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JUN
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1972
TREASURY UtPARTMENT
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JUN 1 h 1972
TREASURY DEPARTMENT
Ie Department of the
TREASURY
SHINGTON, D.C. 20220
TElEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 6, 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
May 14, 1970,
in the amount of
$2,993,940,000,
as follows:
9l-day bills (to maturity date) to be issued May 14, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing
an additional amount of bills dated February 13, 1970, and to-mature
August 13, 1970,
originally issued in the amount of
$1,200,664,000,
the additional and original bills to be
freely interchangeable.
l82-day bills, for $1,300,000,000,
dated
May 14, 1970,
and to mature
or thereabouts, to be
November 12, 1970.
The bills of both series will be issued on a discount basis
under competitive and noncompetive bidding as hereinafter provided,
and at maturity their face amount will be payable without interest.
They will be issued in bearer form only, and in denominations of
$10,000, $50,000, $100,000, $500,000, and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty p. m., Eastern Daylight Saving
time,
Monday, May 11, 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-409
- 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 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
May 14,1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
May 14, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differe.lces 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 oSO~ranch.
1e Department of the
SHINGTON. O.C. 20220
TREASURY
TELEPHONE W04-2041
RELEASE AT 2:15 P.M., E.D.T.
THURSDAY. MAY 7 , 1970
REMARKS BY PROFESSOR HENRY C. WALLICH
SENIOR CONSULTANT TO THE SECRETARY OF THE TREASURY
DAVID M. KENNEDY
AT THE NATIONAL INDUSTRIAL CONFERENCE BOAR~
FINANCIAL OUTLOOK SESSION
WALDORF-ASTORIA, NEW YORK, NEW YORK
THURSDAY, MAY 7, 1970
THE FISCAL OUTLOOK
We have just heard from the Budget Director himself
about the fiscal outlook as expressed in the 1971 budget.
Twenty years of intermittent association with Robert Mayo
in one advisory function or another have given me confidence that, even without having seen his remarks as I
improviaed mine, my views on this budget would not differ
sufficiently from his to avoid being repetitive.
I shall
therefore not address myself to the budget as it is, now
happily unified.
Instead, I shall talk about two meta- or
para-budgets, as one might call them.
in print.
You rarely see them
But if, in examining the business outlook, I had
to choose between knowing the real budget and knowing these
para-budgets, I have no doubt what choice I would make.
-2The Two para-Budgets
The first of these para-budgetary concepts is the
full employment budget and particularly its surplus.
The
purpose of computing this, as you all know, is to take
one thing at a time.
paperman,
wards."
As Mark Twain told the young news-
"Get your facts first and distort them afterIn the full employment budget, we first get the
facts of the fiscal situation as the tax structure and the
expenditure proposals would make them at the full employ·
ment benchmark.
We can then allow for the distorting
effects of cyclical changes in the tax base and in expenditures to produce the actual surplus, or more usually deficit.
Changes in the full employment surplus show changes in the
expansionary or contractionary stance of the budget, undistor ted by possible simultaneous cyclical changes.
The full employment surplus has fallen somewhat into
disuse partly owing to inflation.
It is hard enough to do
the actual budget under conditions of unforeleeable price
increases.
It is harder still to make reasonable assumptions
as to how prices would behave if the economy remained at full
employment. When, as at present, the economy must be slowed
-3-
to cure inflation, what price pattern is one to assume if
full employment were to continue?
As a result, high employment estimates, by their nature
"iffy," are now twice iffy -- with respect to both employment
and to prices.
peril.
Nevertheless, one disregards them at one's
At a minimum, they remind one that the actual surplus
about which we are now talking is less than the high employment surplus.
An actual surplus when the economy is operating
at a level below its potential means a larger high employment
surplus.
The Federal Reserve Bank of St. Louis, now the custodian
of these computations, places the high employment surplus at
$9.2 billion at an annual rate, in the first half of calendar
1970 and $13.1 billion in the second.
With the budget holding
down expenditures while potential revenue rises, a further
increase in the first half of calendar 1971 may safely be
assumed.
We may also assume that these estimates embody
rather high price assumptions.
From other publications of
the Federal Reserve Bank of St. Louis it is known that the
Bank expects inflation to remain high for a considerable period.
The consistency that one must expect of a well organized
-4research department suggests that these price expectations
went into the computation of the high employment surplus.
Analysts who are more optimistic about inflation will get
lower numbers.
The high employment surplus, which of course is computed
on a national incomes accounts (NIA) basis, compares with
estimates of an actual NIA deficit made by the Bank of $0.1
billion for the first and $1.1 billion for the second half
of 1970.
Without attributing great significance to the
precise figures, it is reassuring to note the substantial
order of difference.
of hand.
Evidently the budget is in no way out
It exerts a significant restraining influence,
as it should.
At the same time the figures, taken as face
value, in no way justify concern that the high employment
surplus may be too heavy, as it was in 1960.
We had an
actual NIA surplus of $13.5 billion in the second quarter of
1969, and you will recall that it was not unduly restraining.
Next, I turn to my second para-budget.
budget adjusted for Federal credit
programs.
It is the unified
The source of
my wisdom here is Special Analysis E of the budget document.
What we have here is the interesting phenomenon of off-budget
financing.
In private finance, you are all familiar with the
-5concept of off-balance sheet financing, such as assuming
an obligation inherent in a long-term rental payments.
The
Federal Government, some years ago, after at last achieving
a unified budget, proceeded increasingly to debudget certain
expenditure items by pushing them into the private capital
market, where they are financed either by sale of Federal
agency obligations, or by private borrowers using a Government guarantee, interest subsidy, and the like.
The volume of credit outstanding under these Federally
assisted programs is scheduled to rise by $13.7 billion in
fiscal 1970 and by $20.7 billion in fiscal 1971.
This incre-
ment is not fully equivalent to budget expenditures.
A good
part of the loan expenditures financed with Government
assistance might otherwise be financed without such assistance,
i.e., wholly private.
cheaper.
Government assistance just makes them
But a good part of the expenditures would not be
made without Federal help.
This is the incremental spending
called forth by these credit programs.
No precise estimate
can be made of the incremental effect.
But one may safely
say that the proportion of incremental spending, as against
spending that is subsidized but would take place also without
subsidies, is rising as Federal credit programs become more
-6generou3 and more oriented toward outright guarantees plus
subsidies instead of mere guarantees.
For instance, the
proportion rises as we shift increasingly from
mo~tagel
to
low-income housing finance.
FHA and VA-type
At a reasonable
guess, I would think that the incremental portion today is
the larger rather than the smaller part of these programs.
Conclusion
What do these two para-budgets tell us about the outlook?
First, as to the general economic outlook, the strong high
employment surplus tells us that the budget is in reasonably
good shape, is exerting some restraining influence, but is
not threatening to become a source of undue deflationary
pressure.
The budget adjusted for the Government's credit
programs, on the other hand, tells us that the Government is
adding considerably to aggregate demand outside the unified
budget.
This addition to aggregate demand does not show up
as a Federal deficit, financed with Federal debt.
It showl
up instead as private demand, financed with Federally assisted
debt.
The amounts, as you know, are very substantial for
fiscal 1971.
-7Second, the consequences of these Federally assisted
credit programs for the fiscal outlook can best be observed
if we look at the five-year projections made in the Budget
and in the Economic Report.
While the two projections are
not fully comparable, 'together they seem to show that by the
latter part of that period, on the basis of present expenditure programs and proposals, the Federal Government will
have a surplus and the private sector will have a deficit.
This means that the needs for the private sector could be
met if the public sector realizes its surplus and uses it
for debt repayment, in effect channeling resources into the
private sector.
If you should be skeptical, however, whether
a large budget surplus is politically sustainable, then this
would not add up to a plausible fiscal outlook.
three possibilities remain.
In that ease,
One is to leave private sector
demands less than fully satisfied.
The second is to pull
part or all of the Federally assisted credit programs back
into the budget.
This would mean, however, curbing new
budget initiatives for several years ahead.
The third solutic
is a tax increase as soon as the slack now developing in the
economy abates.
Personally, I would give this last outcome
the highest probability among the three.
000
Ie Department 01 the TREASURY
ISHIN'GTON, D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May
4. 1970
CUSTOMS SEIZES COCAINE AND MARIJUANA VALUED
AT $300.000 AB~ARD COLOMBIAN VESSEL A~ NORFOLK
The U. S. Customs Service, Department of the
Treasury, today announced the seizure of 22.2 pounds of
cocaine and 30 pounds of marijuana by three Special
Agents of the Bureau of Customs on a tip from the
Coast Guard.
Commissioner of Customs Myles J. Ambrose said the
seizure was aboard a Colombian flag vessel, the
"Cuidad de Bogota," at Norfolk, Virginia.
The value of the seized cocaine and marijuana was
put at $300,000 with a possible "street value" of
$2 million. Agents of Bureau of Narcotics and Dangerous
Drugs of the Justice Department and Chesapeake, Virginia,
police cooperated with the Customs agents in the
investigation.
No arrests were made, and the investigation
continues.
000"
K-4l0
Department 01 the TREASURY
SHINGTON, D.C. 20220
JQI
TELEPHONE W04-2041
"Ia.s •
Kala,.,
6:S0 P.M.,
II&y " l.970.
RlSULTS OF TIIASURY' S WlEltLy BILL GI1'DDD
!he !reu\U7 Depa.rtaent umoancecl that the tendera tor two aeriea ot !re&a1U7
'billa, ODe series to " ... a4d.1tional issue ot the billa dated rebZ'8&17 Ii, 1810, ad
the other aerie. to be dated)(q 7, 1910, which were otter... Oil AprU ZI, l.910, WN
opened at the lederal Reaerve Banka toda;:y. fenders were 1a'Y1ted. tor .1,800,000,000,
or thereabouts, ot 91-clq billa and tor $l,SOO,OOO,OOO, or thereabc:ft1ta, of 182__
billa • 'the detaila ot the two aeriea are &8 tollova:
JWm: f8 ACCBPtJa)
CCIIP.I!rrIO Blm:
np
Low
Avenae
91-dq TreasU17 billa
...turiDa: Auaut 6. 1910
Price
98.265
98 .168
98.18'
!I
Approx. ltuiT •
Bate
6.91lj
7.2'7j
7.J.8,j
1/
s_a]
lB2-dq
!reanr7 ..,1l.la
: -tEiDc lIoYeUer I, 1170
·:• Price
·• 96.294. !I
··•• 96.lB8
96.212
APPl'_. ltdv.
ADell'
1.SS
1.",*
!I kcept1Dg
.,.~
}/
2 teDders totaling $160,000; hI Bxcept1D& 1 toUr tokl1nc
of the aaoant of 91-~ 'billa 'bid tor ai" the law price ..... acc-.te4
. . ot the aaount of lB2-dq bUla bid tor at the low price 1fU accepted
_
tao
•
000
TOUL 'MOOl1BS APPLIED lOR AlID ACCIlPDD BY FEDERAL BISD"O DISftIC!S:
Diatrict
Boaton
New York
Philadelphia
Clnelud
Il1cbaoDd
Atlanta
Cllicaco
St. Loai.
II1aDeapolia
laD... Ci't7
Dallas
San Fraaciseo
TO'lA1B
•
A_lied lor
SS ,04rO, 000
2,222,220,000
38,550,000
37,250,000
36,220,000
•
•• ADlied'lor
Accened.
• 18,'.,000
!3, 04rO, 000
•
2,281,190,000
1, 215,74rO,OOO •
23,5S0,000
37,250,000
2',220,000
W,500,OOO
33,800,000
189,670,000
48 ,270,000
1',090,000
35,610,000
28,780,000
166,190,000
J.34, ,550,000
65 , 970,000
5,090,000
32,310,000
20,'780,000
~5.750,OOO
$2,868,790,000 .1,800,050,000
··••
·••
·
··•
·•••
·•
11,880,000
66,020,000
11,210,000
.,s.o,OOO
11',SU,OOO
26,280,000
11,190,000
2',800,000
28,980,000
155.100,000
£I $2,865,412,000
AcC!Ji:t
• 18;10,601
l,810,QQ,OOO
11,880,010
28,130,000
11,"0,000
S1,31O,000
SS,S6Z,OOO
18,110,000
5,480,000
21,110,000
11, NO, 800
••100,000
$1,300,612,000
tI
YIncl1ldea $S76,990,OOO noncompetitive teDdera aceepted at the aver... price of 11.11'
i/Iacl1l4e. $211, 9U, 000 lloDca.petitive tenclers accepted at tlle a'f'Vap price f4 H.W
!/'fhe.e rates are on a b&Dk d1acOWlt b.... is. The equivalent coapon i .... JieUa are
1.'~ tor tbe 11-c1q billa, and 1 .9~ tor the l.8Z-dq bUl.a.
FOR IMMEDIATE RELEASE
May 5, 1970
TREASURY TENTATIVELY DETERMINES WEST GERMAN
PIG IRON NOT BEING DUMPED IN U. S.
'ftle 'l'reasury Department announced today that it has iavestigated charges of possible dumping of pil iron from West GermaBY.
A notice announcinc a tentative determination that this merchandise is not being, nor likely to be, sold at less than fair
value within the meaning of the Antidwsping Act vi1l be published
in an early issue of the Federal Register.
D.lrinc the period Juuary 1 through December 31, 1969, pig
iron valued at approx1llately $1,483,200 va_ imported from West
Germany.
111#
Department of the
SHINGTON. O.C. 20220
TREASURY
TELEPHONE W04·2041
For Release on Delivery
STATEMENT BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
THE SENATE FOREIGN RELATIONS COMMITTEE
ON BEHALF OF LEGISLATION RELATING TO
THE INTERNATIONAL MONETARY FUND, THE INTERNATIONAL BANK
FOR RECONSTRUCTION AND DEVELOPMENT,
AND THE AS IAN DEVELOPMENT BANK
WEDNESDAY, MAY 6, 1970, 10:00 A.M., E.S.T.
Mr. Chairman and Members of the Committee:
I appear today to support S. 3628 and S. 3543 which
authorize 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.
The International Monetary Fund has recently assumed additiona1 responsibilities in administering the new Special Drawing
Rights and is steadily growing in influence and importance as
K-411
- 2 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.
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
Le~islation
S. 3628 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
- 3 shares of the Bank's capital; and authorize an appropriation of $246.1 million for this purpose.
In addition, the Special Drawing Rights Act would be
amended to provide authority for the United States Governor of
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.
Finally, under S. 3543, the Asian Development Bank Act would
be amended by authorizing the United States to enter into an
agreement with the Bank providing for a United States contribution of $100,000,000 to the Special Funds of the Bank over a
three-year period.
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.
Articles of Agreement
Although the
provide for a general review of the
adequacy 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 adjustments were also made for a small number of
- 4 countries at that time.
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 occa-
sion, 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 par-
ticipate 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
million, 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.
- 5 Need for Quota Increase
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.
It will provide
larger drawing rights on these resources
member countries
that
have
to
cope
with
larger
to
payments
imbalances
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 have
grown from $100 billion in 1958 to an annual rate of $250 billion
in mid-1969.
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.
Since
the
end
of
1963,
drawings
on
- 6 -
the Fund aggregated $13.8 billion, almost twice the amount
($7.1 billion) drawn in the previous 17 years (1947 through
1963), and drawings by the industrial countries have risen at an
even faster rate.
Since these drawings are limited by each
coun~
try'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.
On
the occasion of this quota increase, a major effort is
being made to readjust the relative proportions of quotas of countries which had not been appropriately aligned.
The quota ad-
justments recommended by the Executive Directors of the Fund
consist of increases of 25 percent or more for nearly all countries, with the largest percentage increases, ranging beyond
50 percent, for Belgium, France, Italy, and Japan, as is shown in
Table 4 of the Special Report.
The new quota distribution will
broaden the support on which the Fund can call to provide mediumterm reserve credit.
- 7 The U.S. Share of the Quota Increase
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 appropr~ation
of a similar amount to remain available until expended.
- 8 -
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
increase amounts to $385 million.
u.s.
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 drawingl
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.
As monetary transactions, neither the gold payment
nor the letter of credit entails a budgetary expenditure.
! 1
- 9 Arrangements to Minimize Impact of Subscriptions by Other IMF
Members on U.S. Reserves
As mentioned, the U.S. gold subscription in connection with
the proposed quota increase is $385 million.
While this will mean
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.
Host other major countriee will also pay their gold
subscriotions from their own gold holdings.
A number of other
countries, however, will wish to parchase 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 wade from the United States, both our reserves and aggregate
world reserves would be reduced.
To offset or mitigate this and other consequences of gold
subscription payments, the Fund has proposed special measures
which are explained in detail in the Special Report and in the
reoort 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 purchased 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 State •.
- 10 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 re1ative shares in the allocations of Special Drawi.ng
Rights.
The proposed new quota distribution involves a moderate
decline in the u.S. voting position, but it would still remain
above 21 percent.
Since the procedure for amending the Articles
of Agreement requires the approval of 80 percent of the total
17Cttng power, the U.S. is protected against the possibility,
'-:\:\~ever
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,
while other members enacted their quota increases, would reduce
the amount of the U.S. shares in each of the next two allocations
of SDRs, January 1, 1971, and January 1, 1972, by $130 million
f~om
what the United States would receive on the basis of the
ryrnposed legislation.
~nq Li~itation
~le
1'.
Proposal
Leg~Miacion
~pt!cl.al
would also provide a new limit on the amount
Drawing Rights that the U.S. Governor can vote to
- 11 allocate to the United States.
Most countries have unlimited
authority from their parliaments to vote for and to receive SOR
allocations.
In the- United States, it was decided to give suf-
ficient authority to the U.S. Governor to allow the U.S. to par~icipate
in SOR activations within a broad range without further
Congressional authority, but a reasonable upper limit was established on the amount of SORs 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 2.3 billion SORs to the
United States.
Thus, almost half of the present authority to
vote the SOR 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 8'-?ect that this amount would be
clearly inadequate in any future activation decision.
- 12 The
~roposed
bill would retain the concept of relating the
authorized limit for allocation of SDRs to the United States quota
in the Fund as it may be in effect from time to time.
be
~6,700
ir.c:rease.
This would
million should Congress approve the present proposed
However, unlike the present limit which governs cumu-
lative allocations, the proposal would allow the United States
Governor to vote for an amount of SDRs up to the amount of the
Congressionally authorized U.S. quota in the Fund in each basic
period for allocation of SDRs.
This formula thus allows the
u.s.
Governor flexibility in each basic period to vote for SDRs alloea!
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 IBRD
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
increases
- 13 received in the Fund.
Only 10% -- or $24.6 million
of the
U.5. subsc1'iplion will be paid in, and hence result in a
budget outlay.
add te.· the
u. s.
u.s.
The remaining 90% .- or $221.5 million -- will
subscription of callable capital.
The latter
-
amount will not 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 lMF
which exceeds the 25% general increase in quotas for all members.
No general increase in capital subscriptions to the lBRD is
proposed.
The policy of parallel special increases in the World Bank
carries forward the principle I described as applied to the lMF
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 lMF quota, it is also the first
occasion on which the policy of parallel action in the two
- 14 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 of all members.
That took the form entirely of an
increase in callable capital.
The United States has strongly supported the policy of
parallel action in the IHF and IBRD in the past when its financial 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 benefi.cial to the Bank and fully consonant with u.s. international financial policy.
Up to the
present time, there have been approximately 96 special increases
in Bank subscriptions taken by 62 countries, each of which had
rec,eived 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
~hich
have undergone rapid economic growth in recent years.
While the present round of special increases for the first
time entails an increase in the U.S. subscription, the policy
Jf parallel action continues to have strong advantages for the
- 15 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 million 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.
- 16 In surrmary, Mr. Chairman, I believe the proposed increase
in authorized capital and the special increase in the U.S. subscription serve the U.S. national interest.
an outstanding institution.
rhe 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 act!
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.
support, the Congress
In 1966, with strong bipartisan
~uthorized
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.
its ability to
m~rshal
It has demonstrated
resources from Europe, Asia, and North
- 17 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 multilateral 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
- 18 $25 million in fiscal year 1970, $35 million in 1971, and
$40 million in 1972.
The proposal is designed to encourage other advanced nations
to share fairly the burden of contributions to the Bank's Special
Funds.
The U.S. contribution would be a minority share of total
contributions by all donors.
It would not constitute the largest
single contribution.
In effect, the U.S. contribution would be either exceeded or
matched do1Iar-for-dollar by Japan, the Bank's other largest subscriber, which has already made a substantial pledge to the speci
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, there would be
assurance of the advantages of true multilateral support.
It
should be noted that, under the proposal, we make payment in the
form of letters of credit which are not called upon by the Asian
Bank until it needs funds for expenditure on approved projects.
This procedure permits the Bank to make loan commitments against
these additional resources before we made actual cash payments.
The natural time lag between project commitment and project construction delays the U.S. budgetary expenditure.
At the same tb
the proposal reflects our assessment of the Bank's present needs
I
- 19 and its ability effectively to utilize Special Fund resources.
It represents a U.S. contribution appropriate to the probable
size and timing of contributions by other donors, and phased over
time.
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 benefited from the views of the members
of this Committee during their consideration of an earlier
proposal.
I have recently attended the Annual Meeting of Governors
of the Asian Development Bank held in Seoul, Korea.
The Bank
has shown itself to be a sound and well-run regional development
institution, in which the countries of Asia have taken a major
share of the responsibility for both management and financing.
Together with some members of the Senate and House, 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.
- 20 -
At that annual 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 con-
tributions 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.
~O~~-~ RESERVES, IMPORTS AND FUND QUOTAS
1948 to 1989
$8il.
tSil.
PROPOSEO
1970 QUOTA
40
INCR,E
300
1966
250
INCREASE
,,.
! -'...... __ •
80
i
.'
J
25
LI
/ '"
20
,
"
FUNO QUOTAS
~.
(right scale,
""
10
--
8
-
6
~,
"
60 •••• I
J
30
~-
'r
-LA,.,w
100
World Imports
c.~
~
~
..... ~
~~
--- Tota/ Reserves
~
v/
.
~
./
40
20
'l
L('
1959
QUOTA
INCREASE
200
r
-
4
/'
~.~/
...
,.......~/'......./
..=
Reserves, excluding United States
2
Estimated
I
If'
Total reserves, Reserves excluding the United States and World Imports
b,s,d on the scale on
the left mlfgm ,nd fund quotas are based on the scale on th, fight mlfgm.
10 I
1948
1
'52
l
l
I
'54
liJilltt
1 I
I
It
I
I
'56 '58 '60 '62 '64 '66 '68 '70
YEAR
I
'72
1
If
Department 01 the TREASURY
i INGTON, D.C. 20220
TElEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 5, 1970
JOINT U.S.-FRENCH STATEMENT FOLLOWING MEETING
BETWEEN TREASURY SECRETARY KENNEDY AND MINISTER
OF ECONOMY AND FINANCE GISCARD d'ESTAING
Secretary of the Treasury David M. Kennedy and French
Minister of Economy and Finance Valery Giscard d'Estaing today
concluded informal talks on economic and financial matters of
mutual interest to the United States and France.
Minister Giscard d'Estaing and Secretary Kennedy reviewed
the economic and balance of payments positions of their two
countries. They noted in particular the efforts which each
government is making in the field of price stability, thus
providing the basis for sustainable economic growth.
Minister Giscard d'Estaing and Secretary Kennedy also
exchanged views on the international payments outlook and the
evolution of the monetary system. They underlined the proven
value of international monetary cooperation and agreed upon
the importance of close and continuing consultation among
financial authorities.
The conversations took place at Camp David, starting on
the evening of Sunday, May 3. Minister Giscard d'Estaing was
accompanied by Olivier Wormser, Governor of the Bank of France;
Rene Larre, Director of the Treasury; Claude Pierre-Brosso1ette,
Special Assistant to the Minister; and Georges Plescoff,
Financial Minister of the French Embassy in Washington.
United States officials participating in the talks included
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 J. McGrew, U.S. Treasury Representative in Pariso
000
K-4l2
Department 01 the TRfASU RY
INGTON. O.C. 20220
TElEPHONE W04-2041
fOR IMMEDIATE RELEASE
May 6, 1970
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
Eor two series of Treasury bills to the aggregate amount of
~3,100,000,000,
or thereabouts, for cash and in exchange for
rreasury bills maturing
May 14, 1970,
in the amount of
?2,993,940,000,
as follows:
9l-Qay bills (to maturity date) to be issued May 14, 1970,
Ln the amount of $1,800,000,000,
or thereabouts, representing
m additional amount of bills dated February 13, 1970, and to--:
lature
August 13, 1970,
originally issued in the amount of
?1,200,664,000,
the additional and original bills to be
:ree1y interchangeable.
l82-day bills, for $1,300,000,000,
iated
May 14, 1970,
and to mature
or thereabouts, to be
November 12, 1970.
The bills of both series will be issued on a discount basis
Lnder competitive and noncompetive bidding as hereinafter provided,
lnd at maturity their face amount will be payable without interest.
~hey 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
lp to the closing hour, one-thirty p. m., Eastern Daylight Sav.ing
ime,
Monday, May 11, 1970.
Tenders will not be
'eceived at the Treasury Department, Washington. Each tender must
Ie for an even mUltiple of $10,000, and in the case of competitive
enders the price offered must be expressed on the basis of 100,
;ith not more than three decimals, e. g., 99.925. Fractions may
lot be used. It is urged that tenders be made on the printed
orms and forwarded in the special envelopes which will be supplied
Iy 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
enders. Others than banking institutions will not be permitted to
;ubmit tenders except for their own account. Tenders will be received
lithout deposit from incorporated banks and trust companies and from
409
- 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 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
May 14,1970, in
made or completed at the Federal Reserve Bank on
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
May 14, 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 060~ranch.
The Department 01 the TRfASURY
WASHINGTON. D.C. 20220
ATTENTION:
TelEPHONE W04·2041
FINANCIAL EDITOR
FOR IMMEDIATE RELEASE
May 7, 1970
PRELIMINARY RESULTS OF TREASURY'S
CASH OFFERING OF 7-3/4% NOTES
Preliminary figures show that subscriptions from
the public total $3.6 billion for the offering of $3.5
billion, or thereabouts, of 7-3/4 percent Treasury
l8-month notes.
All subscriptions will be allotted in full.
An
additional $7.0 billion was alloted to Federal Reserve
Banks and Government accounts.
