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LfRRARY
pnOM
50~O
JUN 161972
TREASURY DEPARTMENT
. . .
WASHINGTON. D.C.
FOR REIEASE 6 :30 P.M.,
Monday, February 2, 1970.
RESULTS OF TREASURY'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 November 6, 1969, and
the other series to be dated February 5, 1970, which were offered on January 28, 1970,
were opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
O~ thereabouts, of 9l-day bills and for $1,200,000,000, or thereabouts, of 182-day
bills. The details of the two series are as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing May 7 , 1970
Approx. Equiv.
Price
Annual Rate
7 .718~
98.049
7.77af,
98 .036
98 .040
7 .754"
11
·
·••
•
·•
·
182-day Treasury bills
maturins August 6 1 1970
Approx. Equiv.
Annual Rate
Price
7.71$
96.101
7.72?!j.
96.096
7 .7lJ31.
96.098
Y
7" of the amount of 91-day bills bid for at the low price was accepted
of the amount of 182-day bills bid for at the low price was accepted
1~
TCYrAL 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
TCYrAIS
·
·
·
·
·
·
·
·
·
·
·
·
•
AEJ21ied FOL- Acce:eted
41,424,000 $ 29,892,000 •
$
1,167,148,000 •
2,002,880~000
31,160,000
47,249,000
47,683,000
52,892,000
30,860,000 •
36,946,000
36,247,000
54:,622,000
215,690,000 •
228,176,000
49,871,000 •
61,622,000
20,525,000 •
31,110,000
39,756,000
•
41,592,000
21,785,000 •
35,345,000
109 1819,000 ••
190,059,000
$2,823,917,000 $1,800,436,000
!I
AE~lied
For
21,675,000
1,971,004,000
27,803,000
62,824,000
29,112,000
60,833,000
186,929,000
50,314,000
19,723,000
37,312,000
31,538,000
149 1 205,000
•
$2,648,272,000
Acce~ted
$
11,455,000
936,772,000
16,285,000
40,967,000
18,212,000
23,575,000
35,016,000
34,864,000
3,973,000
29,912,000
18,038,000
32,429,000
$1,201,498,000 ~
!I Includes $498,823,000 noncompetitive tenders accepted at the average price of
~ Includes $327 278 000 noncompetitive tenders accepted at the aver~ge price of
if The~ rates a~e oA a bank discount basis. The equivalent coupon 1ssue yields
8.0
for the 91-day bills, and 8.14" for the 182-day bills.
98.040
96.098
are
/
TREASURY DEPARTMENT
WASHINGTON. D.C.
February 2, 1970
FOR IMMEDIATE RELEASE
SALE OF U.S. SAVINGS STAMPS TO BE DISCONTINUED
The sale of United States Savings Stamps will be
discontinued by the Department of the Treasury, effective
June 30, 1970.
Savings Stamps were a popular vehicle for saving during
World War II and have been sold primarily through School
Savings Programs during the post war years. However,
administrative costs have risen sharply and participation
has not increased in recent years, and as a result it has
been concluded that the program should be discontinued.
In announcing the cessation of Savings Stamp sales,
Secretary of the Treasury David M. Kennedy extended
appreciation and commendation to the "thousands of
dedicated Americans who over the years" have served loyally
and steadfastly as volunteers in the Stamp Program. The
Secretary also encouraged young people to continue to save
through the purchase of U.s. Savings Bonds. "There is no
better way for-young people to save", he said, "than buying
and holding u.S. Savings Bonds."
The Secretary urged parents and teachers to encourage
school youngsters to complete their unfilled Stamp albums
and exchange them for U.Sn Savings Bonds, which now pay
5 percent interest when held to their maturity of five
years and ten months.
While Savings Stamps will no longer be on sale after
June 30th, fully or partially completed albums may be used
to purchase Savings Bonds at banks or may be redeemed for
cash at Post Offices.
000
K-333
TREASURY DEPARTMENT
WASHINGTON. D.C.
FOR RELEASE 6:30 P.M.,
Monday, February 2, 1970.
RESULTS OF TREASURY' 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 November 6, 1969, and
the other series to be dated February 5, 1970, which were offered on January 28, 1970,
were opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
or thereabouts, of 9l-day bills and for $1,200,000,000, or thereabouts, of l82-day
bills. The details of the two series are as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
9l-day Treasury bills
maturing May 7, 1970
Approx. Equiv.
Price
Annual Rate
7 .718;1
98.049
7.77r!/e
98 .036
7 •754'/e
98 .040
11
••
·
·
···
l82-day Treasury bills
maturins August 6 1 1970
Approx. Equi v •
Annual Rate
Price
7.71$
96.101
7.72~
96.096
7.7l13'/t
96.098
!I
7" of the amount of 91-day bills bid for at the low price was accepted
l~ of the amount of 182-day bills bid for at the low price was accepted
TOTAL 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
·
·
·
·
·
··
·
·
·
·
• Ap"Olied For
AEElied Fo~ AcceEted
21,675,000
$ 41,424,000 $ 29,892,000 •
1,167,148,000
•
2,002,880~000
1,971,004,000
31,160,000
47,249,000
27,803,000
62,824,000
47,683,000 ••
52,892,000
29,112,000
30,860,000
36,946,000
•
60,833,000
36,247,000
54,622,000
186,929,000
215,690,000 •
228,176,000
50,314,000
49,871,000
61,622,000
•
19,723,000
20,525,000 •
31,110,000
37,312,000
39,756,000
41,592,000
31,538,000
21,785,000
35,345,000
•
149,205
109,819 1 000 •
190,059,000
1 000
AcceEted
$ 11,455,000
936,772,000
16,285,000
4.0,967,000
18,212,000
23,575,000
35,016,000
34,864,000
3,973,000
29,912,000
18,038,000
32,429 1 000
!I $2,648,272,000
$1,201,498,000
$2,823,917,000 $1,800,436,000
•
!I Includes $498,823,000 noncompetitive tenders accepted at the average price of
i7 The~ rates a~e oA a bank discount basis. The equivalent coupon issue yields
B/
98.040
~ Includes $327 278 000 noncompetitive tenders accepted at the average price of 96.098
8.0
for the 91-day bills, and 8.14" for the 182-day bills.
are
TREASURY DEPARTMENT
Washington
FOR RELEASE AT 1:30 P.M
TUESDAY, FEBRUARY 3, 1970
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
.
BEFORE
NEW YORK CITY "SHARE-IN-AMERICA '70" COMMITTEE
TOP MANAGEMENT MEETING
TRIANON ROOM, NEW YORK HILTON HOTEL
TUESDAY, FEBRUARY 3, 1970, 1:30 P.M., EST
It is a great pleasure to meet with this group of
distinguished business and community leaders, and to have the
opportunity to thank you personally for your service to
Treasury and the Nation.
The Savings Bonds Program, to which you are g~v~ng so
generously of your time and energies, is tremendously
important to our country. Every dollar placed in a Savings
Bond is not only an investment in the buyer's and America's
future, but is also a timely and needed contribution to
sound management of our national finances and the fight we
are waging against inflation.
Because of the effectivenessof the campaign conducted
last year by committees like this in major business centers
and industries, more than 2,300,000 persons became new
purchasers of Savings Bonds or Freedom Shares or increased
the amounts they were already investing. Bonds and Shares
bought primarily through the Payroll Savings plan totaled
about $3.7 billion in 19690 The American people now own
more than $52 billion of Bonds and Shares, representing nearly
one-fourth of the publicly-held portion of the Federal debt.
Your committee has established an ambitious goal this
year, but I am confident you will meet it. Your members
are dedicated to their work, and enthusiastic about the
challenge. You have an outstanding leader in Cornelius Owens,
whose own company signed up nearly 30,000 new savers or savers
who increased their allotments last year. Your State Committee
- 2 -
is headed by another leading citizen and businessman,
Crocker Nevin. I would say that with a combination like
that you are bound to succeed.
When the U.S. Industrial Payroll Savings Committee met
in Washington last month, president Nixon sent this message
to the Committee and to leaders of industry throughout
America:
'We have already made the interest paid on
Savings Bonds more attractive. Only recently I
signed into law a bill permitting us to raise the
effective rate on Savings Bonds to five percent,
and other fundamental steps to make investment in
bonds more appealing are in prospect; for it is a
primary objective of this Administration to conduct
fiscal and monetary policy in such a way that
inflation will not further erode the savings of
our people."
Today I can report to you that we are clearly beginning
to make headway toward the president's objective of curbing
inflation. The fiscal and monetary restraints adopted
by the Administration have been and are working. We are
accomplishing the necessary slowing of our economy, and
we are doing so without the dislocation of a sudden, jarring
move into reverse.
I know there are those who doubt the determination of
our anti-inflation effort, who believe that prices will
continue to rise, and who are making their borrowing,
lending, spending and other decisions accordingly. I want
to say, as strongly as I can, that they are badly mistaken.
We will continue our policies of restraint until we have
restored basic health and stability to the economy. To
do less -- to back off once the going gets a little rough
and unpopular -- might please some people, but would be a
disservice to all.
Once the inflationary psychology is broken, and the
business community and the public in general begins to look
forward to greater stability, interest rates will drop to a
more reasonable level and other salutary effects will be
felt throughout the economy. Because of the progress we
are now making, that happy day may be closer to hand than
most people realize.
- 3 Inflation took root in our economy, and became deeply
embedded in it, over a period of four years. Excessive
government spending -- spending that far outstripped
revenues -- was a major source of pressure on the
economy, and thus on prices.
To ease the pressure, and move toward price stability
and sustainable growth, president Nixon has placed firm
controls over government spending. This will make it
possible for the budget to be in surplus by $1.5 billion,
despite a sizable rise in uncontrollable expenditures.
The budget for Fiscal 1971, which the president
submitted to the Congress yesterday, similarly reflects
his determination to conduct fiscal policy in a
responsible and credible manner.
In our deliberations on the budget, the President made
it clear to us that the budget should continue in surplus
without resort to any economic or political assumptions
that would be open to serious question. We therefore have
based our estimates of Federal revenue on a relatively
cautious appraisal of the economic outlook which we think
will be accepted as reasonable by most observers. The
emphasis is on controlling expenditures.
We also believe it realistic to assume that the
Congress will act favorably on the few minor tax changes
we have requested.
Let me outline briefly a few major points on the budget.
Proposed expenditures total $200.8 billion, compared
with estimated expenditures of $197.9 billion this fiscal
year. The increase has been held to a minimum, despite
the rise in uncontrollable expenses for certain programs
authorized by lawo By a careful weighing of needs and
priorities, and reductions in less essential expenditures.
We have estimated receipts in Fiscal 1971 at $202.1
billion, an increase of $2,7 billion over the current
fiscal year
Our estimate is based on the expectation
that Gross National product this calendar year will total
$985 billion, or about $53 billion more than in 1969. This
compares with a GNP increase of $67 billion last year over
1968.
o
c
- 4 Corporate profits this calendar year are estimated at
$89 billion, or $5 billion less than last year.
While I am confident that we will have an improving
price situation in future months, it would be unrealistic
to project a complete halt in price increases. In our
estimates we therefore have assumed a further rise in
prices but at a slower rate than last year.
Under the tax rates that were in effect during
December, the projected economic expansion this year
would have increased Fiscal 1971 revenue by about $9.5
billion. However, the ending of the tax surchatge on
June 30 will reduce potential 1971 revenues by an
estimated $8.5 billion, leaving the expected revenue gain
from economic growth at $1 billion.
Thus, in the absence of any further legislative
action on taxes -- and taking account of expected economic
growth -- Federal revenues in the next fiscal year would
increase by about $1 billion. This includes the effect of
administrative actions to be taken by the Treasury to speed
the collection of withheld income and excise taxes.
The remainder of the projected $2.7 billion increase
in Federal revenues is based on proposed legislation.
These proposals include an increase in user charges,
principally for transportation services, an extension of
the automobi1~ and telephone excise taxes for one year
beyond the present expiration date of January 1, 1971, and
an increase in the taxable base for Social Security.
That is a broad outline of the proposed Fiscal 1971
budget. It is a prudent budget, as befits the times, and
is based on a realistic appraisal of the economic outlook,
our national needs, expected revenues, and tax changes
that the Congress can reasonably be expected to approve.
The surplus it is designed to produce -- $1.3 billion -will help us steer the economy toward a sounder and steadier
course.
With the new yield to maturity of five percent on
Savings Bonds, your "Share-In-America '70" Committee will
have an advantage over last year's campaigners. Savings
Bonds provide a fairer return, more competitive with the most
comparable types of other investments.
- 5 -
While the return on Savings Bonds is substantially less
than that on marketable securities, which are now at
historically high levels, I do not feel apologies are
necessary on that score. The Bonds have other built-in,
attractive, and important features. They are a convenient
method of saving for the small saver that is not available
to him in marketable instruments, they bear none of the
risks associated with such investments, and in general are
designed to provide a fair and stable return over the
l~~r r~.
It is not the government's intent to pull savings out
of financial institutions into Savings Bonds, but simply
to pay a rate of return that does not discriminate against
the purchasers of Savings Bonds, and that provides a product
you can sell in good conscience. I believe we now have that
product.
The industry-oriented Payroll Savings Plan has been the
main strength of the Savings Bonds program from its very
start. Today, more than 40,000 companies, large and small,
operate the plan and the Savings Bonds purchased by their
employees account for over two-thirds of total sales.
The goal for 1970 is to sign up two million industrial
employees as new payroll savers, or as savers who increase
their allotments for the purchase of Bonds. I know we can
count on your Committee to make the 1970 campaign in New York
City a notable success, and to help attain the challenging
national goal.
Thank you.
000
TREASURY DEPARTMENT
WASHINGTON, D.C.
February 4, 1970
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 February 13,1970,
in the amount of
$ 2,999,807,000,
as follows:
90-day bills (to maturity date) to be issued February 13, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing an
additional amount of bills dated November 13,1969,
and to
mature May 14, 1970,
originally issued in the amount of
$1,204,069,000,
the additional and original bills to be
freely interchangeable.
l8l-day bills, for $1,200,000,000,
or thereabouts, to be
dated February 13, 1970,
and to mature August 13, 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, February 9, 1970.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even mUltiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
K-334
- 2 responsible and recognized dealers in investment securities. Tend~rs
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. Only those submitting_competitive tenders will be
advised of the acceptange or rej ection thereof. The _Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for 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 February 13, 1910, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing February 13, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differences between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the Uhited States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 0oO~ranch.
q
TREASURY DEPARTMENT
q
WASHINGTON. D.C.
February 4, 1970
FOR IMMEDIATE RELEASE
TREASURY SECRETARY ANNOUNCES
MARIHUANA SMUGGLING RING BROKEN
Secretary of Treasury David M. Kennedy today announced a
total of 15 arrests on various charges involving an attempt to
smuggle marihuana from Jamaica to the United States. Of the
arrests, 10 were made in Jamaica and 5 in Florida. Warrants have
been issued for other suspects.
Secretary Kennedy said u.S. Tre~sury Customs agents and the
Goverllment of Jamaica cooperated in investigations that resulted
in this breakup of an international marihuana smuggling ring.
A. Gordon Langdon, Jamaican C~mmissioner of Police at Kingston,
was active with the Bureau of Customs representative in Jamaica
in the weeks of preliminary investigation that resulted in the
seizure in Jamaica of 500 pounds of marihuana, the arrest of
seven citizens of Jamaica and three citizens of the United States.
The 500 pounds of marihuana would have made ,a half million
cigarettes that would sell in the United States for from 50 .
cents to $1.00 each.
The three Americans arrested in Jamaica were Fred Tucker
of Key West, Florida, and Mr. and Mrs. Dave Martin of Miami,
Florida. The two men were arrested at Vernam Airfield, near
Kingston, Jamaica, and Mrs. Joan Martin at a resort town on the
island.
Two men were arrested at Immokale Airport, Immokale,
Florida. They were Phillips Clark of 13 Cactus Road, Key West,
Florida, and James Hewitt Mairs of 312 Southard Street, also
Key West.
Three other arrests were made by Treasury Special Agents at
Miami, Florida. They were Allen Roy Miller of 3211 Southwest
21st Street; Miami; Allen Leonard Klaes of 3897 Kumquat Avenue;
and Lillian Joan Felts of 3898 Kumquat Avenue, Cocoanut Grove,
Miami, Florida
(OVER)
o
K-335
- 2 -
All five have been charged by Customs with conspiracy to
smuggle the 500 pounds of marihuana into the United States.
Customs agents said the Americans arrested in Jamaica flew
there in a private plane to arrange for the purchase and
smuggling of the marihuana. They were kept under air surveillance
by Treasury Special Agents of Customs, and were arrested with
cooperation of Jamaican officials with U.S. Customs.
The plane was also under surveillance during its return
to the United States, and further arrests were made the same
day at Immokale Airport, and later in Miami.
Secretary Kennedy stated that the arrests made in Jamaica
and the United States amounted to breaking up a highly organized
group involved in bringing marihuana into the United States.
He also said that further arrests were in prospect and that
conspiracy warrants had already been issued. Jamaica, in the
past, has not been a substantial source of marihuana destined
for the United States.
The increase in marihuana seizures in the past few years
has been substantial, the Secretary stated. In 1965 there
were 678 seizures of 9,548 poundso In 1969 the number of
seizures increased to 2~673, or better than 242 percent.
A total of 57,164 pounds of marihuana were seized in 1969, an
increase of nearly 500 percent over the 1965 figures. The
"increase since 1963 is about 2,000 percent.
000
TREASURY DEPARTMENT
Washington
If)
FOR RELEASE AT 3:30 P.M.,EST
(12: 30 P.M. PST)
FRIDAY, FEBRUARY 6, 1970
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
THE COMMONWEALTH CLUB OF CALIFORNIA
SHERATON-PALACE HOTEL
SAN FRANCISCO, CALIFORNIA
FEBRUARY 6, 1970
It is a pleasure to visit California and to meet with
this distinguished group. It is especially pleasant to be
in San Francisco which is so renowned for its wonderful
climate.
That, in a slightly different sense, is what I would
like to discuss with you today -- the economic,
financial and business climate and what we see ahead.
I want to stress that there is a new climate in
Washington. The President's Budget and Economic Report,
released within the week, embody a new fiscal credibility,
a new and long needed beginning on the evaluation and
reordering of our national priorities. These documents
also signal a new determinat~on to begin longer range
planning for governmental responsibilities in our domestic
economy and the demands our social needs make on that economy.
To understand just how new and how important these
concepts are you need to remember the budget deficits of
recent years: the large number of new programs which were
enacted, but which don't work, and the past failures to
look beyond immediate political dividends toward longer
range needs and the necessary allocation of resources to
meet those needs.
In putting together this budget we.considered' several
options. The most urgent claims were from departments
concerned with the new domestic programs. Most people agree
on the need for these programs, the president backs them
K-336
- 2 -
/1
strongly, and everyone in the government is eager to make as
much progress as possible. The principal cutback possibilities
were in defense and space expenditures. Significant cuts were
made, refuting completely the i11~founded belief that any part
of the budget is untouchable. But the President, responsible
as he is for our Nation's international affairs, must strike a
delicate balance between the well-defined needs created by
domestic problems and the less foreseeable but even more
fundamental demands of national security.
In our determination to keep the budget in surplus, the
claims for expenditure at one time seemed to suggest that the
final budget total of expenditures should be somewhat above
the' final $20008 billion figure. A realistic assessment of
revenue prospects make clear that earlier expenditure estimates
would call for significant tax increases.
It shortly became evident that even the seemingly least
controversial tax proposals stood a good chance of being rejected
by the Congresso To propose them under those circumstances would
have been to reduce the credibility
of the budget.
Rather than do that, the president decided to level off the
budget total at a point that could clearly be met from only
slightly modified existing tax and other resources. At a very
late date, new and substantial cuts were made in the budget,
demonstrating incidentally that, under the firm leadership of
the President, this Administration is capable of quick and
elastic response to a difficult financial situation. I
believe this demonstrates that we are determined to maintain
fiscal discip1ineo
In short, I believe we are now on the right track and are
making progress towards a stronger economy at home and abroad.
But we must maintain the patience and resolution to press ahead
with the kind <of co~rective measures that, however unpopular in
the short run, will. ultimately restore strength and stability to
our economyo It is particularly importarit that we carry through
on the stringent economies required to hold down the rise in
federal outlays in Fiscal 1971.
I am happy to say that I have observed even more widespread
support for anti-inflationary policy than I had anticipated. The
harsh reality of inflation, the distortions it has caused in our
financial system and our major industries, have pointed up the
realization that inflation is not the way to solve our problems.
It is itself one of the most serious parts of our problem.
A budget surplus in Fiscal 1971 will insure that the Treasury
does not have to make net demands on the credit markets.
IlL
-3-
•
A budget surplus, of course, allows for Some
reduction of debt in the hands of the public rather than
the net sale of Treasury securities which competes for
available funds. But in itself this is no insurance
that interest rates will come down. As long--'as our
accounts are in reasonable balance, we are far from the dominant
influence in the credit markets. But the movement into surplus
is helpful when private credit demands are so strong.
In its essentials, the Administration's economic
strategy remains unchanged from a year ago.
There are definite indications that the policy of
restraint is taking hold. The rate of expanding GNP in
the past three quarters has slowed. Consumer demand is
easing. There are growing signs that business is taking a
hard look at its investment plans, and Federal spending has
been very definitely leveling off.
Last year ended with the overall
near the 3-~ percent mark and not far
levels. In January, the unemployment
which, along with other evidence, may
easing of labor markets.
rate of unemployment
from the early 1969
rate rose to 3.9 percent,
indicate a definite
Easier labor markets, declining corporate profits and
the expected slow down in the rate of price increases will
hopefully reduce the inflationary pressure on wage
settlements.
In short, the general economic outlook for 1970 is
expected to be one of relatively slow growth in the first
half of the year followed by a moderate pickup in the
second half.
In formulating the budget for Fiscal 1971, we did not
content ourselves with a glance at last year and a look
at next year. We put some real effort into extending our
vision beyond June 30, 1971, when the next fiscal year will
end
We tried to lift the fiscal year-end curtain which
shrouds the future.
o
I don't mean to say that we can foretell the future,
but it'is our determination to make plans beyond one year,
just as most businessmen and most families do.
I 3
- 4 In the budget both expenditure and revenue
projections are made in some detail for the period out to
1975. This implements another of the recommendations
of the 1967 presidential Commission on Budget Concepts of
which I had the honor to be Chairman. Quite aside from
any feelings of personal satisfaction, the provision of
these forward esti~ates in the fiscal area seems to me a
long overdue step. They extend into government budgeting
some elementary principles of forward planning.
In making a projection of the Federal fiscal position,
it is first necessary to project tae probab1~ course of the
economy. In particular, future growth in revenues depends
closely upon the growth of the economy. This year's
Annual Report of the Council of Economic Advisers
describes in some detail the assumptions underlying the
general economic projection with which the fiscal
projections are consistento
Between Fiscal years 1970 and 1975:
Gross National product is expected to
increase by roughly 40 percent to nearly
$1.4 trillion dollars. This assumes a
declining rate of inflation over
this period.
Total revenues are expected to rise by roughly
one-third from $199 to $266 billion. This
assumes the tax rates of the current budget -after the surcharge has expired -- and implies
some decline in the ratio of Federal revenue
to Gross National product by 1975'.
On the expenditure side of the budget, some increases
are fairly certain and predictable. For example, an
allowance can be factored into existing Federal e~penditure
programs for population growth and potential rises ,in costs.
The estimated net increase in outlays for current programs
averages about $7 billion a year between Fiscal 1971 and
1975. Reduction and elimination of existing but outmoded
programs takes on' added importance in view of the size of
these built-in increases.
"t
,
- 5 It is really no surprise to allege that there are antiquated
programs in the government, but it is surprising to find out '
how many there are clnd how much they cost.
This year we pinpointed 57, and I am sure we will find
more. If we can eliminate some and reduce others, we expect
a savings of $2.1 billion.
These programs range from a separate Board of Tea
Tasters, which cost $127,000 a year, to $2.6 billion more
than needed in our stockpile of $7 billion worth of
strategic materials. Under current and foreseeable
international conditions we could not conceivably need
$400,000 worth of talc, for example. We intend, therefore,
to reduce the stockpile as market conditions, permit.
The current administration has, of course, made new
budgetary initiatives of its own, but on a cautious scale
in view of our current inflationary difficulties. It
does not intend to set full sail on new programs without
first charting the waters.
Bringing the revenue and expenditure projections
together gives an estimate of the anount of budgetary
funds that may be available for new initiatives in the
future. I use the term broadly to include tax reduction or
budget surpluses as well as any new expenditure programs.
On the basis of this year's calculations, there may be
a margin of some $22 billion in Fiscal Year 1975.
While a sizable sum, it is far less than that required
to finance all the seemingly meritorious programs that
are already in view. This projection puts us on notice that
we must order our priorities.
Th~
exact arithmet'ic depends upon the specific assumptions
that have been made. These will doubtless need to be modified
as time passes. But, for the first time, the medium-term
outlook for the Federal budget is clearly exposed to view.
This, in my opinion, is essential for an informed public
discussion of what we need and what we can afford. Too often
in the past we have 'had no clear idea of the fiscal outlook
beyond the next year or so.
The clear lesson that emerges from the five-year
projections is the limited degree of fiscal freedom
that is, in fact, available. On the basis of present
estimates there is little, if any, margin available in fiscal
1972. And even by 1975, when new initiates of perhaps
l-~ percent of GNP might be accommodated, the overwhelming
impression is the lack of budgetary resources relative to
potential claims.' While the prEsent period of expenditure
restraint is a particularly difficult one, there will be
a continuing need for efficient direction and control of
Federal expenditures.
- 6 _
I !
There is also a need to make a comprehensive forward
looking appraisal of our financial structure and its regulation.
The past decade brought profound changes and created new
problems. As we look forward in this decade, the volume of
potential demand for savings is impressive. It will be
increasingly important to insure that our financial structure
can adapt flexibly and efficiently. Therefore, the President
will shortly be appointing a commission of distinguished
citizens to study these matters.
1 have been pointing out pertinent principles,
fundamental presumptions and provable facts about our
domestic economic climate.
But the economic climate does not begin and end at our
shores any more than does the weather that sweeps in from
the Pacific.
It is appropriate then, for me to turn now to
international matters which affect and are effected by our
domestic economy.
In many respects, this past year has been a
gratifying one. The gold and exchange markets are now calm
after periods of turmoil. The Special Drawing Rights
Facility in the International Monetary Fund has come into
being, and agreement. has been reached on an adequate rate of
reserve growth for the next three years. The Two-Tier Gold
System has been strengthened by an understanding between
the International Monetary Fund and South Africa.
The major item on the agenda for 1970 is the
International Monetary Fund study of l~ited exchange rate
flexibility. Folldwing comments last September at the
Annual Meeting of the Fund by several governors, myself
included, the Fund has undertaken a preliminary examination
of these ideas.
Needless to say, there is a very broad range of
possibilities. And there are numerous technical and policy
questions on which there are differing views and opinions
both here and abroad. In Washington we continue to approach
the problem with.an open mind. Further, I feel that the
present period of relative calm in exchange markets is an
advantageous environment in which to pursue the problem at
hand. This is indeed a principal task for the year 1970.
- 7 The record of progress in the areas which I have just
mentioned is encouraging. The prognosis for the future
is equally as heartening. Yet restoring as well as maintaining
order in international financial matters will not solve all
our problems. There remains the very pressing difficulty
of restoring a better balance in the structure of
international payments. Such a restoration will be both a
harder and slower process. It will require a more sustained
effort and a deeper and more understanding degree of
international cooperation.
The need for such restoration in the structure of
international payments becomes apparent when we examine
the U. S. experience in this area in 1969. When the figures
are in, the United States is likely to show a considerable
surplus on the official settlements basis but a very large
deficit on the liquidity basis. The very wide spread between
the two figures may be accounted for by many factors, of which
the most important is that of unusual capital exports from
the U. S. in response to higher time deposit rates abroad.
The official settlements surplus tends to mean
a strong dollar in the exchange market. From our standpoint,
this would seem advantageous. Yet when we focus attention
on the liquidity deficit and the composition of our
international accounts, a different interpretation arises.
Our sales of non-military goods and services to the rest
of the world were much smaller in 1969 than the combination
of our net military expenditures abroad, our economic aid,
and our private capital outflow. By sheer arithmetic we find
ourselves forced to import foreign capital at long-or shortterm or to payout reserves. In 1969 we were able to follow
the former course of importing foreign capital to mak~ up
the financing deficit.
The decrease in our trade balance over the past few
years has been alarming. Yet the source 'of the difficulty
is not hard to identify~ The rise in prices at home has had
a great impact on our trade position abroad. It has resulted
in rapidly rising imports which must be weighed,against
far more slowly increasing exports. The upshot, of course,
is the significant deterioration in our trade balance.
//
I
- 8 -
And while this has been in process, .the monetary
stringency necessary to combat inflation has increased our
interest payments to foreigners, cut back the growth of our
net investment income, and sent short-term capital abroad
in response to rising interest rates stimulated there.
The key to the structural changes we so desperately
need in our international accounts is restoration of
economic stability at home. One is not possible without
the other. And neither are possible unless we have the
will and determination to hold to the course which we
have now charted for ourselves.
Perhaps some will feel that the climate of budget
cutting, of fiscal prudence and of monetary restraint seems
unduly harsh.
But the alternative is even more disagreeable. There
is no need to outline for this group what happens when
inflation completely takes over in the economy and grasps
the will of the people. The results are not gentle.
A rigorous and'tenacious pursuit of the policy we
are determined to carry out will tame inflation without
destroying the vigor of our free enterprise system.
The goal -- now in sight -- is an economy which will
grow at a sustainable rate and which will meet the priority
needs of our society.
TREASURY DEPARTMENT
WASHINGTON. D.C.
FOR Jlv1MEDIATE RELEASE
February 6, 1970
PRELIMlliIARY RESULTS OF CURRENT EXCHANGE OFFERlliIG
Preliminary figures show that about $5,792 million of the $6,662 million of
bonds maturing February 15 and March 15 have been exchanged for the three notes
included in the current offering.
Of the eligible securities held py the public, $3,462 million of February 15
m~turities and $1,293 million of March 15 maturities were exchanged, leaving $533
million, or 13.3%, and $330 million, or 2~.3%, respectively, for redemption.
Subscriptions total $2,199 million for the 8-1/4% notes of Series F-1971,
$1,771 million for the 8-1/8% notes of Series B-1973, and $1,822 million for the
8% notes of Series A-1977, of which $1,907 million, $1,484 million, and $1,364
million, respectively, were received from the publico
Following is a breakdown of securities to be exchanged (amounts in millions):
SECURITIES
Date
Due
8-1/4%
Notes
Total
.Amount 8L15L71
4% bonds
2/15/70 $4,382 $1,525
674
~-1/2% bonds 3/15/70
2~280
Totals
$6,662 $2,199
Descri~tion
8-1/8%
Notes
8%
Notes
8L15L73
2L15L77
UNEXCHANGED
of
Total
% of
Total
Total
OutTotal
To Be
stand- Held by
Public
Issued Amount in~
$1,206
$1,111
$3,842
$540
12.3
13.3
565
$1,771
711
$1,822
1~950
$5,792
330
$870
14.5
13.1
20.3
15.4
TO BE ISSUED
ELIGIBLE FOR EXCHANGE
%
Details by Federal Reserve Districts as to subscriptions will be announced later.
(-337
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR RELEASE 6:30 P.M.,
Monday, February 9, 1970.
RESULTS OF TREASURY'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 November 13, 1969, and
the other series to be dated February 13, 1970, which were offered on February 4, 1970,
were opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
or thereabouts, of 90-day bills and for $1,200,000,000, or thereabout~of 181-day bills.
The details of the two series are as follows:
RANGE OF ACCEPTED
90-day Treasury bills
maturing Mal 141 1970
Approx. Equiv .
Price
Annual Rate
98 .lB6 !I
7.256;
98.164
7.344;
98.172
7 .31~ 1.J
C<J4PETITIVE BmS:
High
Low
Average
••
••
·
·•
181-day Treasury bills
maturias August 13. 1970
Approx. Equiv.
Price
Annual Rate
96.294 ~
7.371;
96.278
7.403;
96.286
7.387; !I
!I
Excepting 5 tenders totaling $2,836,000; ~ Excepting 1 tender of $217,000
45~ of the amount of 90-day bills bid for at the low price was accepted
1~ of the amount of lBl-day bills bid for at the low price was accepted
rOTAL TENDERS APPLIED FOR AIm ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
PhUade1phia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
A'PI!lied F'or
,
2,097,104,000
4:8,899,000
4',733,000
",140,000
56,055,000
230,919,000
57,4:29,000
33,635,000
",105,000
34,265,000
176,4:94,000
··
1,190,5lB,000 ·
33,891,000 ·
44:,500,000 ·
39,936,000:·
Acce~ed
38,768,000 •
,413,000
43,930,000
208,809,000
53,129,000
21,385,000
43,101,000
22,265,000
70,185,000
TOTAIS . $2,906,546,000 $1,800,062,000
~
~
fJ
·
·
·
·
·
£I
AI!I!lied For
•
22,4:01,000
1,661,719,000
27,913,000
71,768,000
28,634:,000
55,060,000
212,1'2,000
37,556,000
21,366,000
35,04:5,000
35,870,000
157,751,000
AcceIBed
. ,731,000
8lB,838,000
17,376,000
43,592,000
lB,62',000
28,335,000
115,657,000
26,236,000
5,366,000
32,31',000
21,070,000
61,868,000
$2,367,225,000
$1,200,067,000
~
Includes $486,715,000 noncompetitive tenders accepted at the average price or 98.172
Includes $326,910,000 noncompetitive tenders accepted at the average price or 96.ZIt
These rates are on & bank discount basis. The equivalent coupon issue yields are
7 .5~ for the SO-day bills, and 7.78; for the lBl-day bills.
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
51ST MIDWINTER TRUST CONFERENCE
TRUST DIVISION, AMERICAN BANKERS ASSOCIATION
WALDORF-ASTORIA HOTEL, NEW YORK, N. Y.
TUESDAY, FEBRUARY 10, 1970, 9:15 a.m., EST
I am delighted to have this opportunity to speak with
you this morning on same of the applications of the Tax
Reform Act of 1969 to your work in the field of trusts.
The President signed the Tax Reform Act six weeks ago
today.
We embarked immediately on a concentrated effort
to develop regulations under this massive new law.
It is
important that these regulations be issued as soon as possible,
but particularly important that temporary rules be issued to
cover matters which may require action by taxpayers within the
next few weeks.
Some of these items relate to the field of
trusts.
I know that this conference is acutely aware that the
Tax Reform Act makes important changes in the income tax
treatment of trusts that accumulate income for a period
of time and in subsequent years distribute that accumulated
income to trust beneficiaries.
K-338
I should like
- 2 -
to discuss the effect of the new law on these so-called
"accumulation trusts."
Accumulation trusts serve a very important function
in providing a means for the conservation and investment
of property for minors and for other persons.
The
Treasury and the Congress are well aware of the desirable
features of such trusts and the valuable services of banks,
trust companies and other professional persons in acting
as fiduciaries, and we have no desire to cause the tax
laws to interfere with their use.
But at the same time
we must give careful attention to the opportunities for
tax reduction that are implicit in accumulation trusts,
and the serious inroads they can make into the equity of
the income tax structure, particularly with regard to the
operation of the progressive tax rate scale.
In general, trusts are regarded as separate taxable
entities and pay tax at the individual graduated rates on
trust income for any year that is neither required to be
distributed nor actually distributed.
This concept creates
the possibility for a family to subdivide investment income
- 3 -
by using one or more trusmthat will accumulate income
and take advantage of reduced rates in lower brackets in
the tax rate schedules.
A substantial number of able people, both in and out
of government, have tried for more than a quarter of a
century to work out rules that will protect the equity of
the tax system without interfering unduly with the nontax
advantages of accumulation trusts.
The Internal Revenue
Code of 1954 dealt with the problem by adopting the socalled "five-year throwback" rule, under which distributions of income accumulated in the previous five years
would in the hands of the beneficiary be subjected again
to tax, in an amount equal to the tax he would have paid
had the income been distributed to him in the year it was
earned by the trust.
The beneficiary was given credit for
the taxes actually paid by the trust in the five-year
period on that amount of income.
The 1954 Code provision not only did not affect
income accumulated more than five years before the distribution, but it also contained exceptions for income
accumulated during the minority of a beneficiary, amounts
- 4 distributed to meet emergency needs of a beneficiary, and
uncertain prescribed amounts paid to beneficiaries upon
attainment of specified ages or as final distributions
of the trust.
In addition, the 1954 Code exempted distri-
butions up to $2,000 made by the trust in any year.
These exceptions to the operation of the 1954 Code
provision continued to provide opportunities for tax reduction through the mechanism of an accumulation trust.
This
was particularly true where there were multiple trusts
in the same family.
There have been cases in which a
single grantor created 50 or 100 accumulation trusts, or
even more, for the same beneficiaries.
Obviously cases
of such multiple trusts required further legislation.
Efforts were made to draft legislation dealing solely
with multiple trusts for the same beneficiaries, and a
bill attempting to deal with that aspect of the problem
passed the House and reached the Senate floor in 1960 but
was not enacted.
This type of legislation was fraught
with difficulties in determining the similarity of beneficiaries under many varying circumstances, particularly
- 5 -
in eo-called "sprinkle" trusts where the trustee has
discretion to select the persons who are to receive
distributions of accumulated income from the several
trusts.
Shortly after taking office about a year ago we
examined this problem afresh in preparing the new Administration's proposale for tax reform, which we presented
to the Congre8s in April 1969.
We concluded that the mat-
ter could not be dealt with adequately by a statute directed
at multiple trusts, and that the legislation would have to
apply to 8ingle accumulation trusts as well as to multiple
trusts.
There were too many ambiguities and too many
opportunities for family tax avoidance implicit in a
statute limited to multiple trust cases.
Accordingly, in our April 22, 1969, proposals we
recommended that the law be amended to eliminate the
several exceptions to the "throwback" rule for accumulation trusts, as well as the five-year limit on its operation.
Subsequently, in our recommendations to the Senate
Finance Committee we proposed that the new rules not apply
to income accumulated prior to April 22, 1969, except with
- 6 respect to elimination of the $2,000 ceiling.
The law
as enacted protects accumulations made prior to January 1,
1969, instead of the April 22, 1969, date.
The new law permits, as we recommended, an alternative short-cut calculation of the additional tax that is
payable by a beneficiary on a distribution from an accumulation trust by reference to the income of the beneficiary
in the three years preceding the year of distribution.
The beneficiary may choose this alternative simplified
computation in lieu of recalculating his taxes for each
of the years,in which the trust accumulated the income.
The alternative method of calculation will help particularly when the beneficiary's income has remained relatively
level or has been declining, but the more precise, longer
calculation is likely to be used where income is rising.
One of the important cases in which the new provisions will apply will be accumulation trusts for minors.
We are concerned about the possibility of additional
expense to which the parties may be put in such cases in
relation to modest amounts of tax that may be involved.
The Tax Reform Act adopts the President's recommendation
- 7 -
for a Low Income Allowance that will increase from $900
to at least $1,700 the amount of income that may be received
by a single individual.
While the Low Income Allowance
was designed primarily to remove from the tax rolls those
persons who are below the poverty level, the benefits
will extend also to students working their way through
college and to others with relatively low income levels,
including children.
Thus when an infant's trust that has
accumulated income during his minority pays it out when
he reaches age 21, no tax will be due from him with respect
to at least the first $1,700 of income accumulated by the
trust in any year, unless he had income from other sources.
That amount of trust income might indicate a trust principal of some $30,000 to $35,000, perhaps, without any tax
consequences to the beneficiary on the distribution of
accumulated income when he attains his majority.
- 8 -
The amounts tax-free to the beneficiary may be
significantly higher because he is entitled to credit for
the income tax paid by the trust each year on the income
it accumulates.
A trust accumulating income has a personal
exemption of only $100.
Accordingly, if it accumulated
$1,700 of net income before taxes in a year, it would have
paid tax of $242 on the $1,600, and that tax of $242 would
be available as a credit to the beneficiary against any tax
he might owe on the later
accumulation distribution.
Moreover, the trust will pay tax on its accumulated
income without regard to the new reduced rate schedule
adopted for single persons.
That new schedule will go into
effect in 1971 to reduce the tax disparity between married
persons and single persons, but it will not apply to estates
and trusts.
As a result of these considerations, if the beneficiary
has no outside income during the years in which the trust
accumulates the income, no additional tax will be payable by
him at the time of the distribution, since the tax paid by
the trust will have been greater than the tax the beneficiary
would have paid if the income had been distributed currently.
Indeed, in the usual case the beneficiary could have at least
- 9 $1,700 of outside income before any tax would be due on
the accumulation distribution, since the tax actually paid
by the trust would still outstrip the tax he would have
paid on a distribution in the earlier year.
The credit for taxes paid by the trust in earlier
years can be aggregated by the beneficiary for purpose of
offset against any tax calculated on the accumulation
distribution.
For example, if income is accumulated during
the entire minority of a beneficiary, he may have no outside
income for his first eighteen years but may derive income
from services or otherwise in his last three years before
reaching 21.
The tax credits he derives by reason of the tax
paid by the trust in the first eighteen years will be
available -- along with credit for the tax paid by the trust
in his last three years -- to offset any additional tax that
might be due on the distribution of the income accumulated
by the trust in the last three years.
Not only is this true, but the Tax Reform Act further
amends the administrative provisions of the Code to make clear
that if the tax credits to which the beneficiary is entitled by
reason of the tax previously paid by the trust are greater
than the tax he owes under the
throwback
calculation when
the accumulation distribution is made, he is entitled to a
refund of the excess.
Although the trust may have paid
- 10 higher taxes on accumulations of income than the beneficiary
would have paid had the income been distributed currently
because of its lower exemption, the absence of the Low
Income Allowance or standard deduction, and a higher rate
structure than applicable to single persons -- those higher
taxes may be recouped later by refund to the beneficiary
when the accumulated income is distributed to him.
Thus a
possible disadvantage to the use of accumulation trusts for
minors has been eliminated.
These considerations that I have mentioned with respect
to infant beneficiaries apply, of course, to adult
beneficiaries~
Adult beneficiaries are, of course, more likely to have income
from sources other than the trust from which the accumulation
distribution is received, and they are more likely to owe
net additional tax on the distribution.
But this is in
keeping with the underlying policy of the new law to prevent
accumulation trusts from being utilized as tax avoidance
mechanisms.
Where tax has not been avoided, but a higher
tax has been paid by the trust than a beneficiary would have
paid on current distribution of the trust income, the net
final result will be favorable to the beneficiary.
Naturally the new system may create a greater problem
than existed under the prior law in preserving records
I
- 11 -
~)
necessary to determine the tax that would have been paid by the
beneficiary in earlier years had income been distributed
currently rather than accumulated for later distribution
to him.
The removal of the five-year limit on the throwback,
as well as the elimination of the several exceptions to the
throwback rule, will make such record-keeping far more
important.
Even the short-cut three-year calculation
provided as an alternative for the beneficiary is no necessary
answer to this problem, since the beneficiary may want to
use the exact calculation, involving all preceding years,
if it is to his advantage.
Fortunately, however, the five-year limit and the old
exceptions to the throwback rule will continue to be available
for all distributions of income accumulated by a trust in
taxable years of the trust beginning prior to January 1,
1969.
Thus any additional burden of preserving income tax
returns or other data of beneficiaries will apply only for
1969 and subsequent years.
We would be pleased to review with representatives of
the American Bankers Association, as well as with other
interested persons, the practical problems this may create,
- 12 and to try to work out acceptable procedures that will hold
the administrative difficulties to a minimum.
We earnestly
solicit your suggestions or recommendations and the benefit
of the experience that you accumulate in dealing with the
new law.
We are anxious to keep the administrative burden
as small as possible for fiduciaries, for beneficiaries and
for the Internal Revenue Service.
Perhaps in the current
preparation of trust income tax returns for 1969 income
you might wish to develop data as to the tax adjustment for
1969 that may later have to be made when and if 1969
accumulations are distributed in the future.
We would be
pleased to have the opportunity of reviewing such data
with you as an aid in the preparation of regulations or
in considering possible statutory changes.
Beyond the matter of accumulated ordinary income, the
new law adds a further dimension in adopting a throwback
rule for distributions of capital gains previously accumulated
by a trust.
This new provision was added by the Senate
Finance Committee and retained in the Conference.
The Treasury
did not recommend the extension of the throwback rule to
capital gains for a number of reasons, particularly because
- 13 -
of the added complexity and the lesser opportunity for tax
avoidance in the accumulation of capital gains, as well as
some conceptual problems.
The new capital gains throwback is computed completely
apart from the ordinary income throwback.
All distributions
are considered to be made first out of ordinary income
until all of the accumulated ordinary income has been
distributed; only thereafter maya distribution be considered
to be made out of accumulated capital gains.
The capital gains throwback rule applies only in the
case of "a trust which is not required to distribute all of
its income currently."
(Section 669(a».
Hence if the trust
instrument requires that ordinary income be distributed
currently, the new capital gains throwback rule will not
apply to any additional distributions that may be made to
the beneficiary.
Further, the new law provides that for this purpose
"a trust shall not be considered to be a trust which is not
required to distribute all of its income currently for
any taxable year prior to the first taxable year in which
incorre is accumulated"
(Section 668 (a».
Thus even if
the trust instrument would permit accumulation of ordinary
- 14 income, if the trustee does not in fact accumulate
ordinary income but distributes all ordinary income
currently, the capital gains throwback rule will not
apply to any distributions made to the beneficiary.
Thus if a trustee is authorized to accumulate ordinary
income but actually distributes all of it in every year
through 1972, and then accumulates some ordinary income
in 1973, the capital gain throwback rule can apply to
distributions in 1974 and subsequent years.
If the
application of the capital gains throwback is to be
avoided, the fiduciary must be careful not to exercise
a discretion to accumulate any ordinary income.
Suppose a trust accumulated ordinary income in years
past but does not accumulate ordinary income in any
taxable year beginning after December 31, 1968, the
first year to which the new law is by its terms made
applicable.
We have concluded that the accumulation of
income in years before the effective date of the new
law will not bring the capital gains throwback rule
into operation in the future if no ordinary income is
- 15 accumulated in any taxable year beginning after the
December 31, 1968 effective date.
We expect shortly to
issue a temporary regulation to this effect.
Another change in the law permits a fiduciary to
elect, pursuant to regulations to be prescribed, to have
a distribution made within the first 65 days of a taxable
year of a trust treated as having been made on the last
day of the preceding taxable year
amended.)
(Section 663(b), as
Hence a fiduciary of a calendar year trust can, if he
so elects, treat a distribution actually made in the first
65 days of 1970 as having been made to the beneficiary on
December 31, 1969, and thus avoid any accumulation of income
for 1969.
If the fiduciary does so, the beneficiary must
include in his 1969 income tax return the amount of the
distribution that he did not actually receive until the early
part of 1970.
In this manner the fiduciary will still have the
opportunity of preventing the capital gain throwback rule from
coming into application in the future by reason of ordinary
income accumulations in 1969.
A similar procedure can be
followed in subsequent years to make certain that ordinary
income is fully distributed currently.
- 16 The temporary rules to be issued shortly will set forth
the procedure to be followed by the fiduciary in making the
election.
The election made for one year will not be
binding for future years but may be changed from year to
year.
The capital gains throwback rule will not apply under
the new law to distributions made before January 1, 1972.
But if a beneficiary receives distributions out of previous
accumu1ationsof capital gains from more than one trust prior
to 1972, he is entitled to this deferment of the capital
gains throwback only with respect to one of such trusts
(disregarding distributions from a marital deduction trust
for a surviving spouse).
The beneficiary may select the
trust for which he wishes the deferment.
<
- 17 I should mention that the new law does not make the
throwback rules applicable to estates.
The new throwback provisions will obviously affect
trust and estate planning.
We believe they will improve
the equity of the tax structure -- a matter of major
significance.
The unlimited throwback will, I think,
reduce materially the significance of income tax
considerations in the establishment of trusts, whether
created in a will or by inter vivos instrument.
It will
no longer be a factor of such overriding tax significance
whether the trustee is empowered to accumulate trust
income, or must distribute it, currently to the income
beneficiary.
The decision whether to authorize or direct
the trustee to accumulate income can now be made by the
client with greater emphasis on the needs of the
beneficiary and his financial responsibility and maturity
and less attention to income tax factors.
This is not to say income tax considerations are
entirely removed.
To the extent income is accumulated
there is still the aspect of deferral of tax; the
additional tax is not paid until the income is actually
- 18 distributed to the beneficiary.
Also, and perhaps more
important, there is still an advantage in generation
skipping; the accumulated income is taxed to the beneficiary
who actually receives it, and his tax bracket during the
years the income was accumulated may have been substantially
below that of the person who was the income beneficiary
of the trust during those years.
For example, the income
beneficiary may be a parent who does not need the income,
and hence the trustee may allow the income to be accumulated
for distribution to the primary beneficiary's children
following his death
or
perha~s
even during the primary
beneficiary's lifetime if such discretion is granted the
trustee in the trust instrument.
Obviously both you and we in the Treasury have much
work to do in analyzing the practical operating effect
of the new accumulation trust rules.
We would be grateful
if you would tell us of any problems you have in construing
or applying the statute in order that we may deal with
them in the regulations we must issue.
Let me assure you of our intense desire to preserve
and stimulate the use of trusts so long as they are not
employed to deflect the income tax burden unduly through
- 19 technical devices.
We recognize their virtue.
They are
an integral part of our common law heritage and should be
fostered, as they have been for centuries.
We believe that the Tax Reform Act will provide a
more equitable tax structure for trusts and their beneficiaries,
and we shall try to make it work without undue administrative
complications.
We shall be grateful for your suggestions.
000
30
TREASURY DEPARTMENT
WASHINGTON, D.C.
February 11, 1970
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
February 19, 1970, in the amount of
$ 3,003,574,000,
as follm\ls:
9~day
bills (to maturity date) to be issued February 19, 1970,
in the amount of $ 1,800,000,000,
or thereabouts, representing an
additional amount of bills dated November 20, 1969,
and to
mature
May 21, 1970,
originally issued in the amount of
$1,200,408,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $ 1,200,000,000,
dated February 19, 1970,
and to mature
or thereabouts, to be
August 20, 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, February 16, 1970.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
"
'1'10
- 2 ..
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied f0r, unless the tenders are
accompanied by an express gU8!Aant Y of payment hy 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 ra
of accepted bids. Only those submitting competitive 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. Subj ect to these reservations, noncompetitive tenders
for ea'ch 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.
Settle~ent for accepted tenders in accordance with the bids must be
made Or" completed at the Federal Reserve Bank on February 19, 1970, in
cash or' other immediately avail able funds or in a like face amount
of Treasury bills maturing
February 19, 1970. Cash and exchange
tender.) will receive equal treatment. Cash adjustments will be made
f,)l:- differcLlces between the par value of maturing bills accepted in
e~~hange and the issue price of the new bills.
The income derived from Treas'ury 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 Cerie of 1954. The bills are subject to
('state, inheritance, gift or othet 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.
A
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 DEPAR'rMINT
Washington
51
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE NATIONAL AGRICULTURAL OUTLOOK CONFERENCE
WASHINGTON, D. C.
MONDAY, FEBRUARY 16, 1970, 10:00 A.M., EST
CHANGtNG PRIORITIES FOR THE 1970'S
President Nixon's new budget for the fiscal year 1971
is a clear and specific indicator of the Administration's
determination to maintain a noninflationary fiscal policy for
the year ahead.
But the new budget is more than that; it also
is a major step toward rearranging our national priorities for
the decade of the Seventies.
I would like to explain both of
these points this morning.
The Fiscal Outlook for 1970-71
From the viewpoint of short-term economic stabilization,
the thrust of the fiscal year 1971 budget is quite clear.
To
the $3.2 billion surplus achieved in fiscal 1969 and to the
$1.5 billion surplus we anticipate in the current fiscal year,
it is our determination to add a third year of modest excess
of income over governmental outgo -- a 1971 surplus of $1.3
billion.
Given the economic environment that we anticipate,
I believe that such modest budget surpluses are the order
of the day.
The maintenance of a budget surplus is a clear
signal to the money markets, private investors, and other
K-340
31·
- 2 -
sectors of the economy that the Federal Government is
continuing to press its anti-inflationary effort.
I believe
that any planned deficit, no matter how small, would have
weakened that impact.
In contrast, too large an anticipated
surplus could set in motion strong deflationary forces.
It
also is noteworthy that these surpluses are being achieved
by restraining public sector demand, rather than through new
or increased taxes.
The budget has been prepared on the basis of a set of
economic assumptions for 1970 which we consider quite reasonable.
Actually, our estimates of GNP ($985 billion), personal
income ($800 billion), and corporate profits ($89 billion)
are all close to the midpoint of the range of forecasts made
by experienced private economists and financial analysts.
We have projected the Gross National Product in the
calendar year 1970 at a five and a half percent increase over
1969.
This clearly represents an intent to achieve a temporary
slowdown in the growth pattern of the economy for 1970, a slowdown necessary to achieve a substantial reduction in inflationary
pressures before the economy returns to high employment growth
at relatively stable prices.
No official quarterly pattern of GNP in 1970 has been
released.
Obviously, more than one such pattern would be
consistent with the $985 billion figure.
The pattern that
33
- 3 -
I personally prefer shows real GNP relatively flat in the first
half of the year, followed by an upturn in the second half.
As
you may know, one of the favorite new parlor games in Washington,
at least among economists, is to debate the significance of the
fraction of one percent decline in the real GNP in the fourth
quarter of 1969.
It is hard for me to view this as any thunder-
ous or precipitous decline.
In fact -- as I said in a public
statement' three months ago -- I do not measure major swings in
economic activity by such fine percentages.
That is, a decrease
of several tenths of one percent in the real Gross National
Product really means a period of no growth.
I would make the
same statement about a reported rise of several tenths of one
percent in real GNP.
Incidentally, despite a lot of third party statements to
the contrary, the Treasury economics staff has not been able to
discover any pronouncement by the National Bureau of Economic
Research that it mechanically measures a recession by two or
more quarters of negative real growth, no matter how small, in
the GNP or in any other single statistical series.
The Bureau
uses three broad ·criteria in cha~acterizing a phase of a business
cycle: (1) its duration, (2) its amplitude of change, and (3) its
.
scope or degree of involvement among economic sectors.
Looking beyond the outlook for the coming year, I believe
that it is particularly significant that this year's Federal
Budget, as well as the Economic Report, contains projections
beyond the budget year, through the period ending in 1975.
J4
- 4 -
This Administration believes that such a forward look is
necessary for more informed and enlightened decisions on
national priorities.
Changing Federal Priorities
The Federal Budget for 1971 provides a good guide as
to the changing priorities of the'Federa1 Government.
Rather
than repeating the rhetoric usually contained in such documents
(thankfully, this year it is kept to a minimum), let us see
where the money is going.
Last year, as in every year since the Korean War, the
largest category in the Federal Budget was national defense.
In the 1971 budget, in contrast, the largest share of the
budget goes to a civilian sector, specifically to human
resource programs (which includes education, health, welfare,
veterans, and manpower projects).
The shift is quite dramatic
in 1969, 44 percent of the budget went to defense and 34 percent
to human resources; in 1971, we corne close to reversing the
relationship -- 41 percent to these civilian investments in
people and 37 percent to military programs.
Only in part does this shift represent our winding down
of our direct participation in the Vietnam War.
The trend
we are reversing is a longer-term trend than that.
ago, in 1961, national
~efense
A decade
received a larger share
(48 percent) of the Federal Budget than is either contemplated
for 1971 or actually was spent in 1969.
J
.
~-
... 5 -
The anticipated $7.7 billion reduction in military
outlays between 1969 and 1971 is the largest area of cutback,
but by no means the only one.
Space exploration spending is
down by over $800 million in the same period, and foreign
aid is about $200 million lower.
Other reductions or eliminations occur in lower priority
areas throughout the budget.
The President proposes to eliminate
the operation of the nuclear ship Savannah, to close down the
NASA Electronics Research Center, to sell the Alaska Railroad
to private owners, to sell off over $750 million worth of surplus
commodities from our stockpile of strategic and critical materials, and so forth.
The areas of increase and, hence of higher priority, in
addition to human resource programs previously mentioned, are
quite noteworthy.
Programs to improve the environment, such
as control of air and water pollution and more parks and open
spaces, expand by over 50 percent in two years, rising from
$785 million in 1969 to a recommended $1.1 billion in 1971.
The 1971 figure represents a more than fivefold increase from
a decade ago.
Outlays for crime reduction also represent an area of
substantial growth in the Federal Budget and, hence, of increased
priority.
Expenditure£ in this area almost double in a two-year
period, rising from $658 million in 1969 to $1.3 billion in 1971.
- 6 -
Anotherlaportant, but less dramatic change in the
Federal sector is the trend toward decentralizing the actual
operation of public programs.
This can be seen most clearly
when we examine two separate but related items -- (1) the
personnel of Federal agencies and (2) financial assistance
to state and local governments.
The
~97l
budget proposes to continue the reduction in
direct Federal employment begun last year.
From a total
of 2,633,762 full-time permanent civilian employees in the
Executive Branch as of June 1969, we now estimate that the
"total will be 2,602,800 at the end of June 1970, and down
to 2,597,200 by June 1971.
In contrast, Federal financial aid to state and local
governments will be rising during this same period, to help
our states, cities, and counties to carry out programs of
national significance.
The estimated total of $28 billion of Federal aid to
state and local governments in 1971 is an almost fourfold
increase since 1961.
Moreover, the 1971 funding represents
more than an increase in dollars.
It contains what we believe
to be an important qualitative innovation in Federal-statelocal fiscal relations.
What I have in mind here is a start
on our new program of Federal revenue sharing with state and
local governments.
- 7 -
We are well aware of the adverse side-effects that too
often accompany existing programs of grants-in-aid.
Revenue
sharing, which will be :!J,n addi tion to existing grant programs,
is designed to
decen~ralize
not only the expenditure of Federal
funds but the actual decision-making as to the way the funds
will be spent.
Our revenue-sharing program provides for
priorities to be set by each state and local government,
rather than here in Washington.
Let me emphasize that these shifts in priorities have
not come about the easy way, by merely realigning expenditures
'in a rapidly expanding budget.
Rather, this Administration
has taken the more difficult but, we earnestly believe, the
more responsible and necessary approach of rearranging relative
program priorities within an almost constant budget total.
Specifically, during the years 1969-71, total budget outlays
are estimated to increase about 2 percent a year, or less than
the near-term expected rise in the price level.
This overall
restraint in government spending is necessary in reconciling
our two-fold considerations of promoting short-term economic
stabilization and long-term growth and welfare.
Let me end by noting the positive outcome we expect from
the responsible pursuit of both objectives.
Our short-term
effort of fiscal restraint should, as we see it, make possible
a long-term sustained period of substantial growth of income,
- 8 -
employment, and living standards.
On the basis of our pro-
jection of a $1.4 trillion GNP in 1975, the current Federal
tax structure would yield $266 billion in revenues in that year.
Even after making full allowance for the future costs of current
programs plus the new efforts recommended by the President, we
estimate that there will be an additional $22 billion available
to finance new program initiatives in 1975.
Those are the
rather pleasant prospects of an enlightened and responsible
fiscal policy.
It may not suffice for all that we may wish
to do, but it provides the opportunity for a good start.
Summary
These, then, are the economic highlights of the Federal
fiscal outlook:
1.
The maintenance of budget surpluses in the fiscal
years 1969, 1970, and 1971 is a clear signal to the money
markets, private investors, and other sectors of the economy
that the Administration is continuing to press the antiinflation effort.
2.
I do not'measure major swings in economic activity
by such fine percentages asa fraction of one percent of GNP.
On this basis, I expect real GNP to be relatively flat in the
first half of 1970, followed by an upturn in the second half.
3.
The 1971
bu~get
signals a fundamental reorientation
in the composition of the Federal Budget -- from military to
- 9 -
civilian programs.
The largest single share -- 41 percent --
is devoted to investments in human resources, up from 34 percent
in 1969 and 30 percent in 1961.
4.
In striking contrast, the military portion of Federal
outlays is being reduced from 44 percent in 1969 (48 percent in
1961) to 37 percent in 1971.
The role of the military in our
society as a whole and in the public sector specifically is
being reduced substantially.
5.
In addition to human resources (such as education,
health, welfare), other areas of high priority and hence of
rapid Federal expenditure increases are improving the environment -- up over 50 percent between 1969 and 1971 -- and crime
reduction -- a twofold increase during the same period.
6.
Another important change is the trend toward decen-
tralization of the Federal sector.
This can best be seen by
the modest reductions in direct Federal employment and the
substantial expansion in Federal financial assistance to
state and local governments (e.g., revenue sharing).
7.
These shifts in priorities have not corne about
the easy way, by merely realigning expenditures in a rapidly
expanding budget.
Rather, we have taken the more difficult
but necessary approach of rearranging relative program
priorities within an almost constant budget total.
- 10 -
8.
To assist the Nation in setting future priorities,
the 1971 budget makes the important departure of including
long-term projections.
On the basis bf a $1.4 trillion
economy in 1975, Federal revenue from existing taxes would
be $266 billion.
This would be $22 billion above the 1975
costs of existing programs plus Nixon Administration initiatives
to date.
This is not a forecast of any $22 billion surplus,
but an indication of the long-term flexibility that can result
from sensible short-term fiscal policies.
000
•
TREASURY DEPARTMENT
.$
-
EAM
4/
m
WASHINGTON, D.C.
OR IMMEDIATE RELEASE.
February 13, 1970
TREASURY AJ:iINOUNCES FINANCING PLllliS
The'Treasury today announced plans to raise additional cash by a $100
lillion increase in the regular weekly six-month bill issues, a $200 million
.ncrease in the regular monthly one-year bill issues, and by issuing an
,dditional $1,750 million o~ April tax anticipation bills.
The increase in the six-month bills from $1.2 billion to $1.3 billion
'ill start with the issue of February 26 which wili be auctioned Friday,
'ebruary 20. The one-year bills will be increased from $1.0 billion to
11.2 billion starting "lith the issue of February 28, the auction of
~ich will be held Tuesday, February 24.
The Treasury has not yet determined
lOW long these increases will be continued.
The April tax bill will be auctioned on Wednesday, February 25.
letails will be announced next week.
Additional
These offerings are expected to cover the Treasury's cash requirements for
[arch. Additional cash will be reqUired early in April.
0)0
K-341
{Il"
January ll. 1970
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
(Dollor omounh in million. - roundod and will not noconarily add to total.)
DESCRIPTION
AMOUNT ISSUEDV
RED
AMOUNT
REDEEMEDU
AMOUNT
OUTITANOINOJI
6
)5
21
,
'1. OUTST MIDINCi
0' AMOUNT IS:'UED
5,003
29,521
3,754
u,997
29,h86
3,733
1,888
8,3)2
1),402
lS,641
12,296
5,582
5,)00
5,u84
5,420
4,739
4,098
4,292
4,904
4,999
5,209
5,032
4,739
u,62U
4,333
4,345
4,401
4,266
4,740
4,620
4,517
4,864
4,814
3,417
1,675
7,h05
1l,9uS
1),850
10,721
u,692
4,304
u,366
4,236
3,647
3,158
3,284
3,668
3,672
3,771
3,601
3,331
3,127
2,868
2,757
2,648
2,451
.2,558
2,506
2,438
2,448
2,323
1,992
924
693
1,00)
-309
165,557
121,369
Uh,188
26.69
5,847
6,901
),7Cfl
1,781
2,lho
S,120
. ·36.60
74.19
12,1u8
5,488
7,2S9
56.94
178,joS
126,857
Sl,h48
28.85
)8,277
178,305
216,582
)8,21S
126,857
165,072
62
Sl,4I48
.16
28.85
2).78
eM A-1!135 thru 0-1941
C~ F nnd 0-\94\ thru 1952
,es ,J and K-1952 lhru 1957
.12
.12
.56
TURED
les E.Y :
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
~,567
Inclasslfied
~otal
Series E
es H (1952 thru May. 1959) 11
H (June. 1959 thru 1969)
'otal Series H
'otal Series E and H
{Total matured
ieriesTotal unmatured
Grand Total
21)
927
1,uS7
1,790
1,576
890
996
1,1l8
1,183
1,091
940
1,008
1,237·
1,)27
1,u37
1,u31
1,h09
. 1,497
1,465
1,588 '
1,7SU
1,815
2,181
2,11.4
2,080
. 2,416
2,491
2,575
2,493
SlJSlO
.cc,uetl dl.coun,.
,..,..."" • • • /u ••
• ., .........,.". . ." •• ,..14
IIIt4 wIll • .,.. ,",....., I .
a.,111",.., ,.,•• aI,., Ofl"ne' ...,-", . ,•••
11.28
11.13
10.87
.11.L4
12.82
15.94
18.79
20.39
21.83
23.02
22.94
23.49
25.22
26.55
27.59
28.L4
29.73
32.37
33.81
36.55
39.85
42.55
46.01
45.76
46.05
49.67
51.74
56.38
72.96
-
TREASURY DEPARTMENT
WASHINGTON. D.C.
February 16, 1970
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by
for two series of Treasury bills
$3,100,000,000, or thereabouts,
Treasury bills maturing February
$ 3,001,646,000,
as follows:
this public notice, invites tenders
to the aggregate amount of
for cash and in exchange for
26,1970,
in the amount of
9l-day bills (to maturity date) to be issued February 26, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing an
additional amount of bills dated November 28, 1969,
and to
mature May 28, 1970,
originally issued in the amount of
$1,201,189,000,
the additional and original bills to be
freely interchangeable.
l82-day bills, for $1,300,000,000,
or thereabouts, to be
dated February 26,1970,
and to mature August 27, 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,
Friday, February 20, 1970.
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 dedima1s, e. g., 99.925. Fractions may not
be us~d. 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-342
- 2 responsible and recognized dealers in investment securities. Tender.
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 opefted at
the Federal Reserve Banks and Branches, follqwing which public announcement will be made by the Treasury Department of the amount and price r~
of accepted bids. Only those submitting_competitive 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 February 26,1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing February 26, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differeLlces between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 0oO~ranch.
I
J
/ '-/
I-ji
rREASURY DEPARTMENT
RELEASE 6:30 P.M.,
iay, February 16, 1970.
!
I
WASHINGTON. D.C.
RESULTS OF TREASURY'S WEEKLY BILL OFFERDiG
The Treasury Department announced that the tenders for two series of Treasury
one series to be an additional issue of the bills dated November 20, 1969, and
other series to be dated February 19, 1970, which were offered on February 11, 1970,
e opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
thereabouts, of 91-day bills and for $1,200,000,000, or thereabouts, of 182-day
'ls. The details of the two series are as follows:
~s,
·
·
GE OF ACCEPTED
iPETITIVE BIDS:
91-day Treasury bills
maturing May 21, 1970
•
Approx. Equiv.
Price
Annual Rate
98.310 FJ:.!
•
6.686~
•
98.273
6.83z1,
98.287
6.117;' Y
·
High
Low
Average
·
182-day Treasury bills
maturing August 20, 1970
Approx. Equiv.
Price
Annual Rate
96.531 pJ
6.862;'
96.470
6.98~
96.503
6.917;'
!I Excepting
1 tender of $200,000;
pJ Excepting (. tenders totaling $1,000,000
l~ of the amount of 9l-day bills bid for at the low price was accepted
91~ of the amount of 182-day bills bid for at the low price was accepted
IAL TENDERS APPLD!D FOR AND ACCEPrED BY FEDERAL RESERVE DISTRICTS:
istrict
oston
ew York
l1ilade1phia
leveland
ichmond
tlanta
111cago
t. Louis
inneapolis
ansas City
illas
an Francisco
TOTALS
Applied For
$
25,~(.,000
1,988,318,000
~,017,000
46,293,000
21,634,000
61,242,000
195,55(.,000
(,9,829,000
3(.,211,000
38,579,000
30,930,000
153,466,000
Accepted
: Applied For
$ 25,0(.5,000 : .
8,721,000
1,250,398,000
1,(.8(.,867,000
31,017,000:
2(.,852,000
44,833,000:
(,6,841,000
21,623,000:
18,832,000
51,014,000:
49,999,000
111,354,000:
183,995,000
48 ,529 ,000:
37,(.80,000
24,211,000:
23,525,000
38,346,000
35,089,000
21,930,000:
32,472,000
12£,046,000:
148,639,000
Accepted
$
8,721,000
173,661,000
14,852,000
45,751,000
18,832,000
(,5,998,000
108,995,000
34,980,000
18 ,345,000
34,787,000
24,382,000
10,841,000
£I
$1,200,157,000
$2,691,531,000 $1,800,406,000
$2,095,312,000
3/
Includes $425,120 000 noncompetitive tenders accepted at the average price of 98.281
Includes $289,012:000 noncompetitive tenders accepted at the average price of 96.503
These rates are on a bank discount basis. The equivalent coupon issue yields are
6.9~ for the 9l-day bills, and 1.27;' for the 182-day bills.
rREASURY DEPARTMENT
WASHINGTON. D.C.
FOR IMMEDIATE RELEASE
February 17,1970
TREASURY'S MONTHLY BILL OFFERING
The Treasury Department, by
for two series of Treasury bills
$ 1,700,000,000, or thereabouts,
Treasury bills maturing February
$ 1,500,540,000,
as follows:
this public notice, invites tenders
to the aggregate amount of
for cash and in exchange for
28,1970,
in the amount of
273-day bills (to maturity date) to be issued March 2, 1970,
in the amount of $ 500,000,000,
or thereabouts, representing an
additional amount of bills dated November 30, 1969,
and to
mature November 30,1970,
originally issued in the amount of
$1,001,199,000,
the additional and original bills to be
freely interchangeable.
365-day bills, for $ 1,200,000,000,
dated February 28,1970,
and to mature
or thereabouts, to be
February 28, 1971.
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 1
time, Tuesday, February 24, 1970.
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 o (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
forms 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-343
- 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 d~aleLS 1n lnvestmenf gecurities. TendRrs
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, follqwing which public announcement will be made by the Treasury Department of the amount and price ranSe
of accepted bids. Only those submitting_competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on March 2, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing February 28, 1970. Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differellces 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 t~xation 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.
rREASlJRY
DEPARTMEi\JT
a
i
It
;:a I
WASHINGTON. D.C.
n1MEDIATE RELt!.""""ASE
February 17, 1970
SUBSCRIPTION FIGURES FOR CURRENT EXCHANGE OFFERING
The results of the Treasury's current exchange offering of
8-1/4% notes dated F~bruary 15, 1970, maturing August 15, 1971,
8-1/8% notes dated February 15, 1970, maturing August 15, 1973, and
8% notes dated February 15, 1970, maturing February 15, 1977,
summarized in the following tables.
(DOLLAR AMOUNTS IN MILLIONS)
les Eligible
Exchan~e
londs
Le 2-15-70
'2% bonds
~e 3-15-70
Total
AmOlmt
Eligible
for
Exchange
$ 4,382
For Cash Redemption
of
Total
% of
Public
OutTotal
standh01dAmOUi'1t
ing
ing~
$ 438
10.0
10.8
%
ExchanESed for
8-1/4%
8-1/8%
8%
Notes
Notes
Notes
$1,235
$1,568
$1,141
Total
$3,944
2,280
685
594
715
1,994
286
12.5
17.7
$ 6,662
$2,253
$1,829
$1,855
$5,938
$ 724
10.9
12.8
Exchanges for 8-1/4% Notes of Series F-1971
ral Reserve
rict
on
York
adelphia
eland
mond
nta
ago
Louis
eapolis
9.S City
3.S
i'rancisco
mry
TOTAL
-344
4% Bonds
of 1970
2-1/2% Bonds
of 1965-70
32,240,000
722,311,000
65,283,000
94,615,000
52,434,000
60,002,000
193,983,500
66,302,500
27,077,000
47,434,000
111,483,500
82,490,000
12 ,362,000
$
29,006,000
391,102,000
22,608,000
13,113,000
18,288,000
9,008,000
72,919,500
27,232,500
5,386,000
24,589,000
7,168,500
62,591,000
1,854,000
$
$1,568,017,500
$
684,865,500
$2,252,883,000
$
Total
61,246,000
1,113,413,000
87,891,000
107,728,000
70,722,000
69,010,000
266,903,000
93,535,000
32,463,000
72,023,000
118,652,000
145,081,000
14,216,000
L/,
- 2 -
l
Exchanges for 8-1/8% Note,s of Series B-1973
4% Bonds
of 1970
ieral Reserve
strict
ston
fl York
iladelphia
eveland
chmond
lanta
icago
Louis
nneapolis
nsas City
lIas
n Francisco
easury
TOTAL
$
2-1/2% Bonds
of 1965-70
Total
28,743,000
592,346,000
22,070,000
89,450,500
25,822,500
48,894,000
208,455,000
60,044,000
26,435,000
60,383,500
42,292,500
28; 631,000
1,806,000
$ 11,271,000
388,416,000
7,280,000
16,698,500
6,039,500
3,728,000
71,775,000
12 , 776, 000'
3,495,000
14,158,500
1,581,500
56,582,000
285,000
$
$1,235,373,000
$594,086,000
$1,829',459,000
40,014,000
980,762,000
29,350,000
106,149,000
31,862,000
52,622,000
280,230,000
72,820,000
29,930,000
74,542,000
43,874,000
85,213,000
2,091,000
Exchanges for 8% Notes of Series A-1977
4% Bonds
of 1970
ieral Reserve
strict
ston
fl York
Uadelphia
~veland
:!hmond
Lanta
icago
Louis
meapolis
lsas City
LIas
1 Francisco
:!asury
TOTAL
2-1/2% Bonds
of 1965-70
Total
---
50,750,000
643,909,000
20,103,000
53,574,000
17,585,000
37,992,000
159,767,000
37,642,500
21,168,000
26,368,500
19,875,500
46,885,000
4,905,000
$ 13,864,000
565,275,000
8,012,000
19,731,000
2,131,000
6,419,000
40,609,000
5,149,500
3,027,000
11,461,500
19,147,500
19,358,000
774,000
$
$1,140,524,,5 60
$714,958,500
$1,855,483,000
$
64,614,000
1,209,184,000
28,115,000
73,305,000
19,716,000
44,411,000
200,376,000
42,792,000
24,195,000
37,830,000
39,023,000
66,243,000
5,679,000
/»
t,~~>
-REASURY DEPARTMENT
i IMMEDIATE RELEASE
I:
,
.
WASHINGTON, D.C.
February ,18, 1970
TREASURY OFFERS ADDITIONAL $1-3/4 BILLION IN APRIL ~ BILLS
The Treasury Department, by this public notice, invites tenders for $1,750,000,000,
thereabouts, of 50-day Treasury bills (to maturity date), to be issued M&rch'3,
70, on a discount basis under competitive and noncompetitive bidding as hereinafter
Jvided. These bills will represent an additional amount of bills dated October 14,
69, to mature April 22, 1970, originally issued in the amount of $2,006,704,000 (an
ditional $1,007,472,000 was issued November 26, 1969). The additional and original
lIs will be freely interchangeable. They will be accepted at face value in payment
income taxes due on April 15, 1970, and to the extent they are not presented for this
rpose the face amount of these bills will be payable without interest at maturity.
xpayers desiring to apply these bills in p~ent of April 15, 1970, income taxes may
bmit the bills to a Federal Reserve Bank or Branch or to the Office of the Treasurer
the United States, Washington, not more than fifteen d8¥s before that date. In the
,se of bills submitted in payment of income taxes of a corporation they sh~ be
companied by a duly completed Form 503 and the office receiving these items will
fect the deposit on April 15, 1970. In the case of bills submitted in payment of
,come taxes of all other taxpayers, the office receiving the bills will issue receipts
,erefor, the original of which the taxpayer shall submit on or before April 15, 1970,
, the District Director of Internal Revenue for the District in which such taxes are
~able. The bills will be issued in bearer form only, and in denominations of $1,000,
,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the closing
lUX, one-thirty p.m., Eastern Standard time, Wednesday, February 25, 1970.
Tenders
,11 not be received at the Treasury Department, Washington. Each tender must be for
l even multiple of $1,000, and in the case of competitive tenders the price offered
~st be expressed on the basis of 100, with not more than three decimals, e.g., 99.925.
'actions may not be used. It is urged that tenders be made on the printed forms and
Irw8.l'ded in the special envelopes which will be supplied by Federal Reserve Banks or
'anches on application therefor.
Banking institutions generally may submit tenders for account of customers pro-
.ded the names of the customers are set forth in such tenders. Others than banking
Lstitutions will not be permitte~ to submit tenders except for their own account.
!nders will be received without deposit from incorporated banks and trust companies
~ from responsible and recognized dealers in ~vestment securities.
Tenders from
;hers must be accompanied by payment of 2 percent of the face amount of Treasury bills
)plied for, unless the tenders are accompanied by an express guaranty of payment by an
Lcorporated batik or trust company.
All bidders are required to agree not to purchase or to sell ' . to make any
:reements with respect to the purchase or sale or other disposit!o; of any bills of
Lis issue at a specific rate or price, until after one-thirty
Eastern Standard
me, Wednesday, February 25, 1970.
p.m.,
K-345
- 2 -
Immediately after the closing hour, tenders will be opened at the Federal.
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids: Only thole
submitting competitive tenders will be advised of the acceptance or reJection thereof
The Secretary of the Treasury expressly reserves the right to accept or reject ~~
all tenders, in whole or in part, and his action in any such respect shall be t~,
Subject to these reservations, noncompetitive tenders for $200,000 or less without
stated price from any one bidder will be accepted in full at the average price (u
three decimals) of accepted competitive bids. Payment of accepted tenders at the
prices offered must be made or completed at the Federal Reserve Bank in cash or o~u
immediately available funds on March 3, 1970. Any qualified depositary will be
permitted to make settlement by credit in its Treasury tax and loan account for
Treasury bills allotted to it for itself and its customers.
The income derived from Treasury bills, whether interest or gain from the s~e
or other disposition of the bills, does not have any exemption, as such, and loss fi~
the sale or other disposition of Treasury bills does not have any special treatment,
as such, under the Internal Revenue Code of 1954. nte bills are subject to estate,
inheritance, gift or other excise taxes, whether Federal or State, but are exemptfi~
all taxation now or hereafter imposed on the principal or interest thereof by ~
State, or any of the possessions of the United States, or by any local taxing author1~
For purposes of taxation the amount of discount at which Treasury bills are original.lJ
sold by the United States is considered to be interest. Under Sections 454 (b) md
1221 (5) of the Internal Revenue Code of 1954 the amount of discount at which bills
issued hereunder are sold is not considered to accrue until such bills are sold,
redeemed, or otherwise disposed of, and such bills are excluded from consideration
as capital assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder need include in his income tax return only the
difference between the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon sale or redemption
at maturity during the taxable year for which the return is made, as ordinary gain
or loss.
Treasury Department Circular No. 418 (current revision) and this notice, prescribe the terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
THE DEPARTMENT OF THE TREASURY
Washington, D. C.
FOR RELEASE UPON DELIVERY
STATEMENT OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE THE
JOINT ECONOMIC COMMITTEE
FEBRUARY 19, 1970
10:00 A.M., EST
Mr. Chairman and Members of the Committee:
It gives me great pleasure to appear agaIn before your
distinguished committee.
You have heard testimony earlier
this week from the Council of Economic Advisers, the
Bureau of the Budget, and the Federal Reserve.
There IS
no need, therefore, for me to review the past year's developments in great detail.
brief.
My prepared statement IS relatively
It gives my own general appraisal of the current
situation and the prospects for the future.
Under Secretary
Volcker will follow with a statement pointed more specifically to international matters.
We are now entering a crucial period in the domestic
economic adjustment.
There are multiplying signs that the
policy of restraint has taken hold.
But final success In
the form of a much better price performance is yet to come.
Too sharp a turn toward expansion could cancel the progress
made to date.
Our policies must not feed a resurgence of
demand or of inflationary expectations.
K-346
- 2 -
A close watch must be kept on this adjustment process.
There are risks on both sides, and we must remain alert
to them.
Monetary and fiscal restraint have successfully
moderated the growth of total spending.
Gross National
Product in current prices rose at a rate in excess of
9 percent in 1968.
7 percent.
By mid-1969, the rate was down to
In the final quarter of the year, total
spending was rising at only a 4 percent rate.
We begin this year against the background of a
slower pace of total spending in the economy.
The
reduction in the growth of total spending is a necessary
precondition for the control of inflation.
It creates an
economic environment within which cost and price increases
will not continually feed upon themselves.
There can be little doubt, however, that inflationary
pressures are still very strong.
Present price statistics
make that fact uncomfortably clear.
And, the coming
calendar of wage negotiations may keep the pressures on
costs.
To this point, restraint has had its major effect
upon output.
1n real output
A further period of comparative stability
extending perhaps through the first half
of the year -- 1S to be expected.
During the course of
- 3 -
the year, more tangible results on the price front should
appear.
But this relief from rising prices has certainly
been slow in coming.
We must still work our way through a period this year
in which increases in Gross National Product will, to a
considerable extent, reflect higher prices.
Then, as the
rate of inflation drops, real output can safely resume a
moderate rise.
Even by the end of the year, however, price
increases may make up as much as half or more of the rise
ln the value of national output.
But, if all goes according
to our expectations, we should by then be firmly on a path
where growth in real output can rise toward its longer range
potential while prices move toward stability.
I see no substitute in an inflationary situation, for
working to restrain total spending.
Detailed intervention
into the wage-price decision-making process was tried but
abandoned by the.'previous Adminis tration as the economy
l- -
J
overheated.
Nor can direct controls do the job when there
are'heavy strains on labor and product markets.
There is
no quick or easy cure for the cost imbalances and distortions
that follow in the wake of inflation. : But we can look
forward this year to some gradual improvement.
Last year the productivity gain on a national basis
was well below normal and productivity may actually have
declined a bit during the first half of the year.
Money
- 4 -
wages, on the other hand, rose rapidly, partly in response
to the rising cost of living.
The combination of little
growth in productivity and a strong rise in hourly compensation resulted in more than a 6 percent increase in labor
costs per unit of output.
Resumption of productivity growth
would permit a much better overall record.
Gradually a
better balance can and must be restored between productivity,
costs and prices.
This better balance is essential for our
domestic stability and our international competitive position.
In its essentials, the Administration's economic
strategy remains unchanged.
Maximum reliance will be placed
upon the established stabilization tools monetary policy.
fiscal and
In the long run, this course is most
compatib Ie wi th the maintenance of a strong free en terprise
system.
We do recognize that the burden of restraint can fall
unevenly and cause real hardship.
T~erefore,
we have taken
steps to alleviate some effects of the adjustment now underway.
The proposed Manpower Training Act will forge a new link
between manpower programs and economic condi tions by- linking
appropriations to the unemployment rate.
Federal agencies.
have pumped large sums of money into housing and other
measures are under consideration.
Social security benefits
are to he increased substantially.
Special legislation has
been introduced to liheralize unemployment benefits.
- 5
~
Some change in the relative contributions of fiscal
and monetary policy may be required.
In this respect,
this year's budget planning has been particularly important.
Close restraint on Federal expenditures was essential to
insure the effectiveness and credibility of the antiinflationary program.
After rising by an average 13 percent
annually during the past 5 years, Federal outlays are
projected to rise by only about 1-1/2 percent in fiscal
1971.
Hard decisions have been made, and they are reflected
in the current budget.
The risk of a destabilizing shift toward fiscal ease,
further complicating the already difficult task of the
monetary authorities, has been avoided, for now at least.
When there is a need for some modest lifting of restraint,
there
1S
a strong case for its coming on the monetary side,
which has been stretched so tight.
If, in the months to
come, the economy should begin to slide off too far, a
degree of fiscal support would, of course, be supplied
automatically through the operation of the so-called
built-in stabilizers.
There is also a range of discretionary
steps which could be taken if and when they are clearly
required.
On the domestic financial side, we have to recognize
that, directly or indirectly, some of the programs of the
Federal Government -- whether aimed at housing, or public
- 6 -
facilities, or small business, result in heavy demands on
the credit markets.
fiscal year.
This will remain true in the next
We must make sure that these necessary
demands are not further increased by a budget deficit.
Fortunately, the Treasury is not currently in that position.
Private demands for long-term credit continue to be
strong.
The potential demand for mortgage credit far
exceeds the supply.
There is a large backlog of state
and local borrowing temporarily postponed during the period
of rapidly rising interest rates and, in some cases,
reflecting the operation of legal ceilings at the state
level now raised or removed.
