United States."
Mr. Merchant, former Ambassador to Canada and Under
Secretary of State for Political Affairs, was cited for
outstanding service in advancing Treasury and United States
policies in the field of international development finance.
Mr. Fried, former Deputy Assistant Secretary of State for
International Resources, was honored for his "key role" in
shaping the Special Drawing Rights facility and for other
service which '~as done much to preserve the economic leadership
of the United States."
Mr. Martin was recognized for "his very great contributions
to the preservation and strengthening of the international
monetary system
and his effective work in maintaining the
strength of the dollar, both at home and abroad."
Mr. McKinney, a Santa Fe, New Mexico, newspaper publisher
and former Ambassador to Switzerland, was honored for his
servicp as Executive Officer of the Presidential Task Force on
International Investments, Chairman of the Industry/Government
Special Task Force on Travel, and Chairman of the Presidential
Commission on Travel. The award cited his substantial
contributions to the government's success in increasing foreign
investment in U.S. securities and foreign travel in the United
States.
Copies of the citations accompanying the awards are attached.
000
Attachments
CITATION
Ae.e.x.andvc. HamU.ton hsJaJtd
FJte.dVLi.c.k. L. Veming
M UndVt Se.CJte;to..JtIj o~ :the. TJte..ct&Wtlj nOll HonetM.y A6&aiA6, FJte.dWcJ~ L. Vem.i.ng
hM uwbLU,he..d a b~an-t and ot.Lt6.:tancUngly .6ue.e.eA.6 nul Jte.coJtd ht mee;U.ng ex.:tJw..oJt(UnaJttj e.hctU.e..ngu in the MeM on -in-teJtna.U.onai. and domuilc. o.{.itane.e d.u.I'.J..ng the
pM t .6 e veJta..f.. yeCJ..!1..6 an d in .6 Vl.v-ing a..6 a pltinupa..f.. aJLc.Wec.t 0 0 maj Oil. Ite.. -6 OJt1M ht :th e
in-tv.JtC'..tiona..f.. moneA.aAy .6ljl.dem. At home, the e.ool jadgmen-t, bJtoad v-i.6-ion, and gJteA.t
J:#'ta.c.tic.ai. .6 fU..U. he ha..6 b'to ug h.t to tit e :ta.6 fu 0 -6 manag.Lng tit e pub.uc. debt a.n.d to th e
deve1.opmc.at 06 bltoadVt ee.onomi.e. and oinanc.ia..f.. poUUe...6 have been htva-e..u.a.ble to the
.6 oWld e.vo.e..u.t.ion 06 the Nmon'.6 ee.onomy. In:tbmationa1.ly, he hM made a de.wive.
e.o n.ttU.b uXio n. to th e .6 tJteng :tite.tUng 0 6 tit e e.W.tA...hg 6inan Ua1. .61j.6:tern, :th e .unpILo verne. nt
06 the ba1.ane.e.-06-payme.nt.6 adjU.6.tme.nt pMe.U.6, the c.tr..e(1,.Uon 00 the :b.iJO UVl. gold
.6lj.6 .tern, <1Yi. d - - 1110.6 t .un po tr..ta.n.t.e.y - - to :the. ev otuU.o n . 0 -6 new cvur..a.n.g em e.n..t6 nOll. gJtowth
in inte.tula.Uolla1 Jtu Vl.vU XJlat, -<-VI. the WOltcU 06 Pltuident JohMon, "ma..tl.k the glteate..6.t
60 fU.VAAd .6 te p '<.n WOl!1.d -6.uw.nc..<.a.t e.o 0pvz.a.Uo n ..i.n :th e twenty yeCJ..!1..6 .6 ine.e .the. c.tr..e..a:Uo n
o 6 tit e I at eJtna.tio 11M Mo ne.:taJr.y Fand. " In a..U. :thu e .tCt6 fu, he ha..6 .6 hOWn ex.:tJw..oJtd-<-naJty
!J VL6 e v Vl.ane.e, un ncu:..u.ng goo d hwnoJt, /temaJtk.able. neg o.t,i.a.Ung .61U£.e. altd :that JtaJte
c.ombination 06 Cll.eative imag-inaUon, a .6 e.me 06 balane.e. and pe.tt.6pe.c.tive., and an
ab.(L{;t tj ;to .tJuuu w..te. v-i.6 io it into .6 oud ac.hle. v e.me.n.t. 1n Jtee.o 9tUUo 11 0 0 :til u e.
a.c. e.ompw hme.nt.6 06 an ot.Lt6.ta.ncii..ng pubue. .6 eltvant, :th e lUg hut .ttee.og tUUon w.i.;t.hht :the.
POWVl. 0 6 .the S e.c.tr..e.:taJr.y 0 -6 :th e. T1te.a..6 Wty - - :th e Ae.exandVl. Ha.mi.Uo n lw.Jattd - - -<..0 hVl.e.b lj
c.o n 6Vt/ted.
r\ )
en
Co
~ITATI0N
Ae.exande1L HamLUon AwaJuJ.
GeoJtg e H. WLU.iA
GeoJz.ge Ii. (;J-U.U6 htU had a .tong an,-{ dU,wtgL!whed cCJtee1L 06 .6CAv-i.c.e
.in the lAea.6u!ty. It ha.6 been CJtowned dwu.Yl.g ;t!uJ., PM:t yeaJt C!J~t the .6UCCU.6nu1..
negotiation 06 .the Spec.-<.a£ V!taLv-<-ng TUg!ltJ., 6ac..i.Li..tlj -<-H :the I n..teJtl1a.Uonct{. f.lonetMy
Fund. In -the £a..boJUoU6 e6&0Jt.t ofl tIle PJtececUn9 aOUlt ljea.'L6, t~ undvv5.:ta.YLcU.ng
06 the mone:taJty .6lj.6tem, h.w MUll. -<-11 oJUg-<-fl.ai. ManUiilantJup .iJt unc!uv..;t-ed Me.a.6
and It-U !ugh degJtee 06 peJL.6eVe1LWtce. have. been ,{,;lva1.u.a.b.e.e..
an
111 -the.6e v.ita.e. negotia.tion..6
bect.i.ng the economy 0 & .the FlLee WoJt£.d, he
fleA wo"J~e.d cUJtecily wUh -tile Se.CJte:taJz.y aJtd the UndeJt Se.ClLe:ta.Jty nOli. t.:Ol1etMY
AS &a.<..M wtd eaJU1ed .theht de.ep !teAped. He. /UU5 a£..60 e.Mned the. adrr0ta;Uolt 06
:the -Zeadvv5 06 the pJUHUpa£. fi,i.nwlce. nu.n.wVUeA a;:d cenVr.ai.. bal1!z.,5. H.w pd-i.e.nce,
.<..n..te.gJt.<..ty w'Ld .6-<-l1gu£a..Jt competence have been a mode.£. 06 the but -U1 pubUc
"su.v.{.ce. T{:e e.x.a.mp.e.e he hM p.~ot'i.ded will be6-<-L5 ft.<...6 !to.te. tU the ,5el1.io!t caJteeJt
06M..cc.Jt in :the. in..tVUla.:Uona£. a66a.iJr.6 06 the TILeMUlty and.the M.exande1L HamiUon
ALIJMd ~ [)JtarI..te.d .in li.ecogruuon 06 ~ u.nique. co;"..tUbutiOJtll a..6 Vepu.ty :to the
M.6.ill:tan:t SeCJte:taJr..y 60IL In:teJtna.tiona£. Mone.tM.y A6
nc:UM.
"-l
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CD
CITATION
ExcepUona1. SeJLv.i.ce 1vIJaJul.
John
R. Pd;ty
In ,the pa&t two yeaJt4, John R. Pd;ty ~ b!wugtz;t cLi.6wtcti..on
to the. TIl.eMWty wUh ,uv..igh. :t6, er:.eJL[JY and lea.deMfUp .6ef.dom ;)ound among
young men new to govvmmeltt .6eJtvice. He M.6umed the dt.Lti..u 06 M.6i.6t.a.n:t
SeClletalltj nOlL InteJLna..Uonai. A0"60.JJt..6 .in the mO.6t Ult.6e.tU.ed pruod the
.i.n..tvma..Uona1. monuaIlY .6lj.6tem hM 6aced il1 the P0.6t-Wall eJta.. WUh
uncanny wi.6dom and cLi.6patch, he contJUbuted ..i.r:. a. majolL way to the 1968
ba1.ance 06 paymelti..6 pltoglLam nOlLged .in an atlllo.6pheJ1..e 06 CIli.6i.6. (;J{ute
caNtying .:the bWtden 06 11-U TlLea.6Wtf} dutiu, he gave peJ'...6onai. leadeMhip
to the Foltu[J11 ViJtec.t Invutment PlLoglLaJn .in ill eaJtly datj.6, helping to
pioneeJt lLegu. ia..tioM a.nd poUc.iu
6ecti..llg the eJtWte intetr.na.tioaM.
a..c:t.<..v.<.:tiu 06 u.
bU.6.inu.6 6..u-11n.6. Since thea he hM been d.<.tr.ec..:te.y
lr..e.6polv..ible nolr.. impo/Lta.nt 6ina.nua..t negoUa..UoM with I~ey Eu/wpe.o..n,
Japanu e rotd Canadian 66i~ • FittaUy he 11M wtdVt..:talz.ea the c.Jtuc...<.a..e..
ta.6b.. 06 caNtyin[J oorJlJaIld ,u1 th.e Oltga.l1iza..Uon 06 the GeneAa..t Aglr..eVnent
on Ta.tr..<.66.6 and Ttr.ade a contentioU.6 and involved tr.eview 00 botr.deJL taxu.
ThlLoughout IUA .6 etr.vice, Wt. Petty eaJl.ned the a..dnww.u.on and
6ect1..on
06 ~en.i..otr. 066i~ and 06 a1.l 06 hiA .6ta66 ••
ao
s.
°
ao
I\)
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CITATION
Exc.ep-tionai. SeJLv.i.c.e /JuJaJtd
w.uu.am
B. Vale
At, Uni.-t",d S.ta;te6 Exec.u:Uve V-iAecto,'t 06 the In.tCJnw.:t<,ol1al f.{one:f:Mlj Fwtd and
Special.. A6~i...6:tan:t :to :tlze SeC'Ae:ta./'''1J u fJ :the TlLeM Wl.lj, (~.1.i.tU.a.m B. Vale 11M
made exc.eptiona.i con:tJLi.bu.Uon6 :to :the iMeJtna.U.OI1a.i mone:taJty plLogMJn& and paUUu
06 :the Uni:ted S:ta.tu. He 1ut6 ably lLeplLueY'.:ted :the SeClC.et.My 06 :the TJtecu,Wl.1j and
:the UrzLted S:ta.:tu '<"1 the In.teJu1a.tionai. A!ondaJtlj Fund oVeJt a pvUod .01 which :the
,in:teJu1a..ti.ona£. mone:taJty .6 y~tem lLequ-i.lC.ed .6:tJc.eng:thened .i..nteJl.ita.tiona.i coopeJ'~on,
new coacepa and .i.mag.i.na..ti.ve applLoa.c.hu :to med .6hoJtt-1U.m emeJc.gency neecL~ aHd :the
longeJt-:tvun evo!u:Uon 06 the .6Y.6tem. He hM appUed UYLU6ua.! :techn.i.cal ab.i.idy,
:togetheJc. wWt h.een judgment. and nego:Ua:Ung competence :to a w.i.de and valUed Mea
06 .i..n-teJtna..ti.onai.. moneXcvr.y plLobl~. H.i..6 out6tancLi.ng pe.Jc.o oJtmance and PILO t eM.i.ov;,ai..
competence have cOrWUbuted cLi.Jc.ec.:t.ty to tite lLuolu-tion 06 complex .i.nteJu1ationa1.
mone..taJty pJtoblem6 and :to :the .6tJteJtgtlLen.£ng 06 :the .i.J'Lte.Jc.nCLUona.i mone:taJr.y .6!/!>:tem.
a6
fltL. Va1.e' ~ out6:taJtcLi.Jtg .6 eJc.v.i.ce :to :the Un.i.:ted S:ta:te6 WM mo,~t lLecent.e.y ev.went
1~:tolC.-i.c Amendment :to the Atc.;Uclu of, AglLeemen.t 0& :t'lLe
In:teJtna..ti.ol1al Mone.taJty Fund plLov.i.d-i.ng 601L Special VlLaw.i.ng 1Ughu.
in the negotia.Uon 06 the
MIL. Vale' ~ ~ eJc.v.i.c.u have not only Jte6tec.:ted ClC.ecLU on :the TJteMWl.Y Veparvtroent
and :the Uni:ted s.ta.tu GoveJtnmen:t, but :they have al.6 0 exempU6.i.ed :tIl<2- lughe.6t
~.tanda!td 06 PJt06u~.i.ona.e. abUUy 06 :the Un.Ued sta:tu pUbUc. ~eJLv'<'ce.
f\)
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CITATION
Exceptional SelLv.i..ce AJAJaJul
Uv.i.ng~.to n
T. MeJLC.han;t
AI, United S;(:a,tu Exec.u.U.ve Vbr.edolr. 06 the Inte/l.na.t.i..ona£. Bank. nolr. Recon.6Vw.c.tion
and Vevelopment and d..6 a6 fi-Ua;tu, Uv.ing~:ton T. MeJl.C.han:t hM made an exc.eptional.
c.ontJUbuti..OIt :to :the advanc.e.men.t 06 :the Tlr.eMWLtj VepaJc_tme.nt and United S:ta.:te.-~ poUuu
..ut :the 6-i..ehi. 06 .int.vuta.Uonai. development M.naHc.e. VW-vL119 a peJUod when muc.h new
gltOwul Wlt6 blUJk.en -in .the n.ield 06 muU.il.tLteJr..ai. developme.nt 6-inanc.e 1tM, ouUtancLi..ng
expeJL.i.enc.e, judgmmt and cLi..ploma.c.y advanc.ed :the ..uUelLu:U bo:tft 06 .the U.Uted s:ta.:tu
and 06 .the WolLid Bank. and .i..U
6.i...U.a.tu.
an
A6 Speci..a1. M~.v.,:to.JU .to :the Sec.tr.e:taJr.y o{ .the Tlr.eMWLY he gave w.v.,e and vahLed
.to the Sec.tr.e:taJr.y br-:the 60ltmu1..cU:.i..ol1 0& Uni.ted s:ta.:tu plWgJr..Cl.JW 601r. paJc.U.upaLi..on
.ilt ~uc.h v..(.w. muV:i.1.a:teJt.a.l endeavoltJ lt6 :the lr.ep.e.en.i6/tmen:t and ert£.a.Jc.gement 06 :the
c.o~ei.
lLUoutr.c.U 06 :the In:telLna.ti..onai. Veve1.opment M~ocJ..a.;ti.on. He mo~:t ab.e.y Ir.eplr.u en:ted .the
Sec.lte:taJuj and the Unli:ed s:ta.:tu -Ut :the .in:teJuta.:Uonai. negoti.a.:Uo~ 601r. :that lr.ep.e.eYiAAhment.
He made a cU6:ti..ngtU1,hed c.on:tJLi..btLti..on :to c.onglr.u~.i..otla.t and pubUc. undeJl..&:t.:ancUng 06
U. S. paJLti..c.ipa..t<.on .in mu.£..t.il..a.tVLaf. developmen:t 6.inanc.~ plLogJUUM.
.
In h-i.A c.a.pa.cU:y lt6 U. S. Exec.uti.ve Vbr.ectolL 06 .the (tJolLtd Bank. and ili a66-<.Li.a..tu,
MIL. MeAc.han.t hlt6 added ~.i..gni..6.ic.ant£.y to an a.-fJteruiy ou.t6.taYLd.i..ng Ir.ec.oltd 06 a.c.c.ompwhmeY1.t6
.in .the pub£..i.c. ~eJLv.i..c.e on beha.t6 06 :the na.:ti..ona1. .i..nteILut. H.v., ~eJLv.i..cu have not onl.y
lLe6l.ec.:t.ed c.ltecLi;t on .the TlLe0..6uJLy VepaM:ment and .the United Statu GoveILnmen:t., but :they
have ~o exempU6.ud .the highut ~:to.ndaJtd. 06 publ..i..c ~elLv.i..c.e.
f\)
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I\J
CITATION
V.L6Ungcd6hed SVtv..tce AJ,4JcvuJ.
EdwcvuJ. R. FJU.ed
FoUow..tng twenty yeaJt.6 06 oub.d,ancWtg .6eAV..tce. ..i.n :the Ve.paJLtlnen:t 06 S.ta..te,
Ecirt'CVld 1~. FtUed WM caLLe.d UPOy; to .t Vtve. cv.. S;JCC to.i. AM-<Atant .to .tt. . e PlLc/.>..tdclLt. :to adv..i..6e. lum ill :the. v,LW de.c.< 6~01l..6 06 nOILU0H CC_l;" "'JIltC and o"utanual poU,-U.
He. .6Vl.ve.d ..til a p~od 06 unplLecedel1..ted .6.tJLCUE~ on the economy 06 .the. Uru.:ted
S.tatu, on :the. fiounda.:t..i.on.6 a S .the -<-n.te.lLna.:t..i.onal mOI'LetaJLy .6 U.6.tem and on .the VelLY
PJL{"Huptu 06 btade. Ube.ILa.e..i..6m advance.d -<-n .the. P0.6.t-WM e.ILa.
lIt caJrfLying out It..w dutiu .thu e. pM.t two year.;.;, Mf(". FlL-i.c_d hM wonfz.ed
ctO.6uy and e66e.ctive.-ty wLth TlLe.MUlLY 066iuaJ:l,. He. qu..-i.ch£y glLMpe.d .tIle. co/);pte.x
dema.nd6 06 .the. Uru.:te.d S.ta:tu' ba1..ance 06 pa.ymeftU. H..w -i.r..6..i.ph:t6 and c.oU/U(9e.
have. be.en vaal. ..i.n[JlLecLi.eitU ..in .6iLaping a c.olilp.tex n-iJu'J1Ua..t plLog'WJn .tfu:t:t hM been
ecoltomi_cal.1.u c.olu:dJwilive, pou;uca..t.eU v..i.abte at home and -iJuvu1({"uonmy ac.c.eptabte..
He {UV:> .6e1Lved in a (ley /Late ..i.n .6hap..i.11g .the Sp~ua.t. VItrut1..i.ng lUg/::t6 lla.c.M).;ty in th~_
IIuvuta.:t..i.onal. Mone..tMy Fund and in momef1.:t.6 on CIL-W..i..6 he hM be.e.n equ.o.£ly vCLtua.b.te
ifl negotia.t-i.oH.6 f.ead..i.ng .to the. :two-tiVt [Jo.ed :.y.t ter.:. A.t ea.c.h vV..L'....t CJW.6.clLoad, he.
Iw..6 1Le. plLU, elu e.d :tJ1 e P1te.6..i.d e. nt bfL.LU{,a.nily, fJ a..6 qu..-i.c.Uy ItU at v e.d po UUe.6 a; ld
.6:tJta.:te.giu wUIUn th.e. Exe.cutive Bltanch and ha.6 done. much. .to pItUe.ltve. .th.e. econorr...ic
l.e.adeJt.6lUp a 6 .the UnUed S.ta.tu.
r")
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CITATION
V,uUngLLi..6hed SeJLv-i.e.e Awevtd
WULiam j'vle.Chuney MaM:in~ llL.
. The ChcUA.man ofi the BOMd on GovV'..nOM 0& .t:le FedVUli.. RUeJ1.ve
SY.6.tem, William Me.Chel.>ney Marvt{.JI, llL., /1CU:t lLendelted 9li.eat .6e1tv-i.c.e
to .the TlLea.6uJty VepaMine.n:t and .the Nat,.i.on nOlL many yeCT..lr..¢.
0 6 h-i..6 yeltlj g/'tea:t e.o n:tM.buti.o I'I-~ .to
and .6bc.e.ngtherU.ng 0 fi .the -<.n.tVU1CLUonai. mone.ta.lty
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276
TREASURY DEPARTMENT
t
WASHINGTON. D.C.
December 6, 1968
MEMORANDUM FOR THE PRESS:
Assistant Secretary of the Trea'311xy Stanley S.
Surrey's remarks beiore the 73rd Annual Congress ot
American Industry of the National Association of
Manufacturers, Friday, December 6, 1968, 2:30 P.M.,
will be read by Mr. William F. Hellmuth, Deputy
Assistant Secretary of the Treasury.
Text attached.
F-1427
TREASURY DEPARTMENT
277
Washington
FOR RELEASE UPON DELIVERY
FRIDAY. DECEMBER 6, 1968
REMARKS BY THE. HONORABLE STANLEY S. SURREY
ASS ISTANT SECRETARY OF THE TREASURY
BEFORE THE
73RD ANNUAL CONGRESS OF AMERICAN INDUSTRY
OF THE
NATIONAL ASSOCIATION OF MANUFACTURERS
THE WALDORF-ASTORIA, NEW YORK, NEW YORK
FRIDAY, DECEMBER 6, 1968, 2:30 PM EST
A VALUE-ADDED TAX FOR THE UNITED STATES
A NEGATIVE VIEW
Tax meetings this year have found a new topic for discussion -- or what is advertised as a new topic:
the United States have a value-added tax?
Should
The question
appears to be a new one when so phrased, especially since
some speakers seldom bother to explain what a value-added
tax is and how it functions. But if the topic were phrased
more accurately "Should the United States have a national
sales tax?", then we would at once perceive we simply are
carrying on a discussion that has been with us for three
decades or more -- and posing a question to which the answer
has consistently been in the negative.
The value-added tax properly comes in only as a subtopic:
If the United States is to have a national sales tax,
should it take the form of a value-added tax or some other
form, such as a retail tax, a wholesale tax or a manufacturers
- 2 -
tax?
Nor, really, when put this way, is the subtopic a
new one.
Treasury Department files contain a lengthy analy-
sis of the value-added tax made in 1941, when consideration
was being given to the choice of tax measures to finance
military expenditures.
Background -- European Use of Value-Added Taxes
What is new today is that the European countries are
in the process of adopting value-added taxes -- France has
had one for many years, Germany adopted one this year, the
Netherlands, Sweden and Belgium will do so next year, and
so on.
But a word of perspective is in order.
All of these
countries have had a national sales tax of one form or
another for many years, usually the inefficient turnover tax.
Hence the main topic for them therefore was not whether to
have a national sales tax but whether -- in order for
th~n
to harmonize their tax systems under the European Economic
Community -- they should adopt the value-added form of sales
tax as the common denominator.
For reasons growing out of
their political and tax histories, which in some countries
involved the inability to effectively collect a mass income
tax, they had already chosen to utilize high rate sales
taxes.
The significant point is that they were concerned
278
... 3 -
with the subtopic, i.e., the form of a sales tax to achieve
harmonization, and not the main topic, should there be a
sales tax at all.
They had answered that question, as I
have said, many years before, for their national sales taxes
go back at least to post-World War I days.
Now we all know what is a retail sales tax -- forty-four
States and some cities have this tax.
We also know what is
a wholesale sales tax and we know what is a manufacturer's
sales tax.
What then is a value-added tax?
A value-added
tax is merely a complex method of collecting a retail sales
tax.
1/
Using the recent German tax as a model, let me explain
how it works:
The German tax is imposed at a 11 percent rate on almost
all sales of goods (ard
SOI1E
ser:vit:es) by any business. Let us start
1/ The authorities recognize the value-added tax for what it
is -- a sales tax.
For example, a publication entitled Tax Harmonization in
Europe and U. S. Business published this year by the Tax
Foundation contains the flat statement "The consumption
type of value-added tax (one in which capital equipment
items are deductible) can be described as a retail sales
tax." A look at the index of a recent public finance
book (Modern Public Finance by Bernard P. Herber,
Richard D. Irwin, Inc., Homewood, Illinois, 1967) for
value-added tax encounters the familiar instruction, see
"Sales taxes."
.
- 4 -
with a manufacturer:
He applies an 11 percent rate to his
total sales to find the preliminary tax due.
From this he
subtracts the taxes he has paid on his purchases and the
net is payable to the Government.
In essence, the tax is
thus on the "value-added" by him as represented by the difference between the value of his total sales and the value
of his total purchases.
"Purchases" include all types of
goods (and some services) -- components either as raw
materials or semi-processed goods; capital goods, such as
plant machinery and equipment; goods used up in manufacture;
business furniture, etc.
The manufacturer, of course, will
bill his wholesale customer for the 11 percent tax on the
sales price of the articles he sells, just as the manufacturer was earlier billed 11 percent on his· purchases from
his suppliers.
The tax is invoiced separately on all sales
and is thus not hidden in the sales price.
The process is repeated at the wholesale stage -- the
wholesaler pays the Government 11 percent.of his sales less
the taxes paid previously by the wholesaler on his purchases·
and the wholesaler then bills the 11 percent tax to his customers.
But of course no pyramiding should occur since the
- 5 -
279
the taxes paid by the wholesaler are kept apart from the
price of the goods he purchased and he can subtract this
tax cost.
The process is repeated once again at the retail
stage -- the retailer pays the Government 11 percent of his
sales, less the taxes the retailer paid -- and of course
the retailer charges his customer for the 11 percent tax.
The process ends there if the retail sale is for personal
consumption -- food, an automobile, furniture, clothing.
But if a business concern buys the article for use in its
business -- sayan automobile or a desk -- the process begins
again as the concern will subtract the tax on the automobile
or desk from its tax bill.
There is one additional important facet to note:
the German system, tax is due each month.
Under
Suppose a concern
has paid more tax on its purchases than is due on the sales
to its customers -- its sales may be slow, for example.
The Government then makes a refund each month of any excess
tax paid, so that the cost of carrying the value-added tax
is not borne by the concern beyond a month or two.
All this adds up to an 11 percent retail sales tax on
personal consumption -- the 11 percent value-added levy is
- 6 designed to be passed along from concern to concern until
the consumer is reached and he is left with the tax.
The
11 percent tax is not intended to enter into the price
structure until that final sale -- until then it is a tax
item that accompanies each sale, is kept separate on the
books, and is so indicated.
If the tax item is not
promptly moved along the business chain, the Government
refunds it promptly.
(If a concern has to finance the tax
during this month or two, this financing cost would enter
into the price structure.)
Should the United States Have a National
Sales Tax -- Domestic Considerations
Against this background, let us return to the main
question:
tax?
Should the United States have a national sales
Proponents of the idea have two courses of action open.
One is to argue that our tax system should bring in more
revenue and the added revenue should come through a sales
tax.
They seldom take this route however.
What arguments
there are for higher tax revenues come from those seeking
greater Federal expenditures to meet social problems, and
the proponents of value-added sales taxation are usually
not in this camp, but rather most likely to be in the camp
- 7 -
of reducing Federal expenditures.
Moreover, if we need
higher revenues, our Federal income tax system is capable
of producing those revenues.
The other course of action is to say the sales tax
should be substituted for part of the income tax, generally
the corporate tax.
So the general question comes down to:
Should we reduce, for example, our corporate tax to about
30percent and make up the $15 billion in revenue through a
3 percent sales tax?
What would the United States gain through this change?
Those who support Federal use of a value-added tax generally
start by stating that the United States should derive a
larger portion of its revenue from indirect taxes, that is,
sales taxes.
This view is often supported by resort to
foreign experience.
If certain foreign countries relying
heavily on indirect taxes are growing relative to ours, the
conclusion is drawn that the faster rate of growth is the
result of the emphasis on indirect taxation.
This argument
in turn is usually associated with the idea that substitution of a tax on sales to raise part of the revenue now
derived from the corporate income tax would stimulate growth
through enhancement of the profitability of investment in
- 8 corporate equity.
the
is
enhanceu~nt
pres~nted
If foreign examples are not favorable,
of corporate investment to stimulate growth
alone.
But if one looks at the tax systems of various industrialized nations over a period of time and relates them
to the rate of growth of their economies, there seems to
be no relationship -- or one strong enough to be observed
in the total effect of all factors -- as is sometimes
claimed to exist between the components of the tax system
of a country and its economic growth.
Of course, the tax
systems of countries do have economic consequences or
President Johnson wouldn't have proposed the recently
enacted surcharge to help restrain our overheated economy.
But to say that heavy reliance on indirect taxes compared
to direct taxes is a significant factor in economic growth
is a naive view of a complex problem.
As a matter of fact,
one would be just as naive to say that the reason the
United Kingdom has had a relatively slow rate of growth in
recent years is because it raises a high proportion of its
revenues from indirect taxes.
France is another country
with a high indirect tax ratio -- the highest in Europe --
- 9 -
which has had considerable problems in maintaining an adequate growth rate over the years.
On ·the other hand, we have been doing pretty well in
the United States as far as growth is concerned -- at least
for the past eight years
sales tax.
and we do not have a national
While there were significant changes in the
Federal income taxes and excises in the last eight years,
the emphasis of our Federal revenue system on individual
and corporate income taxes was not changed.
We believe
the revisions made, especially the investment credit and
the depreciation
guidelines~
are in considerable part
responsible for our eight years of economic expansion.
Dur-
ing the period from 1960 to June 1968 employment increased
by 13 million persons or 20 percent.
Unemployment declined
from 6.7 percent of the labor force in 1961 to less than 4
percent today.
Business investment for new plant and equip-
ment increased from less than $36 billion in 1960 to the
current level of $65 billion.
And gross national product
grew by 46 percent in terms of constant dollars between 1960
and the third quarter of this year. The business profits picture has been bright indeed in these eight yeas. Ca.p:mte pDfits
- 10 after taxes were less than $27 billion in 1960 -- the annual
level for the third quarter of 1968 was $51 billion.
So it
is hard ·to see how one can complain about the absence of a
sales tax on grounds of economic growth here in the United
States.
Such facts as these naturally have required the more
sophisticated proponents of greater reliance on indirect
taxation to minimize pure growth as an argument for changing
the character of our Federal tax system.
A more subtle
variation of the growth argument then is that the corporate
income tax leads to tax induced distortions in the flow of
capital that lowers the total efficiency of the economy.
Then there are those who merely stand by the old assertion
that the corporate income tax is so high as to be unfair
to corporate equity owners.
The argument as to the "fairness" of taxing corporate
income and the incentive and distributional effects of such
taxation will continue as long as there is a corporate tax.
Far be it for me to try to deny that a separate tax on
corporate profits does not have capital distributional and
incentive effects.
It does -- and some could be corrected
- 11 -
282
by appropriate revisions in our corporate tax rules.
But
the real question is whether there are advantages to corporate profits
taxation~hich
believe so.
The. his tory of corporate income taxation in
offset
the disadvantages.
I
this and other industrialized nations has shown that there
is a significant tax-paying capability inherent in the
corporate structure.
And the taxation of corporations and
their dividends hardly seems to noticeably dampen the
advantages that investors find in corporate equities.
More-
over, if we desire to adjust our income tax structure to
tilt it, or rebalance it, or what you will, so as to favor
investment, there are ways to accomplish this -- witness
the investment credit --without having to resort to an
entirely new tax.
Since proponents of a value-added tax for the United
States so often refer to the tax system of foreign countries
as a precedent or model for the use of indirect taxes, I
wonder why, if they are so worried about the level of our
corporate tax, that they so conveniently ignore the corporate tax rates in the same countries.
Heavy reliance of a
country on indirect taxation does not mean low corporate
- 12 rates.
Both Germany and France have a rate of over
percent on undistributed corporate profits.
Kingdom's rate is in the 40's.
at~L
~
The Unit d
Moreover, we have rea on-
assurance irom United States firms with internat onal
operations and cnrough our data on the foreign tax cr dit
that the effective rate of European corporate income
axes
is quite comparable to that of the United States.
One is tempted to deduce from this that there is
i
type of Parkinson's law in taxation, to wit, for ever:
type
of taxation used by a Government the legislators will :ind
expenditure needs that require raising the tax rates
maximum politically tolerable level.
In any case,
1 )
an~
the
)ne
interes ted in subs titution of a· value-added tax for pc 't of
the corporate income tax should very carefully cons idE ' the
overall tax burden in foreign countries.
He will fine that
every European country (with Switzerland the only
eXCE
raises a far higher amount of taxes, in relation to
does the United States.
G~
Is it because they have both
,tion)
" than
ncome
and sales taxes at the national level and we have only the
income taxes?
Certain virtues have been claimed for the value-a ded
.:.ax in the name of "neutrality".
Neutrality means a g eat
- 13 -
283
many things to different people and it is surrounded with
a highly favorable semantic aura.
As best I can judge,
the claim for neutrality comes down on final analysis to
the contention that all end-products and services would be
taxed at the same rate.
This only means that the value-
added tax like any other sales tax may theoretically be
designed -- although this doesn't happen in practice
not
to be selective and not to discriminate among goods and
services.
For the business sector, the neutrality of the
va1ue-aidea iax simply means the neutrality of the nontaxpayer -- tor the value-added tax is not designed as a
tax on business, but merely casts the business unit in the
role of a collector of taxes from the ultimate consumer.
Let us take a closer lOOK at the supposed advantages
of neutrality.
The value-added tax is claimed to apply
equal burdens on businesses
~n bOUl
profit and loss posi-
tions, thus removing the corporate tax immunity of a loss
enterprise.
The claim is also made that with a value-added
tax, unlike the cor'porate income tax, industries presently
enjoying a preferred tax position as well as those not
occupying a preferred tax position will begin to pay the
- 14 same tax.
These claims obscure what is now happening under
the corporate tax and what would happen in the event of a
switch to a value-added structure.
The corporate tax now applies with different weight
among firms and industries depending upon their profit
status and the tax rules that have evolved.
These differen-
tials would be reduced pro tanto with the lightening of the
corporate tax.
Instead of being corporate taxpayers these
businesses would all be intended to become, under the structure of the value-added tax, as I have just indicated, tax
collectors from final consumers.
In the same way a switch from the corporate tax to
value-added taxation would result in different benefits as
between corporate and noncorporate sectors and activities,
the benefits of course going to those activities now predominantly conducted in the corporate form.
There would
be no relief for those now operating in the noncorporate
form.
All, however, would become collectors under the
value-added tax as distinguished from actual burden bearers.
We might also look more carefully from the standpoint
of neutrality at what would happen to different industries
and bus iness units in their new role as tax co'llec tors under
... 15 the value-added tax system.
")QA
Lv"
Elasticities of demand for
different goods and services are not the same, so that
even a flat rate of value-added tax is not neutral except
in a highly formal sense.
In practioe, consumer response
and sales volume changes will vary as between industries,
and this consequence might not appeal to many who may have
been initially beguiled by the neutrality argument.
In practice, also, "neutrality" in the various va1ueadded tax countries has yielded to a structure of preferentia1 rates, so that even the equal consumer tax rate
claim of neutrality would seem highly problematical.
If
we look at the political realities and the use of the value·
added tax abroad, they discriminate among types of product
and exempt some activities.
In view of this background and
the trend in State retail sales taxation, we would foresee
some type of exemption for food and medicine along with
medical and hospital services, education, and similar activities in the event of any value-added tax experiment in this
country.
No matter how desirable we may consider these
exemptions, they detract from the purported neutrality of
the va1ue ... added tax for a significant proportion of consumer
expenditures.
- 16 European value-added taxes reveal, as I have suggested,
important departures from "neutrality."
The German tax,
probably in large degree because of technical problems,
exempts financial institutions.
The French tax exempts
them, but includes a special tax on part of their activities.
Small firms are another special aspect.
In France, small
businesses can pay a flat sum instead of computing tax on
value added.
The French tax has four rates:
a normal rate;
an increased rate for luxury items; an intermediate rate for
certain utilities, hospital care, certain food stuffs, etc.;
and a reduced rate for widely consumed foods, tourist hotels,
etc.
The German tax has two rates:
a general 11 percent
rate and a 5-1/2 percent rate for agricultural products in
general.
One should not overlook the fact that the changes involved
in adapting to a value-added tax structure would have differing impact on different sectors of the economy and would
require some time to complete the resulting economic adjustments.
The initial effects of substituting a value-added tax
for part of the corporate income tax could thus be far from
"neutral" as between different business firms and industries.
- 17 -
285
Another argument for a value-added tax used by some
indeed, it seems to be the only argument that Professor
1/
Harberger strongly advances for the tax
as an instrument of flexible fiscal policy.
is its potential
The claim is
made that there is only one way to change its effect -raise the rate up or down -- while there are many ways in
which income taxes can be adjusted and thus controversy and
delay are bound to ensue if the latter are used for countercyclical adjustments.
But this view underestimates the
ability of legislators to find ways in
~hich
to vary a tax
one can readily imagine some" legislators insisting that
only the value-added rates on "luxury goods" should be raised
when a temporary tax increase is needed, and so
on~
(Witness
the recent French changes in which each of the four different
rates in the French value-added tax was changed by a different amount.)
Moreover, the statement that necessary
adjustments would be effected more speedily for a value-added
tax than for an income tax because the character of the income
tax adjustments -- should it be the individual tax or the
corporate tax, should the progression be altered, should
exemption levels be changed?, etc. -- is always controversial
11
Harberger, A Federal Tax on Value Added, in The Taxpayers
Stake in Tax Reform (Chamber of Commerce of the United
States, 1968), p. 21.
- 18 and hence involves delay is simply wrong.
The history of
the 10 percent surcharge clearly demonstrates this.
The
lengthy legislative gestation period for that surcharge was
caused by differences of opinion as to the economic outlook
and fiscal policies, especially expenditure policy, and
not as to the details of the change as such.
Indeed, in
the whole period of eleven months in which the surcharge
was before the Congress, the Tax Committees spent less than
one-half hour on the details of the surcharge recommendation,
and this was on the last day of the Conference Committee discus s ion.
Moreover, the final produc t varied hardly at all
from the form recommended by the President.
The debate was
entirely over the need for the surcharge and whether it
would be accompanied by expenditure restrictions -- and any
consideration of a comparable change in a value added tax
would have been subject to exactly the same debate.
Our
problems relating to the use of the income tax for countercyclical purposes are not problems of technique or mechanics.
1/
1/
The recent Brookings book, Agenda for the Nation, contains
in an article by Herbert Stein a proposal to use systematically a positive., negative, or zero surcharge on income
taxes as a countercyclical device.
- 19 They are issues of fiscal policy at the political level
differences between Presidents and Congresses over the
fiscal policies to be pursued-- and the nature of the tax
involved will not alter those issues.
I thus can find no persuasive reasons to shift to a
national sales tax.
The Conference Report of the National
Bureau of Economic Research and the Brookings Institution
in 1964 on the subject of "The Role of Direct and Indirect
Taxes in the Federal Revenue System" ends with the same
conclusion:
"It is hard, then, to find much support for
more reliance on indirect taxation in the record of the
conference, even though some participants came, and left,
with a disposition toward this view."
Indeed, there are a number of persuasive reasons against
such a shift.
It would mean the substitution of a regressive
tax for a progressive tax and on equity grounds this would
be a distinct step backwards.
Value-added tax proponents
meet this objection in three ways.
One course is to argue
that the corporate tax itself is shifted forward, so no change
in regressivity would be involved.
This argument of 100 per-
cent forward shifting of the corporate tax is of course
- 20 -
difficult to sustain, and if true would undermine the argument by some proponents that shifting to a value-added tax
would increase after-tax corporate profits.
Another course
is to acknowledge some increase in regressivity but consider
this a lesser disadvantage than the purported advantages of
the tax in fostering economic growth and giving corporate
investors more "reasonable" tax treatment.
But this defense
is only as good as those "purported advantages" and as shown
above they do not carry the needed weight.
A third course is to minimize the regressivity objection,
either by arguing that the degree of regressivity would not
really be burdensome or by suggesting that it could be
removed by appropriate exemptions, particularly one for food.
There also is another "anti-regressivity" approach to sales
taxation which could be used, although I personally have not
seen it mentioned in connection with value-added tax proposals.
This is the annual income tax credit (or refund if no income
tax is due) that has been introduced by six of the States
with sales taxes.
But a food exemption, or a personal credit
or refund system, would only roughly compensate for the
regressive feature of a value-added tax.
The device of a
- 21 -
r"lQ7
LUI
food exemption, for instance, would give a larger advantage
to the family which, for whatever reason, spent a larger
proportion of its income on food than another unit with
the same income.
The device of a per capita credit or
refund system would benefit most those units which put a
larger portion of their income to nontaxable uses, such as
savings.
As a practical matter, any measure instituted to minirnize or remove the regressive effect on consumers of a
value-added tax would still leave the tax less progressive
than the corporate tax which it is intended to supplant.
Here, of course, I am assuming that a considerable portion
of the corporate income tax is not shifted forward.
The addition of a new mass Federal tax also has its
costs in taxpayer compliance and administration.
The pro-
ponents of a value-added tax tend to gloss over this factor
and indeed they would be well advised not to discuss it.
They admit there will be the start-up problems associated with
any new tax.
Since this is an admitted problem, I will not
elaborate on it except to say that putting into effect a tax
which is as pervasive as a value-added tax could be a real
- 22 administrative task because of the large number of units
involved.
Let us skip over the initial process and assume that
the tax is in working order.
The first aspect to be noted
is that the number of returns to be handled would run
between 25 and 30 million a year, about a 25 percent increase
in the present level of returns now processed by the Internal
Revenue
Servic~.
This figure assumes quarterly returns (as
in the case of excises) with exemption for farms, medical
services, and certain financial services. Without these
exemptions, the number of returns would be increased by
another 15 million.
number of new tasks.
Taxpayers would be burdened with a
If we followed our present excise tax
procedure for current payment, and I see no reason why we
would not, they would have to compute and pay their tax
liability to bank depositories twice a month.
Internal
bookkeeping of firms also would be increased by the need
to keep records of the tax paid on purchases.
The United States all in all probably has the world's
most carefully structured and administered income tax.
Is
it because it is essentially our only national tax and therefore we work hard at continually improving it?
The European
- 23 countries must spread their efforts over both an income tax
and a sales tax. The more children in a family, the less
attention each gets.
To sum up this part of the discussion, from a domestic
point of view it is hard to see how a national sales tax
has anything to offer for our Federal tax system.
It would
add another large layer of work for taxpayers and the
Internal Revenue Service without any reduction in current
workloads.
There seem to be no offsetting economic benefits
to be gained that cannot be accomplished without that step.
Substitution of a sales tax for part of the corporate income
tax (or the individual income tax for that matter) would
lessen the equity of our Federal tax system.
1/
And our
experience in recent years shows that the necessary degree
of economic growth can be assured within the structure of
our income tax system.
Clearly, a proposal for a value-added tax would involve
a political battle of the first order.
The Democratic Party
platform for 1968 stated:
11
If we are looking around for taxes to be substituted for,
it would seem more appropriate to offer the Federal payroll taxes as a candidate rather than the income taxes.
- 24 "The goals of our national tax policy must be
to distribute the burden of government equitably
among our citizens and to promote economic efficiency and stability. We have placed major reliance
on progressive taxes, which are based on the democratic principle of ability to pay. We pledge ourselves to continue to rely on such taxes, and to
continue to improve the way they are levied and
collected so that every American contributes to
government in proportion to his ability to pay."
The AFL-CIO platform proposals presented to the two conventions in 1968 were specific on this issue:
r~ll efforts to make inroads on the progressivity of the federal tax structure should be
repulsed. These include_proposals for a national
sales, transaction, or value-added tax."
Many business groups and businesses would also oppose the
tax.
Our country would not be well-served by provoking
such a political battle for a tax that has so little to
offer to our tax system.
All in all a sales tax is a second-best tax to an
income tax, and why do we need a second-best tax.
11
1/
Professor John Due, an acknowledged authority on
sales taxes, has concluded:
"On the whole, the sames tax must be regarded
as a second-best tax -- one to be employed only if
various circumstances make complete reliance on
income and other more suitable taxes undesirable.
A carefully designed sales tax is not perhaps as
objectionable as it was once regarded; it offers
definite advantages over widespread excise tax
[footnote continued on next page]
- 25 ..
A Retail Tax Is Preferable to A Value-Added Tax
So, as to the major topic, "Should the United States
have a national sales tax?", I would answer in the negative.
But even if the answer were yes, why should a value-added
tax be chosen as the form of the sales tax?
Why not a
retail sales tax?
In the United StcEtes, forty-four of our States have
retail sales taxes.
So do some of our cities.
Over 97
percent of our population live in States with sales taxes.
Over 97 percent of our retail.establishments are located
in States having such taxes.
Thus, today, a retail sales
tax is being administered in the United States -- and
successfully administered.
Therefore if the Federal tax
system is to have a national sales tax, why not simply
use the retail tax structure we already have.
We could
adopt a national retail tax and allow a uniform credit
17
[Continuation of footnote from page 24J
systems, with their inevitable discrimination among
various consumers and business firms and their
tendency to distort consumption patterns; and it
is definitely superior to high rate 'business' taxes
with uncertain incidence and possible serious economic
effects. But it must be regarded as secondary to
income taxation, in terms of usually accepted standards of taxation." Due, Sales Taxation (1957) 41.
- 26 of so many points for State sales taxes.
States that wanted
a higher rate than the credit could "ride" the Federal tax.
What is gained by having a value-added tax rather than
a retail sales tax?
As far as I can see, the answer is
more paper work and administrative chores -- and greater
temptations for exemptions and special rates.
As pointed out earlier, the end result of a value-added
tax is that the retailer collects the tax from his customers.
Let us assume a 5 percent rate.
Under a 5 percent retail
sales tax, a retailer collects 5 percent of the sales price
from its customers and pays the full 5 percent to the
Government.
That's the end of the matter.
Under a value-
added tax, a retailer first pays 5 percent to its wholesaler
on goods purchased, then collects 5 percent from its
customers on the retail price and pays the net difference
to the Government.
Thus, if the wholesale l,rice is $70
and the retail price is $100 before tax, the retailer pays
the wholesaler $3.50, collects $5 and pays $1.50 to the
Government.
Clearly the retailer is worse off, since it
has had to carry the cost of paying the $3.50 until it
makes the sale to its customer, whereas under the retail
tax the retailer pays nothing until a sale is made.
- 27 -
r
f
r
v
.
Clearly the Government is worse off because it is collecting
the $5 in bits and pieces:
$1.50 from the retailer; say
$1.00 from the wholesaler (suppose the manufacturer's price
is $50 -- the wholesaler collects $3.50 from the retailer
but has paid the manufacturer $2.50, leaving a net of
$1.00); say $1.50 from the manufacturer and the rest from
various suppliers of the manufacturer.
While the Govern-
ment gets part of the $5 in earlier, it has the administrative problems of dealing with all the other units in the
productive process.
These units in turn -- wholesalers,
manufacturers and suppliers are all involved in paper work
under the value-added tax whereas they are free of it under
the retail tax.
The retailer itself has an additional
burden under the value-added, for it must keep track of
purchases and sales alone whereas only sales records are
involved in a retail sales tax.