Details by Federal
Reserve Districts as to subscriptions and allotments
will be announced later this month.
Preliminary results for the exchange offering of
7-3/4 percent Treasury Notes of Series A-1973 and 8 percent
J.reasury Notes of Series A-l977 will be announced tomorrow.
000
K-413
Department 01 the TREASURY
SHINGTON, D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 6, 1970
u.S. AND JAPAN CONCLUDE NEGOTIATIONS REVISING INCOME TAX
TREATY TO REFLECT RECENT CHANGES IN RESPECTIVE TAX LAWS
Representatives of the United States and Japan have today
concluded negotiations with respect to, and initialled, a
revised income tax treaty between the two countries.
The
revised treaty reflects the changes that have been made in
Japanese and U.S. income tax laws and in accepted international practice with respect to income tax treaties since
the signing of the existing treaty and protocols in 1954,
1960 and 1962.
The representatives of the two countries agreed that,
subject to the approval by their respective Governments, all
the necessary steps would be taken to secure signature and
ratification at the earliest possible date.
The new treaty will be effective the first of
January, after the exchange of instruments of ratification.
000
K-4l4
TREASURY DEPARTMENT
WASHINGTON. D.C.
RELEASE ON RECEIPT
May 8, 1970
TREASURY SECRETARY KENNEDY NAMES GEORGE DIXON
AS STATE SAVINGS BONDS CHAIRMAN FOR MINNESOTA
George H. Dixon, Pres~dent, First National Bank of Minneapolis,
is appointed volunteer State Chairman for the U. S. Savings Bonds
Program in Minnesota by Secretary of the Treasury David M. Kennedy,
effective immediately.
He succeeds Rollin O. Bi$hop, Past President, American National
Bank and Trust Co., St. Paul, who had served as State Chairman since
1962.
Dixon will head a committee of State business, financial, labor
and governmental leaders which ~- working with the U. S. Savings
Bonds Division -- assists in promoting the sales of Savings Bonds.
He became President of the First National Bank of Minneapolis
in March 1968. From 1956 to 1968, he served as Vice President/
Finance and Treasurer of the Sperry & Hutchinson Company, New York.
He was a general partner of Davis & Davis, investment banking firm
in Providence, R. I., from 1950 to 1956. From 1947 to 1950, he
was enp10yed by Brown Brothers Harriman & Co., New York.
Dixon received his BS Degree from the Wharton School of Finance,
University of Pennsylvania, and his MBA Degree from the Harvard
Graduate School of Business.
He is a Director of the First National Bank of Minneapolis and
of the First Bank Systems !nc., First Computer Corp., Sao Line
Railroad Co., 5th District Minnesota Bankers Association and the
Viking Council, Boy Scouts of America, all of Minneapolis.
He also serves as a Director of the Otter Tail Power Co.,
Fergus Falls, Minno, and as Director and Member of the Executive
Committee of the Minnesota Orchestral Association of Minneapolis.
(OVER)
- 2 -
Dixon is a Trustee of Hanover College, Hanover, Ind., and of
the Minneapolis Society of Fine Arts.
He is Chairman of the Board and Director of Dixon Industries
Corp., Bristol, R. I.; Planning Commission Chairman of the Episcopal
Diocese of Minnesota, Co-Chairman of the National Emergency Committee on Crime and Delinquency, Minneapolis, and Board Member of
the Metropolitan Employer Plans for Progress, Minneapolis.
Born in 1920 in Rochester, N. Y., Mr. Dixon is married to the
former Marjorie Freeman of Providence. They have twin sons,
George E. and Andrew T., and a daughter, Candis H. Dixon.
000
Department of the TREASURY
TElEPHONE W04-2041
HINGTON. D.C. 20220
May 8, 1970
FOR IMMEDIATE RELEASE
TREASURY SAYS FINAL DETERMINATION IS
NORWEGIAN PIG IRON NOT BEING DUMPED
bee _de that 1'1& in. tre. .orvtl1 i •••t
_el....or
U.u~
to lie.
aold at 1••• tMa ftir value vi ttli. tlle MUs... of 'tM M'tiiuapba
Act, 1921, .. _ . . .t (19 U.'.C. 1'" et ••,.).
A tatatlv. dete1W1JlatlO1l
iater _
'!lie
$107 ,000.
.~1
1969
1, 1910.
wa. pUll. . . 1.11
~
""J'al .....
!hI. Ilotice a11CJftC 14 ..,. for
1m:portatlOil 111
!here la.ave 1teera
*ro
80
was valu'" at a:naron-telJ'
ll1pOrt.atloaa .1IIce t.1aa.
11#
Department 01 the TREASURY
HINGTON. D.C. 20220
TElEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 8, 1970
TREASURY SAY JAPANESE LOUDSPEAKERS NOT NOW
BEING DUMPED ON u. S. MARKET
The Treasury Department announced today that it
has investigated charges of possible dumping of loudspeakers from Japan.
A notice announcing a tentative determination
that this merchandise is not being, nor likely to be,
sold at less than fair value within the meaning of
the Antidumping Act will be published in an early issue
of the Federal Register.
The investigation revealed that except for one
manufacturer there were no dumping margins.
Upon
being advised that its shipments showed certain minimal
dumping margins, the manufacturer in question promptly
offered formal assurances that it would make no future
sales at less than fair value.
During the period January 1, 1968, through
September 30, 1969, loudspeakers valued at approximately
$29.9 million were imported from Japan.
###
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
April 30, 1970
(Dollar amounts in millions - rounded and will not necessarily add to totals)
DESCRIPTION
AMOUNT ISSUEDY
AMOUNT
REDEEMEDY
AMOUNT
OUTSTANDINGY
0/0 OUTSTANDING
OF AMOUNT ISSUED
IATURED
Series A-1935 thru D-1941
Series F and G-1941 thru 1952
Series J and K-1952 thru 1957
NMATURED
Series E.}j :
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
Unclassified
Total Series E
:;eries H (1952 thru May, 1959) J/
H (June, 1959 thru 1970)
Total Series H
Total Series E and H
HI Series
{ Total matmed
Total unmatured
Grand Total
5,003
29,521
3,754
4,997
29,487
3,736
1,889
8,340
13,420
15,652
12,306
5,590
5,309
5,494
5,432
4,751
4,108
4,305
4,918
5,014
5,224
5,084
4,756
4,638
4,351
4,361
4,421
4,295
4,763
4,642
4,540
4,889
4,840
4,592
4,271
361
636
1,682
7,430
11,985
13,900
10,764
4,716
4,331
4,397
4,273
3,680
3,184
3,313
3,702
3,709
3,812 .
3,642
3,371
3,173
2,918
2,807
2,706
2,509
2,609
2,567
2,490
2,523
2,403
2,108
1,403
.13
7
33
18
.n
10.96
10.91
10.69
11.19
12.53
15.62
18.42
19.95
21.34
22.54
22.49
23.04
24.73
26.03
27.03
27.87
29.10
31.59
32.93
35.66
38.79
41.58
45.22
44.72
45.13
48.39
50.35
54.09
67.15
99.72
921
207
910
1,435
1,752
1,542
873
978
1,096
1,159
1,071
924
992
1,216·
1,305
1,412
1,407
1,384
1,465
1,433
1,555
1,715
1,786
2,154
2,076
2,049
2,366
2,437
2,484
2,868
360
-285
167,157
123,030
44,127
26.40
5,485
7,371
3,604
2,094
1,880
5,277
34.28
71.59
12,856
5,699
7,157
55.67
180,014
128,729
51,285
28.49
38,277
180,014
218,291
38,220
128,729
166,949
58
51,285
51,342
.15
28.49
23.52
-
ude8 accrued dIscount.
rent redempllon value •
•pl/on of owner bonds may be held and will earn Inlerelll for addltlonsl periods afler original maturity dates.
Form PO 3812 (Rev. Mor. 1970) - TREASURY DEPARTMENT - Bureau of the Public: Debt
.48
I
;2;
Ie Deportment of the
TREASURY
SHINGTON. D.C. 20220
TElEPHONE W04-2041
FOR RELEASE AT 10:00 A.M. E.D.T.
SATURDAY, MAY 9, 1970
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
THE BUSINESS COUNCIL
THE HOMESTEAD
HOT SPRINGS, VIRGINIA
MAY 9, 1970
The last time I had an opportunity to share my thoughts
with this group in this setting there was one question
uppermost in everyone's mind: Just how strong was the
President's resolve to curb inflation? To those of us in
the policy-making crucible in Washington, the answer is
apparent: Not only are the president and his Administration
determined to curb inflation, but we are in the very process
of successfully doing so.
Will Rogers was one of my favorite people. And one
of his favorite lines was: "All I know is what I read in
the paper." He used this line as come-on before showing just
how much more he did know than what he read in the papers.
But I am reminded of it now because if we had to rely only
on day-to-day head lines to evaluate the outlook for
inflation control, then we would be very confused indeed.
The fact is that the papers are full of
claims by experts about what is happening to
Consider, however, one simple fact: This is
year and, as always the state of the economy
should be -- one of the major issues.
K-4l5
conflicting
the economy.
an election
is -- and
- 2 We should therefore not be surprised by such
conflicting statements, and in fact should expect them.
And we should also recognize that, on the surface,
statements in direct contradictions of each other can be
substantiated by reference to selected economic indicators.
I do not want to leave the impression that all of the
debate about the state of the economy is politically
inspired. The fact is that we are right in the middle of
a painful but necessary transition period from the ravages
of demand-pull inflation to the happy world of wage-price
stability. In such a period, conflicting claims based
upon wide-ranging and frequently contradictory economic
indicators are to be expected.
For example, consider the recent changes in price
indexes. It is very easy to look at the unadjusted
consumer price index for March, the last available, and to
say that inflation continues unabated. And it is just as
easy to cite the apparent decrease in the wholesale price
index for April and state emphatically that inflation has
been defeated.
I submit that careful analysis leads to an in-between
conclusion. As my colleague, Paul McCracken, pointed
out in a speech last week, the consumer price index rose
about 50 percent faster during 1968 than in 1967, and it
rose about 35 percent more rapidly in the first half of
1969 than in 1968. The acceleration of the inflation was
halted by mid-1969, however, and rates of increase since
that time have been somewhat lower.
Dr. McCracken also found encouraging signs when he
looked behind the total index to its component parts o Most
importantly, in commodity prices, where the impact of our
restrictive policies would be expected to have major impact,
the rate of increase has slowed markedly -- from a rate of
about 5-1/2 percent in 1969 to a rate of less than 3 percent
this year. And the price index for all commodities except
food has been rising in 1970 at a rate of 1.7 percent per
year, down sharply from the 4.9 percent rate in the first
half of 1969.
- 3 -
If the trend in the consumer price index, when examined
closely, is not so discouraging as on the surface, neither
is the apparent drop in the wholesale price index in April
so encouraging as some might think. In that instance, the
pricesnf farm products dropped rather sharply -- which may bode
well for the future of food prices for consumers -- but
prices of industrial commodities continued to rise at an
annual rate of about 3.6 percent. This is markedly better
than the 4.8 percent annual-rate increase that prevailed
from August 1969 to January 1970, but it shows that we
still have some way to go before commodity prices, wholesale
and consumer, can be expected to stabilize.
On balance, the price trends that emerge from close
analysis of the data are consistent with our economic game
plan, and they do not call for any substantial shift from
that plan.
Still another confusing and vastly important area of
concern is the trend of the Federal budget. According to
some observers, the recent Federal pay increases, coupled
with Congressional actions and increases in uncontrollable
items, have "busted the budget" for both this fiscal year
and next. One Congressional group predicts deficit of
$8 billion or so for fiscal year 1971. This contrasts with
the $1.3 billion surplus in the president's February budget
message.
What are the facts?
And what are their implications?
In the first place, tax receipts in recent weeks
have not met the expectations of the February budget.
This shortfall, however, which is almost wholly a
reflection of a greater-than-expected drop in
corporate profits, is actually confirmation that our
cooling-off efforts have worked. As you know, our
corporate tax base is, for good or bad, highly volatile
and very difficult to predict in a cooling economy.
When your before-tax profits decline by a dollar, our
tax receipts drop by more than 50 cents. Since a
slackening in profits is an inevitable and necessary part
of the process of cooling an overheated economy, the drop
inrevenues is not unexpected nor is it to be decried.
- 4 Let me emphasize here that this Administration does
not like Federal deficits and is determined to work hard
for fiscal responsibility year-in and year-out. Not only
is a balanced budget one tool for limiting the evergrowing size of the Federal establishment; an actual
surplus over the years will help greatly in providing the
needed funds for housing, State and local governments, and
other areas of high social priority.
But although we do not back away from the attainment
of surpluses as a fundamental goal, the backing away from
a surplus as a result of a sharp fall-off in revenue,
reflecting primarily the success of our economic policies,
cannot possibly be viewed as evidence of a failure of those
policies.
The spending side of the budget is another matter.
Any sharp move away from surplus and toward deficit as a
result of big increases in spending, not covered by new
taxes, would be a source of major concern. It would be
evidence, convincing both to you and to me, that our
determined efforts to put a lid on Federal spending had
failed. Here it is important to note that the truly
significant achievement of the first Nixon budget was to
hold spending to an increase in fiscal 1971 over 1970 of
only 1.5 percent. This contrasts with increases of several
times that amount -- averaging 15 percent during 1966-68.
Budget Director Mayo presented a straight-forward
analysis of the spending situation in his New York speech.
He noted that:
the president proposed, and Congress enacted, a
pay increase for Federal employees that will
add about $1.2 billion to 1970 outlays;
there have been uncontrollable increases in outlays
for interest on the public debt and farm price
suppo~ts, and decreases in receipts from leases of offshore oil sites also will increase 1970 outlays; and
there has also been Congressional action in
increasing the Labor-HEW appropriation and GI
bill benefits and inaction in failing to enact
higher postal rates by the April 1970 target
date.
- 5 -
Having said all this, Mr. Mayo concluded that we expect
that 1970 outlays will still be held around the $198
billion level. Let me repeat that statement: We still
believe that outlays for this fiscal year can be held close
to the $198 billion level set forth in the February budget.
This means that we have to cut elsewhere, and that is
precisely what Mr. Mayo and his associates are concentrating
on in their determined efforts to protect our fiscal
position.
Mr. Mayo also noted that although the military operation
in Cambodia is not expected to add to total defense
spending in 1970 or 1971. Yet the same factors that are pressing
upward on the 1970 budget pose a threat to our 1971 estimates.
We have to fight -- and we will fight -- to hold down these
increases and, to the extent they must occur, finance them
responsibly.
I cannot emphasize this point too strongly: This
Administration has been fiscally responsible from the start
and we intend to stay that way. This may require rigid
economies, even beyond what we have already instituted, or it
may require enlargement of our tax base. But we will not
hesitate to pursue either route, or both routes, if we feel
that such action is necessary to maintain a responsible fiscal
position, one that will help speed the return to and maintain
wage-price stability.
Let me conclude with some comments on what I view to be
the major problem in today's price picture, a problem which
can be solved quickly only through the most courageous efforts
of both business and labor. I refer to the still strongly
upward trend in unit labor costs and the absolute necessity
for stopping that uptrend before true wage-price stability
can be restored.
Although certain pockets' of demand-pull pressures may
continue to exist, the overall picture is one of slack and
the "slowing pains" that the president warned about late last
year. We knew that the period of transition would be a
painful period, one in which costs would continue to push prices
up, and one in which unemployment would rise temporarily to
levels higher than any of us would like to see. Even so,
there is still no convincing evidence that an old-fashioned
recession is in the cards, and the prospects for renewed
growth later this year are still very goodo
- 6 -
But in the meantime, the settlements that you gentlemen
in this audience negotiate with organized labor in the weeks
and months ahead will play a crucial role in determining how
quickly wage-price stability can be restored. As you know,
the key here is the relationship between increases in labor
compensation and in productivity, or output per manhour.
Analysis of past experience indicates that we should be
approaching that phase of the adjustment in which these two
curves will start moving back together. Once they reach the
same plane, labor costs per unit of output will stabilize
and, for all practical purposes, cost-push pressures will
have been brought under control.
I, therefore, urge you to handle your labor negotiations
this year with these considerations in mind. The short-run
cost will be labor unrest, perhaps at a relatively high pitch.
But the long-run benefits to the economy, and to our nation,
can be great indeed.
As for the Administration, our part of the bargain can
and will be preserved. We are determined to pursue those
sound fiscal measures which are essential to curbing inflation,
and which will lay the base for a long period of stable, noninflationary economic growth.
000
U
Department of the TREASURY
SHINGTON, 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 FIFTIETH ANNIVERSARY MEETING
OF THE
NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS
NEW YORK CITY, MAY 12, 1970, 12:00 NOON, EDT
THE AMERICAN ECONOMY IN 1970
For me, it is a very personal pleasure to be here.
It must be well over 35 years ago that, as a school boy,
I opened my first bank account with one of the member banks
of this distinguished association.
That early relationship
with a thrift institution really had a lasting effect on my
savings ratio.
Ever since, I have always made my personal
contribution to combatting inflation.
I am also here to express our appreciation for the
forthright anti-inflationary stand that the National
Association of Mutual Savings Banks consistently has taken.
That has been most welcome support.
Some Economic Perspective
I would like to offer ·some observations on the American
economy.
Perhaps you will find that my remarks follow that
old jingle -- something old, something new, something
borrowed, something blue.
K-416
To begin with, some perspective
- 2 -
is useful:
the long-run economic objectives of the
Administration are threefold -- reasonable price stability,
high employment, and a healthy rate of growth.
But in
the short run, the strength and persistence of inflation
temporarily makes that our number one economic problem.
Until prices are rising much less rapidly than they
are now, the economy must be kept under mild restraint,
which is what we are doing.
Output has been declining,
and there has been some rise in unemployment.
unwanted -- but unavoidable
inflation under control.
These are
side effects of bringing
I do not know of any quick and
easy cure once inflationary momentum has been allowed to
build up -- and it certainly was allowed to during those
critical years -- 1965, 1966, 1967, and 1968.
But since
1969, we have been applying the fundamental corrections;
and they are beginning to work.
This Administration inherited a difficult economic
situation, a sort of economic hangover resulting from the
spending spree that culminated in the massive $25 billion
budget deficit in 1968.
We had some choices to make in
setting our economic policy.
One solution -- to let the inflation run its course -was really no solution at all.
Inflation had to be brought
under control; it certainly would not cure itself.
Another
solution -- to aim deliberately for recession -- had little
- 3 -
to recommend it.
Even with expanded unemployment compensation
and similar offsets, the cost of unemployment would be high.
Furthermore, a sharp contraction followed by rapid expansion
might still leave prices rising too rapidly.
The workable and sensible solution seemed to lie between
the two extremes.
A policy of firm economic restraint was
needed, but not one that would be carried so quickly or so
far as to cause deep recession.
Instead, total demand for
the Nation's output would have to be held below our total
productive capacity, and for an extended period of time.
Only then could a moderate expansion be resumed without
setting off renewed inflation.
This is the undramatic and
somewhat painful course that was chosen.
I believe that it
was, and is, the right and responsible course to follow.
A Progress Report
What are the accomplishments to date?
frank~
Let me be quite
they fall short of our more optimistic expectations.
We are running about on track in terms of slowing down the
economy, that is, the behavior of total spending and output.
But we are running behind schedule in terms of visible relief
from inflation; yet, we are making progress.
First of all,
the acceleration in the rate of price increases has been
stopped.
That was a critical, although often overlooked,
development in the fight against inflation.
Now there are
signs of the important next stage -- the actual slowing down
- 4 -
in the rate of inflation.
There has been some progress, but
we are still plagued by rapidly rising costs and prices.
Obviously, even though the tide may be turning, the battle
against inflation is hardly over nor yet has it been won.
The fact that total demand is no longer excessive does
mean that we have passed through a vital first phase.
The
application of fiscal and monetary restraint throughout last
year was successful in slowing down the rate of total spending.
Until that occurred, there was little prospect of lasting
relief from inflation.
In the first quarter of this year, there were rather
clear signs that demand was no longer excessive:
In physical volume -- what economists call "real
terms," that is, after correction for price
changes -- total production in the United States
fell slightly in the first three months of 1970;
meanwhile, prices continued to rise at about the
same rate as in late 1969.
Retail sales have moved up only moderately this
year; industrial production had been in a downtrend before edging up in March; and the unemployment rate averaged 4.3 percent in the first four
months of 1970, up from a low 3.6 percent in the
last four months of 1969.
- 5 -
But, even with the economy moving slowly, prices are
still under stroni upward pressure from the cost side.
This
is the natural sequence after a period of prolonged inflation.
Costs and prices continue to rise for a time on their own
moment urn.. But this "operation boots trap" cannot cont inue
indefinitely if total spending is kept in check.
Are we really better off now, having exchanged "demandpull" inflation of 1968 for the "cost-push" inflation of 1970?
I think that we are far better off.
As long as total demand
was excessive, costs and prices were bound to continue
rising.
Under those circumstances, no relief could be
expected.
However, once demand is restrained, cost-price
pressures could eventually diminish.
There are lags in this
economic adjustment process, as we know all too well.
But
with demand restrained, the conditions have been established
whereby inflation can recede.
What are the tangible signs that inflation is, in fact,
coming under control?
They may not exactly overwhelm you,
but here are some recent favorable signs:
Although the Consumer Price Index rose at a hefty
6 percent annual rate in the first three months
of 1970, on a seasonally adjusted basis, the rise
was successively less in each month so far this
year.
- 6 -
The wholesale price index rose at about a 5
percent annual rate in the first three months
of 1970, but by successively less in each month.
The preliminary report for April shows an actual
decline of one-tenth of one percent.
Personally,
I do not attach nearly as much weight to the
small fraction of one percent price decline in
just one month as I do to the cumulative slowing
down pattern in the price indices.
Not all of the economic news is that favorable.
For
example, the productivity and unit labor cost statistics for
the first quarter of 1970 were somewhat less encouraging:
Output per man-hour apparently edged down
fractionally, after rising in the fourth
quarter 1969.
With compensation per man-hour rising at a
7.7 percent annual rate, unit labor costs rose
at nearly an 8-1/2 percent annual rate.
On the basis of past experience, however, we would
expect sharp rises in productivity when the economy once
again begins to expand.
price pressures.
This would help to dampen cost-
)
) /
~
7 -
It obviously is going to take awhile longer before
the inflationary process can be unwound.
For a time, we
may still find that there will be risks on either side:
excessive slowdown or premature speedup.
It will be
particularly important in the period immediately ahead to
keep the policy dials on a fairly steady setting.
This may
mean something like an "even keel" for fiscal policy.
I do
not believe that it is wise to rush in with new policy
proposals each time some erratic economic indicator turns for the
worse or for the better.
The Budgetary Situation
In the present economic environment, the maintenance of
a strong budgetary position is extremely important.
Certainly
in the absence of any sharp reversals of the apparent trends
in the private sector, the Federal budget should be kept in
the neighborhood of balance during the next few years.
In
order to achieve that, the Administration is finding it
necessary to follow a policy of holding the line on expenditures.
Now that does not mean that every single request for
increasing spending is automatically turned down.
policy is not set on automatic pilot.
Economic
The needs of economic
stabilization inevitably must be reconciled with the pressing
needs of programs given high priority.
The important element
is to maintain the overall posture of budgetary restraint,
- 8 -
to make the hard choices which are necessary in rejecting a
good many of the available and attractive candidates for
government spending.
Thus, while there
h~ve
been some well-
publicized "pluses" on the expenditure side, there will be
some compensating "minuses" as wel1.
For example, the
Administration intends to absorb a good part of the Federal
pay raise, keeping its full impact from raising expenditures.
Some lessons learned from recent experience may help in
keeping the economy on a steadier path of expansion.
Many
of our present difficulties can be traced to the large budget
deficits which emerged after 1965.
There is general agreement
on the need to avoid large and destabilizing swings in the
budget.
But some argue whether the swing of a few billion
dollars from surplus into deficit really matters in a trillion
dollar economy.
Although I relish academic disputations as much as any
other economist who has earned his Ph. D., frankly I just do
not think that this is the pertinent question in the present
environment.
As I see it, the key point now is the need to
maintain budgetary restraint in order to dampen down the
continuing inflationary pressures.
To the extent that the
Federal Government can continue to slow down the rise in
Government spending, to that extent can we expect the private
sector to exercise similar restraint.
- 9 In contrast, if revenues do not come up to expectations
because economic restraint takes hold in some sectors more
rapidly or fully than anticipated, this in itself does not
strike me as a cause for economic concern.
This is the well-
known, built-in automatic stabilizers at work, a phenomenon
which is welcomed by economists of all political persuasions.
The present does not impress me as the appropriate time
to relax the downward pressure on the expenditure side of the
budget.
To be sure, no budget is ever "set in concrete."
A budget is an action document, modified from time to time.
Even after taking account of the modifications which
have occurred to date, the Federal budget for the fiscal year
1970 is a res tricti ve one.
In "real terms"
actual figures for the effects of inflation
adjusting the
Federal
spending is declining between the fiscal years 1969 and
1970.
On the basis of present policy, "real" spending will
decline again in the fiscal year 1971.
In fact, some extremely capable economists outside of
the Federal Government contend that a more !ophisticated
analysis
that using the so-called "full employment budget
surplus" concept -- would show that the degree of economic
restraint may even become greater than they would care to
see.
While I do not share their confidence in the exactness
of such calculations, they do tend to reinforce my own
evaluation of continuing Federal fiscal restraint.
- 10 In recent days, I have been asked what, if any, is the
impact of developments in Southeast Asia on the budgetary
outlook.
My reply is that the Treasury Department has been
assured that the recently taken actions in Cambodia will
utilize existing and available forces and equipment.
On
that basis, the existing budget estimates take account of
these developments.
At this point, I think it might be useful if I report
on an effort under way which indicates our continuing concern
with improving the effectiveness of governmental budgeting
and financial planning.
A subcommittee of the Cabinet Committee
on Economic Policy has been studying the operation of the
unified budget -- that budget concept which resulted from the
recommendations of the Commission on Budget Concepts.
An area of particular interest is the operation of the
various types of Federal credit programs.
These programs
include direct loans by Federal agencies, which are in the
budget, and Federally-assisted credit extended either by
Government-sponsored (and now privately owned) institutions
or by entirely private organizations with a Federal guarantee.