All told, prospective demands
on the capital markets are not likely to diminish, although
some shading down of business requirements might be expected
as the pace of economic expansion moderates.
The size of these prospective demands suggests that
we may have to live with relatively high interest rates
during the period just ahead.
easing trend are appearing.
But some beginnings of an
A somewhat lower level of
interest rates was, in fact, assumed in drawing up the
estimate for interest on the public debt in fiscal 1971.
It will take a shift away from inflationary expectations
in keeping with the underlying realities of the economic
situation -- for this to materialize and to bring lasting
relief from high interest rates and credit shortages.
- 7 -
In our own refunding operations, under present
circumstances and at current interest rate levels, we
could not contemplate any massive reshaping of the debt
structure.
But the existing 4-1/4 percent interest rate
ceiling has the effect of confining the Treasury entirely
to seven-year maturities and under.
This has contributed
in recent years to an excessive pile-up of debt at the
shorter end of the maturity range, a trend that has tended
to aggravate the problems associated with disintermediation
and made us excessively vulnerable to higher interest costs.
Our debt management operations could be harmonized much more
effectively with general economic objectives if the 4-1/4
interest rate ceiling were removed or further modified.
Despite the small projected reduction in Federal debt
held by the public in 1970 and 1971, an increase in the
debt ceiling will be required by the end of this fiscal
year.
This reflects the expansion in debt obligations
held by the trust funds, as well as the need to accommodate
seasonal swings between receipts and expenditures.
A
decision on the amount of the increase in the debt ceiling
will not be made until we see the actual figures on budget
receipts and expenditures over the next few months.
I
might add that the current congressional ceiling on budget
expenditures tends to reduce whatever rationale the public
debt ceiling may have had in the past as a deterrant to
spending.
- 8 -
A year ago your Committee's Report urged that a
longer-range look be taken at our national goals and
priorities, along with the implications in terms of the
Federal fiscal position.
Your report pointed out that,
"Too often public policy has been formed in an ad hoc
fashion because of an absence of clearly stated national
objectives and priorities."
A forward look has been
taken in both the Economic Report and the Budget.
Broad
projections are made for the economy and the budget out
to 1975.
This implements another of the recommendations
of the 1967 Presidential Commission on Budget Concepts of
which I had the honor to be chairman.
Quite aside from
any feelings of personal satisfaction, the provision of
these forward estimates seems useful and long overdue.
In and of themselves, the projections cannot do much
to insure that better decisions are made.
And the specific
arithmetic is open to revision and modification.
But such
estimates do provide a more informed and objective basis
for discussion of our national priorities and goals.
Too
often in the past we have stumbled into the future with.out
a clear idea of where we were going or now mucft it would
cost over a period of time.
Now at least we nave made a
beginning toward a more rational appraisal of future
prospects.
- 9 -
The clear lesson that emerges from the five-year
forward projections is the very limited degree of fiscal
freedom that is, in fact, available.
On the basis of
present estimates, there is little, if any, margin available
in fiscal 1972 for new Federal budgetary programs.
And
even by 1975, when new initiatives of about 1 percent of
GNP might be accommodated, the overwhelming impression is
the lack of budgetary resources relative to potential claims.
While the present period of Federal expenditure restraint
1S
a
par~icularly
difficult one, there will be a continuing
need for efficient direction and control of Federal
expenditures.
There is also a need to make a comprehensive forward
looking appraisal of our financial structure and its
regulation.
The past decade brought profound changes
and created new problems.
As we look forward in this
decade, the volume of potential demand for savings is
impressive.
It will be increasingly important to insure
that our financial structure can adapt flexibly and
efficiently.
Therefore, the President will shortly be
appointing a commission of distinguished citizens to study
these matters.
As Mr.
Volcke~
will review more fully, our balance of
payments position continues to be a cause for concern.
On the other hand, the strength of the dollar abroad,
- 10 despite our large balance of payments deficit on the
liquidity basis, has been well maintained.
On the
official settlements basis, we actually ran a large
surplus last year -- the largest in many years.
But
this reflected some temporary factors and a degree of
monetary tightness here that we would not expect to
continue indefinitely.
While some improvement has recently been registered,
our trade balance remains far too small.
Over the longer
run, we must restore a much stronger current account
position if we are to reach a satisfactory payments
equilibrium.
This requires the early establishment of
a reasonable degree of cost-price stability in this
country
the same staflility which our domestic situation
requires.
But elimination of domestic inflation is not all we
need to do to strengthen our balance of payments position.
We are seeking a more equitable distribution of the
burden of mutual defense expenditures.
We are seeking th_e
reduction abroad of nontariff barriers which. sfiut out many
U. S. exports.
We are trying to heighten the export
consciousness of our business community, and to back th.eir
efforts with. adequate export credit.
And we are ·i.nvestigating
- 11 -
tax avenues which might help equalize our competitive
position relative to exports from other countries.
This past year has seen progress toward relieving
the domestic economy and the balance of payments from
inflationary strains and distortions.
Certainly that
progress is incomplete, and some difficult times may
still be ahead.
But we are moving in the right direction
and using the correct policy tools, in my opinion.
The
task this year will be to keep the economy moving at
a moderate pace while the current inflation is brought
more securely under control.
This will provide the
essential foundation for a gradual resumption of growth
along a noninflationary path in the years ahead.
TREASURY DEPARTMENT
Washington, D. C.
FOR RELEASE ON DELIVERY
STATEMENT BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE JOINT ECONOMIC COMMITTEE
ON THURSDAY, FEBRUARY 19, 1970
AT 10:00 A. M.
We meet at a time when the atmosphere in world currency
markets is happily free of the strains and tensions that
characterized much of the late 1960's.
In part, this reflects solid progress during the past
year toward reshaping our basic monetary arrangements.
The
collective decision to create Special Drawing Rights in
sizeable amounts was a step of fundamental importance.
It
points the way toward the provision of adequate amounts of
world reserves in the years ahead, without relying either on
the vicissitudes of the gold market or upon unsustainable
growth in reserve currencies.
The two-tier gold market
arrangements -- a logical complement to the era of internationally managed reserve creation implicit in SDR's -- has
proved its strength and value in practice.
K-347
With the question
- 2 -
of the treatment of new production now resolved, the two-tier
system is becoming embedded in the operating practices and
policies of our monetary institutions.
The calmer atmosphere can also be traced to effective
policies by several large European countries.
The exchange
rate adjustments by France and Germany removed two of the
principal focuses of speculative pressure.
The progress of
the British trade and payments position during the course of
1969 supports confidence in one of the most important world
currencies.
The process of balance of payments adjustment
in France also appears to be advancing in an orderly way.
Finally, as always, developments in this country have
been a critical ingredient in the international monetary
scene.
There is no question, as Secretary Kennedy has
already suggested, that our underlying balance of payments
position remains unsatisfactory.
We must not be lulled by
the tranquility of current monetary developments into ignoring
this basic problem.
The dollar has been demonstrably strong
over the past year.
But this strength has rested in part on
some transient factors.
- 3 ..
Most immediately, the tightness of money in the United
States has induced American banks and other borrowers to
comb the world for dollars to use in the United States.
There was an enormous short-term capital inflow -- mostly
through the Euro-dollar market -- running to some $9 billion
in 1969.
These pressures of demand have kept the dollar
relatively scarce in the exchange markets, just as it has
seemed scarce to potential borrowers within the United States.
As a result, foreign official dollar holdings actually
declined in 1969, and U. S. official reserves rose by $1.3
billion.
Those realities were reflected in a record surplus
of $2.8 billion in our over-all external accounts, as measured
on the official settlements basis.
A second factor supporting the position of the dollar
and this looks toward the longer run -- is the fact that a
new Administration was visibly and directly grappling
w~th
our serious inflationary problem through the fundamentals of
fiscal and monetary restraint'-
This supported confidence that
the process of inflation and overheating would be brought under
control, laying the needed groundwork for improvement in our
basic payments position.
- 4 -
Helpful as these factors were last year, we plainly cannot count on tight money and good intentions as a lasting
solution for our balance of payments problem.
Instead, it is
vitally important that we make visible progress on the more
fundamental elements.
The $7 billion payments deficit, calculated on a
liquidity basis, recorded last year is not, by itself, a
meaningful measure of our basic position.
Conceptually, that
figure does not take into account the huge inflow of private
short-term capital.
Because those flows can be erratic and
certainly cannot be sustained at last year's level, their
exclusion can be useful for analytic purposes.
But we should
recognize that, with the use of the dollar as a transactions
currency still increasing, some rise in liquid dollar holdings
by private foreigners can be anticipated over time.
Apart from the matter of definition, there were evident
distortions in the so-called liquidity calculation last year.
These grew out of the diversion into the .Euro-dollar market
of a sizeable, but unidentified, amount of funds that otherwise
- 5 -
might have been employed directly in the United States
funds that eventually were reborrowed by United States banks.
In addition, there were shifts of official dollar holdings
from the "non1iquid" to the "liquid" side of an arbitrary
statistical line that had no economic significance.
Together,
these factors probably added at least $2-1/2 to $3 billion to
the recorded liquidity deficit.
Even with these mental adjustments, it is clear that our
external accounts reflect a serious problem.
I would suggest
the dimensions of that problem can best be appraised by
analysis of the trend in our trade balance and other current
items.
Only by achieving a sizeable surplus in these
accounts can we sustain over time our propensity to lend or
invest abroad and to provide aid without, at the same time,
feeding out more dollars into the rest of the world than other
countries want to hold.
The attached table illustrates what has been happening
during the past five years of inflation.
Our trade balance,
largely because of a surge in imports, declined from an
- 6 -
average of nearly $5-1/2 billion per year in the early 1960's
to between $600 million and $700 million in 1968 and 1969.
Meanwhile, high interest rates and the increased volume of
short-term borrowings have driven up external interest and
profit payments to foreigners over recent years almost as
fast as the growth in profits and interest remitted to the
United States.
on balance.
Other service accounts have changed little
Consequently, a healthy balance on goods and
services averaging about $6 billion from 1960 to 1964 dwindled
to an estimated $2-1/2 billion in 1969.
It would be an illusion to think that we can, in the
course of a year or two, repair the damage of five years of
inflation.
Moreover, as the extreme pressures in our domestic
money markets recede, the short-term capital inflow will
presumably be curtailed and could even, for a time, be reversed.
The consequence would be to produce a ref10w of dollars into
official reserves abroad and a deficit in our official settlement balance.
This should not, in itself, be an alarming prospect.
CI
- 7 -
Time and again in recent years, individual countries have
experienced massive shifts of short-term money, responding
to interest rate differentials as well as speculative movements.
As economies become more closely integrated, as the
total volume of international transactions by the United
States alone reaches well beyond $100 billion a year, and
as official inhibitions to capital flows are reduced, we
must be prepared for recurrent large short-term swings in
payments positions.
It is a prime function of the inter-
national monetary system to finance those short-term swings,
and I believe we are better equipped to do so than ever
before.
Moreover, a moderate easing of pressures in U. S. credit
markets may not be reflected in a massive net reflux of
short-term money abroad.
Indeed, the high rates here and
the pull of funds into the United States has produced unwelcome
pressures in some European markets.
Given the close linkages
among international markets, an easing in U. So rates could
well be accompanied by an easing in European money markets,
and especially in Euro-dollar rates.
I believe, at the proper
I 1.
(
- 8 -
point, such a general downward movement in interest rates
would be welcomed by most foreign countries, as well as by
the United States.
In these circumstances, American banks
may well retain a relatively large borrowing position in
foreign markets.
We have had a cumulative official settlements surplus
of $4.4 billion over the past two years.
We would certainly
be prepared to see that favorable balance reversed for a
time, as a by-product of a welcome easing of domestic monetary
tensions.
What is essential is that, over this same period
ahead, we make visible progress in our basic trade and service
accounts.
Failure to achieve this result would be deeply
disturbing.
Until the outburst of inflation since 1965, the United
States' record of internal price stability stood very favorably
among industrialized countries.
Even the recent deterioration
in our trade position has been fairly concentrated among a
relative handful of countries -- especially Germany, Japan,
Italy, and Canada.
In other words, the deterioration in
our trade position with most countries has been moderate,
and, in some instances where the balance has been sharply
- 9 -
adverse, some corrective forces already seem to be developing.
While domestic overheating has swelled our imports, important
export markets for manufactured goods have been reasonably
well maintained.
Improvement will not come without sustained effort.
This
primarily means a much better price performance than in recent
years and the avoidance of excessive demand pressures.
But we must also be concerned, as must other countries,
to improve the processes of international balance of payments
adjustment generally.
The provision of more adequate inter-
national liquidity should itself help.
When reserves are
inadequate, there is a tendency by individual countries to
strive for surpluses or resist deficits simply to achieve
adequate reserve growth over time.
Unless the global supply
of reserves is great enough to satisfy these desires, these
tendencies are apt to be mutually frustrating and impede
adjustment.
Reserve asset creation is .aimed at this problem.
In addition, the experience of the 1960's has led to
more questioning of whether improvements are not also necessary
- 10 -
in the means and methods by which exchange rates might be
altered, in those instances when changes are appropriate,
through gradual and limited adjustments.
This matter is now
under intensive discussion in the International Monetary Fund,
including such familiar proposals as "crawling pegs" or
"wider bands."
I cannot forecast the results of this discussion today.
Certainly, views of national governments remain widely mixed
and important issues are unresolved.
I would emphasize, too,
that, in accord with the reserve currency role of the dollar,
our mechanical role in exchange rate adjustments tends to be
passive; the initiative for change lies in other hands.
Obviously, we do have a close interest in the outcome of
these discussions.
We want to take full advantage of this
period of calm to examine, fully and sympathetically, those
areas where improvement may be needed.
The international monetary system is in a phase of
transition.
In the area of liquidity, it is clearly moving
steadily away from dependence on gold to managed reserve
- 11 -
creation.
We are in a much earlier stage in considering
how exchange rate changes, when appropriate and necessary,
can be achieved with less disturbance.
The events of the
past year in international money markets also emphasize that
we must face frankly the need for still more effective policy
cooperation and coordination among nations in the period
ahead.
The alternatives to evolutionary change are not inviting.
We would find ourselves faced again with too many of the
problems of the 1960's.
Pressures to retreat into a world
of controls and restriction would be strong
a world in
which each nation, in an effort to preserve an unrealistic
autonomy, builds walls around its industry and its money
amrkets.
That is the path we must resist -- in the interests
of the United States and the world as a whole.
--000--
I /
U. S. Balance of Payments
on Goods and Services Account
(bils. of $'s)
Income
Payments
from u. s. of Investment
Military
Other
Investment Income to
Abroad*
Foreigners * E.xEendi tures Items**
(Inter(InterTotal est)
Total est)
Goods
and
Services
Balance
Trade
Balance
4.1
4.9
3.3
-1.1
-3.1
0.1
5.6
5.6
3.9
-1.0
-3.0
0.1
5.1
4.6
4.4
-1.1
-3.1
0.3
6.0
5.2
4.6
-1.3
-3.0
0.5
8.6
6.8
5.4
-1.5
-2.9
0.8
7.1
5.0
5.9
-1.7
-3.0
0.9
5.3
3.9
6.3
(2 . 3)
-2.1 (-1.4)
-3.8
1.0
5.2
3.9
6.9
(2. 5)
-2.4
(-1.6)
-4.4
1.2
2.5
0.6
7.7
(:~.9)
-2.9
(-2.1)
-4.5
1.6
1.9
0.3a/
8.8
(3.4)
-4.3
(-3.3)
-4.8
1.9
's.
rate)
:nterest, dividends and branch profits.
'ravel, transportation, fees and royalties, deliveries under military
:ales contracts, and miscellaneous services.
~ctual
'ce:
for 1969 was $674 million.
Department of Commerce.
February 18, 1970
U. S. Trade Balance, Over-all
and w1th Certain Ma or Countries;
and Latter's Over-al Trade
Balance with World
(bils. of $'s;
f.o.b. basis)
Deterioration
(-) or
Improvement
u. s.
Trade
Balance* with:
1964
1968
1964-68.-
1969
7.01
.84
(-6.17)
1.26
Germany
.44
-1.01
(-1.45)
-.48
Japan
.24
-1.10
(-1.34)
-1.40
Canada
.68
-.94
(-1.62)
-1.25
Italy
.42
.02
(-. 40)
.06
5.23
3.87
(-1.36)
4.33
2.40
5.68
(3.28)
Japan
.17
2.53
(2.36)
Canada
.65
1.27
(.62 )
-.64
1.05
(1.69)
World
All other
Countries
Trade Balances
of Certain
Foreign Countries
with World:**
Germany
Italy
*
**
Census data--differs from balance-of-payments data,
largely through inclusion of DOD military export sales.
Country sources.
February 18, 1970
/'
,
r
, '.
TREASURY DEPARTMENT
Washington
FOR RELEASE AT 6:30 P.M.,
AND 5 :30 P.M., CST
EST
FRIDAY, FEBRUARY 20, 1970
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
AT THE
CINCINNATI COUNCIL ON WORLD AFFAIRS
STOUFFER'S INN
CINCINNATI, OHIO
FRIDAY, FEBRUARY 20, 1970
Good evening. It is indeed a pleasure to be back in the
Heartland. It is, furthermore, a pleasure to be addressing
you on a subject in which we all have a very great interest.
To some people, your interest in international affairs
may seem surprising, but as one who has spent many years in
the great centerland of America, I do not find it so.
The founding of this city, the very name, your cultural
heritage, and your current economy all have an international
flavor.
As world-minded citizens you are co ncerned with all
tyt1es of problems and questions: The war in Vietnam, the
Middle East question, the tragedy of Nigeria and Biafra,
the Russian and Chinese situations and the problems of the
under-developed countries.
Your meetings on foreign affairs are particularly timely.
It was only this week that the President sent to Congress
his Foreign Affairs Message.
.
K-348
- 2 -
This is the first time in the history of the United
States that a United States president, or the head of any
major nation, has issued such a comprehensive statement of
foreign policy. It is must reading for all of you and it
covers every area of our foreign relations, including aid.
In his message the president stated:
"The successes of the future must occur at
least equally in the economic relations between
the industrial nations and the developing world •.
There will be a continued requirement for
international assistance to developing countries.
First, however, we must be clear about what aid
can do and what it cannot do. If aid is to be
effective, its function must be understood by
both donor and recipient.
"Economic assistance is not a panacea for
international stability, for political development,
or even for economic progress. It is, literally,
'assistance.'
It is a means of helping and
supplementing the efforts of nations which are
able to mobilize the resources and energies of
their own people. There are no shortcuts to
economic and social progress.
"This is a reality, but also a source of hope.
For collaborative effort can achieve much. And
it is increasingly understood among developed
and developing nations that economic development
is an international responsibility."
This is indeed a time of concern about the future of
international efforts to finance economic development in
the less developed nations. The Secretary of the Treasury
participates directly in this international responsibility
as the U.S. Governor of multi-national banks concerned with
development such as the World Bank, the ASian Development
Bank and the Inter-American Development Bank.
- 3 -
There are many views, and questions, on this subject.
This evening I would like to discuss with you some basic
questions surrounding the role of international efforts in
the process of financing economic development.
One question is how much emphasis should be placed on
multilateral financial institutions, as contrasted with
bilateral programs?
In recent years we have witnessed an increasing shift
in the distribution of economic assistance to multi-lateral
institutions from individual nation-to-nation programs. This
trend will continue as rapidly as other donor countries are
prepared to increase their proportionate contributions and as
fast as the banks themselves are capable of handling an
expanded level of activity.
,
The strength and advantages of these multilateral
institutions should be understood.
They permit each donor country to contribute
according to its financial strength, with all
countries contributing on the same terms.
They permit a pooling of knowledge and expertise
on development problems which no single country
can muster.
They provide for an allocation of assistance on
the basis of development need, relatively free
from political ties or commercial factors,
thereby minimizing political motivation for
assistance.
They are forums for bringing international
influence to bear on donor countries in
connection with their aid policies, and on
recipient countries to follow generally
acceptable development policies.
They provide an important force ~n favor of
more open and less restrictive national
economies -- leading to a more effective use
of externally provided resources as well as a
more rational allocation of resources at
home
0
- 4 -- They provide a shielding device against (1) undue
reliance of any recipient on a particular source
of aid and (2) undue responsibility of any donor
for support of a particular recipient.
But there are important limitations on the extent and
the speed with which we can shift the emphasis from
bilateral to multilateral channels of development financing.
Some donor countries have been less than convinced of the
advantages of the multilateral approach and have been
reluctant to increase reliance on -- and contributions to -these institutions. Some have suggested that the United
States, or other individual countries, make additional
contributions to the multilateral institutions separate
from and independent of the countributions made by all
donors together. I do not share this view. I believe
that we must be careful not to deviate from the fundamental
principle of burden sharing.
A second question is the position of economic assistance
in an environment of severe budget stringency.
A great deal is being heard today about competing
priorities, about the demand for budgetary funds and the
excess of expectations over resources. The President has
a difficult task in allocating these funds among agencies
and among projects, as preparation of the 1971 budget
illustrated. One of my responsibilities is to weigh
the costs against revenue and our fiscal objectives.
Now there is no question that economic assistance has
felt the budgetary environment. Budget limitations
affect the amount' of direct assistance, as well as
national commitments to development banks, but as the
stI'l~ngth of the international banks grow they are able to
shift part of their financing needs to the private
ma.rket through issuance of their own securities.
The fact that the President has chosen to allocate more
money to multi-lateral banks indicates the high priority
the U.S. places on these programs.
Many other donor countries who have done less in
the way of domestic capital investment over the years than
we have, are now particularly conscious of their
responsibilities to their own people, and I expect that
many countries in the years ahead will be facing the
- 5 -
difficult choice in allocating these revenues between
private and public needs at horne and economic assistance
objectives abroad. There is no need for me to elaborate
upon the very important domestic political conslderations
that other countries and our own will be facing on this
suoject in the decade of the 70's.
A third question is: Should the international
development effort be restructured to centralize all
efforts within a single tightly knit framework?
Coordination of development efforts can and certainly
should be strengthened and improved. To do this I believe
we must build on present coordinating procedures. There
is a substantial pattern of joint effort upon which to
build. We must further develop and improve the focus of
our consortia, consultative groups, and other coordinating
bodies.
But there is a danger in trying to press this too
far.
With the world's development efforts growing in
magnitude, complexity and comprehensiveness, suggestions
are increasingly heard of the need for a sort of
"super coordination" -- that is, bringing together
the development efforts of all countries and
institutions into an overall endeavor operating according
to some master plan.
I have strong doubts that any such concentration
would be either possible or desirable. It seems to me
unrealistic to think that all aid-giving entities around
the world could be brought around at one point of time to
subs~ribing to one point of view, or one scheme of things.
My next question is what is the appropriate balance
between our energetic pursuit of development objectives
and the U. S. role in advancing and strengthening the
world-wide multi-lateral trade and payments system?
- 6 -
As the development assistance effort becomes more
com~rehensive, development policy moves out from strictly
foreign aid matters into policy areas affecting all
'trade and invest;ment. The opportunities for some conflict
between development policy and g1-obal economic policies will,
of course,increase.
In general, our foreign trade and investment policies
are_based on the broad objective of pupporting nondiscriminatory and freer trade and payments, including the
bapic principle of most favored nation treatment.
Particularly development policies may depacc from these
grander objectives when local procurement preferences,
preferential trade and investment privileges are introduced.
In.accepting 'such preferences, we should not lose sight
9f our broad~r, international investment and trade objectives.
Nor should we lo~e sight of these in the application of
our tax policies, investment guidelines and balance of
payments policies. We would establish one set of rules
if our objective were solely to find ways to transfer
resources to the developing countries. Our obligations
to the multilateral trade and payments system remain strong.
The fifth question I will mention is what approach
should be followed on the debt servicing problems which
the less developed countries are likely to face over the
coming years?
Total outstanding debt of the developing countries
has grown from less than $20 billion in 1960 to nearly
$50 billion now.
The burden of servicing this debt has also increased
sharply and on the basis of debt already outstanding it
.is apparent that a number of the developing 'countries
could be faced with debt servicing problems in varying
degrees over the coming years.
In releCising the Rockefeller Report on Latin America
in November, the president asked me to consider the
Governor's recommendation regarding a'possible rescheduling
of debt service requirements in appropriate cases where
action is indicated.
'
- 7 Many of us feel that in the years ahead the burden of
debt amortization may not only seriously impede economic
growth, it could also lead to casualties in the development
processo, We already have examples of past and prospects of
future situations of debt rescheduling when the coming
maturities could not be met.
Forward looking financial planning requires creditor
nations and institutions to address themselves to this
subject of "amortization assistance."
My sixth question is:
aid tying?
What should be our attitude toward
Our objective is clear -- the U.S. should give as much
good quality aid as possible and encourage other donors to
do the same, since the developing countries can effectively
use amounts substantially in excess of what they are
receiving.
Originally, in the Marshall plan days, the U.S. actively
encouraged use of its aid funds for overseas procurement.
After 1959 steps were taken to reduce the foreign
exchange costs of our aid program by tying it to U.S.
procurement, both because of mounting concern over the
DoS. balance-of-payments position, and because of the view
that there was no reason u.S. suppliers should not
benefit from the sales. Subsequently, in order to improve
the effectiveness of tying, steps were taken to assure
that aid-financed exports were "additional" and did not
substitute for commercial exports that would have been
sold anyway.
These requirements related primarily to our bilateral
programs. The multilateral institutions whose structure
provides for an equitable sharing of burdens, have
sought where possible to preserve competitive bidding,
world-wide or among members, though there are certain
special rules in the regional banks o
- 8 -
Last April President Nixon began a dismantling of
selective balance-of-payments controls, beginning with
the private sector. Last Summer he removed the
"additionality" requirements, and in the fall he relaxed
aid tying for Latin America, in the context of our
political relationships in the hemisphere.
He will be making further progress in this direction
of less aid tying should we be successful in obtaining
a substantial fund replenishment for the International
Development Association where bidding is on a world-wide
competitive basis. We would hope that over time further
steps will be possible, keeping in mind our balance of
payments position and th~ tying practices of other donor
countries.
My next question is:
Can more effective and more
equitable burden-sharing arrangements be developed?
I think we somtimes fail to appreciate the progress
which has been achieved thus far. In the past ten years
thirteen of the fifteen other donor countries in the
Development Assistance Committee of the Organization for
Economic Cooperation and Development have greatly
increased the levels of their assistance.
In looking at what more can be done to assure
that aid burdens accurately reflect donors' ability to
provide assistance, I am concerned at the inadequacy of
some of the techniques for measuring aid burdens.
In particular I am concerned by the heavy reliance of
the use of aid as a percent of gross national product as
the guide.
Providing aid and development financing is not
simply a function of gross national product.
Most importantly, these targets take no account
of "non-aid" burdens of some donors -- in particular the
heavy burdens of Free World defense and world stability
borne by the United States. The targets ignore the
balance of payments constraints of providing aid -- which
can be a greater obstacle than gross national product
- 9 constraints -- and conversely they ignore the trade
advantages which some donor countries receive from the
world-wide aid effort. They ignore the political reasons
for providing aid and other "non-gross-national-product"
reasons. They overlook differences in the quality of
aid and tend to put too much emphasis on amounts as
opposed to terms.
Another important question is how private
enterprise can play its full role in the development task.
Increasingly, the world recognizes that development
goes much deeper than aid. It is no coincidence that
many of the development successes of the past two decades
are those countries which have emphasized free markets,
and have adopted policies to stimulate private enterprise
domestically and attract private investment from abroad.
Private enterprise can be a powerful stimulus to
growth. In too many developing countries the approach
has been one of opposition to private enterprise, based
on either political concepts, or bad historical experience
with foreign firms. We, in turn, have emphasized
the role that foreign investment can play in stimulating
local enterprise and initiative.
Not only does private capital do more than simply provide
money for finance development, it helps subject internationally
government~owned development banks to the disciplines of the
private capital market, and it thus submits the developme~t
finance process to the review of these private disciplines.
Ultimately, of course, these developing countries will
raise even more substantial sums by going to the private
malket diloectly -- Mexico, for example, already does.
And conversely, international development banks
indirectly assist priVate enterprise. Through building
roads and dams and port facilities, they help create the
basic structures which the private entrepreneur needs to
create jobs and profits. Second, these multilateral banks
lend long-term funds to local development banks. These
local institutions are in a better position to make smaller
loans to local private enterprise -- adding a new
dimension to the inter-relationship of the public and the
private sectors.
- 10 The network of contributions by the multilateral
institutions to the private development process could be
further reinforced by the development of international
investment insurance, now being considered by the World
Bank. Under this concept, private investors in the
developed countries can receive political risk insurance
for their investments in the less developed world.
President Nixon is keenly aware of the changing foreign
assistance needs and said in his Foreign Policy Message
that the 1970's are "a time for a searching reassessment
of our objectives and the effectiveness of our
institutions."
The report of his Task Force on International
Development, chaired by Rudolph Peterson, is due shortly.
We can expect that the guidelines of the
President's new policy will follow the theme he set forth
in an address October 31 on Latin America. At that
time, he stated:
"For years, we in the United States
have pursued the illusion that we alone could
remake continents. Conscious of our wealth
and technology, seized by the force of good
intentions, driven by habitual impatience,
remembering the dramatic success of the
Marshall Plan in postwar Europe, we have
sometimes imagined that we knew what was
best for everyone else and that we could and
should make it happen. Well, experience has
taught us better.
"It has taught us that economic and
social development is not an achievement of
one nation's foreign policy, but sometimes
deeply rooted in each nation's own traditions."
By discussing the assistance aspect of the
international economy, I do not mean to overlook the
importance of solving our problems at home. To be
.effective abroad we must be effective at home.
- 11 -
We must continue our efforts to contol inflation.
We must not slacken now that the goal of an uninflated
economy growing at a sustainable rate is in sight.
We must press our efforts to clean our air,
restore our waterways and provide the open spaces our
crowded society needs.
We must move ahead on our efforts to remodel our
welfare system so that the production incentive is
restored to all of our people.
We must mind our business in such a way, paying
for our demands as we go, that we will continue to be
the inspiration for those who need development assistance.
I am sure you share with me the realization of
how difficult it will be to resolve these issues.
But I am sure you agree that it is to the benefit of
mankind that we do solve them. We all share in the
conscience of all nations, developed and developing,
to give hope and to help bring progress to two-thirds
of mankind.
000
TREASURY DEPARTMENT
,
WASHINGTON, D.C.
February 20, 1970
FOR IMMEDIATE RELEASE
TREASURY LETTER TO REPRESENTATIVE PATMAN
ON FOREIGN BANK ACCOUNT LEGISLATION
The U. S. Treasury today released the
attached letter written by Eugene T. Rossides,
Assistant Secretary for Enforcement and
Operations, to Congressman Wright Patman o
ATTACHMENT
K-349
THE DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
20220
ASSISTANT SECRETARY
FEB 1 9 1970
Dear Mr. Chairman:
This is in response to your letter of February 10,
1970.
In light of your scheduled termination date of
March 13, and our shared desire early to end abuse
of foreign bank accounts, I request the opportunity
to testify before the Committee on March 2, 1970. I
have been informally advised that this date would be
acceptable to you. At that time, I will present
Treasury's recommendations.
As stated in my testimony on December 10, the
Treasury fully supports the objectives of H. R. 15073,
but believes the legislation can be improved so as to
achieve its objectives without hampering the free flow
of international commerce, and without creating undue
cost and administrative burdens on both the private
sector and government, while preserving the traditional
freedoms of American life and the status of the dollar
as the major transactions currency and reserve currency
of the world.
Your letter reflected your interest in being
advised of the groups with which the Treasury Task
Force has been meeting. The Task Force has been consUlting with many individuals and groups, including
United States banks of all sizes, the Securities and
Exchange Commission, state bank supervisors, manufacturers of recordkeeping equipment, representatives
of the credit card industry, and brokerage houses.
,
- 2 -
.)
(
\,)
If you feel that the Task Force should meet with
any other groups or persons, we would appreciate
receiving your suggestions as soon as possible.
We would also appreciate receiving any additional
information that you believe has a bearing on this
problem so that the Task Force may have the full
benefit of all information available.
Sincerely yours,
Rossides
The Honorable
Wright Patman
Chairman
Committee on Banking and Currency
House of Representatives
Washington, D. C. 20515
/
REASURY DEPARTMENT
!
WASHINGTON. D.C.
lIIEASE 6:30 P.M.,
LY, February 20, 1970.
RESULTS OF TREASURY t S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
one series to be an additional issue of the bills dated November 28, 1969, and
)ther series to be dated February 26, 1970, which were offered on February 16, 1970,
opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
lereabouts, of 91 daY bills and for $1,300,000,000, or thereabouts, of lB2-day
I. The details of the two series are as follows:
l,
00
or ACCEPTED
~
91-day Treasury bills
maturing May 28, 1970
Approx. Equiv.
Price
Annual Rate
98.289
6.76g;
98.268
6.85~
98 .278
6.8lZ; 11
:TITIVI BIOO:
High
Low
Average
·•
•
·•
•
·
·•
·
IB2-day Treasury bills
August 27 1 1970
Approx. Equiv.
Annual Rate
Price
96.'97
6.92~
maturi~
96.~0
7.02~
96.4:7'
6.975j
11
~ of the amount of 91-day bills bid for at the low price was accepted
17~ of the amoWlt of lB2-day bills bid for at the low price was accepted
I
TENDERS APPLIED FOR AND ACCEPlED BY FEDERAL RESERVE DISTRICTS:
:trict
ton
York
lade1phia
I
veland
bmond
anta
cago
Louis
neapolis
sas City
las
lrancisco
TOW:S
Applied For
,
For
·• Applied
r 16,184,000
1,267,105,000 ••
1,407,002,000
21,54:0,000 ·
23,175,000
35,572,000 ·
44,072,000
15,030,000 •
8,648,000
·
38,550,000 ·•
35,04:5,000
160,006,000 ·•
192,4=33,000
34,810,000 ·•
31,4:98,000
20,609,000 •
20,800,000
Acce~ed
30,604,000 $
1,925,255,000
36,540,000
35,572,000
15,030,000
46,550,000
188,006,000
4:4:,810,000
26,109,000
35,332,000
24,463,000
163 ,867 ,000
24:,4:02,000
2',007,000
130 I 066, 000
Acce:2ted
16,184,000
821,532,000
13,175,000
40,072,000
8,6.a,OOO
29,04:5,000
191,101,000
27,498,000
20,800,000
24,172,000
12,007,000
95 1786,000
!I .1,957,332,000
$1,300,020,000
,179,000
33,332,000
•
l',~,ooO ••
lZ8 ,582 ,000
$2,572,138,000 .1,800,078,000
·•
*
BI
lCludes $312,663,000 noncompetitive tenders accepted at the average price of 98.278
~lude8 .lB6,~,OOO noncompetitive tenders accepted at the average price of 96.'7'
lese rate. are on a baDk discount basia. The equivalent coupon issue yields are
' . for the 91-day bills, and 7 • • tor the 182-day bills.
rREASURY
DEPARTMENT
.
4
WASHINGTON, D.C.
RELEASE 6: 30 P.M.,
sdaY' February 24:. 1970.
RESULTS OF TREASURY'S MONTHLY 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 dated November 30, 1969, and
other series to be dated February 28, 1970, which were offered on February 17, 1970,
'e opened at the Federal Reserve Banks today. Tenders were inn ted for $500,000,000,
thereabouts, of 273-~ bills and for $1,200,000,000, or thereabouts, of 365-day
ls. The details of the two series are as follows:
GE OF ACCEPrED
273-day Treasury bills
maturing November 30, 1970
Approx. Equi v •
Price
Annual Rate
94:.724
6.957~
94:.658
7 .04'~
9'.696
6.994:~
Y
mITIVE BIDS:
High
Low
Average
·•
•
Treasury bills
maturing February 28, 1971
Approx. Equiv .
Price
Annual Rate
93.056 ~
6.84:~
92.925
6.97~
92.971
6.93~ Y
365-d~
••
•
·
·•
·•
a/ Excepting 1 tender of $10,000; b / Excepting 1 tender of $1,000
~~ of the amount of 273-day bi11s~id for at the low price was accepted
27~
of the amount of
365-d~
bills bid for at the low price was accepted
1L TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
Ii strict
os ton
ew York
hi ladelphi a
leveland
ichmond
tlanta
hicago
t. Louis
inneapolis
ansas City
allas
an Francisco
TOTALS
Applied For
•
Accepted
1,569,000 •
1,008,64:1,000
7,430,000
1,933,000
1,152,000
13,766,000
80,528,000
17,318,000
15,221,000
1,4:22,000
13,979,000
64:,986,000
:
1,4:19,000:
389,991,000:
1,4:30,000 :
1,933,000
1,152,000 :
6,766,000
52,928,000 :
15,318,000 :
2,721,000 :
1,4:22,000 :
1,979,000
22,986,000 :
$1,227,945,000 $ 500,045,000
Applied For
$
n,082,OOO
Accepted
•
3,082,000
1,393,795,000
16,881,000
28,4:99,000
16,4:38,000
25,54:1,000
203,34:5,000
27,783,000
20,167,000
8,794:,000
16,684:,000
112,265,000
981,604,000
6,881,000
18,339,000
12,437,000
15,938,000
88,535,000
19,783,000
4:,667,000
8,04:6,000
3,684,000
37,409,000
£I $1,88.4,274:,000
$1,200,405,000
gJ
Includes $23,283,000 noncompetitive tenders accepted at the average price of 94:.696
Includes $104,387,000 noncompetitive tenders accepted at the average price of 92.971
Theae rates are on a bank discount basis. The equivalent coupon issue yields are
7.~ for the 273-dq bills, aDd 7 .4:~ for the 365-day bills.
j ~-;>
~-.....J
5
l/
~EASURY
DEPARTMENT
Q
WASHINGTON, D.C.
USE 6:30 P.M.,
!II r.bl'!W'Y 2i. 1970.
mULTS or TBlASURY'S ottER OF $1-3/4 BILLIOK OF .APRIL TAX BILIS
e Treasury Department announced that the tenders tor $1,750,000,000, or
outs, ot Tax Anticipation Series Treasury billa dated October 1', 1969,
g April 22, 1970, were opened at the Federal Reaerve 'Banks today'. The
D&l amount ot bills, which were oftered on Febru&r1' lB, 1970, will be iS8ued
, 1970, (50 dq'a to' maturity date) .
• deta1l1
ot this issue are as tollows:
tal applied tor
tal accepted
- $3 ,4.01,319 ,000
$1,750,079,000
(includes $121,770,000 entered OD a
noncompetitive balis and accepted in
fUll at the average price Ihown below)
(Excepting 2 tenders totaling $601,000)
DC' of ucepted coapetitiTe bid8:
If
99.132
99.068
trace
99.090
gh
E~Y8.1ent rate
"It
It
It
6.25~
6 • 71~
per
..
&rlIlUIIl
It
It
nit..
..
6.55.
n
II
ot dilcoat approx.
II
( 1 ~ of the amount bid for at the low price was accepted)
ielene
t
Total
Avplied For
• 166,697,000
k
1,~,32S,OOO
lphia
191,113,000
Dei
!
284,335,000
47,01',000
'7,01',000
80,880,000
197 ,039,000
74,987,000
210,579,000
6',687,000
119,178,000
77,250,000
72,250,000
179,7lB,OOO
260,432,000
106, 7lB,000
~ ,401,319 ,000
.1,750,079,000
ls
~1ty
tiel.co
11
Oil
a baDk 41acOUIlt butl.
Accepted
• 112,117,000
370,335,000
1.51,m,OOO
2'7,335,000
83,080,000
'22,789,000
011.
!OTAL
Tota1~
n.
100.6S2.GOO
equ1T&lent coupon isslle Jieu. is 6. 7aft •
1:1
WASHINGTOft--E, D.C.
February 25, 1970
)R IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury.Department, by this public notice, invites tenders
)r two series of Treasury bills to the aggregate amount of
J,10Q,OOO,OOO, or thereabouts, for cash and in exchange for
:easury bills maturing March. 5, 1970.
in' the amount of
J, 000 , 814, 000 ,
a s follow s :
91-day bills (to maturity date) to be issued March 5, 1970,
the amount of $1,800, 000,000,
or thereabouts, repl~esenting an
ditional amount of bills dated December 4, 1969,
and to
ture
June 4, 1970,
originally issued in the amount of
.,200,237,000,
the additional and original hills to be
ee1y interchangeablee
182-day bill s, for $ 1,300,000, 000,
ted
M3rch 5, 1970,
and to mature
or thereabouts, to be
September 3, 1970~
The bills of both series will be issued on a discount basis under
mpetitive and noncompetive bidding as hereinafter provided, and at
turity their face amount will be payable without interes t ~ TIley
L1 be issued in bearer form only, and in den6minations of
P,ooo"$50,000, $100,000~ $500,OOO~ and $l,OOO,boo
aturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
to the closing hour, one-thirty p.m5' Eastern Standard
[ie, Monday, March 2, 1970.
Tenders will not be
:eived at the Treasury Department, Washington~ Each tender must
for an even multiple of $10,000, and in the case of competitive
~ders the price offered· must be expressed on the basis of 100,
:h not more than three dec"imals, e. g., 99.9250 Fractions may not:
used. It is urged that tenders be made on the printed forms and
'warded in the special envelopes ~.Jhich tvill bc:: supplied by Federal
erve Ban~s or Branches on appl ication the refor.
Banking institutions generally may submit tenders fOt" account of
tomers p.rovi.ded the nan}es o'j: the customers Bl.-e set forth in such
ders,· 'Others than banking institutions ~vi.l1 n.ot be permitLed to
mit tend~ts e~cept .for th~ir own account. Tenders will be received
hout deposit from incorporated banks and trust: companies ar:d from
.(~
·
(
c
dcalt.:)rs
l· n' JOl1ve
s"'CUiL"'!.1_ .'.t .. -ie·
rJ"f..'··"·'p t"'~
t:..,
'- .;::, t!'l"C\"-l~r esponsible and reco<?:nized
from other~ must be accompnnicd' by p'aymcnt of 2 pC::L'cent of the face
amount of Treasur'y bills applied for~ unless th~ tenders ar-e
accompanied by an express gU6!ranty of payment by lln incorporated bank
or trust company.
.I. ..... J
..
.... '._.
,L...
.
Q~
1--.
,
')
... _
J.
J. '-'-
.~. L
oJ
Immediat~ly
after the closing hour, tenders T,dll be opened at
th~ Federal Reserve Banks and Branches, follq\Vi.ng Hhich public [lTlI10Ul1CCment will be ~ade by the Treasury Department of the amount and price rang
of accepted bids. Only those submitting_competitive tenders \-1i11 be
advised of the accepta.nce; or rejection thereof~ The Secretary of the
Treasury expressly r~serves the right to accept or rejec~ any or ·all
tende.rs, in whole or in part, and his ac tion in any such respec t
shall be fin~l. Subject to these reservations, noncompetitive tender:;
for each is~ue 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 respectlve issues e
Settlement for accepted tenders
acco::dance ,~'ith the bids must be
made or completed at the Federal Reser-ve Bank em Hardt 5, 1970" in
ca~h or other irnh1.ediately available funds or in a like face amount
of1;r·easury bills' maturing
. Narch 5, '1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differel1ces between the par value of m.aturing bills accepted in
exchange and the issue price of the ne~1.} bills. -
in
The income derived from Treasury bills, vJhether intere&t or
gain from the sale or other disposition of the bills, does not have
any exemption,. as such, and loss from the sale cr other disposition
of ~reasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 195[4-.. The bIlls are subject to
estate, inheritance, gift or other excise taxes;, whether Federal or
State, but a.re exempt from all taxation now or t~'.:;:reafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any loc;::l taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the Un.ited 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 ~'ll;,ich bills issued
hereunder are sold is not considered to accrue u:ntil such bills are
sold, redeemed or otherwise disposed of, and su~h bills are excluded
from consideration as capital assets. Accordir:gly, the owner of
,Treasury bills (other than life insurance compE:1:Les) issued hereunder
need include in his income tax return only the ~ifference bet~een
the price paid for such bills, whether on originul issue or on
subsequent purcliase, and the amount actually rec'r:::;ived .either upon
sale or redemption at maturity during the taxable year for which the
return is made~ as ordinarx ~ain or loss.
Tre'asury Department Circular Noo 418 (cur.r~:nt revision) and this
notice prescribe the terms of- the Treasury bill.':; <·)n~ govern the
conditions of their issue. Copies of the circul_~r may be obtained
( --~
TREASURY DEPARTMENT
()
,
.
Washington
FOR RELEASE ON DELIVERY
REMARKS OF B. K. MacLAURY
DEPUTY UNDER SECRETARY OF THE TREASURY
FOR MONETARY AFFAIRS
BEFORE THE ANNUAL FINANCIAL CONFERENCE
OF THE
NATIONAL INDUSTRIAL CONFERENCE BOARD
AT THE WALDORF-ASTORIA HOTEL
NEW YORK, NEW YORK
THURSDAY, FEBRUARY 26, 1970 2:15 - 4:45 P.M. EST
THE ROLE AND FUNCTION OF SPECIAL DRAWING RIGHTS
We live in a world in which science is encroaching more
and more on the traditional preserves of natural products -man-made fibers are taking their place beside silks, linens,
cottons and wool; balsam and fir share their market with
scented plastic Christmas trees; we walk on corfam as well as
cowhide; and so on.
Perhaps it was inevitable, then, that
sooner or later man would discover how to make "paper gold."
The fact is, we now are living in an era of man-made international
reserves -- the alchemist's impossible dream has been realized,
though not in the way he might have expected.
On January 1 of this year, computers of the IMF spewed
forth printouts showing the amounts of Special Drawing Rights
the rather prosaic name for this alchemist's dream -- allocated
to each of the countries participating in the new experiment
in world money creation.
Despite the fact that it was a holiday,
a number of people were on hand to witness this historic occasion,
- 2 the culmination of more than six years of study and negotiation.
For while paper gold may have been inevitable, its realization
and implementation came only after a prodigious amount of careful
deliberation and tough bargaining.
And as with most new products
even after they appear, there are those who herald the arrival
of SDR's as the dawning of a new day) and those who lament the
passing of what they consider to be last refuge of monetary
sanity -- the gold standard, adulterated though it may have
become.
Actually, the detractors are in a small minority at this
point.
For while there was protracted debate over many points
during the long negotiations, the intensity of this debate was
more a reflection of the important national interests at stake
than of differences of views on fundamental issues.
Thus the
size of the qualifying majority required to approve reserve
creation was as important to many of the participants as the
determination of the specific attributes of the new reserve asset
itself.
Indeed, most of the issues that caught the headlines
during the negotiating process are now largely forgotten in
the glow of general satisfaction with the.end product.
For
example, there was considerable discussion at one point as to
whether SOR's should be considered a form of international
credits or international reserves.
This distinction was largely
-
~
I
l j
- 3 -
metaphysical from the beginning, and Dr. Emminger aptly set
the matter in perspective by saying one could describe a zebra
as a black animal with white stripes, or a white animal with
black stripes.
In the end, it was agreed that 100% of a
country's SDR holdings could be used to finance deficits, but
that on average over a five year period, a country must maintain
a minimum balance amounting to 30% of allocations.
But the specifics of the compromises in each case are
less significant than the fact that the Special Drawing account
is alive and well, and working according to plan.
might add, not a minute too soon.
And, one
The need for some mechanism
for supplementing gold and foreign exchange in international
reserves had been generally recognized for some time.
The
major question-that was left to be resolved last year was not
whether, but just when, and how much.
I think it might be useful to run through some of the
arithmetic that those responsible for this decision had to face
up to.
In the first place, there was the basic fact that world
reserves had been growing at a rate less than half that of world
trade for nearly twenty years.
Reserve growth, as measured by
the ]MF, had been increasing at less than 2-1/2 per cent per year
on average since 1950.
As a result, the ratio of reserves to
- 4 imports -- one measure of the adequacy of world liquidity -- fell
from over seventy per cent in the early 50's to only 33 per cent
in 1968.
Put another way, global reserves would have covered
nearly nine months of imports in 1953, but only four months
in 1968.
The drop-off in this measure of reserve adequacy, striking
though it is, tells only part of the story.
For one thing, the
reserve growth of the world outside the U.S. during this period
was to a considerable extent provided at the expense of U.
reserves.
s.
In other words, only because the U. S. was losing
reserves could the rest of the world maintain a semblance of
balance between reserve growth and growth of trade.
This process
of reserve redistribution clearly could not continue, and in
fact there were signs that it had already run its course -whereas the U. S. began the 1950's with a disproportionate part
of the world's reserves, reserves more than twice the size of
its annual import bill, by 1968, its reserves were no higher in
these terms than those of the rest of the world -- about four
months imports -- despite the special requirements imposed by
the reserve currency role of the dollar.
- 5 Equally important, the sweep of the period from the early 1950's
to the present hides a marked change in the character of reserve
growth since 1964.
Whereas the gold component of reserves had
been rising slowly until 1965, official gold reserves actually
declined by nearly $3 billion thereafter, mainly during the
period of sales to the private market prior to the establishment
of the two-tier market in March 1968.
(This is significant not
so much because of any special reserve quality of gold per
but because gold represented the main component of
~
~,
reserve
growth -- other than SDR's -- i.e. reserves which were not
paralleled by increased official liabilities.) '. Moreover, much
of the small growth in reserves that did take place during the
period 1965-68 was the result of abnormal and temporary factors
such as the transfer into reserves by the U.K. of $1.4 billion
of securities previously held outside, and the reserve currency
creation and increases in Fund creditor positions that accompanied
extension of credits to the U.K.
In fact, the IMF has estimated
that reserves held in traditional forms -- gold, dollars, and
"normal" sterling -- actually declined by nearly $4.5 billion
during these four years.
- 6 -
In approaching the question of how many SDR's would be
needed in the next few years, it seemed only sensible to take
these trends and special factors into consideration.
At a
minimum, simply to keep reserves growing at the same long-run
trend of about 2-1/2 per cent per year would have required
some $2-1/2 - $3 billion of new reserves annually, given that
a billion dollars of existing reserves would presumably be
1jquidatld as credits were repaid.
If world trade continued
to expand at the recent rate of some 8 per cent per year, this
rate of growth would imply a further sharp deterioration in
the relationship between reserves and imports from 4 months'
cover to only 3 months by the end of 1973.
Moreover, it would
imply a much slower rate of growth than in the past in reserves
outside the U. S. unless one assumed that the U. S. could
tolerate a further serious erosion of its
OTNO
reserve position.
Another reasonable kind of projection would have been to
assume a needed reserve growth at the pace experienced by the
rest of the world outside the U. S. during the same 18 year
period 1950 - 1968; namely 5 percent.
This assumption, also
allowing for anticipated reserve extinction through credit
repayments, implied needed reserve growth of around $5 billion
per year.
- 7 Finally, to simply maintain the ratio of reserves to imports
that prevailed at the snd of
1~8
would require $7.5 to $8 billion
per year of reserve growth over, say, the next five years.
These calculations did not "prove", of course, that an equal
volume of SDR's had to be created to meet these implied needs,
since presumably some part of the total would be provided by
increased Fund positions, some enlargement of official dollar
holdings, and some resumption of flow of gold into official reserves.
But it is significant that last year at least, with tight credit
conditions in the U. S., this country had a surplus of some $2.7
billion on official account, and was subtracting dollars from
reserves rather than adding to them.
Thus, against this background, it is perhaps not surprising
that there was a distinct change in the terms of the debate on
. the amount of SDR's to be created.
Whereas most discussions
prior to 1969 regarding the amounts to be activated had assumed
a five year period with allocations of $1 to $2 billion per year,
the final decision, as you know, was to create a total of $9-1/2
billion in thr,ee years, with an initial allocation of $3-1/2
billion on January 1 of this year, and $3 billion on the first of
each succeeding year.
- 8 This decision to move ahead confidantly with the
.ctivati~
of SUR's was helpful not only in providing reserves at a time
when they were clearly needed.
It was also helpful in putting
to rest any lingering hopes on the part of speculators that the
official price of gold would be raised to provide more liquidity.
It was not mere coincidence that the price of gold in the free
market, which had reached a peak of $43.82 in March of last
year, dropped gradually over the summer, and fell sharply to
about $35 an ounce in the fall when agreement on SDR activation
became a reality.
To be sure, the parity changes in the French
franc and the mark contributed significantly to the feeling tMt
uncertainties in international financial markets had been laid
to rest for awhile.
But knowledge that the world no longer
depended on additions of gold to official reserves to provide
needed growth was an important psychological blow to those who
still hoped for a gold price increase.
I said a moment ago that the snR is alive and well, and
working according to plan.
What in fact is going on?
As I
said, on January 1, approximately $3-1/2 billion of SDR's were
allocated to participating members in proportion to their quotas
in the EMF.
This meant that the U. S. received $867 million,
the U.K. $410 million, France $165 million, and so on.
Literally,
this was money creation by the figurative stroke of the pen.
- 9 In a separate account in the IMF, each country has a balance
credited to its name that it can use to finance payments
deficits or reserve drains.
In the normal course of events,
a country in such a position will be having to draw down its
exchange reserves to support its currency in the exchange
market.
To replenish these lost reserves, it can cable the
Fund to debit its account a specified amount of SDR's against
receipt of an equivalent amount of a convertible currency.
The Fund in turn will select a country to provide that currency
on the basis of the strength of its reserve balance of payments
position, and the amount of its holdings of SDR's in relation
to allocations.
The Fund serves in effect as a traffic director,
guiding SDR's from countries in deficit to those in a strong
position.
As you would expect with an entirely new mechanism of this
sort, there were technical details that had to be ironed out
in order for the transfers to operate smoothly.
For example,
it was not decided until shortly before the SDR allocation took
place which currencies would be inter-convertible, that is,
currencies convertible into each other without limit in connection
with SDR transfers.
In the event, in addition to the dollar, the
two other reserve currencies, the pound, and the French franc, so
declared themselves.
Similarly, agreement had to be reached on
- 10 procedures for determining the precise rates of exchange to
apply to transactions.
And the question of how soon and in
what form transactions in
resolved.
snR
would be made public had to be
None of these points posed serious problems, other
than for the Executive Directors of the Fund and the staff
who had to keep tabs on these matters at the same time that they
were involved in discussions of increases in regular fund quotas,
the resolution of the appropriate handling of So. Africa's new
gold production in the framework of the two-tier system, the
beginning of a new round of discussions of exchange rate
flexibility, not to mention the regular business of the Fund.
The proof of the pudding that things are in fact working is
shown by the fact that some countries have already made use of
their SDR's to obtain needed currencies.
While I'm on these nuts and bolts aspects of SDR's, I might
mention two other points that have not received much public
notice.
First, out of the initial U. S. allocation of $867
million of SDR, the Treasury has so far monetized $300 million.
The legislation that authorized the U. S. to participate in the
SDR arrangement provided that the
Treasu~y
could issue SDR
certificates to the Federal Reserve (i.e. monetize SDR's) in
order to finance purchases of SDR's, and to finance exchange
- 11 -
stabilization operations.
The Treasury has announced that it
may monetize additional amounts of SDR's in coming months to
provide a margin of working resources for these purposes.
While
the monetization of SDR's is in the first instance related to
international transactions, like the monetization of gold, it
can affect the reserve position of the U. S. banking system and
the cash position of the Treasury.
For this reason, there is
need for coordination between the Treasury and the Fed in this
area as well as others.
The second rather technical point, one which has wider
implications as well, is the question of how to account for SDR
allocations in national balance of payments accounts.
It is
obvious that SDR's should be reflected as an addition to reserves
in these accounts.
And there is obviously something to be said
for uniform, or at least similar, treatment by participating
countries.
But the proper positioning of the contra item is
less obvious than one might think.
Are allocations most closely
analogous to domestic gold production, and thus considered to be
an export?
Or are they more like unilateral transfers, to be
reflected somewhere between the current and capital accounts?
Or are they like a capital inflow even though there is no
obvious financial liability to foreigners arising from the
.
transaction? Or, finally, should the allocations simply be
- 12 shown as a dummy item below the line, or even relegated to a
footnote?
These would be questions for the amusement of
accountants were it not for the fact that the answer may have
some bearing on how well SDR's themselves fulfill their intended
purpose.
Since a major concern of those who saw the need for
a means of increasing international reserves was to head off
a trend toward increasing restraints on international payments,
it follows that SDR's should be reflected in the international
accounts in such a way as to permit the nations of the world to
run surpluses as a group, and thereby satisfy their legitimate
desire to build up their reserves over time.
One other kind of question that is raised more by academics
than by policy officials at this point is whether the United
States might not have been better off in terms of self-interest
to have abstained from participation in an SDR arrangement
rather than leading the charge in that direction.
The essence
of this argument is that allocations of SDR's to participating
countries other than the U. S. will satisfy the reserve needs of
those countries which otherwise would have been met by increased
dollar holdings.
In other words, SDR growth will have displaced
dollar growth, and will have done so in larger amounts than are
likely to be offset by allocations of SDR to the U. S.
The
- 13 result, it is argued, is that our potential for financing
deficitS on balance will have been diminished by the operation
of the SDR scheme.
How 'much credence one gives to this theory depends very
heavily on whether one believes the self-interest of the U. S.
to lie-in the direction of obtaining the greatest possible leeway
to run payments deficit financed through indefinite dollar
accumulations by foreigners.
If one accepts this view, which I
do not, then there may be some truth to the theory, if one buys
the further assumption that a system of this sort would prove
stable.
,But from the very beginning of the discussions that led
up to the decision to create SDR's, it was assumed that reserve
growth should not continue to depend on the expansion of reserve
currencies and in particular, the dollar.
This does not mean
that the dollar is 'likely to be phased out as a reserve currency,
or even that there will not be additions to official dollar
holdings over time.
Indeed, one of the toughest aspects of the
negotiations on SDR was to devise characteristics for the new
asset that would permit it to live side by side with gold and
reserve currencies.
But it does mean that there was a conscious
decision that the best interests of the world, and, in my view,
of the United States as well, would be served by making available
an alternative to the dollar as the primary source of increased
- 14 world liquidity in the future.
We live in a world of "paper gold," and its inauguration
was widely and rightly heralded as providing a source of
stability to the international financial system both in the
short run and over the longer run future.
I believe this to
be the case, but I also believe we would be foolish to look
upon SORIs as a panacea for all the ills on the international
economic scene.
While the availability of this new source of
international liquidity helps to insure that efforts by deficit
countries to reduce their deficits will not be frustrated by
countervailing actions on the part of surplus countries that
wish to continue to build up their reserves, it does nothing
in and of itself to assure that the necessary adjustments by
either deficit or surplus countries will be pressed to a
successful conclusion.
Improvement in the
adju~tment
process
remains the most difficult problem we face if we are to enjoy
over a long period the kind of stability in international
financial markets in the future that we have experienced in
the last few months, and achieve a more satisfactory pattern
and structure of world payments, especially in the trade accounts
of industrial countries.
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TRK:\SURY IU\1SES HIlHHUlvl BILL DEJ\OHT!-~,:\'TION IN
NOVE BOOSTING HOUSING IvlOI<TCACE l;'LlND SUPPLY
The U. S. Treasury today announced rhat:
(1) New issues of Treasury bills, bpginning with the
auction scheduled on H<:.:u:ch 2, \'7ill 1')2 provided
f c.," n 00In mlnl.InUm nenomlnatl.OllS 0 ' o."Ll.) ~ LJ.
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access by small investors to marketable U.S. Government
securities. At the same time, the deterioration in the market's
ability to handle normal activity and the increas2 in costs that
have arisen from the extra6rdinarily large volume of sDlall
transactions in' shorL-term Treasl1ry bills will be ameliorated.
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is to afford the Treasury t"c,?;ulnc ':311.:] econord.cal
access, to the 1arge\Tulume of funds <-l\~j.i12ble [L'Oin
institutional in-vestors foe ShOL-t'-te!~'(n crnployment
in the money market. Typicall:l, ::-~""icb fLrnds are
available i.n large bI oc k~; " The cxtraol'clinary vc_tunk~
of small individual traHsact:l0ns i·,;hicl, provide
neither an irnport.:lnt nor a' dependable SlYliJ~Ce of
funds to the Trc.clsu:c-y :lis begi[)L---;in~r, to ()\r;~:J~t"lx CXl sting
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I CD t'I":-t;:;-'~~e,c
George Romney, Secretary 0.£ the Depctrtri1C:'nt
of Housing and Urban Development i.,ssu2d the following
statement:
"The outflow of savings from savings
and loan ass'ociations, mutu.al savings banks
and other thrift institutions has
agg~avated the shortage of mortgage fund
and contributed to a seriou$ decline in hpusiI~g
production. To avoid a serious, growing
hou~ing shortag~it is essential th~t
we discourage the outfiovi of funds' from
mortgage l~ndini institutions. This ~reasury
action should substantially improve, our
housing outlook."
000
DEPARTMENl' OF THE TREASURY
WASHINGTON, D. C.
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE CHARLS E. WALKER
THE UNDER SECRETARY OF THE TREASURY
BEFORE
THE FINANCIAL CONFERENCE OF
,
THE NATIONAL INDUSTRIAL CONFERENCE BOARD
WALDORF-ASTORIA HOTEL, NEW YORK CITY
FRIDAY, FEBRUARY 27, 1970, 12:30 PM, EST
COST-PUSH INFLATION: l'JHAT IT IS AND WHAT NOT
TO DO ABOur IT
Economists, as well as generals, should avoid the temptation of devising schemes to win a war that is over.
flation is still a fact of life.
In-
However, the forces
pushing up prices today are not the same as they were last
year or in the three preceding years.
The central fact is that economic overheating and
demand-pull inflation have been brought under control.
The
inflationary boom which began in 1965, and faltered only
briefly in 1966-67, has responded to strong fiscal and monetary restraint.
In all probability, economic historians
will record that the boom finally crested out in the third
quarter of 1969.
K-355
- 2 -
Since that time the economy has been on a plateau.
Declines in manufacturing have been nearly balanced by
modest expansion in other sectors.
Overall industrial pro-
duction has fallen for six consecutive months.
Strength in
utilities was more than offset by cutbacks in the output of
durable goods.
Mining and nondurables followed a flat path.
Except for private nonfarm housing starts, which have
slumped sharply, most other major indicators of production
have been relatively stable.
This hiatus in economic growth, which should continue
well into 1970, is not to be decried.
economic pause that refreshes."
It can be "The
It will set the stage for
healthy and balanced growth in the years ahead.
It is the
uncomfortable but necessary transition from over-heating and
demand-pull inflation to stable wage and price patterns.
Under these circumstances the major challenge is to
avoid extremes in stabilization policies.
Strong restraint
could plunge the economy into an old-fashione4 recession.
Excessive expansion would refuel the fires of demand-pull
inflation and confirm the expectations of those who foresee
only a brief pause in the inflationary process.
While I do not plan to spell out the details of the
degree of restraint that is appropriate, I think two passing
comments are in order.
4. t:'
~
- 3 First, I am convinced that
the right track.
our fiscal policies are on
The decision to permit the surtax to expire
next June 30 was the proper decision in terms of stabi1ization policy.
Those who questioned the wisdom of reducing the surtax
on January 1 -- arguing that this action was inflationary -overlooked an important point.
The revenue loss from that
action in fiscal 1970 is offset by the repeal of the investment tax credit.
Indeed the two decisions were considered
together in terms of the dollar impact.
It can also be argued that the two actions -- although
offset in terms of revenue
impact.
exerted an anti-inflationary
Repeal of the credit tends to dampen the demand for
resources in one of the most strained sectors of the economy,
the market for business capital goods.
My second point is that, dollar for dollar, cutbacks in
Federal spending exert stronger anti-inflationary impacts
than higher taxes.
This is especially true if the taxes,
as in the case of the surtax, are believed to be temporary.
It is therefore significant that President Nixon's
budget for fiscal 1971 was balanced by stopping the upward
trend in Federal spending, rather than through requests for
new taxes.
- 4 With these two comments on fiscal restraint out of the
way, I want to turn now to my main goal today.
That is to
make certain that the nature of the current stabilization
problem is clearly understood.
Stated briefly, we have moved out of the demand-pull
phase of the inflationary process into the painful but later
stage of cost-push inflation.
As the Council of Economic Advisers noted in testimony
last week, both phases -- demand-pull and cost-push -- are
integral parts of the inflationary process.
Although they
merge and overlap, they are in essence distinctly
dif~erent
in terms of the underlying economic forces at work.
They
therefore require much different treatment.
In the final stages of demand-pull, total spending exceeds the real productive capacity of the economy.
This is
the classical inflationary situation of "too much money
chasing too few goods."
Prices are almost literally pulled
up by bidding of buyers to obtain goods and services.
How-
ever, the ultimate effect -- increases in the major price
indexes -- is the same in both demand-pull and cost-push.
There the similarity ends.
The economics of demand-
pull are the economics of relative scarcity.
The economics
- 5 of cost-push are just the opposite, with excess capacity
ultimately dominating the economic scene.
Demand-pull is accompanied by rising real output (up
to a point, at least), declining unemployment, and growing
shortages of human and material resources.
l"vith demands
increasing rapidly and little growth in the availability of
resources, prices increase all along the line.
:fuen restrictive policies dampen demand, the excesses
begin to emerge and a transition from demand-pull to costpush occurs.
Since one man's income is another man's cost,
demand-pull and cost-push are indistinguishable in the
interm2diate stage.
As real economic grovJth slackens, levels, or declines,
the transition to cost-push is completed.
The workweek is shortened.
Unemployment rises.
Labor markets ease.
Usually the labor force declines.
The weakness in final demand, \vhich is
brought on by restrictive policies, results in sluggish
sales, an inventory buildup, and cutbacks in orders.
Although sales prices are rising, the combination of
sluggish sales and rising costs pinches profits.
Price
indexes continue to go up, and the rate of incr2ase may
even accelerate for a while.
- 6 This is partly because workers strive to capture wage
gains sufficient to offset both past and future increases
in the cost of living.
~vith
profits declining, soma business-
men attempt to pass these cost increases on to purchasers.
Others may try to raise prices to maintain profit margins •
.!hile they last, the rising output, declining unemploym2nt, and rosy profits of demand-pull seem far preferable to
the uncomfortable world of cost-push inflation.
ments of cost-push are painful and takz time.
The adjustThere is
therefore good reason to examine ways and means of speeding
the return to price stability and sustainable growth.
Cne point is clear:
monetary restraint
~~ould
In 1970, additional fiscal and
not come directly to bear upon the
factors that are forcing continu2d increases in the price
indexes.
Overall spending for goods and services has already
been cut back to a level that is sustainable in the long run .
.:i th demand slack and no longer pulling up prices,
additional heavy restraint would only restrain real output
even further.
This would intensify the current situation of
sluggish sales, inventory accumulation, and other cutbacks,
leading sooner or later to recession and high unemployment.
..
~
!
~
- 7 The overriding problem today is not excessive demand
but the relationship between labor compensation and productivity.
In a stable situation, increases in labor's
compensation are offset by gains in productivity.
Although
total costs of output rise, the increase in output per manhour
offse~this
advance.
Labor costs per unit of output
are stable and there is no pressure for higher prices because of labor costs.
This is more than a theory.
Between 1960 and 1965
compensation per manhour -- wages and benefits -- increased
at an average rate of 3.9 percent each year.
Yet, unit labor
costs during the period increased by less than one-half of
on~
percent.
IncreaSed output offset increased compensation.
As a result, unit labor costs and the general price indexes
remained relatively stable.
Nineteen sixty-five was the last yaar of such stability.
Although output per manhour rose by 3-1/2 percent in 1966,
compensation per manhour increased by about 6 percent.
The
result was a 2-1/2 percent increase in unit labor costs.
Continued sharp increases in compensation in excess of
productivity gains resulted in unit labor cost increases of
about 4 percent in 1967 and 1968, and more than 6 percent in
- 8 1969.
These growing cost-push pressures reinforced the pull
of excess demand.
All major price indexes rose at an in-
creasing rate until the latter part of 1969.
To many businessmen, cost-push pressures are the fundamental cause of the inflationary process.
standable, this view is
~vrong.
Although under-
Cost-push pressures, spurred
on by excessive wage increases relative to productivity gains,
are the result, not the cause, of the inflationary process.
If this were not the case, the stability in unit labor costs
between 1960 and 1965 could not be explained.
It was not
until after 1965, when demand-pull inflation overwhelmed the
economy, that increases in labor compensation began to outstrip gains in productivity.
I might note parenthetically that the argument between
th2 fisca1ists and the monetarists as to what caused the
demand-pull inflation of the late 1960's -- large Federal
deficits or excessive growth in monetary aggregates -- seems
to me to be a question that has generated more heat than
light.
Federal Reserve authorities were mistaken in per-
mitting so large an expansion in monetary aggregates in the
months following enactment of the surtax in 1968.
Not to be
ignored, however, are the Federal budget deficits of $38
billion in the three fiscal years ending June 30, 1968.
Iff
- 9 Such deficits, given the economic environment, are hard
to justify on the basis of any economic theory, old or new.
In our system, it is difficult if not impossible to finance
Federal deficits of this magnitude without excessive expansion in monetary aggregates.
The debate between monetarists and fiscalists is not at
issue here.
Both groups would agree that the time for ex-
cessive restraint, fiscal £E monetary, has passed, and that
cost-push requires a different policy.
Among the approaches r2commended by some observers -including such strange bedfellows as.-7a1l Street bankers and
the head of the AFL-CIC -- is a temporary freeze on prices
and \vages.
program.
Some would implement this through a voluntary
Others would apply it through an act of Congress
or perhaps through Presidential emergency powers.
A voluntary freeze would not work.
Short of a severe
and recognizable national emergency in which patriotic
motives assure cooperation, participants in a market economy
simply cannot be expected to forego for broad stabilization
purposes what they beli'2.ve to be their jus.t rewards.
- 10 Similar arguments apply to the effectiveness of
Presidentialexhortation to business and labor as a means of
shortening the transition to wage-price stability.
This is
not to say that careful study of specific market situations ••
such as the rapid upward spiral of plywood prices in 1969,
or the ballooning costs of construction labor -- is not
appropriate.
To attempt to analyze rising costs and prices
in a given market is a far cry from dictating to that market.
Yet such studies may point the way to appropriate measures
for reducing price pressures.
Nor would I deny that Administration officials have a
legitimate role to play in educating the public as to the
real nature of cost-push inflation.
This was one of the
original functions of the wage-price guideposts, introduced
by the Kennedy Administration in 1962 and abandoned by the
Johnson Administration in 1966.
But any campaign to promote
early wage-price stability on the basis of voluntarism is
likely to fail.
This conclusion is shared by many observers who would
take the next step:
Make the wage-price freeze mandatory,
either through an act of Congress or the emergency powers of
the President.
Here there are two pertinent· questions:
Would such controls work?
If so, at what cost?
- 11 Some of the most convincing arguments against controls
that I have heard have come from President Nixon himself,
based upon his experience as an attorney in the Office of
Price Administration in the Second World War.
And, as
E. F. Phelps, Jr., an experienced participant in emergency
economic stabilization, noted in a recent letter to the
Washington Evening Star:
••• a freeze of prices necessarily requires
millions of sellers to compute their own
ceilings on millions of items. Ift7 is
almost unadministerab1e and substantially
unenforceable
0
It is a dramatic way of putting on the
brakes, but the brakes lock. This is
why thousands of people from business,
the professions and the government had to
be assembled hastily in Worl,d War II and
the Korean War to relieve the strangling
economic and political impact of general
freeze orders and to develop as quickly
as possible a "panoply of controls" more
tailored to the essential functioning of
the ec onomy ••••
•••• 1 know of no one in the United States
familiar with these subjects who believes
a general freeze of our economy could be
administered, enforced, or sustained for
very long. It would be murder.
Mr. Phelps is saying, in short, that even a mandatory
freeze would require the speedy assemblage of a constricting
system of regulation, enforced by thousand's of people.
cost of such an effort is simply too great -- especially
The
- 12 when it is understood that the economy is already on the
road to wage-price stability.
After four years of rapidly rising prices, Americans
are impatient.
There is a natural tendency to
overlook the real progress that has been made in cooling
the overheated economy, eliminating demand-pull
pressures, and speeding the return to price stability.
The number one question being asked by businessmen,
labor leaders, housewives, and other is this:
How soon can we expect a return to wage-price stability?
No one can be certain.
But our analysis of
historical experience is encouraging.
Unit
factors:
labor costs reflect the interaction of two
Changes in output per manhour and
changes in compensation per manhour.
It follows that
stability can be re-established either through a rise in
output per manhour or a diminished rate of increase in
labor compensation
or, as is more likely, some
combination of the two.
The goal is to get both curves
moving together at the same rate
o
The average experience following the 'four expansions
between 1948 and 1960 indicates that, after one or two
- 13 -
quarters of no growth or outright decline, output per
manhour begins to increase.
At that point, changes
in labor compensation per manhour become critical in
respect to price increases.
In those four instances, compensation increases
lagged behind productivity gains.
As a result,
unit labor costs turned downwards in the third quarter
following the peaking of the expansion.
If this timetable were repeated in the current
instance, unit labor costs might be expected to
turn downward in the second quarter of 1970.
Few people, including myself, expect so rapid a turnaround in 1970.
For one thing, the average postwar
experience may be misleading.
In addition, this
time we intend to avoid the high unemployment that
occurred in the earlier periods.
In 1966-67, when
real growth stopped for only one quarter, and unemployment
rose only slightly, output per manhour responded
sluggishly and compensation continued upward at a rapid
rate.
-14 As a result, unit labor costs did not decline at all but
only increased at a slower rate for a short time.
On the credit side of the ledger, output per manhour
rose at an annual rate of almost 2 percent in the final
quarter of 1969.
One swallow does not a summer make, but
this turnaround after three quarters of decline is encouraging.
Moreover, today's policymakers have no intention of repeating
the major policy error of
1966~67,
when a strong and quick
shift from restrictive to expansive policies prevented the
necessary cost-price adjustments from taking place.
The speed of the return to wage-price stability
depends heavily on wage settlements in 1970.
On the basis
of "equal timing" over the life of t.he contract, the major
collective bargaining agreements in 1969 registered median
advances of almost 7-1/2 percent.
6 percent in
1968~
This amount, up from
is more than twice as large as the
long-run productivity gain in the U. S. economy.
But those
agreements were negotiated under the pressure of economic
over-heating and demand-pull inflation; businessmen were
confident of their ability to pass on at least a large part
of the wage increases in the form of higher prices.
Not so today.
Profits before taxes peaked in the first
quarter of 1969 and declined throughout the year.
declines may occur in 1970.
abated.
Further
Inflationary expectations have
The recent easing in labor
mark~tl
- 1 5contribute to moderation in settlements this year.
Moreover, if the productivity curve moves upward in
1970, as seems likely, and the line representing increases
in labor compensation starts down, the day of wage-price
stability may not be nearly so far in the future as the
current reports of price increases would seem to imply.
My own view is that the moderation in price increases implicit
in the President's economic plan for the coming year -- a
significant decline in the rate of advance by the end of the
year -- can be achieved.
Never having had the reputation of being a pessimist,
my own analysis of past experience and the forces at work
toda~Y
lead me to conclude that chances are pretty good that
the timetable in the Economic Report can be improved upon.
In making this optimistic forecast, I am relying heavily
on two prospective developments.
First, as just noted, the men in this audience and
businebsmen across the country are going to be in a different
bargaining posture in terms of future wage negotiations.
It will be much more difficult to pass higher costs on to
customers in the form of higher prices.
Settlements
that are out of line will reduce sales further and will
put additional pressure on profits.
The realization
- 16 is spreading that demand-pull is under control and that,
once the cost-push pressures subside, there is little likelihood of a return to inflation as a way of life.
This will
stiffen the resolve of business in wage negotiations and
quicken the return to price stability.
Secondly, enlightened labor leaders have also observed
the death of demand-pull pressures.
They will continue to
demand wage increases to catch up on past increases in the
cost of living.
But in projecting future demands they will
do well to consider the impact that excessive demands will
have on employment.
In a cooling economy no longer sustained
by strong demand-pull pressures, excessive wage settlements
are contractionary pushing toward recession and unemployment
rather than continued inflation.
The ones most likely to
suffer are those most recently hired including the former
hard-core unemployed.
Both sides in wage negotiations in coming months are
goingto be in uncomfortable positions.
Ultimately,
however, these pressures will have a beneficial effect on
the price level and the economy.
In summarizing these remarks I want to stress three
points.
- 17 First, the economic overheating and demand-pull
pressures created by the loose fiscal and monetary policies of
the late 1960' s have been 1::rought under control. They crested
in the third quarter of 1969.
Second, the cost of labor per unit of output is now
the indicator on which inflation watchers should be focusing.
Third, cost-push inflation can be slowed by increases
in productivity, by slower increases in wages, or both.
Productivity increased during the fourth quarter of 1969
after three quarterly declineS. It may move up from now
on.
Moderation in wage increases in future labor contracts
will further speed the return of price stability.
Finally, I wish I could stand here and tell you that
there are easy answers to cost-push inflation.
none.
There are
And it is certain that wage negotiators on both
sides of the table will be under pressure in the months ahead.
But I do believe that a better understanding of the forces
at work in 1970 will encourage decision-makers to work for
settlements t.hat ultimately will ease pressures on the
price level.
The stakes in this fight are high.
We are trying to
demonstrate to the people of this nation, and to the
free world, that we have the self-discipline to eliminate
the excesses which distorted our market-oriented, free
- 18 enterprise economy.
If we succeed in making the
transition from a period of runaway inflation to a period
of balanced growth, we will be laying the groundwork for
many years of stable prosperity.
If we give up the fight prematurely, or revert to
stop-go actions, we will confirm the convictions of many
that we lack both the ability and determination to
curb inflationary excesses.
The going will not be easy for leaders in business
and labor just as it has not been easy for the Administration
and the monetary authorities to put in place and hold a
posture of firm restraint.
But if we persevere, demonstrating the courage,
determination, and patience so necessary in this painful
adjustment process, then we should be able to look forward
to healthy and sustainable growth in the years ahead.
Such stability is essential if our large and productive
economy is to generate the goods, services, and jobs
necessary to undergird and, economically speaking, finance
the efforts to build a better nation.
000
SILVER COIN AND BULLION INVENTORY
JANUARY 31, 1970
COINS
INVENTORY DECEMBER 31, 1969
31.3
SALES
MILLIONS OF OUNCES
BULLION
TOTAL
72.3
103.6
.. 7.4
"7.4
COINED
MELTED
.. 6.3
ADJUSTMENT OF ESTIMATE
-0.9 1/
INVENTORY JANUARY 30, 1970
24.1
6.3
-0.9 1/
71.2
95.3
11 The adjustment reflects the difference between the estimated silver
content and the actual silver recovered from separating and melting
silver dimes and quarters during the month of January 1970.
Bureau of the Mint
Coin Management Division
February 27, 1970
TREASURY DEPARTMENT
WASHINGTON. D.C.
February 27, 1970
FOR IMMEDIATE RELEASE
SECRETARY KENNEDY NAMES ALAN WADE
DEPUTY SPECIAL ASSISTANT (PUBLIC AFFAIRS)
Treasury Secretary David M. Kennedy has appointed Alan B.
Wade, of Lexington, Massachusetts, as Deputy Special Assistant
to the Secretary (Public Affairs) effective March 2.
Mr. Wade was most recently employed as Director of
Public Relations for Northeast Airlines, Boston. Prior to
that he had been employed by United Press International for
about 20 years as a staff writer, broadcast news editor
and executive assistant to the New England division manager.
He began his newspaper career as a reporter for the
Worcester (Massachusetts) Evening Gazette.
He is immediate past president of the New England chapter
of Sigma Delta Chi, the professional journalism society.
He also was a member of the board of the Broadcasting Executives
Club of New England and was secretary of both the UPI
Newspaper Editors of New England and the uPI Broacasters of
Massachusetts.
The new deputy assistant was educated at Worcester Academy
and holds a degree in history from Clark University, Worcester.
He attended the Armed Forces School at Cite Universitaire,
Paris, France.
Mr. Wade is married to the former Helen Weymouth of
Cambridge, Massachusetts. They have three children:
Stephen 20, Allison 16 and Eric 15.
0000
K-356
TREASURY DEPARTMENT
lo}
I
WASHINGTON. D.C.
March 2, 1970
FOR IMMEDIATE RELEASE
TREASURY APPOINTS McGEE
SPECIAL ASSISTANT FOR CUSTOMS
The Treasury Department announced the appointment
of Charles E. McGee of Garden City, New York, as
Special Assistant for Public Affairs in New York to
Commissioner of Customs Myles J. Ambrose.
In addition to representing Commissioner Ambrose
in Customs Region II, Mr. McGee will handle special
assignments for Eugene T. Rossides, Assistant Secretary
of the Treasury.
Previous to his appointment, Mr. McGee was
Secretary of the Waterfront Commission of New York
H~rbor, a bi-state agency dealing with longshore labor
and law enforcement in the Port of New York. Before
entering government service in 1960, he had been
associated with international air transportation in the
pioneering and development of major global air routes
and services.
A former news writer and a native of New York
City, he was graduated from Manhattan College.
000
K-357
FOR RELEASE UPON DELIVERY
STATEMENT BY THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
FOR
ENFORCEMENT AND OPERATIONS
before the
HOUSE BANKING AND CURRENCY COMMITTEE
MONDAY, MARCH 2, 1970, 10:00 A.M.
I appear before you today to report the Treasury
Department's recommendations on H.R. 15073.
The
Treasury recommends legislation which, in our judgment,
strengthens all provisions of H.R. 15073.
1.
Specifically:
We propose recordkeeping requirements for
banks and other financial institutions with respect to
foreign transactions and for certain types of checks
and other documents used in certain domestic transactions.
This strengthens the bill greatly by concentrating on
problem areas and eliminating wasteful, counterproductive,
and duplicative requirements for maintaining records on
the over 20 billion individual items that annually pass
through the banking system.
The original bill would
require each of these items to be record.ed twice--once
when deposited and again when paid--making over 40 billion
records each year.
2.
K-358
We propose reports of exports and imports of
U.s.
2
currency or the equivalent.
The authority to extend
these reports to items equivalent to
u.s.
currency
strengthens this provision in the bill by removing a
potential loophole.
3.
We propose improved and expanded requirements
for Treasury Currency Reports.
Again, we strengthen the
bill.
4.
We propose the identification by
u.s.
citizens,
residents, and domestic corporations of their foreign
accounts.
This focuses upon the problem to its full
extent, removes unnecessary reporting of foreign transactions, and again, in our judgment, adds strength to the
bill.
S.
We propose rebuttable presumptions that U.S.
citizens, residents, and domestic corporations engaging in
certain foreign transactions, and not furnishing adequate
information, are dealing with their own untaxed income.
This is a new item and one which we believe will assist
enforcement.
Amendment of the Internal Revenue Code would seem to
be required with respect to the last two items. We would
propose submitting specific proposals to the Ways and Means
Committee in the near future.
Foreign accQunts are being used py organized and
white
col~ar
crime to screen from view a wide variety
.of criminally-related financial activity, to evade taxes,
and to coneeal and cleanse criminal wealth.
We believe that toe new matter we here propose will
p;rovide additional valuable enforcement tools needed in
the effort to cUl;'b the expanding
account~
to further criminal
us~
of foreign bank
objective~.
This Admini$tration has mounted a full-scale effort
against the forces of organized crime.
The Treasury,
which is the $econd largest law enforcement department in.
the Federal Government,
s~pplies
of the manpower for the various
fQrce~ th~oughout
~his
de~ay
the
appro~imately
Qrg~nized
crime strike
co~ntry.
Administration recognizes the widespread moral
that would result if these foreign practices are
permitted to continue and expand.
deqicated to the prevention of
~nd
50 percent
th~se un~awful
this Administration has backeQ
~ignificant
increases in
Thi$ Administration is
~p
enforce~ent
legislative proposals, many of which
before the Congress.
practices.
its words with deeds-budgets and significant
p~oposals
are still
We point out with pride that this is the first
Administration seriously to study the matter and recQInmend
legislative action designed for correction of this longstanding problem area.
We take further pride in
th~
fact
that the Treasury Department is in the forefront of this
effort.
The Treasury Task Force on this matter is the
first of its kind that we are aware of,.
The Treasury in
this Administration is dedicated to aggressive e'nforcement
action.
Before discussing our proposals, I would like to
emphasize three fundamental concerns of the Treasury whicq
have been considered and weighed in developing each of our
recommendations for obtaining improved law enforcement.
First, the United States dollar is the
principal reserve and transactions currency of the
world.
Foreign holdings of U.S. dollars are huge,
amounting to some $43 billion in liguid form.