Hence it is really nonsense for a country with an
already functioning retail sales tax structure to add a
value-added structure that collects in more complex and
burdensome fashion the amounts that could be collected
under the retail sales tax procedure.
- 28 -
Proponents of the value added tax like to say the
tax is a "form of tax on business."
antism.
This is pure obscur-
It is a tax on household and other non-business
customers and all the rest is paper work and accounting
imposed on business to end up with the retailer collecting
the tax from the customers.
Maybe a country that can't
collect a retail tax successfully takes out insurance
against too much revenue being lost in poor compliance at
the retail level by collecting a tax at least at the wholesale and manufacturer's level.
But a country that can
collect a retail tax doesn't need all this wasteful paraphernalia.
International Considerations
Let us now return to our main topic
United States have a national sales tax?
Should the
The discussion
above states my view that on the basis of domestic considerations such a step would not be desirable and would not
be an improvement in our Federal tax system.
The next
question is whether, if we accept this conclusion, should
the answer nevertheless be altered because of international
considerations?
Many proponents of a value-added tax would
- 29 -
291
reply in the affirmative, and indeed rely on international
considerations to differentiate the present discussion of
the need for a sales tax from the previous debates on that
subject in this country.
This reliance on international
considerations is based on the structure of a value-added
tax as applied to international trade.
In examining this structure, let us first consider
exports.
A country with a value-added tax, while recogniz-
ing the effect of the tax on domestic prices, will attempt
to prevent the tax from increasing export prices.
It does
so by not requiring a manufacturer (or other exporter) to
pay the value-added tax on its exports.
It also rebates to
that manufacturer (or exporter) the value-added taxes it
has paid to its suppliers so that it does not incur those
tax costs for its exports.
Step two, however, is not unique
to exports, for the manufacturer selling in the domestic
market also receives a rebate of its tax costs.
At the same
time, the country will see that imports are subject to the
value-added tax by imposing a border tax on the imports
equal to that tax, thereby making imports subject to the
same tax as domestically produced goods.
There is nothing
- 30 -
mys terious or tricky in this approach.
We do the same in
the United States for our single stage manufacturer's taxes
on automobiles, cigarettes, alcohol, and so on -- namely,
rebate the tax (if previously paid) on that part of the
output which is exported and collect an equivalent excise
tax on imports.
Why then is it said that a country having a value-added
tax is favored thereby in its international trade.
Some
business concerns and groups have a simple, first level
answer -- they say that a German exporter of machine tools,
for example, is exempted from an 11 percent value-added tax
if it sells for export but not if it sells domestically, so
that exports are favored by the 11 percent differential.
This simply means, however, that a German exporter of machine
tools does not pay a sales tax in Germany -- but neither does
a United States exporter of machine tools pay a sales tax in
the United States.
same basis.
Hence both in this respect are on the
They also say a German exporter receives a
rebate of 11 percent of the cost of its purchases, while the
AP1erican exporter does not.
But the German exporter has paid
taxes equal to that 11 percent rebate, while the American
- 31 r">rIi
exporter did not.
-
I
J r'
'\.j~
So in this respect they also end up on
the same bas is.
And so it is with imports -- machine tools coming into
Germany must pay an 11 percent tax because machine tools
produced in Germany pay that tax.
Machine tools coming into
the United States do not face a border tax in the United
States because machine tools produced in the United States
1/
do not pay such a tax.
Clearly we must look beyond these first level contentions to find an international trade
e~fect.
Some proponents
of a value-added tax assert that while this system of border
tax adjustments keeps that tax from affecting international
prices, we in the United States
who do not have a sales
tax but do have a corporate tax
do not have comparable
border tax adjustments to reflect that corporate tax.
But
this argument has validity only if the corporate tax is
shifted forward in prices and thus, without the rebate,
would affect the export price -- a point we can consider in
a moment.
At any event, since the principal European countries
1/ See the statement of Roy A. Wentz, Chief Counsel, Federal
and Foreign Tax Division, E. I. du Pont de Nemours &
Company, to the National Foreign Trade Convention,
Nov. 20, 1968, pointing this out.
- 32 also have corporate taxes at about the same effective level,
they are in the same posture in this regard and this argument thus has no weight.
Let us move from these clearly inadequate first level
arguments of the proponents of a value-added tax to a further analysis, in the context first of an increase in
United States tax revenues through a value-added tax.
If we assume that a newly imposed value-added tax is
fully reflected in domestic prices -- an assumption that
is strengthened if the tax is introduced under full employment conditions since the monetary policy accompanying such
a tax change would presumably be designed to permit that
result -- but refunded or rebated on exports, there would
be no change in export prices, and imports will be subject
to a border tax adjustment in the same percentage as
domestic prices have been increased.
This should leave the
overall terms of international trade as neutral as possible,
although equal percentage increases in prices of all
domestic and imported products and services may cause some
shifts in demand between various types of products and
services.
,_ q
L '..
r~
r \.J
- 33 Now we have to work into our analysis the possible
effects of reducing the corparate income tax and substituting the value-added tax 'which, of course, is really
the major objective of the value-added tax proponents.
In order for this substitution to advance our trade we
must assume that the corporate tax was shifted forward
to an appreciable extent and the lack of rebate for that
tax on exports keeps the forward-shifting in the export
price.
On the other hand, the price-increasing effect of
the value-added tax through the forward-shifting of that
tax is kept out of the export price under the exemption
and rebate process.
We here reach the unsettled contro-
versy as to whether the corporate tax is and if so, to
what extent, shifted forward in prices.
I still take the
consensus of economic thought as favoring the view of a
less than full shifting, and for many economists considerably less, so that the possible benefit for trade would be
related to the degree of shifting.
Let us try another avenue of analysis.
The value-added
tax, as we earlier noted, is passed forward in an accounting
sense and expected also to be shifted forward in an economic
- 34 sense through a price rise.
But suppose it is not fully
shifted forward in prices due to market conditions.
Then
a manufacturer forced to absorb some of the tax effects on
its domestic sales and thus reduce its profits, but not
having that consequence on its exempted export sales, could
well turn more of its energies to exporting its product and
thereby enlarge the country's international trade.
Similarly,
foreigners exporting the same product to the value-added tax
country will suffer lower profits and be less induced to
push those exports.
If this be so, a country with a value-added tax would
have some trade advantage through such an incentive to
exports and the disincentive for imports.
The situation can
vary from product to product depending on price elasticities.
Moreover, as respects the European tax systems, the advantage
can have disappeared under earlier exchange rate and other
international adjustments.
1/
We could also add the comment
1/ The Europeans could be deriving a present advantage in
substituting value-added taxes for their existing turnover
taxes. Thus, the export rebates under the prior turnover
taxes probably undercompensated exporters for the costs of
those taxes, so that the introduction of the full compensation possible under the value-added tax structure,
without a concomitant change in the domestic price level,
could assist those exports. And in countries (Sweden)
where the existing retail tax did not exempt sales of
goods consumed by businesses, substitution of a valueadded tax would have a similar effect.
- 35 -
that given full employment, the absence of full forward
shifting would presumably be due to a reasonably tough
monetary policy.
If it takes such a policy to produce a
trade advantage, then presumably the advantage could also
be obtained by the same monetary policy without the
accompanying resort to the value-added tax.
And finally,
for the trade advantage to be significant the rate of
value-added tax must be quite high, at levels commensurate
with the European rates.
But a value-added tax applied in
the United States at such levels would swamp our existing
tax system -- even a 10 percent rate would mean a revenue
yield considerably greater than our total corporate tax.
In this view, to complete this discussion, there
can be some trade advantage in having a value-added tax in
a tax system.
What then should the United States do?
In
considering this question, we should note that the advantage
would not be unique to the value-added tax.
It would exist,
under this analysis, for any type of sales tax where that
tax -- be it a value-added tax, retail tax, wholesale tax,
or manufacturer's tax -- could not be fully passed forward
in price.
Business groups asserting there are trade
- 36 advantages for the European countries with value-added (and
formerly turnover) taxes have not fully perceived this and
hence have often excluded the British who have a wholesale
tax, or the Canadians who have a manufacturer's tax, from
the list of trade-favored countries.
But the presence of
the paraphernalia of border tax rebates and compensating
import taxes under a value-added tax and its absence under
a retail sales tax or any other single stage tax
(sinceau~
explicit paraphernalia are not needed but are implicit in
the single stage system) should not prevent them from
recognizing that if indirect taxes do produce a trade advantage, then that advantage will exist whether the structure
of the indirect tax be a multiple or single stage sales tax.
Now, back to the question of what the United States
should do to offset the trade advantage considered to accrue
to a country with a relatively high sales tax system.
Some
t.llropeans say the answer is simple -- let the United States
adopt a sales tax.
But this answer would mean that those
countries with a sales tax would be imposing their tax will
on the rest of the world -- and in effect intervening to
affect the free domestic choice of a country's tax structure.
- 37 -
Remember, our hypothesis here is that absent international
considerations the United States should not adopt a sales
tax.
We in the United States want to retain our freedom of
action to maintain a tax system of our own design.
glad to take ideas from other countries.
We are
However, we are,
and rightly should be, independent in wanting to select the
types of taxes, rates, exemptions, and other features, and
the division in our Federal system of taxing powers and tax
decisions between the various levels of government.
After
all, the American Revolution' was fought in part to win the
right to determine our own tax system.
On the other hand, we do live in a world economy.
balance of trade is important.
Our
We need to be aware of the
extent to which the tax systems and nontax measures of other
countries can affect our exports and imports and our general
trade position.
The question then comes down to this:
How can the
United States -- or other countries -- continue to exercise
full freedom in the design of our domestic tax system, consistent with our notions of tax equity, tax efficiency,
- 38 proper economic growth and all the other relevant considerations, and still live on trade competitive terms with
countries which, exercising a similar freedom, choose to
have high rate sales taxes?
Under these circumstances, an appropriate solution firm
would be to adopt border adjustments, limited to charges
on imports or rebates on exports or both, rather than to
overturn and revamp our existing tax system which has
evolved over many decades to meet our needs.
These border
adjustments would not be part of a value-added tax or other
sales tax, and would not involve any changes in domestic
taxes.
Rather, they would simply be border adjustments at
the rate thought appropriate in the existing international
setting.
Since there would be no change in the domestic
tax system and hence in the domestic price structure, a
border charge on imports would tend to raise the prices of
imports to American buyers or reduce the profits of foreign
sellers, thus improving the competitive position of United
States producers and discouraging imports.
On
exports, the
rebates would tend to lower the prices of United States goods
in world markets or increase the profits of American exporters
- 39 and thus tend to increase exports.
These border adjustments
could be administered by the Customs Bureau.
It is interesting to note that Germany in the converse
situation -- when it desired to dampen its trade surplus -has recently done just this.
It has adopted border adjust-
ments -- independent of its tax system -- by taxing its
exports at a 4 percent rate and reducing the compensating
import tax from 11 percent to a net 7 percent (though still
allowing an 11 percent credit to the importer on his resale).
Under the German view of its tax system, with its 11 percent
value-added tax, "neutrality" as to exports and imports
in the sense of attempting not to have its domestic tax
system affect the prices of exports or favor imports -existed at an exemption for exports (and an 11 percent
rebate on purchases representing taxes paid) and an 11 percent tax on imports.
A 4 percent tax on exports and a 7
percent tax on imports -- in effect a 4-point burden on
exports and a 4-point benefit to imports -- is thus an
unneutral posture favorable to other countries.
In the
United States national tax system with the absence of a
national sales tax, "neutrality" in the indirect tax area
- 40 -
exists at a zero tax on exports (and no rebate) and a zero
1/
charge on imports.
If we were to adopt a 4 percent export
rebate and a 4 percent import charge, then we would achieve
an unneutral pos ture vis -...; vis our domes tic incl:irr>ct tax systan to
2/
protect our trade.
(We would be taking such a posture
1/
The text here oversimplifies the U.S. tax system. We do
have selective national excises, e.g., on gasoline, automobiles, telephone use, and State and local retail taxes,
and the like.
In many cases these taxes enter into the
cost of doing business and hence affect export prices and
favor imports. On the average an export rebate around 2
or 2-1/2 percent would reflect these tax costs and keep
them out of world prices; there could also be an equivalent 2 or 2-1/2 percent import tax.
The impact of these
tax costs on the various product lines differs of course,
with the range running from about 1-1/2 percent to 4 percent of export sales prices.
Similar situations exist
for some other countries.
~/
The recent French change is of a different order from the
German action.
The French repealed a 4-1/4 percent payroll tax paid by employers, which had gone to general
revenues, and increased the value-added tax rates from 1
to 5 percentage points on various goods to make up the loss
in revenue. The purpose was to stimulate French export
trade.
Initially, the payroll and value-added tax changes
would aid French exports and dampen imports provided businesses adjust prices to reflect repeal of the 4.25 percent
wage tax.
If the wage tax repeal reduces costs by, say,
2 percent and the value-added tax is raised on the average
by the same percent, the result would be that prices in
France of domestically produced products would be unchanged,
the price of imports (assuming no backward shifting to the
foreign supplier) would increase by 2 percent, and prices
of products exported would decline by 2 percent.
Actual results could be much less favorable than the
above.
The chances of French businessmen (faced with cost
increase pressures) reducing prices by the full amount of
the wage tax repeal are problematical, even though pressured to do so by the Government.
The transportation, gas,
- 41 because we felt our trade position was adversely affected
by the existence per se of high indirect taxes in other
countries, the assumption we are here making in this part
of the discussion.)
Under present GATT rules, border adjustments are permitted for indirect taxes -- sales and excise taxes -- but
not for other taxes.
The United States this year asked for
and obtained the establishment of a Working Party to reexamine the whole aspect of border adjustments under GATT.
One aspect of the re-examination could well be to permit
countries not having a high indirect tax system permanently
to adopt within limits border adjustments independent of
their domestic tax structures if they so desire.
It could
result also in imposing some upper limits on the total
border adjustments countries with indirect tax systems
could make.
This approach would provide an appropriate inter-
national accommodation to the basic question we are considering, that of freedom for domestic tax action without
Continuation of footnote from page 40:
and electricity price increases also imposed will be offsets
to part of the wage tax repeal. (British exporters picked
up a lot of the pound's devaluation by raising their export
prices in British money units.)
- 42 -
prejudicing a country's trade position.
1/
Conclusion
Our existing Federal tax system, in varying degrees,
provides equity, incentives, certainty, and familiarity.
It is by no means perfect but any change should be in the
direction of improvement, balancing the various goals it
seeks to achieve.
Viewed from the standpoint of domestic
considerations the addition of a national sales tax would
clearly not improve our present Federal tax system.
And,
if a national sales tax were ever thought desirable, it
should take the form of a retail tax and not a value-added
tax.
In this light, to change major parts of our tax system
and adopt a value-added tax or other form of national sales
tax for the primary purpose of encouraging exports or discouraging imports would mean incurring severe losses as to
1/
In essence the GATT discussion comes down to the United
States asserting that if the existence of a high indirect
tax per se helps the trade position of a country, then
GATT should permit a country without such a tax a method
of defending itself without having to change its domestic
tax 5 truc ture .
If the exis tence of a high indirec t tax
per se does nct so help the trade position, then there
is no point to our considering a value-added tax or urging a GATT change.
43 several other equally or more important objectives.
Such a change is clearly undesirable.
1/
It is also
unnecessary because there exists an alternative which permits accomplishment of both goals -- preservation of our
existing tax system and improvement in our trade position
if we consider it disadvantaged because other countries
have high indirect taxes.
That alternative consists in
adopting limited border adjustments for the United States
that are not dependent on our adopting a value-added tax.
The present GATT review is one way of reaching an international trade accommodation that would produce this method
of achieving world-wide tax harmonization combined with
freedom of choice and absence of trade disadvantage in structuring domestic tax systems.
1/ Foreign trade, although of substantial importance, represents only a small part of U. S. gross national product.
U. S. exports, for example, have accounted in recent years
for about 5.8 percent of GNP. Exports for most other
industrial countries represent much larger percentages of
their GNP's -- between two and four times as large as the
U. S. percentage for Britain, Canada, France, West Germany,
Italy, Japan, and Sweden, for example. Thus these other
countries have stronger reasons to tailor their basic tax
systems to reflect their dependence on foreign trade.
Even so, the origin of their reliance on high indirect
taxes traces to domestic tax considerations.
UNITED STATES SAVINGS BONDS ISSUED AUD REDEEMED THROUGH
November
30, 1968
(Dollar amounts in millions - rounded and will not nccc5sarily odd to totols)
AMOUNT
REDEEMEO
AMOUNT ISSUEO.!J
DESCRIPTION
!./
A M 0 IJ N T
I '7" 0 U T STAr. Ci I II G
OUTSTANDING!J: OF AMOUNT ISSUED
I
I
I
U:\ED
)ries A-I035 thru D-1041
"rirs F a!ld G-1941 t!lru 1052
crirs J ,lllci K-1952 thru 1955
,ATURED
eries E}j:
1041
1942
1943
4,996
29,478
3,133
7
43
23
.14
.15
.73
I
I
I
-II
I
1,876
8,285
13,334
15,548
12,218
5,537
5,250
5,427
5,352
4,679
4,049
4,242
4,844
4,936
5,142
4,964
4,673
4,549
4,260
4,267
4,310
4,148
4,621
4,506
4,406
4,739
4,691
2,953
675
JOH
1045
1946
1047
10-18
1940
1950
1051
1052
1953
1954
1955
195G
1057
1958
1959
lOGO
1961
1962
19G3
1964
1%5
196G
1967
IGG 8
Unclassified
Total Series E
Series H (1952 thru 'May, 1959) 2J
H (June, 1959 thru 1968)
Total Series H
Total Series E and H
eries J and K (
5,003
29,521
3,156
i
1956 thru
{Total matured
\11 Series Total unmatured
_
Grand Total
1957)
1
"
1,653
7,310
11,796
13,666
10,558
4,601
4,204
4,247
4,109
3,541
3,065
3,184
3,545
3,535
3,618
3,442
3,166
2,931
2,673
2,560
2,416
2,282
2,352
2,299
2,183
2,132
1,862
662
732
224
975
1,538
1,882
1,661
936
1,ct6
1,179
1,244
1,138
984
1,057
1,300
1,401
1,524
1,522
1.,507
1,618
1,587
1,707
1,894
1,866
2,270
2,207
2,224
2,607
2,829
2,292
-57
158,483
114,322
44,160
5,485
6,845
3,205
1,442
2,279
12,330
170,813
I
!
,
!
i
11.94
11.77
11.53
12.10
13.59
16.90
19.92
21. 72
23.24
24.32
24.30
24.92
26.84
28.38
29.64
30.66
32.25
35.57
37.25
40.00
43.94
44.99
49.12
48.98
50.48
55.01
60.31
77.62
I
I
I
I
I
!
I!
I
I
!!
I
I
I
I
I
I
I
I
I
,
,I
-
27.86
I
i
5,4~
41.55
78.95
l
4,647
7,683
62.31
I
118,969
51,843
30.35
598
518
80
37,080
171,410
209,090
37,606
119,487
157,094
73
51,923
51,996
!J
urles arcrucd discount.
ent redemption value.
bonds may be held and will earn interest Jor additional periods aJter original maturity dates.
u es matured bonds whieh have not been presented Jor redemption.
'PJ'on of owner
!"er", ~D 3812 - TRi'\~URY DEPARTMENT - Bureau of the Public Debt
I
I
I
I
1
'1
I
13.38
I
I
.19
30.29
2L 87
I
-
J
TREASURY DEPARTMENT
,
WASHINGTON. D.C.
December 7, 1968
MEMORANDUM FOR THE PRESS:
Assistant Secretary of the Treasury Stanley S.
Surrey's remarks before the Federal Tax Institute of
New England, Saturday, December 7, 1968, 12:15 P.M.,
will be read by Mr. William T. Gibb, III, Deputy Tax
Legislative Counsel of the Treasury Department.
TREASURY DEPARTMENT
Washington
FOR RELEASE A.M. NEWSPAPERS
SUNDAY, DECEMBER 8, 1968
REMARKS BY THE HONORABLE STANLEY S. SURREY
ASS ISTANT SECRETARY OF THE TREASURY
BEFORE THE
FEDERAL TAX INSTITUTE OF NEW ENGLAND
JOHN HANCOCK HALL, BOSTON, MASSACHUSETTS
SATURDAY, DECEMBER 7, 1968, 12:15 PM EST
PAST AND PROLOGUE IN TAX POLICY
The National Archives Building in Washington contains
the inscription "What is Pas t is Prologue."
This is a
comforting thought for an archivist, and may indeed be necessary for his well-being.
I do not propose today to consider
whether the thought is a truism for Federal tax policy, and
certainly it has not always been so in past years.
Of
course, I would like to believe that the recent past -- let
us say eight years -- should be a relevant guide to the future
in the tax field, but here I recognize disqualification on
the ground of prejudice.
At any event, actions and thoughts
in that recent past are there as directional guides for the
years ahead if one chooses to consider the mapwork as useful.
So permit me today --, in a really impossibly brief and sketchy
F-l428
- 2 -
way -- to consider some aspects of that recent past and
some of the directional guides.
The Broad Economic Front
On the broad economic front, the past eight years have
been very good indeed for the United States.
They have been
eight years of sustained and adequate economic growth -contrasted with three recessions in the previous eight years.
One can produce endless and varied data and statistics to
describe those years -- not quite but almost as many as
those which our sportswriters use to fill their newspaper
pages and books.
Whether it be in terms of a low unemploy-
ment rate, new jobs, additions to GNP, increased average
income, growth in investment in plant and equipment, increased
corporate profits, overall price stability, and so on -- all
have shown remarkable gains.
It has not been an easy period to achieve all this -for it started with a high unemployment rate and an anemic
rate of growth and ends in the turbulence of war years.
That
turbulence has caused us to fasten our economic seat belts
and to be buffeted a bit, as reflected in recent price and
interest rate rises.
But price stability is hard to achieve
lr2
- 3 in war years and certainly we have been spared the controls
and greater inflation of other periods of large military
expenditures.
Moreover, after unfortunate delay we did
adopt the needed restraint and can see a moderation in the
turbulence -- though still recognizing that effective
fiscal policy has many hostages to fortune in the uncertainties that mark periods of military activity and transition
to peace.
This favorable economic growth was not an unplanned
lucky event.
We have a government of laws but fiscal poli-
cies are made by men.
The policies are a conjunction of
fiscal tools; economic forecasting as to what can be expected
without action taken; the design of the action needed and the
tools to be used to change the forecasted result if change
is warranted; the will to take that action; and an understanding that the process must be endlessly repeated as
conditions and forecasts change.
Our economic progress has
been a result of improvement in all these aspects, but most
of all in the will to use fiscal tools when action was
required.
- 4 The landmarks here are the income tax reduction of
1964 undertaken in a period when our economy was weak and
under the restraint of too high a tax burden -- but undertaken when our budget was in a deficit, a fact that, for
all its essential irrelevance, would in the past have prevented this step; the excise tax reduction in 1965 undertaken for the same fiscal purpose; and the temporary 10
percent surcharge enacted in 1968 when our economy became
too strong and restraint was needed
but undertaken in
an election year amidst a war which lacked the support
marking the previous military activities that had prompted
tax increases in the past.
ures
easily enacted.
Nor were these legislative meas-
The tax reduction of 1964 and the tax
surcharge of 1968 involved legislative debate, doubts and
desires and required a high order of political skill to
shape the solutions, garner the votes, and achieve the goals.
The will to take the needed fiscal steps and the consequences of those steps have, I believe -- and here one hopes
past is prologue -- heightened our ability to discriminate
among fiscal tools and to improve our fiscal techniques.
The power of tax reduction to promote economic growth is
- 5 now evident, whether the reduction called for is permanent
or temporary.
The surcharge technique as a tool for a
temporary change in income tax levels, when temporary change
is required, has received acceptance.
Indeed, in the
eleven months that the surcharge was under Congressional
consideration,the Tax Committees spent less than a half
hour on the structure of the surcharge itself -- and that
at the end of the Conference Committee deliberations.
The
final legislation in this regard followed in almost every
respect the President's recommendation.
(Parenthetically,
the experience with the temporary suspension and restoration
of the investment credit as a technique showed the problems
of that approach, as the Treasury had expected, and that
approach is unlikely to be tried again.)
It is encouraging
to note that the adoption of the surcharge was not an issue
in the 1968 election.
partisan support.
When it was finally passed it had bi-
An analysis of the election returns of
the House of Representatives does not indicate that any
member was defeated because he had voted for the tax surcharge -- an outcome strongly contrary to some expectations
when the House considered this legislation.
- 6 -
Our experience shows that our problems relating to the
use of the income tax for countercyclical purposes are not
problems of techniques and mechanics as respects the structural changes required.
Rather, they are issues of fiscal
policy at the political level -- differences between
Presidents and Congresses over the right fiscal policies to
pursue and over the economic outlook.
The task here is to
seek methods and procedures of resolving those issues and
differences more rapidly, since countercyclical action
requires for its best results that the action be taken
promptly -- a lesson of the 1968 experience.
Structural Aspects -- and Legislation
Let us turn now from the broad economic scene to structural aspects of the tax system.
eight years.
Here much has happened in
This is not the time for a detailed review,
but some of the events may be sketched briefly.
The Revenue
Acts of 1962 and 1964 marked the most serious efforts since
World War II to cure abuses in the tax structure -- and they
achieved around $2 billion of revenue increasing revisions,
a figure larger than all of the revenue measures since that
period combined.
Nearly every important change was a
- 7 ') (
l'~
significant struggle in itself, for the issues had consid
erable emotional content and controversy as well as tax
significance -- remember expense accounts, the dividend
credit, tax havens, compliance in reporting dividends and
interest, and the like.
Many an important matter was
decided by a vote or two in the Tax Committees, and one
learned from hard experience the problems involved in securing 13 votes in the Ways and Means Committee and 9 votes in
the Senate Finance Committee in controversial matters.
Each
matter had special problems which made for great difficulty
in achieving change.
Thus the efforts to achieve a rational
tax structure for investment abroad bad to face the task of
a complete re-orientation of tax thinking and policy in
keeping with the new international requirements faced by
the United States. Before this, legislation in this field
had been pretty much a question of efforts constantly to
reduce the tax on foreign income, with only a few understanding what the contests were all about.
There were failures as well as successes.
But no real-
ist expects full success in proposals for tax revision, or
indeed in tax policy generally, for the Congress has always
- 8 been the final arbiter of tax policy in the United States.
And the task of revision is difficult -- measured in an
analogy to exploration by the efforts involved in the discovery of the Poles, with the way strewn with the bones of
many an explorer, rather than by the modern systems of
research and technology through which we are mastering the
world of space.
Nor are there unlimited opportunities to
push the issues of tax revision.
Many trains run on the
tracks of our Tax Committees and tax revision must take its
turn along with Social Security, Public Assistance, Trade,
Customs and other legislation.
Quite often, also, all
tracks must be cleared for certain measures, including
fiscal policy legislation, which in principle must highball
along, such as the temporary surcharge.
Finally, failure can have its educational values and
pave the way to future progress.
Thus, as examples, I
believe there are many now who, on reflection, in contrast
with earlier held views, would say the Treasury was right
in 1963 in urging the principle of income taxation at death
on the appreciation in value of assets owned by the decedent
or in urging reform of depreciation rules in the real estate
field.
- 9 • J
, .......
To continue the brief summary, the Excise Tax Reduction
Act of 1965 ended our system of discriminatory excise taxes;
the Federal Tax Lien Act of 1966 modernized our tax lien
procedures; a succession of legislative measures achieved
current payment for corporations and graduated withholding
for individuals and, coupled with administrative measures
requiring prompt payment of withheld taxes and excise taxes,
have given the United States a fully current system of tax
collection; the Foreign Investors Tax Act of 1966 provided
a wholly revised and rational tax policy for foreigners
investing in the United States; the Interest Equalization
Tax Act gave us a flexible tool for controlling portfolio
flows abroad.
And in between were numerous, varied, and
less extensive measures to solve specific problems.
In the international area, statutory improvements were
accompanied by modernization and expansion of our treaty
network.
A new structure for income tax treaties was
devised, building on the DEeD Model Draft where appropriate,
and the process of securing adoption of this modernized version through agreements with developed countries is well
along.
A basis for treaties with less developed countries,
- 10 varying in approach depending on the particular situations
involved, has been established, and is ready for fuller
implementation when the Senate Foreign Relations Committee
regards our international position and our domestic budgetary
posture as appropriate to permit extension of the investment
credit to investment abroad.
A new version of an estate tax
treaty, building where appropriate on the OECD Model Draft,
has been developed which will afford greater opportunity
for foreign portfolio investment in the United States and
greater protection for the estates of our business executives
and others who may die while on overseas assignments.
The
process of obtaining adoption of this type of treaty is now
under way, with basic agreements reached with the Netherlands
and Israel.
These efforts at international tax cooperation
have been supplemented by affirmative positions taken by the
United States in the OECD Fiscal Committee seeking steady
development of the tax principles to govern international
transactions, especially in the field of the allocation of
income and deductions.
Structural tax revision involves the correction of
inequities to taxpayers as well as the correction of tax
- 11 -
abuses and escapes favorable to taxpayers.
Here also
steady progress has been made in improving the tax structure -- in the introduction of the minimum standard
deduction; the splitting of the first bracket of tax into
four brackets; the introduction of an averaging system; the
adoption of a new deduction for employee moving expenses;
the unlimited carryforward of capital losses; the inclusion
of tips in Social Security wages; the revised treatment of
dealer's reserves.
Tax revision also involves innovative measures to keep
the tax structure abreast of economic changes.
The invest-
ment credit in 1962, the recapture as ordinary income on
the sale of personal property of excess depreciation deductions, and the administrative depreciation reforms of 1962
and 1965, creating the guideline system and the reserve
ratio test, have established the framework for a rational
tax treatment of investment in machinery and equipment.
The
guidelines have put an end to haggling and uncertainty and
the reserve ratio test is a workable device to achieve selfcorrection within those guidelines, as our soon to be
published computer study of depreciation rules demonstrates.
- 12 Allow me to spend a moment on the subject of depreciation.
Despite the improvements just mentioned, we still
have many miles to go before all of the problems in the
depreciation field are solved.
The tax structure was
severely wounded by the introduction in 1954 of accelerated
depreciation methods without any groundwork of advance
study to develop the safeguards and rules necessary to
accompany the liberality of those methods.
Such surgery
produces a severe shock from which the recovery is painful,
difficult and slow.
This is not to say that accelerated
depreciation of machinery and equipment is wrong.
But in
the realistic world of tax planning and maneuvering, where
every possible avenue of tax escape is ingeniously exploited
to the full, the failure to provide adequate safeguards
when accelerated depreciation was offered is clearly evident
in retrospect.
It has taken years to correct, through
recapture, the "ordinary income - capital gain advantage"
accorded to personal property, and this is but the beginning
of the steps toward recovery.
We still face all the abuses,
the tax escapes, and the economic distortions in the real
estate area -- all because accelerated depreciation happened
- 13 1(,7
to be given to real property as well as personal property;
we face the abuses and business distortions involved in the
leasing of machinery and equipment (here linked with the
tax limit on the investment credit); we face the payment of
tax-free dividends by many companies who use accelerated
depreciation for tax deduction purposes and the computation
of tax earnings and profits but straight-line depreciation
for book purposes.
Some of these difficulties -- such as
leasing -- could be solved administratively and studies
are here under way, but considerable legislation, especially
as respects real estate, will be needed before all the damage
is repaired.
And there are still those who urge even more
acceleration for depreciation!
As stated above, structural tax revision involves the
correction of tax abuses, the elimination of unfairnesses,
and the introduction of innovative changes.
But along with
these tasks of regaining lost terrain and seeking improvement, there is also the constant task of not yielding new
ground and opening up new avenues of escape and preference.
Much of the late 1940's and 1950's consisted of a steady
erosion of the tax structure.
But in the last eight years
there have been no real breaches of that structure, with
- 14 the exception perhaps of the self-employment pension plan
and that has its limitations.
And in the treatment of the
"little tax bills" the efforts to separate justifiable correction from unfair preference and deal with each in
appropriate fashion have yielded a high degree of success.
In this matter of not taking backward steps one can
see the dangers ahead.
Much could be lost, for example, in
pursuing the "will-of-the-wisp" of value-added taxation in
an effort to improve our trade position, or in plunging the
tax structure into a maelstrom of tax incentives and tax
credits.
Structural Aspects -- and Administrative Rules
The tax structure is shaped by interpretations embodied
in regulations, rulings, and other administrative pronouncements as well as by legislation.
The last eight years have
produced a steady pace of activity designed to improve the
administrative interpretation of the Internal Revenue Code.
One facet of this effort has involved the clarification and
deepening of administrative guidance in various fields.
few examples:
A
- 15 The depreciation guidelines earlier mentioned
provided a uniform, consistent system for the
handling of the depreciation deduction and
replaced the inconsistencies, discriminations,
and arbitrariness under the prior method of
negotiation and haggling.
The consolidated return regulations revised the
rules in this area to accord with modern accounting practices for consolidated balance sheets
and profit and loss statements.
The regulations on the deduction for educational
expenses continued the evolution of the tax rules
to match the changing patterns in training.
The recent pension plan regulations modernized
the rules governing integration with Social
Security benefits to keep pace with the changes
in Social Security legislation and the maturing
of that system.
The Section 482 regulations faced the challenging
task of articulating the guidelines, drawn from
modern accounting and management practices, to
govern the allocation of income and deductions
- 16 -
among related enterprises, especially in the
international area.
The earnings and profits regulations under Subpart F for the first time provided a system for
establishing the profits of foreign enterprises,
based here also on modern accounting concepts.
Another facet of this administrative activity has been
the correction of earlier administrative mistakes.
The task
of administrators is to make wise and proper decisions.
A
part of that task is the responsibility and duty of recognizing when that standard has not been achieved ani errors have
occurred.
Here also the effort has been to acknowledge the
errors and effect the correction.
As examples:
The regulations providing for the recognition
of gain on the creation of swap funds.
The regulations on the treatment of advertising
of exempt organizations as an unrelated business
(here no earlier error was involved, but rather
the culmination of a long study pending which
the contrary rule was permitted to obtain).
- 17 The proposed regulations on the taxation of
industrial development bonds.
The recent ruling denying deduction generally
for prepaid interest.
The correction of the ruling on split-dollar
life insurance.
The pending revision of the restricted stock
regulations.
In some of these instances the administrative action
was followed by legislative consideration and efforts to
undo the administrative interpretation.
The outcome in
each case was, however, essentially favorable to the position taken administratively and the end result was a
structural improvement in the area involved.
Thus, most
recently, in the matter of industrial development bonds two
legislative measures this year finally ended in taxation of
these bonds subject to a $5 million exception for projects
under that size.
As a matter of tax policy even a $5 million
industrial development bond issue is inappropriate and the
proposed regulations had contained no dollar amount exception -- there are more efficient non-tax routes to assist
industrial expansion -- but a $5 million issue is a long
- 18 -
cry from the tax-free issues of $150 million with which
1968 opened.
The formulation of proper tax policies at the administrative level provides an especially difficult challenge.
The great danger is that of lethargy -- a hidden lethargy
amidst the volume of day-to-day activity that characterizes
a large organization.
Unless extreme care is taken this
great activity -- essential as it is to the overall tasks
of tax collection -- will obscure the unwillingness or
inability to perceive and face issues of tax policy.
In
this regard I would here like to repeat some earlier words
on the importance of administration to tax policy, which
were in the course of discussing certain financing techniques
(industrial development bonds, tax-exempt organizations borrowing to acquire businesses, and leasing of machinery and
equipment):
"Congress enacts legislation intended to provide
a particular tax benefit or tax result for a designated
group in order to accomplish a rational purpose -- a
tax-exempt interest status to municipal bonds to assist
localities financially and to achieve a Federal-local
relationship which both levels of government consider
desirable for reasons apart from strictly financial
considerations; a tax-exempt status to charitable
organizations to encourage philanthropy in the United
States; depreciation deductions that are as appropriate
- 19 as possible to the measure of taxable income; investment credits to achieve an increase in industrial
modernization and expansion. But there are those
outside the group intended to be benefited waiting
to seize on every such tax benefit to see how its
operative mechanics may be distorted to achieve
advantages wholly foreign to the purpose behind the
benefit.
"If not checked in time these distortions begin
to assert a legitimacy of their own -- to assert tax
squatters' rights against the Treasury. It is then
said that administrative action cannot be taken to
dislodge them, and a legislative command is required.
Sometimes the Revenue Service itself grants a cloak
of legitimacy through favorable rulings in the early
stages of the transactions before their structure and
scope have been clearly analyzed and appreciated.
Then when it has become clear to all that the distortion has created a major problem, it is said that the
administrative error cannot be corrected by the
administrators who made it.
"Indeed, many of the tax preferences that today
create severe unfairness in our tax system and permit
many individuals and coprorations to escape their
share of the tax burden were never legislated at all
by the Congress. Instead, their beginnings lie in a
Treasury Regulations or administrative ruling, illconsidered or ill-conceived at the time or -- to be
more charitable, because every tax policy official
wonders what mistakes his successors will charge
against him -- handed down to meet a legitimate problem and then in turn itself distorted. The fact that
many of these tax preferences carry this bar sinister
in their heritage does not, of course, make their
present beneficiaries any the less forceful in defending their tax advantages.
"And so another lesson emerges from these illustrations -- vigilance, skill and imagination in tax
administration can be a powerful force in the maintenance of equity in the tax system. It can likewise be
- 20 a powerful force to protect legislators from having
to grapple years later with difficult legislative
issues which they had no hand in creating." 1/
Research Capability
The conduct of tax policy today demands a high order
of research capability.
The problems are intricate and
complicated, and the search for the data and analysis needed
to help in their resolution must be avidly pursued if the
solutions are to meet the standards our tax system merits.
Moreover, quite an arsenal of material is required to answer
the problems and questions of the host of businesses and
individuals affected by any new proposal, as well as to
counter the intense probing for possible weaknesses in a
proposal, in so many ways and from so many angles, that
inevitably accompanies its consideration.
In the past eight years, the Treasury staff engaged in
::ax policy ac tivities has doubled, and that part occupied
Tith international tax matters has grown almost five fold.
'here are now around fifty-five professionals (economists,
2wyers and accountants) in the tax policy area.
Their work
~s
supplemented by the activities of the Internal Revenue
il
Tax Trends and Bond Financing, an address before the
Municipal Forum of New York, June 13, 1968 (Treasury
Release F-l273).
- 21 -
3 11
~4
Service, a large number of formal consultants drawn from
many quarters, and by the assistance that is informally
given over a wide area by those willing to make their
expertise available to the Government.
Accompanying this enlargement of staff and consultants,
there has been an increasing use of the tools of modern
economic research -- econometric models and analysis, computer analysis, and the like.
These tools are being applied
to the study of problems and proposals and to the task of
revenue forecasting and estimating.
The use of "tax models"
under the individual, corporate, and estate and gift taxes
a representative statistical sample of tax return data on
tape for computer use -- has greatly enhanced the capability
of the Treasury to estimate the effects of proposals for
change.
Also, data are being gathered to undertake for the
first time systematic studies of the tax position of identical taxpayers over a period of time, which will provide
considerable insight into the effects of the tax structure
and income fluctuations (or their absence) taken together.
These efforts are supplemented by programs that will add nontaxable receipts to the taxable income data, and non-taxpayers
to the taxpayers in the models.
- 22 The Treasury has also engaged in large scale studies
designed to advance our knowledge in a variety of fields.
For example, it has financed work by several outstanding
scholars on the effects of tax policy on investment; it
has recently published a study on Overseas Manufacturing
Investment and the Bdlance of Payments; it will publish
shortly a computer study and detailed analysis of Tax
Depreciation and the Need for the Reserve Ratio Test; and
it has studies under way in a variety of areas, such as the
effects of tax policy on real estate.
Throughout it has
maintained close liaison with other institutions and individuals engaged in tax research and facilitated their
studies by making the needed data available.
But even though the research capability and activity
have been greatly expanded, the proper development of our
tax structure and our tax policies in the years ahead will
require still larger research resources.
The Government
tax research base is still small when compared to that
existing in other areas and in relation to the complexity
and importance of tax issues.
Moreover, there must be
constant attention paid to the mix of research -- Treasury
- 23 consideration of immediate problems; Treasury research on
the likely issues a few years ahead, on matters that
should be pushed forward as issues, and on analysis to
provide a better basic understanding of the workings and
effects of our tax system; the obtaining of contract
research by outside organizations and individuals in these
areas; and the encouragement of research activity generally
in the tax field.
Relationship of Tax Policies to Budget Expenditures
The imperative need to move forward in the solution
of our social problems has brought to the Treasury a new
dimension of activity not usually associated with the
Department. This largely comes about because for nearly
every social problem that we face we can be sure to find
some groups that will urge the use of the tax system as the
path to a solution.
Such solutions can be generally classi-
fied under the heading of tax incentives or tax credits -and the familiar items here are incentives or credits for
education, manpower training, pollution, urban and rural
development, housing, and so on.
For the Treasury to stand
idly by and watch a procession of tax incentives would be
to permit a rapid deterioration of our tax structure.
- 24 But disinclination to regard tax incentives as the
path to solution is not enough, for it still leaves the
problems unsolved.
Consequently the Treasury has had to
engage in research, on its own account and in cooperation
with other agencies, on the problems themselves and on the
possible nontax solutions that should be explored or
advanced.
This obviously expands the research requirements
of the Treasury, though it has the advantages of keeping it
fully involved in a great variety of domestic matters not
usually considered as falling under tax policy.
This activity in turn has led to a fuller exploration
of those existing tax policies which, through tax preferences and special rules, depart from the normal concepts
applicable to the determination of taxable income and thereby
provide within the tax system an array of so-called "tax
expenditures."
These tax expenditures represent the tax
revenues being "spent" (through being lost to the tax system)
to achieve the specific nontax goals represented by the
special rules.
In this regard the tax expenditures stand
as alternatives to the direct Government expenditures, in
the form of loans, grants, guarantees, and the like, that
could have been utilized to achieve those same specific goals.
- 25 This exploration of the tax expenditure concept has
involved efforts to describe and quantify the existing tax
expenditures, in much the same fashion as direct Government
expenditures are identified in the Budget.
It has also led
to studies designed to compare, on a cost-benefit approach,
the efficiency of the tax expenditure route compared with
the direct expenditure route and to identify the factors
relevant to that comparison.
Such studies relate both to
existing preferences and proposed tax expenditures through
new tax incentives or credits.
These efforts indicate that in some areas of Government
the tax expenditures are a sizeable amount, in absolute
terms and in relation to the amount of direct budgetary
expenditures.
One would hope that other agencies of Govern-
ment having direct cognizance over the activities involved
would also take an interest in these tax expenditures.
There is considerable basis for the belief that in some
situations the amounts involved in the tax expenditures
could be utilized more efficiently if they were spent as
direct expenditures.
- 26 -
Continuing Revision
The task of structural revision of our tax system should
be regarded as an ever-continuing effort.
Secretary Fowler
earlier this year stressed this need, in speaking of areas
of concern to the Treasury in which continuity of policy is
essential.
He used these words:
"A third area for policy continuity in 1969 is
tax reform. After the reforms of the Revenue Acts
of 1962 and 1964 and 1965, the Treasury Department
undertook a major effort to prepare tax reform proposals of a comprehensive nature in 1966 and 1967.
The plan was to launch a major legislative effort
on the heels of the enactment of the temporary surcharge legislation. Because of the delays in enacting the surcharge legislation and the fact that
substantial tax reform requires extensive legislative
consideration, there was no suitable opportunity to
push these proposals on to the legislative calendar.
"It is clear that tax reform must be a matter of
high priority as respects tax policy and the work of
the Congress. I and my associates in the Treasury
have called attention to some of the areas that we
feel should be given consideration. As one example,
there is the impact of our present tax system on those
in poverty. A country concerned about the plight of
the poor should certainly be concerned about not
imposing the 10 percent surcharge on low income taxpayers. At the other end of th~ scale is the serious
problem of those taxpayers with very high annual
incomes who make little or no contribution to the
Federal Government because of the use, singly or in
combination, of many of the tax preferences adopted
for particular purposes. There is also need for an
extensive, searching review of the rules unut:.L tn~
estate and gift taxes and the associated question of
the treatment of transfers of appreciated assets at
death under the income tax.
- 27 "Two cardinal principles should guide us in considering tax reform. One is that the standards of
equity and fairness and desirability must be applied
in the context of the world today. Tax provisions
adopted to serve certain needs in the past must
constantly be tested to see if they are still appropriate. We must ask what is the net benefit to the
nation from such a provision in terms of the present
cost -- what is the efficiency and effectiveness of
the tax provision as contrasted with other forms of
Government assistance that may not have the sideeffects of income tax liberality to individuals or
corporations that accompany the use of the tax route?
"The second principle is that change from yesterday's rule to today's new need must be orderly and
fair, so that those who had planned their businesses
or lives on the basis of the earlier provisions may
have an orderly transition to the new standards. But
it is orderly transition that I am emphasizing and
not stagnation or indefinite postponement of any
change, for tax preferences should not be a hereditary
matter handed down from one generation to the next." 1./
The reform that Secretary Fowler spoke of involves change
in the tax structure.
As he indicates, there is much to be
done -- there always will be -- in this area.
In addition to
such structural reform, there are important aspects of tax
policy and expenditure policy having a relationship to the
tax system that
11
wil~
one can expect, be debated in the period
Address before the National Industrial Conference Board,
September 20, 1968 (Treasury Release F-1354).
- 28 -
ahead.
Just as illustrations, one can refer to such matters
as income maintenance or negative income tax programs now
the subject of inquiry by a Presidential Commission; the
need for re-examination of the benefit structure of the
Social Security system and its financing, together with
improvements in the structure of the private pension plan
sys tern; the worry over the effec t on S tate and local interest
costs and on individual windfall benefits through the greatly
expanded use of State and local tax-exempt bonds that
loo~
just ahead and for which solutions such as an Urban Development Bank have been advanced; the wisdom of revenue sharing
and the feasibility of the various alternatives suggested;
procedures to achieve the pace of action necessary to carry
out needed countercyclical tax action effectively; procedures
to achieve better coordination of Congressional consideratioo
of revenues and expenditures.
Conclusion
If the tax ac tivity of the pas t is indeed prologue, then
the years ahead will continue t.O be ac tive ones.
This is
it should be in the tax field, for the appropriateness,
equity, and vitality. of a tax system depend upon constant
a8
- 29 attention.
Proven fiscal tools are not the exclusi.ve prop-
erty of any Administration or political party.
the problems.
Neither are
There are the difficult problems that accumu-
late over the years and yield only slowly to solution.
There are the new problems whose outlines are already apparent.