In recent years, the amount of Federally-assisted credit,
which is financed outside of the budget proper, has been
expanding rapidly, particularly as agencies (such as Fannie Mae)
which had been partially Federally owned became privately owned,
although with some continuing Federal involvement or relationsh
- 11 We are now at the point where the volume of borrowings
to finance Federally-assisted credit programs is roughly
equal in size to the total corporate bond market and is
about twice as large as the municipal bond market.
Thus,
our subcommittee is taking a fresh look at some of the
implications for financial markets as well as the overall
impact of these programs on the economy.
As chairman of this activity, I would like to be in a
position to report that we have corne up with a sure fire
solution.
However, that is not the case, at least not yet.
In a positive way, we have been exploring alternative methods
whereby the various forms of Federally-assisted credit can be
reviewed in a more comprehensive manner so as to permit more
effective allocation of credit resources.
Certainly, it would
be desirable to provide greater attention to these programs,
both those "in" and "out" of the budget, in the formulation
of overall fiscal and monetary policy.
The Economic Outlook
The first half of 1970 is not likely to be a period of
any significant expansion in the economy as a whole.
Of course
in dollar terms, the economy is rising and will likely continue
to rise.
The measures of personal income, money supply, gross
national product, etc., all are likely to continue going up
all through 1970.
However, in physical volume terms, the
economy is marking time right now as inflationary pressures
and psychology are being reduced.
- 12 -
Even though I would like to be obliging, I just cannot
confidently predict the exact extent to which inflationary
pressures will be brought down.
In our society, that will
depend on actions in both the private sector as well as in
the public sector.
To a major extent, the public sector
itself was the basic source of the current inflation.
The
Administration has taken important actions to put our public
sector house in order.
The maintenance of fiscal restraint,
of course, will continue to be needed in order both to make
further progress in bringing down the rate of inflation and to
demonstrate that we are serious about bringing inflation under
control.
Yet, there is a division of labor in the American economy.
We are primarily a private sector oriented economy.
In good
measure, the responsibility for fighting inflation also now
lies in the private sector, for business, labor, and consumers
alike to conduct their economic affairs in that manner characterized by enlightened self-interest which will avoid a new
round of inflation.
The expectations for 1971 are somewhat brighter than
those for 1970.
year.
However, 1971 is not likely to be a boom
We do not want a repetition of the 1967 experience,
when a pause in the economy led to overreaction by Washington
and then to another major burst of inflation.
- 13 -
In 1971, inflation should be rIsIng more slowly than
in 1970.
In 1971 and the years following, we should be
obtaining the payoff for the necessary economic medicine
that we have been taking during the past year.
With the continued use of a proper combination of
monetary and fiscal policies, we should be able to achieve
that reduction in the rate of inflation which will set the
stage for achieving our more fundamental economic objectives,
which are the expansion of production, employment, and living
standards.
The slow gOIng of the past several months will then
appear in a somewhat different perspective.
But for the
time being, we must complete the job of reducing the rate
of price increase to much more tolerable proportions.
Thus,
the economic medicine that we have been taking should yield
many vintage years later in the decade of the 1970's.
000
Department of the TRfASU RY
TElEPHONE W04-2041
HINGTON. D.C. 20220
ATTENTION:
FINANCIAL EDITOR
FOR IMMEDIATE RELEASE
May 8, 1970
PRELIMINARY RESULTS OF CURRENT EXCHANGE OFFERING
Preliminary data indicate that, of $4.9 billion of notes maturing May 15
held by the general public, $3.3 billion have been exchanged for two new notes
maturing May of 1973 and February of 1977. These exchanges, in combination
with the results of the related cash sale to the general public of $3.6 billion
of 18-month notes, will provide the Treasury with a net of some $2.0 billion of
cash on May 15.
Subscriptions total $4,566 million for the 7-3/4% notes of Series A-1973,
and $3,323 million for the 8% notes of Series A-1977, of which $2,421 million
and $2,125 million, respectively, were received from Federal Reserve Banks and
Government accounts.
Following is a summary of exchanges by the public (dollar amounts in millions):
NOTES
ELIGIBLE FOR EXCHANGE
TO BE ISSUED
7-3/4%
8%
Notes
Notes
2L15L77
5L15L73
UNEXC~GED
% of Total
Outstanding
Total
Total
$605
$1,624
$707
30.3
lz126
593
1 2 719
832
32.6
$2,145
$1,198
$3,343
$1,539
31.5
)escription
Total
3-5/8% notes
$2,331
$1,019
3-3/8% notes
2 2551
$4,882
Details by Federal Reserve Districts as to subscriptions will be announced
_ater.
K=417
eDepartment 01 the TREASURY
:HINGTON. O.C. 20220
TElEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 11, 1970
SECRETARY KENNEDY NAMES CALVIN E. BRUMLEY
AS SPECIAL ASSISTANT (PUBLIC AFFAIRS)
Treasury Secretary David M. Kennedy has named
Calvin E. Brumley as
Speci~l
Assistant to the Secretary
(Public Affairs).
Mro Brumley had been Deputy Special Assistant since
April, 1969 and Acting Special Assistant since January,
this year.
Before joining the Treasury, Mr. Brumley was employed
in New York by Dow Jones and Company, Inc., which publishes
the Wall Street Journal, for nearly 15 years as a reporter,
bureau manager and news editor.
000
K-4l8
Department 01 the TREASURY
HINGTON. D.C. 20220
TELEPHONE W04-2041
May 11, 1970
MEMORANDUM TO THE PRESS:
The attached notice will be published in
the Federal Register, Tuesday, May 12, 1970,
permitting a 10-day period for rebuttals to
previously-filed submissions in connection with
the Treasury's review of its action granting a
waiver of the Coastwise Shipping Regulations
for the SS Sansinena.
The Treasury emphasizes
that the 10-day period is only for rebuttals.
000
Attachment
NOTICE
ReqUest for Waiver of
On
MAY
co•• twi.e
8 1970
LaWI for SS SAMSIRIMA
April 25, 1970, the Treasury Department published
in the Federal Reg11ter, Volume 3S, number 81, p. 6664, a
notice of a
~r"'Qry
Department review of action previously
taken with regard to vaiving coastwise trading restriction.
on the S5 SAHSIHERA.
Pursuant to that notice, relevant data
must be submitted by May 15, 1970.
The Treasury hal now received requests that opportunity
be given to respond in writinq to submissionl made pursuant
to that notice.
Accordingly, such respon ••, may be submitted
in writing, in quadruplicate, to the A•• istant Secretary of
the Treasury for Enforcement and Operations, Waahington, D. C.
20220, not later than May 25, 1970.
As in the case of the notice published on April 25, submissions filed pursuant to this notice, that are not deter-ainf
by the Treasury Department to be exerapt frona disclosure pur.u.
to Title 31 CFR 1.5, may be examined during office hours in
the public reading roam of the Treasury Department, 15th Stre
and Pennsylvania Avenue, N. W., Washington, D. C. 20220.
lSI
EUIiFNp: T.
ROSSIDES
hf._!l. . . .t ...
Aasiatant Secret.ary of
~he ~r"Sl
eDepartment of the TREASURY
~HINGTON,
D.C. 20220
TElEPHONE W04-2041
MEMORANDUM TO THE PRESS:
May 11, 1970
In the death of Homer Livingston, I have lost a
close friend and the nation has lost a financial leader.
His contributions to his community and state, both
personally and through his bank, were great indeed.
On the national scene, Homer Livingston provided
perceptive and effective leadership for the banking
industry.
Treasury officials in four administrations
welcomed his counsel, as did officials of the Federal
Reserve Board.
Mrs. Kennedy and I extend our deepest sympathy to
Mrs. Livingston and members of the family.
000
:Jr-k
Department of the TREASURY
~SHINGTON.
O.C. 20220
TELEPHONE W04 c 2041
MEMORANDUM:
Later figures on one-bank holding companies have
become available since printing of the testimony being
given today before the Senate Banking and Currency
Committee by the Honorable Charls E. Walker, Under
Secretary of the Treasury.
On page 2 of the distributed testimony, read 10th
and 11th lines:
" ... companies in large numbers so that
there are now more than 900 one-bank holding
companies controlling about 40 percent of
all ... "
(The original figures were "800" and "a fourth".)
Treasury Department
May 12, 1970
Department of the TREASURY
HINGTON. D.C. 20220
TElEPHONE W04-2041
FOR RELEASE UPON DELIVERY
STATEMENT BY THE HONORABLE CHARJ..S E. WALKER,
UNDER SECRETARY OF THE TREASURY,
BEFORE THE SENATE BAlfKIliG AlID CURRENCY CCDU~,
MAY ]2, 1970,
ON S. 1664, S. 1052, S. 1211, AND H. R. 6778
Mr. Chairman and Members of the Camnittee:
Legislation to restrict the nonbank1n.g activities of one-bank
holding canpanies is preventive legislation.
It would reasonably,
but effectively, stop a trend toward the merging of banking and
commerce which began to develop almost two years ago and which
threatened to change the nature of American private enterprise.
This trend has been considerably slowed by the introduction of
legislation last year, as well as by current economic conditions.
If not restrained, however, the trend can be expected to accelerate
once more within the near future.
Our econany could shift from
one where commercial and financial power is now separated and dispersed, into a structure daninated by huge centers of economic and
financial power, each consisting of a corporate conglomerate
controlling a large bank, or a multibillion dollar bank controlling
a large nonfinancial conglanerate.
President Nixon, in his state-
ment of March 24, 1969, said:
"Left unchecked, the trend toward the ccmbining of
banking and business could lead to the formation of a
relatively small number of power centers dOOlinating the
American economy. This must not be pennitted to happen;
it would be bad for banking, bad for business, and bad
for borrowers and consumers e
"The strength of our econoodc systan is l'~oted in
diversity and free competition; the strength of our
K-419
- 2 -
banking system depends largely on its independence.
Banking must not daninate canmerce or be daninated by it."
The Bank Holding Canpany Act of 1956, which provided the first
canprehensive Federal regulation of companies holding 25 percent
or mer e of the stock of two or more canmercial banks, was deliberately not made applicable to companies owning only one banko
There was no need at that time to cover one-bank holding companies.
Beginning in 1968, the situation changed markedly.
Banks themselves,
including many of the largest banks, began to form one-bank holding
canpanies in large numbers so that there are now more than 800
one-bank holding companies controlling almost a fourth of all
commercial bank deposits.
Most of the larger of these at this
point represent merely a change in corporate structure.
under existing law, there are no restrictions upon acquisitions
by the newly formed one-bank holding ccmpanies, nor are there any
prohibitions on the activities in which they may engage, except,
of course, that they may not engage in the securities' business.
The proposed Bank Holding Company Act of 1970, S. 1664, would
rebuild the wall separating diverse economic interests.
Under
the legislation:
--The Bank Holding Company Act of 1956 would be amended
to extend Federal regulation of bank holding companies to
those canpanies which control one bank;
--All corporatiom which have affiliated with banks
since June 30, 1968, would be required to confine their
- 3 activities to the financial, fiduciary, or insurance
functions specified in the 1956 act;
--Activities which are bank-related vould be decided
by unanimous agreEment of the three bank regulatory
agencies, the Federal Reserve Board, the Federal Deposit
Insurance Corporation, and the Comptroller of the Currency.
As I have indicated, the simple purpose of s. 1664 is to draw
a fair but firm line between banking and commerce.
Conceptually,
this may be relatively easy;. in practice, there are many ccmplexities.
Let me describe some of these complexities in order
to clarify the logic of the provisions of S. 1664.
Inasmuch as it is not proposed to prohibit the formation of
one-bank holding companies, but only to regulate their acquisitions,
the first problEm lies in defining the appropriate types of
activi~
ties or functions for such corporations.
Our view is that the essence of banking today is the purveying
of financial and related services.
Clearly, banking in 1970
involves much more than the acceptance of deposits and the granting
of loans.
Beyond fundamental definitions is the question of how far
Congress should go in spelling out the scope of these financial and
related functions in legislation, as opposed to delegation of
authority to the banking agencies.
We believe that the congressional
- 4mandate should be flexible and relatively broad j as it was in the
1956 Act. On the other hand, the powers granted to the
b~ing
agencies would be significant and therefore should be rather
clearly circumscribed.
Closely related to the problem of definition is the problem
of administration -- which agency or agencies should be authorized
to carry out the wishes of Congress?
Should the authority be
centralized in one agency, as in the original act?
Or should
the authority be dispersed in the usual manner among the three
Federal banking agencies?
The advantage of the first approach would be absolute
uniformi ty of standards and no danger that anyone Federal agency
could "play off" the others with extreme interpretations of the.
intent of Congress.
On the other hand, the granting of full
administrative authority over all bank holding companies -one-bank as well as multibank
to one agency would in effect
result in a significant shift of jurisdictional authority among
the three Federal banking agencies.
Perhaps sane such shifts
are desirable; if so, they can be considered later.
We believe
that this bill should be confined to the simple purpose stated
earlier.
The approach we recommend would result in uniformity of
standards while still retaining the traditional dispersed approach
to Federal bank supervision.
- 5still another problem related to competitive and public
interest factors is administering the legislation.
Certainly no
affiliations should be permitted which would tend to create a
monopoly or substantially lessen competition.
Nor should the
affiliates of bank holding companies be pennitted to engage in
any line of activity which would be harmful to the public interest.
Our legislation contains explicit provisions dealing with
competition and the public interest.
These were worked out with
the close cooperation of the Department of Justice.
Mr. McLaren
will discuss these prOVisions in his testimony.
Finally, we have the question of forcing complete divestiture
of nonfinancial activities or enacting same sort of "grandfather
clause," a cutoff date for divestiture requirements.
Inasmuch as
this is basically forward-looking legislation, designed primarily
to prevent future concentrations of economic and financial power,
we believe the case for a reasonable and responsible "grandfather
clause" to be very strong.
Up to this time, the mixing of banking
and commerce has not occurred to any significant extent.
Let me now turn to the specific prOVisions of S. 1664.
Definition of a Bank Holding Company
So
1664 would tighten the definition of bank holding companies
by including
--any company owning 25 percent or more of the shares
of anyone camnercial bank.
two banks are owned.
Present law applies only if
- 6 -
--any company I regardless of the percentage of stock
owned, which has the power directly or indirectly to
direct or cause the direction of the management or policies
of any bank, would be covered.
There is no similar pro-
vision in present law; same confusion has arisen because
under present law the Federal Reserve Board has authority
to determine whether a company controls 25 percent of the
stock of a bank.
--partnerships, by amending the Act's definition of
"company" to include partnerships; partnerships were
excluded under the 1956 Act.
--campanies whose stock is held in trust except for
personal trusts and those terminating within relatively
short periods of
t~e;
stock held in trust was
~,cluded
under the 1956 Act, and even when the rules were tightened
in
1966, they did not go as far as our bill.
Activities of Bank Holding Companies
Section 4(c) 8 of the 1956 Act permits registered bank holding
companies to acquire "shares of any company, all the activities of
which are ••• of a financial, fiduciary, or insurance nature and
which the (Federal Reserve) Board ••• has determined to be so
closely related to the business of banking ••• as to be a proper
incident thereto ••• "
- 8 We think that such authority, properly circumscribed, would
result in competition that would be good for the economy and good
for the user of financial services.
We also believe that
s.
1664
contains fully adequate safeguards to assure that competition,
not concentration, will be the result of the legislation.
Administration of the Act
In contrast to other postwar bank regulatory measures, administration of the Bank Holding Company Act of 1956 was not dispersed
among the three Federal banking agencies, but was centered in the
Board of Governors of the Federal Reserve System.
Although our
proposed bill would leave the approval of bank acquisition by
bank holding companies in the Board, the authority over financial
and related acquisitions (in sec. 4(c) 8) would be administered
by the three agencies under guidelines unanimously agreed upon
by the agencies, each with one vote.
In effect, Congress would direct the representatives of the
three agencies to devise a set of guidelines to be followed by
each of the agencies in approving or disapproving applications
by bank holding companies for acquisition or de novo creation
of new affiliates.
In addition to the guidelines relating to
competitive and public interest factors, the agencies, through
an interagency cammittee, would be expected to draw up a list
of what it agrees are appropriate financial and related activities
consistent, of course, with the mandate of the Act.
- 7 We propose to amend section 4(c) 8 to permit registered bank
holding companies -- both one-bank and mul tibank -- to acquire
shares in any company engaged exclusively in activities which
have been determined" (1) to be financial or related to finance
in nature or of a fiduciary or insurance nature, and (2) to be
in the public interest when offered by a bank holding company
or its subsidiaries."
We believe this represents a substantial improvement over
present law for several reasons.
In the first place, it elimi-
nates the mandatory hearing, although the appropriate banking
agency could grant or order a hearing in any individual case.
Secondly, it eliminates the existing language which has
been interpreted very restrictively, although retaining the
key words "financial,1I IIfiduciary," and "insurance. 1I
Finally, it adds a public-interest test not contained in
existing law -- it would have to be in the public interest for
a bank holding company to engage in a new activity.
As a matter of practice, banks in recent years have been
providing new types of financial services, and, if free to do so,
are likely to continue.
Thus the question before the Committee
is that of deciding whether the public interest will be served
by authorizing banks, either directly or through affiliates and
subsidiaries, to offer a wide variety of financial and related
services to the publico
- 9 ..
Once the guidelines were agreed upon, the Comptroller of the
Currency would have full authority to administer section 4(c) 8
within the guidelines -- for holding companies under the jurisdiction of his office.
The Federal Reserve Board and the Federal
Deposit Insurance Corporation would have similar authority with
respect to holding companies under their respective jurisdictions.
The effect of our approach to administering section 4(c) 8
would be to place the regulation in the three agencies together,
with supervision in each one, depending on the class of bank
owning the predominance of assets in the holding company.
This approach seems to us to have special advantages in meeting
the problems involved in limiting the activities of bank holding
companies.
First, we recognize that the mandate in both the 1956 and the
proposed 1970 Acts is broad, thus granting significant powers to
the banking agenc ies
0
The requirement of unanimous agreement on
the types of activities permitted under the legislation should
help prevent extreme interpretations that would permit banks to
cross the line between banking and commerce.
Congress in enacting bank regulatory legislation has almost
without exception provided for dispersal of the regulatory authority
among the three Federal banking agencies, depending upon the type
of bank.
The Bank Holding company Act of 1956 was the single
- 10 -
exception to that approach.
The Administration proposal keeps
the basic regulatory structure intact.
It is our view that this
legislation, which has but one simple purpose, should not be
used to change the basic regulatory structure.
Even though the
basic form of the structure is maintained, the requirement for
approval by three agencies assures uniformity of standards and,
therefore, avoids the danger that one agency will get out of
step with the others.
Grandfather Clause
We reconnnend a "grandfather clause" date of June 30, 1968.
This date is not so far back in time that forced divestitures
would disrupt the operations or threaten the viability of most
of the smaller, "traditional" one-bank holding ccmpanies.
On
the other hand, the date is early enough to include the great
majority of new companies whose organization has pushed the
total assets involved to such a high level.
Future activities on the part of the conglomerates which
acquired banks before July 1, 1968
and therefore could retain
them under the "grandfather clause" -- would be restricted to
the lines of bUsiness or activities in which they were engaged
on June 30, 1968.
This is a stringent restriction; in effect
it means that any conglomerate which wishes to continue to
diversify -- and many of them do -- would be forced to dispose
of its bank.
- 11 I will camnent in a few minutes on H. R. 6778.
However, I
think it appropriate to say at this point that we are very much
opposed to the "grandfather clause" date of May 9, 1956,adopted
by the House.
of this bill
It is totally unnecessary to accomplish the purposes
to go back fourteen years to 1956, and require
divestiture of acquisitions made during that long period.
More-
over, there would be a considerable element of unfairness in doing
so since the Congress made a deliberate decision in 1956 to exclude
one-bank holding companies and has, since that
t~e,
reaffirmed
that decision at least twice.
Let me turn now to
ProJallire.
s.
1052, the bill introduced by Senator
This bill is designed to be a stopgap measure, bringlng
one-bank holding companies wi thin the purview of the Bank Holding
Company Act of 1956, pending a study by a National Commission on
Banking of the role of banking in the national economy with a
view to determining whether existing statutes, regulations, and
procedures promote vigorous competition in the banking industry
and in the economy consistent with reasonable safety of depositors'
funds.
by
The National Commission on Banking would be established
s. 1052.
We believe that the appointment of the Presidential Commis-
sion on Financial Structure and Regulation serves the purposes
- ~
which would have been served by the National Commission on
Banking proposed by Senator Proxmire, and that there is, therefore, no necessity for congressional action to establish such
a Commission.
We urge that the Congress not enact a stopgap measure which
could, as legislation does, tend to become permanent, and which
would, if enacted on a permanent basis, be unsatisfactory.
It
is our view that instead of doing so, the Congress should enact
S. 1664, which would resolve the problems foreseen on a permanent
basis and in a fair manner.
If, however, it is the sentiment of
the Congress that some form of stopgap legislation should be
enacted and if that legislation should take the form of making
the Bank Holding Company Act of 1956 temporarily applicable to
one-bank holding companies, we would urge that in order to avoid
severe dislocations of supervisory responsibility, the authority
to approve or disapprove acquisitions required by the Act should
be exercised by the appropriate banking agency, as defined in
S. 1664, under regulations to be issued by the Board of Governors
of the Federal Reserve System.
S. 1211 would provide for the regulation of tender offers
for banks or bank holding companies which have 750 or more shareholders.
of banks.
There is a problem with respect to change of ownership
Moreover, there is inconsistency in a situation in
- 13 which prospective owners of a newly chartered bank are thoroughly
investigated, but anyone may buy a controlling interest in an
existing bank without any approval.
This problem is more acute
in the case of small banks than in the case of large ones.
s. 1211
would not deal with this small-bank problem, although it could be
amended to do so.
However, that is a separate problem and one
with respect to which we make no recommendation at the present
time.
The basic purpose of So 1211, as presently drafted, would
appear to be to prevent conglomerate corporations from acquiring,
without supervisory approval, large banks for inclusion among
their satellites.
This purpose would be served by the enactment
of S. 1664 so that if that bill is enacted, the enactment of
S. 1211 becomes unnecessary.
I should like to comment now on H. R. 6778.
tion is opposed to its enactment.
The Administra-
Aside fram a number of technical
deficiencies, there are three fundamental objections to H. R.
6778.
One of these is the "grandfather clause" date of May 9,
1956, upon which I have already commented.
A second is the placing of Jurisdiction over all one-bank
holding companies, including those having only national banks or
nonmember insured banks, in the Federal Reserve System.
I have
already spoken at length on the reasons we believe that one-bank
- 14 holling company legislation should not serve
f!:;
the vehicle for
accomplishing a really significant shift in supervisory responsibilities among the existing banking agencies.
The third and perhapD most objectionable feature to
:-1. R. 6778 is its very restrictive approach to the question of
what constitute legitimate banking activities.
Not only aoes it
list proscribed activities, which ioie find objectionable, but i t
includes among those activities some in which banks themselves
are now permitted to engage.
In addition, the language is such
that it is arguable at least that it attempts to proscribe legitimate banking activities to banks themselves, as distinguished
:;:'rom bank. holding companies.
There is no public purpose
t.,.J
be served uy attempting to pre-
clude bank. holJing companies from engaging in activities now permissible to banks, nor in attempting to prevent banks from engaging
in activities in ,."hlch they now are engaged, with no evidence of
adverse effects on the public.
As I have indicated, not only do we object to the activities
lis~ed,
but we strongly object to including in the legislation
any such list:ing at ali.
It is rLlfficult enouc;h to determine
what is the bAnking business.
shoulJ be, evolutionary.
The business of
banJ~ing
is, and
As needs for new banking or financial
services arise, the uanks s;lOuld be in a position to satisfy those
neeJs, subject, or course, to supervisory approval.
We feel that
- 15 banking should be dynamic
~,d
not static and that responsible
bank supervision is sufficient to prevent banks from engaging in
activities which, in the light of economic circumstances at the
time, cannot reasonably be said to be financial in nature.
The
statutory language adopted by the Congress should be in general
terms, as it was in the 1956 Act and as it is in S. 1664.
It is our strong recommendation to this committee that H. R.
6778, and its very restrictive approach, be rejected, and that
S. 1664 be adoptedo
rrENTION:
FINANCIAL EDITOR
REIEASE 6: 30 P.M.,
)ndy, May ll, 1910.
)R
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
LUs, one series to be an additional issue of the bills dated February 13, 1970, and
le other series to be dated May 14, 1970, which were offered on May 6, 1970, were
>ened at the Federal. Reserve Banks today. Tenders lIere invited for $1,800,000,000,
thereabouts, of 91-day bills and tor $1,300,000,000, or thereabouts, of 182-day
Us • The details of the two series are as follows:
INGE OF ACCEPrED
IMPETlTIVE BIDS:
High
Low
Average
9l-day Treasury bills
maturi!!S August 1.3 2 1970
Approx. Equi v •
Annual Rate
Price
6.757J
98.292 ~
98.203
7.l0~
98.232
6.994" Y
..
182-day Treasury bills
maturing November l2~ 1970
Approx. Equi v .
Price
Annual Rate
96.514 Y
6.89~
96.314.
7.291"
96.359
7.20z1, Y
1 tender totaling $850,000; 21 Excepting 1 tender of $10,000
21" of the amount of 91-day bills bid for at the low price was accepted
6~ of the amount of 182-day bills bid for at the 1011 price was accepted
!I Excepting
TAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atla.nta
Chicago
St. Louis
Minneapoli s
Kansas City
Dallas
3an Francisco
TOTALS
AcceEted
Awlied For
$ 32,530,000 $ 22,530,000
2,181,360,000
1,258,360,000
42,760,000
27,760,000
38,400,000
37,550,000
21,680,000
29,760,000
30,870,000
44,270,000
160,730,000
200,630,000
35,350,000
38,950,000
12,520,000
22,310,000
30,030,000
35,580,000
18,250,000
28,750,000
H:"a~,Qo.o
1.6~. 260. 000
$Z,R6S,060,000 $1,800,470,000
Inc1udes$386,920,000
Includes$219,680,OOO
These rates are on a
7 .22'1- for the 91-day
£I
A:e:elied For
Acce:eted
$ 23,160,000 $ ll,160,000
1,962,180,000
895,680,000
11,770,000
11,770,000
27,730,000
50,830,000
21,520,000
13,020,000
21,120,000
34,520,000
184,790,000
132,290,000
24,910,000
21,290,000
13,650,000
6,450,000
23,480,000
20,260,000
26,940,000
17,64:0,000
~1,750,000
2Ja.OSQ,QQQ
$2,595,800,000 $1,300,160,000
£I
noncompetitive tenders accepted at the average price of 98.252
noncompetitive tenders accepted at the average price of 96.359
bank discount basis. The equivalent coupon issue yields are
bills, and 7.sa" for the 182-day bills.
FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE JOHN S. NOLAN
ACTING ASSISTANT SECRETARY FOR TAX POLICY
BEFORE THE
HOUSE WAYS AND MEANS COMMITTEE
ON THE TREASURY'S
DOMESTIC INTERNATIONAL SALES CORPORATION PROPOSAL
2: 00 P.M. (EDT), May 12, 1970
Mr. Chairman and Members of the Committee:
I appreciate the opportunity to appear before this
Committee to describe our Domestic International Sales
Corporation (DISC) recommendation.
We make this recommenda-
tion because the U. S. tax system presently results in an
income tax disadvantage to U. S. export sales as compared to
foreign production of subsidiaries of U. S. companies, or of
foreign-owned companies.
At a time when the U. S. is making
every effort to improve its balance of trade, this disadvantage should be removed.
The DISC proposal provides
for deferral of U. S. tax for a domestic corporation engaged
in export sales similar to that presently provided for foreign
manufacturing subsidiaries of U. S. companies.
This recom-
mendation for providing greater equity in the U. S. tax
treatment of export income to the extent it constitutes
foreign source income is sufficiently related.to the foreign
trade position of the United States that it deserves your
consideration at the present time.
While income tax factors are important, we recognize
- 2 -
that economic factors often tend to favor local production
in or near the market in which the products are being sold.
Over the last twenty years we have witnessed a constantly
increasing degree of manufacturing abroad by U.
companies.
s.
In many cases, for a variety of political and
economic reasons, such local production may be the only
means of competing effectively in certain markets.
U.
s.
tax policy can and should, at best, have only a limited
effect on such decisions.
On the other hand, the U.
s.
tax
laws themselves have treated export sales much less favorably
than foreign manufacture and thus have compounded the emphasis
on foreign production.
This inequity in our tax laws can
and should be remedied.
We should compare U.
s.
tax rules with those of many
of the developed countries of the world which base their
tax jurisdiction on territorial concepts and defer their
tax on export income or exempt such income from tax, to a
greater or lesser extent.
In addition, many countries have
special tax rules which effectively promote export activity
such as extraordinary reserve allowances on export sales
and greatly accelerated depreciation of export assets.
In contrast, the United States taxes currently and, with
the exception of the Western Hemisphere Trade Corporation
I
.~
7)
L
- 3 -
concept, fully, the income from any export sale by a
domestic corporation because the corporation is incorporated
in the United States.
In 1962, legislation was enacted to tax currently
United States shareholders on certain passive income (such
as dividends, interest, and royalties) and on certain sales
and services income earned by controlled foreign subsidiaries.
Two important exceptions were made.
First, the Export
Trade Corporation exception in section 970 of the Internal
Revenue Code provides specifically for limited deferral
of income earned by a foreign corporation selling U.
export production.
s.
In retrospect, it seems strange that
such deferral should be available only to a foreign corporation and not where export sales are made directly by a U. S.
corporation.
Second, section 963 allows in effect full
U. S. tax deferral of low-taxed income of a foreign sales
company where pursuant to a so-called "minimum distribution"
election such income is averaged with higher taxed income
from foreign manufacturing activities of the same controlled
group if the average effective foreign tax rate reaches
90 percent of the U. S. tax rate.
In a real sense, the only
U. S. exporters who benefit from such deferral are those
who also have substantial investments in foreign manufacturing
- 4 facilities and thus can achieve this complex averaging
effect.
In view of these limitations on deferral, the only
way most U. s. manufacturers are able to obtain the benefits
of full deferral of the U. s. tax is to form a foreign
corporation to manufacture abroad.
The income from the
sale of goods manufactured by foreign corporations owned
by U. S. shareholders is not taxed by the United states
until such income is distributed to the shareholders (or
the stock of the subsidiary is sold).
Until distribution
(or the sale of the stock), the only applicable income taxes
are foreign taxes, and these may be imposed at a level below
the u.s. level or may be completely waived,
espec~ally
on
exports.
This existing U. S. tax treatment of foreign source
income inherently involves a bias in favor of our largest
corporations.
Through their extensive foreign structures,
they are frequently able to use the foreign tax credit,
either with or without minimum distribution
elections,
to reduce their U. S. tax liability on export earnings.
To the extent this is being achieved under present law, the
tax deferral effect of the DISC proposal would not involve
a revenue loss through a postponed receipt.
We do not
~
I
- 5 have adequate data at this ti,me to determine the extent to
which the foreign tax credit presently serves to shield
export income from U. S. tax, but we believe it to be
significant.
The more important point, however, is that
the DISC would work more in favor of companies without
existing large foreign structures and extensive foreign
tax credits.
Accordingly, the DISC will provide equivalent opportunities for tax deferral for foreign source income, to the
extent this income arises from export sales, for smaller
corporations and for corporations newly entering the export
market or expanding their export sales.
This additional
equity of tax treatment as between our largest corporations and
U. S. business in general is an important feature of the
Administration's proposal.
Some would say that the remedy to the inequities we
describe is simply to remove the deferral on all foreign
earnings of U. S.-controlled businesses and tax it currently.
Such a response clearly acknowledges the inequities we
describe.
It also overlooks some critical facts.
The
foreign-owned competitors of U. S. businesses in the world
markets are generally not subject to such an all-embracing
concept of taxation by their home countries.
To the contrary,
- 6 -
the territoriality principle of the tax systems of the
majority of industrialized countries exempts foreign source
earnings, so that their companies operating abroad are able
to enjoy the full advantage of tax holidays and reduced
corporate rates, whether directly or through greatly
accelerated depreciation allowances or other special tax
allowances or inducements.
Our studies show that the average effective foreign
tax rates are generally below our U. S. effective corporate
rate.
For 1964, the effective foreign tax rate on all
foreign subsidiary operations of U. S. businesses was
approximately 38.6 percent.
Our U. S. companies presently
achieve deferral on the difference between the foreign tax
level and the U. S. tax level with respect to the earnings
of their foreign subsidiaries, and thus pay no more tax on
a current basis than their competitors.
However, virtually
every foreign country imposes a withholding tax on dividends.
If the
-U.
S. were to impose its taxes on the earnings of
U.S.-controlled foreign subsidiaries on a current basis,
these subsidiaries would surely remit their earnings in
dividends to be certain of obtaining the foreign tax credit
for the withholding taxes on dividends.
Earnings needed in
the businesses of the foreign Subsidiaries would then be
- 7 -
returned as capital contributions or loans.
These withholding taxes would largely offset the
s.
residual U.
tax through the foreign tax credit.
The
net effect would be an increase in the current foreign
taxes collected from U. S. businesses with little, if any,
additional U. S. tax.
Thus, the position of the U. S.
businesses in the world market would be prejudiced.
We think it is not wise as a matter of sound national
tax policy to affect adversely the competitive position of
our companies by neutralizing their opportunities to benefit
from lower levels of foreign tax in countries in which they
have substantial operations and which are enjoyed by their
competitors.
This, of course, would be precisely the effect
of extending our own corporate tax to all foreign source
income of U. S. businesses.
The existing structure provides
for deferral of the U. S. tax until dividends are paid.
The payment of such dividends reflects the fact that the
foreign earnings are no longer needed in the foreign
operations.
for export
This is a sound system and is equally sound
e~rnings.
Thus, the basic purpose of the DISC proposal is to
remove inequities in our present system in the tax treatment of
- 8 export earnings.
I will now outline the main features of
the proposal.
1.
Basic Provisions.
The Internal Revenue Code would be amended to provide
for a new category of domestic corporation to be known as
a Domestic International Sales Corporation (a "DISC").
u.
The
S. tax on the export income derived through such a
corporation would be deferred as long as it is either used
in the corporation's export business, is invested in "export
related assets" of the DISC, or is invested in "Eximbank
paper", and thus is not distributed to the DISC's shareholders.
"Export related assets" would include loans to manufacturers,
including the DISC's U. S. parent company where the DISC
is a subsidiary, to finance investments in U. S. plant,
equipment and machinery, inventory, and research and development to the extent these investments are deemed export
related.
The manufacturer's total investments for any of
these purposes would be treated as export related in the
same ratio as the manufacturer's sales destined for export
bear to total sales.
In order to qualify as a DISC, a corporation would be
required to confine its activities almost entirely to export
selling and certain related activities.
A DISC could have
- 9 -
foreign sales branches and its own foreign sales subsidiaries
where such branches and subsidiaries are engaged in the
sale of U. S. exports.
The DISC could not engage in manu-
facturing or invest in or finance foreign manufacturing
activities except to a very limited degree in direct support
of its
u. S. export sales activities.
A DISC could sell the products of any domestic
manufacturer (purchased from, or sold on behalf of, the
manufacturer or another DISC) and could sell them to any
foreign purchaser for a foreign destination, whether or not
related.
While foreign permanent establishments of U. S.
persons would be treated as foreign purchasers, this rule
would not apply to sales to the U. S. Government for
foreign use.
The relationship of the DISC proposal to
trade effected under the Canadian Auto Agreement is being
examined.
Although some complexity will be inherent in defining
an entity entitled to the tax status of a DISC, we intend
to simplify tax concepts applicable to export activity to
the maximum degree possible.
For example, a destination
test for export sales would be substituted to reduce the
complexities of the present passage of title test.
2.
Qualification as a DISC.
In order to qualify as a DISC, a domestic corporation
- 10 vlould be required to meet a gross receipts test and an
assets test.
It would also be required to distribute
currently interest received on investments in "export
related assets".
To achieve recognition as a DISC, the
only requirements would be an equity capital investment of
$2,500 or more, a ratio of indebtedness to related companies
not in excess of five times the equity capital, and an
appropriate election.
To meet the gross receipts test, at least 95 percent
of the DISC's receipts would be required to be received
from export sales activities and from investments in "export
related assets"
and Eximbank paper.
In order to meet the
assets test, 95 percent of the DISC's assets would be required
to be used in its export business or be in the form of
"export related assets" or "Eximbank paper".
To prevent
inadvertent disqualifications under either of these tests,
we will provide that if any income derived from non-qualified
receipts or any non-qualified assets are timely distributed
by a DISC, such receipts or assets will not be taken into
account for purposes of the 95 percent gross receipts and
the 95 percent assets tests.
The following would be treated as giving rise to
qualified gross receipts:
- 11 -
export sales of goods manufactured, produced
grown or extracted in the United states by
persons other than the DISC and sold by the
DISC either on a purchase and resale basis
or as a commission agent;
the leasing or rental of U. S. export property;
the performance of services by the DISC ancillary
to its sales or leases;
interest on credit extended to export customers
in accordance with normal commercial practice;
interest on obligations issued, guaranteed
or insured by the Export-Import Bank and
certain similar paper (see p. 19
infra) ;
interest and dividends from foreign sales
subsidiaries engaged in marketing U. S.
exports, including foreign packaging and limited
assembly operations;
interest and dividends from limited investments
in unrelated foreign corporations made in
furtherance of export sales, such as a loan to
a foreign distributor;
interest on investments in "export related assets",
including loans to U. S. manufacturers, whether
or not related to the DISC, to finance investments
related to export production (see p. 17
infra) ;
gains on the sale of assets used to produce export
- 12 -
interest on deposits in the U. S. with persons
carrying on the banking business provided
the deposits are temporary -- that is, any
deposits as of the last day of the taxable
year (other than working capital used in the
export business), must be invested in other
qualified assets within the time prescribed for
the filing of the DISC's return for such taxable
year; and
other transactions and activities directly
related to exporting of U. S. products as
designated by the Treasury Department in regulations.
Qualified assets would include assets used by a DISC
in its export business (that is, assets giving rise to
export receipts), investments in "export related assets,"
temporary deposits in u. S. banks, .and investments in
"Eximbank paper."
Among the assets which would in all
events be treated as used by a DISC in its export business
or as qualified assets are:
obligations of export customers received on
sales in accordance with normal commercial
practice;
other working capital used in its sales or
commission business;
export property held for lease;
- 13 -
assets of foreign sales branches handling U. S.
exports:
obligations issued, guaranteed, or insured
by the Export-Import Bank and certain other
similar paper (see p. 19
infra) 7
stock or securities in foreign sales subsidiaries
engaged in marketing U. S. exports, including
foreign packaging and limited assembly operations;
stock or securities in unrelated foreign
corporations made in furtherance of an
export sale or sales;
obligations representing loans to domestic
producers to finance "export related assets"
(see p. 17
infra):
temporary deposits in the United States with
persons carrying on the banking business; and
other assets directly related to U. S. exporting
as designated by the Treasury Department in
regulations.
The third basic requirement for qualification as a
DISC is the distribution by the DISC as a dividend within
nine months after the close of its taxable year of interest
received on investments in "export related assets
ll
(loans
- 14 to manufacturers) and on temporary deposits in U. S. banks
in excess of normal working capital requirements.
The
stockholders of the DISC receiving such dividends are
subject to full corporate and individual income tax on the
distribution,
3.
Tax Treatment of DISC Income.
So long as the domestic corporation continues to
qualify as a DISC, U. S. tax would not be imposed on
its current or retained export earnings, which would include
dividends and interest from its qualified foreign subsidiaries.
Upon a dividend distribution or the liquidation or sale of
the shares of the DISC,
its
retained export earnings would
be taxed to its shareholders as ordinary income.
Thus, the
net effect would be a deferral of the U. S. tax.
The
intercorporate dividends-received deduction
would not be
available since the DISC would not have been subject to tax
and th..:- tax is only to be deferred until distribution by the DIg
Dividends of a DISC paid out of qualified income
would be treated as foreign source income except to the
extent such dividends are attributable to interest on
investments in "export related assets" or on domestic bank
deposits.
With respect to any foreign income taxes paid
by the DISC, a foreign tax credit would be available to the
- 15 corporate shareholders to offset U. S. tax on foreign
source dividends received from the DISC (or U. S. tax on
liquidation or sale of the DISC); it could also serve,
subject to the limitations in section 904 of the Code, to
offset U. S. tax on other foreign source income.
This would
approximate the tax treatment of accumulated earnings and
profits of foreign subsidiaries under present law and the
present treatment for exports where passage of title is
arranged to occur outside of the United States.
4.
Limitation on DISC Profits.
We propose that limitations be established on the
profits which could be earned by a DISC in cases where
it is purchasing from, or acting as a commission agent for,
a related manufacturer.
Such limitations would be specified
in regulations pursuant to statutory authority.
The regulations would provide that the income of the
DISC (computed under normal tax accounting rules) would be
subject to being allocated to the related manufacturer if it
exceeds the income computed under both of two alternative
formulas.
As long as the income of the DISC does not exceed
the amount determined under the formula which gives the
higher amount, no allocation would be made and the income
could be deferred.
The formulas would be:
- 16 A.
The DISC could not realize income in excess
of 4 percent of its sales plus 10 percent of
the "export promotion expenses" incurred by
it; and
B.
The DISC could not realize more than 50
percent of the combined taxable income from the
manufacture in the United States and the export
sale by the DISC, plus 10 percent of the export
promotion expenses incurred by the DISC.
For
this purpose, the taxable income generated by
sales of the DISC would be determined by deducting
from sales the cost of goods sold determined on
the sarne basis as that charged by the manufacturer
on uncontrolled sales (inventory cost).
Other deductions (except certain nonoperating
deductions) such as selling expenses, general
and administrative expenses, research and
development and interest expenses, would be
allocated between sales by the DISC and sales
by the manufacturer on the basis of net sales
from each of these sources or, where certain
markets are primary and other markets are
secondary, on an appropriate basis to be
specified in the regulations.
- 17 -
In addition to these formulas, the income of the DISC
would not be allocated to the related U. S. manufacturing
company if it is in accord with the intercompany pricing
rules set forth in the existing regulations under Section 482
of the Internal Revenue Code.
Allocation rules along the foregoing lines would
be analogous to those applied by a number of countries,
generally on an informal basis, in the determination of
their tax liability on exports.
Their primary advantage
would be in providing a greater degree of specificity and
definitiveness in limiting the profit which may be realized
by the DISC vis-a-vis its related U. S. manufacturer.
5.
Investments in "Export Related Assets".
A DISC would be permitted to invest its accumulated
export income in "export related assets".
Such investments
would be in the form of loans to domestic manufacturers,
whether or not related, to finance the manufacturer's export
related assets.
The amount of export related assets of a
manufacturer would be that proportion of the manufacturer's
investment in production and supporting facilities which is
the same as the proportion of the manufacturer's export sales
and sales to DISC's to its total sales.
Thus, if the
manufacturer's export and DISC sales represented 20 percent
- 18 of its total sales and its production and supporting
facilities equaled $20 million, the authorized borrowing
would be $4 million.
It is contemplated that when a DISC makes such loans
to an unrelated borrower, such borrower would provide the
DISC with a certification that the borrower has not and will
not exceed its authorized borrowing for the year.
The production and supporting facilities of a
manufacturer which would qualify for this purpose would
include:
existing
plan~
equipment, machinery and
supporting production facilities
(including
those for storage, transportation and
administration) valued at their adjusted
basis after depreciation (reduced by outstanding DISC loans previously made with
respect to such assets);
investment in new plant, equipment and
machinery and other new supporting production
facilities;
inventory (reduced by outstanding DISC loans
previously made with respect to inventory); and
research and development expenditures (whether
or not capitalized) incurred during the year.
- 19 -
It is not contemplated that there will be any tracing of
loans to specific manufacturing facilities or equipment
actually used in prQ4uction for export.
All loans would be interest bearing, resulting in
an interest deduction to the borrower.
safe haven rules will be applicable:
The section 482
presently the interest
charged must be a minimum of 4 percent and maximum of
6~percent,
although the rate may be higher if an arm's length rate
would be higher.
The term of any loan need not be less than 10 years.
Loans related to investment in research and development
and inventory would be for 10 years.
To the extent that
loans relate to investments in fixed assets, the term
may be longer based on the weighted average useful life
for depreciation purposes for such assets, with an outside
limit for any asset (including land) of 30 years.
At maturity,
any loan could be renewed, or the principal loaned to another
borrower, provided always that there is compliance with
the rules previously described.
Qualified loans would remain qualified throughout their
term regardless of any decreases
in~_;export
sales.
They
would not be treated as constructive dividends.
6.
Acquisi~t'ion
of Export-Import Bank Paper by DISC's.
As stated above, qualified export income would include
- 20 -
interest on credit extended to export customers in accordance
with normal commercial practice and interest on obligations
issued, guaranteed, or insured by the Export-Import Bank
and certain similar paper.
Such debt obligations would also
constitute qualified export assets.
In cases where the DISC
acts as a commission agent for an export manufacturer, the
oQligations acquired by the manufacturer in connection with
the extension of credit to export customers in accordance
with normal commercial practice could be acquired by the
DISC.
It would be provided that the following types of
Export-Import Bank obligations and similar paper would
give rise to qualified export income and constitute
qualified export assets:
obligations issued by the Export-Import Bank;
obligations guaranteed or insured by the
Export-Import Bank in cases where the DISC
purchases the obligations from the Export-Import
Bank or from the exporter;
obligations insured by the Foreign Credit
Insurance Association in cases where the DISC
purchases the obligations from the exporter;
~-
obligations issued by certain domestic corporations
organized solely for the purpose of financing
U. S. exports pursuant to ari agreement with the
- 21 Export-Import Bank whereby such corporation makes
export loans guaranteed by the Export-Import Bank.
7.
Deficiency Distributions.
In order to prevent inadvertent disqualification of
a DISC, a deficiency dividend procedure would permit continued
qualification of the DISC.
Deficiency distributions could
be made at two stages where either the income or asset test
had not been met or interest on investments in export related
assets or temporary bank deposits (referred to as "distributable interest") had not been distributed:
CUrrent Deficiency Distributions.
Where
the DISC during the taxable year had at least
70 percent of its gross receipts in the form
of qualified receipts, a distribution of the
income derived from non-qualified gross receipts
could be made at any time after the close of
the DISC's taxable year and prior to the time
for filing the DISC's annual return.
Similarly,
any non-qualified asset could be distributed,
or such asset could be liquidated with the proceeds being distributed or invested in qualified
asset, within such period.
A distribution of
"distributable interest" could be made within such
- 22 period without regard to the 70 percent
test.
Delayed Deficiency Distributions.
A distri-
bution of "distributable interest" or nonqualified income or a non-qualified asset (or
a distribution from the proceeds of such an
asset) could be made at any time with respect
to any year
as to which the period for
assessment of additional taxes had not expired
provided that the existence of such income or
asset and the failure to distribute it within
the return filing period was due to reasonable
cause.
A delayed deficiency distribution would be required
to consist of the distributable interest or non-qualified
income (or asset or proceeds therefrom ) plus an annual
interest charge to compensate for the deferral of tax
on the income from the return filing date.
8.
Disqualification of DISC, Liquidation, or Sale of stock.
Upon liquidation of a DISC or upon its disqualification
(where the deficiency dividend procedures are not used),
DISC status would terminate and the earnings and profits
of the DISC on which U. S. taxes had been deferred would
be deemed to be distributed to the shareholders.
Each
shareholder would be taxed as if he had received his
~
l./)
- 23 -
pro rata portion of such income in equal installments
in the year in which such liquidation or disqualification
occurs and in each of the succeeding nine years; except
that if the DISC has not been qualified as such for at
least ten years, the period of distribution will be
deemed to be the number of years the DISC was in existence
prior to the commencement of the liquidation or the disqualification.
Upon the sale of stock in a DISC,
the gain realized
will be taxed at ordinary income rates to the extent of
the accumulated earnings and profits after the date of the
DISC election.
The foreign tax credit would be available
similar to its application under section 1248 of the
Internal Revenue Code.
9.
Reo'rganization of Existing Export Qperations.
It is contemplated that in general tax-free reorganizations
would be permitted to place existing foreign operations in a
DISC ot to put existing foreign sales subsidiaries under its
ownership.
10.
Financial Accounting.
We understand that the Accounting Principles Board
of the American Institute of Certified Public Accountants
has recently reviewed the question of the proper accounting
- 24 -
treatment with respect to the deferred tax liability on
the profits of a DISC.
We understand that they have con-
cluded that the DISC could be treated in the same manner
as a foreign subsidiary
that is, under current practice
there is no requirement that the deferred tax liability
be accrued currently on the income, so that the U. S. tax
liability would be reflected as a cost at the time dividends
are paid, just as it would be imposed under our DISC proposal.
* * * *
This concludes our description of the DISC.
A more
detailed technical explanation has been delivered to the
Committee and is available to the public at the Treasury's
Public Information Office.
I will be pleased to answer any questions concerning
this proposal.
DOMESTIC INTERNATIONAL SALES
CORPORATION
TECHNICAL EXPLANATION
OF
TREASURY PROPOSAL
(Submitted to Committee on Ways and Means,
House of Representatives on May 12, 1970)
Y'
't-/
May 12, 1970
Domestic International Sales Corporation
Technical Explanation
INDEX
Definition of a Domestic International
Sales Corporation (DISC)----------------------- 1
Ownership of the Stock of a DISC----------------- 1
Equity Capital Requirement----------------------- 2
Gross Receipts Requirement----------------------- 2
Distributable Interest--------------------------- 4
Export Income and Export Property---------------- 4
Non-qualifying Receipts-------------------------- 6
Limitation on DISC Profits----------------------- 7
Qualified Assets Defined-------------------------10
Acquisition of Export-Import Bank
Paper by DISC's--------------------------------12
Deficiency Distributions-------------------------13
Non-V. S. Investments----------------------------15
Liquidation or Disqualification of DISC----------17
Sale of DISC Stock-------------------------------18
Independent Export Sales Companies---------------18
Loans to Domestic Producers
and Export Related Assets----------------------18
Distributions from a DISC------------------------22
Liquidations and Reorganizations-----------------23
Ineligible Corporations-------------------------- 24
Information Returns------------------------------ 25
Effective Date----------------------------------- 25
Miscellaneous Rules------------------------------ 25
)
,
,
')
May 12,'--1970
Domestic International Sales Corporation
Technical Explanation of Treasury Proposal
Definition of a Domestic International Sales Corporation (DISC) .--A corporation would generally qualify
as a DISC if (1) i t is a domestic corporation which meets
the minimum equity capital requirements,
(2) within the
first 90 days of the beginning of its taxable year the
shareholders elect to have the corporation treated as a
DISC,* (3) 95 percent of its gross receipts for the
taxable year is derived from export activities, from
"export related assets" and "Eximbank paper," (4) it
distributes annually its interest income from its investment in "export related assets" and qualified bank deposits,
and (5) 95 percent of its assets are used in the export
business, are in the form of "export related assets" or
"Eximbank paper."
OWnership of the Stock of a DISC.--Individuals,
corporations, trusts, and estates could own the stock of
a DISC.
Nonresident aliens and foreign corporations
*Such election remains in effect as long as the gross
receipts and assets tests are met with respect to the
year of the election and each subsequent year.
- 2 could also own the stock of a DISC.
Any dividends received
by a nonresident alien or foreign corporation would be
treated as effectively connected with a U. S. trade or
business operated through a permanent establishment.
A domestic corporation engaged almost solely in the
export business might well be able to qualify as a DISC.
In cases where an export business is conducted in a
non-corporate form, by a sole proprietorship or a partnership, it would be necessary to organize a corporation.
Similarly, a corporation engaged in manufacturing or in
non-export sales activities, as well as in exports, could
organize an export sales subsidiary designed to qualify as
a DISC.
DISC's could export articles produced by related
and non-related producers and could export to related and
non-related foreign purchasers.
Equity Capital Requirement.--A DISC would be required
to maintain at all times a minimum equity capital of $2,500
and the ratio of its indebtedness to related corporations*
(or guaranteed by related corporations) could not exceed
five times its equity capital.
Gross Receipts Requirement.--As stated, the gross
receipts requirement is met if the domestic corporation
derives at least 95 percent of its gross receipts from
exports and export related investments and activities.
