The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
- 7 -
It is vitally important that this recovery not be
slowed by an unwillingness of countries in a strong position
to see a decline in their trade balance. Sizeable trade
surpluses happen to be highly concentrated among only a few
countries. We look to these countries to not only refrain
from resisting adjustment but, where possible, to take actions
of their own to assist and encourage it.
Certainly, solutions should be found other than internal
inflation, and the prescription appropriate for one country
may not be suitable for another. But it is equally clear
that, in each case, much could be done to spread and diffuse
existing surpluses in ways that support both the broad
objectives of freer trade and internal stability. Import
controls, systematic tying of aid, failure to share fully
in the burdens of defense, preferences for domestic
production, export incentives and inhibitions on capital
exports are all out of place for countries with current
account surpluses ranging as high as 2 or 3 percent of domestic
production. The processes of international consultation and
cooperation embedded in the IMF might well be reviewed
to assure that the policies of chronic surplus countries
are subjected to the same searching evaluation that is more
or less automatically given to deficit countries.
IV.
Strong ties of trade and investment, close links
between financial markets, and the rapidity of communication
and transportation in the modern world make each country
highly sensitive to developments abroad. YGt we live in a world
of nation-states, each of which seeks to preserve a degree
of economic independence.
We must face the facts of differing emphases in national
policy objectives, changes in the structure of industry
and population, cyclical excesses or deficiencies of internal
demand, the economic consequence of social disturbances,
and rigidities of costs and prices. Any of these factors
can become a source of disturbance and uncertainty. At least
temporary imbalances are inevitable, and every country wants
to preserve some margin of liquid financial resources to
buttress its freedom of action.
- 8 -
Our international monetary arrangements will serve us
well or poorly to the extent that they can absorb and diffuse
sources of strain on exchange markets, provide effective
incentives for national adjustment, and thus maintain an
efficient and durable mechanism for the finance of trade
year in and year out. It is one of the great strengths of
the present system that, through the years, it has
demonstrated a capacity to evolve and grow in response to
changing needs.
Indeed, in adopting the first amendment to the lMF
Agreement since Bretton Woods, we now stand on the threshhold
of a fundamental development: the creation of a new reserve
asset -- Special Drawing Rights. We are indebted to those
who years ago not only foresaw the potential need for
supplementing the traditional sources of reserve creation,
but who worked tirelessly to translate general concepts into
concrete reality.
Their efforts could not have come to fruition at a more
opportune time. I believe the Fund's Annual Report, and
even more the report embodying the Managing Director's
proposal for activation of the Special Drawing Rights, makes
amply clear that the contingency against which we have
been planning has now arrived.
The United States, therefore,
fully supports the proposal to move promptly to meet the
acknowledged need for growth in international reserves
through activation of the new facility. We particularly
welcome the sense of conviction and confidence that enables us
to move forward to use this new instrument in substantial
amounts, reasonably commensurate with need.
I recognize, but do not share, the concern expressed by
some that fresh additions to world reserves might delay the
necessary adjustment of payments imbalances. I am persuaded
that, in fact, the opposite is true. Without a timely
supplement to world reserves, the efforts of deficit countries
to eliminate those- deficits could be made more difficult, and
could even be frustrated, by actions taken by other countries
to safeguard their existing reserves. Moreover, I can assure
you that, for the United States, the activation of this
facility will in no way diminish our efforts to bring
inflation under control.
- 9 As we enter this new era of managed reserve creation,
SDR's will have to find their proper role within the total
complex of reserve assets and credit facilities. There is no
doubt in my mind that, within the basic framework of the
amended Fund Articles, we will jointly demonstrate our ability
to use this new reserve asset constructively -- in the same
spirit of cooperation that was essential to its development.
SDR's have properly been at the center of attention in
recent discussions of international liquidity. However,
the regular drawing rights in the IMF also have an important
role to play. The approach of the period of quinquennial review
makes this an appropriate occasion for surveying the size
of Fund quotas. Preliminary discussions indicate that a number
of questions remain to be resolved before a concrete proposal can
be presented to the Governors. I feel certain that this matter
can be satisfactorily resolved within the framework of a
reasonable increase in the overall size of the Fund at an
early date.
v
The clear progress we are making in dealing with the
provision of international liquidity must not divert our
attention from other sources of strain. I have already noted
that the process of interna~ional adjustment has not been
working with full effectiveness, and that the difficulties in
this regard are in large part a by-product of inadequate or
inappropriate domestic policies.
At the same time, I believe we must recognize that events
themselves have raised new questions as to the appropriate
role for adjustments in exchange rates -- not as a substitute
for, but as a complement to, other policies. I have
particularly in mind the range of proposals for "limited
flexibility" to which Mr. Schweitzer alluded yesterday.
These proposals all look to less rigidity in the exchange
rate mechanism than has in fact developed in the practices of
industrialized countries. Some suggested approaches would,
iYt practice, affect only a handful of currencies, or would
introduce largely technical changes in the management
'" ~ exchange markets. Other versions -- such as those for a
;?ry substantial widening of exchange rate margins -- would
1,
appear to introduce so large a~ plement of uncertainty,
and be so at variance with the basic objectives of the Fund,
that they probably do not need to occupy our attention.
Certainly, in the United States we have reached no
conclusion on the desirability of any particular proposal.
I would, however, like to share with you sorrle of the relevant
points that, on the basis of our own review of the matter,
we believe should be kept in mind in further investigations in
this area.
In the first place, the various plans for "limited
flexibility" in exchange rates seem to pose formidable
technical and policy problems that will require careful
study over a considerable period by national authorities,
as well as international monetary bodies, before any consensus
is possible.
Secondly, well-conceived changes, as part of their basic
design, should reduce incentives for speculation, or make it
more costly. Thus, if it is to be successful, any proposal
must come to grips with the difficulty of confining changes
in exchange rates within carefully defined limits, while
providing enough flexibility to reduce the need for, and
expectations of, large abrupt changes in parities.
Third, we should not lose sight of the fact that any
reasonable scheme to remove undesirable rigidities in exchange
rates would have to be built upon the foundation of responsible
and appropriate internal policies, so that the need for large
and discrete changes in parities should arise even less
frequently than in the past. Similarly, the world would
continue to require an orderly growth in reserves and credit
faCilities, to facilitate the maintenance of parities
within established and relatively narrow ranges.
Fourth, given the pivotal role of the dollar in the
international monetary system, the initiative for even limited
exchange rate adjustments would continue to lie with
countries other than the United States. As a corollary, we
must guard against the possibility of encouraging a bias toward
0evaluations.
- 11 -
It is implicit in these comments that we believe that
proposals for limited flexibility in exchange rates offer no
panacea for present problems. Nonetheless, the increasingly
widespread discussion of these ideas in this country and abroad
reflects a real concern over the need to facilitate, over
a period of time, a better working of the adjustment
process. In concept, these proposals seek to preserve
and enhance the basic stability of the system as a whole
precisely by breaking down unnecessary rigidities and
inhibitions to orderly change, when change is necessary.
In this light, efforts to define and develop techniques
of limited flexibility need not be looked upon as radical
new departures from the main stream of developments in the
monetary area. Instead, they seem to me to fall within the
framework of orderly and evolutionary change and of multilateral
monetary cooperation.
As I have noted, these devices have had no official
sanction and are full of subtle and unsetcled technical and
policy questions. In sum, they are a long way from fruition,
if, indeed, some variant proves practical at all in the end.
But neither are these ideas something that we can, or will,
responsibly ignore.
I, therefore, welcome the Managing Director's statement,
elaborating on the Fund's Annual Report, that the Fund will be
continuing its study and appraisal of these questions. The
United States will actively participate in and contribute
to such a study. We would hope that, during the coming
months, the Fund will examine proposals for limited exchange
flexibility, determine which particular proposals appear
worthy of further attention, and set forth the major issues and
considerations that would concern officials of member governments
as they formulate considered judgments on such matters.
In conclusion, let me say the principal contribution of
the United States to the stability and viability of the international monetary system in the present setting is perfectly plain-to bring our inflation to an end and to do so without sending
shock waves of recession to every corner of the world.
That is the main path we in the United States have set for
ourselves. In participating in an examination of
possible further improvements in our monetary arrangements,
we will not be misled into thinking that we can dispense with
the fundamental need.
TREASURY DEPARTMENT
r
September 29, 1969
FOR IMMEDIATE RELEASE
MINT TO ACCEPT ORDERS FOR 1970 PROOF COIN SETS BEGINNING
NOVEMBER 1, 1969
1969 UNCIRCULATED SET ORDERS CUT OFF
Mrs. Mary Brooks, Director of the Mint, announced today that
orders for 1970 Proof Coin sets will be accepted by the San Francisco
Assay Office beginning November 1, 1969. Acceptance of orders will
continue until the Mint's production limit of these sets has been reached.
There will be a limit of five (5) sets per order. The price per set
will be $5. 00, including handling and shipment by first class registered
mail. Each set will include a 50¢, 25¢, 10¢, 5¢ and 1 ¢ piece, produced
at the San Francisco Assay Office.
The Director also announced that the Assay Office will discontinue
the acceptance of orders for 1969 Uncirculated Coin sets when the total
reaches two (2) million sets, or on September 30, 1969, whichever
occurs first.
In announcing the Mint's policy concerning the production of proof
and uncirculated coin sets, Mrs. Brooks pointed out that "the Mint's
primary function is the production of adequate coinage for the commerce
of our country. After this has been accomplished, consideration will b(
given to the production of numismatic items for the hobby." She further
stated that "the Mint will continue to do all it can for the numismatic
hobby, and will make every effort to distribute its' limited production of
proof and uncirculated coin sets on a fair and equitable basis. "
The San Francisco Assay Office will begin mailing the 1970 Proof
Coin order cards to the Eastern Seaboard, Alaska, Hawaii, Puerto Rico
and all foreign countries, on or about October 15, 1969. The Midwest
mail will go out on or about October 16, and the West Coast mail on or
about October 17. These cards should be used in placing orders with
the Assay Office.
lV,ORE
DEPARTMENT
WASHINGTON. D.C.
October 1, 1969
lELFASE
TREASURY'S WEEKLY BILL OFFERING
1ry Department, by
of Treasury bills
or thereabouts,
maturing October
as follows:
this public notice, invites tenders
to the aggregate amount of
for cash and in exchange for
9, 1969,
in the amount of
s (to maturity date) to be issued October 9, 1969,
of $1,800,000,000,
or thereabouts, representing an
unt of bills dated
July 10, 1969,
and to
'y 8, 1970,
originally issued in the amount of
I,
the additional and original bills to be
langeable •
. s, for $1,200,000,000,
and to mature
r 9, 1969,
or thereabouts, to be
April 9, 1970.
of both series will be issued on a discount basis under
noncompetive bidding as hereinafter provided, and at
r face amount will be payable without interest. They
d in bearer form only, and in denominations of $1,000,
00, $50,000, $100,000, $500,000 and $1,000,000
ue).
3
~d
will be received at Federal Reserve Banks and Branches
ISing hour, one-thirty p.m., Eastern Daylight Saving
r, October 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 dec·imals, e. g., 99.925. Fractions may not
be used. It is urged that tender.s 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.
Banking institutions generally m8y~~:~'::1it tenders for account of
C\1ftomers provided the names of the custc:ners are set forth in such
t.enders. Others than banking institutions will not be permitted to
S~bmit tenders except for their nwn account. Tenders will be received
w~thout deposit from incorporated banks .and trust co=npanics and fLom
K-2J_9
- 7 -
It is vitally important that this recovery not be
slowed by an unwillingness of countries in a strong position
to see a decline in their trade balance.
Sizeable trade
surpluses happen to be highly concentrated among only a few
countries. We look to these countries to not only refrain
from resisting adjustment but, where possible, to take actions
of their own to assist and encourage it.
Certainly, solutions should be found other than internal
inflation, and the prescription appropriate for one country
may not be suitable for another.
But it is equally clear
that, in each case, much could be done to spread and diffuse
existing surpluses in ways that support both the broad
objectives of freer trade and internal stability. Import
controls, systematic tying of aid, failure to share fully
in the burdens of defense, preferences for domestic
production, export incentives and inhibitions on capital
exports are all out of place for countries with current
account surpluses ranging as high as 2 or 3 percent of domestic
production.
The processes of international consultation and
cooperation embedded in the IMF might well be reviewed
to assure that the policies of chronic surplus countries
are subjected to the same searching evaluation that is more
or less automatically given to deficit countries.
IV.
Strong ties of trade and investment, close links
between financial markets, and the rapidity of communication
and transportation in the modern world make each country
highly sensitive to developments abroad. Y~t we live in a world
of nation-states, each of which seeks to preserve a degree
of economic independence.
We must face the facts of differing emphases in national
policy objectives, changes in the structure of industry
and population, cyclical excesses or deficiencies of internal
demand, the economic consequence of social disturbances,
and rigidities of costs and prices. Any of these factors
can become a source of disturbance and uncertainty. At least
temporary imbalances are inevitable, and every country wants
to preserve some margin of liquid financial resources to
buttress its freedom of action.
- 8 -
Our international monetary arrangements will serve us
well or poorly to the extent that they can absorb and diffuse
sources of strain on exchange markets, provide effective
incentives for national adjustment, and thus maintain an
efficient and durable mechanism for the finance of trade
year in and year out. It is one of the great strengths of
the present system that, through the years, it has
demonstrated a capacity to evolve and grow in response to
changing needs.
Indeed, in adopting the first amendment to the tMF
Agreement since Bretton Woods, we now stand on the threshhold
of a fundamental development: the creation of a new reserve
asset -- Special Drawing Rights. We are indebted to those
who years ago not only foresaw the potential need for
supplementing the traditional sources of reserve creation,
but who worked tirelessly to translate g~neral concepts into
concrete reality.
Their efforts could not have corne to fruition at a more
opportune time. I believe the Fund's Annual Report, and
even more the report embodying the Managing Director's
proposal for activation of the Special Drawing Rights, makes
amply clear that the contingency against which we have
been planning has now arrived.
The United States, therefore,
fully supports the proposal to move promptly to meet the
acknowledged need for growth in international reserves
through activation of the new facility. We particularly
welcome the sense of conviction and confidence that enables us
to move forward to use this new instrument in substantial
amounts, reasonably commensurate with need.
I recognize, but do not share, the concern expressed by
some that fresh additions to world reserves might delay the
necessary adjustment of payments imbalances. I am persuaded
that, in fact, the opposite is true. Without a timely
supplement to world reserves, the efforts of deficit countries
to eliminate those- deficits could be made more difficult, and
could even be frustrated, by actions taken by other countries
to safeguard their existing reserves. Moreover, I can assure
you that, for the United States, the activation of this
facility will in no way diminish our efforts to bring
inflation under control.
- 9
As we enter this new era of managed reserve creation,
SDR's will have to find their proper role within the total
complex of reserve assets and credit facilities. There is no
doubt in my mind that, within the basic framework of the
amended Fund Articles, we will jointly demonstrate our ability
to use this new reserve asset constructively -- in the same
spirit of cooperation that was essential to its development.
SDR's have properly been at the center of attention in
recent discussions of international liquidity. However,
the regular drawing rights in the IMF also have an important
role to play. The approach of the period of quinquennial review
makes this an appropriate occasion for surveying the size
of Fund quotas. Preliminary discussions indicate that a number
of questions remain to be resolved before a concrete proposal can
be presented to the Governors. I feel certain that this matter
can be satisfactorily resolved within the framework of a
reasonable increase in the overall size of the Fund at an
early date.
v
The clear progress we are making in dealing with the
provision of international liquidity must not divert our
attention from other sources of strain. I have already noted
that the process of interna~iona1 adjustment has not been
working with full effectiveness, and that the difficulties in
this regard are in large part a by-product of inadequate or
inappropriate domestic policies.
At the same time, I believe we must recognize that events
themselves have raised new questions as to the appropriate
role for adjustments in exchange rates -- not as a substitute
for, but as a complement to, other policies. I have
particularly in mind the range of proposals for "limited
flexibility'! to which Mr. Schweitzer alluded yesterday.
These proposals all look to less rigidity in the exchange
rate mechanism than has in fact developed in the practices of
in.dustrialized countries. Some suggested approaches would,
i~ practice, affect only a handful of currencies, or would
introduce largely technical changes in the management
r ~ exchange markets.
Other versions -- such as those for a
c ..2ry substantial widening of exchange rate margins -- would
appear to introduce so large enl '''lement of uncertainty,
and be so at variance with the basic objectives of the Fund,
that they probably do not need to occupy our attention.
Certainly, in the United States we have reached no
conclusion on the desirability of any particular proposal.
I would, however, like to share with you some of the relevant
points that, on the basis of our own review of the matter,
we believe should be kept in mind in further investigations in
this area.
In the first place, the various plans for "limited
flexibility" in exchange rates seem to pose formidable
technical and policy problems that will require careful
study over a considerable period by national authorities,
as well as international monetary bodies, before any consensus
is possible.
Secondly, well-conceived changes, as part of their basic
design, should reduce incentives for speculation, or make it
more costly. Thus, if it is to be successful, any proposal
must corne to grips with the difficulty of confining changes
in exchange rates within carefully defined limits, \vhile
providing enough flexibility to reduce the need for, and
expectations of, large abrupt changes in parities.
Third, we should not lose sight of the fact that any
reasonable scheme to remove undesirable rigidities in exchange
rates would have to be built upon the foundation of responsible
and appropriate internal policies, so that the need for large
and discrete changes in parities should arise even less
frequently than in the past, Similarly, the world would
continue to require an orderly growth in reserves and credit
facilities, to facilitate the maintenance of parities
within established and relatively narrow ranges.
Fourth, given the pivotal role of the dollar in the
international monetary system, the initiative for even limited
exchange rate adjustments would continue to lie with
countries other than the United States. As a corollary, we
must guard against the possibility of encouraging a bias toward
0.evaluations.
- 11 -
It is implicit in these comments that we believe that
proposals for limited flexibility in exchange rates offer no
panacea for present problems. Nonetheless, the increasingly
widespread discussion of these ideas in this country and abroad
reflects a real concern over the need to facilitate, over
a period of time, a better working of the adjustment
process. In concept, these proposals seek to preserve
and enhance the basic stability of the system as a whole
precisely by breaking down unnecessary rigidities and
inhibitions to orderly change, when change is necessary.
In this light, efforts to define and develop techniques
of limited flexibility need not be looked upon as radical
new departures from the main stream of developments in the
monetary area. Instead, they seem to me to fall within the
framework of orderly and evolutionary change and of multilateral
monetary cooperation.
As I have noted, these devices have had no official
sanction and are full of subtle and unsettled technical and
policy questions. In sum, they are a long way from fruition,
if, indeed, some variant proves practical at all in the end.
But neither are these ideas something that we can, or will,
responsibly ignore.
I, therefore, welcome the Managing Director's statement,
elaborating on the Fund's Annual Report, that the Fund will be
continuing its study and appraisal of these questions. The
United States will actively participate in and contribute
to such a study. We would hope that, during the coming
months, the Fund will examine proposals for l~ited exchange
flexibility, determine which particular proposals appear
worthy of further attention, and set forth the major issues and
considerations that would concern officials of member governments
as they formulate considered judgments on such matters.
In conclusion, let me say the principal contribution of
the United States to the stability and viability of the international monetary system in the present setting is perfectly plain-to bring our inflation to an end and to do so without sending
shock waves of recession to every corner of the world.
That is the main path we in the United States have set for
ourselves. In participating in an examination of
possible further improvements in our monetary arrangements,
we will not be misled into thinking that we can dispense with
the fundamental need.
000
- 11 To simplify compliance by millions of lowincome individuals, persons not subject to
tax under the new higher levels resulting
from the Low Income Allowance should not
be required to file returns.
Mr. Chairman, I repeat that the bill before you is a
milestone in tax legislation.
Almost all of the sixteen
substantive tax proposals which President Nixon submitted to
the Congress in April, including the Limit on Tax Preferences
and the Low Income Allowance, are included in the bill.
The
House Ways and Means Committee, as a result of its exhaustive
hearings, added a number of constructive
proposed by the Administration.
measur~to
those
The resulting legislation was
overwhelmingly approved by the House of Representatives.
Now it is up to the Senate.
I am confident that this
Committee will proceed with the same
det~rmination
shown in
the House and that we can look forward to final enactment
of H. R. 13270, appropriately modified, before the end of
1969.
In the words of President Nixon, such enactment will
represent a long step toward making taxation, if not popular,
at least fair for all of our citizens.
000
TREASURY DEPARTMENT
WASHINGTON, D.C.
/L
This Statement is Totally Embargoed Until Actual Delivery Time,
Scheduled for 10:00 A.M., Thursday, September 4, 1969.
STATEMENT OF THE HONORABLE E0WIN S. COHEN
ASSISTANT SECRETARY OF THE TREASURY FOR TAX POLICY
BEFORE
THE SENATE FINANCE COMMITTEE
ON THE PROVISIONS OF H.R. 13270
THE TAX REFORM ACT OF 196~
SEPTEMBER 4, 196~, 10:00 A.M.
Mr. Chairman and Members of the Committee:
It is my pleasure to join in Secretary Kennedy's statement and to present the Administration's position on the
specific provisions of H.R. 13270, the Tax Reform Act of
1969.
The bill in its present form when fully effective provides
tax relief of $9.7 billion to individuals and also contains
certain incentive provisions which involve a revenue loss of
$0.8 billion--a total revenue reJuction of $10.5 billion.
These are offset by revenue raising
provisi~ns
which in the
long run will total $8.1 billion (including $3.3 billion from
repeal of the investment credit), resulting in a net revenue
loss of $2.4 billion.
In some years in the early 1970's the
net revenue loss will be about $1.0 billion higher.
The bill
would commit at this time revenues which may be needed for
programs of high priority, such as President Nixon's family
assistance plan, the Administration's program for revenue
K-188
I~
- 2 sharing with state and local governments, and other vital
measures.
The size of this revenue loss requires that the
tax relief provisions of the bill be carefully evaluated.
The provision giving $4.5 billion of rate reductions to
individuals represents reasonable, equitable tax relief.
The other broad impact of the bill--the individual relief
provisions other than rate reJuction--converting the Administration's proposed Low Income Allowance to a flat minimum
standard deduction allowance of $1,100, extending the standard
Jeduction to 15 percent with a $2,000 maximum, extending headof-household treatment to all
~~ng1e
persons over age 35, and
extending special relief to widows and wiJowers, provide disproportionately high tax reduction in many instances.
In
effect, these various benefits cumulate in some of the income
brackets, particularly with respect to single persons, and
create some serious imbalances in the allocation of the total
tax relief.
While there is merit in these changes,
aggregate they go too far and should be cut back.
imba1ances,we believe, should be corrected.
in the
The
- 3 -
The bill would result in a net long-term shift in tax
burden between corporations and individuals as follows:
Inlividuals:
$-7.3 billion
Corporations:
$+4.9 bi Ilion
The resulting shift in emphasis of this magnitude from investment to consumption is in our judgment Lnadvisable.
The Administration recommends a revised program of tax
relief for both individuals and corporations designed to
decrease the revenue loss in the bill, distribute the tax
relief among individuals more equitably, and reduce to an
acceptable degree the shift in emphasis from investment to
consumption.
This revised program would provide substantial
relief for individuals ~f the same g~neral types as are
contained in the bill.
The program also calls for a corporate
rate reduction ultimately reaching two percentage points
relief of the same general magnitude as the individual rate
reductions.
This revised program would result in a long-term revenue loss
of $1.3 billion per year, approximately half as much as the $2.4
billion revenue loss which w6uld
resu~.t
from the House bill. It
- 4 would result in a net increase in corporate taxes of $3.5 billion and a reJuction for individuals of $4.8 billion.
~hile
this still represents some shift in emphasis from investment
to consumption, it is one that is much less severe than that
provided in the House bill and is one that is warranted by
the economic conditions which we expect to prevail in the
year 1972 and thereafter, when it will have its principal
effect.
The general composition of the bill by rate reduction,
reform, relief and incentive, for individuals and corporations,
is shown in Table 1.
Table 2 contains a list of the specific
provisions in the House bill in the order that I will discuss
them,with the long-run revenue estimate of the House bill and
the proposed Treasury change.
Table 2 also provides a table
of contents for those topics in the following discussion.
I have attached at the end of this statement tables showing the effects of the principal provisions on a typical
married taxpayer at various income levels.
There is also a
- 5 Table 1
Comparison of House Bl111.and Treasury Proposal
by Principal Feature in Terms ·01' Long Run Revenue Effect
House
Bill
:
Treasury
Proposal
:
Difference
(-) is increased
revenue loss or
: decreased gain
( . . . . . . . • . . . •• $ millions •••••••.....
Rate Reduction and Relief Provisions
Individual
Rate reduction ...•..•...................•
Standard deduction ..•...........•.•..••.•
Single person ....................•.......
Other .............•................•..•..
Total ...................•.........•......
- 4, 498
- 4, 025
650
500
-9, 673
-4,705
-1,690
445
-=----.2.QQ
-207
2,335
205
-=7,340
2,333
-1,600
-1,600
70
760
70
440
320
Total Rate Reduction, Relief and Incentive •.• -10,503
-9,450
1,053
Corporation
Rate reduction •.......•....•.....•....•..
lncentive Provisions
Individual .....•...•.•......•......•.•.....
Corporation .••••••.•......••.•....•....•...
~Q£m
.PLQvisions
lrLq,1 viduals
Investment credit repeal ...•.....•.•••.•.
600
600
Other •••.•.•••.••..•.•.•••.••••..•••.•.••
l,8l5
1,975
2,575
Total ...........
II
••••••••••••••••••••••••
..corporations
Investment credit repeal .••••..•.•..•....
2, 415
160
160
2,830
-140
Total .................................... .
2,7 00
2,970
5,670
5,530
-140
Total Individuals and Corporations Reform •.•.
8,085
8,105
20
-7,328
4,9 l0
-4,835
2,493
Other ......•.....•..••..••...•......•...•
Total:
Individuals ............................. .
Corporat ions •••...•......................
Combined .........•.•....................
Office of the Secretary of the Treasury
Office of Tax Analysis
-2,418
2,700
-1,420
3,490
1.07~
-1,345
September 2,
r=
- 6 Tab le 2
Long Run Revenue Effects of H.R. 13270
as Passed by the House and
Proposed Treasury Changes by Major Provision
Page
number in
following:
discussion:
(
10
13
14
15
Tax relie~ - Individuals
Rate reduction •.•..•................•...•....
Low income allowance - minimum standard
deduction •.........•...•.....•....•........
Standard deduction ..........•................
Single persons .......•.......................
Reporting by low income taxpayers •...........
Earned income rate limit .•...................
Gasoline tax deduction •......................
15
Tax relief - Corporations
Rate reduction •..............................
7
8
9
16
21
23
27
3,)
32
32
'0')
-y-
38
:::8
39
41
42
43
4L
:.t6
52
57
60
61
63
6'3
63
6]
(0
74
74
74
72
Others
Foundations
Exempt organizations - unrelated business
income •................
Charitable contributions ..........•..........
Farm losses •........•.•..
Interest deductions •........•...........•....
Moving expense:o ............................•.
Limit on tax preferences ................. " ..
Allocation •................................•.
Income averaging •............................
Restricted property ........................•.
Defer::--ed compensation .......................•
Accuoulation trust3 ........................•.
Multiple corporations ....................... .
Corporate secu.::---ities •.......................•
Stocr-: dividends ..............
Foreign income ..............................•
Financial institutions ...................... .
Regulated utilities ••.....•....•.............
Tax-free dividends •...................•......
Natural resources
Capital gains and losses of individuals .•...•
Capital gains of corporations •..............•
Real estate •................................•
Cooperatives •....................•...........
Subcllapter S •.••.............................
Investment credit repeal •..•..........••..•.•
Arr.ortization of freight cars •................
Amortization of pollution equipment .........•
Taxation of state and local bones •..........•
0
•••
•
0
••••••••
0
0
Total .•.
"0'
•••••
,
••••••••••
•
•••••••••••••
Office of the Secretary of the Treasury
Office of Tax Analysis
•••••••••••
•
••••
•
•••
•••
••
•
0
••••••••
-4,49 8
-4,705 Jj
-2,65 2
-1,373
-650
-920
-\70
-445
1,732
603
205
-100
0
-100
3)0
~LO
0
-1,600
-1,600
100
25
-75
20
20
20
20
-100
oS,
460
-300
20
:::0
50
0
0
30
0
<::0
-100
0
-)00
_0
U
2-='-'
0
-:).:-:
70
70
0
235
c))
()
~-ro.
v
-207 ?J
0
-/
'J
•••••••••••••••
•••••••••••
,
•
Long Run Revenue Effects
Current :Difference (-)
House :
Bill : Treasury: is greater
proposal : revenue loss
$ millions •.......• )
•••••••••
,
•
••••
•••
,
0
65
460
310
clo
600
'I)
-15
'.; ~)
-50
0
)10
dO
600
°0
-, l.G
635
175
1,005
1,00)
3,300
-100
-400
3,300
0
-180
*
"
-,-)Lr.LO
17)
0
0
0
10"
220
-1,3 4 :.-
1,07~
Septemoer
*Less than $2.5 million.
Jj 1)7), calendar year liability
?J Increase due to broader taxoase associated with a lower standard deduction,
~
, 1)6~!
7 table showing by adjusted gross income classes the pattern
of total tax change under the bill and under the proposed
changes.
It demonstrates that our program continues but
moderates the pattern of the.House bill of heavier reductions
in the bottom brackets, cuts of about 5 percent in the middle
brackets, and an increase in the top brackets.
The Administration's position on the provisions of the
House bill is as follows.
A separate more detailed memorandum
making further recommendations as to various matters is also
being submitted to the Committee.
1.
Tax Relief--InJiviJuals (Sees. 801, 802, 803, 804, 805*)
Rate Reductions.
The $4.5 billion rate cut in the bill
does not discriminate between itemizers ani nonitemizers,
between homeowners and tenants, between marriel persons anj
single persons, between heals of householjs supporting dependents and sin6le persons without this bur.Jen, or between taxpayers with different sources of income.
The Administration
recormnends retention of the $4.5 billion rate cut
** in
the form.
containeJ in the House bill because it proviJes such evenhanjel nonliscriminatory relief.
*References are to section numbers of H.R. 13270.
**The rate cuts will cost $4.7 billion under our proposals
because our changes in the standard deduction broaaen
the income base.
If
- 8 -
Low Income Allowance.
The Administration in April 1969,
recommended a Low Income Allowance designed to relieve
persons and families with incomes below the poverty
from any tax liability.
l~vel
To reduce the revenue loss from this
additional special deduction, and to direct its impact at
those below or near the poverty level, it was to be "phasedout, II i.e., the special Allowance was to be reduced at the
rate of 50 cents for each dollar of income over the specified
"poverty" levels.
This limited the bulk of the relief to
persons with incomes below $5,000.
The Allowance in this
form would have relieved over 5 million presently taxable
persons from any tax liability, would have reduced the tax
of 7 million more persons, and would have resulted "in an
annual revenue loss of only $625 million.
The Low Income
Allowance in tnis form was favorably reported in H.R. 12290
by this Committee.
The present bill contains the Low Income Allowance but
provides for the phase-out for the year 1970 only.
Thus,
tae bill completely eliminates the phase-out for 1971 and
subsequent years, resulting in an additional revenue cost of
$2.0 billion.
)rJ
- 9 The Administration recommends that the phase-out be
retained but be stretched out by application at the rate of
25 cents for each dollar of income above the poverty level.
This will extend the tax benefits provided by the Allowance to
somewhat higher brackets where they are justified, but without converting the Allowance to a minimum standard deduction
of $1,100, which is the effect of the House bill.
The Low
Income Allowance with this extended phase-out will result in
a revenue loss of $920 million in lieu of the $625 million
as originally proposed.
It will thus save some $1.7 billion
of the cos t of outright e lir
Standard Oeduction.
1ation of the phase-out.
The provisions of the House bill
increasing the standard deduction over a three-year period
from the present 10 percent, with a ceiling of $1,000, to a
level of 15 percent, with a ceiling of $2,000, should be
changed.
The increase should be limited to a level of· 12 per-
cent with a ceiling of $1,400.
This more limited extension
of the standarl leduction would still result in major simplification since some 4 million taxpayers will be able to switch
from itemizing their deductions to the standarl Jeduction.
- 10 The combined effect of the rate reduction, the Low Income
Allowance and standard deduction increase will be to reduce
taxes for some 63 million taxpayers and to remove some 6 million
persons completely from the tax rolls.
The revenue cost of the
standard deduction liberalization in this more limited form will
be $770 million as compared to $1,373 million cost of the House
bill provision.
Single Persons.
The tax burden on single persons is
disproportionately high in relation to that of married persons
who enjoy the benefits of income splitting.
However, in our
judgment the provision of the House bill extending head-ofhousehold treatment to all single persons age 35 and over is not
the best means of dealing with this inequity.
\-Jhile a test
based on maintenance of a household might have been devised,
it would have been extremely difficult to alminister where
the taxpayer had no Jependents, and in any event, the inequity
to be corrected is the disparity in_burden between single
persons, whether or not they have depenJents, and married
couples.
It seems preferable to reserve more favorable treat-
ment for individuals who both maintain households and
Support dependents, as opposed to single persons who do not,
- 11 -
but yet also narrow the tax differential between single and
married persons.
Further, the selection of age as a dividing
line for preferential treatment seems arbitrary and bears no
relationship to actual ability to pay.
Accordingly, in lieu of the provisions of the House bill,
the Administration recommends that a new rate schedule be
adoptei for single persons.
This schedule would be constructed
so that the difference between single person rates and marrieJ couple rates would be narrowed; no single person
with the same taxable income as a married couple would pay
a tax more than 20 percent greater than the tax paid by the
married couple.
The head-of-household rates would be reserved.
for persons maintaining a household for the support of depenJents, and would continue to fall approximately halfway between
the new single person rate schedule and the rates applicable
to married couples.
This proposed maximum 20 percent differ-
ential reflects a reasonable judgment of the additional costs
of living of married couples and their ability to pay as
compared to single persons.
_ 12_
The provision of the bill extending without limitation
split income treatment to surviving spouses with dependents
(rather than for only two years after the death of the spouse,
as provided by existing law) should be deleted.
A surviving
spouse will become entitled to head-of-household treatment
after the two-year period if the surviving spouse continues
to support a dependent, and there is no rational basis for
providing more favorable treatment to a surviving spouse than
to any other head of household.
The limited two-year period
following the other spouse's death is appropriate because this
is a period of transition, but ve believe the split income
benefits should npt be extended beyond this period as the
House bill provides.
The revenue cost of the lower rate schedule for single
persons and heads of households, after deleting the unlimited
extension of split income treatment for surviving spouses,
would be $445 million as compared to the $650 million cost
of the House bill provision.
- 13 -
Reporting by Low Income Taxpayers.
To simplify compliance
by millions of low income individuals, the Administration
recommends a liberalization of the filing requirements.
Under
present law (not changed by the House bill), an individual
is required to file a return if his gross income is $600 or
more, except that an individual over 65 years of age is required to file a return only if his income is $1,200 or more.
Consequently, 5 million nontaxable individuals with incomes
which exceed these levels but which are less than the amounts
exempted from tax by the Low Income Allowance would still be
required to file returns.
Since the Low Income Allowance is
built into the withholding provisions of the bill, many of
these persons will not be filing for refunds.
The filing
requirements should be raised to the new nontaxable levels.
- 14Earned Income Rate Limitation.
The Administration strongly
supports the provisions of the House bill placing a 50 percent
maximum tax rate on earned income.
This limitation will pro-
vide an important incentive to the earning of income by personal
services, both by employees and self-employed persons.
Many
of the devices for conversion of ordinary income into capital
gain, and for deferment of income, have been nurtured out of
the natural desire of persons who have reached high earned
income levels to avoid the burden of very high rates.
With
a 50 percent top marginal rate on earned income, the successful executive or professional man will be more inclined to
concentrate his efforts in the field in which he is qualified
and devote less of his attention to intricate means of minimizing the effect of high tax rates.
Particularly when coupled
with the many provisions of the bill which eliminate or curb
existing tax avoidance techniques, we think the 50 percent
ceiling rate on earned income represents a substantial improvemen t in the law.
- lS -
Gasoline Tax Deduction.
The Alministration recommends
that the personal leduction allowed for state gasoline taxes
be repealeJ.
It is appropriate to discontinue this deluction
as a part of an over-all program of rate reluctions ani
liberalization of the standard deduction.
The state tax,
like the Federal tax, is essentially a user cL1arge for highway facilities paid by those who use the highways.
As a user
charge, the existing deduction simply shifts part of the burien
of those taxpayers who itemiLe to tne general taxpayer.
other nonbusiness user charges are deluctible.
No
The proposed
repeal of the de.luction would not affect state gasoline taxes
paid for business purposes.
The revenue gain from repeal
would be $390 million, an averabe tax increase from tais
change of about $10 - $15 to taxpayers who itemize
t~eir
dejuctions.
2.
Tax Relief--Corporations
The Administration recommends a corporate
rate reduction of two points, a one-point reduction
effective in 1971 and a
full two-point reduction
effective in 1972 and thereafter.
The present corporate
- 16 rate, including the surcharge, is 52.8 percent for the calendar year 1969.
This will reduce to 49.2 percent for the
calendar year 1970 if the surcharge is extended at 5 percent
for half the year as recommended by the Administration.
The
regular 48 percent rate, which would otherwise be effective
for 1971, should be reduced to 47 percent for that year.
The
rate should be further reduced to 46 percent for 1972 and
subsequent years.
This program of continuing reduction will
provide an important offset to the provisions of the bill
withdrawing incentives to investment, such as the repeal of
the investment creJit.
This rate reduction would result in
a revenue loss of $800 million in 1971 and $1.6 billion in
1972 and thereafter.
3.
Private Foundations (Sec. 101)
Much of the property of private foundations derives
from the income, gift and estate tax deductions allowed for
contributions to their creation or support an-i from the income
tax exemption enjoyed by the organizations.
The Federal
Government thus has a vital interest in insuring that their
assets are properly applied.
The provisions of the House
- 11 -
bill dealing with private foundations will tend to insure
that their property is devoted solely to charitable purposes.
Private foundations will thus become an even more useful as a
flexible source of support for achievement of new levels of
thought and action, relieving the burdens of government.
In summary, the House bill would regulate certain activities of foundations.
Self-Jealing between a private founda-
tion and its substantial contributors would be prohibited.
FounJations would be required to distribute tne greater of
their income or 5 percent of the value of their corpus on a
relatively current basis.
where a business is controlled
by a founjation, or by a foundation and its substantial
contributors, the foundation would be required within a
lO-year period to limit or dispose of its interest unless
common control is otherwise eliminated.
These provisions
were recommended by the Administration to the Congress in
substantially the form contained in the bill.
The bill prohibits grass-roots lobbying, and it also
proscribes other activities designed to influence legislation even
t~ou~h
they represent only an insubstantial part
- 18 -
of\the foundation's activities.
Existing law with respect
to political activities would not otherwise be changed except
that activities which influence the outcome of any public
election would be significantly restricted.
Individual grants
would be prohibited unless made pursuant to an objective and
nondiscriminatory procedure.
Certain transactions with govern-
ment officials which might raise substantial
propriety would also be prohibited.
~uestions
of
We regard these rules
as necessary restrictions on foundation activity which will
not interfere with attainment of their charitable objectives.
Penalties for violations would be imposed in the form
of a graduated series of sanctions designed to compel compliance.
Foundation managers would not be penalized for any
such improper act unless carried out by them with knowledge
that it constituted a violation of these provisions.
For
example, reliance on the advice of counsel would be sufficient
defense for a manager.
The provision of the bill on this subject which
requires the most careful evaluation is the imposition
of a 7-1/2 percent tax on investment income, including
capital gains, of a private foundation.
We have
- 19 concluded that a tax designed to raise revenue from private
foundations cannot be justified once the other restrictions
imposed on them by the bill have been enacted to insure that
their funds will be used solely for charity.
That is, there
is no reason to reduce funds available for charitable activities by a tax once their tax exempt status has been justified
in the first instance.
However, the Administration considers that it is unfair
to require taxpayers in general to pay the increasing cost
of administering the audit program for these organizations
when such program is required to insure that charity receives
the full benefit of foundation resources.
Thus, the Adminis-
tration recommends an annual supervision tax of 2 percent of
private foundation investment income.
This will raise about
$25 million per year in the long-run effect (about $17 million in 1970), which approximates the estimated audit cost.
The bill also contains special provisions
grantin~
permanent exemption for two existing private foundations
from those provisions designed to prohibit foundation control
of operating businesses.
We do not believe these two founda-
tions can appropriately be distinguished from other foundations
_
~o
_
which are subject to the bill; the reasons for applying the
business holdings rule to existing foundations--an assurance
that their assets, interests, and activities are totally
committed to their charitable function--apply equally to
these two foundations.
We believe these two special exemp-
tions should be eliminated from the bill.
The bill fails to provide an exemption from the business
~oljing
requirements where an
organi~ation's
charter precludes
disposition of certain business interests, although it does
provide that these requiremen ts are suspended whi Ie efforts
are being made to secure court 1uthorization of charter amenJment.
Even if disposition of business holdings is ultimately
founj by the court to be prohibited, the sanctions of the
bill would then be applicable.
The House \Jays and Means
Committee was concerned that if a permanent exemption were
granted, the courts would tend to deny permission to amend
the instrument.
There is, however, a permanent exemption from
the income pay-out rules for those organizations which are·
required by their governing ins trumen ts to accumu la te income
and wnich find it impossible to effect a change.
It appears
that the provision pertaining to dispositions of business
- 21 holdings is too stringent and should be changed to conform
to the income pay-out rule.
4.
Other Exempt Organizations (Sec. 121)
The provisions of the bill dealing with other exempt
organizations adopt the Administration's recommendation to
extend the application of the unrelated business tax.
The
business income of churches and other exempt organizations
from commercial transactions in direct competition with taxpaying business would no longer be tax exempt.
Further,
borrowing by a tax exempt organization to purchase income
producing assets which are unrelated to the exempt functions
of the organization would be discouraged by taxing all such
debt financed income, including investment income.
This
prevents a tax exempt organization from extending its tax
shelter to a nonexempt seller through inflation of the price.
Investment income used to finance the social activities
of members of social clubs and similar groups would be taxed,
since in this situation it relieves the members of personal
expense which otherwise would be paid by them out of after
tax income.
- "22 -
Finally, rents, interest, and royalties from controlled
subsidiaries of any tax exempt
organi~ation
would be taxed.
This will prevent avoidance of the unrelated business tax
by transferring active business operations to taxable organ-
izations while siphoning off the profits from such operations
in the form of "passive" income (representing dejuctible payments to the taxable organization).
The bill also codifies previously existing Treasury
regulations defining activities such as advertising,which
will be treated as unrelated business.
On the other hand,
it eases the qualification requirements for voluntary employee
beneficiary associations which are in reality health ani welfare trusts established pursuant to collective
bargainin~
al:,reemen ts .
The Administration supports these basic
the House bill.
of
However, these provisions are only a begin-
ning step in resolving
t~e
tax problems which exist with
respect to exempt organizations.
These problems are presently
being given further intensive study.
ury
provision~
For example, the Treas-
Department is presently re-examining the requirements
for exempt status and the consequences of loss of exemption.
- 26 -
Additional recommendations in this area will be presented to
Congress as soon as they can be developed.
5.
Charitable Contributions (Sec. 201)
The bill provides in general for an increase in the
limitation on the charitable contributions deduction from
30 percent to 50 percent for gifts to churches, educational
institutions, and publicly supported 'charities, as recommended
by the Administration.
This will provide even greater incen-
tive for private support of these institutions in the United
States.
Charitable gifts of appreciated property will remain
subject to the 30 percent limit.
Since we are recommending
that appreciation in such property be removed from the Limit
on Tax Preferences and the Allocation of Deductions rules,
as hereinafter explained, we believe that the retention of
the 30 percent limit for such gifts is appropriate.
However,
in its present form in the bill, it could have an unintended
harsh result in some cases.
A significant portion of the
charitable deduction may be denied where the appreciation in
the contributed property is nominal.
This provision should
be changed so that (a) the appreciation element in charitable
gifts of property may not exceed 30 percent of adjusted gross
- 24 income, and (b) the basis of the property would be counted
against the additional 20 percent allowance.
In order to limit some of the present tax advantages of
~ifts
of appreciated property in particular cases, the bill
provides that taxpayers making such contributions under certain
specified circumstances must either: (a) limit their deduction
to the cost or other basis of the property, or (b)
take the larger deduction based on the fair market value of
the {:'roperty
and
include the appreciation in income.
This treatment is to apply to gifts of property which would
give rise to ordinary income if sold by the taxpayer, gifts
to private foundations (other than an operating foundation)
unless the property is channeled to a publicly supported
c~arity
within one year, gifts of tangible personal property,
and gifts of future in teres ts of property.
Our recommendation (discussed below) to delete the
lppreciation element from the Limit on Tax Preferences and
the Allocation of Dejuc tions provisions makes mos t of these
Limitations appropriate even though they go beyond our recomnen.Jations on Apri 1 22, 1969.
However, we recommend tha t
:his rule not be extenJej to all tangib Ie personal property
- 25 as provided in the bill.
Under other provisions of the bill
collections of papers will produce ordinary income if sold,
just as are paintings sold by the artist under existing law.
As we recommended on April 22, 1969, the bill prohibits deduction of the value of ordinary income property unless the
appreciation is included in ordinary income.
But the exten-
sion of this rule to gifts of all works of art, even though
not created by the donor, appears unduly severe.
Our finest
museums and art galleries are dependent on such gifts, and
their contribution to the good of our society is universally
acknowledged.
We see no sufficient reason to distinguish
such gifts from gifts of appreciated securities to other
charities.
The problems of valuation of tangible personal
property have been substantially resolved by changes in the
income tax form, by improved audit programs, and by the creation of a special advisory group to the Commissioner of Internal Revenue on valuation of art objects.
Moreover, these
valuation problems are not eliminated by the rule in the
bill since the donor would still be entitled to deduct the
value of the art work against ordinary income even though
the appreciation were treated as capital gain.
- 26 -
The bill provides for repeal of the unlimited charitable
deduction, the change to be phased in over five years.
This
differs somewhat from the Administration's original recommendation that the unlimited deduction be limited so that the
charitable deduction, when taken together with other itemized
deductions, could not result in reducing the taxpayer's
adjusted gross income by more than 80 percent thereof.
How-
ever, the provision in the bill is also a reasonable solution
and we support it.
The bill restricts the availability of the charitable
contribution
deductio~
where, by the use of a trust, property
interests are split between charitable and noncharitable
beneficiaries.
On reconsideration, we believe the bill is un-
duly stringent in permitting a deduction for the value of a
charitable income interest only where the income is taxable to
the grantor under other rules.
The donor should be allowed a
deduction for the value of any long-term income interest to charity
Nhich is in the form of a guaranteed annuity or a "unitrust".
Under the bill a "unitrust" is a trust in which the income
beneficiary is entitled to a return equal to a fixed percentage
::>f
the value of the assets of the trust each year, thus
-
2,] -
assuring the income beneficiary a certain return irrespective
of the investment policies of the trust.
We also recommend that the effective date of the new
estate tax provisions boverninb charitable leductions be
deferred so that the new rules will apply only to persons
dying after December 31, 1970.
amendments of wills.
This will provide time for
Moreover, the new estate tax rules
should not apply to trusts created heretofore that cannot
be amended.
6.
Farm Losses (Sees. 211, 212, 213)
Our studies have. demonstrated that large farm losses
generally represent capital expenditures which have been
Jeducted under the liberal cash methoJ of accountinE,'
The
cash method has been allowed to farmers primarily to help
small farmers, but taxpayers with large farm losses are
benerally not in this class but are wealthy investors who
obtain a tax shelter.
The bill requires that taxpayers
maintain an excess Jejuctions account (EDA) for lar6e farm
"losses."
On the later sale of farming property, any gain-·
to the extent it would otherwise be taxed as a lon&-term
- 26 capital gain--will be treated as ordinary income to the extent
of the balance in the excess deductions account.
The provi-
sion would not apply if the taxpayer used inventories and
capitalized items properly chargeable to a capital account
as part of his method of accounting for the farming operation.
In its present form, this provision of the bill applies
only to individuals with nonfarm adjusted gross income in
excess of $50,000.
Taxpayers with nonfarm income over $50,000
are permitted to exclude the first $25,000 of their farm losses
each year from the operation of the EDA provisions.
In prac-
tice, this exclusion renders the bill ineffective.
The Administration recommended this EDA treatment on
April 22, 1969, but at that time proposed that only $5,000
of losses in any year be excluded.
We believe the higher
exclusions in the bill should be modified.
We now recommend
that the EllA rules apply to any taxpayer with nonfarm adjusted
gross income in excess of $25,000 whose farm losses exceed
$15,000.
In such a case, all of the losses should be included
in the excess deductions account.
These changes will not
affect the small farmer or the person with modest nonfarm
income.
- 29 -
We estimate that as so modified the EDA rule would apply
to only 9,300 individuals, whose farm losses would aggregate
$418 million, an average farm loss per individual of $44,700.
The effect of this particular provision would not be to disallow the loss, but only to require that future gains from
the sale of cattle, race horses, orange groves, etc., raised
on the farm coulj not be reported as capital gains until they
hal offset
t~lese
losses previous ly deducted from ordinary
income.
The bill also proviJes new rules to deal with the problem
of
~1obby
losses.
Un:ler the bill, losses will be disallowed
if the activity is not carriej on with a reasonable expectation of profit.
a reasonable
The taxpayer will be presumed not to have
~xpectation
of profit if the losses from the
activity exceeJ $25,000 in three out of any five consecutive
years.
The Alministration urbes aJoption of this proposal
as an effective means of jealint, with cases W:1ere the tax
. laws are beinb used to subsiJize the
payers.
~obbies
of wealthy tax-
However) in or .ler to make it clear tha t the provis ion
is not in tenJe i to a?p ly to leC)i t ima te bus ines s opera tions ,
- 30 it is recommended that the term "profit" be specifically
defined to include not only immediate economic profit but
also any reasonably anticipated long-term increase in the
value of property.
7.
Interes t (Sec. 221)
Under the bill, the deduction for interest in excess of
$25,000 on indebtedness incurred to purchase or carry irtvestment assets is allowed only to the extent that the interest
is not in excess of investment income plus long-term capital
gains.
This provision is designed to deal with an abuse
resulting from the opportunity to deduct an unlimited amount
of interest expense, making it possible to acquire growth
potential property with borrowed funds and deduct the
interest
aga~nst
ordinary income with the anticipated gain on
dispOSition being subject to the capital gains rate.
However, the bill in fact fails to correct many of the
problems in this area.
By permitting the interest deduction
to the extent of investment income, it discriminates against
the taxpayer who has only earned income out of which to pay
- 31 his interest expense.
The abuse is the same in either case ,
though under the bill the individual with earned income, but
not a person receiving dividends or other investment income,
might lose his interest deductiono
We have been studying many alternatives to the approach
of the bill.
The only truly equitable solution would require
tracing the interest expense to the particular investment
for which the funds were borrowed.
\ve are inclined to believe,
however, that an attempt to trace investment interest to the
related investment would be aJministratively unworkable.
Other alternatives do not appear to correct any substantial
number of the actual abuses and uniformly add extraordinary
complexity.
In light of these considerations, the Alministration
recommends that the interest provision of the bill be jeleteJ,
although we shall continue to explore the problem in an effort
to develop a workable solution.
The Allocation of Deluctions
provision (referrel to below) will prevent individuals from
offsetting all of their interest deductions against ordinary
income when they have tax preferences, such as capital gains,
in the current year, and will serve as a major limitation on
the Use of interest expense as a tax shelter.
- 32 -
8.
Moving Expenses (Sec. 231)
The bill extends the deduction of employee moving expenses
to expenses of house hunting trips, temporary living quarters
at the new location and the sale or purchase of a house.
Reasonable limitations are provided.
The bill adopts the
Administration's recommendations in this regard, except that
the distance requirement of existing law is increased from
20 miles to 50 miles.
The Administration recommends that the
20-mile test be restored.
9.
Limit on Tax Preferences and Allocation of Deductions
(Sees. 301, 302)
Present law imposes no limit on the amount of. economic
income which an individual may exclude from tax through
preferential treatment contained in various provisions of
the Code.
These preferences were intended as incentives to
investment, but they contain no adequate limits on their use.
In recent years, many high bracket individual taxpayers have
used these preferences alone or in combination so as to pay
little or no tax for the support of the Federal Government.
Neither does present law prevent a taxpayer from charging
all personal deductions against taxable income even though the
presence of substantial amounts of preferential income make it
apparent that, from an economic standpoint, such nontaxable
- 33 -
income in fact bears its share of the burden of such personal
expenditures.
The bill seeks to correct these inequities through the
Limit on Tax Preferences and the Allocation of Deductions
provisions.
The Limit on Tax Preferences places an over-all
limit on the combined use of preferences; the Allocation of
Deductions rule requires that a proper portion of itemized
deductions be charged against income sheltered by tax preferences.
The House bill goes beyond the Administration's recommendations and provides that tax exempt interest on state and local
bonds is included as a preference item for the Limit on Tax
Preferences provision.
The Administration opposes this
inclusion for the same reasons we gave on April 22 -- there are
constitutional doubts as to the inclusion of tax exempt interest
and its inclusion will adversely affect the ability of hardpressed state and local governments to market their bonds.
On
the other hand, the House bill provides that tax exempt interest
will be treated as a preference for the Allocation of Deductions
rule only to the extent such interest is paid on future issues
and even then only with a lO-year phase-in rule.
In April,
We recommended that all tax exempt interest be included without
such a phase-in rule, and we renew that recommenlation at this
time.
- 34 Under the bill, the excess of percentage depletion over
cost and the intangible drilling cost deduction are not treated
as preference items under the Limit on Tax Preferences (LTP)
provision, although they are included as preferences under the
Allocation of Deductions rule.
Since making our original tax
reform proposals in April, in which both percentage depletion
and intangible drilling costs were included in the Limit on Tax
Preferences as well as the Allocation of Deductions rule, we
have studied carefully the operation of these provisions.
We
have concluded that some changes in our original proposals are
Narranted.
First, in view of the substantial reduction in percentage
iepletion contained in the bill, the inclusion of the intangible
irilling cost deduction as a tax preference item could work an
unintended hardship in the case of an individual whose prin:ipal business is exploration for oil and gas.
Accordingly,
the Administration proposes that the intangible drilling
~ost
deduction be excluded from the Limit on Tax Preferences
Jrovision, but not the Allocation of Deductions provision,
Lf at least 60 percent of the taxpayer's gross income is
:rom the sale of oil and gas.
We also recommend, however,
- 35 -
as a complement to this rule that a recapture rule be added
to the Code treating as ordinary income any gain on sale or
transfer of a well, including a transfer to a controlleJ
corporation, to the extent of intangible drilling costs
previously deducted.
For all other purposes, however, both percentage depletion and intangible drilling costs should be included in the
Limit on Tax Preferences as well as the Allocation of Deductions provision.
Thus, an investor who is not primarily
engaged in the oil business will be subject to this broader
LTP rule.
In our judgment the provisions in this form will apply
more reasonably to persons whose principal business is the
discovery of new oil and gas deposits and to whom intangible
drilling costs are more in the nature of an annual expense.
They should avoid creating any serious disincentive to
drilling.
However, even in this form the Limit on Tax
Preferences should insure that substantially all taxpayers,
including those in the oil business, will pay some reasonable amount of tax each year.
- 36 -
High bracket taxpayers will no longer be able to avoid
any substantial Federal income tax liability each year
by regularly investing their funds in successful wells.
(Dry·hole costs, of course, will not constitute preferences for any purpose.)
The provisions as recom-
mended are essential from the standpoint of fairness
in view of the various other preferences which have been
included in the LTP.
Second, it appears that the inclusion of gifts of
appreciated property to charity as a tax preference
item will reduce the benefit of the contribution and,
thus, unduly restrict public support of worthwhile educational and other public charitable institutions.
For this reason the Administration proposes that this
item be deleted from the Limit on Tax Preferences and
Allocation of Deductions provisions.
Third, further study of the excessive use of tax preferences by some taxpayers has led to the conclusion that three
additional preferences should be added both to the Limit on
Tax Preferences and Allocatio~ of Deductions provisions.
Accelerated depreciation in excess of straight-line depreciation taken on equipment and other personal property by a
- 37 lessor of the property under a net lease arrangement should
be included.
Accelerated depreciation on real property is
already treated as a preference under the bill, and accelerated
depreciation on leased personal property offers an equivalent
shelter to reduce taxes on other income.
In addition, the
excess of interest, taxes and rent over receipts (if any)
from unimproved real property during the period of construction of improvements should be included as a preference.
These amounts are part of the economic cost of the improvement
and when allowed as a deduction result in excessive tax benefits
to some high-bracket investors.
Finally, rapid amortization
of rehabilitation expenditures for low cost housing (provided
elsewhere in the bill) should be included as a preference.
This new provision could easily be used to such an extent as
to shelter all of the taxpayer's income unless some limit is
placed on its use.
The bill in certain instances allows a basis adjustment
in the amount of disallowed preferences with respect to property
when the property is later sold.
A similar adjustment should
be allowed in connection with amounts disallowed under the
Allocation of Deductions proposal to the extent ordinary income
is realized on a later sale of the property.
- 38 -
10.
Income Averaging
(Sec. 311)
The bill substantially liberalizes the income averaging
provisions.
The eligibility requirement is reduced from
133-1/3 to 120 percent of base period income, and averaging
is permitted for capital gains, income from gifts and bequests,
and wagering income.
Removal of these exceptions from present
law adds simplification, while achieving greater equity.
The
Administration strongly supports this provision.
11.
Restricted Property (Sec. 321)
During the past few years there has been a rapid growth
in the number of so-called "restricted stock plans."
Under
these plans, an employee receives stock or other property
subject to certain restrictions, such as a prohibition on
sale for a specified period.
Under existing Treasury regula-
tions, a tax is not imposed until the restrictions expire.
The compensation deemed to be realized at that time is based
in most cases upon the lower value of tae property at the
time of its previous receipt.
This combination of deferral
and capital gain treatment of appreciation during the deferral
period with respect to property received as compensation
represents an unwarranted and unintended benefit.
The Ajministration's recommendation is adoptej in the
bill.
In general, the bill provides for the imposition of
- 39 tax when the employee's rights to the property become nonforfeitable even if the property is subject to restrictions.
The tax is imposed on the then current value of the property
determined without regard to these restrictions.
Similar
treatment is proposed for property transferrel in trust.
The Administration urges adoption of this provision.
12.
Deferred Compensation (Sec. 331)
This bill provides a minimum tax on leferrej compensa-
tion payments exceeding $10,000.
This minimum tax would be
based, in effect, on the inJividual's rate of tax in the
years in which such paymen ts are ,jeeme j to have been earned.
From a conceptual standpoint, this provision modifies
in certain respects both the cash method of accounting and
the annual accounting period.
The annual accountint concept
underlies our entire tax system.
While the cash method of
accounting may not lead to perfect results in some cases,
the imperfections extend to many areas other than leferre.i
compensation.
'~ve
believe that with further stuly of this
problem in the context of the tax treatment of all deferrej
compensation,
inc1udin~
amounts paid unier both qualified
pension and profit sharing plans anj nonqualifieJ plans, a
better solution in principle can be .ievelope,l.
- 40 In addition, there are a number of problems in the
practical operation of this provision which the Treasury
Department has not solved satisfactorily.
For example, we
have been unable to Jate to develop a satisfactory definition
of the term "deferred compensation."
Further, while the bill
authorizes Treasury regulations to determine the year in
which jeferrel compensation is deemed to have been "earned,"
we are concernel about the difficulty of developing satisfac tory anJ workab Ie tes ts for this purpose.
Oeferrel compensation is only one aspect of the over-all
employee benefits problem.
UnJer present law the form of
the business or&anization materially affects the tax treatment of the contributions to retirement funds.
partners~ips
Thus many
have been inluced to convert into essentially
artificial corporations.
Recent court jecisions invalidat-
in6 re&ulations jefinin/:) "'professional corporations, II as we 11
as the present incongruity in the treatment of .jeferre-i compensation plans of "small business (Subchapter S) corporations l l (treate'i in the bill), make it essential that the
Treasury )epartment Jevelop comprehensive recommendations
Jealing with the tax consequences of all deferred compensation arrangements.
- 41We have undertaken a comprehensive study of both qualified and nonqualified plans.
Our study will be completed
and will result in recommendations to the Congress without
extended delay.
For these reasons, and because of the basic
difficulties in these provi.sions of the bill, the Administration recommends that this provision be deleted from the present
bill.
13.
Accumulation Trusts (Sees. 341, 342)
This provision of the bill adopts the Administration's
recommendation to limit the present tax ajvantage inherent
in the use of trusts waich
a:.~cumulate
income at low rates.
It proviles an unlimitel "throwback" rule which imposes an
ajjitional tax on the beneficiary at toe time a trust Jistributes
accumulated income to him.
This provision \voull apply
to all future Jistributions of trust income, includin b that
accumulate] in years commencin 6 with
l~64.
On further stuJy, we have become concernei as to the
retroactive effect of this ?rovision.
recommends
t~at
The A iministration
present law be continueJ for accumulations
_ 42_
f income in taxable years beginning before April 22,
969, and that the unlimited throwback provided by the
ill apply only to accumulations made in taxable years
eginning after that date •
.4.
Multiple Corporations (Sec. 401)
The bill adopts the Administration's recommendation
o limit a controlled group of corporations to a single
25,000 surtax exemption, one $100,000 accumulated earnings
redit, and one $25,000 limitation on the small business
.eduction of life insurance companies.
These limitations
ould be phased-in over an eight-year transition period
eginning on January 1, 1969.
This is a more liberal
ransition period than that recommended by the Administrationo
The bill also contains two special eight-year transiional rules for corporations which are affected by this
rovision.
There is a gradual increase of the dividends
eceived deduction from 85 to 100 percent for transition
~riod
dividends.
The second rule operates
with~respect
) a controlled group filing a consolidated return and
~rmits
the deduction of a gradually increasing portion
- 43 of certain pre-consolidation net operating losses arising in
the transition period.
These special transition rules intro-
duce extraordinary complexity, and we believe are not justified
in view of the phase-in rules already provided for the change.
Accordingly, we recommend that these additional special
transitional rules be eliminated.
Also, while we do not
oppose the eight-year phase-in period', a five-year phase-in
period as we originally recommended seems adequate to do
equity and would reduce the administrative complexity of the
lengthy transition involved.
15.
Corporate Securities (Sec. 411)
The bill seeks to curb tax benefits obtained by conglom-
erates and other acquisition minded companies by the substitution of an interest deduction for nondeductible dividends.
This may occur where, for example, convertible debentures or
other debt instruments having equity characteristics are used
to effect a merger or acquisition.
Under the bill, interest
in excess of $5 million incurred for acquisition purposes
would be disallowed where (i) the indebtedness is convertible
or has warrants attached, (ii) the indebtedness is subordinated,
- 44and (iii) either the debt to equity ratio of the acquiring
corporation (including affiliated corporations) exceeds 2:1,
or the projecteJ annual earnings of the acquiring corporation
are less than three times the annual interest expense of the
company.
Although the Treasury Department is presently seeking
to develop regulations which will aid in distinguishing debt
from equity in all contexts, the Administration supports
these particular statutory rules designed to deal specifically
with the merger situation.
In addition, the Administration supports those provisions of the bill which adopt the Administration's prior
recommendations.
These include some (but not all) of the
provisions of the bill dealing with installment sale treatment under Section 453 and the provisions of the bill dealing with corporate securities issued at a discount and repurchase by a corporation of its convertible securities.
16.
Stock Dividends (Sec. 421)
The distribution of common stock dividends on common
stock does not normally represent a taxable event to the
shareholder.
The shareholder Simply receives additional
shares to represent the same unchanged equity interest in
- 45 the corporation.
The Internal Revenue Code does, however,
provide for taxing a distribution of stock dividends where
the -shareholder has an election to receive either cash or
stock.
Many new sophisticated types of stock have been
developed in recent years to avoid the impact of this rule,
such as increasing and decreasing conversion ratios.
Present law does not adequately distinguish between
taxable and nontaxable stock dividends and other corporate
adjustments which have the effect of a stock dividend.
A
general provision is necessary to tax all stock dividends
which change the proportionate interest of the shareholder
in the corporation where such change is related to a cash
dividend on other outstanding shares.
Without such a provi-
sion substantial revenue losses resulting from circumvention
of existing law are anticipated.
The bill substantially adopts the recommendation
of the Administration, and we continue to support its enactment.
The bill makes it clear that an increase in a share-
holder's interest in a corporation, when related to a taxable
dividend paid to other shareholders, is to be taxed.
In addi-
tion to setting out a clear standard for the application of the
statute, the section provides needed flexibility for its administration by regulation.
- 46 17.
Foreign Tax Credit (Sees. 431, 432)
The bill deals with two separate circumstances in which
the foreign tax credit is extended under existing law beyond its
basic purpose of preventing double taxation of the same income.
The first type of case involves taxpayers, particularly
u.S. mineral companies with foreign operations, who choose the
"per-country" limitation on the credit (as opposed to the
"over-all" limitation) in order to deduct losses incurred in a
particular foreign country, such as those arising from the
favorable rules applicable with re,:;pect to oil drilling expenses,
against U. S. source income.
When operations in that country
become profitable, they are able to credit foreign taxes on the
income against the U.S. tax even though there has been no net
income over the span of years from that country and there is
no net U.S. tax against which the credit should be applied.
The taxpayer obtains a double benefit:
in the year of the loss,
he deducts the loss against U.S. source income, and in a subsequent profitable year, he claims the full foreign
~ax
credit
for the income from that country.
The bill deals with this problem by requiring a carryover
of the losses in applying the limitation on the credit in
- 47 -
subsequent years where the per-country limitation was used in
the loss year.
We support this provision and recommend that it
be extended to apply also where there has been an over-all
foreign loss under the over-all limitation.
The bill also deals with the problem of foreign taxes paid
on mineral income excess of U. S. taxes paid on such income.
The bill provides for the separate computation of the foreign
tax credit limitation with respect to mineral income in those
cases where the foreign country holds mineral rights to the
property or other conditions suggest that the high excess foreign
tax may constitute a disguised royalty payment.
The separate
computation prevents any excess credit with respect to such
income from being applied to shelter other foreign income which
nay be subject to foreign tax at an effective rate less than
the U.S. effective rate on such income.
The Administration supports, in part, the effect of this
second provision.
However, while we recognize the hidden royalty
?roblem at which the House bill is directed, we do not feel that
the bill provides an equitable solution to that problem.
On
further examination of the tax and royalty structure applicable
to the international minerals industry, we do not feel that it
- 48 is proper to characterize all foreign taxes on mineral income
in excess of u.s. taxes on such income as disguised royalties.
It is impossible to ascertain the extent to which income taxes
in any particular country are a substitute for royalties, and
in many cases the foreign country receives royalty payments
which are even greater than royalties customarily paid in the
United States.
Also, foreign countries frequently impose
income tax on nonrnineral income, as well as on mineral income,
at a rate in excess of the u.s. rate.
If, then, this separate limitation in the bill regarding
mineral income is not justified on the ground that any foreign
tax in excess of the effective u.S. tax on mineral income is
a royalty, it works unfairly for mineral companies as compared
to all other U.S. taxpayers with foreign operations.
It
completely denies mineral companies the opportunity, available
to other taxpayers, to average the excess of foreign tax over
u.s.
tax on mineral income against any excess of U.s. tax over
foreign tax on their other foreign income.
This result occurs
even though the foreign tax on the mineral income is at a
reasonable rate judged by world standards and even though such
averaging is precisely the purpose of the over-all limitation.
- 49 -
In our view, the special problem connected with
foreign mineral income which can and should be dealt with
arises from the lower effective U.S. rate on mineral
production resulting from our percentage depletion incentive.
While the bill denies percentage depletion with respect to
foreign oil and gas production, we are recommending (as
here-
inafter described) that this provisimbe deleted from the
bill.
While the over-all limitation normally allows high
foreign tax rates to be averaged with low foreign tax rates,
in our judgment this is inappropriate in the case of mineral
production income where the excess credits arise because the
foreign country does not match our percentage depletion
allowance.
We therefore recommend that excess foreign tax credits
which result from the allowance of percentage depletion by
the United States should not be available against other
foreign income.
Thus, to the extent the foreign tax in a
particular foreign country exceeds the U.S. tax on the same
foreign mlneral income, but is less than the U. S. tax
on such income computed without percentage depletion
being allowed, the excess credits could not be applied against
other foreign income.
We believe this rule will
effectively deal with the problem of percentage
depletion on foreign mineral production.
A similar rule
C(
- 50 -
now applies in the Code to Western Hemisphere Trade Corporations, which are taxed at an effective rate approximately
14 percentage points less than the usual corporate rate.
We also recognize that, even aside from not allowing
percentage depletion, foreign tax rates on mineral income
sometimes exceed the top rates generally applicable by world
tax standards to other income.*
This also, of course, results
in unusually high excess credits to be applied against other
foreign income.
This problem could be resolved on the basis
that typically the top rate on distributed income by world
standards does not exceed 60 percent.
Thus, it could be
provided that to the extent the foreign tax exceeded 60
percent of the foreign mineral income from a particular
country determined by U.S. standards without a percentage depletion allowance (this allowance having been dealt with by the
proposal previously described), excess credits could not be
used against other income. Thjs approach could be justified
on the ground that taxes in exeess of 60 percent represent
*In some cases the foreign country achieves high effective
tax rates by requiring the taxpayer to compute taxable
income on the basis of "posted prices" which are substantially in excess of arm's length prices and thus artificially
inflate taxable income for their tax purposes.
- 51 a substitute for royalties.
However, as stated above, not
all high foreign rates can be properly characterized as
royalty substitutes, and it is impossible to establish to
what extent such characterization is proper.
Since aside
from percentage depletion it is difficult to justify dealing
with high foreign taxes in the case of foreign mineral production income but not high foreign taxes imposed on other types
of income, we believe it preferable to deal with high foreign tax rates in a general context.
We plan to present
recommendations to Congress on this subject .as a part of
comprehensive proposals relating to the u.S. taxation of foreign source income which we are presently developing.
Consideration of the foreign tax credit as applied to
mineral income
poin~up
the need for clarification of the
tax status of the continental shelf.
There is no general
provision to this effect in the present bill.
The continen-
tal shelf areas of the world are being developed at an accelerated pace, and existing uncertainties as to the tax consequences could Jiscourage development of natural resources or
result in unintended tax preferences to taxpayers with
continental shelf operations.
We recommend that the tax
status of these areas be clarified by:
(1) amending the
definition of "United States" in the Code, consistent with
- 52 -
our rights and obligations under international law, to includ
the continental shelf of the United States with respect to
the exploration for natural resources; and (2) defining the
term "foreign country" as used in the Code to include the
continental shelf which pertains to the foreign country
concerned.
18.
Financial Institutions
(S~.
441, 442, and 443)
Commercial banks will be required under the bill to
compute their reserves for bad debts on the basis of actual
bad debt experience; they will no longer be entitled to the
special rule under existing law granting them an absolute
reserve of 2.4 percent of outstanding uninsured loans.
The
special bad debt deduction now allowed mutual thrift institutions is to be substantially reduced under the bill over
a 10-year transitional period; their special deduction based
on 3 percent of increases in real estate loans would be
repealed, and their alternative deduction of 60 percent of
taxable income would be reduced to 30 percent.
The allowance
of this 30 percent deduction is tied to a sliding scale permitting the full deduction to a savings and loan institution
only if at least 82 percent of its assets is invested in
residential real estate loans and certain other qualifying
items.
In the case of mutual savinbs banks, the required
level would be 72 percent.
r
- 53 To furnish protection against unusually large losses,
all financial institutions would be permitted to carry back
net operating losses for 10 years (instead of three years)
and to carry forward net operating losses for five years.
The bill also provides that gain on disposition of debt
securities of financial institutions will be treated as
ordinary gain rather than capital gain.
Net losses 'on such
securities are now allowed as ordinary losses, and the bill
seeks to provide parallel treatment for net gains.
The Administration endorses the concept that the bad
debt deduction should be based on actual loss experience,
but we also support the allowance of a special deduction to
encoura~e
investment by financial institutions in residential
real estate mortgages.
Investment by these institutions in
residential mortgages is a vital policy goal of the Administration and traditionally has been encouraged through the use
of tax incentives.
We believe that this goal will be more
effectively accomplished by extending the same incentive to
all banking institutions, not just the mutual thrift
institutions.
- 54 The investment standards applied by existing
law and the bill to savings and loan instiwtions
and mutual savings banks serve this goal imperfectly and
limit free and open competition between these institutions
and commercial banks.
Conversely, those commercial banks
which have traditionally invested in home mortgage financing will be prejudiced by the provisions of the bill which
deny their present special deduction but retain a special
deduction for the other two types of institutions with
which they compete.
Accordingly, the Administration recommends that a
special deduction, not tied to bad debt reserves, be provided for banking institutions as an incentive for investment in residential real property loans, student loans,
and certain other loans which are made pursuant to national
policy objectives.
This incentive would be provided by a
special deduction equal to a specified percentage of gross
interest income from such residential real property and
other loans, except that the deduction could not serve in
_ 55_
any year to reduce taxable income to an amount less than 60
percent of taxable income, adjusted (for purpose of this calculation only) to include the full amount of dividend income and
tax exempt interest.
The latter limitation will insure that the
incentive could not be used to reduce the effective rate of
tax on these institutions below an equitable level.
We suggest
that the special deduction be 5 percent of gross interest
income from such loans, subject to the limitation stated
above.
To prevent undue hardship on mutual savings banks and
savings and loan institutions ani to minimize the possible alverse effect of these proposeJ cl1anges on the housing market, a
five-year transition rule should be provideJ to phase in 6rajually
the increased tax burien on these institutions.
19.
Foreign Bank Deposits (Sec. 444)
The bill extends from December 31, 1972, to December 31,
1975, the expiration date of the rule of existinb law relievint
from Federal income tax certain interest paid on leposits
by U.S. banks to nonresident aliens and foreign corporations.
- 56 -
This rule applies where the interest constitutes
income not
effectively connected with the alien's or corporation's trade
or business in the United States.
This extension would also
apply to the existing relief from Federal estate tax for
deposits
such
by nonresident aliens with U.S. banks.
Because of balance of payments considerations, the
Administration recommended in April that these relief provisions not be permitted to expire at the end of 1972 but be
continued indefinitely.
We would prefer complete removal of
the expiration date so long as the balance of payments problem
exists, but the provision of the House bill extending the
provisions through 1975 seems adequate for the time being.
Under current law, interest paid by U.S. branches of
foreign banks to nonresident aliens or foreign corporations
ordinarily is not subject to U.S. income tax whether or not
the deposit is effectively connected with the depositor's U.S.
trade or business.
In the case of U.S. banks, the interest in-
come is free of tax only if the deposit is not so connected.
- 57 While the Foreign Investors Tax Act of 1966 recognized
that U.S. business-connected deposits in U.S. branches
of foreign banks should be subject to U.S. tax to the
same extent as if the deposits were made in a U.S.
bank, that Act provided that such deposits in U.S.
branches of foreign banks would not become taxable
until January 1, 1973.
We see no reason for any delay
in achieving parallel treatment, and therefore recommend
that interest paid by U.S. branches of foreign banks
be treated the same as interest paid by U.S. banks
effective for the calendar year following enactment of
the bill.
A similar problem arises with respect to
deposits in U.S. branches of foreign banks by nonresident
aliens for purposes of the estate tax liability, and
we recommend similar action.