And there are the unforeseen problems that come
suddenly on the scene.
All must command our efforts if we
are to achieve, not perfection, but that high degree of
effectiveness and fairness which can properly be demanded
of those who have chosen to make tax matters their professional career.
TREASURY DEPARTMENT
WASHINGTON, D.C.
RRELEASE 6 :30 P.M.,
oday, December 9, 1968.
RESt:L'IS vi? TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders tor two series ot Treasury
11s, one series to be an additional issue of the bills dated September 12, 1968,
d the other series to be da~d December 12, 1968, which were offered on December
1968, were opened at the Federa 1 Reserve Banks today. Tenders were invited for
,600,000,000, or thereabouts., c f en-day bills and for $1,100,000,000, or therelouts, of 182-day bills. 'Ille details of the two series are as follows:
.NGE OF ACCEPTED
lMPE'l'ITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturi~ March 13, 1969
Approx. Equiv.
Price
Annual Rate
5.72~
98.554
98.524
5.839i
98.537
5.788~
?
Y
182-day Treasury bills
maturing June 12, 1969
Approx. Equiv.
Price
Annual Rate
97.029
5.877J
97.002
5.93~
97.014:
5.906~
Y
~ Excepting 1 tender of $75,000
3~ of the amount of 91-day bills bid for at the low price was accepted
5~ of the amount of V?2-day bills bid far at the low price was accepted
OTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philade 1phia
Cleveland
Richmond
Atlanta
Chicago
st. Louis
Minneapolis
Kansas City
I611as
San Francisco
Applied For
$ 22,947,000
1,532,36S,000
39,295,eC()
50,210,000
22,717,000
4-6,. 623 ~ ()c·(;
156. 2 g~; , :~J.}:
48,758,COO
roTALS
$2,172,281,000
"
28~188,UO()
34,J51,)00
31,302,000
159,517,000
Applied For
$ 13,815,000
1,404,073,000
23,4:17,000
56,163,000
8,582,000
31,029,000
121,168,000
24,644,000
22,376,000
20,256,000
25,384:,000
181 z14:6,2000
Acce;Eted
6,995,000
$
767,403,000
9,417,000
40,163,000
6,035,000
22,931,000
77,668,000
21,944,000
15,851,000
18,051,000
14,974,000
99 z024 z000
$1,600,021,000 ~ $1,932,053,000
$1,100,456,000
AcceEted
$ 22,94:7,000
1,010,428,000
27,475,000
50,210,000
20,717,000
42,629,000
141,299,000
44,758,000
28,188,000
34,051,000
23,302,000
154 z017 z000
£I
~/ InCludes $323,379, 000 D\)n~';mpeti tive tenders accepted at the average price of 98.537
~/ Includes $162,084,000 nor!'200rrx'tttive tenders accepted at the average price of 97.014
~ '!hese rates are on a bank d' :~c.:J1.mt basis. r.Ihe equivalent coupon issue yields are
5.96~ for the 91-day b11:::" and 6.17;' for the 182-day bills.
F-1429
r::"
v .--
,
!
TREASURY DEPARTMENT
,
WASHINGTON, D.C.
December 10, 1968
FOR IIvllvIEDIATE RELEASE
TREASURY rvf..ARKET TRANSAC TIONS IN NOVEMBER
During November 1968, market transactions in
direct and guaranteed securities of the Government
investment accounts resulted in net purchases by
the Treasury Department of $41,750,250.00.
000
F-1430
TREASURY DEPARTMENT
t
WASHINGTON, D.C.
December 11, 1968
?OR IMMEDIATE RELEASE
TREASURY SECRETARY FOWLER HONORS FOUR
IN RECOGNITION OF LEADERSHIP AND SERVICE
Secretary of the Treasury Henry H. Fowler today conferred
the Alexander Hamilton Award -- the Treasury Department's
highest honor -- upon four members of his staff.
The awards went to:
Sheldon S. Cohen, Commissioner of the Internal
Revenue Service;
Fred B. Smith, the Department's General Counsel;
Robert Ao Wallace, Assistant Secretary;
Douglass Hunt, Special Assistant to the Secretary.
Mro Cohen, a Washington attorney prior to being appointed
Commissioner in 1964, was cited for the quality of tax
administration during a time when revenue collections were
riSing to succes si ve all time highs. Mr. Cohen, the
citation said, ''has brought to the Commissionership professional
qualifications rarely, if ever, equalled." During Mr. Cohen "s
tenure, the citation noted, "revenue collections have risen to
successive all time highs as the quality of tax administration
has steadily strengthened. Mr. Cohen has assured this by
making orderly and equitable development of the Code -- apart
from revenue considerations -- a matter of policy at the
Se~ice. At the same time he has set new standards for courtesy
and assistance to taxpayers."
Mr. Smith, a career attorney with the Treasury Department
s~ce 1943, was cited for his legal leadership in the development
md carrying out of successful policies on such diverse matters
·1431
- 2 -
reduction in tourist exemptions from customs duties, the
:hanging of the coinage system of the United States, the
!limination of gold and silver backing of currency, providing
.ncreased resources for international banking institutions, and
>roviding authority for effective control of interest rates paid
>y domestic financial institutions.
IS
Mr. Wallace, former assistant to Senator Paul H. Douglas
md staff director of the U.S. Senate Committee on Banking and
~urrency, was cited for his vital role in the formulation of
~deral economic policies, particularly in his close
~ssociation with the Council of Economic Advisers, the Bureau
)f the Budget and the Federal Reserve Board. In addition,
~r. Wallace was cited for his management of the Bureau of the
~nt, the formulation and execution of international trade
polkies and the development of consumer protection legislation,
especially the Consumer Credit Protection Act of 1968. As
the Department's Equal Opportunity·· officer, he has led the
program to achieve full equality of employment in the Treasury
for members of all minority groups.
Mr. Hunt, a Washington, D. C., attorney prior to his
Treasury Department appointment in 1961, was cited for
important contributions to virtually every area of the
Department's activity. "Through his willingness to apply his
talent and energy unstintingly, he has developed an exceptional
knowledge and understanding of the entire range of Treasury
policies and programs. In a very real sense, he has become an
important and wise adviser to all of the principal officials
of the Department, and a ~ey participant in the formulation and
execution of Treasury policy," the citation said.
000
Attachments
CITATION
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.
t.tWlt.d IWn .the.
TREASURY DEPARTMENT
,
WASHINGTON. D.C.
December 11, 1968
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by
for two series of Treasury bills
$2,700,000,000, or thereabouts,
Treasury bills maturing December
$ 2, 701 , 750 ,
a s follow s :
°°°,
this public notice, invites tenders
to the aggregate amount of
for cash and in exchange for
19, 1968,
in the amount of
91-day bills (to maturity date) to be issued December 19, 1968,
in the amount of $ 1,600,000,000,
or thereabouts, representing an
additional amount of bills dated September 19,1968,
and to
mature March 20,1969,
originally issued in the amount of
$1,100,108,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,100,000,000,
or thereabouts, to be
dated December 19, 1968,
and to mature June 19, 1969.
The bills of both series will be issued on a discount basis under
competitive and noncompetive 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, December 16, 1968
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 deriimals, 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.
0
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
S~bmit tenders except for their own account.
Tenders will be received
wIthout deposit from incorporated banks and trust companies and from
F-1432
- 2 t:"esponsib1e and t:"ecognized dealet:"s in investment securities. Tenders
from others must he accompanied by payment of 2 percent of the face
amount of Tt:"easut:"y bills applied fat:", unless Lhe tenders are
accompanied by an express ~uaranty of payment by an incorporated bank
at:" trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public announc
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 rej ection thereof.
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 tenden
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 December 19, 1968,
cash or other immediately available funds or in a like face amount
of Treasury bills maturing December 19,1968.
Cash and exchange
tenders will receive equal treatment.
Cash adjustments will be made
for differences between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954.
The bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest.
Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets.
Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue.
Copies of the circular may be obtained
from any Federal Reserve Bank 060~ranch.
TREASURY DEPARTMENT
Washington
FOR RELEASE 9: 30 A.M., CST OR
10 :30 A.M., EST
FRIDAY, DECEMBER 13, 1968
STATEMENT OF THE HONORABLE ROBERT A. WALLACE
ASSISTANT SECRETARY OF THE TREASURY
BEFORE A HEARING OF THE U. S. COMMISSION ON CIVIL RIGHTS
SAN ANTONIO, TEXAS, DECEMBER 13, 1968
Mr. Chairman and members of the Commission, I am pleased
to testify concerning the Treasury Department r s activities as
a compliance agency to administer the requirements of
Executive Order 11246 as they apply to Federal depositary
banks. These requirements involve equal employment opportunity
practices with respect to hiring, promotion, training and
other personnel activities.
In a recent attempt to assess progress achieved in this
area, we made a survey of 230 banks in 20 large cities. It
shows that 5,400 more Negroes held bank jobs in 1968 than in
1967, a one-year' increase of nearly one-third. During the
same one-year period bank employment of Spanish-surnamed
Americans in those cities rose 2,700, also a jump of almost
one-third.
The fact that these improvements occurred within a single
year means that many of the banks in these 20 cities have
achieved real progress in their efforts to extend equal
opportunities to minority groups. However, some banks have,
so far, done very little in this area; so we still have a big
job ahead of us.
Commercial banks with Federal deposits did not immediately
become subject to the Equal Opportunity Executive Order 11246
when it was issued in September 1965. Almost a year after
that order was issued, it was ruled by the Attorney General
and the General Counsel of the Treasury that the 12,000 banks
holding deposits of Federal Government funds were covered by
these Federal nondiscrimination regulations. Government deposits
with depositary banks were determined to be contracts covered
by the Executive Order
0
F-1433
- 2 -
It was by announcement right here in San Antonio that
president Johnson advised the Nation of these new rules that
had been published by the Treasury Departmento
TIle Federal funds made available to the Federal
depositaries increased the lending capacities and hence the
earnings of the banks receiving them. Federal funds on
deposit in these banks in recent times have averaged about
$4 billion.
In September 1967, commercial banks, savings banks, and
Savings and Loan Associations who serve as issuing and paying
agents for U.S. Savings Bonds and notes were also included in
the coverage of Executive Order 11246.
Specific guidelines for compliance by the depositary
banks and the issuing and paying agents were released in
November 1967 and published in the Federal Register.
Government-wide regulations issued by the Labor Department
call for compliance reviews of the larger covered institutions.
About 2,000 of the 12,000 banks which serve as depositaries
have 40 or more employees and so would be affected.
Few would dispute the fact that the banking industry,
until fairly recently, has hired very few minority employees o
Nonwhites, Spanish-speaking and other minority groups held
some of the lowest paid jobs, for the most part blue-collar
positions, but their presence in white-collar positions was
a rarity. As a result, Spanish-speaking Americans, black
Americans, and other minority groups did not formerly seek
employment where they felt they had not been welcome. It
became apparent to us at Treasury that to overcome these
continuing conditions, the Treasury Department needed to make
members of the banking industry aware not only of the
obligations to taking positive and dramatic action in their
total employment p~actices, but also of the value of such
policies.
To administer the bank program, we have a very small
staff. In the beginning we requested appropriation for the
assignment of 15 persons to engage in a program of review
and assistance to the banks to assure their compliance with
the Executive Order o Congress did not approve our request
- 3 -
"'1.•
v
.
I
I
and granted us no appropriation, requiring the Secretary of the
Treasury to absorb all costs. Despite restrictions on Federal
spending, he found it possible to permit the hiring of three
professional persons. This is the extent of the staff to date.
It is a competent staff. I will share with you Some of the
things we have learned and have accomplished which I believe
are significant. While much more might have been accomplished
with a staff the size we requested, we have nevertheless
utilized what resources we had to secure maximum overall
resul ts •
During the past year and a half we have contacted, by
correspondence, the Chief Executive Officer of every commercial
bank in the country and of each savings and loan association
and savings bank who were issuing and paying agents of D.S.
Savings Bonds and Savings Notes. We informed these financial
institutions of their obligations under Executive Order 11246
which now required them to be in compliance with Equal
Employment Opportunity provisions that affected all Federal
Government contractors. We provided each of these financial
agents with guidelines in the form of questions and answers o
We met with officials of the banking industry at their
conventions and explained to them the requirements of the
Executive Order which called for affirmative equal employment
practices and we provided them with guidance on how to develop
more effective recruitment activities among minority groups
Because we have a small staff, we actually developed for the
banking industry a self-analysis guide which we encourage
banks to utilize in order that they may determine a practical,
working approach to the problems of ending discrimination and
complying with the obligations they now have as Federal
contractors
0
0
We have found during the past year and a half that large
numbers of banks are anxious to improve their hiring of
minorities but that they often did not know how to recruit
them. In many cases, a commitment to change the image of the
industry has been frustrated because banks have followed some
of the same old recruitment practices which over the period of
many years have become a matter of habit.
To enable the banks to move forward with greater ease
during this past year we conducted several innovative
programs. I believe that it was necessary for me to meet
with as many heads of banks as I could and explain the
~quirements of the Executive Order and help them understand
their obligations for taking affirmative action in ending
discrimination in employment. My office has conducted a
- 4 -
3?~
. v
series of four conferences under the j oint auspices of the
American Bankers Association and the United States Treasury
Department
These four conferences provided us an opportunity
not only to stress the requirements and obligations but also
in workshop technique to provide specific guidelines and
assistance that have produced results. Meetings were held in
Philadelphia, Lansing, Los Angeles and Chicago. Their
purpose was to bring together the heads of banks
approximately 400. The results accomplished in these four
sessions could not have been achieved by our small staff
working with single banks, one at a timeo
0
I am submitting for the record, a summary of the most
recent conference held in Chicago. It will indicate to
you the positive, affirmative, innovative program that has
produced results.
As I went about the country, I became impressed with the
real need to impress upon the members of the banking community
that their obligation under the Executive Order is for equal
employment opportunity for all Americans -- I felt they
needed to know and understand the problems of exclusion facing
Spanish-speaking Americans who needed good jobs and job
training and who wanted to be hired by the banking industryo
So we have talked to the bankers about the needs of Spanishspeaking people and of the neglect up to this time in
soliciting them to compete for jobs.
I am aware that the Mexican American is and has been a
neglected American, that he has faced and still, regrettably,
faces handicaps in language, education, jobs, heal th and
housing opportunities. I have impressed upon bankers that
the Mexican-American, over 5~ million strong, represents the
second largest minority group in this country and provides
living testimony to the repeated failures among this group to
realize the American dream.
We are telling banks that they must meet the problems of
employment of the Mexican-American, of the American Indian,
of the black American, of the Orientals, of the Puerto Ricans
living on the mainland, of those religious minorities -Jews and Catholics -- who have not been given a fair shake
in getting job opportunities and in climbing the ladder of
success in the world of work.
- 5 There is no mystique connected with the Executive Order.
It is a straight-forward document which sets forth employment
requirements to do business with the Federal Government. Our
area of concern here is Section 202 of the Order. This
section spells out the provisions that are included in every
Government contract. At this point, I would like to quote
pertinent paragraphs that make up the Equal Employment
Opportunity Clause.
The first is "The contractor will not discriminate against
any employee or applicant for employment because of race,
creed, color, or national origin. The contractor will take
Affirmative Action to insure that applicants are employed and
that employees are treated during employment without regard
to their race, creed, color, or national origino Such
action shall include, but not be limited to, the following:
employment, upgrading, demotion, or transfer; recruitment
or recruitment advertising; layoff or termination; rates
of pay and other forms of compensation; and selection for
training
.08
"
This portion of the first paragraph of the clause is
the heart of the entire program.
So many people ask what is affirmative action. The
Department of Labor has not defined affirmative action and has
announced that it does not intend to do so. I think it needs
to be defined. I, therefore, defined affirmative action for
the bankers a year ago in September at the American Bankers
Association Convention in New York and we continue to hammer
away at promoting an understanding of this important hitherto
undefined termo My definition is "Affirmative Action means
applying management techniques and controls over all personnel
actions that are normally applied to any program that you want
to succeed. It means analyzing the methods, procedures, and
results of personnel actions at all levels to determine whether
they have resulted in the exclusion of qualified or trainable
workers because of 'race, intentionally or unintentionally.
It also means taking direct immediate and appropriate
corrective action if discrepancies are found between policy
and practiceo"
We have just scratched the surface but there have been
Some significant result's. In everyone of the 40 banks
throughout the country where we have conducted a review of
the personnel programs and equal employment practices we have
,...3() ~-,
- 6 -
seen improvements. As a result of the conferences we have
held, we have been able to ask banks to take affirmative
action and to furnish us a report, 90 days thereafter, of
activities and progress following the conference. In an
amazing proportion of banks whose staffs we have met, there has
been an increase and broadening in the recruitment, hiring and
upgrading of minority group persons, to the mutual benefit of
the banks and their communities. We have recently revised the
agreement that Federal depositaries be required to sign when
they get their qualification to hold Federal deposits. This
makes it clear that they are expected to take affirmative
action in fulfilling their requirements and at the same time,
provides for assurances of the elimination of segregated
facilities and conditions.
We hope that the number of banks disqualified for deposits
because of non-compliance can be kept to a m1n1mum. However,
the Department has made its requirements clear and four banks
have lost their Federal deposits because they refused to take
any action to meet the equal employment opportunity requirements.
This action has served notice to the entire banking industry
that the Treasury Department will use sanctions for noncompliance when it is necessary.
We have had an opportunity during the last several weeks
to compare some of the statistics that are filed annually by
banks with over 50 employees. I have some comparative data
for 8 of the larger San Antonio banks. In 1967 these 8 banks
employed 1,096 people of whom 81 were minority group persons.
The breakdbwn of minorities were 70 Spanish-speaking, 10
Negroes and 1 Oriental. In 1968, these same 8 banks employed
1,138 people, 42 more than in 1967. But, in 1968 the minority
utilization had jumped from 81 to 243 and we found that these
~ banks were now employing 216 Spanish-speaking people,
24 Negroes, 2 Orientals and 1 Indian. Of course much remains
to be done but it is good to know that in less than a year,
t~e minority utiliz.ation has tripled -- from 81 to 243.
This
should provide evidence that a real start is underway and
that minority group persons in the city of San Antonio can find
encouragement in this and therefore make inquiries about and
apply for employment and training opportunities. Most
important, they can make these inquiries for employment with
the expectation that they now must get a fair shake and if
they are qualified or qualifiable, they will probably be
hired.
- 7 There are 4 additional banks in San Antonio which were
not required to file reports with the Government in 1967 but
which did file in 1968 and as a consequence, I have data for
l2 banks on 1968 employment. Although all these cannot be
compared with previous years, there is some evidence of an
upward move in the utilization of the Mexican-American and the
black American by the San Antonio banking industry. These
12 bank reports indicate a total employment of 2,075. Of
this number 425 are minority group persons broken down as
follows: 364 Spanish-speaking and I assume Mexican-Americans,
54 Negroes, 6 Orientals and 1 Indian. This represents 140
male and 285 female minority group members.
I shall be happy to answer any questions about the
program which the Commission may direct.
Thank you.
Attachments
SAMPLING OF 230 BANKS IN THE
Total
employees
Total
minority group
~O
LARGEST CITIES
Negro
Oriental
Indian
SpanishAmerican
1L968
268,381
37,317
·22,457
3,140
230
11,490
~967
241,759
28,658
17,084
2,643
148
8,783
Overall Minority Utilization - 1968 ............. 13.9%
1967 ............. 11.9%
00
Increase:
Jobs
Percentage
26,622
8,659
11%
Office of Employment Policy Program
U.S. Treasury Department
Washington, D.C. 20220
30.2%
5,373
31.5%
497
18.8%
82
55.4%
2,707
30.8%
(..0
W
I'\)
- 9 -
333
20 CITIES COVERED IN TREASURY SURVEY
1. Washington, D. C.
2. New York, New York
3. Los Angeles, California
4. Newark, New Jersey
5. San Francisco, California
6. Chicago, Illinois
7. Detroit, Michigan
8. St. Louis, Missouri
9. Kansas City, Missouri
10. Philadelphia, Pennsylvania
11. Dallas, Texas
12. Cincinnati, Ohio
13. Baltimore, Maryla nd
14. Cleveland, Ohio
15. Houston, Texas
16. Boston, Massachusetts
17. Milwaukee, Wisconsin
18. Minneapolis - St. Paul, Minnesota
19. Buffalo, New York
20. Pittsburgh, Pennsylvania
TREASURY DEPARTMENT
WASHINGTON. D.C.
December 12, 1968
FOR Th1J:vlEDIATE RELEASE
TREASURY ANNOUNCES SCHEDULE FOR REGULAR WEEKLY
AND MONTHLY BILL AUCTIONS DURING THE HOLIDAY SEASON
The Treasury announced today that the regular weekly bill auction that
would normally be held on Monday, the 23rd, will be held on Friday, December
20.
The day for the auction is being advanced to assure ample time between
it a.nd the payment date during the pre-holiday season.
Payment for and delivery
of the bills will be on the normal day, Thursday, December 26.
For the subsequent weekly bill auction the announcement inviting tenders
will be made on Monday, December 23, and the auction will be held on Friday,
the 27th.
The pa.yment and delivery day for these bills will be Thursday,
Janua.ry 2.
The Treasury added that the regular monthly bill auction will be announced
on Monday, December 16 with the auction taking place the following Monday,
December 23.
December 31.
F-143~
The payment and delivery date for these bills will be Tuesday
iREASURY DEPARTMENT
.
=~~ '!!2S?~'=''!''
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=
WASHINGTON. D.C.
FOR RELEASE 6: 30 P.M.,
~onday, December 16, 1968.
RESULTS OF lm'ASURY I S WEEKLY mLL OFFERING
'lhe Treasury Department announced that the tenders for two series of Treasury
bills, one series to be an additional issue of the bills dated September 19, 1968,
aJXl the other series to be dated December 19, 1968, which were offered on December
11, 1968, were opened at the Federal Reserve Banks today. '!'enders were invited for
$1,600,000,000, or thereabouts, of 91-day bills and for $1,100,000,000, or thereabouts, of 182-day bills. The details of the two series are as follows:
RANGE OF ACCEP'lED
COOE'nTIVE BIDS:
91-day Treasury bills
la2-day Treasury bills
maturing June 19, 1969
Approx. Equiv.
Price
Annual Rate
_--.;.;1D8~tu~r;...;i....;;ng;;w,....Ma=..;;r;...;c;.;;;h:.....;;;.2.;..0,l.......::l;;,;;9~6.;..9_
Price
98.503
High
Low
98 • .a4
98.492
Average
Approx. Equiv.
Annual Rate
5.922J
5.997~
5.966~
~.970
5.993J
6.033~
96.950
96.958
Y
6.017~
~/
7~ of the amount of 91-day bills bid for at the low price was accepted
67~ of the amount of 182-day bills bid for at the low price was accepted
'ruTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RE3ERVE DISffiICTS:
District
Boston
New York
Phi lade 1phi8
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
AEElied For
$
San FranCisco
1,706,273,000
32,170,000
49,024,000
15,005,000
4:4,537,000
203,101,000
49,513,000
28,931,000
35,118,000
30,900,000
162,935,000
IDTALS
$2,383,329,000
~llas
Acce~ted
25,822,000 $5,822,000
1,073,023,000
17,170,000
49,024,000
15,005,000
35,607,000
178,101,000
45,513,000
26,931,000
33,118,000
22,9(0,000
88,635,000
ApElied For
$
15,858,000
1,635,894,000
18,013,000
40,872,000
14,393,000
42,071,000
145,635,000
29,920,000
18,285,000
21,885,000
22,160,000
169,979,000
$1,600,849,000 ~/ $2,174,965,000
AcceEted
$
5,858,000
810,444,000
8,013,000
36,772,000
8,263,000
25,204,000
55,005,000
24,053,000
11,125,000
19,786,000
11,830,000
83,899,000
$1,100,252,000 ~/
~ Includes $314,949,000 noncompetitive tenders accepted at the average price of 98.492
~ Ineludes $175,430,000 noncompetitive tenders accepted at the average price of 96.958
j
'!hese rates are on a bank discount basis. '!he equivalent coupon issue yields are
6.l4~ for the 91-day bills, and 6.2~ for the 182-day bills.
1-1435
TREASURY DEPARTMENT ..
---....-....---.
WASHINGTON. D.C.
December 16,1968
JR IMMEDIATE RELEASE
TREASURY'S MONTHLY BILL OFFERING
The Treasury Department, by
)r two series of Treasury bills
L,500,000,000, or thereabouts,
~easury bills maturing December
1,499,494~000,
as follows:
this public notice, invites tenders
to the aggregate amount of
for cash and in exchange for
31,1968,
in the amount of
273-day bills (to maturity date) to be issued December 31 , 1968 ,
1 the amount of $500,000,000,
or thereabouts, representing an
jditional amount of bills dated September 30,1968,
and to
ature September 30,1969, originally issued in the amount of
1,000,607,000,
the additional and original bills to be
reely interchangeable.
365-day bills, for $1,000,000,000,
ated December 31,1968,
and to mature
or thereabouts, to be
December 31, 1969.
The bills of both series will be issued on a discount basis under
ompetitive and noncompetive bidding as hereinafter provided, and at
aturity 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, December 23, 1968.
Tenders will not be
eceived at the Treasury Department, Washington. Each tender must
~ for an even multiple of $1,000, and in the case of competitive
anders the price offered must be expressed on the basis of 100,
lth not more than three dec"imals, e. g., 99.'925. Fractions may not
'e used.
(Notwithstanding the fact that the one-year bills will run
or 365 days, the discount rate will be computed on a bank discount
asis of 360 days, as is currently the practice on all issues of
reasury bills 0) It is urged that tenders be made on the printed
orms and forwarded in the special envelopes which will be supplied
Y Federal Reserve Banks or Branches on :lpp1ication therefor.
Banking institutions generally may submit tenders for account of
lstomers provided the names of the customers are set forth in such
anders. Others than banking institutions will not be permitted to
F.l,436
- 2 submit tenders except for their own account.
Tenders will be recel~
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public announcement will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rej ection thereof. 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 December 31, 1968, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing December 31,19680
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differences between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 050aranch.
.~~
V
3""7,
i
TREASURY DEPARTMENT
;
=
WASHINGTON. D.C.
December 16, 1968
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by
for two series of Treasury bills
$ 2,700,000,000, or thereabouts,
:Treasury bills maturing December
$ 2,709,535,000,
as follows:
this public notice, invites tenders
to the aggregate amount of
for cash and in exchange for
26,1968,
in the amount of
91-day bills (to maturity date) to be issued Decemeer 26,1968,
in the amount of $1,600,000,000,
or thereabouts, representing an
additional amount of bills dated September 26,1968,
and to
mature March 27,1969,
originally issued in the amount of
~,l02,282,000,
the additional gnd original bills to be
freely interchangeable.
182-day bills, for $ 1,100,000,000,
dated December 26,1968,
and to mature
or thereabouts, to be
June 26, 19690
The bills of both series will be issued on a discount basis under
competitive and noncompetive 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, Friday, December 20, 1968.
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 dec'imals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
fo~arded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application the refor.
Banking institutions generally may submit tenders for account of
provided the names of the customers are set forth in such
Others than banking institutions will not be permitted to
;~bmit tenders except for their own account. Tenders will be received
nthout deposit from incorporated banks and trust companies and from
~ustomers
~enders.
F.. 1437
- 2 -
responsible and recognized dealers in investment securities. T"~
from others must be accompanied by payment of 2 percent of the ~
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bat
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public ann~
ment will be made by the Treasury Department of the amount and price range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenden
for each issue for $200,000 or less without stated price from any ~
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 December 26, 1968, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing December 26, 1968. 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 Uhited States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 0oO~ranch.
TREASURY DEPARTMENT
4
WASHINGTON, C.C.
December 17, 1968
FOR IMMEDIATE RELEASE
TUESPAY DECEMBER 17, 1968
I
I
The following letters relating to the application of U. So
balance of payments measures to Canada were exchanged yesterday
between Secretary of the Treasury Henry H. Fowler and Canadian
Minister of Finance Eo J. Benson.
December 16, 1968
Dear Minister Benson:
In completing the 1969 United States Balance of
Payments Program and while arranging for an orderly
transition, I thought it would be useful to review the
unique financial relationship which exists between our
two countries. This was last described in the
exchange of letters I had on March 7, 1968, with your
predecessor, Mitchell Sharp. In my letter I noted:
"Unicpe financial relations between our two countries
have been a mutual support to both and to the
international monetary system. These relations have
served the interests of both our countries without
interfering with the domestic·po1icies of eithero"
Events since March add a new endorsement to this judgment.
This unique relationship which our two countries
share is a natural reflection of a cornmon and peaceful
border of some 5,500 miles. It reflects as well the
importance of trade and capital and neighbors who move
across this invisible boundary. Recognizing this
interdependence, we have long since believed that it is
not in the interest of either country to occasion
destabilizing influences on our currencies which might
inhibit the other country in the pursuit of its own
economic objectiveso To this end, our policies in this
field have been to support our overall objectives to
our mutual advantage
0
3:39
- 2 This is the reason, notwithstanding the cr1S1S then
raging in the gold markets of the world and only shortly
after the President's New Year's Day balance of payments
measure, that in March we were able to exempt Canada from
our balance of payments measures. This exemption and your
reaction to it was indeed "mutual supporto" Canada was
thus assured of access to our markets for a wide range of
capital transactions, enabling Canada to continue its
traditional method of financing its current account
deficit with the United States and permitting financial
institutions in both countries to operate flexibly.
This latest recognition of the interrelationship
of our international payments is also the reason you
have taken constructive actions to ensure that Canada
is not used as a "pass-through" channel by which the
purpose of the United States Balance of Payments
Program might be frustrated. Moreover, the policy under
which you invest your foreign exchange holdings is to our
mutual advantage.
This is also the reason that in the exchange of
letters last March we reiterated the basic principle
that it would not be Canada's intention to increase
its foreign exchange reserves through borrowing in the
United States. Implementation of this principle does
not require that Canada's reserve level be limited to
any particular figure. We are well aware of Canada's
need for flexibility with respect to reserve levels in
order to accommodate the adaptation of monetary policy
to the changing needs of its domestic economy, seasonal
factors and other influences of a temporary nature.
This statement of objectives recognizes that under
circumstances in which an improvement in the payments
position of the United States is essential to the
strengthening of the world monetary system, it is in
Canada's own interest to avoid hindering the achievement
of this objective by unnecessary borrowing in the
United States. In recent times capital markets in other
countries have developed a capacity which has attracted
borrowers from many countries. Canadian authorities
have taken advantage of these expanding capital markets
to raise funds in substantial quantities.
These
developments now offer Canada an alternative means of
achieving an increase in its reserves whenever Canadian
authorities believe this is desirable. In addition,
Canada has given strong support to the arrangements for
new Special Drawing Rights which, when activated, will
offer a source of regular and automatic additions to
- 3 '"'1'-.'
.., I
international reserves o Both our countries,along wit~ .,
other nations, actively support the ratification of this
new facility in the International Monetary Fund and the
activation of these reserve assets as soon as possible.
In undertaking this review of our relationship,
I have been very much aided by the knowledge and
experience our respective governments have gained
through the close consultations which form such an
important part of this relationsip. These consultations
will, of course, continue to permit us to keep each
other fully informed of our views regarding current
financial developmentso
The unique financial arrangements we have developed,
expressed first with the joint statement of July 21,
1963 and brought up to date today, provide support to
the payments positions of both countries and hence
strengthen the international monetary system.
Sincerely yours,
Henry Ho Fowler
The Honorable
Edgar Jo Benson
Minister of Finance
Ottawa, Ontario, Canada
- 4 ? . -
,~q
.1.
December 16, 1968
Dear Secretary Fowler:
I welcome the review of financial relationships
between Canada and the United States which you have
provided in your letter of today's date.
As you have noted, the Canadian Government is
keenly aware of the importance to Canada and to the
world, as well as to the United States, of the
strength of the United States dollar and, as a means
to that end, of a continued improvement in the
international payments position of the United States.
With this in mind, the Canadian Government has
adopted policies to ensure that the exemption of
Canada from the United States Balance of Payments
Programme would not endanger the success of that
programme
In particular, we have taken steps to
prevent Canada from becoming a "pass-through"
channel for the flow of capital from the United States.
We have also found various appropriate means of
supporting the payments position of the United States.
Thus the Canadian Government has invested its
United States dollar reserves ~n excess of working
balances) in special non-marketable issues of the
United States Treasury. It also turned to the
expanding capital markets of Europe to find funds with
which to rebuild Canada's foreign exchange reserves.
In the course of this year substantial sums have
been added to our reserves as a result of borrowings
of the Government of Canada and other Canadians outside
the United States, and the investment of these sumS has
provided support to the payments position of the United
States o We expect, as you note in your letter, that
the implementation of the Special Drawing Rights scheme
in the International Monetary Fund will provide an
additional well-regulated scource of new reserve assets.
0
... 5 ...
I too have found very useful the close consultations
which have corne to form such an important aspect of the
relationship between our two countries. I look forward
to a continuation of them as a means of keeping each
other fully informed of our views regarding current
financial developments.
In the light of all these considerations I can
reiterate to you that it is not an objective of
Canadian policy to achieve permanent increases in our
exchange reserves through unnecessary borrowing in the
United States
I fully share the view expressed in
your letter that the implementation of this principle
does not require that Canada's reserve level be limited
to any particular figure, and that our reserves may be
expected to fluctuate to accommodate the adaptation of
monetary policy to the changing needs of the domestic
exonomy, seasonal influences, and other influences of
a temporary nature.
o
Yours sincerely,
Eo J. Benson
Minister of Finance
TREASURY DEPARTMENT
4
WASHINGTON, D.C.
December 17, 1968
FOR RELEASE AT 5 :00 P.M. (EST)
TUESDAY, DECEMBER 17, 1968
COVEY T. OLIVER SWORN IN AS NEW U.S. DIRECTOR
OF WORLD BANK BY TREASURY SECRETARY FOWLER
Covey T. Oliver was sworn in today as U. S. Executive Director
of the International Bank for Recons truc tion and Development
(World Bank) by Treasury Secretary Henry H. Fowler.
Ambassador Oliver will serve a two-year term, succeeding
Ambassador Livingston T. Merchant, who retired. Ambassador
Oliver leaves the post of Assistant Secretary of State for
Inter-American Affairs and U. S. Coordinator for the Alliance
for Progress, which he assumed on June 30, 19670 Prior to that
he served as Ambassador to Colombia from 1964 to 1966.
Born at Laredo, Texas on April 21, 1913, Ambassador Oliver
attended the University of Texas, from which he received
Bachelor of Arts (1933) and Bachelor of Laws degrees (1936),
both summa cum laude. He subsequently obtained Master of Laws
(1953) and Doctor of Juridical Science (1954) degrees from
Columbia University. He is a member of phi Beta Kappa and the
Order of the Coif.
Ambassador Oliver's career encompasses extensive experience
in both the governmental and academic fields. Admitted to the
Texas bar in 1936, he served on the faculty of the University of
Texas Law School until 1941, entering the government service in
1942 as Senior Attorney for the Board of Economic Warfare. He
was then appointed a Foreign Service Reserve Officer and assigned
to Madrid to conduct economic warfare and blockade operations for
State, Treasury and the Board of Economic Warfare. From 1944 to
1949 Ambassador Oliver served in Washington in a number of
positions largely related to United States economic policy toward
Occupied Germany, Austria, and Japano He was also a member of the
United States delegations to the 1946 Paris Peace and Reparations
Conferences and the Austrian Treaty Commission in Vienna (1947).
F-1438
(OVER)
- 2 -
Ambassador Oliver returned to the academic world between 1949
and 1964. He was Professor of Law at the University of California
at Berkeley until 1956 and thereafter Professor of International
Law at the University of Pennsylvania. During this period he was
Director of International Studies for the Berkeley campus, and a
Carnegie Endowment Lecturer at the Hague Academy of International
Law in 1955 and a Fulbright Teaching Fellow at the University of
Sao Paulo in 1963. Since 1963, he has been a member of the
Inter-American Juridical Committee of the Organization of
American States.
Both as Ambassador to Colombia and as regional Agency for
International Development administrator for Latin America,
Dro Oliver has had wide experience and heavy responsibility as
to United States bilateral assistance programs o
Professional memberships of the new Treasury official include
the American Bar Association, the International Law Association,
and the American Society of International Law. He is a former
editor of the American Journal of International Law. Ambassador
Oliver's published works include a monograph, "The InterAmerican Security System and the Cuban Crisis", and "The Restateme
of Foreign Relations Law of the United States" (co-authored).
In addition, he is a contributor to various legal periodicals,
primarily The American Journal of International Law a
Ambassador Oliver is married to Barbara Frances Hauer Oliver,
and they have five children.
TREASURY DEPARTMENT
(
WASHINGTON, D.C.
December 18, 1968
FOR IMMEDIATE RELEASE
UNITED STATES AND BELGIUM TO DISCUSS
REVISION OF INCOME TAX CONVENTION
Representatives of the United States and Belgium are expected
to meet in early February in Brussels to discuss revision of the
income tax convention between the two countries, the Treasury
Department announced today.
The existing convention was signed in 1948. It has been
~ended several times, most recently by a protocol adopted in
1965, and in its present form is due to expire on January 1, 1971.
The revision is expected to be extensive, as in the case of the
recently revised treaty with France and an earlier treaty with
the United Kingdom.
The discussions will take into account changes in the tax
laws of the two countries during the past several years, and the
"Draft Double Taxation Convention" published in 1963 by the
Organization for Economic Cooperation and Development.
The negotiations are expected to cover such issues as the
definition of permanent establishment, taxation of profits,
income of professional persons, employees of foreign corporations
and investors, and provisions for consultation and resolution of
cases involving double taxation o
Those interested in the proposed new convention may wish to
consult the recently ratified convention between the United
States and France
That convention is No. 6073 in "Treaties
and Other International Acts Series" publ ished by the
Department of State
0
0
Persons wishing to comment or submit information concerning
the proposed treaty are requested to do so by January 10, 19690
Their comments or observations should be sent to Assistant
Secretary of the Treasury Stanley S. Surrey; Treasury Department,
Washington, D. Co 20220
000
F-1439
TREASURY DEPARTMENT
4
WASHINGTON, D.C.
December 20, 1968
FOR AoMo RELEASE
MONDAY, DECEMBER 23, 1968
The attached exchange of letters between
Secretary Fowler and the president concerning the
1969 Balance of Payments Program is for A.M. Release
Monday, December 23, 1968.
Secretary Fowler's
letter was written in his capacity as Chairman of
the Cabinet Committee on Balance of Payments.
Attachments
F-1440
'34S
THE
WHITE
FOR A.M. RELEASE
MONDAY, DECEMBER
HOUSE
December 18, 1968
rYear Mr. Secretary:
I have reviewed and app roved the rep 0 rt 0 f the
Cabinet Committee on Balance of Payments setting
forth recommendations for 1969.
Our balance of payments program consists of a
series of ongoing policies in a number of related
areas. It must at all times be coordinated and
pulled together o We have made our recommendation
for 1969 at this time to facilitate an effective
transition to the new Administration and the
orderly development of future policies in this
important area.
We have made a great deal of progress in 1968
toward our goal of a healthy equilibrium in our
balance of payments. More progr~ must be
achieved to assure the continued strength of the
United States dollar. The stability of the
international monetary system, and the great amount
of world trade which it supports, depend upon that
strength.
I would like to thank you and the other members of
the Cabinet Committee on Balance of Payments for
your determined efforts to propose and to do whatever is necessary to keep the dollar strong.
Sincerely,
/s/ Lyndon B. Johnson
Lyndon B. Johnson
The Honorable
Henry H. Fowler
Secretary of the Treasury
~3,
1968
~~
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V
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~tI~~:~
4"
I
I
FOR A.M. RELEASE
MONDAY, DECEMBER 23,1968
THE SECRETARY OF THE fREASURY
WASHINGTON
December 17, 1968
b'~
,,",
Dear Mr. president:
Near the end of each year beginning in 1965, your
Cabinet Committee on Balance of Payments has submitted
a recommended Program to guide and coordinate the many
Federal activities relevant to our international balance
of payments. This letter report will set forth the
recommendations of the Cabinet Committee on Balance of
Payments for the 1969 Program. Your approval of this
Program should facilitate an effective transition and
orderly development of future policies in this important
area.
With my colleagues on the Cabinet Committee and the
aid of your staff, we have coordinated the execution of
the Action Program contained in your Balance of Payments
Message to the nation last New Year's Day. A 1968 Progress
Report will be separately submitted.
We have also considered together the nature and extent
of the program needed for 1969 if the nation is to build on
the progress made in 1968 and achieve a viable and durable
equilibrium in our international balance of payments. It
is submitted below.
The Cabinet Committee on Balance of Payments has worked
with me in preparing the 1969 Program. The following
participants join with me in these recommendations:
The Secretary of Defense
The Secretary of Commerce
The Secretary of Transportation
The Under Secretary of Agriculture
The Under Secretary of State for political Affairs
The Administrator of the Agency for
International Development
The Special Representative for Trade Negotiations
The Director of the Bureau of the Budget
The Chairman of the Council of Economic Advisers
The Chairman of the Federal Reserve System.
- 2 -
A few preliminary comments are in order concerning the
overall policy framework in which these recolnmendations are
submitted.
Our determination to achieve equilibrium in our international accounts is as vital today as it WaS on January 1,
1968, the day you announced your Balance of payments Action
Program. The removal of our international payments deficit
remains "a national and international responsibility of the
highest priority".
"The execution to date of the broad and comprehensive
Action Program you announced on last New Year's Day has substantially improved our balance of payment~ situation. A
huge deficit in 1967 has been whittled down to near equilibrium in the second and third quarters of this year on the
liquidity basis of measure. There is a substantial surplus
for the first three quarters on the official settlements
basis.
We. are pleased that the nation is making substantial
progress toward aChieving equilibrium in our international
balance of payments. But we cannot be satisfied with the
relative composition of its components. Our progress is
spotty and some of it may be transitory. It is spotty
because two big elements in our current account -- trade and
tourism -- are far from satisfactory, and a third -- a reduction in net deficit in Government military expenditures in
Southeast Asia -- must in large measure await the restoration
of peace in the area.
There is reasonable prospect of continuing improvement
next year. This assumes that there is no dismantling of the
ongoing elements of your Action Program. It also assumes
that the initiatives launched in that program to improve our
trade surplus and reduce the net deficits in military expenditures abroad and private travel will be vigorously pursued.
Until these elements of the program are effectively executed,
we will not have the durable surplus or the assurance of a
long-term equilibrium that will enable us to abandon some of
the temporary and less desirable measures we have been
forced to employ.
""4 Q...,.
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These temporary measures have served us well. They
helped bring the necessary ilmnediate improvement in our
balance of payments and have given renewed confidence in the
strength of the United states dollar. These temporary
measures, appropriately modified, are needed for some additional period. As the longer-term measures, instituted last
year and in some of the preceding years, yield increasingly
larger benefits, the restraint achieved by the temporary
measures may be phased out.
To complete our task, a continued and sustained effort
will be needed. This is the quickest and surest route to
the strong and viable payments position which \vill permit US
to eliminate those aspects of our program that are not wholly
compatible with the free flow of trade and capital movements.
These are the underlying principles which your Cabinet
Committee on Balance of Payffients believes should govern the
program in 1969.
I.
A Stable Economy and the Restoration of a
Heafthy United states Trade Surplus Should
Ee the primary Ohjecflve..... !.or 1969.
The keystone of a sound international financial position
of the United States and of the dollar is a trade surplus.
Without it, the United States cannot do what is natural and
desirable for its role in the Free World -- to export
capital, to provide its share of the cornmon defense, to give
foreign aid, and to have large numbers of its citizens
traveling abroad.
Hence, the first order of business in your last New
Yearrs Day Message was for Congress to enact an antiinflation tax, which, coupled with expenditure restraint
and appropriate monetary policy, could help stern the inflationary pressures which threatened our economic prosperity,
stability and our trade surplus. You also urged labor and
management restraints in wage-price decisions and instructed
your principal officers in the economic area to work with
leaders in business and labor to make effective a voluntary
program of wage-price restraint. A similar instruction on
preventing our exports from being reduced and our imports
increased by crippling work stoppages was prescribed.
-, 4 Unfortunately, delays in attending to this first order
of business in 1968 contributed to a ~ontinued instability
in the economy and a very substantial decline in our trade
surplus. However, the progress that has been made in recent
months has laid the foundation for a much better national
performance in the area in 1969 and y~ars ahead, if the
nation carries through with the program now in progress.
The Revenue and Expenditure Control Act, finally enacted
in late June, established our commitment to fiscal restraint.
The Congress and the President will have to decide in
the months ahead on fiscal policy for the period beginning
July I, 1969. This policy will require decisions on expenditures and taxes necessary to provide that degree of fiscal
restraint which is a fundamental element in' an adequate
follow-through in the ongoing process of disinflation,
restoration' of our 'competitive position and provision of
a healthy trade surplus. This fiscal policy, coupled with
appropriate monetary policy by the Federal Reserve Board,
will make possible the avoidance of the excessive demand
that has contributed to the decline in our trade surplus.
It will also enhance our competitive position by arresting
inflation and enabling the economy to move back toward
reasonable price stability, given accompanying voluntary
restraint in wage-price decisions.
'
The Cabinet Committee on Price Stability, after consUltation with business and labor leaders, including the
President's Labor-Management Advisory Committee, is submitti~g
a report on the progress made and the plans for future coopera
tive efforts on the wage-price front.
In 1968 we witnessed the adverse effects on our international trade position of the work stoppage in copper and the
potential work stoppages in steel and ori th~ docks. These
focused renewed attention on the need for both labor and
management to recognize the implications of their actions
and' their positions on wage disputes and their relationship
to the protection of our' national interest in maintaining
the stre~gth of the dollar.
- 5 -
2.
Initiatives Pursued in 1968 to Assure
Fairness to United States Trade in
world Markets Should Culminate in 19 G9
in Cooperative Action by the United
States and Our Tradlng Partners.
In 1969 further reduction of non-tariff barriers and
appropriate cha~ges in the General Agreements on Tariff and
Trade rules on border tax adjustments must be achieved.
International trading rules and practices are established
through multilateral consent and negotiated in the multilateral forum of the GATT. In early 1968 united States
representatives inaugurated a deter~ined effort to
eliminate non-t2~iff barriers, revi0w agricultural trade,
achieve improvements in the trading rules and minimize
the disadvantages to our trade which arise from differences
in the applic~tion of national tax systems to exports and
imports.