*A "related " corporation as used herein refers to a corporati~
which controls or is controlled by the DISC or is under
common control.
- 3 The 95 percent test must be satisfied annually.
Qualify-
ing gross receipts would be derived from:
(1) the sale* of export property
(herein~
after defined) for use, consumption, or distribution
in a foreign country;
(2) the leasing or rental of export property
for use in a foreign country by the lessee;
(3) gains from the sale or exchange of assets
used by the DISC for the production of export
receipts;
(4) the performing of services by the DISC
which are ancillary and subsidiary to the selling
or leasing of export property by the DISC;
(5) loans of DISC profits to domestic
producers for "export related assets" as described
in "Loans to Domestic Producers" on p. 18;
(6) temporary deposits in the United States
with persons carrying on the banking business
(see Item 9 on p. 11);
*In the case of commission rncome on the sale of property,
the gross receipts test will be applied to the gross
receipts on the sale of the property on which such commissions were earned.
- 4 -
(7) dividends or interest which is received
with respect to foreign investments described
hereinafter in "Non-U. S. Investments" on p. 15;
(8) interest received on any obligation
arising from sales or leases of export property
and related services, including interest on receivables purchased by a DISC selling as a
commission agent;
(9) obligations issued, guaranteed or insured
by the Export-Import Bank and certain similar
obligations (see p. 12); and
(10) other transactions and activities directly
related to exporting of U. S. products as designated
by the Treasury Department in regulations.
Distributable Interest.--With respect to loans made
by the DISC to domestic producers for "export related
assets" [(5) above], and interest on bank deposits [(6)
above], the annual interest income from such
loans and deposits (hereinafter referred to as
"distribut~~
interest") must be distributed by the DISC within the time
required for filing the DISC's annual return for such year.
Export Income and Export Property.--On export sales
or leases and ancillary services, the place of use, consumption,
or disposition of the goods will determine whether the activity
is export in nature rather than the technical source of income
- 5 -
under the passage of title test.
A DISC will be deemed
to receive export income when it sells to a foreign
purchaser for export or to an unrelated DISC.
Sales to
a foreign establishment of a U. S. entity for use,
consumption or disposition outside the united States will
be considered export sales.
However, sales to the U. S.
Government will not be considered exports.
"Export property" will mean any personal property,
grown, extracted, manufactured or produced in the United
States, Puerto Rico or any other possession for ultimate
use, consumption or disposition outside the United States,
Puerto Rico or any other possession.
Qualified exports
would not include exports to a possession of the United
States, including Puerto Rico.
If a DISC sells products to persons who were formerly
customers of its parent or a related company, the income
generated by these sales would be qualified income.
Similarly, some or all of a DISC's line of products may
be sold on behalf of unrelated producers.
A limitation will be imposed on the amount of "foreign
content" which may go into the goods which a DISC exports.
The property must have been substantially transformed in
- 6 the United States prior to export.
The U. S. content
must account for at least 50 percent of the total costs
of the product as established under standard government
procurement regulations.
In addition, any item containing
components imported into the United States and classified
under Item 807 of the Tariff Schedules of the United States
will not qualify as I'export property."
Where a DISC sells a product to a related foreign
company and such foreign company either resells the
product, or performs a further amount of work on the
product before resale, or utilizes the product itself,
the income which the DISC received from the sale of
the product to the affiliate would be qualified.
A DISC could sublease export property as to which
it is the'lessee.
The DISC's receipts attributable to the DISC's
transporting its qualifying exports (either in the
United States or abroad) would be treated as qualified
receipts.
Non-qualifying Receipts.--The forms of qualifying
receipts of a DISC are set forth above.
will not constitute qualified receipts:
The following
(
/
~--
- 7 (l) the sale of export property to the United
States or any agency or instrumentality thereof
and service or other income ancillary thereto;
(2) income from the use of intangibles abroad
such as copyrights, trademarks, and patents;
(3) foreign franchising operations (however,
where a U. S. taxpayer supplies a foreign franchisee
with a particular product or product line, the sale
of these items through a DISC could generate qualified
export income); and
(4) services other than those rendered by a
DISC in connection with the sale or lease of export
property by it.
Income which results from a DISC selling export
property abroad for final disposition, use, or consumption of such property in the United States will
not be qualifying income.
The relationship of the DISC proposal to the Canadian
Automotive Agreement is presently under study.
Limitation on DISC Profits.--In order to avoid
unnecessary problems on intercompany pricing allocations,
it is intended to provide guidelines to prevent the
excessive shifting of income to a DISC where it is purchasing
- 8 from or selling on behalf of a related manufacturer.
The regulations would provide that the income of the
DISC (computed under normal tax accounting rules) would be
subject to being allocated to the related manufacturer if
it exceeds the income computed under both of two alternative
formulas.
As long as the income of the DISC does not exceed
the amount determined under the formula which gives the
higher amount, no allocation would be made and the income
could be deferred.
A.
The formulas would be:
The DISC could not realize income in excess
of 4 percent of its sales; or
B.
The DISC could not realize more than 50 percent of the combined taxable income from the
manufacture in the United States and the
export sales by the DISC
For this purpose,
the taxable income generated by salep of the
DISC would be determined by deducting from
sales the cost of goods sold determined on
the same basis as that charged by the manufacturer on uncontrolled sales (inventory cost).
Other deductions (except certain nonoperating
deductions) such as selling expenses, general
and administrative expenses, research and
t -
9 -
development and interest expenses, would be
allocated between sales by the DISC and sales
by the manufacturer on the basis of net sales
from each of these sources, or, where certain
markets are primary and other markets are
secondary, on an appropriate basis to be
specified in the regulations.
In addition to the foregoing, a DISC would be entitled
to an additional deferred income equal to 10 percent of
the "export promotion expenses" incurred by it.
Export
promotion expenses would be those ordinary and necessary
expenses of the DISC paid or incurred in the production of
export income, including salaries, rentals, warehousing,
advertising, selling expenses, billing, collection and
other administrative costs, but not including costs of
goods sold, taxes or any expenses that do not advance the
distribution or sale of exports.
The pricing between the U. S. parent and the DISC
could also, of course, be established pursuant to the
existing allocation rules under section 482.
A DISC must sell to a related foreign purchaser on
an arm's length basis, as under section 482; provided,
however, that no effort will be made by U. S. authorities
to allocate or recharacterize income on such sales in a
- 10 manner that would reduce the DISC profits below those
authorized under the preceding rules.
Credit terms
extended to related foreign purchasers must be comparable
to those that would be extended to unrelated purchasers.
Qualified Assets Defined.--An asset test is required
in order to insure that the DISC assets are related to
export activity.
Therefore, 95 percent or more of the
value of the total assets of the DISC as of the last day
of the taxable year must consist of:
(1) working capital used in the export sales
business (primarily consisting of cash, inventory and
export receivables) ;
(2) plant, machinery and equipment and office
and administrative facilities used in connection
with the sale, lease, storage, packaging, servicing,
assembly or transportation of the DISC's exports;
(3) obligations issued, guaranteed or insured
by the Export-Import Bank and other similar obligations (see p. 12, infra);
(4) export property held for lease;
(5) assets of foreign sales and service branches
handling U. S. export property; provided that the
activities and assets are limited to those specified
for foreign subsidiaries (see Item (3) on p. 16);
- 11 (6) stock or other securities issued by
foreign customers and certain foreign companies
as described hereinafter in "Non-U. S. Investments"
on p. 15;
(7) export receivables purchased by a DISC
from a manufacturer on whose behalf the DISC sells
as a comndssion agent;
(8) obligations representing loans to domestic
producers for "export related assets" as described
in "Loans to Domestic Producers" on p. 18;
(9) deposits in the United States with persons
carrying on the banking business, provided that any
amount so held as of the last day of the taxable
year (other than working capital used in the export
sales business), shall have been invested in other
qualified assets within the time prescribed for the
filing of the DISC's return for its taxable year,
or for such additional period of time as may be
permitted by regulations; and
(10) any other asset directly related to exports
which the Treasury Department describes in regulations.
Since the asset test includes an annual test to be met
as of the last day of the DISC's taxable year, adjustments
may be made to meet the income and asset tests during the
period between the end of the year and the time prescribed
- 12 -
for the DISC's filing of a return for the taxable
yea~~
While not taxable, it is contemplated that a DISC must
file a reporting form during the 9th month after the
close of its taxable year.
In order to give some flexibility to meet the problem
of co-ordinating of loans to a producer and timing of
construction and similar events, regulations would permit
counting both loans that have been made and firm commitments
scheduled to be taken down within a specified period.
Acguisition of Export-Import Bank Paper by DISC's.·Qualified export income would include interest on credit
extended to the DISC's export customers in accordance with
normal commercial practice and interest on obligations
issued, guaranteed, or insured by the Export-Import Bank
and certain similar obligations.
Such debt obligations would
also constitute qualified export assets.
Where the DISC
acts as a commission agent for an export manufacturer,
the obligations acquired by the manufacturer in connection
with the extension of credit to export customers in
accordance with normal commercial practice could be acquired
by the DISC.
The following types of Export-Import Bank obligations
and similar paper would give rise to qualified export
income and constitute qualified export assets:
- 13 --obligations issued by the Export-Import Bank;
--obligations guaranteed or insured by the
Export-Import Bank in cases where the DISC
purchases the obligations from the ExportImport Bank or from the exporter;
--obligations insured by the Foreign Credit
Insurance Association in cases where the DISC
purchases the obligations from the exporter;
--obligations issued by certain domestic corporations organized solely for the purpose of
financing U. S. exports pursuant to an agreement with the Export-Import Bank whereby such
corporation makes export loans guaranteed by
the Export-Import Bank.
Deficiency Distributions.--In order to prevent
inadvertent disqualification of a DISC, a deficiency
dividend procedure would permit continued qualification
of the DISC.
Deficiency distributions could be made
at two stages where either the income or asset test had
not been met or the "distributable interest" (see p. 4 )
had not been distributed.
(1)
Current deficiency distributions.
the DISC during the taxable year had at least
wnere
- 14 70 percent of its gross receipts in the form of
qualified receipts, the amount of income derived
from nan-qualified receipts could be distributed
at any time after the close of the DISC's taxable
year and prior to the time for filing the DISC's
annual return.
The amount of the required distribu-
tion in the case of non-qualified receipts will
ordinarily be that proportion of the DISC's net
income which its non-qualifying gross income bears
to its total gross income.
Similarly, any non-
qualified asset could be distributed, or such asset
could be liquidated with the proceeds being
distributed or invested in a qualified asset, within
such period.
A distribution of "distributable
interest" could be made at any time within such
period, without regard to whether the 70 percent
gross receipts test had been met.
A dividend paid
within such period will be deemed to be a distribution out of the preceding year's earnings and profits
and would constitute taxable income of the individual
and corporate shareholders for such preceding taxab~
year.
- 15 -
(2)
Delayed deficiency distribution.
A
distribution of "distributable interest" or of
non-qualified income or a non-qualified asset
(or a distribution from the proceeds of such an
asset) could be made at any time with respect
to any year as to which the period for assessment of additional taxes had not expired, provided
that the existence of such income or asset and the
failure to distribute it within the return filing
period referred to in (1) was due to reasonable
cause.
Such reasonable cause may be established
by a showing, for example, that the income or
asset arose by inadvertence or was of an unusual
and non-recurring character.
A delayed deficiency distribution under (2)
above would be required to consist of the distributable interest or non-qualified income (or asset
or proceeds therefrom) plus an annual interest
charge to compensate for the deferral of tax on
the income from the return filing date.
Non-U. S. Investments.--A DISC may maintain investments
in and receive income from certain non-U. S. investments.
These are:
- 16 (1) trade receivables of foreign purchasers.
In the case of related foreign corporations, the
receivables must be in connection with sales or
leases in the ordinary course of business and on
ordinary commercial terms.
(2) a foreign real estate title holding
corporation, holding title to foreign export
facilities of the DISC.
(3) a foreign corporation controlled by the
DISC and which has at least 80 percent of its
gross receipts from the sale or lease of U. S.
export property and from services ancillary
and subsidiary to such sales or leases.
For
this purpose, packaging and minor assembly will
be permitted, provided that there is no "substantial
transformation" of the exported goods and if the
value added abroad does not exceed 20 percent of
the cost of the goods sold.
A qualifying subsidiary
under this section will not be subject to Subpart F,
provided that it meets these requirements and the
other asset requirements of a DISC ••
*Where a foreign subsidiary is engaged in extensive assembly,
manufacturing operations or the selling of products other
than those from U. S. sources, it is always possible for ~e
U. S. parent of the DISC, where the DISC sells to such subsidiary, to own such other subsidiary through a separate
line of ownership, without the necessity of the DISC investing its funds in such subsidiary.
1(
- 17 (4) obligations or stock of an unrelated foreign
corporation provided that the acquisition is in
furtherance of an export sale or sales and provided
that the stock ownership shall not exceed more than
10 percent of the total combined voting power of the
foreign corporation.
This exception is intended to
be limited to investments that might be required in
unrelated foreign distributors or to help finance a
customer's purchase of export property.
Liquidation or Disqualification of DISC.--Upon
liquidation of a DISC or upon its disqualification (where
the deficiency dividend procedures are not used), DISC
status would terminate and the previously deferred earnings
and profits of the DISC would be deemed to be distributed
to the shareholders and taxed in the following manner:
Each shareholder would be deemed to receive his
pro rata portion of such income in equal installments in
the year in which such liquidation or disqualification
occurs and in each of the succeeding nine years; except
that if the DISC has not been qualified as such for at
least ten years, the period of distribution will be deemed
to be the number of years the DISC was in existence prior
to the commencement of the liquidation or the disqualification.
The foreign tax credit would be available similar to its
application under section 1248 of the Code.
- 18 Sale of DISC Stock.--Upon the sale of stock in a
DISC the gain realized will be taxed at ordinary income
rates to the extent of the accumulated earnings and
profits after the date of the DISC election.
The foreign
tax credit would be available similar to its application
under section 1248 of the Code.
Independent Export Sales Companies.--Combination
Export Managers and other independent exporters account
for more than 1 billion in exports annually.
Under the
DISC proposal, companies exclusively engaged in export
activities will be qualified for DISC status, with current
deferral of their export profits.
Such companies will be
entitled to loan their accumulated income to U. S. producers.
In addition, it is proposed that such export
companies be entitled to earn fees for services rendered
in managing export operations for other DISC's, where,
for example, a manufacturer wishes to have his own DISC,
but lacks the experience to manage an export operation.
Loans to Domestic Producers.--A DISC will be permitted
to loan its accumulated export income (but not borrowed
funds) to any domestic corporation, whether or not
related, meeting required export production tests.
loans may be made as follows:
Such
l ·1
- 19 -
(1)
As of the close of each taxable year, a borrower's
permissible loans from DISC's for the next year would be
determined by ascertaining the borrower's investment in
qualified assets as of the close of the taxable year.
The
proportion of the borrower's assets that could be financed
(designated as "export related assets") would be determined
by multiplying the amount of assets designated in (2) below
by the percentage which the export sales of the borrower
for the taxable year and the immediately preceding two years
is of the total sales of the borrower for such period.
However,
the base period for loans at the end of the first and second
taxable years after enactment of the proposal will be computed
on the basis of exports during such period.
Thus, if the
borrower's exports represented 20 percent of its sales and
the total amount of the production and other assets enumerated
in (2) below equaled $20 million, the authorized borrowing
would be $4 million.
It is contemplated that any unrelated borrower would
provide a DISC lending to it with a certification that the
borrower has not and will not exceed its authorized borrowing
for the year.
Such certification would ordinarily be conclusive
in establishing, for purposes of the DISC, that its loans are
qualified export related assets.
(2)
The assets taken into account as of the close of a
taxable year to determine the base for DISC loans are:
- 20 (a)
Existing plant, equipment, machinery and
supporting production facilities
(including those for
storage, transportation and administration)
v&ued at
their adjusted basis after depreciation as of the close
of the taxable year (reduced by outstanding DISC loans
previously made with respect to such assets);
(b) Investment in new plant, equipment and
machinery and other new production and supporting
facilities for the next year;
(c)
Inventory held on the last day of the
taxable year (reduced by outstanding DISC loans
previously made with respect to inventory); and
(d) Research and development expenditures
(whether or not capitalized) incurred during the
taxable year.
It is not contemplated that there will be any tracing of
loans to specific manufacturing facilities or equipment which
will actually produce for exports.
(3)
All loans would be interest bearing, permitting
an interest deduction to the borrower.
safe haven rules will be applicable:
charge is a 4 percent minimum
The section 482
presently the interest
and a 6 percent maximum,
although the rate may be higher if an arm's length rate
would be higher.
- 21 -
(4)
years.
The term of any loan need not be less than 10
Loans related to investment in research and de-
velopment and inventory would be for 10 years.
To the
extent that loans correspond to investment in fixed assets,
the term may be longer based on the weighted average useful
life for depreciation purposes of such assets, with an
outside limit for any asset (including land) of 30 years.
(5)
Qualified loans remain qualified throughout their
term regardless of any changes in the ratio of export sales
to total sales.
They will not be treated as constructive
dividends.
(6)
At maturity, any loan may be renewed or the
principal loaned to another borrower, provided always that
there is compliance with the rules described above.
(7)
It is presently anticipated that an election should
be allowed that either (i) each corporation within a controlled group would be treated as a separate borrower for
purposes of the loan limitations and that the appropriate
assets and ratio are the assets of the particular corporate
borrower and the ratio of such borrower's export sales to
its total sales, or (ii) the combined export production
assets and sales of all affiliated companies within the
controlled group would be used for this purpose.
- 22 In determining the manufacturer's export sales base,
reference
will be made only to sales of goods, comparing
export sales of goods to total sales of goods.
Income from
services will be disregarded for this purpose.
Distributions from a DISC.--Distributions shall be
deemed to be made in the following order and as income
from the following sources:
(1)
Distributions of "distributable interest"
(deemed domestic source income of the shareholder);
(2)
Deficiency distributions with respect to
non-qualified income or assets (deemed domestic
source income of the shareholder);
(3)
Distribution of accumulated qualified
income from the most recent taxable year of the DISC
(foreign source income of the shareholder);
(4)
Distributions from pre-DISC years, which
shall retain their character as to source as under
present law.
The portion of dividend distributions treated as
foreign source income shall be entitled to foreign tax
credits, subject to the appropriate overall or per-country
limitation.
Foreign taxes borne by the DISC or its first-tier
- 23 -
foreign subsidiaries may be credited by corporate shareholders of the DISC owning 10 percent or more of the DISC's
stock.
The foreign source portion of any dividends shall
be deemed to carry full foreign tax credits for foreign
taxes attributable to the foreign source income so distributed; rules will be provided to avoid dilution by the mix
of domestic and foreign source income in the DISC.
In
determining the foreign source income on a distribution
from a DISC to a corporate shareholder, for foreign tax
credit purposes, it is not intended that allocations of
general and administrative expenses and overhead of the
corporate shareholder will be made to reduce the foreign
source income element in the DISC distribution.
The destination test (rather than passage of title)
will also be used in determining the source of export income
of the DISC for foreign tax credit purposes.
Liquidations and Reorganizations.--Established corporations with foreign sales subsidiaries might encounter
difficulty in restructuring their corporate organization
to take advantage of a DISC concept.
It is desirable,
therefore, to provide nontaxable treatment to these corporate
entities to enable them to transfer their foreign sales
activities to United States subsidiaries (DISC's).
Therefore,
section 367 would be amended to provide that an advance
- 24 ruling is not required where the assets of a foreign
corporation are acquired by a DISC in a liquidation described in section 332 or in a reorganization described
in section 368(a).
Some restrictions regarding which assets
of a foreign corporation would be eligible to receive this
treatment may be necessary.
Foreign subsidiaries that are
now foreign export trade corporations under section 970
should be able to retain the deferred status for their
present qualified accumulated export trade income in the
event that they are subsidiaries of or are liquidated into
a DISC.
Ineligible Corporations.--The following corporations
shall not be eligible to make a DISC election:
(1) a corporation exempt from tax by reason
of section 501;
(2) a financial institution to which section
581 or section 593 applies;
(3) a life insurance company as defined in
section 801(a);
(4) a regulated investment company as defined
in section 851(a);
(5) a real estate investment trust as defined
in section 856;
(6) a corporation receiving the special deduction provided in section 941(a);
- 25 (7) an electing small business corporation (as
defined in section 1371(b»; or
(8) corporations referred to in section 1504(d).
Information Returns.--All corporations that have DISC
status and all manufacturers with DISC loans must file
annual information returns indicating their export production and sales, and amounts of income on which taxes have
been deferred in the DISC.
Effective Date.--The DISC
become effective
~~~~~~~~~~Be§~~-T;a/Lhi;Jl/C~:iQ,~ / 17/Miscellaneous Rules.-(1) Distributions from a DISC will not be
entitled to the dividends-received deduction under
section 246(a).
(2) The accumulated earnings tax provisions
of section 531 will not apply to a DISC.
(3) The personal holding company provisions
of section 542 will not apply to a Dl'SC.
(4) On liquidation or sale or exchange of stock
in a DISC, the principles of section 1248 will be
applied to result in a tax on the accumulated earnings
of the DISC, not previously subjected to
u.
S. tax, as
ordinary income subject to appropriate foreign tax
credi t.
- 26 (5) It is contemplated that a DISC may sell to
another DISC.
This would permit a captive DISC to
sell to an independent exporter for ultimate sale
for use, consumption, or disposition outside the
United States.
(6) A DISC may not be included in a consolidated
return.
(7) A Western Hemisphere Trade Corporation may
not own shares in a DISC.
FOR RELEASE ON DELIVERY
STATEMENT BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
THE COMMITTEE ON WAYS AND MEANS OF
THE U.S. HOUSE OF REPRESENTATIVES ON
H.R. 14870, PROPOSED "TRADE ACT OF 1969"
TUESDAY, MAY 12, 1970, 2:30 P. M.
I am pleased to appear today to discuss certain elements
of the Administration's trade policy and to support H.R. 14870,
the proposed Trade Act of 1969. In addition, my associate,
John S. Nolan, Acting Secretary for Tax Policy, is prepared
to present to you in some detail a specific proposal covering
our tax treatment of expor"t income. This proposal is designed
to provide tax treatment of export income more comparable to
that provided other foreign source income and more in accord
with the competitive realities of world markets.
The United States has provided leadership throughout
the postwar period for liberal trading and investment
practice. The essence of that policy has been to work toward
the removal of taLiff and other restrictions on trade on an
evenhanded and reciprocal basis. We have done so in the fiLm
belief that expansion of international trade and investment
under fair competitive conditions is in the interest of all
nations.
I believe \<Je can take pride in the achievements of the
past, particularly in the reduction of tariffso Our basic
approach remains sound. At the same time, we must recognize
that, with tariff baLriers already substantially reduced,
dramatic new breakthroughs are less likely in that area.
K-421
- 2 -
Our attention must ~hift increasingly to other barr-iees to
trade -- equally real but often less easy to identify and
me<.1sure. \-Je must also be alert to the hardships and
adjustments enforced on particular industries or sectors in
L2:~nnse to shifting trade patterns.
Otherwise, past
accomplishments will be undermined, and v.7e will not be able
to maintain forward momentum against the challenge of those
who would seek other solutions to their problems -- solutions
that look inward to unilateral protective measures in one
form or another.
H.R. 14870 would provide the Administration with the
minimum tools it needs to maintain forward progress, while
protecting the legitimate interests of American business and
labor. The Special Representative for Trade Negotiations
has discussed the specific provisions of that bill in some
detail. I would like, briefly, to note the relationship
between our approach to trade policy and our broad
international economic situation.
Our international balance of payments remains
unsatisfactory. This is true despite the fact that during
1969 we achieved some growth in our international reserve
assets -- that is our holdings of gold and foreign currencies,
as well as creditor position in the IMF. At the beginning
of this year, these assets were further supplemented by the
first allocation of Special Drawing Rights. Moreover,
foreign official dollar holdings have declined significantly
belm" peak levels. In each of the past two years, we have
recorded some surplus in our official settlements accounts,
in a cumulative amount of about $4-1/2 billion.
However, it must be recognized that these shifts in
our financial position were primarily a reflection of
extremely tight money in the United States. The high
interest rates and shortage of funds in our markets attracted
a huge inflow of short-term money "from abroad. This influx
of short-term funds cannot continue indefinitely.
Indeed,
in 1970, there has already been some reversal. This has
contributed, at least temporarily, to a sizeable deficit in
our external accounts during the early months of the year.
- 3 -
In these circumstances, a new emphasis needs to be placed
on developments in the more basic elements of our international
accounts. Our trade position is of central importance in
this respect. The heart of our present balance of payments
problem lies in the fact thnt, largely under the pressure
of internal inflation and overheating, our traditional trade
surn 11 .':'. has dwindled away. Standing at about $6-1/2 billion
in 1964 -- rOll;;1l.1', one percent of our then GNP -- our trade
surplus declined to less than $1 billion in both 1968 and
1969. Paralleling this drop in our trade balance, our
surplus on all goods and services -- despite a steady
increase in income on foreign investments -- has also decreased.
Rebuilding this surplus must be a prime policy objective.
There is no other way in which, over a period of time, we can
provide the rest of the world with the real goods and
services necessary to support our investment activities and
international obligations. Moreover, ~ve must res tore our
trade and current account surplus in a manner fully
consistent with our key position in the world economy, and
with the role of the dollar as the pre-eminent world
reserve and trading currency.
In meeting this challenge, the path of restrictionism
is not really open to us, not just as a matter of economic
philosophy, but also for very practical reasons. Restrictions
which are unfair and unacceptable to our trading partners
invite retaliation. Thus no benefit to our trade position
is achieved, and spreading restrictions would damage our
prospects for regaining a substantial surplus through
competitive processes. Moreover, I believe we should recognize
that freedom to import is one of the most effective possible
checks to domestic inflationary pressures. We cannot expect
to maintain a competitive industry at home behind a
succession of impoct barriers. Conversely, as ~ve reap the
benefits of our current policies to restrain internal
inflation, one consequence will be an improved international
trade position. We see evidence of this already. In the
first quarter, our trade surplus was about $500 million,
almost as much as dUl~ing all of 1969. This is encouraging,
but we have a long distance to go in achieving and maintaining
a surplus in the magnitude t;ve need.