20.
Regulated Utilities (Sec
Q
451)
Regulated public utility companies in general account
for depreciation on a straight-line basis for purposes of
the rate-making process.
Where accelerated depreciation is
taken for tax purposes, the actual Federal tax paid is lower than
- 58the tax liability which would result from the straight-line
depreciation taken for rate-making purposes.
Some regulatory
commissions permit taxpayers to "normalize" their tax for
rate-making purposes; that is, they treat as a cost the tax
which would have been imposed if straight-line depreciation
had been useJ and treat the difference bet\veen t:lis amount
ani the actual tax as a reserve for future taxes.
In
other situations the regulatory commissions require
companies to take into account in determininb the
current cost of their operations only the actual tax paid,
with the result that the tax reduction due to accelerated
depreciation is "flowed through" to the customer as a reduction
in price, thus further reducing profits and income tax revenues.
Many commissions are presently switching from normalization to flow-through, and others are even imputing the use of
accelerated depreciation where the utility in fact is using
straight-line depreciation for tax purposes.
This trend will
force utilities to switch to accelerated depreciation for tax
purposes, and the "flow through" consequences will have a double
effect in reducing tax revenues, Snce it results in a reduction
in utility gross revenues as well.
- 58the tax liability which would result from the straight-line
depreciation taken for rate-making purposes.
Some regulatory
cormnissions permit taxpayers to "normalize" their tax for
rate-making purposes; that is, they treat as a cost the tax
which would have been impose,j if straight-line depreciation
had been useJ and treat the difference between t:1is amount
ani the actual tax as a reserve for future taxes.
In
other situations the regulatory commissions require
companies to take into account in determinin6 the
current cost of their operations only the actual tax paid,
with the result that the tax reduction due to accelerated
depreciation is "flowed through" to the customer as a reduction
in price, thus further reducing profits and income tax revenues.
Many commissions are presently switching from normalization to flow-through, and others are even imputing the use of
accelerated depreciation where the utility in fact is using
straight-line depreciation for tax purposes.
This trend will
force utilities to switch to accelerated depreciation for tax
purposes, and the "flow through" consequences will have a double
effect in reducing tax revenues, STIce it results in a reduction
in utility gross revenues as well.
7(
- 59 Under the bill gas and oil pipeline, telephone, bas and
electric utility companies, and water and sewage fisposal
companies would be allowed accelerated depreciation only if
they "normalizel! the tax savinE, for rate-making purposes.
Thus they could not be required by regulatory abencies to
"flow through" their tax savings to their consumers at the
expense of Federal revenues.
An exception would be provijel
for utilities which are presently using "flow through. II
Where straight-line Jepreciation is being taken with respect
to property eonstructel or placed in service before December
31, 1969, no accelerated methoJ will be permittel.
\"Te support this provision of the bill.
It woulJ generally
IIfreeze ll the present situation, and prevent a major revenue
loss estimated as high as $1.5 billion annually, which
woulJ result if the present trenJ by rebulatory Lommissions
toward IIflow through'l were allowe.J to continue.
- 60There is one transitional problem which should be corrected.
In determining whether a utility will be allowed to use accelerated
depreciation and "flow through)"
the bill looks to the taxpayer's
latest return filed prior to July 22, 1969.
We recomrnend tha.t
a utility be granted this right if, as of July 22, 1969, the
utility had established by book entries or certain other means
that it was adopting accelerated depreciation and "flow through"~
21.
Effect of Accelerated Depreciation on Corporate Dividends
(Sec. L~52)
Under present law, a dividend is a distribution O'.Lt of
earnings and profits.
A distribution exceeding the amount of
earnings and profits is not taxed as a dividend but treated as
a return of capital.
Through the use of accelerated deprecia-
tion many companies, particularly in the utility and real estate
fields, have been able to distribute substantial amounts to
shareholders without current tax to the shareholders.
The bill adopts our recommendation made in April to
require companies to compute earnings and profits by using
- 61 only the amount of depreciation allowable under the straightline method.
22.
The Administration supports this provision.
Natural Resources (Sec. 501)
The bill puts an end to the tax benefits arising from
carved out production payments and ABC transactions by treating these as loan transactions, a result which is in accord
with their true nature.
The bill also provides recapture
rules for all hard mineral exploration costs.
The Administra-
tion endorses these provisions.
The bill reduces the percentage depletion allowance for
oil and gas from 27-1/2 percent to 20 percent and makes similar
reductions for other minerals except copper, gold, silver, iron
ore, and oil shale.
While the Administration did not recommend
these reductions, we do not oppose the decision of the House to
increase the share of the national tax burden of the mineral industry.
However, the bill also extends the cut-off point for determining percentage depletion on oil shale to include certain
non-mining processes.
We oppose this provision because it
would approximately double the effective depletion allowance
on oil shale and would constitute an important breach in the
principle that percentage depletion is to be computed on
- 62 gross income from mining, not manufacturing to any extent.
As
stated, the bill makes no reduction in the depletion rate for
oil shale while reducing nearly all other rates.
seem to provide a special incentive.
This would
If any additional incentive
is to be provided, it should be granted in terms of the research
and development objective, or at most in terms of the rate, not
the cut-off point, or by some other means.
Finally, the bill eliminates percentage depletion with
respect to foreign oil and gas production.
Our analysis of
this provision indicates, in the light of our foreign tax
credit provisions, that after a brief period it will probably
result in foreign countries increasing their effective tax
rates on income from oil and gas production to "sponge up"
-
any additional tax revenue otherwise accruing to the United
States.
Thus the denial of foreign depletion will increase
the effective U.S. rate of tax on such income, which tax the
foreign governments will then offset by increasing their rates.
The end result will be that the U. S. taxpayer will pay additional tax to those countries, but no additional tax to the
United States.
For these reasons, the elimination of percentage depletion on foreign deposits of oil and gas is unlikely to increase
- 63 -
u.
S. revenues significantly, and will merely increase the burden
of foreign taxes on U. S. businesses.
We recommend, therefore,
that this provision be deleted from the bill.
Our proposal with
respect to the foreign tax credit, previously described, adequately
deals with percentage depletion on foreign deposits by preventing
the depletion allowance on foreign mineral production from being
used to reduce U. S. tax on other income and will not induce the
foreign country to raise its tax on the American company.
23.
Capital Gains and Losses of Individuals (Sees. 511-516)
The bill repeals the alternative capital gains tax rate of
25 percent and increases the holding period for long-term capital
gains from 6 to 12 months..
It also provides that net lODb-term
capital losses are reduced by 50 percent before being available
as an offset against ordinary income.
The bill narrows the
definition of a capital asset so that the sale of letters,
papers, or memoranda by a person whose efforts created them,
or by a person for whom they were produced, will give rise to
ordinary income. The bill provides that an employer's contribution to a pension plan, when paid to the employee as part of
a lump sum distribution, is taxed as ordinary income.
- 64 Additional changes made by the bill include a provision
that life interests received by gift, bequest or inheritance,
are not accorded a tax bas is tNl1en so lJ.
UnJer the hIll, a 11
casualty gains and losses on capital assets and secti(ln )231
property are consolidated for the purposes of determining
whether they give rise to an ordinary loss or to a gain which is
consolidated with other section 1231 gains and losses.
Finally,
the bill provides that transfers of franchises will not give
rise to capital gain treatment if the transferor retains any
significant rights in connection with the transfer.
We are opposed to the complete elimination of the alternative tax and to the extension of the holding period.
These
changes in our judgment impose too great a burden on capital
investment.
The effect of the bill would be to remove a large
measure of the incentive for private capital to engage in new
and expanded business ventures.
Present capital investments
would tend to be frozen and the economy as a whole would
suffer.
We believe that the six months' holding period should
be maintained and that, in general, the alternative tax should
be retained.
- 65 However, the 25 percent ceiling rate on long-term capital
gains has been used regularly by some wealthy persons who at
the same time have minimized their ordinary income.
By this
means they have reduced their over-all effective income tax
rate well below that of other persons of comparable or lesser
ability to pay.
We recommend that a maximum limit be placed
on the extent to which the 25 percent ceiling rate can be used
in relation to the amount of ordinary income.
The inclusion of the omitted one-half of long-term capital
gains in the list of preferences contained in the Limit on
Tax Preferences (LTP) generally has no operative effect because
the purpose of that provision is only to insure that preferences
do not exceed one-half of a person's income determined without
the preferences.
Thus, for example, when a long-term capital
gain of $50,000 is realized, 50 percent or $25,000 is included
as a preference in the LTP calculation, but it has no effect on
that calculation since LTP operates only to limit tax preferences
to 50 percent of income.
However, if a taxpayer has $1 million
of capital gains which are taxed at 25 percent instead of the
- 66 65 percent top rate applicable to ordinary income under the
bill, his actual preference is 40/65 of this amount, or about
61.5 percent, instead of the 50 percent preference permitted
by LTP.
Thus, the actual preference due to the 25 percent
alternative capital gains tax rate, which may be well above
the 50 percent nominally excluded, should appropriately be
reflected in LTP.
As a means of simplifying the calculation that would be
required under LTP but at the same time achieving a comparable
result, the Administration proposes that the 25 percent alternative capital gain tax be limited in its use by any taxpayer to
long-term capital gains which do not exceed the higher of the
two following amounts:
1.
$140,000 in the case of a married person and
$85,000 in the case of a single person if their other
tax preferences do not exceed $10,000; or
2.
Four times the taxpayer's taxable income (other
than long-term capital gains) if his other preferences
do not exceed $10,000.
(If his other preferences do ex-
ceed $10,000, the allowable amount would be four times
his taxable income adjusted under the LTP and Allocation
of Deductions rules, less the amount of those other preferences.)
- 67 -
As an illustration, a married person with tax preferences of
less than $10,000 could always realize at least $140,000 of
long-term capital gains in any year and be assured of availability of the 25 percent alternative rate.
Moreover, if he
has $60,000 of taxable ordinary income from salary, dividends,
etc., he could have $240,000 of capital gains at the 25 percent
rate.
However, beyond that amount he would lose the benefit
of the alternative tax computation; in effect, to the extent
his long-term capital gains exceed such amount, 50 percent of
such amount would be added to his ordinary income and taxed
at effective rates ranging from 25 percent up to 32.5 percent
(one-half of the regular rates).
To prevent undue hardship arising from occasional realization of a large capital gain, the taxpayer would be permitted
to carryover the unused portion of his limit on the alternative tax computation for any taxable year to each of the five
succeeding years.
This will achieve a fair averaging result.
The result of this rule will be to insure that a taxpayer
who consistently realizes large capital gains in relation to
his ordinary income will not be able to use the 25 percent
ceiling tax to excess so as constantly to reduce his total
effective tax rate.
In all other respects, we support the capital gain and
loss provisions of the bill.
- 68 24.
Capital Gains Rates for Corporations (Sec. 461)
The alternative capital gains tax on corporations is in
creased from 25 to 30 percent.
provision.
The Administration supports this
Consistent with the rule we recommend for individuals,
an amount up to $50,000 of capital gains could continue to be
subject to the 25% rate, subject to the multiple corporation
provisions.
25.
Real Estate (Sec. 521)
The bill would limit accelerated depreciation on new real
estate construction (other than housing) to 150 percent declining
balance depreciation.
Two hundred percent declining balance and
sum-of-the-years digits depreciation methods would continue to
be available for new housing starts only.
The bill would deny
accelerated depreciation to real estate purchased from prior
owners, but it provides for a five-year write-off of capital
costs incurred in the rehabilitation of housing made available
for persons of low and moderate income.
The bill would amend
the present recapture provisions of the Code to deny long-term
capital gain treatment on "the sale of real estate to the extent
of all depreciation claimed in excess of straight line, eliminating
the lO-year phase-out of the recapture provisions under present
law.
~I
- 69 -
We believe these provisions represent a major advance
in the tax treatment of real estate ani are consistent with
tne national housing objectives.
We urge their approval.
He recorrnnend, however, that the special incentive for housing
shoull be restrictel to that constructel in the Unitel States
and its possessions.
Moreover, we are concernej with the
continued heavy reliance upon tax incentives as a means of
achieving our national housing goals, and believe that consideration should be given in the near future to other alditLonal methods of doing so.
26.
Cooperatives (Sec. 531)
Unler present law, cooperative organizations are permit-
tel to reJuce their taxable income by the amount of patronage
.jivilenJs Jistributed to members if 20 percent of the patrona~e
allocation is paiJ to the patron in cash.
There is no
requirement for redemption of the remaining amount in cash.
The bill requires patronage jiviJenJs to be pail in cash
over a period of no more than 15 years.
It also requires
that an aJditional 30 percent of the amount of current dividends be paid to patrons either with respect to the current
allocation or in redemption of prior allocations.
This addi-
tional 30 percent requirement is phased in over a 10-year
period.
- 70 -
The additional 30 percent requirement is complex and
creates serious aiministrative problems.
Since the lS-year
requirement assures that cooperatives will make sibnificant
current payments, we recorrunend that the aj,jitional 30 percent
pay-out rule be eliminated.
27.
Small Business Corporations--Subchapter S (Sec. S4l)
The bill proviJes limitations similar to those applicable
to partnerships with respect to contributions to retirement
plans for injiviJuals who are sit,nificant sharehol.iers of
SUbchapter S small business corporations.
The bill a,jopts
only tbis one element of our compre11ensive recommen latior.s
ir April Jealinb with the tax treatment of small business
corporations.
Our recommenJations would have rna le the tax
rules applicable to Subchapter S corpc:ations simpler an i
easier to satisfy by conformin b them more closely to the
partnership rules.
These chanbes, workei out throubh extenJ2 I
liscussions with the members of a committee of the American
Bar Association, woulj also have eliminatel several unintenlej
abuses in the Subchapter S provisions.
- 71 We recognize that the constraints of time male it
impossible for the House to ·leal with the entire Subchapter S
proposal, but we do not feel that aJditional limitations
should be placeJ on the use of Subchapter S without making
the liberalizin6 changes proposed.
It is also clear, as I
noted earlier, that treatment of deferre.l compensation anJ
qualified pension and profit-sharing plans needs over-all
revision.
Accor·lingly, we recommend that this provision be
leleted from the present bill an,l be dealt with when the
other aspects of Subchapter S and compensation plans are
dealt with in legislation.
.. 72 ..
28.
Taxati~p
of State an 1 Local Bonls (Sees. 601 ancl 602)
The bill grants states anJ localities the option of
issuing oblibations the interest on which would be taxable,
in which case the higher interest cost woulj be offset by
the Federal Government paying a percentage of the total
interest cost of the issue.
The amount of the subsidy is to
be set by the Secretary of the Treasury, in alvance, for each
calenlar quarter, anj may range between 30 ani 40 percent of
the interest yield of the issue of obligations until 1974,
and thereafter between 25 ani 40
per~ent.
The provisions of
the bill are entirely elective with the issuer:
if the
issuer chooses to issue taxable obligations, the Federal
subsiiy follows automatically, but the state or municipality
may always issue tax exempt bonIs if it prefers.
These
provisions of the bill were not eontaineJ in the Treasury's
April 22 proposals.
The Administration has been quite concerned over the
problems facing the states and localities as their iemands
for funds increase, driving the interest cost of tax exempt
obli~ations
closer to the interest cost of taxable obligations.
- 73 -
The Alministration has studiel this provision in the bill
as well as alternate means for alleviation of these problems
anJ has concluieJ that it wi 11 not recommen 1 enactment of
this provis ion.
The Admin is tra tion plans to re commen.] to
the Congress a jifferent proposal at an early jate.
The bill woulj also deny tax exempt status to so-callel
"arbitrabe bonls, 'I the specific lefinition of which is left
to the regulations.
We believe that this is in 6eneral a
proper me thad of han lling that abuse, but \ve be lieve the
scope of the term "arbi tra!:.e ob liga tion 'I shou 1-1 be lescribe j
wita some further particulari ty in the bi 11.
2~.
Income Tax Surcharge (Sec. 701)
The bill woulJ impose the income tax surchar 6 e at a
5 per..:ent rate for the first six months of calen.lar year
1970.
This temporary extension of the surcharge is essential
to control the inflationary forces now present in our economy,
anJ to provide a firm basis for future economic
~rowth.
The
Alministration strongly urges the aJoption of this proposal.
- 74 -
30.
Au tomo b i ~e an 'LQ.orrunun i ca t ~on ~ .. S e !:.V ~ c;.e s_ ~x c ~~e.. _Taxe s
(Se'2. 702)
This bill woulJ extenl ttle existinl::, rates of tile
taxes on automobiles (7 percent) anl
011
l~orrununications
e:--:.ci~e
sen,-
ices (lU percent) for one year until )ecember 31, lSr7G, ani
woull postpone sCheJule,d reJuctions in future years.
T.lese
measures \voul i contribute substantially to our effocts to
con tro 1 ttle in f la tionary force 5 now [Jre sen t in our economy .
•Je support
t~leir
a loption.
Tile bi 11 pro\' iJe 5 for repea 1
effe,_th,'e as of April i8,
lYGSI.
sitional rules similar to
t~e
was sllsnenlei in 1<;'66.
c~anoe
32.
0
f tile inves tmen t ere ii t:
It also provi,jes for tran-
rules emnloyeJ
w~en
the ere lit
The A lElinistration recommenls no
in these provisions.
RaDii 0eureciation
for Pollution (ontrol Facilities and
,
Cars (Sees. 704 ani 705)
~ailroal
The bill contains a provision for rapii s-year amortization of expenditures for certain facilities for the control
or abatement of air an.J water pollution.
The bill also bives
railroads an option to iepreciate rolling stock other than
f7
- 75 locomotives on a 7-year straight-line basis.
These provisions
of the bill are jesigne,j as a substitute for the investment
credit.
Our national concern as to problems of pollution and
environmental control should not obscure the heavy revenue
costs ($400 million annually in long-run operation) of the
pollution proposal.
The necessity for, and effectiveness of,
any such provision is doubtful.
for industrial
The overwhelming incentive
pollution control will continue to be govern-
mental anti-pollution enforcement action, or the threat thereof.
A tax relief provision in this setting is not an incentive so
much as it is a type of cost sharing, or more accurately, an
interest-free loan, to reduce the industrial cost of compliance
with enforcement action.
As recommenjel by Secretary Kennejy in his previous
appearance before this Committee in connection with the surcharbe extension le6islation in July, we urbe that as a
minimum certain corrective amenlments be maJe to this provision.
It should be ameniel to--
- 76 (1) limit the fast write-off to the portion of cost
that woull otherwise be depreciateJ over the first
15 years of the life of the facility (as now jrawn
the provision would confer a benefit
rou~hly
equiv-
alent to a 20 percent investment credit in the case
of facilities with a 50-year life--almpst three
times as liberal as the 7 percent investment credit
the write-off is designed to replace);
(2) restrict the write-off to facilities installe.i
as anti-pollution facilities in existing plants.
The fast write-off for railroa,j cars will proviJe a
substantial tax aJvantage, involving some $100 million annual
revenue loss in full operation, to a relatively small number
of profitable railroads which already have aJequate buying
power to acquire new cars.
It will be of no financial
assistance to the more Jepressej railroads.
not be an effective instrument for
dealin~
Further it will
with the special-
ized problem of seasonal shortages of general purpose freight
cars.
We are opposed to this provision.
- 77 -
07
I
Conclusion
With the changes we have recommended, we believe that
the Tax Reform Act of 1969 will provide a much more equitable
division of the tax burden and will materially strengthen the
structure of our tax system.
We shall continue to study the
provisions of the bill and present any further recoillnendations
to the Committee as they are developed.
Our objective now and
in the future will be to i.mprove the equity and effectiveness
of our tax laws.
000
[v
- 78 Table 3
Tax Under Present Law and Tax Change Under H.R. 13270 and the
Treasury Proposals Before the Senate Finance CO~TIittee
jus ted gross
ncome class
($ 000)
: Change in:Treasury chang2:
Percent change:
:Present: H• R• 13270:
before
:H.R • 13270 from:Treasury from
tax
Senate Finance: present law
present la~
..1aw tax..
( ........... $ millions
.)
.........
o-
3
1,169
765
661
-65.4(10
- 56.5%
3 -
5
3,320
-1,025
448
-30.9
-13.5
5 -
7
5,591
960
42 3
-17.2
- 7.6
7 -
10
11,79 2
-1,276
794
-10.8
-
10 -
15
18,494
-1,798
-1,155
- 9.7
- 6.2
15 -
2Cl
9,184
699
511
- 7.6
- 5.6
20 -
50
13,9.38
827
781
5.9
-
50 -
100
6,659
306
308
-
4.6
- 4.6
246
+ 4.7
+ 3.~
-4,835
- 9.4
- 6.2
100 and over
7 2 686
Total
77,884
+
363
-7,293
:e of the Secretary of the Treasury
'ice of Tax Analysis
+
September 2, 1969
6.7
5.6
-79Table 4
Present Law Tax, Tax Under H. R. 13270,
Tax Under Treasury Proposals
Before Senate Finance Committee, and P~rcent Tax Change
Married Couple with Two Dependents
Deductible Non-business Expenses of 10 Percent of Income
AGI
Present
law
tax
$ 3,000
3,500
Percent tax change
H. R. : Treasury pro-:
13270 : posals before: P. L. to :P. L. to Treastax :Senate Finance:H. R. 13270:ury proposals
°
$
70
0
0
0
0
0
°
-100.0%
-100.0%
81
-53.6
-42.1
4,000
140
5,000
290
200
253
-31.0
-12.8
7,500
687
576
616
-16.2
-10.3
10,000
1,114
958
1,012
-14.0
-9,2
12,500
1,567
1,347
1,447
-14.0
-7.6
15,000
2,062
1,846
1,951
-10.5
-5.4
17,500
2,598
2,393
2,451
-7·9
-5.6
20,000
3,100
2,968
2,9 68
-6.1
-6.1
25,000
4,412
4,170
4,170
-5.5
-5.5
$
65
$
)ffice of the Secretary of the Treasury
Office of Tax Analysis
September 4, 1969
- 80 Table 5
Present Law Tax, Tax Under H. R. 13270,
Tax Under Treasury Proposals
Before Senate Finance Committee and Percent Tax Change
Married Couple with Two Dependents
Deductible Non-business Expenses of 20 Percent of Income
AGI
Present
law
tax
$ 3,000
3,500
$
H. R. : Treasury proPercent tax change
13270 : posal before
P. L. FO :P.L. to Treastax :Senate Finance :H. R. 13270:ury proposals
o
o
o
56
o
o
$
$
o
o
-100.0%
-100.0%
81
-42.0
-27.7
4,000
112
5,000
230
200
214
-13.0
-7.0
7,500
552
516
516
-6.5
-6.5
10,000
924
868
868
-6.1
-6.1
12,500
1,304
1,228
1,228
-5.8
15,000
1,732
1,636
1,636
-5.5
-5.5
17,500
2,172
2,056
2,05:)
- 5.3
-5.3
20,000
2,660
2,508
2,508
-5.7
-5.7
25,000
3,708
3,492
3,492
-5.8
-5.8
Office of the Secretary of the Treasury
Office of Tax Analysis
September
4,
1969
- 81 6-
Table
Long Run Revenue Effects of H.R. 13270 as Passed by the House
and Proposed Treasury Changes by Major Provisions
LOIlg-Run Revenue Effects
Current
House
Treasury
Bill
: Proposal
( ...... $ Illillions ...... )
Reform provisions
Ipd ividuals
Contributions
Farm losses •......•........................
Accum-.\lation trusts •......................•
Deferred compensation •..•.................•
Capital gains ••.............•.....•.....•.•
Natural resources •................•.•......
Interest deductions •..............•.......•
LTP .•......•.................•.............
Allocation ••.................•.......•.....
Real estate •............•......•....•......
Tax-free dividends •....•............•....•.
Gasoline tax de0.uction .•...................•
Total •.................•... , ............•
20
20
70
25
635
70
20
85
460
330
425
70
1,815
1,975
Corporations
Foundations
Unrelated business income ................. .
Multiple corporations ....................••
Financial institutions ........... , .......••
Natural resources ....................•....•
Fore ign income ...........................•.
Regulated utili t~es ....................... .
Real estate •..........................•...•
Disal10weq interest •.•.. , .•................
Capital gains rate •..•...............•....•
Total ........... , " " .............•••....
100
20
235
460
530
65
310
1,005
70
175
2,970
25
20
235
410
530
50
31U
1,005
70
175
2,830
Tax relief provisions
Individuals
Low income allowance ......................•
Elirnina te phaseout ........................ .
Increase standard deduction ............... .
Maximum tax on earned income .............•.
nead of household treatment •...............
Reduce tax rates .......................... .
Moving expenses ...........................•
Income averaging ., ....................... .
Total ...... " " .... " .. " .. " .. " ....... .
-625
-2,027
-1,373
-100
-650
-4,498
-100
-300
-9,673
20
50
70
60
!"80
330
80
80
...-li£
~-----
Corporations
Rate reduction
-'(,340
-1,600
-8,9 40
Total ........... , .. " ...............•..•.
Tax incentive provisions
Pollution control amortization (Corporation).,
Rail freight car amortization (Corporation) .•.
Real estate rehabilitation (Individual) •••.•.
Real estate rehabilitation (Corporation) ••••.
Total •............ , ..•............•......•.
-920
-770
-100
-445
-4,70';
-100
-300
-180
-400
-100
-70
-260
-70
-260
-B30
-m
Other proviSions
Repeal investment credit
Individuals •....... , ..... , .......•.........
Corporations •..........•................•..
Total •........... " ..•...................
600
2,700
3,300
600
2,700
3,300
Grand total ••..... " ....•. " ., ...............••
Individuals •...........•...•....•........•.•.
Corporations •........•.......................
-2,418
-7,328
4,910
-1,3 45
-4,835
3,490
(,ffice of the Secretary of the Treasury,Office of Tax Analysis
September 2, 1969
STATEMENT BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS,
BEFORE THE SENATE FINANCE COMMITTEE
ON WEDNESDAY, SEPTEMBER 3, 1969, AT 10 AM
Mr. Chairman, Members of the Committee:
I appreciate the opportunity to appear before this
Committee to urge your approval of H.R. 12829 extending
for a further period (through March 31, 1971) the Interest
Equalization Tax.
This Bill follows a recommendation of the President
in his April 4 statement on the balance of payments.
As the President made clear at that time, this
Administration aims to relax and dismantle as soon as
possible the various selective controls over capital exports.
But he also indicated that this must be done with prudent
concern for the realities of our balance-of-payments situation.
Consequently, while he reduced the rate of the tax
he found it necessary to request the extension of the legislation.
This tax does not in any way reduce the necessity to
pursue the fundamental measures needed to correct the underlying causes of the balance-of-payments problem.
Most import-
antly we must eliminate the overheating and inflationary
pressures that have characterized the economy in recent years.
K-189
- 2 -
However, this approach requires time.
In the interim, we
need the balance-of-payments protection afforded by the
Interest Equalization Tax.
There is no denying that our balance-of-payments
position continues to be a subject of concern.
The source of this concern is the disappearance of
our large trade surplus.
From an annual average of $5
billion in the early 1960's this surplus has rapidly evaporated.
Consequently, our total current-account position
(including net investment income, other service transactions
and transfers, as well as trade) has shown a large deterioration.
Even excluding military expenditures abroad--inflated
since 1965 by the Vietnam conflict--our current-account
surplu~
which averaged around $5.7 billion per year in the
early 1960's, is now running somewhat under $3.5 billion per
year, notwithstanding the growth in investment income.
While we look forward to a reversal of this trend and an
improvement in our current account position, this is not
a short-term process.
Fortunately, our over-all payments position has been
supported by capital inflows.
Permitting the lET to lapse--
with a consequent increase in capital outflows--would hurt
our position on capital account at a time of deterioration
in our current account.
sure on our reserves.
This could result in increased pres-
- 3 -
The lET has substantially supported our payments
situation since its inception.
In addition, this tax has
played a significant reinforcing role in connection with
the other two capital restraint programs covering (l) loans
to foreigners by
u.s.
financial institutions; and (2) direct
investment outflows of U.S.-source funds.
The design of each
of these programs was such that their effectiveness and
their administration would be facilitated by the lET.
There is ample evidence of the continued need for this
tax measure.
1. Lower interest costs for bond issues by foreign
borrowers in the U.S. capital market, as compared
with alternative sources, is larqely what prompted this
measure in the first place.
These differentially
lower U.S. rates persist today.
~This
fact may come as a surprise to those who
cite the u.S. bank "prime rate" of 8.5% and read
about Eurodollar borrowings at 10% to 11%.
However,
comparison of rates on long-term bonds shows that
even though the differential between borrowing costs,
here and abroad, did narrow this spring, it continues
to be cheaper, apart from the lET, for foreigners to
borrow in the U.S.
- 4 -
2. Countries and institutions exempt from the lET-which can choose between the U.s. and foreign
markets--have continued to place an increasing amount
of issues in the U.s.
3. The foreign direct investment program has encouraged
borrowings overseas by U.S. companies as a means of
financing
investment abroad, thereby reducing the
balance-of-payments impact on the U.s.
Many of
these issues have had especially attractive features.
The lET has deterred U.s. residents from purchasing
these securities--purchases which would negate the
benefit of the direct investment program.
The very
substantial volume of these attractive issues now
outstanding would certainly occasion an intolerable
outflow of capital from U.s. residents if the tax
were to lapse now.
Supported by this clear evidence of its effectiveness
and the continued need dictated by our payments position,
the proposed extension of the lET is the minimum insurance
necessary to guard against the risk of potentially large
portfolio outflows.
Secretary Kennedy has recently written to Senator
Javits, relating this request for extension of the Interest
Equalization Tax to our balance-of-payments policy and to
-
5 -
President Nixon's April 4 statement.
The occasion was a
letter from the Senator which emphasizes the desirability
of dismantling our direct balance-of-payments controls
as soon as possible and asks for the Secretary's views.
The Secretary replied:
On April 4, 1969, President Nixon purposefully
began just exactly this type of process consistent
with our balance of payments position. At that
time he announced a relaxation of the capital restrictions on foreign direct investment and lending abroad
by bank and non-bank financial institutions.
In
addition, he pledged that "we shall find our solutions
(to our economic problems) in the framework of freer
trade and payments".
The President also pointed out that "The distortions created by more than three years of inflation
cannot be corrected overnight. Nor can the dislocations
resulting from a decade of balance-of-payments deficits
be corrected in a short time." It was aqainst the background of these actions, this pledge and an appreciation
of the time it takes to restore balance to the economy
that the President announced his intention to seek an
extension of the Interest Equalization Tax. The extension legislation now before the Senate has a new provision which would provide to the President the
authority to have a lower tax rate on new issues from
that which would pertain to outstanding securities.
The purpose of this provision is to provide that degree
of flexibility which could be useful in reducing the
reliance upon this tax as a selective restraint in our
overall balance-of-payments program. For example, if
this authority is employed, a low or no tax on new
issues could permit greater access to our markets
for new projects without according this benefit to
outstanding issues.
The willingness of this Administration to vary the
lET tax rate so that it will be as low as possible
consistent with monetary stability was demonstrated
first on April 4 when President Nixon reduced the lET
rate from approximately one-and-one-quarter percent p.a.
to three-quarters percent p.a. on debt securities.
It
- 6 -
is my intention to recommend to the President further
use of this authority as circumstances permit, and in
this regard I will be specially mindful of the opportunity to employ the additional flexibility we are now
seeking from Congress which hopefully will advance
the time when our reliance upon this tax can disappear.
It is also my intention to recommend as soon as
possible in the light of balance-of-payments developments, additional steps in the gradual relaxation of
the capital restrictions imposed under the foreign
direct investment program.
I would emphasize the fundamental fact that our
efforts to further reduce reliance upon selective restraints will be greatly facilitated by the evident
effectiveness of our program of general restraints in
reducing inflation, restoring better balance to our
economy, and creating the conditions that make it possible
to rebuild our trade position. As inflation is so
much the cause of our international payments problem,
it is vital that we pursue the fiscal-monetary restraint
which will foster our balanced growth.
I am providing for the record, as an annex to this
statement, an up-dated summary of the main statistics relating
to this subject.
(~
(Annex)
STATISTICS RELATING TO REQUEST FOR
EXTENSION OF THE INTEREST EQUALIZATION TAX
Interest Rates
rates on
While the gap between long-term interest
U.s. and foreign capital markets has narrowed in
recent years, a significant differential favoring an
outflow of U.S. long-term loan capital still remains.
The data below summarize the situation during recent
months and during the same months two years ago for U.S.
and foreign corporate issues.
yields on Outstanding Bonds in Domestic Market
and on International Strai ht
Abroad
Average 0
-mont
U.S. corporate bonds (domestic)
Dollar issues abroad by:
U.s. companies
Foreign companies
Margin by which foreign
yield exceeds U.s. yield:
U.s. companies
Foreign companies
May-July
May-July
1969
1967
7.16
5.66
7.47
7.58
6.40
6.67
.31
.42
.74
1.01
On long-term government issues, the differential also continues to be significant in the case of many major countries,
as the following table shows:
( 6(
(Annex)
- 2 -
Yields on u.s. Govern~nt and Various Foreign
Government Long-Term Bonds, June, 1969
(Percent per annum)
Yield
Western Europe (average)
BelqiWll
Denmark
France
Germany
Italy
Netherlands
Sweden
Switzerland
United Kingdom
Differential over
U. S. Bond Yield
6.95
.89
.12
-3.40
5.94
9.46
6.37
6.50 (May)
6.00
6.83
6.82 (May)
4.58 (May)
9.46
.31
·65 (May)
- .06
.77
·97 (May)
-1.27 (May)
3.40
7.68
5.87
5.55
1.62
- .19
- .51
Other developed countries
Canada
Australia
New Zealand
U. S. Treasury Bonds
New Issues
6.06
New issues in the U.
s.
by countries subject to
the tax have virtually disappeared in recent years, whereas
issues here by tax exempt countries have increased.
I uV'
(Annex)
- 3 -
New Issues of Foreign Securities Purchased
by u.S. Residents, 1962 through Mid 1969
<millions of dollars)
1962 and
1st Half
1963
al New Issues
Annual Rate
2nd Half
1963 through
1966
1967
and
1968
1,384
1,065
1,639
ountries subj. to lET
466
89
8
:ountries exempt from lET
(incl. intl1 instit.)
919
976
1,631
711
88
64
56
690
96
115
75
of which:
Canada
Latin America
Other Countries
Intl1 Instit.
~he
1st Half
1969
(est.)
1,494
1,494
977
142)
194)
318)
1,028
466
decline in new issues in the u.s. by countries
subject to the tax has been accompanied by an increase in
their international issues abroad, according to the following
estimates compiled by Morgan Guaranty Trust Company.
Estimated New Issues of Foreign Securities Sold
Outside North America 1962 Through Mid 1969
(millions of u.S. dollars)
1962 and
1st half
1963
Annual Rate
2nd
half 1963
1967 and
through 1966
1968
1st half
1969
(est.)
Ireign Borrowers, total
393
928
2,116
3,0;)2
Western Europe
247
559
948
1,498
33
81
97
240
123
366
Japan
Canada
Other COUntries
68
140
511
412
Int'l Instit ' 1,
(incl. minor unallocated)
45
148
437
486
1 ')
6
(Annex)
- 4 -
Outstanding Issues
The tax has also discouraged
u.s.
pur-
chases of outstanding foreign securities from foreiqners.
In
the three and a half years preceding the announc.-ent of the
tax in mid-1963,
u.s.
residents were net purchasers of
foreign outstanding issues at an annual rate of about $270
million mostly from foreigners in countries later subject to
the tax.
For several years following announcement of the tax
u.s.
residents were net sellers of foreign outstanding i •• u•••
Since 1967, however, U.S. residents have again be~ net
purchasers of outstanding foreign securities, as the following table shows.
Net Transactions in outstanding Foreign
Securities by u.S. Residents, 1960-68
(millions of dollars: - means net sales)
1960------------------------------------1961--------------------------------- - ------------1962------------------------------- -- --------------1963 1st half annual rate----------:-:::::::::::::::::
-$309
- 387
96
- 302
Average annual rate, 1960 to June 1963-----------
- 274
1963 2d half annual rate-----------------------------1964----------------------------------1965-----------~----------1966-------------------------------------------------1967------------------------1968------:::----------------------------------------196
----------------------------------------9 1st half annual rate-----------------------------
204
194
- 116
- 102
- 414
Average annual rate, July 1963 - June 1969-------
70
---------------------
225
323
I~
(Annex)
- 5 -
lET Collections
shown below.
Collections under the IET legislation are
The bulk of the collections results from U.S.
purchases of outstanding stocks.
Tax Collections Under the IET
(millions of dollars)
1st
half
1964
1965
1966
1967
1968
1969
8.0
20.7
25.3
40.4
91.7
71.2
TREASURY DEPARTMENT
,
WASHINGTON. D.C.
September 3, 1969
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
$2,800,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing September 11, 1969, in the amount of
$2,800,296,000,
as follows:
9l-day bills (to maturity date) to be issued September 11, 196~,
in the amount of $1,600,000,000,
or thereabouts, representin~ an
additional amount of bills dated
June 12, 1969,
and to
mature December 11, 1969, originally issued in the amount of
$1,300,610,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,200,000,000,
dated September 11, 1969,
and to mature
or thereabouts, to be
March 12, 1970.
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 SI,OOO,
$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, September 8, 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 therefor.
Banking institutions generally may submit tenders fot:' 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
K-190
responsible and recognized dealers in investment securities. Tenderl
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 incorporatedb~
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public &m~
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 Secn! 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 ect to these reservations, noncompetitive tenderl
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues,
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on September 11, 1969
cash or other immediately available funds or in a like face amount
of Treasury bills maturing September 11, 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.
1
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 thi
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 0oO~ranch.
(6 f
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
AIlpllt 31, 1969
(Dollor omounts in millions - rounded ond will not necessarily add to totols)
DESC R I F'T ION
RED
es A-1935 thru D-1941
es F and G-1941 thru 1952
es J and K-1952 thru 1957
AMOUNT ISSUEOY
AMOUNT
REDEEMEDY
5,003
29,521
3,7Sh
4,996
29,48)
),722
1,8~
AMOUNT
OUTSTANDINGY
7
% OUTSTANDING
OF AMOU NT IS5U ED
.14
32
.13
.85
217
94h
1,48h
1,825
1,605
906
1,014
1,138
11.52
11.)5
1l.09
1l.69
13.08
16.28
19.20
20.83
5,397
4,718
4,081
4,276
4,88)
4,977
5,185
5,008
4,715
4,598
4,308
4,316
4,370
b,212
4,697
4,)80
4,477
4,819
4,770
h,SU
1,682
1,667
7,3n
1l,892
13,785
10,663
4,660
4,269
4,326
4,189
3,609
3,125
3,248
3,62h
3,623
3,717
3,Sh5
3,273
3,061
2,797
2,690
2,561
2,383
2,485
2,430
2,3h9
2,336
2,176
1,730
287
756
1,077
-321
163,100
118,949
1&4,151
27.fJ7
5,485
1,129
3,422
1,759
2,062
5,310
37.59
15.33
12,614
5,182
7,432
58.92
115,713
124,131
Sl,S83
29.36
38,217
175,713
213,991
)6,202
124,131
162,332
76
Sl,583
51,659
.20
29.36
)8
lURED
',es EJI :
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
l!l60
1961
1962
1963
1964
1965
1966
1967
1968
1969
8,.315
13,376
15,610
12,268
5,S66
5,282
5,4~
Unclassified
Total Series E
ies H (1952 thru May, 1959) 11
H (June, 1959 thru 1969)
Total Series H
Total Series E and H
{ Total matured
Series
~a
accrued
Total unmatured
Grand Total
1,2C17
1,109
956
1,028
1,259·
1,3Sk
1,468
1,h64
1,442
1,536
1,510
1,627
~809
1,829
2,213
2,149
2,128
2,483
2,593
2,782
1,395
discount~
t redE'mptinn value.
Ion of owner bonds mey b8 held and will earn Interest for additional periods efter ori~inal maturity detes.
TREASURY DEPARTMENT - Bureau of the Public Debt
22.36
23.51
23.43
~.04
25.78
27.21
28.31
29.23
30.58
33.41
35.05
37.70
41.40
43.42
47.12
46.92
47.53
51.53
Sla.36
61.61
82.94
-
24.14
rREASURY DEPARTMENT
,
WASHINGTON. D.C.
September 8, 1969
FOR IMMEDIATE RELEASE
DECISION MADE ON FROZEN COD FILLETS FROM
CANADA UNDER ANTIDUMPTING ACT
The Treasury Department today announced that
a determination has been made that frozen cod fillets
from Eastern Canadian provinces are not being, nor
likely to be, sold at less than fair value within
the meaning of the Antidumping Act, 1921, as
amended (19 U.S.C. 160 et seq.).
The complainant submitted a written request
for an opportunity to present views in person in
opposition to the tentative determination. The
opportunity was afforded to the complainant, and all
interested parties of record were notified.
During the period January 1, 1967, through May 31,
1968, frozen cod fillets valued at approximately
$9,000,000 were imported from Eastern Canadian provinces.
000
K-191
/6 J-It
REASURY DEPARTMENT
;
WASHINGTON, D.C.
RELEASE 6: 30 P. M.,
ay, September 8, 1969.
RESULTS OF TREASURY' S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders f~r tw~ series ~f Treasury
s , one series to be an additional issue of the bills dated June 12, 1969, and the
r series to be dated September 11, 1969, which were ~ffered ~n September 3, 1969.
C)pened at the Federal Reserve Bank.s today. Tenders were invited f"lr $1.6')0.0'10.00'],
,hereabouts, of 91· day bills and f~r $1,200,000,000, or thereabouts of 182-day bills
details of the two series are as f~llows:
,E OF ACCEPTED
'ETITIVE BIDS:
High
Low
Average
91-day Treasury Bills
maturing December II! 1969
Appr:)x. Equiv.
Annual Rate
Price
7.121%
98.200 ~/
98.176
7.216~
98.184
1/
7.184~
182-day Treasury Bills
maturin~ March 12, 197"')
Appr'Jx Equi.v.
Annual Rate
Price
96.268
7.382~
£/
7. 437tf,
96.240
1/
96.255
7.408~
~/ Excepting 4 tenders t~taling $17,000; £!Excepting 6 tenders t:;taUng $23. 0')C)
73rf,
of the amount of 91-day bilJ s bid for at the low price was accepted
f~r at the 1:JW price was accepted
810 C)f the amc>unt of 182 day bills bid
11 TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
.strict
)sbn
!w YC)rk
li lade Iphia
_eve land
~chmond
~lanta
licsgo
~. LC)uis
Lnnespolis
mass City
lllas
In Francisco
'roTALS
AcceEted
AEElied Felr
$ 36,884,000 $ 26,884,000
1,862,623,000
986,573,000
27,627,000
42,627,000
50,355,000
50,355,000
27,748,000
18,248,000
53,643,000
46,082,000
208,811,000
202,911,000
43,757,000
49,338,000
24,787,000
17,087,000
41,888,000
41,488,000
29,118,000
21,118,000
117 1 969 1 000
141 1 °49 1 °°0
AppUed F~r
Accepted
$
6,559,000 $
6, 559,060
1,597,373,000
863,781,000
22,324,000
12,324,000
44,104,000
39, lCl4, 'JOO
10,916,000
8,416,000
33,326,000
23,262,000
147,172,000
102,251,000
45,582,000
31,422,000
18,770,000
11, 770,000
22,816,000
22,816,000
23,304,000
12.804,000
110,827,000
65,727,000
$2,568,871,000 $J.,600,099,000E./
$2,083,073,000
$1, 200, 236, OOOd/
lcludes $410,857,000 noncompetitive tenders accepted at the average price ~f 9S.184
1cludes $212,863,000 noncompetitive tenders accepted at the average price ~f 96.255
rese rates are on a bank. discount basis. The equivalent c~upon issue yieJds are
. 42~ tor the 91 day bills, and 7. soj for the ] 82-day bills.
REASURY DEPARTMENT
,
=
WASHINGTON, D.C.
September 10, 1969
'OR
IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
or two series of Treasury bills to the aggregate amount of
3,000,000,000, or thereabouts, for cash and in exchange for
reasury bills maturing September 18, 1969, in the amount of
3,003,546,000,
as follows:
91-day bills (to maturity date) to
n the amount of $1,800,000,000,
or
dditional amount of bills dated June
ature December 18,1969, originally
1,100,761,000,
the additional and
reely interchangeable.
be issued September 18, 1969,
thereabouts, representing an
19, 1969,
and to
issued in the amount of
original bills to be
l82-day bills, for $1,200,000,000,
.ated Septemher 18, 1969,
and to mature
or thereabouts, to be
March 19, 1970 •
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
maturity value).
Tenders will be received at Federal Reserve Banks and Branches
p to the closing hour, one-thirty p.m., Eastern Daylight Saving
ime, Monday, September 15, 1969.
Tenders will not be
eceived at the Treasury Department, Washington. Each tender must
e for an even multiple of $1,000, and in the case of competitive
enders the price offered must be expressed on the basis of 100,
ith not more than three dec"imals, e. g., 99.925. Fractions may not
e used. It is urged that tenders be made on the printed forms and
orwarded in the special envelopes which will be supplied by Federal
eserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
ustomers provided the names of the customers are set forth in such
enders. Others than banking institutions will not be permitted to
~bmit tenders except for their own account. Tenders will be received
lthout deposit from incorporated banks and trust companies and from
K-192
FOR RELEASE ON DELIVERY
STATEMENT BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE SUBCOMMITTEE ON FINANCIAL
INSTITUTIONS OF THE SENATE COMMITTEE ON
BANKING AND CURRENCY ON S. 2577 and S. 2499
ON WEDNESDAY, SEPTEMBER 10, 1969
AT 10:00 A. M. (EDT)
Mr. Chairman:
I am pleased to have this opportunity to present the
views of the Administration on S. 2577 and S. 2499.
With your
permission, I will comment briefly on the various sections of
these two bills.
But before these detailed comments, I would
like to emphasize three general points.
First, the Administration sent to Congress on August 25
a bill which would accomplish precisely the purposes of
section 1 of S. 2577; namely, the extension for an additional
year of the present temporary authority under which the Federal
Reserve Board, the Federal Deposit Insurance Corporation, and
the Federal Home Loan Bank Board have regulated maximum rates
payable on deposits as a means of restraining potentially
destabilizing competition for these deposits.
This authority
was first granted by the Congress during the period of the
1966 "credit crunch."
K-193
- 2 -
Whatever action may be taken with regard to the other porti~
of S. 2577, I am sure the Committee appreciates the importance
of extending for the period immediately ahead the authority
of the various regulatory agencies to set maximum rates payable
on deposits.
Therefore, I hope that discussion of the other
proposals will not delay action in one form or another on this
provision.
Without such action, the present temporary
authori~
will expire on September 21, just eleven days from now.
Second, the Administration is currently engaged in a
thorough-going internal study of the full range of questions
raised by the setting of ceiling rates on deposits of financial
institutions.
Until the results of this study are available as
a basis for our recommendations, the Administration would prefer
to avoid permanent legislation on several of the matters dealt
with in the bills before you.
My third general point is to urge a sense of perspective
in appraising the contribution that the various devices
incorporated in these bills might properly make toward easing
the flow of mortgage money and supporting the goal of sustaining the level of homebuilding.
In greater or lesser degree,
- 3 -
most of the provisions of these bills would step away from the
allocation of available capital through competitive market
processes.
In particular circumstances -- and I would
certainly count the present among them -- we must recognize
that unrestrained competition could become destructive,
threatening the liquidity and solvency of established
depository and thrift institutions.
The net result would be
to impair their ability to maintain an orderly flow of funds
into mortgages, or, indeed, into other worthy uses.
However,
the need to rely on regulation of deposit interest rates
to ease the pressures on financial institutions during a
difficult period of market adjustment -- and thus help preserve
short-run financial stability -- should not blind us to the
limitations of this kind of action as a positive instrument of
policy.
Interest rate ceilings cannot, for instance, overcome the
process of so-called disintermediation, whereby depositors
withdraw their funds and place them in more attractive investments
available in the open market.
The pressures of disintermedi-
ation have fortunately been less severe thus far in 1969 than
in 1966, partly because interest sensitive funds probably never
returned to the savings and loan associations in substantial
- 4 volume.
Nevertheless, there is ample evidence of a growing
awareness among the American people of the high returns
\
available on many types of market instruments.
There has, to
take one example, been a sharp rise in small investor subscript ions to Treasury issues, and this kind of interest is
also reflected in small investor purchases of Federal agenq
issues.
Indeed, as the supply of agency issues is vastly
increased, in large part reflecting direct support for
mortgages, the added pressures on the market threaten even more
disintermediation.
We must also guard against the danger that
in attempting to shelter thrift institutions from excessive
competition in the short run, interest rate ceilings long out
of touch with the market can simply erode the long-term
competitive position of the very institutions we count upon as
reliable suppliers of mortgage credit.
The Administration fully shares the concern that, in the
present inflationary environment, a disproportionate burden of
adjustment threatens to fallon housing.
For this reason, we
have taken a number of specific steps to help support home
construction.
Operating directly to maintain a flow of money
into housing, the Home Loan Banks have very substantially
//1
- 5 -
stepped up the volume of their advances to member savings and
loan associations.
In fact, total Home Loan Bank borrowings
have increased by over $1-1/2 billion since June 30.
Making
use of the larger borrowing authority provided by the Secretary
of Housing and Urban Development, the Federal National Mortgage
Association is now making new commitments on 1 - 4 family
housing at a rate of $145 million a week.
If multi-family
housing is added, that institution is underwriting over $10
billion, or about three-fourths of the entire volume of FHA
and VA mortgages originated -- a far higher proportion than
would be appropriate in more normal circumstances.
Just last
week, President Nixon announced a sharp cutback in Federal
construction projects, which should help relieve pressures on
construction resources.
Finally, we have proposed in the tax
reform bill a special tax credit that we believe can help
stimulate institutional home mortgage lending and other socially
desirable types of lending over the longer run.
These measures are intended to provide strong support for
the flow of mortgage credit, and thus help to cushion the
effects of tight money on home building.
But I must
emphasize that the basic problem is one of excessive total
demands for credit, and there are strict limitations on what
- 6 -
can be accomplished simply by trying to divert a limited
amount of funds from one use to another.
The fundamental
corrective, for the home buyer -- as for the hard pressed
state and local governments, the small businessman and
others
must be to restore the economy to a noninflationary
growth pattern as promptly as possible.
This means that we
must continue with fiscal and monetary policies, oriented
toward restraint, and to the extent resources are shifted
into the housing area, the implication is that restraint in
other sectors of the market must be even more intense.
Section 1
Turning to the specific sections of 5.2577, I have
already indicated the Administration's strong endorsement of
the intent of section 1, the extension for one year of the
temporary authority to regulate maximum rates of interest
payable on various classes of deposits.
The Administration's
own bill would achieve this purpose simply by extending the
expiration date of the existing legislation.
Either
formulati~
would permit the regulatory authorities to avert the risk that
such excessive competition would damage the willingness and
ability of thrift institutions to provide funds to the mortgage
market, while preserving the possibility of placing interest
- 7 rate ceilings on a standby basis as the present need passes
and market forces can be permitted fuller sway.
The other
members of the panel will be able to comment in greater detail
on the competitive position of the institutions they supervise
and the consequences of a failure to extend the current
legislation.
Section 2
Section 2 would extend the authority to establish deposit
rate ceilings to noninsured institutions.
The Administration
will be reexamining the broader implications of such a provision
in the context of its study of rate regulation but we would
meanwhile have no objection to the proposed authority on a
temporary basis.
Sections 3 and 4
Sections 3 and 4 of S.2577 would (1) amend the statutory
formula governing the rates which the Treasury may charge in
advancing funds to the Home Loan Banks, (2) include a sense
of Congress provision on the use of this authority, and (3) repeal
the statutory provisions under which borrowing by the Home Loan
Banks is subject to the approval of the Secretary of the Treasury.
- 8 The General Counsel of the Treasury in 1953 interpreted
the present language of section ll(i) of the Federal Home
Loan Bank Act as granting the Secretary sufficient flexibilitv
to charge a rate on advances to the Federal Home Loan Banks
equivalent to the market yield on comparable maturities of
Treasury issues.
Consequently, we do not feel the present Act
is inconsistent with the intent of S. 2577 to utilize market
yields rather than coupon rates as the appropriate
standa~.
By the same token, we would have no objection to further
clarifying this standard by enactment of this provision of
section 3.
As a technical matter, however, we would prefer tha
the reference be to the average market yield during the precedi
month rather than to the yield as of the last day of the month
which may be affected by transitory events and not be fully
representative of current Treasury borrowing costs.
We would
propose, therefore, the following substitute language.
"Each purchase of obligations by the Secretary
of the Treasury under this subsection shall be upon
terms and conditions as shall be determined by the
Secretary of the Treasury and shall bear such rate
of interest as may be determined by the Secretary
of the Treasury taking into consideration the current
average market yield for the month preceding the
month of such purchase on outstanding marketable
l
- 9 obligations of the United States with maturitie.
comparable to the maturities of the obligations
purchased."
The proposed "sense of Congress" provision reads as
follows:
"It is the sense of Congress that the authority
provided in this subsection be used by the Secretary
of the Treasury, when alternative means cannot
effectively be employed, to permit members of the
Home Loan Bank System to continue to supply reasonable
amounts of funds to the mortgage market whenever the
ability to supply such funds is substantially impaired
during periods of monetary stringency and rapidly rising
interest rates and that any funds so borrowed will be
repaid by the Home Loan Bank Board at the earliest
practicable date."
(Underscoring added)
As we interpret this proposed statutory language, it
instructs the Secretary to use his lending authority when
disorderly market conditions or potentially disorderly market
conditions make it impossible or undesirable for the Federal
Home Loan Banks to sell their obligations directly in the
market.
- 10 This interpretation is fully consistent with the Treasury
view as to the appropriate use of our present authority.
We
therefore do not believe the proposed statutory admonition
is necessary, and it may be undesirable.
For example, should the proposed language encourage Use
of the borrowing privilege simply to save short-term borrowing
costs, it could have a perverse effect on the financing ability
of the Home Loan Banks over the longer run.
At present, this
authority provides assurance to the market that the Home Loan
Banks will be able to honor their maturing market obligations.
If this "backstop" were used unnecessarily, the cost of Home
Loan Bank
market borrowings could be increased because
investors could not count on the guarantee implicit in the
unused borrowing authority.
Another difficulty is that Treasury advances to the Home
Loan Banks appear as expenditures in the Loan Account of the
Budget and add, at least temporarily, to total budget expenditures,
While certainly justified "when alternative means cannot
effectively be employed", this borrowing authority should
not become a method of back-door financing, whereby the Home
Loan Bank might escape both the nonnal appropriations process and
the test of the market.
I should
note too
~hat,
under present
- 11 law any expenditure under this lending authority would not
be exempted from the spending ceiling of $191.9 billion
imposed by the Congress on the Executive.
With respect to the question of Treasury approval for
market borrowing, we believe that for at least as long as
the Home Loan Banks have access to the Treasury for funds,
it is appropriate that they remain subject to the Government
Corporation Control Act as presently provided in section ll(j)
of the Federal Home Loan Bank Act.
This Committee will remember that the basic policy of
requiring approval of public issues of a Government-sponsored
corporation by the Secretary of the Treasury was strengthened
and reaffirmed as recently as a year ago, when Title VIII
of the Housing and Urban Development Act of 1968 became law.
Under this Act, the entire Federal capital of the reconstituted
Federal National Mortgage Association has been retired. FNMA,
however, has retained authority to borrow up to $2-1/4 billion
from the Treasury and the natural counterpart of that authority
is that all issues of securities in the market by FNMA must
have the approval of the Secretary of the Treasury.
- 12 The Farm Credit Agencies -- the Federal Land Banks, the
Banks for Cooperatives, and the Federal Intermediate Credit
Banks
-- represent an exception to the general policy of
requiring approval from the Treasury for market borrowings.
However, these agencies do not have authority to borrow from
the Treasury except in limited circumstances for small amounts.
As a practical matter, the pattern and size of their market
borrowing requirements are quite different from those of the
Home Loan Banks and simpler to manage.
Nevertheless, the
Farm Credit Agencies do in fact regularly consult with the
Treasury concerning the timing of their market issues, and
have been most cooperative in this regard.
I believe the principle that responsibility for the
coordination of Federal financial transactions, including
those of Government-sponsored corporations, should be
centralized is sound, and should not be weakened.
Apart
from the examples I have cited, this was a specific intention
of the Participation Sales Act of 1966 which gave the
Secretary of the Treasury authority over financial asset
sales by various agencies.
The Secretary of the Treasury,
as the chief financial officer of the United States, is
uniquely in a position to view the spectrum of financing
- 13 demands by Federal and Federally-sponsored agencies.
He
exercises his authority in this area as the Cabinet officer
directly responsible to the President.
I do not believe
that the Committee will find that this authority has been
exercised capriciously or lightly.
Indeed far from standing
in the way of the Home Loan Banks or of FNMA in their need
to raise funds on the capital markets to sustain home
construction, I believe Treasury coordination helps to assure
economical and orderly financing in the interests of the whole.
Therefore, the Administration believes strongly
that the
authority of the Secretary to approve borrowings by the Home
Loan Banks should be maintained.
Sections 5 and 6
Sections 5 and 6 relate to interest rate ceilings on
commercial paper borrowing by affiliates of commercial banks
and to reserve requirements for Euro-dollar borrowings from
foreign branches of the United States banks.
While it is
not clear that these provisions are necessary to provide
the intended authority, the Administration has no objection
to this further clarification of regulatory authority.
I
understand that, with respect to section 6, the Federal Reserve
may
wi~h
to propose a further addition.
- 14 Sections 7 and 8
Sections 7 and 8 of S.2577 are intended, I believe, to
restore on a standby : basis the authority under which the
Federal Reserve Board administered a voluntary credit
program during the Korean war.
restrai~
As drafted, however, these
sections would restore exemption from anti-trust laws for
voluntary restraint programs in areas other than credit.
The Administration does not at present contemplate the need
for or desirability of this broad authority.
One cannot of
course rule out all possibility that circumstances not
n~ for~
seen might suggest that a program of voluntary credit restraint
would be appropriate.
However, we feel that contingency is
sufficiently remote to make undesirable the provision of such
authority by the Congress at this time.
Since the Administration
has no present intention of instituting a voluntary restraint
program, the broad authority contained in sections 7 and 8
might be misconstrued, and we would prefer it be deleted.
S.2499
As I suggested earlier in my comments, there is a strong
presumption in our economy that market forces should _determine
the allocation of goods and capital, and that administrative
restrictions on prices (including interest rates) can be
justified only by a clear showing of urgent need that cannot
- 15 otherwise practicably be met.
In the case of competition for
deposits, we feel this need has been demonstrated on the basis
of preserving the viability of an important segment of our
financial structure.
There is no such case to be made for restrictions on rates
banks charge.
The same competitive pressures that require
interest rate ceilings themselves suggest that competition is
a sufficiently active force in banking to deny the need for
lending rate ceilings on monopolistic grounds.
Moreover, as
soon as one sets arbitrary limits on lending rates, the
problems of determining administrative allocation and priorities
immediately arises -- problems that seem to me virtually
insolvable amid the complexities of the U. S. economy.
Finally,
simply as a technical matter, the task of administering ceilings
on lending charges equitably and effectively, would be
prohibitively difficult because there are so many ways in which
banks could assess charges other than direct interest.
For all
these reasons, the Administration strongly recommends against
passage of S.2499.
00
00
00
TRFASUlZY lll: PART;\iL:NT
l'iASIlIi\GTO;\:, D. C.
F(l[\ :(1:[ l2.\SE
.~; xr~-c t l' d
at
UPO:\ nrLTVFRY
0 no 011, 1: DT
1:::: ()
KeJncsday, September 10, 1069
RE~L\RKS OF THE IIO:\ORABLE :>!URRJ\Y L. lvE I Di:l\BAU:',;
ASSISTANT SECRETARY OF TILE TREASURY FOR ECOi\m,lIC POLICY
BEFORE TIlE 1,10R1C;AGE BANKERS ASSOCIATIO:-J
I'lASIIINGTON, D. C.
WEDNESDAY, SEPTEr-lEER 10, 1969, 12: 00 :\OON, EDT
TlIE
A great deal
current tax bill.
IS
ECO:JO~lICS
OF THE TAX BILL
being written and said about the
Certainly no one doubts that tax
legislation is intricate and complicated.
May I merely
call your attention to such familiar household terms as:
Subchapter S, the LTP, the LDA treatment, and the
"[101\'
through" consequences.
What one misses in much of the discussion of the
Treasury's tax proposals is a general appraisal in economic
terms.
IS
Yet this is needed if appropriate public policy
to be arrived at.
Notice that I say the Treasury's tax proposals.
IS
This
not done in an effort to detract in any Hay fror.[ dle
impressive acc6mplishrnent of the House of Representatives
and its COlmnittce on Ways and Means.
But the plajn fact
oft 11 e mat t e r i s t hat the rei saT r e as u ry t
What are its identifying characteristics?
K-194
3. X
ref 0 r m b i. 11 .
- 2 1.
TrL':lSury
th~ll1
r a r fro r:l
proro~Zlls
the one tha t
b l' i
11
g
~l
T
Lc h ma 11 ' s t a x h ill,
make [or a more progressive tax
h'C
havL:
to~Jay.
t II C
:;ll'!H.::til~('
There \'Jould he a total
reduction in individual taxes of $4.8 billion;] year at
current levels of income.
The tax cuts woulJ be proportion-
ally largest at the lm';'cst income and smallest at the
highest income.
For cxamplc, in the lowest tax bracket,
the reduction would be 56%, but the tax cut would only be
about 6 gu for those taxpayers \vi th adjusted gross income:
from $10,000 to $50,000.
In fact, for the top bracket of
$100,000 and over, taxes go up, not down (See Table).
Under
our proposed Low Income Allowance, nearly six million poor
people would no longer have to pay Federal income taxes.
2.
corporations?
Are the Treasury proposals a give-a\'Jay to
Hardly.
At current income levels, the
corporate tax bill would go up by $3.5 billion a year while
individual taxes go down by $4.8 billion a year.
The tax
reform provisions would mainly hit corporations -- for
$5.5 billion more in taxes.
Ilf
- 3 -
Table 1
FEDERAL INDIVIDUAL INCOME TAXES UNDER THE
TREASURY PROPOSALS BEfORE THE SENATE fINANCE CO;Vl,\lITTEE
Present
Treasury proposals
law tax
to Senate
( ...... $ millions ......... . )
Percent
change
3
1,169
661
-56.5 96
3 - 5
3,320
448
-13.5
- 7
5,591
423
-
7 .6
7 - 10
11,792
794
-
6.7
10 - 15
18,494
~1?155
~
6.2
IS - 20
9,184
511
~
5.6
20 - SO
13,988
781
-
5.6
- 100
6,659
308
- 4.6
00 and over
7 2 686
246
+ 3.2
Adjusted gross
income class
($ 000)
0
5
50
-
Total
77,884
t
-4,835
ITflce of the Secretary of the Treasury
Office of Tax Analysis
-
6.2
,
-
t:;;(
,
n' pr-JPuScLi.::'
:\:'
.• ,C>
~
(:.:111
J.
j"\', 0.
'J
J'
(J' '.'
'-i
"t"
_,_~ "lJ'
r)
1'~\>
I'Ll'
-
t .u.
'J X
(,
() :11' ~L".y
-.~
- - ':.' "'n ~: ~:
"
equity" -- equal
"hol~izont(ll
Even a p:ll'ti::ll listing of the reductions in s)cciaJ
::iX
p:ri vi 1 cgc s (and the <:lddcd income they
~>_Guld
11 pro vi de:)
[;\(1;';:e the point:
l(ci),-'al of the investment credi t
Ti~ntening
up on real estate
Reduction in the depiction alloKancc
T~x
1,\'1.
treatment of financial institutions
Revised capital gains treatment
$3. 3 billion a
~/
Sl. 0
\;' r. " , . .
bi11ioll :l
/
c; ~~ r
'-' (A
J..
$ O. 6 billion a "'feci T
SO. 4 hillior,
J.
$0 6 billion a
year
yC~l
r
In total, the tax reform provisions of the Treasury
s~~c
proposals amount to a massive $8.1 billion, about the
as
in the House verSIon.
Let us now examine the economIC philosophy of th8
7rcasury's tax proposals.
improving tax equity.
that, on
l'lCCC
~hc
b~lance,
Fir s t, the rei sou r con c ern
I trust th:lt I have r:ladc it
1-_
it
j..,
C:2:~:'-
we are presenti.ng a
of legislation.
We have rccor.lT:l2ndc:d thCl.t
Administration's Pl-OpOSeG
1..0'.>'
SO;11C
Income AllO'.,'J.:'lcc: to
"l'c:fGTi':>~1i
;1
/2(
-
r
.', .J •
1 i be red i z e cl f iIi n g r e q u j
I' C:1l en
t s, \y It ere b y
5 million individuals whose incomes arc
too low to pay tax will no longer h~vc to
prepare tax returns.
tighter treatment of farm losses wherc
wealthy investors are seeking a tax shelter.
adjusted incentive provisions dcaling with
real estate and financial institutions to
create a stronger induce~ent to constrilction
of multi-family housing and greater investment
in residential real estate mortgages.
changes in the House proposals to extend the
usc of the Limit on Tax Preferences and the
Allocation of Deductions provisions to
prevent tax avoidance.
Second, we are concerned with the overall impact on
t~e
economy.
The Treasury Department has recommended
making an important change in the tax code: a two point
reduction. in the corporate income tax rate.
need to be kept in mind: As I pointed out
Several factors
earlie~,
the
to:al amount of taxes paid by corporations will go
under the Treasury Department's proposals -- the
~ddcd
revenues from the reforD provisions and the elimination
of the investment tax credit ,-viII more than offset the
revenue effect of the reduction in the corporate rate.
-
(;
Ill-
-
,'co:1Omic bY01vth 111 tho Un itccl SLl tos.
ina Ii Y
J. n J
0
f the c quit y
0
r ref 0
1'lTl
per hap 5 una v 0 i d Ci b 1 e s i cl 0
C han go s
0
f f0ct
As
it turn';
h a v can
II n
CJU~
1 it ten ,j c J
- - the y ten d tor (: d L, C C
the fUl1ds available for ncw investment and also the incenti .."c
to make new investments.
The corporate rate reduction
restores this necessary impetus to investment and econo;nic
This ch.:l.l1ge also should improve the: intel'national
competitiveness of American business firms.
the reCODlr.1CnUCQ corporJ.te rate reduction,
Furthcj'mOTC,
to tho extent
that it is pCissed on to consumers in the form of lower
prlces, will have a further desirable imDact.
Third, there is our concern with the revenue effect
of tax revisions.
The Treasury' believes that the
lon~-ru~
r8venue loss in the HOL<se bill of $2.4 billion ::;ho'J.ld
sCl1ed down by about one-half.
ti!r.c for tax reduction.
~Jc
Frankly, this is nOI the
A 11 m \' an c e has a 1 r e J. d y b c; c n r.. ~i de
i'or the phJ.seJ reduction of the surcharge ~ but ~:oinc; :.~'.xh
beyond this could create serlOUS financial and cconO~lC
· !-
,
! C \ 11 tiC';.; .
~\I'.(\;l
'[':1:: rC,:11ctiua
~lI\... h
:1
"
;,"J.
or
OLl"
1 il
r'~"./~\i::~I·
;n;lk,~':-;
,-
'.," r};-:
little
('CO:J,-'i:~l,
GISC.
l,':hjch the Congress and the Administration \'!oulcl make in
t 11 eli g 11 t
t 11 c c ire u ms t an c est 11 a t
0 [
I wonder if I
f~h
~orcls
likc~
to
i 11 the n pTe \' ail .
might digress at this point to S:LY
i1
in fJvor of a rehabilitation project.
rch~(biliLltc
surplus.
IY
the concept of a Fedoral
bud~e':
SOme\l'llerc; bet\,;cen the old and the neh-
CCOnO;-:1LCS
the economic case for Federal budget surpluses seeQS to
11:\\"0 gotten lost.
I
knov: of no acceptecl body of Jil0clern
economic theory which calls [or budget deficits at the
high levels of
econom~c
activity which we have experienced
In
this country during recent years.
~t
high employment are likely to be essential in the future
jus~
Sizable budget
~urpluses
as they have been In the recent past -- when unfortun-
atcly we did not have them.
'1
,
arc otner,
longer term, considerations that l:1ay
1 J10r8
r.
~: 2.. k c
+-)
~,
-
.r; c J e r:ll bud get sur p 1 us oS s des iTa i) 1 e .
+-]
Lte
.,
~oal.
0
f
1
h.0USJ_ng
aacquate
ana,
',y8
.
c 0 :T.?:~ ~ t t e G
.
1
1\'lS,l
to
that investment required for the future growth
- s ~'
lil:1L~
l)lld'(T""t
bl:-
(ICcl. ......
1' "I'
ts..
•~\l.'C
.
1.1:1r\..ll.'L~'
•
.'
t'j'c
l"r:lY
1
,-
objectives.
to furthci'
The
bmlrct cleficit.s COlilOctC5 \vi th housln;! and other
.J
A
tllVcstJl1Cnt for 3\1;o(i1:11.11(' savings.
-
I Jl
S
't,.rj 'f;~tc:
t l' .i ki 11 g con t l' d ~; t ,
budge t s U 1'1' lus e s reduce the gover nmen t 's deInJ nel for
fjnancing and thus add to the supply of funds avai lab 1c
for private sector investment.
It is premature, in my opinion, to be making sizable
reductions in long-run revenues at this time.
Federal
surpluses are quite likely to be required in future years.
Close control of Federal expenditures is being instituted
and will continue to receive our full'support.
But
adequate provision must also be made on the revenue side
of the budget.
1)5'
- 9 -
From a general eConomlC point of view, thci major
iiffbrcnce between the House and Treasury tax proposals is
,n:'what an ecopomist might term the "investment-consumption
:1ix".
This can l?e indicated, if on1y very crudely, by the
iifference in the two versions of the changes in individual
lnd corporati tax.
The House version calls for individual
reductions of $7.3 billion and corporate increases of $4.9
billion for a net long-run reduction of $2.4 billion.
We
would scala down the individual reduction to $4.8 billion
and the corporate increase to $3.5 billion for a net reduction
of
$1~3
billion (see Table 2).
The objective -- quite frankly
would be to favor productive investment over current consumption.
This would be sought through the corporate tax cut and a more
cautious approach in the taxation of capital gains.
A precise determination of the best balance between
consumption and irivestment cannot be made.
Although there
is some controversy within the economics profession as to
the exact relationship between productive investment and
economic growth, few would dispute that there is a connection
and that it is a direct and positive one.
In my judgment,
there is an undu~ and perhaps unintentional, bias in the
House bill against investment and in favor of consllmption.
This could impede economic growth in the years ahead and
reduce our. ability to compete abroad as well as to deal
- 10 -
Table 2
LONG .RUN REVENUE EFFECT OF TREASURY TAX PROPOSALS
Cate~
--.
Individuals:
Rate reduction and other
relief a~d incentive provisions
Long hun
Revemw Effect
CT TIl rrrrOn-sj-.
- 7,410
Reform provisions
Net effect (reduction in
individual income taxes)
Corporations:
Rate reduction and
incentive provisions
- 4,835
- 2,040
Reform provisions
+ 5,530
Net effect (increase in
corporate income taxes)
+ 3,490
Combined revenue effect
Office of the Secretary of the Treasury
Office of Tax Analysis
- 1,345
11 -
'fcctivcly ,dth domestic problems.
q;gC5 ted
that the bal anco i n favor
Therefore,
0£
\~'C
h~lve
cons umpt j on no t be
pped quite so far.
This issue of the investment-consumption mix
)fC ~han
~onomic
theoretical interest.
future.
15
of
It vitally affects our
The effects of inadequate ec6nomic growth
re great: unemployment, underemployment, foregone economic
utput,and lagging public revenues.
It would seem wise not
o press for too many consumption dollars today -- when
a"rccrate money demand already is too high -- at the exn1 ense
l;)b
.....,
, " _
f job~) production, and incomes in the fut~re.
There are also a few areas in which we feel further
tudyis needed.
A position, I might say, for which no
'conomist should ever feel the need to ·apologize.
A major
.rea where the economic and legal issues are far from resolved
.s the tax treatment of state and local bonds.
The House
lroposals would provide the option of taxable issues and
1
Federal Government subsidy for a portion of the total
interest cost.
The Administration plans to recommend to the
:ongress a different proposal at an early date.
One area in which we believe that no further study is
required is the extension of the income tax surcharge at
a 5 percent rate for the first six months of calendar year 1970.
fLY
L2
1-·..,4 ''\
1)
j
~
'.J
1"1
l.. ~~, • .I.
--t-
:; () ;,: C
....
Lo
vc~ur
lrt('!l~ciO;1
~-or
i~
nC80sto DC given to these
CCOnOT:l1.C
,)
,-:
iss;:cs.
t;,,-, probable long-tcrm consequences on the /J.meLi,cH1
a ~i-partisan tax bill cast in t~c national intercst.
C:'COTlorf',Y.
TREASURY DEPARTMENT
Washington, D. C.
SUMMARY OF REMARKS BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE
THE NATIONAL EXPORT EXPANSION COUNCIL
OF THE DEPARTMENT OF COMMERCE
AT THE STATLER HILTON HOTEL, WASHINGTON, D. C.
ON FRIDAY, SEPTEMBER 12, 1969, AT 12:00 M.
I welcome the opportunity to talk to your group because
the Treasury Department shares your and the American business
community's concern over what is happening today in U. S.
foreign trade.
Your group is most familiar with the situation since
you play a vital part in advising the Commerce Department on
export matters.
In the early 1960's, despite our over-all
payments deficit, our trade position at least seemed reasonably
strong.
Our trade surplus amounted to some $5 to $6 billion
a year.
The American businessman faced increasingly strong
competition in foreign markets but, armed with the products
of the most advanced technology, he could keep well ahead
of imports.
But the surplus -- which had averaged nearly $5.5 billion
for the first five years of this decade -- finally peaked at
$6-3/4 billion in 1964.
erosion.
K-196
Since then, we've experienced a sharp
By the end of 1968, the surplus had vanished and
- 2 has , at best, been negligible in the months since that time.
This has not been because our exports have failed to
grow.
While competition has, indeed, become tougher for a whole
range of industrial and agricultural goods, we have still
managed to increase exports by 8 or 9 percent a year.
Unfor-
tunately, we have been sucking in imports at more than twice
that rate
24 percent last year, for example.
There are
severa~
reasons why our surplus has disappeared.
First, and paramount, is the inflation we have been experiencing in this country.
This inflation has given Americans more
money to spend for everything, including imports.
And this
has happened at a time when some other leading industrial
countries have managed to keep better control over their wages
and other costs and, thus, on their selling prices.
And, with
the increasing advance of industrial capabilities abroad, we
face a greater challenge than ever before in our areas of
strength.
I wish I could express confidence that our trade account
will quickly return to the levels we enjoyed earlier.
I can't.
We do look forward to a reversal of this trend and an improve-
- 3 ment in our trade account position as we eliminate our overheating.
But it is not a short-term process to regain our
position.
It must be measured in a time frame of years --
and we cannot afford to overlook any practicable means of
assisting in that task.
The urgency of this objective is increased by the fact
that we want to relax and dismantle as soon as possible the
various selective controls over capital exports.
The President
set us clearly on this course last April 4, when he issued
an Executive Order modifying the rates of the Interest
Equalization Tax and announced some liberalization in both
the Commerce and Federal Reserve restraint programs.