This fact itself is a mark of the confidence which
others have in the political and economic stability
of the United States and is a tribute to the
success of the international trade and payments
system we have been creating--a system of
5
progressively fewer restrictions to the flow
of goods and capital.
The overwhelming bulk
of the rQpidly growing volume of international
transactions by Americans and foreigners alike
are not only legitimate business and personal
transactions, but serve the larger interests
of the United States in effective monetary
arrangements and freely flowing trade and
payments.
It has therefore been of paramount
concern to us that the proposals we are making
will in no way restrict the regular and efficient
flow of domestic and international business, or
personal transactions, or diminish the willingness
of foreigners to hold and use the U.S. dollar.
The second consideration is that consistent
with our determination to deter tax and other
evasion by U.S. persons involving foreign
financial transactions, we have sought to
develop proposals under which the benefits to
our tax collections and to our law enforcement
objectives exceed the direct and indirect costs
which these proposals bring about.
6
Finally, we have not lost sight of traditional freedoms, many of which are set forth
in our Constitution, others which have become
identified with our way of life.
In reinforcing
our enforcement activities, we must not jeopardize
these sacred principles.
The proposals that we are submitting, Mr. Chairman,
will strengthen this bill and, we are confident, will
significantly assist our enforcement activities.
I shall discuss each of the five areas referred to,
indicate the problems, outline the recommendations, and
compare these recommendations with H.R. 15073.
We will
submit in a few days a Technical Explanation of Treasury
Recommendations which includes some additional detail on
our recommendations and is designed as an aid to the
legislative draftsmen.
In this connection, we realize that
this is a complex and difficult effort and that we must
be able to respond to changes in the techniques of evasion.
For that reason, we endorse the approach reflected in
H.R. 15073:
a statutory framework providing maximum
flexibility to the Secretary of the Treasury or his
7
delegate to issue regulations implementing the legjslation.
On December 10, 1969, I said:
"The United States must also look to its
own laws to determine whether we are doing all
that we can to stop tax evasion and other crimes.
The Treasury has, therefore, undertaken a full
review of our existing legislation and
administrative practices to determine what is
required to increase our effectiveness
aga~nst
crimes which are facilitated by foreign bank
accounts.
*
*
*
"Our concern is with American citizens
and residents who violate tax and other
laws.
u.s.
We are improving the means to detect
and prosecute
crim~s
where all of the events
take place within our borders.
But where our
citizens and residents use foreign territory
and institutions for criminal violations of
u.s.
law or for hiding the fruits of their
crimes, law enforcement requires special techniques."
8
We urge the Committee to modify H.R. 15073 to
incorporate our recommendations and to act on this bill
at an early date.
These recommendations largely focus
on the particular problem with which these hearings
and H.R. 15073 are concerned:
by
u.s.
the use of foreign banks
citizens and residents in connection with tax
evasion and other crimes.
We feel that the measures we
have recommended, when fully utilized by the Internal
Revenue Service and other Federal law enforcement agencies,
will assist us in our continuing efforts to curb tax
evasion and other white collar crimes and suppress
organized crime.
However, past experience indicates
that no system is foolproof.
We will continue to be alert
to new devices developed by those seeking to evade taxes
or otherwise violate our criminal laws.
I will now proceed to discuss each of these five
areas.
I.
Recordkeeping Requirements for Banks and Other
Financial Institutions with respect to Foreign
Transactions
The united States, of course, does not have nor
should it seek jurisdiction over foreign financial
institutions.
Once funds owned by
U.s. citizens and
9
residents leave the United States, the Internal Revenue
Service, the Securities and Exchange
Commi~sion
and
other u.S. law enforcement agencies cannot normally
trace these funds unless the foreign government has agreed
to conduct investigations on our behalf.
In contrast,
where only domestiq financial institutions are used,
our investigators can frequently pick up the trail at
various junctures and trace transactions from bank to
bank.
As I stated to the Committee on December 10, 1969,
the United States and Switzerland are exploring the
possibility of entering into a treaty of mutual assistance
in criminal matters.
Representatives of the Swiss
Government will be in Washington March 6 through 14 to
continue our discussions.
We have also begun to explore
the possibility of making similar arrangements with other
countries.
While the Treasury feels that we should
continue vigorously to pursue our programs with respect
to treaties, because of the time it will take to develop
a full network of treaties and because treaties depend on
the agreement and assistance of other countries, the
Treasury recognizes that the United States must reinforce
the benefits obtained through treaties in order to curb
10
tax evasion and other crimes.
Therefore, the Task Force recommends that banks
and other financial institutions located in the United
States be required to maintain records of foreign
transactions.
This would assist our law enforcement agencies to
identify transfers of funds across our borders by U.S.
citizens and residents.
In many cases, these require-
ments would codify present practices.
It is primarily
the improved availability of records which we are seeking.
In order to provide necessary flexibility, we
recommend that the Secretary of the Treasury or his
delegate be given the authority to issue regulations
prescribing the particular records of international
transactions which must be maintained, to set or vary
exemptions with respect to amounts, to establish other
exemptions, and to vary required retention periods.
It is our present thinking that regulations would be
issued requiring banks and other financial institutions
to maintain for a period of six years the following records:
(1)
Records of foreign remittances transferring
funds abroad.
In a typical foreign remittance transaction,
a u.S. bank or other financial institution such as a
11
currency exchange, pursuant to a request by a customer,
will instruct either by airmail or cable a foreign
correspondent bank (or its foreign office) to pay either
directly or
th~ough
another institution a specified
amount to a designated person located in the area of the
foreign bank with reimbursement effected through either
the foreign bank's dollar account in the
foreign currency account of the
bank.
the
The customer of the
u.s.
u.s.
u.s.
u.s.
bank or the
bank at the foreign
bank will
either instruct
bank to charge the customer's account with the
amount of the remittance or furnish funds in that amount.
Under our proposal, the
u.s.
bank would be required to
maintain the application for the remittance, or a copy,
including the identification of its customer, and a copy
of the remittance.
Regulations would specify the minimum
information to be set forth on this and other applications
made a part of the required records.
(2)
Records of foreign remittances transferring
funds to the United States.
the one just described.
u.s.
This is the converse case to
banks instructed by foreign
banks to make a payment either directly or through another
institution would, under our proposal, be required to keep
records of the instructions and payment including, in the
case of the bank actually making the payment, the
12
identification of the payee.
(3)
Records of checks negotiated abroad and
foreign creuit card purchases.
Checks drawn on
banks, including cashier's checks issued by
u.s.
u.s.
banks,
which are sent outside the United States are generally
forwarded by foreign banks (or foreign offices of U.S.
banks) to their
u.s.
correspondent banks (or to their
head offices) for immediate credit or for collection.
The foreign bank transmits the checks with a "cash letter
We recommend that the first bank located in the United
States to receive a cash letter from abroad be required
to keep a microfilm or other copy of each check of $1,000
or more and the cash letters transmitting such checks.
In addition, since credit card charges of foreign purchases
have the same effect as checks negotiated abroad, United
States institutions whose credit cards can be employed to
obtain credit overseas also would be required to maintain
records of each foreign charge of $1,000 or more.
(4)
Records of foreign checks transmitted abroad
for collection.
A U.S. bank transmitting abroad checks
drawn on foreign banks paid to
u.s.
beneficiaries would
be required to keep a microfilm or other copy of the checks.
13
(5)
Records of foreign drafts.
A foreign draft
(also called a banker's draft) is like a cashier's
check in that both involve the obligation of a bank.
A cashier's check is payable by the bank from which it
is purchased, while a foreign draft is drawn on a
foreign correspondent bank of the bank where the draft is
purchased.
The purchaser sends or carries the check or
draft to the foreign country himself.
Under the Treasury
recommendations, a U.s. bank selling a foreign draft
would be required to maintain the application of its
customer, and a copy of the draft itself.
Conversely,
u.s. banks would be required to maintain a copy of foreign
drafts sold by foreign bapks which are payable in the
United States, and maintain records of the identification
of the payee.
(6)
Records of letters of credit and documentary
collections.
With respect to letters of credit, including
travelers' letters of credit, issued by U.S. banks and by
foreign banks, and documentary collections on exports and
imports, U.S. banks also would have to maintain records
along the lines customarily maintained by most banks which
engage in such transactions.
14
The present bank recordkeeping requirements of
H.R. 15073 are drafted in broad and general mandatory
language with little or no flexibility in the Secretary
to limit these requirements.
We believe that the imposition of such allencompassing recordkeeping requirements would be
impractical, wasteful, and counterproductive.
Additionally, it would impose a substantial cost on
the American economy and the public and delay
transactions.
In excess of 20 billion checks are drawn annually
in the United States and flow through the banking
system.
Under the bill, each check would of necessity
have to be microfilmed or otherwise recorded twice,
once ln connection with the deposit and a second time
when paid.
In many instances the time necessary to
microfilm each check which has been deposited would
mean that the bank in which the check was deposited
would fail to meet the clearing deadline for that
day and the deposit would be available to the customer
one day later.
This delay and the cost of making
15
and storing these records would be borne by the
public.
We cannot justify imposing such burdens
upon the
u.s.
economy and the public.
While unlimited requirements for recordkeeping
by banking institutions of all domestic transactions
is undesirable and unnecessary, and does not bear
directly on the subject of these hearings--the use
of secret foreign bank accounts for illegal purposes-records of certain domestic transactions are often
essential in the fight against tax evasion and other
crime, especially organized crime.
Therefore, we recommend that H.R. 15073 be
amended to provide discretionary authority in the
Secretary of the Treasury or his delegate to require
that banks and other financial institutions maintain
such records of domestic transactions as may be
specified in regulations.
Regulations would be
developed to identify the types of documents subject
to these requirements, specify the
minim~m
amounts,
establish the classification of documents (such as
checks paid or checks deposited) and other
classifications subject to these requirements and
specify the retention periods.
16
II.
Reports of Exports and Imports of
Curre~£l
In addltion to international tranHfers througt
banks and other financial institutions, funds can be
transferred directly by the physical movement of
u.s.
currency, foreign currency and other items which
can pass freely from hand to hand.
In order to make sure that records of such direct
transfers are available for the purpose of verifying
income tax returns and for crimirlal law enforcement,
the Treasury proposes that persons importing or
exporting $5,000 or more of
u.s.
currency or its
equivalent, such as foreign currency, travelers checks,
and other items which can pass freely by delivery,
into or out of the United States be required to file
an information return prior to the importation or
exportation.
The authority to extend these reports
to items equivalent to
u.s.
currency strengthens this
provision in the bill by removing a potential loophole.
17
There would be no restrictions on exporting and
importing currency or the equivalent in any amount,
and no return would be required of those exports or
imports under the $5,000 level.
The average inter-
national traveler would not be affected by this
requirement.
Those which reach this level could
comply with this requirement by simply completing and
turning in the report form which would be available
at points of embarkation and disembarkation and at
our land borders.
In order to permit flexibility, we propose that
the Secretary of the Treasury or his delegate be given
the authority to issue regulations within the general
framework of the statute.
Where currency or the equivalent is exported or
imported through the use of the mails or by carrier,
similar requirements would be applicable.
A sender
would be required to file the information return prior
to delivery of the package to the post office or the
carrier.
With respect to incoming shipments, the
recipient would be required to file an information
return within thirty days after receipt.
18
When the person filing the return is not the
owner of the currency or its equivalent, he would
be required to state the name, address, and social
security number of either the owner or of an agent
for the owner.
In addition to other penalties which would be
provided and which are outlined in the Technical
Explanation, currency or its equivalent as to which
a complete return was not filed would be subject to
forfeiture if seized during the exportation or
importation.
III.
Improved Treasury Currency Reports
Financial institutions currently are required to
file Treasury Currency Reports in cases where persons
who use their facilities engage in "unusual" currency
transactions.
It should be noted that these reports
deal with all currency transactions--domestic as well
as foreign.
The present system has not been adequate
because the concept of an "unusual" transaction has
been subject to differing interpretations.
Also,
financial institutions may not have always sufficiently
verified whether the person engaging in the transaction
has furnished his correct name and address.
1/
J
19
We support in general the concept of sections 221
through 223 of H.R. 15073 which provide a new statutory
basis for Treasury Currency Reports.
However, we
would confine the reporting requirement in most cases
to the financial institutions, and not also require
a report by the person dealing with the institution.
On the other hand, we believe that the bill is too
narrow in being limited solely to
u.s.
currency.
Foreign currency, travelers checks, and other items
which can pass freely by delivery should be subject
to being included to the extent provided in regulations
issued by the Secretary of the Treasury or his delegate.
We also recommend that the Secretary or his delegate
be authorized to add or subtract from the list of
types of institutions required to file Treasury Currency
Reports.
The regulations to be issued by the Treasury would
specify the obligation of the financial institution to
examine an acceptable identity document and record its
presentation.
In a case where an agent, including a messenger,
is involved in a currency transaction, the financial
institution would complete the Treasury Currency Report
20
with respect to either an agent or the principal
on whose behalf the agent is acting.
If the
institution completed the report with respect to
the agent, then the agent also would be required
to file a Treasury Currency Report with respect
to the principal or another agent for the principal.
Financial institutions should be required to
retain copies of the Treasury Currency Reports filed
by them and accompanying transmittal documents for a
period of time to be specified in the regulations.
IV.
Reports of Foreign Accounts by U.S. Citizens and
Residents
The Treasury also recommends that the Secretary
of the Treasury or his delegate require
u.S.
citizens,
residents, domestic corporations and other taxpayers
with an equivalent status to identify on or with their
income tax returns their direct or indirect interests
in foreign bank accounts, foreign brokerage accounts,
or other accounts with a foreign financial institution,
or signature authority with respect to any such account.
The Treasury feels that this requirement should
be confined to a statement as to the existence of the
21
foreign account and information concerning individual
transactions should not be required.
Reporting
individual transactions, as is required by H.R. 15073,
would result in unnecessary paperwork except in those
cases where the Internal Revenue Service is interested
in obtaining further ,information.
Under our proposal,
where the Internal Revenue Service would want to
obtain additional information from the taxpayer about
transactions involving a foreign account, a request
would be made to the taxpayer in accordance with
existing practice.
It is our present feeling that, even though such
a requirement could be imposed under existing law,
the Internal Revenue Code should be amended to
specifically authorize the Secretary of the Treasury
or his delegate to impose this type of requirement
and the scope thereof by regulation.
We believe that this is an improvement over H.R.
15073, which would require reports of transactions with
foreign financial agencies which do not make their
records available to U.S. authorities.
22
The pattern of reciprocal disclosure between
governments varies with countries, with treaty
arrangements, with the nature of the transaction
involved, and with the type of investigation.
More
certain knowledge is obtained sooner under this
proposal, and intergovernmental contacts can be
used to supplement enforcement.
V.
Rebuttable Presumptions that u.s. Citizens and
Residents Engaging in Certain Foreign Transactions
are Dealing with their own Untaxed Income
By means of the required records, reports of
exports or imports of currency, Treasury Currency
Reports, and reports of foreign accounts, the
Internal Revenue Service will be in a much better
position to identify instances of tax evasion by
U.S. taxpayers than now.
While such information
would certainly be of use in reducing tax
there are limits
so far made.
~o
~vasion,
the benefits of the proposals
Therefore, we believe our effectiveness
in law enforcement would be considerably enhanced if
the Internal Revenue Code were amended to provide
rebuttable presumptions that persons who engage in
certain international transactions and who do not
23
furnish satisfactory information with respect thereto
are dealing with their own untaxed income.
A possible pTesumption might be developed along
the following lines.
Where (i) a
u.s.
taxpayer borrows
money from a foreign financial institution and the
taxpayer claims that he has not furnished collateral,
(ii) .a reasonable lending institution in the lender's
country would not make such a loan without collateral,
and (iii) on request the taxpayer fails to furnish
information as to the loan to the satisfaction of the
Secretary of the Treasury or his delegate, it would be
presumed that the loan was collateralized by the
borrower's untaxed income.
This presumption would negate the tax evasion
practice of some
u.s.
.
taxpayers who deposit funds
abroad, then borrow the funds back and take a
deduction for interest paid.
In these transactions
the foreign bank retains a small service charge
and the balance of the "interest" is added to the
taxpayer's account.
With respect to the presumptions which would be
provided, it would be necessary to establish by
statute or regulation exceptions for normal and
recurring commercial transactionR.
The presumptions would be in the nature of
evidentiary presumptions which could form the basis
for a determination of civil tax liability (including
interest and penalties) whether or not the taxpayer
introduces evidence to the contrary.
However, if
the taxpayer establishes by the clear preponderance
of the evidence that his untaxed income is not
involved, the presumption would be rebutted.
It is our understanding that most persons who
use foreign financial institutions, even in countries
where bank secrecy is strictly observed, can themselves
obtain full information about their accounts and
transactions.
Therefore, it is assumed that
u.s.
taxpayers will be able, without difficulty, to satisfy
the Secretary of the Treasury or his delegate as to
his foreign transactions if he desires to do so.
*
*
*
The Treasury recommends that legislation along
the foregoing lines, which in our judgment strengthens
significantly the provisions of H.R. 15073, be enacted
as soon as possible.
We believe that such legislation
(-, /
,I
"'-
25
would contribute to our efforts to curb tax evasion
and other crimes by
u.s.
citizens and residents
where international financial transactions are
involved.
We believe that we have strengthened H.R. 15073
by focusing on the target, by filling a number of
omissions in H.R. 15073, by eliminating requirements
which seem to us to be burdensome and of limited
value, if not counterproductive.
If our recommendations
are accepted and the bill becomes law, then we will be
better able to combat organized crime and white collar
crime in their use of foreign banks to achieve criminal
objectives.
In addition, we would plan to recommend amendments
to the Internal Revenue Code establishing presumptions
in connection with certain international transactions,
which we believe will make the Internal Revenue Service
.
more effective in utilizing the information which it
obtains.
Our recommendations with respect to reports
of foreign accounts could be carried out under current
law, or, if specific legislative authority were desired,
authorized by amendment to the Internal Revenue Code.
We would plan to present Internal Revenue Code
amendments to the Ways and Means Committee at an
early date.
While legislation along the lines we propose
would furnish the Internal Revenue Service and other
law enforcement agencies with additional tools to
deal with tax evasion and other crimes, what must
be added to the legislative authority is the mobilization of Internal Revenue Service and other law
enforcement manpower to use these tools, and this will
require substantial funds.
To summarize, the Treasury recommends legislation
which, in our judgment, strengthens all provisions of
H.R. 15073.
1.
Specifically:
We propose recordkeeping requirements for
banks and other financial institutions with respect to
foreign transactions and for certain types of checks
and other documents used in certain domestic transactions.
This strengthens the bill greatly by concentrating on
problem areas and eliminating wasteful, counterproductive,
and duplicative requirements for maintaining records on
--.
/ , "1
/
,...
27
the over 20 billion individual items that annually
pass through the banking system.
The original bill
would require each of these items to be recorded
twice--once when deposited and again when paid-making over 40 billion records each year.
2.
of
u.s.
We propose reports of exports and imports
currency or the equivalent.
The authority
to extend these reports to items equivalent to
u.s.
currency strengthens this provision in the bill
by removing a potential loophole.
3.
We propose improved and expanded requirements
for Treasury Currency Reports.
Again, we strengthen
the bill.
4.
We propose the identification by
u.s.
citizens,
residents, and domestic corporations of their foreign
accounts.
This focuses upon the problem to its full
extent, removes unnecessary reporting of foreign
transactions, and again, in our judgment, adds strength
to the bill.
5.
We propose rebuttable presumptions that
u.s.
citizens, residents, and domestic corporations engaging
in certain foreign transactions, ana not furnishing
28
adequate information, are dealing with their own
untaxed income.
This is a new item and one which
we believe will assist enforcement.
Mr. Chairman, you have indicated your intent to
conclude these hearings no later than March 13, and
I urge that this be done and that you proceed as soon
as possible through your mark-up, Committee and
floor action in order that the matter can be taken up
in the Senate at the earliest possible time.
This, Mr. Chairman, concludes my testimony.
Let me assure you that I am available to the Committee
to speed the proposed legislation along and that the
Treasury staff will be available to the staff of the
Committee and the House to help draft legislation
which would meet our common aim of deterring tax
evasion and other crimes.
000
TREASURY DEPARTMENT
4
WASHINGTON, D.C.
~OR
RELEASE 6: 30 P.M.,
~onday,
March 2, 1970.
RESULTS OF TREASURY t S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
)i11s, one series to be an additional issue of the bills dated December 4, 1969, and the
)ther series to be dated March 5, 1970, which were offered on February 25, 1970, were
~ened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000, or
~ereabouts, ot 91-day bills and for $1,300,000,000, or thereabouts, of 1B2-day bills.
~he details or the two series are as follows:
~GE
OF ACCEPTED
:OMPETlTIVE BIDS:
High
Low
Average
95~
33;'
91-day Treasury bills
maturigs June 4, 1970
Approx. Equiv .
Price
Annual Rate
98.283
6.793~
98 .249
6.927~
98 .264
6.8~
Y
••
·
·•
·
Treasury bills
maturins SeEtember 3, 1970
Approx. Equi v •
Price
Annual Rate
96.602
6.721J
96.564
6.796;'
96.576
6.773;' Y
lBZ-d~
ot the amount of 91-day bills bid for at the low price was accepted
ot the amount of 1B2-day bills bid for at the low price was accepted
IOTAL TENDERS APPLIED FOR AND ACCEP.rED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Acce;Eted
AEE1ied For
$ 32,940,000 $ 3Z,940,000
1,859,010,000 1,292,760,000
39,400,000
24,400,000
32,760,000
32,760,000
19,1.30,000
19,130,000
40,140,000
44,190,000
155,920,000
155,920,000
4:2,780,000
48,780,000
33,490,000
33,490,000
27,790,000
27,790,000
23,520,000
29,520,000
74,560,000
134,590,000
TOTAIB
$2,457,520,000 $1,800,190,000
For
·• Ap]2lied
17,670,000
· 1,549,810,000
·• 23,500,000
· 52,760,000
· 22,280,000
44,420,000
228,510,000
32,940,000
27,680,000
28,300,000
24,870,000
138,150,000
Acce]2ted
$ 17,670,000
842,680,000
13,500,000
49,360,000
18,730,000
27,284,000
201,970,000
19,340,000
18,180,000
25,355,000
13,200,000
53,150,000
!I $2,190,890,000
$1,300,419,000
•
·
·•
·
··•
·
·•
Pi
I Includes $337,050,000 noncompetitive tenders accepted at the average price of 98.264
I Includes $211,710,000 noncompetitive tenders accepted at the average price of 96.576
I These rates are on a bank discount basis. The equivalent coupon issue yields are
7.~ tor the 91-day bills, and 7.111- for the lBZ-day bills.
r
TREASURY DEPARTf\lir::NT
- -- -_. -
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....
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WASHINGTON. D.C.
March 4, 1970
RELEASE ON RECEIPT
TREASURY SECRETARY KENNEDY NANES FRED D. CHIEI, JR.,
AS NEW SAVINGS BONDS CHAIHMAN FOR THE STATE OF ALASKA
Fred D. Chiei, Jr., Executive Vice President, RCA Alaska
Communications, Inc., was appointed by Secretary of the Treasury
David M. Kennedy as volunteer State Chairman for the Savings
Bonds Program in Alaska, effective February 24.
He succeeds Mrs. Brideen Crawford Milner, Chairman of the
Board, Alaska State Bank, Anchorage, \\7ho has served since August
1963.
Mr. Chiei will head a committee of state business, financial,
labor, and governmental leaders v;rho -- working '\lith the Savings
Bonds Division -- assist in promoting the sales of Savings Bonds.
Mr. Chiei Has born in Philadelphia, Pa. During World War II,
he served in the Navy as an aviation electronics officer. He
entered the management field from an electrical engineering background. He has taught and lectured on management, and is a member
of the American Management Association'.
He has been with RCA 20 years, 15 of which have been in management. He came to Alaska in 1960 and served as Project Manager
for the White Alice Project until July 1, 1969, when he assumed
his present responsibilities.
Mr. Chiei has served actively \viththe Anchorage Chamber of
Commerce. His efforts in saving the Fur Rendezvous won him the
Bill Strandberg Memo~ial Award in 1968. He also received the Gold
Pan Award for an outstanding contribution to the communityo
He is currently President of the Anchorage Council of the
Navy League, active as a Rotarian, Chairman of the Governor's
Manpower Advisory Committee, and serves on the U. S. Army Alaska
Advisory Committee.
000
TREASLJRY
DEPARTrv1El\\~~r
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..,'...--_.._ ......... -. .:,;. _
._c,_
WASHINGTON, D.C.
RELEASE ON RECEIPT
March 4, 1970
TREASURY SECRETARY KENNEDY NAMES DONALD W. DOUGLAS, JR.,
AS NEW SAVINGS BONDS CHAIRMAN FOR THE STATE OF MISSOURI
Donald W. Douglas, Jr., Corporate Vice President - Administration, l'1cDonnell Douglas Corp., St Louis, 'Nas appointed by
Secretary of the Treasury David M. Kennedy as volunteer State
Chairman for the Savings Bonds Program in Missouri, effective
February 24.
0
He succeeds John L. "'lilson, Vice Chairman of the Board, UMC
Industries, Inc., who served from March 1965 until his retirement
in Hay 1969.
Mr. Douglas will head a comlnittee of state, business, finan-
cial, labor, and governmental leaders who -- working with the
Savings Bonds Division -- assist in promoting the sales of Savings Bonds.
Mr. Douglas, whose father founded the Douglas Aircraft Co.,
was born in Washington, D. C. on July 3, 1917. He received his
undergraduate education in mechanical engineering at Stanford
University, taking graduate courses in aeronautical engineering
at the Curtiss-\\7right Technical Institute.
He joined the Douglas company in 1939 as Assistant Leader DC-4 Pm.Jer Plant Group, moving on to a v.!Jriety of assignments
before becoming President in 1957. Eeis also Chairman of the
Board and Director, Douglas Aircraft Co., of Can~da, Ltd.
Mr. Douglas was made Chevalier, French Legion of Honor,
in 1961 and was named Officiale of the Order of Merit of the
Republic of Italy in 1962.
( more )
I ..,
- 2 -
He is a member of many business, civic, professional and
social organizations. He is a former member of the President's
committee on Youth Fitness.
Mr. Douglas is married to the former Jean Cooper.
wo daughters, Victoria and Holly.
000
He has
!
!
~
,
....,
,"
!
For Release Upon Delivery
ST1~TEr·mNT
BY THE HONORABLE EUGENI: T. ROSSIDrS
ASSISTAiJT SECRETARY OF THE TREl\.SUPY
for
ENFORCE~EWl' AND OPERATIOnS
before the
SENz\TE PEPNANENT
SUBCOr~UTTEE
ON
INVESTlr..~.TI()nS
Harch 4, 1970
10:00 a. m.
r~r.
Chairman and nemhcrs of the Commi ttee:
I
a~
plf'ased to be here today to report on the activities
of the Treasury Department, within the over-all effort of this
GovernMent, to keen under reasonable control the illicit
financial transactirns in Vietnam to which the
co~binatinn
of
uar and inflation give risco
0r~~t
The Treasurv Department has watched with a
deal of
interest the hearinas held bv the SU0coruni ttec.
7he Subcor-·
Mittcc is to be highly cOMMeneed for its efforts
a~~
.J
_~
investiqative Materials assembled.
by the Subcomi ttee
thr
The si tuation revea.led.
needs correction I and the 'l'reasury
Department will do whatever it can to eliminate these abuses
within the linits set by its operational responsibilities.
As this SuhcoI'mni ttee is well aware, the problems are not pew ~
they renuire continuing surveillance, frenuent
and adaptations of regulations and controls,
enforc~~ent.
K-359
~odifications
an~
d0ter~ined
- 2 -
Interdepartmental
A~ion
Task
GrE~p
I am pleased to inform the Subcommittee of the formation of an Interdepartmental Action Task Group composed
of the State, Treasury and Defense Departments and the
Agency for International Development.
This Action Task
Group was established in December 1969, for the purpose
of improvinq government agencies' existing procedures
and practices in the administration of programs in Vietnam
so as to eliminate opportunities for blackmarketinq,
currency manipulation and for the purpose of exnlorino
the broader aspects of economic condi tions which s:,a,,,n
blackrnarketing and currency manipulation.
~~i th
your perIl'\ission, Hr. Chairman, I should like
to submit for the record at this point a copy of the
Memorandum of Understanding Among the
State, Treasury
an~_
I?~ar~me!1t~_.of
Defense.
This is the first time that an Administration has
elevated the effort in this area to such a high level.
I
can assure this SubcomMittee that the Secretaries of State,
Defense and Treasury and the Administrator of AID are
dete~ined
to do everything
po~sible
to control this
proble~.
The Action Task Group is chaired by a Defense
Department representative, Mr. Frank A. Bartimo, Assistant
General Counsel (r-1anpower and Reserve Affairs).
I have
-
3 -
had the pleasure of working with Hr. Bartirno on a nUJYlber
of matters and can attest to his ability, experience and
determination.
He is an outstanding career public ser-
vant and we are fortunate to have him as the Chairman of
the Action Task Group.
Basic to all the problems of controlling illicit
activities is the instability which affects the VietnaT!'esp.
economy.
The problems of maintaining economic stahility
there under present circumstances are staggering -- Viet-
nam is a small countrv engaged in a large war, with its
o\-m t.erri tory the si te of Mili tary
cC'~bat,
\>1.1.
th l0rc;e
numbers of troops located in the country, wi th heavy ,.,arrelated expenditures sharply affecting
th~
The problems of inflation and economic
have never been fully resolved or easily
entire oconomy.
0isrupti~n
manaq~6
in a
country engageo in a major war taking place in its own
terri tory.
'I'hc eXaJ'1,ples af Europe in
~'Jorld
lvar II
r
Korea
in the Korean Har, or even the United States during the
U.
s. Civil
~'le
j-:ust
~'Jarr
ShOH
!'lany of
the saMe probleMs of
bear in :.",i1:(: that the basic
~conor.iic
resron~ibility
econoI1lic stabilizC'l.tion rests "d th the Government
for
of Vi0tT"ar'l.
Similarly, insofar as its o,"'n ci ti zens ar.e concerned it
has both the jurisdiction and responsibility to curb their
illicit activities.
assistance.
But this cannot be done without our
- 4 -
The basic operational responsibility for the control of
illicit financial transactions in Vietnam is necessarily in
State, Defense and AID, because of their sianificant
presence in VietnaI"'.
to play and has
The Treasury has an inportant rcle
offere~
its full facilities (1) in an
advisory ca!,aci ty in the estal:>lishrr.ent o! arnro!;riate reoulations and in local en!OrCeDp.nt and (2) actual
e~forcc~~~t,
orir..aril'.1 throuah
the Internal f.evenuG E'ervice in ter.;s of
~
~
cvasion of U.
s.
taxes, and the Bureau of Custons under
contract to AID in terms of
Cor-mercial
Lct
~e
I~port
Proara~
Monitorin~
th~
~ID-fundec
(CIP).
note that the enforcement
rroble~s
plicatcd by the fact that the U. S. Government
are
~ust
co~-
provide
efficient and effective facilities to assure that our
and esrecially our
co~hat
citizen~,
troops, arc able freely to dis-
charge legi ti~ate transactions.
To help !!teet t!1is ohjective,
Treasury assisted in the establishnent of U. S.
co~~ercial
bankinq branches as Hell as military banking facilities in
Vietnam
a~d
has Maintained nn active interest in their opera-
tion.
In 1965, Treasury
in VietnaM of
~articipated
i~stitutional
in the
est~)lish~ept
procedures and facilities to
tighten control over illeqal activities involvin~
supplies and personnel.
v. s.
roney,
These include the use of ~'~ili tary
Payments Certificates (J'-:PC) as the circulatiI"CT I"'ediu!""' in
- 5 -
U.
s.
official facilities and provision of a CustOMS advisory
group to establish a commodity control progra.m and to advise
Vietna~ese
authorities.
In 1966, Treasury dispatched Internal Revenue Service
aaents
to Vietnam to make more effective the
..
of
u.
enforce~ent
S. tax laws and thereby assist in curbino corrupt
practices.
to the
In 1968, Treasury assigned a Financial Attache
E~bassy.
Last month, three Treasury Agents of the
Inte)::'nal Revenue Service ,.,ere permanently ass iqnec. tn
Vietnam.
Several sections of Treasury are involved in provj(linq
Treasury participation in the Action Task Group.
One
proposal before the Task Group is to expand the current AID
practice of maximizing payments in piasters to contractors
with Defense, AID and other U. S. Government instrumentalities.
The basic purpose is to limit the demand for piasters
through the conversion of U. S. dollars instruments.
By re-
quiring payment in piasters for the piaster cost content of
each contract, the incentive to deal in the black market
should be ,.,eakened and the flo\o, of U. S. dollar exoendi tures
into official Vietnamese reserves increased.
Among other
areas to which the Task Groun. will turn its attention are
~~ili tary
Payments Certificates, r"oney Orders, and Conces-
sionaire and Hon-Appropriated Fund ]\ctivi ties.
- 6 -
U. S. Bankinq., Facilities..
.-----.-.~--
The Treasury Department and the appropriate Armecl
Services supervise the mi Ii tary banking facili ties
o~er.ated
in Vietnam and the Treasury maintains control over the
activities of the united States Disbursing Officer at the
~~erican
Embassy in Saigon.
The Bank of America, Chase tTanhattan Ba.nk, and thp.
A~erican Ex~ress
International Banking Corporation
t\<Tenty-one military bankina facilities in Vietnar.
~aintain
t~ili tary
facilities of the National banks are subject to F;'xaynination
by the Comptroller of the Currency.A.ll are considerec. to
be operating in accordance \·11 th
u. s.
applicaDl~
The military banking facilities flerrnit
checking accounts for authori.zed personnel
. ."i thclrawal can be only in I!PC.
~
u.
la,,,s.
S. dollar
hm.Tever 1 local
]\s you may know, Treasury
has authorized the 1'1ili tary banking facili tie~ to pay interest
on dcnancl accounts at the rate of 5 flcrcent per annu:r. on
rrinirum rruarterly bC11a~ces
I
to encourage savin~s ",rhile at the
sar.;0 tir:1e provid in'] rr.axin'uJV'. flcxil:-·i Ii ty in the use of accounts.
?'.s of Decer:~Dcr 31
r
1969, will tnry ban!~:tng facilities in
Vietna~ Maintaine~ 124,962 accounts for ineividuals, with
hAlances totalina
annroxi~atcly
$55
~illion.
/?) (0
"
-
The T'TC system, Hhich is
7 -
adJ11inisterec~.
bv tl:.e Denartment
of the Army, helps control" illegal transactions by rGstrictincr
use of dollar currency by U. s. military and civilian personnel
and foreisn mi Ii tary personnel.
l
'
,
~m~ts,
j~PC
can be usee.! ':7i thi.n
for remittances outside
Vict~a~
or for
conversion \vithout limit into fliasters at officio.l facilities.
It is against
u. s.
regulations in
Viptna~
for urauthrrizpd
persons to hold npc, and any held ille9ally arc :Jot
hy the U. S.
r~('(>fY;1E'(1
c,overn~ent.
HPC issues are changed from time to ti!'!'lC
to new series liMited to authorized holders.
such conversion was in August 1969.
f
ui th conversion
Th~
most recent
At each such conversion
several Million dollars worth of the supplantcrl serieR have
not been converted and have thereby beCOMe worthless.
I Might note that the sales of piasters to individuals
through official facilities against VPC have recentlv been
runninn at about $4 million per month.
This is at a rate of
about $50 million in foreign exchange earninqs per year for
the Government of Vietnam.
~"onev
_._--=- Orders
For remittances outside Vietnam, authorized personnel rav
purchase U. S. dollar money orders at base Post Office facilities or at Military banking facilities.
Postal units at
Army and Navy installations sell postal noney orders, 'but at
- 8 Air Force installations postal money orders have bep.n replaced by the use of money orders sold by the Armv/Air Force
Exchange Services, which orders are dra",n on a bank in the
United States.
On January 15 of this year, a new postal money order
was adopted for issuance at overseas military Post Offices.
These IT10ney orders are issued in Vietnam wi thout fee.
1.' he
new postal money orders are not payable tllrough banks outside the United States other than throuah militarv bankina
oJ
facilities.
.'
,
If they are cashed at a foreign bank they will
not be accepted bv the Post Office Department.
on the negotiability of this instrument is
strengthen efforts to
(purchased ,.,i th r·!PC)
st~n
for
The
inte~ded
the exchanqe of dollar
piaster~
li~itation
to
h~lr
instru~ents
in the black market.
As testiMony before this Subcommittee has pointed out,
the traffic in the encashrnent of dollar instruments, obtained
in Vietnam, in Hong Kong and other Far East centers has been
aMon0 the more lucrative techniaues employed by black market
o~crators.
The basic control for the conversion of MPC to dollar
instruments is as follows~
Purchases of dollar instruments
are li~ited to $200 per month.
The $200 limitation include~
cash deposits to IT1ilitary hankino accounts.
An exernotion is
/~):I
.
- 9 i~~edi-
made when pay and allowances receive0 in country are
ately deposited to the bank account.
Transactions above the
$200 per month level are prohibited in the ahsence o~ certifi-
cations by the individuals' Commanding Officer.
All transactions from HPC to dollar and/or do·llar
instruments must be supported by a three-part forI"l, which
identifies the individual and the amount of the transaction.
One copy is a card form which creates input to a
co~puter,
thereby pulling together all transactions for an inoivicual
~onthly
to allow for the detection of those who exceed the
liMit.
th~
A further control of sianificant imnortance was
_
A
estab-
lishnent in October 1969 of a reauirement that nonev orders
~ilitary
issued throuqh
Post Offices and bankin0
facilitie~
in
VietnaM must immediately be mailed by the postal or bank clerk
to an
ad~ress
ne~ ~onGy
t:18 usc of
order
J1~oney
-_Income
_---_Tax
....
in the united States.
for~
recently adopted
or~ers
This
renuire~ent
shoul~
and ele
heIr to reduce
as a vehicle for black r:arl:et operations.
Violations,
Investigations
...-....
. -.------.-..
---_... __. an2 Prosecutions
..-. -- .
... --_.-.."
----~
The existence of a serious situation
involvi~~
of the currency lav-ls of Vietnan by U. S. civili2.ns
violations
teI'l~ora.rily
in Vietnarr', Has brought to the attention of the Treasury'
~
Internal Revenue Service early in 196G by officials of the
Departr:1.ent of Defense.
~hese
violators Here able to operate
with in~unity, hecause they were not subject to
u.s.
Military
- 10 -
authori ty and because the Republic of Vietnam \>las reluctant
to investigate and to prosecute
u.
S. citizens present in
Vietnam due mainly to the efforts of the United States to
assist in the country's defense.
Defense Department officials,
therefore, asked the Treasury to send several IRS agents to
Saigon to inspect data that had been compiled there
an~
to
ini tiate tax proceedings against some of the civilian violators.
It was hoped that the Internal Reverue Service's action
in these cases would beCOMe generally kno,,,n in Vietnam and \,lould
have a dampening effect on the harmful traffic in u. S. and
Vietnamese currency.
Nhile in Vietnam the IRS Agents inspected investigative
reports of the several investigative agencies of the DenartMcnt
of Defense (CID, OSI, ONI) which related to currency violations
in which U. S. civilains had been found to be involve0.
The
agents returned to Washington \,7i th copies of reports relating
to about eighty alleged violators.
Intensive tax investiqations
were than initiated in the IPS districts where these individuals had filed income tax
r~turns
for the tax periods in
which the alleged currency violations occured.
stantial tax cases resulted from this
effort~
Several subone is currently
under consideration by the Department of Justice and involves
over $200,000 in unpaid taxes and penalties.
- 11 In the latter half of 1969, illegal operations disclosed
in Vietnam indicated a need for more intensive enforcement
activity by the IRS.
In August, at the request of the
U. S. Embassy in Vietnam, an agent of the IRS was sent to
Saigon to examine data on currency violations by u. S.
civilians in Vietnam that had been compiled by an official
of the AID Mission there.
This information included the
now famous "Prysumeen" data as well as information relating
to alleqed frauds in the operation of NCO clubs in Vietnam.
Also at about this time the alleged frauds on the NCO clubs
in Vietnam were brought to the attention of IRS by representatives of the Department of Defense, who also sought assistance
in deterMining what income reports had been made to IRS
by the alleged perpetrators of the NCO club frauds.
Shortly
thereafter, this Subcommittee conducted public hearings in
which the foregoing as well as additional information on the
extent of illegal activities of u.S. Citizens in Vietnam was
di~closed.
On the basis of the new information and the indicated
impact of illegal activities by u.S. civilians in Vietnam on
the achievement of u.s. objectives there, Treasury initiated
through the IRS new investigations into the income tax affairs
of all persons known to be or suspected of being
inVOlved.
i~portantly
As you know, there are a considerable number of
- 12 -
such persons.
We expect that many more will soon be subjected
to tax investigations as a result of the detailed analyses we
are now making of the Prysu::1leen account data and data relatinq
to the dozen or so similar accounts that this Subcommittee
was instrumental in identifyinq.
Procedures have been instituted and manpower has been
allocated to provide for the nationwide coordination of the
efforts of the several Internal Revenue District Offices responsible for conducting specific investigations.
In addition,
periodic reporting procedures have bepn established which enable the Headquarters Office of the Internal Revenue Service
to keep currently informed on the progress of these investigations.
In order to facilitate the obtC".ining of all information
needed to complete the tax investigations now under way in
the IRS Districts where the alleged violators filed returns
and maintained banking connections, Treasury assigned three
IRS aqents to permanent posts of duty in Saigon in February
of this year.
rrhese men will be making inquiries and atternpt-
inq to obtain testimony and dOCUMents from residents of VietnaM and other Far East countries as requested by Internal
Revenue District offices in the U.S.
In addition, they will
attempt to keep abreast of trends in illegal activities in
Vietnam and to identify American citizens who may be deriving
substantial amounts of income from such transactions.
, 1 ?
J
- 13 Coo~eration_~ong
Investigative Agencies
I want to report that arrancrements for cooperation amonq
investigative aqencies of the Executive Branch are excellent.
The Internal Revenue Service has experienced no difficulty in
obtaining information and
as~istancp.
in the Department of Defense
from counterpart
a0en~iGs
Requests for such information
and assistance have been mad0 on a very informal basis, usually
at the field agent level and usually by telephone.
have been prompt and satisfactory.
Responses
Over the past months the
IRS has been working closely with CID on a more formal basis
with a view to making more effective use of the information
available regarding investigative activities of all the
Defense
co~ponents.
Provision is being made for more effec-
tive use of the communications and other facilities of the
Defense Department.
Request to IRS for information obtained in connection
with income tax investigations must be handled in a formal
manner, since the disclosure of such information is governed
by Section 6103 of the Internal Revenue Code and the regulations
authorized and required by that Section.
Briefly SUMmarized,
the law and regulations reauire that Defense Department reauests
be made in writing by the Secretary of Defense or a Secretary
of one of the military services, specifying the
infor~ation
desired and the person or persons authorized to receive the
information on behalf of the Defense Department.
- 14 Use of U.S. Bank Accounts for Black Market Transfers
This SubcomMittee has pointed out the problems for law
enforceMent which can arise from the use of the domestic
deposit account facilities of any U.S. bank.
Except for
the prohibitions contained in the Foreign Assets Control
regulations, banks in the u.S. can, at their. option. accept
deposits from anyone capable of making a contract.
Such
deposit contracts accepted can usually be terminated by the
accepting bank on its option.
However, once accepted, the
bank must honor properly prepared and presented withdrawal
orders.
Such withdrawal orders can include written instruc-
tions to withdraw funds from one account and to deposit the
same funds in any other account.
comply with such instructions.
and they are a long-standing
The banks are obligated to
They occur by the millions
p~blic
banking service.
Parties involved in Vietnam in illegal currency transactions do legitimately use their bank accounts in the united
States and other countries to accomplish
t~eir
objectives.
For exaMple, party "A" 't.vants payMent in the form of a U.S.
dollar credit to his account in a bank in the United States.
Party
liB"
has a deposit account in the United States and he
can sim~ly instruct his
u.s.
bank to charge his account and
transfer the proceeds to a~othcr U.S. bank for credit to the
account of party riA".
T"h
IY en par t y
II
A
II
'
from
rece1ves an a dV1ce
•
his bank that his account has been credited, he pays piastp.rs
to party "B".
- 15 The instructions from party liB" to his bank can be made
in various ways.
They can be made
t~rouqh
any bank in Viet-
nam which has an office or a correspondent banking relationshin with a
!:
in a cable.
u.s.
u.s.
bank.
The instructions can be in a letter or
The U.S. dollar transfer can end with the second
bank or it can continue on to a foreign bank.
It is
believed that a substantial part of the funds channeled into
u.s.
banks in furtherance of suspected illegal transactions in
Vietnamese currency were ultimately transferred to foreign
banks.
The Treasury has given extensive study to a legislative
proposal before the House (H.R. 15073) which is designed to
prevent the use of secret foreign bank accounts for illegal
purposes by U.S. citizens and residents.
I testified for the
Treasury on this bill, setting forth the Administration's
position, most recently on March 2.
In that testimony I
emphasized three fundamental concerns of the Treasury which
were weighed in developing each of our recommendations for
obtaining mproved law enforcement.
First, we in no way wanted to restrict the regular and
efficient flow of domestic and intp.rnational business or diminish
the willingness of foreigners to hold and use U.S. dollars.
The second consideration is our determination to deter
tax and other evasion by U.S. persons through foreign financial
- 16 transactions.
We have sought to develop proposals under which
the benefits to our law enforcement objectives exceed the
direct and indirect costs which these proposals bring about.
Finally, we have the issue of traditional freedoms, many
of which are set forth in our Constitution, others which have
become identified with our way of life.
In reinforcing our
enforcement activities, we must not jeopardize these principles.
Treasury believes its proposals for legislation strike
a realistic balance among these considerations and will also
significantly assist our enforcement activities.
The legis-
lation would provide for
1.
Required recordkeeping for banks and certain other
financial institutions with respect to foreign transactions;
2.
Reports of certain exports and imports of currency;
3.
Improved Treasury Currency Reports;
4.
Reports by U.S. citizens, residents and domestic
corporations of their foreign bank accounts, and
5.
Rebuttable presumptions that U.S. citizens, residents
and domestic corporations engaging in certain foreign transactions are dealing with their own untaxed income.
I would be pleased to provide to the Subcommittee the
full text of my statement before the House Banking and Currency Committee.
I~
7
, ) 'I,
- 17 Foreign Assets Control
I might now refer briefly to experience in the enforcement of the Foreign Assets Control Regulations.
prohibit all unlicensed transactions involvina
The Regulations
u.s.
dollar
accounts and U.S. dollar instruments if there is any interest
in the transaction of Communist China, North Korea, North
Vietnan, or nationals thereof.
The Office of Foreign Assets
Control has legal responsibility to act if there is evidence
indicating possible violation of the Regulations
in an
instance, for example, of dealings by the Communist Chinese
in
u.s.
dollar instruments emanating from Vietnam.
fro~
In this connection, information is obtained
bankinq
ill~gal
and commercial sources concerninq activities related to
dealings in piasters and the piaster market in Honq Konq, and
particularly information as to persons dealinq in
and instruments.
u.s.
currency
Treasury makes investigations as aporopriate
in Hong Kong and checks all information available in its files
to determine if any of the persons known to be handlinq U.S.
dollar instruments emanating from Vietnam are desiqnated
nationals of Communist China or North Vietnam.
The findinqs
to date have been negative.
C~~nterfeitin~
of
u.S.
Currency and U.S. Treasury CheCKS
Counterfeiting of U.S. currency in the Far East durinq
recent years has not constituted an enforcement problem of
significant magnitude.
Contrary to reports frequently received
- 18 -
from various intelligence sources concerning counterfeitinq
conspiracies allegedly backed by the Red Chinese, there are
very few counterfeit issues stemming from that area and all
those that have been identified as purely criminal
operations, are for the most part concentrated in Hong Kong
and the Renublic of the Philippines.
For example, the six
counterfeit issues oriqinating in the Republic of the
Philippines during the past three years have been responsible
for only $8,300 in losses in this country; reported losses
in foreign countries amounted to only $16,275.
number of reported counterfeit
have appeared in the
enforc~ment
u.
Phili~,ines
The limited
S. Government checks which
h~s
not created an
proble~.
Obtaining accurate statiRtical data concerning counterfeiting activities in the Far East is most difficult.
countries
Pew
with the notable exception of Australia, Japan and
Honq Kong, have established National Counterfeiting Bureaus
as recommended by the International Organization of Criminal
Police (Interpol).
As a result, enforcement agencies in the
othp.r countries of the Far East know little about counterfeiting and do not report statistics to Interpol Headquarters
in Paris.
However, liaison has been established with other
U. S. Government agencies, Embassies and Consulates throughout
the area, and Treasury receives a constant flow of information
fro~
this source concerning cases involvinq counterfeit U. S.
currency.
/
- 19 The Treasury, through the U. S. Secret Service, has for
some time been cognizant of the possibility of counterfeit
u. s.
currency being introduced into the Vietnamese economy for
political reasons.
During the early 1960's data received fr.om
investiqative informants, factions of the news Media, ann Mere
rumor, indicated large quantities of counterfeit
u. s.
currency
were being brought into Vietnam by either forpign governments
or large criminal conspiracies.
In each instance investigation
by the Secret Service established the information to be either
grossly exaggerated or completely false.
The very limited dis-
bution of counterfeit currency actually found in Vietnam was
usually identified as the residue from a confiscated criminal
counterfeiting plant which operated in Hong Kong during the
late 1950's.
A more recently confiscated Hong Kong counterfeiting plant
in 1966 was responsible for furnishing nine counterfeit $100
Federal Reserve notes to a criminal contact in Saigon.
However,
attempts to further this activity failed when the principals
were arrested in Hong Kong and the money seized.
The most recent episode of counterfeiting of
u. s.
currency
in Vietnam occurred in January 1968, when the South Vietnamese
National Police arrested several individuals and seized $250,000
in partially completed counterfeit $5 Federal Reserve notes.
Early press releases identified the violators as Red Chinese
agents, and the Department immediately dispatched a Secret
- 20 Service Agent to investigate.
Inquiries disclosed that the
conspirators were in fact merely criminals first and Chinese
second.
It is my firm opinion that the counterfeiting problem in
Vietnam is minimal at present and has been so in the past.
Nevertheless, Treasury will continue to monitor closely the
counterfeiting situation in Vietnam,. and will make certain a
prompt and thorough investigation is made of all violations
of this type which come to its attention.
I~provements
In Customs Administration in Vietnam
Treasury is cooperating with the AID Mission in Vietnam
by assisting in the institutional development and reorganization
of the Vietnamese Customs Service and by providing technical
assistance to AID officials concerned with the Commodity Import
Program.
In late 1965 the Bureau of Customs was requested to conduct
a survey of the situation in Vietnam with a view to setting up
a commodity control program for the U. S. AID Commercial Import
Program (ClP).
Shortly thereafter, in the spring of 1966, a
Customs Advisory Group was established.
in Vietnam
At the peak of activity
27 Customs Advisors were assigned.
These customs
Advisor positions, as well as the backup activities performed
by the Division of Foreign Customs Assistance in Washington,
were all funded by AID.
At the present time, ten positions are
1-"
, .--41'
- 21 authorized in Vietnam
These include a Chief of Party; four
advisors assigned to the CIP program (as requested by AID); one
man working in automatic data processing and related activities;
one man acting as an advisor in the classification and
appraisement areas
two men acting as advisors to the Viet-
namese Customs Fraud Repression Service, which has responsibilities similar to those of the U. S. Customs Agency Service;
and
on~
direct-hire
ad~inistrative
officer.
The technical assistance to AID officials is carried out
as follows:
Through the facilities of the various divisions
of the U.S.-AID Mission, the Customs unit has access to licenses
and other documents on shipments in transit.
rnents as guides,
the Customs men
~a~e
Usinq these docu-
selective physical
inspections of commodities arriving under the COMmodity Import
Program.
They inspect to see that the shipments conform as to
value, quantity, and quality, with the merchandise actually
ordered to insure that no shipments have been overvalued,
undervalued, short shipped, diverted or illegally re-exported.
When an irregularity occurs, the unit conducts a preliminary
inquiry and refers the matter iMmediately to appropriate AID
officials for further action.
If the evidence indicates a
violation of U. S. laws such as those qoverning exports, the
unit would also report the matter to the Office of Foreign
Customs Assistance in the Washington headquarters of the
Bureau of Customs for coordinated investigation by the Customs
Agency Service in the United States.
-
22 -
ClP monitoring has been increasingly effective) with
shipments examined increasing from 11 percent in the first
quarter of 1967 to 40 percent to 70 percent in the last quarter
of 1968.
Attempted violations have decreased correspondingly.
Dock theft and pilferage have been reduced by decreasing the
average number of days between cargo discharge and Customs
release from 30 in 1966 to 4 at the end of lq68.
Also, a
Boat Fleet seeks to deny diversion of ClP shipments.
The bulk of the responsibility within the
Govern~ent
of
Vietnam for supressing black market activity and for currency
control falls to the Vietnamese Customs, principally the Fraud
Repression Service.
This includes the function of registering
foreign currency brought into Vietnam and checking official
exchange receipts on exit from country.
Statistics on the wrk
of the Fraud Repression Service for the three years 1966-1968
show value of seizures up 519 perc0.nt, cases investigated up
24 percent, fines collected up 229 percent.
The U. S. Customs is playing a significant role with the
linited resources we have available in Vietnam in advising
Vietnamese Customs personnel and promoting better liaison with
U. S. law enforcement agencies in Vietnam.
I
a~
In this connection,
presently considering a proposal to place additional
personnel in
Vietna~
to increase our ability to assist the
Cust~S
- 23 Vietnamese and to increase the flow of intelligence to U. S.
law enforcement agencies.
The Bureau of Customs is also providing a training proqram
in the United States for Vietnamese Customs officers.
Since
January 12 of this year, six members of the Vietnamese Fraud
Repression Service have been undergoing a 2-month training
program at Bureau Headquarters, at the Customs National
Training Center on the campus of Hofstra University, and at
Customs Agency Service offices.
After their return to Vietnam,
they will in turn set up classes for their fellow officers.
Mr. Chairman, in conclusion I wish to emphasize that the
Treasury has indeed been impressed by the skill and diligence
with which this Subcommittee has carried out its work in this
area.
We in the Executive Branch arp determined to strengthen
our efforts to curb illicit financial transactions in Vietnam.
We are making full use of the investigative materials you have
assembled and will continue to work closely with you in furthering
our common objectives.
000
/37
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR IMMEDIATE RELEASE
March 4, 1970
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
$3,100,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing March 12, 1970,
in the amount of
$3,001,333,000,
as follows:
9l-day bills (to maturity date) to be issued March 1~, 1970,
in the amount of $1,800,000,000,
or thereabouts. representing an
additional amount of bills dated December 11, 1969,
and to
mature June 11, 1970,
originally issued in the amount of
$1,200,323,000,
the additional and original bills to be
freely interchangeable.
1a2-day bills, for $1,300,000,000,
or thoreabouts, to be
dated March 12, 1970,
and to mature September 10, 1970.
The bills of both .eries will be isaued 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 b~ issued in bearer form on1y~ and in denominations of
'$10,000, $50,000, $100,000, $500,uOO, and $1,000,000
(maturity value).
Tenders will be received.at Federal Reeerve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Standard
time, Monday, March 9, 19700
Tenders will not be
received at the Treasury Department, Washinlton. Each tender must
be for an even mul tiple of $10, 000 ~nd in the case of competitive
tenders the price offered must be expressed on the basis oflOO,
with not more than three dec"iroa1s, 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 trult companies and from
K-360
- ~
responsible and recognized dealers in investment ••curitl.l. TIIlCI'f.
from others must be accompanied by payment of 2 pereent of the flCI
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 It
the Federal Reserve Banks and Branches, following which public announce .
ment will be made bv the Treasury Department of the amount and price rill
of accepted bids. Only those SUbmitting_competitive tenders will be
advised of the a.cceptance or rej ection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stated price from any ~e
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids fot' the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on March 12, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing March 12, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differe:l1ces 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, inher1tance~ gift or other excise taxes, whether Federal or
State, but are exempt ft"om all taxation now or hereafter imposed on
the principal or intereRt 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 whicnthe
return is made, as ordinary gain or loss.
Treasury Department Circul~r No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of tteir issue. Copies of the circular may be obtained
from any Federal Reserve Bank o~O~ranch.
REMARKS OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
for
ENFORCEMENT AND OPERATIONS
at the
TENTH ANNUAL CONSULAR DINNER
sponsored by the
COMMERCE AND INDUSTRY ASSOCIATION OF NEW YORK
and the
WORLD TRADE CLUB OF NEW YORK
Wednesday, March 4, 1970
7 p.m.
Hotel Plaza, New York
CUSTOMS--A YEAR LATER AND A LOOK INTO THE 1970's
Introduction
Mr. Chairman, Ladies and Gentlemen:
It is indeed a most pleasant privilege for me to
represent the Treasury Department on such a gala evening-the Tenth Annual Dinner of the Commerce and Industry
Association of New York, and the World Trade Club of
New York in honoring the Society of Foreign Consuls in
New York.
I would like to report to you tonight on three broad
areas of Customs activities:
(2)
(1)
International trade; and (3)
Operations;
Enforcement.
I will
be touching on actions and problems of the past year
and plans and programs for the future.
K-361
2
First permit me to tell you something about Myles
Ambrose, our new Commissioner of Customs whom a number
of you here tonight know.
He has been given the heavy
task of running the operations of a ten thousand-man
organization which administers, or assists in administering,
over forty statutes including laws restricting the importation of the Mediterranean fruit fly to regulations of the
Atomic Energy Commission.
Myles, an attorney and a native New Yorker, at
forty-three years of age is the youngest man to hold
the office of Commissioner of Customs.
In addition to winning distinctions in law enforce·
ment as Executive Director of the Waterfront Commission,
he has served as assistant to Secretary of the Treasury
Robert B. Anderson for law enforcement during the
Eisenhower Administration.
Previously he had been an
Assistant U.S. Attorney in the Southern District of
New York.
He brings a vast wealth of experience to his
duties--and we are utilizing this to its fullest.
In making the announcement of Myles's appointment,
Secretary Kennedy said:
3
"Mr. Ambrose's demonstrated administrative
ability and his wide enforcement experience
make him ideally suited to assume this major
responsibility.
"As the Treasury strengthens its campaigns
against the smuggling of narcotics, marihuana,
and contraband drugs, and against organized
crime, we are fortunate to have a person of
Mr. Ambrose's experience at the head of the
Customs Bureau."
OPERATIONS
One of the first requests the President made of
each Cabinet officer was to review departmental operations to eliminate waste, duplication, and unnecessary
programs.
Administrative Reorganization
. One important matter that had been under study and
review for a number of years by the Departments of
Treasury and Justice was the modernization of administrative
procedures relating to the assessment of duties in the
Bureau of Customs and procedures in the Customs courts.
Many of you here tonight are aware, of course, that
there are two separate proceedings in Customs, one for
appraisement of imported merchandise, the other for
classification.
If the appraisement is challenged in
court, administrative decisions on classification must
await the final court decision.
Then, if you wish to
4
contest the classification of merchandise in court, you
would have to begin anew.
These separate procedures can cause many years'
delay and are totally unacceptable in 1970.
This Administration recommended legislation to
eliminate this anachronism which had its origins in the
last century, and has vigorously urged its passage.
The
bill is completely trade neutral, yet it is most important
legislation, as it will contribute materially to the proper
functioning of your government.
The Administration's bill, S. 2624, passed the Senate
on December 9, 1969, and is presently awaiting action in
the House.
Essentially, under this bill, Customs will proceed
to make one administrative decision regarding duties due
and this will embody appraisement as well as classification.
The importer will have the same right to challenge
all elements of this decision as he has at present.
The
contributions this will make to timely decision-making
and the opportunities for importers to protect their
rights are self-evident.
lif?
5
The Administration is gratified that your Commerce
and Industry Association testified in support of this
proposed legislation.
In testimony before the Senate
Subcommittee on Improvements in Judicial Machinery in
September 1969, your Association made a number of highly
constructive recommendations.
As you know, all but one of your recommendations
regarding the administrative provisions of the proposed
legislation were adopted in the version of the bill as
it passed the Senate.
The only recommendation which was
not adopted called for a change from two years to one year
in the time in which administrative reviews of protests
must be completed.
Your principal reason was if the
time limit remains at two years, you had the concern that
there will be a tendency to let protests accumulate.
I can assure you, as we assured the Committee,
the Treasury Department has no interest in delaying
protest reviews.
We plan to continue our processing of
protests in substantially the same time that this has
taken under existing procedures.
As appraisements will be reviewed by the Customs
Service for the first time under this bill, however,
we expect that there generally will be some additional
6
average time necessary to complete the action.
Yet
we shall strive to maintain our most recent track record
of an average processing time for all protests of fiftyeight days, with more than 97 percent fully processed
within ninety days of receipt.
We believe that periods close to the full two years
will be taken only in those situations in which an
importer requests a protest review by a Customs officer
other than the one responsible for the initial decision
and there are complex factual and legal questions
requiring resolution.
We believe that the longer period
will permit Customs and the importers to resolve differences,
thereby keeping essentially uncontested issues out of court
in many more instances than would have been possible with
the shorter period.
Merchandise Processing System
Customs has underway a detailed study designed to
speed merchandise processing and automate wherever
possible.
This is an important program, and its implementa-
tion is long overdue.
We hope to be in a position to go
to the Congress in the next fiscal year with firm recommendations in this regard.
7
Personnel
In the area of personnel, the Customs employee
now receives experience in all phases of Customs work.
By the time the employee reaches a managerial position,
he has a working knowledge of the areas over which he
has responsibility.
service.
Customs has become a more mobile
We have formalized a program where our
employees will be periodically transferred to
different geographical areas, giving them the chance
to encounter new situations and utilize the expertise
acquired in providing solutions to problems.
Field Organization
A management study will begin shortly to evaluate
our field organization structure.
The old Customs
Collection Districts, tailored to suit the needs
of American commerce in colonial times, went virtually
untouched until a major reorganization of the Bureau
took place in 1965.
While this reorganization went
8
a long way to improve Customs' ability to provide
better services to meet the volume of trade and
passenger traffic, too many vestiges of the old
and outdated organization were maintained.
I intend
to see that selection of field headquarters and other
organizational alignments
a~e
based on one factor:
where is the greatest need for top management to
assist in the arrival of passengers and merchandise
through Customs.
In this way, we will be able
to utilize our resources toward providing the best
service possible to the growing number of commercial
interests who work with Customs.
We are determined to insure that the best
principles of management are applied to Customs-as they would be to a major corporation.
/(/l/
r
;'
9
INTERNATIONAL TRADE
The President stated in his Foreign Policy Report
for the 1970's:
"Freer trade among all nations
provides greater economic benefits for each nation o "
Thus, this Administration is committed to exert every
effort to eliminate barriers to free competition in
international trade.
My office, which has responsibility for enforcing
the anti-dumping and countervailing duty laws, has a
strong role to play in eliminating international trade
barriers
0
When a foreign company sells at high prices at home
and artifically contrived low prices in the United States,
that is dumping.
No American company, large or small, no matter how
efficient it may be, can be expected to stand up long to
this type of unfair competition.
Our anti-dumping law
is an anti-price discrimination statute
and,as such, is
designed to protect American producers from such international trade practices.
I regret to have to report to you, based on
personal observation during my year in office, that
10
international trade practices such as I have just
described are anything but rareo
I can also report
that the Treasury Department is determined to do
everything within its power to protect American industry
from dumping.
A short time after coming into office, I discovered
that Treasury's anti-dumping investigations were taking,
in some cases, as long as two years.
If it takes that
long to determine whether American industry is the
victim of foreign dumping, the patient may very well die
while the facts are being ascertained.
When a doctor is asked to diagnose an illness, the
purpose is to effect a cure, not to provide the coroner
with a documented summary of the reasons for the patient's
death.
At the present time, we still have under investigat10r
some cases which were initiated in 1965.
I
have issued
instructions to the Commissioner of Customs and to my
Deputy for Customs matters to complete as soon as
possible all investigations which are more than one year
old.
These measures should be welcomed by American
11
producers and also by many foreign companies which are
the subject of anti-dumping investigations.
The
American producer is entitled to protection from foreign
dumping, and the faster such protection is afforded, the
more effective is the solution from his standpoint
As for foreign exporters and
u.s.
0
importers, they
are anxious to clear themselves as quickly as possible
from the possible stigma of a dumping finding if they
have not, in fact, engaged in such practices.
Firms which have engaged in dumping practices are
on notice that the United States Government is firmly
determined to take all the measures authorized under our
anti-dumping law to bring such practices to an abrupt
termination.
The American countervailing duty law comes into
play when foreign exports to the United States are
subsidized.
This is another type of unfair international
competition against which no American producer, no matter
how efficient, can protect himse1fo
If a foreign
exporter of tablecloths receives a government subsidy of
$1.00 a dozen for all such cloths exported abroad, the
exporter is free to reduce his normal export price by
12
$1.00 with no loss to himself.
The countervailing duty law protects American
producers in such cases by providing that the Treasury
impose an additional duty on subsidized imports
equivalent to the amount of the subsidy.
(In the
hypothetical case I cited, the additional duty would be
$1.00 a dozen for the tablecloths.)
Existing United States law contains remedies to
protect American producers from the type of unfair
international trade practices which I have describedo
Treasury will utilize these remedies whenever they are
called for.
ENFORCEMENT
Anti-drug Smuggling Program
Customs is the enforcement agency charged with the
responsibility of preventing the smuggling of narcotics,
marijuana, and dangerous drugs into the United States.
The President,in his message to the Congress on the
narcotics problem on July 14, 1969, directed the
Secretary of the Treasury to initiate a major new effort
to suppress drug smuggling.
Th~directive
was backed up with a substantial
13
supplemental budget requesto
The Congress responded
magnificently and passed in late December, 1969, an
appropriation for 8 75 million dollars for 915
0
additional men and for equipment.
Protecting the American public from the rapidly
rising tide of narcotics entering the country now has
top consideration in Customs priorities.
The drug problem
is a national emergency and is being so treated by the
Nixon Administration.
In this situation, we cannot hope to do business
as usual.
Our current anti-smuggling enforcement drive
will mean that more travelers are going to be inspected
more closely, more baggage examined and new inspectional
techniques employed for detecting criminal smugglers.
It will mean some additional inconvenience for the
international travelero
It may require a few more
minutes for customs clearance.
We suggest that this is
a small price to ,pay to help keep drugs out of the hands
of your children, my children, and the boy or girl next
door.
I am convinced that the American public fully
supports this programo
Enforcement officials cannot do
the job alone o We need the cooperation of the public
on many fronts.
Regarding inconveniences, we need the
public's understanding and patienceo
It should be noted that the vast percentage of
Customs' seizures are made by the inspectors without
advance information, and that Customs seizes more drugs
than all other Federal agencies put together.
Customs is presently reviewing all its procedures
and methods with a view to increasing its enforcement
effectiveness, particularly in procedures called
preclearance and the Accelerated Inspection System.
Treasury and Customs will be consulting with industry
and government representatives to review each
preclearance operation to determine if enforcement can
be raised to a satisfactory level.
The Accelerated Inspection System,which has
proved so successful in facilitating the flow of
passengers, has been under evaluation for its effectiveness in suppressing smuggling.
Preliminary study
indicates that enforcement must be improved while still
preserving the benefits of facilitationo
I
'-try.,
4
Government cannot do the job alone.
15
We need
the support of the private sector for maximum effectiveness.
We have spoken with a number of representatives
from industry and labor and will be talking to many
more.
Treasury is most pleased that all the groups we
have met with, including your Association, have
volunteered to cooperate in the drive to suppress
drug smuggling.
Cargo Theft Legislation
International trade is an essential element of
the American economy.
The manufacturer, the wholesaler,
the importer, the exporter, and the shipper all know
that they must be competitive in price and quality at
the retail level.
But the best calculations fail when rampant theft
adds extraordinary cost factors on the one hand and
provides thieves with the same goods with which to
undercut the price of honest merchants on the other.
Theft of international cargo has shown alarming
growth.
All major trading nations are affected.
Congressional and other investigations have exposed
the magnitude and impact of the problem.
Individual
16
carriers and ports fear that reprisals and added
noncompetitive costs could result from imposing
stringent protective measures.
The situation has reached such proportions that
the Treasury has now under serious consideration by
a special task force proposed legislation specifically
designed to prevent theft of international cargo at
all ports of entry--airports and seaports--throughout
the nation.
This includes, of course, New York's
Kennedy International Airport.
Because of the jurisdiction of the Bureau of
Customs over theft from Customs' custody and because
of its existing presence and responsibilities at all
ports of entry, Customs i$ uniquely qualified to take
the lead in solving this problem.
We expect to have this Treasury proposal available
for review in the near future.
Our nation faces many challenges in the 1970's.
The Treasury and Customs will be in the forefront of
many of those challenges.
000
TREASURY DEPARTMENT
WASHINGTON. D.C.
March 4, 1970
DlCISIO. OJ POLIPIOPnBII lILJI
UGII 'I'D AlTIIUtPDG ACT
The Tre....17 Depart_lit amsounaed that a cietera1ution has 'been
.-4. that po1J.proP71eae fila .aautactured b7
Japan, i . not be1111,
vithia the _&I'li.
DOl'
ot
~ohjiD
Co., Ltd., Tbk7o,
likely to be, 8014 at le •• than tair _l\1e
tbe Ant14W1P1Q1 Act, 1921, . . . .neled
(19 U.S.C.
160 et .... 1..
A teDtati~
Pederal Beli.ter
4ete~Datioa
OD
tor the .\lbld. •• ioa
to thl. ettect vaa publi.hed in the
JaDllaJ'7 16, 1910.
or wr1tten
pre.ent vi... ora117.
'!bi. notice a1lowe4 14 -78
nev8 or re,,,ests tor all opport\lft1ty to
10 ••ba1 •• 1ona were reeel wd.
During the perIod loftliber 1,
1968,
throuah IO'f'8aber
JOlnl"Op71e. fila val"e. at apprea1_t,e17
l.to the UD1ted. states fro. JapUl.
III
.338, OQO
30, 1969,
vas iJIpone.
Summary of Weidenbaum Speech on Priorities
March 10, 1970 - A.M.
Four major shifts in. national priorities are takiHg place.
1.
Reducin the importance of
revenues are estImate to
in 1970 to 19.6% in 1975.
projected to drop from 22%
19% in 1975.
2.
Expanding four domestic areas. Urban program exp~ndi
tures are scheduled to rIse from $21 billion in 1964 to
$44 billion in 1971, a more than two-fold expansion.
Funds for improving the environment expand by over 50%
in two years, from $785 million in 1969 to $1.1 billion
in 1971. Crime reduction outlays almost double in two
years (from $658 million in 1969 to $1.3 billion in
1971). Human resources, 34% of the total Federal budget
two years ago, are now scheduled at 41%.
3.
Decentra1izin
ub1ic sector ro rams to states and
communities. Fe era1 personne 1S e1ng re uce , while
financial assistance to state and local governments is
rising to a record high -- $28 billion in 1971, an
almost four-fold increase over a decade earlier.
4.
Cutting back defense resources. The total number of men
and women entering the armed forces each year is being
reduced from over 1 million planned earlier to 836,000
for this year and 753,000 next. The defense industry
pipeline of production orders is down to 6.8 months
from 8.6 months a year ago. Defense spending as
a proportion of GNP is declining from 9-1/2% in 1968
to 7% in fiscal 1971.
the public sector. Federal
ec Ine rom
. Yo of GNP
Government purchases are
of total output in 1970 to
I
1-
. (yi"
I',l
DEPARTMENT OF THE TREASURY
Washington, D. C.
FOR RELEASE AT 10:00 A.M., EST
TUESDAY, MARCH 10, 1970
REMARKS OF THE HONORABLE MURRAY L. WEIDENEAUM
ASSISTANT SECR~TARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE
CONFERENCE ON NATIONAL PRIORITIES AND THE FISCAL YEAR 1971 BUDGET
ELECTRONICS INDUSTRIES ASSOCIATION
WASHINGTON, D. C.
TUESDAY, MARCH 10, 1970
MILITARY AND CIVILIAN PRIORITIES FOR A NEW DECADE
In several major policy statements, the Federal Government
has recently provided the Nation with a guide to changing
priorities for the decade of the 1970's.
Some indications
of these changing priorities can be gleaned from the budget
estimates for the fiscal year 1971.
Other indicators are
contained in the unprecedented long-term economic and budget
projections contained in both the budget document and the
Economic Report.
These projections result from an intensive
joint effort by the Bureau of the Budget, the Council of
Economic Advisers, and the Treasury Department.
Drawing on these various policy statements, I find the
following projected shifts in emphasis:
1.
A modest reduction in the relative importance of
the public sector in the United States.
2.
Major expansions in four domestic civilian areas
-~
urban development, human resource expenditures, environmental
improvement, and crime control.
K-362
- 2 -
3.
A noticeable decentralization of the actual
operation of public sector programs to state and local
governments.
4.
A substantial decline in the importance of the
three major national security and closely related aerospace
programs -- national defense, space exploration, and foreign
aid.
I would like to take up each of these points in turn.
Reduction in the Relative Importance of the Public Sector
We have projected the revenue
y~eld
of the existing tax
structure in the light of a reasonable level of gross national
product in 1975.
rising absolutely
On that basis, Federal revenues -- although
will decline in relative terms from 20.8
percent in the 1970 fiscal year to 19.6 percent in 1975.
This would represent a modest but measurable reduction in
the proportion of the Nation's income that is available to
the Federal Government.
Another way of looking at the public-private orientation
of our economy is to examine the ratio of governmental -- in
contrast to private -- purchases of. goods and services.
This
indicates the extent to which the output of the American
economy is devoted to public rather than private purposes.
The projections, published in the Economic Report, show the
portion of GNP devoted to government declining from 22 percent
In 1970 to 19 percent in 1975, all of the decline occurring
In the Federal portion.
States and local governments, as a
whole, are assumed to maintain a constant 12 percent of GNP.
I
, 1
., ....
- 3 -
Expansion in Domestic Civilian Areas
Last year, as in every year since the Korean War, the
largest category in the Federal Budget was national defense.
In the 1971
budget~
in contrast, the largest share of the
budget goes to a civilian sector, specifically to human
resource programs (which includes education, health, welfare,
veterans, and manpower projects).
The shift is quite dramatic
in 1969, 44 percent of the budget went to defense and 34 percent
to human resources; in 1971, we corne close to reversing the
relationship -- 41 percent to these civilian investments in
people and 37 percent to military programs.
The areas of increase and, hence, of higher priority,
in addition to human resource programs, are quite noteworthy.
Programs to improve the environment, such as
co~tro1
of air
and water pollution and more parks and open spaces, expand
by over 50 percent in two years, rising from $785 million in
1969 to a recommended $1.1 billion in 1971.
The 1971 figure
represents a more than fivefold increase from a decade ago.
Outlays for crime reduction also represent an area of
substantial growth in the Federal Budget and, hence, of
increased priority.
Expenditures in this area almost
double in a two-year
p~riod,
to $1.3 billion in 1971.
rising from $658 million In 1969
- 4 One of the often overlooked growth areas of the
Federal Budget is aid to urban areas.
These expenditures
tripled between 1961 and 1969 (from $3.9 billion to $14.0
The fiscal year 1971 estimate of $18.7 billion
billion).
devoted to Federal aid to urban areas represents more than
a fourfold rise from the level just one decade earlier.
Other Federal programs have an important bearing on
urban development, including various loan and loan insurance
activities.
The Department of Housing and Urban Development
estimates that the total Federal financial commitment for
urban social and community development aids is about $44
billion in 1971, a more than doubling of the 1964 total
of $21 billion.
Decentralization of Public Sector Programs
Another important, but less dramatic, change in the
Federal sector is the trend toward decentralizing the actual
operation of public programs.
This can be seen most clearly
when we examine two separate but related items -- (1) the
personnel of Federal agencies and (2) financial assistance
to state and local governments.
The 1971 budget proposes to continue the reduction in
direct Federal employment begun last year.
From a total of
2,633,762 full-time permanent civilian employees in the
Executive Branch as of June 1969, we now estimate that the
total will be 2,602,800 at the end of June 1970, and down
to 2,597,200 by June 1971.
/ ,;71
- 5 -
In contrast, Federal financial aid to state and local
governments will be rising d . U<.. :16~h LS /. .1lT1f' :)c(iod, to
help our states, cities, and counties to carry out programs
of national significance.
The estimated total of $28 billion of Federal aid to
state and local governments in 1971 is an almost fourfold
increase since 1961.
Moreover, the 1971 funding represents
more than an increase in dollars.
It contains what we believe
to be an important qualitative innovation in Federa1-statelocal fiscal relations.
What I have in mind here is a start
on our new program of Federal revenue sharing with state and
local governments.
Revenue sharing is In addition to existing grant programs
but hopefully may slow down what has been a proliferation of
individual grant programs.
It is designed to decentralize
not only the expenditure of Federal funds out the actual
decision-making as to the way the funds will be
spent~
Our revenue sharing program provides for priorities to be
set by each state and local government, rather thBn here
in Washington.
Declining Expenditures for National Security
Only in part does the shift from military to civilian
programs in the Federal Budget represent winding down of
our direct participation in the Vietnam War.
The trend we
- 6 -
are reversing is a longer-term trend than that.
A decade
ago, in 1961, national defense received a larger share
(48 percent) of the Federal Budget than is either contemplated
for 1971 or actually was spent in 1969.
As shown in Table 1, in just about every measurable
sense, the economic impact of the military establishment is
less today than it was a year ago, and it is projected to
be still less next year.
Defense spending as a proportion of the GNP is declining
from a peak of 9-1/2 percent in 1968 to 8.7 percent in 1969
and 7 percent in the fiscal year 1971.
The total number of
men and women entering the armed forces each year, projected
at over 1 million in the last budget prepared by the previous
Administration, has been revised down to 836,000 for this
year and is scheduled at 753,000 for the
June 1971.
period July 1970-
The defense industry pipeline (unfilled orders
related to shipments) has declined from 8.6 months a year
ago to 6.8 months at the present time.
Other important indicators of the declining role of
defense spending in the American economy is shown in Table 2.
It can be seen that, in terms of the physical resources now
going into the defense program, we have come a long way toward
getting back down to the pre-Vietnam level.
In terms of the
level of prices in the fiscal year 1964 (before the Vietnam
buildup), the amount of physical resources going into
defense rose by about $15 billion by the fiscal year 1969.
,/
r-
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- 7 -
Tab Ie 1
ECONOMIC IMPACT OF DEFENSE PROGRAMS
One Year Ago
Today
)tal obligating
authori ty
FY 1970 Johnson
budget - $85.6
billion
FY 1970
$72.9 billion
revised $ 77 . 0 bill ion
itlays (spending)
FY 1970 Johnson
budget - $81.6
billion
FY 1970
revised $ 77 billion
$71.8 billion
as a percent of GNP
9.5%
FY 1968
8.7%
FY 1969
7%
as a percent of Federal
budget
40.6%
FY 1970
Johnson budget
37.7%
FY 1970
revised
34.6%
manpower
mili tary and
civilian
4,735,000
June 1970, in
Johnson budget
4,364,000
June 1970,
in revised
budget
4,053,000
June 1971
~rsonnel
entering
military service
1,054,000
FY 1970
in Johnson
budget
8 36 , 0
FY 1970
revised
lfilled defense
orders in industry
$33.1 billion
$30.0 billion
ildustry pipeline
(unfilled orders
related to
shipments)
8.6 months
6.8 months
I
~fense
~fense
~fense
°°
Fiscal Year 1971
7 5 3,
°°°
8 -
Table 2
DEFENSE OUTLAYS IN CONSTANT DOLLARS
($ billions)
FY 1964
FY 1969
FY 1970
FY 1971
In FY 1964 dollars
$50.8
$65.6
$60.0
$54.6
In FY 1969 dollars
61.3
78.7
72.3
65.9
·
j
J
- 9 -
We are
p1ann~ng
on a $5-1/2 billion reduction this year
and another $5-1/2 billion reduction in 1971 or over
two-thirds of the peak Increase.
This may be the most
significant measure of the extent to which we are reorienting
the government and the economy to a more peacetime environment.
The scheduled reduction in military outlays between 1969
and 1971 is the largest area of cutback, but by no means the
only one.
Space exploration spending is down by over $800
million in the same period, and foreign aid is about $200
million lower.
Other reductions or eliminations occur in related areas
in the budget.
The President proposes to eliminate the
operation of the nuclear ship Savannah, to close down the
NASA Electronics Research Center, and to sell off over $750
million worth of surplus commodities from our stockpile of
strategic and critical materials.
An indication of longer-term prospects can be obtained
from the five-year projections which accompanied the
President's Economic Report.
No specific program details
are shown in these projections.
However, the data on
prospective Federal expenditures are allocated among the
major economic categories -- purchases of goods and services,
transfer payments, and grants-in-aid; and such data can be
useful for analytical purposes.
- 10 At least in recent years, Federal purchases of goods
and services have consisted primarily of national defense
activities (about 80 percent in 1969).
Hence, the projections
of Federal purchases of goods and services may be of interest
to you.
In constant prices, the report projects that total
Federal purchases will decline from $93 billion in 1970 to
$86 billion in 1975.
Conclusion
These shifts in national priorities have not come about
the easy way, by merely realigning expenditures in a rapidly
expanding budget.
Rather, this Administration has taken the
more difficult but, we earnestly believe, the more responsible
and necessary approach of rearranging relative program prIorIties within an almost constant budget total in the short run,
and within the revenues from the exsiting tax structure in the
longer run.
During the years 1969-71, total budget outlays are
estimated to increase about 2 percent a year, or less than
the near-term expected rise in the price level.
This overall
restraint in government spending is necessary in reconciling
our twofold considerations of promoting short-term economic
stabilization and long-term growth and welfare.
Let me end by noting the positive outcome we expect from
the responsible pursuit of both objectives.
Our short-term
effort of fiscal restraint should, as we see it, make possible
,1l..
-='---1
"
'
- 11 a long-term sustained period of substantial growth of
income, employment, and living standards.
On the basis
of our projection of a $1.4 trillion GNP in 1975, the
current Federal tax. structure would yield $266 billion In
revenues in that year.
Even after making full allowance for the future costs
of current programs plus the new efforts recommended by the
President, we estimate that there will be an additional
$22 billion available to finance new initiatives in 1975
expenditure program expansions, tax reduction, debt reduction,
or some combination of these alternatives.
Those are the rather pleasant prospects of an enlightened
and responsible fiscal policy.
The $22 billion of revenues
from the existing tax structure above and beyond the requirernents of existing programs and Presidential recommendations
will not begin to suffice for all that we may wish to do, but
it provides the opportunity for a good start.
000
I r~-UNITED STATES SAVINGS BONDS ISSUED AND PaEOEEMED THROUGH February 28 1970
(Dollar amounts in mi lIions - roundod and will not necessorily odd to totols)
DESCRIPTION
AMOUNT
REDEEMEDY
AMQUNT ISSUEDlI
AMOUNT
OUTSTANDINGY
,
% OUTSTANDING
OF AMOUNT ISSUED
JRED
rics A-1935 thru 0-1941
rias F and 0-1941 thru 1952
ries .J and K-1952 thru 1957
5,003
29,521
3,754
4,997
29,486
3,734
6
35
20
.12
.12
.53
1,888
g,334
13,.406
15,647
12,300
5,584
5,303
5,487
5,424
4,743
4,101
4,298
4,909
5,004
5,214
5,037
4,744
4,629
4,338
4,349
4,407
4,274
4,747
4,627
4,525
4,872
4,822
4,575
3,744
1,677
7,410
11,954
10,730
. 4,697
4,309
4,373
4,244
3,754
3;164
3,290
3,675
3,679
3,780'
3,610
3,339
3,137
2,879
2,767
2,660
2,463
2,569
2,518
2,450
2,464
2,344
2,027
1,071
212
924
1,451
1,785
1,569
887
994
1,115
1,180
1,089
937
1,008
1,234
1,325
1,434
1,42'8
1,404
1,492
1,459
1,582
1,748
1,811
2,178
2,109
2,07'5
2,408
2,478
2,548
2,674
11.23
11.09
10.82
11.41
12.76
15.88
18.74
20.32
21.76
22.96
22.85
23.45
25.14
26.48
27.50
28.35
29.60
32.23
33.63
36.38
39.66
42.'37
45.88
45.58
45.86
49.43
51.39
55.69
71.42
739
1,108
-369
-
166,073
121,904
44,169
26.60
5,485
7,302
3,550
2,007
1,935
5,295
35.28
72.51
12,7'87
5,557
7,230
56.54
178,859
127,461
51,398
28.74
38,277
178,859
217,137
38,217
127,461
165,677
61
51,398
51,459
.16
28.74
23.70
~TURED
ries EJ/ :
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
Unclassified
Total Series E
~ries H (1952 thru May. 1959)}j
H (June, 1959 thru 19,70)
Total Series H
Total Series E and H
{Total matured
1 Series
Total unmatured
Orano Total
fee .ccrued df"coun,.