- 4 Better economic performance over a series of years is
essential to that effort. But, in addition, the Administrztion
is undertaking <1 conce l:'ted effol:'t to induce and support cf {'arts
of industl:'Y to seek out and better develop foreign ma~keti
One major element in that effort is to assure competitive
export credit facilities. At the same time, we in the Treasury
have reviewed thoroughly the implications of our tax
structure for the exporting effort. Specifically, we have
appraised such factors as the tax treatment of expol:'ters in
other countries, the tax treatment of export income under
U.S. law as compared to other foreign source income, and the
~~~:tinn whether the U.S. tax structure does not inadvertently
contribute to an attitude among many American producers that
export markets are of secondary interest, not worth concel:'ted
and aggressive effort over a period of years.
This examination has led to the conclusion that, in some
respects 5 our tax system does tend to create an unnecessary
drag on exports and actually gives some incentive to
manufacturing abroad rather than in the United States.
Accordingly, vJe have developed a proposal for a Domestic
International Sales Corporation (DISC). We believe this
proposal provides a more equitable and satisfactory basis
for the taxation of export income. Essentially, it would
permit a company, within prescribed rules, to defer income
taxation on exports sold through a domestic export subsidiary.
The proposal builds upon and modifies certain existing
provisions of U.S. tax law that, in practice, have not been
fully effective. It is consistent with international
practice and obligations.
Specifically, the DISC proposal recognizes that export
income is partly foreign source income, just as income from
foreign subsidiaries is foreign source income. This principle
that export income may in substance include foreign source
income has long been recognized in our tax code, and it has
long been a provision of the tax code of other countries.
~mere this sound tax philosophy has gone astray in the
operations of our tax system is that the tax deferral of retained
earnings available on foreign investment income can only be
obtained on eXl?0rt income through-;reating a foreign-domiciled
sales subsidiary, which many companies find awhJard and
-
impractical.
be determined
of the goods;
L~l.L .::" 0 11 ~vh ich
significaIl(:c, .
r
:J
-
Foreign source income may appropriately
by the real place of sale, and the destination
the domicile of the corporate vehicle
the sale is passed is a matter of incidental
We believe that this approach is consistent with the
basic philosophy of the U. S. tax system.
The Committee
has before it another bill, H. R. 13713, that would approach
the problem from an entirely different direction, providing
a rebate to the exporter for taxes directly or indirectly
borne by articles exported.
I recognize that elements
in this approach bear some similarity to the GATTsanctioned practices of many foreign countries providing a
rebate to their exporters for value-added taxes.
It would,
however, raise a number of issues that have not been
satisfactorily resolved internationally. In the circumstances,
other countries could well institute comparable provisions
related to similar taxes where no rebate is now provided.
Mor~over, the revenue cost would be substantial.
For
example, if the rebate should work out to roughly four percent,
the loss would probably approach $1 billion or more.
It must be recognized that our own proposal, by
deferring income taxes on a large volume of exports, would also
entail a significant revenue loss.
I cannot ignore that
impact, in the light of our present budgetary position.
Consequently, fiscal responsibility requires that the
effective date for action in this area be delayed beyond
fiscal 1971 to July 1, 1971.
The estimated revenue impact for the first full year
under our proposal, Fiscal 1972 -- is expected to
approximate $450-$600 million.
This revenue impact will,
of course, need to be taken into account in shaping our
overall budgetary program for that period.
- 6 -
The impact on exports would develop through several
channels. Most directly, the tax deferral would increase
th0 ~Lv~~L2htlity of exporting.
In many instances this
should induce more effective promotional efforts or other
measures to compete more effectively. Perhaps more
important over time, basic decisions on the location of
ne~tJ investment facilities at home or abroad would be
affected, and companies would be encouraged to develop
long-range export strategies. Indeed, I believe this shift
in taxation would help signal to industry that improved
export performance is a national objective of high priority;
it would help build the consciousness and attitudes toward
exports that this country has been sorely lacking.
In our judgement, the effect of removing the bias
against exports in our tax system in the manner proposed
should be to generate over time a level of exports a
billion dollars or more greater than might otherwise
develop.
In summary, we consider the DISC can be an effective
companion piece to our liberal trade policy.
It is an
outward looking measure, resting on a desire to remove
impediments to competing more effectively. It can be a
part of an effective approach to our entire balance of
payments problem, and it is an approach that accepts
competitive imports as a factor in our battle against
inflation.
At the same time, we must face the fact that, in the
light of fiscal requirements, the effective date should be
. deferred. We urge that this proposal receive your careful
consideration in the light of all these factors.
000
Department of the
TREASURY
INGTON. D.C. 20220
TELEPHONE W04-2041
'R IMMEDIATE RELEASE
May 13, 1970
TREASURY'S WEEKLY BILL OFFERING
'fue Treasury Department, by this public notice, invites tenders
r two series of Treasury bills to the aggregate amount of
,100,000,000, or thereabouts, for cash and in exchange for
easury bills maturing May 21, 1970,
in the amount of
3,002,992,000,
a8 follows:
91-day bills (to maturity date) to be issued May 21, 1970,
the amount of $1,800,000,000,
or thereabouts, representing
additional amount of bills dated February 19,1970, and to
ture August 20, 1970,
originally issued in the amount of
,197,585,000,
the additional and original bills to be
eely interchangeable.
l82-day bills, for $1,300,000,000,
ted May 21, 1970,
and to mature
or thereabouts, to be
November 19, 1970.
The bills of both series will be issued on a discount basis
jer competitive and noncompetive bidding as hereinafter provided,
j at maturity their face amount will be payable without i.nterest.
=y will be issued in bearer form only, and in denominations of
),000, $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 Daylight Saving
ne,
Monday, May 18, 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
lders the price offered must be expressed on the basis of 100,
:h not more than three decimals, e. g., 99.925. Fractions may
: be used. It is urged that tenders be made on the printed
~ms and forwarded in the special envelopes which will be supplied
Federal 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
lders. Others than banking institutions will not be permitted to
)mit tenders except for their own account. Tenders will be received
:hout deposit from incorporated banks and trust companies and from
- 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
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rej ection thereof. The Secretary of the
Treasury expressly reserves the ri ght 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 21, 1970, in
cash or other immediately availah1e funds or in a like face amount
of Treasury bills maturing May 21, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be ma~
for differEl~es between the par value of maturing bills accepted ~
exchange and the issue price of the new bills.
The income derived from Trea.,u{y bills, whether interest or
gain fr0m the sale or other disposition of the bills, does not have
anv exempti (~n, as such, and loss ..-,""m the sale or other disposition
L)[
Treasury bills does not have allY 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 COlic of 1954 the amount of discount at which bills issued
hen'under <.ne sold is not considered to accrue until such bills are
-;01 d, I-ede('med or othenvise dispo~ed of, and such bills are excluded
lrom ,:onsicicration as capital as,et.~. Accordingly, the owner of
T'paSll:-V 1-: i 11 s
(other than life insurance companies) issued hereunder
lH'ed inc L ude in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
~,uhsequent purchase, and the amount actually received either upon
Sd it:' or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasue" Department Circular No. 418 (current revision) and this
icc prescrihe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
frorr any Federal Reserve Bank ot;oAranch.
nnt
FOR HlMEDIATE RELEASE
Hay 13, 1970
COINAGE COi1MISSION ACTS ON EISENHOWER DOLLAR
The Juint Coinage Commission met today to recor..sider its position
on the
rr~intiJlg
of an Eisenhower dollar coin.
It recommended, by a substantial majority vote, that the Secretary
of the Treasury be authorized to mint 150 million, 40 percent silver,
dollar coins bearing the likeness of former President Eisenho"wer.
This
is incorpor.:.ted in S. J. Res. 158, approved by the Senate on March 19, 1970.
This bill would:
Authorize the Treasury to m1l1t not more thaIl
150 million 40 percent silver dollar coins,
requiring about 47 million ounces of silver'.
Direct General Services Administration to trar.sfcr
25. 5 million ounces of national stockpile sEver,
which is in excess of strategic needs, to the Treasury
for mintinp" the silver dollars.
'"
'The remain(~er of
21. 5 million ounces req'...1ired wOl.Id come from
regular Treasury stock;.
Authorize" the mint">-::;of cUT~_o-ni :l::c: dollars m:.d
half dollars for general circl atioll.
(OVER)
- 2 ":"
Authorize the Secretary of the Treasury to transfer
to GSA the approximately 3 million rare silver dollars
for sale to the public.
The 40 percent silver dollars would be d·istributed at a premium
price under a procedure which would assure the widest p.ossible distribution.
The Treasury would conHnue silver sales through the GSA at the
current rate of 1. 5 million ounces per week through November 10, 1970.
It is estimated that the total added government revenue and
seigniorage for the Eisenhower dollar coins over the next three or four
years could approach more than three quarters of a \~illion dollars,
depending upon the premium price of the coin.
000
The Honorable David 1\1. Kennedy
f?ccrctary of the Treasury
Chairman
):ecutive
House of Representatives
he Honorable Maurice H. Stans
ecretary of Commerce
The Honorable 'Wright Patman
House Banldng & Currency Committe
he Honorable Robert Mayo
'irector, Bureau of the Budget
The Honorable \Villiam D. \Vidnall
House Banking Ex Currency Committe
he Honorable Mary Brooks
tirector, Bureau of the IVIint
The Honorable Ed Edmondson
U. S. House of Representatives
enate
'he Honorable John Sparkman
enate Banking and Currency Committee
'he Honorable \Vallace F. Bennett
C!1Cl.le Banking and Currency Committee
'he Honorable John O. Pastore
fnited'States Senate
'he Honorable P.lan Bible
The Honorable Robert N. Giaimo
U. S. House of Representatives
The 'Honorable Silvio O. Conte
U. S. House of Representatives
The Honorable James A. lV1cClurc
U. S. House of Representatives
Public
fnited States Senate
Mr.. Julian B. B a i:'~"d
St. Paul, Minnesota
'hc Honorable George Murphy
fnited States Senate
Mr., Amon Carter, Jr.
Fort \Vorth, Texas
'he Honorable Peter H. Dominick
fnited States Senate
Mr. \Villiam C. Decl~er
New York, New York
Mr. Samuel M. Fleming
Nashville, TeILYleSSee
Mr. Edward H. Foley
Washington, D. C.
11:1'. Harry Francis Harrington
St. Louis, Missouri
M:r. Eugene S. Pulliam
Indianapolis, Indiana
1V1r. Harry E. Rainbolt
Norman. Oklahoma
Department 01 the TREASURY
liNGTON. D.C. 20220
TElEPHONE W04-2041
FOR RELEASE AT NOON M.D.T.
THURSDAY, MAY 14, 1970
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE U. S. DEPARTMENT OF THE TREASURY
AT THE
BANKING SEMINAR
UTAH STATE UNIVERSITY
LOGAN, UTAH
THURSDAY, MAY 14, 1970
This is a time of transition for the economy and
financial markets. The inflationary pressures which built
up so strongly after the mid-1960's are now beginning to
recede. Fiscal and monetary restraint have successfully
slowed the pace of expansion. As a temporary consequence,
output is relatively flat and unemployment has been rising.
In this time of transition, there is inevitably a degree of
uncertainty over the future course of the economy. This is
reflected in -- and interacts with -- the financial markets
in which many of you are actively engaged.
Up to a point, this uncertainty is a healthy development.
It reflects the success of the policy of restraint in reducing,
if not entirely removing, the widespread expectation of
continued inflation. Those same policies are designed to
avoid recession, but inevitably even a modest slowdown
creates some fear that things may be allowed to go too far.
During a period of transition, such as the present, there
are risks on both sides. But the weight of evidence suggests
to me that the economy is about on the course that policy has
sought; neither falling off too sharply nor giving signs of
resuming too inflationary a path.
K-422
- 2 -
Progress has been slow in reducing the rate of
inflation. But we are beginning to see signs that the worst
may be over. In terms of the consumer price index, we
have passed through the period when prices rose more
rapidly each year -- as they did 1965-1968. The rate of
price increase has now been levelled off -- still at far too
high a level.
The overall rate of price increase conceals differing
trends. There has been a definite, and encouraging,
reduction in the rate of price increase for all retail
commodities. On the other hand, prices of services stillshow
a strong upward trend. This is not entirely unexpected.
Commodity prices should be the first to feel the effects
of restraint. Service prices are notoriously slow to react.
At the wholesale level, prices showed no advance in April.
But that certainly exaggerates the improvement. The overall
index reflected a rather sharp drop in farm product priries.
Obviously, recent price movements need to be interpreted
with some care, and the evidence is not uniformly
favorable. ~lt on balance, the price picture does seem
to be improving, even though we still have a way to go
before commodity prices -- both wholesale and consumer -can be expected to stabilize.
In the meantime, we aim to keep business on a fairly
steady heading. There are downward tendencies in some
sectors. Strong expansionary forces are also present. For
instance, personal income is being bolstered this quarter by
an injection of $12 billion at an annual rate due to expanded
Social Security benefits and government pay increases.
We firmly anticipate a stronger production and employment
trend will emerge during the balance of the year -- but at
a rate that will not place the economy under the kind of strain
that will defeat our anti-inflationary efforts.
The Federal budgetary position is of crucial importance
in this respect. In the current fiscal year which ends
~ext month, the budget is exerting a stabilizing influence.
Total Federal outlays will be held close to the $198
billion level projected in February although there have
been a number of expenditure increases since then.
- 3 These include:
a Federal pay increase adding $1.2 billion to
1970 outlays;
some increase due to Congressional appropriation
actions and failure to act on higher postal rates
by the April 1970 target date; and
uncontrollable increases in the farm price supports
and interest on the public debt.
Cuts will be made in other areas of the budget in order to
avoid any sizable overrun of the $198 billion total.
There has been some slippage on the revenue side, centered
primarily in corporate profits taxes. We cannot now
identify the extent. This may be due to a greater-thanexpected drop in corporate profits, or simply to a
shift in the timing of tax payments within the year.
In either case, this is not evidence of loose budgeting
or lack of success in cooling the economy. No Secretary
of the Treasury enjoys revenue slippage, but the apparent
shortfall in revenue -- at a time when expenditures are
under tight control -- cannot be considered a case for alarm
with respect to inflation.
Looking out to fiscal 1971, the ever-present pressures
for added spendi'ng are apparent.
High interest costs and
the recent Federal pay increase are two symptoms. We are
presently engaged in a full review of the outlook -- and I
can assure you that review is covering every possible area
of saving.
Every effort will be made to keep the budget in a stabilize
posture in the light of our economic circumstances. The need
for further expenditure cuts, or even tax action, will be
examined in the light of the overall need for fiscal
responsibility.
Financial markets are currently reflecting uncertainty
over short-term business conditions.
But, with the overheating dissipated, with the Federal finances in good order,
and the Federal Reserve embarked upon a program of moderate
growth in the monetary aggregates, the fundamental requirement
for a better balance should be emerging.
So far, financial
demands have continued to be relatively strong -- even
- 4 -
intense in some sectors -- in a way quite uncharacteristic
of an economy sliding off into recession. But there are some
signs of moderation.
On the side of supply, pressure on savings institutions
may be easing off. Short-term interest rates -- while
highly volatile -- are down from last year's peaks, but both
corporate and municipal rates are near or above last year's
highs and mortgage rates have yet to decline. This is a mixed
picture, as indeed is true of the economy itself.
There is a need for a much better balance in the flow
of credit. A variety of special measures has been successful
in maintaining a minimum flow of funds into housing. Other
credit needs are being met in whole, or in part. But,
in the last analysis, success in reducing the rate of
inflation is essential in order to reduce interest rates
and restore an adequate flow of credit into the various
sectors.
The struggle against inflation continues to occupy a
good part of our efforts. However, there are longer-run
problems in the financial area also requ1r1ng attention.
The time has come for a thorough examination of needed
changes in our financial institutions and our regulatory
structure. Last month President Nixon announced the
appointment of Reed O. Hunt -- formerly Chairman of
Crown Zellerback -- as Chairman of a Presidential Commission
on Financial Structure and Regulation. Among other things,
the Commission will undertake a thorough analysis of the
structure and regulation of "deposit-type" financial
institutions. The choice of Reed Hunt as Chairman insures
capable and imaginative leadership in this crucial undertaking.
Last month the Treasury hosted a one-day planning session.
A special meeting of academic and business financial
economists was assembled as consultants to discuss the
technical aspects of the Commission and its method of
operation. The session was an extremely productive one.
While it has not yet received great publicity, the work
of th~ President's Commission may well affect the shape of
financial regulations for years to come.
- 5 -
;/ ,I.
l,
I
;
~
One issue to which the Commission can be expected to
give attention is the regulation of one-bank holding
companies. As you know, the Congress is considering
legislation in this important area. Under Secretary Walker
presented the Treasury views to the Senate Banking and
Currency Committee earlier this week.
We favor the enactment of legislation to regulate the
activities of one-bank holding companies, but we are
concerned lest hasty and ill-considered activities to the
financial, fiduciary, or insurance functions specified in
the 1956 Act;
Activities which are bank-related would be
decided by unanimous agreement of the three
bank regulatory agencies, the Federal Reserve
Board, the Federal Deposit Insurance Corporation
and the Comptroller of the Currency.
Other legislation is proposed in this field, I will not
comment on it in any detail on this occasion. We feel,
however, that the Administration proposal -- S.1664 -is well designed to meet the problem at hand, without
creating new problems and additional uncertainties. Certainly,
some action will eventually be needed in this field to
avoid the trend toward merging of banking and commerce,
without shutting banks out of areas of legitimate interest.
In both the economic and financial areas, this
Administration is making every effort to look beyond shortrange issues -- without ignoring them. In the budgetary
and economic areas, five-year forward projections were made
and published this year for the first time. This followed
through on a prior recommen~ation of the President's
Commission on Budget Concepts which I had the honor to chair.
In the financial area, it is equally necessary to take a
close look at financial institutions and how they are
regulated.
These are necessary efforts; looking to the future and
the problems it may bring. But one problem -- rapidly
rising prices -- is with us in the present. We must make
every effort to insure that reasonable stability in prices is
promptly restored. And, once restored, reasonable price
stability must be pursued with unrelenting vigor. That is
the best way in which we can insure the future strength of
the dollar at home and abroad.
000
'eportmentof the TREASURY
IGTON. 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 CHEMICAL FORUM
WASHINGTON, D. C.
MAY 18, 1970, 12:00 NOON, EDT
A PROGRESS REPORT ON REVENUE SHARING
It has just about been one year since the Administration's Committee on Revenue Sharing started functioning. As
chairman of the committee, I believe that it is in order for
me to present a progress report, indicating both accomplishments to date as well as future activities.
It certainly is premature to start crowing; but as
I look back, I find that we have come a very long way in the
past one year. As you may know, revenue sharing has a fairly
extended history. For many years, economists in universities
and research institutions have been developing different types
of plans whereby the Federal Government can share a portion
of its financial resources with the states and with local
governments. Also, numerous bills have been introduced in
both Houses of the Congress, by Democrats and Republicans,
liberals and conservatives, by men and women from every region
of this Nation.
However, until this past year, the prospects for any
action were poor, for two reasons. First of all, there was
no agreement on what specific form revenue sharing should
take. There were dozens of different proposals, each with
some merit but with no common focus. Moreover, no Administration in Washington -- and certainly no President of the United
States -- had come out in support of the general idea of
revenue sharing, much less in favor of any specific approach.
As you know, both of these obstacles were overcome,
and I might add, ahead of our original schedule. As I reflect
on it, our approach was quite simple and straightforward.
Last summer, the President called in to the White House
K-423
- 2 -
a representative and bipartisan group of governors, mayors,
and county officials to assist us in developing the Administration's revenue sharing approach.
Thus the approach that we came up wi th was not imposed
unilaterail y but was the result of a joint effort by Federal
state, and local elected government officials. One of the '
key part ic ipants, Governor Daniel Evans of Washington, described
the meeting as follows:
"There was remarkable agreement among those
attending this meeting over the principles which
should be embodied in a revenue-sharing proposal.
This agreement represents a hallmark in new
governmental relations."
That effort resulted in agreement on what have come to be the
basic principles of revenue sharing:
1. An automatic distribution each year of a designated
portion of Federal revenues, based on objective criteria spelled
out in law.
2. An equitable sharing of the money among state and
local governments, also spelled out in clear formulas contained
in Federal law.
3. No "strings" or restrictions on the use of the money.
In effect, the funds become state and local money, which they
can spend for any lawful purpose, as they see fit, with the
same discretion that they spend their own money.
4.
Inclusion of all general-purpose local governments,
of size or location. Many of the earlier plans
omItted local governments or only included the largest ones.
Thus, the intention was clear; revenue sharing was going to
be a fair, equitable, and broadly based method of providing
a portion of the Federal tax base to help state and local
governments meet their urgent problems.
re~ardless
Indeed, there were two fundamental differences from any
other ~ederal progr':lm:
(1) not just the expenditure of money
~as beIng. decentralIzed, but the decision-making power over
Its use, In an effort to strengthen our Federal form of government, and (2) by providing for an automatic operation, no neW
Federal overhead. function was being set up; 100 percent of
the revenue sharIng fund was going to be disbursed to state
and local governments.
- 3 -
It was this commonly agreed upon approach that President
Nixon presented in his Message to the Congress of August 14,
1969, the first Presidential revenue sharing message, certainly
since Thomas Jefferson's second inaugural address. The reaction
was strikingly good.
The Baltimore Sun called it "a bold and broad-visioned
proposal." Business Week labeled it a "compelling idea,"
and The New York Times stated that it "marks a turning point
not only in fiscal policy but in the whole relationship of
Federal, state, and local government."
Perhaps that was not too surprising in view of the fact
that the Gallup Poll consistently has reported strong approval
of the approach to revenue sharing which has been adopted by
this Administration. In May, 1969, the Gallup Poll showed
71 percent in favor of having a percentage of Federal income
taxes returned to state and local governments for use as they
see fit.
This approach to revenue sharing has now been enthusiastically endorsed by the National Governors' Conference, the
U. S. Conference of Mayors, the National League of Cities,
the National Association of Counties, the National Legislative
Conference of State Officials, and by state and local leaders
in every part of this Nation.
The governors endorsed revenue sharing with the following
language:
"The National Governors' Conference has supported
by resolution since 1965 the concept of revenue sharing
as vital to the continuation of a strong Federal system
. . . The Nation's governors stand ready to work with
you closely and responsibly to achieve this vital
result. . "
In a joint statement, the National League of Cities and
the Conference of Mayors declared when they "enthusiastically
welcomed" the Administration bill:
" . . . it is vitally important to establish the
principle of revenue sharing at the earliest possible
moment so that steps will be triggered to begin the
long hard struggle to restore balance to our Federal
system."
- 4 -
The counties echoed the sentiment expressed by the state
and city governments:
"We are pleased that the Administration's bill has
the general wholehearted support of the Nation's mayors
and governors. Certainly, all must enthusiastically
concur with the President when he states that one of
the purposes behind Federal revenue sharing will be
a 'new emphasis on and help for local responsiveness,
and to provide both encouragement and the necessary
resources for local and state officials to exercise
leadership in solving their own problems.'
"The National Association of Counties pledges its
wholehearted and enthusiastic support for this much
needed harbinger of a basic change in our concepts
of federalism."
My colleagues and I have been devoting a major part of
our energies to explaining how revenue sharing will work to
the many, many groups that have invi ted us to meet with them.
I am pleased to report that the response has been overwhelming
favorable, varying from carefully considered support to that
enthusiasm that warms the heart.
Certainly the variety of groups that we have met with
is impressive itself -- varying from national conventions of
thousands of delegates from allover the country to state-wide
meetings to civic groups in a single city. The support for
revenue sharing has come from every region of this Nation,
from every size of community, and from every type of organization.
Of the many hundreds of letters that the Treasury has
received on revenue sharing, it is hard for me to recall more
than one or two unfavorable ones. I cannot think of any othH
proposal that has engendered such a favorable ratio of responsE
The many thousands of miles that I have traveled during
year and the literally tens of thousands of fellow
cltl:ens that I have talked to on revenue sharing have fully
co~vl~ced m~ that this is a real need of our country, tha~
thIS IS an. l~ea that when thought through appeals to AmerIcans
of all polItIcal persuasions and all walks of life.
t~e.past
Well, t~en" if the support is so broadly based, whf hasn't
revenue sharIng been enacted into law! This is a questIon that
I frequently get, whether I am lecturing on the subj ect at our
- 5 colleges and universities or meeting with civic groups or
addressing audiences of business or professional men and
women. My response is usually along the following lines.
Despite its academic pedigree, revenue sharing is
a relatively new idea. It takes time for new ideas, no
matter how praiseworthy, to be enacted into law. Certainly,
the initial congressional response was quite good. The revenue
sharing bill that our committee drafted was introduced in the
Senate by Senator Howard Baker of Tennessee and 32 other
Senators, and referred to the Committee on Finance. In the
House of Representatives, the bill was introduced by Representative Jackson Betts of Ohio and 87 other congressmen and
referred to the Committee on Ways and Means.
One indication of the congressional interest and reaction
is the numerous statements on revenue sharing which have been
inserted in the Congressional Record during the past year.
They virtually all have been favorable.
Well, then, if the level of congressional as well as
public support and interest is so high, what is holding it up?
At this point, I usually start to explain how the Government
is organized and, particularly, the way in which the Congress
functions. The fact of the matter is that the committees to
which the revenue sharing bills have been assigned have not
yet held hearings.
Of course, this can be discouraging, particularly to
many of our young people who do not hesitate to needle me on
the responsiveness of our institutions to the problems that
we face. I am not sure that my response is altogether satisfying to them, but I point out the need for patience coupled with
persistency and perseverance. And let me assure you that we
will persist and we will persevere until revenue sharing
becomes a reality. I am pleased to report that several members
of the Ways and Means Committee have endorsed revenue sharing
with enthusiasm.
One of the most heartening developments that I have
witnessed is the rising efforts on the part of state, local,
and private citizen groups to promote revenue sharing. In
recent weeks, the national associations representing the
governors, mayors, and county officials held an unprecedented
joint press conference in Washington with a single subject and
a single purpose: to urge the Congress to enact revenue sharing
as promptly as possible.