At the same time, the President has indicated that relaxation must be done with prudent concern for the realities of
our balance of payments situation.
For instance, while he
reduced the rate of the tax, he found it necessary to request
the extension of the legislation.
The speed and safety with
which we can pursue this course of liberalization is tied
inescapably to our trade performance.
Within the Treasury, and in cooperation with other
agencies, we are extensively studying the matter of more
- 4 liberal Government credit in support of exports and possible
changes in our tax structure to remove any possible bias
against our exports and to encourage more attention to foreign
markets.
This is not a new subject to you, and I am sure you
recognize the host of problems involved.
At this stage, we
are just not ready to give you a full progress report and to
make decisions on the feasibility of differing approaches.
But I can assure you that, at this initial stage, we particularly
welcome your advice and counsel in this complex area -- an area
so vital to our national well-being.
--000--
TREASURY DEPARTMENT
WASHINGTON. D.C.
OR RELEASE 6: 30 P.M.,
onday, September 15,1969.
RESULTS OF TREASURY t S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
ills, one series to be an additional issue of the bills dated June 19, 1969, and the
ther series to be dated September 18, 1969, which were offered on September 10, 1969, were
'pened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
,r thereabouts, of 91-day bills and for $1,200,000,000, or thereabouts, of l82-day
ills. The details of the two series are as follows:
ANGE OF ACCEPTED
OMPETITIVE BIDS:
High
Low
Average
~
91-day Treasury bills
maturins December 18 02 1969
Approx. Equiv.
Price
Annual Rate
98.201
7.UTj
98.185
7.180~
98.191
7.156'f,
Y
l82-day Treasury bills
maturin6 March 19 z 1970
Approx. Equiv.
Price
Annual Rate
96.306 ~
7.307%
96.289
7. 340c;,
96.295
7.329~
Y
Excepting two tenders totaling $3,000
37c;, of the amount of 91-day bills bid for at the law price was accepted
76% of the amount of 182-day bills bid for at the low price was accepted
.'OTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philade Iphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
lA3.11as
San FranCisco
TOTALS
y
Accepted
Applied For
$ 40,150,000 $ 30,150,000
1,167,030,000
1,924,160,000
31,238,000
46,238,000
44,812,000
44,812,000
22,140,000
25,640,000
57,173,000
68,348,000
205,882,000
221,360,000
43,997,000
52,997,000
22,963,000
26,353,000
35,998,000
36,313,000
17,626,000
27,256,000
121,599,000
157,229,000
$2,670,856,000
Applied For
$
7,044,000
1,538,836,000
19,220,000
42,619,000
26,112,000
49,449,000
163,909,000
50,031,000
20,346,000
31,626,000
27,173,000
156 02 204,000
$1,800,608,00C~ $2,132,569,000
Accepted
$
6,436,000
808, 716, 000
9,219,000
42,065,000
14,719,000
21,821,000
131,047,000
34,831,000
13,846,000
24,749,000
18,673,000
74,272,000
$1,200,394,000
£I
Includes $381,153,000
noncompetitive tenders accepted at the average price of98.191
Includes $215 194 000
noncompetitive tenders accepted at the average price of96.295
' on, a bank discount bas~s.
.
The equ~va
. 1ent coupon i ssue yi e
1ds are
1I
':I
These rates are
7.39~ for the 91-day bills, and 7.72'" for the 182-day bills.
~
TREASURY DEPARTMENT
WASHINGTON. D.C.
September 16, 1969
FOR IMMEDIATE RELEASE
TENTATIVE DETERMINATION OF NO SALES AT LESS THAN FAIR VALUE
RELATING TO TETRACYCLINE PRODUCTS FROM ITALY
UNDER ANTIDUMPING ACT
The Treasury Department announced today that it has
investigated charges of possible dumping of tetracycline
products manufactured by Carlo Erba, S.p.A., Milan, Italy.
A notice announcing a tentative determination that
this merchandise is not being, nor likely to be, sold
at less than fair value within the meaning of the
Antidumping Act will be published in an early issue of the
Federal Register.
During the period March 1, 1968, through November 30,
1968, tetracycline products valued at approximately
$883,990 were exported to the United States by Carlo Erba,
S.p.A., Milan, Italy.
000
K-195
TREASURY DEPARTMENT
WASHINGTON, D.C.
September 15, 1969
FOR A.M. RELEASE
TUESDAY, SEPTEHBER 16, 1969
SECRETARY KENNEDY AND FINANCE MINISTER FUKUDA
TO REVIEW INTERNATIONAL MONETARY SITUATION
Secretary of the Treasury David M. Kennedy announced
today that the Japanese Minister of Finance, Takeo Fukuda,
has accepted an invitation to meet with him on
September 27 and 28.
Mr. Kennedy and Minister Fukuda plan to meet at
Camp David, Maryland, to discuss international monetary
matters, including the prospective creation of Special
Drawing Rights in the International Monetary Fund, and the
financial and economic outlook in the United States and
Japan.
Minister Fukuda will be in Washington to attend the
annual meetings September 29-0ctober 3 of the Boards of
Governors of the International Monetary Fund and the
International Bank for Reconstruction and Development.
Mr. Kennedy and Minister Fukuda had originally planned
to hold discussions in Tokyo in July during a meeting of the
Joint U.S.-Japan Cabinet Committee on Trade and Economic
Affairs. However, Mr. Kennedy canceled his trip to Japan
because of Congressional hearings on Treasury legislation.
000
K-197
TREASURY DEPARTMENT
Washington
FOR RELEASE P.Mo NEWSPAPERS
TUESDAY, SEPTEMBER 16, 1969
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRI:TARY OF THE TREASURY
BEFORE A
JOINT CONFERENCE OF INTERNAL REVENUE OFFICIALS
WASHINGTON, D. C., SEPTEMBER 16, 1969 AT 9:45 A.M., EDT
It is both a pleasure and an honor to be here with you
today. It is a pleasure because it gives me a chance to
meet again with so many Internal Revenue Service officials
I came to know during my Treasury years in the Eisenhower
Administration, and I count it an honor because I hold in
such high regard the men and women of the Internal Revenue
Service who carry out one of the most difficult, and most
often misunderstood, jobs in all the public service.
This is my first Internal Revenue Service Conference
as Secretary of the Treasury, and I am fortunate to be
working with all of you -- especially such a capable
and dedicated public servant as Randolph Thrower.
All of us here today share one common purpose, and
that is to give the American people the best possible tax
laws and the best possible administration of those laws.
It is the sale basis for the tax reforms which President
Nixon has proposed to the Congress. That is the sole basis
for the high standard of public service under which you serve
I believe that we have more widespread support for tax
reform than some of our contemporary critics would have you
believe. The whole record of the American people, from 1776
to 1969, demon~trates that they will accept the price of
citizenship, so long as their tax laws represent the public
will, and so long as taxation is fairly shared by all.
K-198
- 2 -
It is in that spirit that President Nixon's tax reforms
were submitted to the Congress and it is in that spirit, I
firmly believe, that the Senate will act when it comes finally
to a vote on the legislation now before it. In a moment, I
shall discuss the Senate hearings and their implications at
somewhat greater length.
The fact is that our tax structure and its administration
by the Internal Revenue Service stands as an example to the
whole world. It is working proof that a self-assessment
system can truly exist on a voluntary compliance basis, when
citizens trust both the tax system and those responsible for
administering it.
I do not say that the system and its administration
cannot be improved, or that in some areas it should not be
improved. Quite the contrary, that is why we at the Treasury
and you in the Internal Revenue Service are searching for
better ways to do our job.
Let's look at your job for a moment: Last year, the
Internal Revenue Service handled some 106 million tax
returns and its gross collections amounted to something in
the neighborhood of $150 billion. This year, you collected
nearly $188 billion or 112 million returns. Next year, we
expect 113 million returns amounting to $200 billion. By
1975, you will be handling about 124 million returns a year,
and I am not even going to try to estimate the dollar amount
of tax collections.
Numbers like $200 billion are almost beyond human
comprehension -- which is probably why our scientists speak
in terms of megacycles and light years -- but they do tell
us that your work load is growing, and growing fast. Even
without the new responsibilities that'have been handed over
to you under the expanded exempt organizations programs and
the Gun Control Act of 1968, you have your work cut out for you.
And I am going to commit myself right here and now to help you
get whatever budgetary and personnel help you need to get
your job done, and done the way you would like to see it done.
We cannot permit inadequate administration of the tax
laws to encourage tax evasion. Apart from a natural, human
reluctance to see the tax dodgers pass the buck to their
honest countrymen, we have an obligation to administer the
law in such a way as to strengthen, rather than to weaken, the
economic soundness of the country_
- 3 -
And yet, we know that our tax administration in recent
years has shown signs of weakening, largely because there
are not enough people, not enough funds, to administer the
laws as they should be administered o
You and I are well aware that the tax collector will
never win a popularity contest. But the tax collector is a
mighty important person in our society -- beyond providing
material for cartoonists and television comedians at income
tax time.
I recently had occasion to speak at the dedication of
the Philadelphia Mint, and I quoted President Nixon as saying,
'~e shall never make taxation popular, but we can make
taxation fair c "
I then indulged in a little play of words, considering
the time and place, and said that taxation and economic
stability are two sides of the same coin. You just can't
have one without the other.
We are making progress and I am optimistic. The tax
reform bill which passed the House last August was surely a
milestone in tax legislation. True, the legislation needs
further honing in the Senate. There are imbalances which
would make for too deep a slash in Federal revenues and
perhaps force retrenchment in some important programs which
the national interest requireso And there is always the
danger that tax cuts, however attractive they may appear,
would prove a deception by contributing to the spiralling cost
of living.
To paraphrase the President's Message to the Congress
on Tax Reform last April, inflation itself is a tax -- a
cruel and unjust tax that bears hardest on those least able
to pay.
The Senate Finance Committee is now considering the most
far-reaching reform measure in the history of our income tax
code. This will be neither a Democratic bill, nor a
Republican bill. It will be a bill of tax rights for all
Americans. It will not emerge as a perfect tax bill. I
don't suppose any such creation ever will exist. But
whatever its final form, it will move US a long way farther
along the road toward fair taxation for all.
- 4 I hope, and earnestly believe, that the Senate will not
mistake the mirage for reality, that it will not be swayed
by those who contend that the Administration's proposals
would "soak the people and pad the profits of business."
The plain truth is that President Nixon's tax proposals -which are now before the Senate Finance Committee -- would
remove some 5,000,000 low income citizens from the tax rolls
altogether. They would reduce the individual income tax
burden by nearly $5 billion, and they would increase corporate
taxes by $3.5 billion.
The Administration's tax proposals call for a lower rate
of tax for corporate profits than does the House bill. They
most certainly do not -- as has been implied -- call for lower
corporate taxes.
The Administration's tax proposals, quite frankly, are
aimed at establishing a balance between consumption and
productive investment that makes economic sense.
I believe our proposals achieve a reasonable balance
between individual tax reliefs and the need for additional
revenue through increased corporate taxation. They will
neither overstimulate our economy, nor throttle the new
investment that is so essential to our continued, healthy
national growth c
And I believe the Senate will see it that way, too o
The Senate Finance Committee hearings have been in progress
for more than a week, and they still have a long way to go.
In the interim, you will probably hear and read many rumors
about the progress, or lack of progress, of this tax reform
legislation.
When the legislative process has run its course -after full debate and consideration -- I believe we will have
a bill that represents genuine and significant tax reform.
And I believe it will be a bill that the American taxpayer
can and will supportc
000
TREASURY DEPARTMENT
WASHINGTON. D.C.
September 17, 1969
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
$3,000,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing September 25, 1969, in the amount of
$3,003,961,000,
as follows:
92-day bills (to maturity date) to be issued September 25, 1969,
in the amount of $1,800,000,000,
or thereabouts, representing an
additional amount of bills dated June 26, 1969,
and to
mature December 26, 1969, originally issued in the amount of
$1,100,270,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,200,000,000,
dated September 25, 1969,
and to mature
or thereabouts, to be
March 26, 1970.
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 Daylight Saving
time,
Monday, September 22, 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"imals, 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.
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
K-199
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public announcement will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $~OO,OOO or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on September 25, 1969, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
September 25, 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
K-199 from any Federal Reserve Bank 060~ranch.
TREASURY DEPARTMENT
FOR IMMEDIATE RELEASE
WASHINGTON. D.C.
September 17, 1969
TREASURY'S MONTHLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$1,500,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing September 30,1969,
in the amount of
$1,501,007,000,
as follows:
27~day
bills (to maturity date) to
in the amount of $ 500,000,000,
or
additional amount of bills dated June
mature June 30, 1970,
originally
~1,201,406,000,
the additional and
freely interchangeable.
be issued September 30, 1969~
thereabouts, representing an
30, 1969,
and to
issued in the amount of
original bills to be
365-day bills, for $1,000,000,000,
or thereabouts, to be
dated September 30,1969,
and to mature September 30, 1970.
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 Daylight Saving
time, Tuesday, September 23, 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"imals, e. g., 99.925. Fractions may not
be used. (Notwithstanding the fact that the one-year bills will run
for 365 days, the discount rate will be computed on a bank discount
baSis of 360 days, as is currently the practice on all issues of
Treasury billso) It is urged that tenders be made on the printed
forms and forwa'rded in the special envelopes which will be supplied
by Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for accounthof
customers provided the names of the customers are set forth.in sue
tenders. Others than banking institutions will not be perm1.tted to
K-200
submit tenders except for their own account. Tenders will be receiwd
witPout·deposit from in~orporated banks and trust companies and from
responsible and recognized deal~rs in investment securities. Tender.
from otherp must be accompanied by payment of 2 percent of the face
amoun:. of ~ reasury bills applied for, unless the tenders are
accom aniea by an express guaranty of payment by an incorporated bank
or trust company.
Tmmediately after the closing hour, tenders will be opened at
the F ~deral Reserve Banks and Branches, follqwing which public announce
ment will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The 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
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stated price from any onp.
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 ')r completed at the Federal Reserve Bank on September 30, 1969, in
cash or other immediately available funds or in a like face amount
of Tr~asury bills maturing September 30, 19690 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 is sue price of the ne~tl bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition 0: 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
Statp, but are exempt from all taxation now or hereafter ~posed 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
billp are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Reverue 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 cor3ideration as capital assets. Accordingly, the owner of
Trea~ury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the ~rice 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.
Tl:-easury Department Circular No. 418 (current revision) and thiS
notice prescribe the terms of the Treasury bills and govern the
cond';tions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 050~ranch.
TREASURY DEPARTMENT
WASHINGTON. D.C.
September 17,1969
TREASURY ANNOUNCE:> $8.9 BILLION REFUNDING OF OCTOBER 1 AND DECEMBER 15 MATURITIES
The Treasury today announced that it is offering holders of the notes and bonds
~aturing October 1, 1969, and the bonds maturing December 15, 1969, the right to
exchange their holdings for a 19~-month note, a 3-year 7t-month note or a
6~year lO~-month note. The public holds about $7.6 billion of the securities
eligible for exchange, and about $1.3 billion is held by Federal Reserve and
~vernment accounts •
.
The securities eligible for exchange are:
$159 million of 1-1/2% Treasury Notes of Series EO-1969,
$6,240 million of 4% Treasury Bonds of 1969 (dated October 1, 1957), and
$2,484 million of 2-1/2% Treasury Bonds of 1964-69 (dated September 15,1943).
The notes being offered are:
8% Treasury Notes of Series E-1971, dated October 1, 1969, due
Ma~ 15, 1971, at par,
7-3/4% Treasury Notes of Series A-1973, dated October 1, 1969, due
May 15, 1973, at par, and
7-1/2% Treasury Notes of Series C-1976, dated October 1, 1969, due
August 15,1976, at 99.50 to yield about 7.59%.
In the case of exchanges of the notes and bonds maturing October 1 for the 7-1/2%
lotes subscribers will receive a cash payment on account of the difference between
;he par value of the maturing securities and the issue price of the new notes.
In the case of exchanges of the 2-1/2% bonds net interest adjustments will be
umouncea later.
Cash subscriptions for the new notes will not be received.
K-201
- 2 The books will be open for three days only, on September 22 through September 24 ,
for the receipt of subscriptions. Subscriptions addressed to a Federal Reserve Bank
or Branch, or to the Office of the Treasurer of the United States, and placed in the
mail before midnight September 24, will be considered as timely. The p~ent Blld
delivery date for the notes will be October 1, 1969. The notes will be made available
in registered as well as bearer form. All subscribers requesting registered notes nll
be required to furnish appropriate identifying numbers as required on tax returns and
other documents submitted to the Internal Revenue Service.
Coupons dated October 1, 1969, on the securities maturing on that date should be
and cashed when due. The October 1, 1969, interest due on registered bonds
; ":cU'ing on that date will be paid by issue of interest checks in regular course to
:' -)-Lders of record on August 29, 1969, the date the transfer books closed. Coupons
(ted December 15, 1969, on the bonds due on that date must be attached.
_~~tached
Interest on the 8'/0 notes will be payable on May 15 and November 15, 1970, and
1'"fay 15, 1971. Interest on the 7-3/4% notes will be payable on May 15 and November 15,
1970, and thereafter on May 15 and November 15 until maturity. Interest on the 7-1/2~
no~es will be payable on February 15 and August 15 until maturity.
TREASURY DEPARTMENT
; L~I!
WASHINGTON. D.C.
FOR RELEASE AT NOON
THURSDAY, SEPTEMBER 18, 1969
September 18, 1969
MARY T. BROOKS TAKES OATH OF OFFICE AS
TWENTY-EIGHTH DIRECTOR OF THE BUREAU OF THE MINT
Mrs. Mary T. Brooks of Carey, Idaho, took the oath of office
today as the 28th Director of the Bureau of the Mint in a noon
ceremony at the Treasury Department. Secretary of the Treasury
David M. Kennedy administered the oath of office.
Secretary Kennedy commented that "Mrs. Brooks' appointment
by President Nixon was further evidence that the President is
naming women to high government positions in which they are
deeply concerned with the economy of our nation. As Director of
the Mint, Mrs. Brooks will be responsible for an adequate supply
of coinage for the daily commerce of our continually growing
economy, a position which will bring her in close contact with
our banks, industry and individuals. Mrs. Brooks' work with the
women of this nation will be particularly beneficial in carrying
out her new responsibilities of this important position."
Mrs. Brooks has been Assistant Chairman of the Republican
National Committee since 1965. Following the death of her
husband, Senator C. Wayland Brooks of Illinois in 1957,
Mrs. Brooks became a member of the Republican National Committee
and in 1960 was named Vice Chairman of the Committee. Since
1964, Mrs. Brooks has also served as a Senator in the Idaho
Legislature from Blaine County, Idaho. In her third term in
the state Senate, she was GOP' Caucus Chairman, and Chairman of
the State Affairs Committee.
Administrative Assistant to her father, United States
Senator John Thomas of Idaho, prior to his death in 1945,
Mrs. Brooks also worked in the family banking chain over the
years before the chain was sold to the First Security Corporation.
She has managed and developed one of the largest and most
successful sheep and cattle ranches in Southern Idaho, the Flat
Top Livestock Company.
K-202
- 2 -
Mrs. Brooks was born in Colby, Kansas and raised in Gooding,
Idaho. She attended Mills College in California and received her
Bachelor of Arts degree from the University of Idaho. Her
present and past memberships in civic, social and political
organizations include: Kappa Kappa Gamma, AAUW, American Legion
Auxiliary, Board of the Idaho Youth Ranch, Advisory Committee on
Women in the Services, Vice Chairman of her Red Cross District,
Mental Health Board, Immigrant Service League, Illinois
Children's Home and Aid, Light House of the Blind, Arden Shore
Association, and Board of Illinois Federation of Republican
Women.
As Director of the Mint, whose office is under the direction
of Assistant Secretary of the Treasury Eugene T. Rossides,
Mrs. Brooks is responsible for the direction of the largest and
most modern government coin-producing facilities in the world.
These include mints in Philadelphia and Denver and Assay Offices
in New York and San Francisco. In addition, she is responsible
for the operation of our gold depository at Fort Knox, Kentucky,
and silver depository at West Point, New York. During calendar
year 1968 the mints produced over 6.S billion domestic coins for
circulation, and 267 million coins for friendly foreign countries.
In addition, the mints produce hundreds of national medals
authorized by Congress and millions of numismatic items for sale
to the public.
000
TREASURY DEPARTMENT
WASHINGTON, D.C.
September 17,1969
TREASURY ANNOUNCES ADJUSTMENTS ON 2-1/2% BONDS ELIGIBLE FOR EXCHANGE
In comection with the exchange offering announced by the Treasury earlier today,
nterest will be adjusted on the 2-1/2% bonds due December 15, 1969, as of tha.t date.
The payments due to and from subscribers and the net amounts payable to or by
bscribers are as follows (per $1,000 face value) :
m NOTES
Payable to Subscriber
Account
to Adjust
of Issue
for MarPrice of
ket Value
New Notes
of Bonds
Due
5/15/71 $
3/4% Due
5/15/73
L/2%Due
9/15/76
$ 2.70
5.00
Accrued Interest Payable
Net Amount to be ';:'a.id
To Subscriber
~ Subscriber to
to
on Bonds
on Notes
Subscriber : Trea£ury
(6-15-69
(10-1-69
to 12-15-69)
to 12-15-69)
$
12.50
$16.41244
2.35
12.50
15.89955
2.20
12.50
15.28533
$1.21244
$
.L.04955
4.41467
TREASURY DEPARTMENT
WASHINGTON. D.C.
September 18, 1969
FOR IMMEDIATE RELEASE
MEMORANDUM FOR THE PRESS:
Attached is a copy of the second semiannual report on U. S. purchases and sales
of gold and the state of the U. S. gold stock
forwarded by Treasury Secretary David M.
Kennedy to the President of the Senate,
Speaker of the House and appropriate committee
chairmen o
The report covers the first half
of 1969.
000
K- 204
Semiannual Report on Purchases and Sales of Gold and the State of the
United States Gold Stock
January 31 - June 30, 1969
much
gain
- an
gold
United States gold transactions in the first half of 1969 followed
the same pattern as in the preceding six months. There was a net
of $262 million bringing the total U.S. gold stock to $11,153 million
increase of $686 million from the low point reached following the
crisis in the first half of 1966.
The gold transactions for the period are shown by country and
quarters in the attached Table 1.
The increase in the U.S. gold stock is more than accounted for by
sales of gold to the United States by France in the amount of $325 million.
other U.S. purchases totaled $70 million.
Gross sales of gold by the United States amounted to $133 million
of which $76 million was to Italy and $25 million to Switzerland. The
balance represented small sales to a number of countries of which the
large majority were to countries which required gold for payment of
charges to the International Monetary Fund as distinguished from those
that wished to add gold to their reserves.
As noted in the first of these semi-annual reports, sales of gold
to other countries for payment to the IMP fall into two categories. In
addition to those mentioned above, there were sales made in connection
with the general quota increase of 1966 which were subject to mitigation
that is the deposit of an equivalent amount of gold by the IMP with the
United States Treasury so that the impact of these gold sales on the
United States would be spread over time rather than concentrated in the
period during which the payments were being made. Transactions of this
type are presented in Table 2. This program is now complete with the
sale of $250 million in gold subject to mitigation. Table 2 has therefore been expanded to show all of these operations under the mitigation
procedure since its inception in 1965 and the table will be discontinued
with this report. Only $2.9 million of sales were made under the mitigation procedure in the current six month reporting period.
There have been a total of $22 million of withdrawals from the
mitigation account by the IMP of which $5 million took place in the
current reporting period. This withdrawal was largely offset by the
outright sale of $4.5 million of gold to the United States. IMP gold
transactions with the U.S., including withdrawals of mitigation deposits
are included in Table 1.
TABLE 1
UNITED STATES NEl' MONETARY OOLD TRANSACTIONS WITH
FOREIGN COUNTRIES AND INTERNATIONAL INSTITUTIONS
January 1 - Ju.""le
»,
1969
(In millions or dollars at $35 per fine troy ounce)
Area and Country
Total
We~:terlJ Ey.rQ~e
Denmark
France
Greece
Iceland
Italy
Switzerland
Turkey
Yugoslavia
Total
LaUn Amerlcii
Bolivia
Chile
Costa Rica
Dominican Republic
Ecuador
El Salvador
Guatemala
Haiti
Honduras
Nicaragua
Panama
Peru
Surinam
Total
+50.0
*
-76.0
-25.0
-=la.Q
-52.0
-0.1
-0.6
-0.1
-0.1
+4.0
-0.1
-0.1
-0.1
*
-0.1
-4.2
-5.1
+25.0
+275.0
-0.5
*
-7.0
-:Q..2
+291.6
+25.0
+325.0
-0.5
*
-76.0
-25.0
-7.0
-=..L!l
+239.6
-3.3
-0.1
-2.0
-0.2
-0.3
+4.0
-0.2
-0.2
-0.1
*
-0.1
-4.2
-8.4
-±2.aQ
~
*
-1.4
-0.1
-0.1
-0.1
-0.1
-0.1
*
-0.1
*
-6.6
-0.2
-0.1
*
-0.2
-0.4
-0.2
+6.8
-0.1
*
*
-0.4
-0.2
+17.3
+11.3
-O.J
-0.1
-0.2
-0.8
-0.4
+24.1
+11.J
-1.2
....:Q...1
+27.8
..::Q.2.
-6.8
~
Afghanistan
Burma
Ceylon
Indonesia
Pakistan
Philippines
Singapore
Southern Yemen
Syria
Total
tie! Ze511.!lJl9
-1.2
~
+4.6
-l.i.
+J2.3
-1.1
~
Burundi
*
Central African Republic
Chad
Congo (Brazzaville)
Dahomey
Gabon
Liberia
-0.1
Mauritius
Morocco
-0.1
Rwanda
*
Somalia
*
Sudan
-0.3
Tunisia
-0.2
Upper Volta
Total
-0.8
M
*
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
*
-0.2
*
-0.1
-0.1
-0.1
-0.1
-0.1
-0.2
*
-0.3
-0.1
-0.3
-0.2
....=,Q ..l
-1.7
-0.5
-0.7
-0.4
-:Q..J.
-2.5
-0.5
*
*
Total
+261.0
+316.9
-55.9
Domestic Transactions
..0.8
..0.8
Total Transa~tions
+316.9
+261.8
-55.l
*Under $50,000.
Figures may not add to totals because of rounding.
0J.0A1'Lr. ;t
June )), 1969
UNITED STATES MONETARY GOLD TRANSACTIONS WITH FOREIGN COUNT~IES
ITIGATED THROUGH SPECIAL DEPOSITS BY THE IMF ($ Mi llions
Country
Total
1966
1965
1967
1968
1969
Algeria
Argentina
Australia
Austria
-0.8
-17.5
-0.8
-0.8
-0.7
-0.2
-0.1
-2.0
-0.2
-0.1
-0.2
-8.3
'-25.0
Burma
Cameroon
Central African Rep. Ceylon
Chad
Chile
Congo (Brazzaville)
Congo (Kinshasa)
Costa Rica
Dahomey
Denmark
Dominican Rep.
Ecuador
Ethiopia
Gabon
Greece
Guinea
Haiti
Honduras
Iran
Iraq
Ivory Coast
Jamaica
Japan
Jordan
Korea
Lebanon
Liberia
Malagasy
Malaysia
Mali
Mauritania
Morocco
Nicaragua
Niger
-0.9
Paraguay
Philippines
Rwanda
Scmalia
Sudan
Sweden
Syria
Tunisia
Upper Volta
-25.0
Venezuela
Vietnam
-
TarAt
IMF DEPOSIT
-0.2
-0.1
-4.0
-0.1
-0.1
-0.6
-1.3
-0.1
-8.3
-0.4
-1.3
-1.0
-0.1
-10.0
-1.0
-0.2
-1.0
-0.1
-0.1
-2.4
-0.1
-6.3
-0.1
-0.1
-0.1
-0.4
-0.4
-0.1
-0.1
-0.7
-13.7
-4.0
-0.2
-1.5
':56.3
-
-0.2
-0.2
-0.2
-0.6
-1.3
-0.6
-1.0
-1.0
-1.3
-1.0
-0.1
-0.9
-1.0
-0.1
-0.1
-0.9
-0.1
-0.9
-0.1
-0.1
-0.2
-0.6
-0.1
-0.1
-0.3
-1.3
-
-177.2
+177.2
-21.6
+21.6
-8.8
-0.2
-0.9
-3.0
-18.8
-2.0
-1.8
-0.1
-0.1
-0.9
-l.~
-2.9
-3·9
-3.0
-17.5
-8.3
-25.0
-2.0
-0.8
-0.4
-4.0
-0.4
-6.3
-0.4
-3.0
-1.3
-0.4
-8.3
-1.8
-1.3
-1.0
-0.4
-10.0
-1.0
-0.2
-1.0
-13.7
-4.0
-0.8
-1.5
-56.3
-0.6
-1.3
-0.6
-1.0
-1.0
-1.3
-1.0
-0.5
-3.6
-1.0
-0.4
-0.9
-8.8
-0.9
-0.9
-3.0
-18.8
-2.0
-1.8
-0.4
-25.0
-250.0
+228.0
TREASURY DEPARTMENT
WASHINGTON. D.C.
FOR RELEASE 6: 30 P.M.,
Monday, September 22, 1969.
RESULTS OF TREASURY'S WEEKLY BUr. OFFERING
The Treasury Department announced that the tenders for two series of Treasury
bills, one series to be an additional issue C)f the bi Us dated June 26, 1969,and the
other series to be dated September 25, 1969, which ~re C)ffered on September 17, 1969,
were opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
or thereabouts, of 92-day bills and for $l,200,000,OOO} or thereabouts, of l82-day
bills. The details of the two series are as follows:
RANGE OF ACCEPl'ED
COMPETITIVE BIDS:
High
Low
Average
92-day Treasury bills
December 26 z 1969
Approx. Equiv.
Price
Annual Rate
98.181
7 .1l8~
98.164
7.184i
98.170
7.161~ Y
maturin~
182-day Treasury bills
mabJrins MA.rch 26 z 1970
Price
96.2.'38 ~7
96.274
96.278
Approx. Equiv.
Annual Rate
7.342~
7.37010
7.362~ ))
a/ Excepting 2 tenders totaling $3,000.
26i of the amount of 92-day bills bid for at the low price was accepted
22~
of the amount of 182-day bills bid for at the l')w pri~e was accepted
'roTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
MinneapOlis
Kansas City
Dallas
San Francisco
TOTALS
AcceEted
ApElied For
$ 32,729,000 $ 21,146,000
1,176,832,000
1,948,418,000
25,193,000
40,963,000
45,175,000
63,560,000
28,850,000
39,900,000
33,973,000
46,315,000
256,069,000
279,701,000
49,979,000
59,359,000
21,308,000
30,159,000
43,320,000
50,499,000
15,390,000
25,390,000
82,803,000
150,343,000
Applied For
$
7,912,000
1,761,250,000
21,307,000
29,556,000
25,187,000
49,541,000
173,859,000
34,264,000
19,909,000
25,803,000
23,246,000
157 ,~2_4, 000
$1,800,038,000
E/ $2,329,658,000
$2,767,336,000
AcceEted
$
7,606, 000
935,016,000
9,923,000
27,500,000
11,162,000
20,180,000
76,418,000
23,470,000
6,849,000
22,996,000
13,246,000
46,507,000
$1,200,873,000
V
~ Includes $393,504,000 noncompetitive tenders accepted at the average price of 98.170
Includes $213,985,000 noncompetitive tenders accep~d at the average price of 96.278
r:./
11 These
rates are on a bank discount basis. The equlvalent coupon issue yields are
7.4lf1, for the 92-day bills, and 7. 75<f, for the 182-day bills.
TREASURY DEP,*,(i ••V1ENT
,
WASHINGTON. D.C.
R RELEASE 6: 30 P.M.,
!sday, September 23, 1969.
RESULTS OF TREASURY 'S lwK>NTm.Y BILL OFFERING
'lhe Treasury Department announced that the tenders tor two series of Treasury
Lis, one series to be an additional issue of the bills dated June 30, 1969, and the
ler series to be dated September 30, 1969, which 'Were offered on September 17, 1969, were
~ned at the Federal Reserve Banks today.
Tenders were invited for $500,000,000,
thereabouts, of 273-day bills and for $1,000,000,000, or thereabout~ of 365-day
Lls. '!he details of the two series are as tollows:
m
OF ACCEPlED
273-day Treasury Bills
CPETITIVE BIDS: _ _~me.~tur.:=.;ing~,-J::..;un=e;.....::.3~0'e........;l~9~7~0_
Approx. Equiv.
Price
Annual Rate
High
94.464 iii
7. 30dJ
94.408
7,374~
Low
Average
94.421
7.357~
365-day Treasury Bills
maturing September 30, 1970
Approx. Equiv.
Price
Annual Rate
92.660
7.23~
7.368~
92.530
7.35~
92.548
11 :
!I Excepting
27~
6~
~
1 tender of $1,000
of the amount of 273-day bills bid for at the low price was accepted
of the amount of 365-day bills bid for at the low price was accepted
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
)istrict
30ston
iew York
?hilade1phia
!leve1and
~icbmond
ltlenta
:hlcago
It. Louis
{inneapolis
lansas City
811as
lan Francisco
TOTALS
Acce12ted
For
299,000
299,000 $
385,307,000
1,027,607,000
549,000
5,549,000
520,000
520,000
6,475,000
18,975,000
1,117,000
9,117,000
46,980,000
76,980,000
3,992,000
8,992,000
2,743,000
6,743,000
1,103,000
1,103,000
3,938,000
10,938,000
47,047,000
90,507,000
A~~lied
$
$1,257,330,000
$ 500,070,000 ~
Applied For
10,515,000
1,491,362,000
12,863,000
12,425,000
20,552,000
15,339,000
235,339,000
21,929,000
12,683,000
8,870,000
12,683,000
94,673,000
r
Acce~ted
$1,949,233,000
$1,001,488,000
$
515,000
784,832,000
2,863,000
7,425,000
8,552,000
5,339,000
116,289,000
10,929,000
5,683,000
6,170,000
4,373,000
48,518,000
sf
Includes $16,072,000 noncompetitive tenders accepted at the average price of 94.421
Includes $55 554 000 noncompetitive tenders accepted at the average price of 92.548
These rates ~re ~n 8 bank discount basis. The equivalent coupon issue yields are
7.8rPpfor the 273-day bills, and 7.9CYf,for the 365-day bills.
K-205
TREASURY DEPARTMENT
13iJ
WASHINGTON. D.C.
FOR RELEASE AT 12:00 NOON
TUESDAY, SEPTEMBER 23, 1969
September 23, 1969
TREASURY SECRETARY KENNEDY TRANSMITS DRAFT BILL
OF ADMINISTRATION'S REVENUE-SHARING PLAN TO CONGRESS
Secretary of the Treasury David M. Kennedy today transmitted
to the Congress a draft bill embodying the Administration's
revenue-sharing program.
The draft bill specifies the particulars of the revenuesharing proposal which President Nixon outlined in his message
of August 13, 1969. In that message, the president articulated
the several purposes behind this legislative prnposal:
"To restore to the States their proper rights
and roles in the Federal system with a new emphasis
on and help for local responsiveness; to provide
both the encouragement and the necessary resources
for local and State officials to exercise leadership
in solving their own problems; to narrow the distance
between people and the government agencies dealing
with their problems; to restore strength and vigor
to local and State governments; to shift the balance
of political power away from Washington and back to
the country and the people."
The bill, titled the "Revenue Sharing Act of 1969," sets
forth the mechanics of determination and distribution which
Administration officials had previously outlined in briefings
and speeches o The essential features of the bill provide for:
(1) an automatic, annual appropriation based on a
stated percentage of personal taxable income
the base on which Federal individual income
taxes are levied;
K-206
- 2 (2) a state-by-state distribution of funds based on
each state's share of national population,
adjusted for the state's revenue effort; and
(3) a distribution within each state to all general
purpose local governments based on the existing
distribution of public financing responsibilities.
Attached are copies of the draft bill and th2 transmittal
letters from Secretary Kennedy to Speaker of the House
John W. McCormack and President of the Senatp Spiro T. Agnew.
000
Attachments
IQ
A BILL
To restore balance in the Federal form of government in the United
States; to provide both the encouragement and resources for State and
local government officials to exercise leadership in solving their own
problems; to achieve a better allocation of total public resources; and
to provide for the sharing with State and local governments of a portion
of the tax revenue received by the United States.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
That--
SHORT TITLE.
SEC. 101.
~is Act may be cited as the "Revenue Sharing Act of 1969
11
•
- 2 DEFINITIONS.
SEC. 20L(a)
For purposes of this Act--
(1) except where otherwise indicated, the term "fiscal year"
means the fiscal year of the Federal Government of the United
States;
(2) the term "general revenue" of State and local governments
means general revenue from their own resources, as defined and
used by the Bureau of the Census of the Department of Commerce,
provided that in the case of the District of Columbia it shall in~lude
the Federal payment authorized under
47
D.C. Code §2501(a)
(81 Stat. 339);
(3) the term "Governor" means the chief executive officer of
each State or his delegate;
(4) the term "individual income tax returns" means the returns
of tax required to be filed
on the income of individuals under the
internal revenue laws;
(5) the term "local government" means a municipality, county,
or township (but does not include independent school districts or
special districts),as defined and used by the Bureau of the Census
of the Department of Commerce;
(6) the term "personal income" means personal income, as defined and used by the Office of Business Economics of the J?epartment of Commerce;
(7) the term "population" means total resident population,
~s
defined and used by the Bureau of the Census of the Department
of Cozmnercej
- 3 -
191
t
(8) the term "Secretary" means the Secretary of the Treasury
or his delegate;
(9) the term "State" means the several States of the United
States and the District of Columbiaj
(10) the tern "taxable income" means taxable income, as defined
by the internal revenue laws; and
(11) the term "units of government" means all units of local
government (including independent school districts and special
districts),as defined ahd used by the Bureau of the Census of
the Department of Commerce.
(b) The definitions in subsection (a) of this section (other than
the definitions in paragraphs 1, 3, 8, and 9) shall be based on the
latest published reports available, and the internal revenue laws in
effect, on
~he
date of enactment of this Act.
The Secretary may, by
regulation, change or otherwise modify the definitions in subsection(a)
of this section in
ord~r
to reflect any change or modification thereof
made subsequent to such date by the Department of Commerce or by a revision of the internal revenue laws.
- 4 REVENUE SHARING APPROPRIATION.
SZC. 301.(a)
There is hereby appropriated for the fiscal year beginning
''c:!ly 1, 1970, and for each fiscal year thereafter, an amount, as deter-
mined by the Secretary, equal to the percentage provided in subsection
I ))
()f
this section multiplied by the total taxable income reported on
I',,;deral ind i vidual income tax returns for the calendar year for which
the latest published statistical data are available from the Department
Df the Treasury at the beginning of such fiscal year.
(b) For purposes of s~bsection (a), the applicable percentage is-(1) for the fiscal year beginning July 1, 1970, 2/l2ths.of
one percent;
(2) for the fiscal year beginning July 1, 1971, 5/l2ths of
one percent;
(3) for the fiscal year beginning July 1, 1972, 7/l2ths of
one percent;
(4) for the fiscal year beginning July 1, 1973, 9/12ths of
one percentj
(5) for the fiscal year beginning July 1, 1974, 11/12ths of
one percent;
(6) for each fiscal year beginning on or after July 1, 1975,
aile
percent.
(c) Amounts appropriated pursuant to this section shall remain
~1 eei
lalle without fiscal year limitation
t;--;'ls
Act.
for the expenditures authorized
- 5PATIffiNTS
SEC.
40l.(a)
TO
STATES.
For any fiscal year, each State is entitled to an amount,
as determined by the Secretary, equal to the amount appropriated for such
year pursuant to section 301 multiplied
by the factor for such State.
Each State's factor 'shall be obtained by-(1) multiplying such State's population by its revenue effort,
and
(2) dividing the product obtained in paragraph (1) by the sum
of such products for all States.
(b) The amount
determined under subsection (a) of this sectiDn
shall be paid by the Secretary to the Governor of each State at such
times as the Secretary may determine during any fiscal year, but not
less often than once each quarter.
(c) Fo~purposes of subsection (a), the revenue effort of each State
for any fiscal year shall be obtained by dividing-(1) the total general revenue derived by such State and all of
its units of government from their own resources by
(2) the total personal income for such State.
(d) At the beginning of each fiscal year, the Secretary shall, on
the basis of the latest available data for all States furnished by the
Department of Commerce, determine-(1) the population of each State referrable to the same point
of time;
(2) the total annual general revenues of each State (including
all of its units of government); and
(3) the total annual personal income for each State.
- 6 (e) All computations and determinations by the Secretary under
sections 301 and 401 shall be final and conclusive.
- 7 PAYMENTS BY STATES TO LOCAL GOVERNMENTS.
SEC. 501.( a )
The local governments of each State shall be entitled to
receive an amount equal to the payment to such State pursuant to section 401 multiplied by a fraction, the numerator of which is the sum
of the general revenues derived by all local governments of such State
from their own resources and the denominator of which is the sum of
the general revenues derived by such State and all of its units of
government from their own resources.
Such amounts shall be computed
by the Governor of the State on the basis of the latest data available
f~om
the Department of Commerce at the beginning of the fiscal year.
(b) Within 30 days after receipt of a payment pursuant to section
401,each State shall pay to each of its local governments_an amount
computed.
by the Governor of such State on the basis of the statistical
data used in subsection (a) of this section equal to-(1) the amount determined under subsection (a) of this
section, multiplied by
(2) the ratio of each local government's general revenues
from its own resources to the total general revenues of all local
governments in such State from their own resources.
(c)
To encourage States to take the initiative in strengthening
the fiscal position of their local governments and to maximize flexibility in the use of the payments authorized by this Act for meeting
the particular needs of differing State and local fiscal systems, the
Secretary shall accept an alternative formula for the distribution of
- 8 funds as re~uired by subsections (a) and (b) of this section (and any
modification or termination of such formula) if re~uested by the State,
provided such formula 0r modification or termination of such formula)
is-(1) enacted by the State in the same manner as authorized
in such State's constitution for the enactment of its own laws,
and
(2) is approved-(a) by a formal resolution of the governing bodies of
more than one-half of the local governments of such State,
and
(b) by a formal resolution of the governing bodies of
the local governments of such State which would be entitled
to receive more than one-half of the payments otherwise required by this Act.
Such formula shall be filed with the Secretary not later than 180 days
preceding the fiscal year to which such formula would be applicable.
The provisions of such formula shall govern the use of funds otherwise
allocated by this Act to local governments and shall be effective for
the period stated therein.
(bo
- 9 QUALIFICATIONS.
SEC.
601. (a) In order to qualify for payments under this Act, a State
Government shall warrant to the Secretary that it waives immunity from
suit by its local governments in the United States Court of Appeals
under the provisions of this 'Act and shall, on behalf of itself and any
local government which may receive any part of such payments, give to
the Secretary such assurances as he may require that such State and its
local governments will-(1) use such payments for its governmental purposes;
(2) use such fiscal and accounting procedures
as may be
necessary to assure proper accounting for payments received by
such State
ar~
its local governments, and to assure proper dis-
bursement of amounts to which the local governments are entitled;
(3) provide to the Secretary or his representatives, on
reasonable
notice, access to, and the right to examine, any
books, documents, papers, or records as he may reasonably require
for the purposes of reviewing compliance with this Act; and
(4) make such reports to the Secretary in such form and containing such information as the Secretary may reasonably require,
including therein any computations made pursuant to section 501.
(b) Except when an alternative formula has been adopted pursuant
to section 501(c), a State's aggregate payments to all of its local
governments for such State's fiscal year (from all sources other than
amounts received under this Act), shall be an amount not less than the
average proportion of such State's general revenues received by its
local governments for the three fiscal years of such State next preceding the date of enactment of this Act.
- 10 POWERS OF THE SECRETARY.
SF'I~. 701.(!:,)
The
a.~jd regul·o~.ions
q~e2t
Secreta~y
is authorized to prescribe reasonable rules
for carrying out the provisions of thi"
,'t
and to re-
from any Federal agancy statistical data and reports and such
other information which he may deem necessary to carry out his functions
under this Act, and each Federal agency is authorized to furnish such
statistical data and reports and other information to the Secretary to
the extent permitted by law.
('b) If, after giving reasonable noti ce and opportunity for a hearing
to the Governor of any State, the Secretary determines that a State
C~vernment
has failed to comply substantially with any provision of this
Act or any rule or regulation issued pursuant thereto, he shall notify
the Governor that if such State Government fails to take corrective
H-+)n within 60 days from the
date of such determination, further pay-
mel) ;~s to such State Government in excess of the amounts to which the
l~ral governments of such State are entitled under section 501(a) will
b2 -withheld for the remainder of the fiscal year and for any subsequent
'~i_t~"al
year until such t:ime as the Secretar'j is satlsfied that appro-
;:>riate corrective action has been ta.ken and that
, t}-,p.r'" will no longer
be any failure to comply.
Until he is satisfied, the Secretary shall
make no further payments of such amounts to the Governor.
(c) In the case of the failure of compliance by the Governor, or
the fatlure of compliance by a State Government; for a period in excess
(J-:
6 I!lJnths after the e),tl.::':;,:.l.n
o~
il":e. 60-day '1~Vce given pursuant to
a determination under subsection (b) of this section, the Secretary shall
forthwith cancel any payments withheld pursuant to subsection (b) for
t- ne
current and for aLY Eubsequ.-:!nt
llSCal.
yee.r and shall reapportion
/~L
- ,11 -
t
and pay such cancelled payments to all other States then entitled to
receive payments under section 401 in proportion to the original
installments paid to such States for the fiscal year to which such
cancelled payments pertain.
Such payments to all other States shall
be considered payments made pursuant to section 401.
(d) If a payment or payments to a State Government are withheld or
cancelled pursuant to this section, the Secretary shall continue to pay
to such State the amount to which the local governments of such State
are entitled, as determined pursuant to section 50l(a), and such State
shall continue to distribute such amounts among its local governments
pursuant to section 50l(b) or (c).
(e) The Governor shall be responsible to the Secretary for determining that local governments within his State have complied with the
requirements of this Act and the rules and regulations issued pursuant
thereto.
If, after giving reasonable notice and an opportunity for a
hearing to the chief executive officer of a local government of such
State, the Governor determines that such local government has failed to
comply substantially with any provision of this Act or any rule or
regulation issued pursuant thereto, the Governor shall forthwith notify
such local government that if it fails to take corrective action within
60 days from the date of such determination, further
paJ~ents
to it
under this Act will be withheld for the remainder of the fiscal year
and for any subsequent fiscal year until such time as he is satisfied
that appropriate corrective action has been taken and that there will
no longer be any failure to comply.
The Governor shall forthwith notify
- 12 -
the Secretary of his action.
In the event of a failure of compliance by such local government
for a period in excess of 6 months after the expiration of a 60-day
notice issued by the Governor pursuant to a determination under the preceding paragraph, the Governor shall forthwith cancel any payments withheld for the current and for any subsequent fiscal year and shall reapportion and pay such cancelled payments to all other local governments
of such State then entitled to receive payments pu!suant to section 501,
in proportion to the original payments made to such local governments
for the fiscal year to which the cancelled payments pertain.
- 13 JUDICIAL REVIEW.
SEC. 801. (a) Any State or local government which receives a 60-day
notice under section 701 pursuant to a determination that payments to
it will be withheld may, within 60 days after receiving such notice,
file with the United States Court of Appeals for the circuit in which
such State or local government is located, or in the United States
Court of Appeals for the District of Columbia, a petition for review
of the Secretary's action.
A copy of the petition shall be forthwith
transmitted by the clerk of the court to the Secretary.
The Secretary
shall file in the court the record of the proceedings on which he
based his action as provided in section 2112 of Title 28, United States
Code.
(b) No objection to the action of the Secretary shall be considered
by the Court unless such objection had been urged before the Secretary,
or unless there were reasonable grounds for the failure to do so.
(~) In accordance with the provision of this subsection, the court
shall have jurisdiction to affirm or modify the action of the Secretary,
or to set it aside, in whole or in part.
The findings of fact by the
Secretary, if supported by substantial evidence, shall be conclusive.
- However, if any finding is not supported by substantial evidence, the
court may remand the case to the Secretary to take further evidence,
and the Secretary may thereupon make new or modified findings of fact
and may modify his previous actions.
record of any further proceedings.
He shall certify to the court the
Such new or modified findings of
fact shall likewise be conclusive if supported by substantial evidence.
- 14 (d) The judgment of the court shall be subject to review by the
Supreme Court of the United States upon certiorari or certification as
provided in section 1254 of Title 28, United States Code.
(e) In the event that judicial proceedings are instituted pursuant
to this section, the Secretary· shalJ" after the expiration of the 6
months period provided in sections 701(c) or 701(e)
or the point at
which any judicial decision become::; fina.l, whichever is later, cancel,
reapportion, and pay any payments withheld pursuant to section 701 for
the current and for any subsequent fiscal years.
(f) For purposes of this section, the term. "Secretary" means the
Secretary of the Treasury or the Governor of a State, whichever is
appropriate.
15 REPORT BY THE SECRETARY.
SEC.
901. The Secretary shall report to the President of the United
States and the Congress as soon as is practicable after the end of the
fiscal year on the operation of this Act during the preceding fiscal
ADMINISTRATIVE EXPENSES.
B~C.
1000.
There is hereby authorized to be appropriated such sums as
may be necessary for the administrative expenses required to carry out
the functions of the Federal government under this Act.
EFFEC'rIVE DATE.
SEC. 1001.
The effective date of this Act shall be January lJ 1971.
1?1
THE SECRETARY OF TH E TREASURY
WASHINGTON
SEP 23 1969
Dear Mr. Speaker:
In accordance with the President's message of August 13,
1969, announcing the Administration's program for the sharing
of Federal revenues with State and local governments, I am
enclosi~g a draft bill for consideration" by the Congress.
The revenue sharing proposal, as embodied in the draft
bill, is an integral part of the President's domestic policy
program which he communicated to the Nation on August 8, 1969.
It" represents a new approach to the overall allocation of
public resources for social progress. In the President's
words:
.
"This proposal marks a turning point
in Fede-ral-State relations, the beginning
of decentralization of governmental power,
the restoration of a rightful balance
between the State capitals and the national
capital."
It would be appreciated if you would lay the proposed
legislation before the House of Representatives. A similar
communication has been addressed to the President of the
Senate.
The Bureau of the Budget has advised us that enactment
of this proposed legislation would be in accord with the
pr~gram of the President.
For your information, I am enclosing a copy of the
Treasury Department press release announcing the transmittal
of the proposed l~gislation.
Sincerely yours,
~.~~/~~
The Honorab Ie
John W. McCormack
Speaker of the House
of Representatives
Washi~gton, D. C.
20515
Enclosures
/~ J
THE SECRETARY OF TH E TREASURY
WASHINGTON
SEP 23 1969
Dear Mr. President:
In accordance with the President's message of August 13,
1969, announcing the Administration's program for the sharing
of Federal revenues with State and local governments, I am .
enclosi~g a draft bill for cons.ideration by the Congress.
The revenue sharing proposal, as embodied in the draft
bill, is an integral part of the President's domestic policy
program which he communicated to the Nation on August 8, 1969.
It"represents a new approach to the overall allocation of
public r~sources for social progress. In the President's
words:
"
"This proposal marks a turning point
in Fed~ral-State relations, the beginning
of decentralization of governmental power,
the restoration of a rightful balance
between the State capitals and the national
capital. "
It would be appreciated if you would lay the proposed
legislation before the Senate. A similar communication has
been addressed to the Speaker of the House of Representatives.
The Bureau of the Budget has advised us that enactment
of this proposed legislation would be in accord with the
pr~gram of the President.
For your information, I am enclosing a copy of the Treasury
Department press release announcing the transmittal of the
proposed legislation.
~nCerelY
yours,
~~/~--'}.
The Honorable
Spiro T. Agnew
President of the Senate
Washi~gton, D. C.
20510
Enclosures
TREASURY DEPARTMENT
,
Ie;
•
WASHINGTON. D.C.
September 24, 1969
FOR RELEASE P.M.'S
SATURDAY, SEPTEMBER 27, 1969
MEMORANDUM TO CORRESPONDENTS:
Attached is the transcript of an interview with
Paul Volcker, Under Secretary of the Treasury for
Monetary Affairs, conducted here by Hisanori Isomura,
Chief of the Washington Bureau of the Japanese
Broadcasting Corporation (NHK).
The interview is
being telecast in Japan as part of a documentary on
"SDR and the World Economy."
000
VOLCKER INTERVIEW
;7rJ
MR. ISOMURA: First of all, I would like to know:
How does your Government assess the activation of SDR's,
and when and how are you planning to use this new means
of currency?
MR. VOLCKER: I think the first thing I should say
is that we look upon this as a victory for international
cooperation. This is really a delicate and unprecedented
arrangement, because essentially what we are doing is
creating international money. Money is a sensitive
subject, and the fact that so many countries could
get together and work together, negotiate and finally
reach a decision to activate SDR's, seems to me to
represent a real triumph in international financial
cooperation. I would think this is also a very favorable
omen for prospects in cooperating in other financial
areas in the future.
So far as the economics are concerned, I think
it is important that we did arrive at this kind of an
agreement for supplementing the supply of world reserves
and world liquidity in the interest of providing the
financial support that is necessary for the growth of
trade, and for the free flow of investments in the years
ahead.
The growth of reserves has actually been quite
limited in recent years. The traditional forms of
reserves -- gold, U. S. dollars in particular -- we do
not want to rely upon to meet all of the future needs.
So we have moved in, I think, promptly and in the
right time dimension, to fill this gap and provide the
mechanism by which internationally we can increase
reserves; in effect, increase the international money
supply just as the domestic money supply in each of
our countries needs to be increased.
You asked what benefits it will have for the
United States, or how we will use it. I think the
chief benefit for the United States is the same as the
benefits that this will help bring for others -- that
it will help support the orderly growth and vigorous
growth of trade in the future. From the standRoint
of the United States, as from the standpoint or ot~er
countries, looking at their immediate interest, th~s
-2does provide a mechanism by which we can strengthen
our own reserve position in the years ahead without
bringing pressure on other countries -- without
simply building reserves at the expense of other
countries' reserve position. This is important,
particularly, I think, to the United States, since we,
in terms of the position of the dollar, playa
particularly crucial role in the international
monetary system, and it is impo~tant that our reserve
position be strong over the years ahead.
MR. ISOMURA: As you mentioned, it is obvious
that stabilization of the dollar is imperative for a
stable world monetary system.
Could I ask you what measures your Government is
now taking to insure stabilization of the U. S. dollar?
MR. VOLCKER: There is no question that the
stability of the dollar is crucial. It is critical
to us domestically and we also recognize that this
is a foundation stone for the development of the
monetary system generally, because of the very heavy
use of the dollar by people in other countries.
Our approach here, I think, has been evident in
our actions in recent months where we are attempting
to reduce the excessive demands that have characterized
our economy over the past three or four years -- the
so-called over-heating -- through the instruments of
both fiscal and monetary policy.
We are moving, after a period of clearly excessive
budgetary deficits, over to a period of substantial
surplus, quite deliberately. This required both
maintenance of special surtaxes, so far as revenues
are concerned, and has required very stringent controls
in the Federal budget.
At the same time, we have cut the growth in internal
money creation, internal liquidity creation, in an
effort to dampen excess in investment and other areas
of the economy.
111
-3-
This has been, as you can imagine, quite a
painful process. Interest rates are at historically
high levels for the United States, levels that we have'
not seen in this country for a hundred years or more.
We have very strict budgetary priorities, meaning that
we are not able to do all we would like to do as fast
as we would like to do it. But the important problem
is regaining control over this inflation, restoring
reasonable price stability, and this is what we mean
to do, and our intention is to do this in an orderly
way, without moving so fast and so far that we plunge
the United States into a recession which also would have
adverse consequences for the rest of the world.
MR. ISOMURA: What kinds of difficulties do you
anticipate in the process of stabilizing the SDR as a
new means of reserves?
MR. VOLCKER: I do not anticipate any serious
difficulties in this respect. We are creating SDR's,
I think, initially in moderate and prudent amounts,
amounts that I think are commensurate with the need~
but not so large as to create any feeling that this
new asset is available in excessive amounts.
I think people will want to hold it. The agreement
has been very carefully drawn, after years of negotiations,
so that the responsibilities of various countries -that they have willingly undertaken to hold this new
asset, to accept the new asset -- have been very
clearly laid out.
The circumstances under which this asset will be
appropriately used have also been very clearly laid
out. I think we will find on the basis of these
agreements, that practices will grow up that are quite
consistent with working this new asset into the complex
of international financial arrangements.
MR. ISOMURA: As my last question, sir, as you
know, it is most important for stabilization of world
currencies to have close cooperation between the United
States and Japan. In this context, what does your
Government expect from Japan?
-4MR. VOLCKER:
Well, I could not agree more with
your premise, that close cooperation between Japan and
the United States does seem to me extremely important
in the development of not only the international
financial systems but in terms of the economic and
political development and other respects.
This is increasingly emphas.ized, I think, by the
amazing growth record of Japan, which has propelled your
coun try in to truly a maj or world eco!1-omic. power. The __growth
in productkn and incomes, I think, has now brought you
into third place among all of the countries of the free
world.
So, obviously, the relationships between Japan
and the United States are extremely importsnt. I think
this economic growth has brought great benefits to Japan
in terms of domestic living standards, and in terms
of all that you have been able to do, in domestic
investment.
I think clearly this growth and benefits also
brings new responsibilities to Japan, too. In terms
of, I suppose, the way we would like to see these
responsibilities develop, it means increasing opportunity
for sharing some of the heavy international burdens
that are the lot of the advanced countries. I think
particularly of the aid area, where Japan does accept
quite usefully certain responsibilities, particularly
in the area of the world in which it is located.
We certainly are interested in seeing Japan, now
that it has reached the economic strength and stature
that it has, making progress towards opening its own
markets, for imports, and opening its internal economy
more freely to foreign investment, so that:it may
participate -- and we certainly look forward to this- -more fully in the years ahead in international trade,
commerce and investment. We must recognize, I think,
all the time as all of us must, that economic relationships must be reasonably balanced in terms of trade
and in the investment activity.
MR. ISOMURA:
September 9, 1969
I thank you very much, sir.
TREASURY DEPARTMENT
WASHINGTON. D.C.
September 24, 1969
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
$3,000,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing October 2, 1969,
in the amount of
$3 , 003 , 518 , 000 ,
a s follow s :
92-day bills (to maturity date) to be issued October 2, 1969,
in the amount of $ 1,800,000,000, or thereabouts, representing an
additional amount of bills dated July 3, 1969,
and to
mature January 2, 1970,
originally issued in the amount of
$ 1,099,668,000,
the additional and original bills to be
freely interchangeable.
l82-day bills, for $ 1,200,000,000,
dated
October 2, 1969,
and to mature
or thereabouts, to be
April 2, 1970.
The bills of both series v7ill be issued on a discount basjs 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, bne-thirty p.m., Eastern Daylight Saving
time, Monday, September 29, 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 de~imals, 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
K-207
-
L -
responsible and recognized dealers in investment securities. Tenders
ft'om others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
~lccompanied 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 announcp
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 Secre tary of the
Tt'easury expressly ["eserves the ["ight to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subj ect to these reservations, noncompetitive tenders
for each issue fo[" $200,000 or less without stated price f["om anyone
bidder will be accepted in full at the average price (in th["ee
decimals) of accepted competitive bids for the respective issues.
Settlement fo[" accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on October 2, 1969, in
cash or other immediately available funds or in a like face amount
of Treasu["y bills maturing October 2, 1969.
Cash and exchange
tende["s 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, 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 Treasurv
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.
173
STATEMENT OF THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY (ECONOMIC POLICY)
BEFORE THE
SENATE SUBCOMMITTEE ON INTERGOVERNMENTAL RELATIONS
ON SEPTEMBER 25,. 1969
SUMMARY
S. 2483 deals with revenue sharing between the Federal
Government and the states and municipalities; the bill also
covers four other items dealing with Federal-state-local
relations.
The Administration's proposal for revenue sharing is
compared by Mr. Weidenbaum with S. 2483.
He pays particular
attention to the economic arguments for general intergovernmental
assistance.
While similarities exist between the Administra-
tion's proposals and S. 2483, the Treasury finds some aspects
costs, the allocation approach, distribution of funds within
a state, and a provision for tax credits -- inconsistent with
the budgetary outlook or the Administration's approach to
general assistance to state and local governments.
Commenting on other sections of the bill, Mr. Weidenbaum
expresses the Treasury's position as:
(1) support for Federal-
state cooperation in the administration of state income taxes,
(2) postponement of consideration on a provision affecting
state death tax payments, and (3) support for a provision
expanding state and local taxing jurisdiction.
K-208
FOR RELEASE ON DEL I
'j
~RY
STATEMENT BY THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE SUBCOMMITTEE ON INTERGOVERNMENTAL
RELATIONS OF THE SENATE COMMITTEE ON GOVERNMENT
OPERATIONS ON S. 2483, "TIlE INTERGOVERNMENTAL REVENUE ACT"
ON THURSDAY, SEPTEMBER 25, 1969
AT 10:00 AM (EDT)
Mr. Chairman and Members of the Subcommittee:
I welcome this opportunity to appear before your Subcommittee to present the Administration's views on S. 2483.
We
are particularly interested in the substance of this bill
since it relates directly to a major item in the President's
domestic program--the effort to establish a healthy balance
in our federal system of government.
It is clear from
Section 2(a) of the bill that its general purposes conform
with ours:
to provide both the encouragement and the resources
for state and local governments to exercise leadership in
solving their own problems.
As you know, Mr. Chairman, there are basically two kinds
of arguments to be made in support of a program which transfers
both financial resources and decision-making responsibility
from the central government to the state and local governments.
One set of arguments centers around considerations of administrative efficiency, institutional responsiveness, and local
2
determination.
These factors support the contention that too
often the decision-making authority and institutional apparatus
are removed from the source of many public problems.
The other
set of arguments centers around considerations of fiscal
capacity, taxing systems, and public resource allocation.
These factors support the contention that a basic imbalance
exists between the normal budgetary positions of the Federal
and local governments.
In his message to the Congress on revenue sharing, the
President devoted considerable attention to these arguments-emphasizing that a definite need existed to redefine the roles
of the various levels of government.
A copy of the President's
message and supporting documents are appended to this statement.
I would like to concentrate today on some of the economic
arguments for general intergovernmental assistance and revenue
sharing.
As a student of public finance I am impressed by the broad
agreement among analysts of all political persuasions that a
strong financial case exists for general Federal aid to state
and local governments.
They all note that Federal tax collec-
tions are more responsive to economic growth than state and
local revenue collections.
At the same time, expenditure
requirements of state and local governments tend to rise more
3
rapidly than economic and population growth or the peacetime
requirements of existing Federal programs.
The end result of
these divergent trends is the troublesome "fiscal mismatch"
which so many students of the intergovernmental financial
situation have discussed.
This basic economic argument for financial assistance is
persuasive and widely held.
The point that does engender
discussion concerns the form that this Federal assistance
should take.
More specifically, we see the question as being:
"Given
the near-term budgetary outlook, how can we most effectively
provide general assistance to state and local governments
with the limited federal funds available?"
Among the alterna-
tive forms of possible additional assistance--revenue sharing,
tax credits, additional categorical grants, federal assumption
of local functions--we have come down strongly in favor of
revenue sharing.
I~
is the one form of assistance which meets
the financial plight of state and local governments directly.
Revenue sharing involves no increase in Federal requirements
or administrative burdens.- Unlike tax credits, revenue sharing
avoids the pressures of interstate competition.
And revenue
sharing permits discretionary resource allocation by those
elected officials in a position to evaluate local
ne~ds.
4
With this commitment to revenue sharing as the preferred
method of general assistance to local governments, the remaining
requirement is to design a revenue-sharing proposal which
satisfies some basic criteria of acceptability.
We have
enunciated some broad principles which guided our thinking in
preparing the Administration proposal:
Simplicity:
no new Federal bureau or agency should
be created; the funds should be distributed on the basis
of available objective statistics.
Dependability:
state and local governments should be
able to count on the funds in their own fiscal planning.
Fairness:
funds should go to every general purpose
governmental unit, regardless of size or geographic
location.
Discretion:
state and local governments should be free
to use the funds wherever they determine the need
exists; no federal earmarking of functional expenditure
requirements should be included.
Neutrality:
distributions should be as equivalent within
states as possible, with no attempt to punish or reward
certain forms or sizes of general government, or certain
systems of taxation.
Within this framework we have proposed a revenue-sharing
program for consideration by the Congress.
It is against the
5
background of our proposal that I wish to comment on the various
provisions in S. 2483.
Let me say at the outset that many
similarities exist between the two bills.
This is primarily
because S. 2483 was among the several intergovernmental assistance proposals which we carefully" reviewed in forming our own
position.
(Other proposals which we drew upon include S. 1634,
introduced by Senator Baker on March 24, 1969.)
We drew on
several innovative approaches in your bill, Mr. Chairman,
during this process, including local government sharing and
distribution on the basis of revenues raised.
However, there
are some aspects of S. 2483 which we find incompatible with
both budgetary realities and our philosophy of the purposes
behind general assistance to state and local governments.
One overall matter of concern to us runs not to the
substance but to the cost of the provisions.
The estimates
of the Advisory Commission on Intergovernmental Relations staff
show Federal
budget~ry
outlays of $5.4 billion in the fiscal
year 1970, $7.1 billion in the fiscal year 1971, and $10.1
billion in the fiscal year 1972.
This is simply too large a
budgetary undertaking in view of stabilization policy requirements and available revenues.
For these same reasons, our
revenue-sharing proposal provides for a transitional phasingin of the program before the full $5 billion funding"is achieved.
6
TITLE I
Turning to the specifics of
s.
2483, Title I proposes
a program for sharing federal revenues with states and their
political subdivisions.
There are several important differences
between this proposal and the Administration proposal which
warrant careful examination.
First, a fundamental difference between the two plans
exists in the basis for determining the size of the annual
revenue sharing appropriation.
We have proposed that a stated
percentage of personal taxable income--the base on which
Federal individual income taxes are levied--be allocated for
revenue sharing.
S. 2483 proposes that a stated percentage of
personal taxable income and a much higher percentage of state
personal income tax collections be allocated for revenue sharing.
There are two problems with the allocation approach
proposed in S. 2483.
First, the proportionately heavier
weighting assigned to state personal income tax collections
means that revenue sharing is not directly associated with
Federal revenues.
The projections prepared by ACIR show state
personal income tax collections rising at a much faster rate
than the Federal personal income tax base.
We believe it is
7
177
important to maintain a direct link between the Federal tax
system and the determination of the revenue-sharing appropriation.
A related difficulty with this procedure for determining
the amount of revenue sharing funds is that the proposal ceases
to serve solely as a program for general assistance to states
and localities.
It assumes a significant role in shaping
state decisions on taxing systems, since a strong incentive is
established in favor of state personal income taxes.
However
persuasive the case may be for this form of state tax system,
we do not believe that a proposal for transferring. both funds
and decision-making responsibility to local governments should
include a Federally prescribed incentive which may strongly
influence local decisions as to the precise form of taxation
that they should rely upon.
The second major difference between the S. 2483 and the
Administration revenue sharing proposals is in the formula
recommended for the ,state-by-state distribution of the funds.
Both proposals call for a distribution based on each state's
share of national population, adjusted for the state's revenue
effort.
They differ in the way revenue effort is defined and
expressed.
We propose that revenue effort be simply expressed as the
ratio of total general revenues from their own sources collected
8
by a state and all its local government units during a given
fiscal year to the total personal income of that state.
Both
of these measures conform to standard Census Bureau definitions
and are consistent among the states.
A simple adjustment for
revenue effort would provide a state whose effort is ten
percent above the national average with a ten percent bonus
above its basic per capita portion of revenue sharing.
s.
2483 proposes to adjust the basic per capita distribu-
tion by not only the latest revenue effort factor, but also
the trend in revenue effort as represented by the ratio of the
latest factor to that for the preceding year.
Furthermore,
the numerator in the revenue effort factor is defined as the
sum of all state and local taxes plus net profits from the
operation of state-owned liquor stores.
There are two obvious differences in the revenue effort
adjustments.
One is the inclusion in S. 2483 of the trend
in revenue effort . . We believe the latest revenue effort
factor adequately expresses the effort concept.
The additional
adjustment for a two-year trend is both complicating and
unnecessary, and would produce results whereby states with
identical current efforts would receive different adjustments.
The other is the definition of revenue to include liquor
store profits and to exclude current charges and miscellaneoUs
9
general revenues.
This is not a definition which conforms
to standard Census Bureau usage; it is not consistent among
states; and it unnecessarily provides disincentives for local
government usage of service charges.
It is important that
the revenue effort adjustment be only an incentive to improve
overall effort, and not one to influence numerous revenue composition decisions.
Therefore, the definition of revenue
should be that broad one employed by the Census Bureau-general revenues from own sources.
The third and perhaps most basic difference between the
two revenue sharing plans exists in the provisions for distributing
funds within a state.
Both proposals call for a mandatory
"pass through" of funds by the state government to its local
governments.
And both proposals provide for allocation on
the basis of revenues raised by the' local government.
But
there are three important differences remaining between the
two distribution prqposals.
First, the Administration program provides that the local
share be distributed to all cities, counties, and townships,
regardless of size.
S. 2483 provides for direct revenue
sharing with only those cities and counties having a population of 50,000 or more.
This would mean that 45.4 percent of
all city residents, 27.5 percent'of all county
resid~nts
and
10
100 percent of all township residents would be residing in
governmental units ineligible to directly receive revenue
sharing funds under S. 2483.
We believe that all local
governments are faced with fiscal pressures and that all
deserve specific inclusion in a general assistance program.
Second, the Administration proposal provides for distribution of funds to each local government in proportion to its
share of total local general revenues raised.
s.
Title I of
2483 provides for distribution of funds to each eligible
local government in proportion to its share of tot_al state and
local taxes imposed, with a larger share going to all cities
and counties of 100,000 population or more.
I would again
point out the important differences between the terms "general
revenues" and "taxes," and suggest that "general revenues"
is the preferable
concept.
But a more important issue is whether the larger cities
and counties should, automatically receive proportionately more
revenue sharing funds than the smaller governments.
We have
taken the position that for this program of general financial
assistance there should be no such distinction made.
It is
true that some of our larger cities do have heavier concentrations of "high-cost" citizens, and disproportionate expenditure
requirements due to concentration and congestion.
It is very
11
Itf
difficult, however, to incorporate these various differences
into a simple revenue-sharing plan designed to assist in relieving the general fiscal imbalance between levels of government.
The special problems of large-scale urbanization can best be
treated on an individual basis by both state and Federal
programs.
On balance, we believe the preferred approach for revenue
.. sharing is to distribute funds in proportion to general revenues
raised.
As it turns out, large cities raise most of the local
government revenues and, hence, they will receive most of the
locally shared revenues under the Administration's proposal.
In fact, for all cities of one million or more, the average
per capita revenues raised in 1967-68 were $255.95, compared
to $78.74 for cities with population of less than 50,000.
The third point of difference between the local distribution systems of the two proposals is that the Administration
plan does not include a direct. distribution to school or
special districts, while S. 2483 includes revenue sharing with
independent school districts.
The total funds allocated to
these districts would be related to the proportion of school
taxes to the sum of school taxes plus state taxes.
We have not included any special purpose districts in
our proposal because of the desir.e to avoid placing any program
or project restrictions on revenue sharing funds.
To distribute
12
funds directly to fire districts, or school districts, or
drainage districts amounts to widespread earmarklDi of substantial funds for specific progr....
fbi. do•• not mean that
these functional areas will be left out in the ultimate distribution of revenue-ahariq
fund..
"The .ffIeW........,~..
for managing and administering thele districts will look to
the state government for additional assistance.
Mo.t illlpOrtlDtly,
however, the Federal revenue-sharing progr. would not inflUIftC.
the allocation of funds to particular governmental function ••
Such allocation decisions will be -.de by .CaCe
~
local
officials in response to the needs of their JUI'ledlctioa ••
TITLE II
Title II of S. 2483 'provides for a putia1 , ...ral lac. .
tax credit for state and local income tax payments.
Given the
limited availability of funds for general intergovernmental
assistance, we
beli~ve
that the most effective course 18 to
pursue a program of revenue sharing rather than tax credits.
Revenue sharing provides immediate and direct benefit to the
states and localities, without influencinl their choice of
tax systems.
Furthermore, with a basic distribution among
states on a per capita basis, revenue sharing ia more "equ.liling" than tax credits, which spread their henefite .eoar'plalc.U,
in proportion to federal tax collections.
With the budaetary
I
13
yO
pressures we face, it is necessary to choose among alternative
forms of state and local financial assistance.
There is not
room for both tax credits and revenue sharing, and we consider
revenue sharing to be the best approach.
Therefore, we would
be opposed to enactment of Title II.
TITLE III
Under present law a considerable degree of cooperation
exists between the Treasury (the Internal Revenue Service)
and state tax officials in the administration of their income
taxes under agreements which provide for exchange of information
flowing from the audit of returns.
The introduction of computers
by both Federal and state tax administrations has increased the
potentialities of this type of cooperation.
The closer the
conformity of the state law to the Federal law in the determination of taxable income the greater are the advantages of this
exchange of
informa~ion.
Under these agreements both the
state and the Federal Government have increased their collections and reduced their costs by substantial amounts.
The Treasury favors expansion of administrative cooperation
in ways which would be mutually acceptable to the appropriate
authorities of both jurisdictions, and therefore, has no
objection to the enactment of Title III.
14
It should be pointed out, however, that any plan for
collection of state income taxes by the Internal Revenue
Service which
IS
to achieve greater administrative efficiency
will necessarily require close conformity of state income tax
provisions with Federal income tax provisions.
Although
a substantial degree of conformity to the Federal
ta~
is
provided in many of the state income taxes, significant
variations exist in some states as to exclusion and deduction
adjustments to gross income in arriving at taxable income
for state tax purposes.
Some of the states may have problems
when it comes to enacting the necessary conformity legislation.
The varying concepts of state taxing jurisdiction would also
present problems until more uniformity is achieved.
It should also be noted that on the basis of our
experience during the past three years with the Internal
Revenue Service not being provided the full amount of resources
that it would like to have in order to enforce collection of
taxes due the Federal Government, we simply cannot take on
work for the states beyond the receipt of tax returns and
remittances and their processing and deposit..
The states
would have to continue to assume the responsibilities of
auditing and collecting any unpaid state taxes.
IS
If!
TITLE IV
Estate and gift taxes are one of the areas of Federal
tax law which are not included in -the Tax Reform Act of 1969.
The Committee on Ways and Means in its report on this legislation, however, has indicated that it will undertake a study
of this area as soon as possible.
Insofar as the Title IV
provision is directed at influencing states which now impose
inheritance taxes to adopt an estate-tax type of death tax,
we believe the provision might more appropriately be considered in connection with the broader study of the estate
and gift tax area by the Committee on Ways and Means.
To
the extent that the provision is intended as a means of giving
the states more Federal financial assistance we believe, as
we have indicated with respect to the credit for state income
taxes proposed in Title II, that given the limited availability of funds for general assistance a program of revenue
sharing is to be preferred to a larger credit for state
death tax payments.
TITLE V
Title V would permit states -and their localities to tax
the personal property of private individuals located in areas
under exclusive Federal jurisdiction, provided that an agency
16
designated by the President certifies that persons living
and working in these areas are afforded substantially the
same rights, privileges, and tax-supported services available
to other residents of the state.