The GATT Committee on Industrial Products has developed
a catalogue of non-tariff barriers to trade and is now turning to the removal of these restrictions. Similarly the
Agriculture Committee of the GATT is conducting a general
review of agricultural trade problems. In attempting to
solve problems in these areas, we must be reali.stic· in our
objectives and timetable. On the other h~nd, we cannot be
satisfied without real progress soon to eliminate the
significant non-tariff barriers. We must bear in mind that
the Trade Expansion Act of 1962 does not permit the United
States to compensate with trade concessions the removal by
others of ill~gal non-tariff barriers.
The GATT Working Party on Borde~ Taxes must complete
its task as early as possible next year. We believe there
is a structural disadvantage to the United States, and to
other predominantly direc~-tax countries, which arises
from the border tax adjustment system as presently permitted
under the GATT rules. The lack of an overall limitation on
border tax adjustments, the proliferation of the practice,
and the unequal treatment prejudicial against one tax
system as opposed to another are problems in the GATT rules
which must be addressed.
- 6 The United States has also raised the issue of the provisions in the GATT rules which pertain to the process by
which international payments imbalances are adjusted. Under
the GNCT, countries sUffering temporary balance of payments
difficulties may introduce ~hort-term trade restricting
practices such as quotas but the GATT is silent on th~
responsibilities of surplus countries.
We have seen, in the month of November, two countries
employ other measures which also facilitate the adjustment
of their balance of payments position. Through the
manipulation of b0rder tax adjustments, both' France and
Germany are endeavoring to influence their trade accounts
in a manner conducive' to better overall payments equilibrium.
This course of action was chosen as an alternative to a
change in parity -- an action which would have a permanent
effect on trade.
This experience should be examined to consider its lasting implications for the process by which a
nation's intern~tional payments are bro~ght into balance.
3.
Dep~rtment of Commer~e Should I~tensif~
~ffC?rts to ~~1c1 Conunerc~.al E~ports
.
Genc:t:"a}ly c?n0. J.n _~9~unct:t.£.n. \·n.th. FO:,(f'J q~
The
Assistance, an{ the Agency for International
Development Should Continue Measures to Assure
Additionality and to Mi~imi~e Substitution in
Forei9n Assistance.
The long-term trade promotion program which you outlined
in your New' year's Day Message should be pursued vigorously.
These efforts have been helpful to date, and they will have
to be reinforced. The recent reco~~endations of the National
Export Expansion Comnlittee provide suggestions for reinforcements. These should be considered . . .
The efforts of AID and other concerned agencies to
minimize the balance of payments cost of bilateral economic
assistance have been successful in keeping these costs to a
minimum. The principles by which this is done are established. The implementation of these principles has now been
under way for some time; and the regular, vigilant administration of these methods is what is required and is what we
are receiving.
- 7 Some of the most important by-products of economic
assistance are the trading benefits arising from the development and growth of viable economies abroad. We trade and
prosper together. Our tied bilateral economic as~istance,
which transfers real resources has the effect of facilitating
the introduction of American goods and services to these
fore~gn markets. In distant ~reas, purchases of capital goods,
often bo~ght to last for a lifetime, provide a continuing introduction of the product names of our factories to foreign
buyers.
In 1969 we m~st concentrate on developi~g follow-up
sales after thesE early "calling cards" have been delivered.
Industry, assisted, if need be~ by Government, must expand
. upon the export opportunity created by our economic assistance. This will require a sustained and positive proqram.
The Comm8rce Department has cooperated closely with AID
in seeking ways to maximize united States commercial exports
followin~ upon the foreign assistance program.
In the area
of publicity, Commerce provides information on AID business
opportunities through a variety of media such as International Commerce and Quar~erly Summary_of Future Construction
Iiliroad.
In addition to information available through these publications, Commerce provides information on AID export opportunities and guidance on the procedures for selli~g under
the AID programs directly to American businessmen through
personal contacts. The Commerce Department also puts'
together annual united States trade and investment programs
for approximately 60 countries of main commercial interest
in the world. Specific informational, promotional, and
policy activities to be carried out in support of the
program objectives are delineated. For countries with AID
Mi~sions, the AID operations generally constitute an important factor in achieving progress toward the investment
program objectives. Additionally, the Department of Commerc~
through its trade programs, commercial exhibits and trade
missions actively assists the United States exporter.
- 8 -
4.
Consistent \"i th Our Security Coromi tments, the
Nation in-Y969 Should-Continue to Mlnimize
Its Net"MIIi ta_~~ Deflci t b]_~educi~.9. Tnese
Expenditur7s.When~ver Conditions perm~t an?
£X ~~utrallzlng T~em Through C~peratlve
Actlon by Our Ailles.
We should stand by the principles which you enunciated
in the January 1 program:
"We cannot forego our essential commitments abroad,
on which Am~rica's security and survival depend.
"Nevertheless, we must take every step to reduce
their impact on our balance of payments without
endangering our security."
As we look at our overall balance of payments position and
prospects, it remains a key concept that the foreign exchange
drain from United states defense expenditures outside our
borders for mutual security is an extraordinary item in the
balance of payments. It should be met by special governmental action -- it does not result from normal economic
developments; nor is it subject to normal economic management through fiscal, monetary and incomes policies.
We need to maintain existing programs and constantly
seek new ways to reduce our defense expenditures abroad.
The types of actions by the Defense Department to reduce
net foreign exchange costs during the years 1961-1967, as
described in "Ivlaintidning the strength of the United States
Dollar in A Strong Free ~vor1d Economy", Tab B, United States
Treasury Department, January 1968, and in the Supplemental
Progress Report for 1968, must be constantly pursued.
We welcome the extensive cooperation from countries in
the North Atlantic Treaty Organization and in other parts
of the world during 1968 to minimize our military foreign
exchange costs through:
purchase in the United States of their defense
needs; and
investments in long-term United States
securities.
- 9 -
In 1969 \'7C Hill \'1~ini- to contimJc) cooperation and conclude new arrangements, wi th po.l,ticuL-; r cmpll as is on Nl\.TO
Europe. In th6 coming year, we Hill want to build on past
experience in ways which:
proceed from the N1\'['O recogni_tion of the principle that the solidarity of the Alliance can
be strengthened hy cooperation between members
to alle~iatc burdens arising from balance of
payments deficits reSUlting specifically from
milita~y expcrditures for t~e collective
defense;
increase tte emphasis on purchases in the
United states to meet country needs for the
improvements NATO has recently called for in
country forces; and
reduce reJj 2ncc on invcstmcr:
in long-term
United states securities as a means for dealing with our foreign exchange costs resulting
f~om defense experiditures outside our borde~s,
since these investments do not provide the
basis for a long term solution.
J
.::::;
In other parts of the vlorld, we should give particular
attention to the Far East. Military expenditures related
to Vietnam and the prospective longer-term security situation in the region may be expected to continue a heavy drain
on United States foreign exchange. We will be looking to
countries in the region to continue and expand their' cooperation with us to deal with this problem on a continuing basis.
Active negotiations to this end should be a continui~g
responsibility of the Secretaries of State, Treasury, and
Defense.
Of course, the principal opportunity to achieve actual
reductions in our gross defense expenditures abroad, without
damage to our long-term mutual security interests, is most
likely to occur in connection with progress in the negotiations looking to a peaceful settlement of the conflict in
Southeast Asia.
- 10 Even before our substantial involvement in military
operations in Vietnam in 1965, United States military expend~
tures in the major Far Eastern countries were considerable.
The direct foreign exchange costs of these expenditures
averaged about $700 million per year before 1965. They are
curren·tly runni!lg approximately $1. S billion ~i9".her.
This heavy direct loss of dqllars to and through East
Asia must be reduced when the fighting stops.
Therefore, a high priority must be given to the problem
of neutralizing, .1·.0· the maximum possible extent, the balance
of payments cost of our security forces in East Asia while
the fighting continues, and reducing the gross cost when the
fighting diminishes or ceases.
5.
The Manda~~y and Temporary Forei~ir~c~
'?:3"ye~tment Pr,?gram, as Announce,d ~n Mod~f~ed
Form bx-the Secretary of Commerce on NovemE'er 15, 1968~should_be Main_r aJ.,pe9..
The mandatory direct investment control program for 1968
not interrupb:;d th~ hig-h, indeed, unprecGC:cnte;c1, level of
total American investment· abroad.
It has had the intended
effect of reducing capital outflows from this country by increasing the use· of funds borrowed overseas for direct
investment by united states affiliated enterprises.
~)as
Our base for future earnings continues to increase and
the present balance of payments costs are maintained within
tolerable limits. The private sector has for the most part
understood this.
The best way to keep the program temporary
is to press ahead vigorously on all features of the balance
of payments front. .
There is little disagreement that this program should
be temporary and terminated as soon as possible.
It is the
vie\V' of your Cabinet Committee that it is not possible to
terminate the program in 1969 without running a grave risk
that Our progress toward balance of payments equilibrium
would be reversed and a heavy deficit become a likely
prospect. As stated earlier in the principles governing
the formulation of the 1969 program, until the· nation has
a durable surplus or the assurance of long-term equilibri~,
it would be unwise to abandon some of the temporary and less
desirable measures that it has been forced to employ.
- 11 -
" r
"
r',)
v '-, L
This has a special relevance to the Foreign Direct Investment Program as the following observations underscore:
First, overseas investments by American business (excluding Canada, which is exempt from the direct investment
pr~gram~ are project:d to increase again in 1969, with plant
and equ1pment expend1tures reaching close to $8 billion _u~ f:om ~n estimated $7.5 billion this yea:, and up from $4.6
bllllon 1n 1964, the last year before the 1ntroduction of the
voluntary program.
Second, in order to hold the balance of payments impact
of such invest~ent in 1968 to the $206 billion you
targeted last January, it may be necessary for United
States companies and their foreign affiliates to utilize
between $2 and $2.5 billion of the proceeds of foreign
borrowing in addition to foreign borrowing for day-to-day
working capital requirements. To meet the new target for
foreign direct investment of $2.9 billion in 1969, we
project it may be necessary for business to utilize another
$2 - $2.5 billion in foreign borrowing next year.
~'hird,
growing restraint upon capital flows fl.'om the
united Stat~s sin6e the start of the voluntary program in
February 1965 has resulted in a substantial, and ~o some
extent abnormal level of foreign debt by united States companies and th8i~ foreign affiliates, as compared to what it
might otherwi.e have been without the foreign direct investment programs. We do not have any precise' way to measure
its size, but it could approach $5 billion by the end of this
year.
Fourth, during the past four years, in cooperation with
the capital programs, many united states companies have
decreased their overseas liquidity through the reduction of
inter-company accounts and the'repatriation of earnings, and
as a result, are more active, albeit reluctant, borr6wers
for working capital purposes.
All
trols in
outflows
mate the
of this suggests that termination of capital con1969 could'result in a sharp increase ,in capital
and retained earnings -- it is difficult to estiprecise amount for much will depend upon market
- 12 conditions and other factors, but there is a potential exposure of as much as $3 - $4 billion.
The outlook for 1969
does not permit taking the risk of that much additional
direct investment hampering progress in our balance of payments program.
Basically, the 1969 Foreign Direct Investment Program
will folloH closely the format of this year' s program'. Hm'lever, some additional leeway is needed (a) to provide additional flexibility for companies with limited or no overseas
investment experi0.nce; (b) to make the Regulations more
responsive to thc3e companies whose investment quotas are
unrealistically low in relation to the return flow of earnings from their direct investments; (c) to assure that the
p~ogram does not unnecessarily inhibit the growth of intercompany exports of American goods and servlces to foreign
affiliates; and (d) to enable the Office of Foreign Direct
Investments to be more responsive to special industry
problems and some of the inequities in the Regulations which
have become apparent during 1968.
We recognize that just to maintain their existing overseas operations on a sound basis, companies must have the
capability to retain abroad a certain percentage of their
foreign earnings.
Furthermore, retention of a portion of
foreign earnings will be necessary to insure an orderly
retirement of the groHing debt being cOntracted abroad. We
therefore recommended that the target level of direct investment be increased to insure that every company has, in 1969,
an investment quota of at least 20 percent of its 1968 earnings from foreign direct investment. This change was
announced on November 15.
Some adjustment in the target was also necessary to
assure that United States companies have additional quotas
to expand exports of. goods and services through their
foreign affiliates. .
.
Further adjustments of the target were needed to make
the Program more responsive to hardships arising from the
application of the Regulations to special industries such
as the international construction and transportation industries, whose operations and accounting procedures do not
dovetail with the Regulations; to provide relief for companies whose ability to meet the repatriation requirements
_. 1 3 -
of the Rcgnlat~cns is r(~~i-·cff';; Ll~7 Jr.'vl o~
control;
c
to enC01.l.rC1g2 p r iV01-C invc"c:;1-'11 'nt of Cl QPueJoF n:"J. character
in the less developed arCn~; ond to provide: companies \Vi th no
or limited prior overseas invcsbnent 02XpOj~j(:nc~r; - \Vi th a somewhat h~ghcr level of p~rmitted direct inV0st~cnt.
.1.
,:
(,[
I
Finally, to CD:,I-·J,'- (,;y,~-'nics to plan ah,no anc1 to insure
that investment projects wlth lmportant future balance of payments potentiaJ ar~ not ~isrouraged, the Office of Foreign'
Direct JnvestrV'll;ts ('voJ ve'd .i L:.s incremsn tal earnings forrnula,
under 'Which c=tc1cli CiOl'21 c1i rc:c t investm8nt in f1ltu}:-e years is
authorized on th~ b~si~ of future inc~cRcntal e&rni~gs.
The Fedc!:al Reserve program has required a great deal of
United states fjnancial institutions and they have responded
well. Since 1964, United States corunGrcial banks have not
increased the volume of United States credits to foreign borrowers, even t:lough the foreign bank'_Lj business has grovm
substantially in- all other respects •. In their international
operation, united States banks have had to meet the demands
of clients for foreign loans within their voluntary ceili~gs
and through the extensive use of resources in foreign
branches'.
The prospects for 1969 do not permit any basic cha~ge
in the need for restraint on foreign lending of United
States banks and other United States financial institutions.
Accordingly, the existing voluntary ceilings for foreign
lendi~g' by these institutions should be continued for 1969.
During the coming year, attention should be, given to
the effect of the program on increasing united States
receipts as well as on reducing united States capital outflows. Since 1964, annual ex~orts from the United States
- 14 have incrcRsed by about 32 percent.
Financing to support the
"groHth in exports has become available as banks have changed
the composition of their portfolios of foreign credits
response to the voluntary pr~gram and to a lesser extent by
the usc of funds in foreign branches and by the expansion
of the Export-Import Bank's direct lending.
The Federal
Reserve Board intends, in the light of developments in the
United Stat~s and abroad, to re~iew its Voluntary Foreign
Credit Restr~int program early in 1969 in order to det~rrnine
whether additional flexibility for financing United States
exports might usefully be provided in the pr~gram's" guidelines
in
7.
Eg~_ct!-ization Tax, Vlhich Expires
J~~y_ 3l~96~., Should be Extended ",'i th the
!!:.e Interest
Exist:.ing Authori:!Y to Vary the Ra"t"C-from
1-1!2-P"Grcen-::-Dovln to Zero, Depending on
crrCl.1rrts "lc.nce s .
The size ~nd efficiency of the American capital market
necessitated the Interest Equalization Tax in 1963. This
tax has served to facilitate greatly t~e expansion of the
Eu!:'opeCln capital me rket. and to devel r L) addi t.ional techniques
fo:~ emplo:/ing savings around the vlOr.id in productive investments.
Through preserving an exemption for lesser developed
countries, the access they need for developm~nt assistRnce is
assured.
In 1967, Congress granted the President certain dis·
cretionary &uthority in order tha~ the purpose of the legislation -- Hhich is to limit but not prevent access to the
capital market from developed countries -- is best served.
In 1969, this legislation will need to be extended. In
order that we have available a method for phasing out this
tax, the existing authority to vary the rate of" the tax from
zero to 1-1/2 percent per anr.um should be retained.
8.
A Five-Year Program is Needed to Narrow the
Travel Deficit Through Promotion of Foreign
Travel in the United States by BOth public
and Private Action.
As has been pointed out repeatedly to the public and to
the appropriate Con~ittees of Congress, the trend of the contribution of travel to and from the united States to our
balance of payments deficit is such that 'the united States
cannot continue to ignore the problem.
- 15 It waS for this reason that in your New Year's Day
Mess~ge you so~gh~ to reduce the travel deficit by calling
for voluntary actlon and appropriate legislation. In 1967
this deficit exceeded $2 billlon. If the nation is to
prevent the tourist deficit from continuing to rise and
possibly exceed $4 billion by 1975 (as United States disposable income and the portion of it spent on foreign travel
increases, and the new a~rplanes with larger ca~acities and
greater speeds bri!l9 1m '~.;..' fares), t~12 r.:l'::'ion must begin to
implement ~ a cor~preh(;L;.;i Ve J o~19 -. [.<.-;1 ' l)rogram to increase
rapidly the amount of .r:orei.]l'I "-Y""'H~") t, thi~ country.
The President's Comnission, formed in 1967, has provided
numerous suggestions wor1..:hy 0.: Cl :~tentic:l, not only for immediate measures already taken in 1968, but for the longer
term future.
Although final figures are not yet available, we must
anticipate a continued large travel deficit in 1968. It
might well have been larger but for the fact that many of the
remedial measures recoIn..rnendec1 by your Commission \vere carried out by Government and voluntarily by the private sector.
The longer-term me2..SUres recommended by your Commission
to promote travel to the United States will require regular
and adequate financing. The simple fact is that the Onited
states has a smaller' annual budget for promoting tourism
than that of almost any other industrial country.
One way to finance an appropriate and effective travel
promotion program would be to eliminate the exemption of
international flights from the long existing five percent
tax on airline tickets and to dedicate a portion of the
proceeds to a special fund to be used and expended for
travel promotion during the fiscal years 1970-74. There
are, of course, other" ways. Early Congressional action is
highly desirable.
.
We must not allow an increased tourist deficit to
jeopardize progress in other areas of the balance of payments nor to necessitate the maintenance of temporary
restrictive measures on capital flows, nor to handicap the
United States in discharging its national security commitments outside the united States.
- 16 -
*
*
'*
The Cabine-t Conuni ttee on Balance of Payments believes
that these policies will continue the very real gains
already achieved under the Action Program you announced
last New Yeart~ Day, will maintain the strength of the
dollar, and \vill contribute to a strong free \vorid economy.
In, the year ahead, these policies will help to preserve
these, gains and their contribution to a strong free world
economy.
Faithfully yours,
Henry H. Fowler
The President
The White House
TREASURY DEPARTMENT
?
;
WASHINGTON, C' C.
FOR RELEASE 6: 30 P.M.,
Friday, December 20, 1968.
RESULTS OF mEASURY' S WEEKLY BILL OFFERING
'!be Treasury Department announced that tbe tenders for two series of Treasury
bills, one series to be an additional issue of the bills dated September 26, 1968, and
the other series to be dated December 26, 1968, which were offered on December 16, 1968,
were opened at the Federal Reserve Banks today. ·~l'.lders were invited for $1,600,000,000,
or ~reabouts, of 91-day bills and for $1,100,000,000, or thereabouts, of 182-day
bills. '!be details of the wo series are as follows;
RANGE OF ACCEPTED
91-day Treasury billa
CC»IPETI TrVE BIDS: __ma_tur..;.;.;;..;...ing~_Mar~..;..ch~2;;...7'"""-..;;;.1..;..96;;..9;....-._
Approx. Equiv.
Price
Annual Rate
- 6.195J
98.434
High
98.405
6.31~
Low
98.413
6.27~
Average
182-day Treasury bills
maturing June 26, 1969
Approx. Equiv.
Price
Annual Ra4le
96.810
6.31~
96 07.c.9
6 • .c.31~
96.764
6.401~
!I
~
Excepting 1 tender of $100,000
of the amount of 91-day bills bid for at the low price was accepted
2~ ot the aJIlount of 182-day bills bid for at the low price was accepted
3~
roTA!. TENDERS APPLIED FOR ABD ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Phllade 1phia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
MinneapOlis
Iansas City
lJillas
San Francisco
'ID'mLS
A1l!lied for
Acce!ted
$ 22,860,000 $2,860,000
1,14.7,:355,000
2,080,095,000
12,091,000
30,091,000
45,575,000
46,819,000
1.c.,513,000
14,513,000
22,085,000
31,695,000
135,.c.66,000
274,566,000
36,355,000
39,255,000
18,443,000
23,193,000
36,839,000
43,284,000
14,939,000
19,939,000
103,898,000
236,505,000
$2,862,815,000
f2-1ied for
4,274,000
Acce12ted
$
4,27',000
28,506,000
183,181,000
21,163,000
17,40',000
24,587,000
19,576,000
148,859,000
837,563,000
9,970,000
31,733,000
9,540,000
19,506,000
78,666,000
18,863,000
8,404,000
22,587,000
12,576,000
46,359,000
$1,600,418,000 ~ $2,412,156,000
$1,100,041,000
1,849,363,000
19,970,000
83,733,000
11,5~,000
£I
Includes $269,759,000 noncompetitive tenders accepted at the average price of 98.413
Includes $151,513,000 noncompetitive tenders accepted at the average price of 96.764
~se rates are on a bank discount basis.
The equivalent coupon issue yields are
6.47 ~ for the 91-day bills, and 6. 71 ~ for the 182-day bills.
F-1441
TREASURY DEPARTMENT
WASHINGTON. D.C.
December 20, 1968
FOR IMMEDIATE RELEASE
JOINT COMMISSION ON COINAGE TAKES ACTION
ON HALF DOLLAR FUTURE AND COIN MELTING BAN
Secretary of the Treasury Henry H. Fowler, Chairman of the
Joint Commission on the Coinage, today announced the resul ts of
a poll of all Commission members as suggested at the December 5
meeting on the future of the half dollar and the coin mel ting
bano
A substantial majority of the Commission recommended
that the Treasury reques t legis lation to authorize the minting
Df a non-silver clad coin to replace the existing 40 percent
silver half dollar. The Mint "']QuId be expected to continue
~roducing the 40 percent silver half dollar at the present
mthorized rate of 100,000,000 pieces a year until such new
mthori ty is gran ted.
A substantial majority of the Commission also recommended
iliat the Congress enact legislation to make the current
~ministrative ban on the melting of silver coins permanent
md applicable to all V.So coins. Secretary Fowler, who
favored this course of action at the December 5 meeting,
!~ressed the view that the present ban should be continued
mtil Congress can decide this issue through legislation.
Draft legislation will be prepared by the Treasury for
iubmission to the "l'xt Congresso
000
-1442
TREASURY DEPARTMENT
!
WASHINGTON. D.C.
December 20, 1968
FOR A.M. RELEASE
MONDAY, DECEMBER 23,1968
THE NETHERLANDS PREPAYS MARSHALL PLAN LOAN
TO EASE U.S. BALANCE OF PAYMENTS SITUATION
The Government of the Netherlands today paid in full the
$6505 million remaining balance on U.S. loans extended to it
under the Marshall Plan. The prepayment covered amounts due
between 1976 and 1983 according to the original amortization
schedule.
The prepayment was made by the Netherlands as an appropriate
form of cooperation in the light of the overall UoS o balance of
payments situation.
Arrangements for the prepayment were agreed within the
framework of discus s ions which the U. S. has conducted with its
allies in Europe concerning cooperation to alleviate the
effects on the U.S o balance of payments from defense expenditures
for the common security.
The original 1948 loan was for $129.5 mil1ion o An earlier
prepayment of $49 million was made on July 17, 1963, together
with final payment of $21 million outstanding In a 1945
Export-Import Bank Loan. Other payments on the Marshall Plan
loan were made on the original schedule.
000
F-l443
• .J
I,
_
TREASURY
DEPARTMENT
.
t
WASHINGTON. D.C.
December 23, 1968
MEMRORANDUM TO THE PRE SS :
President Johnson announced today that he had
made a recess appointment of Joseph W. Barr as
Secretary of the Treasury for the remainder of the
administration.
He succeeds Henry Ho Fowler whose resignation
was effective December 20.
The president also announced a recess appointment
for Barr as Vo S. governor of the IMF, the IBRD
(and associated institutions), IDB and ADB.
Barr will also replace Fowler on all Cabinet
and other committees o
000
TREASURY DEPARTMENT
WASHINGTON. D.C.
~
RELEASE 6: 30 P.M.,
:>nday, December 23, 1968.
RESULTS OF TREASURY'S )l)BTHLY BILL OrFERI1fG
'!be '!Teasury Department announced that the tenders for two series of Treasury
ills, one series to be an additional issue of the bills dated September 30, 1968,
od the other series to be dated ~cember 31, 1968, which were offered on December
6, 1968, were opened at the Federal Reserve Banks today. Tenders were invited for
500,000,000, or thereabouts, of 273-day bills and for $1,000,000,000, or thereabouts,
f ~5-day bills. The details of the two series are as follows:
WE OF ACCEPrED
OO'ETI TIVE BIDS:
Righ
Low
Average
273-day Treasury bills
maturing September 30, 1969
Approx. Equiv.
Price
Annual Rate
95.14.7
6.4.0dJ;
95.059
6.516~
95.084
6.4.83~
11
365-day Treasury bills
maturing December 31, 1969
Approx. Equiv.
Price
Annual Rate
93.531
6. MO'JI
93.425
6.485~
93.499
6.4.1~
11
4~ of the amount of 273-day bills bid for at the low price was accepted
58~ of the amount of 365-day bills bid for at the low price was accepted
OTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Phllade lphia
Cleveland
Richmond
Atlanta
St. Louis
Minneapolis
Kansas City
Lallas
San Francisco
Al!l!lied For
229,000
$
1,054,857,000
6,212,000
1,291,000
1,280,000
6,163,000
67,075,000
7,634,000
374,000
829,000
11,198,000
96,898,000
Accel!ted
229,000
$
393,4.17,000
1,212,000
1,291,000
1,280,000
2,663,000
23,075,000
5,634.,000
374,000
829,000
3,198,000
66,898,000
roTALS
$1,254,040,000
$
Chicago
Apl!lied For
$ 15,275,000
1,437,307,000
12,526,000
18,709,000
3,884,000
8,074,000
159,299,000
17,717,000
5,776,000
4,572,000
12,350,000
100,736,000
500,100,000!/ $1,796,225,000
Accel!ted
$ 5,275,000
762,467,000
2,526,000
13,4:63,000
3,884,000
4,074,000
124,299,000
14.,717,000
5,776,000
4.,572,000
5,350,000
53,636,000
$1,000,039,000 ~/
Includes $18,841,000 nonccxnpeti tive tenders accepted at the average price of 95.084
Includes $56,303,000 noncompetitive tenders accepted at the average price of 93.499
'lbese rates are on a bank discount basis. '!be equivalent coupon issue yie lds are
6.8~~ for the 273-day bills, and 6.84~ for the 365-day bills.
F-1444
TREASURY DEPARTMENT
t
=
WASHINGTON. D.C.
December 23,1968
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
$2,700,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturingJanuary 2, 1969,
in the amount of
$ 2,701,605,000,
as follows:
91-day bills (to maturity date) to be issued January 2, 1969,
in the amount of $1,600,000,000,
or thereabouts, representing an
and to
additional amount of bills dated October 3,1968,
mature April 3, 1969,
originally issued in the amount of
$1,101,507,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,100,000,000,
or thereabouts, to be
dated January 2, 1969,
and to mature July 3, 1969.
The bills of both series will be issued on a discount basis under
competitive and noncompetive bidding as het"einafter 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 t"eceived at Federal Reserve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Standard
time, Friday, December 27, 1968.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even mUltiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
fo~arded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application the refor.
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
S~bmit tenders except t;-'r their own account.
Tenders will be received
wlthout deposi t from inccrporated banks and trust companies and from
F-1445
- 2 -
respons ible and recognized deale rs in inve s tment securities. Tendet'l
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 ban
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public annOlJ
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 rej ec tion the reof. The Sec re 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. Subj ec t to these reservations, noncompetitive tende
for each issue for $200,000 or less without stated price from any ~
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 January 2, 1969, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing January 2, 1969.
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 excludec
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 th:
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 06o~ranc~.
TREASURY
DEPARTMENT
.--.-.---
-
-
- _.-
-
WASHINGTON. D.C.
December 30, 1968
FOR IMMEDIATE RELEASE
TREASURY ANNOUNCES REDUCTIO~ IN COUNTERVAILING
DUTY ON CANNED TOMATOES AND CANNED
TOMATO CONCENTRATES FROM ITALY
The Treasury Department announced today that it lS
reducing the countervailing duty which it has been
assesslng on canned tomatoes and canned tomato
concentrates from Italy.
The reduction follows an equivalent reduction by
the Italian Government in the amount of the subsidies
being paid on exports of these products to the
United States. Since this reduction took effect on
November 27, the countervailing duty will be reduced
on all exports of these products from Italy on and after
that date.
The countervailing duty reduction will amount to
approximately 16-2/3 percent in the case of canned
tomatoes, and approximately 9.1 percent in the case of
canned tomato concentrates.
The announcement of this action will be published
in the Federal Register of December 31, 1968.
The countervailing duty on canned tomatoes had
originally been set at 18 percent of the invoice value,
but not more than 1800 lire per 100 kilos. Eighteen
hundred lire per 100 kilos is approximately 1-1/4 cents
per pound. Under the new rate for canned tomatoes the
ccuntervailing duty will be reduced to 1500 lire per
hundred kilos.
F-1446
- 2 -
The countervailing duty on canned tomato
concentrates was originally set at 15 percent of the
invoice value, but not more than 3300 lire per 100
kilos. Thirty-three hundred lire per 100 kilos
is approximately 2-1/2 cents per pound. Under the
new rate for canned tomato concentrates the countervailing
duty will now be reduced to 3000 lire per hundred
kilos.
The new rates will remain in effect until
the subsidy program is terminated or until the amount
of the subsidy is again modified.
The original countervailing duty actions were
announced on April 18, and took effect on June 1, 1968.
000
TREASURY DEPARTMENT
4
--
WASHINGTON. D.C.
RELEASE 6: 30 P.M.,
day, ~cember 27, 1968.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
TIle Treasury Department announced that the tenders for t1.io series of Treasury
ls, one series to be an additional issue of the bills dated October 3, 1968, and
other series to be dated January 2, 1969, which were offered on December 23,
8, were opened at the Federal Reserve Banks today. Tenders were invited for
600,000,000, or thereab':mts, of 91-day bills and for $1,100,000,000, or therelilts, of 182-day bills. The details of the two series are as follows:
GE OF ACCEPTED
PET! TIVE BIDS:
High
Low
Average
91-day Trea sury bi :_ls
maturing April ~ 1969
Approx. Equiv.
Price
Annua 1 Ra. te
98.451
6.128%
6 .·502~
98.407
6.i9:3~
-y
Y
1:1
~ Excepting one tender of
37~
2~
182-day Treasury bills
maturing July 3, 1969
Approx. Equiv.
Price
Annual Rate
96.816
6.298%
96.785
6.359i
96.799
6.332';
$S, 000
ot the amount of 91-day
of the amount of 182-day
bi lis bid for at the low pri.ce was accepted
b~lls bid for at the low price was accepted
11 TENDERS APPLIED FOR AND ACCEPTED BY rlillERAL RESERVE DISTlUCTS:
ansas City
sUes
an Francisco
AEl)lied For
$ 24,898,000
1,581,663,000
23,343,000
29,294,000
12,000,000
30,308,000
152,497,000
38,753,000
21,691, (;'00
21,909,000
29,217,000
159,841 1 000
AcceEted
$ 14,898,000
1,093,663,000
19,343,000
29,294,000
12,000,000
30,308,000
152,487,000
36,753,000
21,691,000
21,909,000
23,217,000
144,841,000
TOTALS
$2,13l,414,000
$1)600,404,000
listrict
Ioston
lew York.
)hilade lphia
:leveland
tichmond
.tlanta
hieago
:t. Louis
~nneapolis
!!I
ApE1ied For
4,986,000
$
1,453,917,000
14,883,000
34,804,000
4,802,000
14,480,000
154,979,000
29,933,000
17,096,000
14.~ 984,000
23,885,000
_,107,936,000
Acce}2ted
4,986,000
$
807,767,000
4,783,000
34,804,000
4,802,000
13,730,000
119,542,000
29,233,000
10,096,008
14,984,000
16,885,000
38,636,000
$1,876,685,000
$1,100,248,000 ~
[neludes $269,610,000 noncompeti tlve tenders accepted at the a.verage price of 98.433
lneludes $157,899,000 noncompetitive tenders accepted at the average price of 96.799
lbese rates are on a bank discount basis. The equivalent coupon issue yields are
3.39% for the 91-day bills, and 6. 63i for the 182-day bills.
l447
TREASURY DEPARTMENT
WASHINGTON, D.C.
December 27, 1968
FOR IMMEDIATE RELEASE
UNITED STATES -- IVORY COAST TO HOLD
DISCUSSIONS ON INCOME TAX CONVENTION
Discussions have been scheduled between the
United States and the Republic of the Ivory Coast to
consider whether a basis exists for an income tax
convention between the two countries, the Treasury
Department announced today.
The talks are expected to be held in Abidjan,
the capital of the Ivory Coast, in early February.
The primary purpose of the income tax treaty would
be to eliminate doub12 taxation resulting from the
taxation of the same item or items of income by both
countries and to establish procedures for mutual
assistance in the administration of income taxes.
Persons having an interest in such a convention
who wish to offer comments or suggestions may do so in
writing. Comments should be submitted by January 25,
1969, to the Office of International Tax Affairs,
Department of the Treasury, Washington, D. C. 20220.
000
F-1448
364
TREASURY DEPARTMENT
;
:::
WASHINGTON, D.C.
December 30, 1968
MEMO TO THE PRESS:
Attached for immediate release is the
text of a December 20, 1968, letter to the President
from Secretary of the Treasury Henry H. Fowler in his
capacity as Chairman of the Joint Commission on the
Coinage.
Similar letters were sent to the
President of the Senate and the Speaker of the House
of Representatives.
F-1449
'":e;r:~.J '-- / ' - '
TM Coin., Aet of 1%5 aDthorlled the P'rnideot to establish
• JoiM eo.t.stcm ... the Coh...,.. "nte Act specified that the
c..inin be e.posod of 24 . . . ." -. six frotI Saute, six trn
t . . . . . . of lepre.eatative., tear fftMI Ex.cutin Inndl (Secleta?y
of tlte Tft...1'1, Seefttary of CClDleKe I' 01 rector 01 the Bare.. of
the ladpt, and Director af the M1llt), and ei~t public IIIIJ!IIIbers
to be RaM b1 the Prestdnt. The SecTetllry of the Treuuy
desipated as C'hait"ll8. It was the hrtftTlt of the Omans. that the
r....tlsiea han a ~t.l ret. 1ft the tonulatitm _4 i.~ta
tioa of all sllYer and coinage poliey deeisloft3 fteeessary to co.plete
the t1'llUition fl'ftll silftT tt') 7WJUi IftT col"s. The Coads.toa was
to,...UIH eft May I, 1 %7, with the appointll!&l1t of tt. public Raben.
w.
ne
Coiraap Act as.igned to the .Joint Comission • wide HA,e of
Specifieal1y, tlccordin~ tf) the Act, th~ Jotllt
COIBiswin .. the Col1l&~ '~sh.tl study th'!! !"I,-o~1 .ado in tite
t-rl,..fttstion 0' the eo1nA~ pTO~rA~ e~t.hl~shed by this Aet, .ad
."all Nri •• tn. ti_ to tiM, ~ueh .attt'~ as the ".ods of the
eco11OllY 101" eo!"s, the .taadan:lJ for th~ el'rlnAp, ~hnololieal
drfel~.ts in Netal1u1"gy and cola •• 1eetOT devices, the availability
of yari.s ..-talR, renewed mbrti_. of th~ s11ve1" 4o11a1", the ti_,
whew, ad cf ftUIISteees uMe7' wbieh th. United Stat••• hculd ceas.
to . i . d . the "riee of .11ver, lind ethel" Ct)nsiooTatiou rel.".t
to the _i1lteUDee or en adequate and tt.hl~ emu,. '1St.... It shall.
",. ti_ to tiM, give tt~ IldYiee ;md ~co~:rtlen!t win, ?eSJlect to
t),.e aatten to the President, the Sccret317 of the T1"0HUl'Y. and
the ConI'ftS!. t,
~siblUti".
The J&int Ca..i!sien h~lrl its first meoting on ~y IB, 1961.
Tn all t it has wet stx tbles and has serv@a in " CGIltimtatd aHJyiscry
capaeity, ~artid'P ..tinJ in all \~y ~liey (~;leision.s.
~'or Sil..... aM ColtJ~ Policy Decisions --
t-far
1(l(.~. - Dece1lMr 1%8
At the ti_ of the Co.ds5ion's tint 1!eetill, 01\ Nay 18, 1%7, th4
'rftuury, tinder the IIrthority of the ec,l 'fta~ Art 01 1965, 'III tloldh~,
the price of silw1" at ~1.1Cl _ nwaee thTnu;.n Uftftltltrlcted 5a18' at that
pria of its "'ree" st1ftY (tdlver Mt held ror the redemption of SUftT
eerti neates) ttl all paTen.sen. foftlrb and domestic. This lcept the
- 2 -
wort. pltee of .ilwr at tM '1.29 1....1 'onateill.. the ..ant...
_ltl., . . . . . . . . of U. s. Ill. .~ eel.. fer tIle . . . .f ...... aU",
,N ..
abe expMitia,
Itl_ . , tile _ ....
ddet . . . . .t.s ad . .ute" te _ t the a.t1y'I . . . f . ed••
eewt. . .
".. ,...._~ . .
t_
At tM ...t1., _ ...,. II. IM7.
Co vt ..i _ _ 1..... . .
cnetdIM la . . .eo 1 • • • •1.. 1Jy t'-e ?nu&uT that ••_ ~ ell-. ..
Ii. . .l~ te puJ'ChMns et.... ~_ . . . .tic S...strlal . . . • 1 dl_4
....latt. . . . . . thea I ..... t. nqt1in 1*fth.en of
.Ihw tI
Use c.ftlftcate. entlltt., that tM sll..r -.1....... I.
ct•••tle __~., opentl.... I • ..witl. . , naa!atl- __ t ......
~ ..thrtty
the Col.... Act pt'8JtlMtl., the .-t1lerlu4 _lt1at.
tre.tiD« . . .sport of .tl~ eel. . .f the U1d.t" Statee.
_.cat......
Tn_.,
0'
pac"...
The NUeJl fer tM actS• . , May II. 1M', that
eM,.. fer .U~ . . . . the 1IIIrntrict" ••1.. policy had be.- t. Ii_,
1M "" 1IIay 15 It hatl
lIppa1Wt that the TftMfft7 c.al4 _t ..ed.
tM, Nt. of sal. . vltllorat COIIplet.ly ail_till, 1'ttI .t. . . ., ,.... .U...
vit" ••• ,..latlwly .hert ".ri.. of ti... The heavy pucJaa........ ..,
W ........ priadJtal1Y by , ...tea, .estly leT
"eo..
.xpeft.
111 caeectlen vitll the tftldutl. . . Nay 18, IN7 ••t ....., ....
,.,....,.,. sal . . .f allYn'• • IfOIIP
'-111•• _alen , . . . . . . cl... '"
oJan whip wn }MIllIS., . . that . . . bat .... . . ......... The C I ....r
Nrl.... t .... elat_ ... NIl
. . . . tMe lePalad. . . . lid ....... I.
e..e~ .1.., wle. tMy . . .1. M • •lftcl tit
c.ut ., oat. 1ft.
-.,Id..etea . f tMtr 1. . . . . . . . . .'181• .nits . .
a.... If.,
0*
t-
t_ ..
CI . . . . .ttoa. Repnseatatlw fa. . . lilt ........ "pilatl_
tld~ pup•• 1ft tile tnth Cnpa. (If. , ... 1307 . . H. I. 11171).
... t.
"'._IY
fer
.at . .
111" .... 311M 1917. Ial. . .,
.Uwr te ....Ihlal . . .
__ I . _ at .........11 t. _ _ • 01 u... widell .-1........ete4 " .
Mmal .....trl.l _tIft? _ _ • .,. .4.1.'.
the
p"t'O&leU wer 1-1/2 hllliOft el_ eel.. , aM t'- _1_ e* el_ eel....
1ft e1ralatl_ aacI 1. the l.,ntort . . ., tile Mlilt . . 'Men!. . . .""
"a ft..tl,. . . . . d .affld....t to - . t the
tIMlq ....
.... if YirtuaJly all'" .il. .1" c.t•• _n wit. . . . . f1W clnaladby }n'f.Yate 1ae14eft. Theft .... thftefore. _ 1. . .1" . . , jatlflcaden
lIt. . SIn1'Iu sappll. . ., ,...,....,. .llwr to pdYate . . . . at
",nee-. ...-untiell,. ...Iow the pn.alllq _Nt 1...1 •
_t.
""I',
_at.,.'.
"1" ..
...... ~he tiM! decl.t.. t. ltalt .11. .r ••1_ at , ........ pd.
was .... ~ tlle ..un I . . . .,. rwt ..... wltl the e.ua.. C 1.1.. II
• • Itt..... 3tily Ie.
At t.t. _ d....
c.....Iea _
tho~'ly 1trt.,.. _ the T'r....~ ..,,17 . , .11.-. . . . . Ji. .
I"'.
t_
est!. . . . of tM Tn...,. ap.aty to _ t ~l.
""I" _
Its
':[,r>
'.JOO
- 3 ~ilyer
eowdn~ years.
S,ecifieal1y. the Co~s~ion wa~
jud~ent of the Trerurul')", t"'e Ivai Illble supply of
lupply over the
"dYhftd that in the
dIver .al adequnte to (1) l"MHm all silver certificates likely to be
of's"d until th~!)e "d~tion rirhtl ~"ded nn .1une 211. J 1)(-.8, (2) mint
,,11 ~~oody lo!al f d01ltu'~
COft~~S,
and
(~)
f{')T
tTansfer 165
e"
t\Jn(l~ hl'G heen 3nprOPTtAt~~ hy the
~i]lion ounces of silver to the d~fense
whl
stockl'ile tm Jtml" 24, 1%~, 3...1 roqul!'e1i ~ lIN. It wat the Treasury's
view tlHlt 8~t.,. 1'ItPkin~ 1ll1owanee for all U,ft,f' ()hlh!stions the "rell~'Jry
would sti 11 hav" fl. v"'rf lArge snrplu, ('If ~1l ver hy the end ",r .Ju"e 19()~.
raven this fnvorshlp. !IIu",lus inventory ~ituat1on. the C()mlItission was
advt,ed th.at thE> "'~~~UTV could t!lllintain sales o4! ~dlver to th~ nTivnte
1I8r"~t <weT t"te e~inr yeaI'.
Slnc~ theT1t ltI~! no longer any justification
fnr 5el H n~ t~t, ~ut'plu!l ~ 1 1vel" at Ii 5uhsidv :noice, i t "'a~ reCOIiUlended
thRt tlte salt-:~ "e r,mde at thA ~oin~ 1Mlrkct p-::-ice. prefera.bly thl"OUgh 8
emmet! tive hid l'roceduTe. Tlle chie' tldvllnt A~S of Minta! ninr Tr ••!ury
sates of' silvltT weNJ~ (1) tIlt' ~'T'()fits from !;uch !alt's would be a
It.tbstsnttll incn1l'te1lt to t~ r;OVp.rn_1!t'!' revenue, (1) the ,ales Wf)uld
haV8 8 favorable
h81ane~
of
en
~ayments erf~et
through
~duci""
the neod
for silver l~orts, lind
silver no lon\'ftT needed hy the Treasury could
hrne'it the oohlir. throut!h ctmVo1'!ton hy ,'!"~vate Industl'Y to useful
~u~oses such a~ fila. defense need!. etc.
"cro'l"dl 'l"dy. the r~i ssion al'lpmvp.d f\ ~f!~oluticm t hat the Trf'llSUlj'
te'r"d",.te it! "fll~cy of :";f'llin" 'J"O'III it~ !'1'j";~k~ lit ~1.79 "el' ounce and,
Pt"Ovlded that i~ in t~). jl1i!mnent l'f "hi' Tri~:1~ry it wouln ~~tVe sufficient
~ilv~!' to lI~et : t, 5tc~JtOt",.. ohltr1ll.tions ~ 1"'1- rPjlard to tho stnc\pil~ and
l'erle"'!"ti.,n of si;\'er c:ertlf1cRte~. 'Ina}.:" fhtu~ !ales of ~i1ver pe,.iodically
under a cO'fll'l')etit~ve hid l"l"O~duTe at a T3t~ ','ot exc:eedin~ 2 1dllion ouncel
~r ~ee'k ° Tl'le 2 p!illion ~mco weekly TRte "'~~ let M the figure which
IP~~ximately ~ualed the ~rovailin~ deficit between the industrial
co"s~tion O£ ,Uver and dmtestic mning t'roduetion.
The r.OIIId.s~lon
~urthel' ~co1"Me,,~ed that !it1ch S~105 '-).., etn';"uc-tfld in lot ~~"T1er which would
a'ford ,..11 pnre;8~el'S lUI well as 11l1"~e Thlrchass" an opportunity to
bid and that t~ c;ec'l'8tRTy of the 1''t''a!!llry' continu~ to make rermrt, to
the Cf)"IIt\i~,ion ~ thA rt'~ul t~ of t"o ~al e>~ And other fRcts reI at1nJ! to
!il~r IUppl1es.
~(l'(Yirmin~ Au~st 4, 1 "fS1, t~e (",enel'al t)~rvtC&9
Acll!'i nist1"8tion. !Ie; 8~~nt for tl'e T~"'mrv. he~8n offeri n~ si Iver for
~lll., to d~e~tic i nt..'ustrl <11 nsr.n undeT t~t..' shove conditions. These
~"1f!!\ ~ave ~nt' r.1'e{\ to date.
At SUMet"{U"nt 1'IMtetin~ of tl\~ f.o1!r."!i ~!C:(\n in Septemb~T 19~7 and iT!
'farch and Julv nf 1 %~. thf; r.omd ~~ion ~~d ;".t ~ined 3 cln!e rntew ('rVer
tl'e Tl"eft5Ury'S ~ilvel' stml'Ues. -t the me~tin~ on March 1, 10~~, t'1e
r,01llTlissi f)TI en"01~d in a 'l"rea"lt'V Pntr'oso.l to "",1 t s ilvc'!' c~in5 h~l (~
in Government inv.tori!'s m~:-1 t T\~lu~'" rof T'-~ i Iver 1-·ul Ho" "mtm~ tl-) at
offflred At WN!'kly roSA sales. At this !'JHtetiT'l. t~e Co~j5siofl al~o
lonl'Oved M inc'e-rhtlte e()T\tinuati(tPl of the coin lt~lting haJ1.