PI'redempllon "./u ••
"011 01 own., bonde ma, b. held and will .arn In'e, . . '
I
13,8~1
.
10' .ddltlonal pe,/otj" ,.1,., or/Q/n.' m.turlty d., ...
I
TREASURY DEPARTMENT
WASHINGTON. D.C.
mRELEASE 6:30 P.M.,
mdaY, March 9, 1970. .
BBStJUrS OF TREASURY'S WEEKLY BILL Cl!l'ERING
The Treasury Department aonOUDced·tbat the tenders for two series of Treasury
LUs, one series to be an additional issue at the bills dated December 11, 1969, and
le other series to be dated March 12, 1970, which vere off'ered on March 4, 1970, were
;H!Ded at the Federal Reserve Banks todq. Tenders were invited tor $1,800,000,000,
~ thereabouts, ot 91-dq bills and tor $1,300,000,000, or thereabouts, of 1B2-day
LUI. The details ot the two series are as tollows:
um
91-day Treasury bills
OF ACCOCP'BD
June 11, 1970
IfPITITIVE BIDS: _ _maturing
=';~==:::IiiL...=.=::=--=::.a...-=-.:....=..._
Approx. Equi v .
Price
Annual Rate
98.267
Bilb
6.85#
98.256
6.89
Low
98.262
6.87~
Average
••
••
·••
·••
·•
!/:
1B2-d.a¥ Treasury bills
maturi~ Se:2tember 10, 1970
Approx. Equiv.
Annual Rate
Price
96.608
6.70~
96.594:
6.737'/.
96.598
6.72~
!/
4'/. of the amount of 91-day bills bid for at the low price was accepted
23~ of the amount
ot 1B2-day bills bid tor at the low price
was accepted
n'AL TENDEBS APPLIED FOR .AM> ACCEPrED BY FImERAL RESERVE DISTRICTS:
District
Boston
lew York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San FranCisco
T~
Applied For
AcceEted
33,320,000
•
22,960,000
$
2,173,870,000
1,277,440,000
4:9,980,000
29,480,000
51,220,000
41,710,000
17,490,000
17,490,000
33,170,000
49,590,000
183,330,000
269,090,000
36,630,000
61,310,000
9,580,000
28,580,000
27,490,000
32,230,000
lB,460,OOO
32,460,000
102.920.000
187.660,000
$2,986,800,000
~ Includes $363,690,000
$1,800,660,000
noncompetitive tenders
InCludes $199,120,000
noncompetitive tenders
, These rates are on a bank discount basia. The
7.~ tor the 91-day bills, and 7.06 '/. tor the
••
·•
·
·•
··••
·•
••
••
·•
·•
·
•
A:eElied For
20,080,000
1,961,310,000
21,860,000
50,090,000
19,010,000
41,350,000
158 ,450,000
43,770,000
22,930,000
22,180,000
25,820,000
'-'5.160.000
!I $2,832,010,000
Accepted
$
6,'20,000
769,050,000
9,850,000
26,600,000
8,910,000
17,340,000
27,220,000
18,470,000
4,930,000
lB,730,000
12,320,000
381.710.000
$1,301,550,000 ~
accepted at the average price of 98.262
accepted at the average price ot 96.598
equivalent coupon issue yields are
182-day bills.
REASURY DEPARTMENT
4
FOR IMMEDIATE RELEASE
WASHINGTON, D.C.
March 11, 1970
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
? 3,100,000,000, or thereabouts, for cash and in exchange for
rr.easury bills maturing March 19, 1970,
in the amount of
~ 3,002,144,000,
as follows:
91-day bills (to maturity date) to be issued March 19, 1970,
Ln the amount of $ 1,800,000,000, or thereabouts. representing an
idditiona1 amount of bills dated December 18. 1969,
and to
nature June 18, 1970,
originally issued in the amount of
~ 1,200,879,000,
the additional and original bills to be
freely interchangeable.
18~day
fated
bills, for $ 1,300,000,000,
March 19, 1970,
and to mature
or thereabouts, to be
September 17, 1970.
The bills of both aeries will be is.ued on a discount basis under
~ompetitive and noncompetive bidding as hereinafte~ provided, and at
naturity their face amount will be payable without interest. They
~i11 be issued in bearer form on1y~ and in denominations of
$10,000, $50,000, $100,000, $500,uOO, and $1,000,000
(maturity value).
Tenders will be received at Federal Reeerve Banks and Branches
lp to the closing hour, one-thirty p.m., Eastern Standard
time, Monday, March 16, 1970.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
)e for an even mu1 tiple of $10,000 ,and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
flith not more than three decImals, e. g., 99.925. Fractions may not
)e used. It is urged that tenders be made on the printed forms and
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
:ustomers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
~ubmit tenders except for their own account.
Tenders will be received
~ithout deposit from incorporated banks and trust companies and from
- 2 responsible and recognized dealers in investment securit~~s. Tend. .
from others must be accompanied by payment of 2 percent of· the f~
amount of Treasury bills applied for, unless the tenders~ are
accompanied by an express guaranty of payment by an incorporated b~
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public announce
ment will be made by the Treasury Department of the amount and price ra
of accepted bids. Only those submitting _competitive tenders· will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on March 19, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing March 19, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differEl~es 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 0bO~ranch.
-REASURY DEPARTMENT
WASHINGTON. D.C.
March 10, 1970
FOR IMMEDIATE RELEASE
TREASURY SUSPENDS SANSINENA WAIVER PENDING
REVIEW OF NATIONAL DEFENSE ASPECTS
Treasury Secretary David M. Kennedy today issued the
following statement:
I am suspending the waiver granted by Treasury to
Union Oil Company to permit the SS Sansinena to engage
in coastwise trade.
The waiver is being suspended because of questions
which have arisen over the merits of the case since the
waiver was granted. Because it has been alleged that the
Sansinena waiver involves new implications for national
maritime policy as well as broad national defense considerations, I intend to initiate an administrative
review of the application for waiver under procedures
assuring all interested parties a full opportunity to
present their views.
Treasury received the application to grant a waiver
for the Sansinena in August of 1969. The Sansinena is
a 70,700 ton oil tanker built at Newport News, Va., in
1958 0 In its application, Union Oil stated that it
wished to use the tanker to carry oil from developing
Alaskan fields to the West Coast of the United States.
In originally granting the waiver, Treasury took
into consideration the following factors:
The Sansinena was built in an American shipyard.
She was to be sold to an American company.
Currently, she is owned by a Liberian Corporation
headquartered in Bermuda, Barracuda Tanker Corporation,
but an American company is being formed to purchase
the vesse10
K-364
I <:::-r,
)
.
- 2 -
The vessel is operated and would continue to be
operated under charter by an American company~
Union Oil.
She would be registered in the United States.
She would employ American crews.
The new company of ownership would pay United
States taxes.
The intent of Congress in writing the 1950
,Jones Act which regulates vessels engaged in
coastwise trade was to prevent foreign ships
from demoralizing existing services or delaying
conStruction of new ships in American yards.
There is no established Alaskan service, and
the ship, as pointed out, was built in an
American shipyard.
A recent federal district court decision said
that the law was not intended to exclude from
coastwise trade ships built in this country and
then acquired by American companies from the
foreign owner when the ship had never before
acquired the right to engage in coastal trade in
this country. In the absence of reversal on
appeal, this decision would enable the Sansinena
to engage in coastwise trade without a waiver of
the Jones Act restrictions.
A broad interpretation of the national defense
implications of the development of Alaskan oil
indicated to Treasury, under its discretionary
power to grant waivers, that the employment of the
Sa~sinena in coastwise trade was in the interest of
national defense.
Another question which has arisen in this case
is the previous ownership of a small quantity of stock
in Barracuda Tanker Corporation by Peter Flanigan,
an assistant to the President.
I /
- 3 -
In its routine investigation following the
applicati9n by Union Oil for fhe waiver, Treasury
discovered that Mr. Flanigan had been an
organizer of Barracuda, that he was the beneficial
owner of less than 4 percent of the capital stock
(308 shares).This stock had been placed in
trust for Mr. Flanigari in 1969. He would not be
a stockholder of the new company being formed
to purchase the Sansinena.
Treasury officials determined that the
application of Union Oil should be, and it was,
considered ~olely on its merits without reference
to the small ownership interest of Mr. Flanigan
in Barracuda.
At no time prior to the granting of the
waiver did anyone on the Treasury staff consult
or discuss the waiver application with Mr. Flanigan
or with anyone else in the White House.
After the granting of the waiver, on March 2,
became public knowledge, Mr. Flanigan sent me a
memorandum detailing his relationship with
Barracuda. A copy of that memo is attached.
Attachment
TH.E WHITE HOUSE
WASHINGTON
March 9, 1970
MEMORANDm-I,FOR SECHETARY KENNEDY
The following are the facts relating to my past
association with Barracuda Tanker Corporation, the owner
of the sis Sansinena.
Prior to coming with the government I was an officer
of· Dillon, Read & Co •. Inc., New York, New York. Dillon, Read
has for many years ~een investment bankers for Union Oil Company
of California. From time to time over the years, officers of
Dillon, Read have organized corporations for the purpose of
acquiring and leasing ships and other assets to Union.
Barracuda Tanker Corporation was organized in 1956.
Since its inception its sole activity has been the ovmership of
tankers and the'ir charter to Union on long term charter contracts
under'which Barracuda receives a fixed charter rental plus
certain expenses. The charter of the Sansinena extends until
1985 with a renewal option in Union until 1990.
I resigned as an officer and director of Barracuda
before becoming an Assistant to the President on April 16, 1969.
In connection with my employment with the Government,
a statement of my financial interests, disclosing securities
that I owned, including my ownership of 308 shares of
Barracuda (less than 4% of the outstanding shares) was filed
with the Counsel to the president. In 1969, I assigned the
Barracuda shares, together with other securities, to my
father as Trustee of a revocable trust for my benefit, so as
to give my father complete discretion in the management of
the securitieso
I am informed that on February 25" '1970, the President
of Barracuda telepho~ed rr~ father and said that to avoid my being
'placed in a 'position llhere there was any possibility of· an appearance
of conflict, he· would buy the trust's shares for $20,020, and
my father as Trustee agreed to the sale at this price vTi thout any
consultation vlith me. He vTas .informed that this price was
THE WHITE HOUSE:
WASHINGTON
-2 ..
determined 'aolely with reference to Barracuda's liquid assets,
the rentals under the existing charters, and estimated salvage
values, follmTing a. method employed in determining price \-Then
certain shares were bought by Barracuda in 1966.
Most important, the price paid for the shares did
not 1"n any "laY reflect any possibility that the ship might
at some time be used in coastwise trade.
Neither I nor the trust has obtained or can obtain
any oenefit from the Treasury's action on Union's application.
I did not discuss the application to the Treasury
Department for vlaiver of the coastwise trading restrictions on
the Sansinena with any government official or employee.
"'t
-
t'
V.
n , ..
'''~
t·;; I.
iU~-
a ,lgan
DEPAR'l'MENT OF THE TREASURY
OFFICE OF THE SECRETARY
Introductory Statement of Eugene T Ross1des
Aa8~8tant Secretary ot the Treasury
tor
Enforcement and Operation.
For Presentation to the Subcommittee on Criminal
Laws and
Procedures of the Senate Committee on the Judiciary
,
;-
I,' (.
I
i
•
'"
STATEMENT OF EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON eRn-tINAL LAWS AND
PROCEDURES OF THE SENATE COMMITTEE ON THE JUDICIARY
ON S. 2896
MARCH 11, 1970
Mr. Chairman and Members of the Committee:
As Assistant Secretar,y of the Treasury for Enforcement and Operations, one of my responsibilities is supervision of the Secret Service.
In
that connection, I rum
appearing before your Committee in support of S. 2896.
The Secretary of the Treasury, by virtue of his
responsibility to supervise the operations of the Secret
Service, is the cabinet officer ultimately responsible
for the physical safety of the President of the United
States.
In these dangerous times, we are constantly
evaluating the security arrangements relating to the safety
of the President.
In view of the growing incidence of acts
of physical violence, domestic disturbances and mob action
occurring with uncomfortable frequency in recent years, we
must recognize that this disruptive activity involves
a potential threat to the security ot the President and
could result in the disruption ot vital government business
involving the President. vor this reason, the Department
believes tbat the Secret Service needs additional legal
authority in order to provide more effectively tor the
security of tbe Chief Executive. The draft bill rill
provide this authority.
S. 2896 would amend title 18, United states Code,
in two respects.
First, it would add a new section making
ita Federal crime willfully and mowingly:
(1) to enter or remain in any building or the grounds
ot any temporary Presidential offices or residences or
Presidential staff
off~ces
without proper authorization;
(2) to utter loud, threatening or abusive language, or
to engage in disorderly conduct in or near sucb buildings
with the intent to disrupt or disturb the orderly
conduct of government business; and (3) to obstruct or
impede ingress or egress to or tram such buildings, or
engage in any acts ot physical violence within such
buildings or grounds.
The proposed legislation would place venue in the
Federal District in which the offense occurred and
wou1~
authorize the Secretary of the Treasury to promulgate
regulations governing admission to temporary offices or
residences.
Existing state and local laws would not be
affected or superseded by its enactment.
Second, the bill would amend section 3056 of title
18, United States Code, by adding a new paragraph making
it a
or
cr~e
for a person to knowingly and willfully obstruct
inter~ere
with a Secret Service agent engaged in the
performance of his protective duties.
The t1rllt .ection ot the bill 1, a;dopted, to some
degree, tram the provisions ot the recently amended laws
protecting the capitol Building and Braunds tram disruption.
It is also designed to accomplish the aame purpoles as
the statute which protects against the disruption ot the
business ot the judicial branch. With respect to the
obstruction section of the legisltion, we note that
similar statutes bave been upheld by the Courts.
~John8on,
390 U.S. 611, Cox v. Louisiana, 379
Cameron
u.s.
at
pages 554-55.
The Supreme Court has consistently be1d that
laws proscribing the obstruction ot entry to or exit
trom certain protected buildings do not constitute an
abridgement ot the constitutional guarantee ot freedom ot
assembly.
The first section of the bill is not unlike
section 22-3102 of the District of Columbia Code which has
-5been applied in situations wheretbe White House Police have
,rrested defendants tor their unauthorized presence on
the White House grounds.
The proposed legislation would
serve the srume purpose with respect to temporary Presidential offices and residences situated elsewhere.
It is presently a felony under title 18, United States
Code, section 111, to forceably assault, resist, oppose,
impede, intimidate, or interfere with Federal law enforcement officers, including Secret Service agents, in the
performance of their duties.
Section 2 of the proposed
legislation would prohibit knowing and willful interference
with a Secret Service agent performing protective functions.
In a prosecution under section 2 of the bill,a showing
of a utilization of force by the defendant would not be
necessa~.
It would suffice to show that the defendant's
willful action constituted an obstruction or resistance to
-6or interference with, the performance ot the protective
duties of a Secret Service agent.
This offense would
be punishable as a misdemeanor and would provide the
neede~
authority for Secret Service agenta to arrest
persons who engage in activities which could nullit.y
or reduce the effectiveness of security precautions
taken by the Secret Service, without the necessity of
establishing that such interference was forceable in
character.
Mr. Chairman, there is a continuing and compelling
governmental interest in the security of the Chief
Executive, regardless ot where he may be.
recogn~zed
Congress has
this fact and has authorized the Secret Service
to provide protection for the President.
However, at the
present time, Secret Service agents do not have power to
arrest persons guilty of engaging in activities which would
be prohibited by this legisltlon.
-7CUrrently, the Secret Service must rely on state
and local law enforcement officers operating under a
myriad of criminal codes relating to disorderly conduct,
public nuisances, and unlawful entry and trespass, to
arrest offenders, who by their actions, compromise the
security arrangements designed to insure Presidential
safety and the orderlY conduct of executive business when
the President is absent from the Executive Residence.
It is contemplated that the Secret Service will
continue to work closely with local law enforcement in
working out security arrangements for the President.
This legislation is not intended to pre-empt the authority
or the responsibility of state and local law enforcement
officials to
pro~ide
for the protection of persons and
property in their respective jurisdictions.
If enacted, the
draft bill would provide needed federal law which would
enable the Secret Service to carry out more effectively
its security responsibilities.
The Federal Government has the right and the duty
to protect and maintain the ability of its Chief Executive
to act regardless of where he is without excessive interference or disruption.
We believe that S. 2896 is a
precise and narrowly drawn statute designed to accomplish
this objective.
If enacted, it would evince & legislative
judgment that certain specific conduct should be proscribed
in order to help assure the safety and unimpeded movement
of the President of the United States.
Mr. Chairman, I urge favorable consideration of S. 2896.
DEPARTMENT Qj' THE TREA.SURY
U. S. SECRF.T SERVICE
Introtluctory Statement of James J. ROivley
Director, U. S. Secret Service
For Presentation to the Subcommittee on Criminal
Laws and Procedures of the Senate Committee on the Judiciary
STATE11ENT OF JAMES J. ROliLEY
DrnECTOR, U. S. SECRET SERVICE
BEFORE
'l'HE SUBCOHMITTEE ON CRllUNAL LAHS AND PROCEDURES
OF THE SENATE COMI-UTTEE ON THE JUDICIARY ON S. 2896
MARCH 11, 1970
Mr. Chairman and Members of the Committee:
As Director of the United States Secret Service,
the most important responsibility I have is to provide for
the security of the President of the United States.
In
that connection, I am appearing here today to urge
favorable consideration of S. 2896.
S. 2896 would give the Secret Service the necessary
legal authority to control unauthorized entry into any
building, or the grounds thereof, "There the President
may be temporarily residing or where Presidential offices
are located.
It would provide punishment for disorderly
or disruptive conduct in or near such buildings or offices
/'
when such activity could impede the orderly conduct of the
President's officia.l duties.
S. 2896 "lOuld also prohibit
willful obstruction or interference lotith agents of
the Secret Service in the execution of their protective
duties.
The Secret Service has become concerned about the
rising crescendo of national militancy and confrontation,
and instances of the preachment of assassination
violent revolution.
B~d
The National Commission on the Cause
and Prevention of Violence stated in October 1969, that
"the present decade, though by no means the worst in
American history, has witnessed disturbingly high levels
of assassinations and political violence .••• In comparison
with other nations of the world, the level of assassinations
in the United States is high."
In my view, the militancy of the dissident groups in
/"
our midst will increase in fervor.
The questioning of all
authority and the frequency of attempts at the disruption
-3of our society will continue.
This activity could
generate a greater propensity for
attacl~s
upon our lenders.
We have 1'Titnessed in recent years attacks, both vocal and
physical, on all
s~nbols
of authority, including hieh
officials of our governement and other distinguished persons.
For this reason, the Secret Service has become concerned
over the adequacy of our legal authority to deal "rlth
the danger to Presidential security inherent in the current
situation.
At the. present time, l-re do not have a federal statute
which specifically authorizes the Secret Service to
restrict entry to areas ",here the President may be residing
temporarily when he leaves the seat of government.
Further,
"re do not have at the present time a Federal criminal
,~
statute which specifically prohibits disorderly or disruptive
co~duct
in close proxunity to an area temporarily occupied
by the President.
-4Currently, the Secret Service must rely upon
the assistance of local authorities to arrest persons
who may be guilty of such disruptive conduct.
In a
quieter era, this system worked relatively welL
There have been many incidents in recent years
that have caused us to question the adequacy of our legal
protective authority.
Under our present security system,
we can and do, by common practice, establish an exclusionary or secured area around the President or places to
be visited by the President.
In this connection, we
rely upon local and state lalls relating to trespass and
disorderly conduct to punish those individuals who insist
upon violating the security of these areas.
are
man~,'times
However, there
when an agent must apprehend or restrain an
individual when there are no local law enforcement personnel
present.
Also, in many areas where the President travels,
-5it is hard to know which jurisdiction should have the
responsibility for the detentioll and prosecution of
persons viola.ting local ordinances.
Many individuals have questioned the authority of
our agents to restrict their entrance into secured areas
occupied by the President.
For example, while the President
was visiting a mid-"Testern city recently an individual
refused to move from an area where the President's automobile was to be parked upon his arrival.
been many instances
~lhere
There have
individuals have refused to
respect the secured corridors established to facilitate
the movement of the President in and out of buildings.
Also, we customarily have the problem of curiosity seekers
who violate the President's privacy and trespass upon his
property.
If the legislation pending before this
COD~nittee
enacted, it would enable us to establish more uniform
were
-6security procedures.
It
~~uld
relieve our agents of
1
the necessity of relying exclusively on assistance
I
I
from local officers in making arrests for minor infractions ,
by individuals who interfere with our security arrangements.
In view of the current conditions prevailing in
our contemporary society,.those of us charged with the
security~
the highest officer of our government believe
that existing statutory authority to protect the President
is not adequate.
We need the enactment of a Federal criminal
statute which can be invoked against those who would engage
in activity which could adversely affect the security of
the President of the United States or interfere with his
•
performance of essential public business.
If this legislation is enacted, it would not supersede
any existing state or Federal laws relative to the maintenance
of order and the protection of
perso~s
and property in rulY
jurisdiction in l-/hich the President JM,y be temporarily
residing.' Local Iml enforcement \-lould continue to have
the responsibility that they have so ably discharged in
the past to assist in providing protection to the President
while he is
visitin~
~l1vestigations
in their localities, to conduct criminal
involving violations of state or local statutes
\lhich could result frOEl n Presidential visit, 8.nd furnishing
police officers in adequate nu.m.bers to control demonstrations
and other disturbances occurring in close proximity to
places \There the President is visiting.
,
The Nation has a valid, even an overwhelming interest
in
protect~g
the safety of its Pres:i.dcnt.
He must be
permitted to perform his duties \1ithout interference.
Fro:n
a secUl;'lty stanc1po:i.nt, the President is I:lOst vunel'a.ble
when he is outside the lnlite l.!ouse
co~nplcx
travellinc or
-8residing temporarily in some other section of the country.
Wherever the President goes, he attracts wide attention and
is the object of much public notice.
His movements and
whereabouts are the object of much publicity, especially
in the locality he is visiting.
When the Chief Executive
leaves the Capitol City for any purpose, he carries with
him the awesome burdens of his office and must continue
to perform his official duties.
The Secret Service has the responsibility of establishing and maintaining a secure and ordered environment in
which the President may continue to perform the functions
of his office without impediment and free from annoyance.
In
my opinion, the enactment of this legislation is necessary
in order to guarantee the safety of the President when he is
//
temporarily absent from the Executive Residence.
Mr. Chairman, it is my considered belief that the
security of the President of the United States, wherever
-9he may be, is a matter of the highest national priority.
I
I,
I
~he
probability of
an
attempt upon the personal safety
of the President is alw'ays present and nhlays real
especially in view of the current climate of unrest,
protest and domestic violence existing in the country
today.
The legislation pending before the Committee is
needed in order to enable us to provide more effectively
for his security.
I urge your favorable consideration of S. 2896.
Highlights of Weidenbaum Speech on Post-Vietnam
Friday, March 13, 1970, A.M.
These key dimensions of a civilian-oriented economy emerge
from a set of projections of GNP for 1975:
Consumer Sector - Personal consumption is estimated to rise
from $576 billion in 1969 to $777 billion in 1975, in terms
of dollars of 1969 purchasing power. Under existing tax laws
and with consumers saving 6-1/2 percent of their after-tax
incomes, the personal consumption share of GNP should rise
from 62 percent in 1969 to 65 percent in 1975.
Housin~
- In order to meet the target of 26 million new homes
by 197 , expenditures for new residential construction should
rise from $32 billion in 1969 to $49 billion in 1975.
Bu~iness Investment - About 11 to 12 percent of GNP will be
lnvested each year in new capital stock in order to provide
for necessary production. With inventories and net exports
rising with the overall economy, total annual business investment is projected to expand from $109 billion in 1969 to
$144 billion in 1975.
Federal Purchases - Federal purchases (about four-fifths now
aevoted to defense) are expected to decline significantly from
1969 to 1975, from $102 billion to $87 billion. Hence, despite
expansions in transfer payments and grants-in-aid, the direct
Federal role in the economy IS likely to decline.
State and Local - Purchases by states and localities are
projected to grow with the GNP, population, and Federal aid
from $113 billion in 1969 to $143 billion in 1975. This would
permit a 2.8 percent yearly increase in the real per capita
quantity of such services provided.
Total - GNP, in constant dollars, may rise to $1.2 trillion
in 1975. That unprecedented scale of resources will come with
a challenge -- that we use them wisely. If we do not, we may
find economic grmllth increasingly devoted merely to ameliorating
phYSIcal and social ills. This may be the essence of our concern
to shift national priorities -- to make the necessary investments
nuw t( improve the quality of our physical and social environment
for years to come.
,
i"
DEPARTMENT OF THE TREASURY
Washington, D. C.
FOR RELEASE AT 10:00 A.M., EST
FRIDAY? ~~RCH 13, 1970
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE NATIONAL PLANNING ASSOCIATION
WASHINGTON, D. C.
MARCH 13, 1970
THE POST-VIETNAM ECONOMY
An analysis of the impacts on the United States of
?~nieving
peace in Vietnam needs to be made in the context
of thE economic environment in which these events will occur.
l~
is useful to distinguish between the short-term economic
au t 1 00 k
.}iid.
1 he
prospec t s for the longer te rm.
The Short-Term Outlook
In the period immediately ahead -- 1970 and 1971 -th:;
W~
A;]~Cl:icc;.n
~ll
economy will be undergoing an adjustment.
As
know, the substantial inflationary pressures which
dn;eloped during the Vietnam buildup were accentuated by
large Federal budget deficits and a liberal monetary policy.
For more than a year now, the Federal Government has pursued
a policy of economic restraint, designed to dampen the
inflation and to do so without precipitating a major downturn in the economy as a whole.
K-365
- 2 -
The means for pursuing this anti-inflationary effort
have been primarily to operate the Federal Government at
a modest surplus and to reduce the growth of the money supply.
The results thus far are mainly a clear slowing down of what
was an overheated economy.
Inflation is continuing, but not
at the accelerating rate that characterized earlier periods.
It is our expectation that the rate of inflation will decline
measurably in the coming year and that this will set the stage
for the subsequent real and sustainable growth in production,
employment and living standards.
Bu t in the short run, the proper national economic policy
still is one of responsible restraint.
Hence, reductions in
military demand ,resulting from winding down the Vietnam War
will, in addition to obvious social benefits, reinforce our
econom i c capab iIi ties.
The 1 es sened Uni ted State s part icipation
in Vietnam will tend both to reduce the Government's demand for
military goods and services and, as servicemen are returned to
civilian life, to increase the labor force available to produce
goods and services for nonmilitary purposes.
To some extent,
the pressures on our balance of international payments will
diminish as the scope of United States activities in Southeast
Asia is reduced.
- 3 -
Projections of the American economy for the calendar
year 1970 show that the Federal Government's own purchases
of goods and services are being cut back substantially and
that new housing construction is expected to continue to
feel the effects of a fairly tight monetary policy.
In
contrast, the other sectors of the economy are projected to
grow in real terms but at a much slower rate than in recent
years.
The Longer-Term Outlook
As we look beyond 1970, to the middle of the decade of
the 1970's, we get a better picture of what a nonwar economy
may look like.
The following analysis of longer-term trends
in the American economy' in a more peacetime environment is
based on a joint research effort by the economic staffs of
the Bureau of the Budget, the Council of Economic Advisers,
and the Department of the Treasury.
(See Table 1).
The
analysis assumes a fiscal posture of present tax laws and
present nondefense Federal Government programs.
Clearly, after Vietnam, a larger proportion of our
resources is likely to be devoted to civilian purposes,
and particularly through the private sector.
By 1975
Government purchases are estimated to take only 19 percent
of the national output -- down from the 23 percent in 1969.
I would like to examine briefly the prospects for each major
sector of our economy.
- 4 -
Table 1
Distribution of GNP, 1969 and 1975
Dollar Amounts ln Billions of 1969 Dollars
1969
Category
Amount
1975
Percent
Amount
Percent
Personal Consumption
Expenditures
576
62
777
6S
Housing Construction
32
3
49
4
Business Investment
109
12
144
12
Federal Government
Purchases
102
11
87
7
State and Local
Government Purchases
113
12
143
12
932
100
1,200
100
Total
Note:
These estimates contain no allowance for increases above
the 1969 level of prices. The figures are based on the
Economic Report for 1970 with adjustments to equate total
claims on output with total resources available.
- &The Consumer Sector
Total personal consumption expenditures are estimated
to rise from $576 billion in 1969 to $777 billion in 1975,
in terms of dollars of 1969 purchasing power.
This does not
mean that we do not expect any increases at all in the general
price level.
Rather, this analysis will be focusing on real
rather than merely financial changes in the American economy.
The total income of individuals is anticipated to grow
substantially between now and 1975.
ris~_ng
This will result from the
employment necessary to produce the national output and,
in turn, will make possible very significant increases in the
average standard of living of the American consumer.
It is also assumed that, on the average, individuals will
save 6-1/2 percent of their after-tax incomes and spend the
remainder on (1) automobiles, home furnishings, and other
durable goods; (2) food, clothing, and other nondurable
commodities; and (3) recreation, medical care, housing, and
numerous other services.
The total impact of all consumer
spending should raise the personal consumption share of our
total national output from about 62 percent in 1969 to
65 percent in 1975.
a nonwar environment.
This move is what would be expected in
To be sure, one percentage point or so
may not sound like very much, but -- in a trillion dollar
economy one percent means an extra $10 billion a year.
Incidentally, we soon will begin talking about trillions as
well as billions when discussing the American economy.
- 6 -
I suspect that we may reach the trillion dollar rate for GNP
later this year.
Housing
For a number of reasons, the number of new housing
starts is likely to rise considerably in the early 1970's.
There is likely to be a very substantial increase in the rate
of family formation in the next five years.
Also, a backlog
of need has been created by the housing declines in 1966 and
1969-70, by the rate of demolition and obsolescence, and
because of the increased demand for housing generated by
new families.
The housing share of GNP, a rather low
3 percent in 1970, should rise to a more normal 4 percent
by the mid-1970's.
In the Housing and Urban Development Act of 1968, the
Congress stated a goal of 26 million new housing units to
be built during the 10-year period ending June 1978.
In
order to achieve that goal, about 2-1/2 million new homes
would be built each year during the 1975 time period.
On
that basis, expenditures for new residential construction
will rise from $32 billion in 1969 to $49 billion in 1975.
Business Investment
Large amounts of investment in new plant, equipment,
and inventories will be necessary just to produce the GNP
we are projecting.
About 11 to 12 percent of the GNP will
- 7 -
have to be invested each year in new capital stock in order
to maintain reasonable capital-output ratios.
In addition,
inventory investment and net exports are projected to grow
roughly in line with the gross national product between 1969
and 1975.
This would maintain an approximately constant ratio
of inventory to final sales.
Net exports are expected to rise
from the 1969 low as the U. S. trade position improves.
All these forms of business investment, taken as a whole,
are projected to expand from the 1969 level of $109 billion
to $144 billion in 1975.
Federal Government Purchases
As the Nation returns to a more peacetime situation,
Federal
purchas~s
of goods and services (the great bulk of
which is devoted to national defense) are expected to decline
significantly between 1969 and 1975, falling from $102 billion
to $87 billion.
A large defense effort, of course, will most
likely need to be maintained in order to meet the continuing
requirements of protecting the national security.
In contrast, however, proportionally small amounts of
Federal civilian expenditures are devoted to direct purchases.
Rather, civilian agency budgets mainly take the form of
transfer payments to individuals (such as social security),
grants-in-aid to state and local governments, and interest
payments.
These show up directly or indirectly in the GNP
subsequently as consumer expenditures or business investment
- 8 -
or state and local purchases, as the ultimate recipients of
the Federal funds respend them.
Hence, the direct importance
of the Federal Government in the American economy, when we
look at its role as a direct user of resources, is likely to
decline substantially between 1970 and 1975.
All of the likely future increases in Federal spending
probably will occur in these other categories (see Table 2)
income transfer payments, grants-in-aid, subsidies, etc.
Transfer payments will be rIsIng sharply from $56 billion
in 1970 to $75 billion in 1975.
This movement will be due
to expanded coverage and population, as more people receive
checks for social security, disability insurance, and so
forth.
Part of the growth will also come about from higher
real benefits.
Much of the increase in grants -- from $22
billion in 1970 to $27 billion in 1975 -- will come in
essentially open-ended programs, such as medicare, in which
the Federal Government must provide matching funds if the
states choose to spend money for the designated activities.
These figures include the new initiatives already
recommended by President Nixon (such as the Family Assistance
Program and revenue sharing with state and local governments).
Outlays for these new programs are estimated to rise substantially as they are put into effect, to $15 billion in 1975.
Table 2
...."-
Projections of Federal Expenditures, 1970-75
National Income Accounts Basis, Billions of 1969 Dollars
Category
1970
1971
1972
1973
1974
1975
92
56
22
19
88
59
22
16
87
62
22
15
86
65
23
14
85
68
23
14
84
70
24
14
188
186
186
188
190
191
1
0
0
1
3
2
1
6
3
1
6
2
5
2
5
6
7
1
6
10
.12
14
15
189
192
196
200
204
206
Existing Programs
Purchases
Transfer Payments
Grants-in-Aid
Other
m
Total, existing programs
New Initiatives
Purchases
Transfer Payments
Grants-in-Aid
Total, new initiatives
Total, Federal Expenditures
-
5
- 10 -
However, the addition of still other new programs in the
years ahead would result in the relatively tight budgetary
situation that we are currently experiencing.
State and Local Government Purchases
Purchases of goods and services by state and local
governments are projected to grow with the GNP, population,
and Federal grants-in-aid.
Of the $30 billion increase in
state and local purchases - - from $113 billion in 1969 to
$143 billion in 1975 - - only about $10 billion will be due
to population increases.
This will leave an anticipated
increase of approximately $20 billion over and above the
cost of providing state and local services at the present
per capita
leve~.
This will permit an average annual
increase of 2.8 percent in the real per capita quantity
of the services provided by this category of state and local
spending.
Gross National Product
The GNP of the United States is projected to rise more
than 4 percent each year during the post-Vietnam time period,
reaching a total of $1.2 trillion in 1975, in terms of 1969
prices.
The figure would be about $1.4 trillion if we allow
for price changes.
Productivity (output per man-hour) is
estimated to grow about 2.8 percent a year, on the average.
- 11 -
These calculations, when viewed in conjunction with reasonable
forecasts of population and the labor force, yield an employment rate of over 96 percent of the civilian labor force and
a rising real living standard for the average American worker
and his family.
Like any set of long-term economic estimates, these
projections are illustrative; they are not meant to be precise
forecasts.
Rather, they indicate reasonable orders of magni-
tude and interrelationships for the period following the
achievement of peace in Vietnam.
Changes in public policy
as well as future private actions -- could substantially alter
the size and the composition of the GNP in future years.
Yet,
such statistical analyses are useful in demonstrating how the
American economy can quite successfully adjust to a peacetime
environment.
Most public and private studies of the relationship
between military spending and the American economy reach two
common conclusions:
(1) The United States can afford to maintain within
reasonable limits the level of defense spending that is
required for the national security, and
(2) The economy is not dependent on military demand in
order to maintain prosperity.
Rather, the long-term level
of income and output is likely to be higher in a more civilian-
- 12 -
oriented economy because of additions to the civilian labor
force and higher productivity of civilian activities.
Final Note
As a Nation, we will have very considerable discretion
over the use of the tremendous amount of resources that will
be available to us during the years following the end of the
Vietnam War.
These resources, in effect, will also come with
a challenge -- that we use them wisely.
If we do not, we may
find that economic growth, rather than being translated into
improved well-being, may be devoted increasingly merely to
ameliorating continuing physical and social ills.
This may
be the essence of our concern to shift national priorities -to make the necessary investments now in improving the quality
of our physical and social environment to permit real improvement in our national welfare in the years to come.
Perhaps
this will be a case where abstinence makes the heart grow
fonder.
000
THE DEP ARTMENI' OF THE TREASURY
Washington, D. C.
~R~~EASE
UPON DELIVERY
STATEMENr OF THE HONORABLE CHARLS E. \IAU<.ER
UNDER SECREI'ARY OF THE TREASURY
BEFORE tHE SUBCOMMITTTEE ON PRODUCTION AND STABILIZATION
OF THE SENATE BANKING AND CURRENCY COMMITTEE
MARCH 12, 1970, 10:00 A.M., EST
It is a pleasure for me to join with you today to discuss
current problems of inflation and the Administration's policies to deal with these pressures.
Through hearings of this
nature the Congress can do much to broaden public understanding of the problems we face.
At the same time, proposed
remedies can be subjected to public scrutiny to make sure
they stand up to the test of objective analysis.
My comments this morning will deal with three questions:
,jhat is the source of current inflationary
pressures'?
,,'hat policies 'tvouid be both effective and
appropriate in easing th~se pressures?
kind of timetable are we dealing with
in returning the economy to healthy, balanced,
and sustainable grmvth?
~v'hat
K-366
- 2 -
_ _--------
The Current Problem
- - --..
The first point that should be clearly understood is
that the traditional measures of strong fiscal and
mon~tary
restraint have successfully cooled our overheated economy.
As a result, demand-pull inflation -- or the classical
situation of "too much money chasing too few goods" -- has
been brought
und~r
control.
To be sure, the rising cost-of-living is still a bi6
probl2m.
But
th~
slack in th2 economy beginninci in the
third quarter of 1969 -- testified to by the vast majority
o~
~conomic
indicators -- ::'s convincin 0 evidence that the
cor:.tinued escalation in orice indexes stems not from the
~
~ull
of excessive
d~mand,
but reflects instead the relent-
12ss pressure of costs, particularly labor costs, in pushing
prices
up~l7ard.
The victory over demand-pull forces and th= crossover
into a painful but unavoidable period of cost-push is no
si 6nal for alarm.
It is part of the uncomfortable transition
from overheating to stable wage and price patterns.
It is
part cf the cost our society must pay for the inflationary
hlil6 2
brought on by $33 billion of Federal deficits in the
three fiscal years ended in mid-1963.
These deficits,
accompanied at times by excessively expansive monetary
- 3 -
pelicies, were the reet cause ef the demand-pull inflatien
of 1966-69 and the resulting cost-push peried which,
unhappily, 'tve must nmv navigate eur 'tvay threugh.
Under cost-push, the major challenge to policymakers
is to avoid extremes in stabilization policies.
and
mon~tary
If fiscal
pelicies are relaxed tee quickly and toe far,
we could find eurselves back in the Jrips oE d8mand-pull
?ressures.
This is precisely what happened in 1967, after
tight mDney had effectively but enly temperarily curbed the
investment beem ef 1966.
Inflatienary fires 'tvere re-kindled
and th'= demand-pull surge Df 1968-69 was the unfortunate
result.
But if restraint is
wculd be increasing
th~
and hit;h unempleyment.
allO'w~d
to' become teo severe,
He
chances ef an old-fashioned recessien
Because ef thes2 dangers, the dif-
ferences b2t'Heen the demand-pull and the cost-push phas'2s of
l:},-: inflatienary precess need to be clearly und8rstDed.
f.s
cas~
just noted, demand-pull inflation is the classi.cal
of "too much money chasing too fe1;v goods.!'
,v'hen
'~fficlent
productive facilities and/or available manpm12r ;;rov scarce,
additIonal money in the economy does nDt S2rve to increas3
output.
It simply allows spenders to bid up prices.
- 4 The economics of demand-pull inflation are the economics
of relative scarcity.
The economics of cost-push are just
the opposite, with excess capacity and weakened labor markets
ul timately dominating the economic scene.
The slackening in
r=al economic growth manifests itself in sluggish sales,
inventory build-ups, order cutbacks, and a severe pinch on
business profits.
But as if these unhappy developments were not enough,
price indexes are likely to continue to rise rapidly for a
period of time.
This happens for several reasons.
Most
importantly, ':']Qrkers try to obtain ':vag2 increases large
enough to make up for purchasing power lost through the
past increase in the cost-of-living, and also large enough
to offset
~xpected
futur2 increases in prices.
Businessmen
may nct only attempt to pass on these hiciher labor costs to
buy~rs,
but they may S22k to raise prices 2veD mor2 to offsat
~ar~ o~ th~
-:;"0
impact of
summarize my
shr~nkin6
ar:.s~:'cr
profit margins.
to the first question:
The
source of price increases in 1970 is not and ';'Jill l'0t be
i:h8
tJrcssure of 2xc'2ssiv2 d:::!mands arising from an oV2rhsatcd
economy, but the upward thrust of risinao costs.
It there-
fore follows that additional doses of heavy fiscal and
- 5 monetary restraint are not the correct medicine for moderating price increases in the months ahead.
Fr~~_z_e_s-,-_Cont~ol~_
.iind__'[?~:1>_oE_!.IJ:g
If this analysis is correct, the question arises as to
whethsr there are any appropriate Federal actions that can
shorten the period of adjustment -- the hangover from four
years of inflationary excesses -- and speed the return to
\'Jage-price stability.
The natural impatience of the American
peop12 has led to the advocacy of a numbsr of extreme
proposals.
For example, some observers have suggested a temporary
freeze on "vages and prices, presumably for the length of tims
necessary for
cost-~ush
pressures to work themselves out.
':>or,1e ,,;ould implement such a program throu6h a voluntary curb.
O;,:h2rs \Jould seek mandatory controls.
~
'::V2I1i:
voluntary
fr~eze
nim2ly would not work.
Even in th2
of a national emer.;ency in "t'lhich patriotic motiv2s
J;':ro;~'oly
i~kelJ ~o
encourage cooperation, voluntary restraill(:s
ba succes3ful in
~2ttin~
an~
not
participants in a market
2coEomy to forego, for the purpose of stabilization, what
they believe to be their just rel·lards.
- 6 -
The suggestion that the freeze be mandatory deserves
cormnent.
E. F. Phelps, Jr., ,-;rho served in the Gffice of Price
Administration during Jorld '>Jar II and the Office of Price
3tabilization during the Korean .Jar, recently
cornm:~nted
on
wa3e-price freezes in a letter to the editor of the
,]ashin:rton
-'.',
_..;:). - .. - .Star:
-- '
'
••. a fr2eze of prices necessarily requiras
millions of sellers to compute their o~m
ceilings on millions of items. lItl is
almost unadministerable and substantially
unenforceable.
It is a dramatic T,,'lay of putting on the
brakes, but the brakes lock. This is
\1hy thousands of people from business,
the professions and the government had to
be assembled hastily in \vorld ~;ar II and
the Korean \iar to relieve the strangling
economic and political impact of general
freeze orders and to develop as quickly
as possible a "panoply of controls" more
tailored to the essential functioning of
the economy •...
. . . I knml of no one in the United States
familiar with these subjects who believes
a 3eneral rreez2 of our economy could be
administered, enforced, or sustained for
very long. It would be murder.
It seems to ffi'= that only one conclusion can be dra't'm
from this 2xper:i.ence:
A
uage-price freeze, applied alone,
\,ill uL:imately collapse of. its own '78i:;h-::.
l'ts function,
therefore, is to pave the T"Jay for a netv70rk of controls over
- 7 wages and prices, including an effective system of rationing.
But if that ultimate step is taken, the complexities
involved in administering the program are indeed staggering.
During ilorld :Jar II, prices had to be established over
3 million items being produced, distributed, and sold by
about 4 million businesses.
It ther:;fore took a quarter of
a million p80ple to administer the la
lil.
There Here 59,600
perman8nt employees plus close to 200,000 volunte2rs servin3
on ration and price boards around the country.
i.ed tape "Jas everYHhere.
,}orld ,/ar II
~vas
The standard j
Ok2
during
that Lincoln took only 267 ''lords for his
Gettysburg Address, yet it took the CPA 22,000 words to
establish the price for a head of cabbage.
It "Jas relativ:ely simple to set ceiling prices for
lar.:;e companies producing a single item or material.
~ye
tend to forget the complexities of
~v2ry
settin~
But
ceilings on
item. sold in a hard,,,,are store, a supermarket, or a
department store.
Juring the Korean .far, sellers had to com:;>ute their mv!;
ceilings based on average prices in the '"leek pr,eceding the
freeze order.
The inequities become obvious 'iv:J.er. you realize
that some stores may have been conducting sales.
have just raised prices.
seasonal items.
Others may have been
Some may
d~aling
in
- 8 ~~at
frequently happened was that retail outlets
changed the product enough to make it qualify as a new item
that was subject to a new ceiling.
The freeze order during the Korean t'Jar was issued in
January 1961.
The OPS spant the first six months after
that trying to develop appropriate escape hatches and the
next 13 months decontro1ing.
Those who have administered
controls state that it is just as hard to get out of a
freeze as it is to set up guidelines.
Inequities are also inevitable in connection with a
'-lage freeze.
The cutoff date will always be at a time
when some \'lOrkers have just received increases and just
prior to the time others were expecting increases.
Schemes
to avoid the systam -- such as fake overtime and phoney
promotions -- are easy to design.
In spite of the exce(~dingly cumbersome bureaucracy
n2cessary to establish and enforce controls, they served
a useful purpose during both wars.
They were designed
to prevent hoardinG and speculative buying at a time
when materials and
- 9 -
manpower were being shifted rapidly to defense production.
The ceilings were effective because of broad upward pressure
on most prices.
If we ever again find ourselves in a major
shooting war, controls will be a necessity.
But today they would not serve a useful purpose.
Demands are not rising as they were in the two previous
periods.
Goods are not becoming scarce -- in fact, inventories
are accumulating.
falling.
Defense needs are not rising, they are
Corporations are not making excess profits.
fact, profits are dropping.
shortage.
In
We are not facing a serious labor
In fact, labor markets have been easing.
Quite clearly, therefore, wage and price controls should
be ruled out as a solution to cost-push inflation.
In introducing these hearings, the Chairman of the subcommittee stated that he had been "extremely disappointed" in
the Administration's refusal to adopt any sort of "incomes
policy," despite what he referred to as the "overwhelming
evidence that guidelines and other forms of 'incomes policy'
do work as a complement to other, more basic policies."
- 10 To the best of my knowledge, any such evidence either
here or abroad is no more than fragmentary and far from
overwhelming.
But aside from the question of evidence, it
is highly questionable whether reliance over the years on some
type of "incomes policy"
presumably, so-called "j awboning,"
or some variant thereof, in this country -- could be applied,
in the words of the Chairman, "as a complement to other, more
basic policies."
Instead, the experience in 1965-66, when
application of appropriate fiscal policies was delayed, and
jawboning' was relied upon for much too long, indicates that
the real danger is in creating a sort of Gresham's Law of
Stabilization Policy:
"Bad policy drives out good policy."
That is, the temptation of relying on a seemingly painless
jawboning policy which only strikes at the presumptive
"villains" in an inflationary spiral ("Big Business" and
"Big Labor"), may long delay the application of the necessary
but highly unpopular policies of higher taxes, reduced spending, and tight money.
I shall not belabor the jawboning matter here today.
Secretary of Labor Shultz presented an eloquent statement on
this subject to the Joint Economic Committee on March 2, and
- 11 -
I supply this for the record.
Let me instead make only one
simple point which frequently has been overlooked.
If jawboning is to work, some means must be found to
induce or compel free Americans
businessmen and workers
to behave differently than they would under free market conditions.
Since such actions presumably would be against what
they view to be their self-interest, compulsion rather than
inducement would have to be used.
Short of new legislation,
the only sort of compulsion that I can think of as being
effective would involve the use of the not inconsiderable
power of the Executive Branch of Government.
I find this suggestion most distasteful.
If Congress
wants to take the straightforward step of enacting mandated
wage-price controls and providing the funds for the gigantic
bureaucracy to. run it, then so be it -- even though I strongly
believe that this should not now be done.
But for anyone to
argue that the President should use his executive powers for
the same purpose as wage-price controls, but without the
sanction of a legislative mandate, seems to me to be wholly
inconsistent with our system of political and economic freedom.
- 12 None of this is meant to imply that careful study of
specific market situations
such as the rapid
spiral of plywood prices in 1969, or the
up~-Jard
ba11oonin~
of construction labor -- is not appropriate.
costs
To attempt to
analyze rising costs and prices in a given market is a far
cry from dictating to that market.
Yet such studies may
point the way to appropriate measures for reducing price
pressures.
Nor would I deny that Administration officials have a
legitimate role to play in educating the public as to the
real nature of cost-push inflation.
This was one of the
ori:;ina1 functions of the wage-price guideposts, introduced
by the Kennedy Administration in 1962 and abandoned by the
Johnson Administration in 1966.
But any campaign to promote
early ';'Jage-price stability on the basis of voluntarism is
likely to fail.
Any effort to force it through the pO\'Jer
o:E the Presidency is a misuse of that pOt-ler.
The.. B_eturT~to_~t;.a,bA~=!-..!=.Y
Let me turn nOH to my third and final question:
.!hat
kind of timetable are 'He dealing with in returning the
economy to healthy, balanced, and sustainable grm}th?
In
essence, this question boils down to hoy] long it ,-.rill take
to live through cost-push and restore wage-price stability.
- 13 The goal is easy to define:
A restoration of the stable
relationship bet't\7een labor compensation and output per manhour which prevailed from 1960 to 1965 and was disrupted by
the demand-pull pressures which got under way in the latter
year.
During that period labor compensation (including wages
and benefits) and output per manhour (the measure of productivity) rose at steady and parallel rates.
The result
'vas stability in labor costs per unit of output and, cons:.;quently, no pressure from this source for rising prices.
Cost-push did not prevail and wholesale prices ,..,ere r2markably stable.
The average increase in compensation and productivity
in those years was 3.9 percent.
as oVerheating got under way.
But the pattern was shattered
In 1966, compensation rose
6 percent and productivity increased only 3-1/2 percent.
The result:
a' 2-1/2 percent rise in unit labor costs.
Such
costs rose by 4 percent in 1967, another 4 percent in 1968,
and a uhoppinS 6 percent in 1969.
Paralleling this trend,
all major price indexes 'rose at an accelerating rate until
the latter half of 1969.
Stability in unit labor costs can be restored by a higher
rate of increase in output per manhour, slower rate of
- 14 in labor compensation or, as is more likely, som~
growth
combination of the
t\'lQ.
i:hat lessons does past experience
hold for the current difficult period?
During the four periods of economic slack bett;'7e8n
~;orld
.,'ar II and 1961, output per manhour began to increase
after
t~vo
quarters of level or declining economic activity.
At that point, changes in labor compensation per manhour
became critical in respect to price increases.
In those
four instances, compensation lagged behind productivity
gains and unit labor costs turned dowrl't'lard in the third
quarter following the peak of the expansion.
\fuile I do
not predict such a rapid turnaround this time I think
2xperiences
Sh0\7
that
th,~
thes~
return to wage-price stability
d02s not take as lon3 as many people have predicted.
It is also
encourag:i.n~
to note that
product~v:i_ty
output per manhour -- increased at an annual rate of almost
2 Jercent in the fourth quarter of 1969 after declining in
the three previous quarters.
Th~re
can be little doubt that \vage settlements nego-
tiated in 1970 will
have a major impact on the speed ~vith
~7hich De return to wage-price stability.
Close to 5 million
workers ,,·7ill be covered by contracts that v7111 be settled
I
,
,
- 15 during 1970.
That is about twice as many as were involved
in wage settlements in 1969.
Last year, collective bargaining agraements shml7ed
7-1/2 percent over the life of
median advances of
contract.
th~
That figure is about twice as high as th8 10n3-
run increase in productivity.
But the bargaining posture yill be markedly different
on both sides of the table this year.
shmJ2d a quarter to
quart~r
decline further in 1970.
dllindlin,3.
that they
Profits
befor(~
taxes
decline in all of 1969 and may
Inflationary expectations are
Businessmen 'vill be painfully aware of the fact
~'Jill
not be able to pass on 2xcessive ,';rage in-
creases in the form of higher prices.
At the same tima, labor leaders cannot ignore the
softening in labor markets.
There is another dim2nsion to the employment situation
i:;1at ;':;ccr2tary Schultz brought to my attention recantly.
That J.s, He frequently i;;nore the nonunion portion of th2
labor force.
5
mill~on
\.hile pub15.c att::mtion \ViII be focl.1s:;Q on the
workers covered by contracts this year and the
4 million receiving increases from previous contracts,
"'.72.
should also 'vatch what is happening to the other 71 million
members of the labor force.
- 16 The nonorganized portion of the labor force is more
rapidly affected by changes in basic economic conditions.
These workers usually receive pay increases faster than
union workers during d9mand-pull inflation and at a slower
pace ;;·Jhen such pressures abate.
A good example of this adjustment is in hiring college
and business school ;raduates.
There have been many
articles recently about companies cutting back on their
colleg8 recruitm2nt programs.
There have also been stories
indicating a slmJdmm in the rapidly rising starting salari2s paid to college and business school graduates.
Main-
tainin6 the line on ne;;v 2ntrants can help significantly to
stabilize total labor costs.
My conclusion is that the road back to 't'Jage-price
stability -- and, therefore, to balanced and sustainable
growth -- may not be nearly so long as some observers predict .
. jummary.
.
Let me summarize my testimony as fo110;;·!s:
First, restrictive :fiscal and monetary policies have
brought demand-pull inflation under control.
The economy is
nm, in the painful but necessary phase of cost-push pressures.
This means that additional heavy restraint must be avoided,
else
we
risk recession and high unemployment.
But
,\;e
should
guard carefully against the type of rapid turnaround in
- 17 policy which in 1966-67 prevented the necessary cost-price
adjustments from taking place, and which laid the base for
the extremely strong demand-pull inflation oE 1963 and the
first half of 1969.
Second, direct \Vage-price controls '\'loulJ b2 a cumbersome, costly, and extremely disruptive method of keep:;.ng
cost-price pressures under control during the period of
transition to stability.
Third, j altlboning of the typ:= aimed at specific \Jageprice decisions, would either be ineffective, if applied
throu3h voluntarism, or highly inappropriate, if implemented
by m2ans of 2xecutive POvler
0
Jinally, the natural economic forces
affectin~
both
busin :=!ss and labor today 'Hill 2nC0'l.1rage dec:Lsio'llS ,,:hat move
us
do~m
th2 road to wage-price stability.
Cur studies of
past exper5.ence irdicate that the transition to a mor,,=; stable
~(:onomy
may not tak3 as lon.]; as 30m2 obs;;rvc>rs are preJictin3.
000
~EASURY
DEPARTMENT
,
WASHINGTON, D.C.
March 13, 1970
-,EASE ON RECEIPT
TREASURY SECRETARY NAMES HUNTINGTON BANKER
NEW SAVINGS BONDS CHAIRMAN FOR WE3T VIRGINIA
William G. Powers, president, Huntington Trust and Savings Bank,
1tington, has been appointed by Secretary or the Treasury
vid M. Kennedy as Volunteer State Chairman for Savings Bonds in
st Virginia, effective immediately.
Mr, Powers, who served as "Share-in-America" campaign chairman
r thefuntington area in 1968 and 1969, will head a committee of
ate business, financial, labor, and governmental leaders who -rking with the U.S. Savings Bonds Division -_. assist in promoting
e Bond Program.
He is a member of the West Virginia Board of Banking and Fincial Institutions, Chairman of the Legislati.ve Cormnittee of the
st Virginia Bankers Association, President-E I.Ect of the Huntingn Rotary Club, Vice President of the Hunting~on Chamber of Comrce, and a member of Huntington's Municipal Parking Board.
During World War II, Mr. Powers served in the Army and is now
retired colonel in the Army Reserve.
Mr. Powers is a graduate of the School of Banking of the
liversity of Wisconsin and attended Marshall University in
lntington. He began his banking career in 1950, joining the staff
f Hungtington Trust and Savings, in 1962, as Executive Vice president.
= was named President in 1966.
He is married to the former Bernice Sullivan.
000
THE DEPARTMENT OF THE TREASURY
WASHINGTON. D.C. 20220
March 12, 1970
Dear Mr. Chairman:
Transmitted herewith is a draft bill which would
carry out the recommendations made in my testimony
before this Committee on March 2, 1970. The Treasury
Department believes this draft will better achieve the
stated objective of H.R. 15073, to curb the use of
foreign financial transactions in connection with tax
evasion and other crime by u.s. citizens and residents
without imposing upon the public and the economy the
unwarranted burdens that would result from enactment
of the current version of H.R. 15073 (Committee Print
dated March 11, 1970, which is the latest version
which has been made available to us).
The Treasury draft would maximize assistance to
law enforcement and minimize burdens upon the public
and economy.
H.R. 15073, by contrast, does the reverse
it maximizes these burdens while minimizing enforcement
effectiveness. Our draft bill offers the further advantages
of brevity, clarity, ease of application and flexibility not
shared by H.R. 15073.
We have undertaken to prepare and submit this alternative draft because of the failure of our representatives
to reach any reasonable accord with the Committee and House
staff in amending H.R. 15073 to accommodate the points
raised in mybestimony on March 2, 1970. The failure to
reach an accommodation surprised me especially in light of
the favorable reaction of yourself and the other Committee
members to that testimony.
Because of the tight time schedule set by the Committee,
our technical experts have been compelled to work upon this
legislation, consult with the Committee staff, and at the
same time conduct a full week of day-long discussions with
representatives of the Swiss government concerning the
possibility of a treaty germane to the subject matter of
this legislation.
These facts have been made known to the
Committee.
- 2 -
At this time, I would like to point out to you
and the members of the Committee the principal reasons
why H.R. 15073 should be amended by substituting the
attached Treasury draft bill.
1.
Mandatory recordkeeping.
Section 21(d) of the revised Committee print
of H.R. 15073 would require the mandatory photocopying
at least one time and perhaps more (due to the lack of
clarity of the language) of every check whiCh passes
through the American banking system, the overwhelming
percentage of which are entirely domestic transactions
without any connection to foreign bank accounts and which
are of minimal interest in domestic law enforcement. At
a minimum, this would require copies' be made annually of
over 20 billion items. This figure would increase in the
future with the rapid expansion of banking facilities in
the United States.
As pointed out in my testimony, this kind of recordkeeping is wasteful, duplicative and counterproductive.
On the other hand, the Treasury bill would authorize
the Secretary to require these records (as well as other
records) if, and to the extent, he determines they are
likely to have a high degree of usefulness in criminal,
tax or regulatory investigations or proceedings. The
Treasury approach would give the needed flexibility to
require those records be kept which are in fact deemed
necessary.
Section 101 of H.R. 15073 contains exactly the opposite
stress from that which the Treasury Department has concluded
to be correct at this time. Whereas the Treasury Department
in its testimony indicated the precise types of records
that should be kept with respect to international transactions, we concluded that there was insufficient knowledge
at the present time as to which additional records should
be required of domestic transactions. By comparison,
H.R. 15073 requires the photographing of all checks drawn
on domestic banks without regard to any international
.
connections, and as a secondary matter establishes authonty
for the Secretary of the Treasury to require such ot~er
records as he may prescribe. This latter provision ~s
pre~urnably ~ntended to allow requirements for records
of ~nternat~onal transactions.
/
L- /
/
- 3 -
2.
Stated purposes of bill and standards for administrative
action.
Sections 21 (a) (1), 21 (f), 411 (a) (1), and 411 (f)
of H.R. 15073 when combined give the Secretary of
the Treasury a highly questionable type of authority
and one which is clearly not relevant to the ostensible
purpose of H.R. 15073 indicated by the Committee to curb
the illegal use of foreign bank accounts. These sections
would permit the Secretary of the Treasury to require
insured banks and savings institutions to maintain any
records and evidence which he considered would facilitate
the supervision of the businesses of banking and savings
institutions.
Similarly, Section 202 of Title II of H.R. 15073
states that two of the purposes of this Title are to
facilitate the supervision of financial institutions
properly subject to Federal supervision, and to provide
for the collection of statistics for the formulation
of monetary and economic policy. General Federal supervision
of the types of businesses subject to reporting requirements
under this Title is unrelated to the need to curb the illegal
use of foreign bank accounts or the need to improve law
enforcement in general.
By comparison, all three operative sections of the
Treasury bill provide a very relevant standard for the
Secretary to apply in considering the types of records
financial institutions should be required to maintain
and the types of reports which must be filed, namely,
those which "are likely to have a high degree of usefulness
in criminal, tax or regulatory investigations or proceedings."
3.
Types of financial institutions subject to recordkeeping requirements • .
Whereas Section 123(b) of H.R. 15073 limits the
types of businesses which could be subject to recordkeeping
requirements, Section 102(g} of the Treasury bill would
- 4 permit the Secretary to extend these recordkeeping
requirements to other types of institutions as he
may specify. This gives the Secretary necessary
flexibility to carry out the objectives of the Treasury
legislation.
4.
Enforcement of provisions for reports of exports
and imports of currency.
The provisions of H.R. 15073 which are relevant
to enforcing the requirement for reports of exports
and imports of currency are seriously deficient.
First, there is no clear delegation of authority
to the Bureau of Customs to undertake the necessary
enforcement. The Treasury bill would authorize Customs
to do this to the extent necessary.
Second, it would be of considerable advantage
to treat the points of export and import the same
as for customs duty purposes. This would permit
coordination with the customs duty program by the
Bureau of Customs. However, Section 23l(a} (l) of
H.R. 15073 establishes the boundaries for this purpose
as "any place subject to the jurisdiction of the U.S."
Such boundaries are not the boundaries for customs
duties purposes which are restricted to the fifty states,
the District of Columbia, and Puerto Rico. By comparison,
the Treasury bill permits uniformity of treatment.
5.
Flexibility with respect to reports of exports and
imports of currency.
In addition, Section 231(a) of H.R. 15073 fixes
specific $5,000 individual and $10,000 annual minimum
figures for reporting exportations and importations
of currency. By comparison, the Treasury bill does
not fix any minimum figures, but permits the Secretary
to have the necessary flexibility to set the minimum
reporting figures at the optimum levels for both individual
and annual amounts of currency transported.
Section 231(b) of H.R. 15073 sets forth the specific
information which must be reported in connection with
exports and imports of currency. This provision does not
contain even sufficient flexibility to permit the sec7eta~
to require individuals filing these forms to give the1r
Social Security numbers, which are vital for the Internal
Revenue Service to relate the information of the curren~
- 5 -
transportation to the income tax record of the reporting
individuals or their principals.
By comparison, Section 302(c) of the Treasury bill
is broad enough to give the Secretary sufficient flexibility
to require all necessary information on these reports.
6.
Records and reports by individuals and corporations
of their foreign transactions.
The Treasury Department believes that Sections 241
and 242 of H.R. 15073 should be deleted as these Sections
provide for much unnecessary reporting and recordkeeping.
Section 241 would permit the Secretary to require reporting
or recordkeeping of transactions by U.S. institutions
which deal with foreign financial institutions on behalf
of customers, as well as by the individuals and corporations
which directly deal with foreign financial institutions.
The existence of a possibility that· this Section could
be used to require reporting of all transactions with
foreign institutions is totally unnecessary.
On the other hand, as stated in my testimony, it is
believed the most effective information in this area
would be knowledge of the maintenance of the direct or
indirect interest in a foreign bank account or other
account in a foreign financial institution. The disclosure
of such information could be most effectively accomplished
in conjunction with the filing of the annual tax return.
In light of this fact, it would be more reasonable and
more effective for this necessary reporting requirement
to be made part of the Internal Revenue Code or to be
implemented through regulations pursuant to existing
statutory authority. I am pleased to inform the Committee
that the Internal Revenue Service will require the disclosure of this information on the 1970 income tax forms.
With such a disclosure requirement where information on
transactions of particular persons is required, this can
be ob~ained under existing procedures.
To summarize, the Treasury bill would maximize
enforcement and minimize the imposition of burdens
on the public and economy. H.R. 15073, by contrast,
does the reverse -- it maximizes the burdens while
minimizing enforcement effectiveness.
- 6 .-
Therefore, we urge that you and the Committee
substitute for the present version of H.R. 15073
the draft bill transmitted to you with this letter.
This action, combined with the action which
we hope that the Ways and Means Committee will take
on the Treasury presumption proposals discussed in
my testimony of March 2, 1970, and which we plan
to submit shortly to that Committee, will make us
better able to combat organized crime and white collar
crime in their use of foreign banks to achieve criminal
objectives.
Sincerely,
r~
e T. Rossides
The Honorable Wright Patman
Chairman, Banking and Currency Committee
House of Representatives
Washington, D. C.
Enclosure
3/12/70
Treasury Department Draft
A BILL
To require that certain financial institutions
maintain certain records, and file certain
reports, require that persons exporting or
importing large amounts of currency or the
equivalent file reports, and for other
purposes.
Be it enacted by the Senate and House of
Representatives of the United States of America
in Congress assembled,
CHAPTER l--RECORDKEEPING BY BANKS AND CERTAIN
OTHER FINANCIAL INSTITUTIONS
SECTION 101.
MAINTENANCE OF RECORDS AND EVIDENCE.
The Secretary may by regulation require
any domestic financial institutions to retain
or maintain in the United States any types of
records or evidence which he determines are
likely to have a high degree of usefulness in
criminal, tax or regulatory investigations or
proceedings.
SEC. 102.
DOMESTIC FINANCIAL INSTITUTION.
For the purpose of this chapter, the term
"domestic financial institution" shall include
- 2 -
any person performing in the United States any
of the following functions as a business -(a) Banking;
(b) Issuing checks or travelers checks;
(c) Redeeming or cashing checks or travelers'
checks otherwise than as an incident to the
conduct of its own nonfinancial business;
(d) Dealing in foreign currencies;
(e) Operating a credit card system;
(f) Transferring or transmitting funds
internationally or domestically;
(g) Such functions as may be specified by the
Secretary in regulations.
SEC. 103.
REGULATIONS.
The Secretary may prescribe such regulations
as he may deem appropriate to
carry~ut
the provisions
of this chapter, including but not limited to -(a) the contents and form of records
required pursuant to this chapter.
(b) the period any type of record or evidence
required pursuant to this chapter shall be retained.
- 3 (c) procedures to be followed by domestic
financial institutions in complying with the
requirements imposed under this chapter.
SEC. 104.
SEPARATE VIOLATIONS.
For the purposes of any civil or criminal
penalty, a separate violation of any requirement
under this chapter occurs with respect to each
day and each separate office, branch or place
of business in which the violation occurs or
continues.
- 4 CHAPTER 2--REPORTS OF CURRENCY TRANSACTIONS
INVOLVING DOMESTIC INSTITUTIONS
SEC. 201.
REPORTS OF CURRENCY TRANSACTIONS.
The Secretary may by regulation require that
there be filed with him reports, involving any
domestic currency
institutio~
of transactions
involving the payment, receipt or transfer of
united States currency or the equivalent, which
he determines are likely to have a high degree
of usefulness in criminal, tax or regulatory
investigations or proceedings.
SEC. 202.
PERSONS REQUIRED TO FILE REPORTS.
Any report required under this chapter shall
be made, signed and filed by the domestic currency
institution involved and, to the extent the
Secretary shall by regulation require, by one or
more of the other parties to the transaction or
participants therein.
If any party to or
participant in the transaction is not an
individual acting only for himself, the report
shall identify the person or persons on whose
behalf the transaction is entered into.
- 5 SEC. 203.
DOMESTIC CURRENCY INSTITUTION.
For purposes of this chapter, the term
"domestic currency institution" shall include
any person which does business in the United
States in anyone or more of the following
capacities:
(a) a commercial bank or trust company;
(b) a private banker;
(c) an investment banker;
(d) industrial bank
(e) an insured institution as defined in
section 401 of the National Housing Act;
(f) a savings bank, building and loan
association, or credit union;
(g) a broker or dealer in securities or
commodities;
(h) a currency exchange;
(i) an issuer or redeemer of travelers'
checks, checks, money orders, or similar
instruments;
(j) an operator of a credit card system;
(k) a dealer in precious metals, stones
or jewels;
- 6 -
(1) a pawnbroker;
(m) federal, state or local government
institutions which perform any of the functions
of any of the businesses listed above;
(n) finance or loan
companie~
(0) any person which does any business in
any capacity as may be specified by the Secretary
in regulations.
SEC. 204.
REGULATIONS.
The Secretary may prescribe such regulations
as he may deem appropriate to carry out the provisions
of this chapter, including but not limited to
(a) the definition for purposes of this
chapter of "United States currency or the equivalent
(b) the magnitude of denominations and
transactions subject to the requirements of this
chapter;
(c) the procedures, and any conditions, for
exemption~
(d) the procedures to be followed by the
domestic currency institutions to identify and
record the identity of the other parties to the
transaction or the participants therein;
II ;
- 7 (e) the form and contents of any report
required pursuant to this chapter:
(f) the frequency and manner of filing of
the reports required pursuant to this chapter;
(g) the obligation of the domestic currency
institution to retain in the United States
a copy of any report filed pursuant to this
chapter and the minimum period of retention;
(h) the procedures to be followed by domestic
currency institutions in complying with the
requirements imposed under this chapter.
- 8 CHAPTER 3--REPORTS OF EXPORTS AND IMPORTS
OF CURRENCY
SEC. 301.
REPORTS REQUIRED.
(a) the Secretary may by regulation require
that whoever, whether as principal, agent, or
bailee, or by an agent or bailee, knowingly
transports or causes to be transported currency
or transferable instruments
(1) from any place within the United
States to any place outside the United
States, or
(2) to any place within the United
States from any place outside the United
States
in such amounts, on anyone occasion or during
anyone calGndar year, as he shall specify shall
file with the Secretary such report or reports
which the Secretary determines are likely to
have a
high degree of usefulness in criminal,
tax or regulatory investigations or proceedings.
(b) Subsection (a) does not apply to any
common carrier of passengers in respect of
currency or transferable instruments
in the
possession of its passengers, nor to any common
,--r)
'-
(/
- 9 carrier of goods in respect of shipments of
f
\
currency or transferable instruments not
declared to be such by the shipper.
SEC. 302.
REGULATIONS.
The Secretary may prescribe such regulations
as he may deem appropriate to carry out the
provisions of this chapter, including but not
limited to
(a) the definition for purposes of this
chapter of "currency or transferable instruments";
(b) the magnitude of denominations and
amounts transported subject to the requirements
of this chapter;
(c) the procedures, and any conditions, for
exemptions;
(d) the form and contents of any report
required pursuant to this chapter;
(e) the time and manner of filing reports
required pursuant to this chapter;
(f) special rules for exports or imports of
currency or transferable instruments by mail or
carrier;
(g) the procedures to be followed by the Bureau
of Customs, including border and mail checks, to
assure compliance with the requirements imposed by
this
chapter~
t)
- 10 SEC. 303.
FOREFEITURE.
(a) Any currency or transferable instrument
which is in the process of being transported with
respect to which any report which is required to
have been filed under section 301 either
had not
been filed or contained material omissions or
misstatements is subject to seizure and
forfeiture to the United States.
(b) For the purpose of this section, currency
or transferable instruments transported by mail,
by any common carrier, or by any messenger or
bailee, is in process of transportation from the
time it is delivered into the possession of the
postal service, common carrier, messenger, or
bailee until the time it is delivered into or
retained in the
posses~ion
of the addressee or
intended recipient or any agent of the addressee
or intended recipient for purposes other than
further transportation within, or across any
border of, the United States.
SEC. 304.
CIVIL LIABILITY.
The Secretary may assess a civil penalty upon
any person who fails to file any report required
- 11 under section 301, or who files such a report
containing any material omission or misstatement.
The amount of the penalty shall not exceed the
amount of the currency or the actual value of
the transferable instrument with respect to
whose transportation the report was required
to be filed.
The liabilities imposed by this
section are in addition to any other liabilities,
civil or criminal, except that the liability under
this section shall be reduced by any amount
actually forfeited under section 303.
SEC. 305.
REMISSION BY THE SECRETARY.
The Secretary may in his discretion remit
any forfeiture or penalty under this chapter in
whole or in part upon such terms and conditions
as he deems reasonable and just.
- 12 CHAPTER 4--PENALTIES AND MISCELLANEOUS
SEC. 401.
CIVIL PENALTY.
(a) For each willful violation of this
Act, the Secretary may assess upon
(1) any domestic financial institution,
and any partner, director, officer,
or employee thereof who willfully
participates in the violation,
(2) any domestic currency institution
and any partner, director, officer, or
employee thereof who willfully participates
in the violation, and
(3) any persons required to make,
sign or file a report
a civil penalty not exceeding $1,000.
(b) In the event of the failure of any
person to pay any penalty assessed under this
Act, a civil action for the recovery thereof
may, in the discretion of the Secretary, be
brought in the name of the United States.
- 13 SEC. 402.
CRIMINAL PENALTY.
Whoever willfully violates any provision of
this Act or any regulation under this Act shall
be fined not more than $1,000, or imprisoned
not more than one year, or both.
SEC. 403.
ADDITIONAL CRIMINAL PENALTY IN CERTAIN CASES.
Whoever willfully violates any provision of
this Act where the violation is knowingly
committed in furtherance of the commission of
any other violation of Federal law punishable by
imprisonment for more than one year shall be
fined not more than $10,000 or imprisoned not
more than five years, or both.
SEC. 404.
INJUNCTIONS.
Whenever it appears to the Secretary that
any person has engaged, is enaged, or is about
to engage in any acts or practices constituting
a violation of the provisions of this Act, he
may in his discretion bring an action, in the
proper district court of the United States or
the proper United States court of any territory
or other place subject to the jurisdiction of
- 14 the United States, to enjoin such acts or
practices, and upon a proper showing a permanent
or temporary injunction or restraining order shall
be granted without bond.
Upon application of the
Secretary, any such court may also issue mandatory
injunctions commanding any person to comply with
the provisions of this Act.
SEC. 405.
RESPONSIBILITY OF SECRETARY.
The Secretary
shall have the responsibility
to assure compliance with the requirements of
this Act and to the greatest extent possible
delegate such responsibility to the appropriate
bank
supervisory agency, or other supervisory agency.
SEC. 406.
ADDITIONAL DEFINITIONS.
(a) The definitions set forth in this section
apply for purposes of this Act.
(b) The term "Secretary" means the Secretary of
the Treasury.
(c) The term "individual" means a natural person.
(d) The term "person" includes individuals,
partnerships, trusts, estates, associations, corporations,
and all other entities cognizable as legal personalities.
(e) The term "United States" includes the States
and the District of Columbia, and to the extent the
Secretary shall by regulation specify, the possessions
of the United States, the Commonwealth of Puerto Rico,
"' I
,->- (I j
- 15 united States military establishments, and United States
diplomatic establishments.
SEC. 407.
EXEMPTION FROM DISCLOSURE.
All records and reports required under this
Act and all records of any such reports are specfically
exempted from disclosure under section 552 of title 5,
United States Code.
SEC. 408.
18 USc 1001.
For the purposes of section 1001 of title 18,
united States Code, the contents of reports required
under any provision of this Act are statements and
representations in matters within the jurisdiction of
an agency of the United States.
SEC. 409.
AVAILABILITY TO OTHER FEDERAL AGENCIES.
The Secretary shall make any information set
forth in reports filed pursuant to this Act available
to such departments and agencies of the Federal government,
upon such conditions and pursuant to such procedures
as he may prescribe by regulation.
\
--
REASURY DEPARTMENT
WASHINGTON. D.C.
March 13, 1970
FOR IMMEDIATE RELEASE
TREASURY DETERMINES PERCENTAGE FIGURE FOR
FOREIGN LIFE INSURANCE COMPANIES FOR TAXABLE '69
The Treasury Department today announced that for
purposes of computing income tax for the taxable year 1969
and estimated tax for the taxable year 1970, a
percentage of 1505 shall be used by foreign corporations
carrying on a life insurance business in determining
the "minimum figure" under section 819 of the Internal
Revenue Code of 1954.
Section 819 of the Code requires the Secretary
of the Treasury to determine a percentage figure
annually, to be used in a statutory formula, to
determine in effect the amount of taxable income of
foreign life insurance companies having ~ssets and policy
liabilities in the United States that mm~t be reported
for Vo So income tax purposeso
The percentage figure is based on data with respect
to domestic life insurance companies
The percentage
for the taxable year 1969 and estimated tax for the
taxable year 1969 was 15. The new percentage figure
will be published in the Federal Register next week.
0
000
K-367
REi\SURY
DEPARTMENT
uca ....z
-
•
CJ~
WASHINGTON. D.C.
March 13, 1970
FOR IMMEDIATE RELEASE
SALE OF $1-3/4 BILLION SEPJ:EMBER TAX ANTICIPATION BILLS
The Treasury Department today announced the sale
of $1-3/4 billion of tax anticipation bills which will
mature in September 1970.
The bills will be auctioned on Thursday, March 19,
for payment on Thursday, March 26.
may make payment for their
OID1
Co~~ercial
banks
and their customers I
accepted tenders by crediting Treasury tax and loan
accounts.
The bills will mature on September 22, 1970, but
may be used at face value in payment of Federal income
taxes due on. September 15, 1970.
000
K-368
rREASURY
I
DEPi~RT~\f1E~JT
=1_~~~~&",~::7!'~~§L~~~
~I
-
-
W,t\SHiNGTON, D.C.
)R IMMEDIATE RELEASE
March 13, 1970
TREASURY OFFERS $1-3/4 BILLION IN SEPTEMBER TAX BILLS
The Treasury Department, by this public notice, invites tenders for $1,750,OOO,OO(
r thereabouts, of Iso-day Treasury bills, to be issued on a discount basis under
:Jropetitive and noncompetitive bidding as hereinafter provided. The bills of this
eries will be dated
March 26, 1970
and i'fill mature September 22, 1970. TPey 'Ivil]
e accepted at face value in payment of income taxes due on September 15, 1970 and to
he extent they are not presented for this purpose the face amount of these bills 'rill
e payable without interest at maturity. Taxpayers desiring to apply these bills in
a~aent of September 15, 1970
income taxes may submit the bills to a Federal Reserve
ank or Branch or to the Office of the Treasurer of the United States, h'ashington, not
ore than fifteen days before that date. In the case of bills submitted in payment of
ncoroe taxes of a corpore,tion they shall be accompanied by a duly completed Form 503
nd the office receivIng these itenill will effect the deposit on September 15, 1970.
n the case of bills su1J;ni tted in pe,yment of income taxes of all other taxpayers, the
frice receiving the bills ,'11.11 issue recej.pts therefor, the original of which the
8.XJlayer shall submit on or before September 15, 1970 to t.he District Director of
nternal Revenue for the District in v[hich such ta.xes are prwable. The bills w.ill be
ssued in bearer form. or~y, and in denomina.tions of ~l:O-;-OOO' and $ 50, 000
,100,000, $500,000 and ~;l, 000,000 (maturity v8~lue).
Tenders will be received at Federal Reserve Banks and Branches up to the closing
our, one-thirty p.m., Eastern standard time, Thursday, MaTch 19, 1970.
'enders will not be received at the Treasury Department, Washington. Each tender must
e for an even multiple of $10,000, and in the case of competitive tenders the price
ffered must be expressed on the basis of 100, "\In th not· more than three decimals,
. g., 99.925. Fractions rnay not be used. It is urged tha.t tenders be made on the
Irinted forms and fon,,"a:rcled in the special envelopes which will be supplied by Federal
teserve Banks or Branches on application therefor.
Banking institutions generally may submit tcndern for A.CCOunt of customers providec
,he names of the customers are set forth in such tenders. others than banldng insti tu,ions will not be pcrroitied to submit tenders except for their Oim aCCOlli'1t. Tenders
rill be received without cleposi t from incorporated ba11ks and trust companies and from
'esponsible and recogn.i.zed dealers in investment securities. Tende:cs from others must
Ie accompanied by payment of 2 percent of the face amount. of Treasury bills applied
'or, unless the tenders are accompanied by an express guaranty of pa;','1nent by an
ncorpor&ted bank or trust company.
All bidders are req'uired to agree not to ·lHrtCOOSe or to sell, or to make any
.greements ·H1. th respect to the purch:lse or sale or other cEsposi tion of any bills of
;his issue at a specific rate or price, tmtil after onc-thirty p.m., Eastern stllnclard
;:i.rne ,
K-369
··2lJYJlIlccliatcJ:v after the clo::;j.n:~ hour, tenders i'iill be opCTH:: 0_ at thc }'cderQI Rccc
o
,:,::
:ikr, 8.ncl }3rancLC'3, 1'0110\7.;)1:.; \'lhich public annOlJ.ncerncnt Fill 11e mo.de by t!li2 TrCo.Si.H'2;
[lQrtlrICll~ of t.}-j(.~ ~U:l0i.mt ~t:lc1 l)1'ice J'D:n:e of acceJ'tcd bilLs.
O!lly those :"uLrni ttin0
'or)(~t:itive tcnc:cl'G \'rill be acivi:~ccl of i.JJ2 QCcr?:p'L;:ncc or rejection tllcr(:oi'.
'J.Tnc
::l'ctary of t.}:c 'J'j"caGury CZr)rCs;~J.~1 l'e;;crves tLc i'j.:..-;ht to accept or rcjc:ct <lDy or c22.
ndcI';], in wbolc or in T'cn,,·t, and his o.ction in [:1'1.'( 0u(;11 rccre:et sbQl1 be fined.
i)jcct to these: n;scrVctt.lon;:;, nonco::'J',:,titive tC:l;:le:cs f'o:(' :1;200,000
or le::si:) '.Ii tliO'..J"~
Qtc] price fl·C. 1:' [ElY one V;.c'tc.lr;r Hill be QCClTtcd in fuJ.l at tile (1\'c1'('l,:;e l)l'icc (in
rcc dcCiJ'l:',ls) (If' acc(;:ptul CO:l1]Jct,it:ive bids. llclynent of accepted tencJ.cl';.; at the
ice::; offcrccl J:1U::;t. be made: or cCJ!I'j)letcJ(J. at the }'cdc::rcll Hc;!cJ:'\'C E:mt in c<;.011 or
her :iEJ!llcc1:i.D.tcJ:I EwailoJ)lc fund;:; on March 26, 1970.
Any qualificu cl.cpocH,Jxy
11 1)(: pCI']I;i tt,::Ci. to mal~c SI.;t tlC:lnc:nt. b:y credit ill i tr3 Tl'C'O"SUJ:'Y t[:.x and' loC'.Yl account
r l'.ccasury l)ills alloLtcd to it for it.self cmd its cu;;to;(l(~r;~.
1
The income c'ic:r'ived. f-:U7tl Trcr..sux'Y b:i..J~s, \:hc-L1V::l' intC::r'cct or g,dn frc))'l the sa.le c:!."
her C~E:.:roc:i ti en of the '1:>:\.118, du(:f, llot hG.'\'(: nu:v c:zC;;:lY:..,:i.ClT!) c.s such, and. loss f:.col'1
e saJc or oJ"hcr disposition of 'I:L"e,:s\jxy b~J~s ciucs not ll'.;.ve [my slJ8cial treat.!llcnt,
such ~ under tbe Intc:cfn.·1. Eeyel1'\J<'~ C00;:; of l;)~)(. ~L'hc bilJ.s 8.112 subject 1;0 (C.St-Citc,
herit<:ncc, C;i~:'c Ol~ ot)'lC:' e:{ci sc tc.:.-:c~:; vhs·;;l1e:r.- rC'(i.c~·nl c:- E)'(.,rd;c, tut orc exe,j"f,t f',t'c:-::
1 'l;'J.}·.ation nOI! 01' hercILl·t.(ej.' L'Ij)8ccrJ (1;1 the: I):,:';i~,c:i.:(l"l or :i.ntc)·cs-c thorcoJ~ by rcny
at:c, or any of '~~he fA);) Sc: :_~ i onn o:t tl1c t:ni "bRcl S ~~ (:.'-~ef; $ or- -t):,r (ln~r locnl tt~.:·=:i IJ--3 a 'l2JG1)oJ.. . ~~ t ~l'
r purJ:I~lf,CS of 't·<'.i~ot:ion t;JC c'c010,:)X!'C of (1.5. 8(;()l~):C cl'(', • .'hieh '.l'i.'C2i.:\.LY"f ldJJ.S en:: o)'i?:ir:~J,:LL:'
1 d 1);: th'3 Uni·~. '"<:l St,EJ.t,C S 1 c cons} i;.(;l'cd .leo rj(-; ~ r~_l:c ~-'l::';:t. • \.J:-~t1:. J. 8ce'~ions 0-~) .~, (b) nrJ(l
.r .....