The Treasury favors the enactment of this provision.
000
TREASURY DEPARTMENT
WASHINGTON. D.C.
September 26, 1969
FOR IMMEDIATE RELEASE
ASSISTANT SECRETARY WEIDENBAUM
HONORED BY CITY COLLEGE OF NEW YORK
Dr. Murray L. Weidenbaurn, Assistant Secretary for
Economic Policy of the Treasury Department, has been
unanimously voted the Townsend Harris Medal for 1969
by the Board of Directors of the Alumni Association of
City College of New York.
The medal, named after the founder of City College
and awarded annually for distinguished achievement, will
be conferred upon Dr. Weidenbaum at the college's
89th Annual Alumni Dinner on November 19 in New York City.
He was cited for his achievements in the field of
economic policy.
Many distinguished Americans including Associate
Supreme Court Justice Felix Frankfurter, Bernard Baruch
and Dr. Jonas Salk have received the award since it was
established in 1933.
Dr. Weidenbaum, former Professor and Chairman
of the Department of Economics of Washington University,
St. Louis, before joining the Treasury Department, holds
a Doctor's Degree from Princeton University and a Master's
Degree from Columbia University. He received his
Bachelor's Degree from City College of New York in 1948.
000
K-209
STATEMENT BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE SENATE HOUSING SUBCOMMITTEE OF THE
SENATE BANKING AND CURRENCY COMMITTEE
ON THE REPORT OF THE
PRESIDENT'S COMMISSION ON MORTGAGE INTEREST RATES
ON FRIDAY, SEPTEMBER 26, 1969
AT 10: 00 A. M.
(EDT)
Mr. Chairman:
I am pleased to have this opportunity to present the
views of the Treasury on the report of the Commission on
Mortgage Interest Rates.
The recommendations of this
distinguished Commission will I am sure be most helpful
to those who share responsibility for developing an effective
national housing policy; the report should also broaden
public understanding of the complex issues that must
ultimately be resolved.
In reviewing this report, I was particularly impressed
by the Commission's emphasis on bringing the current inflation
firmly under control as the first and essential step toward
realizing our national housing goals.
Only then, as the
Commission points out, will the necessary real and financial
resources become available to meet the nation's housing needs.
Indeed, this is the only solid base for progress, not only
in housing but also in education, transportation, and the
K-210
- 2 -
other priority objectives of puhlic policy.
However
dedicated our efforts and Ingenuous our planning may be,
I do not believe that there is any reasonable expectation
of achieving the goals set forth in the Housing Act of 1968
until we halt the spiral of inflation.
In this conclusion
we are in full agreement with the Commission's report.
Turning to the specific recommendations in the report,
I would strongly concur with the Commission's belief that the
Federal budget should be kept in surplus at least until the
current inflation is brought under control.
In the years
immediately ahead, Federal budget surpluses can contribute
to our housing goal both by helping to restore a more
balanced economic environment and by making investment
funds available for housing construction through retirement
of Federal debt held by the public.
This is one of the
important reasons why this Administration has urged the
Congress to act to maintain the Federal revenue at levels
which will assure a budget surplus in the difficult period
ahead.
We welcome the Commission's strong support of our
efforts.
Another of the Commission's recommendations which the
Treasury fully endorses is that the 4-1/4 percent interest
ceiling on Government bonds be abolished.
It is of particular
• :5 -
interest that the Commission believes that elimination of
the ceiling on Treasury bonds would, by permitting more
flexible management of the public debt, contribute to
a healthier mortgage market.
As the Commission points out,
an overabundance of short term financing has been a far
greater detriment to the health of the mortgage market than
any direct competition with mortgages that might result from
the occasional issuance of long term Treasury bonds.
The Commission Report also urges that arrangements
for selling mortgage backed securities as provided in the
1968 Housing Act be expedited.
In recent months the Treasury
has worked with the Department of Housing and Urban Development
and other elements of the Administration to resolve some of
the complex questions and issues raised by this plan.
As you
know, the General National Mortgage Association (GNMA) is
proceeding with the so-called "pass through" type of mortgagebacked security, and regulations have been issued covering
this procedure.
We look forward to gaining experience with
this technique which could be useful in developing an outlet
among smaller investment funds unable to handle mortgages
directly.
With regard to the broader use of this authority, we
have not believed that, in the present market environment,
large scale marketing of mortgaged backed securities would
- 4 -
be practicable without SeriOu.3 repercussions on the capital
market itself, if possible at all.
The sharp step-up in the
commitment activity of FNMA has provided, in our view, an
alternate, flexible, and more effective means of providing
support for the insured and guaranteed mortgage market during
this difficult period.
FNMA is currently making commitments
at a rate equivalent to three-fourths of new FHA-VA mortgage
originations.
More generally, this experience suggests that the
mortgage-backed security may be of limited value if viewed
simply as a counter-cyclical device to ease the impact of
general credit restraint on the housing sector.
Since we
believe that experimentation with this type of instrument
would not appreciably increase the flow of money into VA and
FHA mortgages at this time beyond FNMA's present capabilities,
we feel it is desirable to consider more fully the longer run
implications and alternatives before embarking on a program
of the potential magnitude of the GNMA securities.
For
instance it may well be that this approach could playa useful
role over time in efficiently channeling funds into high
priority housing needs, such as programs for low income
groups and in the central cities.
- 5 -
Perhaps the key recommendation in the Commission's
report is that the present statutory interest ceiling on
F~~
and VA mortgages be abolished, with the Secretary of
j1'.".'''iflg and Urban Development given broad discretionary
authority to adjust interest limits.
The Commission's
iurther recommendation that certain FHA-VA mortgages be
treed from any interest ceiling also seems worth a trial.
~bl'.:E'Vr:T
much we may deplore the current high cost of mortgage
credit, it seems evident that the imposition of rigid interest
,_eilings
',)n
FHA and VA mortgages contributes little to easing
Instead, they simply become an impediment
to the flow of funds.
In a series of recommendations, the Commission Report
appears
t,~
::::~y16s+~2ry
rtraightforwardly advocate the provision of more
7l:nds for housing when private financing becomes
difficult, particularly for low and moderate income families.
This approach properly focuses on the problem of budgetary
priorities.
In this context, however, let me point out two
recommen,iations in the Commission's Report which are a matter
of concern to the Treasury.
The Commission recommends that
\:l.e I:;eue. al Home Loan Bank's authori ty to borrow from the
Ireasury be increased from the present $1 billion to whatever
amoaat is necessary to backstop credit lines given to member
associations.
- 6 -
The Treasury believes that
the present authority to borrow from the Treasury can
appropriately be used when disorderly market conditions or
potentially disorderly market conditions make it impossible
or undesirable for the Federal Home Loan Banks to sell their
obligations directly in the market.
However, if the Co:-nll1ission
intends that the borrowing privilege be increased in amount
simply to save short term borrowing costs, this might actually
have a perverse effect on the financing capabilities of the
Home Loan Banks over the longer run, since the ability of the
Home Loan Banks to borrow in the market is influenced, in
some degree, by the "emergency liquidity" provided by the
Treasury backstop.
Another potential difficulty is that
Treasury advances to the Home Loan Banks appear as expenditures
in the Loan Account of the Budget, and prolonged use would
add to annual Budget expenditures.
There is a danger that
perpetual use of this borrowing authority could permit the
Home Loan Bank system to escape both the normal appropriations
process and the test of the market.
A second recommendation of the Commission which should
be of concern to all of us is that the Federal Trust Funds
be invested, at least in part, in special housing bonds~ the
)g-f
. 7 "'
~Jroc2cds
of ;,;jJ("h v:culd be
programs.
This
J:;Toci.;~durc
,.1s ... ·d
1n
Federally assisted housing
would simply be a subterfuge for,
and have the same Det effect of, a direct Congressional
appropriation :0 purchase the bonds. The Federal housing
. C trnst funds would have to be offset by
bond purchase by l P.
~-
an equivalent amount of Federal direct borrowing in the market.
The housing bond precedent could result in the channelling of
trust fund revenues lAlto a broad range of Federal activities,
and h'oulci seriou-·;ly impair the basic trust fund concept.
In expressing the Treasury's concern over these
particular proposals in the Commission's Report, I want also
to emphasize our recognition of the large challenge before us
In
moving toward our housing goals.
In cur recommendation for tax reform, for instance,
we have atcempted to secure financial support for residential
construction.
cheap, easy
But it must be recognized that there is no
U~ nai~less way
to make meaningful progress in
improvir.g the h;)l1Sing pictul'e.
financing
de~lce3,
lundar:1C':'jlt,,,}
we
m~s~
In concentrating here on
never lose sight of the more
ploblem C..l.' inflation, that the Commission so
rightly cited, por of other impediments to the flow of real
/~
- 8 -
Financing is important, and recognition of this has
been the driving force bellind the measures taken over the
years to increase the effectiveness of the Home Loan Banks,
the Federal National Mortgage Association, and other government
entities established to facilitate the flow of funds into
housing.
Efforts to strengthen and improve these institutions
must continue.
But we should keep in mind that the one
feature that makes our system of home financing by far the
most effective in the world is the capacity and willingness
of thousands of private financial institutions to convert
a substantial flow of savings into housing construction.
Government aid to housing should supplement, not replace
or impair this basic strength.
In the last analysis, an effective national housing
policy must rest on the bed rock of a well balanced economy,
amply serviced by vigorous and competing financial institutions.
111
REASURY
"':,..)
....,
\.
:'~·'~_~.f1
, . l ""
"\~
WASHINGTON, D.C.
IMMED lATE RELEASE
September 26, 1969
PRELDUNARY RESULTS OF CURRENT EXCHANGE OFFERUfG
Preliminary figures ShO'N that about $7,065 million of the ~)8 ,883 million
es and bonds maturing October 1 and December 15 have been exchanged for the
ee notes included in t!lC current offering.
Of the eligible secl1ri ties held outside the Federal Reserve Banks and
ernment aCCOUi'1ts, $1,466 million of October 1 maturities and $1,345 p.lillion
December 15 maturities i·rere exchELYlged, leaving ~l,172, or 20.8%, and $ 622,
31. 6 %, respectively, for redemption.
Subscriptions total .10,954 million for the 85j notes of Series E-1971, $.I ,082
lion for the 7-3/t:.% notes of Series A-1973, ani $2,029 million for the 7-1/27;
es of Series C-1976, of \-fIlich $3,389 million, $ 957 million, and ~,4G5
.lion, resl)ecti vely, ,'reno received from the public.
Follovring is a breakdul'm of seclli'i ties to be exchanged (amounts in millions) :
SECURITIES
TO BE ISSUED
UlmXCHANGl::D
dI of
/0
cj of
Total
Total
OutTotal
stand- Held fry
Ar;1ount in:;
Public
I
.ption
Date
Due
Total
Amount
: notes 10/ 1/69 $ 159
lds
10/ 1/69 6,240
~ bonds 12/15/69 2 2 48.:1:
Totals
$8,883
8%
7-3/4% 7-1/2%
Notes
Notes
Hates
5/15/71 5/15/73 8/15/76
$
59
2,980
915
$3,954
11 $
3
794
1, :'572
651
277
$1,082 $2,029
$
Total
To Be
Issued
--- --$
73
5,146
1,846
$7,065
$
86
1,094
638
-,--~;l, 818
54.1
17.5
25.6
20.5
54.1
19.8
31. G
23.6
Details by Federal Reserve Districts as to subscriptions will be announced later.
K- 211
TREASURY DEPARTMENT
Washington
STATEMENT OF THE HONORABLE EUGENE To ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
BEFORE
THE SUBCOMMITTEE ON JUVENILE DELINQUENCY
OF
THE SENATE COMMITTEE ON THE JUDICIARY
ON
s. 26:n, "CONTROLLED DANGEROUS SUBSTANCES ACT OF 1969"
MONDAY, SEPTEMBER 29, 1969, 10:00 A.M., EDT
Mr. Chairman and Members of the Committee:
On behalf of the Treasury Department, I wish to
thank you for the opportunity to appear here today
to comment upon S. 2637, the Administration bill
concerning control of drug traffic, and further to
discuss other matters of concern to this Committee.
M1lch testimony has been presented describing
the features and details of the various provisions of
S. 2637, and therefore I shall confine my remarks to
a general endorsement of this bill. Additionally,
in response to inquiry made by the Committee Chairman,
Senator Dodd, I shall present certain factual material
which serves as an appropriate background supporting
enact~ent of this legislation.
No genuine dispute exists concerning either
the dangerous character or the magnitude of drug
abuses in the United States. We all recognize the
threat this problem poses to the health and welfare
of millions of Americans. Enforcement and drug control
problems have increased for this Government as illicit
drug traffic has proliferated. This bill is designed
to increase the effectiveness of control and enforcement generally. Representatives of the Department of
K-2l2
17J
- 2 -
Justice have testified concerning the effect of the
various Titles of this legislation, and I concur in
general in the thrust of that testimony.
The principal interest of the Treasury Department
in this legislation arises from the primary involvement
of Treasury's Bureau of Customs in prevention and
suppression of drug smuggling and its exclusive responsibility to enforce the smuggling laws. Section 701 (b)
of S. 2637 recognizes this.
The Bureau of Customs historically and currently
plays a vital role in our overall drug control effort,
because foreign-produced and smuggled drugs constitute
over 90 percent of illicit United States drug traffic
and consumption. Drugs are smuggled into the United
States by aircraft, boat, car, and by pedestrians at
points all along the thousands of miles of the United
States borders. We estimate that between 15 to 20 percent of narcotics and over 85 percent of high-potency
marihuana are smuggled across the United States-Mexican
border, facts well known to this Committee.
1. The Committee has requested the most recent
trends in the smuggling of narcotics, marihuana and
dangerous drugs into the United States, as indicated
by the Bureau of Customs arrest and seizure figures.
Drug seizures and arrests by the Bureau of Customs
during the past three years reflect startling increases
in drug smuggling. For example, Customs seized 78 pounds
of heroin during fiscal year 1967, 246 pounds in 1968
and 311 pounds in 1969, and thus seizures quadrupled
in a period of but two years.
The same trend is reflected regarding seizures
of opium, marihuana, hashish and the various other
dangerous drugs. Exhibit A sets forth the details
of the quantity of seizures of all drugs. It must be
noted that very little hashish was seized prior to 1966.
/(f
- 3 -
In 1966 and 1967, however, approximately 70 pounds of
hashish were seized, 191 pounds in 1968, and 623 pounds
in fiscal year 1969.
The seriousness and significance of these figures
can only be appreciated when it is realized that it
takes 625 pounds of raw marihuana to make one pound
of hashish. Thus, the fiscal 1969 seizure represented
the active ingredients in 390 thousand pounds of marihuana.
Stepped-up enforcement efforts and tremendous
traffic increases both contribute to these impressively
enlarged seizure statistics. The statistics show that
a firm market for hashish has been established in the
United States, and that there is a growing market for
other drugs for illicit distribution and use. Arrests
by the Bureau of Customs follow the same pattern.
Drug smuggling arrests increased from 3,374 in fiscal
year 1967 to 6,200 in fiscal year 1969.
2. The Committee has further inquired as to the
international sources of supply.
Heroin, the most noxious of all of the drugs, is
derived from the opium poppy plant. Nearly all of the
legal cultivation of opium poppies is in Turkey. The
raw materials for heroin, in the form of the gum
opium and its product, morphine-base, are diverted
directly from legitimate channels into illicit production and the smuggling supply line. The raw material
for heroin, morphine-base, is smuggled into the
European countries where, in hidden laboratories) it
is converted into the heroin and smuggled directly
into the United States through various routes.
It should be noted that a significant amount of
opium is illegally cultivated in Mexico, and heroin
derived from it is smuggled into the United States.
Irs
- 4 Cocaine flows into the United States from
mountainous regions along the West Coast of South
America, where the cocoa plant grows wild and is
also cultivated. The finished drug ordinarily is
produced in countries where the cocoa leaves grow,
and then smuggled into the United States, principally
through the port of Miami, Florida, and additionally
through New Orleans and across the Mexican border.
Hashish traffic has increased markedly during
the past two years. As I have mentioned, hashish is
a marihuana or cannabis derivative. It is six to
eight times more powerful than the most potent marihuana.
Its popularity apparently results from its high potency
and increased availability. Our best information indicates that large quantities of hashish currently are
smuggled by caravan through Israel by way of the Sinai
Peninsula and Negev Desert. Several seizures of
hashish traceable to the Middle East have been made
along our .Canadian border. Smaller quantities of
hashish arrive from original sources in India, Pakistan
and Afghanistan.
Unlawful activities within Mexico figure heavily
in the illicit traffic in narcotics, marihuana and
dangerous drugs. The greatest volume of illicit drugs
smuggled into the United States crosses the United States Mexican border. The predominant drug crossing that
border is Mexican-grown marihuana that has been pressed
into kilo-sized bricks and smuggled in by a variety of
methods. As I have noted, some raw opium is produced
in Mexico and smuggled in as either crude gum opium,
smoking opium or heroin. Heroin of European origin
is sometimes channeled through Mexico. A high percentage
of the dangerous drugs for illicit use in United States
markets is legally exported from the United States to
Mexico, is diverted to unlawful channels and smuggled
back.
The bulk of Customs drug seizures and arrests is
at the Mexican border, and the Mexican border is clearly
the predominant supply route for such traffic. Any
- 5 program designed successfully to combat the drug
traffic problem must provide a method for effective
suppression of traffic at the Mexican border.
The current, massive anti-drug smuggling campaign
at the United States - Mexican border is called Operation
Intercept. Operation Intercept is a joint effort by
various Departments of Government, involving principally
Treasury and Justice and including the Bureau of Customs,
the Immigration and Naturalization Service, the Bureau
of Narcotics and Dangerous Drugs, the Federal Aviation
Administration, the Coast Guard and the Navy. It stems
from President Nixon's direction to curb the flow of
drugs across the Mexican border. Early in his
Administration, President Nixon appointed a Special
Presidential Task Force relating to narcotics, marihuana
and dangerous drugs. It has been my pleasure to be
co-chairman of that Task Force with Deputy Attorney
General Richard G. Kleindienst.
The findings and recommendations of the Task Force
were submitted to President Nixon. The President
reconstituted the study Task Force into an action task
force and directed that it translate its recommendations
into action. Operation Intercept was a direct result.
I have submitted to you for inclusion in the hearing
record a copy of that Task Force Report.
3. Your Committee has also asked what problems
the Bureau of Customs faces in its anti-smuggling
efforts directed to illicit drug traffic.
The basic need of the Bureau of Customs today
is for more manpower and facilities.
President Nixon consistently has asserted his
personal concern and desire to increase the number
of agents and the resources of the Bureau of Customs
in order that it can better meet its responsibility
for enforcement of the nation's anti-smuggling laws.
- 6 On September 16, 1968, Richard M. Nixon, Presidential
nominee, recommended greatly increasing the number
of Customs agents. In the President's Message to the
Congress dated July 14, 1969, concerning the drug
menace, he pledged increased efforts to eliminate
drugs illegally entering this country, and stated:
"The Department of the Treasury, through
the Bureau of Customs, is charged with enforcing
the nation's smuggling laws. I have directed
the Secretary of the Treasury to initiate a
major new effort to guard the nation's borders
and ports against the growing volume of narcotics
from abroad. There is a recognized need for more
men and facilities in the Bureau of Customs to
carry out this directive. At my request, the
Secretary of the Treasury has submitted a substantial program for increased manpower and
facilities in the Bureau of Customs for this
purpose which is under intensive review."
In accordance with the President's Message, there
will be transmitted to the Congress a supplemental
request for appropriations recommending substantial
supplemental appropriations to increase Customs manpower and facilities.
During 1968 two-hundred-thirteen million persons
entered the United States in sixty-one million motor
vehicles, ninety-six thousand vessels and three-hundredthirteen thousand aircraft. This represents a tremendous
increase in border traffic. In spite of vast increases
in business and traffic, the number of personnel of the
Bureau of Customs has not materially increased over
the force in being 40 years ago, impairing the effectiveness of the anti-smuggling effort. Much of the drug
traffic intercepted is found on the person of arriving
passengers.
Traffic volumes are such that personal and
vehicular searches must be made on a random basis.
In order to intercept drug traffic, Customs inspectors
I~
- 7 must rely to a great extent on information developed
by agents and informants and on shrewd observations
of arriving traffic.
Smuggling by light aircraft across the Mexican
border is becoming an increasingly difficult problem.
A number of successful interceptions of such traffic
recently have been made along the Texas-Mexican border
and along the Southwest Arizona to Southern California Mexican borders.
Customs has been operating with only one recentlyacquired aircraft, but during its first six-month
period of operation in Southern California it was
used to further 26 separate smuggling investigations,
14 of which have not yet been concluded. As a consequence
of the 12 finished cases, 23 arrests were made, 10 motor
vehicles and 3 aircraft were seized, and the Bureau of
Customs confiscated 4,100 pounds of marihuana, 12 pounds
of heroin and 2 pounds of cocaine. This demonstrates
conclusively, I believe, that the effectiveness of
Customs anti-'smuggling efforts would be greatly enhanced
by employing additional aircraft which are effective
for surveillance and pursuit of both air and surface
traffic.
4. At best, the Bureau of Customs can only guess
as to the amount of narcotics, marihuana and dangerous
drugs smuggled into the United States. One indication
to unknown traffic is the amount seized. Our rough
estimates are that seizures approximate only 10 to 15
percent of the total amount of drugs smuggled into the
United States. It must be noted, however, as is
apparent, that estimates are highly unreliable, and
that total drug smuggling volumes could be greater
than this estimate.
5. This Committee has asked for an appraisal
of the ability of the Customs Service to cope with
the narcotic traffic across our borders in terms of
- 8 its manpower, equipment and operating funds. As I
have indicated in response to your inquiry concerning
the problems of Customs, this is our greatest need.
With the same number of personnel, seizures and
arrests constantly escalate. However, increases in
seizures and arrests correspondingly increase time
and work requirements of our manpower because of the
need for time-consuming investigations, case reports,
appearances, consultations, and other matters attendant
to preparation for and appearance at trials and various
other preliminary proceedings.
Additionally, the demand for related correspondence
and statistical reporting is accordingly increased.
Thus, it is clear that the effectiveness of Customs in
dealing with vastly increased volumes of international
traffic is directly related to those available resources
of manpower, equipment and operating funds.
The forthcoming supplemental appropriations request
is significant. Appropriation increases will help
rectify a long-standing manpower shortage of the enforcement arm of the Customs Service. The President and the
Secretary have manifested their support in this regard,
and with the continuing support of the Congress, the
Bureau of Customs can and will meet its responsibilities
in suppression and control of illicit drug smuggling.
Thank you, Mr. Chairman. I would be pleased to
answer any questions the Committee might have.
COMPARATIVF SEIZURES STATISTICS
Fiscal Year 1967
W.
SEIZURES
NO.
AMOUNT
SEIZURES
HEROIN - GRAMS ••••••••••••
POUNDS ••••••••••••
(225 )
35,323
77.87
OPIUM - GRAMS •••••••••••••
POUNDS •••••••••••••
(16 )
4,436
9.81
(21)
OTHER NARCOTICS
(291)
18,304
40.37
1(259)
MARIHUANA
- GRAMS •••
POUNDS •••
- GRAMS •••••••••
POUNDS •••••••••
HASHISH - GRAMS •••••••••••
POUNDS •••••••••••
DANGEROUS DRUGS •••••••••••
(5 grain units)
Fiscal Year 1969
Fiscal Year 1968
(1,081) 11,935,431
26,312
(265)
(525)
(240)
111,741
246
6,539
14.2
44,325
98
(2,450) 31,767,457
70,034
*.
**
U-mJ.
SEIZURES
AMOUNT
*
AMOUNT
141,269
311.43
(42)
15,347
33.88
1(253)
90,213
198.87
(2,673)
86,638
191
(186)
3,936,800
(630 )
25,929,683
57,164
282,771
623.39
4,763.361
() Number of seizures
*
**
i
Mostly cocaine.
No records maintained.
EXHIBIT
A
~/
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR RELEASE ON DELIVERY
(EXPECTED ABOUT 10: 00 A. M., EDT)
MONDAY) SEPTEMBER 29, 1969 __ ._
September 29, 1969
MESSAGE OF WELCOME FROM PRESIDENT RICHARD M. NIXOK
TO THE GOVERNORS OF THE INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT AND THE
INTERNATIONAL MONETARY FUND, TO BE READ BY
SECRETARY OF THE TREASURY DAVID M. KENNEDY AT
THE OPENING SESSION, ANNUAL MEETING OF THE GOVERNORS,
MONDAY, SEPTEMBER 29, 1969
A generation has passed since those farsighted men at Bretton
Woods conceived of the International Bank for Reconstruction and
Development dnd the International Monetary Fund. They built well.
These sister institutions have been an example to all of international cooperation in action, nourishing the growth in trade and
advancing the cause of development essential to peace and prosperity.
Institutions maintain their strength, not by revie~ing the
accomplishments of the past, but by responding to the needs of
their time. As you meet this week in Washington, the challenges
are plain. We must restore the stability of price levels,
threatened by inflation, upon which sound growth depends. We must
attack those obstacles that inhibit development. We must assure that
the financial framework for international trade and investment is
reinforced to support the requirements of the future.
There are bright omens. This week, you are embarking on the
path-breaking task of providing -- by deliberate and cooperative
decision -- the financial liquidity needed to keep pace with
economic needs. You will have the benefit of a thoroughgoing review of assistance needs.
There are also visible difficulties. They can only be
Solved by the devoted efforts of dedicated men, working together
with good will, patience, and the support of many countries. Such
efforts are the hallmark of these institutions.
<-213
(OVER)
- 2 -
I can assure you that this country aims to do its part,
including dealing with the inflation that for too long has strained
the vitality of our economy_
I welcome you to Washington and wish you God-speed in your
efforts.
000
TREASURY DEPARTMENT
WASHINGTON, D.C.
t RELEASE 6: 30 P.M.,
"!!!Y,
September 29,. 1969.
RESULTS OF TREASURY'S WEEKLY :BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
ls, one series to be an additional issue of the bills date·d July 3, 1969, and the
er series to be dated October 2, 1969, which were offered on September 24, 1969, were
ned at the Federal Reserve Banks today. Tenders vrere invited for $1,800,000,000,
thereabouts, of 92-day bills and for $1,200,000,000, or thereabouts, of 182-day
ls. Tbe details of the two series are as follows:
GE OF ACCEPTED
PETITIVE BIDS:
Righ
Low
Average
92-day Treasury bills
maturing January 2, 1970
Approx. Equiv.
Annual Rate
Price
98.195 ij
7.063~
98.173
7.149i
98.184
7.106~ Y
182-day Treasury·bi11s
maturing April 2, 1970
Approx. Equiv.
Price
Annual Rate
7.307%
96.306
96.282
7.354~
96.289
7.34~ Y
.
!I Excepting
7l~
1~
1 tender of $334,000
of the amount of 92-day bills bid for at the low price was accepted
of the amount of 182-day bills bid for at the low price was accepted
U. 'lENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
lstrict
lston
!w York
lilade 1phia
Leveland
lehmond
~lanta
licago
Louis
i.
~nneapolis
LIlSas City
Lllas
l.D
Francisco
Accented
Applied For
$ 42,272,000 $ 31,172,000
1,181,581,000
1,814,281,000
30,493,000
45,493,000
41,255,000
43,'78&,000
25,222,000
25,222,000
42,321,000
48,625,000
171,698,000
188,148,000
43,953,000
43,953,000
27,867,000
27,867,000
31,231,000
31,690,000
13,945,000'
19,945,000
159.515.000
164.116.000
$2,495,396,000
$1,800,253,000
Applied For
$
7,455,000
Accepted
$
7,455,000
:
:
:
1,673,804,000
19,963,000
38,731,000
15,792,000
36,139,000
205,823,000
25,229,000
20,906,000
27,182,000
16,750,000
123,383,000
940,689,000
9,963,000
38,631,000
11,787,000
21,461,000
68,322,000
20,124,000
9,996,000
24,155,000
6,450,000
41,115,000
£I
$2,211,157,000
$1,200,148,000 ~
:
lcludes $406 651 000 noncompetitive tenders accepted at the average price of 98.184
lcludes $228;550; 000 noncompetitive tenders accepted at the average price of 96.289
ese rates are on a bank discount basis. The equivalent coupon issue yields are
34~ tor the 92-day bills, and 7. 73~ for the 182-day bills.
TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
REMAnS OF THE HONORABLE CHARLS E. WALUR
THE UNDER SECRETARY OF THE TREASURY
BEFORE THE
AMERICAN B~ERS ASSOCIATION, 95TH ANNUAL CONVENTION
HONOLULU, HAWAI I, TUESDAY, SEPTEMBER 30, 1969
11 A.M. HAWAIIAN TIME (5 P.M. E.D.T.)
I welcome this opportunity to talk with you a few minutes about the Nixon Administration and its relations with
banking. At the outset, let me make four points as background for my remarks.
First, when President Nixon entered office last January
this Nation was confronted with same deep-seated and exceedingly complex problems. They included:
Finding a just and lasting peace in Vietnam.
Stopping a deeply ingrained inflation which had
been allowed to run on far too long.
Reshaping foreign policy in such manner as to
re-establish priorities in and control of our
far-flung commitments.
De-fusing the tensions threatening our society.
Realigning the ~balance of power and responsibilities between the Federal government and State
and local governments.
Second, the President knew that these problems would not
b. solved by any magic formulas -- that they would not evaporate as a result of a crash legislative program. That is why
the President did not in the first 100 day. inundate Congress
with a series of special legislative messages. Instead, h.
1-214
- 2 concentrated on establishing sound decision-making procedures
in the Executive Branch, and he directed his top officials to
undertake thorough studies to determine what new programs
were really needed, which old programs should be changed and
improved, and which should be discarded.
The President was and is keenly aware of the pain and
cost of raising expectations too high. He wants to avoid the
pitfall of inflated promises and deflated performance.
A third factor of importance as the Nixon Administration
took over was the severe budget constraint necessary to help
curb inflation; this has militated against the early introduction of costly new programs, especially when it is realized that the inexorable rise in the cost of old programs
will absorb a large portion of rising government revenues.
As a result of rigorous budget reviews, however, coupled with
enactment and extension of the income tax surcharge, an antiinflationary Federal surplus of $3.1 billion -- the first
since 1960 -- was achieved in the last fiscal year. We are
determined to work for a significant surplus in the current
fiscal year.
Fourth, a point often overlooked in evaluating progress
and programs in Washington these days -- and which loomed
large in Administration planning from the start -- is the
fact that the White House is occupied by a Republican President but the Congress is under Democratic control. This sort
of division has always slowed legislative progress in the
past; it has slowed it this year and is slowing it now.
This is definitely not to say that an Administration of
one party and a Congress controlled by the other cannot work
together in the public interest. Quite the contrary, the
cooperative relationship demonstrated in legislation already
passed or close to enactment, such as the milestone Tax
Reform Act of 1969, approved by the House, is proof positive
that men of good will can rise above partisan considerations.
But the fact remains that the approach of this Administration
to dealing with Congress has to be considerably different
than that of the two preceding Administrations.
These were some of the cross-currents rippling the
Potomac when the new Administration, including the new
- 3 -
Treasury team, moved to Washington. Such factors clearly
called for a deliberate and reasoned approach to solving
problems -- an approach which the President has, despite
criticism, stoutly maintained. And I, for one, believe that
this approach has resulted in some lowering of voices, a
reduction of anxieties in our troubled land, and -- of lasting importance -- the development and introduction of better
programs than would have resulted from a flurry of headlinegrabbing statements.
Anyone who has interpreted the deliberate approach as one
of inactivity has definitely been mistaken. I assure you
that no one in the Treasury Department, where much of the
urgent and controversial initial legislation has been centered, has had any such feeling.
From the outset Treasury officials shared with other
economic policy makers the responsibility for actions and
legislation to cool the economy and ultimately stop the inflation that has captured our economy. This made budget
cuts and extension of the surtax essential.
We have had, and continue to have, the problem of prudently managing a huge public debt in the face of the highest
interest rates in over a century and an archaic ceiling that
prevents us from paying more than 4t percent on any security
with more than seven years maturity.
We have asked for -- and the House Ways and Means Committee has approved -- a fair and competitive rate on United
States Savings Bonds, whose continued successful marketing
is so crucial to our debt management program. We obtained
an increase in the debt ceiling and expect t ' ) receive shortly
our requested extensions of the Interest Equalization Tax and
the Interest Rate Control Act.
One major legislative achievement this year, not widely
noticed bat deserving mention, was the authorization of $480
million in U. S. contributions to the International Development Association, a request spurned by Congress last year.
In still another area, the Treasury played the leading
role in developing legislation to prevent the melding of
- 4 commerce and business through one-bank holding companies.
The House Banking and Currency Committee has reported a bill
which, although differing from ours with respect to details,
conforms to most of the basic principles underlying our proposal. House action is expected within a few weeks and
Senate hearings should follow late in this session or early
in 1970, with final enactment same t~e next year.
You are no doubt familiar with many of these events and
Instead, I would
like to concentrate on what is perhaps the most important
legislative item now affecting banking -- the Tax Reform Act
of 1969.
I will not take time to discuss them today.
No one in the Treasury Department -- in fact, no one in
Washington -- had the slightest idea last January that early
in September Treasury officials would be testifying in the
Senate on a 368-page bill embodying the most sweeping changes
in the history of the Internal Revenue Code. Because of its
impact on bank taxation, this bill undoubtedly is of great
interest to you. And, judging from both my mail and my
appointment calendar, it is also of great interest to colleges, hospitals, museums, foundations, real estate operators, investors, stockbrokers, bond dealers, oil operators,
farmers, cattlemen, railroads, labor unions, mutual savings
banks, savings and loan associations -- and this is by no
means an exhaustive list!
Why, after many years of serving as a political football,
did tax reform come into its own in 1969? The answer to this
question will help answer the question which is doubtless on
your own mind: How could so radical a chang.:.: in taxation of
financial institutions clear the House of Ref.:;:\~sentatives so
quickly and stand a good chance of being sustained in the
Senate?
My answer, which I have checked with a number of c(r~e
tent observers in Washington, goes right back to the individual taxpayer in this country. For years he has been
willing to bear what he believes to be a very heavy tax
burden. But once he learned that some people better off
than himself -- indeed, individuals with incomes in the millions -- were paying little or no Federal income taxes, then
he raised the roof. The explosion may not have been heard
- 5 -
:h7
'round the world, but I assure you that it was heard and felt
by every member of the United States Congress and by officials
of the Treasury Department.
I am told that in February, following the January disclosures relating to the now famous "taxless millionaires",
the Treasury Department "gripe mail" on taxes exceeded the
total for all of 1968! You can be sure that these same taxpayers also wrote their Congressmen and, following income
tax payments in April -- with the 7~ percent for the surcharge
tax added -- the volume of mail rose even higher. If any
doubt remained in any Congressman's mind about the strength
of the demand for reform, those doubts were erased during
his visit home over the Easter recess in April.
The message that came through in both letters and personal contacts was loud and clear: "Close the loopholes and
make the tax system fair." Polls have indicated that this
feeling was so deeply held by so many people that the foundations of our voluntary system for payment of Federal income
taxes might well have been threataae4.
Still no one thought it would be possible for the House
Ways and Means Committee to move as fast as it did on such a
massive legislative matter. But the demand for sweeping
reform surged on, and Chairman Mills said early in the hearings that he would push for closing loopholes in all areas
on which the Committee held hearings. That included taxation
of coumercial banks.
Some of you may recall that when the Treasury testified
on April 22 we stated that changes in taxat!OL :"f deposittype financial institutions should be postponed until a
fundamental study of competitive and portfolio powers of
these institutions could be completed. We pointed out that
a task force under Herbert Stein, of the Council of Economic
Advisers, had been established to study this matter, with
emphaSis on the interest rate controls over these institutions.
But tax reform moved on. CODIIlercial banks were conSidered fair game by the Committee because the industry had
recently been paying only 23 percent of net income in Federal
taxes, in contrast to a 44 percent average for business as a
whole.
- 6 -
The Committee conlidared the three main arguments advanced by banks. First. that bad debt reserves are necessary
to meet unusual 101lea and encourage innovative lending policies. Second, that establishing parallel treatment for securities gains and losses would undermine the strength of
the government securities market and hamper debt management.
And, third, that the service to state and local governments
based on banks holding large portfolios of municipals justifies lower effective tax rates.
However, against the backdrop of record-high earnings
and the escalating level of interelt rates -- and especially
the pr~e rate increase in June •• the Committee rejected
these arguments.
Instead the Committee -- followed by overwhelming vote
in the House as a whole -- eliminated the 2.4 percent bad
debt ~eserve treatment for commercial banks, providing
instead that they be placed on an experience basis covering
the current year and the five preceding years. Along with
this, a lO-year carryback and a S-,••r carryforward for
losses would be allowed. In addition, gaina on operations
in securities, now taxed as capital gains, would be given
parallel treatment with losses on such operations, and thus
be taxed as ordinary income.
Although bad debt reserves for savings and loan associations and mutual savings banks would be retained, the permissible additions would be lowered over a lO-year period
in such manner as to raise their effective tax rates to
between 25 and 30 percent. The effective tax rates on commercial banks would be somewhat above 30 percent, according
to the Rouse bill.
The Committee did reverse one tentative decision that
would have severely affected banks and state and local governments. It decided to exempt banks from the allocation of
deductions rule which would have sharply l~ited interest
expense and other deductions to the extent of tax-exempt
interest received.
After considering all factors the Adainiltration concluded that, although not part of our recommendations, we had
no choice but to accept the ba.ic thru.t of the Houae propo.al., namely, to equalize th~ taxes of commercial banks,
- 7 -
savings and locan associations, and mutual savings banks at
about the 30 percent level. As a result of the House action
commercial bank taxes will increase by 25 to 30 percent. At
the same time, taxes on savings and loan associations will
go up by 60 to 70 percent, and mutual savings banks, which
have been paying a very low rate, will find their taxes increased four-to-fivefold.
But having agreed to the basic thrust of the House proposals, we still felt the approach was wrong. The House
bill continues to tie the tax subsidy for residential financing to the bad debt reserves of the thrift institutions
rather than to the mortgage instrument itself. This, of
course, discriminates against commercial banks, which now
hold over $41 billion in residential mortgage loans. It
also has the effect of narrowing the investment options
open to thrift institutions, thereby limiting their earnings and exposing them to large withdrawals during tight
money periods.
The Treasury proposed to the Senate earlier this month
that the bad debt approach to subsidizing housing be dropped
and that, instead, each of the three types of institutions
get a Federal tax deduction -- tentatively 5 percent -- on
income from residential mortgages, guaranteed student loans,
and loans guaranteed by the Small Business Administration.
To prevent abuse of this tax preference, each institution would have to pay regular corporate taxes on 60 percent
of net income, including for this purpose tax-exempt income
and the excluded portion of dividends received. Viewed as
a total package, these proposals would establish a minimum
income tax range of 25 to 30 percent for thc!3e insti tutions .
No one likes to pay higher taxes. It is human nature.
But let me tell you what I have told oil industry representatives, real estate people, hobby farmers, and many others.
The pressure for tax reform is immense. In my judgment,
it will not subside until a meaningful reform bill is enacted.
The result will be higher taxes for those industries whose
percentage of taxes paid is significantly low relative to the
average for all businesses. The commercial banking industry,
which pays a rate a little better than half of the average,
2(0
- 8 -
stands out as one of those industries. This means to me that
you will be paying higher taxes in the future, just as will
the savings and loan associations, the mutual savings banks,
the petroleum industry, real estate operators, and those
individuals who have been able to combine tax preferences in
such a manner as to minimize, or even eliminate, their Federal
tax payments.
I would be less than honest if I did not tell you that
the events of 1969 have made it difficult for your industry
to arouse sympathetic understanding in Congress, especially
with respect to the pending Tax Reform Act. This is not the
fault of your spokesmen or industry representatives in
Washington. It is the result of a combination of skyrocketing interest rates -- not just bank lending rates but all
rates -- and glowing earnings reports from the larger banks.
In the political atmosphere of Washington, this is an
unfortunate and damaging combination: Damaging to the image
of those many banks that perform a constructive role in
financing business and consumption in their communities;
unfortunate because it obscures the many fine programs which
the banking industry has staunchly supported in the past and
is continuing to support now -- programs which do not in the
short run swell bank profits but actually reduce them.
The banking industry's contribution to the Savings Bonds
program is well known -- so well known that it is easy to
overlook the fact that in merchandising these Treasury securities bankers are promoting a competitive savings instrument
which, if successful, ltmits the growth of their own savings
accounts.
The guaranteed student loan program, which has helped
or is helping one million ambitious young Americans obtain a
college education, is another outstanding example of publicprivate partnership to meet social problems. These loans
are at most break-even propositions even with the incentive
fee which Congress is expected to approve shortly. And it is
extremely gratifying to note the response of the banking
industry to the President's request that you continue making
these loans this past summer even though the incentive fee
was delayed in Congress. That response was tremendous --
- 9 -
during July and August loans totaled $251 million and the
September figures are also expected to be high. This response
has not gone unnoticed in the nation's capital.
Urban problems represent another important area where
banking is making some impact. Although exact measurements
of your activities are not known, progress is becoming
evident. Minority employment figures continue to rise.
Guaranteed loans to minority entrepreneurs showed a threefold increase during the past year.
But much more important than the statistics is the willingness of bankers to face some of these problems head-on.
We cannot sit in Washington and establish programs that meet
specific needs in a given community. We are trying to get
away from the idea of special grants to special groups for
special purposes. Your experience in dealing with community
problems will be most helpful in finding better ways for the
government to play a more meaningful role in dealing with
city problems.
Another field of high visibility that is of vital importance to banking and our free-enterprise system is the leadership role the banks have played in improving economic
education in the public schools. In recent years this
entire program of economic education, under the Joint Council
on Economic Education and its affiliated state councils,
has grown tremendously. I hope The American Bankers Assoaiation and bankers across the nation will continue to give
their full support to these programs that ~re so ~portant
in upgrading the level of public understanding of basic
economic issues.
Effective support of economic education -- bringing to
ultimate fruition the work of the Joint Council at the
elementary, high schook, and college levels -- will have a
double pay-off. Not only will our democracy be the better
for it, in that sound economic policies, even if they are
not always popular, will have the understanding if not the
support of the electorate. Banking will also gain directly
in that more and more people, including your elected representatives in Washington, will comprehend the reasons for
high interest rates and the types of policies that are necessary to bring them down.
- 10 -
Needless to say, that would greatly help your
Washington.
~ge
in
My remarks have been rather wide-ranging. Let me close
with same comments on the philosophy of Government and economics that underlies the Nixon Administration.
First, we believe that in the long run, market forces
produce more realistic economic decisions than those devised
by a small group in Washington. The market system is far
from perfect, but none better has yet been designed. The
essence of such a system is that government establishes the
basic rules of the game and sometimes serves as a referee -but it seldom calls signals or enters the game as a participant.
Our steadfast refusal to discard the time-tested market
approach and intervene directly in wage and price decisions
has resulted in some criticism. But we are convinced that
such intervention will work in only a relatively few instances, and then only at the cost of creating inequities
among workers and businesses.
The inescapable fact is that the inflation of 1969 stems
directly from the overheating that was allowed to take over
the economy in the preceding three years. The only lasting
way to stop that inflation is by dealing in fundamentals
by eliminating the overheating that caused it.
Second, this Administration believes that Federal power
should be limited and that maxtmum reliance should be placed
on actions and decisions at State and local levels of government. This does not mean that the Federal t~vernment will
withdraw from the many appropriate activitie~·: in which it is
now engaged. It does mean -- as evidenced by the President's
proposal for sharing Federal tax revenues with State and
local governments -- that the authority and finances of
lower levels of government will be strengthened.
It also means that maximum reliance will be placed on
public-private partnerships in solving social problems. The
guaranteed student loan program, which promotes a maximum of
social good with a minimum of Federal funds and participation,
is an excellent example of such an approach.
~()
- 11 -
Third, as noted at the outset, we are convinced that
deliberate and careful decision-making processes -- sometimes
stretching over a period of months -- are far preferable to
the "shot-from-the-hip" that may create more problems than
it solves. This does not mean that quick decisions cannot
and have not been made. But when t~e permits, an orderly
approach, careful debate, and
as in developing the Family
Assistance Plan -- a blending of viewpoints will best serve
the public interest.
Finally, the past 8\ months have demonstrated that this
Administration is both open and pluralistic. Up until the
time a final decision is reached, Administration officials
are encouraged to press vigorously for their own positions
not only within the Administration but publicly as well.
There is no doubt in my mind but that this openness, coupled
with a relatively wide range of views among top officials,
has resulted in better policies and programs.
If these principles of economics and government are as
appealing to most Americans as they are to me -- and I think
they are -- then I am certain that although we may agree to
disagree on specific programs and policies, unity can be
restored in our democracy.
I am not talking about the monolithic unity of a oneparty system, nor the unity imposed by totalitarianism, but
the type of fundamental unity that has provided the solid
foundation for our economic and social progress.
There always will and should be partisan differences
over approaches to problems, allocation of responsibility,
priorities, and the steps necessary to achieve basic objectives. This type of conflict is essential in our two-party
system. It stimulates the competition for better ideas
which is so essential in any democracy.
But without the underlying agreement among our people
on primary objectives, our government could not have withstood
the test of the past two centuries. Recently the thrust and
clarity of the basic goals and purposes of government have
been threatened. The war in Vietnam has been the main divisive issue. Inflation and questions of tax fairness have
also shaken the faith of the people in their government.
- 12 That is why the President has placed the solution to
these problems at the top of his list of priorities. By
dealing with them successfully he can unite the country and
get us back on a peaceful path toward a balanced and healthy
economic growth pattern which is necessary to ~prove the
living standard of all Americans.
Thank you very much.
000
'REASURY DEPARTMENT
WASHINGTON. D.C.
September 28, 1969
FOR RELEASE AT 5:00 P.M.(EDT)
SUNDAY, SEPTEMBER 28, 1969
JOINT U.S.-JAPANESE STATEMENT FOLLOWING MEETING
BETWEEN TREASURY SECRETARY DAVID M. KENNEDY AND
MINISTER. OF FINANCE TAKEO FUKUDA
Secretary of the Treasury David M. Kennedy and Minister
of Finance Takeo Fukuda concluded informal conversations today.
Minister Fukuda and Secretary Kennedy reviewed the
economic and balance of payments positions of their two countries,
and the policies each nation is pursuing to fulfill its basic
economic objectives.
Secretary Kennedy placed special stress
on the actions the U.S. is taking to control inflation.
Minister Fukuda and Secretary Kennedy exchanged views on
the international financial sit~ation and on the evolution
of the world monetary system.
They agreed that activation
of the new Special Drawing Rights facility in
the International
Monetary Fund will contribute greatly to the strengthening of
the system.
They welcomed the prospect of an adjustment of
quotas in the IMF.
They also agreed that the process of
balance of payments adjustment should be improve~ and noted
the importance of continued close consultation and cooperation
on international economic and monetary matters.
Minister Fukuda and Secretary Kennedy also reviewed economic
assistance to the less developed areas of the world, especially
assistance channeled through international institutions and
the Asian Development Bank in particular.
Minister Fukuda is in the United States to attend the
annual meeting of the Boards of Governors of the International
Monetary Fund and the International Bank for Reconstruction
and Development. Accompanying him in the conversations with
Secretary Kennedy were Yusuke Kashiwagi, Vice Minister of
Finance for International Affairs, and Shichiro Murai, Director
General, International Finance Bureau, Ministry of Finance.
Secretary Kennedy was accompanied by Paul A. Volcker, Under
Secretary for Monetary Affairs, and John R. Petty, Assistant
Secretary for International Affairs.
000
K-215
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE EDWIN S. COHEN
ASSISTANT SECRETARY OF THE TREASURY FOR TAX POLICY
BEFORE THE
SIXTY-SECOND ANNUAL CONFERENCE ON TAXATION
NATIONAL TAX ASSOCIATION
SHERATON-BOSTON HOTEL, BOSTON, MASSACHUSETTS
TUESDAY, SEPTEMBER 30, 1969, 10:00 A.M., EDT
I am delighted to have the opportunity of speaking
before the National Tax Association this morning and to
participate with these distinguished gentlemen in a discussion regarding the future tax policy of the United States.
Slightly more than six months have passed since I took
office, and in that time one of the epochs of tax history
has been unfolding.
It has been a privilege to arrive on
the governmental scene at such an important moment, and to
be of assistance in the current major effort to reshape the
Federal income tax structure.
I should like to pay my respects and to express my
gratitude to the gentlemen who appear with me on this
panel for their scholarly and untiring work, both in and out
K-2l6
J- 1/
trail blazing
st~dies
and writings have represented major
Moreover ,
contributions to the attc,inrncnc of this goal.
t:he intens iv'e rese·3.rch
T~7h
i,ch beL:; gone into the di scuss :t.ODE
and the iournal of the National Tax Association have also
been of iEe s ti,rnab 1'2 value in ":he
'(:")7.'
k of the, Treasur:1 and
the Congress on the Tax Reform Act of 1969.
is ir:deed
'rl"~ls
8.
momentous bill.
It has required
the dedicated efforts of the House \flays and Means Corrnnittee
through months of hearings and executive sessions.
Chairman ;VJi lIs and the ranking Republican member, Mr. Byrnes,
have long called for meaningful tax reform, and their expertise
and the strength of their leadership of the Committee and
in the House insured wide support on both sides of the aisle.
This massive 368 page bill pas8ed with an overwhelming
majorit:l.
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bi'th in the public hearings and in executive session.
A>~,in
the Chairman of the Corrunittee, Senator Long, and the
have been strong
~
3 -
advocates of reform for many years.
Senator Long has stated
that he will bend every effort to have the Conunittee complete
work on the bill by October 31.
The executive sessions on
the bill are scheduled to start on October 13, after conclusion
of the public hearings, at which time only three weeks will
remain to complete the Committee's work on the bill by
October 31.
Whether the Committee can make all the necessary
decisions within that span of time obviously cannot be foretold
with certainty, but I am confident that the Committee will
work untiringly to do so.
The Administration is dedicated to the task of securing
as early enactment of this bill as is practicable.
We believe
this legislation will be a significant step towards restoring
confidence in our tax system by curbing the excessive use of
special income exemptions and deductions now legally being
utilized by some wealthy individuals, while also removing the
burden of income tax entirely from all those living below the
poverty line.
There have been some who have publicly expressed doubt
about this Administration's determination and dedication towards
equitable tax revision.
Let me assure those doubters that
nothing could be further from the truth.
President Nixon, since
~
l
..
first coming into office, has repeaLedly expressed his desire
to achieve an equitable tax system, both in public statements
and in his instructions to the Treasury Department.
Within
three weeks he directed the Treasury Department to exert every
effort toward this goal.
itself to that objective.
The Treasury Department has dedicated
Three months after coming into office,
the new Treasury sent to Congress an extensive package of
Presidentially approved tax reform proposals.
Since then
the President's concern has not diminished in the slightest; if
anything, it has increased, as evidenced by his statement only
a few days ago that tax reform is a matter of "primary concern"
to this Administration.
Our April proposals formed the basis of the House-approved
bill currently being debated before the Senate Finance Committee.
Substantially all of President Nixon's 16 substantive proposals
have been incorporated into that bill, which Treasury Secretary
Kennedy has labeled a milestone in tax legislation.
Many other
major provisions of the House bill reflect the efforts and
~ecommendations
of the Treasury Department in working with the
Ways and Means Committee from April to August.
The bill is the
most comprehensive substantive revision in the tax law ever
pro~osed
•
- 5 Thus, for the first time in many years there is widespread
agreement to take effective action dealing with imbalances and
inequities in the tax law.
Not only is this a common goal
among government leaders, but it is the will of the people
of this country.
This is evident from the tremendous increase
in the volume of mail on the subject that we have received at
the Treasury and that we understand has been received by members
of Congress.
When the Administration and the Congressional
leadership are united in purpose and the people have made
known their wish for tax reform, I believe positive results
will follow as the night the day.
True there are major issues involved in the bill on which
reasonable men will differ, and these issues must yet be
resolved in the time-honored traditions of our democratic way
of life.
But I think the focus of the spotlight of attention
on a few major issues on which there is a significant difference
of opinion tends to obscure the importance of vast areas
in the bill where there is substantial agreement.
Moreover,
there are numerous matters dealt with in the bill in which
- 6 -
the matters yet to be resolved relate primarily to the
method of correcting the deficiency in existing law, or
to the extent of changes to be made.
Because the bill deals in many places with complex
investment and business situations, its provisions are at
times necessarily complex and at times make difficult
reading.
The Treasury and Congressional staffs have been
reviewing these in depth and are giving careful attention
to the comments and suggestions of many persons who are
testifying before the Finance Committee or otherwise submitting
their views.
The Treasury has just filed with the Committee
for public release a set of numerous technical comments on
many of the provisions of the bill, and will make further
recommendations of this nature as our work on the bill
continues in preparation for the executive sessions.
But these complex provisions that deal with complex
problems will affect only a few thousand individuals.
On
the other hand, millions of individuals will benefit from
simplification provided in the bill.
The low income
allowance will remove from the tax rolls five million
taxpayers and most of them, as the Treasury has
- 7 -
recommended, will be relieved from the necessity of filing
returns.
Mor~over,
the low income allowance will result
in the reduction of tax for some ten million taxpayers,
and in combination with an increase in the standard
deduction will, under the Treasury recommendation, enable
more than four million taxpayers to shift from itemizing
personal deductions to use of the standard deduction.
The
averaging provision is greatly simplified and will enable
many more taxpayers to avoid the harsh effects of ''bunching''
of income.
The bill in its final form will certainly
provide major simplification for millions of persons; and
it will represent a historic advance toward the attainment
of an equitable tax system, a goal to which you in this
Association have devoted so many countless hours of study
and debate.
I should like to comment briefly about the provisions
of the bill relating to private foundations, particularly
since the foundations have provided a major source of
funds for research in the legal and economic fields as
well as in so many other
sciences.
ar~as
of social and physical
For some years tbere have been calls for
- 8 -
stricter
rule~
relating to the activities of foundations
and for stricter audits and supervision by the Internal
Revenue Service.
In 1965 the Treasury completed a study
of foundations and made a number of recommendations for
statutory change.
When this Administration presented its
initial tax proposals to the Ways and Means Committee in
April we made a series of recommendations tightening up
the law to prevent abuses in the foundation area.
The
present bill is based largely upon those recommendations
but it does contain in addition a 7-1/2 percent tax on
investment income of foundations.
In our statement before the Finance Committee earlier
this
~onth
we recommended that this rate be reduced from
7-1/2 percent to 2 percent.
This latter amount would be
collected not for the sake of general revenue but to defray
the projected cost of an expanded audit and administrative
program that the Internal Revenue Service will institute
with respect to exempt organizations.
We believe that a
revenue raising tax cannot be justified once the other
restrictions imposed on foundations have become law, thus
- 9 -
insuring that their funds will be used for charitable and
education~purposes.
But we do believe that the foundations
themselves and not the general body of taxpayers should bear
the burden of
ajQj.~j~~rative
expense in insuring that
charity and education receive the full benefit of foundation
resources.
Question has been raised as to whether the bill will
inhibit the use of foundation resources for research and
analysis of important issues that may involve legislation.
The present law g ulnts tax exemption for organizations
organized and opm'1ted exclusively for charitable and
educational purposes (and certain other
enumerated purposes)
so long as no substantial part of their activities consist
of carrying on propaganda or otherwise attempting to
influence legislation.
H.R. 13270, the pending bill,
continues this prohibition against attempting to influence
legislation.
It states the existing body of law in more
particular terms and makes the prohibition applicable,
whether or not the legislative activities are substantial
in relation to the total activities of the foundation.
The
bill changes the sanction from a total of tax exemption for
the foundation to a 100% tax on the amounts actually
expended to influence legislation.
/
- 10 At times the line between education and the influencing
of legislation is difficult to draw with precision, but it
is a test under which we have been operating for many years.
The interpretation of the law by the Internal Revenue Service
in the past has not interfered with the use of foundation
funds to defray the expense of nonpartisan scholarly
research and analysis on controversial issues even though
they may involve consideration of legislative changes.
We
are confident that the Service will apply the same reasoned
judgment under this bill that it has in the past.
To assist the Commissioner of Internal Revenue in this
and other important matters relating to exempt organizations,
he will soon announce the ,1.ppointment of a Commissioner's
Committee on Exempt Organizations, composed of distinguished
citizens in various walks of life to advise with him on
policies to be followed in administering the
law~
The review
of major questions with such a group will insure that the
issues are explored in depth and that in the administration
of the law the viewpoint of the charitable and educational
world will be earnestly solicited.
I might add that the requirement of the pending bill
that foundations distribute at least 5 percent of the value
of their assets each year will increase by some $200 million
- 11 -
the flow of funds from foundations into the stream of
public charitable and educational activities.
This will
serve to enlarge the funds which foundations devote to
the encouragement of research activities.
Enactment of this bill will not by any means diminish
our efforts to improve the tax laws.
Several vitally
important areas are under study and require early attention.
The Ways and Means Committee report on the pending
bill said that "estate and gift taxes are an area of the
tax laws your committee will undertake to study as soon as
possible, with the expectation of reporting out a bill on
this subject in this Congress."
The President has announced the appointment of a Task
Force to consider business tax policy and to advise with
the Treasury concerning important problems in that field o
We have already met with the Task Force and are delighted
to have the benefit of their wise counsel.
We have reported to the Congress that we believe early
attention should be given to an improvement of the rules
relating to Subchapter S corporations, including those
worked out in the previous administration as well as some
- 12 others that we think could further simplify and extend the
ambit of those provisions.
We have also stated that early attention must be given
to problems of deferred compensation, to professional
corporations, to the provisions relating to pensions for
the self-employed and to corporate pension and profit-sharing
plans.
We have advised the Congress that we plan a thorough
review of depreciation policy.
In the foreign area, we have launched a review of the
taxation of American business abroad, with particular
reference to exports of American goods.
We have begun a
new study of the value added tax system, which is being widely
adopted by European countries.
We expect to move forward
with an expansion of the tax treaty program with foreign
nations and to resolve some of the issues which have stalemated
proposed treaties previously negotiated.
We have devoted considerable work on a program to use
tax incentives to improve the employment opportunities of
our disadvantaged citizens and to open the doors for
advancement up the ladder of success for persons currently
employed at lower paying jobs.
- 13 We hope to move forward with a revision of the law
relating to the income tax treatment of partnerships,
estates and trusts and of certain corporate adjustments,
on which Advisory Groups reported to the Congress a decade
ago.
We hope to undertake with the Joint Committee staff
a review of the Internal Revenue Code to eliminate provisions which no longer are needed in the Code and to
modernize and improve some of the procedural provisions.
This is indeed an ambitious schedule, but we shall
devote ourselves unstintingly to the task.
We solicit the
advice and suggestions of all the members of this Association
who have labored so long in the field.
Our Federal tax
structure is a mechanism of vast power.
We must constantly
strive to make it fair and equitable, to make it work for
the attainment of our national goals, for the enlargement
of opportunities for jobs and successful careers and for
the maintenance of a thriving economy.
Despite the weight
of the tax burden, the structure must be so shaped as to
give men hope and confidence and pride in their government.
No less will satisfy this Administration.
000
TREASURY DEPARTMENT
(
WASHINGTON, D.C.
September 29, 1969
FOR IMMEDIATE RELEASE
MONDAY, SEPTEMBER 29, 1969
STATEMENT BY THE U.S. SECRETARY OF
DAVID M. l~ENNEDY
T~E
TREASURY
The comments this morning by the Managing Director
of the International Monetary Fund on the German exchange
rate situation, in our j~dgment, fairly sum up the matter.
The decision to permit trading in the Deutschemark
beyond the normal limits for the time being is understandable
in the light of present circumstances, and we believe
will serve a constructive purpose in dampening potential
speCUlative forces.
This action should have no adverse repercussions
on other countries and does not affect the dollar.
K-217
TREASURY DEPARTMENT
Washington
RELEASE UPON DELIVERY
(EXPECTED ABOUT 11:00 A.M., EDT)
TUESDAY, SEPTEMBER 30, 1969
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY OF THE UNITED STATES
~D
U. S. GOVERNOR OF THE INTERNATIONAL MONETARY FUND
AAD
THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
AT
THE JOINT ANNUAL DISCUSSIONS OF THE BOARD OF GOVERNORS
OF THE INTERNATIONAL MONETARY FUND AND
THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
AND ITS AFFILIATES AT THE SHERATON PARK HOTEL, WASHINGTON, D.C.
TUESDAY, SEPTEMBER 30, 1969, 11:00 A.M., EDT
I am honored to address this annual session of the
International Bank for Reconstruction and Development and the
International Monetary Fund. The accomplishments of the
quarter-century since Bretton Woods reflect both the foresight
of those who set these institutions on thei.r initial course
and the outstanding leadership that has guided their destinies
over the postwar years. The president of the World Bank,
Mr. McNamara, and the Managing Director of the Fund,
Mr. Schweitzer, are carrying forward in this great tradition.
Anniversaries are a time for looking back on past
achievements -- and those of the Bank and the Fund are indeed
impressive. But today is even more a time for looking ahead
to the challenges of the next 25 years, for setting new
goals, and for appraising our methods for reaching them.
K-21B
- 2 I.
In the field of development finance, Mr. McNamara has
already pointed toward some new directions for the Bank's
lending and outlined his thoughts on how we can better direct
available resources to the points of urgent need. The
forthcoming report of the Honorable Lester Pearson and his
distinguished panel will provide us all with a fresh perspective
and thoughtful analysis to further stimulate our thinking and
our actions.
This report is particularly timely for the United States.
We are engaged in a comprehensive review of our own foreign
assistance effort. It would be premature to anticipate the
results of this study. However, I would like to emphasize
two basic principles that will help guide my country's
future efforts.
First, we are firmly committed to the multilateral
approach to development financing, epitomized by the
World Bank and its affiliates. This approach brings to bear
on development problems the collective efforts and experience
of all nations, large and small, rich and poor. It helps
achieve equity, both among donors and among recipients. One
of president Nixon's first acts after assuming office was to
recommend to the Congress our contribution to the then
pending Second Replenishment of the International
Development Association o We are pleased that this multilateral
endeavor has been able to go forward.
Second, we are convinced that development can be
accelerated if we enlist more effectively the vast
potential of private enterpriseo Too often, the individual
in developing countries with ability and ambition, but with
a paucity of resources, is denied an opportunity to help his
country growo Too often, companies with ample financial
strength and technical competence shy away from the
challenges to be found in less developed areas.
The 1970's are sure to require some new emphasis in the
development process o But, in approaching the new decade,
we must also deal forcefully with key problems already upon
uso
- 3 For instance, the external debt problem has become
acute. Debt reschedulings testify that the burden of debt
servicing is already weighing too heavily on some countries.
But debt reschedulings, in themselves, provide no general
solution. Instead, debtors and creditors alike must aim
to avoid unmanageable levels and structures of external
debt. Assistance on realistic concessionary terms must be
provided from a broader range of donor countries. Recipient
countries, for their part, must see to it that they help
create a climate in which funds can be efficiently used and
internal development flourish.
,We must also seek better ways of meshing development
finance with the needs of balance of payments adjustment.
When, as at present, a number of large providers of aid must
simultaneously deal with problems in their international
payments, the flow of real resources should not be
interrupted. At the same time, balance of payments
surpluses should more readily be put to work for development
purposes, on appropriate terms.
The problem of coordination looms ever larger as the
regional development banks grow side by side with the
worldwide institutions. The variety of institutions now at
work to complement national efforts makes it essential that
we more consciously seek improved ways to fit the pieces
together in mutually complementary and reinforcing ways.
I wonder, too, whether simple numerical targets for
development assistance by industrial nations do not divert
too much attention from the quality of the aid provided and
the techniques employed.
Finally, I must emphasize that the building and
expansion of new economies -- as well as of old -- must be
achieved in a manner consistent with outward-looking
trading and financial practices -- practices which our
predecessors launched when they adopted the Bretton Woods
proposals and its trading system counterpart, the General
Agreements on Tariffs and Trade. In this connection, I am
glad to hear the Managing Director's statement that the
Fund will be prepared to reinforce its collaboration with
international institutions which have special responsibilities
in the field of trade and aid.
I am acutely conseiutlS ~I.L ;~";.,.
"ct.' (:hH";"~ t·'1,(he cJ·
f or
.' _lma t e
orderly economic grQ;;'Jth E.vpry·j,'rjt::;~:.,!..~:1 L:.: lormously i-lffected
by the succes,< with 1",'hipL ;.': ~iI tb,~ unj~~[~d :~/tc,tes gnide our
own economy.
c>
Looking back over the pasr ~ecace or mnre, I believe
there is room for some i':iacts faction.
Th:: '''_960 I shay'S
brought virtually lmint'2.rnJpte,:l ;~XOf",' ::':1:, o~· r Rf}. P coduc t L:.n; ie
the United States at the hist0rically higl~ rat8 of about
4~ percent a year.
Despite evidenr flav-,1s :tn the record,
we also managed co maintain (n.l!;:!: th.:~t SfllTle l=f.;riod of ti.me
a somewhat better degree at intei:."I:d pri:c s taLil ity than
nearly all of our maj 0:":: tradln6 pactnet,::; (,
Nevertheless, when. PJ:esici2n L: '.,:J.y;on and 1ds Adminis trati.on
took office, this inflation.ae;· pl~'V:E::3S wdS ,;211 entrenched.
Quite simply, tf:Q: United Stat'2s failed to r2spond with
sufficient vigor in making available~ f,A7ithout inflation,
the resources required by the Vietna~ conflict at a time of
:barp increase in other public: expr~nditJ.l.re:::; _ Moreover,
our traditonally strong trade surplus had almost vanished.
Some countries have no doubt welcomed the Iarger export
markets that are the counterparot of the .t"ecent sl1r ge in
U. s. imports~ Forced gr.:-owtb i;'/. the U.S. r..'..i,rket.s under tl1e
pressure of inflation cannot, hm'lever, be a sound bas is for
sustained payments equilibrium. Horeover., we recogn.ize tllat
the pressures on Dur mJn mO£1.ey rr,3rLets have contd_~utr:::d to
the worldwide upward racheting of interest rates.
o
Those same mar1,et pressures have been ~eflected in a
massive flow Df private short··tenn capital to t1-,~ U.1:Lted
States. This has tended to keep -r-;-le dollar SCU,!,,(};:-!, in the
exchange clarkets, and to holo c~m-Jn 0":' r"t'.,di,ee fo cf2i_gn 0 ffie ia 1
dollar holding3. But shor~-ce:N capital inflows are not an
effective substitute for a stronger paymeats structure,
solidly rooted in a current account surplus large enough to
support a s teB.dy flow of aid and foreign inves tment.
P~esident Nixon has made control of inflation his first
domestic priority. By now, the basic strategy of his
A~~inistratimi for achieving th~3 goal through the ~oordinRted
\~(~,.'c
of ex'p.ondl-"t"re,
t,·v
. ] [,lOL.:e
',<'t"i",T
nc··ll'-·-:,
.. ': l·;;;: \',rCdel'J"
~ _
_
u
a.,; dnG
.~"" -, J
1-- J
L ,L,.,,_.
understood.
u
-
Those polieie:::: are not -~. ;;'01: ,'bi 1 ,!~) :;rc::i.;::; ..-l,.::,te chat they
would be .0- pai'11e~:;::;,
T'c 0.-,- - ·:f~·I.F ~:>,,-:g(od .::t sT:t'ict
- 5 limit of $192.9 billion on budget spending during the current
fiscal year, a figure below Congressionally authorized ceilings.
To keep within that limit at a time of higher costs all along
the line, and despite social programs that demand larger
financing, we have had to cut $7.5 billion from program levels
planned in the budget submitted to the Congress last January.
Significantly, the expenditure total planned for the entire
fiscal year allows for virtually no increase from the current
rate of defense and civilian spending.
This restraint is being achieved at a time when the
Vietnam conflict is continuing. Looking ahead, however,
let me.assure this audience that the people of the United
States are solidly behind President Nixon in his efforts to
bring about a just and honorable peace in Vietnam.
We have continued the 10 percent income tax surcharge
through the remainder of this calendar year and have
requested the Congress to maintain half of that surcharge
for an additional six months. We are also moving to
eliminate the special tax credit for business investment.
These revenue measures, combined with the control on
expenditures, are designed to produce an over-all
budgetary surplus of nearly $6 billion -- the largest in
18 years.
Meanwhile, the expansion of money and credit has been
slowed sharply. Our lending institutions are unable to
satisfy fully the demands for credit, and the effects are
being felt on important sectors of the economy. Where
possible, we have moved to ease points of excessive
pressure, such as those on housing activity. But we are
determined to maintain the basic thrust of our restrictive
policies until the overheating is visibly dissipated.
Eight months ago, we knew that controlling inflation
without precipitating a serious recession would bea long and
difficult process. It requires holding the rate of public
and private spending below the basic trend of growth in
capacity and output, thereby relieving excessive pressure on
our resources. That process is now well underway, and we
anticipate further slackening in the quarters immediately
ahead.
- 5 -
limit of $192.9 billion on budget spending during the current
fiscal year, a figure below Congressionally authorized ceilings.
To keep within that limit at a time of higher costs all along
the line, and despite social programs that demand larger
financing, we have had to cut $7.5 billion from program levels
planned in the budget submitted to the Congress last January.
Significantly, the expenditure total planned for the entire
fiscal year allows for virtually no increase from the current
rate of defense and civilian spending.
This restraint is being achieved at a time when the
Vietnam conflict is continuing. Looking ahead, however,
let me assure this audience that the people of the United
States are solidly behind president Nixon in his efforts to
bring about a just and honorable peace in Vietnam.
We have continued the 10 percent income tax surcharge
through the remainder of this calendar year and have
requested the Congress to maintain half of that surcharge
for an additional six months. We are also moving to
eliminate the special tax credit for business investment.
These revenue measures, combined with the control on
expenditures, are designed to produce an over-all
budgetary surplus of nearly $6 billion -- the largest in
18 years.
Meanwhile, the expansion of money and credit has been
slowed sharply. Our lending institutions are unable to
satisfy fully the demands for credit, and the effects are
being felt on important sectors of the economy. Where
possible, we have moved to ease points of excessive
pressure, such as those on housing activity. But we are
determined to maintain the basic thrust of our restrictive
policies until the overheating is visibly dissipated.
Eight months ago, we knew that controlling inflation
without precipitating a serious recession would bea long and
difficult process. It requires holding the rate of public
and private spending below the basic trend of growth in
capacity and output, thereby relieving excessive pressure on
our resources. That process is now well underway, and we
anticipate further slackening in the quarters immediately
ahead.
...
{-
Clearly, a i~educed rat t~ ot ,,~Clf..\"~ b i :., no ':: 6 long-te rm
policy objective. But it is es~}("~,~.i;::,~ to an effective attack
on inflation, and it shoulc~ "'De a p;.:eLuQ€ to Lene~Jed gr-o\vth
at a sustainable pace.
Experience warns us that the tr-end of prices
particularly of services and consumer goods -~ levels off
only after a considerable lag behind other bU1iness indicdto~s.
So far, we can see only sctn:terec an(~ net who~cly cGnclu~:;ive
signs of an easing of price pressure.
In these circumstances, it is ~10t time to shift geal:s.
I believe we are realistically aware of the inevitable risks
on either side of the course we have set for ourselves. But
all our planning is rooted in the basic proposition that the
firm and persistent application of appropriace fiscal and
monetary restraint can lead us past 'chose shoals in:.::o calmer
waters.
III.
Tension and pressures have also been evident over t"ecent
years in the international monetary system, and speculative
outbursts have recurred. Indeed, it is a tribute to the
underlying strength of the system devised at Bretton Woods
and to the spirit of cooperation ~urtured by the International
Monetary Fund that disturbances have been contained und that
world trade and payments have continued to grow at a rapid
rate.
Yet we still face the challenge of moving in a coordinated
way to close the persistent imbalances in trade and paymei1ts
a.mong the rna i or countries that hdve contributed so importen·t::ly
to the monet~ry strains. There can be no e3cape in this
process from the need for effective national economic policies.
I have already commented upor.. the cil::'cl.!n1stances in the
United States. In.the case of the United Kingdom, we have
highly encouraging evidence that the underlying trend in its
bal ance of payments is noticeably imprcwing, and a current
account surplus has been reestablished. France has, within
recent weeks, launched a program to complement the adjustment
in ~ he franc par-ity ~
Cons equently ~ the re ='.S a Leal :i.mp rC)lfe:1)~·nr..
;~d the prospects of important countrie3 which have
eX;Jerienced an erosi.on ()f their ext"?:-:'::::::. t'· ~',it' ",r,S)~\'C'7
recent years.
- 7 -
It is vitally important that this recovery not be
slowed by an unwillingness of countries in a strong position
to see a decline in their trade balance.
Sizeable trade
surpluses happen to be highly concentrated among only a few
countries. We look to these countries to not only refrain
from resisting adjustment but, where possible, to take actions
of their own to assist and encourage it.
Certainly, solutions should be found other than internal
inflation, and the prescription appropriate for one country
may not be suitable for another. But it is equally clear
that, in each case, much could be done to spread and diffuse
existing surpluses in ways that support both the broad
objectives of freer trade and internal stability. Import
controls, systematic tying of aid, failure to share fully
in the burdens of defense, preferences for domestic
production, export incentives and inhibitions on capital
exports are all out of place for countries with current
account surpluses ranging as high as 2 or 3 percent of domestic
production.
The processes of international consultation and
cooperation embedded in the IMF might well be reviewed
to assure that the policies of chronic surplus countries
are subjected to the same searching evaluation that is more
or less automatically given to deficit countries.
IV.
Strong ties of trade and investment, close links
between financial markets, and the rapidity of communication
and transportation in the modern world make each country
highly sensitive to developments abroad. Y~t we live in a world
of nation-states, each of which seeks to preserve a degree
of economic independence.
We must face the facts of differing emphases in national
policy objectives, changes in the structure of industry
and population, cyclical excesses or deficiencies of internal
demand, the economic consequence of social disturbances,
and rigidities of costs and prices. Any of these factors
can become a source of disturbance and uncertainty. At least
temporary imbalances are inevitable, and every country wants
to preserve some margin of liquid financial resources to
buttress its freedom of action.
- 8 -
Our international monetary arrangements will serve us
well or poorly to the extent that they can absorb and diffuse
sources of strain on exchange markets, provide effective
incentives for national adjustment, and thus maintain an
efficient and durable mechanism for the finance of trade
year in and year out. It is one of the great strengths of
the present system that, through the years, it has
demonstrated a capacity to evolve and grow in response to
changing needs.
Indeed, in adopting the first amendment to the tMF
Agreement since Bretton Woods, we now stand on the threshhold
of a fundamental development: the creation of a new reserve
asset -- Special Drawing Rights. We are indebted to those
who years ago not only foresaw the potential need for
supplementing the traditional sources of reserve creation,
but who worked tirelessly to translate general concepts into
concrete reality.
Their efforts could not have come to fruition at a more
opportune time. I believe the Fund's Annual Report, and
even more the report embodying the Managing Director's
proposal for activation of the Special Drawing Rights, makes
amply clear that the contingency against which we have
been planning has now arrived.
The United States, therefore,
fully supports the proposal to move promptly to meet the
acknowledged need for growth in international reserves
through activation of the new facility. We particularly
welcome the sense of conviction and confidence that enables us
to move forward to use this new instrument in substantial
amounts, reasonably commensurate with need.