- 6 -
Let me quote from a joint statement issued last month
by the head of the Governors' Conference (Governor Love of
Colorado), the head of the National League of Cities (Mayor
Curran of San Diego), the head of the Conference of Mayors
(Mayor Maltester of San Leandro), and the head of the
National Association of Counties (Judge Fowler of Shelby
County, Alabama):
"Officials of state and local government join in
expressing a most urgent need for congressional
action on Federal revenue sharing measures this
year. Our intergovernmental fiscal system is in
serious structural jeopardy. As a Nation, we are
no longer able to produce adequate revenue from
existing state and local fiscal sources to meet
the cost of overwhelming program and service
responsibilities at these levels. We view revenue
sharing -- the federalizatlon of the Federal Government's personal income tax base -- as a far reaching
and imperative structural change to bring direly
needed relief to this fiscal condition. i'
Let me repeat what I consider to be their key words
"urgent", "imperative", "direly needed."
Revenue sharing
legislative item for
priority effort last
be hearing much more
Administration's New
is the Treasury Department's number one
1970, just as tax reform was our highest
year. I can assure you that you will
about this basic part of the Nixon
Federalism during the rest of 1970.
Personally, I am convinced that it is just a matter of
time until a program with the strong and widely-based public
support that revenue sharing has obtained will ultimately
be adopted. Of ~ourse, the sooner the better, but mine is
a counsel of patIence and perseverance. We have come a long
way since Pre~i~ent Jefferson first urged in 1803 that Federal
revenue be utIlIzed for "a just repartition among the states .. ,
applied.
to rivers, canals, roads ' arts , manufactures,
e d ucatIon, an d other great objects within
each state."
000
000
Jeportmentolthe TREASURY
IGTON. D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 15, 1970
u.S. PURCHASES $150 MILLION IN FOREIGN CURRENCIES
FROM IMF' AND SELLS $20 MILLION OF SPECIAL DRAWING RIGHTS
The Treasury Department announced today that the United
States is purchasing $150 million in foreign currencies from
the International Monetary Fund, consisting of the equivalent
of $90 million in Belgian francs and $60 million in
Netherlands guilders. In addition, the United States is
selling $10 million of Special Drawing Rights (SDR) each to
Belgium and the Netherlands.
These transactions have been undertaken for the purpose
of completing the repayment of short-term swap drawings made
by the Federal Reserve System in 1969 and early 1970.
The $150 million IMF purchase represents the use of a
small amount of the net creditor position in the Fund which
the United States has accumulated in substantial size since
the end of 1968. Following this drawing, the U.S. reserve
position in the IMF will be $2,360 million, including
$1,070 million in its creditor or "super gold tranche"
position.
The sale of SDR, the first such use by the United States,
has been undertaken under provisions of the Fund Agreement
which enable a country to use its SDR to purchase its own
currency directly from other countries with the agreement
of the latter. Following these transactions, United States
holdings of SDR will be $915 million, including the $867
million allocated to the United States on January 1, 1970, and
$48 million acquired subsequently in international transactions.
000
K-424
9')
'epartment of the TREASURY
~GTON.
D.C. 20220
;NTION:
TELEPHONE W04-2041
FINANCIAL EDITOR
IMMEDIATE RELEASE
May 15, 1970
SUBSCRIPTION AND ALLOTMENT FIGURES FOR MAY 15 EXCHANGE AND CASH OFFERINGS
The results of the Treasury's exchange offering of
7-3/4% notes (additional issue) dated October 1, 1969, maturing May 15, 1973,and
8% notes (additional issue) datea February 15, 1970, maturing February 15, 1977,
summarized in the following
tables~
Unexchanged
of
OutstandTotal
ing
%
% of
's Eligible
Exchans;e
Total
for
Exchange
8% notes,
ies B-1970
$ 7,793
$ 3,495
$ 2,671
$ 6,166
$ 1,627
20.9
28.2
8% notes,
ies C-1970
8,764
1,186
639
1,825
6,939
79.2
30.6
$16,557
$ 4,682
$ 3,310
$ 7,991
,$ 8,566
51.7
29.4
Total
Exchans;ed for
Total
7-3/4%
8~
Notes
Notes
Exchanged
(Dollar Amounts in Millions)
Public
Hold~~
EXCHANGES FOR 7-3/4% NOTES OF SERIES A-1973
ral Reserve
rict
-----
on
York
adelphia
eland
mond
nta
ago
Louis
eapolis
as City
as
Francisco
sury
Total
K-41i-
5-5/8% Notes,
Series B-1970
$
15,668,000
2,832,452,000
26,310,000
56,680,000
30,865,000
92,944,000
161,504,000
74,044,000
34,961,000
61,953,000
29,539,000
70,972,000
7,326,000
$3,495,218,000
6-3/8% Notes,
Series C-1970
29,984,000
73,350,000
47,990,000
35,111,000
2,881,000
50,792,000
3,240,134,000
73,363,000
120,446,000
55,123,000
184,316,008
399,406,000
164,063,000
64,945,000
135,303,000
77 ,529 ,000
106,083,000
_ _1° 2 207 ,00Q.
$1,186,492,000
$4,681,710,000
$
35,124,000
407,682,000
47,053,000
63,766,000
24,258,000
91,372 ,000
237,902,000
Total
-
90,019,000
$
InlTk'D \
Federal Reserve
District
"
)
~
..
Notes,
-
c:',les C-1970
lG~2l3,000
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
st. Louis
Mirmeapolis
Kansas City
Dallas
San Francisco
Treasury
~
~~
L) , '.,.,
15 -,3!ld
~,5
.}7
r"!
I
34,231,~
52,623,~
".335.959,000
=====================
.
~-'--~-~-~ -'~-'.-.-~~-. ..
"~---'-"'''----''
30,950,0
2 ,559,636,0
983,000
1,0 ,,088,000
'.:-z, 757,000
~55 ,000
:'16,000
'f ~ r:;23,000
(:::~ ) 769,000
',~ ,,' EJ4 ,000
.'()7 ,000
102,000
J
I
Total
$
'''/7 ,000
,~,=;
~~-
':""5,000
Total
25,436,0:
88,927,0:
241,327,e,
64, 772,O~
26,329,00
46,948,00
36,687,00
94,064,00
8 ,141,00
$3 , 310 ,071,00
==============
The results of the Treasury I s cash offerulg of 7 -3/4% Notes of Series G-1971,
dated May 15, 1970, maturing November 15, 1971) i:c,re 8..3 follows:
Subscri r;tic'-'..
---~-
(All
,
SUL:3<c"
Federal Reserve
District
----
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
Total from public
Federal Reserve 5anl-;:s and
Government accounts
Grand Total
Subscriptions from CGI.~--,C'-:=,,,_,
and all other subscriptions :::r::::-L~
';-,
::.:-::ccun t t 0 t a I e d
;.., ,.,;(37 million.
$2,350 mi::':
'6.· '·l·
~ ..~
~epartmentoltheTREASURY
TELEPHONE W04~2041
ru'tIOI: I'IlWfCIAL EDITOR
It BELEASE 6 :30 P.M.,
tada.Y I
May
18 I 1970.
RESULTS OF TBEASUBY'S WEEKLY BILL OFFERING
The Treasury Department announced that the teDders for two series of Treasury
Us, one series to be an add1tiODal issue of the bills dated February 19, 1970, and
e other series to be dated MaY' 21, 1970, which were offered on May ]!), 1970, were
ened at the Federal Reserve Banks today'. Tenders were invited for $1,800,000,000,
thereabouts, of 91-dq bills and for $1,300,000,000, or thereabouts, of lB2-dq'
Us. The details of the two series are as tollows:
NGE OF ACCEPTED
G'ETITIVE BIDS:
High
Low
Average
91-day Treasury bills
matur1Ds August 20. 1970
Approx. Equ1v.
Price
Annual Rate
98.294
6.74r~
98.268
6.85~
98 .214.
6.828;'
!I
••
••
••
••
••
••
•
·
lB2-daJ Treasury bills
maturiDS lfoveaiber 19 1 1970
Approx. Equiv.
Price
Annual Rate
96.4:98
6.931196.450
7.02~
96.463
6.9961- !I
6~ of the amount ot 91-dq bills bid for at the low price was accepted
~ ot the amount of 182-day bills bid for at the low price was accepted
~
TEImEBS APPLIED FOR AND ACCEPTED BY FEDERAL BESERVE DISTRICTS:
District
Boston
New York
~hila.de1ph1a
=leve1and
Uchmond
~tlanta
=hicago
~t. Louis
4inneapol1s
(ansas City
)allas
Jan Francisco
TOTAIS
•
AE:2l1ed For
AcceEted
20,780,000
$ 34:,120,000
2,246,130,000
1,334,040,000
50,610,000
24.,74.0,000
4:4:,810,000
42,890,000
21,820,000
lB ,820,000
52,750,000
32,610,000
228,810,000
182,280,000
51,800,000
37,910,000
27,260,000
10,460,000
33,740,000
25,590,000
30,260,000
15,260,000
154: 1350,000
54,920,000
$2,976,520,000
$1,800,300,000
••
:
:
:
:
:
:
:
:
:
:
:
:
A]!21ied. For
$ 23,000,000
1,920,290,000
8,930,000
37,090,000
49,060,000
Accgted
9,200,000
•
968,970,000
243 ,080,000
30,620,000
ZS,050,OOO
33,590,000
25,64:0,000
166,900,000
8,080,000
24,160,000
33,560,000
18,960,000
l.53,910,000
19,520,000
1l,530,OOO
18,780,000
12,640,000
22,560,000
!I $2,604,050,000
$1,301,870,000
40,8~0,OOO
BI
Includes $376,820,000 noncompetitive tenders accepted at the average price of 98.27'
Includes $206,410,000 noncompetitive tenders accepted at the average priee ot 96.463
These rates are on a bank discount b~sis. The equivalent coupon issue yields are
1.04~ tor the 91-day bills, and 1.35~ for the 182-day bills.
77
THE SECRETARY OF THE TREASURY
WASHINGTON
May -#4-;1970
[y
Dear Mr. Speaker:
On May 19, 1970, the President announced his intention
to request that Congress enact an environmental control tax
on the lead content of additives used in motor fuels. In
furtherance of the President's announcement, the following
are the basic details of legislatlonwhich 'we are presenting
for consideration by Congress.
The primary purpose of the proposed environmental control
tax on lead is to provide an incentive for the rapid development of gasoline with a low and eventually lead-free content.
The proposed tax, in addition to providing this important
anti-pollution incentive, 'Will provide increased revenue
during the period of transition to non-leaded gasoline which
'will compensate in part in the budget for the reduced level
of corporate tax collections and certain additional expenditures not included in the fiscal 1971 budget.
It is estimated that the proposed tax 'will result in
a first-year revenue gain of approximately $1.6 billion.
This amount 'will diminish as the incentive takes effect and
lead-free or low-level leaded gasoline is successfully
developed.
Russell E. Train, Chairman of the Council on Environmental
Quality, has ably set forth the significant and increasingly
urgent need for an environmental control tax on lead:
"The reduction and eventual elimination of lead
in gasoline is important for two reasons. First and
foremost, most informed sources, including the automobile companies, believe that lead additives to gasoline 'would cause deterioration of the advanced
emission control systems that will be necessary to
meet the tighter 1975 Federal standards. Lead in
gasoline 'Would prevent these devices from operating
effectively over an acceptable service life.
- 2 -
"Second, lead addi t:i..VE:b .ct:!l!L't:::::ieni: a s ignl.tl.cant amount of particulate emissions from automobile
exhaust. Lead levels in the environment have been
rising and the increase has been most acute in urban
areas and along heavily traveled highways. Although
adverse effects on human health from lead emitted
from automobiles have not been clearly demonstrated,
there is reason for concern about increasing
amounts
of lead in humans. Prudence ,dictates that lead be
reduced and eventually eliminated from gasoline."
The proposed tax will take the form of an excise tax at
the rate of $4.25 per pound of lead and generally 'would be
imposed on the sale by the manufacturer or importer of lead
additives which are used in motor fuels. In order to prevent
possible circumvention of the tax, importer would be defined
to include an importer of gasoline containing lead additives.
The tax would apply to lead additives in gasoline used
in all gasoline engines although its primary impact 'would be
on automotive fuel. A typical gallon of regular automobile
gasoline presently may contain 2.5 grams of lead which, at
the rate of $4.25 a pound,would produce a tax of approximately
2.3 cents a ga.llon if no reduction.were made in the lead
additive content. The proposed $4.25 rate is designed to
impose on leaded gasoline a price penalty which will allow
unleaded gasoline, which is more expensive to manufacture, to
be marketed more competitively.
The tax 'would be imposed on the manufacturer's sale of
lead additives after June 30, 1970. To bring the tax fully
into play at that date and to discourage possible stockpiling
of tax-free lead additives sold in the interim period between
the date of the President's announcement and the proposed
effective date, a floor stock tax would be imposed on all
inventories of lead additives held by any person oth~r than
the manufacturer or importer on June 30, 1970. This floor
stock tax would be in the same amount and measured in the same
manner as the tax on the sale by the manufacturer of lead
additives.
- 3 -
In order to prevent the tax from causing undue hardships
on the part of smaller refiners of gasoline, it is proposed
that each refiner, irrespective of size, would be permitted
to obtain a rebate of the tax imposed upon a minimum amount
of additives used during the year. This limit would be
based upon the amount of lead used during a year by a typical
small independent refiner o Each ~efiner would also be
limited to the amount of lead in the additives he actually
used during the preceding l2-month period. The rebate would
be available only for the specified minimum amount of
additives used by each controlled group of corporations,
irrespective of the number of separate refining plants mt>lned
by any controlled group.
It would be appreciated if you would lay the proposed
legislation before the House of Representatives. A similar
communication has been addressed to the President of the
Senate.
We have been advised by the Bureau of the Budget that
there would be no objection to the presentation of this
proposed legislation to the Congress and its enactment would
be in accord with the program of the President.
Sincerely yours,
The Honorable
John W. McCormack
Speaker of the House
of Representatives
Washington, D.C. 20515
Department 01 the TREASURY
INGTON, D.C. 20220
TELEPHONE W04-2041
GENERAL EXPIANATION
PROPOSED ENVIRONMENTAL CONTROL TAX
ON LEAD IN MOTOR FUEL ADDITIVES
The President today announced his intention to
request that Congress enact an environmental control tax
on the lead additives used in motor fuels.
The primary purpose of the proposed environmental
control tax on lead is to provide an incentive for the
rapid development of gasoline with a low and eventually
lead-free content. The proposed tax, in addition to
providing this important anti-pollution incentive, will
provide increased revenue during the period of transition
to non-leaded gasoline which will compensate in part in
the budget for the reduced level of corporate tax collections
and certain additional expenditures not included in the
fiscal 1971 budget.
It is estimated that the proposed tax
a first-year revenue gain of approximately
This amount will diminish as the incentive
and lead-free or low-level leaded gasoline
developed.
will result in
$1.6 billion.
takes effect
is successfully
The proposed tax will take the form of an excise tax
at the rate of $4.25 per pound of lead and generally would
be imposed on the sale by the manufacturer or importer of
lead additives which are used in motor fuels. In order
to prevent possible circumvention of the tax, importer
'would be defined to include an importer of gasoline containing lead additives.
~ Department of the
TREASURY
KtNGTON. D.C. 20220
TELEPHONE W04·2041
GENERAL EXPlANATION
PROPOSED ENVIRONMENTAL CONTROL TAX
ON LEAD IN MOTOR FUEL ADDITIVES
The President today announced his intention to
request that Congress enact an environmental control tax
on the lead additives used in motor fuels.
The primary purpose of the proposed environmental
control tax on lead is to provide an incentive for the
rapid development of gasoline with a low and eventually
lead-free content. The proposed tax, in addition to
providing this important anti-pollution incentive, will
provide increased revenue during the period of transition
to non-leaded gasoline which -will compensate in part in
the budget for the reduced level of corporate tax collections
and certain additional expenditures not included in the
fiscal 1971 budget.
It is estimated that the proposed tax
a first-year revenue gain of approximately
This amount will diminish as the incentive
and lead-free or low-level leaded gasoline
developed.
-will result in
$1.6 billion.
takes effect
is successfully
The proposed tax will take the form of an excise tax
at the rate of $4.25 per pound of lead and generally would
be imposed on the sale by the manufacturer or importer of
lead additives which are used in motor fuels. In order
to prevent possible circumvention of the tax, importer
-would be defined to include an importer of gasoline containing lead additives.
- 2 -
The tax would apply to lead additives in gasoline used
in all gasoline engines although its primary impact would be
on automotive fuel. A typical gallon of regular automobile
gasoline presently may contain 2.5 grams of lead which, at
the rate of $4.25 a pound, would produce a tax of approximately 2.3 cents a gallon if no reduction were made in the
lead additive content. The proposed $4.25 rate is designed
to impose on leaded gasoline a price penalty which will allow
unleaded gasoline, which is more expensive to manufacture,
to be marketed more competitively.
The tax would be imposed on the manufacturer's sale of
lead additives after June 30, 1970. To bring the tax fully
into play at that date and to discourage possible stockpiling
of tax-free lead additives sold in the interim period between
the date of the President's announcement and the proposed
effective date, a floor stock tax would be imposed on all
inventories of lead additives held by any person other than
the manufacturer or importer on June 30, 1970. This floor
stock tax would be in the same amount and measured in the
same manner as the tax on the sale by the manufacturer of
lead additives.
In order to prevent the tax from causing undue hardships
on the part of smaller refiners of gasoline, it is proposed
that each separate company engaged in the refining business
be permitted to use, free of tax, additives containing up to
1,000,000 pounds of lead during the first year the tax is in
effect. This amount would be decreased by 200,000 pounds annually until 1976 when all lead contained in such additives
would be fully taxable. Only one member of a controlled group
of corporations, as defined in section 1563 of the Internal
Revenue Code, would be permitted this tax-free use of additives. For this purpose, the 80 percent ownership rule of
section 1563(a) would be reduced to 50 percent.
(pi
- 3 -
The figure of 1,000,000 pounds is based upon the average
amount of lead in additives that is believed to be used by
a typical refinery with a capacity of 30,000 barrels a day
of crude oil. The figure of 30,000 barrels a day is that
established by the Small Business Administration for distinguishing small refiners eligible for set-asides for contracts
with the Department of Defense.
Although each such refiner would be able to use additives containing up to 1,000,000 pounds of lead, we propose
that this allowance be limited to the amount of additives
containing no more lead than that contained in the additives
actually used during the preceding year, or if greater, the
average of the three preceding years. In this manner the
possibility of small refiners profiting by selling unused
tax-free additives to other refiners will be avoided.
It is proposed that this tax-free llse be accomplished
by permitting the refinery company to compute the amount of
tax attributable to the lead contained in the additives used
during each period for which a tax payment reportable on
Form 720 (the Quarterly Federal Excise Tax Return) is due.
The amount of the tax so computed would be used as an adjustment reducing the total tax payable. Alternatively, the
refiner would be authorized to claim a refund for the amount
of the tax.
000
¥'ortmelltot the TREASURY
T£l£PHOIf W04·2041
FOR RELEASE ON DELIVERY
REMARKS BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
AT
THE AMERICAN BANKERS ASSOCIATION MONETARY CONFERENCE
THE HOMESTEAD, HOT SPRINGS, VIRGINIA
WEDNESDAY, MAY 20, 1970, 12:30 P. M.
The closing luncheon of the ABA International Monetary
Conference is a familiar occasion for me o I have taken
part many times,but always before from the other side of the
lectern! I am honored to make the switch and to take
advantage of your custom of inviting the U.S. Secretary of
the Treasury to have the last scheduled word.
I want to spend my time today primarily on the external
of our economic relationships. But our internal
Jroblems and performance cannot be separated from our
Jalance of payments or, indeed, from the health of the
lnternational monetary system as a whole.
~spects
A year ago, at a similar luncheon in Copenhagen,
~ill Martin concluded his delightful reminiscences of his
.ong years of public service with some pointed remarks about
:he future. As usual, he pulled no punches in pointing out
:he necessity to deal with the inflation and overheating
:hat had characterized the American economy for four long
'ears
And he warned that this would inevitably be a painful
,rocess -- the needed adjustment could not be achieved without
'inancial strains or without challenging some of the
resumptions of investors, business, and labor.
0
Today, we are in the midst of that adjustment process.
he pains are evident to all.
-426
- 2 Unemployment has increased. Profits have declined.
Financial markets reflect a good deal of uncertainty.
Businesses which expanded imprudently, failed to control
costs, or maintained inadequate financial reserves are now
paying the price.
There is, of course, still widespread concern about
inflation. But inflationary expectations are now giving way
to a new concern by some that the business adjustment will be
overdore or ~nduly prolonged.
This is not a comfortable situation for anyone.
But the essential point seems clear enough. Our policies
have already worked to squeeze out excess demand.
The present sluggishness and uncertainty is an inevitable
part of a period of transition to more orderly growth.
Indeed, it may be necessary and desirable in terms of
refocussing attention of businessmen and labor on the
fundamental need for efficiency and productivity, and wage
and price restraint. We fully recognize there are risks
on both sides of the equation as we move ahead
But we
mean to stay the course with a blend of fiscal and monetary
policies consistent with orderly expansion and the
restoration of reasonable price stability.
u
This also happens to be the best possible medicine
for our balance of payments, and it is basic to our approach'
to international monetary affairs as well o I recognize
that, as urgent economic and social problems crowd in upon us
for solution, there are some in this country who question the
need to attach high priority to international economic
problems
After all, they point out, our exports amount to only
about four percent of our Gross National Product. They
cite the fact that the dollar was strong in the exchange
markets in the face of both a deteriorating trade balance
in recent years and a record deficit in the conventional
measure of our balance of payments in 1969. They add the
hope that recent and prospective improvements in international
monetary arrangements will provide new dimensions of
flexibility that will somehow require less attention to the
health of the dollar.
JoJ
- 3 At best, these are half truths. They could lead us
dangerously astray as a basis for realistic national
policy.
We cannot step aside from the fact that the United States
is the world's largest international trader, accounting for
some 15 percent of world exports. Nor can we ignore the
fact that a strong current account position is the necessary
counterpart of our role as the world's principal supplier of
aid and private investment. Further, we must not forget that
international money and capital markets are, to a large
degree, dollar markets or that our currency is the leading
reserve and transactions currency. Even in more strictly
domestic terms, those who would minimize the importance of our
world competitive position simply fail to realize the costs
and strains -- both in consumer satisfaction and in industrial
dislocations -- if we are unable to support liberal import
policies with a strong export position.
Nor should we be deluded by the strength of the dollar
in 1969. That was primarily a result of the severe
tightness of credit in the United States. There was a
massive influx of short-term interest-sensitive money
nore than enough to balance the wide deficit on other
accounts.
The flaw in that picture is implicit in the first
luarter balance of payments figures published last week.
fuey showed that dollars flowed in large volume into
:oreign official hands -- a forcible reminder of the fleeting
tature of a surplus based on short-term capital flows.
A presumption that improvements in international
lonetary arrangements provide an escape from balance of
ayments and international financial disciplines is equally
njustified. Certainly, significant improvements have been
ade. I am hopeful that we can build further on this
rogress. All nations need to have the capacity to deal in
~ orderly way with wide swings in volatile elements in their
nternational accounts. All will benefit if we can find
ays to dampen incentives to speculation. And make exchange
:ite adjustments more smoothly and in more timely fashion
~n they become necessary.
- 4 But no feasible monetary arrangements can eliminate
the need for each nation to make the internal adjustments
required to contribute to a basic equilibrium with the
rest of the world. This applies with special force to the
United States, precisely because the critical international
functions of the dollar require maintenance of its stability.
In sum, I have a short answer to those inclined to ask
of late: "Whatever became of the balance of payments
problem?" It is definitely still with us. It matters.
We would downgrade it at our own peril.
Confusion on this issue has been fed by the large
discrepancy between the various measures of our payments
position over the past year. The deficiencies of the
conventional "liquidity" calculations which receive so much
prominence are now well known. The newer official settlements
balance, us.eful as it is in summarizing the net flows of
reserve assets and official liabilities, has shortcomings
as well. One in particular is that it can be heavily
influenced by short-term capital flows.
I share the widespread sense of frustration over these
deficiencies.
I have, therefore, requested a thorough
internal review of this matter to see if we cannot regularly
provide more adequate summary measures of our basic position.
But we do not need new data to make an intelligent assessement
of the nature of the problem,
I am not overly disturbed by the volatile swings in
short-term capital that contributed to the strength of the
dollar last year and to the large deficit in the first
quarter this year. The technical financing problems should
certainly be manageable in the framework of existing monetary
arrangements and cooperation.
More important, it seems to me, is the fact that our
underlying payments position -- short-term capital flows
apart -- still seems to be in sizeable deficit. It is
probably correct to attribute some portion of that persistent
deficit to the fact that the United States is an international
banking center. We, in a sense, serve as a financial
intermediary, acquiring short-term liabilities to foreigners
while investing at longer-term abroad.
- 5 -
There are, however, limits to that process. In most
earlier years -- in fact, through the mid-1960's -- the
bulk of our capital outflow and aid program was covered by
a substantial surplus on current goods and services. In the
past few years capital flows have been better balanced.
But, we have permitted our current surplus to drop sharply.
The increasingly heavy interest burden on our large
short-term indebtedness has been part of the problem.
So have our continuing heavy military burdens in many places
overseas, As we look ahead, it is reasonable to anticipate
some relief from those burdens, as well as considerable
growth in profits and interest from abroad. Nevertheless,
we must also recognize that a large part of the problem
lies in our trade accounts.
Our traditionally large trade surplus has dropped off
in disturbi~g fashion -- from an average of $5.4 billion in
the first half of the 1960's to an average of only $650
million in 1968 and 1969. The first quarter results of this
year, when our trade balance rose to slightly over $500 million,
suggest some recovery may be underway. But that balance is
still far from what we need to support a strong payments
position.
There can be no question that inflationary pressures at
:lOme must bear a major share of the responsibility for this
:leterioration. As we master that problem, our trade
)alance should certainly reach a higher level~
But it would be wrong to underestimate the challenge we
ace in achieving the needed degree of improvement. The
echnological gap has been partly closed. The growth of the
ammon market and the enormous industrial progress of Japan
ave narrowed or eliminated the advantages we once enjoyed
n large-scale manufacturing for a mass market. The deep
esire of many countries to achieve and maintain
gricultural self-sufficiency -- or even to generate
Jrpluses -- robs us of some of the benefits of a natural
)mparative advantage in agricultural production.