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sued 1~cr':1mrl ':OJ' Cll'C; 80).(J. jr~ not c0nr3~i -:c::C (eJ. 'CD L(:(~YI.1'~ unU). [, uch bills I.~l c sold.,
c1CeJH2d or oi.;llcl"'::i.sc cJ.isT':)8ul of, nnd 0r:.i:~h bj :U_s "i'e c>~(::J~]l;'::: Q fro;;'! considcl'Dt:i..on as
'lDitcll C:.ssets. ieCGordj;;'>l.;.
the 0',1:,...:8, of' ~~'2e,:[;m'\T'" b:UJ.:3 (o:,j;;.::t them life. insul'Cl..nce
.... ..... '"
ll'fic,llics) :i.ss'.]c(t h'2rc'\Jl,c1';:C iv::eLl :i.llC}'1.1cL.' in bis ).llCO);',e 'b,.?: ycc','v.rn only tlJ(, 'Jiffcrenc'2
t'\~ecn the price :paid for cueh bills) ",ncther on o:riGinal is:::U8 or on SUbs8C]lJCnt
l'ck:r:c) fl.nd the ::rrJoun-c. [LCtU3.}J.y rece::i'i:'-'eJ. e).the}" \.>::<m 80.1(. or r'ec1c:!\J/C:Lon 8.t r:13..tn:ri·cy
!rir:::; t.he tllXable year fo:c iThieh the lCGUJ:'11 :is ~:,(;.c, 8.8 ol'clinary Gain 0): 10s s,
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'8scri'IJc the terms of the; ':L.'rco,sn:ty b:i.J.ls and coverD the cOL(l:;..bon.s of thc:i.r issue.
lP:i.CS of the c}.ycula:r l;·:.£()r he obt[cined fJ:'o:..n aiW re6.2rr:~ Re:~2rye Ban}: or LrCL"1ch.
fREASURY DEPP,RTMENT
WASHINGTON, D.C.
March 13, 1970
FOR IMMEDIATE RELEASE
ASSISTANT SECRETARY ROSSIDES ISSUES
STATEMENT ON SECRET BANK ACCOUNT BILL
In answer to queries, Assistant Treasury Secretary
Eugene T. Rossides, issued the following statement:
I left the executive session of the House Banking
and Currency Committee yesterday afternoon with a
clear nnd distinct impression that the overwhelming
majority of the members of that Committee desired
that Treasury and the Committee cooperate to achieve
workable legislation aimed at stopping the use of
secret foreign bank accounts for illegal purposes.
I intend to adhere to that mandnte from the
House Banking and Currency Committee, and have so
instructed my own staff, despite today's erroneous
and partisan attacks by the Committee chairman on
me personally concerning my personal motives and
with respect to the plain meaning of our bill #nd
my t~stimony of March 2, setting forth comprehensive
proposals which strengthened every aspect of t~e
original bill.
000
K-370
TREASURY DEPARTMENT
,
WASHINGTON, D.C.
REIEASE 6::30 P.M.,
iaY' March 16, 1970.
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 dated December 18, 1969, and the
!r series to be dated March 19, 1970, which were offered on March 11, 1970, were
~d at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
chereabouts, of 91-day bills and for $1,300,000,000, or thereabouts, of 1B2-day
ls. The details of the two series are as follows:
}E OF ACCEPTED
mrrIVE BIDS:
High
Low
Average
91-day Treasury bills
maturinei June 18. 1970
Approx. Equi v .
Price
Annual Rate
6.7851'
98 .285
98 .268
6.85~
98.272
6.836" !I
··
·
1H2-day Treasury bills
maturing SeEtember 172 1970
Approx. Equiv.
Annual Rate
Price
96.613
6.7001t
96.598
6.72~
96.6G9
6.707'f,
!I
61~ of the amount of 91-day bills bid for at the low price was accepted
44~of the amount of 182-day bills bid for at the low price was accepted
At TENDERS APPLIED FOR AlID ACCEPl'ED BY FEDERAL RESERVE r·ISTRICTS:
istrict
oston
ew York
hiladelphia
leveland
ichmond
tlanta
hicago
t. Louis
inneapolis
ansas City
alias
an Francisco
Applied For
Acce~ted
43,:360,000 $1,970,000
$
1,239,990,000
2,104,520,000
40,600,000
Z4,140,000
38,9:30,000
41,500,000
15,120,000
20,620,000
:30,920,000
5:3,3:30,000
211,680,000
:325,050,000
45,710,000
64,210,000
16,570,000
38,810,000
30,700,000
37,480,000
17,700,000
:32,500,000
97 2480,000
247 .190,000
APl21ied For
$ 18,610,000
2,072,700,000
18,:360,000
42,870,000
11,670,000
4:3,910,000
146,760,000
38,350,000
21,940,000
20,480,000
27,440,000
244 , 610 I 000
AcceEted
6,390,000
$
1,016,350,000
7,900,000
36,690,000
8,670,000
15,410,000
:39,930,000
24,750,000
4,570,000
19,510,000
14,190,000
106,920,000
TCYrAIS
$:3,049,170,000 $1,800,910,000
!I $2,707,700,000
$1,301,280,000
E.I
Includes $366,2~0,000 noncompetitive tenders accepted at the average price of 98.272
Includes $177,420,000 noncompetitive tenders accepted at the average price of 96.609
These rates are on a bank discount basis. The equivalent coupon issue yields are
7.0S~ for the 91-day bills, and 7.04" for the 182-day bills.
TREASURY DEPARTMENT
Washington, D. C.
FOR RELEASE ON DELIVERY
REMARKS BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
AT THE ANNUAL MEETING OF THE AMERICAN PAPER INSTITUTE
WALDORF-ASTORIA, NEW YORK, NEW YORK
ON TUESDAY, MARCH 17, 1970, AT 10:30 AM
As my contribution to this morning's panel, I want to
consider the financial dimensions of living with prosperity.
My main focus will be the problem of financing sustained
domestic growth.
But I also want to touch briefly on our
external financial relationships, because the progress of
our economy -- and that of trading partners -- is closely
tied to the health of the dollar internationally.
Certainly the paper industry
-- highly capital inten-
sive and international minded -- has been affected by the
financial strains of recent years.
Domestically, with
investment spending doubling in the past decade, the historic
highs in interest rates have created a heavy burden.
Inter-
nationally, you have not been exempt -from the competitive
pressures implicit in rising U. S. costs or prices -- nor
can you, as major international investors, look with
equanimity on the fact that the U. S. in recent years has
- 2 -
had to maintain restraints on foreign investment out of
concern for international financial stability.
Even so, your industry has been able to cope with the
domestic financial pressures better than other sectors of
the economy
home buyer.
especially the hard-pressed home builder and
I was also delighted to see that you achieved
a considerable rise in exports during the 1960's and are
holding your imports relatively steady.
But, over the same
period, the nation as a whole has experienced a substantial
decline in our traditional trade surplus.
It seems to me plain that the financial strains and
imbalances of recent years are incompatible with the sustained prosperity of the U. S. economy.
Therefore, we must
understand the causes and deal with them effectively.
The first, and most fundamental, point that I would
make is that the financial turbulence of recent years has
been mainly an outgrowLh of the inflationary process.
From
1965 through most of last year, spending pressures -- public
or private -- tended to outrun our capacity to generate
production and savings.
both
The financial counterpart has been
- 3 -
more demand for credit than could be satisfied.
As expec-
tations of inflation and high rates became more firmly
imbedded with the passage of time, the financial strains were
further aggravated by a tendency to "borrow now and pay later."
The link between an overheated economy and financial
strains may seem so self-evident that it does not bear
repeating.
But, from my particular vantage point, I cannot
help but be impressed by the number of proposals that would
purport to deal with the latter without affecting the former
and which, indeed, in many cases, would only add to the
pressures.
The problem can be aptly illustrated in the case of
mortgage financing, which normally accounts for about onefifth of net credit extensions.
In an aggressive and useful
effort to moderate the developing squeeze on that market,
Federal agencies and Government-sponsored institutions
provided some $8.4 billion to the residential mortgage market
last year.
By the final quarter, they had stepped up their
activities to the point that they financed three-fifths of
the entire growth in residential mortgages.
Nevertheless,
the vast extension of Federally-sponsored credit could do no
- 4 -
more than cushion the pressures.
With an excess demand
for total credit, private and public borrowers in a stronger
competitive position drew funds from potential mortgage
lenders even faster than the Federal activities speeded up.
Indeed, the financing of the Federally-sponsored credit
extension was one important source of the pressure on private
mortgage-buying institutions.
Nor could an answer be found in an effort to increase
the supply of credit by creating new money -- a process that,
in the circumstances could only have added another twist to
the spiral of inflation and, thus, to interest rates.
In
other words, in a situation where there is already an
excessive demand for credit, relief for one sector can only
effectively be achieved by squeezing it out of another.
Unless one is prepared to consider controls as a way of life and I do not and doubt their effectiveness -- the only
realistic alternative is to deal with the overheating in the
economy itself.
The Administration, in inheriting an inflationary
situation with strong momentum, took this course.
The job
- 5 -
turned out to be even harder than we contemplated a year ago.
But the fact is that the reins were held tight in the face
of the ever-present temptations to yield -- to cut taxes
sooner than would have been prudent, to give way to pressures
to spend more for admittedly worthy causes, or to create more
money in an effort to dampen the massive pressures in the
credit markets and reduce financing costs.
We are now seeing the first fruits of this decision.
Excess demand has been squeezed out.
The inflationary
psychology does seem to be waning
even though the momentum
of rising prices is still strong.
And tensions in the credit
markets have begun to rela.x.
I do not underestimate the difficulties that lie ahead.
The pressures on prices and costs will die down only over a
period of time.
Employers and employees alike will be testing
their bargaining strength in an atmosphere in which price
increases jeopardize markets and profits are vulnerable to a
cost squeeze.
No one has found the way to make that diffi-
cult process either instantaneous or painless.
But it does
work -- and a combination of reduced price expectations and
restored productivity growth could ease the way toward a more
stable price level.
- 6 -
Clearly, we must be responsibly alert to the risks
implicit in any important change in the economic environment
that psychology and cumulating forces may carry the swing too
far; or that, in over-reacting to a temporary showdown, we
might underwrite a new unsustainable burst of demand pressures.
But, recognizing the risks on either side, I believe we are
on a course that promises a more settled atmosphere in
financial markets and is fully consistent with a strategy
for maintaining a better balance in the future.
There has already been some drop in interest rates from
the historic peaks around the turn of the year.
The decline
has been 1 percent or more in money market instruments,
almost 1 percent on medium-term Treasury securities and nearly
as much for municipal bonds, and perhaps 1/2 percent for new
corporate issues.
There is also some evidence that banks and
savings institutions, after a rough winter, are beginning to
see steadier deposit flows.
Certainly interest rates, by any historical standard,
are still very high and financial mar'kets remain unbalanced.
Some time will have to pass before our financial institutions
- 7 can plan ahead with full confidence.
The heavy volume of
corporate and municipal market financing in the wings is
warning enough that, after five years of heavy pressure, a
r~turn
to rate levels once considered normal will be a long
and difficult process.
Nevertheless, the significant changes
in the economy are laying the groundwork for a restoration
of a better balance in the financial markets.
This has some direct implications for the. mortgage
market.
I believe that this country can develop the capacity
to finance its housing needs and desires over the longer run -if the economy as a whole is not under excessive strain.
But the mortgage market, historically, is slow to react to
an easing of tensions.
Theimmediate challenge is to speed
the process by a vital six to nine months.
This is one object of the array of special measures
adopted or proposed by the Administration in recent weeks.
These include maintenance of a high level of activity by
FNMA and the Home Loan Banks, reinforced in the latter
instance by the provision of subsidy funds sufficient to
induce member savings institutions to employ more funds in
- 8 the mortgage market.
These activities will be supplemented
by a secondary market for conventional mortgages on the
~odel
of the successful FNMA facility.
Meanwhile, we in the Treasury have had discussions with
several key investor groups -- including pension funds, life
insurance companies, and commercial banks -- to elicit their
voluntary cooperation in financing residential construction.
This process will be facilitated by making so-called mortgage,
backed bonds
fully-guaranteed bonds issued against a pool
of mortgages
available in some volume in coming months.
In this way, a simple marketable investment instrument will
be provided for those investors who find a mortgage an
awkward vehicle for employing their funds.
The key objective is to make mortgage commitments more
readily available for the Spring and Summer building starts
so we are facing real time pressure.
We are definitely
encouraged in this objective by the early response of some
key lending groups.
But we are under no illusions.
This
voluntary effort, and, indeed, the other measures to help the
- 9 -
mortgage market, cannot be fully effective unless they are
accompanied by a better balance in the over-all supplies and
demands for credit.
This underscores the central importance of maintaining
steady progress on the inflation front and of policies that
will foster and thus maintain a better balance in the
financial markets as a whole.
Our basic strategy is rooted in the premise that, for
as far ahead as one can hope to see, demands for our real
and financial resources will remain very heavy.
This premise
is documented quantitatively in the longer-term projections
presented in the President's Budget and the Economic Report.
Those projections bear out what I believe most of us
instinctively feel:
both our future budget revenues and
our economic growth are already heavily committed
if we are
to repair urban decay, move toward our long-run housing goals,
clean up the environment, improve education, and recognize
our responsibilities for foreign assistance --
an~
at the same
time, provide the wherewithal to support the growth and
- 10 -
modernization of our industry and meet the insistent demands
of the American consumer.
In the short run, this array of potential demands lies
behind our confidence that the necessary present period of
business adjustment will not give rise to cumulative downward
forces.
Looking beyond this year, these same demands emphasize
the insistent need to establish priorities in moving toward
our goals.
Indeed, the only real choice is whether we will
establish these priorities with care and intelligence, or
whether, in an effort to do too much, our choices will emerge
as the haphazard result of stresses and dislocations of an
overstrained economy and financial markets.
I would emphasize five key elements in our approach to
maintain mastery of this problem:
(1)
Budgetary control -- a matter that Maury Mann has
already described in detail.
(2)
A rejection of the cynical philosophy that a
balanced budget is a rare and fleeting phenomenon.
Indeed, our recent problems can be traced in large
part to a series of inappropriate deficits after the
mid-1960's, culminating in the $25 billion debacle of
- 11 -
Fiscal 1968.
Present planning, in contrast,
envisages three consecutive years of surplus
small, to be sure, but to be achieved consistent with
some reduction of the tax burden.
The direct implica-
tion is that the Treasury will not be absorbing funds
from the credit markets in competition with other
borrowers.
A deficit in response to a temporary and unexpected
period of slack in the economy need not be disturbing
it would represent a normal and useful stabilizer.
But, if we are right in our basic assessment of
underlying trends, a balance or surplus should become
the norm.
(3)
We also need to recognize that a surplus or deficit
in the budget does not tell the full story of Federal
finance.
In one form or another, the Federal Government
in recent years has increasingly used its own credit as
a means of supporting the activities of other sectors.
While these activities do absorb funds from the market,
they are not, for the most part, reflected in the budget
- 12 -
totals.
Indeed, sponsors of some of these programs
may entertain the hope of escaping full budget
scrutiny or look upon the Government's credit as
virtually a free good and the supply of credit as
inexhaustible.
More basically, these programs are a
valid reflection of the basic fact to which I have
already referred
our enormous needs for social
investment.
The figures are startling.
In Fiscal 1969, the
Federally-assisted borrowing from the public totaled
some $12-1/2 billion.
During the current fiscal year,
the total is expected to reach over $15 billion.
In Fiscal 1971, the aggregate is projected at over
$20 billion -- equivalent to probably a fifth of net
credit availabilities in the economy as a whole.
Plainly, these demands, overshadowing the requirements
of direct Treasury finance, present serious new problems
of coordination, control, and efficient financial
management.
President Nixon's first budget broke new
ground by spot-lighting the totals in the main Budget
- 13 -
table.
This was supplemented by a detailed special
analysis later in the Budget document.
As this
suggests, we recognize the need for closer appraisal
of priorities in this area, as well as within the budget
proper.
(4)
So far as monetary and debt management policies
are concerned, I would emphasize one point of 10ngerterm significance.
We are, today, much more conscious
of the inevitable lags between policy action and
economic impact.
These long and uncertain lags are,
of course, one of the reasons why the shaping of
financial policy is, at any given time, so difficult.
But, on balance, I would expect that a certain evenhandedness in monetary and in related debt management
policies could help avoid disturbing gyrations in
financial markets.
(5)
Finally, I would call your attention to the fact
that the President plans shortly to appoint a Commission to study our financial structure and recommend
needed changes in the light of experience.
It would
- 14 -
be wrong, in my judgment, to conclude that the strains
like those of last year are primarily a reflection of
faults in the institutional structure.
But it would
be blind to fail to examine closely the problems and
potential weaknesses in the institutional structure
exposed by the recent turbulence or neglect to prepare
the way for fresh innovations to meet the needs of the
1970's.
The existing hodgepodge of interest rate
ceilings is one area crying out for rational review
but it is certainly not the only one.
It is not possible for me to talk about appropriate
financial policies without also considering their internaLional repercussions.
Indeed, the size of the United States
our enormous '("eight as a trading and investing nation -- and
rlw key role of the dollar -- make it essential that we view
(1m" policies
in that broader perspective.
Certainly the
sLlains on our domestic markets in the past year have exerted
Cl
Ceu"-reaching, and not ah,Jays welcome, influence abroad, as
our hdnks and internctional corporations combed the world
.cOl-
funds.
- 15 -
This search for financing, wherever it could be found,
has been an important factor in maintaining the strength of
the dollar in the exchange markets.
That strength has been
reflected in a surplus of some $4-1/2 billion in our balance
of payments on the official settlements basis over the past
two years.
Foreign official dollar holdings have declined
significantly, and our own reserve assets have substantially
increased.
We must recognize these developments for what they are -in good part the fortuitous result of extremely tight money.
They must not be permitted to obscure a deeper problem -the unsatisfactory state of
our
underlying international
payments position.
No single figure can adequately summarize the complexities of our balance of payments.
Certainly the $7 billion
liquidity deficit recorded last year -- distorted by shortterm capital flows and special transactions -- overstated
the problem.
But there can be no question but that the
erosion in our trade position by years of inflation and
overheating needs our serious attention.
- 16 -
In both of the past two years, our trade balance stood
well below $1 billion, and our current account surplus
entirely disappeared.
The implication is plain enough.
Without a sizeable surplus on these accounts, we are unable
to provide to the rest of the world the real goods and
services that must be the counterpart of our legitimate
desire to provide aid and to export capital.
With tensions easing in our domestic markets, the largescale importation of short-term capital that has characterized
the recent past is unlikely to be sustained.
In fact, banks
have already cut their own borrowings in the Euro-dollar
market considerably in recent weeks.
It should not be sur-
prising if, as part of the process of a return to better
balance in domestic markets, there is some reflow of dollars
into official hands abroad and a deficit in our official
settlements accounts.
That prospect should not, in itself, be disturbing,
following a period of surplus.
I believe our international
monetary arrangements -- greatly strengthened in recent
years -- can absorb and accommodate large recurrent swings
- 17 in payments positions.
What does seem to me essential is
that we use this period to begin rebuilding our trade and
current account position and justify confidence in the
dollar as a secure store of value.
If we do not fulfill
that responsibility, I know of no purely financial devices
that offer assurance of continued international financial
stability, any more than an overheated domestic economy is
consistent with balanced flows of internal finance.
The present period of adjustment is laying the essential
groundwork for the long-term effort that will be required.
As we reap the benefits, we will be able to maintain our
natural position as a capital exporter in a manner fully
consistent with a strong international financial position.
It is also that process that will permit us to move toward
o~
objective of dismantling the remaining restraints on
capital transactions.
So my basic point today is clear enough, whether viewed
from a domestic or international vantage point.
Calmer and
balanced financial arrangements rest, in the end, on a more
basic balance in our economic affairs.
It is precisely the
objective of our present policies to achieve that result.
--000--
TREASURY DEPARTMENT
,
WASHINGTON, D.C.
March 18, 1970
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
$3,100,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing March 26, 1970,
in the amount of
$3,010,463,000,
as follows:
91-day bills (to maturity date) to be issued March 26, 1970,
in the amount of $1,800,000,000,
or thereabouts. representing an
additional amount of bills dated December 26, 1969,
and to
mature June 25, 1970,
originally issued in the amount of
$1,209,135,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,300,000,000,
or thereabouts, to be
dated March 26, 1970,
and to mature September 24, 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 withQut interest. They
will be issued in bearer form only~ and in denominations of
$10,000, $50,000, $100,000, $500,uOO, and $1,000,000
(maturity value).
Tenders-will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Standard
time,
Monday, March 23, 1970.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even mu1 tiple of $10,000 pnd in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decImals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
forwarded in the special 'envelopes which will be supplied by Federal
Reserve Banks or Branches on application the refor.
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-372
- 2 responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public anno~,
ment will be made by the Treasury Department of the amount and price
of accepted bids. Only those sUbmitting_competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of thE
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues,
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on March 26, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing March 26, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differ€'11ces 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 hi.l ~ -.; ~"~'_'es not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject to
estate, inheritan rp . ~ift 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
~eed 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 o~O~ranch.
TREASURY DEPARTMENT
WASHINGTON, D,C.
March 18, 1970
FOR IMMEDIATE R:$LEASE
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
$1,700,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing March 31, 1970,
in the amount of
$1,501,357,000,
as follows:
275-day bills (to maturity date) to be issued March 31, 1970,
'in the amount of $500,000,000,
or thereabouts, representing an
additional amount of bills dated December 31, 1969,
and to
mature December 31,1970
originally issued in the amount of
$1,002,063,000,
the additional and 'original bills to be
freely interchangeable.
365-day bills, for $ 1,200,000,000,
or thereabouts, to be
dated March 31, 1970,
and to mature March 31, 1971.
The bills of both series will be iSlued on 8 discount basis under
competitive and noncompetive bidding as hereinafte~ provided, and at
maturity their face amount will be . payable without interest. They
~i11 be issued in bearer form onlYA and in denominations of
$10,000, $50,000, $100,000, $500,uOO, and $1,000,000 .
(maturity value).
Tenders. will be received at Federal Re.erve Banks and Branches
Eattem Standard
time, Tuesday, March 24, 1970.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even mu1 tiple of $10,000 ;lind in the case of competitive
tenders the price offered mu~t be expressed on the basis of 100,
_with not more than three decimals, e. g., 99.925. Fractions may not
be used. (Not:trl.l:hstandlng -tbe-' facf 'that- the orie-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 1s urged that tenders be made on the printed forms
and forwarded in the special envelopes which will be supplied by
Federal ~eserve Banks orl!ranches on application therefor.
up to the closing hour. one-thirty p.m.,
Banking inetitutiona tenerally may aubmit tenders for account of
Customers provided the name. of ,the cu.tomers are let forth in such
tenders. Others thanbanJd.'O.J inltitutions will not be _pfl!rm1tted to
R-373
- 2 submit tenders except for their own account. Tenders will be recelvea
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public annoomce·
ment will be made by the Treasury Department of the amount and price r&
of accepted bids. Only those sUbmitting_competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on March 31, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing March 31, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differellces between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 0oO~ranch.
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR A.M. RELEASE
THURSDAY, MARCH 19, 1970
REMARKS OF THE HONORABLE EDWIN S. COHEN
ASSISTANT SECRETARY OF THE TREASURY FOR TAX POLICY
BEFORE THE
10TH ANNIVERSARY DINNER OF TAX MANAGEMENT
BUREAU OF NATIONAL AFFAIRS
WALDORF-ASTORIA HOTEL, NEW YORK, N. Yo
WEDNESDAY, MARCH 18, 1970, 8:00 P. M., EST
A New Decade for Taxes and the Search for Simplification
It is a great pleasure to join this evening in saluting
~he
Honorable Wilbur D. Mills .for his years of dedicated service
to the American people and for his devoted work in the betterment of our Federal tax structure.
We are deeply indebted to
him for his illustrious contributions and for the sterling
leadership he has given on many urgent matters o It has been
a privilege to have appeared before him, both in this past
year in government and previously as an attorney, and to have
worked with him in the development of the Tax Reform Act of
1969.
He has been a good friend and counsellor to me and to
legions of others, and we delight in expressing our gratitude
to him this evening
0
- 2 I am also grateful for the opportunity to salute those
in the Bureau of National Affairs who have sponsored the Tax
Management series for this past decade.
I pay particular
tribute to the editor-in-chief, Leonard Silverstein, and to
the many contributing editors, who have produced such a
valuable series of treatises on the Federal tax law.
I found
these works quite valuable not only in the practice of law,
but also, for professor and students alike, during my five
delightful years of teaching at the University of Virginia
Law School.
This past decade of success of the Tax Management series
leads me to ponder the growth of the Federal tax structure
during that period and the ongoing development that will likely
occur in this current decade of the 1970's.
tax structure be ten years hence?
Where will our
What can we plan now to
cope with the problems that will accompany this inevitable
growth?
Since 1960 our Gross National Product has almost doubled.
The Economic Report of the President for 1970 contains a
projection of the growth of the economy through the year 1975.
If we carryon to 1980 the same assumptions on which the 1975
forecast is based, then ten years from tonight we should
find --
.. 3 -
--
a Gross National Product of more than $1.8
trillion, almost double the present level and
almost quadruple the level of 1960.
individual income tax revenues of some $160
billion, as against some $92 billion 1n the
current fiscal year (including the surcharge).
--
corporate income tax revenue of some $75 billion,
as against some $37 billion (including the surcharge) at present.
--
90 million individual income tax returns, contrasted with less than 70 million return. under
the present lew -- and contrasted with 1e.. than
10 million such return. when you, Mr. Hills, were
first elected to Congress and when I began
practicing law •
. How best should we plan for the
most ma.sive tax structure
in all of man's history?
I suppose that the most difficult ta.k in government is to
plan for the long-range future while attending to the myriads of
daily problems that demand immediate solution.
Nonetheless
I think it urgent that we devote a major effort to molding the
tax structure of the future
problems of the present.
a.
we deal with the demanding
- 4 The income tax, of course, is the backbone of our Federal
sytem, providing more than 80 percent of the revenues aaide
from the trust funds.
We may possibly find other revenues to
supplement the income tax, or supplant part of it -- the
val~
added tax, for example, might find favor in the years ahead.
But I think it safe to predict that those of us who may gather
here ten years hence will still find the income tax
furnishi~
the major support of our Federal government.
The year 1969 witnessed a major effort to improve the
equity of the Federal income tax, culminating in the signing
by President Nixon on December JO of the Tax Reform Act of
1969.
We at the Treasury have described it as a milestone in
tax history -- and I have no doubt that history will so regard
it.
As I have listened to the comments and complaints of thOSE
who have studied the bill, I have heard many opinions that in
one area or another we have gone too far or not far enough in
the search for greater fairness in the tax system.
divergence of opinion should disturb no one.
This
surely change some of the 1969 provisions as experience and
reflection guide us.
I
In time we shall'
- 5 -
What has disturbed me above all in hearing the comments
has been the uniform criticism of the complexity of the Federal
income tax law, particularly after the 1969 Act.
When I gave
my first talk about the 1969 Act in January to the Association
of the Bar in the City of New York, the question put to me that
made the most lasting imprint was, "Whatever became of
simplific.ation?"
And similar questions have been asked of
me and have concerned me wherever I have gone.
I believe the American taxpayer is entitled to know whether
or not the maximum effort has been made, consistent with other
objectives, to simplify the income tax law.
We at the Treasury
are conducting a study to determine what can be done to simplify
the law and its administration.
We will report our findings
to the Congress and to the American people.
If we can simplify,
let us do so; if we cannot, let us know the reason why; if we
must choose between simplification and other objectives, let
us know the choices and make the decision.
Particularly with
the massive enlargement of the tax structure we envisage in
~is
decade, we must press forward with this inquiry thoroughly
and speedily.
Now this emphasis on simplification may come with ill
grace from one who, in a moment of perhaps ill-guided humor,
- 6 dubbed last year's bill the "Lawyers and Accountants Relief
Act of 1969."
Despite the memory of tnat jovial aberration,
I shall venture on.
Notwithstanding the complexities in the 1969 Act, I
think it clear that we did achieve meaningful simplification
for a great number of persons.
Mainly through the Low Income
Allowance, some 7.6 million tax returns at the bottom of the
economic scale that presently bear tax will no longer owe a
tax and will no longer even have to be filed.
This represents
about 12 percent of all the tax returns that previously showed
a tax due.
Moreover, we significantly relaxed the withholding
requirements so that large numbers of persons who owe no tax -college students working in the summer, for example -- will not
have to file returns to recover a refund of tax needlessly
withheld.
I would think this qualifies as a major simplification.
More9ver, the 1909 Act will permit some 11 million
additional tax returns to use the standard deduction instead
of having to itemize nonbusiness deductions.
We estimate this
will permit some 73 percent of all individual returns to be
filed on that simplified basis as against some 58 percent
today
again a major advance in the direction of simplificatioo.
- 7 Yet so much more needs to be done.
Let me illustrate
with a reference to the reporting of pensions and annuities
received by retired individuals.
More than six million
persons now receive such payments and the number constantly
increases.
recipi~nts
We have made a survey of the accuracy with which
of Federal Civil Service pensions report these.
amounts on their tax returns.
In one study, which included
some moderately complicated situations, we
found that 75 percent
of the tax returns reported these amounts improperly.
so -- and this is the startling aspect
Not only
two-thirds of those
reporting incorrectly overstated their taxable income and
paid too high a tax.
Why all this difficulty in reporting pensions and
annuities?
The causes are numerous.
We tried at least two
other simpler systems before discarding them for the present
one in 1954.
Now we have one that is theoretically more logical
than those that preceded it but few taxpayers seem able to
comprehend it.
More importantly, however, the present system
includes a large number of efforts at precise equity adjustments,
which are the source of complication.
The law undertakes to
vary the tax result for the presence of disability, for inclusion
of Some death benefits, for a refund feature and the like.
The
persons paying the pensions or annuities do not have sufficient
- 8 -
information required by the present statute to inform
the recipient or the Internal Revenue Service as to the
amount of the payments that is subject to tax since so
many variations are critical to the result.
With all the
experts gathered here this evening, I doubt that a quarter
of them could readily calculate the taxable portion of the
pension received by a widow of an employee under a
contributory pension plan -- and I will include myself
among them.
Another related illustration is the retirement income
credit -- a provision which affects two million taxpayers
and itself requires a full page of Form 1040.
We have
evidence that as many as one-third of those eligible for
the credit may not be claiming it because of its complexity.
The complexity arises from a series of special qualifications
and limitations designed to achieve more precise equity but
which are obviously defeating this very same objective in
the broad sense.
- 9 I use pensions and annuities and the retirement
income credit merely as illustrations of the task before
us to review the income tax law and regulations for the
purpose of simplifying its operation for the millions of
persons affected by it.
I worry about simplicity not for
the thousands who can afford expert advice on complex matters
but for the millions who cannot and should not be required to
do so.
And I grow increasingly concerned as I look a
decade ahead with our ever growing economy.
I think we can
develop simpler rules in many cases if we set simplification
as one of our major targets.
Let me suggest another possible avenue to follow.
In
replying to the charges of complexity in the 1969 Act, I have
pointed out that many of the provisions complained of deal
with plans and documents, conceived by ingenious lawyers or
advisors, that fit no normal mold.
Among these I would list
such latter day devices as subordinated convertible debentures,
convertible preferred stocks with varying conversion ratios,
debentures with warrants attached, sprinkle accumulation trusts
ABC transactions in minerals, restricted stock plans and a
host of others that bring gleams to the eyes of the experts
in the audience -- and again I would in former days have
- 10 included myself among them.
But when the law moves, as it
should, to make sure such devices are not used to disturb
the fairness of the tax structure, I shed no tear because
tne solution in the statute is of necessity itself complex.
But I am concerned for those who use simple forms of
documents in garden variety cases.
we could
s~mplify
It does seem to me that
life for the ordinary taxpayer and his
lawyer if we could so design the statute and the regulations
that we could state the Federal tax results that flow under
specified normal conditions from the use of standard documents.
I have in mind such documents as an ordinary trust for a
minor, a trust with a remainder to charity, a will that includes
a marital trust for a widow, a customary form of temporary
indebtedness from a corporation to its shareholder, a newly
formed corporation designed to operate under Subchapter S
with tax results similar to a partnership, etc.
Save recently
in the field of pension plans, the Service has not generally
given public assurance of the tax results flowing from use of
particular standard documents.
I suggest that in cooperation
with the bar associations and other professional organizations
we in government should try to redesign the statutes and
regulations to permit us to state with clarity the tax effects
of using certain documents in standard situations.
- 11 I was recently challenged by a leading corporate executive
who asserted that the 1969 Act in many particulars fostered
standardization and was repressive to ingenuity.
I pondered
that remark long and thoughtfully, for I believe thac this
great nation was founded upon and has prospered from the
ingenuity of its people.
I would abhor any system that required
use of stereotyped patterns.
After all, I was raised on a
steady regimen of Jeffersonian individualism.
Nonetheless, ingenuity must not be a passkey to tax
inequity.
Those who are ingenious cannot object if the tax
law gives ready standard answers only to standard plans and
lays down complex rules to govern unusual transactions.
We do have in the Internal Revenue Service a procedure
for advance rulings as to the tax effects of particular
transactions.
This requires, however, an expensive allotment
of scarce specialists.
To the extent we can foster the use of
standard documents with knovln tax results, so much the more
can we use those able public servants to pass upon novel
and trail blazing transactions.
So much the more can our
lawyers, accountants, and other advisers deal expeditiously
- 12 with standard transactions and concentrate their skills on
exceptional cases.
So much the more can the masses of taxpayers
comply with the requirements of the tax law without undue
expense or delay.
In the years ahead advances in computer and other
technology may also open up possibilities of administrative
simplification.
It may not be beyond the realm of possibility
in the future for data about salaries, wages, dividends,
interest, and personal exemptions for large numbers of persons
to be reported by the payers directly to the Internal Revenue
Service, which would calculate the tax and issue a refund or
bill to the taxpayer, if he were willing to use the standard
deduction and had no other sources of income.
But the
possibilities in this regard depend upon technological advances,
and while we are exploring these techniques, any gains in this
regard are likely to be, as we say in the tax law, long-term.
r believe there are also major changes we can make in
the
coordin~tion
of the income tax system of the Federal
Government with those of State and local governments.
Much
can be done in this regard to minimize differences in the
calculation of taxable income and to coordinate the preparation,
filing and audit of tax returns and the collection of taxes.
- 13 Beyond these possibilities would lie far greater
simplification if we were willing to forego some of the
exemptions, deductions, and allowances that have been adopted
and maintained in the Federal tax law in the name of equity.
Some of us have experimented with computer studies of greatly
simplified systems that would achieve substantially the same
distribution of the tax burden among the various income
classes.
They do so, however, at the sacrifice of many pro-
visions -- such as non-business deductions -- that have been
considered vital to home ownership, to charity and education,
to fairness, or to the maintenance of incentives to desirable
conduct.
I do not by any means advocate tonight the adoption
of changes so drastic, but I do believe the possibilities
should be reviewed and debated for the public benefit.
The
choice between simplicity on the one hand and equity or
incentives on the other is one that can be made only if the
pros and cons are understood and weighed o
A primary difficulty, of course, is that a simplified
rule enacted to replace a complex one will necessarily raise
the tax of some affected persons and lower the tax of otherso
- 14 There is a natural reluctance to make such a change.
Perhaps
this reluctance can be overcome if the effective date of the
change is deferred for several years, permitting opportunity
to adjust gradually to the new rules.
This technique of
deferring the effective date was employed to advantage in a
number of important provisions of the 1969 Act, and it may
be useful in eliminating complexities on a long-range basis
as we look down the decade that confronts us.
We must always appreciate that complexity in our tax
laws, as well as in other laws, stems in large part from the
democratic processes upon which our nation is founded and
which is its greatest strength.
A law which will meld the
diverse views of the members of the Committee on Ways and
Means and the Committee on Finance, as well as the members of
both houses of Congress, and those of the President and his
Administration, will often be a compromise -- and compromises
are not easily forged with simplicity.
We are a nation of
checks and balances -- and proudly so -- and the tax laws
will always reflect our system of government and the diverse
interests of our people.
- 15 I do not despair of further simplification for the
great masses of taxpayers.
We have begun a new look at the
problem in the Treasury and will report to the Congress and
to the publico
We trust our study will be productive..
To
the extent complexity must remain, at least we shall have
identified the causes so that all will know and be aware of
the reasons.
In this quest I shall bear constantly in mind the note
from one of my former students who had worked with me on
the projected revision and simplification of the Virginia
income tax law.
The note expressed confidence that I would
so simplify the Federal law that the return could be printed
on the back of a picture postcard.
But, alas, even this
would not solve all our problems -- whose picture would be
on the other side?
000
Department 01 the TREASURY
TELEPHONE W04-2041
SfltNGTON. D.C. 20220
3 IWaSI 6::50 P".,
Ilursda,y. March 19. 1970.
RlSULTS OF TREASURY' S OFFER OF $1-3/4: BILLION OF SEPl'EMBER TAX BILLS
!he Treasury Department announced that the tenders for $1,750,000,000, or
Ilereabouts, ot lBO-day" Treasury Tax Anticipation bills to be dated March 26, 1970,
nd to mature September 22, 1970, which were offered on March 13, 1970, were opened
t the Federal Reserve Banks today.
The details of this issue are as follows:
Total applied for - $5,620,960,000
Total accepted
- $1,751,590,000
(includes $153,260,000 entered on a
noncompetitive basis and accepted in
full at the average price shown below)
laDle of accepted competitive bids:
High
Low
Average
96.94:7
96.900
96.911
Equivalent rate of discount approx.
It
"It
" "
II
""
"
"
6.1~
per annum
1VVIl"" 1
6.2~
6 .178~
"
( ~ of the amount bid for at the low price was accepted)
'ederal Reserve
listrict
,oston
lew York
'hil&delphia
:leveland
[caClld
~tlant&
:hiClio
It.~S
liDneapolis
:ansas City
I&l.las
:an Francisco
$5,620,960,000
$1,751,590,000
303,~O,000
TOTAL
This is on a bank discount basis.
K-375
648 .420.000
Total
Accepted
•
81,'90,000
4:07,560,000
85,7'0,000
58,870,000
1',080,000
50,820,000
3'9,080,000
38,610,000
72,100,000
81,670,000
141,850,000
369,920,000
Total
Applied For
r271,030,OOO
2,4:59,210,000
232,240,000
333,670,000
4.7,480,000
12',290,000
694,580,000
139,810,000
250,100,000
116,730,000
The equivalent COUpOD. issue yield is 6 . . . .
II
Dtpartmentol the TREASURY
TELEPHONE W04-2041
..,GrON, O.C. 2:0220
March 19, 1970
FOR IMMEDIATE RELEASE
MEMORANPUM FOR THE PRESS:
Attached is a copy of the fourth
semi·~annual
report on U. So purchases and sales of gold ane:
the state of the Uo S. gold stock forwarded by
Treasury Secretary David M. Kennedy to the President
of the Senate, the Speaker of the House, and the
Chairmen of the Senate and House Banking and
Currency Committee.
The report covers the
second half of 1969.
000
Attachment
K-376
Semiannual Repol~t 0\'\ Purchases and Sales of Gold and the
State of the United States Gold Stock
July I .. December 31, 1969
The United States made net purchases of $706 million of gold during
the second half of 1969, raising the U.S. gold stock to $11,859 million.
The increase was almost fully accounted for by the purchases of
$500 million from Germany and $200 million from the Bank for International
ScttleDlents (rHS>. Trans,actions by country and calendar quarters during
1969 are shown in the attached table.
As is customary, there were a number of relatively small sales to
countries required to pay charges in gold to the International Monetary
Fund or make gold repayments under the European Mon~tary Agreement. All
sales of gold by the United States during the six months, except the sale
of $2511111101\ to Argentina, f"ll in this category. knOng larger purchases
were $41 million from 'Ireland and $16 million from the Philippines. There
was a net gain of $8 million f~om th~ Internatioltal Monetary Fund, repre·
senting the purchase of $17 million frgm the Fund and. a $9 million
withdrawal fr~ the gold mitigation' deposit held at the Treasury by the
Fund. As of December 31, the balance in thb deposit was $219 million.
For the year 1969 as a whole the U.S. gold stock increased by $967.6
million. The increase since the low point reached following the gold
crisis in the first half of 1968 has amounted to nearly $1.4 billion.
I
Of major significance for the continued effective functioning of
the two-tier gold market is the agree~nt reached on the treatment of
South African gold in the framework of the two-tier gold system. This
agreement was announced by the Fund on December 30. The Republic of
South Africa agreed to sell current production of newly-mined gold in an
orderly manner on the private market to the full extent of current
payments needs when the market price is above $35 per ounce. The Fund
agreed to buy South African gold in amounts necessary <8> to enable
South Africa to meet such needs when the market price of gold is $35 or
below, and (b) to meet needs beyond those that can be satisfied by the
lale of current production. The Fund will be the recognized channel
for gold transactions between South Africa and the monetary authorities
of its lIIe1IIbers.
The free·world market price of gold, which in the first half of
the year had been consistently above $40 per ounce and at times above
$43 per ounce, declined significantly in the second half of 1969 and by
J)ecember free~market quotations had fallen as low as $35 per ounce.
IIIlTED STAtIS NIT Dl'TARY QOlD TRANSAC'l'lCIIS WITH
P'OIlElCIf CCDlTRlES AND DlTERIIATlCIW. lNSTlTU'l'lCIiS
January l-Dec_ber 31, 1969
'1~ ~111QD1 g' dgll1tl Il IJ2 Dlt '101 ~~ gy;;ll
Second
First
Third
Fourth
Area and Country
Quarter
Quarter
Quarter
~arter
"."EMJww
Austria
Denmark
Franee
Germany
Greece
Iceland
Ireland
Italy
Norway
Switzerland
Turkey
Yugoslavia
Total
LIi1~
+3.5
+50.0
.
..
tie!
~!:IIo:l.am
+16.0
+500.0
-0.5
-0.1
+25.0
-0.9
-25.0
-.::l....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
-7.0
-6.1
~
~
+291.6
+9.0
-4.5
~
-25.0
-0.2
-4.7
-1.8
-0.9
-0.1
-0.1
-0.1
-0.1
-0.2
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
..
-0.1
..
-3.3
+5.0
..
-0.1
-3.1
..
-0.1
+5.0
~
--15.4
~
-0.1
-0.1
..
-0.1
.
-3.3
-21.6
..
-0.4
-0.4
-0.4
-0.4
-0.2
+6.8
-0.2
+17.3
+11.3
-0.4
+11.2
-0.4
+4.5
+9.8
*
-0.6
..
-0.7
-1.2
.:::Q...l
+4.6
-1.1
~
+27.8
*
II
...
--0.2
*
II
-0.3
-0.5
+4.0
-0.3
-0.3
-0.1
-2.0
-0.2
-4.3
-11.6
+10.0
-2.0
":6.6
*
-0.2
...::l&6
.
....
-15.0
.
~1.0
-76.0
-0.9
-25.0
-17.6
+710.)
-10.0
.
+).5
+25.0
+325.0
+SOO.O
-1.0
-0.1
+521.7
..
-1.4
Ai1I
Afghanistan
Burma
Ceylon
Cyprus
Indonesia
Laos
Nepal
Pakistan
Phi lippines
Singapore
Southern Yemen
Syria
Total
..
-0.5
-76.0
AIIlerj,,;1
Argentina
Bolivia
Chile
Colombia
Costa Rica
DCllinican Republic
Ecuador
El Salvador.
Guatemala
Haiti
Honduras
JlIII&ica
Nicaragua
Panama
Peru
Surinam
Uruguay
Total
+25.0
+275.0
To~
-0.8
-0.6
-43.8
-3.7
-0.1
-0.2
-0.4
-2.0
-0.6
II
.
-1.3
+)9.9
+11.3
-1.2
~
+41.5
-1.1
MWA
Algeria
Burundi
Central African Republic
Chad
Congo (Brazzavi lle )
Dahomey
Gabon
Guinea
Ivory Coast
Liberia
Mauritania
Mauritius
Morocco
Niger
Rwanda
Somalia
Sudan
Tunisia
Upper Volta
Total
*
*
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
*
-0.1
-0.1
-0.1
*
-0.2
..
*
-0.3
-0.2
-0.8
m
-0.1
-0.2
-0.1
*
-1.1
-0.1
..
Domestic Transactions
Ig~:I. ItlQ§lIo~tl~
-Under $50,000.
-22.2
+0.8
-22.:1.
-0.7
-0.1
-0.1
-0.2
-0.2
-0.2
-0.1
II
-0.2
-0.1
-0.1
-0.2
-0.5
-0.1
II
II
*
.
-1.6
-0.2
-0.2
-0.3
-0.2
-0.4
-0.2
-0.4
-0.2
-1.4
-0.8
..;:Q..l
~
.:::9.al
-1.7
-0.5
--1.0
-3.6
+7.9
ill
IQIAlo
*
tJ:l.2.2
t].Q."
tJlh.2
t].Q.2
+199.5
:t!!22.2
+0.1
:t!!22.2
II
-7.2
+7.4
+199.5
..966.:Z:
.0.9
t967. 6
THE DEPARTMENT OF THE TREASURY
UNITED STATES SECRET SERVICE
WASHINGTON, D.C. 20226
omCE OF THE DIRECTOR
FOR IMMEDIATE RELEASE
TO NEWS MEDIA
March 20, 1970
Secret Service Announces Openings in New
Executive Protective Service
The Director of the United States Secret Service,
James J. Rowley, today announced openings for 600 young
men across the nation who may be interested in a law
enforcement and security career with the new Executive
Protective Service, a uniformed force supervised by the
Secret Service.
The Executive Protective Service was established
when Pres,ident Richard M. Nixon signed into law on
March 19, 1970, legislation recen,tly enacted by the
Congress.
The new law expands the responsibilities and
size of what was formerly the White House Police.
The new
security force will continue protecting the White House;
buildings in which Presidential offices are located; the
President and his immediate family; and will now protect
foreign diplomatic missions located in the Metropolitan
area of the District of Columbia.
K-377
(OVER)
- 2 ...
Candidates selected for the new force will start at an
annual salary of $8,000 and will be eligible for such benefits
as: overtime pay; opportunities to participate in college
degree programs; free medical and
su~gical
care; low-cost
life insurance; and retirement at age 50 after 20 years of
service.
In order to qualify for one of the positions now open,
the candidate must meet the following minimum requirements:
be a United States citizen; have a high school diploma or
equivalent; be between the ages of 21 and 29; be between
5'9" and 6'4" in height; weight must be in proportion to
height; have not less than 20/40 vision in each eye, correctable
to 20/20; pass a comprehensive written Civil Service examination and a rigid physical examination; possess a valid automobile driver's license; and qualify for a Top Secret security
clearance.
For further information, contact your local Secret Service
office or the United States Secret Service, Personnel Division,
1800 G Street, N.W., Washington, D. C., 20226, A/e 202 964.8351.
41
Department of the
fREASU RY
INGTON. D.C. 20220
TELEPHONE W04·2041
FOR
RELEASE ON TUESDAY, MARCH 24, 1970, 9:00 A.M., EST
Highlights of Weidenbaum Speech in Chicago
Consumer Spending and Taxes
A careful analysis of recent experience shows that
changes in taxation have a visible impact on the allocation
of personal income to consumption, taxation, and saving.
Increases in income taxes, temporary or permanent, tend to
depress both personal consumption expenditures and saving.
The cutbacks in defense purchases, coupled with the
tax relief and reform legislation passed by the Congress,
are increasing the consumer share of the national economy.
As a result of the 1969 Tax Act, individuals will be paying
about $2.3 billion less Federal income tax in fiscal 1971
than they would have if the law had not been passed; the tax
saving could rise to $6 billion in fiscal 1972 and to over
$12 billion in fiscal 1975.
Consumer Credit
We are trying to avoid taking a doctrinaire attitude
toward such questions of economic policy as the proper measures
at any point in time which are necessary to achieve a desired
degree of monetary or credit availability. At the present
time, there is no especial need for additional restraints on
consumer credit, either of the compulsory or voluntary variety.
The slowing down patterns now evident in consumer credit
would hardly seem to constitute pressing reasons for beginning
a new program of consumer credit controls at the present time.
Economic Policy
A continuing and open-minded examination of economic
trends and developments is necessary in order to assure that
our policies are as consistent as is reasonably possible with
the changing needs of the economy.
DEPARTMENT OF THE TREASURY
Washington, D. C.
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE AMERICAN BANKERS ASSOCIATION
NATIONAL INSTALMENT CREDIT CONFERENCE
CHICAGO, ILLINOIS
MARCH 24, 1970, 9:00 A.M. EST
CONSUMER SPENDING, CREDIT, AND TAXES
I would like to provide some economic perspective to
the subject of consumer spending and credit, which is the
important concern of this conference.
It is a particular
pleasure to have the opportunity to discuss some aspects
of fiscal policy here in Chicago.
In this presentation, I would like to cover both longterm and short-term aspects of the outlook for the consumer
sector.
There are some differences in these prospects.
Longer-Term Trends:
Taxes and Income
Some of the good news first.
In the longer term, we
as a Nation are taking important actions which will tend
to expand the consumer segment of the American economy.
This is part and parcel of the shift that we are trying
to accomplish to a less governmental and to a more private
sector orientation in our economy.
K-378
- 2 -
I would like to offer just a few numbers for purposes
of illustration.
Last year consumer spending accounted
for 62 percent of the gross national product.
it may rise to 63 percent.
This year
By 1975, perhaps 64 percent of
the GNP will be devoted to personal consumption expenditures.
One percent may not sound like much.
However, in an
economy which is likely to reach a trillion dollar rate later
this year, it means about $10 billion more sales to consumers
in a twelve-month period.
In absolute terms, the magnitudes
are quite striking -- personal consumption expenditures may
rise from $576 billion in 1969 to $900 billion in 1975.
In part of course, this shift in favor of the consumer
is coming about as a result of the substantial cutbacks in
Federal Government purchases, particularly for military and
space programs.
More fundamentally, however, consumer
purchasing power is being bolstered through tax relief and
reform, as well as economic growth.
The comprehensive tax
bill enacted by the Congress late in 1969 contained many
important changes in specific tax provisions, ranging from
less generous oil depletion allowances to tightening the
treatment of capital gains.
On balance, however, the Act
provided for a schedule of substantial tax reductions for
individuals.
- 3 -
In the fiscal year 1971, individuals (in contrast to
corporations whose overall tax requirements were increased)
will be paying about $2.3 billion less Federal income tax
than they would have if the law had not 'been passed.
With
a reasonable pattern of economic growth, the tax savings for
individuals could rise to $6 billion in fiscal 1972 and to
over $12 billion in the fiscal year 1975.
As you may know, there has been some question as to the
effect of changes in taxation on the economy as a whole and
on the pattern of consumer spending and saving, specifically.
Of course, tax changes are just one item in a very complicated
economy; and, therefore, it is not easy to identify separately
the changes in economic activity that they may induce.
Nevertheless, a careful analysis of the experience in
the United States in recent years shows that changes in taxation
have a visible impact on the allocation of personal income
~ong
consumption, taxation, and saving.
Available data show
that increases in income taxes, temporary or permanent, tend
as would be expected -- to depress both personal consumption
expenditures and personal saving.
The precise proportions, of course, may vary according
to many factors, including consumer expectations concerning
the future.
Hence, the repercussions may be more modest than
had been expected, at least by some analysts, but the results
- 4 -
seem quite clear.
A complicating consideration in analyzing
the repercussions may be the swamping of effects from tax
changes because other factors were operating.
This does not
mean that the tax changes, per se, were not effective; they
may merely be hidden under the surface of more dramatic events.
For example, consumer spending averaged 78.2 percent of
personal income in the 18 months before the Federal income
tax surcharge was enacted in July 1968, and 77.4 percent in
the 18 months after that tax increase became effective (see
Table 1).
If we make what often is the heroic assumption
that all other factors were held constant, it would appear
that the 10 percent surcharge caused the proportion of personal
income which was devoted to consumption to decline by eighttenths of one percentage point.
Similarly, the proportion
of income saved dropped by 1.3 percentage points.
A somewhat more sophisticated analysis would make some
allowance for the lags that may occur between (1) the time
that personal income is changed and (2) a shift in consumer
spending patterns is evident.
The authoritative study at
the University of Michigan by George Katona and Eva Mueller
of the 1964 tax legislation revealed a lag between tax action
and personal spending of perhaps 6 months or more.
For
purposes of illustration, let us assume a more modest threemonth lag.
Table 1
RELATIONSHIPS OF PERSONAL INCOME, PERSONAL
CONSUMPTION EXPENDITURES, AND PERSONAL SAVING
(Percentage Distributions)
Period
With Immediate
Consumption
as Percent
of Current
Income
Tax Impact
Saving
as Percent
of Current
Income
With Lagged
Consumpt1on 1n
Next Quarter
as Percent of
Current Income
Tax Impact
Sav1ngs in
Next Quarter
as Percent of
Current Incom
1967
January-March
April-June
July-September
October-December
71.2\
78.7
78.1
77.8
6.5%
6.1
6.4
6.7
79.7\
79.7
80.6
6.5\
6.8
6.2
78.4
78.0
6.0
6.2
79.8
80.1
6.4
4.9
78.3
77.4
4.8
5.3
79.1
79.0
4.6
77.6
77.4
76.6
76.8
4.5
4.5
5.7
5.4
79.1
78.3
77.9
4.6
5.8
5.5
1968
&I')
January-March
April-June
Passage of Income Tax Surcharge
1968
July- Septem lEr
October-December
1969
January-March
April-June
July-September
October-December
Note: Saving is ex~lusive of personal interest and transfer payments used in the
National Income Accounts.
6.S
- 6 -
Hence, let us analyze the relationship between consumer
spending and saving in a given quarter of a year and the
income received in the preceding quarter.
On that b'lis,
the imposition of the income tax surcharge was followed by
a drop of 1.2 percentage points in the proportion of personal
income devoted to personal consumption expenditures and
a decline of one percentage point in the savings ratio for
the time periods under study.
As I pointed out earlier, in
an economy the size of our own, a one percen.tage point shift
is quite striking when we translate it into dollars.
We need to bear in mind that this type of analysis
does not take account of the effects
th~lt
tax-induced changes
in consumer spending and saving have on business investment.
Presumably, as a result of an income tax increase, the
resul tant decline in consumer savinr. ",ould mean less funds
available for private investment.
However, the simultaneous
expansion of governmental revenues -- and the resultant
reduction in the government's budget deficit or rise in the
surplus -- would augment the total pool of saving available
for investment.
Thus, it is not obvious what is the net
impact of personal income tax changes on investment, although
these two factors may tend
in part.
t~
offset each other, at least
- 7 Although our recent experience tends to demonstrate
that a personal income tax increase, even a temporary one,
may have some significant dampening effect both on consumer
spending and saving, a more definitive conclusion will have
to await the results of more detailed studies.
Such studies,
of course, would have to take proper account of accompanying
changes in monetary policy and flows of funds to the various
sectors.
I do believe that it is useful f9r professional economists
to study these questions in the present environment, rather
than in a period when actual changes in tax rates are being
considered.
Shorter-Term Trends:
The Economic Outlook
Having examined both future economic prospects in the
longer run as well as some past history, it may be appropriate
for us now to turn to the present.
I think that it is safe to say that 1970 is not likely
to be a vintage year.
transition.
of adjustment
It clearly is going to be a year of
The American economy is going through a period
from an overheated economy which was
characterized by substantial inflationary pressures built
up for five years to an economic environment which is
returning to a more sustainable pace of growth.
- 8 -
It is quite natural that at such a time we should
encounter what may be called the pains of decompression or
reentry.
Industrial production has declined in the last
several months, and the unemployment rate has risen.
In
a sense, these developments are the perhaps inevitable side
effects accompanying the necessary efforts to reduce what
has been a most substantial inflation.
The President's recent message on construction makes
it quite clear that the Administration is taking great care
to accomplish this change in the economic environment without
tipping the balance too far in one direction or another.
With the continued use of a proper combination of
monetary and fiscal measures, we should be able to achieve
that reduction in the rate of inflation which will set the
stage for the subsequent expansion of real output, employment,
and living standards which is our fundamental economic
objective.
Thus, the economic medicine that we have been
taking should yield many vintage years later in the decade
of the 1970's.
Credit Controls
I
have been asked to discuss the subject of consumer
credit controls.
I am pleased to do so, although I am not
sure that I will be adding anything to what other Administration spokesmen already have said.
We are trying to avoid
taking a doctrinaire attitude toward such questions of economic
- 9 •
policy as the proper measures at any point in time which
are necessary in order to achieve a desired degree of monetary
or credit availability.
It does appear, at the present time, that there is no
especial need fOf
ad~i~ional
restraints on consumer credit,
either of the compulsory or voluntary variety.
Total retail
sales have been holding quite steady for the past several
months.
In
phrsica~
volume terms, a slight decline may have
occurred recently.
Cert~inly, whe~
we look at consumer credit itself,
a slowing down pattern is clearly in
in total consumer
$13 billion in tbe
~redit
ev~dence.
The expansion
reached a peak annual rate of over
J~ly·September
quarter of 1968.
expansions generally have been at a slower pace.
Subsequent
By the end
of 1969, the annual rate of growth in .outstanding consumer
credit was 40wn to $7-1/2 billion.
The growth in consumer
credit ip January of this year was the smallest since December
1967 -. an annual rate of about $7 billion.
A similar cooling down pattern is visible when we
examine the more specific category of installment credit.
From a peak growth rate of $10 billion in the second half
of 1968, net new extensions were running at a $7 billion
yearly rate by late 1969.
annual rate of about
$4~1/2
The January figure indicated an
billion.
- 10
~
These trends in consumer indebtedness would hardly
seem to constitute pressing reasons for beginning a new
program of consumer credit controls at the present time.
Of course, we will continue to watch closely this as well
as other sectors of the American economy.
A continuing and
openminded examination of economic trends and developments
is necessary in order to assure that our policies are as
consistent as is reasonably possiple with the changing needs
of the economy.
000
Department of the
SKINGTON. D.C. 20220
TRfASURY
TELEPHONE W04-2041
FOR RELEASE ON DELIVERY
REMARKS OF THE HONORABLE
CHARLS E. WALKER
UNDER SECRETARY OF THE TREASURY
BEFORE THE TENTH ANNUAL WASHINGTON
CONFERENCE ON BUSINESS-GOVERNMENT RELATIONS
SHOREHAM HOTEL, WASHINGTON, D.C.
MONDAY, MARCH 23, 1970, AT 9:00 AM, EST
NEW FEDERALISM IN THE 1970s -- THE FINANCIAL DIMENSION
"Where is the money coming from?"
That perplexing question serves as the central theme
for this morning's session.
It is a question which everyone
must periodically ask, and depending upon the circumstances
of the questioner, will be answered with varying degrees of
uncertainty and difficulty.
with many dimensions.
In addition, it is a question
Money is needed to cover current
operating requirements, and to finance investment outlays
both now and in future years.
For the state and local governments of our country,
the answers to this question have become increasingly
difficult during the 1960s.
K-379
And the 1970s hold no promise
- 2 -
for making the answers much easier.
health of states and localities
a~
Rec~gnizing
the financial
an important national
priority, the Nixon Administration has taken several significant steps toward improving the fiscal outlook for the state
and local partners in our federal system.
Major Administration proposals are directed toward
improving both the current operating picture and the availability of debt capital to states and localities.
I think
it would be useful to begin this session by examining the issues
and the proposals affecting both of these financial dimensions.
I.
Current Operating Picture
Anyone who carefully examines our system of public finance
is struck by the existence of what analysts of all political
persuasions have called the "fiscal mismatch."
Simply stated,
this term describes the completely opposite underlying budgetary
po~ition
of the Federal Government compared to state and local
governments.
At the Federal level, our growth-responsive income taxes
generate revenues at a pace which exceeds both economic advancement and peacetime expenditure requirements.
Since 1950, for
example, the Federal Government has indulged in the political
l
- 3 -
luxury of voting three major tax reductions (1954, 1964, and 1969),
while still maintaining a healthy revenue growth.
Indeed,
in the new budget our projections of revenues, expenditures,
and incomes-indicate that the current Federal tax structure
will be generating $266 billion in revenues by fiscal year
1975.
In the same year, the expenditure requirements resulting
from existing programs and new Presidential initiatives will
amount to $244 billion.
This difference of $22 billion does not represent a
planned "surplus" for the Federal budget in 1975.
What it
measures is the amount of fiscal leeway available to the
Congress and the President for the initiation of new programs,
for tax reduction, or for debt reduction.
In addition, this
longer range projection reveals the underlying strength of the
Federal fiscal position in a growing economy.
At the state and local level, we get quite a different
picture.
The Advisory Commission on Intergovernmental
Relations estimates that between 1950 and 1968, less than
one-half the increase in major state taxes was the result of
economic growth.
Legislative action on new or higher taxes
was responsible for the better part of this increase.
In
- 4 contrast to Federal tax reductions, state governments made
more than 300 rate increases in major taxes during the 19608
alone.
In view of their revenue sources, this unresponsiveness
of state and local tax systems to economic growth is not surprising.
At the local level, more than 85 percent of tax
collections come from property taxes, while nearly threefifths of all state tax collections come from sales and gross
receipts levies.
In the face of this sluggish revenue growth, our states
And localities are faced with ever-increasing demands for
the provision of basic public services.
As always, they
are expected to operate our major domestic service systems
such as education, law enforcement, and waste disposal.
But
the expenditure requirements generated by these basic social
needs continue to outpace state and local revenue growth.
The result is the "fiscal mismatch."
One level of
government has the superior revenue-generating system.
The
other levels of government have the major domestic expenditure requirements.
The Federal Government has not been oblivious to this
discontinuity between needs and resources.
Federal assistance
- 5 to state and local governments has grown dramatically in the
post-war period, from $2 billion in 1948 to $28 billion in
the new budget for 1971.
The latter figure represents nearly
one-quarter of all domestic Federal spending.
But this growing Federal assistance has come in the form
of
narro~ progra~
and project grants-in-aid.
The number of
program authorizations has been growing just as fast -- if not
faster -- than the dollar total of assistance.
Currently, we
have somewhere in the neighborhood of 500 separate programs
of Federal aid to states and localities.
That statement bears repeating:
Today, we have approx-
imately 500 separate programs of Federal aid to state and
local governments!
This proliferation of so-called "categorical" grant
programs, while recognizing the provision of adequate local
public services as a national priority, has threatened to
create as many problems as the separate authorizations were
designed to solve.
Large sums of money have been expended on a wide
range of projects and programs, many of them
heastily conceived and difficult to evaluate.
- 6 A substantial amount of Federal assistance is
absorbed in "overhead," with too much overlap,
duplication, and red tape.
Grant allocations are often arbitrarily awarded,
with proficiency in making applications frequently
substituted for real local need.
State and local budget costs are distorted, as
certain activities are made "cheaper" by virtue
of varying matching provisions.
Local needs are
tailored to fit program specifications, instead
of the other way around.
In some instances, new and frequently competitive
state and local institutions have been created,
with very little effort devoted to assessing the
effectiveness of that course.
Perhaps most significantly, because the grant
approach creates direct ties between functional
bureaucracies -- usually appointed or career
officials -- the role of elected public officials
at the state and local level has been correspondingly reduced.
- 7 It is against the backdrop of this explosive increase
in Federal grant programs that the present Administration is
seeking to bring some order and rationality to intergovernmental financial relations.
The question has never been whether Federal aid to
states and localities is appropriate.
These governments
face increasing expenditure requirements, beyond the capacity
of their revenue systems, while the Federal tax system is
both efficient and growth-responsive.
Federal assistance
will continue to increase.
The important question today is not whether such aid is
appropriate, but whether we can design better systems for
delivering Federal program assistance and better methods of
fiscal assistance.
Almost immediately upon assmning office, President Nixon
undertook several major efforts to improve the effectiveness
of our intergovernmental relations.
They included reorganiza-
tion within the executive branch, proposals for consolidation
of related assistance programs, joint funding, and the restructuring of existing programs.
But by far the most important as well as the most dramatic
step that the President·has taken to reform our intergovernmental
- 8 assistance system is his proposal to the Congress to inaugurate
a program of Federal revenue-sharing with state and local
governments.
When adopted, revenue-sharing will constitute a milestone
in Federal-state relations.
It seeks to restore to the states
their proper role in the Federal system, with a new emphasis
on local discretion.
More precisely, it proposes to extend
additional Federal assistance to our state and local governments in a manner that will permit local officials to respond
flexibly to the pressing needs of their own jurisdictions,
without being subjected to rigid Federal controls or requirements.
The leading features of the Administration's revenuesharing proposal are as follows:
First, the total amount to be shared will be a stated
percentage of personal taxable income -- the base on
which Federal individual income taxes are levied.
In
view of budgetary constraints, the revenue sharing
fund will be limited to $275 million in fiscal 1971,
but will grow fairly rapidly and reach $5 billion by
the mid-'70s.
Second, the distribution of the fund among the states
will be based on a simple formula that assigns primary
- 9 -
weight to population, but also gives some weight to
tax effort.
Third, the distribution within each state between the
state government and the localities will be likewise
based on a formula, so that each unit of general
government within a state will be assured a share
that is proportionate to its own revenues.
Fourth, no program or project restrictions will be
placed on the use of the funds made available by the
Federal Government.
Each state, county, city, or
town will rely on its own judgment, and allocate the
funds as it deems best.
Through revenue sharing, we are trying to deliver a portion
of our Federal assistance in a broader and less conditional
manner.
By a direct distribution of funds to our states and
localities, the Federal overhead will be eliminated.
By inc1ud-
ing all general governments on an equivalent basis, the arbitrariness of "grantsmanship" will be removed from the process.
Thus,
the revenue sharing approach represents both a quantitive and a
qualitative improvement in our Federal aid system.
The funds
will come not with a list of requirements and restrictions, but
with a challenge -- to spend the money wisely.
I think that is a
healthy aspect to inject into our intergovernementa1 relations.
, __ ' I '
- 10 -
II.
Capital Finance
Now I would like to move from the State and local
current operating picture to a discussion of capital
financing.
While much of the financing of State and local
public facilities will come from current revenues, and
from Federal grants and revenue sharing, it seems likely
that States and localities will continue to finance as
much as one-half or more of their capital facility outlays
through borrowing.
I won't attempt to add my guess to the various projections which have been made for State and local borrowings
in the 1970's, but I think it reasonable to expect that
the annual growth in State and local debt in the 1970's
will not be less than the 9 percent rate of growth in the
1960's.
Several factors support the case for an even
faster increase in municipal debt -- the current backlog
of public facilities, the great difficulties which States
and localities have in meeting capital needs from their
current revenues, and the growing demands for borrowing
for new municipal facilities for transportation, education,
health, recreation, and, of course, pollution control.
Yet we cannot expect the growth in municipal debt to
keep pace with the identification of new capital needs.
We need only look at the 1969 experience in the municipal
- 11 -
market to see how far below expectations we sometimes fall.
As the President stated in
his Environmental Message to
the Congress of February 10, when he proposed the creation
of an Environmental Financing Authority to help finance the
estimated $6 billion of new municipal borrowings for waste
treatment facilities,
The condition of the municipal bond market
is such that, in 1969, 509 issues totaling $2.9
billion proved unsalable. If a municipality
cannot sell waste treatment plant construction
bonds, EFA will buy them and will sell its own
bonds on the taxable market. Thus, construction
of pollution control facilities will depend not
on a community's credit rating, but on its waste
disposal needs.
Gross issues of municipal bonds were less than $12 billion
in 1969, compared to over $16
~illion
in 1968, because
market interest rates were too high and legal interest
rate ceilings in many states
We~e
too low.
Of course, 1969 was an unusually bad year for municipal
borrowers because it was a period of extremely tight money.
Municipal borrowers are particularly vulnerable at times
of restrictive monetary policy since they have become so
dependent upon commercial bank purchases of their issues;
bank investments are necessarily reduced when money is
tight and loan demands are strong.
Banks took about two-
thirds of net municipal issues in the 1960's compared to
only one-fourth in the 1950's; in 1967 and 1968 bank
acquisitions accounted for nearly the entire municipal
- 12 -
market.
But in 1969, preliminary figures show that banks
took less than 15 percent of net issues.
Time does not permit a thorough examination of the
flow-of-funds statistics and the many complex factors which
cloud the outlook for the municipal bond market.
many pluses and many minuses.
There are
But a brief look at some of
the major factors suggests that States and localities are
going to be hard pressed to meet their growing credit
demands at reasonable rates of interest.
On the tax front, municipal borrowers will be in a
stronger position relative to other
bor~owers
in the 1970's
because the existing treatment of tax-exempt municipal bond
interest was not changed by the tax reform actions of the
Congress in 1969.
Yet, the 1969 Act also provided for
ordinary income taxation of earnings by banks and other
institutions from capital gains on securities, which could
prove to be very costly to municipal borrowers.
That is,
as market interest rates decline -- as they have in recent
months -- the appreciation in the value of outstanding
bonds will be much less because of the reduction in the
capital gains tax advantage.
The consequent reduction in
the demand for long-term securities will be especially
hard on the municipal market because State and local governments,
unlike Federal agencies, rely so heavily on long-term
borrowings.
- 13 -
The pressures on the municipal market may be reduced
somewhat as a larger portion of State and local needs is
met from Federal aid outlays, including revenue sharing,
rather than from borrowing.
Federal aid has been growing
steadily as a percentage of total State and local revenues,
from 12 percent in the fiscal year 1961 to over 18 percent
estimated for fiscal 1970.
On the other hand, other demands on Federal resources
are also increasing, which add to overall pressures on credit
markets.
In addition to direct Federal budget outlays, a
growing volume of private demands are being met through new
and expanding programs of Federal credit assistance.
The
Budget for the fiscal year 1971 provides for a decrease of
$1.2 billion in net borrowing from the public by the Treasury
and other Federal budget agencies -- which will help to
relieve pressures on credit markets -- but there will be
added market pressures in 1971 from the estimated increase
of over $20 billion in net borrowings from the public by
Federally-guaranteed borrowers and by FNMA, the Federal
horne loan banks, and other Federally sponsored credit
agencies.
The $20 billion of net borrowings for these
Federal credit programs in fiscal 1971 is one-third more
than the record $15 billion to be raised for these programs
in fiscal 1970 and more than twice the net annual borrowings
by States and localities in recent years.
These growing
- 14 -
demands for Federal credit aid are largely to assist
housing -- an acknowledged victim of tight money in 1969.
In the fourth quarter of 1969 about three out of every five
dollars of residential mortgage credit was provided directly
by Federal and Federally-sponsored agencies.
Yet we cannot achieve our national housing goals without at the same time providing the streets, sewers, schools,
transportation, and other public facilities which must
accompany new housing.
Our concern with housing is part
of our overall concern with the quality of our environment.
Improving environmental quality clearly' requires a balanced
growth of both private and public facilities.
But "Where is the money corning from?"
Municipal
borrowers, like housing borrowers, are also hard hit by
tight money.
In fact, average tax-exempt bond yields
increased much faster than the yields on mortgages or
corporate bonds in 1969 -- rising from about 70 percent
of corporate yields in December 1968 to about 85 percent
of corporate yields in December 1969.
In addition to the special problems of municipal
borrowers during periods of tight money, it is difficult
to be optimistic about the municipal bond market if state
and local debt is to continue to grow at 9 percent a year
which is clearly a faster growth rate than we can expect for
the gross national product or for the total flow of funds to
--c' it markets.
- 15 -
The basic problem in the municipal market is that the
.tructure is basically wrong.
The natural market for
municipal bonds is the fast-growing pension and retirement
funds and other institutional investors who desire to
maintain a large percentage of their investments in aafe,
long-term securities.
But these institutional investors
are exempt from Federal income taxation, so they have no
interest in tax-exempt bonds.
Thus we wind up selling
municipal bonds to banks and other high tax bracket investors,
who are naturally interested in maximizing their earnings
through investment in shorter-term and riskier instruments
such as business loans and stocks.
So municipal bond rates
must be more competitive with the after-tax returns on stocks
and business loans, if the volume of municipal debt is to
keep pace with the demands for public facilities.
What then can the Federal Government do to help improve
the availability of debt capital to States and localities?
Clearly, the most important action that the Administration can take is to continue the overall fiscal
restraint necessary to curb inflation and inflationary
expectations, and permit some easing in monetary restraint,
thus lowering the general level of interest rates and
reducing the cost of borrowing to States and localities.
We have already achieved a significant start in this
direction, with declines thus far this year in municipal
- 16 -
bond rates of a full percentage point.
Long-term municipal
bond yields declined from a high of about 7 percent in
mid-December, 1969 to about 6 percent in mid-March.
Assuming that municipalities continue to increase
their net borrowings by 9 percent a year, State and local
debt will rise from the current level of about $140 billion
to over $240 billion in 1976.
If we are successful in
curbing overall inflationary expectations in the economy,
so that municipal bond rates continue to decline from the
7 percent high of last December to, say, the 4 to 5 percent
levels of 1967 and 1968, the potential interest savings
will rival the estimated $5 billion of Federal revenue
sharing with the States and localities in the mid-70's.
That is, a decrease of 2 to 3 percent in the cost of
carrying $240 billion of municipal debt will in time
permit interest savings to State and local governments
of $4.8 to $7.2 billion a year, as the higher rate bonds
are eventually replaced with issues at the lower rates.
Thus, returning the economy to a more stable growth
rate, which will permit lower interest rates, must clearly
be the number one objective.
There have been a number of suggestions that the
Federal Government help to broaden the market for municipal
securities through some sort of a central financing facility,
- 17 -
such as the Urbank proposal; or some form of Federal
guarantee or interest subsidy on municipal bonds financed
in the taxable bond market; or simply Federal subsidy
payments to retirement funds and other tax-exempt investors
to induce them to acquire municipal bonds.
Yet a funda-
mental objection raised to these proposals -- I think,
understandably -- is that they could lead to greater
Federal control over municipal borrowings and thus conflict
with the overall philosophy of greater State and local
financial independence.
While these proposals deserve
our careful consideration, I believe there is much we can
do in the meantime to avoid adding to the pressures on
the municipal bond market.
Specifically, I refer to
actions currently proposed by the Administration to
provide for taxable bond financing of new municipal
obligations generated in connection with Federal credit
assistance programs for waste treatment facilities and
for rural water and sewer facilities.
Since these directly
aided programs will otherwise require direct Federal
Subsidies and direct involvement by the Federal Government
with the State and local project agencies, there need be
no additional element of Federal control accompanying any
shifting of the borrowings from the tax-exempt to the
taxable bond market.
- 18 -
If, instead of financing some of this municipal debt
in the taxable bond market, we were to take the alternative
approach of Federal guarantees of tax-exempt bonds for all
new municipal borrowings requiring Federal credit aid, we
would add to the pressures on State and local interest
rates.
Since many of these bonds could not have been
issued without the aid of the Federal guarantee, the
effect of the guarantee would be to add to the total
supply of municipal bonds and thus to the overall demands
on the relatively narrow tax-exempt bond market.
The estimated $1.9 billion of new Federally-supported
public housing and urban renewal borrowings in fiscal 1971,
for example, may well require about 20 percent of the
supply of funds available to the municipal market, compared
to only about a 12 percent share taken by these two programs
in fiscal 1969.
If we also offer Federal guarantees, or
debt service grants, on tax-exempt bonds for mass transit,
municipal airports, health, education, pollution control,
and other new public facility programs, it is easy to see
in the not too distant future that half or more of the
supply of funds to the municipal market will be required
merely to finance these Federal aid programs.
Also, with
Federal guarantees on these tax-exempt bonds, they would
be of higher investment quality than the typical municipal
- 19 -
issue, so that States and localities borrowing on their
own and competing with these Federally backed issues will
surely have to pay a significantly higher interest rate.
Thus the 1971 Budget contains an Administration
proposal providing that loans made to rural communities
by the Farmers Home Administration and then sold by that
agency to private investors with a Government guarantee
shall bear taxable, rather than tax-exempt, interest.
Under this proposal the Federal Government will pay a
portion of the interest, so that the cost to the borrowers
will be more in line with the rates paid by municipalities
borrowing at tax-exempt rates.
The required Federal
interest subsidy will involve no net cost to the Treasury,
as compared with the alternative of tax-exempt financing,
since all of our studies indicate that the Federal revenue
loss from tax-exempt interest is significantly greater
than the interest savings to the borrower from the taxexempt feature.
A similar approach to this same problem is the
Environmental Financing Authority proposed by the President,
which I have already mentioned.
Under the legislation
submitted to the Congress by Secretary Kennedy on February 10,
EFA would stand ready to purchase the waste treatment bonds
of any public body receiving a project grant from the
- 20 -
secretary of the Interior and unable to raise its share of
the project costs at reasonable interest rates.
Then EFA
will finance these purchases by issuing its own obligations
in the taxable bond market.
These new Administration proposals will at least reduce
the volume of tax-exempt bonds stimulated by new Federal
credit aid programs and will help minimize
on municipal interest rates.
~
pressures
Yet the basic problem remains.
State and local borrowing demands are growing faster than
the supply of long-term investment funds from investors in
high income tax brackets.
The price of 'this imbalance is
reflected in the interest rate on tax-exempt bonds.
The
value of tax exemption to each borrower declines as the
total volume of tax-exempts increases.
Tax-exempt interest has at times been an effective
means of revenue sharing -- the investor pays the tax to
the State or local borrower, by accepting a lower interest
rate, rather than to the Federal Government.
But the
efficiency of this type of revenue sharing declines as
borrowings increase anc tax-exempt rates rise relative
to taxable rates.
III.
A Concluding Note
To sum up, we have only a partial answer to our
starting question, "Where is the money coming from?"
On
.. 21the current operating side we are moving in the direction
of an effective system of revenue sharing, rather than
continued expansion in the number of narrow, categorical
grants-in-aid.
We can look forward to greater State and
local financial independence as the amount of revenue sharing
grows along with the growth in the economy.
But on the capital
side we do not yet have the tools to do the job.
As the volume
of local public facility financing increases, the effectiveness
of tax-exempt interest as a form of revenue sharing decreases.
Unless a more efficient tool is designed, we can expect
growing demands for direct Federal credit aid for each high
priority program.
Will this lead to an expansion of credit
program bureaucracies--as opposed to our efforts toward
streamlining federal financial assistance through revenue
sharing?
If so, it will hardly contribute to the kind of
healthy relationship we desire in our intergovernmental
relations.
What then is the answer?
I am confident it must be
something other than making continued demands upon on overburdened tax-exempt market.
We will be actively engaged in
developing a more effective alternative to that approach during
the coming months, and I would certainly welcome the thoughts
and suggestions of stat'e and local officials.
To work
tOlether tQwsrd mora effective solutions is just what the
-22-
President's New Federalism is all about.
All of us have a
vital stake in coming up with workable solutions, so that
the needed expansions in our
pub1i~
sector.faci1ities can
take place--and be financed in the most economic and
efficient manner.
000
Department of the
TRfASURY
TElEPHONE W04-2041
HINGTON. D.C. 20220
March 23,1970
FOR IMMEDIATE RELEASE
TREASURY ISSUES DUMPING FINDING WITH RESPECT
TO AMINOACETIC ACID (GLYCINE) FROM FRANCE
The Treasury Department announced today that it has issued
a dumping finding with respect to glycine from France. The
finding will be published in the Federal Register of March 24,
19700
On November 17, 1969, the Treasury Department advised the
Tariff Commission that glycine from France was being sold at
less than fair value within the meaning of the Antidumping Act,
1921, as amended
Earlier the Treasury Department had issued
determinations of no sales at less than fair value with respect
to glycine imports from Japan, the Netherlands and West Germany.
0
On February 17, 1970, the Tariff Commission issued a
determination of injury by reason of the importation of glycine
sold at less than fair value. The Tariff Commission's announcement of injury stated that an industry was being injured by
reason of the importation of glycine into the United States from
France and other countries. Since the Antidumping Act requires
that the Secretary of the Treasury issue a finding of dumping
where there has been both a determination of sales at less
than fair value by the Treasury Department and a determination
of injury by the Tariff Commission, the Treasury's finding of
dumping in this case is restricted to France.
During the period March 1, 1968, through August 31, 1969,
imports of glycine from France were valued at approximately
$98,000.
000
Department of theTRfASURY
TELEPHONE W04-2041
_TON. D.C. 20220
millION:
FDWiCIAL EDITOR
roB BlIMSI 6 :30 P eM • ,
~9!W1 March Z3, 1970.
BlSut:rS OF TBlASURY'S WDILY BILL OlFDIIG
!be Treas-r.r Department aDDOUDce4 that the tenders tor two series ot Treasury
,illa, olle .erie. to be an a4d1tioDal ilne ot the bill8 dated Decober 26, 1969, and
~Ile other .eries to be dated Mareh 26, 1970, wAich vere ottered OIl March 18, 1970, were
"..a at the lederal lelerye B-nkl todq. Tenders were invited tor $1,800,000,000, or
~Dertabc:Mt., ot 91-d..q bills and tor $1,300,000,000, or thereabouts, ot 182-day bills.
~he cleta1l1 ot the two seriel are as tol.l.on:
91-dq TreaaUl'7 billa
. mat!a£~Y JURe 25. 1970
Approx. Iqui".
Price
Annual Bate
6.2,7;
98.'21
UGI OJ ACCIPTED
lClftfITIVI BIDS:
High
Low
AftI'lie
98.'15
98.4:17
6.27af,
6.26~
Y
••
••
182-4&7 !rea8\U'7 bill8
maturig SeEteJlber Z'. 1970
••
Price
••
Awrox. BtUT.
A.896
••
••
••
96.858
96.87'
''''!'.late
.1'.
6.2l5j
6.l.83j
Y
5A ot
the u.owrt ot 91-dq billa bid tor at the low price was accepted
9]J ot the UlO\lDt of' 182-4&7 billa bid tor at the low price was accepted
om. DlIDIBS APPLIlD
Diatr1ct
Boaton
I." York
Philadelphia
Clevel&D4
R1chIIoIld
AtlaDta
CbiCllo
St. Loai.
MiDneapol1s
luau City
DaUaa
Su I'raDcisco
!()'lAW
FOR AID ACCBPfEJ) BY FBDDAL BISDVE DDftlCTS:
,
18,150,000
1,396,560,000
20,800,000
35,220,000
15,4:50,000
26,8$0,000
1ll,500,000
4:0,740,000
6,810,000
29,090,000
16,670,000
85."0,000
: A'DPlied lor
16,64:0,000
:
••
1,8'7,230,000
17,660,000
••
••
3',84:0,000
8,080,000
•
••
46,190,000
••
181,4:50,000
••
33,600,000
27,'20,000
21,700,000
••
2',050,000
••
121,150 ,000
•
$3,837,220,000 $1.803,300,000
!I $2,382,010,000
$1,301,070,000
~lied For
3',580,000
2,757,590,000
67,580,000
-'6,330,000
4O,~0,OOO
72,260,000
321,700,000
76,870,000
~,060,OOO
",~O,OOO
30,'70,000
305,000,000
~Ce!!ed
·
AcceEed
6,310,000
968 ,100,000
7,660,000
2',84:0,000
8,080,000
32,750,000
117,250,000
26,000,000
18,'20,000
19,4.90,000
1l,050,OOO
60,520,000
B!
lDcla4e. t61,090,000 Donccapet1t1ft teDders accepted at the averaae price ot 98.'17
*lade.
!}..:;
6
173,770,000 nGDccapet1tive teaders accepted at the average price ot 96.87'
rat•• are on a ltuk discOWlt basi.. !lae e.m,Tal.nt cO\lPOD ilsue yie1cis are
tor tlae 91-d,q 1»1111, aDel 6.,7j tor tile lSZ-clq bills.
Department of the
TRfASURY
"STON. D.C. 20220
TELEPHONE W04-2041
.trIOI: rDAEDL IDImR
BlIJASI 6:30 P.M.,
_I, I&BCI U. 1970.
RESUI.TS OF TREASURY'S MONTHLY BILL 0FFIRDIl
!he !rluury Department &IU1OW1ced that the tenders tor two series
ot Treas1ll'Y
one leries to be an additional issue of the bills dated December 31, 1969, and
other leries to be dated March 31, 1970, which vere offered on March 18, 1970,
I opened at the lederal Reserve BaDks todq.