I recognize, but do not share, the concern expressed by
some that fresh additions to world reserves might delay the
necessary adjustment of payments imbalances. I am persuaded
that, in fact, the opposite is true. Without a timely
supplement to world reserves, the efforts of deficit countries
to eliminate those- deficits could be made more difficult, and
could even be frustrated, by actions taken by other countries
to safeguard their existing reserves. Moreover, I can assure
you that, for the United States, the activation of this
facility will in no way diminish our efforts to bring
inflation under control.
- 9
As we enter this new era of managed reserve creation,
SDR's will have to find their proper role within the total
complex of reserve assets and credit facilities. There is no
doubt in my mind that, within the basic framework of the
amended Fund Articles, we will jointly demonstrate our ability
to use this new reserve asset constructively -- in the same
spirit of cooperation that was essential to its development.
SDR's have properly been at the center of attention in
recent discussions of international liquidity. However,
the regular drawing rights in the IMF also have an important
role to play. The approach of the period of quinquennial review
makes this an appropriate occasion for surveying the size
of Fund quotas. Preliminary discussions indicate that a number
of questions remain to be resolved before a concrete proposal can
be presented to the Governors. I feel certain that this matter
can be satisfactorily resolved within the framework of a
reasonable increase in the overall size of the Fund at an
early date.
v
The clear progress we are making in dealing with the
provision of international liquidity must not divert our
attention from other sources of strain. I have already noted
that the process of international adjustment has not been
working with full effectiveness, and that the difficulties in
this regard are in large part a by-product of inadequate or
inappropriate domestic policies.
At the same time, I believe we must recognize that events
themselves have raised new questions as to the appropriate
role for adjustments in exchange rates -- not as a substitute
for, but as a complement to, other policies. I have
particularly in mind the range of proposals for "limited
flexibility" to which Mr. Schweitzer alluded yesterday.
These proposals all look to less rigidity in the exchange
rate mechanism than has in fact developed in the practices of
industrialized countries. Some suggested approaches would,
i'l practice, affect only a handful of currencies, or would
introduce largely technical changes in the management
, : exchange markets. Other versions -- such as those for a
~. ,2ry substantial widening of exchange rate margins -- would
·
'"\
~V
appear to introduce so large aQ plement of uncertainty,
and be so at variance with the basic objectives of the Fund,
that they probably do not need to occupy our attention.
Certainly, in the United States we have reached no
conclusion on the desirability of any particular proposal.
I would, however, like to share with you some of the relevant
points that, on the basis of our own review of the matter,
we believe should be kept in mind in further investigations in
this area.
In the first place, the various plans for "limited
flexibility" in exchange rates seem to pose formidable
technical and policy problems that will require careful
study over a considerable period by national authorities,
as well as international monetary bodies, before any consensus
is possible.
Secondly, well-concEived changes, as part of their basic
design, should reduce incentives for speculation, or make it
more costly. Thus, if it is to be successful, any proposal
must come to grips with the difficulty of confining changes
in exchange rates within carefully defined limits, while
providing enough flexibility to reduce the need for, and
expectations of, large abrupt changes in parities.
Third, we should not lose sight of the fact that any
reasonable scheme to remove undesirable rigidities in exchange
rates would have to be built upon the foundation of responsible
and appropriate internal policies, so that the need for large
and discrete changes in parities should arise even less
frequently than in the past. Similarly, the world would
continue to require an orderly growth in reserves and credit
facilities, to facilitate the maintenance of parities
within established and relatively narrow ranges.
Fourth, given the pivotal role of the dollar in the
international monetary system, the initiative for even limited
exchange rate adjustments would continue to lie with
countries other than the United States. As a corollary, we
must guard against the possibility of encouraging a bias toward
oevaluations.
- 11 -
It is implicit in these comments that we believe that
proposals for limited flexibility in exchange rates offer no
panacea for present problems. Nonetheless, the increasingly
widespread discussion of these ideas in this country and abroad
reflects a real concern over the need to facilitate, over
a period of time, a better working of the adjustment
process. In concept, these proposals seek to preserve
and enhance the basic stability of the system as a whole
precisely by breaking down unnecessary rigidities and
inhibitions to orderly change, when change is necessary.
In this light, efforts to define and develop techniques
of limited flexibility need not be looked upon as radical
new departures from the main stream of developments in the
monetary area. Instead, they seem to me to fall within the
framework of orderly and evolutionary change and of multilateral
monetary cooperation.
As I have noted, these devices have had no official
sanction and are full of subtle and unsetcled technical and
policy questions. In sum, they are a long way from fruition,
if, indeed, some variant proves practical at all in the end.
But neither are these ideas something that we can, or will,
responsibly ignore.
I, therefore, welcome the Managing Director's statement,
elaborating on the Fund's Annual Report, that the Fund will be
continuing its study and appraisal of these questions. The
United States will actively participate in and contribute
to such a study. We would hope that, during the coming
months, the Fund will examine proposals for limited exchange
flexibility, determine which particular proposals appear
worthy of further attention, and set forth the major issues and
considerations that would concern officials of member governments
as they formulate considered judgments on such matters.
In conclusion, let me say the principal contribution of
the United States to the stability and viability of the international monetary system in the present setting is perfectly plain-to bring our inflation to an end and to do so without sending
shock waves of recession to every corner of the world.
That is the main path we in the United States have set for
ourselves. In participating in an examination of
possible further improvements in our monetary arrangements,
we will not be misled into thinking that we can dispense with
the fundamental need.
000
TREASURY DEPARTMENT
!!
September 29, 1969
FOR IMMEDIATE RELEASE
MINT TO ACCEPT ORDERS FOR 1970 PROOF COIN SETS BEGINNING
NOVEMBER 1, 1969
1969 UNCIRCULATED SET ORDERS CUT OFF
Mrs. Mary Brooks, Director of the Mint, announced today that
orders for 1970 Proof Coin sets will be accepted by the San Francisco
Assay Office beginning November 1, 1969. Acceptance of orders will
continue until the Mint's production limit of these sets has been reached.
There will be a limit of five (5) sets per order. The price per set
will be $5.00, including handling and shipment by first class registered
mail. Each set will include a 50¢, 25¢, 10¢, 5¢ and 1¢ piece, produced
at the San Francisco Assay Office.
The Director also announced that the Assay Office will discontinue
the acceptance of orders for 1969 Uncirculated Coin sets when the total
reaches two (2) million sets, or on September 30, 1969, whichever
occurs first.
In announcing the Mint's policy concerning the production of proof
and uncirculated coin sets, Mrs. Brooks pointed out that "the Mint's
primary function is the production of adequate coinage for the commerce
of our country. After this has been accomplished, consideration will bf
given to the production of numismatic items for the hobby. !I She further
stated that "the Mint will continue to do all it can for the numismatic
hobby, and will make every effort to distribute its' limited production of
proof and uncirculated coin sets on a fair and equitable basis. "
The San Francisco Assay Office will begin mailing the 1970 Proof
Coin order cards to the Eastern Seaboard, Alaska, Hawaii, Puerto Rico
and all foreign countries, on or about October 15, 1969. The Midwest
mail will go out on or about October 16, and the West Coast mail on or
about October 17. These cards should be used in placing orders with
the Assay Office.
MORE
- 2 -
Recipients should pay close attention to this material which clearly
states that "Receipt of any order and payment will not constitute an
acceptance of any order. Payments will be deposited for safekeeping
pending acceptance of any order or a refund ..... The Assay Office reserves
the right to reduce or cancel any order whether or not it has been
acknowledged. The acceptance of orders is conditioned upon the Mint's
ability to meet the demand. In the event of a reduction or cancellation
by the Mint, appropriate refund will be made. Orders are not subject
to cancellation by the purchaser. "
Proof coins are produced from special blanks, struck with highly
polished dies to assure the mirror-like finish, which identifies these sets.
As orders are received, the San Francisco Assay Office will send
acknowledgements as promptly as possible. It may be many months,
however, before an order can be filled, as these sets will be manufactured
and shipped during the entire calendar year 1970.
All orders and correspondence regarding Proof and Uncirculated
Coin sets should be directed to the Officer in Charge, United States Assay
Office, Numismatic Service. 350 Duboce Avenue. San Francisco.
California 94102.
-000-
TREASURY DEPARTMENT
Jr3
WASHINGTON. D.C.
October 1, 1969
FOR IMMEDIATE RELFASE
TRFASURY'S WEEKLY BILL OFFERING
The Treasury Department, by
for two series of Treasury bills
$3.000,000,000, or thereabouts,
Treasury bills maturing October
$3,003,927,000,
as follows:
this public notice, invites tenders
to the aggregate amount of
for cash and in exchange for
9, 1969,
in the amount of
91-day bills (to maturity date) to be issued October 9, 1969,
in the amount of $1,800,000,000,
or thereabouts, representing an
additional amount of bills dated
July 10, 1969,
and to
mature January 8, 1970,
originally issued in the amount of
$1,102,021,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,200,000,000,
dated October 9, 1969,
and to mature
or thereabouts, to be
April 9, 1970.
The bills of both series will be issued on a discount basis under
competitive and noncompetive bidding as hereinafter provided, and at
maturity their fac~ 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
<.:p to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, October 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 dec"ima1s, e. g., 99.925. Fractions may not
be used. It is urged that tender.s 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 ~~:'!;'":1it tenders for account of
Ct'Ftomers provided the names of the custc:ners are set forth in such
t.enders. Others than banking institutions will not be permitted to
submit tenders except for their own account. Tenders will be received
without deposit from incorporated bank3 .and trust co:npanics and from
K-2J.9
- 2 responsible and recognized deB.l~~ it in investment securities. Tenders
from others must be accompanied bl payment" of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an expresl 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 announCE
ment will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rej ection thereof. The Secz:e 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 leiS 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 1n accordance with the bids must be
made or completed at the Federal Reserve Bank on October 9, 1969, ir.
cash or other immediately available funds or in a like face amount
of Treasury bills maturing October 9, 1969.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be madf"
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, .nd lOIS fiom 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.
FOR RELEASE:
UPON DELIVERY
STATEMENT BY THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE HOUSE WAYS AND MEANS COMMITTEE ON H. R. 12625
"THE EMPLOYMENT SECURITY AMENDMENTS OF 1969"
WEDNESDAY, OCTOBER 1, 1969, 10:00 A.M., EDT
Mr. Chairman and Members of the Committee:
I am pleased to. have the opportunity today to express
the views of the Department of the Treasury on H. R. 12625,
a bill which would modernize the Federal-State unemployment
insurance system.
Although basically sound, the system --
which has been in operation since 1935 -- in some respects
has fallen behind in a much-changed economy.
It is like the
long-used, well-constructed machine that is operating well
but requires some improvements.
The system has not been generally revised since its
inception -- 35 years ago.
It is in much need for revision
to better meet its objectives as insurance against the risks
of unemployment and as a built-in mechanism to moderate the
impact of significant reductions in the level of economic
activity.
Much of the details on the operations of the system and
the way the bill would improve these is covered by the testimo
of the Labor and Commerce Departments.
K-220
I will concern myself
- 2 with the fiscal and financing aspects of the legislation.
This bill strengthens the ability of the insurance system
to act as an automatic stabilizer when the economy declines
to a substantial degree.
I believe that prudent planning
calls for taking such measures now when the economy is
basically healthy and continuing to expand.
An analysis of the past history of unemployment
insurance demonstrates its effectiveness as a stabilizing
factor.
For example, in the 1958 recession, as a result of
lower output (GNP), personal income before taxes (excluding
transfer payments) declined at an annual rate of $3.2 billion
between the third quarter of 1957 and the second quarter
of 1958 (see Table 1).
Because of the automatic response
of stabilizers such as unemployment benefits, disposable
personal income was actually increasing at an annual rate
of $2.8 billion during the same period.
This stabilizing
influence was attained without any discretionary action.
Specifically, the $3.2 billion decline in personal income
was more than offset by a $2.5 billion increase in unemployment
benefits payments, a $900 million increase in social security
payments, and $1.5 billion of reduced income taxes resulting
from lower incomes.
Such sustained disposable income in
a recession supports consumption and leads to economic
recovery.
- 3 -
TABLE 1
CHANGES IN PERSONAL INCOME, TAX PAYMENTS, AND TRANSFER PAYMENTS
From Third Quarter 1957 to Second Quarter 1958
Billions of Dollars
Decline in Personal Income
(excluding transfer payments)
- 3.2
Offset by built-in stabilizers:
Increase in unemployment benefits
+2.5
Increase in OASI benefits
+0.9
Increase in other transfer payments
+1.0
Reduction in Federal personal taxes
+1. 8
Reduction in personal contributions
for social insurance
+0.1
Increase in state and local personal taxes
-0.3
Subtotal, built- Ln stabilizers:
Equals:
Note:
Source:
Rise In Disposable Personal Income
+6.0
+ 2.8
At seasonally adjusted annual rates.
U. S. Department of Commerce, The National Income and
Product Accounts, 1929-1965, Supplement to Survey of
Current Business, Washington, D. C., U. S. Government
Printing Office, August 1966.
- 4 -
We need to improve unemployment insurance so that its
potential as an automatic stabilizer can be even greater.
To the extent that automatic stabilizers are structured
into our economy, this enables economic forces to respond
more quickly to adverse employment impacts which may result
from periods of substantial economic restraint.
This bill
goes a long way toward improving unemployment insurance as
an automatic stabilizer and hence toward minimizing the
social costs which may accompany necessary changes in
economic policy.
Need for More Automatic Response
Mr. Chairman, we need to provide through our insurance
system added protection against prolonged unemployment,
should that eventuality ever arise.
In the past, the more
serious a recession grew, the larger were the number of
benefit exhaustees and the longer the duration of unemployment.
Although such a contingency seems quite remote, it
would appear advisable to protect our workers against this
possibility.
We need to protect our economy by structuring
the unemployment insurance system so that protection comes
into effect automatically, in timely fashion, and with
adequate reserve to meet an emergency.
- 5 -
It should be recognized that our present system of
unemployment compensation tends to provide effective builtin stabilization for small recessions (see Table 1), but
it tends to become relatively weaker as recessions become
more severe and increasing numbers of workers exhaust benefits.
The purpose of "triggered-jn" extended benefits
is to deal
more effectively with the latter type of situation.
In 1958 and again in 1961 the Congress, when it recognized the seriousness of those recessions, enacted temporary
extended benefit programs.
This bill provides for a program
of Federally-financed extended benefits to be "triggered in"
automatically when the national unemployment rate among
insured workers reaches 4.5 percent for the last three months.
The current unemployment rate for insured workers is about
2 percent.
Once triggered, the extended program will be "triggered
out" when three conditions are met:
(1) The national unemployment rate for one month
is less than 4.5 percent,
(2) The number of exhaustees of regular state
benefits is less than I percent, over
a three-month period, and
(3) The program has been in effect at least 13 weeks.
- 6 -
Under the extended benefits program, exhaustees of
regular state benefits will continue to receive the
equival~nt
of the regular state weekly benefit for a period
equal to one-half the length of the state duration, or
13 weeks, whichever is
less~
In no case will regular and
extended benefits compensate for more than 39 weeks of total
unemployment.
Responsiveness of Payroll Taxes
The higher taxable wage base in the bill will make
payroll taxes more responsive to a changing economy.
ment insurance
ben~fits
Unemploy-
have been strongly countercyclical.
Taxable wages (limited hy the present $3,000 ceiling) are less
responsive to economic changes than total wage payrolls.
Extending the ceiling to $6,000 will make taxable wages more
responsi\e to the needs of economic stabilization.
Adequacy of State Reserves
As a good insurance principle, the states should be
able to accumulate adequate reserves to finance a high cost
benefit period brought on by more unemployment than usual.
ToJay, a good number of states have adequate reserves if
measured by the principle that a state's reserves should
be at least one and one-half times the highest l2-month cost
benefit rate over the past decade.
For example, at the end
of 1968, the national average was 1.81 times and 3S states
- 7 -
(plus the District of Columbia and Puerto Rico) more than
met the 1.5 ratio rule.
However, 15 states did not, and
these account for over 40 percent of covered workers.
The
reserves of these states generally need strengthening to
assure the soundness of the insurance system.
By increasing
the Federal taxable wage base to provide FUTA funds for
financing the extended benefits program, the bill will also
move indirectly in aiding state funding.
The outdated $3,000 wage base will go to $4,800 in 1972
and 1973 and to $6,000 thereafter.
States will automatically
or by specific action follow the Federal limit.
Twenty-six
states (plus the District of Columbia and Puerto Rico) have
provisions for automatic extension of their taxable wage
ceilings to the ceiling in the Federal Unemployment Tax Act.
States will find that the potential yield of their
tax systems will increase.
Under these circumstances they
have the alternative of building their reserves to adequate
levels or, if having adequate reserves, the states could
lower taxes by reducing rates.
Adequacy of Benefits
This bill does not establish Federal standards for the
adequacy of state benefits.
President Nixon pointed out that
this is a responsibility of the states and that such freedom
- 8 -
of action is well warranted.
But the President requested
the states to examine their benefit structures and establish
realistic benefit ceilings.
In some of our large industrial states, for example,
60 to 75 percent of the male workers laid off receive less
than one-half of their weekly wages.
It has been generally
accepted since the beginnings of unemployment insurance that
the wage loss recovery should be at least 50 percent.
It
was about that level in the thirties, but benefits have
simply not kept up with the growth of earnings.
Of course, benefits should not completely replace
wages lost from unemployment.
Work incentives are needed.
The 50 percent rule adequately maintains those incentives.
The problem in the present system is that the maximum weekly
benefit amount in most states is so low that a large proportion
of laid-off workers are unable to receive as much as 50 percent
of their normal weekly wages.
Adequacy of benefits is essential in automatic stabilization.
The larger the wage loss recovery, the more disposahle
income and personal consumption expenditures are sustained.
Funding
The increase in the taxable wage base ultimately to
$6,000 will provide the revenue necessary to finance the
extended benefits program and administrative expenses (see
Table 2).
It is more equitable to finance these programs by
- 9 -
Table 2
~
COMPARISON OF ESTIMATED FUTA REVENUES WITH ESTIMATED ADMINISTRATIVE COSTS
(In Millions)
~
!/
Assumptions:
a. Taxable wage base - $3,000 in calendar
years 1970-1971; $4,800 in 1972-1973;
$6,000 in 1974 and 1975.
b. Tax rate at 0.4 percent of taxable wages.
c. Coverage extension effective January 1, 1972.
2/ Reserve for extended benefits (1/6 of FUTA
revenues) estimated at $1.4 billion for an
eighteen month period on a national basis
once each seven years.
3/ Assumes insured unemployment rate
of 2.2 percent. Estimates assume
that, beginning with 1973, 75%
of Employment Service costs will
be financed out of FUTA revenues;
therefore, the estimates exclude
amounts to be financed from
general revenues. Estimates
include costs of legislation
beginning in 1971.
- 10 -
increasing the wage base than by increasing rates which
would fall more heavily on low wage industries.
Training
The reduction of residual unemployment or structural
unemployment would make automatic stabilizers even more
effective.
Structural unemployment may exist because worker!
are unskilled or need more skills, because they do not move
easily to areas where there are more job opportunities, or
because industry may not shift readily from tight labor
supply areas to regions where labor resources are more
adequate.
We have specific programs now which are directed at
overcoming these problems.
To the extent that this bill
encourages unemployment insurance claimants who need training
to take it, it is also contributing to the resolution of
these problems.
These programs are long range and like our
education programs represent a worthwhile investment in
human resources to complement investments in capital plant
and equipment.
000
TREASURY DEPARTMENT
Washington, D. C.
Jlf
STATEMENT BY THE HONORABLE PAUL W. EGGERS
GENERAL COUNSEL OF THE TREASURY
BEFORE THE HOUSE BANKING AND CURRENCY COMMITTEE
ON H. R. 13252
ON WEDNESDAY, OCTOBER 1, 1969
AT 10:00 A. M. (EDT)
SUMMARY
Prompt enactment is urged of H. R. 13252, the Coinage Act
of 1969, legislation which has been endorsed by the Joint
Commission on the Coinage, a non-partisan body adopted by law
to advise the president and the Congress on silver and coinage
matters.
Under this proposed legislation the Secretary of the
Treasury would be granted authority to (1) mint a non-silver
cupro-nickel half dollar, (2) mint a non-silver cupro-nickel
dollar coin, and (3) transfer 2.9 million rare silver dollars
now held in the Treasury to the Administrator of General
Services Administration for sale to the public.
Mr. Eggers points out that the present 40 percent silver
Kennedy half dollar has not circulated sufficiently and there
is need for a circulating half dollar which can only be met by
minting a non-silver coin.
Mr. Eggers stresses the advantages of using cupro-nickel
rather than silver for this coin. He pointed out that only
a non-silver dollar coin would actually circulate, and the
non-silver dollar coin would mean a far greater monetary return
to the Government. By contrast, he says, the use of surplus
silver for dollar coins would mean an increase in silver imports
together with a larger balance of payments deficit, and higher
prices for important consumer products.
Treasury's current surplus holdings of silver in a form
available for market sale through 1970 totals about 100 million
ounces.
K-22l
TREASURY DEPARTMENT
WASHINGTON, D. C.
STAT»IENT BY THE HONORABLE PAUL W. EGGERS
GENERAL COUNSEL OF THE TREASURY
BEFORE THE HOUSE BANKING AND ~CY COMMITTEE
ON H.R. 13252
ON WEDNESDAY, OCTOBER 1, 1969
AT 10:00 A. M.
(EDT)
Mr. Chairman:
I welcome this opportunity to urge the prompt enactment of
H.R. 13252, the Coinage Act of 1969.
Before setting forth the reasons
why the Treasury Department considers the prompt enactment of this
legislation to be strongly in the public interest let me briefly review
the procedures under which the Administration's coinage legislation was
developed.
In March of this year Secretary Kennedy established a special Task
Force of Treasury officials to review all major silver and coinage issues
and recommend appropriate administrative actions and where necessary new
legislation.
I had the honor to act as Chairman of this group.
In early
May the Task Force completed its study and presented a report to the
Secretary outlining its recommendations.
The recommended program was then reviewed by and received the full
approval of the Joint Commission on the COinage, a non-partisan body
established by law to advise the President and the Congress on silver and
coinage matters.
As you know, this 24-member Commission includes 12 Members
of Congress, the Chairman and ranking minority member of the Senate
Banking and Currency Committee, 4 members of the Senate appointed by the
K-221
- 2 -
President of the Senate,
the Chairman and ranking minority member of
the House Banking and Currency Committee and
4
members of the House of
Representatives appointed by the Speaker of the House of Representatives,
4 members from the Executive Branch -- the Secretaries of the Treasury
and Commerce, the Director of the Budget a,nd the Director of the Mint, and
8 public members appointed by the President.
The administrative actions endorsed by the Commission were immediately
put into effect by Secretary Kennedy.
These were a lifting of the coin
melting ban and a reduction in the weekly sale of silver through the GSA
from 2 to 1-1/2 million ounces.
The legislation endorsed by the Commission
is now before your Committee as H.R. 13252.
Under provisions of this legislation the Secretary of the Treasury
would be granted authority to:
(1)
Mint a non-silver cupro-nickel half dollar
(2)
Mint a non-silver cupro-nickel dollar coin, and
(3)
Transfer the approximately 3 million rare silver dollars
now held in the Treasury to the Administrator of General
Services for sale to the public in the manner recommended
by the Joint Commission on the Coinage.
The Administration's request for authority to mint a non-silver half
dollar is based on the conclusion that there is an important commercial
need for an adequately circulating half dollar that can only be met through
the minting of a non-silver coin.
I think the most convincing argument
for granting the Treasury this new authority is the fact that only a very
small percentage of roughly 1-1/4 billion silver half dollars (both
40 per cent and 90 per cent silver) minted since 1963 are actually
circulating.
- ) Well over 200 million ounces of silver have already been used to
mint this coin.
This is equal to the total amount of silver mined in the
United States since 1963.
As Secretary Kennedy pointed out in his recent
statement to the Coinage Commission the 40 per cent silver half dollar,
on our past experience, is simply a losing proposition.
The realistic
choice we face is either to abandon this coin altogether or mint it of
the same cupro-nickel clad material now used in dimes and quarters.
We
strongly recommend the latter alternative.
A second major provision of the Administration's coinage bill would
authorize the Secretary of the Treasury to mint cupro-nickel dollar coins
of the same clad material now used in dimes and quarters.
Before making
this recommendation the Treasury gave very careful consideration to the
composition of the new dollar coin which we intend will bear a portrait
of President Dwight D. Eisenhower.
The principal issue was whether the
coin should contain silver or be minted of the cupro-nickel clad material
used in other coins.
Here are the major reasons why we concluded that a
cupro-nickel dollar coin is strongly in the public interest.
1.
Only a non-silver dollar coin would actually circulate to meet
commercial needs, which of course, is the basic purpose of coinage
production.
The experience with the Kennedy half dollar indicates con-
clusively that silver coins will not freely circulate in significant
quantity.
The Treasury Ta.sk Force on Silver Policy and the Joint Coinage
Commission both concluded that there is a commercial need for a circulatir
dollar coin that can only be met by a non-silver coin.
- 4 2.
The non-silver dollar coin would mean a far greater monetary return
to the Federal Government than would be realized by a 40 per cent silver
coin.
One bill now before the Congress which would authorize the minting
of 300 million 40 per cent silver dollar coins over a three-year period
would mean a total return through seigniorage of roughly $160 million.
By contrast, the monetary gain by producing the same number of non-silver
dollar coins under the Administration bill would be about $290 million.
In addition, the Treasury could obtain as much as $50 million more in
revenue from the continued sale of silver to the GSA, or a total of well
over $300 million.
Moreover, if the cupro-nickel dollar coin were authorized the Treasmy
would not be limited to minting only 300 million of these coins.
When
production resources are in full gear that number could be minted in a
single year, depending upon public demand.
The total seigniorage therefore.
over a three-year period would unquestionably be far greater than if the
dollar coin contained silver.
And I might add that the seigniorage retmo
to the Government reduces its public borrowing needs by an equivalent
amount.
However, it should be emphasized that the major purpose of our coinage
system is not to maximize seigniorage but to meet the country's need for
an edequate supply of circulating coins.
Seigniorage is simply the
difference between the face value of a coin and the cost of its component
materials.
Including silver in a coin reduces seigniorage since silver is
- 5 obviously more costly than copper or nickel.
Although those who advocate
a silver dollar assert that this would be equivalent to selling the
silver for $3.16 per ounce it is no more logical to put a sale price on
the silver in the coin than it would be to compute a sale price on the copper
and nickel in dimes and quarters.
3. Using our surplus silver for dollar coins would significantly increase
our balance of payments deficit.
Current annual domestic silver production
is less than 40 million ounces compared with industrial consumption of
about 145 million ounces.
If weekly GSA silver sales are halted because
all our remaining surplus silver is reserved for dollar COins, then silver
imports for industrial use will have to increase substantially.
We
estimate that the resulting adverse effect on the balance of payments
in the first year could be as much as $150 million.
4. Using our surplus silver for dollar coins would mean higher prices
for important consumer products.
Although the Treasury has taken a neutral
position with respect to the price of silver, it should be realized that
if Treasury silver sales were halted the price of silver would probably
rise significantly.
The principal industrial uses of silver are for film
and electrical products.
When the price of silver rose from the fixed
$1.29+ per ounce to over $1.80 an ounce in 1961, the major film producers
increased their prices substantially.
A further increase in the price
of silver would very likely mean higher costs to millions of consumers
of film products including X-ray film.
Similar effects would be felt
by users of batteries and electrical products.
It should be realized that
the ultimate users of silver include virtually the entire American public.
- 65.
The Administration bill is consistent with the recommendation made
by the Joint Commission on the Coinage.
The Joint Commission on the
Coinage is a non-partisan body established by law to advise the President
and the Congress on major coinage issues.
The Commission carefully
considered this matter and overwhelmingly recommended the minting of a
non-silver dollar coin.
We think the COmmission's recommendation is well
founded and that legislation authorizing cupro-nickel clad half dollar
and dollar coins is in the best interest of the public as a whole.
The
portrait of President Eisenhower on a dollar coin would include him
among the select group of great Americans honored on other circulating
coins.
The enactment of H.R. 13252 in addition to providing the economy
with needed circulating coinage would also be a major contribution
toward alleviating the unstable conditions that have plagued the silver
market for over two years.
The sharp and largely irrational movements in
silver prices both up and down have been stimulated by rumors and
uncertainties regarding anticipated Government actions.
We think the
enactment of this bill wilL end this uncertainty by finally enabling
the Treasury to clearly set forth just how much surplus silver it holds
and how long and at what rate this silver will continue to be sold
through open competitive bids.
As of August 31 the Treasury stock of silver bullion totaled 85
million ounces.
Of
this total about 40 million ounces was in a form
readily available for market sale.
In addition we estimate that the
..
'"(
-
Treasury's inventory of silver in coine; that will be melted into bars
totals about
60 million ounces, a figure we consider reasonably accurate
within a 10 million ounce range.
As of now, reflecting estimated changes
in September, the Treasury's total stock of Silver, including silver
COins,
_~3
approximately 135 milUoc. ounces.
This figure. is er:tirely
~~(Tarate from the 165 million ounces of silver already set aside in the
defense stockpile.
The enactment of H.R. 13252 would make surplus virtn8.l 1 ' '-'11 of tho
T:'.:"lsur.> 's remaining stock of silver except for the
rela-:;ive_~-
small
amount that would be required for minting of half dollars in a transition
period.
We estimate that the readily available silver surplus of about
100 million ounces is adequate to continue sales through the GSA at the
current rate through 1970.
In this period of adjustment producers and users
of silver will have ample opportunity to gear their operations to eventual
co,,:~-:::lr. t;;
independence from Government sources of supply.
Let me now turn to the third m3.jor provision of H.R. 13252 which
,muLi authorize the transfer of the approximately
3 million rare silver
doL:'3.n now held in the Tree.sury to the Administrator of General Service:=:.
fer
'0",1,.::
to the put)lic in the :nann"";:' recommended by the Joint Commissiorl
on the Coinage.
The value of these coins varies from month to month but
at the present time we estimate that their numismatic value in the market
~anges
up to about $170 per coin depending upon the year of issue.
Since the summer of 1967 several silver dollar disposal plans have
been discussed at length by the Joint Commission on the Coinage.
At the
- eJuly
15, 1968
meeting an inter-agency Committee with members from the
Treasury, the GSA, and the Smithsonian Institution was directed to study
all the plans and present for the Commission's consideration, a plan
which would
(1)
insure the public a widespread opportunity to obtain
the cOins, (2) obtain the maximum return on disposal for the Treasury,
and (3) conduct the disposal operation in Government rather than private
hands.
The Coinage Commission recommended such a plan, and the Treasury Task
Force on Silver and Coinage Policy strongly endorsed the plan under which
these remaining rare silver dollars would be disposed of by the General
Services Administration through a shelf sale at approximately their
current numismatic value.
statement.
A summary of the plan is appended to my
The plan limits sales to anyone buyer to one coin of each
year of issue, or a maximum of ten coins.
The buyer may tender a bid at a
price higher than the posted price, and in the event
year of issue should exceed the supply, these bids
orcA~p
",~i1l
for anyone
determine who
will get the coins.
The major reasons for recommending your
this plan are
(1)
app'~n'ro.j
tn go :::' head wi til
after considerable study of maL,
the most equitable for both the public and the Government, and meets the
requirements set forth by the Commission, (2) it has received much
pnblicity and seems to be acceptable to a majority of the public and the
n~~ismatic
experts with whom the inter-agency Committee consulted prior
to its recommendation of the plan to the Committee, and (3) the
- 9 appropriation required by GSA to carry out this plan would be small
compared with the probable total receipts to the Treasury.
In summary, the Treasury believes that the prompt enactment of
H.R. 13252 would be a major contribution to a more effective coinage
system, facilitate an orderly transition of the silver market to
complete dependence on private sources of supply, and make it possible
for us to pay fitting tribute to a great American.
TREASURY DEPARTMENT
:f,
May 20, 1969
SIL VER DOLLAR DISPOSAL PLAN FACT SHEET
The following includes all information available at this time, and
attempts to answer questions concerning the proposed disposal of the 2. 9
million silver dollars being held by the Treasury.
Tbe Joint Commission on the Coinage, an advisory group to the
Treasury, the President and the Congress, on December 5, 1968, and
on May 12, 1969, approved a plan for the disposal of these rare coins.
An Interagency Committee, designated by the Coinage Commission
following its July 15, 1968 meeting, prepared the plan for the disposal
of these remaining silver dollars being held in the Treasury.
This plan
follows the Commission's guidelines to (1) insure the public a widespread
')pportunity to obtain the coins, (2) get the maximum return on disposal"
fer the Treasury, and (3) conduct the disposal operation in Government"
rather than private hands.
The Government agency which will actually administer the plan
has not been designated.
Congressional approval of funds will also be
required to carry out the disposal plan.
A detailed procedural, manage-
ment, and organizational study will be necessary prior to implementation
of the plan which addresses itself chiefly to the over 2.8 million uncirculated coins minted at Carson City during a ten-year period between 1878
and 1891.
MORE
- 2 silver dollars would be sold at
Under the P!'oposed plan thesp.
minimu;a fixed prices with an option to the rJuyer to include an alternate
bid price to be considered in the
ev~nt
the number of coins ordered exceeded
the number of coins available in a particular category.
categories of coins.
The limit would be one for each
of ten coins, for any individual bidding.
There are ten
~ategory,
or a total
This should make possible a fair
and equitable method of distribution of coins if more orders are received
for a particular category of coins than
th~
available supply.
In that case,
those bidding the highest alternative price would be awarded the coin.
The invitations to bid and any other developments will no doubt
receive wide publicity in the news media when the details have been worked
out.
No mailing lists are being compiled of persons interested in the pur-
chase of these coins.
No specific method of disposing of the remaining 100,000 of common
(la~'2S,
m:,x2d circulated silver dollars, has been worked out.
be~ccomplished
This would
if and when the Congress has approved the necessary funds
and designated the agency to implement the disposal plan.
7he Treasury announced on May 12, 1969, following the Coinage
Commission meeting, that it would present and urge prompt enactment of
legislation to authorize an appropriation of funds necessary to carry out
thii.:;3isposal plan.
It is obvious, therefore. that much remains to be done
coins will actually be
".l8.-':
d~c;posed
of by the Government, and
it v,ill be some time before additional information will
-0')=.·-
beCt'::fr.E:
TREASURY DEPARTMENT
WASHINGTON, D.C.
September 30, 1969
FOR IMMEDIATE RELEASE
TREASURY REQUESTS SECURITIES ASSOCIATION, EXCHANGES
TO CONTINUE INTEREST EQUALIZATION TAX PROCEDURES
The Department of the Treasury today requested the National
Association of Securities Dealers, Inc., and national securities
exchanges to request members and member firms to continue existing
procedures on securities transactions which are subject to the
Interest Equalization Tax.
The tax is due to expire at midnight
tonight.
Proposed legislation extending the interest equalization
tax to March 31, 1971, was passed by the House of Representatives
on August 7, 1969, and reported favorably by the Senate Finance
Committee with a number of technical amendments. The Department
of the Treasury will propose that if the legislative process to
extend the tax is not completed on or before October 1, 1969,
the proposed renewal legislation be amended to make it clear
that, regardless of when the legislation is enacted,the tax will
apply to acquisitions on or after October 1, 1969. Such amendment would assure the uninterrupted applicability of the tax
beyond September 30, 1969, at the rates and under the procedures
in effect on September 30, 1969.
Consultations with representatives of the securities
industry indicate that it is feasible and desirable to continue
beyond September 30, 1969, procedures previously adopted for
dealing in stocks of foreign issuers and debt obligations of
foreign obligors, especially those applicable to the identification
of foreign securities owned by U. S. persons which may be traded
free of tax among u. S. persons.
Such continuation will assure
the maintenance of orderly markets in these securities pending
action on the proposed legislation.
The Treasury has been advised by the National Association
of Securities Dealers that the rules adopted by the Association
to cover a similar situation on July 31, 1969, at the time of a
prior impending expiration of the Interest Equalization Tax,
remain in effect and will be applicable to acquisitions on or
after October 1, 1969. The Treasury has requested that the
K-222
- 2 -
National Association of Securities Dealers so advise its
members and that the national securities exchanges adopt and
publish any necessary rules requiring their members and
member firms to continue beyond September 30, 1969, the
procedures existing on that date for transactions and securities then subject to the interest equalization tax.
Technical details announced today by the Treasury are
attached and are being submitted to the Federal Register for
publication.
000
September 30, 1969
Treasury Department Announcement
INTEREST EQUALIZATION TAX
CONTINUATION OF CURRENT PROCEDURES AFTER
SEPTEMBER 30, 1969, AND RETROACTIVE EFFECT
The Treasury Department will propose that, if the
interest equalization tax is not extended on or before
October 1, 1969, the pending legislation be amended to
specifically provide that it will be effective with respect
to acquisitions made after September 30, 1969, and thereby
(1) make i t clear that, regardless of when the legislation
is enacted, the tax applies to acquisitions on or after
October 1, 1969, so as to assure uninterrupted applicability
of the interest equalization tax and (2) confirm that the
rates, rules and procedures in effect on September 30, 1969,
continue in effect, during the period October 1, 1969, and
extending until the legislation is enacted, in all respects
as if the tax had been extended prior to October 1, 1969.
Unless otherwise notified by the Treasury, banks and
trust companies which are participating custodians will not
continue as such after October 17, 1969, unless the procedures
described below are followed.
The status of participating
firms will continue as such unless terminated under current
procedures.
Under current law, the interest equalization tax is
not applicable to any acquisition of stock of a foreign
issuer or debt obligation of a foreign obligor made after
- 2 September 30, 1969.
H. R. 12829 passed by the House of
Representatives on August 7, 1969, and reported favorably
by the Senate Finance Committee, with amendments, would
extend the tax to March 31, 1971.
Some of the rules and procedures in effect on September 30,
1969, and which will continue in effect, are set forth below
along with the special procedures for participating custodians.
1.
Participating Firms and Participating Custodians.
Those broker-dealers having status as participating
firms on September 30, 1969, will retain their status as such
with respect to acquisitions after such date, unless their
status is terminated and the termination announced under
existing procedures.
If any broker-dealer does not want to
continue its status as a participating firm, it must follow
such termination procedures.
Those banks (or trust companies) having status as
participating custodians on September 30, 1969, will retain
their status as such during the period October. 1, 1969,
through October 17, 1969.
The status of each bank which is
a participating custodian will be terminated as of the
close of business Friday, October 17, 1969, unless the bank
files with the Commissioner of Internal Revenue, Washington,
D. C., 20224 (Attn: CP:A:O-JW), a letter indicating that
-
3 -
such custodian agrees to comply, and is currently complying
with the statutory requirements in effect on September 30,
1969, and the documentation, recordkeeping, reporting, and
auditing requirements of the Internal Revenue Service in
effect on such date, or subsequently established.
To avoid
termination of such status, the letter must be received
not later than 5 p.m., Wednesday, October 15, 1969.
A
telegram stating that such a letter has been mailed will be
accepted for seven days in lieu of such letter.
A list of
those banks retaining their status as participating custodians
will be published by the Internal Revenue Service on Thursday,
October 16, 1969.
2.
Issuance of Validation Certificates.
Validation Certificates will continue to be issued
by the Internal Revenue Service after September 30, 1969.
The Internal Revenue Service will follow those procedures
currently in force dealing with the issuance of Validation
Certificates, and will require such proof of status as a
United States person and compliance with the tax (on the
assumption that the proposed legislation will be enacted)
as is currently required.
3.
Payments in Respect of Tax.
During the interim period, the Internal Revenue Service
-
4 -
will continue to receive returns and payments in respect of
tax (on the assumption that the proposed legislation will be
enacted) and make appropriate refunds.
In the event that
the tax is not extended, all payments in respect of tax on
acquisitions made subsequent to the expiration date of the
current law will be refunded on an expedi ted basis upon
s ul1mis sion of an appropri a te claim to the Internal Revenue
Service.
4.
Participating Firms Purchasing and Selling Taxable
Securities for Own Account.
TIR 945 provides that a participating firm making a
sale of taxable securities for its own account must pay the
tax on
OJ-
hefore the
effe(~tive
date of the sale (generally
the settlement date) if it has issued a written comparison
or broker-dealer
confirm~tion
indicating that
t~e
exemption
for prior American ownership and compliance applies.
In
such cases the acquisition is currently reported on Form 3780A
which accompanies the payrrlent of tax.
This procedure, in-
eluding payments in respect of the tax, will remain in effect
after September 30, 1969.
5.
wi ~holding Procedures.
The withholding procedures currently provided under
- 5 -
section 49l8(e) (7) and Temporary Regulatio
§147.5-2 will
continue to apply.
6.
Information Returns.
Reporting on informat1on returns currently prescribed
in connection with the interest equalization tax will
continue in effect except as may be provided in subsequent
Treasury Department publications
+
+
TREASURY DEPARTMENT
WASHINGTON. D.C.
October 1, 1969
SUBSCRIPTION FIGURES lOR CURRENT EXCHABGE OFFERIIG
The results of the Treasury' B current exchange offering of
a10
notes dated October 1, 1969, maturing May 15, 1971,
7-5/4:~ notes dated October 1, 1969, _turing May 15, 1975, and
7-1/2~ notes dated October 1, 1969, maturing August 15, 1976,
e sUlIIII8.rized in the following tables.
Amount
Eligible
Exchanged lor
s~s El111b1e
tor
8~
7-5/4J 7-1/2"
_r_Ex_c_hane;e='-_ _ _.--...;Exchange Notes Botes Bote s Total
(Amounts in millions)
1/2~ Notes, EO-1969
Bonds, 1969
1/2f1, Bonds, 1964-69
Total
lor Cash Rede!ption
- - ~ot
Total
'f. ot
Public
OutTotal
standBo1dAmount
ing
ings
$ 159
6,240
2,484
$
59 $ 14 $
3 $ 76
3,161
848 1,412 5,421
949
263
655 1,867
$ 83
$8,885
$1,169 $1,125 $2,070 $7 ,364
~519
819
617
52.2
13.1
24.8
52.2
14.8
30.6
17.1
19.7
Exchanges for ~ Notes of Series E-1971
ieral Reserve
strict
1-1/2"" Notes
Series EO-1969
ston
l York
Llade1phia
!veland
$ 1,567,000
$ 150,243,000
33,506,000
788,000
3,081,000
1,275,000
1,661,000
4,774,000
1,967,000
112,000
2,556,000
1,102,000
7,070,000
1,521,355,000
95,606,000
150,369,500
98,032,000
132,730,500
398,559,500
147,015,000
69,133,000
150,303,000
78,157,000
165,772,000
3,335,000
:hmond
Lanta
Lcago
. LOUis
meapolis
lSas City
Llas
1 Francisco
~asury
rorAL
K-223
$59 , 45 9 ,000
4"" Bonds
of 1969
2-1/2"" Bonds
ot 1964-69
$
5,516,000
458,073,000
35,190,000
40,232,500
26,604,000
14,100,500
125,884,500
37,598,000
14,472,000
34,381,000
10,569,000
142,844,000
3,156,000
$3,160,610,500
$948,620,500
(OVER)
Total
$
157,326,000
2,012,934,000
131,584,000
193,683,000
125,911,000
148,492,000
529,218,000
186,580,000
83,717,000
187,240,000
89,828,000
315,686,000
6 ,491.000
$4,168,690,000
- 2 Exchanges for 7-3/4% Notes of Series A-1973
Federal Reserve
District
1-1/2~ Notes
Boston
New York
Hli1ade1phia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
$
TOTAL
4% Bonds
of 1969
2-1/2~ Bonds
of 1964-69
$ 2,466,000
164,967,500
10,021,500
14,408,500
4,266,000
10,946,000
20,639,000
9,317,000
4,574,500
6,857,000
4,237,000
7,209,500
3,060,500
$
5,825,000
100,000
$ 20,300,000
284,506,500
25,772,500
66,154,500
16,349,000
31,043,000
208,608,000
54,845,000
30,101,500
44,073,000
23,965,000
40,809,500
1,487 ,500
$14,064,000
$848,015,000
$262,970,000
$1,125,049,000
Series EO-1969
146,000
380,000
1,720,000
100,000
5,143,000
100,000
550,000
Total.
22,912,000
449,854,000
37,514,000
80,563,000
20,615,000
42,089,000
234,390,000
64,162,000
34,776,000
51,480,000
28,202,000
53,844,000
4,64 8 ,000
Exchanges for 7-1/2% Notes of Series C-1976
Federal Reserve
District
1-1/2% Notes
Series EO-1969
4% Bonds
of 1969
2-1/2% Bonds
of 1964-69
Total
Boston
New York
Hliladelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
26,000
$
1,388,000
80,000
$
25,491,000
1,058,525,000
21,191,500
43,510,000
12,177,000
23,838,000
114,021,500
20,822,500
13,862,000
25,152,000
14,643,000
36,073,000
2,387,500
$ 2,090,000
520,250,000
6,487,500
8,115,000
2,042,000
2,741,000
85,278,500
6,074,500
13,484,000
3,332,000
1,672,000
3,208,000
690 ,500
$
27, f:AJ7 ,000
1,580,163,000
27,759,000
51,625,000
14,219,000
27,079,000
200,703,000
26,897,000
27,346,000
28,484,000
16,31.5 ,000
39,281,000
3 ,Q78 ,oo.a.
TOTAL
$3,397,000
$J.., 411,694,000
$655 ,465 ,000
~ ,070,556,000
500,000
1,403,000
TREASURY DEPARTMENT
WASHINGTON, D.C.
October 2, 1969
FOR IMMEDIATE RELEASE
SALE
OF APRIL TAX ANTICIPATION BILLS
The Treasury Department
announce~
today the forthcoming auction of
$2 billion of tax anticipation bills maturing in April 1970.
The bills will be auctioned on Wednesday, October 8, for payment on
Tuesday, October 14.
Cormnercial banks may make payment of up to 50 percent
of the amount of their own and their customers' accepted tenders by credit
to Treasury tax and loan accounts.
The bills mature on April 22, 1970, but may be used at face value in
payment of Federal income taxes due on April 15, 1970.
K-22~
TREASURY DEPARTMENT
WASHINGTON. D.C.
October 2, 1969
OR JUlEDIATE RELE..I1.SE
TREASURY OFFERS $2 BRLION
m
APRIL TAX BILLS
The Trea.sury Department, by this public !lOtice, invites tenders for $2,000,000,000,
r thereabo1;.ts, of 190 -day Treasury bills, to be issued on a discount basis tmder
ompetitive and noncompetitive bidding as hereinafter provided. The bills of this
eries will be dated October 14, 196~ will mature April 22, 1970.
They will be
ccepted at fa~e value in payme!lt of incor:.e taxes due on April 15, 1970,
and to the
xtent they are not presented for this purpose the face amount of these bills '..Till be
ayable without interest B.t maturity. Taxpayers desiring to apply these bills in
ayment of April 15, 1970,
income taxes nay. submit the bills to a Federal Reserve
ank or Branc~1 or to the Office of the Treasurer of the United States, ilashi:,_~-::;c:1, :lot
ore than fif'tee!l days before that date. In the case of bills subtitted in pa.y=-.e:lt
f income ta..'<es of a corporation they shall be acca:xpanied by a duly conpleted Forr.
03 ~~d the office re~eivi~g these it~s ~ill effect the deposit on April 15, 1970.
n the case of bills submitted i:1 p!'QIller.t of incotle taxes of all other ta.'<:payers, the
ffice receiving the bills i-Till issue receipts theret'or, the original. of which -::;he
axpayer shall subcit on or before April 15, 1970,
to the District Director cf
nterna.l. Revenue for the District in which such taxes are payable. ~he bills will b~
Bsued in bearer form o~, and in de~ocinaticns of $1,000, $5,000, $10,000, ~50,OOO,
100,000, ~500,OOO and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the closi~
our, one-thirly p.m., Eastern daylight saving title, Wednesd8¥, October 8, 1969.
enders will not be received at the Treasu-"'Y Deparment, Washington. Each tende!" ::-:...;,st
~ for an evem t:lultiple of $1,000, and in the case of co:npetitive tenders ~he price
rfered must be expressed on the basis of 100, with not more than three decbals,
• g., 99.925. Fractions may not be used. It is urged that tenders be made on the
rinted forns and forwarded in the special envelopes which wil.l be supplied by Fe::leru
!serve Banks or Branches on application theret'or.
Banking institutions generally may submit tenders tor account of customers prolded the n~es of the customers are set forth in such tend~K'3. Others th9.n ba.."lld.ng
~tltutions will not be permitted to submit tenders except for their OWD account.
mders will be received without deposit from incorporated banks and trust cocpanies
m from responsible and recognized dealers in investment securities. Tenders fram
;bers must be accompanied by P8.l'lD-ent of 2 percent ot' the face amount of Treasur.f bills
;Jplied for, unless the tenders are accompanied by an express guaranty of payIl".ent by a..."1
lcorporated bank or trust company.
All bidders are required to agree not to purchase or to sell, or to make any
treements with respect to the purchase or sale or other disposition of SIr.{ bills of
l1s issue at a specific rate or price, until after one-tbirty p.m., Easter!} daylight
Lving time, Wednesd.a¥, October 8, 1969.
K-!25
-2Immediately after the closing hour, tenders will be opened at the Federal Resene
Banks and Branches, following which public announcement will be made by the Treasury
Department of the amount and price range of accepted bids. Those submitting tenders
will be advised of the acceptance or rejection thereof. The Secretary of the Treas~
expressly reserves the right to accept or reject any or all tenders, in whole or in
part, and his action in any such respect shall be final. Subject to these reservations
noncoopetitive tenders for $400,000 or less without stated price from any one bidder
will be accepted in full at the average price (in three decima.ls) of accepted canpeti.
tive bids. Payr..ent of accepted tenders at the prices offered must be made or complet~d
at the Federal Reserve Bank in cash or other immediately available funds on October 14,
1969. Any qualified depositary will be pemitted to make settleoent by credit in its '
Treasury tax and loan account for not more than 50 percent of the amount of Treasury
bills allotted to it for itself and its customers.
The income derived froo Treasury bills, whether interest or gain from the sale or
other disposition of the bills, does not have any ex~ption, as such, and loss from
the sale or other disposition of Treasury bills does not have any special treatocnt,
as such, under the Internal Revenue Code of 1954. The bills are subject to estatc,
inheri tance, gift or other excise taxes, whether Federal or Sta.te, but are exer.pt frc::
all ta.x::ttion nciVT or hereafter irr.posed on the principal or interest thereof by 8I':J
State, or any of the possessions of the United States, or by any local taxin~ authorgj'
For purposes of taxation the rur.cunt of disccll.'1t at which Treasur'J bills are originally
sold by the United States is considered to be interest. Under Sections 454 (b) ~
1221 (5) of the Internal Revenue Code of 1954 the amount of discount at which bills
issued hereu.M~er are sold is not considered to accrue until such bills are sold,
redecned or other,.d.se disposed of, and such bills are excluded from consideration as
capital assets. Accordingly, the o~~er of Treasury bills (other than life insur~~ce
companies) issued here~der need include in his inc~e tax return only the difference
between the price paid for such bills, ·..,hether on original issue or on subseq'.lent
purchase, and the enount actually received either upon sale or reder.lption at r-Aturity
during the taxable year for which the return is made, as ordinary gain or loss.
Treasury Departrtent 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.
TREASURY DEPARTMENT
WASHINGTON. D.C.
October 3, 1969
FOR IMMEDIATE RELEASE
TREASURY RELEASES TECHNICAL MEMORANDUM OF POSITIONS
ON H. R. 13270 TAX REFORM ACT OF 1969
The Treasury Department today released the Technical
Memorandum on its positions on H.R. 13270, the Tax Reform
Act of 1969, currently pending before the Senate Finance
Committee.
The material was transmitted to the Senate
Finance Committee earlier this week and is being
released to the general public pursuant to arrangements
made with the Committee
The attached Memorandum is accompanied by revised
tables of revenue estimates on H.R. 13270, reflecting
the Treasury position as set forth in the testimony of
Secretary David M. Kennedy and Assistant Secretary
Edwin S. Cohen before the Committee and in the Technical
Memorandum.
These new estimates were completed and have
been transmitted to the Committee.
These estimates have
been revised since September 4, when the Treasury made
its presentation to the Senate Finance Committee as a
result of minor changes and technical refinements made
during the process of drafting the Technical Memorandum.
Attachments
K-226
000
Comparison of House Bill and 'Treasury Proposal
by Principle Feature in Terms of Long Run Revenue Effect
:
:
( ..................... $
lr,c.i \'i(1Y._~.L
-4,498
·-4,025
650
"Sate reduction •••••••••••••••••••...•.•.•
Stanc:.ard deduction.......................
Si~gle person...... ......................
Other................... . ............ .... ...... .... ...... ..................
~ ot ale .. . . .. .. .. . . . . . .. . . . .. . .. .. .. .. .. .. . .. .. .. .. .. .. .. .. .. .. ..
500
- 9, 673
Corporation
Normal tax reduction •..................•
Sur.tt;lxlreduction •.......................
Illata
~~;~~;ive
................................................................
0
?rovisions
Difference
(-) is increased
revenue loss or
: decreased gain
millions ............. ~: .... )
Treasury
Proposal
House
Bill
-4,705
-1,69 0
445
500
-7,3 40
-207
2,3'35
205
-870
-800
-870
-800
2,333
-1,6(0
-I, 6'(0
Corporation................................
70
760
70
380
380
ltal nate Reduction and Incentive............
-10,503
-9,460
1,043
600
1,815
2,415
600
1,970
2,570
2,700
2~52
Total ........................................... ..
2,7 00
2:970
5,61 0
5,455
-215
-215
~~~ned Individuals and CorEorations~L~~
8,085
8,0 2 5
- 60
-7,3 28
4,910
-2 418
-4,840
3,405
-1 435
2,488
-1,505
Tridi vid:c.al ••••••••••• '. ;. • • • • • • • • • • • • • • • • • • • •
-'
'f oJ.:Ir,-troyis:i~
In.SJyiduq.):§.
:::nvest2er.t credit repeal •..••••.•••.•..•.
Ott.;; r ....................................................................... ..
Total ..................................................................... ..
.(;Ql:.:Q9[?'~j. on_~
:nvestment credit repeal •••••••••••.•..••
O~her ••••••••••••••••••••••••••••••••••••
Tqt8.l
I nr.'
.. . 1 "\ilQuals
......................................
Corporat ions ............................... .
C-::;moi!"'J.e,::" •••••••• :............................... .
fice of the Secretary of the Trea.sury
Office of Tax Analysis
October
8
2, 1969
Effect
(l
Current Treasury Propo3als on Calendar Year Liabilities
($ millioH;; )., __
1969
Reform provisions
Ind i viduals
Contributions
Fa rm losses .•.....•.•.•..............
Ac"umulation trusts •............•...•
C" [,,1 tal gains •........••.•••.........
~!!ltural resources •.•.............•..•
--------------------------------l/TO
1971
1912
1974
1979
:;,
l.O
5
5
10
10
365
70
360
70
LE ....................•.•..•..... '"
60
Al.location •.......•....•....•.•.....•
Real estate •......•.................•
Tax-free dividends •...............•.•
Gasoline tax deduction ••............•
Total •..... " .......•..............
240
60
!,80
5
__120
1,420
20
20
20
:0
375
70
.5
60
480
60
--l2£
1,495
1)0
80
390
1,705
Corporations
Foundations
iJnrelated business income •.....•....•
Multiple corporations ............... .
Financial institutions •........•.....
Natural resources ................... .
30
15
15
5
c
>
70
125
310
440
230
430
Fore ign income •.•............•.......
Regulated utilities ••................
Real estate ..••............•........•
Corporate mergers, etc. • .....•....•.•
Capital gains rate •.•.•..........••.•
Total •.........................•...
20
5
235
~'dO
455
L,::,O
)0
)0
50
60
140
85
18)
2tJO
195
20
150
1,3 40
25
150
1,5!35
475
40
150
2,095
70
150
2,7»)
-920
-770
-100
-445
-2,3)0
-920
-770
-100
-44)
-4,70')
-100
-920
-)20
-100
-100
10
10
150
1,080
Tax relief provisions
lad ividuals
Low-income allowance •.•......•......•
Increase standard deduction ....... '"
Maximum tax on earned income ........•
Single persons' rate scnedule '" ....•
Reduce tax rates .................... .
Moving expenses •.•.................••
Income averaging .................... .
Tota 1 ............................. .
Corporations
Norr.l81 tax reduct ion of 1 percent ....
Sw'tax reduction of 1 percent ......•.
Total ............................•.
20
5
170
330
-920
-200
-100
-300
-1,520
-TiO
-44~,
-.1.·,70)
-300
- -'00
-7,3LO
-870
-870
-000
-jOO
-4,'9b5
90~
-no
-lOO
-300
-T,iLO
-100
,0
.5L
-hlr;
_u,
(Uj
-100
-300
-7,5 40
-:370
-':)70
-
-.J~O
-b76
-1,670
-l~
-40
-10
-10
-40
-30
-90
-70
-20
-dO
-170
-H;;
-)
600
1,)UO
2,)00
600
,c,4 OJ
j,OOO
600
2,~00
uOO
: , ~ 00
3,GOC
:,1.00
'~,~Cu
. I~O?
2,100
1,000
3,100
1,1.70
800
800
61)
-2,300
_2,421.)
-1,43)
-2,975
-5,26)
-S,07)
-11,-)40
c;O
3)40.)
-l,Uu
Tax incentive provi~ ions
Pollution control amortization (Corp.) •.
Real e3tate rehabilitation (Ind.) •...•.
Real estate renabilitation (Corp.) .... .
Total .....................•.. " ..... .
0tner I~rov is ions
Repeal inve:;tment credit
Inrlividuals ......................... .
Corporations ........................ .
Total ............................. .
400
)00
900
Ex tend surcnaq;e
Individual.3 .................•..........
Corporations .......•........•.•......••
i'otal ............................•.•.
Ext~nd excise taxes •..............•......
Grand total ............................••
Individuals ........•...................
Corporations .......................... .
Ex:ises ............•...............•...
995
400
;95
7,050
1,925
3,95)
1,170
Offlce of tile Secretary of tne Treasury, Office of Tax AnalysiS
2,790
&:10
2,165
8eo
-12(,'
-40
-70
-lr00
-.'" 1;
-,-':60
~.,
Oct()be!~'"
.r:;c
,,00
~:t.
J
ilevenue Estimates Tax Ref 0rm ('Ircasw'Y Prcposals)
Calenda!' Year Liabi::.ity }j
(Estimates noted "r" have been revised frol.~ Es;,imates shown as part of
As~istant Secretary COllen's statement befG~o ':,~.".8t·2 Finance Committee.)
($ millions)
19'~1
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he. ty- lr,ted ~tock. ........................... , ... .
Cither de"erred compensation •..................•.
Stock Jlvidends ...
,--ubcnapter S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • .
",,,v-free dividends ............................... .
F~r,811c iell ~n~titutions:
'.:offillic:rcial banks:
Rc:sec/e ...................................... .
Capital gains •..............................•.
:1ucual tnrift institutions .................. . .•
r':un ie ipa 1s .......................................•
LCllJital gain::;:
CalJi tal lcs~ provis ion~ •........................
~ix mentus, One-year nolding •................ '"
Pens ion plans .................................. .
Cssualty loss .................................. .
Sale :.11' papers ................................. .
Li,"e c.-tate::; ................................... .
0
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turol re 'ources:
Prcuucti.or;. IJsyment, ....
0
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dep1ctiGn ....................... .
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lz 300
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR RELEASE 3:00 P.M., CDT
Excerpts from Remarks by Henry C. Wallich
at the Public Utilities Conference of the
First National Bank of Chicago
Chicago, Illinois, October 6, 1969
It is customary to preface a forecast of the economy
with the remark that now is a particularly difficult time
to look ahead, etc.
today.
This remark would not be appropriate
It is a particularly easy time to look ahead.
Policy is set to slow down the expansion of GNP.
I have
every confidence that it will succeed; and that for the
near future, say until Spring 1970, the rate of growth of
GNP will diminish.
I do not share, as you can see, the Vlew sometimes
voiced that our fiscal and monetary restraints are altogether failing to work.
Those who argue that a firm budget
policy and a low rate of expanslon of the money supply are
bound to slow the GNP, have on their side the joint verdict
of theory and experience, a combination not always observable
with such unanimity.
Continuation of present policies will
bring results.
What the defenders of these policies, while they are
basically right, sometimes fail to make clear is how the
K-227
-2-
diminishing growth of GNP will divide itself between a
slower real growth and a lower rate of inflation.
All
that I have said so far, after all, lS that GNP will slow
down.
That means nominal GNP, l.e., GNP in current dollars
But the growth of nominal GNP is the combined effect of
real growth and inflation.
In reducing the growth of
nominal GNP, we have no assurance at all that we shall be
hitting inflation rather than real growth.
The chances are that we shall hit real growth before
we hit inflation.
Some of the evidence is already In.
The real growth of the economy, at an annual rate, has been
reduced from about 6 percent a number of months ago to
about 2 percent at present.
Inflation, during this period,
has not significantly diminished.
We must expect this
unfortunate order of events to continue for some time lange
It would be wrong, however, to argue that real growth
can continue to stagnate indefinitely under the impact of
fiscal and monetary restraint, while inflation likewise
continues indefinitely.
There is a mechanism, albeit one
I do not welcome, that prevents this.
rising unemployment.
Low growth means
Higher unemployment, painful and
undesirable as it is, reduces the rate of wage increases.
-3-
At some point, then, slow growth will have set in motion
forces that tend to bring down inflation.
Real growth
then can accelerate agaln as inflation diminishes, while
nominal GNP might. grow at a stable rate under the influence
of stable fiscal and monetary policies.
So far the model.
How much of an increase in unemployment might occur
ln this process nobody really knows.
it would not be much.
Everybody hopes that
The experience of recent fluctuation
suggests, however, that when the rate of real growth slows,
unemployment does not increase much immediately.
Instead,
overtime is reduced, business may hoard some labor, productivity diminishes, marginal workers leave the labor forc
Over a longer period, one might expect a larger effect.
If
for instance, the average rate of real growth should slow
down from its normal four percent or a little
better to on
percent for the duration of one year, an old rule of thumb
says that this might raise the rate of unemployment by
something like one percentage point.
It is by calculations
such as this, but hopefully more sophisticated, that forecasters who anticipate little real growth in 1970 arrive
at an unemployment rate of 4.5 - 5.0 percent by the end
of that year.
-4-
A development of this sort would confront policy makers
1n Washington with difficult questions.
not a receSS1on.
Slow growth is
A recession, technically, is defined as
two successive quarters of declining real GNP.
But what if
slow growth causes progressively higher unemployment, as
it is bound to do if it goes on long enough?
That will be
viewed increasingly as constituting a recession 1n a nontechnical sense of the word.
Certainly it will be viewed by
many as a reason for shifting to more expans10nary policies.
This 1S one reason for the often voiced belief that the
present tough policies will not be long continued.
A second reason why these policies will come under
pressure is the probable change in the nature of the
inflation.
tion.
Until recently, we have had demand pull infla-
This has generated high wage 1ncreases.
As the excess
demand is being squeezed out of the economy, demand pull
vanishes and cost push takes over.
provides evidence of this shift.
The squeeze on profits
Against this new kind of
inflation, fiscal and monetary restraints are less effective,
although they are by no means powerless.
This point was
often made during the late 1950's by critics of the tight
fiscal and monetary policies of that period.
-5-
The policy dilemma, under such conditions, will be
whether to figh~ inflation or unemployment.
This dilemma
would be intensified if, instead of just slow growth, we
should have a significant downturn in real GNP.
Should
policy then be reversed to fight recession, even though
inflation continues and unemployment is not yet high?
The history of policy indicates that policy makers have
tended to shift from fighting inflation to fighting recession
as soon as a recession became visible.
the Fall of 1957.
They did this ln
They did it agaln ln 1966.
In the first
case, they failed to prevent a substantial receSSlon, but
the recession largely cured the inflation.
recent case, a recession was avoided.
In the more
But this was done
at the cost of accelerating the inflation.
It is almost
as difficult to say what policy ought to be as what it
will be.
A recently popular theory, which I somewhat mistrust,
says that monetary policy affects output with a lag of
about six months.
Present policies, therefore, according
to this theory, are influencing output in the Spring of
1970.
If monetary policy were relaxed now, its expansionary
effects would be felt around that time.
By then, we might
-6-
possibly have had one quarter of declining GNP, unless
the fourth quarter of 1969 should already bring a decline.
Experience ln 1966/67 shows that a single quarter's GNP
drop does not cure an inflation.
Thus, by this theory,
if policy were turned around now, its lasting effects in
reducing inflation would be small.
000
DEPARTMENT OF THE TREASURY
WASHINGTON, D. C.
20220
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE MANUFACTURING CHEMISTS ASSOCIATION
WASHINGTON, D. C.
MONDAY, OCTOBER 6, 1969, 12:00 NOON, EDT
TAX REFORM AND ECONOMIC POLICY
Taxes and economics.
a well chosen joke or two.
false hopes.
Perhaps I should begin with
But that would only hold out
I am afraid you are in for it.
There just
isn't much genuine entertainment value anywhere between the
Limit on Tax Preferences and the Full Employment Budget.
Certainly, I am not going to tell any stories -- funny or
otherwise -- about depreciation or amortization or income
averaging.
But I think that no apologies are necessary.
The
major economic issues at stake in the current debate over
taxes are crucial and they may contain their own drama.
The legislative decisions that are still to be made will
strongly influence the near-term business outlook, the
control of inflation, as well as the level of national
production and employment for many years to come.
K-228
- 2 -
The current tax proposals in the Congress are
a complex package.
The contents range from relatively
simple steps that will provide $4 billion of badly needed
Federal revenues in the first six months of 1970 to intricate
proposals for changes in detailed areas of the Tax Code
where most of us would be lost without an expert guide.
I propose to try to simplify matters by distinguishing among
three basic economic effects: (a) revenue, (b) economic
growth, and (c) equity.
While equity is certainly not the
least important of these, I will bear down hardest on revenue
and economic growth.
I believe that they are the central
issues from a macro-economic point of view.
Some background here may be helpful.
proposals on taxation am I talking about?
What legislative
It will come as
no surprise to you, I am sure, that I am here to explain and
defend the U. S. Treasury proposals, rather than those of
the House Ways and Means Committee, which were subsequently
voted by the House of Representatives.
There are broad areas
where the two sets of proposals are identical, but there are
also some important differences.
In pointing up the
differences, I do not mean to detract in any way from the
impressive accomplishment of the House of Representatives
and its Committee on Ways and Means.
Nevertheless, there
- 3 -
are some areas in which the Administration feels that
a different course should be charted.
The Revenue Considerations
In discussing the revenue impact of the current
legislative proposals, it is essential to distinguish
between short- and long-run effects.
The House and Treasury
versions are similar in their short-run impacts on Federal
revenues.
They both provide for a six-month extension to
June 30, 1970, of the income tax surcharge at the reduced
5 percent rate; they both also provide for postponement of
excise tax reductions and for repeal of the investment tax
credit.
This combination yields a gain in revenue for the
Treasury of nearly $4 billion during the first half of 1970.
In contrast, over the longer-term, as major reform elements
of the legislation become effective, there would be a net
annual revenue loss to the Treasury under the two sets of
proposals, although by differing amounts.
I'll return to
the long-run implications a little later on.
The issue of short-run revenue impact looms large when
we are dealing with remedies to cool off an overheated economy.
The maintenance of a flow of revenues into the Treasury is
extremely important in terms of the current economic
stabilization effort and the control of inflation.
it in its simplest terms:
To put
this is no time for a large tax
- 4 -
reduction to reduce the pressure against inflation control.
Yet, that is exactly what would occur if the surcharge
IS
permitted to expire in just a few months time.
We are now estimating a $5.9 billion budget surplus
for the current fiscal year.
Few in this audience, I am sure,
would question the need for a sizable Federal budget surplus
at a time when prices are rising at a 5 to 6 percent annual
rate.
The Federal budget surplus would amount to only about
1/2 of 1 percent of Gross National Product -- little enough
indeed.
Even the achievement of this surplus has required
strenuous efforts to hold down government expenditures and,
also, will require favorable tax action.
By "favorable" tax
action, I mean that the Treasury gets the $4 billion in
revenues that has been counted on in our budgetary planning
and which depends upon congressional action (see Chart 2).
The arithmetic on the $4 billion in revenues is as follows:
(a) 6 months surcharge extension
at 5% (January 1, 1970 to
June 30, 1970)
$2.0 billion
(b) Repeal of investment credit
1.3 billion
(c) Excise tax extension and
proposed user charges
0.7 billion
- 5 -
On the expenditure side of the equation, there have
been some noteworthy accomplishments:
$7.5 billion in expenditure reductions
below the 1970 budget programs of the
outgoing Administration,
a commitment to hold fiscal 1970 outlays
within a total of $192.9 billion, which
is below the legal limit on outlays
enacted by the Congress in July,
a directive by the President to all
Federal agencies calling for a 75 percent
reduction in new contracts for government
construction,
full-time civilian employment in the
executive branch on June 30, 1970,
currently estimated to be 98,700 below
the January estimate of the previous
Administration.
Some cynicism has been expressed in the past years as
to the stabilization impact of higher taxes, if the only
result is more government spending.
That line of argument
is not applicable in the present situation.
spending is being restrained.
Government
The swing from large Federal
- 6 -
deficits to surpluses reflects both a slower growth In
government spending and increased revenues.
Perhaps it is not surprising to find the Treasury
arguing in favor of maintaining tax revenues.
a parochial concern?
Is this
Hardly; our primary concern is to
maintain that budget surplus which is needed to assure
success in the control of inflation.
Government expenditures in the current year cannot be
cut back much more, if any more, beyond that $7-1/2 billion
reduction.
Our efforts are now necessarily directed toward
the 1971 budget.
In terms of immediate impact on the economy, the tax
side of the budget is all too open.
It will take affirmative
legislative action to assure the surplus that our economic
situation clearly requires.
Without that $4 billion in extra
revenues, the budget would move in a stimulating -- i.e.,
inflation-provoking -- direction.
Without those revenues and
without the expenditure reductions already set in motion, the
budget would be back in sizable deficit -- providing even
additional fuel for inflation.
Some people have been asking whether fiscal and monetary
restraint is having the effect we anticipate on the economy.
I am pleased to report that there are growing indications
that pressure on economic resources is in the process of
- 7 -
easing off.
Costs and prices are inevitably among the last
links in the chain of economic developments.
But some of
the intermediate steps are now much more visible.
the rate of growth of real GNP has slowed
markedly.
Recent rates have been in the
2 percent range, rather than last year's
5 percent (see Chart 1).
the industrial production index dipped
in August following a modest increase in
July.
new durable goods orders declined in
August with decreases recorded among most
major industry groupings.
business plans for plant and equipment
purchases show less buoyancy.
Firms now
anticipate no change in outlays for the
fourth quarter of this year following
a planned $2 billion increase in spending
in the present quarter.
More importantly,
for several quarters, actual plant and
equipment spending has been pared down from
anticipated outlays.
- 8 -
housing starts have been reduced sharply
since early this year, when they reached
a peak for the present expansion period.
August starts were down 22 percent from
the first quarter 1969 rate and off 11
percent from the average rate during 1968.
the composite index of twelve leading
indicators edged down in August and at
151.6 was 1.2 index points below its
April-May peak.
Figures for additional
months are required before a reversal of
trend can be definitely confirmed, but this
modest decline provides an additional
indication of easing of economic pressures.
There's more.
September results on the job situation,
just released this morning, indicate that
we may be returning from an
overh~ated,
over-employed condition to more sustainable
employment levels.
The unemployment rate
in September reached 4 percent, the rate which
prevailed during the high employment situation
just prior to the Vietnam expansion.
- 9 -
the rate of increase of the consumer price
index slowed in August to 0.4 percent from
the 0.6 percent and 0.5 percent advances of
June and July, respectively.
wholesale prices rose by only 0.1 percent
in July, August, and September, compared
with average monthly increases of 0.5 percent
in the first six months of this year.
retail sales have been essentially flat
since the first quarter of this year.
August sales were only 0.1 percent above the
volume of February, a half year earlier, and
were below the peak reached in April of this year.
further leveling off in consumer spending is
signaled by a drop in the Michigan University
Survey Research Center's index of consumer
sentiment to 86 in August-September, from
92 three months earlier and 95 at the beginning
of the year.
These numerous signs -- incomplete as they are -- suggest
that our policy of gradual restraint is becoming increasingly
effective.
But the inflationary momentum is still strong --
far too strong to warrant any complacency, or to suggest that
a change in policy is required.
We need to continue economic
- 10 -
restraint until inflation is under much better control.
We
need to remember the lesson of 1967, when restraints were
removed too quickly and that led to a rapid resumption of
inflation.
Long Run Revenue Implications
Let me turn now to longer-run implications of tax reform
and fiscal policy.
In the long run, the revenue effects of
changes in tax legislation are potentially very important
because they apply year in and year out, in times of high
growth as well as times of slow growth.
faces hard choices in the years ahead.
The public sector
Expensive -- but
important -- government programs must be matched against our
willingness to pay for them.
In my opinion, this is hardly
the time to be declaring a fiscal dividend for 1972 and beyond,
well before all the alternative demands on Federal resources
have been considered.
The long-run role of tax revenues is to pay for necessary
government programs.
While dollars of changing purchasing
power are involved, there is a "real" dimension as well.
Government and the private sector draw from a pool of relatively
scarce physical resources.
As an alumnus of the Bureau of the
Budget, I confidently predict that there will be no shortage of
proposals to spend government money, i.e., to use scarce
resources.
The question is how to choose the point at which
- 11 -
government should stop in order to preserve a proper mix
of public and private efforts.
One of the best tests ever
found is simply balancing an extra dollar's worth of
government spending against the willingness of an informed
public to pay the extra dollar in taxes.
Coming down to an immediately practical issue, the
Treasury tax reform proposals submitted to the Congress in
April were balanced; they did not involve any significant
long~run
revenue loss or gain.
What was given with one hand
would have been taken away with the other.
In principle,
this seems the best way to go about the business of trying
to bring greater equity to a patchwork tax system.
Tax
reform seeks to insure that any given level of taxation
raised in the most equitable and efficient manner.
IS
It is the
distribution, rather than the size, of the tax load which
should be at issue.
This may be a counsel of perfection at present.
The
legislative package passed by the House of Representatives
would mean a long-run revenue loss of about $2.4 billion
annually, at current income levels.
By 1972, when the long-
run effects are being felt, the revenue loss could be in the
neighborhood of $3 billion or more simply because of higher
tax yields from the growth of incomes by that time.
Frankly,
we believe that a long-run revenue loss of this size is
undesirable.
Under the Treasury version, the annual revenue
- 12 -
loss would be considerably less, some $1.4 billion at current
income levels.
Long-Run Economic Growth
There is a serious economic question as to the overall
effect of the House tax reform legislation on the long-term
trend of investment incentives and economic growth.
Many
provisions of the House Bill may be desirable on their
individual merits.
However, the cumulative impact threatens
to shift the balance between consumption and
inv~stment.
It
is our judgment that the scales would be tipped too far.
This issue of the investment-consumption mix is of more
than theoretical interest.
It vitally affects our economic
future because it influences the future rate of economic
expansion.
The adverse effects of inadequate economic growth
are serious: unemployment, underemployment, foregone economic
output, and lagging public revenues.
It would seem wise not
to press for too many consumption dollars today -- when
aggregate money demand already is too high -- at the expense
of jobs, production, and incomes in the future.
The relationships among the many factors influencing
economic growth are complex, but it is generally accepted
that investments both in people and in the physical tools of
production play the central role.