- 4 -
A.t the
ftlf'etin~
to t!-f" dlsno~Bl
Tnt8SUry. t~on
on .July 15, 1~6R, the Co"",i~nion ~8VO consi,teraUon
of the 2.n ~11U.on Tare silver doll_" held hy the
advic:e of the Comaiss ion, the Chd man l1Jl!"ointed an
Int~ra,eney c~tt~~
of
t~e
tare
~ilv~T
to work out • plan for t~e oquitable
dollars fnr its eonsiderntion.
dispo~ttion
At its l"Ieotil1( on Dece~her 5, 1(168, t!w Cm'!ll!ission comploted it!l
HCOtIIIIen1ation.1I on the remaininl •• jor silver and coina,qe ilSUets. With
~~llrd t<" the '1. (\ ,...~ !5 ilver dollars held hy the T~asuTY, the COI'JIJissio1'1
rec~nde~ that th.y be ~~ld hy the r.SA at mi~l~ fixed prices ¥it~ M
option tn the huyeT to include an alternate ~)id price to hI'" considere<i
in t~9 cv~t t~e numhor of coin~ ordered exceed~d the ml~ber of ~oin5
ftvatlnl-.Je. !fnd(':t' this plan, evetryone would have an equal opportunity
t~ ac~ire the~~
eRch
coins
~ith
nn initial limit of one coin per buyer in
cate)~0ry.
t')", (')theT issues considered at the neeemher S neeting, a substantilll
Tl\t\jorlty of thE" r:~is~ion recotmftGnded thlltt the TrelUury roqu85t le,hla- I!
tio" to ~lace the exi~ting 4n ~rcent silver ~~lf dollar with a ~o~!il~r
c1;vl coin, Althou~h over ~M ~1111on of the 1(' pel"ccnt !lilver half dolla"
h~ye l'een tlQirrted, very few ft'n' r~i rcul at .... d t hrouqh the Federal ~e5eTVe
r(ank~.
A l'Iaj~rlty of the COfllPftt ~sioll concluded th~t there 1 B an iwr.>ortant
ccmmercial fH!ed fOT a drcul~tin~ half dollar eoin and that t"is need can
h~st he ~et hy the mntinQ: rtf a no"silvol' cla.d half dol1l1r.
A lIdnorlty
of th<- rC"lmi~ui("ln favored the contirued nroduction of tho !ilver half
dollaT.
~
snhstantis.l l'MjoTi ty of the Conni s~ion a150 recol"~tmd4'd t rat the
\'ongT"OtI!S enact lCJ!i:o;lation to ma.\:e the current ad~in1strQtiva hsn on
the Meltin~ of dIver eoins peT'llanent and applieahle to all U. $. coins.
Thi~ ?ecO!!ll1ftendat1~n W~ largely based on the vie11 thnt atlY profits
1"("~ulttn~
tlle s21c of silver In U. S. coin.~ should b~ realizt"d
~'v the 1"'Iu't,lie A~. It W''-I,,1~ through their ;'ov('l"llJ'Aent T3theT than to
lNHviduAl "~'.··lers of thes(' eoins. ~ permanent coin "':\(lltin~ hAn would
also h~lp assure tre adequate ,Hrculati on of t~e 11onsl1ver cotn.~c in
t~e ~v~nt of future market price situ~tions in other Metals si~lar to
thflt which occurred with silver. A Minol"ity of the COIItf"liS5ion, em the
nthf!!T hAM. felt th~t the coin meltinJt hall should he ended.
In their
vie~, t',~ ban WRS difficult to enf~e. and its end would _l::e R
~t\hst1lTltial 111:1ntity of !ililver in hoarde-d coiT'! availahle illlll"<iiatcly
fOT i ru",u rt l-i a1 use.
' ro!II
~.e Pre~~nt
~il veT
:-.ne
Coi nage 51 tuation
On July 11. lr'jf.7, h~fore silver ~:t]f"~ \fere ~er.un undor the GSA
CfmTH"titive hid fl1'Oa-OuTe, "the TNaru-ry "'nd availal-Jle S21 million OUT'C05
~ilveT
.f
of silver in eoin inv~tOTies,
!"Ivr-T' t'~f\ next 1~ ~'"t~~, tmoroxlT'1!.tely 1()/; r,illion ouncos of 'dIver in
nf
.h1C~ ~l ~llion c~si~te~
,.
-
J
-
eoln1 .....ded to the T?easuTY' ••vail.~l~ silver lu~~l, hy not
redt'allatlar eoin.
they tflt!'e ""tuT'fted to the "edent ftesene
_.t,.
~
..,
Ill'
tl,lt laM 1~ -Mflt~
Tlorlot!, the 1'ftaJu1'1 t , IlIpply of
.tt ..,. va ~-tf th1'OU~ (11 ~~A. 881C!! ('}f 1'" .Ul1..". ftUftaS(?l tU.,." cept!fie"te T'Mft..,tlon~ Teqtti1"in, 41~ -dtHOll 0Ul\~'
(~ cet .... of t),e ttmHdy hal r doUI,. min, 4~ .t 111011 t'JDften
rot) H5 at 1110n OUf\c.tJ which vas t.,.• .,.~f~,"""~ t~ t~ def. . . . . tocl.pUe;
ad (~) 1t Irlll iM omlee. lost thrtm," the ~ to reet 1'a 1ate . . . of
the wn ..." ~1'\' ~o'd ill'! hytl*vrtorl,., f)f "ixed ftl"T Iftd coJac! eelM.
A~
• fttmlt nf these add! ti(HI1 Imd deJuctions t th. Tftuu1'Y nov
~oYeebor ~~. 1~~8' 14~ .tllion GUncos of all.et
rtf wMef, . . .!th.,tod l~ .0 U.on MlftC" t'''nst~ts of ~ttftr h, celt
iWft'ftterl •• ttt the ~J!t ad '.donl 1I.~ bnts. no.t lYel' ain••
Whlc~ cl.'l'l~ will BeYeT ~ u~.hte .s c!reuJat1nl ooiftac~, are betn!
.1ted illto baT ~t1ftl" at a ftte sufficient to r,alRtaht tne ~ 111111019
once -.kt,- '.l~s tn"ther with • ,..,e~ stlPrly. If ftftCeJt • .".. thf I
haJ ...ttahle
weltt~R rat~
(R~
0'
ceulA he suh'tafttiatly
i~cre.~~d.
All of the Tre8"1H1"'f"1 CUl'ft~t ~u"!\ly t:t( t\ilYer, bath In bulUon ad
b eoha •• Uf! ~'1. 1niekJy N~• • y.Ua~le 't)r 5111e t!tl"Oaf(h the GSA with tbe
.see."tl_ . , a\o/{)Tel'iutely l ' IfItllton OtmUS w~td~ nqlsi1"81 further
ftn.tw, to nt1"tKt ~ ~ld c_~ent ."d a"mrt U tt! llfOJ\ OUftces or
.4M I t . elad _teT'i a1 ,..~ene~ rOT' t"e (tJl"'MHrt: 1, authtni zed til •• .,.
".1' deliaI'. "ith t~ 'tint'. Jtftseqt ftlinin, ",.our~ •• the 2~ llillton
MlRe.,t .tft4 wit!> ""Ie! C81\ ~ !"en Md l~to us.hlo f ..... at • ratct 0' ,.,..
1 to ft .t 11 Ifm Otw.ces a )'••r der-nd.h,~ Oft the 1'Os.,.cal us.d.
n.
a..-mt ef IUTI'lutJ I 11"1" t~. ~tW.",....,t wU 1 hne ..-Uahl. feT
di ~.t ill t~ ..net depeads pan ly "POD \thAt conrnlsioa.l
Hthtft Is tate'll wi th ,..,aTd to the futu .... (tf th • • ~ lMftent Illver hal f
4011a1'. t. ttw. etllTht fiscat y.ar. the C<mve~s has IIPP1'D}'riated
..fn d ItIIt fIaad. to ,,7'6doec 1 ~f' wi 1110n ...tnme..ty b a 1t _11 US • n-ll
_ t ntq\Itfta .~t IS wri 1 Hen euae•• ef .Uver. l' it 1s decided
t. eentl • • ttfntift, the s11"1' bat' doll.T in future rean, sea. porticm
T"UD1"1'~ ou·ftDt .tl..1' holdlnrs voald ~"Iu..hly be •• t aside
'or thts ptn"POH"Oft i ' the Mfttinf of t't. half dollar v." 1. tot"
___ teo " . H the Cnt~ .. C...t'lion !'ge."..,ndJ, funllet- .t'fttift~ of
sit.,.,. hat f dollaY' i. t.1"'Idnated. thn otwioutly th. . .tIn
"I
supply woald NceN ttl1"Plu. to T!'&u,,1'Y ne6ds. It ,nOllld b. aotod that
t~ T,..uarr .toe~ ,,'l .it..,.. t. t. M scmStt lnteft8cl u • _utayY ",e!'ft,
..,. t. it a ItMtplle tOT ,mHtnl Ccwmant ptlTf'OHS .iMe this tuneti . .
it Wi by the "'flll11,. de'.se stodpi Ie of 1~~ ~ lHem 4M\C•• 118" "."r
~l8t . , the Offle. ef f--rr-cy 'I."bt,. ThuI, al1ftl' sappUe. aft
.,,1. te aatl . . ftrttne ,al •• heto the _~ftt fo., tvo y.an .... 1.., ..1'.
cowtt~
., t"_
t".
.,...t",
-
(,
-
5iM'1t tt~ fi"t !!Ntinr nn ~fay lit, 11)(,7, the Cninate Cooml,.ion !-I.~
hoftn \:ent tnfoMlO~ on etJ1'Tttnt and plPmned nroduetion of coin., coin
fnv~torieJ, anrl t~o ~tAn1S of coins in ~1reul.tion.
Over the ~ntiN
~~te~ fro. ~ay 1~~7 t~~~h Noy~er or l~~~. the volUMe of ciroulltln,
coin.~e "a.4J he<."n Etm.le for n11 eo~.,.cial nt'eds, Itnd no ~i~it'lcant eo~n
~"ort .re~ tUlVe '<'\4t~ evi dent.
Thi s ~nti fyi nfl rl!"~ul t has been rrf"',," ly
~e to t~ timely tTan~itlo~ r~" ~ilver to clad coina~p. and the
e~dJ ti OUI manner in which tJ,e rTOf:;t'<1l1 to exp~nd the prod\Jction nf
th. ~w clad coins ~.~ carri~ nut. Thu~. ~t the crit'cal ~~ent
when s .ul:t5tMtiAl rl5~ in the world '!\ ~D.rket price of !'11 ver l~cllne
tnevit&hle, t~e Trt"R..'1uTy' hAd huilt Uf'\ a su(ficlcmt
cl ~d c"i"s to fully meet CO'JJlWrctR 1 n~ed~.
re~{'"rv~
supply of
The Smoo1'~, tran~ition f'!'fJftl clrculAti.nr: silvf'lr coins to JlTi",arily
clad <:01 nil W4S f'urther hel~ed l.,y the ban OJ1 t}'e mel tl nf! and oxport of
~i1Vf'T coins put into effoct iT'! )1ay of 1~t.7,
This action r4rtieularly
cl'\T\trfhuted to kc~ptn~ a 5uhstlllntial vol~t't of silver eol"s in circulation
t~~gh~Jt the neri~ ~f heavy .~s~onftl c~~rci.l need in the latter ~lf
1%7, Tho M.int~n&ne.., of the C«)in _ltin~ 'lan thT'OUgh l!'f.A a150 hu he4n
ert~lv l-:~ll"'flll 1" enabIin, the' Treasury to llcCtuqulat" it! !'reqent
sub~tl'mti ~1 hT'Vl.',tOrv of ~i 1Vt"T eol nft.
Com 1 nued 5l'1 es of the 5 ilver
,~ th~e eoin~
will enahle ~h ~ilver promlceTs and U5~rs to mn~e a
to th~ inevitahltt point at W1iicl, they will h(lt
!t~thf!T' ~l(~j'l't~er:t
c01!mlet.ly
d"n('nd~nt
urx>n private
sourc~~
of
~ill"f'r
sU"0!lly.
TN- T'''-~t -r,.w veAM ~;W~ !'~~rt t"'~ ~.,.~d'·nl t:''':l~in~ out of s11v~r 3S
mor.etary and coi l1."p.., l"1etA 1 thrnu!!l,nut t"'e fre~ WOT} d • In t'le United
~t ft1:6~. t"o t~An!': i t j on h4$ h~en cRnied out 5T'lN"t. Illy and wi th(\ut
<H~rtrr'tin~ ttif3 ('".~rC'e lind trt\~~e of t~~ c(')untrv, thft ohJective whid
1'9' hlWlt~ ()f W1~Ot' eoncenl. In eontn5t to nt~er countTis.5 whieh, heeause
<"f the ri~e in tJ,e f'ric~ 0' ~ilv€\r are still .exveriencin, serioul coin,,~e
llrol,l~M, the rJni teet States now Hl~ a ~nUl'ldl Y TUYlctioni rtf. ~in"s:;e 5y!tet'l
Rnd '1 Inr,ft ~u1"Plus ~tC)el; of !'ilver 2lJI wfpll. This gratif'yinp, situation
i~ ~n ~xcell&nt ha.ch~l"OU1'\d for 1t1'lY f'i"IiI "ctten ~tt~\ r~!4pect to the
future
th~ ~i1ver half' dollAr And the coin ~eltiJ";$t hen.
A
0'
Faithfully yours,
The })resi dent
~
W'hite flouse
TREASURY DEPARTMENT
(
::::
WASHINGTON. D.C.
December 31, 1968
R IMMEDIATE RELEASE
IESDAY,
DECEMBER 31, 1968
ALL U.S. DRAWINGS ARE REPAID
TO INTERNATIONAL HONETARY FUND
The Treasury announced today that all of the U.S. drawings
the International Monetary Fund (IMF) have been repaid.
The repayment fully restores the U.S. gold tranche position
$1,290 million. Gold tranche means that portion of a country's
Wsubscription that is made in gold. It represents the amount
country may draw virtually automatically.
Of $1,840 million in total drawings since 1964 by the United
tates, $1,090 mill ion were cons idered as technical drawings since
rawn currencies were sold by the United States to other Fund
iembers for their use in making repayments.
Most of the U.S. repayments, $1,555 million, resulted when
ther countries drew dollars from the Fund, including $600 million
the United Kingdom, France and Canada this year.
The full restoration of the U.S. reserve position in the
und was accomplished by direct U.S. payment of approximately
285 mill ion in currenc ies of Be 19ium, Italy and the Netherlands
uring November and December.
000
-1450
TREASURY DEPARTMENT
(
$
APE:
WASHINGTON. D.C.
December 31, 1968
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
$2,700,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing
January 9, 1969
in the amount of
$ 2,702,784,000,
as follo~"s:
9~day
bills (to maturity date) to be issued January 9, 1969,
in the amount of $ 1,600,000,000,
or thE reabouts, representing an
additional amount of bills dated October 10, 1968,
and to
mature April 10, 1969,
originally issued in the amount of
$1,103,127,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $ 1,100,000,000,
or thereabouts, to be
dated
January 9, 1969,
and to mature July 10, 1969.
The bills of both series will be issued on a discount basis under
competitive and noncornpetive 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, January 6, 1969.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decImals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application the refor.
Ban~.{ing
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
F-1451
- 2 responsible and recognized dealers in investment securities. T~n
from others must be accompanied by payment of 2 percent of the f~
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated b. .
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public ann~
ment will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tender.
for each issue for $200,000 or less without stated price from any ~
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
January 9, 1969,
cash or other immediately available funds or in a like face amount
of Treasury bills maturing January 9, 1969.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differences between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 0oO~ranch.
TREASURY DEPARTMENT
,
=
WASHINGTON. D.C.
December 31, 1968
FOR IMMEDIATE RELEASE
MEMORANDUM FOR THE PRESS:
Secretary of the Treasury Joseph W. Barr today released
the text of identical letters from the President to the Speaker
of the House of Representatives and the President of the Senate
concerning the tax reform provisions of the Revenue and Expenditure Control Act of 1968.
Secretary Barr also released the text of a statement on the
subject by Chairman Wilbur Mills of the House Committee on Ways
and Means. The text of the' letters and statement are attached
for immediate release.
In connection with the release of letters and statement,
Secretary Barr said: "Both I and Secretary-Designate David M.
Kennedy concur in the procedural arrangements set forth in the
President's letter of this date to the Speaker of the House and
the Pres ident of the Senate."
F-14S2
)t~
- 2 FOR IMMEDIATE RELEASE
Text of December 31, 1968, letters from the President to the Speaker
of the House and President of the Senate Concerning Tax reform provisions of the Revenue and Expenditure Control Act of 1968.
THE WHITE HOUSE
December 31, 1968
"The Treasury Department specialists in tax policy sometime ago undertook a major effort to prepare tax reform proposals of a comprehensive nature.
"The Congress, in the Revenue and Expenditure Control Act
of 1968, requested that proposals for a comprehensive reform of
the Internal Revenue Code be submitted by December 31.
"The studies and proposals for tax reform have been
developed by the staff of the Treasury Department.
"These studies and proposals, although reviewed by Secretary
Fowler, should be viewed primarily as the technical product of
the Treasury staff. I have not received, considered or made any
judgments on these staff proposals. They are the technical
product of the tax specialists in the Department and have not
been discussed or examined by me.
"I have conferred with the Chairman of the House Ways and
Means Committee and the Chairman of the Senate Finance Committee,
the Committees handling this legislation, concerning what seems
most appropriate under existing circumstances. We believe that
in justice to the administration that will take Jffice within the
next month and who will have to live with and admi.nister any
legislation passed, it is only appropriate that they have the
opportunity to examine carefully and make their judgment on these
matters. All data pertaining to this matter will be made available to the incoming Secretary of the Treasury promptly and he and
I have discussed this procedure and the Secretary-Designate concurs in this dec is ion.
"The Chairman of the House Ways and Means Committee has
been informed that since the Congress will not resume until
January 3rd all data are available to the Congress when they
deSire to receive it. I have been today informed by the
Chairman of the House Ways and Means Committee, the ranking
minority member and the new Secretary that they will make their
arrangements for the proper consideration of any tax proposals
that may be desired at a date acceptable to them.
Sincerely,
/s/
Lyndon B. Johnson"
- 3 -
J .7)
. L
FOR IMMEDIATE RELEASE
Statement by the Honorable Wilbur D. Mills, Chairman
Committee on Ways and Means, House of Representatives
"The Treasury Department has informed me that they have
completed their technical recommendations referred to in the
Revenue and Expenditure Control Act of 1968 and this material
is being made available to the incoming Administration. The
Department has informed me that this material is available to
the appropriate Committees of Congress at any time they desire
to receive it.
"The Congress was not in session on the December 31 date
referred to in the Act and under the circumstances I think it
desirable for a new Administration to review this material and
work out arrangements with the Ways and Means and the Finance
Committees for hearings on these tax proposals at a time convenient to both.
Russell B. Long of the Senate Finance Committee
and Senator John J. Williams and Congressman John W. Byrnes,
ranking minority members of the two concerned committees,
concur in this procedure. '!
~Chairman
December 31, 1968
TREASURY DEPARTMENT
WASHINGTON, D.C.
January 3, 1969
FOR USE IN MORNING NEWSPAPERS
MONDAY I JANUARY 6, 19. 69
MOROCCO ADDED TO COUNTRIES WHERE UNITED STATES
CITIZENS MAY BUY LOCAL CURRENCY FROM
UNITED STATES GOVERNMENT
The Department of State and the Treasury Department
announced today that United States citizens visiting or
residing in Morocco may purchase Moroccan dirhams from
the United States Embassy and Consulates General in
Morocco. Sales will be mad~ at the official rate of
exchange, and no conversion fees will be charged.
U.S.·owned foreign currencies are now being sold
to American tourists, businessmen and residents in eight
countries. The others are Ceylon, Guinea, India,
Israel, Pakistan, Tunisia and the U.A.R. (Egypt).
Purchases of these United States-owned currencies
by private American citizens relieve strain on the United
States balance of payments by reducing the flow of dollars
abroad. The United States Covernment, therefore, urges
Americans to take advantage of these arrangements.
In Morocco, Moroccan dirhams owned by the U.S. Government
may be purchased at the United States Embassy in Rabat and at
the American Consulates G~meral in Casablanca and Tangier in
exchange for United States currency, personal checks drawn on
a bank in the United States or for United States travelers
checks. Purchasers must present their passports for
identification.
F.. 1453
TREASURY DEPARTMENT
,
WASHINGTON, D.C.
January 3, 1969
FOR
~DIATE
RELEASE
INDUSTRIAL PAYROLL SAVINGS COMMITTEE
MEETS JANUARY 8 WITH SECRETARY BARR
The U. S. Industrial Payroll Savings Committee, made up of top
executives of Americ an bus ines s and indus try, meets in Washington
on Wednesday, January 8, to review program accomplishments in 1968
and to formulate plans for the 1969 campaign.
Secretary of the Treasury Joseph W. Barr, former Secretary
Henry H. Fowler, Secretary-designate David M. Kennedy, and other
officials will meet with the Committee.
James M. Roche, Chairman of the Board, General Motors Corp.,
Detroit, Mich., is to be installed as 1969 Chairman, succeeding 1968
Chairman William P. Gwinn, Chairman, United Aircraft Corp., East
Hartf ord, Conn.
Gwinn is to preside over the meeting, to be held in the Benjamin
Franklin Room of the Department of State's Diplomatic Functions Suite,
with a reception at 11:30 a.m., and a luncheon at 12 :15 p.m.
Other speakers on the day's program include Under Secretary of
the Treasury for Monetary Affairs, Frederick L. Deming, and Glen R.
Johnson, National Director of the Treasury's Savings Bonds Division.
A special message from President-elect Richard M. Nixon, to be released in New York that afternoon, will be read by Secretary-designate
Kennedy.
During the past year, the Committee -- members of which led Payroll Savings activities in the major industrial and geographical areas
of the nation -- spearheaded a drive in which 2,400,000 new payroll
savers or savers who increased their purchases were signed up for the
regular purchase of Savings Bonds and Freedom Shares. Of these, nearly
719,000 were from within the companies of the Committee members. In
terms of dollar volume, the Committee's accomplishment comes to
$3.8 billion.
A list of the 1968 and 1969 Committee members is attached.
000
'-1454
3: s
.
I
U. S. INDUSTRIAL PAYROLL SAVINGS COMMITTEE
1969 MEMBERS
Ex Officio General Chairman
Honorable Joseph W. Barr
Secretary of the Treasury
1969 Chairman
Taiile's M. Roche
Chairman of the Board
General Motors Corporation
Detroit, Michigan
1963-1968 Chairmen
William P. Gwinn
Chairman
United Aircraft Corporation
East Hartford, Connecticut
( 1968 Chairman )
Daniel J. Haughton
Chairman of the Board
Lockheed Aircraft Corporation
Burbank, California
( 1967 Chairman )
Lynn A. Townsend
Chairman of the Board
Chrysler Corporation
Detroit, Michigan
( 1966 Chairman )
Dr. Elmer W Engstrom
Chairman of the Executive
Committee
Radio Corporation of America
New York, New York
( 1965 Chairman )
0
Frank R. Milliken
President
Kennecott Copper Corporation
New York, New York
( 1964 Chairman )
Harold S. Geneen
Chairman and President
International Telephone and
Telegraph Corporation
New York, New York
( 1963 Chairman )
Geographic Members
Edd H. Bailey
President
Union Pacific Railroad Company
Omaha, Nebraska
R. F. Barker
Chairman of the Board
PPG Industries
Pittsburgh, Pennsylvania
Rexford A. Bristol
Chairman of the Board
The Foxboro Company
Foxboro, Massachusetts
Edwin 00 George
President
The Detroit Edison Company
Detroit, Michigan
J. E. Gosline
President
Standard Oil Company of
California
San Francisco, California
L. Fo Graffis
President
Bendix Field Engineering
Corporation
Owings Mills, Maryland
- 2 -
Harold B. Groh
President
Wisconsin Telephone Company
Milwaukee, Wisconsin
Floyd D. Hall
Chairman of the Board
Eastern Airlines
New York, New York
William L. Lindholm
President
Chesapeake and Potomac TelephOll
Companies
Washington, D. C.
Sanford N. McDonnell
President
McDonnell Aircraft Corporati~
St. Louis, Missouri
Fred L. Hartley
President
Union Oil Company of
California
Los Angeles, California
Donald A. McMahon
President
Monroe International
Orange, New Jersey
Robert Ro Herring
President
Houston Natural Gas Corporation
Houston, Texas
T. R. May
President
Lockheed-Georgia Company
Marietta, Georgia
Palmer Hoyt
Editor and Publisher
The Denver Post
Denver, Colorado
Gordon M. Metcalf
Chairman of the Board
Sears, Roebuck and Company
Chicago, Illinois
Stephen F. Keating
President
Honeywell, Inc.
Minneapolis, Minnesota
Horace A. Shepard
President
TRW Inc.
Cleveland, Ohio
Sherman R. Knapp
Chairman
Northeast Utilities
Wethersfield, Connecticut
Alfred J. Stokely
President
Stokely-Van Camp, Inc.
Indianapolis, Indiana
Harold R. Lilley
President
Frito-Lay, Inc.
Dallas, Texas
Robert M. Wachob
President
The Bell Telephone Company of
Pennsylvania
Philadelphia, Pennsylvania
- 3 -
Michael Daroff
President and Chairman of the
Board
Botany Industries, Inc.
New York, New York
T. A. Wilson
President
The Boeing Company
Seattle, Washington
Industry Members
William R. Adams
President
St. Regis Paper Company
New York, New York
Edward S. Donnell
President
Montgomery Ward & Company
Chicago, Illinois
J. L. Atwood
President
North American Rockwell Corporation
El Segundo~ California
B. R. Dorsey
President
Gulf Oil Corporation
Pittsburgh, Pennsylvania
Thomas G. Ayers
President
Coomonwealth Edison Company
Chicago, Illinois
Henry W. Gadsen
President
Merck & Company, Inc.
Rahway, New Jersey
Harry O. Bercher
Chairman of the Board
International Harvester Company
Chicago, Illinois
Ben S. Gilmer
President
American Telephone & Telegraph Co.
New York, New York
Charles G. Bluhdorn
Chairman of the Board
Gulf & Western Industries, Inc
New York, New York
Edwin H. Gott
President
U. S. Steel Corporation
Pittsburgh, Pennsylvania
0
John W Brooks
President
Celanese Corporation
New York, New York
Harold Eo Gray
Chairman of the Board
Pan American World Airways, Inc.
New York, New York
Hugh G. Chatham
President
Chatham Manufacturing Company
Elkin, North Carolina
Herbert E. Harper
President
Public Service Coordinated
Transport
Maplewood, New Jersey
0
.. 4 William J. Kane
President
The Great Atlantic & Pacific
Tea Company, Inc.
New York, New York
T. Vincent Learson
President
IBM
Armonk, New York
Roger Lewis
President and Chairman
General Dynamics Corporation
New York, New York
E. L. Ludvigsen
Chairman
Eaton Yale & Towne, Inc.
Cleveland, Ohio
Michael R. McEvoy
President
Sea-Land Service, Inc.
Elizabeth, New Jersey
Louis W Menk
President
Northern Pacific Railway Company
St. Paul, Minnesota
0
William H. Moore
Chairman of the Board
Bankers Trust Company
New York, New York
William Wood Prince
Chairman of the Board
Armour & Company
Chicago, Illinois
T. J. Ready, Jr.
President
Kaiser Aluminum & Chemical
Oakland, California
C~
Honorable Raymond P. Shafer
Governor of Commonwealth of
Pennsylvania
Harrisburg, Pennsylvania
Sterling T. Tooker
President
The Travelers Insurance Companj
Hartford, Connecticut
George R. Vila
Chairman and President
Uniroyal, Inc.
New York, New York
R. G. Wingerter
President
Libbey-Dwens-Ford Company
Toledo, Ohio
U. S. INDUSTRIAL PAYROLL SAVINGS COMMITTEE
1968 MEMBERS
Ex Officio General Chairman
Chairman
Honorable Joseph Wo Barr
Secretary of the Treasury
William Po Gwinn
Chairman
United Aircraft Corporation
East Hartford, Connecticut
Geographic Members
Charles F. Adams
Chairman of the Board
Raytheon Company
Lexington, Massachusetts
Robert 0 Fickes
Former President and Chairman
Philco-Ford Corporation
Philadelphia, Pennsylvania
Edd Ho Bailey
President
Union Pacific Railroad Company
Omaha, Nebraska
Richard A. Goodson
President
Southwestern Bell Telephone Coo
Sto Louis, Missouri
Robinson Fo Barker
Chairman of the Board
PPG Indus tries
Pittsburgh, Pennsylvania
J o Eo Gosline
President
Standard Oil Company of
California
San Francisco, California
Charles Ho Dolson
President
Delta Air Lines, Inc o
Atlanta, Georgia
Roy C. Echols
Chairman of the Board
Indianapolis Water Company
Indianapolis, Indiana
Francis Eo Ferguson
President
The Northwestern Mutual Life
Insurance Company
Milwaukee, Wiseons in
0
Fred Lo Hartley
President
Union Oil Company of
California
Los Angeles, California
Sherman Ro Knapp
President
,
Northeast Utilities
Wethersfield, Connecticut
John F Lyneh
President
La Gloria Oil and Gas Company
Houston, Texas
0
- '" Wilfred D. MacDonnell
President
Kelsey-Hayes Company
Romulus, Michigan
Donald A. McMahon
President
Monroe International
Orange, New Jersey
Robert D. O'Brien
Chairman
Pacific Car and Foundry Co.
Renton, Washington
Robert To Person
President
Public Service Company of
Colorado
Denver, Colorado
Vernon Ro Rawlings
Vice President
Martin Marietta Corporation
Baltimore, Maryland
Robert W. Reneker
President
Swift & Company
Chicago, Illinois
Frederick W. Roth
President
Gould-National Batteries, Inc.
St o Paul, Minnesota
Clyde Skeen
President
Ling-Temco-Vought, Inc.
Dallas, Texas
INDUSTRY MEMBERS
William R. Adams
President
Sto Regis Paper Company
New York, New York
J. Lo Atwood
President
North American Rockwell Co
El Segundo, California
Orville Eo Beal
President
The Prudential Insurance C
of America
Newark, New Jersey
Do Co Burnham
President
Westinghouse Electric Corp
Pittsburgh, Pennsylvania
du Po Copeland
Chairman of the Board
E. 10 du Pont de Nemours &
Company, Inc.
Wilmington, Delaware
Lo
S. Donnell
President
Montgomery Ward and Compan
Chicago, Illinois
Edwa~d
Floyd Do Hall
Chairman of the Board
Eastern Airlines
New York, New York
Horace Ao Shepard
President
TRW Inc.
Cleveland, Ohio
Ben S. Gilmer
President
American Telephone and
Telegraph Co.
New York, New York
- 3 James Mo Hait
Chairman
FMC Corporation
San Jose, California
To Vincent Learson
President
IBM
Armonk, New York
Herbert Eo Harper
President
Public Service Coordinated
Transport
Maplewood, New Jersey
J o Preston Levis
Chairman of the Executive
Committee
Owens-Illinois, Inc.
Toledo, Ohio
John Do Harper
President
Aluminum Company of America
Pittsburgh, Pennsylvania
Michael Ro McEvoy
President
Sea-Land Service, Inc.
Elizabeth, New Jersey
Honorable Richard J o Hughes
Governor of New Jersey
State House
Trenton, New Jersey
Louis Wo Menk
President
Northern Pacific Railway
Company
St. Paul, Minnesota
W. Maxey Jarman
Chairman of the Corporation
Genesco, Inc
Nashville, Tennessee
0
Byron Jay
Former President
The Great Atlantic & Pacific
Tea Company, Inc o
New York, New York
David M. Kennedy
Chairman of the Board
Continental Illinois National
Bank and Trust Company of
Chicago
Chicago, Illinois
Joseph Lo Lanier
Chairman
WestPoint-Pepperell, Inc o
West Point, Georgia
Robert Lo Milligan
Chairman of the Board
Pure Oil Company
Palatine, Illinois
Thomas Fo Patton
Chairman and President
Republic Steel Corporation
Cleveland, Ohio
William Wood Prince
Chairman of the Board
Armour and Company
Chicago, Illinois
James Mo Roche
Chairman of the Board
General Motors Corporation
Detroit, Michigan
- 4 -
Watson F. Tait, Jro
Chairman of the Board
Public Service Electric and
Gas Company
Newark, New Jersey
Jack Valenti
President
Motion Picture Association
of America, Inc o
Washington, D. C.
Charles Co Tillinghast, Jro
President
Trans World Airlines, Inc.
New York, New York
George Ro Vila
Chairman and President
Uniroyal, Inc
New York, New York
0
FORMER CHAIRMEN
1967
1964
Daniel J. Haughton
Chairman of the Board
Lockheed Aircraft Corporation
Burbank, California
Frank Ro Milliken
President
Kennecott Copper Corporation
New York, New York
1966
1963
Lynn A. Townsend
Chairman of the Board
Chrysler Corporation
Detroit, Michigan
Harold So Geneen
Chairman and President
International Telephone
and Telegraph Corporation
New York, New York
1965
Dro Elmer Wo Engstrom
Chairman of the Executive
Cormnittee
Radio Corporation of America
New York, New York
TREASURY DEPARTMENT
WASHINGTON. D.C.
RELEASE 6:30 P.M.,
lay, January 6, 1969.
RlSULTS OF !RiA.SURY I S WEElLY BILL OWERIBG
'!be '!reasU17 Depart.-nt &JlDOWlced tba t the tenders tor two serie s of Treasury
LS, one series to be an &Ad! tional issue ot the bills dated October 10, 1968,
the other series to be dated January 9, 1969, which were offered OD December 31,
~, were opeDed at the Feeleral Reserve Banks today.
TeDders were invited for
;00,000,000, or tbereabouta, ot 9l-day bills aDd tor ,1,100,000,000, or thereabouts,
L82-day bills. '!'be details of the two series are as tollows:
1E OF ACCEP.rED
9l-day Treasury bills
?ETI'l'.IVE BIm: _ _1IIB._t_ur;. . . .,; i;.; .; ng.l L,. O;,..
Ap~r_1.;;;..1_1;..0J.,-:1=-9;..;;6~9_
Approx. Equ1v.
Price
Annual Rate
98.44.3
6.16OJ
High
98.4:21
Low
6,2"7~
98.4:26
Average
6.227~
182-day Treasury bills
-.aturing July 10, 1969
Approx. Equiv.
Price
Annual Rate
96.798
Y
96.17'
96.782
Y
6.334~
6.381~
6.365~
~ Excepting one tender ot $800.1' 000
3~ ot the uount of 91-daJ bills bid for at the low price was accepted
34.~ ot the 8.IIOUnt of 182-day bills bid for at the low price was accepted
L 'lENDERS APPLIED FOR A1ID ACCEPJ:ED BY FEDERAL RESERVE DISTRICTS:
lstrict
>ston
~w York
lilade lphia
eve land
eDoM
AEElied Por
32,032,000
1,84.5,911,000
35,247,000
39,142,000
17,223,000
lanta
59,359,000
icago
264:,995,000
56,625,000
• Louis
nneapol1s
22,276,000
Dsas City
36,989,000
Has
36,092,000
n Francisco
192 z00'.z000
'roTALS
•
$2,638,895,000
Acce~ted
$2,032,000
1,074,781,000
20,247,000
39,142,000
17,223,000
4:7,404:,000
129,135,000
49,094,000
18,291,000
3',952,000
26,092,000
121 z6'9 z 000
Applied For
8,653,000
1,567,627,000
22,431,000
47,936,000
13,082,000
39,686,000
163,788,000
37,174:,000
24,591,000
29,230,000
•
28,~27,OOO
112 z690 z 000
'1,600,~2,OOO ~ $2,095,215,000
•
Accel!ted
8,653,000
775,4:07,000
10,9-'8,000
-'0,936,000
9,082,000
28,186,000
89,088,000
32,712,000
17,281,000
27,230,000
18,327,000
4.2 z190 z000
$1,100,04:0,000 ~/
Deludes $36',559,000 DODCc.pet1tive tenders accepted at the avera~ price of 98.'-'6
neludes $237,737,000 Donca.pet1tive tenders accepted at the average price of 96.782
hese rates are on a bank discount basis
'!he equivalent coupon issue yields ere
.4:l~ for the 91 day b11ls, and 6.67~ for the 182 day bills.
-11+55
TREASURY DEPARTMENT
,
WASHINGTON, D.C.
January 8, 1969
FOR IMMEDIATE RELEASE
INDUSTRIAL PAYROLL SAVINGS COMMITTEE
SETS 1969 GOAL OF 2.2 MILLION SAVERS
Fifty-eight of America's top executives, representing 23
geographic areas and 28 industries and state government, met
with Secretary of the Treasury Joseph W. Barr today to initiate plans to sign up 2,200,000 Americans as new savers or
savers who increase their allotments for the purchase of U. S.
Savings Bonds and Freedom Shares for 1969. They are members
of the U. S. Industrial Payroll Savings Committee, which was
first established in 1963"
For 33 of the group, this was their first such meeting"
They were installed officially as members of the 1969 Committee following their meeting with Secretary Barr, former Secretary Henry H" Fowler, Secretary-designate David Mo Kennedy,
and other Treasury officials, in the Department of State's
Benjamin Franklin Dining Room" Each was presented with a
Certificate of Appointment signed by the Secretary"
Secretary Barr stated "This Committee has given a new
direction to the Savings Bonds Program" On total sales of
nearly $5 billion, about $3,,8 billion was in the small denomination Bonds -- the heart of the payroll savings market" In
1962, before this Committee was formed, small denomination
sales were $2.6 billion and represented 61 per cent of sales o
Not only have your total sales increased to $3 8 billion, but
you now generate over 76 per cent of the total sales,,"
0
The Chairman of the Industrial Payroll Savings Committee
for 1969 is James M. Roche, Chairman of the Board, General.
Motors Corp", Detroit, Mich. In his remarks, Mr. Roche sa~d
"Savings Bonds are a tangible expression of patriotism, a way
to stand up for America. They attest to a citizen's love of
country, to his pride and faith in America" Millions of
Americans -- including thousands of our men in Vietnam -regard buying Savings Bonds as a positive way to put their
money where the ir heart is."
F-1456
- 2 Mro Roche succeeds William Po Gwinn, Chairman, United
Aircraft Corp., East Hartford, Conno Mro Gwinn will remain
active as a member-at-large of the 1969 Committee, joining
with other former chairmen -- Daniel J o Haughton, Chairman
of the Board, Lockheed Aircraft Corpo, Burbank, 1967; Lynn
A. Townsend, Chairman of the Board, Chrysler Corpo, Detroit,
1966; Dr. Elmer Wo Engstrom, Chairman of the Executive Committee, Radio Corporation of America, New York, 1965; Frank
Ro Milliken, President, Kennecott Copper Corporation, New
York, 1964, and Harold S. Geneen, Chairman and President,
International Telephone and Telegraph Corpo, New York, 1963.
In addition to providing over-all direction for the
national Payroll Savings effort, the business executives
who formed the 1968 Committee spearheaded Payroll Savings
campaigns in their own companies ~- for a total of more than
718,000 savers o The Committee exceeded its national goal of
2,000,000 new savers or savers who increased their purchases
by nearly 20 per cent.
In commenting on the Committee's accomplishments, Secretary Barr said, "Your campaign theme -- 'Protect Freedom/
Promote Payroll Savings' -- has come alive throughout the
industries of America, due to the dynamic motivation of
every member of this stellar Committee o Both individually
and as a great team, yours has been aninspiring success o "
Former Secretary Fowler commended the Committee to
Secretary-designate Kennedy and the incoming Secretary to
the Committee o Mr. Kennedy, who served as chairman for the
Banking Industry on the 1968 Committee, noted the challenges
which face the Nation and the importance of maintaining the
strength of the do1lar o During his remarks, he read a message
from President-elect Richard Mo Nixon.
Another highlight of the meeting was the presentation of
awards to outgoing Chairman Gwinn and members of his Committee.
Mr. Gwinn received the Treasury's Gold Medal of Merit, while
Committee members were presented with Silver Medals of Merit.
- 3 -
The meeting was opened by Frederick Lo Deming, Under
Secretary of the Treasury for Monetary Affairs, who introduced the new members of the 1969 Committee.
Glen Ro Johnson, National Director of the Treasury's
Savings Bonds Division, complimented the Committee on its
accomplishment and outlined the guidance and logistical
support available from his Division.
000
TREASURY DEPARTMENT
4
=
WASHINGTON, D.C.
January 8, 1969
FOR IMMEDIATE RELEASE
TREASURY DEPARTMENT RELEASES STUDY
ON TAX DEPRECIATION AND RESERVE RATIO TEST
The Treasury Department today announced publication of a
research study on some basic issues related to the persistent
problem of depreciation for tax purposes.
Entitled Tax Depreciation And The Need For the Reserve Ratio
Test, the study was made over a three-year period by
Richard Lo Pollock, with the assistance of Consad Research
Corporation of Pittsburgh and New York. Until recently an
economist with the Department's Office of Tax Analysis,
Dr. Pollock is presently Assistant Professor of Economics and
on the staff of the Economic Research Center at the University of
Hawaii.
This is the second in the series of Tax policy Research
Studies issued by the Departmento The first, released in
May, 1968, was entitled Overseas Manufacturing Investment and
the Balance of Payments.
While the present study is intended to stand on its own as
a research monograph rather than a reflection of Treasury
policy, it does confirm many of the expectations of the
Department's original 1962 depreciation reform guidelines.
BACKGROUND
The Treasury Department in July, 1962, announced liberalization
of its depreciation guidelines, which suggested shorter
depreciation lives for business assets grouped into nearly 100
classes. These lives were considerably shorter than the lives most
business firms had had been taking for tax purposes under prior
administrative practices and procedures.
F-l457
- 2 An integral part of the 1962 guidelines was the reserve
ratio test. It provided an administrative technique to determine
that the tax lives used by the taxpayer were realistic for him,
that is generally corresponding to his actual replacement cycle
over the long run. The opportunity to use the shorter guideline
lives with the accompanying tax savings is dependent beyond a
transition period on a conformity between the guideline lives
and the taxpayers actual replacement cycle.
Since publication of the guidelines, discussion about
depreciation has focused on the Treasury's emphasis on realism
in depreciation as implemented by the reserve ratio text. On
the one hand, that test was criticized as inefficient and
capricious in its results. On the other hand, it was argued
that in principle realism should not be a standard and that the
guideline depreciation lives ought to be available to a
taxpayer even if his own actual replacement cycle was considerably
longer.
SUMMARY OF PRESENT STUDY
The Department thought the two assertions discussed above
deserved serious investigation." A project was developed to
analyze the overall issue of "How will depreciation deductions
and the reserve ratio test work out in typically complex
h'..1siness situations in the long run?"
~I.
In particular, the focus was on two basic questions:
First, does the need for tax equity and neutrality between
similarly situated taxpayers justify a serious effort to keep
depreciation deductions realistic?
Second, is the reserve ratio test an efficient indicator of
the realism of the depreciation life for a particular taxpayer?
For further observations about the study, see the speech of
Assistant Secretary Stanley S. Surrey, "A Computer Study of
Tax Depreciation Policy," before the Computers and Taxes
Conference of the National Law Center, George Washington
University, June 18, 1968, Treasury release F-l277.
- 3 -
The answers to these questions, according to the
stud~are:
Realistic tax depreciation is important from an
equity point of view, in that a tax depreciation
policy which does not insist on linking tax lives
to actual replacement lives would result in an
intolerable cost in terms of inequities between
similarly situated taxpayers. The use of tax
lives shorter than actual lives produces effective
tax rates for the nonconforming taxpayers which
are considerably lower than those of the conforming
taxpayers. This suggests that arbitrary lives for
depreciation should not be utilized for providing
tax incentives for investment.
The existing reserve ratio test does serve as a
fair and efficient administrative technique to
enforce the correspondence between actual
depreciation lives and tax depreciation lives
which is necessary for the realistic and meaningful
determination of taxable income. The study disclosed
some relatively minor situations where this would not
be the case, and these are now being dealt with as a
result of the study.
METHODOLOGY OF STUDY
To investigate the issues, the Treasury had Consad design a
business simulation model set up to describe the experience of a
business firm over a period of 50 years o The program was
structured to permit the introduction of a large number of
characteristics of a business firm, such as irregular growth,
profitability, and retirement dispersion, thus providing some
confidence that the basic questions were being thoroughly
investigated in all kinds of complex business situations
0
The program calculated and printed out the actual reserve
ratio for the firm year by year in a form that indicated
whether it passed or failed the reserve ratio test under a wide
variety of simulated situations. It also printed out the yearly
profitability of the firm on a before-tax and after-tax basis
on a varie.ty of profitability measures.
- 4 In sum, the study consisted of mUltiple runs of the model in
differing situations to answer the two questions cited earlier.
COMPUTER TECHNOLOGY:
A NECESSARY TOOL
In the foreward to the study, Stanley So Surrey, Assistant
Secretary for Tax Policy, notes:
"Tax policies must be made in a world in which we
don't have nearly as much information as we would like
to have. Decisions must be made on the basis of best
judgments and where analyses show need for more
information, we must push ahead with finding out more
about our world o
In the area of depreciation there
were grounds for a judgment that requiring tax
depreciation to conform realistically to actual lives
makes an important difference -- taxpayers whose tax
lives were too long felt horribly put upon.
"These and other judgments must be reviewed as
we develop tools to find out more about the real
world o
The development of the computer technology
has provided tools in surprising wayso
In this case,
it proved possible to recreate, or as the in-experts
say, simulate the real world and see what differences
alternative depreciation policies make.
"Publication of Mro Pollock's work provides some
support for our earlier judgments but it also opens
new avenues to further deepen our understanding of the
world we live ino"
The l34-page study is for sale, at $1.50 a copy, by the
Superintendent of Documents, U.S. Government Printing Office,
Washington, D. C.
20402.
000
TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
EXPECTED AT 3:30 P.M., EST
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY-DESIGNATE
AT THE ANNUAL MEETING, U.S. INDUSTRIAL
PAYROLL SAVINGS COMMITTEE
BENJAMIN FRANKLIN ROOM, DEPARTMENT OF STATE
WEDNESDAY, JANUARY 8, 1969
I have had a close association with the Savings
Bonds program -- in a very minor way in 1941 when I was
at the Federal Reserve, as an Assistant to the
Secretary of the Treasury during President Eisenhower's
administration, as a banker, and finally as a member
of this Industrial Payroll Savings Committee. The
report of Mr. Gwinn's 1968 committee, and the challenge
set forth by Mr. Roche for the 1969 committee, have
reminded me more forcefully than ever before that
business leadership is the most vital ingredient in the
success of the Savings Bonds program.