Tenders vere iD'fited tor $500,000,000,
lhereabout., of 275-~ bills and for $1,200,000,000, or thereabouts, of 365-dq
.8 • 'lbe details of the tvo series are as follows:
.8,
ar ACCIPTID
II
'lfIUVI 111)8:
tilb
1m
AVUII'
84.J
4.~
~
275-day Treasury bills
uturiy December 31. 1970
Approx. EquiT •
Price
Armual Rate
95.4.27
5.se4
95.326
6.~
95.3~
6.10~
Y
365-~
·•
··
···
I
TreasarJ bills
maturi. March 31. 1971
Apprax. I quiY •
AD..a] Rate
Price
9!.866
93.69'
93 .783
6.OSOY;
6.22~
6.1.3~
1,,1
Y
ot the amout of 275-day bills bid for at the low price vas accepted
ot the amount of 365-day bills bid for at the low price vas accepted
TDDIBS APPLIED FOR AIm ACCEPrED BY FEDBRAL RESIRVI DISTRICTS:
Itrict
ItOIl
r York
~ladelphi&
1Te1aDd
·
·
AE1!lied For
Acce:eted
260,000
,
20,260,000 ,
375,720,000 :
1,280,160,000
4:90,000
6,4.90,000
11,560,000
1,560,000
:hmcmd
lZ,~O,Ooo
12,~0,000
liDta
.cago
16,~0,OOO
3,4:90,000
56,2.0,000
il,780,000
3,510,000
1,950,000
1,290,000 •
31.4.20.000
, Louis
lDeapolis
lIaa City
W
I franCisco
rows
1ll,04:0,OOO
29,880,000
15,510,000
3,950,000
14:,290,000
90.220.000
$1,613,24:0,000 $
·
500,14:0,000
~l1ed For
n, flSO ,000
tecened
,150,000
1,533,6~,OOO
901,6~,OOO
14:,4:20,000
5,230,000
19,720,000
26,970,000
99,820,000
33,250,000
15,620,000
16,590,000
16,510,000
110.000.000
5,230,000
18,630,000
22,970,000
83,310,000
33,250,000
15,620,000
16,590,000
8,500,000
78.84:0.000
!I $1,903,220,000
4:,4:20,000
$1,200,.s0,OOO ~
~elwU' : 19,700,000 noncompetitive tenders accepted at the average price ot 95.~'0
~c~. 68,120,000 noncompetitive teDders accepted at the average price ot 93.783
~'Ie rate. are on a bank discount basis. !he equivalent coupon issue yields are
tor the 275-da7 bills, and 6.51$ tor the 365-c1.q bills.
I.,.
380
.11 ,.
Department of theTRfASURY
INGTON. D.C. 20220
TELEPHONE W04-2041
FOR RELEASE AT 6: 30 P.M., EST
REMARKS OF THE HONORABLE
DAVID M. KENNEDY
SECRET~Y OF THE TREASURY
BEFORE
THE NORTH CAROLINA CITIZENS ASSOCIATION
RALEIGH, NORTH CAROLINA
WEDNESDAY, MARCH 25, 1970
A TOP PRIORITY:
THE QUALITY OF LIFE
The conscience of America is being aroused.
Suddenly,
more and more people are talking and thinking about their
lives in much broader dimensions.
From a narrow, personal
and material focus on life, Americans are expanding their
vision to a concern for the broader social and spiritual
consequences of individual action.
The quality of life has become a central issue of
public debate and discussion.
It can, I hope, emerge as a
unifying force for public and social action, transcending
partisan competition.
To preserve and restore our environ-
ment; to bring dignity and meaning into every life
are the challenges which face public leaders today.
K-381
these
-2I know that President Nixon and all of us in his
Administration are excited about this spreading awareness
and concern over the quality of American life.
To draw upon
this awareness in a call for public action is to appeal
to the best motives of our people.
But it is one thing to arouse public concern over an
issue, and quite another thing to channel that concern into
constructive debate and action.
It is the role of leadership
to bridge the ever-present gap between the awareness of
problems and the solutions to problems.
and discussion must take place.
Intelligent planning
New approaches must be
sought and good, sound programs -- those with promise of
making real progress toward solutions -- must be devised.
This is certainly true with regard to so important,
yet so ill-defined an issue as the "quality of life in
A~erica."
But I am encouraged over our progress thus far.
Permit me, if you will, to offer some examples of the
kind of progress, both in forward planning and program
design, which we are making.
I.
Improving the Quality of the Debate
To avoid moving ahead in an un-coordinated and hap-
-3hazard manner, it is essential to define the nature of our
requirements and the extent of our resources.
Abraham
Lincoln has said it best:
"If we could first know where we are and
whither we are tending, we could better
judge what to do, and how to do it."
In short, we must engage in some basic analysis and planning.
We must improve the quality of our debate over national
. priorities.
This year, for the first time in history, a President
has attempted to raise the level of this discussion by
projecting our economic options into the future.
Both the
President's Economic Report and Budget Message contain
long-range projections of available national resources and
potential claims on those resources.
We conducted this analysis at two levels.
First, we
projected real gross national product annually out to 1975.
This represents total national output of goods and services
public and private.
Against these projections we added up
the existing claims on that output.
These claims will come
from households, businesses, and governments.
The results
of these calculations revealed that projected claims would
-4approximately absorb all available resources through 1973
and leave room for significant additional claims only by 1975.
In a related exercise we looked specifically at the
Federal Government sector of the economy, and projected a
possible combination of available Federal revenues and
anticipated expenditure requirements for the fiscal year
1975.
The major conclusion of this analysis was that
projected Federal program requirements leave only modest
resources for future initiatives, including tax and debt
reduction as well as new expenditure programs, through 1975.
As a result of this kind of hard analysis, the issue
is quite clear:
even in our highly productive and expanding
economy, resources are limited and insufficient to satisfy
all the potential demands on our output.
must, as always, be established.
In short, priorities
Responsible program advo-
cates must be prepared to sacrifice an existing claim on
output when proposing a new claim on output.
And the debate
over the appropriate ranking of our priorities -- the
"reordering" issue -- must be an ongoing and vital exercise.
The amount of fiscal leeway that will be available to
the Federal government through 1975 depends importantly on
-sour willingness and ability to contain the growth in low
priority expenditures.
We recently completed a very
difficult budget-making exercise for the coming Federal
fiscal year.
As a result of some hard Presidential
decisions, we have made enormous progress toward gaining
budgetary control over Federal expenditures.
The important thing now is to guard against any erosion
of these significant gains.
Through substantial reductions
·in the defense and space program categories, we are now able
to make substantial additions
resource programs.
to our spending for human
Our priorities are being reordered
within the necessary constraint of a slowdown in total
spending.
In the months ahead, some observers may be saying that
expenditure control is unimportant and that the need for
some easing of our restrictive economic policies is good
cause for fiscal laxity.
I strongly disagree.
Any major
easing of policy should properly come from the monetary
side, where the squeeze on credit and interest rates has
been particularly severe in the past year.
Having worked
hard to achieve tight budgetary control, we must not permit
our fiscal gains to be lost.
-6II.
Improving the Quality of the Environment
Each year, a President has only a narrow range of
action for changing the direction of Federal Government
activities.
There are existing contracts and laws which
absorb most of the available revenues.
of
national~i6rities
So any reordering
will usually begin in modest amounts,
with the full impact of any new directions becoming apparent
in later years.
This constraint on Presidentail initiative was even
more severe this year due to the expiration of the temporary
income tax surcharge.
We not only had to reorder priorities,
but also had to do it without permitting the usual large
growth in expenditures.
Under these circumstances, I think
the President has done a remarkable job in starting Federal
programs in new directions.
One area in which Federal spending will expand rapidily
this year is for programs designed to improve the quality
of our environment.
Outlays for the control of air and
water pollution, and for increased parks and open spaces,
will increase by nearly 50 percent.
L~st
month, President Nixon presented the Congress
with a 37-point administrative and legislative program
-7covering five major categories.
Highlights of that message
included proposals for:
Water 2011ution control:
a five-year, $10 billion
Clean Waters Act to provide municipal waste
treatment plants.
Air pollution control:
new and more rigorous air
quality standards.
Solid waste management:
new emphasis on the
development of packaging materials that can be
broken down and disposed of more easily.
Parklands and public recreation:
an inventory of
all Federal land, to permit significant expansion
of recreational areas.
Organizing for action:
pulling together all Federal
resources and agencies into a coordinated effort
for environmental improvement.
I know the citizens of North Carolina are extremely
conscious of the need to preserve our natural heritage.
From an inspiring national seashore at one end of the state
to one of our finest national parks at the other end,
North Carolina harbors many of America's priceless natural
-8wonders.
We must plan now to preserve and protect this
beautiful land.
From our analysis of the Nation's resources and claims,
it is clear that this effort to enhance our lives through
improvement of the environment will not be costless.
We
will have to pay a price for quality living.
It is important, too, to recognize that our private
enterprise, free market system requires some adjustments
if we are to prevent environmental pollution.
The case
for government intervention is clear and necessary.
Consider a real example.
If someone operates a
factory in North Carolina, and in the process of producing
his product pollutes the air or water, he doesn't add the
"cost" of this pollution to his normal costs of doing
business.
To him this activity is costless.
If he were to
spend considerable effort and money to eliminate this
pollution, thereby raising his costs and the price of his
product, he would not have a better product to sell.
His
customers, especially if they don't live near his plant,
would probably not be willing to pay a higher price for
-9the product, since the "benefit" of clean air or water does
not add to their personal benefits derived from owning
the produc t .
Yet we all recognize that there are very real "social
costs" involved in this polluting activity, and very real
"social benefits" involved in eliminating the pollution.
Our market system of free enterprise has no automatic
mechanism for bringing these social costs and benefits
into the making of private production and purchasing
decisions.
The role of government, in such cases, is to
devise methods for helping to make all costs and benefits
both private and social -- an integral part of normal economic
decision-making.
In this manner, the market system can come
to provide automatically for improvements in environmental
quality.
All Americans have an important stake in improving
our environment.
And all of us must guard
this issue to become a passing fancy.
against permitting
It is too important,
it is too vital for this and succeeding generations, for
-10any of us to allow our interest and determination to
fade.
Earlier this month there was an environmental
"teach-in" at the University of Michigan.
And I under-
stand that teach-ins, parades and demonstrations are
planned on at least a thousand college campuses, several
thousand high school campuses and in communities all
over the land for April 22.
Certainly, a good rally can generate necessary
enthusiasm and attract attention.
This issue
needs enthusiastic support, and it is one about which
all of us need more information and education.
There is one suggestion I would like to offer
to the demonstrators:
As you create enthusiasm for
this issue, also devote your energy and ability to
devising procedures for transmitting public concern into
actual participation in the drive to clean up the
environment.
-11-
This would illustrate that protestors are willing
to participate with a constructive contribution, that
they are willing to help build a better world, that they
are not protesting just for the sake of protesting.
III.
Improving the Quality of Government
There are many avenues we must take to improve the
quality of American life.
But certainly one deserving
immediate priority is the path toward more effective and
more responsive government.
Government is a major institution affecting both our
economic and personal lives.
A substantial share of our
incomes goes to provide government services; governmental
policies, resulting in laws and regulations, shape our
everyday behavior.
In past years, an endemic weakness of government has
been its inability to terminate or restructure obsolete
programs.
Once created, an agency or bureau seemed to have
a perpetual lease on life, regardless of its current state
of usefulness.
-12I am proud to say, that we have a President today
who means to bring some efficiency to government, and to
see that tax dollars are going toward needed and vital
efforts.
Last month, he sent to the Congress a proposal
for reducing, terminating, or restructuring 57 programs
which are now obsolete, low priority, or in need of basic
reform.
These proposed changes would save a total of
$2.5 billion in the coming fiscal year.
Of this amount,
$1.1 billion of savings require Congressional action, and
I earnestly hope the Congress will join the President in
this long overdue exercise.
But in addition to making government more efficient,
it is equally as important that we make it more responsive
to the needs and interests of our citizens.
One way to
accomplish this is to strengthen the role of our state and
local governments within our overall public sector.
In too many
instances~
we have seen authority and
jurisdication and power flow to Washington along with Federal
tax dollars.
Even though a substantial amount of those
tax dollars is being returned in the form of grants-in-aid
-13-
to state and local governments -- nearly $28 billion in
the coming fiscal year -- the authority over their final
distribution remains in Washington.
To strengthen the role of our states and localities
the President has proposed a program for sharing Federal
revenues with state and local governments.
The basic
purpose of the program is simply to extend a share of our
growing Federal financial assistance to these governments
in a broader, fairer, and less conditional manner.
The
important feature for individual citizens is that revenue
sharing funds can be spent according to the needs of each
particular community.
Local discretion and participation
are substituted for Federal regulation.
Here are the basic features of the President's revenue
sharing proposal:
- Each year there will be automatically appropriated an
amount which is tied to the Federal tax base.
We
start out modestly -- $275 million next year -but grow rapidly to $5 billion in 1976.
- This total amount is split into 51 shares -- for
each state and the District of Columbia -- based
-14primarily on a state's population, with an adjustment
for tax effort.
For the first quarterly payment
next year, North Carolina will receive about $6.7
million; by 1976 this will be an annual payment of
about· $120 million.
- Every city, county and town will receive a guaranteed
share, based on the amount of revenues raised.
During 1967, for example, the cities and counties
of North Carolina raised about 31 percent of all
state and local revenues.
On that basis, they would
receive 31 percent of each revenue sharing payment.
- There will be no program or project "strings."
money comes with a challenge:
The
to spend it wisely.
This revenue sharing proposal combines many desirable
features into a logical system of supplemental aid to states
and localities.
It is simple, without Federal "overhead,"
and fairly distributed to every region of the country.
more than money is being shared.
And
The decision-making
responsibility that accompanies the funds is a vital step
-15toward returning a share of governmental power to the people.
IV.
Conclusion
I have described tOday some of the promising efforts
underway in this Administration to improve the quality of
American life.
We are trying to make progress toward this
national objective through intelligent planning and program
design.
Awareness and concern over the broader social and
environmental issues of today is a healthy development for
American society.
If we are to enjoy true prosperity
economically, then we must take care to preserve our
environment and make our surroundings livable.
But enhance-
ment of the quality of life involves more than clean air
and water, or the elimination of traffic congestion.
It
is even more important that we preserve that special quality
of individual destiny which has become the American tradition.
The individual can make a difference; he can determine
his fate.
Despite all our technological advances and
sophisticated life styles, the words of Walt Whitman remain
true:
-16"The American compact is altogether with
individuals ••• America is nothing but
you and me."
We must design our government programs to enhance the role
of individual decision-making.
Our revenue sharing pro-
posal, for example, is intended to do just that.
For
without this element of personal contribution, the quality
of life remains deficient.
I hope all of you share my enthusiasm as we embark
on this common effort to raise the spirit of America.
is a vital cause, one long overdue.
Today, it is clearly
in the first rank of national priorities.
000
It
Department of the TREASURY
IHNGTON. D.C. 20220
TELEPHONE W04-2041
)
FOR IMMEDIATE REf.!ASE
March 25, 1970
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
$ 3,100,OOtf,ooo, or thereabouts, for cash and in exchange for
Treasury bills maturil\l
April 2, 1970,
in the amount of
$3,010,715,000,
al follows:
9~day bills (to maturity dat~) to be issued April 2, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing an
additional amount of bills dated January 2, 1970,
and to
~ture
July 2, 1970,
originally issued in the amount of
$1,201,671,000,
the additional and original bill, to be
freely interchangeable.
182-day bills, for $1,300,000,000,
dated April 2, 1970,
and to mature
or ther.abouts, to be
October 1, 1970.
The bills of both series will be is.ued on a discount ba.is 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
$10,000, $50,000, $100,000, $500,uOO, and $1,000,000 .
(maturi ty value).
Tenders will be received at Federal Reeerve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Standard
time,
MoncLRy, March 30, 1970"
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even mu1 tip1e of $10,000 Jind in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more 1:han three dec-imals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
fo~arded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application' the refor.
Banking institutions generally may submit tenders for account of
Customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
S~bmlt tenders except for their own account. Tenders will be received
tl thout deposit from incorporated banks and tru.t companies and from
- 2 -psponsirle 2nd recognized dealers in investment securities. Tender
L·or.: ':":::~len; must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied tor, unless the tenders are
accompani~d by an express guaranty of payment by an incorporated bani
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public annour
ment will be made by the Treasury Department of the amount and price
of accepted bids. Only those submitting competitive 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. Subj ect 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 April 2, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills ~aturing
April 2, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differe~ces between the par value of maturing bills accepted in
excnange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or
galn 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
hills 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 ocherwise 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 o~n~ranch.
Deportment of the TRfASURY
D.C. 20220
TElEPHONE W04-2041
March 26, 1970
FOR RELEASE A.M. NEWSPAPERS
FRIDAY, MARCH 27 , 1970
Treasury Secretary David M. Kennedy will lead the
United States Delegation to the third annual meeting
of the Asian Development Bank at Seoul, Korea, April 9-110
While in the Far East, the Secretary will visit
Japanese Finance Minis ter Fukuda in Tokyo.
Congressional observers will accompany the
Secretary on the trip. The delegation includes
U. S. Senators Wallace F. Bennett of Utah, Claiborne Pe11
of Rhode Island and Ted Stevens of Alaska, and
U. S. Representatives Thomas Ludlow Ashley of Ohio,
Seymour Halpern of New York, Richard T. Hanna of
California, Albert W. Johnson of Pennsylvania,
Benjamin Blackburn of Georgia and Howard W. Pollock of
Alaska.
The delegation will leave Washington Saturday,
April 4 and return to the capital April 14.
Mr. Kennedy is U.S. Governor of the Asian Development
Bank, which began operations in 1966 to accelerate economic
growth of developing Asian nations
Membership includes
20 Asian nations as well as 13 non-Asian countries.
0
000
K-383
Department of the TREASURY
TelEPHONE W04·2041
D.C. 20220
'fEIfrION:
FIIWJCIAL EDITOR
8 REIEASE 6:30 P .Mo,
~, March 30, 1970.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
.Us, ODe series to be an additional issue of the bills dated January 2, 1970, and
Ie other series to be dated April 2, 1970, which were offered on March 25, 1970, were
Ielled at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
. thereabouts ~ of 91-day bills and for $1,300,000,000, or theres:1-)cnts, of 182-day
.Us. The details of the two series are as follows:
iNGE or ACCEPTED
tlPETrrm BIDS:
High
Low
Average
91-day Treasury bills
maturing July 2~ 1970
Approx. Equiv.
Price
Annual Rate
98.4.35
6.:UU~
98.390
6.36~
98 .400
6.3301-
182-day Treasury bills
maturing October 12 1970
Approx. Equiv.
Price
Annual Rate
96.179 ~
6.371~
96.740
6.~~
!/
96.769
6.391~
·
·
!/:
!lExcepting 1 tender of $500,000
9~ of the amount of 91-day bills bid for at the low price was accepted
97~ of the amount of 182-day bills bid for at the low price was accepted
m
TENDERS APPLIED FOR AND ACCEPrED BY FEDERAL RESERVE DIS'l'RICTS:
listrict
loston
lew York
1liladelphia
:leveland
tichmond
Ltlanta
Mcago
·t. Louis
linneapolis
:ansas City
lallas
'an Francisco
TOWS
Applied For
AcceEted
•
26,920,000 $
26,520,000
1,999,810,000
1,306,530,000
36,510,000
21,510,000
37,270,000
37,270,000
15,930,000
15,930,000
40,280~000
30,730,000
167,140,000
160,660,000
37,130,000
29,2Z0,000
32,330,000
30,830,000
30,250,000
28,220,000
31,030,000
20,030,000
148 ,810 ,000
93,190,0O.Q
$2,604,010,000
$1,£
.,40 ,()
£I
Applied For
14,160,000
1,636,800,000
18 :s 7 (>, i}}t}
:':;5,730,000
7,950,000
28,050,000
164,750,000
21,360,000
20,190,000
18,750,000
25,200,000
115,510,000
•
AcceEted
$ 14,160.000
1, c)-.~, 650,000
8,370,000
20,730,000
7,950,000
17,550,000
128,450,000
14,160,000
12,160,000
18,54:0,000
11,700,000
4:2,06° 2°00
$2,096,820,000
$1,300,080,000
j
£I
, Ircludes $318,230,000 noncompeti ti ve tenders ac -,pted at the average price of 98.4:00
Includes $160,740,000 noncompetitiTe tenders accepted at the average price of 96.769
~h~se rates are on a bank discount basis. The equivalent coupon issue yields are
• fit. for the 91-day bills, and 6.70 " tor the 182-day bills.
Department 01 the TRfASURY
n.C.20220
TElEPHONE W04-2041
FOR IMMEDIATE RELEASE
March 31, 1970
TREASURY TO LOOK INTO POSSIBLE PIG IRON DUMPING
UNDER THE ANTIDUMPING ACT
The Treasury Department announced today that it has
investigated charges of possible dumping of pig iron from
Norway.
A notice announcing a tentative determination that this
~rchandise
is not being, nor likely to be, sold at less
than fair value within the meaning of the Antidumping Act
will be published in the Federal Register of April 1, 1970.
No sales to the United States of the merchandise were
made subsequent to March 1969.
There is no information
indicating that any pig iron from Norway will be shipped
to the United States in the near future
0
Appraisement of the above-described merchandise from
Norway has not been withheld.
The 1969 importation in March was valued at approximately
$107,000.
There have been no importations since then.
000
Department 01 the TREASURY
D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
April 1, 1970
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
$3,100,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing
April 9, 1970,
in the amount of
$3,004,613,000,
as follows:
91-day bills (to maturity date) to be issued April 9, 1970,
in the amount of $1,800,000,000,
or thet'eabouts, representing cm.
additional amount of bills dated January 8, 1970,
and to
mature
July 9, 1970,
originally issued in the amount of
$1,207,360,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,300,000,000,
dated
April 9, 1970,
and to mature
or th~reabouts, to be
October 8, 1970.
The bills of both series will be is.ued on a discount basis under
competitive and noncompetive bidding as hereinafter pt'ovided, and at
maturity their face amount will be payable without intet'est. They
will be issued in bearer form only).. and in denominations of
$10,000, $50,000, $100,000, $500,uOO, 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, April 6, 1970.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $lO,OOO~nd in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more "than three dec"imals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
fo~arded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application the refor.
Banking institutions generally may submit tenders for account of
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.-384
-
L. -
responsible and recognized dealers in investment securities. Tea
from others must be accompanied by payment of 2 percent of the f~.
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated
or trust company.
Immediatel~
after the closing hour, tenders will be opened at
titE: Fede:.::al Reserve Banks ai.-Hi Branches, following which public annot
ment will be made by the Treasury Department of the amount and priC:f
of accepted bids. Only those submitting _competitive tenders will bE
advised of the acceptance or rejection thereof. The Secretary of t~
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respecl
shall be final. Subject to these reservations, noncompetitive tend
for each issue for $200,000 or less without stated price from any ~
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues,
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on April 9, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing April 9, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be ma~
for differ£11ces 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
g n fro the sale or other disposition of the bills, does not have
-- any
mption, 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 exclude
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereund
need include in his income tax return only the difference 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 tho
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and th
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 060~ranch.
Dtpllrtment 0/ the
D.C·, 20220
TREASURY
TELEPHONE W04.2p41
FOR RELEASE 9: 00 P.M., EST
THURSDAY, APRIL 9, 1970
(THIS IS 11 :00 A.M •. KOREAN STANDARD TIME
FRIDAY,. APRIL 10, 1970)
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE U. S. DEPARTMENT OF THE TREASURY
AT THE
THIRD ANNUAL fIEETING
BOARD OF GOVERNORS
ASIAN DEVELOPMENT BANK
SEOUL, KOREA
Mr. Chairman, Fellow Governors, Delegates and Observers:
It gives me great pleasure to participate again in the
annual meeting of the Asian Development Bank. It gives me
equal pleasure to join with my fellow Governors in welcoming
France and Fiji to membership in the Bank.
It is fitting that this Bank should hold its Third
Annual Meeting hct'e in this vigorous city of Seoul. In
the past decade the Republic of Kot'ea has achieved an enviable
record of development, and one of the world's highest t'ates of
economic growth. Starting ft'om the exhaustion and the
devastation of war in the early 1950's, the Korean peop]e
applied theit' energies with th~ single put'posc to the job of
rebuilding and developing their country. We sec ample
evidence of their achievement here in Seoul.
Korea's progress is an example of the success of the
cooperative approach to development. Korea's economic
growth has. resul ted fundamentally from the labC):c and
dedication of the KoreC1n people. At the S<1111C t. ili12, fOl-eign
technical and capital assistance have contributed
K-385
- 3 -
observation reflected in the record of progress of such
multilateral institutions as the International Bank for
Reconstruction and Development, the Inter-American
Development Bank, and nOvl the Asian Development Bank.
The United States as well as other nations has not
always been able to approach the aid question in such
a manner, in the immediate post-war years, the U.S.
conducted its aid program primarily on
bilateral basis
During that period there were many reasons for such an
approach to mention a basic consideration, the United States
was one of the few nations which emerged from the ravages
of World War II with a strong economy. Consequently, it
was appropriate for the U.S. to promote, as rapidly as
possible, the rebuilding of those economies destroyed by
war. It became no less appropriate for the U.S. to
stimulate economic development among lesser developed nations
through its aid programs.
a
o
As we gained experience in the area.of economic
development, we saw a need to supplement the
.the bilateral approach. The United States thus turned more
and more to working in partnership ~vith other nations in the
aid process. Not only has the World Bank expanded but the
Inter-American and Asian Banks have been fostered. The
results of this policy have been gratifying. A multilateral
approach makes possible the use of the wealth of experience
and expertise which people from different backgrounds bring
together when they focus in economic aid, growth and
development.
Any one cou~try, of course, is most familiar
with its own problems, its own institutions,and its own
way of doing things. The solution it applies to its
problems may not be appropriate in a different economic
and social environment. This is a lesson we learned in the
important first years of our aid programs. At the same
time we found that economic development benefits immeasurably
by drawing on the experiences of other people and their
varied approaches to resolving their economic problems~
- 4 -
The regional development banks, especially, draw upon
the benefits of each of these lessons. As economic
development benefits from a multilateral, partnership
approach to this problem, so does the very process of
development play a crucial role in laying a groundwork of
economic relations among nations which may well lead to
durable partnerships. We know that economic development
does not progress most rapidly in isolation. Quite
the opposite is true. Voluntary economic interchange
among nations -- whether in terms of goods, services, capital
or labor -- is a mutually beneficial relationship. It is a
relationship which allows each country involved to make
greater economic gains ·than would otherwise be possible.
Consequently, the results of economic interchange can provide
a very important base upon which closer and more stable
relations among nations may be buil t • With this thought in
mind, I find it heartening to witness the growth of trade
. and economic exchange among the regional members of the
Asian Development Bank. Korean-Japanese trade, for
example, has grown immensely over the past years.
The same holds true for the Republic of ehina and Japan
as well as for trade relations between Japan and
Australia, to mention but a few such examples. If the
growth of economic ties among the regional member nations
of the Asian Development Bank is impressive, so too
is the growth of economic relations between these nations
and the United States. Further, projections based on long
term trends indicate that these ties will increase
significantly over the next decade. For example, by 1980
the level of United States exports of goods and services
will approach $130 billion. If this trend continues,
exports will become an increasing percentage of U.S.
Gross National Product and, therefore, U.S. interest in
foreign markets for those goods will grow correspondingly.
By the same token we look for commensurate growth
of U.S. imports. These magnitudes alone are significant.
But more important are the relative trends with regard
to the trading partners of the U. S. If these trends
continue, Asian nations will account for larger percentage
of exports to the U. S. market by 1980 than they do now.
Further, U.S. exports, in a relative sense, will be increasingly
directed to Asian markets.
- 5 -
Just as U. S. exports and imports ar,e expec ted to
multiply in the next decade, so too are United States and
foreign private capital flows expected to increase
substantially. International capital movements in the
decade of the seventies will be immeasurably enhanced by
the tremendous growth and development of the multinational
banks which progressed so dramatically in the decade of
the sixties. Creation of the eurodollar and eurobond
markets has increased the sophistication, integration,
and efficiency of money and capital markets in the Western
industrial nations. Similar developments are currently in
progress in other centers of the world -- notably in Tokyo,
Hong Kong, and Singapore. Therefore, it becomes increasingly
apparent that the financial links between East and West are
growing in magnitude as well as sophistication.
In sum, I see the past decade as laying the foundation
-for even more growth in every feature of international
trade and finance. It seems to me that the implications of
this growth for our relations with Asian nations as well as
with other nations are clear.
As these interests
grow, our commitments to partnership increase. Isolationism
'may have been possible in the world of trade barriers and
currency blocs in the thirties; it seems apparent, however,
that isolationism in a world of growing economic interests
is a thing of the past.
The United States will remain clearly involved with the
world outside its borders. But this involvement will
continue to be based on the pr'inciple of partnership.
This principle, as I have said, is the substance of the
structure and activities of the Asian Development Bank.
This principle, furthermore, is promoted by the growth of
economic ties between Asian nations and other nations of
the world. Economic forces have always played an
extremely important role in world peace and stability.
In the coming decade with the world growing smaller and
increaSingly interdependent, the course of economic
relations among nations may well make the difference between
conflict and peace.
For these reasons, the United States will continue to
advocate those policies designed to nurture econ6mic ties
among nations. We shall strive -- in the future as in the
past -- to realize those principles underlying the
International Monetary Fund and the general agreement
- 6 on tariffs and trade. We shall attempt to continuously
enhance the economic dimensions of partnership.
.
Economic growth and development, stimulated by
increased trade and capital flows among nations, is an
essential condition as well as a primary objective in
resolving difficulties among nations. And, as I have
emphasized previously, it is my belief that a multilateral
approach -- be it in terms of aid, trade, or capital
flows -- is the best possible means of promoting this
objective. Consequently, I want to commend the vision of
the Asian Development Bank in applying the multilateral
approach. Further, I wish it every success in the decade
of the seventies. For the progress it makes in that
decade will have a major role in determining how well we,
as nations, conduct our affairs among each other and
resolve our difficulties.
To make the necessary progress, however, the Bank
must obviously have adequate resources. To help meet
this need, President Nixon submitted to Congress his
proposal for a U.S. contribution to the Bank's special
funds. Under this proposal) the United ~tates \\'ould
pledge $100 million to the special funds of the Bank over
a three-year period -- $25 million in the year ending
June 10, 1970, $35 million in the following year, and
$40 million in the third year.
We are convinced that an adequate special funds
concessional financing facility is essential to the success
of the Bank's activities and we are determined that the
United States shall contribute its appropriate share,,~llen
the U.S. Congress has acted upon this legislation, it will
enable the United States to join with present and future
contributors to establish this necessary special funds
facility on a firm, lasting, and adequate basis.
Finally, it will enable the Asian Development Bank to
better promote that process of economic growth and
development which is so important to the future of each
and everyone of us
0
000
Department of the
TREASURY
ISTON D.C. 20220
TElEPHONE W04·2041
FOR RELEASE ON DELIVERY
-REMARKS BY THE SECRETARY OF THE TREASURY
DAVID M. KENNEDY
AT
ANCHORAGE, ALASKA
AT NOON, SATURDAY, APRIL 4, 1970
It is a great pleasure to visit Anchorage, if all too
briefly, and to have the opportunity to meet with this
distinguished group.
As you know, the members of my delegation and I are
en route to the Orient for conferences with officials
of several nations.
Today, uppermost in most of our minds is the present
economic situation, and the outlook for the future.
This year will clearly be a period of transition or
adjustment for the United States economy. It will be a
time in which our economy makes the necessary, difficult,
and in some respects painful passage from the overheating
built up over a five-year period to an environment in
which economic growth can go forward at a healthier and
more sustainable pace.
The strong fiscal and monetary restraints adopted by
the Administration have succeeded in having a cooling effect
upon our overheated economy. As most economic indicators
show, the economy has been more stable since the third
quarter of last year. Because economic activity has
eased, we no longer face the problem of "demand-pull"
inflation, of prices being forced up by the classical
situation of "too much money chasing too few goods."
K-386
- 2 Victory on the demand-pull front, however, has not
automatically brought any marked improvement in the cost of
living, although the apparent slowing of rises in wholesale
prices this month is reason for encouragement. Prices
remain high, and may go even higher for a time, because our
economic adjustment has moved into a phase of "cost-push"
pressures. Prices continue to be forced upward because of
the pressure of rising costs, and especially labor costs
as workers try to obtain wage increases large enough to
make up for the purchasing power lost through past cost-ofliving rises, and also large enough to offset expected
future increases in prices.
This cost-push period is neither surprising nor
alarming. It is a development that could be expected as
our econo~y makes its way from overheating to wage and price
stability. It is part of the cost of the inflation fueled
by $38 billion of Federal deficits in the three
fiscal years which ended in mid-1968. Those deficits
gave rise to the demand-pull inflation of 1966-69, and
. the resulting cost-push period we are now going through.
A cost-push situation calls for a sound and
steady course in policies to achieve stability. If
fiscal and monetary restraints are relaxed too quickly and
too far, the result might be a resurgence of demand-pull
pressures. Conversely, if we persist in restraints
too long or until they become too severe, we risk the
unpleasant consequences this implies.
Thus, the challenge before us is to accomplish the
necessary change in the economic environment without tipping
the balance too far in one direction or another. I believe
that President Nixon's recent message on construction makes
clear the determination of the Administration to attain our
goal of a stable economy without at the same time jeopardizing
either our economic gains or our economic future.
There is not likely to be any significant expansion of
the economy during the first half of this transition year.
In dollar terms, our economic growth will probably continue,
with personal income, gross national product, and other
indicators showing gains. However, in terms of physical
volume -- "real terms" to use the language of the economists
the economy will probably continue to mark time as inflationary
pressures and inflationary psychology are being squeezed out.
- 3 By contrast, the second half of the year should see
an upturn in the economy as a result of several factors.
The income tax surcharge is being phased out, and will end
on June 30. This increase in social security benefits
recommended by the President recently went into effect.
Credit has been made somewhat easier. Because of these actions,
I see a considerably brighter outlook for the economy in
the last six months of the year, and for 1971.
Another very hopeful and promising development has
been the marked decline in interest rates from the peaks
that they reached last year.
The recent reduction in prime rates by the major
commercial banks may help to provide access to credit at a
more reasonable cost for the housing industry, state and
local borrowers and small business. But I would caution
that this is dependent upon business, labor and individual
psychology.
I might add that our vital housing industry will also
benefit from a broad effort being made by the Administration
to increase the flow of funds into housing construction,
including a Treasury program to encourage commercial banks,
insurance companies, and pension funds to increase their
investments in residential mortgages. We began this
program about a month ago, and I can report to you that it
is off to an encouraging start.
The decline in interest rates has been especially
evident in the cost of the Government's own borrowing. The
Treasury bill rate -- the interest we pay on securities
of up to one year -- is down about a point and a half from
last year's highs, while the rate on Federal-agency issues
in some cases has dropped a full percentage point.
Another sensitive indicator of credit conditions, the
Federal funds rate -- that is, the rate banks charge on
overnight loans to other banks -- also is down about a
point and a half.
- 4 Those developments lead me to conclude that money will
be more readily available this year, and at more reasonable
~tes, than in 1969, although it will not be nearly as
easy as in 1968.
The fiscal and monetary policies we will follow
in the future will of course depend on the rate of inflation,
the rate of unemployment, and careful assessment of all
other economic trends and needs. However, if we continue
to use a sound and proper combination of policies -- and
we firmly intend to do so -- we should be able to reduce
the rate of inflation in coming months and establish the
basis for a subsequent expansion of real output, employment
and living standards.
The -economic medicine we have been taking during the
past year has included, as medicine so often does, some
bitter ingredients~ Yet, as always, those ingredients
are also essential to the cure. Because we have taken the
medicine, we are now overcoming the disease of inflation,
and are on the way to establishing a healthier and
stronger economy for our country.
000
Department of the TREASURY
TELEPHONE W04-2041
lINGTON. D.t. 20220
April 3, 1970
FOR RELEASE IN A. M. NEWSPAPERS,
MONDAY, APRIL 6, 1970
SECRET SERVICE SEIZED MORE THAN
$15:7 MILLION IN BOGUS MONEY IN 1969
WASHINGTON - ......
Treasury Department's 'Secret
Service agents seized:mope than
$15~7 milli6ni~
counterfeit money. and arre.sted 1, 413 persons for
counterfeiting'violations~n1969,Eugene
T. Rossides,
Assistant 'Secretary of the 'Treasury for Enforcement·
and. Operations; announced
Eve~y
today~
state in the nation reported some
fei t bills passed during the' year.
compares~o
total
c6unt~r-
The $15. 7miliiort
$13.4 million in 1968;
the 1,413
arrests compares with 1,421 a year earlier.
One major conspiracy alone produced $4.4 million
in counterfeit bills, Mr. Rossidessaid.
The conspirators
ln that case still are involved in court action.
The face, value' of counterfeit bills reaching -the
public in 1969
from 1968.
totale~
$2.4 million, down 22 percen+
The number' of notes passed decreased
28 percent from calendar year 19b8.
K.. 387
- 2 -
Mr. Rossides said the extent of some of the counterfeit operations broken up in 1969 1S illustrated by a
cross-country investigation that began in San Francisco
and ended with arrests at Columbus, Ohio.
In that case a counterfeit note passer was arrested
in San Francisco and agreed to cooperate with enforcement
officers.
He introduced a Secret Service agent to his
supplier.
After weeks of negotiations, the man consented
to
se~l
$50,000 worth of counterfeit notes, but agreed
to turn them over only at Columbus, Ohio.
On February 4, 1969, Secret Service men were
watching at Columbus as the San Francisco man arrived
and went to a hotel, where he had arranged to meet the
undercover agent to confirm arrangements.
Meanwhile,
other agents were placing under surveillance the
San Francisco man's uncle, a Columbus resident.
As the cooperating distributor left the motel to
obtain the counterfeit money, other agents were following
the uncle's car to the motel.
The two suspects met in.
the motel parking lot, where the uncle gave an airline
flight bag to his nephew.
The bag, containing counterfeit
notes, was taken to the undercover agent's room and
there the supplier was arrested while making delivery.
The uncle was arrested later.
-
3 -
Agents found more than $1.5 million in counterfeit
notes as well as printing plates, a press and other
equipment, hidden in a concealed room of the uncle's
home.
Both defendants pleaded guilty and received
lO-year sentences.
The following table summarizes receipt of counterfeit
money during calendar 1968 and 1969.
1968
Loss to the public*
Seized before circulation
Totals
1969
$ 3,161,619
$ 2,483,158
13,436,220
15,706,523
$16,597,839
$18,189,681
*Counterfeit notes seized after
being put in circulation.
Department of theTREASURY
TELEPHONE W04·2041
MEMORANDUM FOR THE PRESS:
Ap r i 1 6, 19 I
,
Secretary of the Treasury David M. Kennedy has
called a meeting of the Joint Commission on the
Coinage for Wednesday, May 13, at 10:00 a.m., in the
Treasury Building, Washington, to discuss the
compromise action taken by the Senate on S.J. Res. 158,
permitting the issuance of dollar coins containing
40 percent silver.
The Commission, created by the Coinage Act of
1965, consists of 24 members, including 12 from the
Congress, four from the Executive Branch, and eight
public members.
Secretary Kennedy is Chairman.
meetings are closed.
000
Attachment
K-38S
The
Members of the Joint Commission on the Coinage
The Honorable David M. Kennedy
Secretary of the Treasury
Chairman.
:xecutive
House of Representatives
be Honorable Maurice H. Stans
ecretary of Commerce
The Honorable Wright Patman
House Banking & Currency CommitteE
be Honorable Robert Mayo
irector, Bureau of the Budget
The Honorable William B. Widnall
House Banking & Currency CommitteE
be Honorable Mary Brooks
irector, Bureau of the Mint
The Honorable Ed Edmondson
U. S. House of Representatives
~nate
he Honorable John Sparkman
mate Banking and Currency Committee
he Honorable Wallace F. Bennett
mate Banking and Currency Committee
~e
Honorable John O. Pastore
nited·States Senate
.
The Honorable Robert N. Giaimo
U. S. House of Representatives
The "Honorable Silvio O. Conte
U. S. House of Representatives
The Honorable James A. McClure
U. S. House of Representatives
Public
le Honorable Alan Bible
lited States Senate
Mr . Julian B. Baird
St. Paul, Minnesota
Ie Honorable George Murphy
lited States Senate
Mr .. Amon Carter, Jr.
Fort Worth, Texas
le Honorable Peter H. Dominick
lited States Senate
Mr. William C. Decker
New York, New York
Mr. Samuel M. Fleming
. Nashville, Tennessee
Mr. Edward H. Foley
Washington, D. C.
Mr. Harry Francis Harrington
St. Louis, Missouri
Mr. Eugene S. Pulliam
Indianapolis, Indiana
Mr. Harry E. Rainbolt
Norman. Oklahoma
Department of the
TREASURY
INSTON. D.C. 20220
TELEPHONE W04-2041
April 6, 1970
FOR IMMEDIATE RELEASE
JAPANESE TRANSFORMERS NOT BEING DUMPED,
TREASURY DEPARTMENT SAYS
The Treasury Department announced today that
a determination has been made that transformers (of
the type used in consumer electronic products) from
Japan 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
~.).
The Treasury Department investigation revealed
that the exporter's sale price or purchase price was
higher than adjusted home market price except in a
few instances.
In these latter cases, the exporters
provided assurances that they would make no future
sales at less than home market price.
A tentative determination to this same effect
was published in the Federal Register on December 13,
1969.
This notice allowed 30 days for the submission
of written views or reques'::s for an opportunity to
present views orally.
(OVER)
- 2 -
The attorney for 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 attorney,
and all interested parties of record were notified.
All oral and written materials submitted have received
careful consideration.
During the period January 1, 1968, through
February 28, 1970, transformers valued at approximately
$4,772,000 were imported from Japan.
# # #
Department of the TREASURY
INGTON. D.C. 20220
TElEPHONE W04·2041
tOR IMMEDIATE RELEASE
April 6, 1970
TREASURY ANNOUNCES INCREASE IN COUNTERVAILING
DUTIES ON CANNED TOMATOES AND CANNED TOMATO
CONCENTRATES FROM ITALY
Assistant Secretary Eugene T. Rossides announced
today that the Treasury Department is increasing the
countervailing duty which it has been assessing on
canned tomatoes and canned tomato concentrates from
Italy.
The increase follows an equivalent increase by
the Italian Government in the amount of the subsidies
being paid on exports of these products to the united
States.
Since this increase took effect on February 21,
1970, the countervailing duty will be increased on all
exports of these products from Italy on and after that
date.
The countervailing duty increase will amount to
approximately 33-1/3 percent in the case of canned
tomatoes and approximately 10 percent in the case of
canned tomato concentrates.
The announcement of this action will be published
in the Federal Register of April 7,
197~
(OVER)
- 2 -
The countervailing duty on canned tomatoes will
be increased from approximately 1.1 cents per pound
to about 1.4 cents per pound.
The countervailing
duty on canned tomato concentrates will be increased
from approximately 2.2 cents to about 2.4 cents per
pound, except for concentrates 95 percent or higher,
which will be approximately 8.1 cents per pound.
The new rates will remain in effect until the
subsidy program is terminated or until the amount of
the subsidy is again modified.
The original countervailing duty action was
announced on April 18, 1968, and took effect on
June 1, 1968.
# # #
Department of the TREASURY
TELEPHONE W04-204t
HIN6TON. D.C: 20220
FOR IMMEDIATE RELEASE
April 6, 1970
TREASURY SAYS FIXED RESISTORS OF CARBON
COMPOSITION FROM JAPAN NOT BEING DUMPED IN UNITED STATES
The Treasury Department announced today that determination has
been made that fixed resistors of carbOn composition from Japan 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 Treasury investigation revealed that the exporter's sales
price or purchase price was higher than adjusted home market price
except in a few instances.
In these latter cases, the exporters
provided assurances that they would make no future sales at less than
home market price.
A tentative determination to this same effect was published in
the Federal Register on December 4, 1969.
This notice allOl.fed 30 days
for the submission of written views or requests for an opportunity to
present views orally.
The attorney for 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 attorney, and all
interested parties of record w.re notified.
All oral and written
materials su1m1tted have receIved careful. conalderation.
During the perIod May 1, 1967, through January 31, 1970 , fixed
resistor~ of carbon composition valued at approxiately $3-,313,000
WIre imported frOll Japan.
0)0
Department of the
TElEPHONE W04-2041
HINGTON. D.C. 20220
~ION:
TRfASURY
FINANCIAL IDl'1'OR
IREIEASE 6:30 P.M. J
April 6, 1970.
!VI
BESULTS
or
TREASURY'S WOILY BILL OFnRDG
The Treasury Department announced that the tenders for two series of Treasury
la, one series to be an additiCll'l8J. issue of the bills dated Ja.nua.ry 8, 1970, and the
er aeries to De dated April 9, 1970, which were offered on April 1, 1970, were
ned at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
thereabouts, of 91-day bills and for *1,300,000,000, or thereabouts, ot 182-day
11, The details of the two series are as follows:
GE OF ACCEPTED
mrrm
BIDS:
High
Imt
Average
91-day Treasury bills
maturiD& JulY 9, 1970
Approx. Equiv •
Price
AJmual Bate
98.393
6.3571'
98.366
6,4.6'~
98.380
6.4:0~
!J
·
•
··
182-dq Treasury bills
maturiJll October 8. 1970
Approx. Equiv .
Price
Annual Rate
96.760
6.4:091t
96.733
6.~c$
96.737
6.45'~
W
Y
W Excepting
Y
!l Excepting 1 tender totaling $90,000;
1 teDder totaling $10,000
63j of the amount ot 91-dq bills bid tor at the low price was accepted
seJ of the amount of lB2-day bills bid for at the low price was aceepted
U,
TDDEiS APPLIED !'OR AID ACCEPrED BY FBDEBAL RESERU DISTRICTS:
l.tr1et
~8tOl1
l1I
York
liladelph1a
leveland
letaODd
'lInta
Iicll80
" Louis
Umeapolis
lDlaa City
Lllaa
III
handsco
'rftAIS
Aceelted
_"lied For
31,990,000
31,990,000 ,
1,910,010,000
1,169,760,000
53,370,000
28,370,000
4:2,390,000
'2,390,000
33,620,000
31,620,000
4:9,610,000
4:0,610,000
170,620,000
167,220,000
61,070,000
59,070,000
35,880,000
35,880,000
38,120,000
38,120,000
25,220,000
33,220,000
129 ,890 , 000
155,890,000
$2,615,790,000
$1,800,14:0,000
·
:
Avplied For
16,090,000
1,94:7,840,000
lB,730,000
•
~,4:70,000
··
50,530,000
39,510,000
329,4:30,000
28,660,000
19,770,000
29,840,000
28,610,000
138 ,520,000
£I
$2,694:,000,000
·••
•
:
Acc!Eted
•
6,090,000
858 , '90,000
8,510,000
25,4:70,000
11,930,000
22,920,000
287,530,000
17,060,000
3,710,000
25,"4:0,000
15,210,000
20,'20,000
$1,303,1'0,000 gj
~el~de8 $388,560,000 noncompetitive tenders accepted at the average price of 98.380
InclUdes $215,4:00,000 DOncompeti t1 ve tenders accepted at the average price of 96.737
!he•• rat•• are on a bank discnnt basia. The ~iva1ent coupon issue yields are
6.~ for the 91-dq billa, and 6. 7fJ/, for the 182-day Dills.
REC~EM~C THROUGH March 31,
(Dollar amounts in millions - rounded and will not necossarily add to totals)
UNITED STATES SAVINGS BONDS ISSUED AND
-
~
-
AMOUNT
REDEEMEOY
AMOUNT ISSUEDY
DESCRIPTION
TUREO
iPries A-1935 thru D-1941
;cries F and G-l 941 thru 1952
jeries J and K-1952 thru 1957
1970
AMOUNT
OUTSTANOINGlI
% OUTSTANDING
OF AMOUNT ISSUEO
5,003
29,521
3,754
4,997
29,487
3,735
6
34
19
.12
.12
.51
1,889
8,337
13,414
15,650
12,302
5,587
5,306
5,491
5,428
4,747
4,105
4,302
4,914
5,010
5,220
5,043
4,751
4,634
4,346
4,355
4,414
4,282
4,755
4,635
4,532
4,880
4,831
4,583
4,129
46
731
1,679
7,421
11,970
13,881
10,748
4,707
4,321
4,386
4,260
3,668
3,175
3,302
3,689
3,695
3,797
3,626
3,356
3,156
2,899
2,787
2,684
2,487
2,589
2,536
2,470
2,489
2,372
2,069
1,237
11.06
10.99
10.76
·11.30
12.64
15.75
18.56
20.12
21. 52
22.73
22.66
23.25
24.93
26.23
27.26
28.10
29.36
31.89
33.29
36.00
39.19
41.92
45.53
45.26
45.50
49.00
50.90
54.88
70.02
100.00
1,055
209
916
1,444
1,768
1,555
880
985
1,105
1,168
1,079
930
1,000
1,225
1,314
1,423
1,417
1,395
1,478
1,447
1,568
1,730
1,795
2,165
2,098.
2,062
2,391
2,459
2,515
2,891
46
-325
166,646
122,510
44,136
26.48
5,485
7,340
3,574
2,061
1,911
5,278
34.84
71.91
12,824
5,635
7,189
56.06
179,471
I 128,146
51,325
28.60
38,277
179,471
217,748
38,218
128,146
166.364
59
2
51,3 5
.15
28.60
2'3.hO
MATURED
;cries E.Y :
1941
1942
1943
1044
1045
1046
1947
1048
1940
1050
1951
1952
1953
1954
1955
--
1056
1057
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
,
I
I
I
1970
Unclassified
Total Series E
Series H (1952 thru May, 1959)}j
H (June, 1959 thru 1970)
Total Series H
Total Series E and H
r0to1
matured
All Series Tf)lal unmatured
_
Grand Total
I
-
1)1.381.
cltr/.. '<C'ued dlacounl •
....., '"""Pllon v.lu.
•
.. II o",nll "OIId.
'.,,1
m." b. h.ld and will .arn
Fflrm PJLJ812 (R'Jv. / .
In/".,I 10' .ddll/anol po,lod, ,II., orlillnal melu,lI)' dal •••
~'i~ - 7?c.','
.-: J:?\~'7.·.':17 - S"reo" of the P"bllc Debt
-
Department of the
ASHINGTON. D.C. 20220
TRfASURY
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
April 8, 1970
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
$3,100,000,000, or thereabouts, for cash and in exchange for
Treasury bills macuring
April 16, 1970,
in the amount of
$3,005,119,000,
as follows:
91-day bills (to maturity date) to be issued April 16, 1970,
in the amount of $1,800,000,000,
or thereabouts. representing on
additional amount of bills dated January 15, 1970,
and to
mature
July 16, 1970. originally issued in the amount of
$1,205,324,000,
t.he additional and original bills to be
freely interchangeable.
182-day bills, fer $1,300,000,000,
dated
April 16, 1970,
and to mature
or ther~abouts, to be
October 15, 1970.
The bills of both series will be issued on a discount basis under
cOt:lpctitive and noncompetive bidding as hereinaftel" provided, and at
maturity their face amount will be payable without interest. They
will be issued in bearer form only}... and in denominations of
$10,000, $50,000, $100,000, $500,uOO, 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, April 13, 1970.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even mul tiple of $10,000 pnd in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
fo~arded in the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application the refor.
Banking institutions generally may submit tenders for account of
Customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
S~brnit tenders except for their own account. Tenders will be received
Wlthout deposit from incorporated banks and trust companies and from
1-389
- 2 respon~ible
and recognized dealers in investment securities. T~I
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
of accepted bids. Only those submitting.competitive 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 hts 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 April 16, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing April 16, 1970~
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differE:.Llces 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 treetment, 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 iss.ued
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 mAV ha 4btained
from any Federal Reserve Bank or Branch.
Dtpartment of the
O.C.20220
rREASURY
TElEPHONE W04·2041
FOR RELEASE A.M. NEWSPAPERS
TUESDAY, APRIL 14, 1970
SECRETARY KENNEDY WILL HEAD u.S. DELEGATION
TO 11TH ANNUAL IDB MEETING APRIL 20-24
Treasury Secretary David M. Kennedy will head the
United States Delegation to the eleventh annual meeting
of the Inter-American Development Bank at Punta del Este,
Uruguay, April 20- 240
Mr. Kennedy is U.S. Governor of the Bank, which has
assisted the economic development of the Latin American
nations since its establishment in 1959.
As of the end of 1969,the Bank -- which stresses
"self help" -- had made loans in a total amount of $3.4
billion. These loans have helped a wide variety of
sectors. The Bank has been particularly concerned with
assisting Latin America's rural sector and improving
social conditions. Loans to agriculture have totalled
$834 million and loans for social development in such
areas as education and health have totalled $917 million.
Congressional advisers will accompany the Secretary
on the tripe The delegation includes U.S. Representatives
Garry Brown of Michigan, William V. Chappell, Jr., of
Florida, Tom S. Gettys of South Carolina, Cnarles H.
Griffin of Mississippi, James Harvey of Michigan,
Thomas M. Rees of California, J.William Stanton of Ohio,
and Robert Ge Stephens, Jr., of Georgia.
The delegation will leave Washington Friday, April 17
and return to the Capital Sunday, April 26.
000
K-390
Department of the TREASURY
ISTON. D.C. 20220
TELEPHONE W04-2041
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE NATIONAL ASSOCIATION OF BUSINESS ECONOMISTS
CLEVELAND, OHIO
THURSDAY, APRIL 16, 1970, 10:00 A.M., EST
GOVERNMENT, INVESTMENT, AND ECONOMIC GROWTH
I am going to try to cover some substantial amount
of terrain today, ranging from how to avoid a new tradeoff
between environmental improvement and inflation to the
frequently overlooked role of Government as a direct investor
in capital goods.
I propose a single analytical framework to bring
together these seemingly diverse considerations.
Thus,
I will be discussing the various alternative methods whereby
the Federal Government can influence the level and composition
of investment and, hence, of economic growth.
In a simple causal relationship, investment may be
looked upon as the means and economic growth as the end.
However, if we step back and look at the whole process with
a bit more perspective, we are likely to find that economic
growth itself is an intermediate goal or at best a proxy for
a broader concept of general welfare.
K-391
Certainly, it has been
- 2 -
brought home to us quite strikingly that increases in the
GNP which yield corresponding additions to environmental
pollution may not truly represent increases in welfare -compared to so rearranging our activities as to avoid the
creation of pollution.
In any event, the conditions conducive to that rate
of economic growth which could yield the resources permitting
real improvements in welfare are manifold.
These conditions
may include, in addition to capital investment itself, the
social climate of the Nation, the business climate of the
economy, the political climate of the society, and, of cours(',
the international climate of which we are just a part.
Although this paper will be limited to the relationship
of government activities to investment and economic growth,
these other considerations need to be taken into account in any
more comprehensive analysis.
Investment and the Economy
Investment occupies a central role in every economy.
Investment represents that portion of current economic
output which is not consumell, but instead is channeled into
some productive use designed to yield a flow of future benefits.
ll~
u t lw r \\' ords, we can view in ves ting as the ac t of foregoi ng
current benefits in return for the receipt of future benefits.
- 3 -
From a macro-economic viewpoint, the significant
feature of investment spending is its direct relationship
to economic growth and full employment.
Unless some portion
of current economic output is invested productively, an
economy forfei ts its chances for future growth.
Indeed, when
all output is consumed, a country begins to draw down its
capital stock, ultimately experiencing actual declines in
total production.
Furthermore, investment spending not only
leads to future economic returns, but also contributes to
total spending -- and hence total employment of resources
during the period in which the investment takes place.
This
"double-barreled" impact of investment, its contribution to
future productivity as well as to current spending, explains
its significance to the economy in both the short run and
the long run.
While we can describe in general the concept of investment
and its role in the economy, there are still some major gaps
in our knowledge of investment.
For one thing, investment is
difficult to measure accurately.
This is not surprising when
we consider that we are dealing with current expenditures
designed to yield future benefits.
Certainly many types of
purchases corne to mind which involve combinations of both
present and future benefits.
The separation between consumption
and investment may not be obvious.
- 4 A related difficulty involves our desire to know the
full impact of government activities on the level of investment outlays and, hence, on economic growth.
When we examine
investment in this light, we find that there are many ways
in which the public sector can and does influence both the
level and the composition of investment, and not all in ways
that necessarily will augment investment or economic growth.
Taxes and Investment
The tax system is an obvious area of governmental
influence on the level of investment.
For example, although
it may have been justified on such other grounds as equity
and income redistribution, the Tax Reform Act of 1969 had
important effects on investment.
It seems quite clear to
me that its cumulative impact was both to dampen the incentive
to make new private investment as well as to diminish somewhat
the growth of the savings available to finance such investment.
The 1969 legislation is commonly looked upon as a tax
reduction and relief act, and that certainly is the case for
the average individual taxpayer.
However, for the corporate
sector as a whole, it increased the tax burden substantially
by $3-1/2 billion in the fiscal year 1971 and, assuming a
reasonable pattern of economic growth, by as much as $5 billion
in 1975.
Since corporations play the major role in the invest-
ment activities of the private economy, the direct and adverse
relationship between the Tax Reform Act and investment and
economic growth is apparent.
- 5 -
Of course, numerous pre-existing sections of the
tax code do continue to serve as incentives to investment.
Most notable are the provisions for liberalized depreciation
of physical assets and the differential treatment of capital
gains compared to ordinary income.
Government Expenditures and Physical Investment
Perhaps it is on the expenditure side of the budget
that the public sector may make a most important and yet
generally overlooked contribution to investment.
Conven-
tionally, of course, the National Income Accounts report
"gross investment" as the sum of two relatively private
categories -- gross private domestic investment and net
foreign investment.
Nevertheless, in any real sense, considerable portions
of government purchases are in the nature of investment outlays.
To me at least, some of the most obvious examples are
the direct counterparts to private investment -- hydroelectric
power plants, office buildings, scientific research laboratories, schools, inventories of industrial metals, etc.
In
the very common case of government contractors using governmentowned plant and equipment, the government investment directly
obviates the need for private investment.
All of these types
of capital equipment, of course, show up in private investment
when purchased by a business firm, but are not recorded as
- 6 -
investment when acquired by a government unit.
Little
justification seems to exist for the inclusion or exclusion
of these and similar items in an economic classification
of investment outlays solely on the basis of the legal
status of the purchaser.
The complete exclusion of govern-
ment purchases results undoubtedly in an understatement
of the actual investment of the American economy and in
faulty international comparisons.
Of course, too all-encompassing a concept of Federal
i~ve5tment
may create difficult conceptual issues.
This
could be the case if we include military durables such as
aircraft, nuclear submarines, tanks, and other military
weapon systems.
From a purely technical point of view,
perhaps those items could be viewed in an analogous manner
to consumer durables.
In the consumer area, we readily agree that there
are items which provide a long-term flow of services, but
we do not ordinarily include that flow of services in an
aggregate accounting of the total investment of the economy
the Federal Reserve Flow of Funds accounts are an exception.
- 7 Government investment-type expenditures can be
estimated directly from some of the supplementary tabulations
prepared for the National Income Accounts.
rather significant.
The results are
In 1968 approximately $26 billion of
Federal purchases of goods and services consisted of durable
goods and structures.
Federal purchases.
This came to about one-fourth of total
In addition, state and local investment-
type purchases were approximately $31 billion, or about 30
percent of their total purchases.
Hence, all levels of
government combined accounted for $57 billion of investmenttype outlays in 1968 (see Table 1) or about 6-1/2 percent of
the GNP.
However, the National Income Accounts do not include
these government outlays in any investment category.
Were we to add these governmental purchases of durables
and structures to the gross investment conventionally
reported in the National Income Accounts, the total investment of the American economy would have been $183 billion for
1968 instead of the $126 billion actually reported, or a 45
percent increase (see Table 2).
As pointed out earlier, however, the inclusion of
military durables may overstate the matter.
Hence, Table 2
also contains the results of a statistical analysis limited
to civilian government investment-type outlays.
These can
be estimated approximately by adjusting the National Income
Accounts figures in line with the proportion of military to
GOVERNMENTAL PHYSICAL INVESTMENT OUTLAYS
(in billions of dollars)
00
Category
1965
1966
1967
1968
Federal Government Investment:
Durab les
Structures
Sub-Total
(Civilian only)
14
4
IS
(6)
16
4
21
3
23
3
20
14
26
(4)
(4)
(3)
State and Local Investment:
Durables
Structures
Sub -Total
3
19
TI
4
21
5
23
25
28
6
25
3I
Total Government Investment
(civilian only)
40
(28)
45
(29)
52
(32)
57
(34)
Source:
Office of Business Economics and Annual Federal Budget Documents for data.
The categories are those of the author.
TABLE 2
TOTAL l>HYSICAL INVESTMENT OUTLAYS
In billions of dollars ' ,
Category
1965
Gross Private Domestic Investment
108
121
4
2
112
124
118
126
40
45
52
57
(28}
(29)
ill}
~3~1
152
169
17Q
183
(140)
(153)
(150)
(160)
Net foreign investment
Subtotal, Conventional Investment
Government Investment
(civilian only)
Total, Investment Outlays
0'1
(civilian only)
Source;
Table 1 and Survey of Current Business.
1966
---.---.--
1967
1968
~.
116
126
2
-,-'
- 10 -
civilian durables as recorded in budgetary data.
The
results are not up to the standards of accuracy achieved
in the National Income Accounts but are of some interest
nonetheless.
The inclusion of civilian government outlays
in a measure of the total investment of the economy,
although less striking than the estimates which include
military purchases, does yield an impressive addition to
the conventional measure.
Government Investments in Human Resources
Adding government purchases of durable goods and
structures to private investment outlays represents only
a partial adjustment.
Perhaps the most important public
sector investment does not show up in any measure of physical
asset accumulation.
I have in mind here those vital invest-
ments In human resources such as education, health and
manpower training and development.
As some economists have been pointing out, such outlays
hQve apparently been a major factor contributing to the growth
rate of the American economy.
The rise in government expendi-
tures in these categories has been striking in recent years.
These investments (either public or private) do not show up
in identifiable form in the National Income Accounts.
However,
that is hardly reason for ignoring them in our analysis, and
budgetary data can be used to some advantage.
- 11 I have defined governmental investment in human resources
to include developmental expenditures in the fields of health,
education, antipoverty, manpower training and development, and
closely related undertakings.
The results of this tabulation,
shown in Table 3, point clearly to the growing importance of
public investment in human resources.
Government expenditures in the area of human resources
have been expanding far more rapidly than aggregate economic
measures such as physical investment outlays, total government
spending, or the GNP.
State and local outlays dominate this
category, because of the primary role in public education.
However, the most rapid growth in recent years has occurred
in the Federal sector.
The trend toward government investment in human resources
is continued in the most recent Federal Budget, that for the
fiscal year 1971.
It is estimated that Federal investments in
human resources, as defined here, will expand from $12 billion
in 1969 to $14 billion by 1971.
This latter figure would be
more than five times the actual level one decade earlier.
Thus, from an analysis of certain public expenditure
categories it becomes quite clear that government influence
on investment from the expenditure side is a significant force,
even though our conventional economic measures do not treat
such public outlays as investment spending.
Furthermore, this
public sector contribution has undergone a measurable shift
in emphasis from physical to human capital outlays.
TABLE 3
GOVERNMENTAL INVESTMENTS IN HUMAN RESOURCES
(Fiscal Years. In Billions of Dollars)
Category
1965
1966
1967
1968
1969
1970
est.
1971
est.
2
1
1
2
2
1
1
4
3
1
1
5
3
1
1
6
3
1
1
7
4
1
1
7
4
1
3
4
6
9
11
12
13
14
5
23
5
27
6
31
7
34
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
28
32
37
41
32
38
46
52
n.a.
n.a.
n.a.
Federal Government Investment:
N
Health
Education
Antipoverty
Manpower Training, etc.
~
Subtotal
State and Local Investment:
Health and Hospitals
Education
Subtotal
Total
Source:
Annual Federal Budget Documents and
Bureau of the Census, Governmental Finances.
- 13 -
Government Regulation and Investment
A third area in which the Federal Government can
influence the volume and composition of investment is
through its regulatory powers, which may either encourage
or discourage private investment.
With the increase in atten-
tion being given to improving the quality of our environment,
it is likely that government regulations increasingly will
require or at least encourage many such specific investments.
For example, the recent Presidential Message to the
Congress on Environmental Quality pointed to a number of areas
where investment -- both public and private -- will be encouraged
or required:
a capital investment of $10 billion over a
five-year period for municipal waste treatment plants and interceptor lines.
a seven-point program of measures to enforce
control of water pollution from industrial
and municipal wastes.
new and more stringent standards on exhaust
emission from motor vehicles.
nationwide air quality standards backed up
by enforcement authority.
greater emphasis on solid waste disposal.
- 14 -
A Necessary Digression on Stabilization
In our concern with the obvious problem of controlling
environmental pollution, it is important that we do not
unintentionally engender problems of economic stabilization.
It is possible that these stabilization problems could arise
merely because of existing inadequacies of measurement
concepts and resultant statistics.
Let me cite a specific possible future example.
As
industry spends rising amounts to reduce pollution, these
added outlays necessarily will be reflected in future price
increases.
Hence, when we look at the price statistics,
they are likely to have an upward trend -- everything else
being equal -- simply because the private sector is assuming
a larger responsibility for the control of pollution,
reflected in an upward shift in costs and prices.
An
alternative course which would not engender this particular
statistical problem, of course, would be rising governmental
expenditures financed by direct taxation.
I am certainly
not advocating that we abandon this private sector approach
because of the price measurement question.
Indeed, as an economist, I think it is highly desirable
to move toward a closer correspondence of social costs and
private costs, particularly with respect to the generation
- 15 -
and elimination of pollution.
To the extent that we can
do so, either through tax policy, regulation or otherwise,
we will be encouraging producers and consumers to utilize
products and processes which are less polluting than at
present.
This strikes me as a far more attractive alterna-
tive than merely increasing government expenditures to clean
up ever mounting amounts of pollution.
But to conclude that we will have an economic
stabilization problem, merely because prices will be rising
to reflect the private financing of antipollution efforts,
would be badly misleading.
To the contrary, new external
benefits will have been created, some of which in the long
run will increase total productivity in the economy.
In a very real sense, we are describing a situation
where two benefits are being created simultaneously.
One
is the direct benefit that results from the use of the
private good, the basic product or service which is being
sold in the market.
The other is the social benefit, the
improvement in the quality of the environment.
In the short run, the achievement of the social
benefit is likely to bring higher costs and prices as
initial outlays are made.
However, some long-run effici-
encies may develop from these investments in an improved
- 16 -
environment.
These would occur to the extent that they
reduce the unit costs of those other firms that previously
had suffered from the deteriorating environment (the classic
example of the factory smoke and the nearby laundry).
In other cases, such as putting power lines underground in order to maintain an aesthetic environment, the
increase in production efficiencies will be less obvious
and more indirect.
If we maintain that the cost of producing these
highly desirable environmental benefits will not be recognized separately in the price indices, but will be automatically added on to the price of producing the basic
private product, we will be in danger of adding a serious
upward bias to our price indices.
In a sense, the concern
here is analogous to the problem of allowing for product
quality changes in the price indices.
The problem is
compounded by the existence of cost-of-living "escalator
clauses" in certain collective bargaining agreements,
whereby wages advance automatically with a price index
increase.
Unless we recognize this changing institutional
situation, we could conceivably be fighting inflation at
times when there is no underlying excess demand in the
economy.
We need to avoid creating a new but unnecessary
- 17 -
tradeoff between environmental improvement and inflation.
This area needs careful study.
It strikes me that a new
look at existing price indices may be necessary.
Some Concluding Observations
Both the level and the composition of investment in
the United States are undergoing important changes as
a result of governmental tax,expenditure and regulatory
actions.
The most dramatic change may be the shift in
relative importance from conventional, physical investments
in plant and equipment to expenditures which enhance the
economic productivity of individuals in other ways, such
as raising the educational level of the labor force,
training programs, and improving individual health.
However,
governmental investments in physical assets, although generally
overlooked, are now of very substantial magnitude.
And now
on the horizon, we see the prospect of a large expansion of
governmentally-induced investment-type expenditures by the
private sector either to control pollution or avoid polluting
the environment.
The shift toward investment in human resources can be
viewed as a concerted effort to improve the quality of factor
input.
On the other hand, the growing emphasis upon environ-
mental aspects reflects an emphasis upon the quality of output.
- 18 Unfortunately, in neither case does the market mechanism
tell us just where to stop.
Improvements in quality are
surely a good thing, but there are difficult but important
choices among alternatives.
We need to keep in mind such basic economic concepts
as the "opportunity cost" of each new venture (that is,
the foregone opportunity to devote the resources to something
else).
Perhaps that comes down to nothing more fundamental
than asking the right question of each proposed new investment public or private, physical or human.
Surely, the pertinent
question is not whether it is good; the typical proposed activit
possesses some intrinsic meri t.
The right question is, "Is it
better, that is, better than available alternatives?"
Therein
lies the path toward maximizing investment, economic growth,
and the general welfare.
000
I
Department of the TREASURY
TELEPHONE W04-2041
IItIN6TON. D.C. 20220
AftUtIOI:
FIlWICIAL EDITOR
FOB ltBIIASB 6:30 P.M.,
~.
April
};ia
1970.
RESULTS OF TBIASURY' S WDKLY BILL 0J'J'DIJIl
The Treasury Department announced that the tenders tor two series of Treasury
billa, one series to be an additional. issue of the bills dated Je.DU.al7 15, 1970, and
the otlter series to be dated April 16, 1970, which were offered on April 8, 1970, were
gpeud at the federal. Reserve Banks today. Tenders were invited tor $1,800,000,000,
or tbereabouts, ot 91-day bills and tor $1,300,000,000, or tl:1ereabouts, of lB2-dq"
bills. The details ot the two series are as tollows:
BAD OJ' ACCEPTED
CClCPI'U!IVE BIDS:
91-day Treasury bills
maturing JulY 16. 1970
Approx. !quiv.
Price
Annual Bate
6.258~
98.'18
98.~2
6.32~
96.ft05
6.31~
High
Low
1:1
Average
!I Excepting
9~
·
·•••
182-dq Treasury bills
maturiy October 15, 1970
Price
96.8'9
96.837
96.8'Z
!I
Approx. Equiv.
Annal Rate
6.23~
6.25~
6.2'7~
Y
1 tender totaling $70,000
of the amount of 91-day bills bid for at the low price was accepted
l~of the amount of lB2-daJ bills bid for at the 10v price was accepted
Taw. TDDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESIRVI DISnICTS:
District
BOBtail
AE,2lied For
$
SID FranCisco
2,281,170,000
5',130,000
39,050,000
20,870,000
55,330,000
257,200,000
61,7.0,000
25,950,000
36,990,000
34:,4:90,000
185,390,000
'lOUIS
$3,066,280,000
lew York
Philadelphia
Cleveland
Richmond
Atlanta
Chieago
St. Louis
Minneapolis
Xaraaa City
Dt.l.J.a.s
A-pplied For
Acce~ed
33,970,000 •
,850,000
1,25',810,000
38,430,000
39,050,000
20,6ftO,000
'2,530,000
178,890,000
4:1,'70,000
14:,300,000
3ft,860,000
21,..a,000
90,630,000
••
·•
••
··
··•
$1,800,900,00021
••
r
19,2$0,000
Acce;eted
$
6,830,000
1,815,790,000
2',350,000
3'7,Z.o,000
19,270,000
37,560,000
239,100 ,000
35,850,000
21,ft70,000
23,580,000
26,300,000
1-'6 a 280 , 000
966,5Z0,000
8,670,000
26,5.0,000
10,770,000
22,990,000
1.a,700,OOO
19 , 150 ,000
9,4:10,000
20,060,000
12,800,000
ft'7 ,760,000
$2, '-'6 ,020,000
$1,300, 260 ,ooos./
!I
~ludes $397,7'O,ooononcampetitiTe tenders accepted at the average price of 98.'05
Includes $ZOS,990,OooaoncompetitiTe tendera accepted at the average price ot 96.8'2
!I
~'Ie rates are on a bank discount basis. The equivalent cOQpoJ1 issue yields are
6.i~ tor , the 91-day bills,
and6.Sft
~ for the lB2-dq bills.
.
,
iJ
STATEMENT OF THE HONORABLE EDWIN S. COHEN
ASSISTANT SECRETARY OF THE TREASURY FOR TAX POLICY
BEFORE THE
SENATE SPECIAL COMMITTEE ON AGING
APRIL 15, 1970, 9:30 A.M.
Mr. Chairman, the Treasury welcomes the opportunity
to appear before the Special Committee on Aging to discuss
the tax treatment of senior citizens.
President Nixon recognized the economic needs of
retired persons last year when he proposed to raise social
security benefits to overcome the hardship of inflation.
The Congress followed this recommendation at the year's
end by providing a benefit increase of 15 percent ,which
is even more than the percentage growth of inflation since
the last benefit increase in February 1968.
The President last year also recognized the need to
improve equity under the social security system.
He
recommended an increase in the limits on the amounts that
can be earned without a reduction of social security benefits.
He also recommended an increase in ·widows' benefits to make
them comparable to what their husbands would have received.
The Congress is now considering these and other recommended
improvements.
- 2 -
This Administration is also concerned about the fair
distribution of the federal tax burden, particularly as
it applies to the elderly.
It is also much concerned with
making the tax reporting requirements as simple and easy
to comply with as is possible within an equitable tax
structure.
Last year the President recommended enactment of the
low income allowance and other income tax changes designed
to raise the tax-free income levels for all taxpayers,
including particularly older taxpayers.
This goal was
implemented in the Tax Reform Act of 1969, which adopted
the low income allowance, increased the personal exemption
and increased the standard deduction.
When the Tax Reform Act becomes fully effective, a
married couple both of whom are over 65 will pay no federal
income tax until their income (exclusive of social security
benefits) exceeds $4,000, an increase of $1,000 over the
1969 tax-free level of $3,000.
If they receive the maximum
social security benefits, their total receipts can reach
$7,615 before they are subject to federal income tax.
Similarly, a single individual over 65 will be able
to have income of $2,500 (exclusive of social security bene
- 3 -
without tax -- up $900 from the 1969 tax-free level of $1,600.
If he receives maximum social security benefits, his total
receipts can reach $4,877 without tax.
Moreover, as the Administration recommended, the Tax
Reform Act provides that those ·who receive gross income
below these levels will be relieved entirely of any obligation
to file income tax returns.
Under the prior law returns were
required for a person or couple over 65 if the gross income
received exceeded $1,200.
In addition, as the Administration recommended, the
Act relieves from withholding those employees ·who certify
to their employer that they had no tax liability for the
preceding year and expect to have no tax liability in the
current year.
About a half million persons over 65
continue to ·work but are nontaxable because of low taxable
incomes.
The new relief from withholding will be particularly
helpful to these persons because they will not have to file
tax returns to recover any tax withheld, as was necessary
under prior law.
Because of the changes in the filing requirements and
withholding provisions, more than two million persons over
65 will be relieved of the need for filing tax returns.
- 4 Again, the increase in the standard deduction--from
10 percent of income, with a limit of $1,000, to 15 percent
of income, with a limit of $2,000--will simplify the returns
of many elderly persons by eliminating the need for itemizing personal deductions.
It is estimated that persons over 65 will have a 1969
income tax liability of about $7.3 billion, exclusive of
the surcharge.
When fully effective the relief provisions
of the Tax Reform Act will reduce this liability by $640
million (at 1969 income levels), a reduction of about nine
percent.
The tax liability of those persons with adjusted
gross incomes below $10,000 will be reduced by more than
25 percent, and that of persons with adjusted gross incomes
below $5,000 will be reduced by more than 54 percent.
I believe, therefore, Mr. Chairman, that the Tax Reform
Act of 1969 has made major progress for the benefit of those
over 65.
Nevertheless, as a part of our Treasury program,
we have been reviewing what further changes in the statute
or regulations might be made to achieve additional simplifica·
tion of the tax laws.
Accordingly, I chose this subject as
the topic for a speech that I gave in New York City on
March 18, 1970 at a dinner honoring Chairman Wilbur D. Mills,
- 5 of the House Committee on Ways and Means.
Chairman Mills,
as well as Chairman Russell B. Long, of the Senate Committee
on Finance, have on many occasions called for simplification.
In that speech, after reviewing some of the accomp1ishments of the 1969 Act, I made the following statement:
"Yet so much more needs to be done. Let me
illustrate with a reference to the reporting of
pensions and annuities received by retired individuals. More than six million persons now receive
such payments and the number constantly increases.
We have made a survey of the accuracy with which
recipients of Federal Civil Service pensions report
these amounts on their tax returns. In one study,
which included some moderately complicated situations, 'we found that 75 percent of the tax returns
reported these amounts improperly. Not only so -and this is the startling aspect -- two-thirds of
those reporting incorrectly overstated their taxable
income and paid too high a taxa" (Copy of the full
text of the speech is attached.)
This statement of mine has been erroneously understood
by some persons as a report that 50 percent of the taxpayers
over 65 years of age have overpaid their federal income tax.
I did not make such a statement, and I am grateful for
this opportunity to make that point c1earo
The statement in my speech used pensions and annuities as
an illustration of the need for further efforts toward simp1ification of the tax law.
I was referring not to all taxable
persons over age 65, but only to those taxpayers who reported
- 6 taxable receipts from pensions and annuities; and the data
of the study to which I referred, in which half of the
recipients overpaid their tax, was limited to a sample of
persons receiving Federal Civil Service pensions.
Let me
explain this further.
There are some 20 million persons in the United States
over age 65.
Using the data from 1967 tax returns, the last
year for which we have complete statistical data, these
persons filed about 6.6 million returns (some are joint
returns of married couples).
Of these returns, about 3.9
million showed a tax liability and the balance were
nontaxable.
Of all these returns (both taxable and nontaxable)
about 1.8 million reported some pensions and annuities that
constituted taxable income.
However, about 700,000 of these
tax returns showed no tax liability.
Thus only about 1.1
million returns of persons over age 65 which reported
income from pensions and annuities showed a tax liability.
Most private pension plans are financed entirely by
employers without any contributions from employees.
In
such cases, the entire amount of the pension constitutes
- 7 gross income to the employee and there is no difficulty
in the application of the tax law.
Available data indicate
that almost two-thirds of the persons now receiving pensions
made no contributions to the cost of their pensions.
The complications arise mainly where the employee
has made contributions to his pension through deductions
from his salary, or where he has died and payments are
made to his beneficiaries.
The Federal Civil Service System
is one in which the employee contributes amounts out of his
salary toward his pension, and some rule is needed to prevent
the taxpayer from having to pay tax on the amount that
represents the return to him of his own .contributions.
It appears from the study of Civil Service System pensions
that I mentioned, which was made in 1965, that recipients
of pensions under contributory pension plans have difficulty
in determining the taxable portion of their total pension
receipts, and we are examining possible simpler methods to
enable them to make that determination.
Under the present tax law a further complication is
introduced where payments are to be made under the pension
plans to the employee's beneficiaries after his death.
Among
other items the income tax provision allowing exemption of
- 8 the first $5,000 of death benefits payable in the aggregate
upon the death of an employee causes problems where he leaves
more than one beneficiary or there is more than one party
paying the death benefits.
In such cases the single $5,000
exemption must be allocated between the payments to be made.
We are trying to find means of simplifying the rules where
payments are to be made under pension plans after the
employee's death.
Pensions and annuities are complicated matters, involving
actuarial principles which relatively few people fully comprehend or are trained to handle.
After experimenting with two
earlier simpler systems,* the Congress in 1954 developed
what is essentially the present law in an effort to make the
income tax result conform to the actuarial principles involved
and to insure a precise determination of the portion of the
pension payment that truly represents income to the recipient.
However, the effort to achieve full precision and equity in
this field leads to complications where the employee has
contributed to the pension, where amounts are payable after
his death, or where other special factors are involved.
* Prior to 1934, annuity payments were deemed to be return of
capital and therefore nontaxable until the recipient's contributions were recovered o From 1934 to 1953, the annuitant was
taxed on payments up to three percent of his total contributi~
Any payment in excess was considered return of his costs until
the total of his tax-free payments equaled the total of his
costs. Then the entire payment was taxaQ1e
... 9 ...
We in the Treasury are reviewing the matter to see if it
is possible to simplify some of the present rules without
causing the recipients to pay any more tax than is proper.
In particular, we are seeking means by which the
persons who payout the pensions can more readily inform
the payee and the Internal Revenue Service of the taxable
portion of the gross payment.
At present, particularly
where payments are to be made after the death of the employee,
this may not be feasible because the taxable portion may
depend upon information which the recipient has but which
the payor does not have.
We are searching for some
practical modification of the system so that the payor
can
mo~e
readily assist the recipient and the
S~rvice
to
know the taxable portion of the gross payment.
I should add that these problems are not confined to
persons over age 65.
In 1967 more than
600,000 taxable
returns involving entirely persons under age 65 showed
taxable pensions and annuities received, as compared with
1.1 million taxable returns involving one or both taxpayers
over age 650
I should also add that we are
studyin~
matter of the retirement income credit.
as well the related
Several proposals
- 10 in the past have been made for simplifying this provision
of the tax law, but none have been adopted by the Congress.
The present provision in the tax law, adopted in 1954 as
a means of equating those who do not receive adequate
social security benefits with those that have nontaxable
social security payments, is a rather complex one, requiring
a full separate page on the tax return.
We are reexamining
this provision to see if some simpler solution can be
found.
In concluding my speech of March 18, I said:
"I do not despair of further simplification
for the great masses of taxpayers. We have begun
a new look at the problem in the Treasury and will
report to the Congress and to the public. We trust
our study will be productive. To the extent complexity must remain, at least we shall have identified
the causes so that all will know and be aware of the
reasons."
In making this study and preparing this report we shall
be pleased to receive suggestions and comments, especially,
Mr. Chairman, from the members of this Committee.
000
TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR A.M. RELEASE
THURSDAY, MARCH 19. 1970
REMARKS OF THE HONORABLE EI7NIN S. COHEN
ASSISTANT SECRETARY OF THE TUASURY FOR TAX POLICY
BEFORE THE
10TH ANNIVERSARY DINNER OF TAX MANAGEMENT
BUREAU OF NATIONAL AFFAIRS
WALDORF-ASTORIA HOTEL, NEW YORK, N. Y.
WEDNESDAY, MARCH 18, 1970, 8:00 P. M., EST
A New Decade for Taxes and the Search for Simplification
It is a great pleasure to join this evening in saluting
the Honorable Wilbur D. MIlls for his years of dedicated service
to the. American people and for his devoted work in the·betterment of our Federal tax structure.
We are deeply indebted to
him for his illustrious contributions and for the sterling
leadership he has given on many urgent matters.
It has been
a privilege to have appeared before him, both in this past
year in government and previously as an attorney, and to have
worked with him in the development of the Tax Reform Act of
1969.
He has been a good friend and counsellor to me and to
legions of others, and we delight in expressing our gratitude
to him this evening.
K-374
- 2 -
I am also grateful for the opportunity to salute thole
in the Bureau of National Affairs who have lponaored the Tax
Management series for this past decade.
I pay particular
tribute to the editor-in-chief ,Leonard Silverstein, and to
the many contributing editors, who have produced such a
valuable series of treatises on the Federal tax law.
I found
these works quite valuable not only in the practice of law,
but also, for professor and students alike, during my five
delightful years of teaching at the University of Virginia
Law School.
This past decade of success of the Tax Management series
leads me to ponder the growth of the Federal tax structure
during that period and the ongoing development that will likely
occur in this current decade of the 1970's.
Where will our
tax structure be ten years hence? What can we plan now to
cope with the problems that will accompany this inevitable
growth?
Since 1960 our Gross National Product has almost doubled.
The Economic Report of the President for 1970 contains a
projection of the growth of the economy through the year 1975.
If we carryon to 1980 the same assumptions on which the 1975
forecast is based, then ten years from tonight we should
find --
- l -
a Gross National Product of more than $1.8
trillion, almost double the present level and
almost quadruple the level of 1960.
--
individual income tax revenues of some $160
billion, as against some $92 billion in the
current fiscal year (including the surcharge).
corporate income tax revenue of some $75 billion,
as against some $37 billion (including the surcharge) at present.