Numerous Federal Government
programs are now designed to increase individual labor
productivity.
There also must be sufficient incentive for
- 13 -
investment in physical plant and capital formation to promote
a satisfactory rate of growth in the total productivity of the
American economy.
In our economy, we rely on market-oriented private
decisions to provide for the great bulk of capital investment.
But government has a substantial indirect influence since the
tax system can have an important effect on private investment
activity; taxation affects both the supply of savings available
for investment and the incentives to make new long-term
investments.
In the present situation) there is justifiable
concern that the House tax proposals favor consumption over·
investment to an undesirable degree.
It would seem
~hat
this
result was not consciously sought but came about from the net
effect of a large number of different technical provisions,
each of which may have positive merit from the viewpoint of
achieving greater tax equity.
The extent to which consumption is favored over investment
In a tax system is indicated, if only very approximately, by
the split between individuals and corporations.
In the House
version, individual taxes are reduced by $7.3 billion and
corporate taxes are increased by $4.9 billion.
has recommended somewhat different treatment.
The Treasury
We would scale
down the individual tax reductions to $4.8 billion, $2.5
billion less than in the House version.
We would cut back the
- 14 -
corporate tax increase from $4.9 billion to $3.4 billion.
In the corporate area, the chief difference is that the
Treasury recommends a 2-point reduction in the corporate tax
rate and more cautious treatment in the taxation of capital
gains.
The cumulative impact of the House proposals on
investment activity and economic growth could be sizable over
a period of years.
Refined calculation is difficult, but the
direction of movement is clear -- a downward effect on investment
and hence lower levels of future economic growth and new job
creation than would otherwise prevail.
Expressed as a proportion
of the economy's total growth rate, the effect would run in
terms of decimal points but the cumulative impact on the Nation's
output and employment would be far from negligible.
The Treasury proposals for a corporate rate reduction
would also have other desirable effects.
To the extent that
these reductions were passed through in the form of lower
prices, the inflationary situation would be improved.
International competitiveness is also a relevant consideration.
A high rate of investment activity and productivity growth
should have a beneficial effect on our ability to compete in
international markets.
A 2-point tax rate reduction will offset part of the
impact on corporate income resulting from loss of the investment
credit.
I am sure that you would point out to me that it is
- IS -
hardly an even exchange.
As one who strongly favored
some corporate rate reduction, I might take note of your
organization's suggestion to the Senate Finance Committee
that an even larger reduction be considered.
My personal
reaction is that a 2-point reduction is about all that could
be expected given the realities of our long-run fiscal position
and the high tide of feeling in favor of tax reform and equity.
Limited as the 2-point rate reduction may be, it is far
more in the spirit of the New Federalism than the investment
tax credit.
Corporations are left free to determine their
own patterns of investment and/or price reduction.
There
probably is a valid distinction in this connection between
a special subsidy and payment of taxes at regular rates.
Treasury Tax Proposals and Equity
I understand that there has been some criticism of the
Treasury tax proposals.
It may come as a surprise to this
audience of businessmen, but some people apparently have
jumped to the conclusion that our proposals are unduly
weighted in favor of business and the upper income brackets.
Perhaps it would ingratiate me here if I concurred with
those contentions.
However, candor requires me to give as objective an
appraisal as I can.
misconceptions.
I would like to try to clear up some
If you analyze the Treasury proposals
carefully, you find that we have tried to be fair and equitable.
- 16 -
Our proposals would make for a more progressive tax structure
than we have today, a tax system based more closely on the
ability to pay.
Hence, under the Treasury tax proposals, the largest
proportional rate reductions are in the lowest brackets. Six
million people below the poverty line would no longer have
to pay any Federal income tax at all.
Perhaps of greatest
importance, we would take a major step toward what economists
call "horizontal equity" -- toward more equal treatment of
equals in each income bracket.
In total, the tax reform provisions of the Treasury
proposals amount to a massive $8 billion, about the same as
ln the House vers ion.
We have recommended that some "reforms"
in the House version be toned down -- for example, not giving
an overly generous break to single persons over 35.
But,
where we felt the House version did not go far enough, we have
recommended further steps such as liberalized filing requirement
so that nearly 5 million individuals whose incomes are too low
to pay income taxes will no longer have to prepare tax returns.
Conclusion
I have tried to emphasize the three major considerations
of the current tax legislation: revenue, economic growth, and
equity.
Tax legislation is a complicated matter.
But in all
of this, we must keep at the forefront of our thinking the
- 17 -
urgent problem that continues to face us -- the need for
reducing the inflation.
Given the economic outlook, as we
now see it, there is a clear need for a sizable budget surplus
in the months to come.
Beyond are other national goals which
need to be pursued with large commitments of resources.
Therefore, I am sure you will understand why the need for
timely legislative action to insure that budget surplus now
and in the future is never far from our minds.
f2l~
Chart 1
QUARTERLY INCREASES IN REAL GNP SMALLER
SINCE SURCHARGE
PERCENT
(annual rate)
SURCHARGE
~ ENACTED
104.0
3.7
PRICE
INCREASES
4.0
4.3
5-
4.9
5.2
II
III
1968
IV
1969
'2,1 ~
Chart 2
EXPENDITURE CONTROL AND ENACTMENT OF
RECOMMENDED REVENUE MEASURES WILL PROVIDE
A SUBSTANTIAL BUDGET SURPLUS IN FISCAL 1970
Billions of Dollars
rr7.5~"
{~l~lt:~~tttt~.
Recommended
Revenue Measures
Awaiting Enactment
Expenditure
..:.:..:..:-:..:-.:..:.:..:.:..:-.:.:.-:.. Jan.
Re~~!~:ns
I, 1969
•••••••••••••••••••••••••••••••
$Bil.
+5
• • • •• • •• • • • 1
~
-
.••••••••••••••••••••••••••••••
o--~.--~~~
:}}»»~<
••
.- -5.6 •
•• •
• •
~ ~: :.: : l!:t:::::II
::.:!-:: l
Projected
Surplus'
-5 "L ___ J
,
\-----'
Deficit without
Expenditure Control
and Enactment of.
Recommended
Revenue Measures
-
EXPENDITURES
RECEIPTS
TREASURY DEPARTMENT
;
iii
WASHINGTON. D.C.
October 3, 1969
FOR IMMEDIATE RELEASE
DECISION MADE ON AMINOACETIC ACID (GLYCINE)
UNDER ANTIDUMPING ACT
The Treasury Department announced today that it has
investigated charges of possible dumping of Aminoacetic
Acid (Glycine) from Japan.
A notice announcing a tentative determination that
this merchandise is not being, nor likely to be, sold at
less than fair value within the meaning of the Antidumping
Act will be published in an early issue of the Federal
Register.
During the period October 1, 1967, through October 31,
1968, Ami"noacetic Acid (Glycine) valued at approximately
$119,800 was imported from Japan.
subsequent to this period.
###
K-229
There have been no imports
TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY
ABOUT 12 NOON, EDT
SATURDAY, OCTOBER 4, 1969
REMARKS BY BRUCE K. MacLAURY
DEPUTY UNDER SECRETARY OF THE TREASURY
FOR MONETARY AFFAIRS
BEFORE THE
SIXTEENTH ANNUAL BANKERS' FORUM
GEORGETOWN UNIVERSITY
SATURDAY, OCTOBER 4, 1969
Federal Credit Programs in the 1970's
Among the many imponderables for "Banking in the 1970's"
is the role of the Federal Government as a supplier of credit
in the coming decade.
The general public, if they think of
the capital market operations of the Government at all,
normally think of us not as suppliers of credit, but as
massive borrowers, piling up ever increasing amounts of
national debt.
There are, of course, years such as fiscal
1968, when this characterization is less of a caricature than
we might wish.
But there are also years, such as that just
behind us, when the Federal Government retired debt on balance.
In all these years, however, be they deficit or
surplus, the
Federal Government is involved in a great variety of ways in
channeling credit to various sectors of the economy.
K-230
.L yl
- 2 -
The role of Federal credit programs does not appear very
impressive from a quick glance at the recently completed summer
review of the 1970 budget.
This shows Federal net lending of
only $1.0 billion in the current fiscal year 1970, compared
with $1.5 billion in fiscal 1969 and $6.0 billion in 1968.
But
this apparent decline in Federal .1ending is a misleading
indicator of Federal involvement in the credit markets, as
many of you know.
There are basically two factors that account for this
statistical mirage.
First is the shift that has taken place
from direct loans to guarantees, about which I shall say more
in a minute.
Even more important during this three-year period,
l-,owever, was the removal from the budget accounts of three
cedera11y-sponsored lending agencies:
the Federal National
Mortgage Association, the Federal Intermediate Credit Banks,
and the Banks for Cooperatives.
When the Government-held
stock in these agencies was retired in 1968, they became
private corporationso
In keeping with the new unified budget
concepts, therefore, the loans made by these agencies are no
longer counted as Federal budget outlays.
- 3 -
There are two other similar agencies, the Federal Land
Banks and the Federal Home Loan Banks, which became privately
owned many years ago.
Yet these five Federally-sponsored
agencies, which issue their own securities to private
investors and are well
establish~d
in the market, though
expanding rapidly in the aggregate, have accounted for less
than one-fourth of the total increase in Federal credit
program growth over the past decade.
The bulk of the growth in Federal credit programs during
this longer period has been in the form of Government guarantees
on credits funded by the private sector.
Ten years ago, these
guarantees were largely the familiar FHA and VA guarantee on
1-4 family housing loans.
The funds generally were provided
by banks and other institutional lenders and involved little
or no cost to the Government.
In effect, the Govet'nment took
a page out of the banker's book, satisfying customer credit
needs at little cost through creation of "acceptances."
- 4 The growth of the regular FHA-VA programs is now surpassed,
however, by a number of other programs of loan guarantees by
the Farmers Home Administration, the Export-Import Bank, the
Office of Education, the Small Business Administration, the
Housing Assistance Administration, the Renewal Assistance
Administration, and most recently. the new FHA programs of
guarantees of low interest loans for low income housing.
After making necessary adjustments to avoid double
counting of such items as FNMA purchases of FHA insured
loans, the net increase in loans outstanding under all Federal
direct, guaranteed, insured, and sponsored loan programs in
the fiscal year 1960, was $4.6 billion.
In fiscal 1965 the
comparable figure had jumped to $9.7, and in fiscal 1970, while
i do not have an up-to-date estimate, the figure implied in
the January Budget was $22.4 bi11iono
The total amount outstanding
under all the various loan programs was slightly under $100 billion
in 1960, and is expected to pass the $200 billion mark in 1970.
The relevant question to ask now is, where do we go from
here
what lies ahead for Federal Credit Programs in the 1970!s.
I can't pretend to give a fully satisfactory answer, but I think
it is nevertheless worthwhile looking a little more closely at
how we got where we are today.
- 5 The basic rationale for federal involvement in the lending
process is to fill gaps in the provision of credit through
private institutions and credit markets, or to provide
assistance for public purposes on terms that would not be
available even in the absence of market imperfections.
one could choose among numerous
~xamples,
While
it is the housing
sector that commands most attention at the moment because of
its special vulnerability during periods of tight credit.
You gentlemen are as aware as I am of the special problems
that beset mortgage lending in times of inflation -- the drying
up of flows into mortgages through normal institutional channels.
Under such circumstances it seems perfectly appropriate for
federally-sponsored agencies such as FNMA and the FHLB's to
make every effort to take up some of the slack, even though
t?eir borrowing may place substantial additional strains on
the bond market.
It is for this reason that the Treasury has
raised no objection to the record levels at which the housing
agencies have been coming to market in recent months.
- 6 At the same time, no one looks to this type of emergency
financing as an adequate answer to the longer-term question
of how best to provide credit to meet general housing-needs.
Indeed, I think there is widespread agreement that not
financing innovations, though these may help, but only an end
to inflation itself, and its accompanying credit stringency,
will reopen the more normal channels of housing finance.
Rather, it is in the areas of subsidized housing, small
business, student loans, export credit, urban redevelopment,
public housing, and rural development that one may question
whether the methods of providing Federal credit assistance
have been as effectively conceived as they might be.
Indeed,
there has been an interesting change in the pattern of
financing of Federal credit programs in recent years.
I have
already noted the shift from direct loans to guaranteed loans
as a major trend of the 1960's.
Superimposed on this shift
has been a growing tendency to rely on the securities markets
through such programs as asset sales, with lesser reliance,
at least in a relative sense, on institutional lenders.
- 7 Direct loans have not been adequate to carry out growing
program requirements largely because of the pressures to keep
Federal budget outlays in check.
The shift to financing these
programs through the private sector on the basis of guaranteed
and insured loans was adequate so long as private lenders were
willing to participate in these programs and provide credit
on terms the Congress determined as appropriate.
In cases
where subsidized interest rates were required on guaranteed
loans, Federal program agencies have made direct interest
supplement payments to private lenders.
In many cases,
however, private lenders are unwilling or unable to extend
the longer-term credits required to properly finance these
programs.
Thus more and more of these programs are now
being designed so that they can be financed directly with
pension funds and other investors in the bond market.
In the housing area, as I've already indicated, the
Federal guarantee of mortgage loans has not been sufficient
to assure an adequate flow of funds, and we have come to rely
to a great extent on FNMA purchases of these insured loans,
thus financing of them in the bond market.
Similarly, the new
- 8 -
program of GNMA guarantees of mortgage-backed securities is
designed to attract investor funds which would not normally be
channeled into the mortgage market.
In the small business area, a Federal direct loan program
was established in 1953 and was supplemented by the Small
Business Investment Company program in 1958.
Efforts are now
being made to establish some sort of small business capital
bank to raise funds directly in the bond market for small
business investment companies who, in turn, would provide the
necessary long-term credit to the small businesses.
A similar trend is evident in the REA electric and telephone
loan programso
Federal direct loans have not been available in
sufficient amounts to meet the demands, partly because even
supporters of these programs found it difficult to justify
~iedits
at 2% in today's market when the government itself is
paying 8%.
It is questionable whether banks are the appropriate
source of funds, even if they were willing, to make these
long-term loans even with a Federal guarantee.
Thus a private
REA electric bank is being established to raise funds directly
in the market, and a number of proposals have been made to
establish a REA telephone bank as well.
- 9 -
We have heard much this year about the problems in the
student loan area.
Student loans were first established as
Federal direct loans in the National Defense Education Act of
1958, but the available funds in the budget were not adequate
to meet the demand.
Thus a guaranteed student loan program was
established in 1965, which went a long way toward meeting the
demands until this year when the ceiling of 7 percent on the
interest rate to be paid by the student threatened to shut the
program down.
This problem hopefully is being resolved by
the Administration's proposal for direct Federal payment of
additional interest up to 3 percent to encourage lenders to
make these loans.
But the interest rate is only part of the problem, since
.s are necessarily concerned with their liquidity position
and are reluctant to take on too many of these long-term credits.
Thus plans are being devised in many States to provide a secondary
market for student loans made by banks; in some cases these
plans involve tax-exempt bond financing of these loans, which
would add to the overall pressures on the municipal bond market.
There are also proposals to establish a federally-sponsored
secondary market facility for student loans, which has been
- 10 dubbed by some as "Sallie Mae", to join the family of Fannie
Mae and Ginnie Mae.
I am sure you have heard of other similar
proposals to finance Federal credit assistance programs in
the bond market.
The problem is perhaps especially acute in the area of
Federally-assisted programs financed through municipal
borrowing.
Apart from temporary problems, such as the failure
last month of the public housing and urban renewal bond and
note issues, due to local interest rate ceilings, these
guarantee programs are expanding rapidly and taking an
increasing share of the limited supply of funds available to
the municipal market.
In addition to such well-established
programs as public housing and urban renewal, one can anticipate
growing new demands from proposed programs in the area of
water pollution and mass transit.
This potential crowding out
of general purpose financing by local governments has prompted
suggestions to shift the financing of these Federally assisted
programs to the taxable bond market, thus relieving market
pressures for other municipal borrowing and reducing the interest
IDsts of all States and localities.
- 11 -
Another approach to private financing of Federal credit
programs has been by converting direct loans to guaranteed
loans through the sale of loan assets such as Farmers Home
Administration notes, CCC certificates of interest, ExportImport Bank certificates of beneficial interest, and
individual loan sales by SBA, VA, HUD, and other Federal
agencies.
An effort was made to coordinate such asset sales
programs in the enactment of the Participation Sales Act
of 1966, which permitted FNMA to pool direct loans made by
several other Federal agencies and sell guaranteed certificates
of participation in these pools to private investors, thus
reducing the cost of financing the asset sales programs.
Although this program gotoff to a bad start for a variety of
reasons, not least of which was its inauguration on the eve
of the credit crunch in 1966, there was probably much to be
said for it as a technique of governmental financial management.
But since such sales :' were counted in the Federal budget as asset
sales or negative expenditures, and thus reduced overall budget
outlays by a similar amount, there was justifiable criticism
of the program on grounds of budget gimmickryo
As a result,
in 1968 the President adopted the recommendation by the
Commission on Budget Concepts that participation certificates
be treated in the budget as a means of financing in the same
- 12 -
manner as Treasury's own issues.
Since direct Treasury issues
are even less costly than PC's as a means of financing government
programs, there was no incentive to continue the PC program,
and the Government stopped selling participation certificates
in 1968.
It is interesting to note, however, that in this
case the banks seem to have taken a leaf out of our book, since
a number of banks used the PC technique extensively in 1969
as a means of financing their own loan portfolios.
There is no doubt in my mind that there will continue
to be an important role for the Federal Government in
facilitating credit flows to particular
sectors of the economy.
I say this in full recognition that in the future, as in the
past, the basic job of providing the credit needs of this
country must and should rest with private financial institutions
such as your own, and the credit markets in which you operate,
if we expect to harness most effectively our financial
capabilities to our physical needs.
But even in those areas
where the Federal Government has a role to play, I think we
need to rationalize the processes by which we arrive at our
decisions on the amounts, terms, and allocations of federal
credit assistance.
- 13 -
In the first place, there needs to be wider recognition
within the Government that a dollar of credit can be as scarce
a resource as a dollar of budget expenditure.
The trend from
direct loans within the budget to guaranteed loans outside the
budget is testimony, I'm afraid, that all too often the route
of the guaranteed loan has seemed to provide the simple solution
to pressing ahead with desired programs "at no cost" in terms
of the budget.
The fact that there is a limit to the capacity of
the capital markets, in the broadest sense, to absorb increasing
demands placed upon them by federally-sponsored credit programs
is a thought that is brought home only in times of stress such
as the present, when FNMA notes sell for 8-3/4%.
The addition
of a Government guarantee to a piece of paper is not the open
sesame to easy credit that it may at times seem.
Lest I be misunderstood, let me hasten to say that there
are good and suffucient reasons for transferring a number of
federal credit programs out of the budget and to the private
sector.
It would certainly be inconsistent to argue the
principle that the private credit markets should be relied on
to as large an extent as possible, and at the same time bend
every effort to keep such programs on a direct loan basis within
- 14 the Government.
Indeed, one of the toughest assignments in
this whole area is to come up with a set of consistent
criteria to serve as guides in the administration of federal
credit assistance
unfortunately, borderline cases seem to
be more the rule than the exception.
The conclusion to be drawn, rather, is that some means
must be found for monitoring the ,total demands of federallyassisted credit programs on the capital marketso
The numbers
I cited to you earlier, while available to the public, are known
only to a relatively small handful of specialists who concern
themselves with these matters.
A way must be found, it seems
to me, to focus public attention much more strongly than in
the past on the growth of these federal credit programso As a
practical matter, it does not seem realistic to expect, nor
indeed would it necessarily be desirable, to reinsert all forms
of federal credit assistance into the calculations that end
up as a single figure of a deficit or surplus in the federal
accounts.
But there is reason to summarize in a prominent way
in the budget tables the over-all demands on the credit markets
implied by the growth of federal credit programs.
- 15 Not only would such a consolidation help to focus attention
on the total of these credit demands, but it would also serve
as a means for bringing together in a single place the varying
terms on which various federal credit programs are operated.
In a number of these programs, as you know, there is a substantial
element of federal subsidy involved.
Yet it takes an expert
to ferret out from the scattered evidence in the present federal
accounts exactly what this element of subsidy may be.
Finally, I should mention that there has long been felt
within the Treasury a need for rationalizing the means of
financing various federal credit programs.
The participation
certificate was an earlier attempt to provide this rationalization,
~nd
I have mentioned some of the reasons for its failure.
But
wLth the prospect of continuing substantial growth in potential
demands on credit markets to finance federally-sponsored
programs -- and the growing evidence that separate federa11ysponsored financial institutions are being designed to provide
that financing -- it seems to me that it is not too soon to
undertake a new effort to impose greater order on what could
become an unnecessary proliferation of quasi-governmental
channels for transferring financial resources from lender to
borrower.
00
00
00
TREASURY DEPARTMENT
,
WASHINGTON. D.C.
October 6,1969
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
$3,000,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing October 16, 1999,
in the amount of
$ 3,005,470,000,
as follows:
9l-day bills (to maturity date) to
in the amount of $1,800,000,000,
or
additional amount of bills dated July
mature January 15, 1970,
originally
$1,100,863,000,
the additional and
freely interchangeable.
be issued October 16 , 1969 ,
thereabouts, representing an
17, 1969,
and to
issued in the amount of
original bills to be
l82-day bills, for $ 1,200,000,000,
dated October 16, 1969,
and to mature
or thereabouts, to De
April 16, 1970.
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 Daylight Saving
time, Friday, Ocoober 10, 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 de~ima1s, 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
K-23l
-
L
-
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, foll~wing which public announce
ment will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The 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
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 16, 1969, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing October 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 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 Rese~ve Bank 060~ranch.
THE DEPARTMENT
or
THE TREASURY
WASHINGTON, D. C.
20220
FOR RELEASE UPON DELIVERY
STATEMEN1 BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON FISCAL POLICY
OF THE JOINT ECONOMIC COMMITTEE
OCTOBER 7, 1969
10:00 A.M.
(EDT)
Madam Chairman and Members of the Subcommittee:
It is a pleasure to have this opportunity to appear
before you for an examination of the budget outlook and an
assessment of our efforts to control inflation.
This
subcommittee has made an important contribution in serving
both the Congress and the executive branch as a respected
forum for discussion and review of economic policy.
In the
tradition of reasoned analysis which has characterized the
deliberations of the subcommittee, it is appropriate to
review the conduct of fiscal policy by the Nixon Administration
during its first eight and one-half months in office.
Director Mayo will give you the budget outlook for
the current fiscal year.
The projected surplus of nearly
$6 billion is essential in the present economic environment.
In its report on the January 1969 Economic Report of the
K-232
!. .-
President, the Joint Economic COI1LIittee argued persuasively
for a significant surplus, and we are in complete aareement
b
~
with that position.
Our determination to restraiD Federal
spending and to maintain sufficient revenues to adequately
cover expenditures supports the objective which we all
share -- to preserve a positive role for fiscal policy in
the maintenance of economic stability.
The failure in
recent years to make prompt and timely use of fiscal ,oliey
to counteract impending inflationary tendencies has been
a source of considerable disruption and inequity in the
economy.
The American people understand the falseness of
an inflated prosperity, and I know many of them have
communicated this understanding to their elected
representatives in Washington; many have also expressed
their concern to me personally.
The real wages of the
average manufacturing worker are only $1.45 a week higher
today than they were in 1966
wage settlements.
despite higher and higher
Inflationary excesses create hardships
for all segments of our society.
Monetary values are
eroded, purchasing power is diminished, decision making
is distorted, and interest rates are disproportionately
inflated.
- .3 .•
The control of inflation
domestic concern.
1:; ,i:C':~
than a matter of
Last week I met with the financial
representatives of over 100 countyj2s.
They
impTe~~ed
upon
me their own deep concern over inflation in the Uni ted Stat,;s
The American economy is so large and its influence so widespread, especially because the dollar is a key currency, that
the excesses of either inflation or recession affect the
entire world economy.
It is important that we
i~provc
cur
competitive position in foreign markets and maintain international confidence in the dollar.
The current inflation is
unhealthy for both America and the rest of the world, ard
J
LS
control is therefore both a domestic and an international
necessity.
Since assuming office last January, this Administration
has moved quickly and firmly to bring the policies of the
Federal Government in line with the country's most urgent
economic priority .. - to halt the spiral of rising
price~
Our basic strategy has been to restore stability through ch
coordinated application of fis~al, debt management, and l~ith
the cooperation of the Federal Reserve Board) monetary policies
designed to moderate aggregate demand pressures.
In April the President proposed two major actions to
increase tax revenues:
(1) extension of the income tax
surcharge at 10 percent for the first half of fiscal 1970
and at 5 percent for the second half of fiscal ]9~0: end
- 4 -
(2) repeal of the investment tax credit.
The Congress has
approved extension of the full surcharge through this calendar
year, but action to continue the surcharge at its reduced rate
and to repeal the tax credit remains to be taken in the Senate.
I want to emphasize again that these measures are essential
to our overall strategy, and require the earliest possible
action.
They are in complete agreement with the recommendations
made by the Joint Economic Committee last spring.
Enactment of these two tax proposals will produce an
estimated $3.3 billion in revenues.
Including the requested
extension of present excise tax rates and the proposed
imposition of new user charges, a total of $4 billion of
necessary revenues depends on favorable legislative consideration.
Without positive Congressional action, fiscal policy will not
be exerting the measure of restraint appropriate for effective
inflation control.
Assuming favorable action on these revenue-raising
proposals, total budget receipts for fiscal 1970 are now
estimated at $198.8 billion, or $0.4 billion below the May 20
estimate.
This relatively small change in total receipts is
primarily due to a $0.5 billion reduction in estimated
corporate income tax receipts, reflecting our lower estimate
- 5 -
for 1969 corporate profits.
The economic assumptions
underlying these latest estimates are shown in the following
table.
Changes since May 20 largely resulted from revisions
in National Income Account data by the Commerce Department.
Economic Assum tions, Calendar Year 1969
(in hi lions of dollars)
1
May 20
Estimate
Current
Estimate
Gross National Product
927
932
Personal Income
739
745
Corporate Profits Before Taxes
97
94-1/2
On the expenditure side, the President has demonstrated
his determination to regain Executive control over Federal
outlays by his commitment to hold expenditures below the
Congressionally authorized limit.
Total outlays for fiscal
1970 are estimated to be $192.9 billion, the same figure used
for the May 20 estimate.
Director Mayo will discuss budget
expenditures in greater detail.
The net result of these fiscal actions will be the
generation of sufficient revenues to more than cover
substantially trimmed outlays.
The Federal budget will be
contributing importantly to the control of inflation.
Nine months ago, we knew that this would be an arduous
and lengthy task.
Aggregate spending was under strong upward
momentum, and inflationary expectations were well entrenched.
- 6 -
It has been our deliberate policy to restore economic
stability through the careful application of restrictive
fiscal and monetary measures.
The evidence that this policy
is being effectively applied is beginning to mount:
real economic growth is well below the basic
trend rate of capacity growth;
the September unemployment rate was reported
at four percent;
the combined index of leading business
indicators has slowly declined for three
consecutive months;
industrial production registered a small
monthly decline in August; and
consumer surveys indicate a significant
decline in buying sentiment.
While there is ample evidence that real growth has been
declining in recent months, the desired abatement of price
level increases has not yet become evident in the statistical
indicators.
This is not unexpected, since prices invariably
tend to lag behind changes in the underlying market conditions.
But regardless of the source of inflationary pressure, whether
from excess demand or from rising costs, the absence of
sufficient demand to clear markets at inflated prices must
result in inventory accumulation and inevitably lead to price
reductions.
Investment and production decisions reached under
the assumption of a continuation in current rates of inflation
will come to be sorely regretted.
- 7 -
We are encouraged that our strategy is beginning to
show results.
The difficulty of pursuing this task must not
be underestimated, however, and cooperation from the Congress
is vitally important to our maintaining appropriate fiscal
restraint.
The revenue-raising measures proposed by the
Administration must be enacted to continue the desired
budgetary effects.
Only last month, a distinguished former Secretary of
the Treasury told a Senate committee that both the executive
and legislative branches had committed a serious policy error
by failing to control the budget during the 1965-1966 period.
As a result, fiscal policy came to exert a completely
undesired influence on an overinflated economy during the
fiscal year 1968.
Madam Chairman, it is my hope, and I am
certain this important subcommittee shares my concern, that
we can maintain fiscal policy in its proper role of contributing
to economic stability.
That, I believe, is the purpose for
these hearings; and that is why I am pleased to be here for
a discussion of this important issue with you.
000
TREASURY DEL~ t?TMENT
Washingtoi.l) 1 \ t
.l.}..
~
j
{.
For Release Upo..!!...Delivery
REMARKS BY THE HONORABLE JOHN S. NOLAN
DEPUTY ASSISTANT SECRETARY FOR TAX POLICY
BEFORE THE
TWENTY FOURTH ANNUAL CONFERENCE OF
THE TAX EXECUTIVES INSTITUTE
ATLANTI C CI TY, NEt-lj JE RS EY
MONDAY, OCTOBER 6, 1969, 2:30 P.M.
TAX REFORH LEGISLATION IN 1969
To all of us, tax legislation this year means the Tax
Reform Act of 1969, passed by the House on August 7 and
presently under consideration by the Senate Finance
Committt;:<~.
This tax reform bill is the most comprehensive change
of substance in our tax law ever proposed at one ti.me.
It
would raise a massive $8.1 billion from reforms and from
repeal of the investment credit.
As passed by the House) i
r
would provide some $10,5 billion in tax reductions, going
almost entirely to individuals .
versial as it is massive.
It is as exciting and
Today I would like to give you
some insights into its background, its merits, and its
deficiencies.
K-233
CO~H' ;-~-'
Our' sophisticated, complex
vlO.ck
SV\~ ~:,ty
has de \eloped a patch-
tax law over a TJeriad of nearly 50 years.
It is
intricately geared to every element of our personal lives,
au.: cha.L-itable institutions, our business structure, and our
-.
~ ':,~[ny
<.kc,
The 18.T.v
ge.1erally.
,;,S
fuU. of incen;:ive
pl.'~1·.'isi()r~
Lgned or preserved to serve important purposes such as
en'.»uraging particular kinds of r-L3k-taking dnd inv£str:1p::1t,
~~Dsidizing
charitable activity to relieve the burdens 0f
6'.)vernment, and achieving important social goals such as
.mproved housing.
Some of these incentives are no longer
necessary to the same degree as when first adopced, and
60m2
are being used to shelter income to such an excessive extent
t~at
they must be limited.
Administration Goals
On.e of the first obj ectives of this Adminis tration was to
(l,·:>at ;,'~Jh tr~e problem of
t2nsi:n
• _-dr'
~i
raging inflation by calling for
ex-
the surcharge at 10 percent to the end of this
anli ':or a phdse-ol't of the surcharge at 5 per:cent to
. .:>.lne JG, 1970.
repe2~
~n
additl.:)f1) our initial program called for
of the investmenr credit in light of the fact that it
-
')
..)
had largely served its purpose of modernizing the American
plant.
1962.
Over $400 billion has been spent on new equip~ent since
It is a costly incentive, and we concluded that these
tax dollars could be
~ore
fairly distributed and could provide
revenue to fund other urgently needed programs.
Some of these
programs have already been unveiled; others will come at an
appropriate time.
For one: we seek to undertake a program of
substantial revenue sharing with the states and cities to help
put them back in the business of effective government at
local level.
We call this New Federalism.
tb~
We need a strong
export incentive to improve our trade balance and thus our
balance of payments.
We must provide incentives for encourag-
ing employment of the hard core unemployed and for investment
inEhetto areas.
These and other new programs will be costly
1
and we made it clear initially that T"ve TtJere seeking to rese rve
the long-term revenue gains from repeal of the investment
credit for at least initiating some of these objectives.
The other side of our initial package was the President's
Tax Reform program.
Within three months after coming into
office, we developed a series of proposals to restore equity
- 4 to the tax system.
We proposed
rnoder&~e
and tnoughtful changes
designed to curb excessive use of incentives in the tax la"N
without actually eroding the most beneficial effects of these
provisions.
Our Limit on Tax Preferences and Allocation of
IJ2ductions rules '>-Jere the core of this program.
The Limit
on Tax Preferences does not reduce the incentive effect of
any of the provisions to which it applies so long as they are
US2rl
in reasonable moderation in relation to other income subject
to tax.
We also dealt with the recognized problems in the area
of private foundations and charitable contributions, but in a
way designed to encourage even greater flow of funds into the
charitable stream.
We proposed solutions to the problems of
multipl'2 corporations, multiple trusts, ABC transactions and
carveouts, restricted stock, farm losses, tax-free dividends
~ut
of accelerated depreciation reserves, stock dividends
'.vhlch rave the same effect as cash dividends, and other such
problems, all well known to good tax men.
In addition to reforms, we proposed two major relief
provisions -- the Low Income Allowance designed to take all
persons \vith incomes below the recognized proverty levels off
- 5 -
the tax rolls, and an increase in deductible moving expenses,
long sought after by the business community.
The Low Income
Allowance contained a phase-out feature which extended successively lesser benefits as incomes exceeded the poverty
levels on a basis that permitted us to sponsor this key
provision at an annual revenue cost of only $625 million.
Deductible moving expenses would be expanded to include indirect
costs, such as house-hunting expenses and expenses of sale of
the employee's residence.
The revenues produced by the reform
program were adequate to fund these two proposals.
Our April reform program contemplated a balanced revenue
effect.
The objective of developing a bill which would not
result in a deficit is important to an understanding of our
position on the House bill as subsequently adopt2d.
Development of the House Bill
Following extensive public hearings, the Ways and Means
Committee and Treasury jointly produced a bill which included
substantially all of the Treasury's initial tax reform proposals, with some modifications, plus a much broader program
of tax reforms.
In some cases, we conceived the additional
- 6 -
reforms; in other cases we did not join in reforms included
by the Committee; many provisions were jointly developed.
The bill, for example includes the following:
creation of a differential in tax benefits
favoring new multifamily housing construction
by reducing accelerated depreciation and
providing tougher recapture rules for all
other real estate;
repeal of the alternative tax limit on longterm capital gains and extension of the
holding period from six to twelve months; and
a higher level of tax on financial institutions, including commercial banks, savings
and loan associations, and mutual savings
banks.
Some of these changes will be important in refining the
incentive value of particular provisions.
Thus, the changes
in accelerated depreciation for real estate will create a
strong investment bias in favor of rental housing construction and thus will make an important contribution to solving
our national housing need of 26 million new units over the
next 10 years.
Similarly, the changes in tax treatment of
financial institutions -- if they are further refined as we
have recommended to the Senate Finance Committee -- will
cause more funds to flow into residential real estate mortgages.
- 7 -
The House bill includes some provisions which we helped
to develop and which we strongly support.
The greatly sim-
plified income averaging rule will be available to a much
larger number of taxpayers to prevent the harsh effects of
bunching income.
The 50 percent maximum rate on earned income
will remove the existing disincentive of very high marginal
rates with respect to personal service activity and will
reduce the pressures to avoid these rates by artificial
devices to defer income and to convert ordinary income to
capital gain.
The bill contains some variations from the initial
Treasury program of major importance.
Percentage depletion and
intangible drilling costs were dropped out of the operation of
the Limit on Tax Preferences.
The Ways and Means Committee
voted to reduce percentage depletion allowances on all minerals
(with five exceptions), including a reduction for oil and gas
from 27-1/2 percent to 20 percent.
We have recommended that
even with these reductions, percentage depletion should be
restored to the operation of the Limit on Tax Preferences.
- 8 We have also recommended that while intangibles should not be
restored for persons in the oil business, intangibles should
be included in the LTP for persons who receive less than 60
percent of their gross income from oil and gas properties.
This will strike a proper balance between avoiding any disincentive to drilling and yet requiring that all taxpayers
with real incomes pay a fair share of the national tax burden.
Tax-exempt interest was included in the LTP by the House
bill, contrary to our original recommendation.
We have
renewed our recommendation that it be excluded from LTP, but
be included for Allocation of Deductions purposes as we
originally recommended.
We believe our proposals avoid any
serious adverse impact on the ability of state and local
governments to raise funds.
Some Particular Problem Areas
We also oppose the repeal of the alternative tax computation on capital gains and the extension of the holding period.
The adverse impact of these changes on investment would be
serious, and such drastic action is not necessary to cure the
abuse.
We have proposed instead that the alternative tax
50;
- 9 -
limit should be available to the extent of four times taxable
income (with some adjustments) and in general to the extent of
at least $140,000 of capital gains for a married person ($85,000
for a single person).
The effect of this formula is similar to
the LTPj the mix of income taxed at ordinary rates and capital gain taxed at 25 percent will produce approximately the
same result in all cases as if the taxpayer were taxed on at
least half his total economic income at the graduated rates.
We also oppose the provision of the bill taxing deferred
compensation at the rates in effect when the income was
earned.
quires
It does not operate properly, and the problem remor~
study in principle.
We oppose the 7-1/2 percent
tax on private foundationsj if their operations are limited
to purely charitable activities by the other provisions of
the bill, it is inappropriate to tax them any more than is
required to pay the costs of administering the exempt organization audit program.
The bill in its present form has too
severe an impact on charitable giving; appreciation on charitable gifts should be removed from the LTP and Allocation of
Deductions rules, and we are recommending other liberalizing
- 10 -
changes in this particular area.
Other provisions of concern
include the interest disallowance rule which is too severe and
which should be withdrawn for further study.
The distance
requirement for the moving expense deduction, which would be
extended
to
50 miles by the bill, should be left where it is
now at 20 miles.
Similarly we oppose denial of percentage depletion on
foreign oil production. This will serve only to cause the
foreign governments to increase their taxes on American enterprises so that our companies will bear heavier foreign tax
burdens with no increase in revenues to the United States.
We
do, however: recommend changes in the foreign tax credit .
. -':::e
changes would prevent foreign governments from nullifying
the incentive effect of our percentage depletion allowance.
They would also prevent a double tax benefit where losses are
incurred in a foreign country, as from drilling operations,
followed by profits in later years.
The Tax Relief Provisions
By far, however, the most serious problems of the House
bill stem from the overly generous tax relief of $10.5
billion, substantially all of which would go to individuals.
- 11 The bill eliminates the phase-out of the Low Income AIbwance
at a revenue cost of over $2 billion, thus converting it to
a minimum standard deduction of $1,100.
This extends the benefit
of this poverty-oriented provision all the way up the line to
persons with incomes as high as $11,000.
The bill increases
the standard deduction to 15 percent with a $2,000 maximum at
a revenue cost of $1.4 billion, providing benefits in particular
to nonhomeowners with incomes much higher up the scale.
The
bill extends head-of-househo1d treatment to all single persons
over age 35, whether or not they maintain a household.
Some of these changes in and of themselves have subs tantia1 merit.
However, the bill couples them with rate reduc-
tions designed to reduce the tax burden at least 5 percent
every bracket.
This double layer of relief produces some
serious inequities:
Homeowners would receive only rate relief, while
users of the standard deduction get the same rate
relief plus substantial increases in their deduction.
Single
layers
Single
purely
persons over age 35 may get both these
of relief plus head-of-househo1d benefits.
persons under age 35 are treated differently
on the basis of age.
- 12 Impact on Investment
Even more serious than the excessive tax relief to
individuals is the unintended effect the House bill has in
shifting the tax burden from individuals to corporations.
The House bill increases the taxes on corporations by a net of
$4.9 billion and decreases the taxes on individuals by a net
of $7.3 billion
a major shift in emphasis in the economy
from investment to consumption.
Since the decreases to
individuals go predominantly to persons in the lower brackets
and since the reforms principally affect individuals in the
highest brackets, the shift is even more pronounced than these
" ne t" f"19ures In
" d"lcate.
~~p
This shift is further aggravated by
adverse impact on investment from elimination of the
alternative tax limit on capital gains and extension of the
holding period.
Basic Defects - Treasury Position
The basic defects in the House bill, then, are threefold -- the deficit it would create, the imbalance in the
provisions for tax relief, and the major shift in emphasis
from investment to consumption.
- 13 Dealing with these in order, the bill would produce a
long-term annual deficit of $2.4 billion and as much as a
$4.1 billion deficit in the short run (calendar year 1972).
This is no time to build continuing deficits into our budget
by declaring a large fiscal dividend for future years when
we must face the necessity of major government expenditure
programs such as revenue sharing, export incentives, and poverty
incentives, as I have already described.
We have sought to meet both this deficit and the equity
problem before the Senate Finance Committee by urging that the
phase-out of the Low Income Allowance be reinstated, though
on a somewhat more liberal basis, by scaling down the increase
in the standard deduction to 12 percent with a $1,400 maximum,
and by providing relief to single persons regardless of age
which is somewhat less than head-of-househo1d treatment,
though still substantial.
We have also urged repeal of the
personal gasoline tax deduction.
Taken all togehter these
measures would recoup some $3 billion, still leaving substantial
rate reduction and tax relief amounting to $7.3 billion for
individuals.
This program would provide much more equitable
distribution of this tax relief.
- 14 Equally important to our long-range fiscal position is
the investment-consumption mix in the bill.
In our judgment
the shift in emphasis previously described is too great.
We must avoid an excessive downturn in economic growth and
the accompanying unemployment, underemployment, reduction
in output, and loss of public revenues for essential new
programs.
We should not schedule too great an increase in
consumption when demand is already at peak levels and when
we thereby would run the risk of sacrificing jobs, production,
and income in the future.
Corporate Rate Reduction
To offset' this shift, the Administration has tecomm'ended
a 2 point corporate rate reduction which would reduce corporate
taxes some $1.6 billion.
This is to be compared with the
$2.7 billion increase in corporate taxes which will be the
long-term consequence of repeal of the investment credit.
While it is by no means an even exchange, it is substantial
tax relief.
We have been concerned by a seeming lack of
interest -- and support -- for this reduction from the
3/v
- 15 business community.
It is worth noting that of the five
occasions on which corporate taxes have been reduced in our tax
history, four occurred in connection with individual tax
reductions.
Further, of the ten occasions on which individual
taxes were increased, nine were accompanied by corporate tax
increases.
this
bi~
If a corporate rate reduction does not occur in
the resulting increased share of the total tax
burden borne by corporations vis-a-vis individuals thus might
well be a permanent one.
The Administration program would change the mix to a
net increase in corporate tax of $3.5 billion and a net decrease in individual tax of $4.8 billion.
Combined with our
'iore liberal proposed treatment of capital gains, we feel
that this lesser degree of shift in emphasis from investment
to consumption is one that our economy can readily absorb.
We believe that a 2 point corporate rate reduction is sufficient to counteract the cumulative impact of other provisions
of the bill on corporations generally and thus will prevent
a downward trend of investment activity and hence future
economic growth.
- 16 The corporate rate reduction would have other potential
advantages.
It would improve our ability to compete in
foreign markets and should have some positive effect toward
improving our trade balance.
As previously indicated, it will
return to the corporate community about 60 percent of the loss
of benefit from repeal of the investment credit.
We think it
results in a fairer distribution of the corporate tax burden
now that the original purpose of the investment credit has
been achieved.
Wewould no longer favor capital intensive indus-
tries over industries such as housing.
We would avoid the effect
of the credit of favoring more profitable companies over less
profitable ones.
~r.eserve
Equipment leasing transactions designed to
the benefits of the investment .credit, in which lessors
skim off some of the tax benefit, would be of lesser importance.
Corporations would be left with more freedom
to determine
their own patterns of investment.
Technical Flaws
There are many technical flaws and transitional problems
in the bill.
These are a product of the haste in which it
was drafted.
We are making every possible effort to catalogue
- 17 all the valid points brought to our attention and see that
something is done about them.
Our Technical Memorandum, filed
with the Senate Finance Committee on September 30, 1969, and
released to the public on October 3, 1969, is largely an
expression of good faith in this respect.
It is not complete
by any means; many more changes will be made.
We have
endeavored to give a full audience to everyone who has asked
to see us, and we will continue to do so.
I am sure the bill
will be improved from the standpoint of simplicity, equitable
operation, and transitional fairness when it emerges from the
Senate.
You will also find in the Technical Memorandum some
matters of particular interest to tax managers.
Employers are
to be given more flexibility in devising withholding systems
to meet particular needs.
The overwithholding problem with
respect to students and others would be avoided by a special
relief provision.
We recommend voluntary withholding provi-
sions for persons such as annuitants and pensioners.
Some
five million low income taxpayers would be relieved of the
obligation of filing any return.
- 18 What the Future May Bring
In addition to the matters included in the current Tax
Reform Bill, we hope to present legislative recommendations
soon in several other important areas: deferred compensation
including qualified pension plans; foreign income including
export incentives; estate and gift taxation; and exempt
organizations.
The recently appointed Presidential Task Force
on Business Taxation is studying, among other subjects,
deferred compensation, the value-added tax, and depreciation.
The major problem in the deferred compensation qualified
plan area arises because of the difference in tax treatment
between self-employed persons and corporate employees.
The
recent announcement of the Internal Revenue Service accepting
court decisions invalidating the professional corporation
regulations is a prelude to a wholesale shift by self-emoloyed
persons to the professional corporation form over the next
several years.
This will make the H.R. 10 limitations vir-
tually meaningless except for those few professional persons
who feel constrained by tradition not to move into this
artificial form of business organization to achieve a tax
advantage.
- 19 -
There is much to be said for treating self-employed
persons and employees completely alike.
Many of the provi-
sions of H.R. 10 reflect our experience over a long period
of years that the non-discrimination requirement and other
conditions in Subchapter P are not adequate to place reasonable limitations on qualified plans.
the limits in H.R. 10 are
It may well be that
too severe with respect to matters
such as limits on contributions or benefits for high-paid
individuals, vesting, eligibility standards, treatment of
lump-sum distributions, and estate and gift tax benefits.
The right answer undoubtedly lies somewhere in between.
We
will be giving these matters intensive consideration over
the next several months.
The non-qualified plan area calls for a study of whether
the limitations on qualified stock options in the Revenue Act
of 1964 have proven appropriate in all respects.
Presumably
the Tax Reform Bill will make restricted stock plans much less
attractive, and we must inquire whether the law permits
adequate arrangements to attract and keep key executives and
to provide them an incentive to improve company profits.
- 20 -
We must also study whether the present rules with respect
to nonqualified plans are proper.
include:
Questions needing answers
whether deferral benefits should depend entirely
on the sometimes unrealistic distinction whether a plan is
funded or not?
u.s.
Whether a contractual right against a major
company is so different from a funded arrangement as to hue
entirely different tax results?
Or whether the
di~tinction
::hould turn on the existence of a substantial risk of forff:'itL.re versus a vested right?
In the foreign income area, I have already mentioned
the high priority we place on developing an effective export
incentive.
This problem is related to the place if any, a value·
added tax might fill in our tax structure.
We hope
~lso
to
give attention to section 367 of the Code in an effort to
d2velop reasonable but effective standards to be included i
7
the law to tax or exempt transfers involving foreign corpo:1-
tions without the necessity of an advance ruling in every
case.
We also expect to reconsider the application of
Subpart F in conjunction with a review of the foreign tax
credit and the operation of the per-country and over-all
limitations.
We will be seeking to determine whether a
- 21 better structure for taxing foreign income, or permitting
deferral, can be developed.
We are presently giving attention jointly with the
Internal Revenue Service to the matter of advance payments
received on sale of goods.
Other items due to receive early
attention include long-pending issues such as those involving
valuation of inventories.
Proposed changes in the estate and gift tax and exempt
organization areas, while of less importance to this particular
group, are of major importance to us and may involve substantial
changes from existing law.
****
As I have said, the current reform bill is the most
comprehensive change in the tax laws ever proposed.
It provides
the greatest relief to the very poor; it provides substantial
tax reductions to persons in the middle income brackets;
and it provides a lesser degree of relief to the very wealthy
because rate reductions are offset by revenue increases from
closing loopholes and limiting the use of preferences.
It
is a major step toward horizontal equity -- equal treatment
of equals.
- 22 While its impact on corporations is substantial, the
Administration proposals for changing the bill would greatly
moderate the effect by substituting in one sense, a substantial corporate tax cut for the repeal of the investment
credit.
While we can hardly expect the business community to
embrace the bill, I would suggest that since the repeal of the
credit seems to be a virtual certainty, business leaders would
be well-advised to stand four-square behind the Administration
program for changing the bill.
Only in this way, in our
judgment, can we maintain the balance in our economy necessary
to continuedeconomic growth, full employment, and permanent
prosperity.
00000
TREASURY DEPARTMENT
4
WASHINGTON, D.C.
OR RELEASE 6: 30 P.M.,
onday, October 6, 1969.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Depart~nt announced that the tenders for two series of Treasury
ills, one series to be an additional issue of the bills dated July 10, 1969, and the
ther series to be dated October 9, 1969, which ~re offered on October 1, 1969, were
pened at the Federal Reserve Banks today. Tenders were invited for $1 , 800 , 000 , 000 ,
r thereabouts, of 91-day bills and for $1,200,000,000, or thereabouts, of 182-day
ills. The details of the two series are as follows:
ANGE OF ACCEPTED
:)MPETITIVE BIDS:
High
Low
Average
182-day Treasury bills
maturins AEril 9 z 1970
Approx. Equiv.
Annual Rate
Price
7.251~
96.334 ~
7.319i
96.300
96.315
7.289i
Y
91-day Treasury bills
January 8 z 1970
Approx. Equiv.
Price
Annual Rate
98.238
6.971%
7.069'f,
98.213
98.219
7.046i
maturin~
Y
a/ Excepting 1 tender of $3,000
13% of the amount of 91-day bills bid for at the law price was accepted
33% of the amount of 182-day bills bid for at the low price was accepted
)TAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
istrict
oston
~w York
tliladelphia
leveland
icbmond
AcceEted
AEE1ied For
23,816,000
34,837,000 $
$
1,234,099,000
1,916,339,000
27,103,000
42,203,000
44,825,000
44,825,000
28,996,000
28,996,000
43,849,000
52,392,000
165,731,000
260,591,000
58,411,000
66,011,000
24,834,000
28,901,000
32,918,000
37,608,000
21,685,000
31,955,000
94 z 167 z 000
145,082,000
tlanta
tlicago
t. Louis
inneallolis
insas City
illas
in FranCisco
roTALS
$2,689,740,000
A~lied
For
9,523,000
1,487,839,000
20,758,000
51,629,000
23,343,000
44,664,000
148,668,000
36,930,000
19,889,000
27,426,000
27,583,000
Acce12ted
$
9,523,000
801,137,000
10,758,000
51,129,000
23,333,000
42,864,000
110,736,080
34,860,000
15,389,000
27,426,000
22,583,000
.--!.~2,814z000
_~,372z000
$
$1,800,434,000~ $2,021,066,000
$1,200,110,000~/
I Includes $450,329,000 noncompetitive tenders accepted at the average price of 98.219
I Includes $269 521 000 noncompetitive tenders accepted at the average price of 96.315
a:e
/ ~se rates
o~ a bank discount basis. The equivalent coupon issue yields are
7.27~ for the 91-day bills, and 7.6710 for the l82-day bills.
j(5-TREASURY DEPARTMENT
WASHINGTON, D.C.
roR RELEASE 6: 30 P.M.,
rlednesday, October 8, 1969.
RESULTS OF TREASURY'S OFFER OF $2 BILLION OF APRTI.. TAX BTI..LS
The Treasury Department announced that the tenders for $2,000,000,000, or
chereabouts, of 190-day Treasury Tax Anticipation bills to be dated October 14, 1969,
md t:) mature April 22, 1970, which were offered on October 2, 1969, were ~pened at
~he Federal Reserve Banks today.
The details of this issue are as follows:
Total applied for - $3,173,403,000
Total accepted
$ 2,000,202,000
(includes $102 852 000 entered ~n a
noncampetitiv~ ba~is and accepted in
full at the average price shown below)
Range of accepted competitive bids:
High
Low
Average
- 96.200
-
96.133
96.156
Equivalent rate of discount approx. 7.21J!1(,per annum
"
"
"
"
"
7.3Z 7'{0"
"
"
7.28"'$ "
11
11
'I
(66i of the
1'ederal Reserve
)istrict
~()ston
~ew York
?hilade lphia
~leveland
Richmond
~tlanta
Chicago
St. Louis
Minneapolis
Kansas City
~llas
San Francisco
'roTAL
Y
This is on a bank discount basis.
K-234
am~lUnt
11
11
"~/
bid for at the low price was accepted)
Total
;.,App 1 ied For
;
98,709,000
1, 767, 465, 000
149,939,000
165,854,000
30,419,000
64,232,000
328,737,000
49,407,000
276,622,000
38,104,000
53,781,000
2 50,134,000
TotaJ
Accepted
$ 68,709,000
941,465,01)0
53,939,000
101,854,000
30,418,000
58, 232,{)OO
:3} 9,537, (JOr\
47,407,000
180,622,000
38,104,0(":C)
44,781,000
115,134,000
$3,173,403,000
$2,000,202,ocn
The equivalent coupon issue yield is 7.67~.
TREASURY DEPARTMENT
WASHINGTON
FOR RELEASE 6:00 P.M., EDT, OCTOBER 9, 1969
FOR DELIVERY 8:00 P.M., CDT, OCTOBER 9, 1969
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE THE ECONOMIC CLUB OF CHICAGO
IN THE GRAND BALLROOM OF THE PALMER HOUSE, CHICAGO, ILLINOIS
THURSDAY, OCTOBER 9, 1969, 8:00 P.M., CDT
"THE VIEW FROM THE TREASURY"
Thank You, Mr. Chairman.
It is good to be home.
I welcome this opportunity to
see so many of myoId friends again and to have the privilege
of addressing the Economic Club of Chicago.
As you may know, this is my second tour of duty in
Washington, and I must confess that I am learning more about
life on the Potomac than I did the first time around.
For one thing, I've learned that I'm no longer Chief
Executive.
I have found that I have many bosses, including
individual Congressmen and Senators, other departments, the
press and last, but certainly not least, the President.
I've also found that a Secretary of the Treasury has much
more to do than simply worry about inflation, tax reform,
international financial policy and the public debt.
Since
taking office, I've also been deeply involved in such
subjects as gun control, silver and coinage policy, reversion
K-235
- 2 -
of Okinawa to Japan and the fine points of stopping
drug traffic along the Mexican Border.
It's a varied
and fascinating life -- the more so because it gives me
a chance -- indeed it absolutely requires -- that I develop
new skills in public relations as well as a high degree of
political sensitivity.
All of these efforts by one old dog to learn some new
tricks are fun in themselves, but they also have a more
serious objective.
I hope they will contribute to solving
some of the very serious problems that confront our country.
All of us who went to Washington last January as part of
President Nixon's new Administration recognized that we had
inherited a ship of state heavily laden with troubles -troubles not of our making but nevertheless our accepted
responsibility.
There is no need to catalog here the
problems that confronted the new Administration on January 21,
1969, but chief among them were, and are still, the tragic
war in Vietnam, the quality of life in our cities, and the
eroding impact of inflation on the American standard of living.
My principal official concern is the control of inflation.
The rapid rise in the cost of living is the most immediate
domestic issue confronting us.
If inflation is permitted to
run unchecked, all hope for dealing successfully with our other
problems will go down the drain.
- 3 -
And so I am here tonight with a direct, unambiguous
message which, I hope, will serve as a guide and a signal
to those who make private decisions that importantly affect
the Nation's economy.
For eight months, we have followed vigorously and
unremittingly a policy of fiscal and monetary restraint to
halt an inflationary surge that had been gathering momentum
for four years before this Administration took office.
That policy is now beginning to show results.
And
those results will become increasingly visible in the months
immediately ahead.
They will be visible even to those who
have been skeptical that inflation could be brought under
control gradually and without a serious slowdown in economic
activtty, as this Administration is trying to do.
The businessman who undertakes an unnecessary capital
expansion or inventory accumulation today in the expectation
of higher prices or higher interest rates tomorrow is betting
that we are going to lose this fight.
So is the union leader
who demands wage increases that far outrun productivity
gains.
And so is the consumer who plunges headlong into
debt on the theory that his dollars will be worth less
tomorrow.
I believe they are seriously mistaken.
An appeal to patriotism and the national welfare
undoubtedly would be listened to attentively, but, too often,
then blithely ignored.
I suggest, rather, that business, labor,
- 4 and consumers look to their own economic self-interest -to their enlightened self-interest.
As our policy of economic restraint increasingly
becomes effective, many of those who bet on continuing
inflation will be hurt.
Past periods of economic restraint
were filled with cases where overpriced goods did not sell,
overpriced labor was not hired, and credit repayment took
a bigger bite out of consumers' incomes than they had
expected during the more euphoric period of overly rapid
expansion and inflation.
If government persists in a policy to control inflation
as this Administration intends to do -- those who bet on
inflation are bound to be hurt as that policy begins to take
hold.
Once business, labor, and the individual citizen
learns that lesson, the fight on inflation will be won, with
a minimum of pain, and the economy will be poised for a period
of healthy and sustainable growth.
In short, betting on inflation is betting against
yourself.
The true interest of this country, and of every
citizen, lies in the restoration of a stable economic base
from which we can move forward to the rebuilding of our
cities, to the upgrading of our educational system, to full
opportunity for our minority citizens, to the attainment of
all the priority objectives of our public policy.
- 5 How are we in government meeting our responsibility
to this national interest?
Let me review briefly some of the events and actions
of these past eight months.
This Administration took office in a serious
inflationary situation caused by inappropriate government
policies.
A massive buildup in Federal spending starting in
1965 and not covered by revenues culminated in a $25 billion
deficit for the 1968 fiscal year.
What had started as
a brush fire was beginning to reach for the tree tops.
The
previous Administration itself recognized the gravity of
the situation when it belatedly asked for the 10 percent
tax surcharge in late 1967.
Since government policy was at the root of the problem,
the Nixon Administration felt that it could not in good
conscience place the entire burden for controlling inflation
on the private sector.
All of us, from the President on down,
felt that before we could expect restraint in private economic
decision-making, government itself had to put its house
In order.
This Administration has now demonstrated beyond question
that it is doing its part of the job.
As a result of rigorous budget reductions throughout
every department, bureau and agency of government, and
imposition of the income tax surcharge, the $25 billion
- 6 -
deficit of fiscal 1968 was turned into an anti-inflationary
Federal surplus of $3.1 billion for fiscal 1969.
That was
the first surplus since 1960, and we are determined to work
for a 1970 budget surplus of approximately $6 billion.
A surplus of that magnitude is essential if we are to
bring this inflationary fire under control.
To this end,
the President has:
1.
Proposed that the surtax be extended at 5 percent
through June of 1970 and that the investment credit be
repealed.
2.
Imposed a strict limit of $192.9 billion of
Federal spending for this fiscal year -- thereby requiring
that $7.5 billion be cut from expenditures which would have
resulted from the January budget submitted to Congress.
3.
Ordered postponement of 75 percent of all new
Federal construction projects and strongly urged state and
local governments and business firms to cut back their own
construction plans.
No one, least of all myself, would claim that these
actions have yet produced a dramatic turn-around in our
situation.
Dramatic action of the kind some critics have
been clamoring for undoubtedly would have made headlines;
but it might also have brought on recession and an intolerable
rise in unemployment.
Personally, I am willing to forego the
drama and concentrate on results.
- 7 -
Let's look at the results -- none of them dramatic,
some too recent to indicate a definite trend, but taken
together suggesting that this long-overheated economy is
beginning to cool down.
The rate of growth of real Gross National Product has
slowed significantly since the beginning of the year.
We
had an average growth rate of 5.1 percent for the four
quarters of 1968.
The average for the first half of this
year was slightly over 2 percent, and the third quarter
figures, which will be available in the next few days, are
expected to show a very similar rate of growth.
The growth of final sales of goods and services slowed
sharply in the second quarter of this year, to $16 billion
from $·20 billion in the first quarter and an average of
$19 billion for all of 1968.
I will not wear you out with figures, but I would like
to mention that industrial production dropped in August; so
did the volume of new orders received by durable goods
manufacturers; so did the unfilled orders for durable goods.
New orders for machinery and equipment fell by 4.6 percent
in that month.
That was the second decline in a row,
suggesting that the demand for capital investment has begun
to ease.
And the reported 4 percent unemployment rate for
September suggests that the long period of extreme tightness
in the labor market may be ending.
- 8 -
Not long ago, we were told that business as a whole
planned a $2 billion increase in spending for plant and
equipment ln the fourth quarter of this year.
More recent
figures show that no such increase is contemplated.
This
may reflect in part the capacity limitations of producer
goods industries, but the pattern is very similar to that
of past periods when capital spending began to flatten.
Wholesale and consumer prices have not turned down,
but their rate of increase has slowed perceptibly, and retail
sales have been essentially flat for the past six months.
No one of those indicators offers proof that we are
out of the burning woods.
But they do tell us that the
firemen have arrived and things are beginning to happen.
In view of these signs of easing in the economy, it
may be asked whether or not the time has come to let up on
the brakes.
The question is especially relevant because the
repeal of the investment credit and extension of the tax
surcharge at 5 percent through mid-1970 are now before the
Senate.
Let me emphasize as strongly as I can that this
Administration continues to believe that these tax measures
are essential to our overall strategy of inflation control.
Without their enactment, the budget in the current fiscal
year would be perilously close to deficit rather than in
a position of healthy, non-inflationary surplus.
- 9 -
Certainly we will be alert to the moment when policy
should change course.
The careful transition to a more
stable, less inflationary economy is an exacting exerCise
in economic policy-making.
During this transition, the most
important and difficult decisions are those which involve
the proper timing of policy changes.
Not until we have reasonable evidence that inflation
and inflationary expectations are definitely receding can
we consider any relaxation of present policy.
Inflation is
too deeply embedded for us to ease up until such evidence
is unmistakably clear.
Our past experience indicates the
danger of changing the direction of policy too soon.
In
fact, a premature reversal contributes to the build up of
basic inflationary conditions, requiring an even more
painful adjustment in the end.
I should point out to you, however, that when the time
arrives for such a change in policy we will be equipped with
a variety of automatic and discretionary tools for implementing
that change.
Not only do we have the traditional monetary
and expenditure actions which can be undertaken, but also
there are a number of built-in features which will operate
to sustain the economy in the coming year and to support
those segments of society who are least able to protect
themselves from any economic reversal:
- 10 -
If approved by the Congress, the income tax
surcharge will drop to 5 percent on January 1,
1970, and disappear completely on June 30, 1970,
Enactment of the Family Assistance Program for
reforming our welfare system will assure income
support for a large number of low-income and
dependent families.
Enactment of our tax reform proposals -especially the low-income allowance -- will
remove millions of low-income individuals from
the tax rolls.
Enactment of the President's proposed reforms
in the Social Security System will provide both
increased payments and protection from inflation
to those living on fixed incomes.
Enactment of our proposals to modernize the
Federal-State unemployment insurance system will
provide us with a more responsive mechanism for
stabilizing the economy automatically.
I have dwelt at some length at government's role in this
national effort to control inflation.
But all of us are aware
that government is only the economic weather-maker; Washington's
function is to try to create the climate in which this complex
market economy can function successfully.
- 11 -
Government alone cannot put out the inflationary fire.
Business and labor alike must make their contributions to
economic stability.
And it is most certainly in their
self-interest to do so.
Leadership in business and in labor carries with it
a high public responsibility.
In these difficult times, it
calls for economic statesmanship of the highest order.
It
calls for restraint in private decision-making, for resistance
to the all-too-tempting line of charging what the traffic
will bear.
This kind of statesmanship is neither easy nor painless,
as those of us in government who are charged with carrying
out an anti-inflation policy know all too well.
But its
successful achievement is vital to the best interests of
every working man and woman in America, and of every
businessman as well.
Inflation control also ranks as one of our top
international priorities.
The world financial outlook is
much brighter today than it has been for many years.
With
the decision taken at last week's meeting of the Board of
Governors of the International Monetary Fund to create
substantial amounts of Special Drawing Rights, we can look
forward to an orderly increase in international liquidity.
- 12 In addition, a number of important recent developments
have strengthened the world financial system.
The United
Kingdom has moved into a noticeably stronger position.
The
French parity was adjusted without serious disturbance.
The German government has taken significant action to deal
with speculative threats.
The International Monetary Fund
staff will begin studying various proposals for limited
exchange rate flexibility.
And perhaps the most important
stabilizing factor -- in the view of many Finance Ministers
with whom I visited last week -- has been the strong efforts
taken by the United States to control inflation.
is a key international currency.
The dollar
The United States has
a major responsibility to preserve confidence in the value
of its' currency in order to maintain an open world economy
in which mutually beneficial trade, travel, and investment
can flourish.
Until this inflationary spiral was set in motion four
years and more ago, our progress in terms of economic growth
and individual betterment was manifest.
Reasonable price
stability made it possible for working people to transform
wage increases directly into higher standards of living.
The same stability made possible a real growth rate of
5 percent annually for the national economy as a whole.
- 13 It is our firm purpose to restore that stability,
to permit the resumption of productive economic growth,
to give the working people of this country an ever-rising
!'tandard of living instead of the paper pay raises of
inflation which is all they have received for the past
three years.
These are troubled times, and ours is a deeply troubled
society.
But we are not a fearful society.
We know the
job that has to be done, and we have set about doing it, as
we have before in other troubled times.
As one who is proud to be a member of the Nixon
Administration, I can assure you that your government is
going to continue to follow an enlightened economic policy
which will meet the basic economic objectives of our Nation
rising employment, productivity, and purchasing power in
a noninflationary environment.
000
TREASURY DEPARTMENT
WASHINGTON, D.C.
October 8, 1969
FOR IMMEDIATE RELEASE
The Treasury Department today issued the following statement:
It should be made crystal clear, as Secretary
Kennedy indicated to the Joint Economic Committee
yesterday, that any unemployment in our country,
however small, is an unhappy condition and one that
we will constantly seek to correct. In fact, as
Secretary Kennedy stated, this Administration has
already taken vigorous steps to increase the
employability of people without jobs o
Many hundreds of thousands of jobs are now
vacant because workers with the needed skills
cannot be found
To remedy this difficulty, the
Administration has stepped up its outlays on the
basic manpower training programs by 32 percent
this fiscal year in the face of a budgetary
stringencyo Moreover, the Administration is
rapidly accelerating the Computer Job Bank Program
so that vacant jobs and unemployed workers can be
more readily brought together
In the city of
Baltimore, for example, where a Computer Job Bank
is already operating, job placements of disadvantaged
workers rose 250 percent this year. These manpower policies
are thus a highly constructive and much needed
supplement to the anti-inflation program of this
Administration.
0
o
must
what
that
bust
K-236
The anti-inflation program of this Administration
be continued because it is designed to head off
would otherwise develop into a renewed boom
would almost certainly lead to a later economic
and mass unemployment.
"The Challenge Facing the Law Enforcement Community"
Address by
The Honorable Eugene T. Rossides
Assistant Secretary for Enforcement and Operations
United States Treasury Department
Graduation Exercises
International Police Academy
Office of Public Safety
Agency for International Development
Department of State
October 3, 1969
10 a.m.
THE CHALLENGE FACING
THE LAW ENFORCEMENT COMMUNITY
Distinguished members of the Diplomatic Corps,
Mr. Engle, Mr. Finn, members of the graduating
classes, ladies and gentlemen:
First, let me congratulate the members of
today's graduating classes. You have completed an
intensive course of training and I extend to you
best wishes for continued success as you return to
your important leadership posts in your own countries.
The law enforcement community faces a challenge-will it become a f0~~e for world unity through the
rule of law--a force for freedom and peace--or will it
add to world instability and anarchy?
It is unfortunate that only in recent years have
we come to realize that the law enforcement community
can be a force for world unity through the rule of law.
How strong or weak a force it is depends in large
part on each of us who works in law enforcement.
The Treasury Department is very interested in two
general areas of law enforcement activity:
(1) internal
stability; and (2) international criminal activity.
Internal Stability
The Treasury's interest in internal stability in
the countries of the free world should be clear. A
climate of stability and security is necessary for
political and economic development. This requires
an atmosphere of confidence that institutions
3};/
Each agency has specialized missions which involve
it with the international law enforcement community.
The overriding responsibility of the Secret Service
is the protection of the President and Vice President
of the United States. Treasury Agents of the Secret
Service rely greatly on the cooperation of the police
in the countries visited by our President and Vice
President.
James J. Rowley, the distinguished Director of
the United States Secret Service, has told me that some
of the most rewarding occasions of his career have been
the liaison work with the police of other countries in
connection with a Presidential visit.
As Director Rowley has said:
"We may not have spoken the same language as
our counterparts on these visits, but there
always existed a mutual respect and understanding for each other's responsibilities.
And the end result was a successful visit for
both host and guest."
In effect, there are no boundaries where law
enforcement is involved.
The second important responsibility of the Secret
Service is the detection and suppression of counterfeiting United States currency and securities. The
worldwide concern regarding counterfeiting is seen from
the fact that Interpol, the international criminal
police organization, will be conducting an international
conference on counterfeiting next week in Mexico City.
3
4
Treasury's Bureau of Customs has the responsibility
for the prevention of all smuggling into the United
States. This is an enormous responsibility. I might
add that this Administration is putting the highest
priority on preventing the smuggling of narcotics,
marijuana, and other dangerous drugs into the United
States. In fulfilling this grave responsibility, it is
vital that the Treasury Agents of the Customs Service
work closely with foreign law enforcement officials.
The Internal Revenue Service has, a number of
activities with an international flavor.
The Service negotiates and administers tax treaties
with foreign governments and maintains liaison with
foreign tax authorities for these purposes. On request,
the Service sends technical experts abroad to assist
foreign governments in developing their tax administration systems.
Treasury Agents of the Revenue Service also have
dealings with foreign law enforcement officials in
connection with tax evasion cases.
The Treasury has other dealings in the international
law enforcement community in regard to gold and foreign
assets control regulations.
As you can see from these brief comments, the
Treasury is a diverse Department, stemming from the fact
that fiscal and monetary matters are complex and of
worldwide significance. Expert enforcement is an
integral part of the fulfillment of Treasury's multiple
and varied responsibilities.
In large part, it was for these reasons--Treasury's
role in combatting international criminal offenses--
5
that the Treasury in 1958 sponsored, worked for, and
succeeded in obtaining passage of legislation
authorizing United States participation in the
International Criminal Police Organization--Interpol.
On August 13, 1958, President Dwight D. Eisenhower
signed the law authorizing participation by the United
States in Interpol, and pursuant to that law, the
Secretary of the Treasury was designated the representative to Interpol for the United States. I have the
honor to represent Secretary David M. Kennedy as the
U.S. representative to Interpol.
I might add that it was Mr. Myles J. Ambrose, our
recently appointed Commissioner of Customs, who at
that time as Treasury's law enforcement coordinator,
spearheaded the effort to obtain the enabling legislation.
Interpol is, as·, most of you know, a mechanism for
international cooperation among the law enforcement
communities of the 105 member nations. Let me stress
here that Interpol concerns itself strictly with
criminal activities as distinguished from political
subversion activities.
Many of you, I assume, from time to time in your
careers, will be working with Interpol in your
respective countries, and the Treasury Department looks
forward to a fruitful collaboration with you.
\.Jith this background, let me discuss the challenges
facing the police forces of our respective nations--for
the United States faces problems similar to yours.
Our goal is internal stability. There are many
synonyrns--some say internal security, others law and
6
order, still others say law and order with justice.
Call it what you will--the point is that any system of
representative government must have the element of
stability and the climate for orderly progress.
Where does law enforcement fit in the scheme of
things? The police force in a country is an essential
element to its protection, to the safeguarding of the
rights of its citizens. It is often referred to as the
first line of defense. Yet its role is given little
recognition--it is treated as a stepchild.
The policeman has been the forgotten man. The
leaders of a country talk and write a great deal about
almost every other institution but very little about
the essential and paramount role of our law enforcement
officials. Often, references to law enforcement
officials involve an attack on the police for alleged
"excessive use of force" in a crisis situation in
which the police have had to be called in to preserve
the very life of a city, of a neighborhood, or of a
university.
This is not to say that there are not examples of
excessive use of force. That is not my point. My
point is that there is an apparent reluctance in society
to recognize law enforcement as an honorable profession
and as one of the crucial elements in our systems for
the protection of that society and for the protection of
the rights of its individuals.
The International Police Academy is doing
important work because its program is on a professional
level, designed to provide the visiting officers with
the knowledge to strengthen the capability of the police
in their respective countries to maintain public order
with a minimum use of force and at the same time to
7
improve the public image of the police.
The challenge to law enforcement is in two broad
areas--as a profession and as an institution.
Law enforcement is a profession. The challenge
is to insure that every law enforcement officer is a
professional, that he receives the proper training,
that he is a man of integrity and character.
The police officer is the basic social scientist.
He must deal with all persons from all walks of life,
from minor matters to major situations of a crisis
nature. He must know his community. He must work
with individuals and groups to obtain their respect
and cooperation. 'l.';, m2rit that respect and cooperation,
every law enforcement officer must truly be a professional.
He must be aware that stability does not mean
status quo, that it must provide for orderly change,
that peaceful dissent -r. s an essential element of
representative government and must be protected as
strongly as any ,--U'.(::r right of our citizens.
Our policemen must not only be enforcers of the
law, but in doing that job, must be diplomats,
psychologists, sociologists, and doctors as well. In
essence, a policeman must be a man of thought as well
as a man of action.
We must achieve a professional status for all law
enforcement officers and maintain it. Every police
department must have a procedure for constant
evaluation of its methods and programs to keep up with
an ever-changing society.
The challenge facing law enforcement viewed as an
8
institution is equally important. As an institution,
it must move into the mainstream of the nation. It
must not allow itself to be pushed aside but must
assert its essential role in the preservation of the
values of our society and in the development of orderly
changes in our society. It must be willing to discuss
and debate its role and responsibilities in law
enforcement.
These two parts of the challenge are interrelated
and they pertain to my country equally, if not more so,
than to your countries.
Since January 20, 1969, when President Nixon took
office, this Administration has acted to meet the
challenge.
As President Nixon has said: "The public climate
with regard to law is the function of national
leadership."
President Nixon has set the tone and given the
direction to strengthen law enforcement throughout the
nation on the Federal, state, and local levels. He has
backed up his statements with increased budget requests
for law enforcement.
The attitude of this Administration toward law
enforcement can be summed up in the words of Attorney
General John N. Mitchell in an address he delivered
this week before the 76th Annual Conference of the
International Association of Chiefs of Police. The
Attorney General said:
"When this Administration took office
eight months ago, we decided that the time
had come to stop talking, to stop offering
9
excuses and to start acting now. And we did
act--we have put forward a carefully planned,
well financed, and aggressive action program
to combat crime now."
"I think that you will find that this
Administration is sympathetic to law enforcement
and that, in areas of doubt, we tend to put our
faith in the good intentions of the police,
rather than to rely on the bad intentions of
criminals."
When you return to your country, I urge you to
keep these concepts in mind:
1. Law enforcement is a profession and each law
enforcement officer must be trained and treated as a
professional.
2. You must consider law enforcement as an
institution and assert your place as one of the essential
institutions of representative government.
A nation that strenghtens its law enforcement
strengthens all free nations. Any nation that does not
support its law enforcement agencies, that tolerates
corruption, that tolerates mediocrity, weakens itself
and all free nations. There is an interdependence
among nations in law enforcement just as there is in
economic and political affairs.
Gentlemen, I congratulate you upon your graduation
and wish you every success in your future careers.
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR RELEASE 6: 30 P.M.,
Friday, October 10, 1969.
RESULTS OF TREASURY r S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
bills, one series to be an additional issue of the bills dated July 17, 1969, and the
other series to be dated October 16, 1969, which were offered on October 6, 1969, were
opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
or thereabouts, of 91-da.y bills and for $1,200,000,000, 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
Ja.nuary 15 c! 1970
Approx. Equiv.