As I look ahead to my new duties as the Secretary
of the Treasury, I look with extreme pleasure at the
$52 billion of the federal debt which represent the
current Savings Bonds holdings. I know what this means
to debt management operations, and what it means to the
health of our economy.
The Bond program lives because of the Payroll
Savings Plan. And the Payroll Savings Plan lives and
thrives because we have men like you dedicating themselves
to it for the good of the country and the good of the
individual employee.
So as Secretary of the Treasury I will be depending
very heavily upon you -- for your leadership, your
influence, your organizational skills, your devotion to
the ideal of a stronger America. Chairman Roche has
accepted in your behalf a challenging campaign goal for
1969. It is an important goal, and one which I very much
hope you will meet or even surpass. I am confident of your
ability to do so, and I pledge you my full support in this
accomplishment.
- 2 For now, let me conclude with three quick and
obvious observations:
First, the Savings Bond itself has
thoroughly proven its worth, both as an
instrument of thrift and as a means of involving
ordinary citizens in the financial affairs of
government.
Second, the Payroll Savings Plan, for
which American industry can take full credit,
is surely the most effective device ever invented
for painless and systematic saving.
Third, the scope and depth of non-partisan
volunteer support for the Savings Bonds program
at every level of American life -- is a tremendously impressive example of patriotism in action.
And so I welcome and look forward to the opportunity
of working in this vital area of public debt management -and particularly of being associated with outstanding
business leaders like yourselves in making Savings Bonds,
and the Payroll Savings Plan, a way of life for employer
and employee alike, in the interests of building a
better and stronger America.
000
F-1458
TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
EXPECTED AT 2: 15 P. H. EST
REMARKS OF THE HONORABLE JOSEPH W. BARR
SECRETARY OF THE TREASURY
AT THE ANNUAL MEETING, U.S. INDUSTRIAL PAYROLL SAVINGS
BENJAMIN FRANKLIN ROOM, DEPARTMENT OF STATE
vJEDNESDAY, JANUARY 8, 1969
CO~wrrTTEE
In presenting the awards to Mr. Gwinn and the members
of his committee, I cited the dollar amount of sales and the
number of people signed up. These achievements are
impressive in terms of their magnitude as numbers. The
committee was given an assignment and a target which they
exceeded by nearly 20 percent.
In most American cities, this would be sufficient, but
in the city of Washington billions are tossed around in
conversation and news stories as though they were confetti.
Thus, for the education of us bureaucrats it might be
instructive to stop a moment and try to visualize the real
meaning of a billion dollars
All too frequently we give
the impression of reducing the number by eliminating the
zeros and subs ti tuting a decimal point.
0
Suppose, then, that one of you gave your wife the
assignment of spending a billion dollars, an assignment most
of them would like. As we do with this committee, suppose
you set a target, a spending rate of $1 per minute, 24 hours
a day, seven days a week. This appears reasonable -- $60 an
hour, or $1440 a day
although on occasion you may feel
your wife approaches or even exceeds that target.
But to spend a full billion dollars, your wife would
have had to start at 3:50 a.mo, September 11, 68 A.D. By
starting then, and only then, could she walk in and report
the task completed at 3: 30 this afternoon. That, gentlemen,
is a billion dollars and this committee produced nearly four
of these in the past year o Gentlemen, we again congratulate
you on a job well doneo
F-1459
-
L -
As long as your wife was back there in 68 A.D. it
might also be instructive to have her report on another
transition in governmento She would have started her
assignment during the transition of power in the Roman Empire
from the Emperor Nero to Vespasian. We seem to have made some
improvements in the process as there were three temporary
Emperors with varied but violent ends in the interval.
Vespasian waited a year after Nero's abdication via an
assisted suicide to announce his own accession. Vespasian's
troops took six months to deliver the votes by the sword~
and after that Vespasian took a leisurely ten months to arrive
from Alexandria to take on the job. The new administration
will find the trip from Alexandria only slightly less timeconsuming.
Today, however, we are more civilized and a lot less
violent. The outgoing Administration is still on the job
and the passage of power is going forward in good order -witness the presence of the Secretary-designate David Kennedy
at this session. The outgoing Administration set up the
machinery of this 1969 committee, but it is to Mr. Kennedy
that you will be reporting. I know this transition will
proceed smoothly as the new Secretary not only understands
the savings bonds program, but has worked with you on this
committee during the past year.
Understanding the savings bonds proGram is important.
To many people, it is simply a payroll deduction and a
periodic receipt of a $25, $50 or $100 bond. Others have a
vague concept that this somehow helps the Government, but just
how is a mysteryo Others remember that savings bonds were
the war bonds of World War I I and helped finance that
national effort -- including the advertisements saying that
an $18c75 purchase of a $25 bond bought a carbine for a
soldier. These concepts are related to the importance of
savings bonds but are over-simplifications of the real story.
Savings bonds were first actively promoted in May 1941
when the Series E bond was designed. The war in Europe
threatened to expand into a wider conflict and our defense
expenditures meant larger deficits which the Treasury would
have to finance. When we were finally drawn into the war,
the costs enlarged to the limit of the productive capacity of the
American economy. A financial plan was needed because it
was clear that 50 percent or more of the costs was going to
be financed by borrowings in spite of an eight-fold increase
in taxes o The first requirement of borrowings was to finance
war expenditures, but borrowings were also a~ed at a
mopping-up of savings in any and all forms.
... 3 -
One emphasis was on savings institutions, such as
insurance companies, mutual savings banks, and savings and
loan associations. And these provided over $29 billion
of the Federal Government's financing needs during the 1939
to 1946 period
Business corporations, individuals in
their noncorporate business operations, local governments
and other investors lent the Gov~rnment over $48 billion.
Q
These were unbelievably large amounts in the context
of those times, but they would still have left a sizable
amount to be financed through the commercial banks. But thi~
inflationary potential was significantly reduced by the
purchase and retention of over $30 billion in Series E bonds.
Even then the end product was that commercial banks had to
finance $58 billion of the war deficit. However, bank
financing and the expansion of the money supply would have
been far larger if it had not been for the familiar E bond.
Put another way, the Series E bond mopped up over
$30 billion of consumer purchasing power, making the
controls over prices, wages and resource allocation work
better. In addition, from a Treasury financing viewpoint,
about 18 percent of the financing burden placed on the private
sector was raised in this least inflationary form.
There is a colloquial phrase, "That's very good, but' what
have you done for me recently?" Most observers are aware
of the World War I I experience, but they are not aware of
the post-war contribution of saving~ bonds to sound finance
at any time, including now p Using the ~ Secretary's ~
budget concept, plus the federally-sponsored agencies (which
are outside that budget), we can derive a rough measure
of the importance of savings bonds ~ during the postwar
period
In this measurement we exclude internal financing such
as investments of the Social Security trust funds. We also
exclude the debt acquisitions of our central bank, the
Federal Reserve System o
o
In contrast to World War II, when financing demands
on the private sectors of the economy exceeded 35 percent of
expenditures, postwar financing claims of this kind have
amounted to less than 3 percent of expenditures. Even so,
with the growth of expenditures, the Treasury and Federal
agencies have gone to the private sector to borrow over $50
billion since 1946
0
- 4 During this time, however, Series E bonds, plus the H's
and the new Freedom Shares, have grown from $30 billion to
over $42 billion. Thus, this program has been the source
for meeting well over 40 percent of credit demands of the
Federal Government placed on the private sector. One
consequence has been that virtually none of the Government
debt increase has been financed, on a net basis, with
commercial banks. Additionally, because bonds are primarily
bought out of current income the plus for economic policy
in restraining inflation has been significant but, although
we in Treasury appreciate this fact, it has been largely
ignored in both financial and economic journals.
The reason for the lack of focus is probably not
difficult to see. Monthly gains of savings bonds and
Freedom Shares have been running $50 to $100 million a month
and the problems of the economy are calculated in billions.
It is only when one takes a longer look that the month·bymonth contribution of savings bonds adds up to a significant
amount in terms of national problems.
In the environment of the past year, when our net demands
on private credit markets totaled over $13 billion, far above
the post-war yearly average of $2~ billion, these monthly
gains nevertheless did 6 percent of the job. The net gain
-til outstanding bonds and notes amounted to $800 million.
More importantly, in the year ahead, with our total financing
job more modest, savings bonds will again be supplying a
good part of our needs o In this distinguished company, I
need not dwell at length on the continued need in 1969 for
sound Federal finance to reduce the pressures on the value of
the dollar both at horne and abroad,
This committee has given a new direction to the savings
bonds program. On total sales of nearly $5 billion, abo~t
$3.8 billion was in the small denomination bonds and
Freedom Shares -- the heart of the payroll savings market.
In 1962, before this committee was formed, small denomination
sales were $2.6 billion and represented 61 percent of sales.
Not only have your total sales increased to $308 billion, but
you now generate over 76 percent of the total sales. The
main impetus of this program is becoming more and more a
reaching out for the small savero This, I submit, is good
for the country in building citizen interest and a stake in
fiscal affairs. It is also of great :conomic importance
in reducing inflationary pressures on the economy.
- 5 .,.
The goal you have for the 1969 Share in Ame~ica Campaign
is to enroll 2,200,000 employees as either new savers or as
larget participants o I have every confid~nce that pnder
James M. Roche, Chairman of the Board of Genell'al Motors
corporation, the committee will do as well for Secretary~
designate David Kennedy as it has for us during the past
six years. Gentlemen, I thank you for Secretaries Dillon,
Fowler and myself. It is now your assigpment, but, after
January 20, I will continue to watch with great intepest and
every confidence you will reach your tatg~to
ouo
TREASURY DEPARTMENT
3
WASHINGTON. D.C.
January 8, 1968
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
$2,700,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing January 16, 1969, in the amount of
$2,701,696,000,
as follows:
91-day bills (to maturity date) to be issued January 16, 1969,
in the amount of $ 1,600,000,000, or thereabouts, representing an
additional amount of bills dated October 17, 1968,
and to
~ture
April 17, 1969,
originally issued in the amount of
$1,101,755,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $ 1,100,000,000,
dated January 16, 1969,
and to mature
or thereabouts, to he
July 17, 1969.
The bills of· both series will be issued on a discount basis under
competitive and noncompetive bidding as hereinafter provided, and at
~turity 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, January 13, 1969.
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 dec·ima1s, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
fo~arded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application the refor.
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
'·1460
- 2 responsible and recognized dealers In investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public announcl
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:- r:-ejection thereof.
The Secre tary of the
Treasury expressly reserves the r:-ight 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 January 16, 1969, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
January 16, 1969.
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 0r interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 050~ranch.
TREASURY DEPARTMENT
WASHINGTON, D.C.
January 8, 1969
FOR IMMEDIATE RELEASE
FEDERAL RESERVE NOTE SERIES
TO BE SIGNED BY SECRETARY BARR
The Treasury announced today that an issuance of
$1 Federal Reserve Notes, Series 1963B, will bear the
signature of Secretary Joseph W. Barr.
It pointed out that the issuance means that
every Secretary of the Treasury since 1914, when the
signature requirement was initiated, will have signed
a currency series.
According to James A. Conlon, Director of the
Bureau of Engraving and Printing, new techniques in
use permit issuing the series without increased unit
cost or interruption of normal currency production
operations. He said that present technique requires
engraving the new signature in only one 32-subject
master plate. The previous method requiring 384 signature
plates, Conlon explained, could not have been used in
time to maintain the historical relationship of the
Secretary to a currency issue.
Full conversion to the changed technique at
this time will also expedite subsequent issue of a new
series for Secretary-designate David M. Kennedy.
Mr. Kennedy's series will be identified as Series 1969
since it will also include the first use of the new Treasury
Seal on all Federal Reserve Notes.
The Bureau of Engraving and Printing estimates it will
produce a minimum of 100 million of the new Barr notes which
will continue in production until they are replaced by the
Kennedy issue.
F-l46l
TREASURY DEPARTMENT
t
WASHINGTON, D.C.
FOR IMt·1EDIATE REUASE
January 8, 1969
SALE OF JUNE TIJ.. ANTICIPATION BILLS
The Treasury Department announced today the forthcoming auction
of $1-3/4 billion of tax anticipa.tion bills maturing in June 1969.
The bills
ar~ in addition to the $5.0 billion of June tax antiCipation bills already
outstanding.
The bills will be auctioned on Tuesday, January 14, for payment on
Honday, January 20.
Commercial bai1ks may make payment of their own and
their customers I accepted tenders by credit to Treasury tax and loan
accounts.
The bills mature on June 23, 1969, but May be used at face value in
payment of Federal income taxes due on June 15, 1969.
TREAS'URY DEPARTMENT
WASHINGTON, D.C.
Jl.MEDIATE RELEASE
January 8, 1969
TREASURY OFFERS ;.DDITIONAL $1-3/4 BILLION IN JUNE TAX BILLS
The Treasury Depart:nent, by this public notice, invites tenders for $1,750,000,000,
thereabouts, of l54-day Treasury bills (to maturity date), to be issued January :::C,
'69, on a discount basis under competitive and noncompetitive bidding as hereinafter
ovided. These bills will represent an additional amount of bj Ils dated Octol~r 24,
68, to mature June 23, 1969, originally issued in the amount of $3,010,446,000 (an
,ditional $2,001,143 ,000 was issued December 2, 1968). The additional and original
11s will be freely interchangeable. They will be accepted at face value in payment
income taxes due on June 15, 1969, and to the extent they are not presented for this
rpose the face amount of these bills will be payable without interest at maturity.
xpayers desiring to apply these bills in payment of June 15, 1969, income taAes r:-.ay
bmit the bills to a Federal Reserve Bank or Branch or to the Office of the Treasurer
the United States, \lTashington, not more than fifteen days before that date. In the
se of bills submitted in payment of income taxes of a corporation they shall be
companied by a duly completed Form 503 and the office receiving these items will
fect the deposit on Jun£> 15, 1969. In the case of bills submitted in paynent of
come taxes of all other taxpayers, the office receiving the bills will issue receip":.s
ere for , the original of which the taxpayer shall submit on or before June 15, 1969,
the District Director of Internal Revenue for the District in which such taxes are
yable. The bills will be issued in bearer form only, and in denominations of $1,000,
,000, $10,000, $50,000, $100,000, $500,000 and ;jn.ooo,OOO ("mturity value).
Tenders will be r'cci.',re,l at Federal Reserve . . , r cs ani Branches up to tl'" ~.Y" ".ne
our, one-thirty p.m., Eastern Standard time, Tuesday, January 14, 1969. Tender: "'ill
ot be received at the ?reasury Department, Washini::ton. Each tender must be f0r an
ren multiple of $1,000, and in the case of compet:iti ve tenders the price offercrl rrur,t
expressed on the basis of 100, with not ~ore than three deCimals, e.G., 99.92~.
actions may not be used. It is urged that tenders be ~ade on the nrinted fo!'''1~ and
rwarded in the special envelopes which will be supplied by Fed.eral Reserve B~~1ks C')r
anches on application ther~for.
Banking institutions generally may submit tenders for account of customers pr')ded the names of the customers are set forth in such tenders. Others than ban'd~~:
stitutions will not be permitted to submit tenders except for their own account. nders will be received without deposit from incorporated banks and trust cOr.1panies
d from responsible and recognized dealers in investment securities. Tenders :f.'!'o!"".
hers must be accompanied by payment of 2 percent of the face amount of Treasury bills
Plied for, Wlless the tenders are accompanied b~r an express guaranty of pa~e:'lt by an
corporated bank or trust company.
All bidders are required to agree not to purchase or to sell, or to make any
~eernents with respect to the purchase or sale 0": 8~her disposition of any bills of
s issue at a specific rate or price, until after ':me-thirty p.m., Eastern S :::lll1darc1
lIle, Tuesday, January 14, 1969 .
.463
- 2 Irrtrlediatcly after the closing h·=>ur, tenders will. be opened at the lateral
Reserve Banks and Branches, follO"lling \·,hich public announce!nent will be made by
the Trea~ury Department of the amount and price ranee of accepted bids. !h~se sub!':littinr: tenr1er~ 't-lill be al'vised of the acceptance O~ rejection thereof'. The ~ecretar
of the Trea:mry expressly reserves the right to a.ccept or reject any or all tenders,
in whole or in part, and his actian in any such respect shall be final. Sub~ect to
these reserv~ti~ns, nonco~petitive tenders for $200,000 or less without stnted price
fr . . .r. anyone binder ':'lill be accepted in full at the average price (in threr rieci""als)
of accepted carr.pet:i t i ve '..:irls. Payment:)f accepted tenders at the prices offered ,,:ust'
be Made or c·:>r.-ple":".ecl at the Federal Reserve Bank in cr: "'lh or other immediately ava:lat
fund::; on JarlUary 20, 1969, provided, ho't>1ever, any qualified depositary will be per'" it
to :nakc paynent h~," credit in its Treasury tax and loan account for Treasury bills
allottcrl t~) :i t for ~.tf,elf and i ts cu::;t()~ncrt; up to any n!l'!ount for which it shall be
qualified in exees:::: of existing deposits when so notif5.ed by the Federal Reserve Ban;
of :i,ts District.
The incone cier:.ved fro~ Treasury hills, whether interest or gain from the sale
or other di~po8i ti::m of the bills, does not have an;,' exemption, as such, and loss frc
the sale or other di:::posi ti)n of Treasury bills does not have any special treat~ent,
such, under the In~ernal Revenue Code of 1954. The bill~ are sub;ject to estate, inhl
i tance ,:!.:. ft ar other excise taxe::;, vlhether Federal or State, but are exempt fror: a1:
taxati0n nml or hereafter imposed on the princ:i.pal or interest thereof by any state,
any of the posses~i~nc of the United States, or by any local taxing authority. F9r
purposes of taxation the amount of discount at which Treasury bills are originally Sf
OJ' the Uni ted ~tates is considered to be interest. Ur.der Sections 454 (b) and 1221
of the Internal Revenue Code ':)f 1954 the amount of discount at which bills issued he
under are ~olcl is not consinered to accrue until such bills are sold, redeemed or 0tl
wise disposed of, and such bills are excluded :Crom consideration as capital assets.
Accordingly, the owner of Treasury bills (other than life insurance companies) issue
hereunder need include j.n his inc~me tax return only the difference between the pric
paid :f'Jr such bj 11::;, vlhe:'i1e'!" ~n 'Jriginal issue ":"r on s'J.bsequent purchase, and the
amount actually received ei the:r upon sale or redemption at maturity during the ta;cao
~rear for which the return is made, as ordinary gain 01' loss.
Treasury Departrr:ent Cir~ular No. 418 (current rc'rision) and this notice, prescribe the terr:~~ ')f the T~E'asur~' "oills and govern the conditions of their issue.
Copies of thc c~.rcular :"lay oe :::btained from any Federal Reserve Bank or Branch.
TREASURY DEPARTMENT
;
WASHINGTON. D.C.
January 9, 1969
OR IMMEDIATE RELEASE
U.S. TAX TREATY WITH TRINIDAD AND TOBAGO
EXTENDED THROUGH 1969
The existing income tax convention between the United
'tates and Trinidad and Tobago, which had been scheduled to
erminate at the end of 1968, has· been extended until
eeember 31, 1969, the Treasury Department announced today.
xtension of the present treaty was agreed to through an
l{ehange of diplomatic notes.
The convention now in effect with Trinidad and Tobago,
rought into force December 19, 1967, is an interim agreement
hile discussions between that country and the United States
ontinue on an income tax convention of general application.
The interim convention deals only with the rate of withholdng tax on distributed profits. It provides that dividends paid
y a corporation of one of the contracting states to residents
n the other contracting state shall be subject to a withholding
u rate of 25 percent, rather than the statutory rate of 30
ereent which applies in both countries. However, the withholdng rate is reduced to five percent on dividends paid by a
orporation of one state to a corporation of the other state
hieh owns 10 percent or more of the outstanding voting stock of
he paying corporation. In addition, the withholding tax
~osed by Trinidad and Tobago on the profits paid to its home
ffice by a permanent es tabl ishment of aU. S corporation is
lso reduced to five percent.
0
Negotiations on a cQmprehensive income tax treaty, which
ill follow the pattern of other U.S. treaties in dealing with
usiness income and other forms of investment income, are
xpected to be concluded during 1969.
000
-1464
TREASURY DEPARTMENT
WASHINGTON. D.C.
January 9, 1969
FOR IMMEDIATE RELEASE
TREASURY SECRETARY BARR HONORS RENO ODLIN,
TACOMA BANKER, WITH DISTINGUISHED SERVICE AWARD
Secretary of the Treasury Joseph Wo Barr today presented
the Distinguished Service Award to Reno Odlin, Chairman of
the Board and Chi€f Executive Officer) Puget Sound National
Bank, Tacoma, Washington, for outstanding service to the
Treasury Savings Bond Program. The Distinguished Service
Award is the highest recognition the Treasury ean give to
non-Treasury employees.
A prominent banker and staunch supporter of the
Federal government's savings bonds program for 27 years,
Mr. Odlin was cited for '~ide experience, perceptive
knowledge and dedicated leadership" in assisting the
Treasury in maintaining "a strong economy and sound dollar
through prudent management of the public debto"
Mr. Od1in was appointed by Treasury Secretary Henry
Morgenthau, Jr., as the first Washington State Chairman of
the War Finance Committee in 1942, and he has served the
Treasury continuously in successor Savings Bonds organizations
In his work on Savings Bonds, Mro Odlin has been a featured
speaker at many state associations throughout the country.
He is a past president of the American Bankers Association,
past Chairman of the ABA Savings Bonds Committee and is
currently Chairman of the Executive Committee of Volunteer
State Chairmen of the UoS. Savings Bonds program o
Attachment:
citation
0
CITATION
DISTINGUISHED SERVICE AWARD
RENO ODLIN
The Department of the Treasury's Distinguished
Service Award is hereby granted to Reno Odlin, Chairman
of the Board, Puget Sound Na'tional Bank, Tacoma,
Washington, in recognition of his devoted service to
the U. S. Savings Bonds Program, and for his valued advice
to the Department on Government
financing~
As an outstanding banker and President of The
American Bankers Association, 1964-65; past Chairman of
the ABA Savings Bonds Committee; and, currently,
Chairman of the Executive Committee of Volunteer State
Chairmen, he has demonstrated wide experience, perceptive
knowledge and dedicated leadership, contributing
substantially to the Treasury's constant and vigorous
endeavors to maintain a strong economy and sound dollar
through prudent management of the public debt.
His loyalty and patriotism have strengthened the
volunteer tradition on which the U.S. Savings Bonds Program
was founded more than' a quarter century ago.
UNITED STATES SAVWG~ CONDS ISSUED Arm
n~DEEM!::n Tl-iROUGt!
Decellber
(Dollar amounts in mi Ilion, - rounded and will not ncco:uorily add to totol s.)
OESCRIPTION
M.IOUNT ISSUEO.u
ATU:\ED
5,003
29,521
3,660
S.':it's :\-1935 thru D-1941
se:it's r' and G-l!Hl thru 1052
Series J and K-1952 thru 1956
1941
194~
, 1943
19H
1945
1946
19-17
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
"
IS'j9
~
1960
1961
1962
1963
1964
1965
1966
1967
,lS68
Unclassified
Total Series E
Series H (1952 thru May, 1959) 21
H (June, 1959 thru 1968)
Total Series H
Total Series E and H
I
4,996
29,418
3,598
{Total
All Series Total unmatured
matured
Grand Total
"'Iudts or.crucd di$ COUllt.
CII,I redemplion volue,
of IIwner QOnu$
t
__I
may
b8 hc~
IJ
an d
w,'ll
1
42
62
,-.,,,, I'D J8ll -
I
.14
1.69
I
-
224
911
1,529
1,818
1,651
932
1,041
1,114
1,240
1,133
980
1,051
1,294
1,394
1,516
1,513
1,495
1,601
1,511
1,695
1,886
1,861
2,262
2,196
2,211
2,586
2,182
2,592
11.93
11.11
11.46
12.01
13.55
16.82
19.82
21.61
23.14
24.19
24.18
24.11
26.69
28.21
29.45
30.45
31.97
35.21
36.91
39 .. 68
43.61
44.78
48.87
48.65
50.08
54.45
59.19
15.41
158,910
114,748
44,222
21.82
5,485
6,816
3,223
1,469
2,262
5,407
41.24
18.64
12,360
4,692
1,668
62.04
111,330
119,440
51,890
30.29
93
07
21,
29.03
38,184
111,423
209,601
38,012
119,501
151,519
11~
.29
30.29
24.82
~URY
!
.14
1,655
1,318
11,808
13,681
10,511
4,608
4,213
4,258
4,118
3,550
3,.013
3,182
3,555
3,546
3,630
3,455
3,1.80
2,949
2,689
2,571
2,433
2,295
2,)67
2,318
2,204
2,163
1,919
845
579
'
, allJd"ll'OA4 1 D8"'od'
earn_Inlcrc.,
lor
if aJter
il
Af.40IJlIT
'%OUTSTANOIM;
OUTHANOINOY OF AMOUNT ISSUED
1,818
8,289
13,331
15,559
12,228
5,541
5,253
5,432
5,358
4,683
4,053
4,243
4,849
4,941
5,141
4,969
4,616
4,556
4,266
4,272
4,319
4,156
4,629
4,514
4,415
4,749
4,700
3,431
523
Series J and K 1957
011111111
!J
-
NMATURED
series E!J:
_
AMOUNT
Re:OEEMEO
31, 1968
-56
51,9);1
52,028
'.
. dal •• ,
or'I,nal
tnO,ur"y
DEPARTMENT _ Bu,eau ., th. Pultllc O.b,
,
Ir
~
!
-
I
I
TREASURY DEPARTMENT
,
WASHINGTON. D.C.
January 10, 1969
FOR IMMED lATE RELEASE
TP~ABURY
MARKET TRANSACTIONS IN DECEMBER
During December 1968, market transactions in
direct and guaranteed securities of the
C~vernment
investment accounts resulted in net purchases by
the
Tre~sury
Department of $178,611,500.00.
000
F-1465
P.IO(;°APIIICAL SKFTUI OF r.Oj~;[RT /I.. l':/\LL/\CE
ASSIS't'AYi' SrC)~ETA1("( OF 'i'HEtSil~Y
Rohcrt A. ''.~allac(', AssisL8nt Sec-rete"'.})' of the: '[rc:tsllIY in the !~c:n;')cr1y
t
... 1 • •
"
J
t
•
rr···
l 'HJ tne
,
1
and .Jonnson
tlUPlUilstraoons, 13.S I;cen C1 l:ey ornCl(l
(,:)\,clopm(::tL
or~
. • eCClnornc
"ana
" rlwmC:i.a
'
. . 1 po ]"lClC;. lie }(as l'cr)T.:;scrl·~E:d Tl'(;2SUl'Y
l%l-()g llatH)'11ru
on a ntlTilht::r of C,'lhinct-Jev(;l nolicy P'()ul):' CT(;crl'cc! for this task, including
the economic II'fro·tka" -- TrCaS1..lT)" Couf,c11 of Econouic Advisors, and Bll'feau
of the Rlld:;:ct ... _. ~llH1 also the "Q1iac1J'ic~c1," the Troibl. plus cl representative
of the FodcT<:tl t:.CSf'l'\'C Hoard.
Rorn in (1klahor.18, Wallace hZls he en a
:rcs1(k~ni.:
of the Chicar,o arca since
1()46. He' attcnrk:d the lJnivcrslty of ChicCl!;\) ,·,'heY.:: he received a Ph.D. c1egj'cc
and caiTe to l'!as!~i1yt(jn in !C)!lC) as assist<1nt to fCfi,>(~Y SerlatoI' Paul H. DC~lgl2.s.
From lQ5S to lC)5() ~allace SCTvCJ as Staff Director of the U. S. Senate
Rankinf~ 2nd Currency Cor:nnittce ~dlich cleaTs lcp,islatio!J affecting domestic
Rtld intel1iat-t()I1;:~1 financial irlstitl1tions, housin~; :lnci econor'ILc st~,hiliz8tion.
He co'nc1uctcd the C(imrnittce's EJ5S Study of the Stock ~iia'd:ct and it~ 19:io
invcsti~U'l'cion of h2rl~d.rt,~ activities affected by the th\::~fts of lllinojs StC1te
Auditor ()l'ville E. lIod~:c.
_ Hefo)',: joining t~1e Treasury HI lC)nl, ~<!,Jl~ce \';as, for tll'O years, consu}t,:;-'Lt
to .John F. Kennedy, pa:i"ticinatin f: in his caTir~);}igns fOT hoth his nomin0tion and
his election to the P'residency.
WCl112ce's T"tcasllry duties have aJso covered (1) Suncl'vis50n of the U. S.
Hint, inclllc1irt\~ the changeover to ~, 1',::·..t coinar;3 system and silver policies;
(2) Negotiatioi1 CJnd irmlencntation c,; intC'1'1l2tional trade agreements on textiles
and autoTnolli les; P) /Ioministcrinr: ; " Tre<LsuTY equal onportunity proQr~j11S -l'equireplcnts to end r2d~1 discl'iHii ' jon in hiring by TrcClsury agencies and
by fin,mcial institutions Hith Peele]', 1 dCl)osi ts or othel' fonis of Govcn1n;cnt
contra.ct.s .
In 106S t'Jall acc r2 cei ved the Tn;asuTY licpartri,,":nt' s Exceptional Servi cc
k'!:lrd foy his work in the developr,',::nt of national economic poJicies J for
prenarin,g P)"O;;l'~l"S to overcor;~'3 natiom·.'i c13 coin 2nd s i 1VCT short ages I and
for his leadership in the eC[u?l opnortllnitics Drogl'<l~;I. In ]C)68 he \'las given
the Alex:mder Ham}, lton A','/;)Td, the Tl'c,:sury' s highsst honol'.
Wallac8 has lectured, written articles and 2 hook, Cong}~ssional Control
~ rederal SncTtI1i 11;~. I!e is 47 years 01 d, ma:rricd al"ld has th reechildl'en :----
----------_.
January 1Q(i':)
STATEMENT BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL EXCHANGE AND PAYMENTS OF THE
JOINT ECONOMIC COMMITTEE
ON
A REVIEW OF U.S. BALANCE OF PAYMENTS POLICIES
MONDAY, JANUARY 13, 1969, 10:00 A.M.
Mr. Chainnan and Members of the Subcommittee:
I am happy to have this opportunity to discuss with
you some of my views on the relationship between tax policy
and the current account of the U,S. balance of payments.
The major portion of my remarks will deal with the
of tax policy and U.S. foreign trade.
questi~n
I will also deal, ifl
somewhat briefer form, with tax policy and overseas travel
by Americans, and I will offer a few words on some comments
on a recent Treasury sponsored study on the balance of payments effects of foreign investment.
I.
TAX POLICY AND INTERNATIONAL TRADE
One matter I have been asked to discuss is that of the
relationship between tax policy and the level and structure
of international trade.
I would like to discuss both the
effects of the overall tax structure and changes in it on a
country's ability to compete internationally and the effectiveness and desirability of tax incentives or other specific
F-1466
-
2 -
provisions of the tax laws designed to promote a country's
export trade.
A second matter is that of the relationship between
the external effects of a country's tax system, particularly
the impact of taxes on trade, and its domestic economic impact.
Even if we allow that the overall tax structure may
have trade effects, to what extent, if at all, should we
feel constrained by balance of payment considerations in
making the tax policy decisions which are most appropriate
for the domestic economy?
The recognition of the need for
Government action to improve our trade surplus should not
automatically lead us to the conclusion that a change in
tax structure is the appropriate Government response.
There
are other means at our disposal for achieving the desired
trade objectives, through the sorts of programs now being
developed in the Commerce Department or, if necessary,
.
through other forms of direct assistance, which can avoid
many of the undesirable economic effects inhere.nt in the use
of tax devices.
Tax structure and International Trade
Typically, when a country imposes a indirect tax, it
does so with the intention that the tax should not affect
the ability of the country to compete internationally.
In
-
3 -
order to achieve this obj ecti ve such
tCl.~-(:es,
be multistage turnover taxes, single stage
\.;hetL~r
sale~
tt. s~/
taxss,
value-added taxes or specific excises t are not impo;ea on
exports, while imports are subject to tax at
as are comparable domestic products.
th~
Sfulle
level
These border tax ad-
justments -- a term covering both the export exemption or
rebate and the import tax
are applied on the view that
indirect taxes are always shifted forward and fully reflected in product prices.
The adjustments are designed
to prevent this from happening in the case of exports and
to require impor·ted goods to bear the same competi ti ve tax
burden.
When a country imposes an income tax, however, no
such adjustments are made at the border.
This approach is
based on the view that income taxes are not shifted forward
into prices, and, therefore, no adjustment is required to
free exported goods from the price effects of these taxes
or to impose a tax on
imports~
These traditional approaches are reflected in the rules
of the General Agreement on Tariffs and Trade (GATT) which
provide that countries may exempt exports from indirect
taxes, or remit indirect taxes already paid on goods which
are exported, and may also impose such taxes on imports up
to the level of these taxes on comparable domestic products.
-
4 -
Under the GATT no such adjustments at the border are permitted for direct taxes.
Though there was no systematic
analysis preceding the codification of these rules in the
GATT, the rules seem to have been based on the existing
practicffiwhich all countries utilized and on the implicit
tax shifting assumptions which I have described.
If it were true that generally applicable indirect
taxes are always fully shifted forward into higher prices
and direct taxes are not to any extent reflected in product
prices, then the GATT rules and these practices should give
us no cause for concern regardless of inter-country differences in tax structure.
Their result would be a system of
world prlces free of tax induced distortions.
This is not the place to review in detail the literature
and theory of tax shifting.
Let it suffice to say that
studies have indicated that taxes on business profits to
some extent may be shifted forward into prices, at least
under some circumstances.
There also is widespread agree-
ment among economists that indirect taxes may not in all
cases be fully shifted forward for,
like other costs, the
extent to which tax costs are recoverable depends in large
measure on general economic conditions and on conditions in
particular markets or at particular points in time.
On
!(
'-"
:
\
01
,
\
- 5 -
neither of these propositions is there agreement on the extent of shifting.
However, the most general view held by
economists is that indirect taxes are, as a working rule,
largely shifted forward while business income taxes are
much less likely to be shifted forward.
If all indirect taxes are not fully shifted forward,
and some direct taxes are partially shifted, at least under
certain conditions, then the GATT rules relating to adjustments at the border for domestic taxes do not necessarily
render domestic tax systems trade neutral.
Under these
circumstances the structure of a country's taxes may affect
its international competitiveness.
A country which relies
heavily on high rate indirect taxes and derives little revenue from direct taxes, would be favored in this regard over
a country which relies heavily on income taxes and derives
a small part of its revenue from indirect taxes.
To keep
the discussion in proper perspective, however, we must note
that most of the European countries, whose high rate indirect
taxes represent a greater proportion of their GNP than ours,
also tend to be higher tax countries, in total, than the
United States, in relation to GNP.
The situation is not
that the United States has high income taxes and the Europeans
have high sales taxes, but rather that both have high income
- 6 -
taxes, especially in the corporate sector, and, in aadition,
the Europeans have higher indirect taxes than we do.
The
corporate tax burden in the united States is not significantly different from that in most of the major European
countries both in terms of the ratios of corporate taxes to
GNP and in terms of effective rates of tax.
is some shifting of the corporate income tax
Thus, if there
to roughly
the same extent in all countries, this factor alone should
not affect the structure of world trade, since prices in
all countries would be affected in roughly the same degree
by the domestic income taxes, leaving relative international
prices unaffected.
We have, however, no a priori reason to
expect that the extent of corporate tax shifting is .necessarily the same in all countries.
If a country imposes high indirect taxes as a major
part of a relatively high overall level of taxes, in terms
of the ,ratio of taxes to GNP, the consequent·relatively
large border adjustments may provide a trade advantage compared to a country with low indirect taxes as part of a
lower overall level of taxes only to the extent that the
indirect taxes are not fully reflected in product prices.
This assumes, as seems to be the case, that the effective
level of corporate income tax in countries with high overall
- 7 tax burdens is not appreciably di fferent fraIL
t, ~>:::
L
~
';':'.
n-
tries with lower overall tax burdens, and that t'le oj:!.f£erences in overall tax burden are a reflection largE::!Y of the
differences in the levels of indirect taxation.
It ::\.1&')
assumes that the degree of shifting, if any, of the o"o:cporate tax is not substantially different between countries.
We should keep i.n mind that this discussion of indirect
taxes is relevant regardless of the type of broad-based indirect tax we are considering.
A high rate retail sales
tax, a manufacturers' sales tax, a wholesale sales tax, a
value-added tax or a cumulative turnover tax, if they impose
comparable overall burdens, will all affect overall international cor.lpetitiveness, if at all, in the same manner and to
roughly ·.:he same extent.
The effects may differ for different
products, firms or industries, however, depending on the
nature of the tax.
Th.e advantage which may 'accrue to high rate indirect
tax countries is most likely to manifest itself in the folIO·~fi.ng
way:
A manufacturer in a country imposing a value-
added tax or other form of sales tax which cannot be fully
f:hifted forward would absorb a part of the tax on its
domestic sales and reduce its profits.
But its tax exempt
export sales would not force a reduction in profits from
- 8 -
those sales.
In such cases, the higher profits earned from
export sales provide an incentive to devote greater effort
to exporting to countries with a
tax.
correspondingly high indirect
Similarly, foreigners exporting into the country will
be forced to absorb a part of the tax in order to compete
with domestic producers and will be less likely to push exports into the country_
Thus, a value-added tax or other
sales tax which is not fully shifted coupled with full
border adjustments, would provide a trade advantage to the
country irnpos'ing the tax in the fonn of an export incentive
and import disincentive.
For this advantage to be signifi-
cant, the rate of the indirect tax must be high, in the
general range of the present European taxes.
Changes in Tax Structure and International Trade
While the extent to which difference3 in overall tax
structure per se necessarily affect the character of level
of world trade may not be altogether clear, certain types of
changes in tax structure, such as those which are associated
with the present shift to a harmonized value-added tax in
the EEC, may have substantial trade effects, beneficial to
the country making the change, regardless of the assumption
one makes as to the shifting of the taxes involved.
These
are changes which, in one way or another, result in an increase in the level of border adjustments with no overall
changes in the effective level of domestic indirect taxation,
-
9 -
and therefore presumably no effect on internal prices.
A shift from a cascade type cumulative turnover tax
to a value-added tax
was made in Germany in 1968 and
the Netherlands on January 1, 1969.
in
These shifts involved
changes from a tax system where appropriate border adjustment levels are difficult to determine and are frequently
below the comparable level of domestic indirect tax burden
to a system where the domestic tax can, in an accounting
sense, be accurately and fully reflected in the level of
border adjustments.
This is true because the cascade tax
levied at one stage becomes imbedded in the cost structure
of the product at subsequent stages and cannot be separately
identified.
The value-added tax, on the other hand, is
separately invoiced and, therefore, the cumulative tax payment can be identified at any stage.
Such a shift from
partial compensation to full compensation through changes
in border adjustments can only benefit the trade of the
country making the change, at the expense of its trading
partners, even though it is perfectly legal within the
present GATT rules.
Countries making such changes, however,
generally argue that they are not creating a trade advantage
for themselves but are eliminating the disadvantage which
arose from the previous undercompensation, with which they
- 10 -
have lived for many years.
What they fail to recoqnize,
however, is that previous changes in exchange rates and in
price levels around the world may have adjusted for this
past "undercompensation
ll
,
so that the current change in the
level of border adjustments does, in fact, result in a
present trade advantage for that country at the expense of
others.
In speaking of full or undercampensation at the
-
border, in this context, I am speaking only of the relationship of border rates to nominal domestic rates without prejudging the question of full or partial shifting of the
domestic tax.
shifting.
This benefit would result even with full
The benefit, a fortiori, would be greater to
the extent that there is less than full shifting.
The German Economics Ministry, in a recently published
paper has said that, contrary to its prior expectations of
negligible improvements in German export competitive.ness
from the shift to TVA, German export prices have declined
by 2.2 percent since the introduction of TVA.
The Economics
Ministry has not explained the cause of this price decline,
but the amount of decline is presumably, at least in part,
an indication of the increase in the effective level of
border adjustments.
Still another variety of tax structure change which
affects a country's trade resulted from the November 1968
- 11 -
monetary crisis.
The French Government in an effort
T.:.O
improve the French trade balance, eliminated a payroll tax.
for which no adjustments were made at the border, and replaced it with increases in the value-added tax, with a
presumably equivalent revenue impact, for which border
adjustments are made.
This change was intended to improve
French trade performance and is likely to have that effect.
There is no reason to assume that other cou.ntries could not
benefit their trade accounts from similar changes in tax
structure.
There are a number of examples in recent European experience of countries increasing the levels of their border
adjustments under a cascade tax without making any change in
their domestic taxes.
Such changes are rationalized as neces-
sary to eliminate undercompensation.
They frequently take
the form of adjustments to reflect taxes paid on certain
types of expenditures which had not previously been accounted
for at the border, such as the purchase of capital goods and
certain business serv ices.
Cou.ntries making these changes
consider them to be consistent with the GATT rules, though
it is not at all clear that the drafters of the GATT intended
the rules to be construed to include adjustments for taxes
on outlays which are not directly related to the traded goodS.
- 12 -
Changes of this type necessarily have beneficial trade
affects, since there is no domestic change associated with
the change in border adjustments, and therefore
no possi-
bility for a tax-related change in domestic prices.
Response to These Issues
As the level of indirect taxation and accompanying
border adjustments has, in recent years, risen in many
countries, we have come to recognize more and more clearly
that we are operating in an international system based on
a set of rules which, rather than neutralizing the trade
affect of domestic tax systems, may have the effect of
creating
a. trade advantage for countries relying heavily
on high rate indirect taxes.
It certainly has the effect
of creating an advantage for countries which -- under the
rules -- change their level of border adjustments without
changing domestic tax levels.
What are the possible ways of dealing with this situation?
Before considering that question, let me state one
overriding caution:
We must be very careful, in considering
these possible alternatives, that we avoid the danger that
these problems may force us, in making domestic tax policy
decisions, to give a far greater weight to external effects
- 13 -
than would otherwise be considered appropriate or desirable.
For example, in the recent discussions in this country of
the desirability of imposing a Federal value-added tax,
many of the proponents of adopting such a Federal tax, in
an effort to achieve a possible trade advantage, have
ignored serious potential adverse effects on the domestic
economy, on tax equity and on tax administration of the
introduction of a value-added tax.
A variety of approaches to remedy the present international situation have been considered, both unilateral and
multilateral.
We have chosen first to exhaust the possibil-
ities for a multilateral solution, within the GATT and the
OECD.
The U.S. Government was instrumental in initiating a
discussion and analysis in the OEeD of the problems which
the present border tax adjustment rules and practices create.
This discussion alerted other countries to the seriousness
with which we view this problem.
It resulted in the estab-
lishrnent of a procedure whereby member countries must notify
the OECD of any changes in their border adjustments.
The
option is then open to any member to request consultations
on the trade effects of such changes.
During the past year
and a half, this consultative procedure has been used three
- 14 times:
with Germany, to examine the trade effects of the
shift from cascade to value-added taxation; with the
Netherlands, to examine the effects both of increases in
border adjustments under the cascade tax, in anticipation
of the shift to TVA, and of the shift to TVA itself; and
with Belgium, to examine the trade effects of increases in
border adjustments under the cascade tax.
The consultations
have not been successful in producing general agreement on
the trade effects of these changes, but they have been
most useful in providing an opportunity for all of the
participants to sharpen their understanding of the issues
and to establish a record of their positions.
The basic rules which govern the conduct of international trade rest in the GATT, and the United States has
focused its efforts to achieve a permanent change in the
rules on that body.
In response to an American initiative,
agreement was reached in early 1968 among the contracting
Parties of the GATT
to set up a working party to study the
border adjustment problem.
This working party was convened
last April, and has been meeting at regular interva.ls since
then.
In his opening statement, and in subsequent remarks,
the U.S. delegate has clearly stated the view that the
present rules are illogical, inequitable and ambiguous, and
- 15 -
that the absence of a limit on the level of bord,,::L" r'J'::j 'lstments for indirect taxes could lead to a proliferation of
border adjustments which would operate to the
detr~"!'i(eDt
of
world trade.
Under its terms of reference, the working party has
examined the basis for the present border adjustment rules
their legislative history, as it were -- and is currently
engaged in a detailed examination of border adjustment practices in those countries participating in the working party.
This has built on the work of the OECD in focusing clearly
on the inadequacies, for the world economy in 1969, of the
present rules.
The next and clearly the most important task of the
working party is to come forward with a workable al ternati ve
to the existing provisions.
This phase of the discussion
should begin with a minimum of delay.
In reaching its solu-
tion, the working party must be guided by several important
considerations:
(1) that a country should be free to employ the
structure and level of domestic taxation which
is consistent with its own assessments of tax
equity and economic growth and stabilization
policies and should not be unduly constrained
- 16 ~n
this respect by international trade con-
siderations nor should it be put at a competitive trade disadvantage or obtain a competitive
advantage because internal fiscal policies require a tax structure of this or that nature;
(2)
that a continuation of the present system, with
no effective limitation on the level of border
adjustments, could lead to trade wars which
would play havoc with the orderly fu.nctioni.ng
of world trade; and
(3)
that the degree of administrative discretion
pennitted in determining border adjustments,
largely as a result of the ambiguities in the
present rules, affords far too much freedom to
tax administrators to affect world trade by
administrative fiat.
Any solution which gives adequate recognition to these three
considerations should be satisfactory both from the point of
view of the United States and the world trading community.
While one
u.s.
concern in the GATT is with effecting
a change to rationalize and clarify the provisions regulating
the permanent border adjustment regime to be followed by the
Contracting Parties, there is a second, somewhat related
l(
-1
l 0 I
- 17 -
objective which we should also consider.
GATT signatories,
operating within the terms of the Agreement, are limited to
a single tool, quantitative controls, to assist during the
correction of a temporary imbalance in the international
payments.
A more flexible tool, and one that is less damag-
ing to the ultimate objective of free trade, may be desirable.
I have pointed out elsewhere that a temporary border tax on
imports and/or an export payment might permit this flexibility.
The amount of this adjustment need not be related
to the level or structure of a country's tax system, and
could be determined, presumably in consultation with trading
partners, solely with reference to a country's balance of
payments position.
Germany, in its response to the November 1968 currency
crisis, has set an example for this sort of provision.
In
recognition of its responsibility as a surplus country,
Germany has reduced the rate of its border adjustments below
its domestic tax rate and thus shown that there need not, in
all circumstances, be an exact relationship between the domestic tax system and the system of border adjustments.
Of
course, it is easy for trading partners to accept this sort
of a change by a surplus country.
Countries must be educated
to accept the opposite change on the part of deficit countries.