90 million individual income tax returns, contrasted with less than 70 million returns under
the present law -- and contrasted with less than
10 million such returns when you, Mr. Mills, were
first elected to Congress and when I began
practicing law.
How best should we plen for the
most massive tax structure
in all of man'. history?
I suppose that the most difficult task in government 1s to
plan for the long-range future while attending to the myriads of
daily problems that demand immediate solution.
Nonetheless
I think it urgent that we devote a major effort to molding the
tax structure of the future aa we deal with the demanding
problems of the oresent.
- 4 The income tax, of course, is the backbone of our Federal
sytem, providing more than 80 percent of the revenues alide
from the trust funds.
We may possibly find other revenues to
supplement the income tax, or supplant part of it -- the value
added tax, for example, might find favor in the years ahead.
But I think it safe to predict that those of us who may gather
here ten years hence will still find the income tax furnishing
the major support of our Federal government.
The year 1969 witnessed a major effort to improve the
equity of the Federal income tax, culminating in the signing
by President Nixon on December 30 of the Tax Reform Act of
1969.
We at the Treasury have described it as a milestone in
tax history -- and I have no doubt that history will so regard
it.
As I have listened to the comments and complaints of those
who have studied the bill, I have heard many opinions that in
one area or another we have gone too far or not far enough in
the search for greater fairness in the tax system.
divergence of opinion should disturb no one.
This
In time we shall
surely change some of the 1969 provisions as experience and
reflection guide us.
- 5 -
What has disturbed me above all in hearing the comments
has been the uniform criticism of the complexity of the Federal
income tax law, particularly after the 1969 Act.
When I gave
my first talk about the 1969 Act in January to the Association
of the Bar in the City of New York, the question put to me that
made the most lasting imprint was, "Whatever became of
simplification?"
And similar questions have been asked of
me and have concerned me wherever I have gone.
I believe the American taxpayer is entitled to know whether
or not the maximum effort has been made, consistent with other
objectives, to simplify the income tax law.
We at the Treasury
are conducting a study to determine what can be done to simplify
the law and its administration.
We will report our findings
to the Congress and to the American people.
If we can simplify,
let us do so; if we cannot, let us know the reason why; if we
must choose between simplification and other objectives, let
us know the choices and make the decision.
Particularly with
the massive enlargement of the tax structure we envisage in
this decade, we must press forward with this inquiry thoroughly
and speedily.
Now this emphasis on simplification may come with ill
grace from one who, in a moment of perhaps ill-guided humor,
- 6 -
dubbed last year's bill the "Lawyers and Accountants Relief
Act of 1969."
Despite the memory of tnat jovial aberration,
I shall venture on.
Notwithstanding the complexities in the 1969 Act, I
think it clear that we did achieve meaningful simplification
for a great number of persons.
Mainly through the Low Income
Allowance, some 7.6 million tax returns at the bottom of the
economic scale that presently bear tax will no longer owe a
tax and will no longer even have to be filed.
This represents
about 12 percent of all the tax returns that previously showed
a tax due.
Moreover, we significantly relaxed the withholding
requirements so that large numbers of persons who owe no tax -college students working in the summer, for example -- will not
have to file returns to recover a refund of tax needlessly
withheld.
I would think this qualifies as a major simplification.
Moreover, the 19b9 Act will permit some 11 million
additional tax returns to use the standard deduction instead
of having to itemize nonbusiness deductions.
We estimate this
will permit some 73 percent of all individual returns to be
filed on that simplified basis as against some 58 percent
today
again a major advance in the direction of simplification.
- 7 -
Yet so much more needs to be done.
Let me illustrate
with a reference to the reporting of pensions and annuities
received by retired individuals.
More than six million
persons now receive such payments and the number constantly
increases.
We have made a survey of the accuracy with which
recipients of Federal Civil Service pensions report these,
amounts on their tax returns.
In one s'tudy, which included
some moderately complicated situations, we found that 75 percent
of the tax returns
re~orted
these amounts improperly.
so -- and thts is the startling aspect
repo~ting
Not only
two-thirds of those
incorrectly overstated tqeir taxable income and
paid too high a tax.
Why all this difficulty in reporting pensions and
annuities?
The causes are numerous.
We tried at least two
other simpler systems before discarding them for the present
one in 1954.
Now we have one that is theoretically more logical
than those that preceded it but few taxpayers seem able to
comprehend it.
More importantly, however, the present system
includes a large number of efforts at precise equity adjustments,
which are the source of complication.
The law undertakes to
vary the tax result for the presenc'e of disability, for inclusion
of some death benefits, for a refund feature and the like.
The
persons paying the pensions or annuities do not have sufficient
- 8 information required by the present statute to inform.'
the recipient or the Internal Revenue Service as to the
amount of the payments that is subject to tax since so
many variations are critical to the result.
With all the
experts gathered here this evening, I doubt that a quarter
of them could readily calculate the taxable portion of the
pension received by a widow of an employee under a
contributory pension plan -- and I will include myself
among them.
Another related illustration is the retirement income
credit -- a provision which affects two million taxpayers
and itself requires a full page of Form 1040.
We have
evidence that as many as one-third of those eligible for
the credit may not be claiming it because of its complexity.
The complexity arises from a series of special qualifications
and limitations designed to achieve more precise equity but
which are obviously defeating this very same objective in
the broad sense.
- 9 -
I use pensions and annuities and the retirement
income credit merely as illustrations of the task before
us to review the income tax law and regulations for the
purpose of simplifying its operation for the millions of
persons affected by it.
I worry about simplicity not for
the thousands who can afford expert advice on complex matters
but for the millions who cannot and should not be
do so.
~equired
to
And I grow increasingly concerned as I look a
decade ahead with our ever growing economy.
I think we can
develop simpler rules in many cases if we set simplification
as one of our major targets.
Let me suggest another possible avenue to follow.
In
replying to the charges of complexity in the 1969 Act, I have
pointed out that many of the provisions complained of deal
with plans and documents, conceived by ingenious lawyers or
advisors, that fit no normal mold.
Among these I would list
such latter day devices as subordinated convertible debentures,
convertible preferred stocks with varying conversion ratios,
debentures with warrants attached, sprinkle accumulation trusts,
ABC transactions in minerals, restricted stock plans and a
host of others that bring gleams to the eyes of the experts
in the audience -- and again I would in former days have
- 10 included myself among them.
But when the law moves, as it
should, to make sure such devices are not used to disturb
the fairness of the tax structure, I shed no tear because
tne solution in the statute is of necessity itself complex.
But I am concerned for those who use simple forms of
documents in garden variety cases.
It does seem to me that
we could s1mplify life for the ordinary taxpayer and his
lawyer if we could so design the statute and the regulations
that we could state the Federal tax results that flow under
specified normal conditions from tne use of standard documents.
I have in mind such
doc~~ents
as an ordinary trust for a
minor, a trust with a remainder to charity, a will that includel
a marital trust for a widow, a customary form of temporary
indebtedness from a corporation to its shareholder', a newly
formed corporation designed to operate under Subchapter S
with tax results similar to a partnership, etc.
Save recently
~II
in the field of pension plans, the Service has not generally
given public assurance of the tax results flowing from use of
particular standard documents.
with the bar associations and
I suggest that in cooperation
OJ
:ler professional organizations
we in government should try to redesign the statutes and
regulations to permit us to state with clarity the tax effects
0 ....
'~~;
ing certain documents in standard situations.
- 11 I was recently challenged by a leading corporate executive
who asserted that the 1969 Act in many particulars fostered
standardization and was repressive to ingenuity.
I pondered
that remark long and thoughtfully, for I believe thac this
great nation was founded upon and has prospered from the
ingenuity of its people.
I would abhor any system that required
use of stereotyped patterns.
After all, I was
rais~d
on a
steady regimen of Jeffersonian individualism.
Nonetheless, ingenuity must not be a passkey to tax
inequity.
Those who are ingenious cannot object if the tax
law gives ready standard answers only to standard plans and
lays down complex rules to govern unusual transactions.
We do have in the Internal Revenue Service a procedure
for advance rulings as to the tax effects of particular
transactions.
This requires, however, an expensive allotment
of scarce specialists.
To the extent we can foster the use of
standard documents with known tax results, so much the more
can we use those able public servants to pass upon novel
and trail blazing transactions.
So much the more can our
laWyers, accountants, and other advisers deal expeditious ly
- 12 with standard transactions and. concentrate their skills on
exceptional cases.
So much the more can the masses of taxpayers
comply with the requirements of the tax law without undue
expense or delay.
In the years ahead advances in computer and other
technology may also open up possibilities of administrative
simplification.
It may not be beyond the realm of possibility
in the future for data about salaries, wages, dividends,
interest, and personal exemptions for large numbers of persons
to be reported by the payers directly to the Internal Revenue
Service, which would calculate the tax and issue a refund or
bill to the taxpayer, if he were willing to use the standard
deduction and had no other sources of income.
But the
possibilities in this regard depend upon technological advances!
and while we are exploring these techniques, any gains in this
regard are likely to be, as we say in the tax law, long-term.
r
believe there are also major changes we can make in
the coordination of the income tax system of the Federal
Government with those of State and local governments.
Much
can be done in this regard to minimize differences in the
calculation of taxable income and to coordinate the preparation!
filing and audit of tax returns and the collection of taxes.
- 13 Beyond these possibilities would lie far greater
simplification if we were willing to forego some of the
exemptions, deductions, and allowances that have been adopted
and maintained in the Federal tax law in the name of equity.
Some of us have experimented with computer studies of greatly
simplified systems that would achieve substantially the same
distribution of the tax burden among the various income
classes.
They do so, however, at the sacrifice of many pro-
visions -- such as non-business deductions -- that have been
considered vital to home ownership, to charity and education,
to fairness, or to the maintenance of incentives to desirable
conduct.
I do not by any means advocate tonight the adoption
of changes so drastic, but I do believe the possibilities
should be reviewed and debated for the public benefit.
The
choice between simplicity on the one hand and equity or
incentives on the other is one that can be made only if the
pros and cons are understood and weighed.
A primary difficulty, of course, is that a simplified
rule enacted to replace a complex one will necessarily raise
the tax of some affected persons and lower the tax of otherso
- 14 There is a natural reluctance to make such a change.
Perhaps
this reluctance can be overcome if the effective date of the
•
change is deferred for several years, permitting opportunity
to adjust gradually to the new rules.
This technique of
deferring the effective date was employed to advantage in a
number of important provisions of the 1969 Act, and it may
be useful in eliminating complexities on a long-range basis
as we look down the decade that confronts us.
We must always appreciate that complexity in our tax
laws, as well as in other laws, stems in large part from the
dem~cratic
processes upon which our nation is founded and
which is its greatest strength.
A law which will meld the
diverse views of the members of the Committee on Ways and
Means and the Committee on Finance, as well as the members of
both houses of Congress, and those of the President and his
Administration, will often be a compromise -- and compromises
are not easily forged with Simplicity.
We are a nation of
checks and balances -- and proudly so -- and the tax laws
will always reflect our system of government and the diverse
interests of our people.
- 15 I do not despair of further simplification for the
great masses of taxpayers.
We have begun a new look at the
problem in the Treasury and will report to the Congress and
to the publico
We trust our study will be productive
o
To
the extent complexity must remain, at least we shall have
identified the causes so that all will know and be aware of
the reasons.
In this quest I shall bear constantly in mind the note
from one of my former students who had worked with me on
the projected revision and simplification of the Virginia
income tax law.
The note expressed confidence that I would
so simplify the Federal law that the return could be printed
on the back of a picture postcard.
But, alas, even this
would not solve all our problems -- whose picture would be
on the other side?
000
Department of the
TREASURY
'IGTON-D.t. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
April 15, 1970
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
$3,100,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing April 23, 1970,
in the amount of
$3,002,462,000,
as follows:
91'day bills (to maturity date) to be issued April 23, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing
an additional amount of bills dated January 22, 1970, and to
mature
July 23, 1970,
orginina11y issued in the amount of
$1,204,197,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,300,000,000,
dated
April 23, 1970,
and to mature
or thereabouts, to be
October 22, 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
$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, April 20, 1970.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even mUltiple of $10,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99.925. Fractions may
not be used. It is urged that tenders be made on the printed
forms and forwarded in the special envelopes which will be supplied
by Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
K-392
- 2 responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public announc'
ment will be made by the Treasury Department of the amount and price r
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on April 23, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing April 23, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differEl~es 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 he obtained
from any Federal Reserve Bank or Branch.
Department of the
D.C 20220
TREASURY
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
April 15, 1970
MEMORANDUM TO THE PRESS:
Attached are copies of letters, signed by Treasury
Secretary David M. Kennedy and sent to the president of
the U. S. Senate and Speaker of the House of
Representatives, outlining the Administration's proposals
for accelerated payment of gift and estate taxes.
A more detailed description of the proposals is
attached to the letters, outlining the present law,
how the proposals would alter the law, the effective dates
and the estimated revenue after enactment.
Attachments
K-393
000
THE SECRETARY OF THE TREASURY
WASHINGTON
Dear Mr. President:
The President's Message to the Congress of Apri13,
1970, set forth his proposal that Congress enact legislation accelerating the collection of estate and gift
taxes. I am enclosing for consideration by the Congress
an explanation of our legislative proposals for accelerated
payment of gift and estate taxes.
Under the proposal, the filing of a gift tax return
and payment of the gift tax will be required on a quarterly
basis. The amount of the gift tax imposed would not be
changed. The proposal will be effective with respect to
transfers made after December 31, 1970. It is expected
to increase revenues for the fiscal year ending June 30,
1971, by $100 million.
Under the proposed estate tax changes, payment of
estate taxes will be accelerated by a requirement that
an estimated estate tax be paid seven months after death.
Under present law no payment of estimated tax is required;
the estate tax return must be filed and the estate tax
paid within 15 months after death. The estimated tax will
be 80 percent of the estate tax which would be due if the
gross estate were valued as of date of death.
Limitations are provided on the amount of estimated
tax payable to prevent any hardship in the case of estates
conSisting of non liquid assets and to permit retention of
sufficient liquid assets to pay reasonable allowances
where there is a surviving spouse or surviving minor
children. The payment of an estimated estate tax will be
- 2 -
required only of estates the value of which at the date
of the decedent's death exceeds $150,0000 By reason of
these limitations, the estimated tax payment requirement
will only apply to approximately 35,000 of the 100,000
estates for which estate tax returns are filed annually.
The payment of an estimated estate tax will be
required of estates of decedents dying on or after the
date of enactment. Special transitional rules will be
provided to assure that the tax with respect to estates
of decedents who die during the eight months preceding
enactment will be paid at no later time than if they had
died on the date of enactment. The proposal is expected
to increase revenues for the fiscal year ending June 30,
1971, by $105 billion.
Sincerely yours,
~~/~.. "j
The Honorable
Spiro T. Agnew
President of the Senate
Washington, D.C. 20510
Enclosures
THE SECRETARY OF THE TREASURY
•
WASHINGTON
APR 151910
Dear Mr. Speaker:
The President's Message to the Congress of April 3,
1970, set forth his proposal that Congress enact legislation accelerating the collection of estate and gift
taxes. I am enclosing for consideration by the Congress
an explanation of our legislative proposals for accelerated
payment of gift and estate taxes.
Under the proposal, the filing of a gift tax return
and payment of the gift tax will be required on a quarterly
basis. The amount of the gift tax imposed would not be
changed. The proposal will be effective with respect to
transfers made after December 31, 1970. It is expected
to increase revenues for the fiscal year ending June 30,
1971, by $100 million.
Under the proposed estate tax changes, payment of
estate taxes will be accelerated by a requirement that
an estimated estate tax be paid seven months after death.
Under present law no payment of estimated tax is required;
the estate tax return must be filed and the estate tax
paid within 15 months after death. The estimated tax will
be 80 percent of the estate tax which would be due if the
gross estate were valued as of date of death.
Limitations are provided on the amount of estimated
tax payable to prevent any hardship in the case of estates
consisting of non1iquid assets and to permit retention of
sufficient liquid assets to pay reasonable allowances
where there is a surviving spouse or surviving minor
children. The payment of an estimated estate tax will be
- 2 -
required only of estates the value of which at the date
of the decedent's death exceeds $150,000. By reason of
these limitations, the estimated tax payment requirement
will only apply to approximately 35,000 of the 100,000
estates for which estate tax returns are filed annually.
The payment of an estimated estate tax will be
required of estates of decedents dying on or after the
date of enactment. Special transitional rules will be
provided to assure that the tax with respect to estates
of decedents who die during the eight months preceding
enactment will be paid at no later time than if they had
died on the date of enactment. The proposal is expected
to increase revenues for the fiscal year ending June 30,
1971, by $1.5 billion.
Sincerely yours,
-iP~ ,,-..-4- _ .• . ,
The Honorable
John W. McCormack
Speaker of the House
of Representatives
Washington, D.C. 20515
Enclosures
LlQISLATIVE PROPoSALS
FOR ACCELERATED PAYHINT
OF GIFT AND ESTATE TAXIS
GIFT TAX
,
Present Law: Under present law, the gift tax is
due April 15 of the year following the year in which the
gift was made, and a return must be filed on the same
date. Thus, for example, if a taxable gift is made on
January 2, 1970, the payment of the tax is deferred until
April 15, 1971.
Proposal: Under the proposal, a gift tax return will
be required and payment of the gift tax will be made on
a quarterly balis. The return and payment will b. due
on the 1alt day of the first month following the end of
the calendar quarter in which the gift was made. Thus,
the gift tax return and payment with respect to gifts
made between January 1 and March 31 will be due on
April 30. Similarly, if the gift was made between April 1
and June 30, the gift tax will be due on July 31; if the
gift was made between July 1 and September 30, the gift
tax will be due on October 31; and for gifts made between
October 1 and December 31, the gift tax will be due on
January 31 of the following year.
This proposal is made because it is appropriate and
reasonable to require payment of gift taxes on a more
current basis rather than allowing the exis~ing substantial
postponement. The timing of gifts is at the donor's option,
and gifts made during any calendar quarter are readily
identifiable. Quarterly return and quarterly payment of
gift taxes will not be burdensome to taxpayers or to the
- 2 -
Government. A large majority of those taxpayers who make
taxable gifts make all such gifts in the same calendar
quarter. Thus, relatively few additional gift tax returns
will be required under the quarterly system.
In the case of gifts made to the same donee in any
two or more calendar quarters of a year, the $3,000 annual
exclusion per donee provided by present law will be applied
in the order in which the gifts were made. For example,
if A gave $2,000 to B in February and an additional $2,000
to him in April, no gift tax will be due with respect to
the February gift, but a tax will be due on July 31 with
respect to $1,000 of the April gift. Similarly, the filing requirements of present law will be applied in the
order in which the gifts were made. Thus, in the preced,ing example, no return will be required with respect to
the February gift, but a return will be due on July 31
with respect to the April gift. Such return will disclose
both the February and April gifts.
Consistent with present law, any unused portion of
the $30,000 lifetime exemption, at the option of the
donor, will be permitted to be taken in a single calendar
quarter or to be spread over any number of quarters in
such amounts as the donor elects, but after the lifetime
exemption has been exhausted, no further exemption will
be allowable.
Technical and conforming changes will be necessary
as a result of quarterly returns and payment, but the
amount of gift tax imposed will not be changed. Thus,
for example, married taxpayers who under present law have
the option of treating one-half of any gift as having
been made by the husband and the remaining one-half by
the wife will continue to enjoy this option.
- 3 -
Penalties for failure to pay the quarterly gift tax
~nd for failure to file a quarterly gift tax return will
generally follow existing gift tax penalties.
Effective Date: The proposal will be effective with
respect to transfers made after December 31, 1970.
Revenue Estimate: This proposal is expected to
increase revenues for fiscal year 1971 by $100 million.
ES~TE
TAX
Present Law: Under present law, the estate tax
return must be filed and the estate tax paid within
15 months after the decedent's death. No payment of
estimated tax is required.
Proposal: The proposal will require payment seven
months after death of an estimated estate tax. This
requirement will apply only to gross estates the value of
which at the date of the decedent's death exceeds $150,000;
with this floor it is estimated that the proposal will
apply to only approximately 35,000 of the approximately
100,000 estates for which estate tax returns are filed
annually.
The estimated estate tax will be 80 percent of the
estate tax which would be due if the gross estate were
valued as of the date of death, but in no event would the
tax exceed the value of the net liquid assets, as hereinafter defined, of the estate six months after death.
- 4 The proposal is made because the existing 15 month
deferral in time of payment provides an advantage, at
least with respect to liquid estates, resulting from retention of the use of the money representing the estate tax
for this extended period. It is reasonable to require
more current payment of the tax to the extent the estate
consists of liquid assets.
The net liquid asset limitation on the amount of
estimated tax payable is included to prevent any hardship
in the case of estates consisting of nonliquid assets.
Under the proposal, non liquid assets will not have to be
liquidated in order to pay the estimated estate tax.
Thus, the amount of estimated estate tax payable will be
limited to the liquid assets of the estate less debts,
funeral and administration expenses, and a reasonable
allowance for widows and dependent children.
For these purposes, the net liquid assets of the
estate six months after death are defined to include, and
are limited to:
(a)
the sum of the value of -(1)
all liquid assets (if such assets were
included in the gross estate at death or
represent proceeds traceable to such assets)
held by the estate or any beneficiary of
the estate six months after the decedent's
death, valued as of such date, and
(2)
all liquid assets included in the decedent's
gross estate on the date of his death (or
assets traceable to the proceeds of such
assets) which are disposed of within six
months after the decedent's death, valued
as of the date on which disposed of, but
not including such assets (or assets
traceable to proceeds of such assets)
inc luded under t, .~ preceding paragraph,
less
- 5 -
(b)
the sum of -(1)
funeral and administration expenses and
claims against the estate which are reasonably expected to mature within 15 months
after the date of death, and
(2)
an amount representing a reasonable allowance for widows and dependent children
equal to $15,000 with respect to a surviving spouse (or surviving dependent child if
no spouse survives) plus $5,000 with respect
to each additional surviving dependent
child.
The term "beneficiary" will include heirs, recipients
of insurance proceeds, surviving joint tenants, etc. For
purposes of this limitation, the following assets will
be considered to be liquid assets: (1) cash, including
bank accounts, savings and loan accounts, and similar
cash equivalents; (2) insurance proceeds; (3) federal,
state, and local obligations; (4) securities or commodities
which are readily tradable in an established securities
or commodities market; (5) mutual fund shares; and
(6) other securities, claims or obligations (such as
promissory notes, certificates of deposit, and accounts
receivable) which are redeemable or otherwise collectible
within six months after the date of death.
The seven month period has been chosen in order to
avoid forcing the estate to realize short term capital
gains, rather than receiving long term capital gain treatment, for gains realized on assets liquidated in order to
raise funds to pay the estimated estate tax.
- 6 -
The estimated estate tID: ~~t'lrn ~hall be required
to be filed by the adminL~cr."olt;:<!." or executor of the estate.
The p~.:ovisior.~s of present :!.f..CJ ';Jhich prrovide reasonable
extensions of time for filing returns will be applicable
if it is impossible or impractical to file a reasonably
complete estimated estate t~ return Beven months after
death. As under prasent law~ L: "here is more than one
executor or administrator, the return must be made jointly
by all, and if there is n.D executor or administrator,
every person in actual or constructive possession of any
property of the decedent situated i~ the United States
will be deemed to be an executor for purposes of the
estimated tax and shall be required to file a return and
to pay the estimated tax. The estimated estate tax
return will be consolidated with the preliminary notice
required under existing law in order to avoid multiple
filings.
Generally, penalties and iut~~est for failure to
file an estimated tax return and for underpayment of the
estimated tax shall ,=orrespond to the penalties and
interest under present law for failure to file an estate
tax return and for underpayment of estate tax. No penalties or interest will be assessed if the estimated estate
tax paid is 80 percent of the estate tax liability shown
on the estate tax return as filed, or if underpayment of
the estimated estate tax is attributable to property
which is not discovered despite reasonable search until
after the estimated estate tax return is due and has been
filed and the estimated tax has been paid. Similarly,
no penalties or interest will be assessed if the estimated
tax paid is as great as the amount of estate tax which
would be due 15 months after death after application of
the proviSions of existing law which permit the estate
tax to be paid over a period up to 10 years. For example,
if the value of the int£re3~ i~ ~ clos~ly h~ld business
were such that only $10,000 of a total estate tax payable
of $50,000 is due 15 months after death, and the value of
- 7 -
the net-liquid assets six months after death was $25,000,
no penalties or interest will be assessed if an estimated
tax of only $10,000 is paid.
If the estimated tax paid exceeds the lesser of the
estate tax shown on the estate tax return or the estate
tax due 15 months after death, a special procedure will
be provided to enable the taxpayer to obtain a quick
refund. In addition, interest on such excess payment
shall be paid to the taxpayer at the annual rate of 6 percent for the period from the time the estimated tax was
due or paid, whichever is later, until the time the refund
is made. These provisions are designed to provide substantial relief when asset values are declining and the
alternate valuation date is elected. No change will be
made in present law with respect to penalties and interest
on the underpayment of estate tax.
Effective Date: The payment of estimated estate
tax shall be required with respect to estates of decedents
dying on or after the date of enactment. Special transitional rules will be provided to assure that the tax with
respect to estates of decedents who die during the eight
months preceding enactment will be paid at no later time
than if they had died on the date of enactment.
Revenue Estimate: The proposal is expected to
increase revenues by $1.5 billion for the fiscal year
1971.
Department 01 the TREASURY
iflGTON.D.C.20220
TELEPHONE W04-2041
For Release on Delivery
STATEMENT BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
THE HOUSE COMMITTEE ON BANKING AND CURRENCY
ON BEHALF OF LEGISLATION RELATING TO
THE INTERNATIONAL MONETARY FUND, THE INTERNATIONAL BANK
FOR RECONSTRUCTION AND DEVELOPMENT,
AND THE ASIAN DEVELOPMENT BANK
THURSDAY, APRIL 16, 1970, 10:00 A.M., E.S.T.
Mr. Chairman and Members of the Committee:
I appear today to support authorization for the United
States to
accept an increase in its quota in the International
Monetary Fund;
provide for a related adjustment in the capital subscription of the United States to the International
Bank for Reconstruction and Development;
contribute to the Asian Development Bank Special Funds.
K-394
- 2 Legislation to implement authorizations for these three
institutions was introduced as H.R. 16891.
Separate authoriza-
tion bills were also introduced on the Asian Development Bank
(H.R. 16641), and on the Fund and Bank (H.R. l6764).
Since the
authorization provisions of the three bills on the IMF, IBRD
and ADB are almost identical, I have not drawn any distinction
among them in my testimony today.
I will address myself specif-
ically to the three additional provisions in H.R. 16891 at the
conclusion of my remarks.
The International Monetary Fund has recently assumed additional responsibilities in administering the new Special
Drawing Rights and is steadily growing in influence and importance as the primary institution for multilateral cooperation
and action in international monetary matters.
The World Bank
fulfills a similar role in multilateral financing of economic
development.
On the regional level, it is timely for the U.S. to join
with other countries in strengthening the ability of the Asian
Bank to meet a wider range of Asian development needs than it
can satisfy from its ordinary lending window.
- 3 Approval of legislation necessary to carry out these
purposes will permit the United States to maintain a role
within these multilateral financial institutions that is in
keeping with its economic and financial position among the
nations of the free world.
Proposed Legislation
The proposed legislation before the Committee would amend
the Bretton Woods Agreements Act of 1945 essentially in two
respects:
First, it would authorize the United States Governor
of the Fund to consent to an increase of $1,540 million
in the U.S. quota in the International Monetary Fund and
authorize an appropriation for that purpose;
Second, it would authorize the United States Governor
of the Bank to vote for a $3 billion increase in the
capital stock of the Bank; subscribe to 2,461 additional
shares of the Bank's capital; and authorize an appropriation of $246.1 million for this purpose.
In addition, the Special [.awing Rights Act would be
amended to provide authority for the United States Governor of
- 4 the Fund to vote for allocations of Special Drawing Rights to
the United States in any future basic period in an amount equal
to the United States quota in the International Monetary Fund.
The background of the proposed increase in resources is
described in the Special Report of the National Advisory Council
on International Monetary and Financial Policies which has been
presented to you.
Included in that report are the reports of
the Executive Directors of the Fund and the Bank to the Boards
of Governors of their respective institutions.
Finally, the Asian Development Bank Act would be amended
by authorizing the United States to enter into an agreement wit
the Bank providing for a United States contribution of $100,000,
to the Special Funds of the Bank.
Proposal to Increase Fund Quotas
This is the third occasion on which a proposal to increase
the quotas in the Fund has been put before the member governments.
The Fund Agreement entered into force in December 1945
with total quotas of approximately $7.2 billion.
Although the
Articles of Agreement provide for a general review of the adequa
of quotas every five years, there was no general increase in
quotas of the Fund until 1958-59.
At that time, there was a
general upward revision of quotas by 50 percent.
Special quota
- 5 -
adjustments were also made for a small number of countries at that
t~.
The total size of the Fund after these adjustments, and after
taking into account the quotas of a number of new members, was
$15.2 billion at the end of 1962.
In 1965-66, a second decision was taken to revise all
quotas upward by 25 percent and to provide additional selective
increases for 16 member countries.
In both the first and second enlargements of the Fund, the
United States accepted its share of the general increases of
50 percent and 25 percent respectively.
On this third occasion,
the proposed legislation recommends that the United States accept an increase of $1,540 million, raising the u.S. quota to
$6,700 million.
In this instance the United States would partic-
ipate not only in the general increase, but also in the additional
increases being provided for a number of countries in order to
establish a better alignment between IMF quotas and the relative
economic and financial positions of the respective member
countries.
If all countries were to accept the quotas proposed for
them, the total increase in the Fund's resources would be $7,577
mi~lion,
raising the aggregate size of the Fund to $28.9 billion.
This represents an enlargement of about 35 percent in the Fund's
medium-term credit facilities.
- 6 The proposed increase in the Fund's conditional medium-term
credit resources is needed at this ttme to keep pace with the
growth in the world economy and world trade, and to provide lart
drawing rights on these resources to member countries that have
to cope with larger imbalances in their international payments
as international transactions continue their rapid rise.
The two previous enlargements in IMF quotas have kept pace
with the postwar expansion of world trade.
The chart appearing
on Page 10 of the Report of the National Advisory Council, and
attached to this statement, shows graphically the size of the
Fund in relation to the upward curve of world imports, which haw
grown from $100 billion in 1958 to an annual rate of $250
in mid-1969.
billi~
Once again, as in 1958 and 1965, the line represent
ing Fund quotas has fallen below the rising curve of world
imports.
The proposed increases will restore a more
appropriate~
relationship.
In recent years, we have also witnessed a rapid expansion
in the size and volatility of international capital movements.
To protect their economies from these sharp and sudden swings
in capital, Fund members, especially the major industrial countries, have come to rely increasingly on the Fund's medium-term
credit facilities.
In the six years since the end of 1963,
- 7 -
drawings on the Fund aggregated $13.1 billion, almost twice
the amount ($7.1 billion) drawn in the previous 16 years (1947
to 1963), and drawings by the industrial countries have risen at
an even faster rate.
Since these drawings are limited by each
country's quota, the proposed increase in quotas would permit
an expansion of the Fund's credit operations and thus provide
more scope to redress payments imbalances without resort to undesirable restrictive practices.
The quota adjustments recommended by the Executive Directors of the Fund consist of increases of 25 percent or more
for nearly all countries.
On this occasion, a major effort is
being made to readjust the relative proportions of quotas of
countries which had not been appropriately aligned.
an initial guide to the relative quota positions, the
used a number of revisions of the so-called
'~retton
To provide
F~nd
has
Woods
Formula."
This formula takes account of national income,
rese~ves,
imports, exports and the variability of exports.
Among the largest percentage increases, ranging beyond 50 percent, are those for Belgium, France, Italy, and Japan, as is
shown in Table 4 of the Special Report.
The new quota distribu-
tion will broaden the support on which the Fund can call to
provide medium-term reserve credit.
- 8 The overall increase proposed for the United States is
29.8 percent, of which 25 percent is equivalent to a general
increase and the remaining 4.8 percent, to a special increase.
As the addition to the U.S. quota is less than the proposed
overall increase of 35.5 percent, the U.S. share of total Fund
quotas would be reduced from the present level of 24.3 percent
to about 23.3 percent (See Table 4 of Special Report).
The resolution providing for an increase in quotas has
been approved by Governors casting the required 85 percent of
weighted votes.
On the advice of the National Advisory Council,
I cast the U.S. vote January 19, 1970, in favor of the resolution, while formally recording that I was not requesting or
consenting to an increase in the U.S. quota.
The proposed quota increases will come into effect on
October 30, 1970, for those members which have accepted their
proposed increases by that date.
The Bretton Woods Agreements
Act (Section 5) provides that the authorization of Congress
shall be received before any person or agency shall, on behalf
of the United States, request or consent to any change in the
quota of the United States.
The proposed legislation provides
Congressional authorization for the United States to consent
to the $1,540 million increase in quota and authorizes an appropriation of a similar amount to remain available until expended.
- 9 -
The authorization and appropriation should be considered in
two parts:
First, the Articles of Agreement of the Fund provide that
25 percent of any quota increase must normally be paid to the
Fund in gold.
Twenty-five (25) percent of the proposed U.S.
increase amounts to $385 million.
In exchange for this payment,
the United States will receive a "gold tranche" drawing right
in the Fund.
This is an automatic drawing right and represents
a reserve asset which the United States can call upon at any
time.
Thus, we have an exchange of assets and no diminution
of u.S. reserve assets.
The remaining portion of the authorization, $1,155 million,
will permit the United States to issue to the Fund a letter of
credit in that amount, on which the Fund may draw at such time
as it may require the corresponding dollar funds to meet drawings
of other members.
When U.S. currency is drawn from the Fund,
the drawing rights of the U.S. in the Fund are correspondingly
increased.
Both the gold payment and the letter of credit represent
monetary transactions;
expendi ture •
neither of
them
entails a budgetary
- 10 Arrangements to Minimize Imoact of Subscriptions by Other IMF
Members on U.S. Reserves
As mentioned, the U.S. gold subscription in connection
the proposed quota increase is $385 million.
wi~
While this will
~
a reduction in the U.S. gold stock, the U.S. will receive in
return reserves in the form of a gold tranche drawing right at
the Fund.
r10st other major countries will also pay their gold
subscri~tions
from their own gold holdings.
A number of other
countries, however, will wish to pnrchase gold from the United
States or other sizable reserve holders in order to pay the gold
portion of their quota increase to the Fund.
If such purchases
are rr.ade from the united States, bo·th our reserves and aggregate
world reserves would be reduced.
To offset or mitigate this and other consequences of gold
subscription payments, the Pund has proposed special measures
which are explained in detail in the Special Report and in the
report of the Executive Directors.
These measures contemplate
sales of gold up to a maximum amount equivalent to $700 million
to replenish the Fund's holdings of the currencies of members
from which gold has been ourchased by other members.
We have
discussed these arrangements with the management and Board of
Executive Directors of the Fund and we believe they will prove
adequate to offset over time the full amount of secondary gold
and reserve losses by the United States.
- 11 -
Use of Fund Resources by the U. s.
The United States
position in the Fund.
curr~:'ltly
has a large "super gold tranche"
As of keb::us'lCY 28, J 1970)
of dollars were 51 percent of the U. s. quota.
8S
LL~ .YG •. '(~
holdings
This means that,
of that date, other Fund members had drawn over one billion
of dollars from the U.S. dollar subscription, adding a sLmilar
amount to U.S. international reserves.
From early 1964 to December 1966, the United States drew
on the Fund to an aggregate amount of $1,840 million and Fund
holdings of dollars reached 93 percent of quota at the end of
1966.
Large borrowing abroad by American banks and corporations,
during the past two years, tended to draw down dollar holdings
of foreign central banks, and thus to provide the U.S. with
official settlements surpluses.
These surpluses permitted the
U,S. to acquire a large super gold tranche, or net creditor
position in the Fund.
(See attached chart.)
Foreign borrowing
on the scale of the past two years may be replaced by net repayments to foreign countries in the future; in this event, the
ability to draw on the Fund could prove useful to the United
States.
An enlarged quota will provide additional scope for
such drawings if needed.
- 12 Voting Shares and SDR Allocations
In addition to establishing drawing rights in the Fund,
the quotas determine the relative voting power of Fund members
and fix the relative shares in the allocations of Special Drawing
Rights.
The proposed new quota distribution involves a moderate
decline in the U.S. voting position, but it would still remain
above 21 ?ercent.
Since the procedure for amending the Articles
of Agreement requires, inter alia, the approval of 80 percent
of the total voting power, the U.S. is protected against the
possibility, however unlikely, of amendments to which we might
be strongly opposed.
The allocation of SDRs is also based on relative quota
shares.
Failure to consent to an increase in the U.S. quota
would reduce the United States
share in the next allocation of
SDRS on January 1, 1971, and on the following January I by about
$130 million.
SDR Limitation Proposal
The legislation would also provide a new limit on the
amount of Special Drawing Rights that the U.S. Governor can
vote to allocate to the United States.
Since a member voting
for a pro?osal to create SDRs must accept the SDR allocated to
it under that proposal, it is essential to have adequate advance
authority to accept any SDR allocations that may be agreed upon.
Most countries have unlimited authority from their parliaments
- 13 -
to vote for SDR allocations.
In the United States it was
decided to give sufficient authority to the U.S. Governor
to allow the U.S. to participate in SDR activations within a
broad range without further Congressional authority, but a
reasonable upper limit was established on the amount of SDRs
the U.S. Governor could vote to create.
The present limit is set at the amount of the United States
quota which, as you know, is $5,160 million.
At the time that
this limit was enacted in June 1968, it was correctly anticipated
that this would provide adequate scope for negotiating the
initial activation of SORs.
The actual activation of $3-1/2
billion for the first year and $3 billion a year in each of
the next two years will result in allocations of about
SORs to the United States.
2.3 billion
Thus, almost half of the present
authority to vote the SDR allocations to the United States has
been used up.
If no change is made in existing legislation,
the United States Governor could vote for further total allocations
to all countries of about $12 billion.
I would expect that
this amount would be clearly inadequate in any future activation
decision.
The proposed bill would retain the concept of relating the
authorized limit, for allocation of SDRs to the United States
- 14 -
quota in the Fund as it may be in effect from time to time.
This would be $6,700 million should Congress approve the present
proposed increase.
However, unlike the present limit which
governs cumulative allocations, the proposal would allow the
United States Governor to vote for an amount of SORs up to the
Congressionally authorized u.s. quota in the Fund in each basic
period for allocation of SORs.
This formula thus allows the
u.s. Governor flexibility in each basic period to vote for
SORs allocated to the United States up to an amount equal to
the u.s. quota.
Further Congressional action would be required
to authorize any amounts allocated to the United States in
excess of the United States quota.
u.S. Capital Subscription to the IBRO
I turn now briefly to the proposed increase in the capital
of the World Bank.
This proposed increase in the U.S. subscrip-
tion, amounting to $246.1 million, will enable the U.S. to do
its part in carrying out a long-standing practice of member
countries of the Bank to take parallel action on special increase!
- lS _
received in the Fund.
u.s.
Only 10%
or $24.6 million
of the
subscription will be paid in, and hence result in a U.S.
budget outlay.
The remaining 90% -- or $221.5 million -- will
add to the U.S. subscription of callable capital.
amount will
~
The latter
result in budget expenditure unless -- and this
is most unlikely -- a call should be made upon it in the future
for the purpose of meeting the Bank's debt obligations.
The increase in the U.S. subscription to the Bank corresponds
to that portion of the increase in the U.S. quota in the IMF
which exceeds the 25% general increase in quotas for all members.
No general increase in capital subscriptions to the IBRD is
proposed.
The policy of parallel special increases in the World Bank
carries forward the principle I described as applied to the IMF
of establishing a better alignment between subscriptions and the
relative economic and financial positions of the respective member countries.
The policy also has the effect of retaining a
relative alignment in voting strength of members in the two
institutions.
Since this is the first occasion on which the U.S. will
receive a special increase in its IMF quota, it is also the first
occasion on which the policy of parallel action in the two
_ 16 _
institutions calls for an increase in the paid-in portion of
the
u.s.
subscription to the Bank.
The only previous increase
in the initial U.S. subscription to the Bank of $3,175,000,000
was in 1959 when there was a general increase of 1001. in the
subscriptions c·f all members.
That took the form entirely of an
ircrease in callable capital.
The United States has strongly supported the policy of
p~'rallel
action in the IMF and IBRD in the past when its finan-
cial impact has fallen entirely on other members.
It is ap-
propriate that we continue that support and that the U.S. now
accept
the special increase called for in that policy.
The policy has been beneficial to the Bank and fully consonant with U.s. international financial policy.
Up to the
present time, there have been approximately 96 special increase8
in Bank subscriptions taken by 62 countries, each of which had
received a similar increase in its IMF quota.
These special
increases have brought almost $3.5 billion of additional capital
to the Bank.
The largest individual increases have come from
other developed countries such as Germany, Italy, and Japan
which have undergone rapid economic growth in recent years.
While the present round of special increases for the fir8t
time entails an increase in the U.S. subscription, the policy
of parallel action continues to have strong advantages for the
- 17 U.S. from a burden-sharing point of view.
Special increases in
capital subscriptions to the Bank are proposed for 75 member
countries.
In total, they amount to over $2.2 billion, of which
the U.S. increase -- $246 million
represents only 11%.
Several
other developed countries will increase their subscriptions by
a much larger percentage than the U.S.
As a result of the relatively small U.S. share of the total
special increases proposed, the U.S. share in total subscriptions to the Bank, now 27.48%, would fall to 26.04%.
This will
also mean that the U.S. voting share in the Bank, which is now
24.65%, will fall by approximately 1%.
The World Bank recently has greatly increased its lending
activities in line with expanding opportunities for productive
use of capital in the developing countries.
New loans exceeding
$1.8 billion were extended over an l8-month period between July 1,
1968, and December 31, 1969.
The Bank's need for funds to sus-
tain a continued high level of activity is substantial.
The
$222 ~illion of additional paid-in capital and the $2 billion of
additional callable capital which will be provided in total by
the 75 countries for which special increases are proposed will
further strengthen the Bank's resources.
Bank borrowings in world capital markets.
It will facilitate
Such markets have been
and will continue to be the Bank's main source of new funds.
_ 18 _
In summary, Mr. Chairman, I believe the proposed increale
in authorized capital and the special increase in the U.S. subscription serve the U.S. national interest.
an outstanding institution.
The World Bank is
It has a central role in the Admin-
istration's wish to place greater emphasis on the multilateral
financial institutions in our development assistance efforts.
I, therefore, urge the Congress to take prompt, affirmative actio
on the legislation requested.
Asian Development Bank Special Funds
Finally, I turn to the proposal for a U.S. contribution to
the Consolidated Special Funds of the Asian Development Bank.
The President's message to the Congress requesting this action
highlighted the objectives of this proposal.
It has the full
support of the National Advisory Council, and the Council's
Special Report, which is before you, describes it in detail.
Both the Asian Development Bank and its Special Funds are
well known to this Committee.
In 1966, with strong bipartisan
support, the Congress authorized the United States to join the
Bank and to subscribe to its ordinary capital.
That action by
the Congress was decisive in assuring that the Bank would receive
major support from outside the Asian region.
The Bank is now firmly established.
It has demonstrated
its ability to marshal resources from Europe, Asia, and Nortb
_ 19 _
America and these resources are being effectively committed to
help meet Asia's development needs.
Thus far, most of the Bank's commitments have been from its
Ordinary Capital resources and on relatively hard repayment
terms.
Such lending, while critically important, cannot meet
the full range of Asia's development financing needs.
The Bank must also be able to provide financing on concessional terms -- that is, at very low interest rates and with
long maturities. Without such concessional facilities, the Bank
could not adequately assist those developing country members
who have very limited external debt servicing capability but
still have a need to finance long-term projects which are essential to their economic growth and at the same time meet the
Bank's normal rigorous criteria for project selection.
Accordingly, the Bank's Articles of Agreement provide for
Special Funds for lending on concessional terms, separate from
and supplementary to the Bank's ordinary capital.
The President's proposal would respond to the Asian desire
.-- which we fully share -- to strengthen the Bank as a multil~teral
regional institution, capable of dealing with a broad
range of current and future development problems in Asia.
It
would authorize a u.S. contribution of $100 million to the Bank's
Special Funds over the three-year period beginning with fiscal
- 20 year 1970, $35 million in 1971, and $40 million in 1972.
The proposal is designed to encourage other advanced
I
nations to share fairly the burden of contributions to the Bank
Special Funds.
The U.S. contribution would be a minority shar
of total contributions by all donors.
the largest single contribution.
It would not constitute
In effect, the U.S. con-
tribution would be either exceeded or matched dollar-fordollar by Japan, the Bank's other largest subscriber, which hal
already made a substantial pledge to the special resources.
This is a logical and reasonable sharing arrangement which
reflects the important but minority role of the United States
in the Bank.
In this and other provisions of the proposal, the
would be assurance of the advantages of true multilateral suppa:
It should be noted that the proposal does not have any early
budgetary impact in the U.S. as we make payment in the form of
letters of credit.
This procedure permits the Bank to make
loan commitments against these additional resources, but the
natural time lag in project construction delays the budgetary
expenditure.
At the same time, the proposal reflects our asses
ment of the Bank's present needs and its ability effectively to
utilize Special Fund resources.
It represents a U.S. con-
tribution appropriate to the probable size and timing of contributions by other donors, and phased over tLme.
- 21 The legislation that President Nixon has submitted outlines
the terms and conditions of our participation.
These are
analyzed and described further in the Special Report of the
National Advisory Council before you.
In formulating this
proposal, we have been able to take account of the Bank's
three years of experience.
We have also benefitted from the
views of the members of this Committee and from the Senate
Foreign Relations Committee expressed during their consideration
of an earlier proposal.
I have just returned from the Annual Meeting of Governors
of the Asian Development Bank held in Seoul, Korea.
Together
with some members of this Committee, I have again had the
opportunity to hear first hand of the hopes and plans from the
Bank's officers and my fellow Governors for the Special Funds.
At that meeting Australia and the united Kingdom made specific
offers to contribute to the Special Funds, joining Japan, Canada,
Denmark and the Netherlands who are already contributing.
In
addition there were indications of possible contributions from
other donors.
My belief has been reconfirmed that the United
States should now act promptly to provide a contribution and
help to assure that the Special Fund facility can be placed on
a firm and multilateral long-term basis.
- 22 H.R. 16891, unlike H.R. 16764, includes three unrelated
provisions concerning the Exchange Stabilization Fund, monetary
gold purchases, and the econollic and social policy of international financial institutions.
As best I understand the purposes of these provisions,
they are already being effectively achieved.
Therefore, I do
not believe a positive purpose would be served by their enactment.
At the same time,
these proposals would present dif-
ficult and serious practical problems that would jeopardize the
effectiveness of our efforts.
I therefore strongly urge that
these provisions not be enacted.
Taken as a whole, these provisions would significantly
change the long-standing approach by the Congress in the area of
international financial affairs by reducing the flexibility and
confidentiality with which the Secretary of the Treasury must
act in pursuit of broad policy objectives.
In the case of the Exchange Stabilization Fund, the Congress
has consistently recognized the confidential, sensitive and
frequently urgent nature of the transactions of the Fund, by
providing the Secretary with full authority, subject to a full
annual audit report which the Congress has received since 1939.
Concerning gold purchases, the provision would impose unworkable
and unnecessarily rigid limitations on official dealings in
- 23 monetary gold under specified conditions.
The expression of the
third provision in legislation could appear to other nations as
an attempt by the U.S. by unilateral action to determine policy
of the multilateral lending institutions, rather than by trying
to negotiate the acceptance of the principle by all members of
the institutions concerned.
I therefore recommend that the legislation be approved
without these three provisions.
RESERVES, IMPORTS AND FUND QUOTAS
1948 to 1969
SBil.
S8il.
PROPOSED
1970 QUOTA
40
INCR,E
300
1966
250
INCREASE
25
LIJ
-~-
'r
r-
""
"
/'
~'
20
FUND QUOTAS
(right scale)
_,~.,J
"
,,.. .J
~,
100
...-._......
~
80
,,I
60 ....
"
-
"
World Imports
...
8
c.~ I-""""""
...
6
~
....a.~
II'""
~~
~ Total Reserves
..
--/
40
\.1
10
~,
~
20
.'
'l
£1('
1959
QUOTA
INCREASE
200
T
30
-
/'
/./
.
~
4
••
~........ ~ Reserves, excluding United States
2
T
. . = Estimated
I
Total reserves, Reserves excluding the United States and World Imports are based on the scale on
the left margtn and Fund quotas are based on the scale on the fight margtn.
10 I
1948
I
'52
I
I
I
'54
I
I
I
I
'56 '58
I
j
j
j
'60 '62
YEAR
I
I
'64
I
I
I
I
'66 '68
j
'70
1
'72
1
IN THE INTERNATIONAL MONETARY FUND
u.s.
------~~~=-~~~~----------------------------------~u.s.
$Billions
$Billions
o
+4
Dollar Holdings of the Fund
(end of period) ' -
FUND HOLDINGS
Above 75% equals
U.S. debtor position
Below 75% equals
U.S. creditor position
+4
+3
+3
DOLLARS
ACQUIRED BY
THE FUND
+2
Repurchases
with dollars by
other countries
+1
I
o
I
VW4 t:::::::::::::::::1
roo:::,:::::::::,
r;;.;;a
u.s. Ouota
Paymenf ............
Dr~wings
+1
by U.S.
/"
1.1..53.£3,[,1 [::::::::::::::] 1:::::::::::::::::::1 I:::::::::::::::::] [::::::::::::::]
RiiY [::::;:::::;]
•
L:l2I
i::t::::::~i{::i ': : ;!~!~:~!;,;,~I
I0
DOLLARS
DRAWN FROM
TH-E FUND
-1
1
-21 1947 £\7)54
+2
'~5 '~6
'5'7
'5'8 '5'9 '6'0
'61
1
'62 '6'3 '6 4 '6'5 '66
'~7 '~8 '~9
-1
1-2
Note: Fund holdings of dollars equal to 7596 of the U.S. quota represents a balanced position· the U.S. neither is a creditor nor a debtor vis a vis the Fund.
Source: International Monetary Fund. "International Financial Statistic$"
Deportment 01 the TRfASURY
TElEPHONE W04-2041
FOR RELEASE UPON DELIVERY
STATEMENT BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE SUBCOMMITTEE ON RAILROAD RETIREMENT OF
THE SENATE COMMITTEE ON LABOR AND PUBLIC WELFARE
ON H.R. 15733 ON THURSDAY, APRIL 16, 1970
Dear Mr. Chairman:
I am pleased to have this opportunity to testify on
H.R. 15733, a bill "To amend the Railroad Retirement Act
of 1937 to provide a 15 percent increase in annuities, to
change the method of computing interest on investments of
the railroad retirement accounts, and for other purposes."
With your permission I would like to confine my remarks
to the provisions of the bill which are of primary interest
to the Treasury Department -- those that would change the
method of computing interest on investments of the Railroad
Retirement Account.
As you know, under present law the Railroad Retirement
Account may be invested in special Treasury issues or in
marketable obligations of the United States or guaranteed
by the United States.
At the end of March the total invest-
ment portfolio held by the Railroad Retirement Account
amounted to $4,097 million, of which $3,124 million was in
special issues, $793 million was in marketable Treasury
obligations and $180 million was in guaranteed obligations.
- 2 -
The special Treasury issues, which make up threefourths of the total holdings of the Railroad Retirement
Account, bear interest at rates currently ranging from
4% to 7-7/8%.
These rates on the various series were
established at the time of their issue on the basis of
average market yields at the end of the calendar month
preceding the date of issue on outstanding marketable
Treasury securities that were not due or callable for
3 years, rounded to the nearest 1/8 of 1%.
Sections 5, 6 and 7 of H.R. 15733 would require
that:
(1)
All special issues now held by the Railroad
Retirement Account be retired and be replaced by new
special issues with maturities of not less than 3
years and bearing the highest market yield on any
outstanding obligations of the united States not due
or callable for a period of 3 years.
(2)
In the event of any increase in market
yields, all special issues held by the Account be reinvested each month at the new higher yields.
(3)
The Secretary of the Treasury sell any
marketable obligations held by the Account if it
should be in the interest of the Account to do so.
- 3 -
The purpose of these three provisions is apparently
to fund the temporary increase in benefits which would
be provided by sections 1 through 4 of the bill.
In my
judgment, however, the means proposed are neither
financially responsible nor in
~ccordance
with the
principle that the Railroad Retirement System should
be self-financing.
Prior to 1960, the interest rates on special obligations issued to trust funds were determined on a variety
of bases.
Issues to the Railroad Retirement Account, for
example, were fixed at 3 percent by statute.
For the
Civil Service Retirement Fund and the Federal Old-Age
and Survivors Insurance Trust Fund a statutory formula
using average coupon rates was employed.
In 1959 and 1960, with the cooperation of the Advisory
Council on Social Security Financing, the Board of Trustees
of the Federal Old-Age and Survivors Insurance Trust Fund,
and the Railroad Retirement Board, the Treasury Department
sought to establish a uniform investment policy for the
trust funds.
These efforts led to the adoption by the
Congress of the present average market yield interest rate
formula for determining the interest rate on special issues
to the major trust funds.
- 4 Rates on marketable issues are now computed at the
close of each month and are applicable to special issues
during the succeeding month.
Thus, the interest rate
on new special issues is responsive to current changes
in market yields on Government securities, while the
average yield on the whole portfolio reflects the
average rate at which the funds could have invested in
the market over the investment period.
The transition to the market yield formula for all
of the trust funds, except the Railroad Retirement
Account, was initiated by rearranging the maturities of
~eir
portfolios so as to provide special obligations
of approximately equal amounts with maturities of from
one to fifteen years at the interest rates then prevailing.
Then at the end of each fiscal year, the maturing special
issues are refunded with new special issues at the new
current interest rate in such a manner as to maintain as
nearly as possible approximate equal annual maturities
from one to fifteen years.
This maturity pattern has had to be altered to give
the funds the benefit of an interest rate in excess of
the 4-1/4% interest rate, which is the statutory maximum
on Treasury bonds.
This has been accomplished by issuing
- 5 -
special obligations at market yield rates with maturities
of up to seven years.
As a result, the current market
yield rate applicable to the Railroad Retirement Account
has been greater than the 4-1/4% ceiling every June since
1966.
In addition, current receipts are invested in special
obligations maturing on June 30 of each year and current
benefit payments are covered by redeeming special obligations of earliest maturity, which now bear the lowest rate
of interest.
The proposed legislation would completely disregard
the long-term nature of the funds by removing any maturity
pattern, except the 3-year minimum term incorporated to
insulate the account against a decline in interest rates.
I am advised, although I am not familiar with the
details, that the provisions requiring conversion of all
outstanding special issues to new issues at higher rates
has a precedent in the Act of October 5, 1963.
That Act
required the Treasury to rollover all special issues
held by the Railroad Retirement Account at that time at
the new market yield rate of 4%, rather than the 3% rate
then existing on outstanding holdings.
This gave the
- 6 Railroad Retirement Account the immediate benefit of the
new higher market yield rate for its entire portfolio of
special issues amounting to $2,776,369,000.
This was
a benefit not enjoyed by any other fund, since the
transition to market yield rates for other trust funds
is being accomplished on a gradual basis over a period
of fifteen years.
Now, this proposal for conversion of
all special issues to the highest rate on any Treasury
obligation every month will give the Railroad Retirement
Account another windfall at the expense of the general
taxpayer.
However, it is the continuing provision which would
permanently guarantee the entire Account the highest rate
of return on any outstanding marketable obligation with
more than 3 years to maturity which is most objectionable.
The effect of the provision would be to give the Account
the benefit on the entire portfolio of any rise in interest
rates without regard to previous commitments at then prevailing lower rates.
This amounts to a "heads I win, tails
you lose" proposition, free from normal investment risk.
The real question, therefore, is whether this retirement system is to be supported by its beneficiaries or by
the general taxpayer and, if the latter, whether the burden
- 7 is to be placed on the general taxpayer by what can only
be described as a form of backdoor financing.
Plainly,
the decision of Congress in this request must be considered
in the light of its implications for the financing of other
trust funds, as well as the Railroad Retirement Account.
In conclusion, therefore, we believe the approach
for trust fund investments embodied in H.R. 15733 conflicts
with'sound financial principles.
that these three provisions
b~
We recommend strongly
stricken from the bill and
ttlat the benefit increase be financed as proposed in the
President's budget by a payroll tax increase.
To the extent that the Congress is not willing to
provide such increases in payroll taxes, the Administration
would still be strongly opposed to any financing provisions
along the proposed line.
We would urge instead that the
Congress expedite an independent study of the system,
looking to resolve the financing question in a more
acceptable manner upon the completion of that study.
Department of the TREASURY
:HtNGTON. D.C. 20220
TElEPHONE W04-2041
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
for
ENFORCEMENT AND OPERATIONS
before the
SEVENTY-SIXTH ANNIVERSARY BANQUET
of
THE BRONX BOARD OF TRADE AND CHAMBER OF COMMERCE
HOTEL CONCOURSE PLAZA, BRONX, NEW YORK
April 16, 1970
7 p.m.
PRESIDENT NIXON'S ANTI-HEROIN ACTION PROGRAM
I would like to discuss with you tonight
President Nixon's action program to curtail
the flow of heroin into the United States, to
curtail its use in the United States, and
Treasury's role in this program.
The anti-heroin program is a major part
of the overall anti-drug abuse program of this
K-396
Administration.
The problem of drug abuse
and particularly heroin abuse was not created
overnight, and it will not be cured overnight.
The drug problem of the 1950's became the
drug crisis of the 1960's.
It will take hard
work and cooperative effort in the 1970's by
many groups on the Federal, State, and local
levels to win this battle.
I bring you a
message of hope tonight but also a message of
hard work ahead for all of us.
President Nixon recognized the problem
during his campaign for the Presidency in a
statement that he made at Anaheim, California,
on September 16, 1968.
In that statement, the
President said:
"Four weeks ago, after the
convention at Miami Beach, I came out
to Mission Bay to rest and to work.
When I was there, a letter was
delivered to me for a 19-year-01d
girl.
She described to me her
involvement with narcotics from the
time she was sixteen years old; she
told me how many of her teen-age
friends had also become hooked on
drugs; she gave the details of the
horrible life they led, and the gruesome
things they did to support their habit.
She asked me what I could do to help
her generation, and because she was still
on drugs she never signed her name.
4
"This was not some statistic
that sent me this letter.
a human being,
someone~s
It was
daughter
and in a letter like this the evil
of narcotics comes through a good
deal clearer than it does from
reading statistics or a local
newspaper.
"I don't have to tell you this
story, many of you are aware of the
wholesale destruction of lives
w;i..thin your own area."
***
5
"Let us begin to face facts
and to act upon that knowledge.
Narcotics are the modern curse of
American youth.
Just like the
plagues and epidemics of former
years, these drugs are decimating
a generation of Americans."
***
How many of you know people in your
neighborhoods, perhaps on your street or perhaps
in your family, who have become victims of drugs?
6
That young girl asked what the President
could do to help her generation.
The President has acted on several
fronts:
First, he has elevated the drug problem
to the foreign policy level and, indeed, to the level of
personal Presidential initiatives in foreign
policy.
Second, he has stressed the role of
education, research and rehabilitation and
provided for increased funds and emphasis in
these essential areas.
Third, he has recommended differentiation
in the criminal penalty structure between
7
heroin and marijuana.
Fourth, he has provided a substantial increase
in budgetary support for law enforcement in this
area.
Fifth, he has stressed the need for cooperation
with the States and the involvement of the private
sector.
In short, the President has highlighted the
multi-dimensional aspects of the problem and has
moved on many fronts, both governmental and
non-governmental, to meet a problem of crisis
dimensions.
For the first time in history, we see not
only the total involvement of the institution of
the Presidency in the battle against drug
8
abuse, but also the personal involvement of the
President himself.
Foreign Policy
President Nixon has made the drug problem
a foreign policy issue and has taken personal
initiatives in eliciting the cooperation of the
governments of Turkey, Mexico, and France.
Once President Nixon had raised drug abuse
to the foreign policy level, the Department of
State, as the primary representative for
communicating to foreign governments the vital
interests of the United States, became
responsible for doing everything necessary to
9
advance our drug abua. policy through diplomacy.
Secretary of State William P. Rogers has
given high priority and perlonal leadership to
the State Department's efforts in this area.
Last year, he appointed a senior Foreign Service
Officer as his Special Assistant for Narcotic
Matters in order to better coordinate and push
forward the various elements of the campaign
against narcotics which have foreign relations
implications.
This new role of the State Department in the
Administration's war on narcotics has had a
unique and immediate impact.
In the past, the
primary contact with foreign governments in this
10
area had been almost exclusively limited to the
enforcement level.
Through the use of
diplomacy, however, we have, in my judgment,
achieved a substantial advance in our objectives.
As Under Secretary of State Elliot Richardson
observed recently:
"We have made processing and
producing nations aware of the
te~ror
drugs have brought to our society.
We
have stressed that what has happened here
can happen to them.
"Diplomacy is .... a means of achieving
national objectives.
In the case of
narcotics I believe we have successfully
employed it to transmit our sense of
urgency to .... /Turkey, Mexico, and France/
11
so that, even though their own immediate
interest in tighter measures of control
is a good deal less acute than our own,
they are moving ahead with encouraging
speed."
Our first, and to date most fruitful
diplomatic advance,was made with the Government
of Mexico.
It is estimated that 15% of the
heroin and 85% of the high-potency marijuana
consumed in the United States is illegally
grown and refined in Mexico and smuggled into
the United States.
Operation Cooperation, the successor to
Operation Intercept, has led to a meaningful
12
working relationship between the two governments
in the area of opium poppy and marijuana
eradication and smuggling suppression.
Our
very able Ambassador to Mexico, Robert McBride,
has the drug problem on the top of his priority
list.
I predict that the two governments will
be working together in ever-increasing harmony
and effectiveness.
It is estimated that 80 percent of the
heroin entering the United States annually
originates in Turkey.
That is why, as
Mr. Richardson said, "Turkey has figured
so prominently in our diplomatic activities
on narootics."
Our efforts have been aimed
at helping the Government of Turkey bring
the illicit opium traffic completely under
control.
We are in the advanced stages of
negotiations with the appropriate levels of
the Turkish Government.
Our Ambassador
to Turkey, William Handley, also has the
heroin problem at the top of his priority
list.
Our diplomatic efforts with the
Government of France have also been helpful.
France has become concerned with its own
increasingly serious heroin problem and has
launched a major drive against the operators
of clandestine heroin production laboratories
operated on her soil, often by foreign
traffickers.
Research
The national dialogue on drug abuse has
demonstrated that our knowledge of many of the
most abused drugs is far from adequate.
Little
is known, for example, of the long-range effects
of the continued use of marijuana and the vastly
more powerful LSD.
We do know that there are
no known beneficial effects, and that
both can induce psychological
dependency and 10s8 of goal orientation.
Far
more must be known, however, about LSD and
marijuana if we are to prevent their use
through persuasion.
In this connection, the outstanding
contribution of Dr. Stanley Yolles, Director of
the National Institute of Mental Health of HEW,
to the Administration's program, should be noted.
It is under Dr. Yolles' auspices that the bulk
of the research sought by the President will be
accomplished.
Differentiation in Penalty Structure
Between Heroin and Marijuana
But Dr. Yolles has already made his mark.
It was his cogent and articulate testimony which
laid the groundwork for the Administration's
decision to reverse the traditional approach to
marijuana by differentiating in the penalty
structure between heroin, a true narcotic, and
marijuana, an hallucinogen. Both are treated
the same under present federal law.
The
President's decision to seek revised penalties
for marijuana violations has gone far toward
achieving another Administration goal: credibility
with the young.
Education
The drug abuse problem is one of both supply
and demand, and President Nixon's response has
been guided accordingly.
While we are battling
to eliminate the supply at the source and to stop
the smuggling of illicit drugs into the United States,
the goal of eliminating the demand for drugs among
our young is, in my judgment, also central to success.
The key to eliminating the demand for
drugs lies in education.
President Nixon is
convinced that much of our problem is
attributable to the mass of misinformation
and street corner mythology which has filled
the vacuum left by our failure in the past to
18
deal wit!.l che young on a mature, reasoned and
factual basis.
In the past, government took the
easy but ineffective route of "do as I say because
I say so" rather than the more difficult route of
clearly presenting the facts necessary for informed
decision.
Again stressing the theme of prevention through
persuasion, on March 11 President Nixon released a
million dollars to the National Institute of Mental
Health for marijuana research, and another million
dollars to NIMH for an expanded program of public
education and information on drug abuse, including
creation of a national clearing house for drug abuse
information.
19
Increased Enforcement Budgets
Drug law enforcement is a difficult and
dang~rous
business.
It demands the highest
standards of professional competence of
enforcement agents.
President Nixon has
increased substantially the budgets of the
two federal agencies primarily concerned
with drug law enforcement--the Bureau of
Narcotics and Dangerous Drugs and the
Bureau of Customs.
The burdens carried by these agencies
are illustrated by the record of the Treasury
Agents of the Customs Service, who
20
in 1969 worked over 111,000 hours on their own time
without pay to meet the challenge of drug abuse.
In enforcing the law, only half the job is done
when the suspected violator is arrested.
Society
is not protected until a jury is persuaded of guilt
beyond a reasonable doubt.
Skillful prosecution is
necessary.
The Department of Justice is meeting this
challenge with a new aggressiveness inspired by
this Administration, backed up by substantial funding
for the narcotics prosecution section of the Department.
Cooperation with the States and the Private Sector
No one is more aware than President Nixon of the
vital and necessary role of the States in the battle
21
against drug abuse.
In December, the President
was host to the State Governors at a White
House conference designed to produce the closest
cooperation between the Federal and State
Governments.
The State of New York, of course, under
Governor Rockefeller, has led the way for all the
States in combatting drug abuse.
It was under Governor Rockefeller's
leadership and at his personal initiative that
New York's pioneering mandatory treatment program
for addicts was born.
For the first time, as
the Governor said, we have a "program for getting
addicts off the street where they endanger others
22
and under confinement and treatment where they
can help themselves."
In January, Governor Rockefeller again
broke new ground when he proposed the Nation's
first State methadone maintenance program which
it is hoped will in time return up to 80 percent
of the hard-core heroin addicts to an orderly
and productive life.
If the State of New York provides the finest
example of State participation in the anti-drug
campaign, the Advertising Council shows the way
for the private sector.
In a campaign under the auspices of the
National Institute of Mental Health, the
23
Advertising Council is using youth-oriented
media to educate rather than to frighten.
The
Council reports "fantastic interest" in the
program, directed at the intellect rather
than the emotions.
It is a perfect example
of President Nixon's theme of prevention through
persuasion.
24
Treasury's Role in the President's
Anti-Heroin Action Program
Treasury is playing a major role, primarily
through its Bureau of Customs, in the
enforcement phase of the President's anti-heroin
action program.
In his September 16, 1968, Anaheim,
California, speech, the President stated:
"Let us recognize that the frontiers
of the United States are the
prima~y
responsibility of the United States
Bureau of Customs.
I recommend that
we triple the number of customs agents
in this country from 331 to 1000."
The President has followed through on that
25
pledge.
In his July 14, 1969, Message to the
Congress on the Control of Narcotics and
Dangerous Drugs, he 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."
This directive was backed up with a
26
substantial anti-narcotic supplemental budget
request.
The Congress responded magnificently
and passed in late December of 1969 an
appropriation for 8.75 million dollars for 915
additional men and for equipment.
The leadership role of Congressman Tom
Steed of Oklahoma, Chairman of the House
Appropriations Subcommittee which handled the
President's request, and the then ranking
minority member, Congressman Silvio Conte of
Massachusetts, in support of the supplemental
appropriation request,is an outstanding example
of bipartisan action in our Nation's war
against drug abuse.
27
The House Appropriations Committee Report,
in relevant part, stated:
"The Department testified that every
available index indicates that problems
associated with the use of marijuana
and narcotics in the United States
have reached major proportions.
Drug
usage is now widespread both geographically
and among strata of society in which
previously such usage was rare.
Usage
among college and even high school students
is reported as commonplace.
"In order to deal with this problem, the
Department proposes to substantially increase
the law enforcement effort against smuggling.
The whole problem is put into sharp focus by
the following testimony from the Treasury
Department:
28
"Almost all of the marihuana,
all of the heroin, all of the
hashish, all of the cocaine,
and all of the smoking opium
used in the United States is
smuggled into this country.'
"Operation Intercept," a recent blitz law
enforcement effort along the Mexican border,
demonstrated rather conclusively that
smuggling activities can be substantially
reduced by increased enforcement efforts.
"The Committee strongly supports the
Department's objective of reducing to a
minimum the smuggling of this contraband
into the United States.
The Committee
specifically allows the 915 additional
positions requested and urges the
Department to move ahead on this project
as rapidly as practicable."
29
Customs has moved expeditiously to implement
the supplemental appropriation, and I am pleased
to report that the Commissioner of Customs,
Myles J. Ambrose, has informed me that commitments
have been made for the entire number of 915
additional personnel authorized by the supplemental
appropriation and they will all be on board by
June 30, 1970.
A substantial amount of this
new manpower will be assigned to the New York
metropolitan area, as well as to the Mexican
and Canadian borders and other trouble spots,
to interdict the flow into the United States
of narcotics, marijuana, and dangerous drugs.
30
Narcotics Intelligence Groups
Customs has established international
narcotics intelligence groups with offices
in New York, Houston, and Los Angeles.
Additional intelligence offices will be
opened in Miami and Chicago in the near
future.
These groups will provide better
evaluation of the information relating to
smuggling into the United States.
They
will permit more extensive dissemination of
31
intelligence throughout the national and
international enforcement community.
Automatic Data Processing
In support of the intensified enforcement
effort, the Bureau of Customs is currently
installing a central ADP intelligence network
which will provide a comprehensive bank of
suspect information on a twenty-four hour a
day basis, to agents and inspectors.
On April
1, 1970, Customs established a computer center
to process enforcement intelligence information,
and a trained operation and programming staff
is supporting the data processing center located in
32
San Diego, California.
Expansion of the
system to cover all inspection stations
along the Mexican border will be completed
by November, 1970.
The initial data base has been compiled
from existing suspect records.
With the
coordinated efforts of the various Customs offices,
rapid growth of the data base is expected.
concerning suspect aircraft and vessels are
being added to the system.
A task force has
Data
33
begun to define nationwide law enforcement
intelligence needs of the Bureau of Customs.
This study will be completed by November, 1970.
Facilities
New Customs facilities along the MexicanUnited States border are being acquired and
present facilities are being enlarged to
accommodate the additional Customs enforcement
personnel.
At some ports, these improvements
involve creation of additional vehicle and
pedestrian lanes and rearranging traffic
patterns to provide more expeditious handling of
vehicles and persons crossing the border.
At
others, trailers and prefabricated equipment are
34
being acquired for use until such time as
permanent facilities can be installed.
Laboratories
New laboratories have been established
in San Antonio, Texas, and San Diego, California,
with the analysis of narcotics as their primary
purpose.
These laboratories will provide more
rapid identification of narcotics and dangerous
substances and thus accelerate the judicial
processing of violators.
Training
Customs has embarked on a major training
program stressing anti-narcotics smuggling.
training has been particularly important
for
This
35
inspectors and commodity specialists.
Training will continue to be a major activity
as we process the 915 new employees authorized
by the supplemental appropriation.
Additional Equipment
The supplemental appropriation provides for
five additional aircraft, four additional boats,
and 148 additional interceptor-type automobiles.
Radio Communications
The Bureau of Customs is modernizing and
supplementing present radio communications in order
to obtain complete coverage along the Mexican border.
This improved communications system will contribute
greatly to the effectiveness of both United States
and Mexican officials in Operation Cooperation.
36
Intensified Inspection Program
A program of intensified examination of passengers
and their baggage arriving at all major airports, and
of foreign mail parcels and commercial cargo has
been institutedo
Customs' Office of Operations has created a
new
Enforc~ment
Inspection Section which will be
responsible for developing plans and procedures
for carrying out the enforcement responsibilities of
the augmented inspection force.
A team concept was initially tested in
Philadelphia and Buffalo for agents, inspectors, and
commodity specialists jointly to select and examine
commercial cargo shipments for both contraband and
37
revenue purposes.
Based on their activity and
success, guidelines have been established.
This team concept will be in operation
throughout the United States by the end of May,
1970.
New agents entering on duty throughout
1970-71 will permit increased coverage and
blitz operations at airports of entry.
It should be noted that the vast percentage
of Customs seizures are made by the impectors
without advance information, and that Customs
seizes more drugs than all other Federal agencies
put together.
Customs is presently reviewing all its
procedures and methods with a view to increasing
38
its enforcement effectiveness, particularly
in procedures called preclearance and the
Accelerated Inspection System.
Treasury and
Customs will be consulting with industry
and government representatives to review each
preclearance operation to determine if
enforcement can be raised to a satisfactory
level.
The Accelerated Inspection System, which
has proved so successful in facilitating the flow
of passengers, has been under evaluation for its
effectiveness in suppressing smuggling.
Preliminary study indicates that enforcement must
39
be improved while still preserving the benefits
of facilitation.
Cargo Theft Study
Treasury has now under serious consideration
by a special task force proposed administrative actions
and legislative proposals to prevent theft of
international cargo at all ports of entry--airports
and seaports--throughout the nation.
This includes,
of course, New York's Kennedy International Airport.
Because of the jurisdiction of the Bureau of
Customs over theft from Customs' custody and
because of its existing presence and responsibilities
at all ports of entry, Customs is uniquely
qualified to take the lead in solving this problem.
40
A by-product of this effort will be increased
risks for the drug smuggler.
Public Support and Cooperation
In this situation, we cannot hope to do
~
business as usual.
Our current anti-smuggling
enforcement drive will mean that more travelers
are going to be inspected more closely, more
baggage examined and new inspectional techniques
employed for detecting criminal smugglers.
It
will mean some additional inconvenience for
the international traveler.
It may require a
few more minutes for customs clearance.
Ne
suggest that this is a small price to pay to
help keep drugs out of the hands of your children,
my children, and the boy or girl next door.
41
I am convinced that the American public fully
supports this program.
Enforcement officials
cannot do the job alone.
We need the cooperation
of the public on many fronts.
Regarding
inconveniences, we need the public's understanding,
patience,and cooperation.
Government cannot do the job alone.
We
need the support of the private sector for
maximum effectiveness.
We have spoken with a
number of representatives from industry and labor
and will be talking to many more.
Treasury is
most pleased that all the groups we have met with
have volunteered to cooperate in the drive to
suppress drug smuggling.
42
To sum up, President Nixon has highlighted
the multi-dimensional aspects of the drug abuse
crisis and has taken several major initiatives:
First:
He has elevated the drug problem
to the foreign policy level and made it a matter
of personal Presidential concern.
Second:
He has stressed the role of
education, research and rehabilitation, and
provided increased funds in these essential areas.
Third:
He has recommended differentiation
in the criminal penalty structure between
heroin and marijuana.
Fourth:
He has provided a substantial
increase in budgetary support for law enforcement
41
in this area.
Fifth:
He has stressed the need for
cooperation with the States and the involvement
of the private sector.
Let there be no false optimism.
The road
ahead is long and hard--and requires the active
participation of all of us.
Department of the TRfASU RY
HINGTON. D.C. 20220
TElEPHONE W04-2041
FOR RELEASE AT 10:00 A.M.
THURSDAY, APRIL 16, 1970
STATEMENT BY SECRETARY KENNEDY ON
REVENUE SHARING
Treasury Secretary David M.Kennedy made the following
statement today:
I welcome the announcement of unified support for
revenue sharing legislation made today by officials of the
National League of Cities, u.S. Conference of Mayors,
National Association of Counties, National Governors Conference, and the National Legislative Conference.
I am
particularly pleased that such a broadly based, bi-partisan
group of state and local government officials is in full
agreement on the need for prompt legislative enactment of
revenue sharing.
That is precisely the view of this Admin-
istration.
Last August, the President submitted to the Congress
a proposal for sharing a portion of Federal revenues with
state and local governments.
This innovative program is
designed to extend Federal assistance to these hard-pressed
governments in a broader, fairer, and less conditional
manner.
Revenue sharing is an essential part of the Presi-
dent's domestic program, and a legislative matter of high
K-:}91
(OVER)
- 2 -
priorityo
The fact that revenue sharing accounts for nearly
10 percent of the total increase in our 1971 fiscal year
budget outlays underscores its importance in our
legislative program.
The arguments in favor of revenue sharing are as strong
8S
ever:
(1) State and local governments face a continuing
financial squeeze -- with urgent demands for
basic public services outstripping their revenue
capacity.
(2) Grants-in-aid approaching $28 billion a year
are spread over 500 separate and uncoordinated
categories.
Unrestricted financial assistance,
through revenue sharing, is a needed supplement.
(3) Citizen discontent over the inability of the
Federal Government to deliver services effectively
provides strong incentive to decentralize some
governmental decision-making.
These arguments, together with this latest strong
endorsement by state and local government officials, deserve
careful
legislative consideration.
I am hopeful we can see
revenue sharing in progress during the coming fiscal year, as
scheduled in the President's Budget Message.
Attachment,-
/
BOTE TO EDITORS
~~S
conference on Revenue Sharing. Scheduled 10 a.m. Thursday, April 16
the Dolley Madison Room of the Madison Hotel, Washington, D.C. Participants include Colo. Gov. John Love, Phila. Mayor James Tate, Cleve. Mayor
Carl Stokes, Utah St. Sen. Hughes Brockbank, Ill. St. Rep. John Conolly,
Shelby Ala. Co. Judge Conrad Fowler, Kent Co. Mich. Sup. John Brewer, and
Newcastle Del. CAO William Conner.
~n
I
FOR ALL MEDIA
RELEASE:
AFTER 10 a.m. on THURSDAY, APRIL 16, 1970
From:
~e
~e
National League of Cities
United States Conference of Mayors
I he National Association of Counties
he National Governors Conference
The National Legislative Conference
CONTACT:
Mr. Peter Harkins, NLC/USCM
1612 K Street, N.W.
Washington, D.C. 20006
Telephone:
(202) 293-7346
•
Washington -- The five national organizations representing the
~~es, counties and cities have requested the distribution of $500 million
lof federal income taxes to their governments during the first six-months of
Inext year.
The unified position was expressed here today during a news con:erence held by spokesmen representing the National League of Cities, U. S.
~onference of Mayors, National Association of Counties, National Governors
~~erence,
and the National Legislative Conference.
Representing the cities during opening statements at the briefing
)day, Philadelphia Mayor James H. J. Tate expressed "alarm" that "after six
(more)
t-2 rev. sharing
years of public attention on revenue sharing, and much discussion in ConqrE
no action (has been taken) to implement this vitally needed proqram."
RevE
sharing legislation, proposed by the President in his budget message, is Ct
rently pending before Congress.
Mayor Tate, who is also vice-president of the
u.s.
Conference of
Mayors, said "if Congress fails to live up to the President's commitment of
Federal revenue sharing, that failure will force the issue into every congI
sional campaign in the country this fall.
We will be sure," Mayor Tate sai
"that when Congress comes back next year, each member will fully understand'
the urgency of the state-local government fiscal crisis."
Mayor Tate said President Nixon has told local authorities the
revenue sharing proposal is the Administration's "top domestic program" in
the current budget package, and House Speaker John McCormack has said "reve
sharing with the states and general local governments is inevitable."
Colorado Governor John Love, who acted as chairman of the joint n
conference this morning, said the organizations "want revenue sharing legis
tion reported out of Ways and Means in time for Congressional action prior
to September adjournment.
These unrestricted funds," Governor Love said,
"must be available to our governments as of January of next year."
Cleveland Mayor Carl Stokes, Chairman of the National League of
Cities' Committee on Revenue and Finance, in a separate statement issued at
the news conference today, said "the inflexibility of the local tax system
leading the cities to financial starvation.
ing bankruptcy.
Some," he said, "are even appri
We have no alternative but to tap into the Federal tax
sy~
but I caution not to tie our proposals to a federal tax increase," Mayor st
said.
"We're talking about a previous Presidential commitment of one-sixtt.
of one-percent of the present income tax base being re-distributed to statE
(more)
t-3 rev. shar ing
~~ties
.~
and cities where severe, even critical fiscal problems just cannot
solved without such an action.
It's a matter of establishing priorities,"
Mayor stokes said, "and we're persuaded that the problems of the states and
general local government must be number one."
Judge Conrad Fowler (Shelby County, Alabama), President of NACO,
said "there are almost enough votes to pass revenue sharing legislation in
leach house of congress, just in bill sponsors alone.
We are encouraged by
all this support, but we now are calling on our congressional supporters to
become aggressive advocates.
If enough members of Congress demand action,
you can be sure that bills will be reported to the floors of both houses
of congress. "
The $500 million would be distributed to the states, counties and
Lties under a pre-determined formula of population and tax input.
The pro-
~sed
revenue sharing legislation provides for pass-through guarantees as the
~unds
are distributed to and through each level of government.
Utah State Senator W. Hughes Brockbank, President of the National
~~slative
Conference, said in the news briefing this morning that "the funds
:eceived by the states and general local governments should be for unrestrictee
!e, with the provision that they (governmental agencies) should be accountable
~r
the use of such funds to the same extent that they are accountable for
~qnues
derived from their own tax sources."
Participating in this morning's news conference, in addition to
lyors Tate and Stokes, Governor Love, Judge Fowler and Senator Brockbank,
~re
Illinois State Representative John H. Conolly (Chairman of the Inter-
overnmental Relations Committee of the National Legislative Conference);
(more)
t-4
John Brewer, Kent County Michigan Supervisor and Chairman of NACO's Commi
on Revenue and Finance: and William Conner, Newcastle, Delaware County Ex
tive and second vice-president of NACO.
Department of the TREASURY
IBTON. D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
April 16, 1970
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
$1,700,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing April 30, 1970,
in the amount of
$ 4,502,320,000,
as follows:
276 -day bills (to maturity date) to be issued April 30, 1970,
in the amount of $ 500,000,000,
or thereabouts, representing
an additional amount of bills dated January 31, 1970, and to
mature January 31, 1971, ~
orj,gtn~l~y_ issued in the amount of
~,003,046,000,
the additional and original bills to be
freely interchangeable.
365 -day bills, for $.1,200,000,000,
or thereabouts, to be
dated April 30, 1970,
and to mature April 30, 19710
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
$10,000, $50,000, $100,000, $500,000, and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty p. m., Eastern Standard
time,
Thursday, April 23, 19700
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even mUltiple of $10,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99.925. Fractions may
not be used. (Notwithstanding the fact- that-the one-year bills will
run for 365 days, the discount rate will be computed on a bank
discount basis of 360 days, as is currently the practive on all
issues of Treasury bills.) It is urged that tenders be made on the
printed forms and forwarded in the special envelopes which will be
supplied by Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
Customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
K-398
submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public announce
ment will be made by the Treasury Department of the amount and price ral
of accepted. bids. Only those submitting_competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on April 30, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing April 30, 19700
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differellces 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 o~n~ranch.
TREASURY DEPARTMENT
WASHINGTON. D.C.
RELEASE ON RECEIPT
April 17, 1970
TREASURY SECRETARY KENNEDY NAMES GLEN FOWLER
AS NEW SAVINGS BONDS CHAIRMAN FOR NEW MEXICO
Glen A. Fowler, Vice President/Special Programs, Sandia
Laboratories, Albuquerque, has been appointed by Secretary of the
Treasury David M. Kennedy as volunteer State Chairman for the Savings Bonds Program in New Mexico, effective immediately.
He succeeds Frank G. Woodruff, former General Manager/Chino
Mines Division, Kennecott Copper Corp., Hurley, who has joined
Gulf Resources and Chemical Corp., Houston, as Vice President and
President of its Bunker Hill Co., Kellogg, Ida., where he will
manage that mining facility. Mr. Woodruff had been New Mexico
State Chairman since 1964.
Mr. Fowler -- who has served as Albuquerque SIA Chairman
since 1968 -- will head a committee of State business, financial,
labor, and governmental leaders who -- working with the Savings
Bonds Division -- assist in promoting the sales of Savings Bonds.