Price
Annual Rate
98.231
6.998%
98.215
7.062~
7.042%
98.220
182-day Treasury bills
maturing A~ril 16 z 1970
Approx. Equiv.
Price
Annual Rate
96.304 Y
7.3111l
96.292
7.33510
7.32710
96.296
1:.1
ma.turin~
1.1
~ Excepting one tender of $2,000
9410 of the amount of 91-day bills bid for at the low price was
acce~ted
4310 of the amount of 182-day bills bid for at the low price was accepted
':OCTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minnes,polis
Kansas City
Dallas
San Francisco
'roTALS
AcceEted
A;EElied For
$ 30,053,000 $ 20,013,000
1,067,417,000 :
1,751,086,000
22,928,000
37,928,000
35,762,000
36,756,000
23,873,000
26,873,000
42,060,000
45,060,000
313,765,000
320,445,000
51,318,000
56,848,000
20,505,000
26,505,000
36,776,000
36,877,000
19,610,000
28,610,000
146,597,000
176,407,000
$2,573,508,000
$1,800,624,000
£1
Applied For
$
4,838,000
1,739,753,000
20,473,000
45,073,000
38,489,000
34,507,000
137,998,000
32,774,000
21,841,000
26,175,000
24,969,000
163,336,000
Acce;Eted
4,663,000
$
940,716,000
10,078,000
31,446,000
25,639,000
19,578,000
62,622,000
22,174,000
8, ?(H,OOO
20,576,000
14,939,001)
39,936,000
$2,290,226,000
$1,200,568,000
£1
~ Includes $380,704,000 noncompetitive tenders accepted at the average price of 98.220
y InCludes
II
$207,814,000 noncompetitive tenders accepted at the average price of 96.296
These rates are on a bank discount basis. The equivalent coupon issue yields are
7.27% for the 91-day bills, and 7.71~ for the 182-day bills.
TREASURY DEPARTMENT
Washington, D. C.
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE ANNUAL CONFERENCE OF THE
INTERNATIONAL CITY MANAGEMENT ASSOCIATION
NEW YORK CITY, NEW YORK
MONDAY, OCTOBER 13, 1969, 12:30 P.M., EDT
MANAGING THE MODERN PUBLIC SECTOR
Fundamental changes are occurring in the nature of
the public sector and in the structure of governmental
institutions, changes which bear directly upon the future
of the states and cities of our Nation.
These changes lack the drama of the burning issues
of the day or the humor of the uncovered goof by a public
official.
Yet, they exert a strong influence both on the
kinds of activities which the Government can undertake and
the institutions which are used to carry out national policy.
The transcending development, as I see it, which has
been occurring in the structure of the American public
sector is the intermingling between public and private
activities and between Federal Government and state-local
governmental operations; we are reaching the point where
the dividing line between the Federal Government's sphere
of operations and the rest of the economy -- and between
public and private activities -- has become increasingly
blurred.
K-237
331
- 2 -
The basic cause of these changes can be traced to
a growing division in the functions of the Federal Government between policy formulation and supervision, on the one
hand, and actual program execution on the other.
Primarily,
but of course not entirely, the legislative and executive
agencies of the Federal Government have been designing and
developing policies concerning national defense, welfare,
economic growth, and other basic objectives; they also have
been appropriating funds for achieving these policies, and
overseeing and reviewing the results.
the actual
However, the execution of these policies
production of goods and services -- has in large measure
and on an increasing scale been delegated or contracted out
to organizations outside of the Federal Government.
Some of
these organizations are within the public sector itself.
Many others are lodged in the private sector.
1/
This variety of institutional alternatives is made
possible by using a combination of contracts and grantsin-aid which involve private industry, state and local
governments, and nonprofit institutions in carrying out the
Federal Government's business.
These different institutional
arrangements all share a single characteristic.
They are
1/ This theme is developed more fully in my forthcoming
book, The Modern Public Sector, to be published by
Basic Books, Inc., in November 1969.
- 3 -
all responsive to a common set of problems facing our
society as a whole and, hence, our national government.
This shift in the location of the actual conduct of
government programs to institutions outside of the Federal
Government gives rise to more than just administrative and
managerial repercussions.
It affects the size and strength
of the business sector and of other nongovernmental institutions in our economy which has been primarily geared to
corporate enterprise and private initiative.
And it strongly
influences the role of the states and cities in our Federal
form of government.
This change introduces another aspect of decisionmaking into the formulation of governmental programs of
a national scope.
We continue, of course, to have to make
choices between specific program areas, whether to put
additional funds into education or transportation.
In
addition, basic aspects of decision-making now involve
selecting the mechanism through which the government will
act to achieve its objectives.
The question is no longer limited to "Which Government
agency should be assigned the new program?"
Rather, the
consideratibns are broadened to include drawing on private
industry or state and local governments or other institutions.
Thus, a decision to embark upon a new program may also
involve decisions concerning the role of the states and
cities, the size of the government "market" available to
- 4 -
private industry, and the nature of the nonprofit sector
of our society.
The past decade
and perhaps the coming
decade -- represents an exploratory period in the development of the institutional structure of the American public
sector.
Let us examine some of the reasons for this growing
specialization and division of labor in the public sector.
Despite important internal management development efforts,
the in-house executive, administrative and production
resources available to the Federal Government are simply
not sufficient to cope with the combined tasks of carrying
on the traditional public activities and simultaneously
assuming a staggering array of new or greatly expanded
functions.
Some of these new activities are almost awe-inspiring
designing and producing a vast arsenal of technologically
sophisticated weapon and space systems, building and operating
nationwide air and surface transportation networks, conducting
a basic effort to reduce the incidence of poverty, establishing an innovative educational research effort in each region
of the country, and processing and adjudicating millions of
medical claims a year, to cite a few.
Perhaps the most apparent reason for the delegation
of duties by the Federal Government is the sheer size of
the job.
For example, the annual outlays of the Department
- 5 -
of Defense alone are equal to the combined yearly sales of
five of the largest industrial firms in the United States:
General Motors, Standard Oil of New Jersey, Ford, General
Electric, and Chrysler.
The annual expenditures of the
National Aeronautics and Space Administration are roughly
the same size as the budget of the State Government of New
York.
When we look beyond the borders of the United States,
we find still other confirmation of the mammoth size of the
Federal Government.
The yearly disbursements of the Veterans
Administration alone are greater than those of the national
government of Belgium.
When we examine large organizations in the private
sector, we find them also facing grave problems of management of diversified, far flung operations.
The giants of
American industry, and even many smaller firms, continually
report new efforts to decentralize and otherwise reorganize
to deal more effectively with their managerial tasks.
The tendency of the Federal Government to become
primarily a policy formulator and overseer can be clearly
seen if we compare traditional Federal departments and
activities with the most recently established departments
and programs.
The older agencies typically devote the great
bulk of their resources to their own payrolls and direct
operations.
For example, the Treasury Department devotes
- 6 nine-tenths of its budget to wages and salaries, aside
from interest payments on the national debt.
The Post
Office has the largest workforce of any civilian agency
because it relies on its own letter carriers to deliver the
mails; its employment costs account for over three-fourths
of its budget.
Similarly, the Justice Department budget
is assigned primarily to pay the lawyers, investigators,
border patrol agents, and prison guards working for its
various bureaus and offices.
In contrast, the Department of Health, Education and
Welfare (created in 1953) makes well over nine-tenths of
its expenditures in the form of grants-in-aid to state and
local governments and transfer payments to individuals.
NASA, established in 1958, spends nine-tenths of its budget
on contracts with private industry, universities, and
research institutes.
The Department of Housing and Urban
Development, established in 1965, primarily makes or supervises loans, grants-in-aid, and other financial assistance.
It is people like yourselves who are actually carrying out
the programs in the HEW and HUD areas of interest and
responsibility.
If we step back a little and gain some historical
perspective, we find that the relative roles of the Federal
Government, on the one hand, and states and localities, on
the other, have undergone a major shift in the period since
- 7 the end of World War II.
In 1946, the Federal establishment
conducted its operations with a civilian work force of about
two million; state and local governments reported total employment at a shade under four million -- a ratio of two
state-local employees for each Federal worker.
At the present time, despite a three-fold increase in
the national budget, the Federal Government still operates
with about the same labor force that it did over two decades
ago.
In contrast, the number of employees of state and
local governments more than doubled during the same period,
and now exceeds eight million -- the personnel ratio is now
about 4 to 1 in favor of state-local employment.
This is
a fundamental shift in emphasis which has occurred in a little
over two decades.
Although Federal grants-in-aid date back to the earliest
part of the nineteenth century, they were quantitat:vely unimportant until quite recently.
less than $1 billion.
In 1941, these grants totaled
The vast bulk of the expansion in this
form of Federal expenditure to the current $25 billion level
occurred since the end of World War II.
In the long-term
development of the unique form of Federalism characterizing
governmental institutions in the United States, the rise of
the grant-in-aid can be seen to be a very recent phenomenon.
- 8 There is a widespread tendency to think of these
grants as gifts and thus to assume that they merely add
to the financial resources of the recipients.
As this
audience well knows, such is hardly the case.
For the
typical Federal grant program, the state or city -- prior
to receiving the Federal money -- must obtain approval of
its detailed program and plans from the Federal agency
overseeing the disbursement of aid funds.
The cumulative control and influence which the Federal
departments can exert over their counterpart departments in
states and cities at times can be substantial.
I am pleased
to report to you that the new Administration in Washington
has recognized the potential advantages of state and local
administration of funds without the heavy hand of Federal
control.
President Nixon has proposed a plan of revenue
sharing as a part of his program of New Federalism.
basic characteristic of our plan
IS
The
that decision-making
over public resources (i.e., money) as well as the funds
themselves is being decentralized.
I would like to take
this opportunity to outline in some detail the essential
elements of our revenue-sharing proposal.
I believe that
it will have an important role in bringing our governmental
institutions up to the challenge of serving the modern
public sector.
- 9 We propose to establish a permanent appropriation,
automatically determined each year.
This fund will provide
revenue sharing funds to state and local governments equal
to a given percentage of the personal income tax base, which
is an objective measure and one which rises with our growing
economy.
We hope to phase into a one percent figure by 1976
which will provide about $5 billion a year.
We propose to distribute the funds among the various
states based upon their shares of the national population,
with a simple adjustment for the state's revenue effort.
This means that the plight of the poorer states who tax their
population at a higher percentage to get the same amount of
income will be taken into account.
Within each state the funds will be distributed to
local governments by a carefully prescribed formula set in
the congressional statute.
The total which a state shares
with its local governments corresponds to the ratio of
revenues raised by these local governments to the combined
total of revenues raised by the state and all its local
governments.
The portion which an individual local govern-
ment receives corresponds to its proportion of the total
revenues raised by all local governments in the state.
There are some features of this local distribution which
deserve emphasis.
For one, we are proposing to share revenues
with all general-purpose local governments -- cities, towns,
- 10 -
and counties -- and only general-purpose local governments.
There is no'minimum-size requirement for a locality to
participate, and no special or school districts are eligible
for direct sharing.
These features are basic to the spirit
of the New Federalism and the purposes of revenue sharing.
That is, all general governments should be included, and
no program or project restrictions should be placed on the
funds.
There is another important point which should be made
regarding the allocation of funds on the basis of revenues
raised.
Some observers have jumped to the conclusion that
such a distribution procedure rewards the wealthy suburb at
the expense of the central city.
gener31ization.
It is
impQr~ant
This is simply not a valid
to keep in
mi~~
that revenue
sharing funds go to local governments in proportion to their
shares of general revenues raised.
We are unable to find
any evidence to support the contention that suburban governments raise more revenues per capita than the central cities.
In fact, the reverse is true in many specific instances.
For example, New York City raised $405 per capita in general
revenues in 1967-68 (which
~re
the latest figures available),
while New Rochelle raised $153, and Mount Vernon $122.
For
all cities of one million or more, the average per capita
revenues were $256, compared to $79 for cities with population
- 11 -
of less than 50,000.
Of course, numerous variations occur
within and between the different regions of the country.
However, as a general proposition, the larger municipalities
receive a bigger per capita portion of revenue sharing than
the smaller cities.
But this does not happen simply by
virtue of their size, but only because on the average they
tend to collect more taxes per inhabitant.
One final point about our proposal for distribution
of funds within each state deserves mention.
In order to
provide local flexibility, we will permit a state -- working
with its local governments
the option of developing an
alternative plan for the distribution of revenue sharing funds
to local government.
Any alternative plan, however, must
receive sufficient support from both the state and local
jurisdictions, both large and small.
We have tried as best as we could to design a revenue
sharing proposal which is simple, automatic, and fair.
It
will operate with no strings attached.
the
This program
financial heart of the President's New Federalism.
IS
But as
I have noted, more than money is transferred to the state and
local governments of this country; decision-making responsibility for the employment of these funds is also delegated.
State and local officials, not Federal agencies, will establish
priorities and allocate expenditures in accordance with the
needs of their jurisdictions.
The ultimate success of revenue
- 12 -
sharing, therefore, will depend on the ability of state and
local governments to make the most efficient and judicious
use of these funds.
This, in turn, will depend largely on
the potential sensitivity of state and local officials to
the legitimate needs and interests of their constituents.
This Administration maintains a large measure of
confidence in the ability and the willingness of the other
levels of government to respond positively to those particular
local problems which require public involvement.
A major
purpose of revenue sharing is to enhance the financial ability
of these governments to make such responses.
We recognize
that all governments, including the state and local governments, are beset with problems.
But we are convinced that
the potential for effective management of social and public
systems is extremely high at the local levels.
How then best to realize this potential?
Unlike the
Federal Government, your problems are not those of sheer
size -- rather you must seek to rekindle interest in local
government.
For too long, talented people interested in
government service have journeyed to Washington.
State or
local government was too often dismissed as irrelevant.
Only
later did these people realize that in spite of all the
"power, politics, and people" in Washington, the really hard,
practical tasks are at the more local level.
Washington is
- 14 I would like to be so presumptuous as to offer some
more unsolicited advice.
Perhaps one of the most effective
ways of strengthening the public support for a unit of government
1S
to encourage the flow of information from the outside,
and to demonstrate a responsiveness to urgent demands.
I am
sure "Ke are all aware of the new "Action Line" columns in
many of our newspapers.
I find it troubling to think that
a call to a newspaper reporter can straighten out an
individual's complaint faster than a call to City Hall.
~y
message today boils down to this:
The success of
revenue sharing depends entirely upon how well the funds are
put to use.
If you can rekindle interest in local government,
if you can use these funds to help solve your particular
problems where the Federal bureaucratic jungle is failing,
then the future of revenue sharing specifically and of local
government in general is assured.
I know that long-range forecasting is an extremely
hazardous occupation.
Developments somewhat far in the
future are subject to our control to a far greater degree
than the events of tomorrow.
The forecast itself may well
set in motion influences that will prevent the achievement
of the forecast.
Nevertheless, it would seem that the future
prospect is for the development of a mixed economy in the
United States, but for a more intricate mixture than we have
experienced thus far.
- 15 It would appear likely that in coming years increasing
proportions of Federal funds will be disbursed via state and
local governments, government-oriented corporations, quasiprivate institutions, and perhaps even neWer organizations
possessing both public and private characteristics.
The typical Federal agency of the future indeed will
probably be a policy formulator and program overseer dealing
with operations decentralized in a variety of ways and over
a wide span of the American economy.
This increased reliance
on state and local governments, as well as private institutions, will provide a very considerable strength and resiliency
to American institutions during periods of substantial stress
and change.
All of which means that those who hold careers
in local public sector management can look forward to greater
responsibility and increasing challenge.
000
STATEMENT BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE SENATE COMMITTEE ON POST OFFICE AND CIVIL
SERVICE ON THE FINANCIAL PROVISIONS OF THE PRESIDENT'S
PROPOSALS FOR POSTAL REFORM
MONDAY, OCTOBER 13, 1969, 10:00 A.M.
MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE, I APPRECIATE
THIS OPPORTUNITY TO APPEAR BEFORE YOU TO PRESENT THE TREASURY
DEPARTMENT'S VIEWS ON THE FINANCIAL PROVISIONS OF THE PRESIDENT'S
RECOMMENDATIONS FOR POSTAL REFORM.
THE TREASURY DEPARTMENT DOES NOT HAVE SPECIALIZED KNOWLEDGE
OF THE PERSONNEL, RATE AND RATEMAKING, MAIL TRANSPORTATION,
AND OTHER MATTERS INVOLVED IN POSTAL REFORM, AND I EXPECT THAT
OTHER WITNESSES WILL PROVIDE YOU WITH EXPERT TESTIMONY ON THESE
QUESTIONS.
HOWEVER, THE TREASURY DEPARTMENT, NOT ONLY BECAUSE
OF OUR FINANCIAL RESPONSIBILITIES BUT ALSO AS A MAJOR USER OF
POSTAL SERVICES, HAS A DIRECT INTEREST IN AN EFFICIENT, EFFECTIVE, AND ECONOMICAL POSTAL SYSTEM.
WE STRONGLY ENDORSE THE
OBJECTIVE OF CREATING AN INDEPENDENT POSTAL ESTABLISHMENT WHICH
WILL BE ABLE TO CONDUCT ITS ACTIVITIES AND TO MAKE DECISIONS ON
A BUSINESS-LIKE BASIS.
THE TREASURY DEPARTMENT'S PRIMARY AREA OF COMPETENCE IS
IN THE FINANCING PROVISIONS CONTAINED IN CHAPTER
PROPOSED "POSTAL SERVICE ACT OF
1969".
10
OF THE
THESE PROVISIONS WERE
DRAFTED IN CONSULTATION WITH THE TREASURY DEPARTMENT.
THEY
PROVIDE A DEGREE OF FINANCIAL INDEPENDENCE AND RESPONSIBILITY
NOT NOW AVAILABLE TO THE POST OFFICE DEPARTMENT BUT WHICH WILL
K-238
- 2BE NECESSARY TO ACHIEVE A TRULY BUSINESS-LIKE CHARACTER FOR
THE PROPOSED POSTAL SERVICE.
VIDED BY CHAPTER
THE FINANCIAL INDEPENDENCE PRO-
10, HOWEVER, WOULD BE SUBJECT TO CONTINUED
CONGRESSIONAL OVERSIGHT, AND THE ADVICE AND ASSISTANCE OF THE
TREASURY DEPARTMENT WOULD BE GIVEN IN THE ISSUANCE OF DEBT OBLIGATIONS BY THE POSTAL SERVICE.
UNDER A NEW SECTION
1005 OF TITLE 39, UNITED STATES CODE,
THE PROPOSED POSTAL SERVICE WOULD BE AUTHORIZED TO BORROW MONEY
AND TO ISSUE AND SELL SUCH OBLIGATIONS AS IT DETERMINED NECESSARY TO THE EFFICIENT CONDUCT OF ITS BUSINESS.
THE AGGREGATE
AMOUNT OF POSTAL SERVICE OBLIGATIONS OUTSTANDING AT ANY ONE
TIME WOULD BE LIMITED TO
$10 BILLION, AND THE ANNUAL NET IN-
CREASE ON OUTSTANDING OBLIGATIONS ISSUED FOR CAPITAL IMPROVEMENTS WOULD BE LIMITED TO
$1.5 BILLION. THE LEGISLATION ALSO
WOULD REQUIRE THE ANNUAL PREPARATION, SUBMISSION, AND CONGRESSIONAL CONSIDERATION OF A BUSINESS-TYPE BUDGET.
UNDER NEW SECTION
1006, THE POSTAL SERVICE WOULD BE RE-
QUIRED TO CONSULT WITH THE SECRETARY OF THE TREASURY AT LEAST
FIFTEEN DAYS BEFORE SELLING ANY ISSUE AS TO THE AMOUNT, PROPOSED
DATE OF SALE, MATURITIES. TERMS AND CONDITIONS AND EXPECTED
MAXIMUM RATES OF INTEREST.
THE SECRETARY COULD ELECT TO PUR-
CHASE SUCH OBLIGATIONS UNDER SUCH TERMS, INCLUDING RATES OF INTEREST, AS HE AND THE POSTAL SERVICE MIGHT AGREE UPON, BUT AT
A YIELD NOT LESS THAN THE CURRENT YIELD ON OUTSTANDING
- 3MARKETABLE TREASURY OBLIGATIONS OF COMPARABLE MATURITY.
IF
THE SECRETARY DOES NOT EXERCISE HIS OPTION TO PURCHASE THE
OBLIGATIONS, HOWEVER, THE POSTAL SERVICE COULD PROCEED TO SELL
THEM IN THE MARKET, DRAWING ON THE ASSISTANCE OF THE SECRETARY
IN FINALLY FIXING THE DATE OF SALE, MAXIMUM INTEREST RATES,
AND OTHER TERMS AND CONDITIONS.
IN ADDITION TO THE PROVISION GIVING THE SECRETARY OF THE
TREASURY THE OPTION TO PURCHASE POSTAL SERVICE OBLIGATIONS,
NEW SECTION
1006
WOULD ALSO PERMIT THE SERVICE -- AT ITS OWN
DISCRETION -- TO SELL UP TO $2 BILLION POSTAL SERVICE OBLIGATIONS DIRECTLY TO THE TREASURY.
NEW SECTION
1007
WOULD AUTHORIZE THE SECRETARY TO USE
!>R0CEEDS FROM THE SALE OF PUBLIC DEBT SECURITIES TO PURCHASE
POSTAL SERVICE OBLIGATIONS.
THE FINANCING PROVISIONS WHICH I HAVE OUTLINED ARE CONSISTENT WITH THE OVERALL INTENT THAT THE DEBT OBLIGATIONS OF
TY[ POSTAL SERVICE MEET THE TEST OF THE MARKET.
THE LANGUAGE
PRESCRIBING THE MINIMUM RATE OF INTEREST ON TREASURY PURCHASES
OF POSTAL SERVICE OBLIGATIONS IS DESIGNED TO PRECLUDE A SIZABLE HIDDEN OR DISGUISED SUBSIDY BY ASSURING THAT ANY BORROWINGS FROM THE TREASURY WILL BE AT RATES NOT LESS THAN THE CURRtNT COST OF MONEY TO THE GOVERNMENT.
THE SECRETARY OF THE
TREASURY'S OPTION TO PURCHASE POSTAL SERVICE OBLIGATIONS -HIS RIGHT OF FIRST REFUSAL -- WILL ENABLE TOE SECRETARY TO
." 4 ASSURE THE COORDINATION OF POSTAL SERViCE BORROWING OPERATIONS
WITH THE
F I NANC I NG
OF OTHER GOVE!~Nfv1Ei'lT ,~CT I VI TIES
vn THOUT
AND I WOULD STRESS THIS POINT -- WITHOUT INTERFERING WITH THE
FINANCING OF ESSENTIAL POSTAL SERVICE ACTIVITIES OR ARROGATING
TO THE SECRETARY ANY CONTROL OVER THE OPERATIONS OF THE POSTAL
SERVICE.
THE PROVISION GRANTING THE POSTAL SERVICE ,~,UTH(;RITY
TO REQUIRE THE SECRETARY TO PURCHASE A LIMITED AMOUNT OF 1YS
OBLIGATIONS WILL HELP TO ASSURE PRIVATE INVESTORS IN POSTl\l
SERVICE OBLIGATIONS OF THE TIMELY PAYMENT OF ?RINCIPAL AND !NTEREST AND WILL THUS HELP TO MINIMIZE THE COST OF POSTAL
SERVICE BORROWING IN THE TRANSITIGtl STAGE UNTE. THE POSTAL
SERVICE IS FIRMLY ESTABLISHED ON A BUSINESS-LIKE BASIS.
WE BELIEVE THESE PROVISIONS ARE PREFERABLE TO THE FINANCIAL
PROVISIONS IN OTHER POSTAL REFORM LEGISLATION WHICH HAS BEEN
INTRODUCED IN THE HOUSE.
FOR EXAMPLE, H.R. 4, WHICH I BELIEVE
IS NOW BEING CONSIDERED FOR MARKUP BY THE HOUSE COMMITTEE,
WOULD AUTHORIZE A POSTAL MODERNIZATION AUTHORITY TO BORROW IN
THE MARKET WITH THE APPROVAL OF THE SECRETARY OF THE TREASURY,
BUT THE OVERALL FINANCING PROVISIONS IN H.R,
4 WOULD
BE LESS
FLEXIBLE THAN UNDER THE ADMINISTRATION PROPOSAL, COULD ADD
NEEDLESSLY TO THE COST OF POSTAL SERVICE THROUGH HIGHER INTEREST
RATES, AND WOULD NOT ASSURE COORDINATION WITH THE OVERALL
FINANCIAL PROGRAM OF GOVERNMENT.
- 5IN SUMMARY, IT IS THE TREASURY DEPARTMENT'S VIEW THAT THE
FINANCIAL PROVISIONS CONTAINED IN THE PRESIDENT'S RECOMMENDATIONS FOR POSTAL REFORM ARE APPROPRIATE FOR THE PROPOSED POSTAL
ESTABLISHMENT.
INDEED, IN WORKING WITH THE POST OFFICE ON
THIS MATTER, WE FELT THE FINANCING PROVISIONS, IN WHOLE OR IN
PART, COULD WELL BECOME A MODEL FOR OTHER BUSINESS-TYPE ACTIVITIES OF THE GOVERNMENT.
LET ME CONCLUDE BY MAKING SOME BRIEF COMMENTS ON SPECIFIC
QUESTIONS WHICH AROSE DURING THE HOUSE HEARINGS ON AUGUST
II.
I UNDERSTAND THAT THE COMPTROLLER GENERAL WROTE TO THE CHAIRMAN
OF THE HOUSE COMMITTEE ON AUGUST 1 ALONG THE FOLLOWING LINES:
"WE ARE CONCERNED THAT THE ISSUANCE OF BONDS TO
THE PUBLIC BY THE CORPORATION WOULD RESULT IN HIGHER
FINANCING COSTS THAN WOULD BE INCURRED IF THE CORPORATION USED THE FINANCING FACILITIES OF THE TREASURY
DEPARTMENT.
STUDIES MADE BY OUR OFFICE HAVE DIS-
CLOSED THAT INTEREST COSTS ARE GENERALLY HIGHER WHEN
AGENCIES OBTAIN FINANCING DIRECTLY FROM THE PUBLIC
RATHER THAN THROUGH THE FACILITIES OF THE TREASURY
DEPARTMENT."
WE BELIEVE THAT IF THE OBJECTIVES OF THE REFORM LEGISLATION ARE ACHIEVED AND THE POSTAL SERVICE IS PUT ON A BUSINESSLIKE BASIS THAT ITS OBLIGATIONS WILL SELL IN THE MARKET AT RATES
OF INTEREST WHICH ARE COMPARABLE TO THE RATES OF INTEREST PAID
- ......JBY OTHER GOVERNMENT AND GOVERNMENT-SPONSORED AGENCIES.
THESE
RATES ARE ONLY FRACTIONALLY HIGHER THAN THE RATES PAID BY THE
TREASURY ON ITS DIRECT OBLIGATIONS AND COMPARE FAVORABLY WITH
THE RATES WHICH ARE PAID ON THE HIGHEST QUALITY PRIVATE OBLIGATIONS.
ONE OF THE ANCILLARY PURPOSES OF THE AUTHORITY OF THE SECRETARY TO PURCHASE POSTAL SERVICE OBLIGATIONS, HOWEVER, IS TO
PROVIDE THE POSTAL SERVICE WITH SOME PROTECTION AGAINST THE
CHANCE THAT MARKET TERMS ON ITS BORROWINGS MIGHT BE UNREASONABLE, PARTICULARLY IN THE TRANSITION PERIOD BEFORE A SOLID
RECORD OF OPERATING PERFORMANCE IS ESTABLISHED.
APART FROM
THIS WE FEEL THE POSTAL SERVICE SHOULD MEET THE TEST OF THE
MARKET, INCLUDING MEETING THE COST OF CAPITAL FROM ITS OWN RESOURCES, SO THAT THE CONGRESS AND THE PUBLIC WILL HAVE AN UNDISTORTED MEASURE OF THE TRUE COSTS OF PROVIDING POSTAL SERVICES,
QUESTIONS WERE ALSO RAISED AS TO WHETHER OR NOT FINANCING
THE POSTAL ESTABLISHMENT OTHER THAN THROUGH THE TREASURY WOULD
NOT CONSTITUTE AN EVASION OF BUDGETARY CONTROL AND, IN PARTICULAR, AN EVASION OF DEBT LIMIT.
As I
HAVE ALREADY OBSERVED, THE BUSINESS-TYPE BUDGET OF
THE POSTAL SERVICE WOULD BE SUBJECT TO CONGRESSIONAL OVERSIGHT.
THE NET EXPENDITURES OF THE POSTAL SERVICE WOULD CONTINUE TO BE
REFLECTED IN THE UNIFIED BUDGET EXPENDITURE TOTAL JUST AS POSTAL
EXPENDITURES PRESENTLY ARE REFLECTED.
THERE WOULD BE NO CHANGE
- 7IN THIS TREATMENT.
THE DEBT OBLIGATIONS OF THE POSTAL SERVICE
WOULD NOT THEMSELVES BE INCLUDED IN THE DEBT SUBJECT TO LIMIT,
BUT THIS IS A CONSEQUENCE OF THE NARROW CONSTRUCTION OF THE
DEBT LIMIT NOW EMBODIED IN LAW AND DOES NOT REFLECT ANY INTENT
TO AVOID THE RESTRAINT OF THE DEBT LIMIT.
IN FACT, IN FEBRUARY
OF THIS YEAR THE PRESIDENT PROPOSED THAT THE DEFINITION OF THE
DEBT SUBJECT TO LIMIT BE BROADENED TO INCLUDE THE NET DEBT
OBLIGATIONS OF ALL FEDERAL AGENCIES.
THIS WOULD HAVE BROUGHT
THE DEBT LIMIT COVERAGE MORE CLOSELY INTO ACCORDANCE WITH THE
CONCEPT OF THE UNIFIED BUDGET, BUT THE ADMINISTRATION'S PROPOSAL WAS REJECTED BY THE WAYS AND MEANS COMMITTEE AT THAT TIME.
A QUESTION WAS ALSO RAISED AS TO WHETHER THE OBLIGATIONS
OF THE POSTAL SERVICE WOULD BE GENERAL OBLIGATIONS, OR FULL
FAITH AND CREDIT OBLIGATIONS, OF THE UNITED STATES.
IN VIEW
OF THE INTENT THAT THE POSTAL SERVICE BECOME SELF-SUPPORTING,
APART FROM ANY SUBSIDIZED OPERATIONS WHICH WOULD BE OPENLY
FINANCED THROUGH DIRECT APPROPRIATIONS BY THE CONGRESS, WE HAVE
VISUALIZED THAT THE OBLIGATIONS ISSUED BY THE POSTAL SERVICE
WOULD BE AKIN TO REVENUE OBLIGATIONS OR, PERHAPS IN SOME CASES, IN
THE NATURE OF MORTGAGE BONDS.
SPECIFICALLY, IT IS OUR VIEW THAT
THESE OBLIGATIONS SHOULD STAND ON THEIR OWN MERITS AND NOT BE
OBLIGATIONS OF THE UNITED STATES.
IN ORDER TO CLARIFY THIS OB-
JECTIVE, WE WOULD CERTAINLY NOT OBJECT TO THE ADDITION OF
LANGUAGE, SUCH AS THAT WHICH NOW APPLIES TO BONDS ISSUED BY TVA.
THAT LANGUAGE READS AS FOLLOWS:
~BONDS
ISSUED B"
TlON HEREUNDER SHALL NOT BE OBLIGATIONS OF, NOR
ry~ CORp0P~
S~Ll;LL
PAYMn'T
OF THE PRINCIPAL THEREOF OR INTEREST THEREON BE GUARANTEED BY,
THE UNITED STATES."
SUCH AN AMENDMENT, I BELIEVE, WOULD R~
FULLY CONSISTENT WITH THE GENERAL INTENT OF THE PRESIDENT'S
RECOMMENDATIONS FOR POSTAL REFORM.
IN CONCLUSION, THE TREASURY DEPARTMENT STRONGLY SUPPORTS
BOTH THE BROAD RECOMMENDATIONS FOR A NEW POSTAL SERVICE AND
THE SPECIFIC FINANCING PROVISIONS.
WE URGE THAT THIS COMMITTEE
ACT FAVORABLY ON THE PRESIDENT'S PROPOSAL.
TREASURY DEPARTMENT
,
WASHINGTON, D.C.
lOR IMMEDIATE RELEASE
October 10, 1969
REVISED SUBSCRIPTION FIGURES FOR OCTOBER 1 EXCHANGE
The Treasury today announced that the total of subscriptions for its October 1, 1969,
~xchange offering is $352 million less than the figure announced on that date.
letober
1 announcement was overstated because a group of subscriptions was inadvertently
luplicated in the reports submitted to the Department.
In the
The revised results are shown
following tabulation.
:ssues Eligible
~or
The
Exchange
,-1/2% Notes,
EO-1969
:~ Bonds, 1969
:-1/2% Bonds,
1964-69
Total
K-239
Amount
Eligible
Excha!2Bed For
for
8%
7-3(4% 7-1/2%
Exchange Notes Notes Notes
Total
(Amounts in millions)
$ 159
$
51 $
2 $
66
$
93
58.5
58.5
870 1,108
5,150
1,090
17.5
19.8
571
1,796
688
27.7
34.2
$4,173 $1,158 $1,681
$7,012
$1,871
21.1
24.3
6,240
3,172
2,484
950
$8 ,883
13 $
For Cash RedemEtion
%of
Total
%of
Public
OutTotal
standHoldings
Amount
i!2B
275
WASHINGTON. D.C.
October 15, 1969
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
$3,000,000,000, or thereabouts, for cash and in exchange for
~easury bills maturing October 23, 1969,
in the amount of
$ 3,006,230,000,
as follows:
9l-day bills (to maturity date) to
in the amount of $1,800,000,000,
or
additional amount of bills dated July
mature January 22, 1970, originally
$1,101,212,000,
the additional and
freely h,terchangeable.
be issued October 23, 1969,
thereabouts, representing an
24, 1969,
and to
issued in the amount of
original bills to be
182-day bills, for $ 1,200,000,000,
or thereabouts, to be
dated October 23,1969,
and to mature April 23, 1970.
The bills of both series will be issued on a discount basis undE
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 Daylight Saving
time, M'1nday, October 20, 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 0
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 receivl
without deposit from incorporated banks and trust companies and from
K-240
-
~
-
r'esponsib-~e
and r'ecognized deal~:rs in investment secur'ities. Tenders
fr'om others must be accompanied by p3yment of 2 perc~nt of the face
amount of Treasury bills applied for', unless the t~r,ders lire
accompanied by an expresl guaranty of payment by an incor'por'ated bank
Or' tr'ust company.
Immediately after' the closing hour, tenders will be opened at
the Feder'al Reserve Banks and Branches, following whi.ch public ll.-:1rtounCI
ment will be made by the Treasury Depar'tment of the amount and price
r'ange of accepted bids. Those submitting te-nders will be ad',i!ed
of the acceptance Or' r'ej ection ther'eof. The SeCl1! tary of the
Tr'easllr'Y expr'essly reserves the-r'ight to accept or reject any or 31.1
tender's, ~n whole Or' in part, and his action in any such r'espect
shall be final. Subject to these reservations, ncncompp.titiv0 t~nders
fo~ each issue for $200,000 or less without stated price fro~ any 0ne
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respectiv~ tS5tle'S.
Settlement for accepted tenders in accor'dance with the b:i.ds mu~t he
made or completed at the Federal Reserve Bank on October 23, 1969, in
cash or other immediately available funds or in a like face BIr.ount
of Treasury bills maturing October 23, 1969.
Cash and excha~8e
tenders will receive equal treatment. Cash adjustments will be made
for differences between the par value of maturing bills acceptec in
exchange and the issue price of the new bills.
The income derived from Treasury bills, whether Llterest or
gain from the sale or other dispOSition of the bills, does 110t rr:o"eo
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 en
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing author-it' ,
For purposes of taxation the amount of discount at which Tre8_9~H"l
bills are originally sold by the United States is considered tc he
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 be
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.
FOR RELEASE AT 10:30 A.M.
FRIDAY, OCTOBER 17,1969
3(;/
REMARKS BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
THE BUSINESS COUNCIL
HOT SPRINGS, VIRGINIA
FRIDAY, OCTOBER 17, 1969, 10:00 A.M. (EDT)
Recent weeks have found the Treasury involved
very directly and actively in a wide range of significant policy issues.
I know that all of you are well
aware of this involvement and share strong, if differing,
feelings about the direction of policy.
In my remarks today I would like to concentrate
on three areas of special importance and interest to
you:
first, the program to control inflation; second,
developments in the intern:,.tional financial system; and
third, the effort to enact tax reform.
I
When the Nixon Administration assumed office last
January, it was confronted with a severely imbalanced
economy.
Government actions and inactions in the previous
three years had planted the seeds for a serious inflation.
Labor markets were tight; interest rates were painfully
high; wages and other business costs were soaring: and
prices were rising sharfd.y ··;Jith no end in sight.
K-241
- 2 The new Administration was well aware of what it
would mean to the American people if this inflation were
allowed to run unchecked.
At a growth rate of six percent
a year, prices would double in 12 years and in less than
40 years would increase tenfold.
At six percent infla-
tion, over $50 billion is cut each year from the real
value of fixed household savings of the American people.
Rapid price inflation also produces an uncertainty about
real market forces which makes intelligent business
planning nearly impossible.
In short, excessive infla-
tion threatens the stability of our social and economic
system and imposes unjust hardships on millions of our
fellow citizens.
It was for these reasons that the Administration
assigned top domestic priority to the fight against
inflation.
As one who is engaged in that battle, I can
tell you that working for higher taxes and less spending
is not an easy or a popular task.
More than anyone, the
President is aware of the difficulties of his inherited
responsibility.
You are familiar with the Administration's approach
to correcting inflationary imbalances.
It has been
termed gradualism, which simply put means that we are
- 3 trying to solve the problem of inflation without
creating a recession.
The task has taken somewhat longer than we anticipated, but recent indicators show that solid progress
is being made in slowing the hectic pace of the economy.
We can take encouragement from the evidence, but we
cannot yet afford to relax our efforts.
It takes time
to root out inflationary pressures and to reverse the
public expectation that prices are bound to continue
moving upward.
If we were to change course now, the
progress that has been made in recent months might
well be lost.
I think that the most damaging course we could
take would be the stop-and-go route.
Under such a
policy, we would fight inflation, but only so long as
our efforts were not too painful.
When inflation
control policies began to work -- and pinch
pressures would build up to change course.
Expan-
sionary monetary and fiscal policies would come into
play and the economy would joyfully expand.
Soon
underlying price pressures would reassert themselves
- 4 and, once more, we would begin to experience the pain
of inflation.
Duty bound to control inflation and
respond to the public clamor
for action, government
would return to restrictive policies -- and so on and
on the cycle would go.
What would such a policy mean for America?
In
my view, it would mean a permanent condition of slow
growth, excess unemployment and a continuation of
upward pressure on prices.
It would be the worst of
all possible economic worlds.
This Administration
does not intend to travel down that road.
I readily admit that the proper time to alter the
direction of policy is not easy to determine.
All I
can say is that the Administration's responsibility
is to watch developments closely and to respond
promptly when the signs are unmistakably clear that
the balance of risk has shifted from inflation to
recession.
That we shall do.
But we must and shall
resist the all-too-tempting route of moving into an
expansionary posture too soon.
That route would only
lead America into a dismal and self-defeating cycle
of stagnation and inflation.
- 5 -
The other route
-~
the one we seek -- first
requires that we restore balance in the economy by
controlling inflation.
Then -- and only then -- will
the economy be able to enter a period of healthy,
sustainable and non-inflationary growth nurtured by
balanced government policies which are neither too
restrictive nor too expansionary.
That is not an
easy goal, but is one well worth pursuing and one
which this Administration has set for itself.
Your help in this effort is needed and desired.
Covernment alone cannot control inflation, but it must
set its own house in order.
This Administration has
made great strides towards this goal and -- with the
cooperation of Congress -- we will finish the job.
Now we need your help in two specific ways.
- 6 First, 1 hope you will inject your voices into
the discussion.
We need your help with the Congress.
Support for a fiscal policy of budgetary surplus is
essential.
We are dependent on legislative action for
$4 billion in current fiscal year revenues.
Any effort
you can extend to raise the level of economic discussio
and understanding in the country will be most helpful.
And your support for the six months' extension of the
~educed
surtax is vital.
Second, I encourage you to exercise responsible
ana enlightened self-interest in your corporate investment, production, and pricing
run, the national
inte~est
ci~cisions.
In the long
and your own interest are
identical.
Last week, in an address to the Economic Club of
Chicago, I emphasized that these difficult times require leaders of business and labor to exercise
economic statesmanship of the highest order.
to express that conviction again today.
I want
- 7
~
Just as awareness of the urban crisis has forced
American business to adopt a longer-run view of corporate self interest, so too should an appreciation
of the very difficult task of restoring economic
stability lead you to exercise enlightened restraint
in your pricing decisions.
Future profitability is
very dependent on our ability to negotiate this period
of economic adjustment with a minimum of dislocation.
II
In contrast to the difficult short-run outlook
for the domestic economy, the international financial
outlook is much brighter today than it has been for
many years.
The annuc\l meetings of the Board of
Governors of the International-Monetary Fund and World
Bank always provide a useful occasion to exchange views
with our counterparts from the many countries of the
world.
But the meetings held two weeks ago in Wash-
ington were notable in other respects, for I believe
that both the actions taken at that session and the
contemporary events beyond the city marked a significant
turning point in the world monetary system.
- 8 -
The major accomplishment at the meetings was
of course the decision to activate a substantial
amount of Special Drawing Rights, and to move forward
into an era of managed, multilateral reserve creation.
The entire atmosphere at the session reflected satisfaction that the problem of reserve creation was on
its way to being resolved in a constructive manner.
We cannot take full credit for this historic international financial development.
While we worked hard
to secure the necessary votes for ratification, and
successfully negotiated a satisfactory amount for
crr.d~ion,
officials of the last Administration were
instrumental in establishing international acceptance
of the SDR.
The Treasury under Joe Fowler labored
mightily to persuade some very reluctant central
bankers and
financ~
ministers that an orderly growth
in world liquidicy was essential to a prospering
international
snR
activation
meeting.
e~onomy.
~as
It is to his credit tthat the
approved
30
readily at this year's
9 In addition to this significant action on the
SDRls, we can also take heart in several important
developments of late:
the strong efforts in the United States to
control inflation;
the noticeably stronger position of the United
Kingdom;
the adjustment of the French parity without
serious disturbance; and
the actions taken by the German government
to reach a more realistic exchange value for
its currency.
All of these suggest that we may be entering a
calmer period for international financial markets.
Furthermore, the decision to begin btudying various
proposals for limited exchange rate flexibility is
an important step forward.
While it would be premature
to anticipate specific results, we do believe that such
study will help to identify further ways in which present
arrangements might be usefully supplemented.
All of this provides, I think, a constructive base
for tackling problems of the future.
As I emphasized
- 10 in my conversations throughout these meetings, the
major American responsibility is to restore better
balance in our own economy and bring inflation under
control.
We intend to meet that responsibility.
III
If inflation control and international finance
were not enough to occupy anyone's time and thought,
the Treasury is also engaged in a major effort to
achieve responsible reform in our tax laws.
Our
sophisticated, complex society has developed a patchwork tax law over a period of nearly 50 years.
It is
intricately geared to every element of our personal
lives, our charitable institutions, our business
structure, and our economy.
The law is full of in-
centive provisions designed or preserved to serve
important purposes such as encouraging certain kinds
of risk-taking and investment, subsidizing charitable
activity to relieve the burdens of government, and
achieving important social goals such as improved
housing.
Many of these incentives continue to be
- 11 -
important and worth the cost.
However, some are no
longer necessary to the same degree as when first
adopted, and some are being used to shelter income
to such an excessive extent that they must be limited.
Within three months after this Administration
came into office the Treasury developed a series of
proposals to restore a better degree of equity to
the tax system.
The proposals embraced changes de-
signed to curb excessive use of incentives in the
tax law without actually eroding the most beneficial
effects of these provisions.
The Limit on Tax
Preferences and Allocation of Deductions rules were
the core of this program.
The co-called LTP does
not reduce the incentive effect of any of the provisions to which it applies so long as they are used
in reasonable moderation in relation to other income
subject to tax.
We also dealt with the recognized
problems in the area of private foundations and
charitable contributions, but in a way designed to
encourage an even greater flow of funds into the
charitable stream.
- 12 In addition to these and many other reforms, we
proposed two major relief provisions -- the Low Income
Allowance, which would take all persons with incomes
below the recognized poverty level off the tax rolls,
and an increase in deductible moving expenses to encourage labor mobility.
The revenues produced by
the reform program were adequate to fund these proposals.
Thus, our April reform program contemplated
a balanced revenue effect.
The tax bill reported by the Ways and Means Committee and passed by the House included substantially
all of the Treasury's initial tax reform proposals
with some modifications, plus a much broader program
of tax reduction.
The House bill, if enacted, would
raise $8.1 billion from reforms and from repeal of the
investment credit.
It would provide some $10.5 billion
in tax reductions, going almost entirely to individuals.
After studying the provisions of the House-approved
bill, the Treasury concluded that this legislation
suffered from three basic defects:
(1) an excessive
- ""i"
~
loss of revenues; (2) the imbalance in the provisions
for tax relief; and (3) the substantial cumulative
bias against investment, and hence, against future
economic growth.
Our proposals to the Senate Finance
Committee were designed to overcome these deficiencies.
The Administration has urged changes in the House bill
which would reduce the revenue loss by over one billion
dollars, correct some inequitable relief provisions
affecting single persons and middle-income taxpayers,
and restore some incentives for capital investment.
On balance, our package of proposals would produce
a Kore equitable tax structure than we have today.
"
.
total corporate tax bill would increase.
taxes would be reduced,
But
i~
The
Individual
our judgment sufficient
incentives would remain for capital investment, charitable
giving, and the achievement of other socially desirable
objectives.
The essence of tax reform is fairness -- the removal
of unfair advantages and the adoption of new rates and
standards that bett
r~flect
the needs of our time.
- 14 The Administration did not present a take-it-orleave-it tax reform package last April.
issues were exceedingly complex.
We knew the
After studying the
House bill and listening to arguments from many sources,
we presented revised recommendations to the Senate
Finance Committee last month.
We believe our revised
proposals are sound, but we continue to study the
situation and weigh the arguments.
We need tax reform now, and I believe prompt
action is necessary.
cant tax reduction.
We do not need, however, signifiAside from putting off reform,
delay endangers passage of the surtax extension and..
investment credit repeal -- both of which are essential
to maintain proper fiscal restraint.
In addition, the
excessive tax reductions in the .House bill, not balanced
by new sources of revenue, threaten to erode our budget
flexibility in the coming yea=s.
This not only weakens
our ability to institute proper fiscal policies, but
also it reduces our capacity to
respo~d
to emerging
domestic needs with new program initiatives.
The
- 15 public is impatient for reform, and the Administration
would like to see the Senate move promptly in this
area.
But I would hope that the seriousness of an
excessive revenue loss is considered by the Congress.
IV
If there is a central theme to my remarks this
morning it is that the Administration is making steady
progress toward achieving some very difficult policy
objectives:
restoring domestic economic stability,
improving the international financial system, and making
our Federal tax structure more equitable.
It is essential
that this progress continue, and I would enlist your
support and cooperation in our efforts.
It is vital
that private leadership contribute to the solution of
public problems.
I invite you, in the interests of both
your corporations and your Country, to make that contribution in both word and deed.
TREASURY DEPARTMENT
WASHINGTON, D.C.
October 17, 1969
FOR IMMEDIATE RELEASE
TREASURY ANNOUNCES APPOINTMENT OF
ASSISTANT FOR INTERNATIONAL TAX AFFAIRS
Secretary of the Treasury David M. Kennedy today announced
the appointment of Robert J. Patrick, Jr., as Deputy Special
Assistant for International Tax Affairs.
Mr. Patrick will be deputy to Robert T. Cole, Special
Assistant for International Tax Affairs. Messrs. Cole and
Patrick are responsible for international tax matters under the
direction of Assistant Secretary for Tax Policy, Edwin S. Cohen.
Mr. Patrick, 35, is a native of San Francisco. He later
moved to Denver, Colorado, where he attended East High School.
He received his B.A. degree with Great Distinction in 1956
from Stanford University and his LL.B. from Stanford University
in 1959. While at Stanford he was editor of the Stanford Law
Review. He earned his Master of International Affairs degree
in 1960 from Columbia University.
From 1960 until joining Treasury, Mr. Patrick has been
associated with Cleary, Gottlieb, Steen & Hamilton, a New York
law firm. From 1966 through 1968 he was resident in the
firm's Paris office.
The appointee is a member of several fraternal and legal
organizations, including Phi Beta Kappa, phi Delta Phi, a legal
fraternity, the American Foreign Law Association, the American
Society of International Law, the American Bar Association and
the State Bar of California.
The appointee is married to the former· Janet Cline of
San Francisco, California. They have three sons.
000
K-242
TREASURY
DEPART~IiJ::NT
WASHINGTON. D.C.
FOR U1MEDIATE RELEASE
October 17, 1969
SALE OF JUNE TAX ANTICIPATION BILLS
The Treasury Department today announced the sale
of $3 billion of tax anticipation bills which \vill
mature in June 1970.
The bills will be auctioned on Thursday, October 23,
for payment on Hednesday, October 29.
Commercial banks
may ma.ke pRyment for their o't<m cmd thej r customers
accepted tenders by crediting Treasury tax and loan
accounts.
The bills will mature on June 22, 1970, but may
be used at fa.ce value in payment of Federal income
taxes due on June 15, 1970.
K-243
:371
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FOR n.ll,ffiDIATE REIEASE
TREASUHY OFFERS $3 BIlJLION IN JUNE TAX BILLS
The Treasury Department, by this pUL)lic notice, i.nvites tor1ders for $3,000,000,000
or there2.bouts, of 236-d8,Y 11.L'eSsury bills, tc be issued on a discount basis under
competitive and noncompeti.tive bidding as hereir:3.ftE:r pl'ovidE:d. The bills of this
series 1.-5.11 be de.ted 02tober 29,1969 and ,,·il11 e:d:ure June 22, 1970.
They vTHl be
accepted at face ve.lue in p'~·YT(!2nt of incc:'c t3.:;:es GL1.e on June 15, 1970,
and to tr,-"
extent they are not presentcJ for this pur:9Qse the f8ce 8~OU.'1t of these bills i·rHl be
payablevTithout interest at maturity. fl10.xpa.Je2"~ oesiriq; to apply these bU1s in
payment of June 15, 1970,
incon:e taxes :::3.y st1br:U.t the bills to a Feder'S..l :Seserve
Bank 01' Branch or to the Oi'fice of the Trea.::ul'cr of the Dni ted States, ~'lasb..ir'_;toel, elYG
more than fifteen d<;,ys before that chte. In tbe C2se of bills subc:i..tted ire pe.YTe~lt
of inco~,e taxes of a carpor 3.tion they sh?ll be 3.CCCL",p?I'ied by a dl)ly cOr.lpleted Forr;,
503 and the office receivircg these i te:n.s T:Ii11 2.:'fec~ the de:posi t on June 15, 1970
In the case of bil:Ls s<.i.oni tted in :ps.j!r.er.t of i:lccr;~e ts~{es of al.l o'(;her ta~'3:;~rs, the
office receiving the bills .'rill issue J'ecci~ts therel~or, the oriSL1.31 of vrhicn the
taxpayer shell sL:br_i t O:l or os~~ore Jun.e 15, 1970,
to the Dj.strict Dircc.!ccr of
Interna,l Re'lenue for the District i!'l ~/.'hic;l SUCCi. taxes are DaY281e.
The
bills . -.rill -:)e
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issued in beE,rer fcr:~i cri!~/, aml in de~'lc.::::in?,tic:s Ol~ ·~'l, 000, :;5,000, $10,000, $50,000,
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Tenders 'i·rill be ::-ecei~Jed at Federal ?eser'<-e 33.i."L~S snd Br2.l:::::hes up to tho; clcsir..;
hour, one-thirty p.n., :2aste2.':'1 d2:11iS:~t 38.'ri::--!,; ti:'e, Thursday; October 23, 1969 .
.~enders wil.l not be ::-ecei'fed at the l'r2s.3l.Wf De~::'2.r~i.:ent, ~·;r2.shL'.§::~~on. .62.ch te:1der rrrcs~
ibe for an ever. rc.ultiple of $;l,OOO, and i:'1 tt.e C2.:3e of cC;".,getiti-re ter.ders tte :;;rice
offered !:'.1.:St be e}"yressed or" the bas is of 100, ~:Tith r:.ot :lore the.:::. tr~ee dec0.s2.s,
e. g., 99.925. Li'ractioEs rr.ay not oe used. It is urged that te:15ers be msde on t~e
printed forms and fonra::-ded in the sDecial enveloDes T,,-hich will be supplied by Federal
.Reserve Ban.'-<s or Branches on application therefor-.
Ban.'l\.ifl-€; institutions gei"erally Cgy sub!L:it tenders fJr account of custo'-.ers protided the na.:les of the custol-:',ers 8.re set forth in. such tenders. Others th"l.:1 oarJ;:ircg
institutions ~'iill not be Der:;::li tted to sli.bDi t ter:.der;; e:(cep<:. for their O'lel account ..
Tenders Ivill be received ;-rithout deposit frcr.l incorpors.ted bar~1.:s ar-"d trust cor.:pa:::.ies
and from responsible and reccgnized de::llsrs in. i:>:""'rest:-'lent securities. Ter'_der3 fren
others must be acco:~,p3nied by paY'T:len.t of 2 perce:::.t of the face 3Y..ount of ~re3.sury bill.:::
apPlied for, unless the tender3 are acccDl.,9ar:.ied by a.n. e:CDress €;1..tara:lty of :9g;;T:.ent by :1,:::
incorporated ban.'k or trust comp3..L'1Y.
All bidders are required to agree not to purch8.se or to se11, or to ffiake a-::'.y
agreements '..ri th resDect to' the Durchase or sale or othe:c disDos i ticn of g.!'1.,Y bills of
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j~L\;~en t~l~ }.)1'.LC8 \)~_~~;:~
~Ul'ch~'..s(~,
TREASURY DEPARTMENT
WASHINGTON, D. c.
FOR RELEASE ON DELIVERY
REMARKS OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
AT THE 1969 MINING CONVENTION OF
THE AMERICAN MINING CONGRESS
SAN FRANCISCO, CALIFORNIA
MONDAY, OCTOBER 20, 1969, 2:00 P. M. (PDT)
I should like to express my appreciation to the American Mining
Congress and to our Co-Chairmen, Mr. Strauss and Dr. McLaughlin, for
inviting me here to talk about silver.
Since the founding of this
great organization in 1898 the American Mining Congress has worked
vigorously for safer and more efficient mining practices as well as
playing a prominent role in all the major policy decisions which have
kept the Government an active participant in the silver market.
The
Treasury has always welcomed your advice and now that we are
approaching the end of that phase of the long monetary history of
silver, I think it appropriate that we again exchange views.
At today's meeting I will present the Treasury's vieH of an
appropriate silver and coinage policy during this sensitive period
K-245
- 2 -
when the market is making its final adjustment to complete
independence from the Government as a buyer or seller of silver.
Historical setting
Before outlining the Treasury's current silver and coinage policy
and the decision making process by which it was reached, I would like
to very briefly review the events of the past decade.
I think this
is essential to understanding today's silver issues.
The series of events which will culminate in the final withdrawal of the Government from the silver market began in the late
1950's.
At that time the Treasury held huge stocks of silver as a
result of heavy purchases to sustain the silver price during the
long period when the mines were producing far more silver than could
be used for coinage and industrial needs.
In December 1959 Treasury
silver holdings totaled more than 2 billion ounces, nearly all of
which was held as reserve against silver certificates.
About this time two trends of major significance to the future
of silver became evident.
The first was the rapid acceleration in
- 3 the demand for coins under the influence of an expanding economy
and growing use of vending machines.
The second key event was that
·for the first time in modern history rising industrial demand for
silver exceeded current production both on a domestic and a worldwide basis.
The growing gap between production and consumption was
made up in large part from Treasury stocks of free silver .which
dropped by about 200 million ounces from April 1959 to November 1961,
when sales were suspended.
At the same time the Government faced a rapidly growing need
for silver to increase the circulating coinage.
Obviously this
supply could not come from domestic production which was already
inadequate to meet industrial demand.
In this situation the only
practical way to obtain silver for coinage needs was through the
gradual retirement from circulation of silver certificates thereby
freeing the silver held as a reserve for these certificates.
It
was thought at that time that the retirement of silver certificates
would make available enough free silver to meet the Treasury's
- 4 coinage needs for many years into the future.
Unfortunately events did not work out that way.
Over the next
few years the tremendous production of coins required to keep pace
with the increasing demands of the economy cut deeply into the
Treasury's silver supply.
In 1962 and 1963 nearly 200 million ounces
of Treasury silver were used for coinage and the demand was still
rising.
Moreover, by mid-1963, under pressure of private market
forces, the price of silver had risen to its monetary value of $1.29
per ounce.
A continued price rise much beyond that point would have
made it profitable to melt the subsidiary coins for their silver
content and thereby threaten the continued circulation of our silver
coinage.
To prevent such a crisis the Treasury in July 1963 resumed
the open sale o'f silver at the fixed price of $1. 29 per ounce.
Over the next two years an adequate volume of silver coinage
was maintained in circulation but only at the cost of huge amounts
of Treasury silver.
In 1964 and 1965 production of silver coins
required over 500 million ounces of Treasury silver.
During the same
- 5 -
311
period it was necessary to sell an additional 230 million ounces in
the open market in order to keep the price at a level which would
prevent a wholesale withdrawal of coins from circulation.
In short,
from 1962 to 1965 the Treasury had to use nearly 970 million ounces of
silver in order to maintain an adequate volume of circulating silver
coinage.
This total was roughly equivalent to 25 years annual mining
production in the United States.
By this time it was obvious that the use O'f silver in United
States coinage for very long into the future was no longer possible.
Recognizing this, the Congress in 1965 authorized the production of
non-silver dimes and quarters, retaining only the 40 percent silver
half dollar as a link to the past.
But the co"inage crisis was not over by a long shot.
The task
now was to produc'e, during the re1a ti ve1y brief remaining period when
it would be possible to keep an adequate amount of silver coins in
circulation, enough cupro-nicke1 dimes and quarters to meet fully
the economy's circulation needs.
- 6 To the everlasting credit of the men and women of the Treasury's
Bureau of the Mint this race was won, although the finish was very
close.
By May of 1967, when the soaring demand for purchases of
Treasury silver forced the final halt to open market sales at the
fixed $1.29 price, enough cupro-nickel coins had been produced to tide
us over the crisis.
But again the cost in Treasury silver had been high.
In 1966
and 1967 another 100 million ounces of silver was used for the Kennedy
half dollar and it was necessary to sell nearly 300 million ounces to
maintain the $1.29 price.
This brought the total amount of Treasury
silver used from 1962 through mid-1967 in the attempt to maintain an
adequate circulating silver coinage to approximately 1.3 million ounces.
In August 1967 the sale of surplus Treasury silver by the GSA
through weekly competitive bids was begun and these sales have
continued until the present time.
Sales under this program to date
have totaled some 220 million ounces.
To round out this historical
resume, just over 100 million ounces of silver were exchanged for
- 7 silver certificates during the year preceding the redemption cut-off
in June 1968.
The Task Force Report
With this as background, let me now turn to the situation faced
by this Administration early this year and review with you the process
by which we arrived at our current policy position on silver.
In March 1969 Secretary Kennedy established a special task force
of Treasury officials to review all major silver and coinage issues
and reconunend applcpl idLe!
new legislation.
.
..
.
ClUlllJ..ill. '" L 1. ii '-..LV e
I was a member of this group.
The Task Force took as its basic premise that a sound silver
policy program should facilitate an orderly withdrawal of the
Government as a participant in the silver market consistent with the
following essential needs:
(1) a strong and efficient monetary system,
(2) maximum feasible fiscal return to the taxpayers, (3) minimum
inflationary impact on consumer prices, and (4) minimum adverse impact
on the balance of payments •.
- 8 The Task Force first gave attention to determining what portion
of the Treasury's supply of silver could be considered surplus to
the Government's need over the foreseeable future.
We concluded
that the total amount of silver available to the Treasury in April
of this year that was not directly committed for any future need
was about 140 million ounces.
This figure was over and above the
165 million ounces of silver which by law had been transferred to
the strategic stockpile in June 1968.
In early May the Task Force completed its study and presented a
report to the Secretary outlining its recommendations.
The recommended
program was then reviewed by and received the full approval of the
Joint Commission on the Coinage, a non-partisan body established by
law to advise the President and the Congress on silver and coinage
matters.
This 24 member Commission includes 12 members of Congress,
4 members from the Executive Branch, and 8 public members appointed
by the President.
The administrative actions endorsed by the Commission were
- 9 -
immediately put into effect by Secretary Kennedy.
These were (1)
lifting of the coin melting ban, and (2) a reduction of the weekly
sales of silver by the GSA from 2 to 1-1/2 million ounces.
The Treasury's action in lifting the coin melting ban in May
of this year was in our judgment a sound one.
At that time the coin
melting ban no longer served the purpose cited when it was first put
into effect in May 1967, and I might add that a ban on melting coins
was without precedent in our nation's.history.
The original purpose
of the ban was to keep the silver dimes and quarters circulating
during a period in which there was doubt that supplies of clad coins
were fully adequate for commercial needs.
But by May of this year
virtually all the silver coins had disappeared from circulation and
the supply of clad coins was fully adequate for commercial needs.
A secondary purpose of the coin melting ban was to enable the
Treasury to build up its reserve of silver coins.
However, by May
of this year the remaining supply of outstanding silver coins was
locked up in private hoards and the inflo,v to the Treasury had run
- 11 -
3.
Profits on silver sales would add substantially to
the Treasury's revenue and since August 4, 1967 this profit
has totaled over $100 million.
4.
Continuation of Government silver sales would
permit the market to adjust in an orderly manner to the
inevitable point when the Government must cease to be a
supplier, which we now think will be about the end of 1970.
The Task Force then turned to the question of an appropriate
rate for sale of the Treasury's silver and concluded that the weekly
amount of silver offered through the GSA should be reduced from
1-1/2 million ounces.
2
to
The main justification for this action was
the belief that since the Treasury would have to halt sales in less
than two years, a gradual cut-back in the amount offered would help
the market make an orderly adjustment to this fact.
It was thought
preferable to maintain the 1-1/2 million ounce rate rather than add
further uncertainty by phasing out sales at gradually reduced levels.
We recognized that if the intent to maintain the 1-1/2 million
ounce sales figure were made clear, participants in the silver market
producers, users, and investors - would have full knowledge of the
- 12 time and extent of Government activity in the market.
During this
transition period the market would have ample opportunity to make
an efficient adjustment to the time when - like other commodities _
the price of silver would be determined entirely by private supply
and demand.
We felt that removal of uncertainty regarding the
future of the Government's silver policy would add a stability to
the silver market that should be welcomed by both producers and
consumers.
The third administrative action taken by the Treasury with the
endorsement of the Coinage Commission was to open the weekly GSA
sale of silver to all bidders with no restrictions on the use of the
silver purchased.
Until that time silver sold by the GSA had to be
consumed entirely by domestic industry.
This restriction on the use
of the silver was established during a period in which the prolonged
refiners strike had sharply curtailed the domestic supply of industrial
silver.
In recognition of the temporary nature of this restriction,
the Treasury in 1967 had signified its intent to remove it as soon as
- 13 feasible.
In our judgment this action was long overdue.
Legislative program
I would like now to briefly outline the legislative recommendations
recommended by the Task Force and which are now under consideration by
the Congress.
Provisions of this legislation of interest to this
group would grant the Secretary of the Treasury authority to mint both
a non-silver cupro-nickel half dollar and a non-silver cupro-nickel
dollar coin.
dollar was based on the conclusion that there is an important commercial
need for an adequately circulating half dollar that can only be met by minting
a non-silver coin.
I think the most convincing argument for granting
the Treasury this new authority is the fact that only a very small
-percentage of the roughly 1-1/4 billion silver half dollars - both 40
percent and 90 percent silver - minted since 1963 are actually circulating.
Well over 200 million ounces of silver have already been used to
mint this coin.
This is equal to the total amount of silver mined
- 14 in the United States since 1963.
As Secretary Kennedy pointed out
in a statement to the Coinage Commission, the 40 percent silver half
dollar on our past experience is simply a losing proposition.
The
realistic choice we face is either to abandon this coin altogether or
mint it of the same cupro-nickel clad material now used in dimes and
quarters.
We prefer the latter alternative.
The second major provision of the coinage bill would authorize the
Secretary of the Treasury to mint cupro-nickel dollar coins of the same
clad material now used in dimes and quarters.
Before making this
recommendation we gave very careful consideration to the composition
of the new dollar coin which would bear a portrait of President
Eisenhower.
The principal issue was whether the coin should contain
silver or be minted of the cupro-nickel clad material used in other
coins.
This is still an unresolved issue since on last Wednesday the
House of Representatives voted for a cupro-nickel dollar coin just a few
hours after the Senate voted for a 40 percent silver dollar.
issue will be resolved in the near future.
This
- 15 There are many sound reasons why we believe that a cupro-nickel
dollar coin is strongly in the public interest:
1.
The primary purpose of coinage is to effectively serve as a
medium of exchange, to buy goods and services.
dollar coin would actualll circulate.
Only a non-silver
The experience with the
Kennedy half dollar demonstrates that silver coins will not circulate
in significant quantity.
The Treasury and the Joint Coinage Commission
both concluded that there is a commercial need for a circulating dollar
coin that can only be met by a non-silver coin.
2.
Over the next fiscal year the non-silver dollar coin would mean
a greater monetary return to the Federal Government than would be
realized by a 40 percent silver coin.
S.J. 158 which hns passed
the Senate would authorize the minting of 100 million 40 percent
silver dollar coins a year for three years or until the supply of
remaining silver is exhausted.
Each 100 million of these coins
would mean a return through seigniorage of about $52 million.
By
contrast, the monetary gain by producing each 100 million non-silver
- 16 dollar coins would" be about $95 million.
In addition, if the
remaining silver surplus is not used for coinage the Treasury could
obtain as much as $50 million more in revenue in 1970 from cont~nued
sales through the GSA.
Moreover, if the Congress acts now to authorize the minting of
a cupro-nickel dollar coin, the Treasury can move very quickly to
mint this coin in volume production, depending, of course, on public
demand and available appropriations. "We could mint as much as 300
million of these coins by the end of 1970.
The total seigniorage, at
least in 1970, would certainly be greater for a cupro-nickel than for
a 40 percent silver dollar coin.
Over a three-year period the
seigniorage return on the cupro-nickel coin could approach a billion
dollars.
The advantage to the public is that:-this seigniorage return
reduces the Government's borrowing needs by an equivalent amount.
However, under the provisions of the coinage bill passed by the Senate,
the minting of a cupro-nickel dollar coin could not begin until the
available silver supply is exhausted which might take several years.
- 17 -
However, it should be emphasized that the major purpose of
our coinage system is not to maximize seigniorage but to meet the
country's need for an adequate supply of circulating coins.
Seigniorage is simply the difference between the face value of a
coin and the cost of its component materials.
Including silver in
a coin reduces seigniorage since silver is obviously more costly
than copper or nickel.
Although those who advocate the silver
dollar assert· that this would be equivalent to
~elling
silver for
$3.16 per ounce, it is no more logical to put a sale price on the
silver in the coin than it would be to compute a sale price on the
copper and nickel in dimes and quarters.
3.
Using our surplus silver for dollar coins would significantly
increase our balance of payments deficit.
Current annual domestic
silver production is less than 40 million ounces compared with
industrial consumption ot aoout 145 million ounces.
If weekly GSA
silver sales are halted because all our remaining surplus silver is
reserved for dollar coins, then silver imports for industrial use
- 18 -
would have to increase subs tantially.
~\Te
estinate that the resulting
adverse effect on the balance of payments in the first year could
be as much as $150 million.
4.
The final enactment of legislation reco-c-:ended bv the Treasurv
<
in addition to providin2 the econo::o-,T "dth needed circulatin2 coinas:e,
would also be a Iilajor contribution to'I.ard alley; atin2 the unstable
conditions that have plagued the sih-er T"arket for over t,w Years.
The sharp and largely irrational Bove::'.ents in silver prices both u?
and
do~~
have been stimulated by rumors and uncertainties regarding
anticipated GovernIilent actions.
\\'e think the enactDent of the Treasury
coinage bill will end this uncertainty by finally enabling the Treasu~~
to clearly set forth just hOH much surplus silver it holds and how
long and at what rate this silver ,,,ill continue to be sold through
open
co~etitive
bids.
As of September 30 the Treasury stock of sihTer bullion totaled
about 80 million ounces.
Of this total about 3S 0illion ounces is
in a form readily available for rr:.arket sale.
In additioC'..
.'.C::
esti=2.te
- 19 that the Treasury's inventory of silver in coins that will be melted
into bars totals about 60 million ounces, a figure we consider
reasonably accurate within a 10 million ounce range.
As of now, the
Treasury's total stock of silver, including silver coins, is
approximately 140 million ounces.
This figure is entirely separate
from the 165 million ounces of silver already set aside in the
defense stockpile.
bill
The enactment of the Treamny/would make surplus virtually all
of the Treasury's remaining stock of silver except for the relatively
small amount that might be required for minting of half dollars in a
transition period.
We estimate that the silver surplus which could
be available over the next year is adequate to continue sales through
the GSA at the current rate through the greater part of 1970.
that point the slate would be clean.
At
In this clearly defined period
of adjustment producers and users of silver have ample opportunity to
gear their operations to eventual complete independence from Government
sources of supply.
- 20 -
In summary, the Treasury believes that the administrative
actions that have been put into effect with regard to silver
tog~ther
with the prompt enactment of the coinage bill recommended by the
Treasury will contribute greatly to a more effective coinage system
and facilitate an orderly transition of the silver market to full
reliance on private sources of supply.
00000
TREASURY DEPARTMENT
WASHINGTON, D.C.
roR RELEASE 6: 30 P.M.,
Monday, October 20, 1969.
RESULTS OF TREASURY I S WEEKLY BILL OFFERIN"G
The Treasury Department announced that the tenders for two series of Treasury
bills, one series to be an additional issue of the bills dated July 24, 1969, and the
other series to be dated October 23, 1969, which were offered on October 15, 1969, were
opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
or thereabouts, of 91-day bills and for $1,200,000,000, or thereabouts, of 182-day
bills. The details of the two series are as follows:
RANGE OF ACCEPTED
CCMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
January 222 1970
Approx. Equiv.
Price
Annual Rate
98.255
6.90310
98.231
6.998%
98.237
6.975%
182-day Treasury bills
AEril 23 2 1970
Approx. Equiv.
Price
Annual Rate
96.341
7.238%
96.321
7.277%
96.327
7.265%
maturi~
maturi~
Y
Y
Y
~ Excepting 1 tender of $1,000
24% of the amount of 91-day bills bid for at the low price was a.ccepted
58% of the amount of 182-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR .ANn ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francis co
AEElied For
$ 31,477,000
2,052,942,000
43,254,000
46,156,000
52,424,000
46,561,000
232,980,000
55,627,000
23,607,000
44,965,000
31,693,000
170,164,000
AcceEted
$ 19,687,000
1,189,382,000
27,254,000
44,202,000
40,924,000
29,729,000
209,294,000
44,367,000
19,847,000
44,661,000
15,193,000
115,645,000
TOTALS
$2,831,850,000
$1,800,185,000
EI
AEElied For
8,221,000
$
1,827,605,000
22,499,000
54,343,000
33,089,000
40,740 ,000
224,458,000
42,489,000
21,133,000
25,963,000
26,308,000
l63,289,000
AcceEted
7,681,000
$
870,929,000
12,074,000
32,243,000
18,084,000
20,700,000
134,605,000
26,289,000
6,633,000
24,853,000
15,308,000
30,976,000
$2,490,137,000
$1,200,375,000
£I
~Includes $422,223,000 noncompetitive tenders accepted at the average price of 98.237
YIn~udes $259,967,000 noncompetitive tenders accepted at the average price of 96.327
~These rates are on a bank discount basis. The equivalent coupon issue yields are
7.20 % for the 91-day bills, and 7.65% for the 182-day bills.
TREASURY DEPARTMENT
q
WASHINGTON, D.C.
October 22, 1969
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by
for two series of Treasury bills
$3,000,000,000, or thereabouts,
Treasury bills maturing October
$3,004,168,000,
as follows:
this public notice, invites tenders
to the aggregate amount of
for cash and in exchange for
30, 1969,
in the amount of
91-day bills (to maturity date) to be issued October 30, 1969,
in the amount of $1,800,000,000,
or thereabouts, representing an
additional amount of bills dated July' 31, 1969,
and to
mature January 29, 1970. originally issued in the amount of
$1,100,720,000,
the additional and original bills to be
freely interchangeable.
182-day bills (to maturity date) to be issued October 30, 1969, in
the amount of $1,200,000,000, or thereabout, representing an additional
amount of bills dated April 30, 1969, and to mature April 30, 1970,
originally issued in the amount of $1,000,634,000 (an additional
$500,151,000 was issued July 31, 1969), the additional and original
bills to be freely interchangeable.
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, October 27, 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 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 thei- <Jwn account. Tenders will be received
without deposit from incorporated'banks and trust companies and from
K-246
- L -
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public announcement will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stated price from anyone
bidder ~ill 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 30, 1969, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
October 30, 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,
unaer 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
t
WASHINGTON. D.C.
FOR IMMEDIATE RELEASE
OC tober 22, 1969
TREASURY'S MONTHLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$1,500,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing October 31,1969,
in the amount of
$ 1,502,309,000,
as follows:
273-day bills (to maturity date) to
in the amount of $500,000,000,
or
additional amount of bills dated July
mature July 31, 1970,
originally
$1,202,063,000,
the additional and
freely interchangeable.
be issued October 31 , 1969 ,
thereabouts, representing an
31, 1969,
and to
issued in the amount of
original bills to be
365-day bills, for $1,000,000,000,
dated
October 31, 1969,
and to mature
or thereabouts, to be
October 31, 1970.
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,
Tuesday, October 28, 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"imals, e. g., 99.925. Fractions may not
be used.
(Notwithstanding the fact that the one-year bills will run
for 365 days, the discount rate will be computed on a bank discount
basis of 360 days, as is currently the practice on all issues of
Treasury bills.) It is urged that tenders be made on the printed
fo~ms and forwarded in the special envelopes which will be supplied
by Federal Reserve Banks or Branches on application therefor
o
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
K-247
- 2 submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized aealers in investment secur~c~es. 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 announCE
ment will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on October 31, 1969, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing October 31,1969.
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
l\.- 2!l. from an'.' Fede ral Reserve Bank 050~ranch.
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR RELEASE 6: 30 P.M.,
~ursday,
October 23, 1969.
RESULTS OF TREASURY'S OFFER OF $3 BILLION OF JUNE TAX BILLS
The Treasury Department announced that the tenders for $3,000,000,000, or
~reabouts, of 236-day Treasury Tax Anticipation bills to be dated October 29, 1969,
and to mature June 22, 1970, which were offered on October 17, 1969, were opened at
the Federal Reserve Banks today.