- 18 I must emphasize, again, however, that this sedrcb tor
a flexible and responsive balance of payments adjustment
tool to be used as a temporary measure must be kept separate from the search for a set of equitable permanent border
adjustment rules.
The two are not substitutes for each other ,
but rather are complements in a package of trade-tax policy
measures which are relevant in the world of today.
Studies have also been made regarding the possibility
of introducing a system of border adjustment for the United
States.
Two approaches were considered.
The first approach
would have involved an export-import border adjustment for
the indirect taxes now being paid by American producers,
which taxes contribute to the costs of production of traded
goods.
These taxes include state retail sales taxes on
machinery and bus iness services, and Federal and state excise
taxes on such items as motor vehicles and parts, petroleum
products, and telephone services when used by business concerns.
According to our analysis, these taxes amount, on the
average, to about 2 percent of product prices, though they
vary widely among industries or product groups, from about
1 percent to over 4 percent.
- 19 The second approach would have involved border adjustments, limited to charges on imports or payments
O-;'-i
exports
or both, unrelated to domestic taxes and set at a level necessary to achieve the desired balance of payments result.
These
border adjustments would not be a part of a value-added tax
or other sales tax, and would not involve any changes in
domestic taxes.
Rather, they would simply be border adjustments
at the rate thought appropriate in the existing international
setting.
These border adjustments could be administered by
the Customs Bureau.
The appropriate level for this purpose
would have been determined on the basis of demand elasticity
estimates for U. S. exports and imports.
These estimates
would indicate the response in trade volume to a price change
consequent on the given border adjustment.
Both solutions
were rejected at the time in favor of a multilateral approach.
A border adjustment of the second type would not be
regarded as consistent with the present GATT rules.
An adjust-
ment related to domestic taxes, that involved in the first
approach, would be consistent with the interpretations of the
GATT rules followed by many European countries.
It would not,
however, be consistent with the interpretation which we consider more appropriate, because it would include many taxes on
- 20 -
transactions which are not directly related to final products
and because it would require considerable use of broad averages
to calculate the appropriate rates.
Another type of unilateral response being currently advanced
by some persons in the United States is that of introducing a
1/
Federal value-added tax.
have far-reaching effects.
Such a change in our tax system would
The proponents of such a change
generally suggest that this tax be used to replace a part of
the corporate income tax.
They argue that a greater reliance,
at the Federal level, on indirect taxation would spur economic
growth, result in a more efficient utilization of capital
resources, be mere neutral (i.e., apply with equal weight to
all goods and services), provide a flexible tool for fiscal
policy adjustments and finally -- and this is the primary argument in the view of many people -- lead to an improvement in
our trade balance by permitting a broadened use of border tax
adjustments.
For each of these arguments for the tax there is an answer.
Thus, there is little evidence, from recent European history,
that a heavy indirect tax leads to a faster rate of economic
growth
~or
is there reason
to suspect that the absence of a
1/ For a full discussion of this issue, see A Value-Added Tax
for the United States -- A Negative View, by Stanley s. Surre
Remarks before the 73rd Congress of American Industry of the
National Association of Manufacturers, December 6, 1968.
Treasury Release F-1427.
- 21 broad-based national sales tax (for this, in fact, is what a
value-added tax is) has retarded our own growth rate, which
certainly has been highly satisfactory in recent years.
Regarding the alleged distributional inefficiency of the
corporate tax, to the extent that there are unwanted distributional effects of that tax many can be corrected within the
structure of the corporate tax itself, so that all of the
advantages of the corporate tax need not be thrown out to
eliminate a
f~w
disadvantages.
The neutrality claimed for the value-added tax would be
likely to prove at least partially illusory.
The European
experience with value-added taxes has shown us that substantial
departures from generality, and thus from neutrality, are the
almost inevitable result of the political process necessary to
establish the tax.
France, for example, applies four different
rates under its TVA, and provides special treatment for financial institutions, agriculture and small business.
These
pressures for departures from generality would probably be
particularly strong in this country where, unlike most European
countries, there is no tradition of broad-based indirect taxation at the national level.
There is no reason to assume that a more rapidly responsive
flexible fiscal policy can be achieved by adding a TVA to our
present tax structure.
The record of our 1968 10 percent tax
- 22 surcharge shows that once the decision is made to
the income tax can be adjusted quickly with full
the s truc ture of the adjus tment.
adjus~
taxes ,
agreel~nt
on
The difficul ties in'Jolved in
reaching the basic decision to adjust taxes, however, would be
present regardless of the type of tax being considered for
adjustment.
Thus, I find the arguments advanced for a shift to a
value-added tax or a sales tax in the United States to be weak
indeed.
Moreover, the proponents of a Federal TVA give hardly
any consideration to the major disadvantages of a TVA:
It
would be a far more regressive tax than the income taxes which
it would replace, even if adjustments in the tax base were made
to reduce the regressivity (a change which would also reduce
the neutrality and allocative efficiency of the tax).
Assuming
the TVA is shifted forward to a greater extent than the corporate ta 4 , the substitution of TVA for the corporate tax would
increase the domestic price level and have a similar effect on
labor costs through the action of escalator clauses in labor
contracts.
The costs of compliance and collection to both the
public and private sector would be high.
Assuming quarterly
reporting with exemption for farms, medical services and certain financial services, the number of returns per year to be
processed would be between 25 and 30 million, a 25 percent
increase in the total number of returns now handled by the
Internal Revenue Service.
- 23 -
This entire discussion of the possible adoption of a TVA
is, in a sense, too narrowly focused.
The initial question
should be do we, in this country, need a national broad
based indirect tax?
Only if
th~
question is answered in the
affirmative should we then proceed to the question of the form
which a national sales tax should take -- a manufacturer's or
wholesale sales tax, a retail sales tax, or a value-added tax.
A value-added tax of the form used in Europe is equivalent in
every respect but the method of collection to a retail sales
tax.
We have acquired substantial experience in this country
in administering a retail sales tax, since such a tax is now
in use in 44 states and a number of major cities. A retail tax,
therefore, should be considered as a much more preferable alternative to the value-added tax, if a decision is made to move in
this direction, since it would involve fewer firms in the tax
collect~on
process.
The Europeans have opted for a value-added
tax because they feel, for a variety of reasons, that they are
unable to administer adequately a retail tax.
We have already
demonstrated our capacity for administering such a .tax.
But
I do not want to be misunderstood -- I am not suggesting a retail
sales tax or any other kind of sales tax for the United States.
I am only saying if ever a decision is made that we adopt a
national sales tax for domestic policy reasons, it should take
the form of a retail tax.
-
-
~
Finally, there is the question to what extent, if any,
a value-added tax with full border adjustments may benefit
u.
S. trade.
Clearly the benefit would be much less than
the full amount of the associated border adjustment.
Trade
would be benefitted only to the extent of the sum of the
non-shifted portion of the TVA and the shifted portion of the
corporate tax which it replaces.
In any event, as I have
noted, the rate of the TVA would have to be quite high, in
the general range of the European rates in order for the
trade effect to be significant.
However, even a 10 percent
rate would yield revenues in excess of the yield of our
total corporate tax.
(Each 1 percent in the rate for a TVA
for the United States would yield $4 to $5 billion depending
on the base.)
The question, then, which is not adequately
considered by proponents of a
value-add~d
tax and which, in
my view, should be given a negative answer is this:
Are
the costs in domestic tax equity and efficiency worth incurring in order to achieve a possible, and no more than
relatively small, trade advantage?
As I have noted, there
are other means of achieving a trade improvement which do
not impose such high costs on the domestic economy.
The Use of Specific Export Tax Incentives
My comments thus far have been related to the question
of the effects of overall tax structure on trade -- what
- 25 might be summarized as the "border tax adjustment problem".
I would like now to comment briefly on a second aspect of
the relationship of tax policy to international trade -the use of specific export tax incentives.
The Treasury Department, working both alone and in
cooperation with other agencies, considered this question
at great length.
A number of possible tax incentives re-
lated to exports were considered.
These included a credit
against income taxes equal to
percentage of the value
~ome
of a firm's exports, or increases in exports; additional
depreciation allowances or investment credits on assets
used in export production or in production for increased
exports; and additional deductions for current expenditures
incurred in the promotion of exports.
~
were rejected for one or more of several reasons.
The introduction of a tax credit or other form of tax incentive for export trade would make it difficult to resist
similar tax incentives for other, equally worthy social or
economics objectives.
But such a proliferation of tax in-
centives would quickly erode the revenue base and seriously
weaken the income tax as an effective fiscal policy tool
and as an efficient and equitable tax.
These incentives could generate the charge that we were
in a position of violating the GATT subsidy rules.
This
-
26 -
could well lead to retaliation by our trading partners, both
unilaterally and multilaterally, under the terms of the
GATT.
Such retaliation could neutralize any initial benefit
which we might achieve from the incentive, and there
1S
no
assurance that we would not, in fact, come out as the net
loser from such an exchange.
In addition, we would be placed
in the difficult posture of arguing that the rules should
be changed, while we were, at the same time, being charged
with violation of those rules.
Furthermore, even abstracting from the problem of
retaliation, it cannot be shown convincingly that any of
these incentives would be able to produce a substantial
increase in exports except at a substantial budgetary cost.
The effect on exports depends in large measure on the assumption one makes as to the elasticity of demand for
American exports.
If, as many suggest, this elasticity
figure is in the neighborhood of -2, the increase in exports resulting from a tax credit equal to a percentage of
the value of exports would be roughly equal to the revenue
cost if the full effect of the credit is reflected in ex-
- 27 1/
port prices.
If the tax reduction serves to increasc-
export profits, rather than reduce export prices. t,he re--suIting increase in export effort could generate a
gn~ater
increase in exports.
The implementation of these proposals would create
difficult administrative problems.
In order to provide
the greatest return per dollar of lost revenue, any export
incentive should be placed on an incremental basis, i.e.,
related only to increases in exports, increases in export
promotion expenditures, etc.
This approach, however,
raises a variety of problems associated with establishing an
equitable base period.
As an example, I have only to refer
you to our past experience with excess profits taxation.
An incremental basis also creates an incentive to firms to
create new export subsidiaries or to otherwise shift the
channels for exports in order to benefit from a low level
of base period exports, though there may be no increase in
.
total U. S. exports.
1/ A demand elasticity measures the responsiveness in demand
to small changes in the price of a good. An elasticity of -2
denotes that with a 1 percent decline in price, the "quantity
demanded increases by 2 percent. If, therefore, a tax credit
equal to 3 percent of the value of an export were fully passed
on in the form of a 3 percent reduction in price, the quantity
demanded of that product would increase by 6 percent. However,
total receipts would rise by less than 6 percent, since each
unit purchased would be valued at the lower price. The increase in balance of payments receipts in this case works out
to be approximately equal to the aggregate reduction in price
Which is, by assumption, equal to the aggregate reduction in
revenue receipts.
- 28 If an incremental basis is not used, then substantial
windfall gains to some exporters would result, as they
receive tax benefits for activities which they would be
carrying on in the absence of the incentive.
This, clearly,
would be a costly and inequitable way to promote exports.
The question of who receives the tax relief must also
be considered.
If the benefit accrues to the actual ex-
porter, we can expect to see a disruption in the established
exporting patterns as manufacturers assume exporting functions
previously carried out by independent export merchants, in
order to increase their tax benefit.
This can have a
deleterious effect on exports, as the merchants who have
developed ,overseas markets and have the knowledge and experience to exploit them are displaced by manufacturers
who have less exporting experience.
goes to the manufacturer,
If the tax benefit
(and which manufacturer - that
of the components or that of the end product) regardless
of who does the actual exporting, the difficult administrative problem of tracing exports is created.
Conclusion on the Relation of Tax Policy and Trade
I might summarize my remarks on the relationship
between tax policy and trade with the following thought:
Domestic taxes should not be viewed merely as tools which
can be shifted back and forth in order to affect balance
~/( J
- 29 of payments adjustments.
If the rules governing international
trade are su.ch that they impose undue constraints on the
determination of sound domestic tax policy or dictate the
direction of such policies, thus requiring a country to
accept second best alternatives in terms of tax equity or
administration, then these rules should be changed.
I can
conceive of few, if any, cases where a change in domestic
tax law purely for balance of payments purposes would be
appropriate, as long as there are other means available to
achieve a similar objective.
Unless the tax change in it-
self is desirable for reasons of domestic tax equity, tax
administration or fiscal policy, it should not be undertaken.
II.
TAX POLICY AND FOREIGN TRAVEL
I turn now to another facet of the relationship of tax
policy to the current account of our balance of payments
the potential use of tax policy to affect our net travel
balance.
Foreign travel by u. S. residents constitutes a large
minus item in our balance of payments.
The latest review
of the travel account by the Department of Commerce for the
year 1967 estimates that u. S. residents spent over $4 billion
for travel in foreign countries and for payments to foreign
carriers.
Foreign residents traveling in the united States
- 30 -
in turn are estimated to have spent $1.9 billion in this
country and as fares to U. S. transocean carriers as part of
a visit to this country.
On a net basis, this works out to a
deficit in the travel account of over $2.1 billion.
We do not
expect any improvement for 1968, as compared with 1967,
despite the fact that the 1967 deficit reflected an unusually
large increase because of the attractiveness of Expo 67.
Our travel
for a long time.
account deficit has been growing bit by bit
Going back ten years ago to 1958, the defi-
cit as computed by the Department of Commerce was $1.4
billion.
It has been estimated that by 1975 it could, if
unchecked, exceed $4 billion if the trend is not altered.
While our receipts from foreign travelers have been growing
at a faster rate than our expenditures for foreign travel,
the absolute dollar gap can widen for a long time because the
growth 'of our expenditures started from a much larger base than
that of foreigners.
The President in his 1968 New Year's Day Message to the
Nation on the balance of payments recommended reduction of the
travel deficit by $500 million in 1968.
This result was to be
achieved by attracting more foreigners to travel in this
country and by a reduced level of travel expenditures by U. S.
- 31 -
residen'ts to foreign countries outs ide the Wet: tern HemLs ,onere.
The President asked for voluntary restraint by U. S. residents
and legislation if this seemed appropriate.
On a long t2rm
u
basis we have always recognized, of course, that the solution
to the travel deficit must largely be sought through expansion
in the number of foreign visitors to the United States.
A number of steps have been taken to attract more foreign
visitors to the United States in accordance with the report
last February of the Industry-Government Special Task Force on
Travel.
Here our task is one of maintaining the momentum of
a going program; and, in part, this means adequate financing
of the Federal tourist agency -- the U. S. Travel Service.
The other side of the coin is less cheerful.
As the 1968
Progress Report of the Treasury on Maintaining the Strength of
the United States Dollar in a Strong Free World Economy points
out, " .•. our progress in the travel area has been one of the
most disappointing parts of our 1968 balance of payments program."
Last February Secretary Fowler recommended a three-part
travel tax program.
On a permanent basis the program would
have provided an extension of the present 5 percent tax on
domestic air tickets to all airline transportation and a reduction in the $100 duty-free tourist exemption and the $10
- 32 exemption for gift parcels arriving by mail.
Then, for trips
outside the Western Hemisphere, it was proposed that a tax
be levied on water transportation and on tourist expenditures
abroad in excess of a minimum amount.
A bill reducing customs exemptions and extending the
5 percent ticket tax to all air travel was passed by the
House, but no action was taken by the Senate Finance Committee.
The letter of December 17, 1968 by Secretary Fowler as
Chairman of the Cabinet Committee on Balance of Payments to
President Johnson re-emphasized the necessity to commence the
long-term efforts needed to halt the mounting trend in our
travel deficit.
He noted the need for adequate budgetary
funds to stimulate foreign travel to this country.
III.
TREASURY TAX POLICY RESEARCH STUDY ON OVERSEAS
MANUFACTURING, INVESTMENT AND THE BALANCE OF
PAYMENTS
There is one further point which I would like to raise
with you dealing with the restraint of foreign direct investmente
Though it is not a current account problem, it is
clearly a related issue.
One effective program that we have pursued in the interest of achieving some short-term improvement in our balance of
payments has been the program governing direct foreign investmente
In 1968 the Treasury Department released a study entitled
-33 -
Overseas Manufacturing Investment and the Balance of Payments
written by Professors Gary C. Hufbauer and F. Michael Adler.
This study investigated in detail the effect of direct foreign
investment on the balance of payments, and the study results
indicated that a full payback, in balance of payments terms,
of an overseas direct investment would require a period of up
to 8 to 10 years to be achieved.
This study has been subjected
to some criticisms by two indus.try associations representing
foreign investors, the National Foreign Trade Council and the
Machinery and Allied Products Institute.
The substance of the
criticisms is an allegation that the recoupment period for the
balance of payments loss associated with the initial investment
is considerably shorter than estimated by Hufbauer and Adler.
The viewpoint published by the National Foreign Trade Council
in particular would suggest that the recoupment period is as
short as two years.
Many of the criticisms as to methodology
and analysis appear wrong.
Those which appear to have validity
do not significantly alter the Hufbauer-Adler results.
For
the information of the Committee I would like to include in
the record of the hearings at this __ point, as a supplement to
this statement , a detailed discussion of these criticisms.
TREASURY DEPARTMENT
==
=
=
R RELEASE 6: 30 P.M.,
esdey, January 14, 1969.
RESULTS OF TREASURY'S OFFER O~\ .A.JJDITIONAI.. $1<~,i4 BLJ.lJON OF JV"NE TAX BILLS
'!be Treasury Department annG:Jneed t~:~~ ~ teMerz~ .fo.r~n additional $1,750,000,000,
thereabouts, of Tax Anticipation Se:ries Treasury r.ltJ h: jowd October 24, 1968,
turing June 23, 1969, were opened. at the Federal nt'serve Banks today. '!he additional
IOunt of bills, which were offered on January 8, 1969> vill be issued January 20,
~9, (154 days to maturity date).
Total applied for - $5,019,185 O(;;~,
Total accepted
- $1, 750,OG3~OOO
i
, '. . '"' . ~ ,-.
,<,.", cr;
;:;V:""
t.,.rl.- .• '""(',l.C:::';"'~~''''''''';J;:
IV\;",
\.A'; -
en te re d on a
:nc(,:J~~:~1. '::t-".~ ;;'?::-' ~ ~,~d accepted in
.full a'~ T.lle average price shown below)
Hange of accepted coarpeti t1ve bieb:
-
High
97.4.76
- 97.450
- 97.459
Average
Equivs.lent rate of discount approx. S.90~ per annum
H
It
"
-~. ~·o
~l~
"
"
" !I
"
5.94~ "
"
" "
"
"
y
(54~ of the amount bid for at
feder'S 1 Re serve
$180,800,000
2,011,998,000
304,461,000
230,920,000
84,450,000
146,311,000
753,283,000
129,991,000
218,752,000
99,654,000
158,665,000
699,900,000
Total
Accepted
$ 89,200,000
526,858,000
114,369,000
92,352,000
38,350,000
54.,891,000
340,073,000
75,591,000
109,652,000
66,882,000
4:4,265,000
197,580,000
$5,019,185,000
$1,750,063,000
Total
Applied For
District
Boston
New York
Philade lphis.
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Il111as
San Francisco
'roTAL
~is is on a bank discount besis.
F-1467
the low price was accepted)
The equivalent coupon issue yield is 6.laj.
l-Ill
TREASURY DEPARTMENT
,
WASHINGTON. D.C.
January 14, 1969
FOR IMMEDIATE RELEASl
TRF~SURY
SECRETARY BARR HONORS THREE BANKERS
IN RECOGNITION OF LEADERSHIP AND SERVICE
secretary of the Treasury Joseph W. Barr today
presented the Distinguished Service Award -- the highest
recognition Treasury can give to non-Treasury employees
to three officials of the Federal Reserve System.
They were J. L. Robertson, Vice-Chairman of the Federal
Reserve System; Alfred Hayes, President of the Fedpral
Reserve Bank of New York, and Charles A. Coombs, Senior
Vic~ Pr0sident of the New York Federal Reserve BanK.
As a member of the Board of Governors of the
Federal Reserve System for 17 vears and as Vice Chairman
for the past three, Mr.Robertson, the citation stated,
"has borne unusual responsibilities for the effective
and efficient functioning of the Federal Reserve System,
including its administration of the Voluntary Foreign
Credit:Restraint Program."
Mr. Hayes was cited for his "effective coordination"
between the Treasury and the New York Federal Reserve Bank
"in those fields in which ... the Bank ... conducts market
operations as fiscal agent for the Treasury Department."
Mr. Coombs, promoted on January 2 to Senior Vice
President of the New York Federal Reserve Bank, "arranged
and carried out extensive operations for Treasury's
Exchange Stabilization Fund with perception and despatch
in the interest of international financial stability," the
Treasury citation said.
Attachments: copies of citations
CITATION
Distinguished Service Award
J. L. Robertson
As a member of the Board of Governors of the
Federal Reserve System for seventeen years and as Vice
Chairman for the past three, J. L. Robertson has
rendered distinguished service to the Treasury Department
and the Nation.
Because of the great demands placed on the
Chairman by the System's international financial concerns,
Governor Robertson,as deputy operating head of the
Board of Governors, has borne unusual responsibility for
the effective and efficient functioning of the Federal
Reserve System, including its administration of the
Voluntary Foreign Credit Restraint Program. He has
diligently applied his broad knowledge and experience with
energy and skill and has discharged his responsibilities with
firmness, fairness and understanding. He has provided wise
advice and counsel on economic and financial matters, including
the effective management of the public debt. His strong
leadership and unstinting efforts have benefitted immensely
the Treasury Department and the Nation in every area in which
he has been concerned.
---I:..
----
ex('
"
CITATION
Distinguished Service Award
Alfred Hayes
As President of the Federal Reserve Bank of New York
for the past twelve years, Alfred Hayes has been a
distinguished adviser on both domestic and international
financial matters to the Treasury Department and to
successive Secretaries of the Treasury.
Throughout his
tenure Mr. Hayes has assured effective coordination between
the Treasury and the Bank in those fields in which the Federal
Reserve Bank of New York conducts market operations as fiscal
agent for the Treasury Department. He has shared
unstintingly the wisdom and experience gained from an
exceptional career in private and public finance.
The close personal contacts Mr. Hayes has developed
over the years with the leading financial officials of many
countries, coupled with his broad understanding of economic
forces and financial mechanisms, have qualified him uniquely
as a mentor in problems of great importance to the Treasury and
to the nation.
In a period when international financial
relationships have occupied a position of unusual significance
his advice and support have well served the Treasury Department
and the country.
~
~
CITATION
Distinguished Service Award
Charles A. Coombs
As Vice President of the Foreign Department of
the Federal Reserve Bank of New York, Charles Coombs
has rendered great service directly to the Treasury
and broadly to the international monetary system
during a particularly difficult period in the gold
and foreign exchange markets.
Under Mr. Coombs' direction, the Federal Reserve
Bank of New York has arranged and carried out extensive
operations for Treasury's Exchange Stabilization Fund
with perception and despatch in the interest of
international financial stability.
In addition, the
Treasury has benefitted on a wide range of financial
matters by his advice, wisdom and penetrating grasp of
the intricacies of the exchange markets and the
monetary system.
---~
\-'
~
STATEMENT OF THE HONORABLE FREDERICK L. DEMING
UNDER SECRETARY OF THE TREASURY FOR HONETARY AFFAIRS
BEFORE THE
SUBCOMMITIEE ON INTERNATIONAL EXCHANGE AND PAYMENTS
OF THE
JOINT ECONOMIC COMMITTEE
WEDNESDAY, JANUARY 15, 1969
10:30 A.M. EST
Mr. Chairman and Members of the Committee:
In 1968, we restored our full position in the International Monetary Fund -- $6,450 million.
Our gold tranche
of $1,290 million is, of course, virtually automatically
avatlable, should we need it.
In addition, in 1968 the
Federal Reserve swap lines were enlarged -- to a total of
$10.5 billion and, at year-end, our drawings on our swap
partners were less than $450 million, down from a peak of
$1.8 billion in December, 1967.
-2To round out the international financial picture for
1968, I want to note three other achievements.
In March,
the two-tier gold system was established
and has worked well.
After suffering severe losses of
gold reserves in late 1967 and early 1968, the drain
of monetary gold into private hands was stopped.
Since
the end of March, UoS. gold holdings have increased net
by $188 million.
Also in March,
the archaic gold cover
requirement for Federal Reserve notes was removed, thus
freeing up all of the U.S. gold stock for international
monetary purposes.
Also in March, final agreement was reached on a plan
for a new international reserve asset -- the Special
Drawing Ri gh ts, or SDR..
."s of January 10, 1969, 29
countries with 47.54 percent of the weighted votes have
ratified the proposed Amendment to the Fund's Articles
of Agreement.
When 67 countries, with 80 percent of
the weighted votes,
take this ratification action, and
when countries wi th 75 percent of the vote deposi t ·-their
certificates of participation with the Fund, the new
machinery will be in place.
I am confident that this
will occur in the very near future.
Activation of the
new facility will, of course, come later -- but, I hope,
fairly soon -- after a collective decision on amount.
-3Finally, the international monetary system weathered a
series of financial storms in 1968.
International
monetary cooperation successfully met the challenges
it faced last year.
Undoubtedly the system can and will
be improved over time, but it should not be overlooked
that it has worked well and has contributed greatly to
world economic growth and the growth of world trade.
Just a year ago, Secretary Fowler released the U.S. Treasury
Department report entitled, "Maintaining the Strength of the
United States Dollar In A Strong Free World Economy."
That report
gave the history of the United States balance of payments position,
described various programs that-had been undertaken to resolve our
balance of payments problem, and described in detail President
Johnson's January 1 balance of payments action program.
Last
•
month, Secretary Fowler released a supplement to that report
enti tIed, "A 1968 Progress Report," which was based on the
results of the first three quarters of this year.
It described
the progress we had made in 1968 and the actions still required.
The Progress Report also repeated the text of the
Jan~ary
1
Message and printed an exchange of letters between President
Johnson and Secretary Fowler announcing the 1969 balance of payments program, as
reco~ended
by the Cabinet Committee on the
Balance of Payments and approved by the President.
The Cabinet
-4Committee laid down the following principles, which they
believed should govern the program in 1969.
1.
A stable economy and the restoration of a healthy
United States trade surplus should be the primary objective
for 1969.
2.
Initiatives pursued in 1968 to assure fairness to
United States trade in world markets should culminate in
1969 in cooperative action by the United States and our
trading partners.
3.
The Department of Commerce should intensify efforts
to expand commercial exports generally and in conjunction
with foreign assistance, and the Agencyfor International
Development should continue measures to assure additionality
and to minimize substitutions in foreign assistance.
4.
Consistent with our security commitments. the
Nation in 1969 should continue to minimize its net military
deficit by reducing those expenditures whenever conditions
permit and by neutralizing them through cooperative action
by our allies.
5.
The mandatory and temporary Foreign Direct Investment
Program, as announced in modified form by the Secretary of
Commerce on November 15, 1968, should be maintained.
6.
The Federal Reserve Voluntary Foreign Credit
Restraint Program should be maintained with present ceilings
-5-
on foreign lending from the United States, but in the
coming year attention should be given to possible modifications to encourage further the promotion and financing
of exports by the commercial banking system.
7.
The Interest Equalization Tax, which expires July 31,
1969, should be extended with the existing authority to
vary the rate from 1-1/2 percent down to zero, depending
on circumstances.
8.
A five-year program is needed to narrow the travel
deficit through promotion of foreign travel in the United
States by both public and private action.
Against this background, I would like to analyze in
some detail the history and the anatomy of the United States
balance of payments.
For this purpose, I have had constructed
two tables, Table I and Table II, which present the U.S. balance
of payments from 1941 through 1967 in a different and, I believe,
somewhat more useful analytical form than the conventional
current account - capital account presentation.
This analytical
form, which in broad outline is not unique, is, I believe,
particularly useful from the viewpoint of policy formulation.
- 6 The two fundamental differences between the analytical
models given in Tables I and II and the conventional presenthe
tations are (l)/income on our foreign investment and the
outpcyrnents on foreign investment in the U.S. are taken out
of the traditional "Services" account, which is a current
account item, and put into the "Net Private Capital" account;
and, (2) the figures on u.S. Government receipts and payments,
both current account transactions and net U.S. Government
grants and loans, are consolidated in two accounts, which I
call "Gover nncnt Grents and Capital, Includinc; Incerne" end
''Military Sales and Expenditures."
There is one maj or
exception to this second consolidation.
Outpayments of
interest on foreign holdings of u.S. Government securities
are included in the capital account, which I call, without
complete accuracy, "Net Private Capital."
I will give the
rationale for this inclusion later on.
Table I shows the detail, consolidated into the accounts
noted, for the over-all balance of payments.
the detail for the
it.
Table II shows
Net Private Capital account, as I define
Table I balances to the familiar liquidity balance
measurement but also shows, for the period after 1960, the
c) t 1
I
- 7 -
official settlements measure.
Data on this measure is not
available before 1960, which is the major practical reason
fo~
balancing the table to the 1iqUdity measure.
Now', let me explain the specific accounts briefly.
Column (1), Merchandise Balance, is the familiar trade
balance -- the difference between exports and imports.
excludes sales and purchases on military account.
It
Exports
financed by U.S. economic grants and loans are included.
Column (2), Services Balance, is quite different from
the conventional account on sprvices.
It includes outflous
and inflows -- and thus the net -- on transportation, on
travel, and on miscellaneous services account, the latter
both private and Government, plus pensions and remittances
also both Government and private.
It might have been more
consistent to have stripped out from this account Government
payments and receipts for miscellaneous services and payments
of Government pensions to those living abroad.
In 1950,
the net of these was about $200 million; in 1967, it was
about $800 million.
The reason for leaving these items in
the Services Balance was partly because of the
W)
rk involved
but mainly because the services were miscellaneous and the
- 8 -
pensions, a major portion, are not susceptible to policy
action any way.
The Services Balance does not include any
inceme receipts or payments on investment; as noted, these
are included in the Net Private Capital account.
Nor does
it include any mil tary or Government aid and loan
transactions.
These are included in the Military and
Government accounts.
Column (3) is merely the sum of Columns (1) and (2).
Column (4), Government Grants and Capital, Including
Income, includes both disbursements and repayments on loans
and grants -- in other words, it is net.
The account also
includes interest and other income on Government loans and
investments.
It does not include foreign investments in
U.S. Government securities or payments of interest on such
securities.
acco~nt.
These are included in the Net Private Capital
Government
Prior to 1946, the data on the/ account include
military grants.
Column (5), Military Sales and Expenditures, is basically
the foreign exchange costs of our military operations abroad,
l~ss
receipts on sales of military goods and services.
Before 1952,
the series is a pure expenditure series; from
- 9 1953 to 1959, inclusive, it is expenditures minus deliveries
of military goods and services; from 1959 on, it is
expenditures minus cash receipts on military exports.
From
1966 on, a separate Column, (6), indicates military
"neutralization, It l-lhich is essentially financial transactions
designed to offset the foreign exchange costs of our military
expenditures undertaken in the common defense, but is not
directly connected with foreign purchase of military goods
and services from the U.S. I /
Column (7) is the Net Private Capital Account; Column
(8), the Liquidity Balance; Column (9), the Official
Settlements Balance.
Table II shows a breakdown of the Net Private Capital
account in Table I.
As can be seen, it includes capital
outflows from the U.S. on Direct Investment, Column (10),
and on Other Account (except Government), Column (11).
It
also includes income receipts on our private foreign investments and this Column, (12), includes receipts of fees and
royalties from our direct investments abroad.
merely nets Columns (10), (11), and (12).
Investment Inflow is shown as Column (14).
11
Column (13)
Net Foreign
Income we pay to
Technically, military neutralization did not begin
until 1967 when financial transactions for that purpose
were specifically linked to our military expenditures
in particular countries. I have included transactions done
in i966 and 1967, not then specifically counted as military
neutralization but of the same type, only for purposes of
comparability in this presentation.
- 10 foreigners on their investments in the U.S. is shown in
Column (15).
That series includes payments by both U.S.
private and public sectors, and a word of explanation should
be given right here about this series.
Income Payments to Foreigners is a composite of three
separate payments.
First is the dividends and interest
earned on private investments in the U.S. by foreigners •.
Such foreign investment is mainly portfolio investment, but
there is substantial direct investment here also.
Second is
interest and dividends eanled· on investments in the U.S •. by
public institutions or governments.
It is important to
recognize that there are public or governmental investments
.- both direct and portfolio -- in the private U.S. economy.
Some of these investments are in real estate; most are in the
form of
inte~st-earning
deposits in U.S. banks.
Neither
of these types of investment are new developments, although
.'
. . ..
! .
foreign central bank investments in U.S. bank certificates
of deposit or time deposits have been extended both in amount
and maturity in recent years, as interest rates in the U.S •.
have risen.
Third is the interest payments made on foreign
holdings -- both public and private •• of
securities.
u.s.
Government
- 11 -
In connection with this third category, it is important
to recognize two facts.
First, the U. S. has financed much
of its deficits over the past 18 years by increasing its
liabilities both to official and private holders of dollars.
As the primary reserve and vehicle currency of the Free World,
this has been a natural development.
These dollars, of
course, are held because of confidence in the U.S. economy,
because there are major money and capital markets here which
make it easy to buy and sell securities -- particularly
Government securities -- and because investlilents in dollar
securities earn a return.
The rise in the volume of income
payments to foreigners reflects ,in no small degree, the
rise in U. S. dollar liabilities to foreigners - - both public
and private.
Second, included in those payments are interest payments
U.S.
on the special types of/securities held by official foreign
accounts, such as Roosa bonds and the nonliquid securities
sold to neutralize military foreign exchange costs.
real difference between these latter and any other
The only
U.s.
Government security is their non1iquidity, so that they are
counted technically
in the liquidity balance concept
- 12 as capital inflo'tv.
From the interest cost point of view,
there is little, if any, difference between them and any
oth~r
Government
security.
I shall come back to this point
later on in the analysis.
Finally, Column (16), Errors and Omissions, is included
in the Net Private Capital Account.
Most analysts regard it
as mainly an unrecorded capital item.
Column (17) is the
same as Column (7), Net Private Capital in Table I.
Now, let us move to analysis of the figures as shown.
You will note that I have grouped certain series of years
and computed averages for those years.
The first three
groupings cover a period of 17 years -- World War II, the
immediate post-war, and the 1950-57 periods.
Note that the
U.S. was in deficit on the liquidity basis -- and, if we
had figures, I am sure it would show similar deficits on the
official settlements basis -- in 11 of the 17 years.
The
average annual deficit for the entire period wa~ $563 miliion.
And the
U.s.
financed its whole deficit in the 17 years --
some $9.6 billion -- by an increase in liquid dollar
liabilities, about $7.7 billion to official holders and about
$4.7 billion to private holders -- which adds up to more than
- 13 the deficit.
The difference
Cdiae
in our gold holdings, which,
on December 31, 1957, were up $862 million from the end of
1940, and an improvement in our TI·W position of nearly
$2 billion.
Let us look at the individual accounts.
The trade
balance was in very substantial surplus until 1950 -reflecting two basic facts.
One, we were the arsenal of
democracy in World War II and, in the immediate post-war
years, we had the only major industrial plant that was not
damaged by war.
say that we had
the Free World.
It is not much of an oversimplification to
mos~
of the goods and most of the money in
When you look at the Government Grants and
Capital account, you can see that we gave or loaned the rest
of the world money and, with it, they bought our goods.
If
you look at foreign investment in Table II, you can see
that foreigners also sold off investments in the U.S.
get funds to buy badly needed goods and services.
to
And,
finally, even though they did not have much gold, they sold
us gold and held dollars in preference -- the dollars earned
income.
We ran big surpluses on Services account in the war
- 14 -
years and were roughly in
immediate post-war years.
ba1a~ce
on that account in the
The foreign exchange costs of
our military operations overseas were not all that high,
and we had pluses on net capital account from our earnings
on previous
invest~ent
and from errors and omissions,
which probably reflected mostly capital inflow to the U.S.
for safety reasons.
Between 1950 and 1958, the world was being rebuilt -in large part due to our help.
We were able to cut back
considerably on Government grants and capital, but our
military expenditures rose as we stopped formal occupation
of former enemy countries but still maintained troops there
and elsewhere, without covering their foreign exchange
costs.
Our Services account went into deficit as travel
and transportation account worsened -- but the deficit was
L/ l 7
- 15 -
not too great.
somevlhat.
And our net private capital account improved
Income on our foreign investment continued to
rise, and it was not until the very end of the period that
our capital outflmv increased sharply.
while not large, did flow into the
u.s.
Foreign investment,
and, inclusive of
the inflmy on errors and omissions, exceeded income payments
to foreigners.
The big loser in this period was the trade account.
Except for 1956 and 1957, it ·was substantially smaller than
in the war or irmnediate post-war years.
.
Partly, that was
due to recovery and industrial modernization and availability
of goods from sources other than the U.S.; partly, it
reflected sharper cost increases here than elsewhere and
deterioration in our competitive position; partly, it
reflected our willingness to suffer trade disadvantages not.
.~
connected with costs; partly, it reflected reduction in our
loan and grant programs.
-16-
But, even wi th all of these developments, our defici ts
were not particularly large or disturbing.
Statistically,
they averaged no more than in the war years, and we financed
them mainly with increased dollar liabilities to foreigners.
Our gold stock at the end of 1957 was $1.7 billion below the
balance at the end of 1949, but we still had considerably more
gold than at the end of 1941.
The real facts of the matter were that at no time between
1941 and 1958 was the U.S. in deficit in any meaningful sense.
We saw our net reserve position deteriorate, but we could afford
it, and, indeed, it was good for the world.
The dollar was
better than gold, and most foreigners preferred it.
In essence,
we acted with responsibility and with altruism and with enlightened
.
selfishness.
It was good for us and for the world.
In 1957, due primarily to the Suez crisis and the oil
situation, we had a balance of payments surplus -of $578 million.
Our trade and service surplus was $5. 4 billion; our Government
and military deficit was $5.2 bi Ilion, and we still had a small
net capital inflow.
After 1957, the picture changes radically.
By 1958,
Western Europe and Japan had recovered from World War II -- as
noted, due in large part to U.S. policy -- their currencies were
basically convertible and their industrial plant strong and
-17-
competitive.
The United States no longer had most of the goods
and most of the money, but both we and the industrial world
continued to act as though that still were the case.
We continued
to tolerate disadvantages to our trade and to encourage our
people to travel and buy abroad.
We continued to pick up most
of the foreign exchange and budgetary check for the common
defense of the Free World.
And, to compound our difficulties,
shggishness in the American economy and the investment opportunities
in the expanding world economy brought an ever-increasing flow of
private capital out of the United States.
The rest of the world had grown used to increases in their
international reserves and did not wish to see that process
arrested.
At the same time, they began
inconsistently but
nonetheless actually -- to get nervous and displeased about the
continuing and increasing American deficits.
They expressed
this nervousness and displeasure by converting a large part of
the dollar increases in their reserves into gold from the
American gold stock.
In the ten years, 1958 - 1967, the U.S. balance of payments
deficits cumulated to almost $28 billion, or $2.8 billion per
year on the average -- 4-1/2 times the average annual deficit
of the previous 17 years.
In financing that deficit, the United
States increased its dollar liabilities to private and public
-18-
holders by over $17 billion.
drop by almost $11 billion.
But we also saw our gold stock
Part of that decline was due to
the gold rushes of late 1960 and early 1961 and late 1967.
But most of it was a fairly steady attrition resulting from the
need to finance our deficit.
In a very rea
sense,
the balance of payments adjustment
problem -- both for the world and for the United States -- in
the 1958-67 period can be characterized as a struggle, both
intellectual and real,
to get the surplus countries of Western
Europe to recognize that chronic surpluses were bad and to get
the United States to recognize that chronic deficits were bad.
-
For far too long, we continued to say three things:
deficit was good for the world;
(b)
(a) our
it really was not very
important anyway; and (c) at the same time we apologized for
being in deficit.
to say:
(a)
For far too long, Western Europe continued
the U.S. should correct its deficit;
(b) Europe
had no respon.ibility for taking compensating action; and
(c) proper demand management in the U. S. would do the whole job.
In the past couple of years, however, real progress has
been made on both sides in recognizing not only the oversimplification of the above propositions but the basic
responsibilities which lay on both sides.
Most helpful in
arriving at this better and more appropriate pOSition have
-19-
been the regular discussions in the OECD, especially in its
Working Party 3, and in the Group of Ten, as it considered
the need for a new type of international reserve asset.
Now, let us return to the analysis -- this time of the
1958 - 1967 period.
As can be seen from the tables, I have
grouped the 1958-67 years into four subperiods:
1958-50-,
1961-64; 1965-66; and 1967.
Note that the trade balance in 1958-60 averaged just
about the same as in 1950-57 and then improved strikingly in
1961-64.
Note also that, while the trade balance deteriorated
significantly from 1964 through 1937, it was still a respectable
and a real surplus.
Much of the good performance on the trade account in the
1960-65 years was due to the good " performance of the American
economy from a cost viewpoint.
The economy was running at
less than optimum level during much of this period, but it was
growing and cost stability was being maintained.
As Vietnam
began to put pressure on resources, however, higher cost trends
began to develop.
Failure to arrest these trends, I
believ~,
has been the basic factor in the deterioration of the trade
balance.
While we can never know for certain, my own
jud~ment
is that failure to enact the Revenue and Expenditure Control Act
of 1968 in the summer of 1967, when it was introduced, was the
-20major factor in our
deterioratin~
trade balance in 19G8.
That
weakness was compounded by the strikes or threatened strikes in
steel, copper,
and the docks.
The threat, culminating in the
reality, of the current dock strike probably is responsible for
temporarily
arrestin~
the recovery of our trade balance that
was evident this fdll.
The Services Balance also shows steady deterioration throughout the period, being arrested only a bit in 1964.
From 1957,
when the Services Balance showed a deficit of $674 million, to
1967, when it was in deficit by $2,592 million,
deterioration of almost $2 billion.
by a billion;
tourism,
there was a
TIle travel deficit worsened
the transportation deficit, part of which reflects
worsened by $700 million;
deficit worsened by $600 million.
the pensions and remittances
These were offset in only a
minor way by improvement in our miscellaneous services surplus.
So we see that the average combined trade and services
account improved by $2 billion from 1958-60 to 1961-64, despite
some deterioration in the services account; dropped by $1.4
billion in the 1965-66 period, as the trade balance declid~d
and the services balance worsened further;
and dropped another
$1.4 billion in 19G7, reflecting the same developments but with
more accent on a sharply increased tourist deficit.
-21-
The Government Grants and Capital account in 1958-60 was
slightly less in deficit than it had been in 1950-57.
The
deficit widened in 1961-64; widened slightly further in 1965-66;
and was sharply higher in 1967 and 1968.
In large measure, the
early increases in the 1960's were due to increased aid and,
in the late 19GO'F to increased lending by the Export-Import
Bank.
It should be noted that this account represents little
financial drain.
It mostly finances U.S. exports which might
not take p lace wi thou t
u. S.
Government grants and loans.
Much
of the financing is tied to purchase of U.S. goods and services .
.
.
Included in these totals are Export-Import Bank loans.
The Military account deficit in 1958-60 was up significantly
from the average of the previous eight years.
Then, by a
combination of military offset sales and reductions in costs,
that account deficit was reduced substantially in 1961-64.
The
sharp rise after 1965 reflects almost entirely the direct foreign
exchange costs of Vietnam.
Beginning in 1966, we began to seek
financial neutralization of the foreign exchange costs of our
military expenditures abroad.
In 1968, we more than doubled
that neutralization of 1966 and 1967.
A major point to stress in explaining changes in the U.S.
balance of payments after 1957 is the capital account.
Table II
shows the developments in the components of that account.
-22Direct investment outflow rose sharply in 1956 and 1957,
fell back in ls53-60, and then more than doubled by 1966.
Other private capital outflow, mainly borrowings by foreigners
in our markets and bank lending abroad also began to rise
sharply in 1956-57 and increased fairly steadily until 1964,
when it peaked at
~ore
than $4 billion.
These accounts show
two significant things.
First, direct investment -- even in balance of payments
terms -- was not cut back absolutely by the Voluntary Program
in 1955 and 19G6 but was reduced somewhat in 1967 under a
continuation of the Voluntary Program and not reduced much
further in 1968 under the mandatory program.
Wha t my arrangement
of the data does not show -- but 111.'. Fiero's statement does -- is
that the over-all foreign exch..l.n"ge costs of direct investment wer
reduced quite significantly.
The reduction is reflected, how-
ever, in large part in Column (14), where part of the foreign
investment inflow reflects foreign financing,
through purchases
of American corporate bonds, of U. S.' direct investment abroad.
In point of fact,
neither the voluntary or mandatory
progr~ms
~
ever were designed to curtail gross U.S. investment overseas -but to shift the financing abroad and thus lessen the foreign
exchange drain.
In fact,
the programs have succeeded.
As
Mr. Fiero points out, gross U.S. investment overseas has risen
each year, with the 1968 increase expected to be
8
per cent.
-23The second point is that other investment outflow dropped
very sharply after 1964, due in part to extension of the
Interest Equalization Tax to bank loans, in part to the
Federai Reserve program and in part to the Commerce program
on direct investment.
The improvement in this account from 1964
to 1965 was about $3.9 billion.
Of this the banks accounted
for about $2.5 billion as their short-term loans to foreigners
went from a net outllow of $1.5 billion in 1964 to a net inflow
of $300 million in 1965.
Long term bank loans to foreigners
rose $900 million in 1964 and were up only $200 million in 1965.
Most of the rest of the improvement reflected a swing by
corporatIons in the Commerce voluntary program from a net outflow
of $600 million in 1964 to a net inflow of $400 million in 1965.
Some part of this very large improvement obviously was
not sustainable and in 1966 the net outflow on other capital
increased by $450 million, due mainly to a reversal of flows
in the corporate account.
In 1967, there was a sharp deterio-
ration in this account due to three factors:
1.
Americans increased their purchases of new issues
of foreign securities by over $400 million between 1966
and 1967.
Part of the increased purchases were issues
of international organizations, such as the World Bank;
-24part represented sales of bonds by the Government of
Israel following the outbreak of hostilities in June of
1967; and part reflected an increase in new Canadian
issues.
2.
There was a reversal in 1967 of U.S. liquidation
of foreign security holdings, a process that had been
going on since the lET was put into effect in 1963.
Net
U.S. purchases of outstanding foreign securities in 1967
exceeded $100 million, compared with liquidation of about
$325 million in the preceding year.
1966 of the
lon~
The reversal in late
downward trend in major foreign stock
markets probably played a role in the resumption of U.S.
purchases.
3.
The easier reserve position of U.S. commercial
banks in 1967 resulted in a very marked rise -- $660
million -- in their short-term credits to foreigners,
although the great majority of banks remained within their
ceilings under the Voluntary Credit Restraint Program.