He joined Los Alamos Scientific Laboratory in 1945, moving to
Sandia with the first group later that same year. He was Manager/
Field Test Department until 1950, when he was promoted to Director
of Field Testing. In 1954, Mr. Fowler was named Director of Electronics, and was promoted to Vice President of Research the following year. He was named Vice President of Development in 1960,
remaining in that capacity until he assumed his present post on
January 1, 1965.
Mr. Fowler served as Expert Consultant, Headquarters, Army
Air Corps, 1943 -45, and as Staff Member, Radiation Laboratory at
MIT, 1941-43.
He received his BS Degree in Electronic Engineering, in 1941,
from the University of California. He is a member of Tau Beta Pi
~d Eta Kappa Nu, an IEEE Fellow, and an Associate Fellow of the
American Institute of Aeronautics and Astronautics.
(OVER)
- 2 -
He served as Consultant to the United States Delegation to
the Third United Nations Conference on Peaceful Uses of Atomic
Energy, Geneva, 1964.
Mr. Fowler was born in Riverdale, Calif., in 1918.
married and has three children.
000
He is
, /
/.-'
1-~1
~ Department of the TREASURY
IHIN6TON. D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
April 22, 1970
TREASURY'S WEEKLY BILL OFFERING
I
The Treasury Department, by this public notice, invites tenders
fur two series of Treasury bills to the aggregate amount of
$3,100,000,000, or thereabout s, for ca sh and in exchange for
Treasury bills maturing
April 30, 1970,
in the amount of
$4,502,320,000,
as follows:
9l-nay bills (to maturity date) to be issued April 30, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing
an additional amount of bills dated January 29, 1970, and to
~ture
July 30, 1970,
originally issued in the amount of
$1,200,392,000,
. the additional and original bills to be
~eely interchangeable.
l82-day bills, for $1,300,000,000,
dated
April 30, 1970,
and to mature
or thereabouts, to be
October 29, 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 i.nterest.
They will be issued in bearer form only, and in denominations of
810,000, $50,000, $100,000, $500,000, and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches
~ to the closing hour, one-thirty p. m.,
Eastern Daylight Saving
time, Monday, April 27,1970.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple 0 f $10,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
~ith not more than three decimals, e. g., 99.925.
Fractions may
~t be used.
It is urged that tenders be made on the printed
(orms 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-399
- 2 responsible and recognized dealers in investment securities. Tenders I
fr-om other-s 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- tr-ust 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 I
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasur-y expr-essly r-eserves the r-ight to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tender~c
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on April 30, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
April 30, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differ£L~es 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 Tr-easury
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, r-edeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank 0bO~ranch.
FOR IMMEDIATE RELEASE
REMARKS BY THE HONORABLE PAUL A. VOLCKER"
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS,
BEFORE THE ANNUAL DINNER OF THE AMERICAN CHAMBER OF COMMERCE,
BRUSSELS, BELGIUM,
MONDAY, APRIL 20, 1970
I am honored to address your annual dinner tonight.
The American Chamber of Commerce in Belgium symbolizes the
close and friendly ties between our countries. It reflects
the vitality of trans-Atlantic economic relationships. Even
your location, in the heart of the Common Market, emphasizes
important new dimensions in our relationship that are
emerging from the drive for European economic unity.
Indeed, anyone concerned as I am with international
financial developments cannot help but be aware of the
ferment within "the six" on the monetary dimension of unity.
There is an old maxim that prudence is the better part of
valor. I will therefore resist the temptation -- on the
home ground of the experts -- to offer unasked advice on
that matter.
Instead, I would like first to report briefly on the
current state of the economy in that other great common
market called the United Ststes and to relate those
developments to our balance of payments. I would also like
to suggest some broader conclusions for international
monetary arrangements.
K-400
- 2 -
The tone of business activity in the United States has
certainly changed in recent months. The further rise in the
price indices is evidence enough that the momentum of
inflation accumulated over a period of years is still strong.
But the persisting inflationary concerns are also accompanied
and tempered -- by much more public uncertainty about the
course of the economy.
That is not an entirely comfortable position. But I
believe it should be recognized for what it is -- an
essential phase through which we must pass in moving from
overheating and inflationary strains to more balanced am
orderly growth.
Indeed, the present evidence suggests that
the economy is broadly on the course foreseen in shaping
the major fiscal and monetary policy decisions.
A period of negligible or no growth during the first
part of 1970 had been clearly anticipated. The small
decline in real Gross National Product now estimated for
the first quarter and the modest rise in unemployment
confirm that this pause has materialized. The necessary
process of squeezing out excess demand pressures is never
entirely free of risk.
But the indications are that this
objective has been successfully achieved without setting off
cumulative downward pressures.
The easing of demand pressures has been accompanied by
some relaxation of the tensions in financial markets that
characterized 1969. Interest rates are, of course, still
at very high levels by American standards. As a part of
the process of achieving better balance in the economy, I
would welcome further declines.
But lower interest rates cannot be pursued in isolation.
At this critical point in the fight on inflation, we are
also conscious of the danger in feeding a resurgence in
demand beyond our real growth potential.
Our success in steering a course to a resumption of
balanced growth is, of course, not only important for the
United States. The state of our economy will directly
affect world trade.
The financ;'_ d_ dimensions may be even
more critical. International money markets are mainly
dollar markets and sensitive to changes in our own credit
conditions.
The fluctuations in our balance of payments
inevitably have a large influence on worldwide
reserve and monetary developments.
- 3 -
I am particularly aware that, over much of the past year,
the extreme ti~htness of money in our markets and strong
repercussions on European money markets. Moreover, the
strong demands for money in the United States tended to
drain reserves from European central banks, limiting their
capacity to deal with their domestic market pressures.
The massive flow of liquid funds to the United States
in 1969 -- which probably amounted to a net of some
$6 billion -- more than covered the continuing deficit in
other elements of our balance of payments. In fact, there
was a sizeable increase in our own international reserves.
At the same time, foreign official dollar balances by the
end of last year had declined to the lowest level since
1963 -- in individual cases, probably falling below desired
or sustainable levels and contributing to a feeling of
tightness in international liquidity. In fact, partly as
a result of these drains, the total reserves of the ten
leading industrialized countries of the European Continent
had declined at the end of 1969 to $28.3 billion, lower than
five years earlier.
We are not misled by the inflow of short-term funds to
the U.S. and the related strength of the dollar in the
exchange markets. It is plain that our underlying balance
of payments remains unsatisfactory, and improvement is a
basic policy concern.
The primary source of the difficulty has been an erosion
in our trade position over the course of several years.
This, in turn, has been in good part another symptom of the
inflationary strains.
As recently as 1964, the United States had a trade
surplus of $6~ billion, roughly 1 percent of our then
Gross National Product. Our surplus on all goods and
services was even larger. Within five years, the trade
surplus had slipped to under $1 billion, and our entire
current surplus on goods and services was only $2 billion.
A current surplus of that size is simply not large
enough to provide the transfer of real resources necessary
to support over time the propensities of our business to
invest overseas or our responsibilities for aid -- even
taking into account the growing flow of private long-term
investment into the United States.
- 4 -
We do not -- in our interest or that of the world -seek a solution to that problem of prolonging unnecessarily
the direct controls on the outward flow of investment or in
restraints on aid. Such restraints are not directed at the
root of the problem, and we look toward the day when our
position permits them to be further relaxed and dismantled.
Our growing earnings on private foreign investment -now running to $8 billion a year -- will give us a head
start toward a stronger current surplus. We would also, as
security permits, welcome a reduction in the military
burdens on our balance of payments, swollen by the Vietnam
War. But the heart of our long-term strategy will need to
be restoration of a large trade surplus.
We are, of course, deeply concerned that, inadvertently
or otherwise, our exporters are sometimes placed at a
disadvantage vis-a-vis foreign producers through differences
in tax treatment, access to export credits, or trade
restrictions. We will be working to remove those impediments
and to equalize competitive conditions.
But we also recognize there are no short-cuts. The
only solid foundation for a successful trade effort must
be sustained, effective economic performances over a period
of years at home.
I am not· discouraged by the prospects. Historically,
the performance of the American economy i.n terms of
internal price stability, even after allowing for the
inflation of recent years, compares favorably with other
industrialized countries. Even during the past five years,
our export growth has been remarkably steady after allowing
for a contraction in important markets for our agricultural
goods. Paralleling the experience of other countries, the
effects of overheating have been most evident on the
import side -- and it is here that we should benefit most
from the ending of excessive demand pressures.
Following an earlier bout with inflation, we managed to
increase our trade surplus by almost $6 billion in five years.
To be sure, world conditions were then favorable for our
trade, and our own economy was not working to full capacity.
But, in the much larger world economy of the 1970's, I
believe that a substantial trade surplus can be restored as
the cornerstone of our balance of payments.
- 5 In the shorter run, I believe we must be prepared to see
considerable swings in our payments position. The situation
already appears to have changed markedly from last year. As
a by-product of the relaxation of money market pressures in
the United States, our banks have repaid some of the
short-term foreign indebtedness incurred last year. The
result is that, without any deterioration in our basic
position -- indeed, with some signs that our trade surplus
is again growing -- our official settlements accounts, at
least temporarily, have turned toward a sizeable deficit
following the surpluses of recent years.
In these circumstances, a short-run shift from surplus
to deficit is not alarming. Some of it merely reflects the
reflux of extraordinary year-end in-flows. The relaxation
of money market pressures is no doubt welcome in some
countries abroad, as well as in the United States. The
principal official recipients of dollars in recent months
appear to have been the United Kingdom and France. Those
countries, in turn, repaid substantial amounts of debt, in
large part to the United States. As a consequence, these
months of sizeable deficit have probably added little to the
sum of foreign official dollar holdings.
Nevertheless, these large shifts of liquid funds do
point up a much broader question for the international
financial system. Such volatility is not confined
entirely to short-term funds, and certainly not to transAtlantic crossings. Recent experience is replete with
examples of massive capital flows across national borders,
sometimes for speculative reasons, but also in response to
more normal market incentives.
The reasons are fundamental. National financial markets
have grown both larger and more integrated. Transportation
and communications are speedy and sure. Indeed, it is at
least as easy -- and probably substantially easier -- for
a New York bank to deal with its branch or correspondent
in London today than it would have been for the same bank
to deal with its Chicago or St. Louis correspondent twenty
years ago.
c
- 6 -
::-1 7 :~'1
The growth in the number of U.S. banks with offices in
Brussels is one reflection of a world-wide phenomena.
The number of branches and subsidiaries throughout the
world of such foreign banks has reached some 400 -_
quadrupling in the past fifteen years. There are about 100
offices of foreign banks in the United States. The rise of
multinational corporations, with vast amounts of liquid fund8
at their disposal and close banking contacts in a variety of
key markets, is another dimension. American-based companies
alone now have some $50 billion of overseas assets.
Large and closely-integrated markets mean that funds
will move quickly and in volume in response to relatively
small incentives. Sometimes these international shifts
will help support domestic or balance of payments
objectives; but often they will appear to be working at
cross-purposes with national policies. Thus, questions are
posed, both for the independence of national policies and
for the international monetary system.
You will note that I have managed to talk about
international money markets without specifically mentioning
the Euro-dollar market. The sheer efficiency of that
market probably has contributed to the growth of
internationally mobile capital. But it seems to me the
current focus on Euro-dollars is misleading to the extent
it emphasizes one particular channel. The basic problem
is much broader. Even if we could somehow imagine that the
Euro-dollar market were swept away, I have no doubt that the
ingenuity of bankers and traders would develop other
mechanisms so long as the basic convertibility of
currencies is maintained.
In conept, we would, of course, try to thwart that
response by control. But experience suggests a network of
controls could not be spread very far or tightly without
impairing the freedom of action for traders and investors
that thp basic convertibility of currencies is designed to
promote, Despite some individual exceptions, the broad
tendency of the post-war years has been to move in the other
direction. That seems to me the inherent logic of a
multilateral trading and investment world. At the same
time, we must be prepared to acceptthe consequences of that
logic:
- 7 -
J-~
L--r
. '-' .
One consequence of free and integrated money and
capital markets will be further large recurrent
short-term swings in internationally mobile capital.
It would be neither desirable nor feasible to try to
control these flows with offsetting swings in trade
or other elements in the current account.
Consequently, we must be prepared to view large
swings in overall payments positions with some
equanimity and be prepared to finance them,
whether by reserves or by credit facilities.
International money markets tend to equalize credit
market conditions in different countries, forcing
a kind of rough and ready coordination of one
element of national economic policies. At the
same time, the need for a more thoroughgoing coordination of policy objectives and
instruments becomes more pressing. Otherwise,
the source of the imbalance will remain, and the
flows will become so large and chronic as to
destroy the basis for their financing.
The Common Market countries are in the process of facing
up to these questions in the most direct way -- as part of
a deliberate effort to achieve a closer monetary unity. But,
in more ~eneral terms, the issues are relevant to the
relationships among all industrialized countries.
Considerable progress has already been made on the
financing side. There have been basic innovations in
developing international reserve and credit facilities,
including the decisiun last year for managed reserve
creation through SDR~ with economies and markets growing
rapidly, even in this area the job cannot be considered
complete.
Nevertheless, the problems are still more difficult
in the area of policy coordination. Here, it is less a
question of new techniques than the delicate problem of
reconciling external needs with domestic objectives and
the retention of freedom of action internally. Answers
suitable within a relatively cohesive and limited group,
such as the Common Market, cannot necessarily be applied
beyond that group. Yet, the need plainly extends beyond
such groups.
& /)
>I
- 8 -
'
I have no desire to minimize the efforts of the past
decade to achieve a better reconciliation of policies
internationally. I spend a good deal of my own time in
meetings aimed precisely at that problem. But this
experience also illustrates the inherent difficulties of
achieving better coordination given the differing economic
circumstances and structures, and domestic policy objectives
of individual countries.
It is precisely these difficulties that have raised the
question whether a limited degree of greater flexibility in
exchange rates might not provide a means for better
reconciling the desired independence of national policies
with the broader stability of the international financial
system as a whole.
I would emphasize the basic premises on which
international discussions of this matter are proceeding.
We are considering evolution, not revolution, within the
basic elements of the Bretton Woods system. Specifically,
discrete changes in exchange parities would remain the rare
exception for industrialized countries and not the rule.
Exchange rate decisions would continue to be taken at the
initiative of individual countries. They would also remain
matters for international consideration, and thus should
fall within accepted "rules of the game." No formulas
could replace the decision-making process, nor are nations
willing to leave their exchange rates entirely to the
market processes -- or establish a band so wide around a
nominal parity that many of the elements of a system of
freely floating rates would exist.
Those fundamental points are not at issue. But, in the
light of experience, we cannot escape the need to consider
the usefulness of some changes in present arrangements and
practices. For instance, some countries might find a band
moderately wider than the 2 percent range now specified by
the Articles of Agreement of the International Monetary Fund
a helpful dampening influence on international capital flows,
both by increasing the uncertainty for the speculator and by
affording a greater degree of maneuverability for the
authorities.
- 9 -
l~
Perhaps mor"e important is the question of whether a
series of ver./ small changes in parity, within accepted
limits, might in specific instances help some countries,
consistent with internal goals, to maintain a better
equilibrium in their basic external payments position over
time
The effort would be to avoid the disturbance
associated with delayed and sizeable parity changes in
response to a large, accumulated disequilibrium. If so, can
criteria be developed that help to point to the appropriate
timing and use of such flexibility?
0
Finally, some have urged more willingness to experiment
with methods of moving from one parity to another in those
instances when a sizeable change may become necessary. The
German experience last year with a transitional float points
in this direction.
I do not detect any clear consensus on these points
internationally. But neither do I believe these are
questions that can be easily dismissed, in the light of the
experience of the late 1960's. I am glad they are under
discussion now. It would be a great mistake, in my
judgment, if, during this period of calm in international
financial markets, we fail to take advantage of the time
available to adapt the system to foreseeable needs.
I recognize that there is the feeling of some within
the Common Market that more rigidity in rates, rather
than less, might foster its own goals. That is the
judgment only the member nations can make. Nevertheless,
however, the question is resolved for relationships within
the market, the broader issue cannot be dismissed.
Thus, we must seek ways of reconciling the needs of
particular countries, or groups of countries, with the
needs of the system as a whole. The first prerequisite is
to remain in close touch, and not freeze positions, before
there is a chance to test ideas fully in broader international
forums.
Meanwhile, the main responsibility of the United States
is plain enough. We must not be diverted from the goal of
restoring reasonable price stability, consistent with
orderly economic expansion. That is, of course, in our
domestic interest. It is also the best possible assurance
of international financial stability.
000
morION: FllIANCIAL EDITOR
FOR RElEASE 6 :30 P.M.,
Thursda,y, April 23, 1970.
BESoms OF TBEASURY' S MO!f.rHLY BILL OFFERIKG
The Treasury Department announced that the teDders for two series of Treasury
bills, one series to be an additional issue of the bills dated January 31, 1910, and
the other series to be dated April 30, 1970, which were offered on April 16, 1910,
were opened at the Federal. Reserve Banks today. Tenders were invited tor .500,000,000,
~thereabouts, of' 216-day bills and for $1,200,000,000, or thereabouts, of 365-day
bills. The details of the two series are as follows:
RAm OF ACCEPTED
COO'ETITIVE BIDS:
High
Low
Average
276-day Treasury bills
maturiy January 31, 1971
Approx. Equiv •
Price
Annual Rate
6.725J
9'.8" !I
6.99.
".637
9'.153
6.8"J
Y
.•
365-day Treasury bills
maturi!!& April 30, 1971
Approx. Equi v •
Price
Annual Rate
93.258 W
6.65~
92.908
6.995J
93.091
6.814:J
Y
!I Excepting
2 tenders totaling $600,000; Pi Excepting 1 tender of $10,000
of the amount of' 216-day bills bid for at the low price was accepted
2'~ of the amount of 365-day bills bid for at the low price~s accepted
4B~
TcrrAL TENDERS APPLIED FOR AlID ACCEPrED BY FEDERAL RESERVE DISTBICTS:
Dallas
San Francisco
Accepted
Applied For
$
330,000 •
330,000
369,060,000
8~,660,000
6,630,000
6,630,000
1,560,000
1,560,000
5,990,000
5,990,000
1,140,000
11,1~,OOO
38,510,000
4:3,110,000
10,320,000
10,320,000
12,080,000
12,080,000
840,000
84:0,000
8,650,000
10,650,000
39,110,000
51,170,000
: Applied For
: ,
20,«0,000
: 1,377,'20,000
1:5,390,000
22,820,000
:
12,550,000
:
14:,950,000
:
81,610,000
:
20,010,000
:
14,190,000
:
:
4:,"'0,000
11,54:0,000
:
124:,930.000
TOTALS
$1,000,680,000, 500,280,000
£I $1,12.,950,000
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Accepted
•
20,"0,000
916,220,000
1:5,390,000
22,820,000
12,i50,000
9,950,000
80,010,000
20,070,000
14:,790,000
4: , 4:4.0,000
10,54:0,000
",930,000
$1,200,150,000 gj
~mclUdes $15,950,000 noncampetitive tenders accepted at the average price of 9'.753
MInc1udes $5',700,000 noncompetitive tenders accepted at the average price of 93.091
Y These rates are on a bank discount basis. The equivalent coupon issue yields are
7.Z3J for the 276-~ bills, and 7.~ for the 365-day bills.
K-401
FOR RELEASE 8 :00 A.M., EST
THURSDAY, APRIL 23, 1970
ADDRESS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY OF THE UNITED STATES AND
UNITED STATES GOVERNOR FOR THE INTER-AMERICAN DEVELOPMENT
BANK, AT THE ANNUAL MEETING OF THE BOARD OF GOVERNORS OF THE
INTER-AMERICAN DEVELOPMENT BANK
PUNTA DEL ESTE, URUGUAY
THURSDAY, APRIL 23, 1970
I The inter-American Community is again grateful to the
government and people of Uruguay for providing this
beautiful and historic city as the site of our deliberations.
Here, where Presidents of the Americas have conferred and
contemporary Inter-American solidarity has been forged we
have an opportunity this week to give concrete reality to our
mature partnership, in the framework of this decade's
program of action for progress. We are also fortunate to
have here with us, for the first time, the Governor for
Jamaica, whom we welcome as our newest member.
In this year when we celebrate the first decade of
the Bank under the able leadership of President Herrera
and the Board of Executive Directors, I have organized
my observations around three points: (1) the significance
to the Bank of the last decade, (2) the proposed increase
in Bank resources, and (3) perspectives for the future.
I.
The Bank's First Decade
The world, our hemisphere and this Bank have undergone
extraordinary changes since the first Board of Governors
met in San Salvador in early 1960. Ten years ago, foreign
assistance had only recently changed focus from the
reconstruction of relatively advanced countries to the
development of underdeveloped ones. Advanced countries
other than the United States were just beginning to make
contributions to development assistance. The terms of
- 2 such assistance were often poorly adapted to the prospective
balance of payments situations of borrowing countries. In
the multilateral assistance field, there was the World Bank,
but its concessional lending instrument, the International
Development Association, was untested. Multilateral
financial cooperation for regional development was, until the
establishment of the Inter-American Bank, non-existent.
Today's contrast with 1960 is striking. Development
assistance, its form and its degree of multilateralism have
changed markedly. This Bank has emerged as a major element
in the Inter-American economic structure. It has
demonstrated the validity of the idea of multilateral
development cooperation at the regional level. And it can
justly regard itself as the trail blazer for the regional
institutions, such as the Asian Development Bank.
A second contrast can be found in the ability of a
regional institution such as the Bank to reach out and
mobilize funds in the world capital markets, using for
this purpose the guarantee provided by its members.
Its bonds are now widely held and its financial standing
highly respected. Through its patient efforts in world
financial centers, the Bank itself has been an important
instrument in changing the forms and practices of
development finance.
A third difference relates to the kinds of activities
in which we now think it appropriate for development
institutions to engage. This Bank has led the way in
directing attention of development agencies to areas that
had been relatively neglected or even considered inappropriate
for the attention of international financial institutions.
These include education, health and the difficult problems
of rural poverty. Lending in these frontier areas of
development assistance has gained respectability only within
the last ten years. This Bank -- supported in the early
years, I am proud to say, by the Social Progress Trust Fund
provided by the United States -- has played a catalytic role
in the emergence of new attitudes.
Ten years of experience has made us all more realistic
in our approach to development. We have learned that
there is no single formula for development applicable to
all countries. Each nation is different and each requires
dJ
- 3 -
a different mix of resources. We recognize more clearly now
the importance of a sound framework of fiscal, monetary,
exchange and investment policies within which development
can take place. And we perceive now more clearly than ever
that external assistance can only be efficiently utilized
where there is an intense domestic will to develop. This
must be accompanied by a readiness to commit domestic resources
to the development task in the fullest measure.
Thus, the opening of this decade presents new opportunities
to the Bank. It can become more selective, both in terms of
activities it finances and the quality of economic
performance it expects of borrowers as a condition of its
lending. With such selectivity, and a continuation of its
distinctive Latin and pioneering spirit, the Bank can make
the decade of the Seventies a fitting and fruitful successor
to the Sixties.
II.
Incr~ase
in Resources
The main task of this meeting is to make adequate
provision for obtaining the capital resources needed by
the Bank in the first half of its second decade of lending.
I have been authorized by president Nixon to announce that
the United States is prepared to join Latin American
efforts in accomplishing this task. In the context of
a proposal with full Latin American support, we would be
prepared to approach the U.S. Congress promptly for
increases in both our ordinary capital subscription and
our contribution to the Fund' for special operations.
Specifically, the United States would be prepared to seek
legislative authority for
An increase in its paid-in ordinary capital
subscription of $150 million combined with a
$674 million increase in its callable ordinary
capital subscription, both as our established
share of a $2 billion over-all increase in the
Bank's ordinary capital resources.
A substantial contribution to the Fund for
special operations as part of an over-all
increase in Fund resources which would
reflect the progress Latin economies have
made these past ten years as well as their
commitment to the role of multilateral
institutions in development.
- 4 Resources should be sought in a magnitude which will
cover requirements foreseen for the Bank in a three to
five year period. They should permit the Bank to provide
half again as much financing per year as the approximately
$600 million which the Bank committed to loans in 1969.
Moreover, they should ensure funding for new types and
directions of activities that are now under preliminary
consideration in the Bank.
But provision for the future requires more than money
alonp.. It requires adaptation to reflect new realities in
the Seventies. It requires new relationships beyond the
hemisphere to reflect Latin America's growing integration
into the world economy and the world's growing commitment to
multilateral development financing.
I have three major areas in mind where beneficial
changes could be made. First, the present practice of
extending.funds for special operations loans on a local
currency repayable basis involves the potential problem
of excess accumulations of such currencies in the Bank's
accounts. A shift to a policy of repayment in the
currencies lent, combined with an appropriate easing of
repayment terms as necessary, would avoid the problem.
This would permit the Fund ultimately to become a revolving
source of hard currency financing. I understand that a move
in this direction already had widespread support.
Second, our concern for achieving more balanced
growth in the hemisphere suggests that the financial
needs of the least developed members should have first
claim on the Bank's concessional loan resources. The
opposite side of the same coin is that the region's more
advanced countries should place relatively greater reliance
on ordinary capital financing. This would be considered a
cooperative contribution on the part of the stronger
countries toward self-help in the hemispheric sense. It
would also complement the willingness of the larger members
to allow a greater usefulness of their local currency
subscriptions to the Fund for special operations. In this
latter connection an expansion of the group of countries
allowing this broader use would be widely applauded.
- 5 ..
Finally, I believe that mUltiple benefits would accrue
not only to the Bank but to Latin American development in
general if other developed countries -- regional and
non-regional -- could be brought within the Bonk's membership.
Additional ordinary capital resources would become available
and access to capital markets would be easier. Membership
would also elicit additional concessional loan resources
more effectively. In the light of experience elsewhere I
am confident that these benefits can be obtained without
changing the essentially regional character of the Bank.
Indeed, it is my confidence in the permanent Latin
character of our Bank which permits this judgment. Serious
efforts to move in this desirable direction have important
and broadening support and steps are needed now to move
toward the removal of existing barriers. This is the time
to begin. I strongly urge that the Boar.d of Governors
take the necessary steps which will lead to opening our
doors to Canada and others.
The provision of the resources called for and the
adoption of the policy changes recommended entails real
burdens and real sacrifices for all of us. Nevertheless
and with full consideration of the intense competing
demands for budgetary resources -- I offer full assurance
of president Nixon's readiness to support these financial
and policy measures. I believe such support constitutes
solid evidence of our commitment to Latin America and to
hemispheric development.
III.
Perspectives for the Future
In reviewing the last decade I came across the following
statement made by one of my predecessors, Robert B. Anderson,
the first Bank Governor for the United States, at the
inaugural meeting of this Board.
"The creation of the Bank does not in itself solve
any of the problems with which we are all so
concerned; yet it does provide us with an
effective framework in which men of good will can
join with the confidence that through the exercise
of thought, diligence, and mutual respect they can
achieve great benefit for their peoples."
- 6 -
This judgment is still true today and it remains the
framework within which W2 will meet the challenges in the
decade ahead. Four challenges to the Bank should be noted.
First, multilateral institutions will undoubtedly
assume a great role in providing financial and technical
assistance. Within this hemisphere, the Bank is in an
excellent position to continue leadership in financing
development. But to do so fully will require closer
collaboration and coordination with the other bilateral and
multilateral financing agencies, and with the Inter-American
Committee for The Alliance for Progress. This will assure
that scarce external funds are being most effectively
utilized and that the Bank has access to the best
hemispheric judgments on whether or not a borrowing country
itself is pursuing proper development policies and programs.
Second, the Bank's internal organization, management
and proce'dures will have to continue to adapt to changing
conditions.
Third, the next decade challenges the Bank to
participate directly and indirectly in encouraging private
initiative and free market forces. While it is clear that
each nation must fashion its own policies about the role
of public and private sector activities, and of domestic
and foreign private investment in its society, the posture
of the Bank will be guided, I hope, by practical
considerations of efficient economic development. In this
regard, I look forward with interest to the deliberations
of the Board on expanding the Bank's role in assisting
private productive enterprise. In particular I hope that
it will be possible to employ in this effort the existing
extensive framework of banks and other financial
intermediaries.
Fourth, the next decade should see more countries
advancing toward self-sustained institutional, financial
and social growth. This will permit a greater number of
the stronger member countries to assist the less developed
through both technical and economic assistance. And
it will contribute to the strengthening of the multilateral
character of the Bank.
- 7 These and many other challenges of the Seventies lie
ahead of us. I am confident that the leadership of this
great institution, supported by the Bank's capable staff,
will effectively meet these challenges with inventiveness,
wisdom and determination.
The actions we are taking this week to increase the
resources of the Inter-American Development Bank make clear
o~r strong support of this Inter-American institution.
president Nixon, in February, outlined in realistic terms
the basis on which we must face this decade of the
S~venties •
"There are no short cuts to economic and social
progress. This is a reality, but also a source
of hope, for collaborative effort can achieve
much. And it is increasingly understood among
developed and developing nations that economic
development is an international responsibility."
The Inter-American Development Bank is a fine
example of a multilateral institution through which this
responsibility is effected. The United States is
proud to be a member.
000
REMARKS BY BRUCE K. MacLAURY
DEPUTY UNDER SECRETARY OF THE TREASURY
FOR MONETARY AFFAIRS
BEFORE THE SECOND ANNUAL CONFERENCE OF THE MORTGAGE
BANKING INSTITUTE
THE HOTEL ROOSEVELT, NEW YORK CITY
MONDAY, APRIL 20, 1970
Federal Credit Programs:
The Third Dimension
I would like to talk with you today about an area of
Government economic policy that is often neglected, namely
the impact of Federal credit programs on the course of
economic activity and on the allocation of credit among
various sectors of the economy, including of course housing.
The usual analysis of Governmentecrnomic policy follows
one of two approaches, focusing either on the economic and
credit market effects of Federal Reserve monetary policy
on the one hand, or on the Government's spending and taxing
policies -- i.e., the budget surplus or deficit position -on the other.
Butthis two-sided analysis neglects a third
dimension which now looms so large that it must be elevated
to a prominent place in our overall economic and financial
models.
This third dimension is the area of Federal credit
programs that are not included in the Federal budget totals.
These include Government guaranteed and insured loans, such
as .the familiar FHA and VA housing guarantees, and more
importantly of late, the "Federally-sponsored agency" loans
by such nonbudget agencies as FNMA and the Federal home loan
- 2 banks.
I shall refer to them as Federally-assisted loans to
distinguish them from direct Federal loans which are still
included in the budget totals.
The lack of attention to Federally-assisted loans by
economic and financial analysts may be due in part to the
variety and complexity of the programs and the resulting
difficulty in summarization.
It may also reflect the curious
nature of the beast -- neither fish nor fowl, falling neatly
into the analytical framework of neither fiscalists nor
monetarists.
But it is also a reflection of the fact that
only recently have these programs assumed such proportions,
and taken such forms, as to have a substantial impact on
financial markets and on the economy as a whole.
Net borrowing from the public by Federally-assisted
borrowers amounted to a record $12 billion in the fiscal
year ended last June.
This represented about 13 percent of
the total of funds raised in the credit markets that year,
as measured by the Federal Reserve's flow-of-funds figures.
In the current fiscal year, the January budget estimated
that net Federally-assisted borrowing will total over
$15 billion, or about 18 percent of the current annual rate
of total credit flows.
For fiscal 1971, the budget estimated
that Federally-assisted borrowing will rise to $20 billion,
- 3 -
a sum that could account for an even higher percentage of total
credit flows if current flow-of-funds projections by private
experts - indicating total credit flows in the corning year
not much, if any, higher than the rate in the fourth quarter
of 1969 - turn out to be correct.
with Federally-assisted borrowing of this magnitude ,
we can no longer afford to ignore the impact of Federal credit
programs on capital markets, and on the economy.
Yet, in
the usual discussions of fiscal policy, there is still a
tendency to look at the January budget and conclude that the
Federal Government next year will be a net supplier of funds
to private capital markets in the amount of the $1.2 billion
projected decrease in borrowing from the public by the Treasury
and other budget
agencies~
Too often overlooked are the
figures that appear this year for the first time in Special
Analysis C of the Budget, which show that Federally-sponsored
agencies and Federally-guaranteed
borrowe~s
are expected to
require over $20 billion of private credit flows.
It is undoubtedly true that some of this Federallyassisted borrowing would occur without the Federal assistance.
But a large and growing portion of Federally-assisted borrowings
must be viewed as similar to direct budget outlays in their
impact on aggregate demand -- because of the degree of Federal
subsidy involved.
For example, guaranteed public housing
- 4 loans now require payment by the Federal Government itself of
wll over 90 percent of the principal and interest on the bonds.
~aranteed
urban renewal loans likewise are ultimately retired
with Federal grants of two-thirds to three-quarters of net
project costs.
The fastest growing programs of loan insurance
by the Federal Housing Administration are the programs to assist
low income housing through interest subsidies on guaranteed
loans.
The Farmers Home Administration oversees a similar
program.
The interest rate paid by the low income home owner
or occupant may be as low as 1 percent under existing law.
At present interest rate levels, the Federal interest subsidy
necessary to finance these guaranteed long-term loans in the
private market is roughly equivalent to providing a lump sum
~deral
grant equal to about three-fourths of the project
~nRtruction
cost.
Similarly, we have a nUmber of other programs involving
loans made by private lenders for students, academic facility
~nstruction,
~deral
college housing, and other purposes under which
agencies pay whatever interest subsidies are necessary
to induce private lenders to make these loans to borrowers at
rates of interest that are fixed by law at, for example, 3
~rcent
for college housing borrowers and 7 percent for student
borrowers.
- 5 It is clear enough that a combination of loan guarantees
and interest subsidies provide benefits to potential borrowers
equivalent to what they could obtain from a large Federal grant
at the time of project construction.
A significant difference,
of course, is that a Federal construction grant would show up in
the Federal budget at approximately the time of project construction
and thus be taken
into account in assessing the economic impact
of fiscal policy.
An interest subsidy of equivalent value, on
the other hand, will show up in the Federal budget only as the
interest subsidies are actually paid out over the course of the
long-term construction loan, which may be a period of as much
as 40 or 50 years under some Federal programs.
I don't think I need to belabor the point with further
examples to illustrate the need for viewing some loan guarantee
programs as having an economic impact similar to the impact of
Federal capital outlays in the budget
at least to the extent
of the capitalized value of debt service or other subsidies
~volved
in these programs.
The difficulty in comparing the economic impact of budget
outlays and credit programs is partly a problem of measurement:
just as there are differences in economic impact between changes
in expenditures and changes in revenues, or between purchases of
goods and transfer payments, so there are great difficulties in
- 6 determining to what extent economic activity is stimulated by
a given type of credit assistance, as compared with other types,
or with budget outlays.
It is convenient, of course, to dispose
of this problem by assigning Federally-assisted credit programs
a zero weight in terms of economic impact on grounds that such
programs simply involve an exchange of assets -- what someone
borrows, someone else must lend, and thus not spend himself.
If one could safely assume that monetary policy would follow
a course completely independent of the demands for credit placed
on the market,
50
that the funds supplied to Federally-assisted
borrowers would be taken -- dollar-for-dollar
out of the hides
of some other demanders of credit, this might be a legitimate
view.
But to espouse this view puts one entirely in the camp
of the monetarists, where I for one do not feel comfortable.
The same logic, it should be noted, would argue that one should
not pay much attention to deficits or surpluses in the budget
itself, since the same process of demand substitution should
make everything come out in the wash, if only monetary policy
hewsto the proper course.
Thus the difficulty in evaluating the economic impact of
credit programs is not simply a problem of measurement, but a
conceptual problem as well, embroiling one in the controversy
between fiscalists and monetarists.
Related to this controversy,
though to some degree independent of it is the argument that
Federal credit programs can safely be ignored on grounds that monetary
(
- 7 restraint, with attendant high interest rates, tends to price
guaranteed borrowers out of the market.
Yet, as I have indicated,
we are increasingly developing programs involving fixed interest
rates of, say, 1, 3, and 5 percent to be paid by the borrowers
regardless of the market level of interest rates.
Thus, as
market rates increase, the Federal interest subsidy also increases
and the Federally-assisted borrower actually has a greater incentive
to borrow during periods of tight money than when his relative
advantage is less.
A similar argument has it that during periods of tight
money, lenders such as savings and loan associations simply do
not have the funds to aavance for loans guaranteed by Federal
agencies.
This may have been an obstacle to the growth of
Federal credit programs in past years, but it cannot now be
regarded as a significant limiting factor.
For example, in
the current fiscal year, the January budget indicates that
over 90 percent of the $15 billion increase in guaranteed
and sponsored agency loans outstanding will be financed not
by lenders but by investors; i.e., the financing will be done
in the bond market through the sale of obligations by FNMA,
home loan banks, GNMA mortgage backed securities, public housing
and urban renewal bonds and notes, and an expanded program of
asset sales largely by the Farmers Horne Administration.
Thus
institutional constraints are much less of a check on credit
program expansion - the limiting factor has become the availability
- 8 -
of appropriated funds to meet the outlays for interest subsidies.
Up to this point, my remarks have been aimed mainly at
emphasizing the importance of taking into account Federally-assisted
credit programs in
sizing up the likely impact of Government
economic policy on aggregate economic activity.
I'd like to make
two further observations along these lines before turning briefly
to some comments on the sectoral impact of these programs.
First,
there is a genuine desire in many parts of the Government - in
the executive branch as wellas in the Congress - to see interest
rates recede from the levels to which they climbed last year.
The Budget itself was framed with this in mind.
Yet there is a
risk that the growth in Federally-assisted credit programs outside the budget Nill unwittingly postpone, or diminish the degree
of, any such decline.
Second, having said this, there is still
a strong case for many of·the programs of credit assistance in
which the Federal Government is involved.
It is easy enough
to paint a seemingly ludicrous picture of Federally-sponsored
agencies - particurlarly the Home Loan Banks - borrowing heavily
in the credit markets to
repl~ce
funds withdrawn from S&L's
by depositors placing their money in high yielding Home Loan
Bank obligations.
But this caricature despite its partial
validity, overlooks the much greater damage that would have
been done tothe structure of the S&L industry, to the supply
of residential mortgage funds, and thus to the sustainability
of the President's anti-inflationary program, had this support
not been available.
The case, then, is not necessarily for less
-
9 -
credit assistance - though this can be argued on its own merits but for a more deliberate taking-into-account of the credit market
impact of these programs.
I've already alluded to the importance of Federally-assisted
credit in the housing picture last year.
As you may know,
approximately $3 out of every $5 advanced in the mortgage market
in the fourth quarter 1969 were provided either by the Government
directly, or by Federally-sponsored credit agencies.
In fact,
approximately three-fourths of the increase in Federally-assisted
borrowing in the fiscal years 1970 and 1971 are for housing
programs.
To some of you with a special interest in housing finance,
this may seem an ideal situation in that it provides the necessary
Federal assistance and subsidies with relative freedom from the
current restraints on Federal budget spending, as well as a
degree of freedom from monetary policy restraints.
Even on grounds unrelated to self-interest, one can make
a strong case that the discriminatory impact of tight credit on
residential construction ought to be mitigated through policies
such as those that now take the form of Federal credit assistance
to housing.
I think we should recognize, however, that it is very
difficult to distinguish between just that degree of assistance
necessary to offset the discriminatory effects of tight credit,
and a degree of credit assistance that becomes an outright subsidy.
L
I
/
I
- 10 -
Again, it is not my intention to decry subsidies as such,
because there are areas of demonstrated need where they are
justified.
But in present circumstances, when credit markets
are still under strain, the subsidization of credit for one
borrower should mean the denial of credit to another.
In effect,
the Government quickly becomes involved -- indeed has become
involved -- in the allocation of credit among different sectors
of the economy, .at a time when people are still debating whether
the Government should become involved in the allocation of credit!
Obviously, there are degrees of crudeness in such allocative
functions, and the intended irony of my comments should not
gloss this over.
But whether crude or subtle, acknowledged or
largely unknown, Federal involvement in credit allocation raises
questions for which there are no easy answers.
Let me name a
few.
If a growing share of private investor funds is to be
tMen by Federally-assisted borrowers, thus diverting funds
which would otherwise be available to savings and loan associations
and other institutional mortgage lenders, what are the implications
for the future viability of these institutions and the nature
of mortgage lending?
Will their function become more like
the function of mortgage bankers who service loans guaranteed
by the Government and placed with other private investors?
- 11 If the housing sector of the economy is to be insulated
through Federally-assisted borrowings from the impact of
restrictive monetary policy, what then is to be done about
the remaining principal victims of tight money, e.g., municipal
finance?
Surely we cannot be optimistic about housing unless
we can also be optimistic about the availability of funds for
municipal bond financing of the streets, schools, water, sewers,
and other public facilities which must accompany new housing.
The experience in the municipal bond
mar~et
in 1969 demonstrated,
I believe, that special credit assistance to the housing sector
resulted in a substantial shifting of the burden of monetary
restraint from the housing sector to the public facility sector.
Even if the Government were to adopt one of the several
proposals that have been put forward to broaden the market for
municipal bonds and otherwise "insulate" municipal finance from
overall monetary restraint, where then will we have shifted
the burden of monetary restraint -- to small business ...
education
transportation ..• or to agriculture?
then need to increase Federal
credi~
will we
assistance in all of
these areas as well, through such techniques as new student
loa~
banks, REA electric and telephone banks, an enlarged
farm credit system, export credit and international development banks, etc?
In closing let me emphasize that I raise these questions
not with the intent of painting a picture of unsolvable
- 12 problems that we should avoid at all cost.
All I would
suggest is that there should be a clearer map of where we
want to go, and at least as much debate on the appropriate
priorities in credit programs as now exists, in this
imperfect world, on priorities for Federal budget outlays.
c-(~
·
Ie Department 01 the
TREASURY
tSHINGTON, D.C. 20220
TELEPHONE W04-2041
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
for
ENFORCEMENT AND OPERATIONS
before the
EIGHTY-NINTH ANNUAL BANQUET
of the
STORY INN, PHI DELTA PHI OF COLUMBIA LAW SCHOOL
INTERNATIONAL HOUSE
500 RIVERSIDE DRIVE, NEW YORK CITY
April 23, 1970
7:30 p.m.
THE NIXON ADMINISTRATION'S REFORM PROGRAM
TO COMBAT THE ILLEGAL USE OF
SECRET FOREIGN BANK ACCOUNTS
Tonight I want to discuss with·you the Nixon
Administration's reform program to combat the use
of secret foreign bank accounts by organized crime
and white collar crime to violate U.S. tax and other
laws.
When this Administration took office, it decided
to do something about this proble~. We point out with
pride that this is the first Administration seriously
to study the matter and recommend action designed for
correction of this long-standing problem area. We
take further pride in the fact that the Treasury is in
the forefront of this effort. Treasury organized a
K-403
Task Force to attack the problem on a concerted
basis. It is the first of its kind of which we
are aware.
Our overall aim is to build a system to deter
and to prevent the use of secret foreign bank accounts
for tax fraud, their use to screen from view a wide
variety of criminally related financial activities,
and their use to conceal and cleanse criminal wealth.
Our immediate aim is to combat organized crime and
white collar crime in their use of foreign banks to
achieve criminal objectives.
This Administration recognizes the widespread
moral decay that would result if these practices are
permitted to continue and expand. We are determined
to do something about them.
The Administration has acted in four interrelated
areas:
First: The development of solutions has been
elevated from an ad hoc case-by-case approach to the
foreign policy level. Treaty discussions have been
undertaken with the Swiss authorities and we are in the
process of contacting other governments.
Second: The Treasury is carrying out a comprehensive
administrative review of current procedures and an
analysis of what further can be done under existing
statutory authority.
Third: The Treasury has made, on behalf of the
Administration, certain legislative proposals regarding
this problem.
3
Fourth: The Treasury is working with the private
sector to develop cooperative measures against this
illegal activity.
Before discussing our actions in these four areas,
I must emphasize three fundamental concerns that
predominate in formulating Treasury's enforcement
approach to this problem.
First, the United States dollar is the principal
reserve and transactions currency of the world.
Foreign holdings of U.S. dollars are huge, amounting
to some $43 billion in liquid form. This fact itself
is a mark of the confidence which others have in the
political and economic stability of the United States
and is a tribute to the success of the international
trade and payments system we have been creating--a
system of progressively fewer restrictions to the flow
of goods and capital. The overwhelming bulk of the
rapidly growing volume of international transactions
by Americans and foreigners alike are not only
legitimate business and personal transactions, but
serve the larger interests of the United States in
effective monetary arrangements and freely flowing
trade and payments. It has, therefore, been of
paramount concern to us that the proposals we are
making will in no way restrict the regular and efficient
flow of domestic and international business, or
personal transactions, or diminish the willingness of
foreigners to hold and use the U.S. dollar.
The second consideration is that consistent with
our determination to deter tax and'other evasion by
U.S. persons involving foreign financial transactions,
we have sought to develop proposals under which the
benefits t"o our tax collections and to our law
4
enforcement objectives exceed the direct and indirect
costs which these proposals bring about.
Finally, we have not lost sight of traditional
freedoms, many of which are set forth in our
Constitution, others which have become identified
with our way of life. In strengthening enforcement,
we must not jeopardize these principles.
Background
Just what is a secret foreign bank account?
It is an account maintained in a foreign banking
institution in a country which has laws which
strictly limit the conditions under which information concerning an account will be made known to
governmental authorities.
There is no certainty as to the exact dimension
of the use of foreign bank accounts by U.S. citizens
and residents, or the number being used for illegal
purposes or the size of the tax fraud and other
criminal violations shielded by such accounts. Even
though the number of persons involved and the amounts
of tax fraudulently evaded by these means may be
small in comparison to total U.S. taxpayers and tax
collections, the principle involved is central to
proper tax administration: any tax fraud scheme
must be attacked vigorously.
We all have the right to demand that all Americans
pay their proper amount of taxes as determined under
5
the revenue laws. If tax fraud fostered through
the illegal use of foreign bank accounts is not
curbed, our self-assessment system of taxation
could be seriously impeded.
Rapid means of international transportation
and communication have greatly facilitated the free
flow of funds and commerce across what were once
thought to be great distances. These technological
advances 'have added to the problem of tax fraud
through the use of secret foreign bank accounts.
The anonymity offered by foreign accounts has
been used to conceal income made in connection
with various crimes that have international features.
They include the smuggling of narcotics, black market
currency operations in Southeast Asia, and illegal
trading in gold. These illegal undertakings frequently
involve tax fraud.
Use by Organized Crime
Racketeer Money: There is strong evidence of
a substantial flow of funds from racketeers in this
country, particularly those associated with gambling,
to certain foreign banks. Some of these funds
appear to have been brought back into the U.S. under
the guise of loans from foreign sources. This may
be providing a substantial source of funds for
investment by the criminal element in legitimate
business in the U.S.
Money from Narcotics:
In March, 1969, Treasury
Agents of the Bureau of Customs broke up a major
international heroin smuggling scheme by intercepting
115 pounds of heroin in New York City. Cash transfers
of this organized crime enterprise were run through
sp.cret foreign bank accounts. One of the defendants
alone admitted to forwarding half a million dollars
from the United States to Geneva.
If adulterated at the usual ratio of five to one,
the 115 pounds of pure heroin would have yielded 690
pounds of diluted heroin mixture. It is estimated that
one such pound will yield 7,000 one-grain doses. The
690 pounds would have put 4.83 million one-grain doses
into the hands of pushers on the streets with a total
value of about $24,000,000 ($5.00 per dose). I am sure
that you can understand why we feel so strongly that
something must be done.
Use in connection with White Collar Crime
Foreign bank accounts are opened to facilitate
tax fraud by some people who otherwise appear
respectable and law abiding. They are used in an
effort to hide unreported income from commercial
operations in the United States or income from investments made through a foreign bank.
Personal Accounts: Accounts in foreign banks are
used as repositories for money representing income not
reported on United States tax returns, much in the same
way as bank safety deposit boxes have been used in this
country. For information on the existence and nature of
the accounts, dependence has been placed upon informants
and the subsequent tracing of transactions through banks
in this country.
~I ,~)
(
L~j
> i
"Arrangements" with Foreign Customers and Suppliers:
In some cases, United States taxpayers have arranged
with their foreign customers or foreign suppliers for
the preparation of false commercial documents overstating
amounts received from the United States taxpayers or
understating amounts paid to them. The funds placed
in the hands of the foreign conspirators as a result of
th~se falsifications are deposited with banks in banksecrecy countries for the credit of the United States
taxpayers.
,
Transactions in Securities: Taxpayers, by opening
accounts with foreign banks and financial institutions,
have been able to buy and sellon the United States
stock markets without disclosing their interest in, or
taxable income from, such transactions.
***
Let me now turn to the Nixon Administration's
reform program •.
Foreign Policy--Swiss Treaty Negotiations
The recent discussions with Swiss officials have
centered upon the development of a proposed mutual
assistance treaty to provide information and judicial
records, locate witnesses and provide other aid in
criminal matters. However, the U.S. and Switzerland
already are parties to a convention for the avoidance
of double taxation with respect to income taxes which
is relevant to bilateral cooperation for obtaining
bank records to prosecute tax fraud. Article XVI of
this latter treaty provides for the exchange of
7
8
information for the prevention of fraud or the like
in relation to income taxes which are the subject
of the convention.
We have only recently become aware that Swiss
law makes an important distinction between simple
tax evasion and tax fraud, which is an aggravated
form of tax evasion. Whereas individuals guilty
of simple tax evasion under Swiss law are not
considered to have committed "crimes" as we know
the term, and thus are not subject to jail sentences,
tax fraud in connection with the Swiss federal
withholding tax on interest and dividends and the
income tax laws of sixteen of the twenty-five
Swiss cantons, including the economically more
important cantons, is deemed a criminal offense
which can result in the imposition of jail sentences
and which is handled in criminal rather than
administrative proceedings.
This distinction between tax evasion and
tax fraud becomes of essential importance because
under Swiss law the obligation of a bank to observe
secrecy about the affairs of its depositors is
superseded by the duty to furnish information,
give testimony, or produce documents in criminal
proceedings which include tax fraud proceedings.
9
Speaking on behalf of this Administration,
I can assure you that we are actively exploring
w~th the Swiss authorities the obtaining of the
same information, including bank records, as can
be made available to Swiss authorities.
Administrative Reform
I believe that a primary responsibility upon
taking office is to determine how current law is
being administered and whether administration can
be improved. In early 1969, in conjunction with
work for discussions with Switzerland, I authorized
a review of existing practice and statutory
authority to see what improvements and additional
action could be taken administratively. It was
concluded that much along the following lines
could be done to combat this problem even without
legislation.
No matter what treaty, legislation, or regulations
might be implemented, efficient and effective
prosecution of law evaders is an important element in
curbing the illegal use of foreign bank accounts. Law
10
enforcement agencies are increasing efforts to uncover
individuals who have made illegal use of foreign bank
accounts. The new United States Attorney for the
Southern District of New York, Whitney N. Seymour ,Jr. ,
has been in close contact with key officials in
Washington to implement a vigorous attack against
individual offenders.
The Internal Revenue Service presently is thoroughly
reviewing its operations, including its audit procedures,
to develop more effective internal procedures for
uncovering cases of tax fraud involving the use of
foreign bank accounts, as well as for compiling and
constructing solid evidentiary records in these cases.
New guidelines are being established to aid Treasury
Agents of the Internal Revenue Service in handling
investigations of taxpayers who employ or are believed
to employ secret foreign bank accounts.
New Regulations and Administrative Practices:
Another means of attacking the problem under
existing law is to implement new effective regulations
and administrative practices.
One significant measure that this Administration
has already taken under existing authority will be to
require on next year's tax return that u.s. citizens,
residents, and certain other persons effectively doing
business in the United States identify their direct or
indirect interests in foreign bank accounts. I believe
that this will be an effective deterrent to the use of
these accounts to evade taxes, since the failure to reveal
the existence of such interests will result in the
imposition of criminal penalties apart from those
otherwise applicable to the filing of fraudulent tax
returns.
In conjunction with this disclosure requirement
this Administration has under consideration a
'
proposal that, pursuant to regulations, taxpayers
with interests in foreign bank accounts be required
to maintain specified records of transactions they
have with these accounts.
Another related proposal which is being given
consideration is that taxpayers who report interests
in foreign bank accounts on their tax returns at the
same time personally would authorize the foreign
financial institutions in which the accounts are
maintained to forward any information which might be
requested by U.S. law enforcement officers pursuant to
the same legal process required to obtain bank records
in the United States.
Still one more area being thoroughly considered
by the Treasury Task Force is the extent to which
evidentiary presumptions could be implemented through
regulations which would make funds flowing through
foreign bank accounts be deemed to be untaxed income
unless taxpayers provided sufficient information and
records to the contrary. This area is very closely
related to comparable legislative proposals which I
shall mention shortly.
I believe that this recitation of what already
has been done by this Administration with respect to
administrative measures and regulations, and to further
international assistance to curb the illegal uses of
foreign bank accounts clearly demonstrates our
seriousness of purpose and that we have accomplished
more than ever before. Even apart from the legisation
12
this subi ect presently before this Congress,
_.dmlni s tra ti 'Ie ac ::~on and Lrn:ernational cooperation
n(;ld prCIT'iSE of st.'bstantiaU y curbing the illegal
~CP of the~e fcrli~n ~cc0cntc.
• ';Ii
lhi.s is the first Administration in recent history
r.CJ. :.;upport the concept of development of effective
-;eg i.S lation wh:i.ch ~lOuld provide valuable additional
stctutorv tools to counter the illegal use of secret
bank accounts. In this connection, this Administration
has strongly supported the objectives of those aspects
on the legislation of the House Banking and Currency
:Committee ch;~ired by CongresslJ1an Wright Patman,
l-!. P. 150~13. tr2.t are L-~:~endp<; to anleliorate this problem.
Lov. €ve!.", in my t:es timony befcre the House Banking and
:~urrenc,! CCIrmittee on March 2
1970, I pointed out
s·2vcral key changes of H.R. 15073 which were necessary
!.o mp.ke it responsi.vf~C(1 this problem, only some of
"'-~-=sh were impletne1"ted by the COmr!1ittee before it
:.:npcrtE:d thE' bill out a 1 the ~n(i of Harr:h.
1
j
As originally introduced; H.R. 15073 suffered
'~0~ numerous and obvious shortcomings.
In general, it
cl:,,·,ximized burdens 1_1pon the publ ic and the economy while
i niml :zing enforc emcr.t effec t i venes s .
Hore specifically,
~.'le bill would have made mandatory the photocopying, at
l~ast once and possibly twice, of every check written
i~ the United Stat~~--at least 20 billion and possibly
I~,n billion itemE annuaJ ly--and it further T,olould have
;;?v--:-i tre(i l.1 dnhibic:?c of:r:icial government rummaging through
~p records af certBin hBnks without regard for the
nrivacy saf~guards provided by established discovery
T
13
We presented to the Committee amendments and,
later, a substitute bill. Our proposals would have
maximized enforcement and minimized burdens and
offered further advantages of brevity, clarity, ease
of application and flexibility not shared by H.R.
15073. Our proposals would have strengthened the bill
in several ways, including amendments to lessen
wasteful and counterproductive recordkeeping, and limit
incursions upon the right of privacy.
Those amendments to the Patman legislation
suggested by the Treasury, which were accepted,
considerably improved H.R. 15073 as it was initially
introduced. For example, key amendments of H.R.
15073 broadened recordkeeping requirements to encompass
various types of other financial institutions engaged
in international transfers of funds, as well as
commercial banks.
In my testimony before the House Banking and
Currency Committee on March 2, 1970, I specified records
of types of international transfers which the Treasury
Department recommended be maintained by these
institutions pursuant to regulations issued by the
Secretary of the Treasury for a period of six years.
These included records of remittances transferring funds
to and from the United States, both records of checks
negotiated abroad and foreign credit card purchases in
excess of $1,000, records of foreign checks transmitted
abroad for collection, records of foreign drafts, and
records of international letters of credit and documentary
collections.
I believe that the Committee should have adopted
a number of desirable suggestions made by the Treasury
which are needed to limit the scope of the legislation
to its intended purpose--to assist criminal, tax, and
regulatory investigations and pro~eedings.
1
The Treasury recommended recordkeeping, reporting
and disclosure requirements which would have a high
degree of usefulness in criminal, tax, or regulatory
investigations, and which were directly related to the
problem of the illegal use of secret bank accounts.
It has only recently come to the fore that the
legislation is intended to deal not only to some
extent with the problem of secret foreign bank accounts,
but that a basically separate problem area with which
H.R. 15073 also is concerned is the trend on the part of
domestic banks not to maintain microfilm records of all
checks drawn on them.
The Treasury Department urged amendments that
would have limited all recordkeeping and reporting
requirements of H.R:-IS073 to those which are likely
to have a high degree of usefulness in criminal, tax,
or regulatory investigations or proceedings.
However, the Committee adopted this significant
limitation only in connection with the recordkeeping
requirements imposed upon banks and other financial
institutions. It failed to accept the same standard
with reference to the reporting requirements imposed·
This refusal is significant, especially in view of
the growing concern in America over possible incursions
by Government into individual privacy. I believe it is
generally accepted that the right of privacy is not absolute,
but must be balanced against the need for information
inherent in the governing process. For example, few of
us would quarrel with the need for the Government
to require individuals to file tax returns which, to
some extent, of course, contain private information.
Nevertheless, this right of privacy must be protected
against any unnecessary incursions.
However, the reporting requirements of the Patman
Committee legislation possibly could result in
unnecessary inroads into this right of privacy. For
example, consider the requirement of reporting
domestic currency transactions in the Patman legislation. An analogy can be made between reporting of
such transactions by financial institutions to the
Government and searches through the records of these
institutions without the transactions of a particular
taxpayer in mind.
If such reporting requirements are limited, as
the Treasury recommended, to those transactions likely
to have a high degree of usefulness in criminal, tax,
or regulatory investigations or proceedings, the
potential unnecessary incursions on personal privacy
would be limited; such might not be the case under the
present H.R. 15073 language which permits the requiring
of reports of any domestic currency transactions
without any comparable limitation.
The Patman Committee testimony indicated that H.R.
15073 would require the microfilming of at least twenty
billion checks per year. There have been conflicting
and unsupported views expressed as to the cost of such
a requirement, as well as to the additional number of
checks which would have to be microfilmed, in addition
to those presently being copied. However, there was
16
no substantial testimony indicating that the records
of such checks would be of sufficient value to counter
the additional recordkeeping costs whatever they, in
fact, may be. The cost of any burdensome recordkeeping
or reporting requirements would be likely to be passed
on to the public, including everyone with a checking
account.
This apparent willingness of the Committee to
enact legislation with only meager study or factual
basis is even clearer with respect to Title III of
H.R. 15073 which would extend the applicability of margin
requirements under section 7 of the Securities Exchange
Act to the purchasers of stock as well as to brokerdealers and financial institutions who lend money for
that purpose. This significant provision was added to
H.R. 15073 only in March, over three months after the
original bill was introduced, and was accepted by the
Committee without any testimony being presented on it by
concerned parties.
One legislative proposal which the Treasury
Department has been fully considering (if the remedy,
as I discussed earlier, cannot be achieved administratively),
which we believe could be of ~cant assistance in
curLing the illegal use of foreign bank accounts, and
which would not pose any conflict with a right of personal
privacy, is the establishment in the Internal Revenue Code
of rebuttable presumptions that u.s. citizens, residents,
and certain other taxpayers engaging in certain foreign
transactions, and not furnishing upon request adequate
information to the Secretary of the Treasury or his
delegate, are dealing with their oWn untaxed income. As
an alternative proposal, Treasury also has under
consideration an excise tax which would be applied in
17
situations where no adequate information of the
foreign transactions is provided by the taxpayer.
The presumptions would be in the nature of
evidentiary presumptions which could form the basis
for a determination of civil tax liability (including
interest and penalties) unless the taxpayer establishes
by the clear preponderance of the evidence that his
untaxed income is not involved.
It is the Government's understanding that most
persons who use foreign financial institutions, even
in countries where bank secrecy is strictly observed,
can themselves obtain full information about their
accounts and transactions. Therefore, it is assumed
that u.s. taxpayers will be able, without difficulty,
to satisfy the Secretary of the Treasury or his delegate
as to his foreign transactions so as to avoid the
application of either the presumption or excise tax if
either is implemented.
Cooperation of the Private Sector
As is true in developing any public policy as
expressed by legislation or administrative rule-making,
final action is taken only after securing views,
information, and--hopefully--cooperation from those
sectors that would be primarily affected. In the instant
case, in developing a legislative and administrative
approach to this problem affecting primarily the
financial community, we believed it incumbent upon us
to work with representatives of the banking industry,
brokerage houses, and other related businesses involved
1
in the transmittal of funds to and from foreign secret
bank accounts. As stated in a December 27, 1969,
Washington Post editorial referring to the Patman bill
as originally introduced:
"This is a subject, of course, on which
bankers ought to have their say. The
strange thing is that they had not been
consulted while the bill was being drafted.
Though it is of great importance to curb the
misuse of hidden bank accounts abroad, it is
equally vital to protect the free flow of
international commerce and to avoid the
imposition of unnecessary burdens upon the
banks."
I would be remiss not to publicly thank these
members of the business community for the high level
of cooperation we received, and I would especially like
to thank the large banks which are members of the
New York Clearing House. They provided us with much
valuable background information on possible avenues of
illicit activities, on foreign banking operations, and
they offered many new and constructive suggestions on
more effective legislative and administrative approaches
that would benefit our enforcement efforts.
Clearing House member banks further indicated that
on a voluntary basis, even before any legislative or
regulatory action, they will comply with almost all of
the recordkeeping requirements in connection with
international transfers of funds that we desire, which
records would, of course, only be available to governmental
representatives in accordance with existing discovery
procedures. I believe that this spirit of cooperation
between the public and private sectors will continue
to grow, and that working together we shall effectively
meet this priority enforcement problem.
To sum up, the Nixon Administration has acted to
attack this critical enforcement problem in four
interrelated areas:
First: The development of solutions has been
elevated from an ad hoc case-by-case approach to the
foreign policy level. Treaty discussions have been
undertaken with the Swiss authorities and we are in the
process of contacting other governments.
Second: The Treasury is carrying out a comprehensive
administrative review of current procedures and an
analysis of what further can be done under existing
statutory authority.
Third: The "Treasury has made, on behalf of the
Administration, certain legislative proposals regarding
this problem.
Fourth: The Treasury is working" with the private
sector to develop cooperative measures against this
illegal activity.
This is the first Administration to support the
development of effective legislation which would provide
additional authority to deal with the illegal use of
secret foreign bank accounts. My major concern is
that the legislation Should be responsiVE to the problem
and be limited in scope to its intended purpose--to
assist criminal, tax, and regulatory investigations
and proceedings. If limited as I have stated, there
should be no concern over possible incursions by
government into individual privacy.
In closing, I also wish to restate the three
fundamental concerns of the Treasury which are
foremost in its consideration of this issue:
1. The proposals should in no way restrict
the regular and efficient flow of domestic and international business, or personal transactions, or diminish
the willingness of foreigners to hold and use U.S.
dollars.
2. The proposals should deter tax and other
evasion by U.S. persons in such a way that the benefits
to law enforcement objectives exceed the direct and
indirect costs that the proposals would bring about.
3. In strengthening enforcement, the proposals
should not jeopardize traditional American freedoms.
000
FOR IMMEDIATE RELEASE
April 24, 1970
The Department of the Treasury announced today that the
following notice will be published in the Federal Regis ter of
Saturday, April 25:
NOTICE
DEPARTMENT OF THE TREASURY
April 23, 1970
Request for Waiver of Coastwise Laws for SS SANSINENA
Notice is hereby given of a Treasury Department review
of action previously taken with regard to waiving coastwise
trading restrictions on the SS SANSINENA. The Union Oil
Company of California requested a waiver of the coastwise
laws to permit the Liberian tanker SANSINENA to engage in
the United States coastwise trade. The vessel was built
by the Newport News Shipbuilding and Drydock Company,
Newport News, Virginia, and delivered on October 24, 1958.
The application states that its dimensions are 70,700 DWT,
810 feet length, 104 feet breadth, and 60 feet depth; it
has a cargo capacity of 488,000 barrels; its present owner
is the Barracuda Tanker Corporation, Hamilton, Bermuda;
and it is presently under a long-term charter to Union
Oil Company. Since the SANSINENA was placed under
Liberian flag immediately after it was built, it is
prohibited from engaging in the coastwise trade by existing
law (41 Stat. 998, as amended; 46 U.S.C. 883), unless a
waiver is granted pursuant to the Act of December 27, 1950.
On March 2, 1970, the Treasury Department granted a
waiver of the coastwise trading restrictions on the
tanker SS SANSINENA, subject to the following conditions:
(1) the vessel will be documented under the laws of the
United States; (2) it will be owned by a United States
domiciled corporation, all of the stockholders of which
will be citizens of the United States; (3) it will be
manned by American licensed and unlicensed crews; and
(4) it will be used primarily for the transportation of
Alaskan crude oil to West Coast refineries.
(OVER)
K-404
- 2 A number of questions were raised subsequent to the
issuance of the waiver. On March 10, 1970, Secretary
Kennedy announced that he had suspended the waiver in
order to conduct a further administrative review. This
administrative review ~ill begin immediately.
Consideration will be given to any relevant data,
submitted in writing, in quadruplicate, to the
Assistant Secretary of the Treasury for Enforcement and
Operations, Washington, D. C. 20220. Such data should
be received not later than May 15, 1970.
Persons interested in having access to submissions
filed pursuant to this notice, that are not determined
by the Treasury Department to be exempt from disclosure
pursuant to Title 31 CFR 1.5, should request such
access during office hours in the public reading room
of the Treasury Department, 15th Street and
.
Pennsylvania Avenue, N. W., Washington, D. C. 20220.
lsi
EUGENE T. ROSSIDES
Eugene T. Rossides
Assistant Secretary of the Treasury
ATTENTION:
FIllANCIAL ED1'l'OR
FOR RELEASE 6: 30 P.M.,
-
MondaY, April 27 I 1970.
RlSUL!S
or
ftlASURT t S WUILY BILL OFFERIOO
The Treasury Department aDDounced that the tenders for tvo series of Treaaury
bills, one series to be an additiODal. illue of the bills dated January 29, 1970, and
other series to be dated April 30, 1910, which were offered on April 22, 1910, were
opened at the Federal RelerYe BukI tocSq. !enderl vere invited for $1,800,000,000,
~thereabouts, of 91-~ billa and tor .1,300,000,000, or thereabouts, of lB2-d~
bills. The details of the two aeries are as tollows:
~e
RANGE OF ACCEPTED
C(MpETrrIVE BIDS:
High
Low
Average
91-~
Tre..ur,y bills
Jl&tuiy J y 30. 1970
.l. .roz. Bqa1T.
Price
AImu&l Rate
98.306 iI
6.70$
98.225
7.02_
98.262
6.87S; Y
!I
·
lB2-day Treasury bills
maturin.s: October 29, 1970
Approx. Equiv •
Annual Bate
Price
95.:398
7.125fJ
96.:324
7.271~
96.:3:3:3
7.253~
Y
Excepting one tender totaliag $100,000
of the amount of 91-~ bills bid for at the low price was accepted
21~ of the ~ount ot 182-a., Dilla bi4 tor at the law price was accepted
24~
TOTAL TENDERS APPLIED FOR .AlID ACCZPrED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
. Philadelphia
Cleveland
Richmond
Atlanta
Chicago
. St. Louis
: Minneapolis
Kansas City
Dallas
San Francisco
TOTAIB
•
•
AEl2lied For
Accened
32,560,000
32,560,000
1,820,370,000 1,206,370,000
4,0,900,000
26,900,000
37,360,000
37,360,000
11,270,000
19,270,000
68,350,000
48,350,000
185,660,000
18',~,OOO
'2,880,000
«,180,000
6,510,000
6,510,000
50,120,000
50,120,000
27,4.60,000
29,660,000
128 ,850 ,000
llI.850,OOO
$2,",,190,000 .l,8oo,070,000
160.500,000
AcceEted
,
6,iSo,ooo
1,071,:330,000
9,300,000
35,580,000
9,950,000
17,860,000
31,100,000
16,900,000
:3,650,000
14,'70,000
10,290,000
73,270,000
!I .2,894,650,000
$1,300,150,000
Applied For
is ,550,000
2,41..5,550,000
•
10,910,000
55,060,000
12,450,000
36,040,000
liB ,480,000
21,800,000
3,750,000
18,270,000
·r
·
·
·
·
23,290,000
£I
IInc1udes $385,;330,000 aODca.petiti~ tender. accepted at the average price of 98.262
IInc1udes $181,230,000 noncompetitive tenders accepted at the average price ot 96.333
'rbes e rates are on a baDlt diacount b..is. The equivalent coupon issue yields are
7.0~ tor the 91-<iay billa, &114
7.e'tor the 182-cl.q bills.
q~D
THE DEPARTMENT OF THE TREASURY
UNITED STATES SECRET SERVICE
OFFICE OF THE DIRECTOR
WASHINGTON, D.C.
20226
FOR IMMEDIATE RELEASE
TO NEWS MEDIA
April 28, 1970
The Director of the United States Secret
Service, James J. Rowley, today administered the
oath of office to the first recruit class of the
newly established Executive Protective Service in
Washington, D.C.
The class, which consists of 27 young men
recruited from throughout the nation, including the
Washington Metropolitan area, will participate in a
14 week recruit training course.
The Executive Protective Service, a uniformed
force supervised by the Secret Service, was
established on March 19, 1970, when President Richard M.
Nixon signed legislation submitted by the Congress.
The new law expands the responsibilities and size of
what was formerly the White House Police.
The EPS
will continue protecting the White House: buildings
in which Presidential offices are located; the
President and his inunediate family; and will now
protect diplomatic missions located in the Metropolitan
area of the District of Columbia.
- 2 -
The ceremony was attended by Eugene T.
Rossides, Assistant Secretary of the Treasury,
John J. Caulfield, Staff Assistant to the
President, and officials of the Secret Service.
The Secret Service is currently conducting a
nationwide recruitment drive to fill about 500
openings for young men who may be interested in
a law enforcement and security career with the new
Executive Protective Service.
#
#
#
FOR IMMEDIATE RELEASE
April 28, 1970
MEMORANDUM TO THE PRESS:
The Treasury Department is hosting a one day
planning session on the Presidential Commission on
Financial Structure and Regulation. This will be a
special meeting of academic and business financial
economists, assembled to discuss the technical aspects
of the Commission and its method of operation. The
session is scheduled for Wednesday, April 29, 1970, and
is expected to run from 10:00 A.M. to 4:30 P.M.
This meeting is a "brainstorming" session with
two major objectives:
To help identify and evaluate alternative
approaches to the organization and
operation of the Commission;
To help identify some of the leading
issues deserving the Commission's
attention and the methodology for
dealing with them.
A news briefing will be held shortly after the
conclusion of the meeting, in Room 4121, Main Treasury.
The anticipated time of the briefing will be 5:00 P.M.,
April 29, 1970.
THOSE INVITED TO ATTEND PLANNING SESSION ON THE
PRESIDENTIAL COMMISSION ON FINANCIAL STRUCTURE AND REGULATIONS
The meeting will be chaired by Henry C. Wallich,
Senior Consultant to the Secretary of the Treasury.
Reed O. Hunt, recently named by President Nixon to be
Chairman of the Commission, will be present. Others
K-405
- 2 invited to participate in the session are:
Daniel S. Ahearn, Wellington Hanagement Co.,
Boston, Massachusetts;
David Alhadeff, Dept. of Economics, University
of California, Berkeley, California;
G. L. Bach, Graduate School of Business, Stanford
University, Stanford, California;
F. N. Barnes, Senior Vice President, Crown Zellerbach
Corp., San Francisco, California;
Samuel B. Chase, Jr., Dept. of Economics, University
of Montana, Missoula, Montana;
Albert H. Cox, Jr., First National Bank,
Dallas, Texas;
Irwin Friend, Wharton School, University of
Pennsylvania, Philadelphia, Pennsylvania;
Raymond A. Goldsmith, Dept. of Economics, Yale
University, New Haven, Connecticut;
Jack M. Guttentag, Wharton School, University of
Pennsylvania, Philadelphia, Pennsylvania;
Kermit O. Hanson, Dean, Graduate School of
Business, University of Washington, Seattle, Washington;
Donald P. Jacobs, Dept. of Economics,
Northwestern University, Evanston, Illinois;
Henry Kaufman, Salomon Brothers and Hutzler,
New York, New York;
Leon T. Kendall, President, Association of Stock
Exchange Firms, New York, New York;
Saul B. Klaman, National Association of Mutual
Savings Banks, New York, New York;
wesley Lindow, Executive Vice President and
Secretary, Irving Trust Co., New York, New York;
- 3 -
John Linter, Graduate School of Business,
Soldiers Field Road, Harvard University,
Boston, Massachusetts;
David I. Meiselman, Dept. of Economics,
Macalester College, St. Paul, Minnesota;
Almarin Phillips, University of Pennsylvania,
Philadelphia, Pennsylvania;
Lawrence S. Ritter, Dept. of Economics,
New York University, New York, New York;
Francis Schott, Equitable Life Assurance Society
of the U. S., New York, New York;
Richard T. Selden, Dept. of Economics, University
of Virginia, Charlottesville, Virginia;
Hugh H. Smith, Jr., Assistant Counsel, Committee
on Banking and Currency, Washington, D. C.;
Paul Trescott, Southern Methodist University,
Dallas, Texas, and
Charles Williams, Harvard University,
Cambridge, Massachusetts.
Treasury Secretary David M. Kennedy and
Under Secretary Charls E. Walker will represent the
Department. Representatives will also be present from the
Federal Reserve Board, Federal Deposit Insurance Corporation,
Federal Home Loan Bank Board, Comptroller of the Currency,
Bureau of the Budget and Council of Economic Advisors.
000
~eDepartmentofthe TREASURY
SHINGTON. D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
TREASURY SAYS WHOLE DRIED EGGS FROM HOLLAND
BEING SOLD AT LESS THAN FAIR VALUE
Assistant Secretary of the Treasury Eugene T. Rossides
announced today that whole dried eggs from Holland are
being, and are likely to be, sold at less than fair
value within the meaning of the Antidumping Act, 1921,
as amended.
Notice of the determination and of the reference
of the case to the Tariff Commission will be published
in the Federal Register of Thursday, April 30.
Instructions are being issued to customs field
officers to withhold appraisement of entries of such
merchandise for a period not to exceed 3 months from
the date of publication of the "Withholding of Appraisement Notice" in the Federal Register.
During the period January 1, 1969, through
December 31, 1969, whole dried eggs valued at approximately $449,200 were imported from Holland.
###
~t
Ie Department of the
TREASURY
.GTON. D.C. 20220
TELEPHONE W04-2041
-FOR IMMEDIATE RELEASE
April 29, 1970
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
13,100,000,000, or thereabouts, for cash and in exchange for
rreasury bill s maturing
May 7, 1970,
in the amount of
)3,002,349,000,
as follows:
~r
9l-day bills (to maturity date) to be issued May 7, 1970,
~ the amount of $1,800,000,000,
or thereabouts, representing
In additional amount of bills dated
February 5, 1970, and to
lature
August 6, 1970,
originally issued in the amount of
11,202,619,000,
the additional and original bills to be
:reely interchangeable.
182-day bills, for $1,300,000,000,
lated
May 7, 1970,
and to mature
or thereabouts, to be
November 5, 1970.
The bills of both series will be issued on a discount basis
lnder competitive and noncompetive bidding as hereinafter provided,
~ at maturity their face amount will be payable without interest.
b~ will be issued in bearer form only, and in denominations of
ill,OOO, $50,000, $100,000, $500,000, and $1,000,000 (mRturity value).
Tenders will be received at Federal Reserve Banks and Branches
~to the closing hour, one-thirty p. m., Eastern Daylignt Saving
ime,
Monday, May 4, 1970.
Tenders will not be
eceived at the Treasury Department, Washington. Each tender must
~for an even multiple of $10,000, and in the case of competitive
mders the price offered must be expressed on the basis of 100,
:th not more than three decimals, e. g., 99.925.
Fractions may
Jt be used.
It is urged that tenders be made on the printed
orms and forwarded in the special envelopes which will be supplied
JFederal Reserve Banks or Branches on application therefor.
!
Banking institutions generally may submit tenders for account of
~tomers provided the names of the customers are set forth in such
enders. Others than banking institutions will not be permitted to
~mit tenders except for their own account.
Tenders will be received
illiout deposit from incorporated banks and trust companies and from
-406
- 2 responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public announce
ment will be made by the Treasury Department of the amount and price raJ
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on May 7, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
May 7, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differ€llCeS 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 St~tes, 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.
~Departmentolthe
'HINGTON. D.C. 20220
~'1
TREASURY
TElEPHONE W04-2041
FOR IMMEDIATE RELEASE
WASHINGTON, D.C.
April 29, 1970
TREASURY ANNOUNCES $16.6 BILLION REFillIDJJiTG AND $3.5 BILLION NEW CASH BORROWJNG
The Treasury announced today that it is offering holders of the $16.6 billion
of5-S/S% Treasury Notes of Series B-1970 and 6-3/S% Treasury Notes of Series C-1970,
~~ing May 15, 1970, the right to exchange their holdings for a 3-year 7-3/4%
~easury note or a 6-year 9-month S% Treasury note. The public holds about $4.9
billion of the notes eligible for exchange, and about $11.7 billion is held by
Government accounts and Federal Reserve Banks. In addition the Treasury will
borrow $3.5 billion, or thereabouts, through the issuance of an IS-month 7-3/4%
~easury note to be dated May 15, 1970, and to mature November 15, 1971, at 99.95
(to yield about 7.79%). In addition to the amount offered to the public an additional
~mmt of the IS-month notes will be allotted to Government accounts and Federal
Reserve Banks.
EXCHANGE OFFERING
The notes now being offered are:
an additional amount of the 7-3/4% Treasury Notes of Series A-1973,
dated October 1, 1969, due May 15, 1973, at 99.40
(to yield about
7.98~); and
an additional amount of the S% Treasury Notes of Series A-1977, dated
February 15, 1970, due Febru~ 15, 1977, at par and accrued interest from
February 15 to May 15, 1970, ($19.66S51 per $1,000).
There are now outstanding $1,157 million of the 7-3/4% notes and $1,S56 million
of the S% notes.
The books for the receipt of subscriptions in the exchange offering will be
open for three days, May 4 through May 6. The p8\YIDent and delivery date for the
notes will be May 15, 1970.
Cash subscriptions for the Series A-1973 and A-1977 notes will not be accepted.
fubscriptions addressed to a Federal Reserve Bank or Branch, or to the Office of the
~easurer of the United States, and placed in the mail before midnight, May 6, will
De considered as timely.
Interest will be payable on the Series A-1973 notes semiannually on November 15,
Interest will be
P~able on the S% notes on a semiannual basis August 15, 1970, and thereafter on
February 15 and August 15 until maturity.
1970, and thereafter on May 15 and November 15 until maturity.
f.!H
OFFERING - IS-Month Notes
Payment for the IS-month no~es m~ be made in cash, or i~ 5-5/S% not~s or
6-3/8% notes maturing May 15, wh~ch w~ll be accepted at par, ~n p8\YIDent, ~n whole
(OVER)
- 2 or in part, for the notes subscribed for, to the extent such subscriptions are
allotted by the Treasury. P8\VIDent by credit in Treasury Tax and Loan Accounts
may be made for 50% of the amount of notes allotted.
The books for
open one day only,
Bank or Branch, or
in the mail before
the receipt of subscriptions for the IS-month notes will be
Tuesday, Ma¥ 5. Subscriptions addressed to a Federal Reserve
to the Office of the Treasurer of the United States, and placed
midnight May 5, will be considered as timely.
Subscriptions from commercial banks, for their own account, will be restricted
in each case to an amount not exceeding 50 percent of the combined capital (not
including capital notes or debentures), surplus and undivided profits of the subscribing banks.
Subscriptions from commercial and other banks for their own account, Federally.
insured savings and loan associations, States, political subdivisions or instrument
i ties thereof, public pension and retirem'ent and other public funds, international
organizations in which the United States holds membership, foreign central banks
and foreign States, dealers who make primary markets in Government securities and
report daily to the Federal Reserve Bank of New York their positions with respect
to Government securities and borrowing thereon will be received without deposit.
Subscriptions from all others must be accompanied by p~ent of 10~ (in cash,
or Treasury Nptes maturing May 15, 1970, at par) of the amount of notes applied fo]
not subject to withdrawal until after allotment.
The Secretary of the Treasury reserves the right to reject or reduce any
subscription, to allot less than the amount of notes applied for, and to make
different percentage allotments to various classes of subscribers. Subject to
these reservations subscriptions in amounts up to and including $200,000 will be
allotted in full and subscriptions over $200,000 will be allotted on a percentage
basis but not less than $200,000.
All subscribers are required to agree not to purchase or to sell, or to make
any agreements with respect to the purchase or sale or other disposition of any of
the notes subscribed for under this offering at a specific rate or price, until
after midnight, May 5, 1970.
Commercial banks in submitting subscriptions will be required to certify that
they have no beneficial interest in any of the subscriptions they enter for the
account of their customers, and that their customers have no beneficial interest
in the banks' subscriptions for their own account.
EXCHANGE AND CASH OFFERINGS
The notes will be made available in registered as well as bearer form. All
subscribers requesting registered notes will be required to furnish appropriate
identifying numbers as required on tax returns and other documents submitted to tr
Internal Revenue Service.
Coupons dated ~ 15, 1970, on notes tendered in exchange or p~ent should
be deta.:hed and :ashed. when due: The ~ 15, 1970, interest due on registered
notes w~ll be pa~d by ~ssue of ~nterest checks in regular course to holders of
record on April 15, 1970, the date the transfer books closed.
Estimated Ownership of !lay 1970 Maturities
as of March 31, 1970
(In millions of dollars)
5-5/8%
Note
6-3/8%
Note
Total
commercial banks...............
1,192
1,077
2,269
savings banks . . . . . . . . . . .
29
43
72
Insurance companies:
Life. . . . . . . . . . . . . . . . . . . . . . . . .
Fire, casualty and marine....
8
3
30
35
11
65
Total, insurance companies..
38
38
76
and loan associations..
88
109
197
Corporations...................
32
46
78
State and local governments....
304
280
584
Hi other private investors....
648
958
1,606
Total, privately held .......
2,331
2,551
4,882
Reserve Banks and
Government Accounts . . . . . . . . . .
5,462
6,213
11,675
iotal outs tanding. . . . . . . . . . . . . .
7 , 793
8,764
16,557
~tual
s~ings
r~eral
Jffice of the Secretary of the Treasury
Office of Debt Analysis
April 29, 1970
April 30, 1970
MEMORANDUM TO THE PRESS:
Edwin S. Cohen, Assistant Secretary for
Tax Policy, will be honored Monday evening,
May 4, by The Tax Society of New York University,
at its Annual Achievements Awards dinner, at
the Biltmore Hotel, New York City.
Mr. Cohen will
receive the Society's Annual Achievement Award
for his contributions and accomplishments in the
tax field.
000
~INGTON.
D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
April 30, 1970
FRENCH MINISTER OF ECONOMY AND FINANCE WILL
MEET SECRETARY KENNEDY AT CAMP DAVID
Valery Giscard d'Estaing, French Minister of Economy and
Finance, will be the guest of Treasury Secretary David M.
Kennedy May 3-5 at Camp David.
The Minister will arrive in Washington May 2. He will
travel with the Secretary to Camp David late in the day on
Sunday May 3, accompanied by Olivier Wormser, Governor of
the Bank of France; Rene Larre, Director of the Treasury;
Claude Pierre-Brossolette, Special Assistant to the
Minister; and Georges Plescoff, Finance Minister of the
French Embassy in Washington. u.S. officials making the
trip will include paul A. Volcker, Under Secretary for
Monetary Affairs, John R. Petty, Assistant Secretary for
International Affairs, Bruce K. MacLaury, Deputy Under
Secretary for Monetary Affairs; and Donald M. McGrew,
U.S. Treasury Representative in Paris.
The meeting has been planned for some time to permit
a broad exchange of views on worldwide and national
financial developments.
The French delegation will return to Washington on
May 5. Later that day, the Minister and Governor Wormser
will meet with Federal Reserve Board Chairman Arthur Burns.
000
K-408
Treas.
U.S. Treasury Dept.
HJ
10
. A13P4
v.168
Press Releases
Treas.
HJ
10
. A13P4
U.S. Treasury Dept.
AUTMOR
P:t:ess RA]eases
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DAT[
L.OANED
BORROWER'S NAME
PMONE
NUMBER
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