The details of this issue are as follows:
Total applied for - $4,258,723,000
Total accepted
- $3,000,673,000
(includes $208,213,000 entered on a
noncompetitive basis and accepted in
full at the average price shown below)
Range of accepted competitive bids:
High
Low
Average
- 95.398
- 95.234
- 95.277
(34i
Federal Reserve
District
Boston
New York
Philade 1phia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Equivalent rate of discount approx. 7.02~per annum
"
"
" 7 . 2 7~"
" 7 . 205i"
482,2~~000
Total
AcceEted
$ 147,986,000
1,021,353,000
171,471,000
239,145,000
56,192,000
104,350,000
393,060,000
117,672,000
229,955,000
89,126,000
98,911,000
_ 331,452,00.<2
$4,258,723,000
$3,000,673,000
Total
Applied For
$ 157,946,000
1,861,423,000
261,371,000
254,145,000
56,392,000
106,330,000
469,880,000
124,992,000
235,955,000
89,126,000
158,911,000
This is on a bank discount basis.
K-248
"
"
"
"
of the amount bid for at the low price was accepted)
'roTAL
Y
""
""
The equivalent coupon issue yield is 7.6oi·
]
Treasury Department
Washington, Do C.
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAl~
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE ANNUAL MEETING OF THE COMMITTEE ON TAXATION OF THE
NATIONAL ASSOCIATION OF MANUFACTURERS
HOLLYWOOD BEACH, FLORIDA
FRIDAY, OCTOBER 24, 1969, 12:30 P.M., EDT
KEY QUESTIONS ON REVENUE SHARING
At the heart of President Nixon's new domestic policy
program is his proposal -for sharing Federal revenues with
the state and local governments of this Nation.
As he put it,
we are seeking to build a "New Federalism," with a return to
the states, cities, and counties of the decision-making power
rightfully theirs.
Toward this effort, revenue sharing is
designed to provide both the enr.ouragement and the resources
for local and state officials to exercise leadership in
solving their own problems.
In my remarks today I would like to discuss and try to
answer some of the most frequently raised questions ·concerning
our revenue-sharing proposal~
So that some sense can be made
of this effort, let me first give you a very brief outline of
the Administration's proposal.
K-249
- 2 The Administration Revenue-Sharing Plan
We have submitted to the Congress a plan with four
major features.
One, the size of the fund to be shared is a stated
percentage of personal taxable income -- the base
on which Federal individual income taxes are
levied.
This is a base which rises with our
srowing economy.
To ease the budget impact,
the fiscal year 1971 percentage is only 1/6 of
one percent ($500 million); but in subsequent
fiscal years there are phased increases to
a permanent one percent in the fiscal year 1976.
This will yield an estimated $5 billion a year
by then.
Two, the distribution among states is made on
the basis of each state's 5hare of national
population, with a simple adjustment for the
state's revenue effort.
Thus, a state which
taxes its citizens more than the national
average will receive a proportional bonus.
Three, the distribution within states to the
units of local government is established by
prescribed formula.
The portion a state must
share with its political subdivisions corresponds
to the ratio of total local government general
- 3 -
revenues raised to the sum of all state and
local general revenues raised in the state.
The
amount which an individual local government receives
corresponds to its share of all local government
general revenues raised in the state.
Four, the only requirements imposed on the states
(in addition to the local sharing) are (a) quarterly
reporting and accounting and (b) maintenance of
existing state aid to localities.
There are no
other strings or limitations on the use of these
funds.
The distinguishing characteristics of this proposal are:
(1) simplicity -- objective statistics and clearly defined
procedures are used; (2) fairness -- all general purpose local
governments, regardless of size, participate; (3) dependability
state and local governments can count on the funds in their
planning; (4) discretion -- state and local governments are
free to use the funds wherever they determine the need exists;
and (5) neutrality
distributions allow for state-by-state
variations, and do not attempt to reward or punish certain
forms or sizes of general government, or certain systems of
taxation.
Questions on the Administration Plan
With this quick description as a background, let me
address some of the specific questions which have been raised
4 -
about our proposal.
I have a list of five frequently
voic~d
concerns.
1.
propo~al
Is the Administration
too little
and too late?
This is not really a substantive objection to the basil:
co~cepts
of the proposal, but rather a disappointment over lts
I can sympathize with such disappointment, but dr not
size.
believ; it is really warranted.
Given the current and near-term budget outlook, we
realistically faced two alternatives for introducing revenue
sharin~:
were
(1) either delay introducing the plan until the funds
av~ilable
to begin a full-scale program of revenue sharing,
or (2) 3stab1ish the program now
if only on a modest scale
and provide for phased increases in funding as budget pressure3
permi t.
The second cours,'" of act ~_on was clearly preferable.
With all the competing
cl~ims
for limited Federal revenues,
it is important to establish the principle of revenue sharing
as sooe as is practicable.
Even with the "?hase-in" approach to introducing revenue
sharing, the amount" involved
ar~
not trifling.
six months of 1971, $500 million will be shared.
For the
fiy~.;t
This will
increase to $1.5 billion in the fiscal year 1972, and grow to
$5.1 billion by fiscal 1976.
and achievable
only what could
distributi~ns.
b~
These figures represent
substanti~L
We have deliberately promised
afforded, so that no false expectations might
317
- 5 -
be raised.
Finally, a modest but prudent start now of a certain
amount need not preclude increased amounts later if conditions
warrant.
2.
By sharing revenues with all cities and
counties, regardless of size, is the
effectiveness of the Administration plan
diluted too much?
I can answer this question quite simply.
We were unable
to find an acceptable or logical point at which direct revenuesharing funds should be denied a local government.
Some
proposals would exclude all cities and counties of less than
50,000 population from direct sharing.
But over 45 percent
of all city residents and 27 percent of all county residents
live in such jurisdictions, and it would be patently unfair
to exclude such a large portion of our population.
We believe that all local governments are faced with
fiscal pressures and that all deserve specific inclusion in
a general assistance program.
3.
Does the Administration proposal provide
enpugh funds for our large urban centers?
The amounts provided are relatively quite generous.
Some background may be useful.
Including local governments
in revenue sharing is a relatively new idea.
We spent more
time trying to perfect the local "pass through" than on any
- 6 -
other part of the revenue-sharing plan.
Many easy sounding
solutions were discarded as unworkable.
For example, you
cannot use a simple per capita distribution among local
governments because of the overlapping jurisdictions of cities
and counties.
You cannot use a measure of "need" because there
are no adequate statistics on income levels by city and county.
To simply specify, as some would advocate, that a fixed
percentage of each state's share be passed through to the
cities, ignores the great variations among states in the
distribution of governmental responsibilities.
Last year
for the country as a whole, the state governments accounted
for 37 percent of total state and local spending (direct
general expenditures for all functions).
But this proportion
varied very considerably among the different states.
The state
government share of state and local spending ranged from about
one-fourth in New York and New Jersey to about three-quarters
in Alaska and Hawaii.
The approach we have recommended is to distribute revenuesharing funds within a state to all general purpose governments
in proportion to each unit's general revenue collections. This
method not only takes account of the many differences within
states and between governments, but also it distributes revenuesharing funds in proportion to the relative activity of each
local government.
Since large cities raise most of the local
- 7 government revenues, they will receive most of the locally
shared revenues under the Administration's proposal.
In fact,
nearly every large city will receive not only absolutely more
funds, but also proportionately more funds than its smaller
neighbor.s -- but they will get more revenue-sharing money not
just because they are bigger, but because they bear a larger
fiscal burden.
The special problems of urbanization can best be assisted
on an individual basis by both state and Federal programs.
Under
our revenue-sharing proposal, the state governments will receive
generous distributions.
It can be expected that a major use
for such funds will be to compensate for intra-state differences
in needs for public services.
At the Federal level, we provide
a substantial sum -- nearly $25 billion this fiscal year -in categorical assistance grants-in-aid to state and local
governments.
Over $16 billion of this amount is in direct aid
to urban areas.
These programs of specific assistance can be
expected to grow along with the revenue-sharing program, thereby
increasing the total of intergovernmental assistance.
4.
Are state and local governaents of this
country cO!Fetent to use revenue-sharing
funds eff&etively?
To some extent, this question may be based either on
individual impressions or ideology.
concern.
It is a question of some
Since revenue sharing transfers both funds and
- 8 decision-making responsibility to the state and local level,
the ultimate success of the program will depend on the ability
of state and local governments to make the most judicious and
efficient use of these funds.
This, in turn, will depend
largely on the potential sensitivity of state and local
officials to the legitimate needs and interests of their
constituents.
This Administration maintains a large measure of
confidence in the ability and the willingness of the other
levels of government to respond positively to those particular
local problems which require public involvement.
A major
purpose of revenue sharing is to enhance the financial ability
of these governments to make such responses.
We recognize
that all governments, including the state and local governments,
are beset with problems.
But we are convinced that the potentia:
for effective management of social and public systems is
extremely high at the local levels.
Certainly the Federal
Government has not demonstrated that it has a monopoly on
administrative efficiency.
A related argument has been the
c~ntention
that state
and local governments are unlikely or unable to establish
proper social priorities for the allocation of their funds.
I would suggest that those who hold this belief simply examine
the pattern of state and local spending.
From revenues availab
to them without restrictions, they have consistently spent the
lion's share on education, health and hospitals, and public
welfare.
-
5.
Does revenue
9-
shaTil~g
seEarate the responsibility
for raising taxes from the act of sEendinR tax
revenues?
This is a frequently heard concern which is applied to
all
r~venue-sharing
proposals.
While it may appear to have
a logical ring to it, I believe that it is misleading.
For
one thing, it ignores several important facts:
at the national level, we have the precedent
that the Federal Government already "shares"
nearly $25 billion annually, in the form of
categorical grants, with state and local
governments;
at the state level, we have the precedent that
every state shares revenue with its local
governments, many in a completely unrestricted
manner;
from the viewpoint of efficiency, the cost of
collecting Federal tax dollars is much less than
the cost of collecting state and local tax dollars.
But even more significantly, the argument about the
separation of responsibilities seems to me to be very artificial
in its division of the public sector into separate water-tight
compartments.
If you grant the three assumptions that (1) the
Federal Government is an efficient tax collector, (2) the
Federal income tax is a relatively equitable levy, and (3) state
- 10 and local governments are best equipped to determine local
needs and administer local programs, then the conclusion is
that some amount of revenue sharing makes good political,
social and economic sense.
Conclusion
I have listed five standard questions on our revenuesharing proposal, and have given you my answers to each one.
We welcome the opportunity to provide such analyses and we
hope that discussions uf the issues continue to be made.
We in the Nixon Administration are very excited about
revenue sharing as an important new thrust in our domestic
policy efforts.
We see the program as a test of new public
systems for achieving social progress.
In the view of many
people, regardless of political party, it is a test well worth
making.
We hope that with the cooperation of the Congress,
revenue sharing can get underway promptly.
I would urge your
support, in every possible way, to bring this about.
000
TREASURY DEPARTMENT
FOR IMMEDIATE RELEASE
WASHINGTON. D.C.
October 24,1969
TREASURY HONORS EMPLOYEES ANNUAL AWARDS CEREMONY
In its Sixth Annual Awards Ceremony, the Treasury Departmen"t today honored
138 employees for outstanding service and significant operational contributions.
In the fiscal year ended last June 30 Treasury employees received $905,868
in awards for adopted suggestions which yielded first year savings of more than
l~ million dollars.
Other outstanding achievements of employees recognized
increased the yield to over $2.3 million.
Among those recognized at the awards ceremony, held at the Departmental
.~ashington, D. C. ,were:
Audilvrium,
Seven persons who received the Alexander Hamilton Award for
demonstrating outstanding leadership while working closely
with the Secretary.
38 persons, who during the year had received either of the
Treasury's two top awards, for Exceptional Service or for
Meritorious Service.
29 employees who, through outstanding suggestions or service,
contributed to significant monetary savings, increased efficiency,
or distinct improvements in government service.
28 employees for excellence in furthering special Government-wide
programs.
13 supervisors, for notable achievements in encouraging employee
contributions to efficiency and economy.
In addition, the awards ceremony honored 23 long-time career employees of
whom sixteen have served more than 40 years, two more than 45 years, and five
more than 50 years.
The program also carried the names of seven prominent citizens who had
previously received the Department's Distinguished Service Award.
The Awards were presented by the Secretary of the Treasury, David M.
Kennedy, who also honored three Treasury bureaus. The Bureau of Engraving
and Printing was cited for outstanding participation in the performance phase
of Treasury Department's Incentive Awards Program. The Bureau of Customs was
recognized for outstanding achievement in its suggestions program.
The Bureau of Customs was also singled out for significant accomplishment in
cost reduction and management improvement in achieving savings exceeding
~3 million, surpassing their annual goal by $~ million.
The Bureau of the
Public Debt was recognized for its safety record.
Attached is a 1 ist of those recognized, and their citations.
EMPLOYEE SUGGESTIONS AND SERVICES
Recognition by the Secretory ot outstondin, S*II.stiMls tJr .xe",p/llry
services which served to effect significant mo"ntIr'y slIlIinls, ;fJereased
efficiency, or improvements in Government 0l'eTatio",.
LEROY BOWMAN (Retired), Formerly Clerk, 08i.ce of the Secretary
For outstanding performance and service enhancing the immediate office of the Secretary, Superior Work Performance Award-
$500.
ROBERT A. BROWNE, Special Agent, U.S. Secret Service, Cleveland,
Ohio
For demonstrating outstanding courage and exceptional skill in
the conduct of an important and dangerous undercover assignment. Special Service Award-$500.
W. GREENLEE, Supervisory Internal Revenue Agent, San Francisco District, Internal Revenue Service
KARL
For exemplary service as the District Director's representative in
Stockton in resolving difficult tax cases and in maintaining excellent public and community relations. Special Service Award$500.
Roy L. HAGEMAN, Equipment Specialist, Division of Disbursement,
Bureau of Accounts
For initiative, ingenuity and resourcefulness in making major
contributions toward the development of mechanical equipment
and devices for use in processing checks. Estimated savings$33,000. Special Service Award-$600.
5
CHARLES E. HARTMAN, Jr., Assisant Foreman, Postage Stamp Division,
Bureau of Engraving and Printing
For improvements in wrapping postage stamp coils, and eliminating duplication of handling with the resultant savings of 2 manyears. Estimated savings-SI6,506. Suggestion Award-S665.
MORRIS McNEILL (Retired), Formerly Waiter-Leader, Office of the
Secretary
For outstanding performance and a unique appreciation of the
service concept which he sought to instill in others. Superior
Work Performance Award-$500.
SYLVESTER W. MUIIl, Supervisory General Engineer, San Francisco
District, Internal Revenue Service
For developing an index (citator) to Revenue Rulings and Procedures, cases and decisions pertaining to "section 38 property."
Estimated sav ings-S 13,000. Suggestion Award-S575.
LucIUS E. PHILLIPS, Customs Inspector, Bureau of Customs, Houston,
Tex.
For designing and constructing on his own time and at his own
expense a special light which contributes significantly to efficient
inspection of otherwise inaccessible vehicle compartments. Special
Service Award-$500.
BERNARD A. ROSEN, Tax Law Specialist, Office of Assistant Commissioner (Technical), Internal Revenue Service
For developing a check sheet for processing master and prototype
plans in the corporate area. Estimated savings-S17,186. Suggestion Award-$700.
MILTON M. SINGER, Management Analyst, North Atlantic Regional
Office, New York, Internal Revenue Service
For suggesting establishment of an open-end contract for the procurement of ribbons for the high-speed printers used with the
computers in service centers. Estimated savings-S15,607. Suggestion Award-$640.
6
MARION V. SMITH, Typing Section Supervisor, North Atlantic Service
Center, Andover, Mass., Internal Revenue Service
For suggesting use of a lettergraph post card printer to expedite
the mailing of Federal tax deposit forms to taxpayers. Estimated
savings-$24,102. Suggestion Award-$77S.
JOSEPH J. STENGEL, Chief General Legal Branch, Operations and Planning Division, Office of the Chief Counsel, Internal Revenue Service
For exemplary performance which significantly increased the
operational efficiency of the Chief Counsel's legal program for the
Service. Superior Work Performance Award-$SI5.
MAx W. STUBBS, Office Machine Operator, Western Service Center,
Ogden, Utah, Internal Revenue Service
For suggesting reprogramming of the computer to run larger
size rolls of microfilm to more fully utilize each tape cartridge.
Estimated savings-$75,700. Suggestion award-$I,030.
ANTONE VERNALE, Tool and Die Maker, San Francisco Assay Office,
Bureau of the Mint
For the modification of a heat sealing machine, which resulted
in a significant reduction in the reject rate of plastic cases containing proof coin sets. Estimated savings-$28,OOO. Special Service Award-$790.
CHRISTOPHER WATERS, Supervisory Customs Inspector, Bureau of
Customs, New York, N.Y.
For devising a combined carrier's certificate, pick up order and
tally that significantly accelerated the processing of air cargo imports in heavily congested cargo areas. Estimated savings$17,577. Suggestion Award-$590.
BERNARD ZERDEN, Internal Revenue Agent, Manhattan District, Internal Revenue Service, New York, N.Y.
For discovery of erroneous computations by some IRS offices of
interest on holding company income which resulted in issuance
of clarifying instructions in the Internal Revenue Manual. Estimated savings-$58,OOO. Special Service Award-$940.
7
EDWARD T. COYNE, Customs Agent
ALBERT W. SEELEY, Customs Agent
Bureaus of Customs, New York, N.Y.
For significant contributions to the successful conclusion of a
major narcotics case resulting in the .eizure of 56.3 kilograms of
heroin and the arrest of five persons. Special Service Award$1,500.
RAYMOND E. DECKER, Supervisory Operations Officer
IVAN L. NeEL, Supervisory Customs Liquidator
Bureau of Customs, Chicago, Ill.
PAUL L. GREENLEE, Operations Officer, Appraisement and Collections
Division, Bureau of Customs
For significant contributions in developing a new liquidation
system for use throughout the Customs Service. Special Service
Award-$ 1,500.
DwIGHT T. BAPTIST, Assistant District Director, Nashville, Tenn.
ERVEN E. BOETTNER, Senior Program Analyst, Office of Assistant Commissioner (Compliance)
HOWARD C. HILAND, Regional Analyst, Central Region, Cincinnati,
Ohio
JOHN E. HURLEY, Assistant Chief, Pension Trust Branch, Office of
Assisunt Commissioner (Technical)
CALVIN J. JUNG, Formerly Chief, Pension Trust Section, Philadelphia
District
THOMAS J. LEARY, Formerly Planning Officer Ecooomist, Office of
Assistant Commissioner (Planning and Research)
JACK O. SHAW, Senior Pension Trust Specialist, Chicago District
WARDEN E. WALL, Regional Analyst, Western Region, San Francisco,
Calif., Internal Revenue Service
For superior accomplishment in a study of service activities relating to pension and profit sharing plans and the development
of recommendations to improve overall administration of the
area. Group Special Service Award-$3,250.
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.
LEWIS P. AZZINARO, Assistant Chief, Document Branch, Check Accounting Division, Office of the Treasurer of the United States.
For outstanding leadership and personal example in motivating
the absorption of significantly increased workload without additional personnel.
ARTHUR BARON, Foreman of Plate Printers, Plate Printing Division,
Bureau of Engraving and Printing
For superior leadership in motivating his employees to perform
their duties with increased efficiency, resulting in the elimination
of safety hazards and improved press operations.
WALTER BISHOP, Jr., Chief, Claims Control and Information Branch,
Check Claims Division, Office of the Treasurer of the United States.
For outstanding effectiveness in encouraging employees to process
a substantially greater claims work load with only minimal
increase in staff.
JOHN P. CHAMBERS, Supervisory Estate Tax Attorney, Manhattan
District, New York, N.Y., Internal Revenue Service
For demonstrated leadership by example in motivating subordinates to suggest operational improvements and improved service
to the taxpaying public.
9
364-651-69--2
WILLIAM H. CROUCH, Assistant Foreman, Machine Shop Construction
and Maintenance Division, Bureau of Engraving and Printing
For his superior leadership in effectively encouraging interest
and participation in the Incentive Awards Program creating
among his employees a "competitive spirit for savings."
EDWARD M. ELLIS, Director, Management Analysis Division, Bureau
of Customs
For outstanding supervisory leadership in bringing to his Division
a unit citation for the development of management systems and
significant management improvements.
JOHN M. HARRISON, Section Manager, Data Processing Division, Bureau of the Public Debt
For leadership in motivating his group to perform at maximum
efficiency in processing a heavy workload despite a significant
shortage of experienced employees.
THEODORE JOYCE, Supervisor, Postal Savings Section, Division of Financial Management, Bureau of Accounts
For outstanding success in encouraging and assisting his employees through training to process a far greater workload than projected with no increase in personnel.
LOUIS KIRSCHNER, Chief, Payments Branch, New York Regional
Disbursing Office, Bureau of Accounts
For demonstrated leadership in encouraging his supervisor and
employees to participate fully in the improvement of check processing operations.
EARL LESESNE, Supervisor, Mail, Distribution and Messenger Section,
Division of Financial Management, Bureau of Accounts
For initiative, resourcefulness and intense interest in developing
an unusual spirit of teamwork and dedication to duty among
his employees, significantly reducing turnover and effectively
utilizing the handicapped.
10
SUNDAY AM I S
OCTOBER 26, 1969
PHILADELPHIA MINT TOUR SCHEDULE AND ITINERARY
DATE:
THURSDAY, OCTOBER 30, 1969
7: 45 A.M.
Assemble and board busses located Sheraton Park Hotel,
main entrance, Washington, D. C.
8:00 A.M.
Depart for Philadelphia Mint
10:45 A.M.
Arrive Philadelphia Mint, 5th Street entrance (located
5th & Arch Streets, Independence Mall). Welcome by
Mint officials, Assay Commission Room
11:00 A.M.
Tour of the Mint
12:00 Noon
Board busses for tour of historic Society Hill
12: 30 P.M.
Arrive Philadelphia Museum of Art (via Benjamin Franklin
Parkway, at 25th Street)
1:00 P.M.
Welcome by the City of Philadelphia (Philadelphia Museum
of Art). Luncheon in the Museum
3:00 P.M.
Depart for Washington, D. C.
6:00 P.M.
Arrive Sheraton Park Hotel, main entrance, Washington, D.C.
TREASURY DEPARTMENT
55
'-If 7
;
WASHINGTON. D.C.
October 24, 1969
ADVANCE FOR A.M.
MONDAY, OCTOBER 27, 1969
BILATERAL TALKS ON MARIJUANA,
DRUG PROBLEMS BEGIN
The United States and Mexico begin another round of talks
Monday on ways to increase cooperation in the control of
production and trafficking in marijuana, narcotics and other
dangerous drugs.
A delegation from the United States, led by Deputy Attorney
General Richard G. Kleindienst and Assistant Treasury Secretary
Eugene T. Rossides, went to Mexico City to open this week's
talks.
Treasury Secretary David ~. Kennedy and Attorney General
John N. Mitchell may join the talks in mid-week o
The bilateral discussions are the third to be held since
July. The first was held in Mexico City in July and the
second in Washington October 8-10.
Topics for discussion include:
Elimination of sources of narcotics, marijuana
and dangerous drugs;
__ I
Intensification of efforts by both governments to
control the illicit traffic of narcotics, marijuana
and dangerous drugs;
Increasing cooperation between the Mexican and
U.S. governments in dealing with narcotics;
possible U.S. assistance to Mexico;
And creation of permanent machinery for continuous
consultation and cooperation between Mexico and the
United States on the problems of controlling
narcotics, marijuana and other dangerous drugs.
- 2 Others in the American delegation will include:
Myles J. Ambrose, Commissioner of Customs; John E. Ingersoll
Directur of the Bureau of Narcotics and Dangerous Drugs, and
Chris Go Petrow, Country Director of Mexico, Department
of SLate.
000
TREASURY DEPARTMENT
V'
-"
,"~
,...
......'
~
WASHINGTON. D.C.
October 24, 1969
FOR IMMEDIATE RELEASE
TREASURY OFFICIAL DENIES REPORTS Of
SILVER COINAGE COMPROMISE PROPOSAL
Secretary of the Treasury David M.
issueJ the following statement:
Kennedy today
The Treasury reiterates i~s support for the minting
silverless dollar beari'lg the likeness of forr;w:c
~12sident Eisenhower.
Contrary to wire service reports,
the Treasury has not proposed a compromise plan to recon~ile
the differences between a House bill conforming with the
Trea -ury! s recommendations ::..nd a Senate bill which provide::;
~or an Eisenhower dollar containing 40 percent silver.
A
Cl
Mr. Kennedy pointed out, however, that although no
compr~mise
proposal had been made, discussions are underway
0 f the Hou s e and the Senate as to po S 2 ible
approaches to reconciling the differences between the
t"w lJills.
v]i t.'1 :neubers
000
1\-252
TREASURY DEPARTMENT
FOR RELEASE 6:30 P.M.,
~day, October 27, 1969.
!t;A
&6
WASHINGTON. D.C.
The Treasury Department announced that the tenders for two series of Trea:;ury
bills, one series to be an additional issue of the bills dated July 31, 1969, and
the other series to be an additional issue of the bills dated April 30, 1969 ~ which
were offered on October 22> 1969, were opened at the FF.'deJaJ Re:38rife Bank'; -!.,rjday.
Tenders vTere invited for $1,800,000,000, or thereabouts, of 91-day bills and for
$1,200,000,000, or thereabouts, of 182-day bills. The details of the two series
are as follows:
RANGE OF ACCEPTED
COMIJETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing Ja.nuary 29 2 1970
Approx. Equiv.
Annual Rate
Price
6.9980/0
98.231
7.042%
98.220
98.223
7.030%
182-day Treasury bills
maturing AI:ril 3° 2 1970
Approx . Equiv.
Price
Annual Ra.te
86.336
7 .2470/0
96.322
7.275%
96.328
7.263%
Y
Y
27% of the amount of 91-day bills bid for at the low price was ac:ceptecl
1% of the amount of' 182-day bills bid for at the low price vlJS accepted
TOTAL TENDERS APPLIED FOR AIm ACCEPrED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
\ St. Louis
I1inneapolis
Kansas City
Dalla.s
San Francisco
Awlied For
$ 30,274,000
2,235,239,000
37,610,000
37,139,000
24,677,000
45,501,000
223,720,000
62,142,000
26,199,000
37 J174,000
24,855,000
161,540,000
Accepted
$ 19,253,000:
1,307,117,000:
21,789,000:
36,503,000:
16,277 ,000:
33,532,000:
196,304,000:
45,723,000:
16,279,000 :
36,013,000:
14,855,000:
56,459 2°°0:
TOTALS
$2,946,070,000
$1,800,104,000
1Pplied For
i.j:l
6,ll3,000
2~132,080,000
22,252,000
34,633,000
12,860,000
35,823,000
257,693)000
45,977,000
2:'",707,000
2~:5 ,56";" ,000
21,224,000
263,253,000
§/
$2,879,182,000
Accented
$ .. S, 213,000
998,263,000
11,637,000
,33,563,000
1C,446,000
16,685,00C,
/~(J,
471,00(:
12984,000
() 2en ,000
19 " :::~('} ,000
10,924,000
,__ 2.8!.4:>1) 000
$1,200,~5~,OOO ~/
y Includes $368,256,000 noncompetitive tenders accepted at the average price of
if
9C,.?Z3
Includes $215,434,000 noncompetitive tenders accepted B.t the average price of 96.=·28
.; These rates are on a bank discount basis. The equivalent coupon issue yielc:::; 2';~
7.26% for the 91-day bills, and 7.64 %for the 182-day bills.
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR RELEASE 6: 30 P.M.,
Tuesday, October 28, 1969.
RESULTS OF TREASURY'S M)NTm.Y BILL OFFERING
The TreaaUl7 Departm!nt announced that the tenders for two series of Treasury
bills, one serie. to be an additional issue of the bills dated July 31, 1969, end the
other series to be dated
October 31, 1969, which were offered on October 22 1969 were
,
opened at the Federal Reserve Banks tocU~~~,
~nders were invited for $500,000,000, or
thereabouts, of 273-4q· bills and for $1,000,000,000, or thereabouts, of 365-day bills.
The details ot . . two series are as follows:
,
,
0
MNGE OF ACC&PtID
273-day Treasury bills
COMPETITIVE BIDS: __ma.=-tur~i;;;;ng
___~Ju,;;;,:ly;;;!L.....;;.3;;..1/L...;;1~9..;..70.-,..._
Approx. Equiv.
Price
Annual Rate
1.18511
94:.551
High
1.275~
94.483
Low
94.507
7.244~
Average
365-day Treasury bills
maturing October 31, 1970
Approx. Equiv.
Annual Rate
Price
92.786
7 .115~
92.763
7.138~
92.774
7.127~
11
11
56~ ~ the UlOunt of 273-day bilL: 't:!1d for at the low price was accepted
86~
rom
of tbe .-aunt of 365-day bills: id for at the low price was accepted
TEImERS APPLIED FOR AIm ACCEPTED B'?i;'
District
Boston
New York
Philade lphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
.f')~
RESERVE DIST'" lCTS :
AcceEted
Aalied For
1, 15~, 000
$
9,159,000
404,95b;OOO
964,475,000
,538,;:)00
5,538,000
1,610,000
1,610,000
1,083,000
1,083,000
6,875,000 •
13,875,000
40,315,000
90,315,000
9,859,000
10,359,000
7,460,000
13,0&60,000
804,000
804,000
4,718,000
12,n8,COO
20,E638,E000
89~078.1000
*
.
$1,212,'74,000
Y Includes
$ 500,014,000
!I
~ERliecl_For
.~
12 382,000
1,621:, 752j1 000
1" -' 769} U(;,.
2:. , ,334,000
;~ , ,;' ~,8 , 000
2:::1,621;:)00
320,197,0':'0
16,448,00C
16,687,000
8,275,000
13,279,000
216 1 069 l 000
AcceEted
2,482,000
$
839,104,000
4,462,000
16,409,000
4,395,000
6,496,000
103,459,000
4,048,000
2,687,000
6,275,000
2,779,000
71. 734 z 000
$2,288,929,000
$:t.: :',)0, 330, 000
<)
-~
..•.
PI
$ 20,ln,OOOnoncOIIIpetitive tenders accepted at the aver~ ~f~·lce of 94.507
~ Includes $ 72,103,000noncompetitive tenders accepted at the ave~ price of 92.774
!/lbese rates aft on a bank discount basis. '!he equivalent coupon isaue yields are
7.67~ for the 273-daJ bills, and 7.64~ for the 365-day bills.
K-253
TREASURY DEPARTMENT
Washington
FOR RELEASE NOON
WEDNESDAY, NOVEMBER 5, 1969
EXCERPTS FROM REMARKS BY HENRY C. WALLICH
PROFESSOR OF ECONOMICS, YALE UNIVERSITY,AND
SENIOR CONSULTANT TO SECRETARY OF THE TREASURY
DAVID M. KENNEDY
AT THE MEETING OF THE GLASS CONTAINER
MANUFACTURERS INSTITUTE, INCORPORATED,
DORADO BEACH, PUERTO RICO, NOVEMBER 5, 1969
GRADUALISM ON TRIAL
When I gave the title of this talk to your program
Chairman, the economy had exhibited as yet few signs of a
slowdown. Gradualism, the effort to taper off inflation
gradually instead of at the expense of suffering a recession
and high unemployment, at that time still faced a double test.
First, the economy had to be made to respond to fiscal and
monetary restraint. It had to be shown that a budget surplus,
combined with a virtual absence of growth in the money supply,
would stop the overheatingo Second, it would have to be
demonstrated that this kind of restraint, applied steadily
but continuously would in fact bring greater stability of
prices without an intervening recession.
Meanwhile, the first of these challenges seems to have
been met. The economy is showing signs of a slowdown. Based
on the evidence of manufacturing activity, something like a
cyclical peak may have occurred in July. production since
that time has declined slightly. Unemployment has risen, but
fortunately there are reasons to hope that the sharp jump of
one-half of one percent in September represents a statistical
accident and is not characteristic of the true pattern of the
economy. Other evidence of diminishing steam in the economy
is visible with which I am sure you are all familiar. These
facts go some way to answer the allegation of critics who
have been referred to as the "naive skeptics," to the effect
that the overheating of the economy was altogether untractable
by the usual devices of fiscal and monetary restraint. We
can see that the brakes work.
~254
- 2 -
At this point, we encounter the sophisticated critics.
Their argument is "Demand management will indeed slow the
economy down. But since the Administration will not accept
high rates of unemployment, inflation will not be stopped.
A year from now or thereabouts, the economy will be resuming
speed, and inflation will be as bad as before." The existence
of this view, which I believe to be widespread, is in itself
a reason why inflation tends to persist and why gradualism
is not an easy course to follow. The view of the skeptics
rests in good part on the experience of 1966-67. At that
time, inflation was halted very briefly, with a minimum of
unemployment. But when the economy began to contract,
restraining policies were drastically reversed. An upturn
followed quickly, and so did accelerated inflation. If
gradualism is to succeed, it must avoid that pattern. What
can give us confidence that this can be done?
If you are willing to examine into the course of past
failures, you will observe that the mini-recession of 1966-67
had some rather peculiar features. The budget was in large
deficit and continued to stimulate the economy. All the
restraint came from a very tight monetary policy. The
reversal of restraint also came entirely from monetary policy,
with fiscal impulses on the expansionary side until the
imposition of the surcharge in 1968. Monetary action was
drastic and extreme, both in restraining and in subsequently
undoing the consequences of restraint.
The present mix of policies is quite different. The
budget shows a good surplus. Monetary policy has kept the
volume of money from growing, but has not positively reduced
it, as it did in 1966
Thus, restraint is better balanced
than during the earlier performance.
0
For this reason, when the time comes to reduce restraint,
it will be possible to do it in a more gradual manner. There
should be no reason to go overboard and, in order to forestall
recession, fuel another inflation. How much the economy will
slow is of course not foreseeable with accuracy. Expert views
are divided as to whether it should be called a slowup, a
slowdown, or perhaps a slow-sideways. As this movement
unfolds, it will be important to keep the budget on a straight
course o The surplus is not so large that it could readily be
reduced for the sake of short-run effects. A continuation of
the surcharge at a 5 percent rate unti.1 mid-year, and the
revenue from ending the investment tax credit, will be needed
to achieve the proper budgetary posture. So will continued
vigilance to hold down expenditures.
- 3 -
Flexibility, therefore, will have to be largely on the side
of monetary policy. Here, it will be important to distinguish
clearly what is happening in the economy as a result of market
forces, and what is happening as a result of action by the
monetary authorities. As some of the steam comes out of the
economy, interest rates will tend to come down. This can be
expected to happen, in some degree, quite without benefit of
Federal Reserve action.
In the past, it has sometimes been thought that such a
fall in interest rates, due purely to reduced economic
activity, was all that was needed to restore activity. This
clearly is wrong because a revival of the economy would then
put an end to the lower interest rates that had brought about
this revival. In the past, also, interest rates often have
been regarded as the principal indicator of the ease or tightness
of monetary policy. In the present situation, when interest
rates are badly distorted by inflation, they cannot furnish
reliable guidance. More attention must be given to the volume
of money and of credit. Under stable conditions, one would
expect the money supply to grow at about the same rate as the
real growth of the economy, i.e., about 4 percent per year.
When growth is accompanied by inflation, the demand for money
must be expected to rise at a rate reflecting both increments,
in recent months something like 6-8 percent per year. You
will note that, in the face of such increases in the demand
for money, a growth rate of the money supply of virtually
zero, such as we have had since spring, constitutes powerful
restraint.
When the economy is confronted with pressures of this
sort, some might ask whether there is not a danger of sliding
off into serious recession. But among the many forecasts
I have seen, none points in that direction. The forces that
keep the economy going are very strong, both in the public and
the private sector. As far ahead as one can see, the
underlying basic condition of our economy is an excess of
demand, not a deficiency. The fear of deep recession,
which in the past, whether justified or not, probably has
operated as a restraint on inflation, is unlikely, thanks to
gradualism, to exert such restraint in the foreseeable
future.
- 4 Another kind of risk nevertheless should give businessmen
pause as they formulate plans for selling, pricing, investing,
and for bargaining over wages. Until this year, public
policies have been of a sort to validate decisions to incur
very high costs. Price increases, wage increases, high interest
rates and high investment budgets have all been made to look safe
and sound by highly expansionary fiscal and monetary policies.
This period of self-validating over-exuberance has come to an
end. Real risk will be involved in making decisions and contracts
on the basis of an expectation of continued high inflation.
Decisions that cannot be justified in terms of ordinary
business judgment will stand revealed for what they are __
unjustifiable decisions.
The dangers inherent in such decisions are likely to be
increasingly reflected in the profits picture. Profits after
taxes have been essentially stagnant since 1966
The effort
to reduce inflation is bound to bring some further pressure o
The inflation so far has been largely of the "demand pull"
variety, which is relatively favorable to profits. This is
reflected in the rise in profits before taxes since 1966.
0
A model change now seems ahead in the inflation line.
Increasingly, hereafter, you will hear about cost push
inflation. Rising wages, wage demands and other costs will be
pushing against profit margins, and these margins will be
increasingly more difficult to widen by raising selling prices o
This is likely to playa role in future investment decisions.
Investment plans will be influenced also by the growing excess
capacity in manufacturing plant and equipment. For manufacturing
industry as a whole, the operating rate is now about 84 percent.
In other words, the unemployment rate of capital is 16 percent.
Since business seems to be satisfied to operate well below
rated capacity, this unemployment of capital is not as serious
as it sounds. Nevertheless, it is likely to have its bearing
upon profits and investment decisions.
The principal purpose of gradualism, of course, is to
prevent high unemployment of people. Of late, American
business has made an increasingly important contribution to
alleviating structural unemployment by intensified training
programs and their extension to the hard cor.e unemployed. It
would be unfortunate if an easing of the present extreme
tightness in the skilled labor market ,should lead to the
relaxation of efforts to train the unskilled. For governmen~
- 5 -
any easing of the employment picture must be a signal to
intensify manpower training and measures designed to improve
labor markets, as well, of course, as to improve unemployment
compensation. The Administration has made proposals on
manpower training as well as to improve unemployment compensation
which are still pending in Congress. These are structural
improvements that over the years will make it possible to
reconcile price stability with ever lower levels of
unemployment. They must not be neglected because of short-run
structural unemployment of any sort; however few the people
suffering from it, the urgency of structural improvements
will continue regardless of the overall employment situation.
To sum up: The gradualist approach must meet two tests.
First, it must prove that measures that fall short of being
drastic can nevertheless take the excess steam out of the
economy. The evidence on this is already coming in.
Subsequently, it must reaccelerate the engines without
causing the economy to take off into renewed inflation.
This will call for careful and deliberate handling in the
months ahead. Most of the mobility will have to be on the
side of monetary policy, because the budget is well set on
a course toward a reasonable surplus at full employment and
has little to give awayo Success in passing this second test
should begin to be visible some time around the middle of next
year o Assuming, as I do, that this second test is passed, we
should have a significant lessening of the rate of inflation
in 1970.
000
TREASURY DEPARTMENT
4
FOR IMMEDIATE RELEASE
WASHINGTON. D.C.
October 29, 1969
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by
for two series of Treasury bills
$3,000,000,000, or thereabouts,
Treasury bills maturing November
$ 2,902,422,000,
as follows:
this public notice, invites tende~s
to the aggregate amount of
for cash and in exchange fo~
6, 1969,
in the amount of
91-day bills (to maturity date) to be issued November 6, 1969,
in the amount of $1,800,000,000,
or thereabouts, representing an
additional amount of bills dated August 7, 1969,
and to
mature February 5, 1970,
originally issued in the amount of
$ 1,203,246,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $ 1,200,000,000,
or thereabouts, to be
dated November 6, 1969,
and to mature May 7, 1970.
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, November 3, 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
forwarded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders fo~ 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
K-255
-
L
I
responsible and recognizeci 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 announ
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 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 6, 1969, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing November 6, 19690
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 050~ranch.
TREASURY
DEPARTMENT
&
_
w
WASHINGTON, D.C.
October 29, 1969
FOR IMMEDIATE RELEASE
The following remarks were made by Secretary of the
Treasury David M. Kennedy today at a meeting on equal
employment with representatives of the District of Columbia
Bankers Association:
I am pleased to participate with you in this
conference and workshop on equal employment
opportunity, a subject to which I have a deep
personal commitment. As bankers you are all
familiar with the Executive Order dealing with
equal employment. That you are concerned is
evidenced by your presence here today.
As you know, I am no stranger to the banking
business. Very briefly, I woutd like to draw upon
my experiences at Continental Illinois in the area
of equal employment policies. Like most banks -indeed, like most business -- in the major cities
of the country, Continental Illinois at one time
had relatively few minority employees. But by
taking a positive attitude we were able to recruit
and train substantial number of blacks for
responsible positions within Continental Illinois.
Today some 40 percent of the Continental Illinois
work force is comprised of minority group members
who have contributed their share to the growth and
efficiency of the bank. This record was the
achievement not of good public relations but of
good human relations.
- 2 .~.
I understand that great strides have been made
in the District by many of the banks represented
here today. I am not surprised. Banks are compliance
oriented. Banks traditionally have been involved in
community affairs o It is only natural, then, that
you have made great gains in this area.
I want to make clear that you have the full
support of the Treasury Department in the
implementation of the Executive Order on equal
employment. As you know, we have held about 10 equal
employment conferences around the country. In these
we have been able to discuss with bankers in other
cities many of the problems common to those of you
here today.
I envision the day when banks, not only here
in Washington, D.C., but throughout the nation,
will develop even more meaningful action programs
in the area of equal opportunity. I believe the
banking community can sustain and expand a warm
environment that will reflect a feeling of welcome
and fairness to its workers, depositors and
customers, regardless of race, color, religion,
sex or national origin.
Realistically, the goal of equal employment
for all is still some distance away. It is my
firm belief, however, that the banking community
can and will continue as a pacesetter as we move
closer to that goal.
000
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR RELEASE 4:00 P.M.
October 29, 1969
TREASURY ANNOUNCES CONTlNUATION OF
$:s BILLION WEEKLY BILL AlX:TIONS
The Treasury Department announced today that it will continue for
the time being its weekly bill auctions at the level of $:3 billion.
The
effect will be to raise $100 million of cash over the $2.9 billion
maturities each week that this pattern is continued.
The additional
cash raised will meet a portion of the Treasury's autumn and winter
financing requirements.
For the week of November 6th, the Treasury will sell $1.8 billion
of 3-month bills and $1.2 billion of 6-month bills.
WASHiNGTON. D.C.
October 30, 1969
FOR IMMEDIATE RELEASE
JOINT DECLARATION
OF THE
UNITED STATES AND MEXICAN DELEGATIONS
In accordance with the agreement signed in Washington)
D.C. on October 10, 1969, representatives of the governments of the United States of America and Mexico met in·
Mexico City on October 27, 28, 29, 1969, for bilateral
talks on the control of and the illicit traffic in narcotics, marijuana and other dangerous drugs.
At this meeting the two delegations re-affirmed
the joint communique issued at·Mexico City on June 11, 1969,
as well as the commitment entered into by both governlj>=::'~t=
~.: ..
~~-~-i:"".
~~~ ____ ;~ .. I..-~lt
=~:_~~~~'--'-~
~:ll ~<r'-..L>-I~:i_.16t0.Ll,
D.
c.
-or!
October 10, 1969, in wh~ch by mutual agreement Operation
Intercept was superceded by Operation Cooperation.
The
United States noted that, as a result of the measures
taken in pursuance of its commitment, delays, irrita-tions and inconveniences at the border and at other
p8rts of entry had been reduced to virtually preOperation Intercept levels.
The talks were based on the agenda which emanated
from the agreement signed at the above-mentioned Washington
meeting.
The United States delegation presented to the
delegation of Mexico for its consideration working
materials relating to the various items on the agenda.
The two delegations decided to establish a joint
working group to examine these materials and those which
will be presented by the Mexican delegation in detail
with a view to identifying possible bases for agreements
between the two governments and to report their findings
to the two governments.
It was agreed that the working
group would submit a progress report by December 15 and
K-257
-2-
further reports from time to time with the understanding
that such reports would only be recommendations to the
respective governments.
The delegation of Mexico emphasized that in accordance
with Mexican national policies and the provisions of the
Mexican constitution its government's effort to continue
intensifying the fight against the illegal traffic of
narcotics would continue to be carried out exclusively
by Mexican personnel under Mexican direction. The
United States expressed its complete understanding of
this position.
The two delegations expressed their satisfaction
at the spirit of mutual friendship and understanding
which characterized the meeting and reiterated their
determination to maintain relaTions between them at
the highest levels of friendship, understanding and
respect for the dignity and sovereignty of their respective countries.
000
/,{I .'5/
rREASURY DEPARTMENT
e
d
WASHINGTON. D.C.
November 5, 1969
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
$3,000,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing
November 13, 1969, in the amount of
$2,890,203,000, . as follows:
92-day bills (to maturity date) to be issued November 13, 1969,
in the amount of $1,800,000,000,
or thereabouts, representing an
additional amount of bills dated
August 14, 1969,
and to
mature
February 13, 1970,originally issued in the amount of
$1,199,449,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,200,000,000,
dated
November 13, 1969,
and to mature
or thereabouts, to be
May 14, 1970.
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,
Monday, November 10, 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"fmals, 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
~serve 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
~ithout deposit from incorporated banks and trust companies and from
K-258
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L
-
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 pE::rcent of the face
arrlount of Treasury bills applied for. unless ~~h~ tenders are
accompanied by an express guar2:1t) ot p':lym2tLt by an incorpot'ated bank
or trust company.
Imrnediately after the closing hour, tenders y•.'ill be opened at
the Federal Rese!:",'e 3anks a1'"!.d Branches, following which public announe
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 accep~ance or l."ejection thereof. The Secl'E tary of the
Tre.:.'.sur'V e;"pressly reserves the right to accept or reject arty 0" all
tenders, in whole or in part, and his action in any'~uch 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 (iQ three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance Nith the bids must be
made or completed at the Federal Reserve Bank on November J.3, 1969,
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
November 13, 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.
I
,.
The income derived from Treasury bills, ~¥hether 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 0cO~ranch.
VJA3MINGTON, D.C.
October. 31, 1969
FOR U1HEDIATE RELEASE
STATEMENT OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
ON ACTION BY THE SENATE FINANCE COMMITTEE
ON THE TAX REFORM ACT
Today's reporting of the Tax Reform Act of 1969 by the
Senate Finance Committee represents another significant step
toward the enactment of a comprehensive Tax Reform Act this
year. Although I do not wish to conLment at this time on the
specific provisions of the bill, I do want to compliment the
Committee on its major contribution to the cause of tax
reform, and in particular for its action in reducing the
revenue shortfall of the House bill.
I especially want to express my personal congratulations
to the Committee, under the leadership of Chairman Russell
Long and ranking Republican John Williams, for its success in
meeting the October 31 deadline and reporting out the bill
after only 3 weeks of executive session. The complexity and
comprehensiveness of the legislation required almost night
and day work on the part of the Committee, its staff, and
the cooperating Treasur.y officials and staff.
I urge the Senate leadership to bring this bill before
the full Senate at the earliest possible date.
000
K-259
TREASURY DEPARTMENT
WASHINGTON. D.C.
OR RELEASE 6:30 P.M.,
~.Navembe~ 1969.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
ills, one series to be an additional issue of the bills dated August 7, 1969, and the
ther series to be dated November 6, 1969, which were offered on october 29, 1969, were
~ned at the Federal Reserve Banks
r~reabouts, of 91-day bills and
ills.
today. Tenders were invited for $1,800,000,000,
for $1,200,000,000, or thereabouts, of 182-day
ihe details of the two series are as tallows:
\NGE OF ACCEPlED
ro'ETITIVE BIDS:
High
Low
Average
182-day Treasury bills
maturing May 11. 1910
Approx. Equiv.
Price
Annual Rate
7.238%
96.341 ~
96.310
7.299~
7.281~
96.319
91-day Treasury bills
maturing February 51. 1970
Approx. Equiv.
Annual Rate
Price
6.943~
98.245 ~
98.224
7.026~
98.231
6.998~
Y
Y
~ Excepting 2 tenders totaling $2,006,000; ~ Excepting 2 tenders totaling $126,000
7~
lO~
of the amount of 91-day bills bid for at the low price was accepted
of the amaunt of 182-day bills bid for at the low price was accepted
TAL TENDERS APPLIED FOR AND ACCEPTED BY FEDE?t, T, RESERVE DISTRICT 3 :
District
Boston
!few York
fuilsde Iphia
;leve1and
Richmond
ltlanta
lhicago
It. Louis
iinneapolis
&lass City
allas
ian Francisco
TOTALS
Acce;Eted
Applied For
$ 36,195,000 $ 26,195,000
1,164,332,000
2,193,455,000
24,383,000
39,569,000
41,925,000
43,025,000
24,374,000
41,814,000
37,479,000
50,575,000
217,136,000
235,799,000
38,224,000
51,303,000
23,529,000
25,529,000
38,619,000
40,409,000
19,274,000
29,774,000
144,801,000
205,431,000
$2,992,938,000
$1,800,271,000
For
7,335,000
<t
1,149,828,000
20,903)000
35, 2 f ;; J 000
11,098,000
37, 938,00C
175,024,000
32,964,000
26,805,000
21,910,000
24,358,000
150,286,000
Accepted
:$
7,335,000
836,328,000
10,449,000
29,277,000
11,098,000
24,088,000
134,524,000
24,864,000
19,805,000
20,610,000
15,358,000
661. 886 ,000
$2,293,726,000
$1,;;10,622,000 ~
~j.ed
,;,.
·
·
£I
Includes $370,181,000 noncc:m,petit1ve tenders accepted at the average pr~:<2 of 98.231
mcludes $210,631,000 noncompetitive tenders accepted at the average price of 96.319
~se rates are on a bank discount basis. The equivalent coupon issue yields are
7.22 '" for the 91-day bills, and 7.66~ for the 182-day bills.
u.s.
Treas.
Treasury Dept.
HJ
Press Releases
10
• A13P4
v.166
Treas.
HJ
10
.A13P4
AUTHOR
U.S. Treasury Dept.
Press Releases
TITLE
v.166
DATE
1/);;.."
t•
t
PHONE
NUMBER
BORROWER'S NAME
LOANED
Iv: / ~1
2/)..,-}
"
v
r-
,
WALTER A. OLSON, Head, Electrolytic Branch, Office of Engraving,
Bureau of Engraving and Printing
For demonstrated leadership and motivation of employees to
work at peak efficiency and for effectively recognizing their
performance through the Incentive Awards Program.
HARVEY OSHER, Subunit Supervisor, Division of Loans and Currency,
Bureau of the Public Debt, Chicago, Ill.
For outstanding leadership in motivating subordinates to improve operations relating to the examination and retirement of
savings bonds and notes and to furnish high-quality service to
the public.
KATHRYN TYLER, Supervisor, Check Services Section, Check Claims
Division, Office of the Treasurer of the United States
For selfless devotion to duty and the high standards of performance she maintains for herself and has inspired in those whom
she supervises.
]/
SPECIAL AWARDS FOR EXCELLENCE IN
FURTHERING SPECIAL GOVERNMENTWIDE PROGRAMS
Recognition by the Secretary for outstanding contribution to the furtherance of a number of Government-wide programs in which the
President has asked for special attention and extra effort from the
executive branch of the Government.
CLEO W. ALFRED, Fiscal Accounting Assistant, Audit Section, Division
of Disbursement, Bureau of Accounts
For dedicated service and unusual competence in providing timely
and appropriate information to members of Congress, the general
public, and others in matters relating to check issuances and
claims.
DEAN J. BARRON, Regional Commissioner, Mid-Atlantic Region, Internal Revenue Service, Philadelphia, Pa.
For excellence in furthering the equal employment opportunity
program in the mid-Atlantic region through his strong innovative
and supportive action.
EDWARD C. BISHOP, Chief, Administration Division, Newark District,
Internal Revenue Service
For his significant contributions to improved communication and
service to the public through extensive involvement with the
educational community.
WALTER C. CHILDS, Assistant Chief, Trust Branch, Securities Division, Office of the Treasurer of the United States
For his demonstrated leadership and his own distinctive service to
members of the public who require explanation and guidance
on securities transactions.
12
CLYTIE DENNIS, Communications Clerk, Washington Disbursing Center, Bureau of Accounts
For her outstanding effectiveness in communicating with and
assisting individuals and companies with problems arising from
the loss, mutilation and identification of government checks.
KENNETH A. DEHART, Assistant Chief, Office of Manufacturing, Bureau of Engraving and Printing
For outstanding pubic relations actlVltles at philatelic, numismatic and other public events enhancing to the image of the
Department.
MILDRED D. FLINN, Financial Economist, Office of Tax Analysis,
Office of the Secretary
For her exceptional ability in effectively replying to a tremendous
volume of correspondence from the public on tax policy, including inquiries referred to the Department by the White House and
the Congress.
JOHN J. GOGGIN, Plate Printer, Plate Printing Division, Bureau of
Engraving and Printing
For outstanding effectiveness in demonstrating the process of
printing currency and stamps at public exhibits, to the news media
and to classroom groups.
MARSHALL GOULD, Chief, Internal Audit Staff, Office of the Treasurer
of the United States
For outstanding leadership in stimulating the adoption of new
and more effective techniques to assure proper accountability of
the Office's financial transactions.
GRACE M. HACKL, Employee Relations Specialist, Office of the Treasurer of the United States
For outstanding contributions to the success of the bureau's program for placement and counseling of the mentally retarded,
other handicapped, and the disadvantaged.
13
BETTY M. HARDWICK, Secretary, Office of Assistant Commissioner ~Administration) Internal Revenue Service
For her unselfish and innovative contributions to the training of
the disadvaptaged as a volunteer typing instructor of Neighborhood Youth Corps enrollees assigned to Treasury.
GARY E. HEATH, Public Information Specialist, Bureau of Customs
For excellence in improving communication and service to the
public through development of the "Customs Answer Man"
information series for international travelers.
ANNETIA P. HENDERSON, Securities Examiner (Authorizer), Division
of Loans and Currency, Bureau of the Public Debt, Chicago, Ill.
For excellence in improving communications and services to the
public by her effective adjudication of claims and the simplicity,
clarity, accuracy and courtesy of her letters to the public.
BERNARD LESSER, Chief, Field Audit Branch, Newark District, Internal
Revenue Service
For his contributions to improved community relations by fostering mutual understanding and exchange of information among
various religious and racial groups.
JACK M. LIPSON, Chief, Personnel Branch, Newark District, Internal
Revenue Service
For his contribution to the placement and training of the disadvantaged through imaginative use of the Stay-In-School program and for innovating placement of the blind in the District.
MAGDOLIN A. MARTIN, Office Service Manager, Administrative Services
Branch, Office of the Treasurer of the United States
For her noteworthy contribution in developing and maintaining
improved communications with contractors and suppliers, thus
obtaining essential supplies and services at a reduced cost to
the Office.
14
MARTHA E. MING, Internal Revenue Agent, Los Angeles District
Internal Revenue Service
For her leadership and personal contribution to the training of
the disadvantaged by organizing and providing instruction for
non-English-speaking individuals.
JOHN G. MUNRO, Personnel Management Specialist, Providence District Internal Revenue Service
For significant contributions to furthering the programs for the
placement and training of the handicapped, women and Vietnam
veterans, and especially for helping to further the Equal Opportunity program for the Federal Government in Rhode Island.
ROBERT PACHECO, Director, Chicago Disbursing Center, Bureau of
Accounts
For leadership in implementing an Equal Employment Opportunity Program which has successfully identified and supplied employee developmental needs and resulted in significantly increased
career level opportunities for minority staff.
MICHAEL L. PLANT, Superintendent, Management Services Division,
Bureau of Engraving and Printing
For superior leadership and professional ability in directing the
Bureau's management improvement program.
RICHARD E. REDMOND, Equal Employment Opportunity Counselor,
Bureau of Engraving and Printing
For his influence in the development of a bureau climate of understanding in which employees can feel that there is equality of
opportunity.
GILBERT F. SCHNEIDER, Deputy Assistant Regional Commissioner
(Personnel) Bureau of Customs, Houston, Tex.
For demonstrated leadership and excellence in the placement and
training of the disadvantaged, handicapped, women and Vietnam
War veterans.
15
H. STOVEll, Regional Commissioner, Bureau of Customs, Miami,
Florida
}AWU
For demonstrated excellence in furthering cOSt reduction and
management improvement as evidenced by attainment of the
best regional record of savings.
PERCY A. WADDILL, Superintendent, Plant Services Division, Bureau
of Engraving and Printing
For his outstanding leadership in spearheading an on-going program for the placement, on-the-job training and utilization of
the abilities of the disadvantaged and handicapped.
LILLIAN E. WINN, Office Manager, U.S. Savings Bonds Division,
Boston, Massachusetts
For materially furthering the Savings Bonds Program through
her outstanding ability in answering inquiries from volunteers,
bank and labor organizations, business and industrial concerns
and the general public.
HELEN WISCHMEYER, Personnel Management Assistant, San Francisco
Disbursing Center, Bureau of Accounts
For outstanding effectiveness in the placement and training of
the disadvantaged and the handicapped and in assisting supervisors to better utilize the skills of these employees.
LEON H. LEVINE, Tax Law Specialist (Information)
SCOTI' D. WAFFLE, Public Information Officer
Public Information Division, Office of Assistant Commissioner (Administration) Internal Revenue Service
For their outstanding contributions in gaining public understanding and acceptance of the Gun Control Act of 1968.
16
'to
THE SECRETARY'S ANNUAL AWARDS
The Secretary of the Treasury presents honorary awards each year to
recognize bureaus for outstanding performance in a number of areas.
SECRETARY'S AWARD FOR INCENTIVE AWARDS
PROGRAM (PERFORMANCE)
Bureau of Engraving and Printing
For the best overall results in effectively recognizing employee
performance which significantly exceeded normal job requirements. Over 9 percent of all personnel of the Bureau of Engraving
and Printing received cash awards and tangible benefits so recognized averaged over $3,000 per 100 employees.
SECRETARY'S AWARD FOR INCENTIVE AWARDS
PROGRAM (SUGGESTIONS)
Bureau of Customs
For the best overall results in the suggestion program during
fiscal year 1969. For each 100 employees on its rolls, the Bureau
adopted almost six suggestions and had estimated savings of
$2,788.
SECRETARY'S AWARD FOR SIGNIFICANT ACCOMPLISHMENT IN THE COST REDUCTION
AND
MANAGEMENT
IMPROVEMENT
PROGRAM
Bureau of Customs
For creative leadership and operational effectiveness in the development and installation of improvements during fiscal year 1969
that resulted in cost reduction savings exceeding $3 million and
which surpassed the annual goal by more than a half-million
dollars.
17
SECRETARY'S AWARD FOR SAFETY
Bureau of the Public Debt
For showing the greatest reduction in the frequency of disabling
injuries over the preceding 4-year average. The Bureau reduced
its rate to 0.8 injuries per million man-hours worked, a reduction
of 73.3 percent of the previous 4-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 the
past year.
50 Years of Federal Service
Ethel C. Cawley
Katherine Cleary
Virginia W. Giddings
Mary E. Taylor (retired)
Percy A. Waddill
Internal Revenue Service
Bureau of the Public Debt
Internal Revenue Service
Bureau of Engraving and Printing
Bureau of Engraving and Printing
45 Years of Federal Service
Clarence M. Bowles
Sadie Lipshitch
Bureau of Engraving and Printing
Internal Revenue Service
40 Years of Federal Service
Lois I. Bailey
Ralph Berman
Alan B. Clark
Ralph o. Compton
Aaron E. Hansen
George Kaiser
Preston P. Kellog
Abram Levin
Vivian N. Lyle
Manford E. Nelson (retired)
Catherine C. Norris
Teresa S. Prevost
David A. Schriver
Howard H. Sheppe
Leola M. Stahl
Isabelle Whiteford (retired)
Office of the Secretary
Bureau of Accounts
Bureau of the Public Debt
Bureau of Customs
Internal Revenue Service
Internal Revenue Service
Comptroller of the Currency
Internal Revenue Service
Internal Revenue Service
Internal Revenue Service
Comptroller of the Currency
Internal Revenue Service
Internal Revenue Service
Bureau of Customs
Office of the Secretary
Internal Revenue Service
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 co"ferred
on employees who render meritorious serf/ice withi" or beyo"d their
required duties.
FRANK ARMFIELD, JR., Director, Parkersburg, West Virginia Office,
Bureau of the Public Debt
For outstanding contributions to efficient management of auditing, accounting and recordkeeping operations involving United
States Savings Bonds and Notes.
EDlm BATURIN, Confidential Assistant to the Under Secretary of the
Treasury
For outstanding and dedicated performance in supervlSlng the
operations of her office and maintaining efficient liaison with
other offices in the Department and the Government.
BOBBY J. BLANKS, Supervisory File Clerk, Midwest Service Center,
Internal Revenue Service
For extraordinary courage and ability in an emergency affecting
the entire staff reflected in actions which were instrumental 10
protecting the health and lives of many employees.
JAMES D. BURRIS, Deputy Director, Office of Planning and Program
Evaluation, Office of the Secretary
For significant contributions in developing the information base
of the Planning, Programing, Budgeting System which he helped
to organize.
20
CATHEJtINE V. CoLEMAN, Assistant to the Director, Office of Administrative Services, Office of the Secretary
For unusual initiative in achieving recognizable improvements
in the effectiveness of the Office and her smooth coordination of
its varied administrative activities.
WILLIAM V. CROSSWHITE (Retired), Formerly Assistant to Regional
Counsel, Southeast Region, Internal Revenue Service
For exceptional legal and managerial ability while occupying
a number of highly responsible positions within the Office of
the Chief Counsel, Internal Revenue Service
BERNARD M. FLYNN (Retired), Formerly National Bank Examiner,
Office of the Comptroller of the Currency
For his outstanding professional competence, thoroughness, and
continued high-quality performance for over 41 years of public
service as a National Bank Examiner.
Lou FRANK, National Bank Examiner, Office of the Comptroller of
the Currency, Miami, Florida
For his display of unusual competence and diligent efforts which
contributed substantially to maintaining the security and stability
of the National Banking System.
SMITH B. GRIFFIN (Retired), Formerly Deputy Assistant Commissioner, Office of Investigations, Bureau of Customs
For his significant contributions to the enforcement of customs
laws and regulations throughout his 35 years in the United States
Customs Service.
JOHN D. GWIN, Deputy Comptroller of the Currency
For his outstanding contribution to the supervision of national
banks throughout his 35 years of service in the Department.
MARY E. HARRIS, Confidential Assistant to the Secretary of the
Treasury
For distinguished and dedicated service in her present position
and in her previous assignment to two Under Secretaries of the
Treasury and a General Counsel.
21
RALPH J. HAYES, Chid, Buildings Operations Division, Office of
Administrative Services, Office of the Secretary
For significant contributions to the improvement of environmental conditions in the m;lin Treasury building despite limited
staff and funds.
HAYDEN E. ISAACS, Assistant to the Deputy Treasurer of the United
States
For his extraordinary ability to comprehend and explain the
function of monetary systems which was especially influential in
the successful accomplishment of changes involving the withdrawal of silver from our coinage and currency.
THOMAS L JOHNS, Special Agent in Charge, Birmingham, Alabama,
and formerly Assistant Director (Protective Forces), United States
Secretary Service
For originating, developing and implementing procedures to
meet new statutory requirements of affording physical protection
to major Presidential and Vice Presidential candidates and nominees during the 1968 presidential campaign.
Roy H_ KELLERMAN (Retired), Formerly Deputy Assistant Director
(Protective Forces),
Secret Service
u.s.
For outstanding senice, unusual competence and dedicated personal leadership in meeting unprecedented demands imposed by
legislation to afford physical protection to the Presidential and
Vice Presidential candidates and nominees during the 1%8 presidential campaign.
ARNOLD E. LARSEN, Regional Administrator of National Banks, San
Francisco, Office of the Comptroller of the Currency
For his outstanding contributi()II to organizational administration, examination procedures ;1I1d staff development in the office.
HER~IAN
I. LIEBLING, Assistant I )ireClOr for Business Economics,
Office of Financial Analysis, Olliee of the Secretary
For his contributions in the field of economic analyses and his
advice to the Secretary of the Trc:l,ury and other key Trc3'ury
officials on development, inflllencill.~ the performance of the
national economy.
??
'-fro
HAROLD B. MASTER, Coordinator for Banking and Volunteer Activities,
U.S. Savings Bonds Division
For his outstanding contributions to the U.S. Savings Bonds program by the superior manner in which he has developed and
sustained an active and productive Savings Bonds volunteer organization throughout the Nation.
PAUL R. McDANIEL, Formerly Attorney, Office of the General Counsel,
Office of the Secretary
For outstanding service to the Treasury Department, the Ways
and Means Committee of the House of Representatives, and the
Nation in the development of the proposed Tax Reform Act of
1969 (H.R. 13270).
MARTIN H. MILLER, National Industrial Payroll Savings Manager, U.S.
Savings Bonds Division
For his expertise in the field of payroll savings which has contributed immeasurably to the success of the Savings Bonds
program.
SIDNEY MINTZ, Assistant Director of Personnel (Career and Employee
Development), Office of the Secretary
For his continued versatile and effective performance as a key
member of the Office of Personnel staff. He has consistently displayed the ability to cope with unusual and unique circumstances
occurring in the Department-wide program areas for which he
has been responsible.
PAUL ]. PATERNI, Chief, Security Staff, Bureau of the Mint
For his outstanding contributions to the modernization and
strengthening of the physical and personal security program
throughout the headquarters and field establishments of the
Bureau.
THOMAS E. POWER, Assistant Deputy Superintendent, Philadelphia
Mint, Bureau of the Mint
For his outstanding contribution to the smooth transition of coinage operations from the old t" I hc ncw mint in Philadelphia.
PAUL F. SCHMID (Retired), Formerly Assistant Director, Legislation
and Regulations Division, Office of the Chief Counsel, Internal Revenue Service
For excellent legal and managerial ability in various key attorney
positions through a long and distinguished career of dedicated
servIce.
STUART E. SEIGEL, Formerly Associate Tax Legislative Counsel, Office of Tax Analysis, Office of the Secretary
For his contributions to the tax legislative program especially with
regard to tax liens, political contributions, investment credit, user
taxes and estate and gift tax revision.
MILDRED C. WEBER, Head, Employee Relations Branch, Office of
Industrial Relations, Bureau of Engraving and Printing
For exceptional competence, good judgment and resourcefulness
in effectively planning, directing, administering, and coordinating
the many and varied facets of the Bureau's employee relations
program.
24
'1;, (
..
EXCEPTIONAL SERVICE AWARD
This is the highest award which may be recommended for presentation by the Secretary. The award is conferred on employees who distinguish themselves by exceptional service within or beyond their
required duties.
BENJAMIN CAPLAN, Director, Office of Planning and Program Evaluation, Office of the Secretary
For pioneering efforts in developing and making operational the
Planning, Programing, Budgeting System of the Department in
the short span of three years.
WILLIAM B. DALE, United States Executive Director of the International
Monetary Fund and Formerly Special Assistant to the Secretary of
the Treasury
For exceptional contributions to the international monetary programs and policies of the United States.
LAWRENCE FLEISHMAN, Assistant Commissioner of Customs (Investigations)
For impressive contributions to the enforcement of customs laws
throughout a distinguished career of 42 years in the Customs
servIce.
WILLIAM T. GIBB III, Formerly Deputy Tax Legislative Counsel,
Office of the Secretary
For significant contributions to important tax legislation.
J. ELTON GREENLEE, Director, Office of Management and Organization,
Office of the Secretary
For outstanding contributions in bringing about greater efficiency
and reduced cost of operations throughout the Department.
25
I
{
WILLIAM T. HOWELL, Deputy Treasurer of the United States
For dedicated leadership and a sustained record of accomplishment especially during his tenure as Acting Treasurer of the
United States.
ROBERT L. JACK, Assistant Commissioner (Data Processing) Internal
Revenue Service
For exemplary contributions toward the formulation and execution of tax administration policies and activities throughout the
nation and abroad.
MATTHEW J. MARKS, Deputy to the Assistant Secretary for Enforcement and Operations
For extraordinary accomplishments in the foreign trade field
and a 27-year career of devoted service to the Department.
LIVINGSTON T. MERCHANT, Formerly Special Assistant to the Secretary and U.S. Executive Director of the International Bank for
Reconstruction and Development
For exceptional contributions to the advancement of the Treasury
Department and United States policies in the field of international
development finance.
L. DAVID Mosso, Assistant Commissioner of Accounts
For exceptional executive ability in developing the maximum potential of the Bureau's resources and providing masterful leadership in the Joint Financial Management Improvement Program.
JOHN R. PETTY, Assistant Secretary for International Affairs
For distinguished contributions to international monetary policies
and negotiations in the most unsettled period the international
monetary system faced in the post-war era.
LESTER W. PLUMLY, Chief Disbursing Officer, Bureau of Accounts
For meeting the challenges of ever-increasing workloads with
successively higher records of productivity, cost-reduction and
higher quality service to the public and to agencies throughout
the Government
26
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.
SHELDON S. COHEN, Formerly Commissioner of Internal Revenue
For leadership in dealing with and resolving vexing technical
questions in the Internal Revenue Code in an even-handed,
courageous manner, reflecting his own deep ethical convictions.
FREDERICK L. DEMING, Formerly Under Secretary of the Treasury for
Monetary Affairs
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.
RALPH H. HIRSCHTRITT, Deputy to the Assistant Secretary for International Financial and Economic Affairs
For his unique contributions to the United States participation
in the establishment and growth of international financial institutions and similar outstanding contributions to other aspects
of United States international financial and economic affairs.
DOUGLASS HUNT, Formerly Special Assistant to the Secretary
For consistently dedicated service in his role as the immediate
assistant to the Under Secretary and the Secretary in which he
contributed importantly to virtually every area of the Department's
activity.
27
FRED B. SMITH (Retired), Formerly General Counsel
For outstanding contributions to the Treasury Department
throughout his career and as its chief legal officer.
ROBERT A. WALLACE, Formerly Assistant Secretary of the Treasury
For demonstrated ability to execute with distinction an unusually
diverse combination of responsibilities including economic and
international trade policies, and service as the Department's
Employment Policy Officer.
GEORGE H. WILLIS, Deputy to the Assistant Secretary for International
Monetary Affairs
For a long and distinguished career of service in the Treasury,
including the successful negotiation of the special drawing rights
facility in the International Monetary Fund.
28
DISTINGUISHED SERVICE AWARD
The highest Treasury recognition which may be conferred by the
Secretary on an indiuidual not employed by the Department for unusually outstanding assistance to the Department.
CHARLES A. COOMBS, Vice President of the Foreign Department of the
Federal Reserve Bank of New York
For significant contributions directly to the Treasury and broadly
to the international monetary system during a particularly difficult period in the gold and foreign exchange markets.
EDWARD R. FRIED, Formerly Special Assistant to the President
For his advice on the vital decisions of foreign economic and
financial policy during a period of unprecedented strains on the
economy of the United States, on the foundations of the international monetary system and on the very principles of trade
liberalism advanced in the post-war era.
ALFRED HAYES, President of the Federal Reserve Bank of New York
For his distinguished advice on both domestic and international
financial matters to the Treasury Department and to successive
Secretaries of the Treasury for the past 12 years.
WILLIAM MCCHESNEY MARTIN, Jr., Chairman of the Board of Governors of the Federal Reserve System
For the great service he rendered to the Treasury Department and
the Nation for many years.
ROBERT M. McKINNEY, Formerly 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
For substantial contributions to the Government's success in
attammg increased foreign investment in U.S. securities and
increased foreign expenditure~ for travel in the United States.
29
Chairman of the Board, Puget Sound National Bank,
Tacoma, Wash.
RENO CoLIN,
For his devoted service to the Savings Bonds program, and for
his valued advice to the Department on Government financing.
]. L.
ROBERTSON,
Vice Chairman, Board of Governors, Federal Re-
serve System
For his distinguished service to the Treasury Department and to
the Nation.
30
TREASURY DEPARTMENT
WASHINGTON, D.C.
October 24, 1969
FOR IMMEDIATE RELEASE
TREASURY STATEMENT ON
GERMAN MARK REVALUATION
The Treasury welcomes the announcement by the
German authorities of their decision to establish
a new par value for the mark at $0.2732, 9.29 percent
above their previously established par.
Today's
action by the German government should resolve in
a constructive manner the principal cause of
uncertainty that has existed in the exchange markets.
000
K-250
L/~~
TREASURY DEPARTMENT I U
October 23. 1969
FOR USE IN SUNDAY NEWSPAPER
OCTOBER 26, 1969
DISTING UISHED WOMEN TO TOUR NEW PHILADELPHIA MINT
Mrs. Mary Brooks, Director of the Bureau of the Mint, will be hostess
to a group of distinguished Washington women on a personally conducted
tour of the new Philadelphia Mint on Thursday, October 30, at 11:00 A. M.
Wives of members of the President's Cabinet and wives of Congressmen
will join Mrs. Brooks and members of the American Newspaper Women's
Club on the tour.
buses.
They will go from Washington to Philadelphia via chartered
Mrs. Hugh Scott, wife of the senior Senator from Pennsylvania,
will be among Capitol Hill wives making the trip.
The Club, whose President is Mrs.Esther Van Wagoner Tufty of the
Tufty News Bureau, is sponsoring the trip to the world's largest government
Mint designed to produce eight million coins every eight hours.
Following the tour of the Mint, special guides will conduct a brief bus
tour of Philadelphia's historic Society Hill and then Mrs. Brooks and her
group will lunch at the Philadelphia Museum of Art where an official welcome
by the City will be the final event on the schedule.
-000-
NOTE TO CORRESPONDENTS: Schedule and itinerary attached.
- 13 -
full of grand theories, and there you can get the "big
picture", both of which can be quite useful in developing
national policy.
However, when it comes down to the hard
nuts and bolts of making those theories and policies really
work
well, that's in the counties and cities; that's
at your level; and that's "where the action is really at."
The Administration's revenue-sharing proposal does not
require the states or cities to use the money to increase
management training or personnel upgrading, although some
people urged us to earmark a portion of the funds for such
purposes.
However meritorious such suggestions may be, we
have firmly decided against earmarking any of the revenues.
However, there are indications that there is developing
a "skill mismatch" as well as a "fiscal mismatch" between
the Federal and state-local governments.
Not enough good
people have been moving into city government service.
What
is needed is a new sense of involvement in local government.
You, yourselves, as representatives of the City Manager
movement, and your presence here this week are indications of
the growing professionalism in the area of city government.
But we need far more of this awareness, of this professionalism.
Fortunately, schools across the Nation are now beginning to
design graduate programs geared specifically toward training
young men and women for professional careers in state and
local governments.
great in this area.
The opportunities would seem to be very
2
and individual and property rights, on which political
and economic progress depend, will be protected. The
competent, responsible enforcement of law is essential
to insure such a climate.
The Treasury Department is keenly aware that the
evidence since World War II demonstrates that stability
and security are prerequisites of successful economic
and political development. Capital investment, one of
the key requisites for economic development, requires
such a climate.
Indeed, political development requires it as well,
for you cannot separate economic power from political
power.
International criminal activity
International criminal activity is no less a danger
to countries, as it chips away at their strength and
resources and undermines confidence in their ability to
govern fairly.
The Treasury Department, with its diverse law
enforcement missions, is particularly interested in
police cooperation on an international level. The
Treasury, with the second largest law enforcement arm
in the United States Government, has several enforcement
missions of international character.
Let me describe them briefly. Treasury Agents are
primarily in three different agencies of the Department:
1.
2.
3.
United States Secret Service
Bureau of Customs
Internal Revenue Service
@FedFRASER