The
bulk of the increase in 1967 credits went to Japan which
had reduced its short-term U.S. banking obligations in the
previous year.
-25-
In 19G8, some of these losses were recouped, primarily
because the banks again reduced their foreign loans under
a tighter Federal Reserve program.
Income on
ou~
foreign investment, including fees and
royalties, rose very sharply throughout the period, proving
two things.
One,
t~e
restraint programs certainly did
not kill the goose that laid the golden eggs, and two, in
general this source of earnings is a powerful and growing help
to our payments balance.
-26-
Now, note that the combination of restraint on outflow
and growing earnings turned the net on U.S. capital
(Column (13)) from a fairly large negative in 1964 to a very
large positive in 1965 and following years.
Net foreign investment inflow was modest throughout the
15 years from 1950 to 1965.
Beginning in 1966, it increased
sharply and continued to increase in 1967.
doubled from 1967 to 1968.
It more than
I have noted that part of this
development really represents foreign financing of direct
U.S. investment abroad.
Sale~
of u.S. corporate debt
securities mostly for this purpose totalled about $550
million, in both 1966 and 1967 and, in 1968, are estimated
at $2 billion.
A large part of the improvement, however, reflected a
real movement into U.S. equities, which began to escalate in
late 1967 and continued throughout 1968.
It may have been
strengthened by the unrest in Europe in the late Spring of
1968, but it was well under way before that time.
that part
I believe
probably a major part -- of the credit goes to
the Foreign Investors Tax Act and the concerted movement of
American financial houses to attract foreign portfolio
-27-
investment.
A recent article :in U. S. News and World Report
comments on this increase in purchase of U.S. equities,
either direct or through mutual funds.
Finally, some portion, but not a large one, reflects a
shift in central bank or government investments in U.S. bank
certificates of deposit from shorter to longer maturities.
The increase in 1966 in such certificates was about $350
million; in 1967, was about $500 million; and, in 1968, is
estimated at $200 million.
For the most part, these shifts
reflect interest rate considerations but, in some measure
-- particularly from Asian sources -- they reflect the
desire to help neutralize our increased military costs in
separate
Southeast Asia. These investments are/ from those I show
in the military neutralization column.
The difference is
both in form and in explicit understanding with regard to
neutralization of military expenditures.
I have already commented on Column (15), Income Payments
to Foreigners.
The sharp and steady rise reflects -- as to
be expected -- the rise in foreign investment in. the U.S.
and the rise in U.S. liquid dollar liabilities to foreigners,
both public and private.
-28Now what lessons can be learned from this detailed
analysis?
1.
In my judgment they are the
followin~:
It is vital that we improve performance on the
trade account.
(a)
In doing so these points are important:
The economy must not be allowed to overheat.
A sustainable rate of growth is desirable but a growth
rate that strains resources, puts upward pressure On
prices and costs, renders us less competitive,
~nd
sucks in imports in extraordinary volume is not
desirable -- either domestically or internationally.
It is not desirable -- either domestically or
internationally -- to deflate the economy substantially
below its capacity_
(b)
Every effort must be made to avoid crippling
strikes in key industries that lead to lessened exports
and increased imports.
It takes a long time to recover
from the effects of such developments.
(c)
We need to engage more heavily in export
promotion and continue to improve our export
fin~ncing
machinery.
(d)
We must move strongly towardamaliorating the
trade disadvantages which are built into the existing
system.
These include both non-tariff barriers and
border tax-export rebate systems.
-29-
2.
It is vital that we 60ntinue to push toward
further reductions in the net foreign exchange costs of our
military expenditures incurred in the common defense of
the Free World.
We have done a good deal in this area;
we must move to more sustainable programs and to greater
amounts.
(a)
In this connection it is important to note:
At the last meeting of NATO Ministers in
November 1968, the following language was in the
communique:
"They (the Ministers) also acknowledged
that the solidarity of the Alliance can be strengthened
by cooperation between members to alleviate burdens
arising from balance of payments deficits resulting
specifically from military expenditures for the
collective defense.
It is now necessary to work
out the implementing details.
(b)
After Vietnam, it will be important to
capture the potential foreign exchange savings
through better burden sharing of mutual defense costs
in the Far East.
(c)
There is nothing inherently wrong in the
military neutralization program -- offsetting foreign
exchange costs through financial transactions that
represent capital inflow to the U.S.
Fundamentally.
-30it costs the U.S. no more to pay interest on nOllliquid military neutralization securities than on
any other U.S. Government securities in which foreign
governments invest their
reserves.
Nevertheless,
foreign governments do not wish to lock up too great
a quantity of their reserves in
.30
that the potential for
iilfi~it9.
S'.lC:l
non-li~ui~
~ecuritie~
tCd..lsactio.1S is
.1'Jt
But, more importantly, it is better
practice to reduce the net foreign exchange costs of
military expenditures through host country purchases
of military goods an9 services from the U.S. or direct
assumptions of some of the foreign exchange costs we
bear and which accrue to. those countries .
3.
It is vital that we continue to stimulate foreign
investment inflow into the U.S.
This is a perfectly
sound method to aid our payments balance.
Both direct
and portfolio investment by foreigners in the U.S. is
useful and helpful
4.
For the time being it is essential that we continue
to restrain capital outflows from the United States.
-315.
We must stimulate more foreign travel to the U.S.
In summary, let me point out these facts.
1.
Even if we succeed in stimulating travel to
the US., it is unlikely that we can do more than
to hold the deficit in service account to something
like its level in 1967 and 1968.
As a high income
country, our people will travel abroad.
Simple
demand management policy -- even perfect demand
management policy -- will not cut this outflow.
So
we will have to run fast ip promoting foreign travel
here just to stay in the same place -- a substantial
deficit.
Here a 5 percent ticket tax with the proceeds
going to finance a well-coordinated tourism program
is highly important.
2.
Government grants and capital help finance
exports and are important in helping develop the
less developed countries of the world.
We should
increase our level of foreign aid, but do so in a
way that protects us when we are in balance of payments
deficit and in a way that helps assure additionality of
commercial exports.
But it is unlikely that the
gross drain -- as shown in Column (4) will decline.
It is likely to rise -- and it should rise.
-323.
Military expenditures are not susceptible
to demand management.
We have to seek political
cooperation to reduce their net foreign
exchan~e
drain.
4.
If we assume a service outflow of $2.5 billion.
a government capital outflow of $3.5 billion, and
a net military outflow of only $1 billion, we need
a $7 billion trade surplus just to balance these
outflows and this leaves nothing for private
capital export.
net we need a
5.
To the extent we export capital
bigge~
trade surplus.
It thus is highly important that we attract
capital inflow here -- to offset gross capital out~
flow that cannot be covered by the trade account.
(MORE)
-33-
ViJ.t;
I might summarize my remarks at this point by saying
that I believe the corrective or adjustment process in
our balance of payments will have to occur to a significant
extent in the capital accounts and not only in our current
account items.
I also believe this process will necessarily
involve more policy coordination among the major countries,
not only on general adjustment measures but on specific ones
as well.
General measures, working through changes in incomes
and prices, here and abroad,
s~ply
do not have sufficient
effect on military, foreign aid and, perhaps, some other
types of transactions; and any effect they do have is
likely to be diffused rather than concentrated among the
countries most involved in such transactions.
As I said last September at the annual meeting of the
National Association ..of Business Economists:
" ••••• the adjustment process is complex -- and,
consequently, the attainment of successful adjustment has to involve both surplus and deficit
countries and a whole range of policies and policy
instruments.
Proper fiscal and monetary policies
-34-
are of key importance in successful adjustment -but other policies, at least for the United States,
and, I believe, for others, as well, are of high
importance also.
"Some types of transactions are primarily
responsive to domestic fiscal and monetary policies;
others are less so.
Still others are influenced
primarily by past economic policies and developments.
Some reflect policy decisions of an essentially noneconomic nature."
I believe this situation will continue; and that in
addition to whatever balance of payments adjustment we
achieve through general measures, we will also have to rely
on some specific measures for achieving external balance.
Not only are general measures ineffective for certain important types of
u.s.
transactions abroad; their use beyond a
certain degree to influence transactions where they are
effective may run into conflict with the achievement of one
or more other major national objectives, such as full
employment and steady economic growth.
-35-
Let me now mention tl<lO points on 'vhich you asked me
to connnen t •
The proposed temporary tax on travel expenditures plus
a proposed 5% ticket tax on international flights was designed
to achieve an immediate balance of payments saving by inducing
travelers to moderate their expenditures while abroad and,
at the same time, provide budget funds for financing over
the next five years greatly stepped-up promotion campaigns
for foreign travel to the U.S.
The Congress did not acceP.t the Pl."oposed taxes -- the
restrictive aspect of the proposal; but by not providing an
alternative source of financing for the medium-term promotion
campaign, it has left efforts to reduce our tourist deficit
in suspension.
I do not
~ow
what views the new Administration might
have on this matter,! but my own judgment, if I were continuing
in office, would be to press Congress hard for more adequate
funds for promoting foreign tourism to the U.S.; and, if
this required additional financing because of overall
budget considerations, renew the request for a 5% ticket
tax on international flights
•
the same rate that has
applied to domestic flights for years.
The second matter is the Interest Equalization Tax
which went into effect in July 1963 as a means of stemming
the rapidly rising outflow of U.S. portfolio capital to
other advanced countries.
Foreign borrowers, by and large,
seeking medium- and long-term funds here not because
of any shortage of dollar exchange in their own countries,
wer~
but because they could borrow here more cheaply for their
domestic working capital needs than they could borrow in
their own markets.
The U. S. market was, in effect, playing
a role which the domestic money and capital markets of
other advanced countries should have filled; and this was
costing our balance of payments heavily.
The tax was certainly effective in stemming the portfolio outflow at which it was initially directed, and in
early 1965 when it was applied to long-term bank loans, it
reinforced the opera.tion of the banks' voluntary restraint
program by screening out those foreign borrowers unwilling
to pay the additional 1 percent per annum which the tax
involved.
Only about $120 million of foreign issues subject to
the Interest Equalization Tax have been floated in the U.S.
in the 5-1/2 years since the tax took effect.
Countries
-37-
subject to the tax -- including Japan which has a limited
exemption -- sold $356 million of issues here in 1962 and
almost $700 million, at an annual rate, in the first half
of 1963.
Last year, as far as our data now show, they sold
only $3 million hrre.
Hence, without regard to any trend
growth in their issues here, our balance of payments last
year benefitted by a gross amount of around $700 million.
With allowance for some trend growth, the amount would be
even larger.
The net benefit, of course, is less than this,for part
of the potential outflow in the form of portfolio investment
abroad was undoubtedly diverted lnto other forms of lending
abroad.
But we do not think the net benefit for our balance
of payments was much less than the gross benefit for the
following reasons.
As noted above,! a large part of the pre-July 1963
outflow was essentially for domestic working capital use
in the countries of the borrowers.
After the Interest
Equalization Tax took effect, they turned to their local or
third country markets and stimulated a growth in the size
of these markets (mostly in Europe) which was greatly abetted
-38-
by the efforts of U.S. investment bankers who had lost a
considerable amount of their foreign business in the U.S.
By the time the voluntary and mandatory restraint
programs came along, the European markets were able to
respond not only to the growing demand of many foreign
borrowers outside the U.S. but also the large demand of
U.S. direct investors who were induced by the rDlP to finance
their direct investments through such borrowing.
The inter-
national securities market, outside the U.S., has grown from
around $500 million in 1963 to around $5 billion in 1968
-- a tenfold increase in 5 years.
This is an example of a temporary restrictive measure
generating a useful long-term effect.
But how temporary is
the Interest Equalization Tax?
pa~sed
It was
two years; and it has been renewed twice.
initially for
The last renewal
added an administrative flexibility feature to the tax,
designed in part to aid in phasing the tax out.
In my judgment, the tax should be extended and the
flexible authority retained.
It is true that relative interest rates here and abroad,
in December, favored foreign corporate borrowing here by
onl}! aheut ,a half p,er:eent ... - wall under the 1.25 ,percent
Intere~~
iij\lalization 'tax
for~ign ho~w0We~.
pe~ Cll}n\.ll1l
Relative
a stronger incentive to
rather than abr,oad
cost to a potenti&l
inte~est rae~s. however~
for~i&n
provided
gQverm,lent;s to borrow here
Also" tRe relative rate situatiqn has
been affected b¥ the unusually liquidcenditions in certoi.n
European credit markets -- namely in Germany and Italv
by the tighti oonditions here.
situation will last.
PQrcen~
a year,
fore:kSi&o issues on trhis
and
It is not cleaF hQW lQng this
If we had l:educed the lntelr-es,t
EqualiZ8tliQn.Tax rata to a Ber annum
a half
~-
th~r~
effecti~e
-t;ni"ght ha.ve heen a
ma~ket
in
ant-i~igation
cost of, say"
3\l.+,g~
of
that the, lnterest
Equalization Tax rate would be raised.
Insho~t.
a reduction of the. rat.e seems. useful anly
when thera is a clear·· p;t;oapeee·
have t;Q
~e
~hat; t-h~
r;educ-tion will not
tempor a:ry, __
The same point applies to
Equalization Tax legislation.
e~tension
of the Interest
I do not think it should be
allowed to lapse until our balance of payments progress on
other fronts is sufficiently assured to avoid any likely
need for renewal of the tax.
The tax has served and continues
-40-
to serve a useful function in restraining capital outflows;
and it has done this with no observed adverse effect on
pri~ate
long-term capital inflows which have occurred at an
unprecedented rate in the last year and a half.
This completes my comments on the second example of a
specific balance of payments measure, one which Congress
has supported.
In conclusion, a solution of the balance of payments
problem remains among the nation's top priorities.
towards a solution is
~ng
Progress
made on major sectors other
than trade and tourism;-and theeLements for a gradual
improvement in these accounts are at hand in the measures
which we have designed.
With a determination to end inflation, the continuation
of certain specfic . balance of payments measures and
responsible action by the surplus countries, I can foresee
a successful end to our efforts.
000
'l'."\BLl: I .
-
U. S. B,"\Ll\.;;CL OF Pi\y;::r:;;TS
- - - - - - - - - ( : : ; r . l i l Hciri,---------
(1)
;!erchandise
Balance
--------
(2)
Services
Balance
(3)
Balance on
Goods and
Services
(4 )
(5)
Gov. Grants
<.: Capital
Incl. Income
;iili tary
Sales &
~pen. ~
--------
(8)
(7)
;:ilitary
l~eutrali-
zation
,;et Private
Capital
e./
(9)
Official
Liquidity Settle.
Balance
Balance
1,119 d/
-205 d/
-1,979 d/
-1,859 d/
-2,737d/
-1,132 0/
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
-162
-953
-1,763
-1,982
-2,434
-1,459
584
277
341
457
-305
271
-5,272
-6,055
--4,816
-5,551
-5,424
-493
-455
-799
-(21
-592
207
398
967
1,341
625
993
4,210
817
136
1,539
n.a.
n.a.
n.a.
n.a.
n.a.
472
2,864
2,172
588
1,712
2,000
3,742
5,425
2,372
-3,531
-2,993
-2,176
-1,803
-1,282
-1,937
-2,168
-2,369
-2,282
-576
-1,270
-2,054
-2,423
-2,460
-2,701
-2,788
-2,841
-2,139
146
1,391
852
1,454
489
1,396
241
363
7')2
- 3,489
-8
-1,206
-2,184
-1,541
-1,242
-973
578
-1,257
n.a.
n.a.
n.;).
n.a.
n.a.
n.a.
n.a.
n.a.
n.a .
5,249
-'1,836
-1,575
599
-563
n.a.
1941
1942
1943
1944
1945
!,verage 41- 45
1,927
5,688
10,516
11,926
7,228
7,457
84
1,290
1,762
1,800
318
1,051
2,011
6,978
12,278
13,726
7,5-16
8,508
-1,314
-6,507
-12,835
-14,060
-7,544
-C,452
1946
1947
1948
1949
i.verage 46-49
6,634
10,036
5,630
5,270
6,893
331
286
-165
-303
37
6,965
10,322
5,465
4,967
6,930
. •'JCrilge 50-57
1,009
2,921
2,481
1,291
2,445
2,753
4,575
6,099
2,947
-537
-57
-309
-703
-733
-753
-833
-674
-575
,--.vc:ril<Je H-57
5,202
47
1950
1951
1952
1953
1954
1955
1956
1957
(6)
c/
c/
c/
c/
c/
0'
'l'."'.ilLE I. .
(1)
(2)
U. s. L;~L1\::Cr.; OF P;W~:E~~TS (Cont.)
($ !".\i-Ilion)
(3)
(4)
(5)
-----
Services
3alance
--.--
Balance on
Goods and
Services
Gov. Grants
& Capital
Incl. Incotle
;·;ilitary
Sales &
Expen. ~I
1958
1959
1960
,:.vcrage 58-60
3,312
985
4,743
3,013
-1,138
-1,411
-1,405
-1,318
2,174
-426
3,338
1,695
-2~280
-1,637
-2,446
-2,121
1961
1962
1963
1964
5,422
4,387
5,057
6,649
5,379
-1,491
-1,623
-1,818
-1,695
-1,657
3,931
2,764
3,239
4,954
3,722
65-66
4,728
3,635
4,182
-1,328
··1,372
-1,850
1967
,-.vcruge 58-G7
3,477
4,240
-2,592
-1,687
;;crchandise
Balance
,:-,verage 61-G4
1965
1966
"-~vcrage
":!
".J./
c/
(7
61
E./
(6 )
(7)
~:ilitary
(8)
lIet Private
CaDi_tal £I
Officia ...
Liquidity Settle
Balance
DalanC!
-3,135
-2,805
-2,768
-2,903
-124
998
-2,022
-383
-3,365
-3,870
-3,901
-3,712
n. .
n ••.
- 3, 4~ 3
n ••.
-2,423
-2,569
-3,106
- 3,133
·-2,808
-2,599
-1,966
-1,967
-1,889
-2,105
-1,279
-435
-838
-2,735
-1,322
-2,371
-2,204
-2,670
-2,800
-2,511
-1,3 7
-2,7';2
-2,On
-1,5G4
-1,90G
2,900
1,763
2,332
-2,895
-3,086
-2,991
-1,865
-2,808
-2,337
743
372
525
2,035
1,280
-1,335
·,1,357
-1,346
-1,239
2GG
-512
885
2,552
-3,697
-2,727
-3,317
·-2,512
734
14GV
1,823
-205
-3,571
-2,744
-3,40S
-1,5·; G~.'
~ieutrali
zation
risures through 1952 .::.~e e:::;e!1oiturcs only; those fo~ 1953-59 arc net of "traw;fcrs" (io deliveries) on :dlitary
!j.:.1es; those DCCJinninnr: I:: C: are net of cash receipts from uili tary·'s.:!lr=n contracts.
L,clur.::i n 0 )1:" i vatc i.·la~~.1c;:.'':3 <!:-.ci receipts, an~ GovcrrlTlCnt p2.y:-·.cnts, of invest< '.cnt inCOr1C'i includes .ollGO long-tor;.l
c.:qi ~.:ll inf 10'::5 fro: I [C:!:;:;:<;;: S"cvcrr.:lcnts not rclatec::. to r.d.li t.:!ry S<J les 0:" Dili tilry neutralization.
L1I..:lu.:cs ~!ilitc.r'l (Tant~ I ·::·.!'C:i not seoaratel'l available bcfore 19~6.
··"'11·'r
~-'rl',-,s
,.lliC"::_, ~,"r0ci~~I"
con:"-r""'lc
···jt 1 (,,,tel for l":'E on
.. _
_
.::"_.
".. .•.. ~~ )JC .:'
"
v
;.
....
'
.. vnr,::,<.,:c:G over 10 ~T.:.,:.rs i:-. -::~:::'c::r to cross";lt:(: to'liqui~ity' L:-:l<:l1cc, c,1'C::lOUg11 sue:l tr;:tjls;:ctiollS l-(~~r.:l;l only in 19G6.
.,v",riHJc for lJGO-1S67.
.~
~._.
~...:
~.J_'
(9)
.,I~~
<;..O.J,.
...
.l
_'"~
L
_
-
•
•
'...'.'\I::L:L II-U.S.
(lO)
\)utflo\·, on
:Jir.-Invest.
(11)
Otil(;;r Private
Capital Outflow
--"---_. _.. ------_ _------------_._-
n;·Ll'.;;CL 0:' P.;Yi.'iL;;'... S:
..- - -
Detail of Column 7, ',,:able I
(12)
----r~·f:iTlioii)-
Income
Recci!.Jts ~
(13)
i;et of
Cols. 10-12
..- - - - - - - - - . - . - - - . (14)
(15)
Foreign
Invest:r.cnt
Inflm; e/
InCOI:1e
:>uy:ncnts to
Foreigner ~
..
1!J41
47
19
9U
71
100
27
40
--------
(17)
(16)
Lrrors and
;;e:t Private
capital
or:',issions
Cols. 13-16
~5
::;34
277
341
457
--305
271
-212
218
-2J7
.- 24 5
~49
-187
-15S
·155
-161
-231
-173
476
:1
3.4
- 37
-123
535
496
497
556
572
531
622
527
525
430
22
435
-327
., 34
- G3
175
-10-1
-81
315
1,113
1,321
1,3':?7
1,162
402
126
415
34,1
447
-G15
-432
-261
-280
1,1')3
44
-333
7S()
-- J:JO
-183
--238
-135
107
-125
-J411
-2Go
737
-6 ,2 l~
-5·iO
-30G
352
-'):55
1,610
3'-::5
765
101
He
1,3:;1
594
1:;55
-;..,~3
-~32
52
14G
249
297
··269
-·i14
-421
. 't (i 1
-'120
-11
1,:313
1,754
1,7G6
I.;;..)";
-G21
-508
-052
-735
·-GC 7
1 ~ jU
-1,')!)1
-2, ,J42
-1,120
-1,135
JJ-:J7-.l,J7S
.,--
1:;42
1~43
1')1;<1
1943
:.\'lcr~gc
41-45
194G
1!)47
1) ,:~
-230
-74')
-721
19~9
-GGO
.- .\'....!r tl,..3~
';\"-~J
1)3J
li:J 1
1) :>2
"} II ,- -.
_~J.J
1;; .) 7
...... r
~-
i._'.": c...
• ~ _ ... : ~ : i.'-
.;I -.~ 7
'
-lv~J
12
-·70
-147
-~50
54C
,......
1,073
-374
-727
444
6b
-5G d
.545
-- 5') [;
2,328
2, G97
2,G50
2, lIe
--G 39
··473
500
G27
366
191
515
SC3
] ,134
493
-·3:' 7
1, ,i25
.; -!2
50
J3~.i
445
2,!)~Jl
1,403
469
328
-Lin~
-
-"',."
~ I_'
.J
(; 7
1,3:,1
&25
~\
('- r- ' )
u::>~
1,454
4C?
1, 3 l ] G
241
3C3
7~\2
:"(;9
~
-t..
~
-
Tl,l}!..L II-t.;.S.
- --
- ---------
(10)
uutflow on
~ir.-Invest.
(11)
Detail of Colur:m 7, 'l'a!.:>le I (Cont.)
!:illion)
- - - - - - - - .- - - - - - -
:.>X...i ,;.Ci.. OF PJ',Y!lL.;'",i·S:
---------r~-
(12)
Ot.'er Private
Cari tal Outflm'o'
2 -
lncone
r:eceipts ~I
- - - _.
(13)
~'~ et of
eols. 10-12
(14)
(15)
Foreign
Investr:ent
lnflo':! ~/
Income
Payr::e.nts to
Foreigner ~/
(16)
Lrrors and
Jnissions
(17)
::ct Private
Capital
Co1s. 13-16
1958
-1,181
-1,372
1959
-1,674
1960
Average 58-60-1,409
-1,755
-1,003
- 2,204
-1,654
2,784
3,042
3,404
3,077
-152
667
-474
14
186
736
407
443
-669
511
-828
-1,063
-853
423
-1,598
1961
-1,654
1962
-1,976
1963
-2,328
1964
Average 61-64-1,889
-2,582
-1,772
-2,483
-4,250
4,024
4,528
4,811
-156
1,102
352
-fi92
102
-1,007
-1,110
-1,325
-1,';56
-1,225
-847
-997
-244
5,686
4,762
731
570
379
473
538
-737
-1,279
-435
-&38
-2,735
-1,322
-3,468
-326
-793
-560
6,308
2,514
2,273
2,394
55
2,044
1,050
-1,729
-2,074
-1,902
-315
-210
-263
525
2,033
1,280
-2,630
-1,980
7,374
4,365
1,724
2,924
1,823
851
-2,293
-1,355
-532
696
-396
-205
1965
1966
-3,623
~verage
65-66-3,546
-3,020
1967
"v~r.3.se
58-67-2,109
-2,772
6,639
6,499
_.. _- - -- - - ---- - - - - --- - --- ill
~/
~I
-892
14
- SGO
-124
998
-2,022
-383
---- ._ ._---- - - - ------ ----_._------------ ---- -- - - --- -
Ine1uc..;i:l<] fce.s anG roy.:::ltiC?s frol;! (jircct illvcst;;:c:nt nnJ excll.:l1in~ Govcr;"lr-ent i:1 V<.:s t f .c nt incol'!c.
InclullC!:i Ions-tern inflo·..:s froll for c ic.:n ,:over;)llcnts not rc~latGd to I:ilitary S u les or n ilit il ry r. ~ utrali::.:ltion.
Ir.cluCes L,. S. Govcrn: .lcnt p.:ly r. .cnts of invcst.:;,cnt income.
SUPPLFHENTAL STATE1:·1ENf OF THE IlONORADLE FP..EDERICK L. Dm·H~:G
UNDER -sEcrU~rAI~Y--OII'--'.rHE TREASUJZY FOR l·lONETARY AFFAIRS
BEFORE THE
SUBCOH>1ITTEE ON I}~TEnNATIONAL EXCHANGE AND PAYHENTS
OF 'itlE
JOINI' ECONOHIC Cm'1HITTEE
l-lEDNESDAY, JANUARY 15, 1969
10:30 A.H. EST
I1r. Chairman cmd Hcmbers of the COlT;,i.ni t tee:
I a111 nO\q able to give you preliminary figures for 1968.
The organization of the data is the same as appears in
Tables I and II
O~(
my full statement.
-..--_---.---..;--1968 U. S. BALANCE 0E-~Au'iliNJS
-----------_._-- --------------------.-~----
TABLE I
($ million)-Estimated
$
(1)
l1erchandising Balance
(2)
Services Balance
-2,315
Balance on Goods and Services
-1,815
(4)
Gov. Grants & Capital
Incl. Income
-3,640
(5)
Military Sales & Expen.
-3,600
. (3)
(6)
Military Neutralization
(7)
Net Private Capital
(8)
Liquidity Balance
(9)
Official Settle. Balance
-
.500
1,512
7,700
150
1,700
- 2 TAl)LE II
(10) Outflow on Dir. Invest.
$ -3,000
(11) Other Private Capital OutfIo,",
-1,850
(12) Inc'orne Receipts
8,300
(13) Net of Cols. 10-12
3 ,l~50
(l!~)
6,950
Foreign Investment InfIoH
(15) Income Paymentfj to Foreigner
-2,800
(16) Errors end Omissions
100
(17) Net P~ivate Capit&l
Cols. 13~16
7,700
-
.
In 1968, the United States had a surplus in its balance
of payments on both the liquidity
.. and the official settle-
ments b2sis.
On the liquidity basis, the surplus was the
first since 1957 -figures "le have.
~round
$150 million on the preliminary
On the official settlements basis, the 1968
surplus, again on preliminary figures, was about $1.7 billion.
The data on official settlements goes back only to 1960; we
had a small surplus of about $300 million in 1966; every other
year from 1960 through 1967, we had deficits.
- 3 -
The 1963 tctal is
prel:i.minCl~cy
hut relatively firm.
The final is not likely to be more than $200 or $300
different from the preliminary.
millio~
That may be quite a differ-
ence from pUl·e fourth quarter figur.es
\'lhich are the ones
that are preliminary -- but not much for. the year.
The real unceitalnties lie in the figures given for the
specific ncconnts.
\'le
Trade
figl1~ces
are rensonably firm, for
get monthly d£1.ta on these and they repi:esent essentially
11-month data
extrapol~ted
for the year.
account cmd the neutrc:lization
c:!cco~nt
The military
are f,:-.irly
f5_j_'~'J;
Gover.nment grants <'-nd capital is a highly p:c elimincn.:y cstirJlate.
The net private capital item is really the balancing item,
and its components in Table II are all most preliminary
estimates.
~ve
have reasonably good current figures on foreign
purchases of U.S. stocks and bonds, and on U.S. bank lending
abroad.
But the
capital flows of the past two months leave
many of the figures for the individual capital accounts in
a high state of uncertainty.
To sum up, we are reasonably certain of the total for
the liquidity balance; less certain, but not too much so, of
the figures for the official settlements balance and the
-
components of Tc;blc I Duel
no~
Lt
(it
COillponcnt figures in T cS.ble II.
useful to
••
all ccrtC1in of the
Nevertheless, I t.hink it
the figures.
pn~sent
With these 1963 figures, I can carry the analysis a
step ftn:ther by cO'-'lparing 1968
Vlith 196{. and 1967.
The trade p2rfo:cTnanc e in 1968 Has ve:r:y poor.
The final
figure seems likely to shm:7 a miscreblc $500 million
surplus, down $3 billion
relatively poor
the 1961} level.
in the dec line
sho~}ing,
fro~
last year's respectable but
and Galin more th2,n $6 billion from
I have a1 rc.?dy noted that the maj Oi..~
'·]2.S
[k-lC Lor
the overheated U. S. economy and that delay
in passage of the tax bill probably cost us dearly in the
trade balance.
The primary element in the worsening of our
trade balance was the expansion of imports.
The trade
balance also "Jas affected adversely, as noted eCJ.r1ier, by
actual or threatened , .strikes.
Perhaps a quarter of the
deterioration from 1967 to 1968 reflected that factor.
The Services Balance in 1968 showed some improvement
from 1967, which had been especially adverse because of the
attraction of Expo 67 in Canada.
in this account is adverse.
Obviously, the basic trend
Relative to 1964, the 1968
- 5 Services account deteriorated $500 million.
Thus the Balance on Goods and Services \kich had been
strongly positive in 1964, and still positive in 1967,
turned strongly negative in 1968.
This \'Jas clearly the
worst feature of the 1968 perfor1l1ance.
The adverse balance on Government Grants and Capital
actually improved a bit from 1967 to 1968, reflecting h.:.rd
Government effm:ts to reduce outfloHS on this a.ccount.
Relative to 1964, such outlays were higher by $500 million
due in large part to lirLlch he&viel" f:1.n3Bci!lg of
nO~l"lL1ili;';uLY
goods and servlces exports by the Export··Import Dank.
This
financing, of course, strengthened our export position.
Military expenditul"es, net of military sales rose $1.7
billion from 196L} to 1968 and \'lere up $300 million from
1967 to 1968.
But with the concert rated effort to neutralize
these fore:lgn exchClI~ge costs -- reflected in the doubling of
. f:
such arrangements from 1967 to 1968 -- the 1968 figure net of
such neutralization was within $200 million of the 1964 outflow
and $500 million better than in 1967.
The real swing came in the Capital accounts.
The net
of capital outflmvs from the U.S. and the income inf101'1S 1
- 6 . ].Uc.lng
"
f'ces
D1C
all. d
'
roy.::; lt~cs,
"
on o'J1" f
·orcJ.gn
~nvcstl1lcnt
HClS
a positive $3.5 billion in 1968 -- double \ih0t it Has in
1967 8ncl almost $4.5 billion better- than it \'7as in
1961~.
And
these figures do not reflect the real cutback in financial
flows
on direct investment account due to American business
Eorroving abroad.
Capi tal 1nfloH.
That, as noted, is included in Foreign
The favorable resul t in this area ' . . as a
product of evel- grmving
earn~tngs
on our foreign investments
and restraint on the foreien exchanze costs of our foreign
.inves tm2nt.
Foreign capital inflows in 1968 apparently reached
close to $7 billion and outpaYill2nts of income to foreigners
on their inves tments here
~dere
about $2.8 billion.
The
capital infloHs in 1968 were $6.5 billion larger than in
196t~
and $t). billion largel- than in 1967.
Income payments
to foreigners \'le1.'e $1.3 billion more than in 1964 and $500
million more than in 1967.
:
,.
The infloH in 1968 represented purchases of American
equities of close to $2 billion, purchases of American
corporate debt instruments of about the sc@e amount, special
receipts from foreign goverlliuents other than military neutralization of about $1.5 billion, and direct investments plus
foreign co:nrnercial credits to U.5. borrmvers of about $1.5
billion,_
Finally, errors and omissions seem to have turned
positive for. the first time since 1.959.
Pulling all this detail together, we can see that 1968
relative to
1961~
sho'\'7ed a deterioration of $7.5 billion in
the combination of trade, service and Government expenditures,
and an improvement of $ 10.6 billion in the Capital account
for a net improvement on the liquidity balance measure of
$3.1 billion.
Relative to 1967, the comparable figures are
a deterioration in trade and service of $2.8 billion, an
improvement in Govenuu211t acc.cunt of $700 million and c.n
improvement in Capital account of $6.1 billion for a net gain
on the liquidity basis of $3.9 billion.
In my formal statement, I cited severa.1 conclusions \"hieh
I distilled from the detailed analysis of the 1941-67 data
on balance of payments.
None of those conclusions are changed
from analysis of the preliminary 1968 data.
Nevertheless, I
have some additional COJ1l11ents to make as a result of that
analysis.
1.
The 1968 balance of payments result reflected
mainly a strong balance of payments program, the Action
Program announced by the President on January 1.
p~rts
Those
of the program that were put into effect -- the
mandatory direct investment program, the strengthened
- 8 Federal llcsc}:ve progra!n,
~nd
the drive to reduce the
forciBn exchange costs of Government -- including
military expenditures overseas -- worked very well.
Failure to enact promptly \vhat the President
2.
called the first order of business
Expenditure
heavily.
3.
~_ontrol
the Revenue and
Act of 1968, cost our trade account
So did the strikes or threatened strikes.
We also got no help from removal of trade
disadvantages or deliberate actions -- e.g., Kennedy
Round acceleration by our trading partners -- on our
trade problem.
4.
Hhile tourism "las not as big a drain in 1963
as in 1967, that was due to special factors.
a good
lm.1g-r~ngc
here.
\ole have no financing for that plan.
5.
We have
plan to attract foreign tourists
Most of the capital inflow that occurred in
"-
1968 Has solid and the result of deliberate policy oJ:;
deliberate attempt to secure it.
Some -- equally solid
-- may have reflected unrest and uncertainty in Europe
and realization that even an overheated U.S. economy
was an attractive placE to invest.
.. 9 -
6.
There is no reason not to eXp2ct .continuation
of the favorable capital position.
Earnings on our
forei.gn investments should continue to increase; investment in Ame:r.ican equities should continue substantial
especially
if the economy comes into better balance;
borroHings b
American corporatioi.1S
ovej~seas
should
continue, if needed.
7.
Thus, our balance of payments position in 1968
is not "fragile" or "unsound."
Hhether we should balance
in other years in this "lay is, of COU1"Se, another
question.
Ny an:'\'78i:." is that .such a balance is not
really good for the world.
8.
Thus, I want to restress the conclusion in my
formal statement.
lvc need to improve the trade balance;
we need to drive even harder to offset military foreign
exchange costs.
We need to begin effective action to
hold the Services clefici t in bounds.
And
continue to attract foreign capital.
If we do these
\ole
need to
things, we can fire up our mID capital outflo\'ls.
9.
This is the real road to both a solid and a
responsible balance of payments equilibrium.
000
TREASURY DEPARTMENT
Washington
FOR RELEASE AT 12:00 NOON (EST) WEDNESDAY, JANUARY 15, 1969
(THERE SHOULD BE NO PREMATURE RELEASE OF THIS
MATERIAL NOR SHOULD ANY OF ITS CONTENTS
BE PARAPHRASED, ALLUDED TO,
OR HINTED AT IN EARLIER STORIES)
STATEMENT BY THE HONORABLE JOSEPH W. BARR
SECRETARY OF THE TREASURY
AT THE PRESS BRIEFING ON FISCAL YEAR 1970 BUDGET
TUESDAY, JANUARY 14, 12:00 NOON (EST)
AT FEDERAL OFFICE BUILDING 7
This is a responsible, realistic budget in terms of what
the country needs and can afford and what the Congress can be
expected to do.
It is also consistent with our responsibilities
at home and abroad to keep the dollar strong and respected.
It is geared to the realities of our economic situation.
There are times when budget deficits are appropriate.
not such a time.
This is
Therefore, we are recommending the continua-
tion of the 10 percent surcharge for one year and a surplus of
$3.4 billion in fiscal year 1970.
Fiscal 1969 is expected to
show a surplus of $2.4 billion.
Revenues for the current year, fiscal 1969, are estimated
at $186.1 billion, an increase of $32.4 billion over actual
receipts of $lj3.7 billion in fiscal year 1968.
The rise antici-
pated for 1969 will exceed by a considerable amount any past
year-to-year increase.
- 2 The record rise in revenues reflects both the large gains
In income achieved in calendar year 1968 and increases resulting from tax legislation.
Approximately $15 billion of the increase in receipts in
fiscal 1969 arises from the $71 billion gain in GNP in calendar
1968 and from a change in the pattern of corporation tax
payments.
The remainder, more than $18 billion, reflects
changes in taxes.
The income tax surcharge enacted in 1968 increases receipts
in fiscal 1969 by approximately $12 billion.
The tightening of
provisions relating to the current payment of corporate estimated tax payments increases receipts by $1 billion.
Both of
these increases reflect a bunching of receipts in fiscal 1969
because of the delayed enactment of the legislation.
Employment taxes also rise substantially in 1969 because
of the increase in the wage base from $6,600 to $7,800 effective
January 1, 1968, and the increase in the combined employment
rate from 8.8 percent to 9.6 percent on January 1, 1969.
The
increase in the employment tax in fiscal 1969 over 1968 because
of these changes is estimated at approximately $4 billion.
In fiscal 1970, receipts are estimated at $198.7 billion,
an increase of $12.6 billion over the estimate for fiscal 1969.
- 3 As contrasted with fiscal 1969, the rise in receipts in 1970
is due almost entirely to economic growth.
This estimate is based on a projected gross national product
of $921 billion for calendar year 1969, an increase of $60
billion over calendar year 1968.
The personal income share of
the projected gross national product is $736 billion, an increase
of $50 billion over calendar year 1968.
Corporate profits for
calendar year 1969 are estimated at $96 billion, an increase of
$4 billion over calendar year 1968.
Almost the entire increase of receipts in fiscal year 1970
reflects this economic growth.
Enactment of the fiscal restraint package last June was a
decisive change for the better in our financial position.
Large
budget deficits meant heavy federal borrowing and extra pressure
on the private credit markets.
Now, with the budget moving
into surplus, we face an entirely different situation.
Let me direct your attention to the section entitled
Budget Financing in the tables on page 10.
You can see that in
fiscal year 1968 we borrowed $23 billion from the public.
You
can see that in fiscal year 1969 we will repay the public $3
billion and further repay an additional $4 billion in fiscal
year 1970.
This is a huge and dramatic swing and effectively
- 4 takes the government out of the competition for credit and puts
us in the position of a supplier of credit.
As fiscal policy takes hold the Federal Reserve should have
more leeway in determining its policies.
Monetary policy can be
more flexible and ready to adjust to a changing situation.
risks of a credit crunch have been greatly reduced.
The
And during
the period ahead, with the budget moving into surplus, overall
pressures on the credit markets should gradually lessen.
000
TREASURY DEPARTMENT
WASHINGTON. D.C.
January 15, 1969
'OR IMMEDIATE RELEASE
THE TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by
{or two series of Treasury bills
~2,700,000,000, or thereabouts,
rreasury bills maturing January
~ 2,700,317,000,
as follows:
this public notice, invites tenders
to the aggregate amount of
for cash and in exchange for
23, 1969,
in the amount of
91-day bills (to maturity date) to be issued January 23, 1969,
in the amount of $1,600,000,000,
or thereabouts, representing an
~ditional amount of bills dated
October 24, 1968,
and to
Mture
April 24, 1969, originally issued in the amount of
~ 1,100,123,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,100,000,000,
iated January 23, 1969,
and to mature
or thereabouts, to be
July 24, 1969.
The bills of both series will be issued on a discount basis under
:ompetitive and noncompetive bidding as hereinafter provided, and at
naturity their face amount will be payable without interest. They
dll 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
Ip to the closing hour, one-thirty p.m., Eastern Standard
:ime!
Monday, January 20, 1969~
Tenders will not be
:ecelved at the Treasury Department, Washington. Each tender must
le for an even mul tiple of $1,000, and in the case of competitive
:enders the price offered must be expressed on the basis of 100,
lith not more than three decimals, e. g., 99.925. Fractions may not
~e used.
It is urged that tenders be made on the printed forms and
:orwarded in the special envelopes which will be supplied by Federal
leserve Banks or Branches on application the refor.
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
-1468
- 2 responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by pay-ment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express f':,uarar.ty of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at
the Fede~al ReStive Banks and Branches, following which public announcement will be made by the Treasury Department of the amount and price
range -:'>.:: 3'::.cepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Sec~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
s~lall 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.
S2ttlement for accepted tenders in accordance with the bids must be
m",,-e 0;;:" compl,2t(d at the Federal Reserve Bank on January 23, 1969, in
ca:;h or· other immediately available funds or in a like face amount
of 7reasury bills maturing
January 23, 1969.
Cash and exchange
tenders will receive equal treatment.
Cash adjustments will be made
for diffe~ences 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, d:-::~ ~oss from the sale or other disposition
of Treasury bills dops not have any special treatment, as such,
under the T~':~=.l?rr~al Revenue Code of 1954.
The bills are subject to
estat",," i,'theritance, gift or other excise taxes, whether Federal or
::.;~ -': e, 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.
Unde: Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 050~ranch.
TREASURY DEPARTMENT
t
WASHINGTON. D.C.
January 15, 1969
MEMORANDl~
FOR THE PRESS:
The attached text of a talk given
recently by James Pomeroy Hendrick,
Special Assistant to the Secretary of the
Treasury for Enforcement and Vice President of
INTERPOL, is distributed as of possible interest.
F-1469
Remarks of James Pomeroy Hendrick, Special Assistant
to the Secretary of the Treasury for Enforcement
and Vice President of ICPO-INTERPOL
Before the 63lst Graduating Class of the
Treasury Law Enforcement School
The other night I saw the beginning of a movie
replayed on TV.
Alps.
Scene:
A mountain high up in the
Down the steep slope sped a skier, performing
his traverses and parallel turns with unusual verve
and grace.
One heard in the distance a crack, as
if a small branch of a tree had been broken.
suddenly the skier fell.
be so clumsy?
had hit him.
Then
How could so expert a man
But no -- it was not a fall, something
He was lying inert.
zooms back up the mountain.
Now the camera
We see a heavy-jowled
man in military uniform caressing his telescopic
sight rifle.
"One more INTERPOL agent dead!" he
growls in a thick foreign accent.
istic stooges!
"Decadent capital-
My country will get rid of them all!"
So starts the movie and so go the impressions
of many people in regard to this extraordinary
- 2 -
organization, the International Criminal Police
Organization, familiarly known as INTERPOL (a name
which, by the way, has been registered as a trademark by the Organization in the United States and
a number of other member countries).
A False Impression
Actually the movie gave a completely false
impression of what INTERPOL is about.
INTERPOL
deals with law enforcement when it involves crosslng
international borders -- a robber, a counterfeiLer,
a rapist, or what have you, who after committing his
crime flees from one country to another.
But INTERPOL
never involves itself in political, military, religious
or racial matters.
These activities are forbidden
by its constitution.
INTERPOL's Mission
INTERPOL concerns itself only with normal,
every-day crime, and it is pledged to action always
in conformity with the Universal Declaration of Human
Rights, whose twentieth anniversary we have recently
celebrated.
It is concerned with apprehension of
- 3 -
criminals, exchange of information, identification,
arrest, extradition.
In addition, it also works in
the field of crime prevention.
It puts out literature
on counterfeits, automobile thefts, and any number
of other subjects designed to facilitate the law
enforcement officer in his task of dissuading potential
criminals from breaking the law before they actually
do so.
It also holds symposiums on these and other
subjects.
There is such a symposium going on right now
on technical methods of tracking down criminals.
Treasury's Dr. Maynard Pro, from the Alcohol and
Tobacco Tax Laboratory, is in Paris at this moment
advising other member country experts of the extraordinary progress made by the United States in
neutron activation.
This technique makes possible
conviction of a safecracker by proving that dust on
the floor by the safe in question is the same as
that on his trouser knees, gathered there when he
knelt to do his work.
And by proving further that
such dust could not have come from any other place
in the world.
- 4 -
History
A word about the Organization's history.
The idea of INTERPOL arose in 1914 when a
number of police officers, magistrates and lawyers
met in Monaco to lay the foundations for international police cooperation.
Here was established
an International Criminal Police Congress.
A few
months later World War I broke out and the plan
was shelved.
In 1923 the International Criminal Police
Congress met again, this time in Vienna.
Delegates
from some 20 countries approved creation of an
International Criminal Police Commission.
Its head-
quarters was established in Vienna and a satisfactory
start made with operations limited to Europe.
But
again hostilities brought a stop to the activity
with the advent of World War II.
In 1946 high ranking enforcement officers met
In Brussels to breathe new life into the temporarily
discontinued Commission.
At this meeting the
Organization's constitution was revised and headquarters set up in Paris.
This time there were only
- 5 19 member countries represented, but in contrast
to the past they came from all parts of the world.
By 1956 the membership had increased to 55
countries.
A meeting was held in Vienna; here
significant regulatory changes were agreed to
which have remained for the most part unchanged.
Organization - The General Assembly
Since grown to more than 100 members, from
Algeria to Zambia, INTERPOL is directed by a General
Assembly, meeting once a year to discuss matters of
crime and of organization.
The 1968 Assembly recently held in Iran took
up, among other substantive matters:
Recent develop-
ments in juvenile delinquency, disaster victim
identification, international currency counterfeiting, forged bills of lading, police planning, international drug traffic, and protection of works of
art.
Among organizational subjects considered, in
addition to budget, elections and appointments, was
a United States plan, which was unanimously approved,
for better auditing procedures.
- 6 Held each year in a different country (the
last Washington meeting was in 1960), the Assembly
provides an unrivaled opportunity for top echelon
enforcement officers throughout the world to exchange
views and to become well acquainted so that when
problems arise involving two countries the officer
in each will know just whom he is deali
@FedFRASER