- 6 -
I believe a11 of this requires some serious rethinking at
home and abroad. American trade policy has long been oriented
toward opcn mark~t~, toward reducing barriers and promoting
competition, tOh7at"d the mutual interest in freer trade. It still
is. TIle growth in world trade and international prosperity is
testimony enough to the effectiveness of this approach. It would
be a mistake of the first magnitude to turn back.
At the same time, I mu~t emphasize that, under the pressure
of rising imports, out" current policy of freer trade is being
challenged more strongly than at any time in memory by business
and lahor groups directly affected by a weakened competitive
position. These groups are gaining considerable political support.
The challenge cannot be met by denying that a problem
exists. Rather, we are being compelled to re-examine our
policies all along the line to find solutions. We seek
to find solutions not by shrinking back into protectionism
but by improving our position in a context of broadening and
gr-owing mar-kets.
Within the Governme~t, we have been reviewing our approach
in several key areas tc make sure that our own exporters arenot placed at a disadvantage with respect to foreign producers.
For instance, we fully recognize that the types of products
in which we excel typically r-equire medium-term financing.
But, for some years, a combination of tight markets, limited
budgetary funds for official credit, and a desire to restrain
capital exports seems to have inhibited our ability to provide
adequate support in this important area. We have no desire
now to take part in any competitive easing of terms for
commercial advantage. We remain eager to work with other
countries to define appropriate limits for official credit
assistance. Within that framework, however, we are
moving to assure industry the degree at support to which
it is entitled, I believe some fruits of that effort are
already emerging in the revitalization of the ExportImport Bank.
- 7 -
Last week, after prolongen study and consideration,
I was able to present to Congress a proposal in another
area -- taxation -- that should help remove an obstacle
to an aggressive exporting effort. The simple fact is
that, as presently structured, our income tax system
tends to treat income earned on exports more severely
than income earned on foreign investments -- and more
severely than most other industrialized countries. To
remedy this defect and remove a drag on exports, the
Administration would permit an exporter to establish a
Domestic International Sales Corporation (or "DISC").
Such a corporation would, within clearly defined
rules, permit tax deferral of export income, just as tax
deferral is now available f~r other foreign source income.
In the light of significant budgetary costs, we have been
compelled to request that the effective date be postponed
to the middle of ne~;t year. But I believe this action
will provide a better balance -- insofar as tax
considerations are important -- in investment qecisions
between home and foreign manufacture. It should help
focus attention of more American businesses on export
markets.
Industry has responsibilities as well. The competitive
inroads of foreign products have, in many cases,
revealed weaknesses in marketing strategies, quality, and
design by American industry that can and should be remedied.
I am encouraged, for instance, by the development and
marketing of small cars by American manufacturers in
response to competitive pressures from abroad.
Finally, I believe foreign countries themselves must
recognize and be willing to accept the implications of
their own strength. It is surely inconsistent to urge a
stronger U. S. Payments position and, at the same time,
maintain and adopt policies that tend to thwart achievement
of that very objective. Yet I believe any fair-minded
observer must be disquieted on that score. Most industrialized
countries seem to be intent on preserving, or even enlarging,
their own trade surpluses. To reconcile these goals, the
developing nations would need to run increasingly large
deficits. To finance these deficits, sharply larger flows
of aid and investment would be required. I question whether
- 8 -
the industrialized nations have yet fully faced up to this
implication of their trade surpluses.
I am disquieted, too, by the apparent reluctance
of important foreign countries now in strong positions to
take up the leadership so long borne by the United States
in reducing barriers to trade. In some instances, such as
Japan, a dismantling of barriers -- barriers perhaps once
justifiable for a country with limited financial resources
and recurrent payments difficulties -- seems overdue.
In other instances, the push toward a broader or closer
economic union -- however desirable on other grounds -inevitably has had discriminatory side effects on the trade
of third countries that need to be considered.
Nontariff barriers abound in the present world.
We are not free of them in the United States. But is it
not the surplus countries that have a special
responsibility to take positive action toward their reductiJn
and elimination? A leading case in point is the trade
consequences inherent in the international rules for border
taxes and subsidies integrated with domestic turnover or
value-added taxes.
Countries without these domestic taxes, such as the
United States, are placed at a relative disadvantage -- a
disadvantage that becomes more pronounced as value-added
tax systems become more widely adopted and levels of
rates rise. Rules that may have been acceptable in the
quite different circumstances of the immediate post-war
period need to be re-examined in the light of today's needs.
I do not underestimate the difficulties of progress
in all these areas. But neither do I underestimate the
challenge, whether in terms of our balance of payments or
the threat to a liberal trading order. We do not want to
follow the road of restrictionism. We want to resist the
pressures for mandatory controls on imports and other inwardlooking solutions. We have too much at stake, for ourselves
and the rest of the world, to retreat now. But realism
requires that we de not sta~d still. We must do the other
things necessary to assure a stronger trading position
if the pressures for restrictionism are not to overpower
us all.
~
9 -
The primary role for American leadership in all of this
seems to me perfectly plain. The world is caught up in
a serious inflation -- an inflation for which we share a part
of the responsibility. I believe that -- beneath the present
turbulence -- we are now well on our way toward dealing
with that problem. This will provide the base we need for
a stronger balance of payments and to maintain the stability
of our international financial arrangements.
On that base, we can preserve and enhance the
gains of the past -- in trade, in finance, and in development.
Success demands that we work together, in partnership and
in full recognition of the responsibilities that go with
strength. We cannot afford to fail.
000
/0
STATEMENT BY THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
for
ENFORCEMENT AND OPERATIONS
before the
LEGAL AND MONETARY AFFAIRS SUBCOMMITTEE
of the
HOUSE COMMITTEE ON GOVERNMENT OPERATIONS
May 20, 1970
10 A.M.
Mr. Chairman and Members of the Committee, I
am pleased to appear before you today to discuss the
training programs presently conducted by the
Department of the Treasury for the benefit of criminal
investigators, as well as the program that is planned
for the Consolidated Federal Law Enforcement Training
Center.
Before I begin my testimony, I take this
opportunity to congratulate Mr. Fascell, Chairman of
this Subcommittee, and its Members for both the interest
shown and for the splendid work that they have done in
the field of law enforcement over the years.
Substantial
- 2 contributions to the area have come about through your
efforts, Mr. Chairman, and I want you to know, on
behalf of the Administration, that we recognize and
appreciate your accomplishments.
I might specifically
mention your work in conducting extensive hearings
during the 90th Congress on the subject of Federal
Efforts Against Organized Crime.
The immediate hearino,
and your exhaustive preparation for it, again manifest
your desire for effective law enforcement -- one of
the greater problems facing this nation today.
In your letter of April 22, 1970, to Secretary
Kennedy, you requested information on seven points
concerning Treasury's overall law enforcement training program.
Because of the extensive nature of the
inquiry, I have had prepared a response to be inserted
in the record following my testimony.
This prepared
material has earlier been made available to the
Committee, and I will respond to any questions
concerning its content.
- 3 Additionally, I have a few comments concerning
the Consolidated Federal Law Enforcement Training
Center.
The concept of this Center had its beginnings
a few years back when the Secret Service was preparing
to come before the Congress to request funds to
construct a modern training facility on Governmentowned land in Beltsville, Maryland.
In the process
of reviewing the Secret Service request, the Bureau
of the Budget became concerned about the overall
training needs of the Secret Service and other Federal
law enforcement agencies and the utilization of Federal
training facilities.
Budget, with the participation
of the Civil Service Comm1ssion and Treasury, conducted
an in-house study of the training needs of the Service,
which confirmed their critical training requirements
and the training needs for the twenty-odd other Federal
law enforcement agencies.
As a result of that, the
Bureau of the Budget formed and chaired an Inter-agency
Steering Committee for the purpose of formulating plans
for what has become
~he
Consolidated Federal Law
Enforcement Training Center.
In 1968, Congress approved
- 4 -
the prior-mentioned Secret Service request as the
first phase of a Consolidated Training Center, and
construction was begun on firing ranges on March 17,
1969.
The Center is conceived to be a modern
campus-like institution that will provide facilities
necessary to train adequately all criminal law
enforcement officers and agents from some twenty law
enforcement agencies.
The FBI is not included.
The Center provides an exciting new concept for
the training of criminal enforcement officers.
By
pooling resources, agencies can provide higher levels
of instruction and more effectively utilize the
complete facility.
The joint-use concept offers
the additional advantages of common training courses
and provides greater Federal unity and interdepartmental
communication, benefiting all Federal law enforcement.
The Treasury Department has been selected as
the lead agency in this proposed Consolidated Training
Center, and Treasury is very much aware of the important
operating responsibilities it has assumed in this
joy
- 5 -
regard -- particularly the responsibility for
budgeting and operation of the Center.
As you know, the Treasury now operates the
Treasury Law Enforcement School, which will become
a part of the Center effective July 1, 1970, and
all personnel will be transferred to the Center.
The formal Order, a copy of which I hereby provide
for the record, establishing the Center was issued
March 2, 1970, by Secretary Kennedy.
After a Director has been selected by the
Department and approved by the Center's Board of
Directors, he will undertake to select additional
staff members to teach the basic Recruit Curricula.
Treasury will, of course, work closely with the
participating Federal agencies in planning for
adequate office space for the instructors who will
be on the respective agency payrolls, and whom they
plan to assign to the Center to teach the Agency
Specialized Recruit and Agency Advanced, In-Service
and Refresher Curricula.
- 6 Prior to the designation of a Center Director,
Treasury will be working with an interagency stafflevel group which will meet frequently between now
and June 30, 1970, while answers are worked out to
allow finalizing an updated Center construction
prospectus for presentation to the Congress in July
1970.
The group, augmented by staff representatives
from the Bureau of the Budget and the United States
Civil Service Commission, will continue to work
together closely after July 1, 1970, to develop drafts
of course outlines and teaching materials, to identify
needed training films and write draft specifications
for use in consummating contracts for production of
training films.
I believe that the establishment of this Center
constitutes a most significant contribution to the
President's program to combat crime in the United States.
1/ 6
DEPARI'MENT OF THE TREASURY
TREASURY DEPARTMENT ORDER NO. 217
Establishment of the Consolidated Federal
Law Enforcement Training Center
1.
Authority and Establishment
By virtue of the authority vested in me as Secretary of the Treasury,
including the authority in the Government Employees Training Act, 5 U.S.C.
4101-4118, as implemented by Executive Orde~ 11348 of April 20, 1967, I
hereby establish the Consolidated Federal Law Enforcement Training Center
as an organizational entity within the Department of the Treasury to
function as an interagency training facility.
2.
Objective
Establishment of the Center, within the Department of the Treasury,
is for purposes of:
a.
Providing participating Federal agencies with adequate, modern
facilities for conducting law enforcement training in an effective,
economical mannerj
b.
Utilizing the professional support services and administrative
mechanisms of a large existing agency, experienced in law enforcement
tr~ining, to avoid duplicating these capabilities within a new, small,
independent organization.
.
3.
Center Mission
The Consolidated Federal Law Enforcement Training Center shall:
a.
Provide necessary facilities, equipment, and support services
for conducting recruit, advanced, specialized, and refresher
law enforcement training for personnel of participating Federal
agencies, including:
(1) Budgeting for and administering funds for construction,
maintenance and operation of the Center;
(2) Housing, feeding, and providing recreation programs
and administrative services for students.
- 2 -
b.
Provide support, administrative, and educational personnel for
common training courses to:
(1) Consolidate requirements of participating agencies and
develop proposed curricula;
(2) Develop content and teaching techniques for courses;
(3) Instruct and evaluate students.
c.
4.
As an inter,agency training facility, provide training to other
eligible persons.
Center Development
The Secretary of the Treasury will exercise responsibilities prerequisite to initiating Center operations at the earliest date, including
the development of detailed plans within the guidelines established by
the Congress for the design and construction of Center facilities.
5.
Center Operations
The Department of the Treasury is the Executive Agency for operating
the Center and serves as the established point of authority for implementation of Federal regulations and policies having government-wide application.
Within this concept:
a.
All employees of the Center staff will be appointed under the
authority of the Secretary of the Treasury and shall be employees
of the Department of the Treasury;
b.
Center operations will be financed by a separate appropriation
to the Department of the Treasury to be used to pay costs of
salaries, equipment, and other expenses in connection'with
(1) Administration.
(2) Maintenance and operation of the physical plant
(including dormitories and dining facilities) •
(3) Conducting common training courses.
(4) Operation of the laboratories, library, and other
support services.
(5) Research conducted in law enforcement curriculum
and training methods.
II)
- 3 -
c.
Staff offices in the Office of the Secretary will provide support and assistance, related to:
(1) Organizational structure, management systems, and
administrative procedures;
(2)
Staffing patterns, manpower utilization and control,
and personnel administration;
(3) Design, construction, and maintenance of facilities;
and
(4) Financial m~agement systems and budgetary processes,
including planning, pr~granuning, and budgeting.
/{ "
~,~ /~,
1',
"--?~ -~,
"".,.
David M. Kennedy
Secretary of the Treasury
)ated:
March 2, 1970
//~
Attachment To Opening Statement Presented On May 20, 1970
By Assistant Secretary of the Treasury Eugene T. Rossides
The following pages provide detailed
info~tion
in aaswer to the
seven specific questions contained in the letter fram Chairman Fa8cell
to Secretary Kennedy, dated April 22, 1970.
2
Question #1
Training progr-ams
of~"?~ '\'<1 ~>.
the Treasury Department for the benefIt of
investigative perscnl1el employed by the Department and other agencies:
I.
Treasury Law Enforcement School
The TreasLiIY 16 Sn:t\il:'Cement School provides basic law enforcement
1;
training for law
enforc~ent
agents of the Bureau of Customs, the InterDil
Revenue Service, and the Secret Service.
The School conducts a 6;"'veek
training program in th0 principles of crimiD8l law and the basiC inTeat1.gatht
techniques requir.:::'::'
.~':.;..:.'
~
law enforcement officers ~
,;;;
,'!f~'icient
performance of their duties by Trealur;r
All newly appointed agents are required to atteDd
this program, which has been centralized in Washington, D. C. since 1951.
II.
Secret Service
The Secret Service offers the following training
COtr sea
for its SpecIal
Agents who are all Criminal Investigators in the 1811 classification seri.. :
A. Basic Crtminal Investigator training conducted at the Treasury
Law Enforcement School.
B.
Secret Service Special Agent Training
C.
Questioned Document Training
D.
Protective In-Service Training
E.
Investigat1 ve In-Service Training
III. Bureau of CUBtor..aS
The Bureau of Customs trains all new criminal investigators at the
Treasury law Enforcement School.
In addition two ina-house programs (It. . A
and B on page 3 following) have been developed during fiscal year 1970 ancl
are
currently being conducted at the Bureau of Customs National Training C~
in New York.
II)
3
A.
Special ~ent Basic School (4 weeks)
A basic program in law enforcement relating to specific investigations conducted in the Customs Service.
EmphaSis is placed on
terminology, Tariff Act, narcotics identification and smuggling.
B.
Special Agent Advanced ~chool (4. weeks)
A program for journeymen investigators with special emphasis on
fraud investigations resulting from undervaluation or failure to
declare imported merchandise; and the "state of the art" in smuggling
concepts and practices.
c.
In addition Special Agents receive cross-training in the Import
=
Specialist Training School at the Bureau of Customs National Training
Center.
This is an 8-week course which is attended by investigators
who are deSignated to receive intensive training in this field or
who are being assigned to overseas posts of duty as Treasury
Representatives.
D.
This year a formal on-the-.lob training program has been developed
and is presently being implemented service-wide.
E.
A training program for law enforcement officers from countries
in the A.I.D.
This program is conducted by the Foreign Customs
Assistance Office of the Bureau of Customs.
F.
A systems Analysis Training Program is also attended by criminal
investigators.
This program is conducted at the National Training
Center and encompasses a period of 4 months.
It is conducted in
cooperation with Hofstra UniverSity and is an accredited graduate
program.
Eight Special Agents are currently enrolled full time
in this program.
4
G.
There are also out-service training nrograms which are attended by
criminal investigators.
(Customs Special Agent •• )
1.
Kodak Law Enforcement Photography School
2.
Foreign Service Inst1tute
3. Language Training Schools
IV •
Internal Revenue Service
A.
Intelligence (Exclusive of TLES)
1.
Basic Income Tax Law Course for Special Agents ( BITIC)
This course is a 5-week train1ng course conducted at the National
Office to provide newly appointed Special Agents training in tax
law.
The course acquaints them with the laws and regulations re-
lating to individual and corporate income taxes and excise taxes.
Newly appointed Special Agents who have successfully completed the
basic Revenue Agent training or the basic and advanced Tax Technician
training are not required to attend this course.
2.
Special Agent BaSic Schools (SABS)
This is a 7-week school conducted at the National Office for all
newly employed Special Agents.
Generally, new Special Agents are
required to complete their training of the BITLe and TLES before
attending SABS.
This school is designed to train Special Agents in
the knowledge and application of Service policies and procedures,
investigative techniques, law, rules of eVidence, and Federal
co~
procedures pertinent to criminal tax law violations and other matters
within the Intelligence jurisdiction.
3.
On-The-Job Training for Special Agents
On-the-Job training for Special Agents begins as soon as the new
agent is appointed.
This training is provided by his supervisor
or a Senior Agent.
During this period of his training he observes,
5
and when practical participates in the various activities and
duties performed by Special Agents.
4. Special Agent Refresher Training
Each Internal Revenue Regional Office conducts refresher training on an
~s-needed
basis with the assistance of the National
Office when requested.
The purpose of this training is to keep
current and increase the technical skills and knowledges of
Special Agents; review and resolve, if possible, investigative and
other problems encountered by Special Agents; and carry out other
technical updating which can best be done on a group basis.
5. Firearms Training Program
All Special Agents and Group Supervisors must be provided basic
firearms training.
This requirement does not
app~
to Special
Agents who have already received equivalent training or who have
qualified in the Treasury Law Enforcement School program.
6. Refresher Firearms Training
At least once each 12 months all Special Agents and Group Supervisors
at the district level must be provided a minimum of 4-hours safety
and refresher training in the use of firearms.
1. Regional Institutes for Intelligence SUpervisors
On an as-needed basis each IRS Region conducts institutes for first-
line supervisors.
The goals are:
to increase individual proficiency
and effectiveness; to promote understanding of regional and national
programs and procedural guidelines; and to facilitate communications
among top, middle, and first line levels of supervision.
6
B.
Alcohol, Tobacco and Firearm~ ( Enforcement)
(Exclus1ve Of ~S)
1.
Alcohol, Tobacco and Firearms ( Enforcement) Basic
Investigative School
The AT&F Basic Investigator School is a 4-week school conducted for
newly employed Special Investigators after they have attended the
Treasury Law Enforcement School.
The investigators receive basic
training in conducting investigations to identify violations of the
Internal Revenue Liquor and Tobacco Laws, the Liquor Enforcement Act
of 1936, the Federal Alcohol Administration Act and the Gun Control
Act of 1968.
Among others, the training includes instruction in
investigative techniques, law, rules of evidence, report writing,
recognition and classification of firearms and destructive devices,
demolitions, subersive organizations and organized crime.
This
training complements the general basic skills taught at the Treasury
Law Enforcement School.
2.
7
Refresher Training for Special Investigators
On an as-needed basis each IRS Region conducts refresher training
regarding new investigative techniques, new court decisions and
revisions in the Internal Revenue Manual.
Refresher training
also covers technical training in unconventional explosive devices
and technical developments in the field of weaponery particularly
in the area of silenced or automatic firearms.
3. Firearms Training
After qualifying in the use of firearms at the Treasury Law
Enforcement School, each Special Investigator requalifies twice
each year in the field using the Police Practice Course.
c.
. !.nterna.! ,$.ecqr.i ty
(Exclusive of TLES)
Ins~ction,
1. At present, three programs are offered to Internal Security
Inspectors on a formal basis.
These are:
(1) Internal Security
Basic Training, (2) Internal Security Journeyman Training, (3)
Supervisory Internal Security Seminar.
2.
The basic program is presented at least once each fiscal year
for new inspectors including those who have completed the Treasury
law Enforcement
School or similar training and experience.
This
program is designed to orient the new inspector to the Internal Revenue
Service and direct those skills learned in TLES to direct application
within the IRS.
The program is 4 weeks long, employs lecture and
problem solving and is instructed by senior employees of the IRS.
Hiring limits influence the size of each sessioD but between twenty
and twenty-five participants can be planned for each year.
3. Journeyman inSpectors are kept abreast of the state of the art
through the journeyman training program which is presented for 1 week
each year.
This permits training about 25 percent of our journeyman
8
each year and assures that none will go longer than 4 years Without
formal refresher training.
This program aims to refine skills and
update procedures in view of recent court rulings, regulations,
legal requirements and
ms
policy.
The entire program is instructed
by senior inspectors and includes such subjects as interview
techniques, statutes, evidence and procedure, tort investigations
and administrative hearings.
This pilot program is under current
revision to afford broader coverage and more intensive application.
4.
At least once each year every Internal Security Inspector must
qualify in the use of firearms in conformance with Treasury standards.
5. Supervisors of the Internal Security Division are kept current
by an annual
~~week
seminar devoted to supervisory and managerial
subjects with some coverage of significant technical changes.
This
program involves about forty participants and is directed by
executives of the division.
The primary aim of the program
i~
to
ensure a homogeneous application of current supervisory practices
and managerial techniques as well as updating technical proficiency.
6. In addition to the formal programs offered for criminal investigators there is one annual session offered for middle managers
and one annual session for executives.
7. Assistant Regional Inspectors (I.S.), their executive assistants,
section chiefs and supervisors in charge of major posts of duty are
brought together annually in a l-week operational conference. This
I-week session is devoted to discussion and solution of significant
problems faced by the partiCipants in their day to day jobs.
Typical
subjects would include court decisions and their application to
Internal Security, current policy of the Treasury Department and
the Internal Revenue Service and current legislation.
9
8.
Executives of the Internal Security and Internal Audit
Divisions are brought together for 1 week each year to refine
akills, discuss mutual problems, share mutual experiences which
will lead to !lore efficient and uniform management of the
Inspection Service.
The annual executive conference consists of
about forty executives including the Assistant Commissioner (Inspection),
the executive a.sistant to the A.sistant Commissioner, Regional
Inspectors , Division Directors, Assistant D1vision Directors and,
within budget 11Dl1tations, Branch Chiefs.
D.
Other Training Programs
In add1 tion to the foregoing Trainiag programs, the supervisors,
IIIRDagers ancl executives of the investigative fuIlctions attend
a variety of insernce training progr_s such as Management Development and functional supervisory training programs.
needs are !let through .aro'l.eat,
other training
in programs conducted by other
goftrmaent agencies or in nongoverllll8nt faeili ties.
are eDlllples of the latter type Of traiD1ng:
1. Aaerican Society tor Industrial Security S.inar
2.
CPA aDd Bar Review
The following
10
QUESTION it 2
The concept, curriculum, faculty, and enrollment
of the Consolidated Federal Law Enforcement Training
Center at Beltsville, Maryland.
I.
CO:lcept of the CFLETC
The concept of the CFLETC is to provide the
participating Federal law enforcement agencies with
adequate, modern facilities for conducting law enforcement training in an effective, economical manner. A
core staff will conduct the common training for the
agencies, carry out research in law enforcement training methods and curriculum content, operate and maintain the physical plant, and provide necessary support
services, under the administrative supervision of the
Secretary of the Treasury. Training unique to a
particular group of agents will be conducted by the
individual agency, using the Center facilities.
II.
Curricula
The total training effort of the Center can be
divided into six curricula:
A.
Basic Police Recruit curriculum
B.
Agency Specialized Police Recruit curriculum
C.
Basic Criminal Investigator Recruit curriculum
D.
Agency Specialized Criminal Investigator
Recruit curriculum
E.
Agency Advanced, In-Service and Refresher
curriculum (Federal Agents)
F.
Agency Programs for Non-Federal Officials
/17
11
Each of these curricula is more fully described
as to subject matter and duration of training in
Appendices 1, 2, and 3 of the September 5, 1968, Proposal
for the CFLETC.
III.
Faculty
In regard to the faculty of the Center, a core
staff will conduct the common training, that is, the
Basic Police Recruit and the Basic Criminal Investigator
Recruit programs. This core staff will be recruited
mainly from the participating agencies and will consist
of agents and police who have outstanding backgrounds
and records of performance. These instructors will be
Treasury employees while they are members of the core
staff. The rest of the training programs currently
projected for the Center are specialized and unique to
the particular agencies. In these cases, the agencies
will provide their own instructors. Additionally,
experts in specialized law enforcement work may be used
as consultants or members of the staff.
IV.
Enrollment
The original estimates indicated a student body
of 750 trainees in residence at the Center at a given
time. The question of enrollment is undergoing intensive
review now and it will not be possible to give firm
figures for about two more months
the time at which
an interagency review is expected to be completed.
V.
Firearms Training
The Consolidated Federal Law Enforcement Training
Center encompasses a modern firearms training facility
and the program at Beltsville will consist of the
following:
12
A.
An Indoor Range Facility whose primary usage
will be in developing basic marksmanship skills.
B.
An Outdoor Pistol Range. The primary purpose
of this range will be to provide advanced
marksmanship training consisting of various
practical firearms courses, i.e., Double Action
Course, Practical Pistol Course, Running Man
Course, Dueling Course and Night Firing Course.
C.
An Outdoor Rifle Range. This facility will
provide for developing basic marksmanship
skills in the use of shoulder weapons, as
well as more advanced courses employing the
use of shoulder weapons.
D.
Vehicular Range. This range will provide a
facility for developing a high degree of skill
in criminal investigative personnel assigned
to protective missions. The course will require
the individual to make judgmental decisions
regarding the employment of firearms as well as
developing his skill in responding swiftly
and accurately to a situation threatening the
life of a protectee.
The range facilities and staff, in addition to
providing for all firearms instruction for the students
enrolled in the core curriculum, will also provide for
the firearms training of students enrolled in the various
Specialized, In-Service, and Refresher Courses conducted
by the participating agencies. The facility will likewise be heavily utilized by personnel of the other
participating agencies in meeting their requirements
of repetitive requalification.
13
g,uESTION iF 3
The participation of agencies employing general
classification investigators in the Consolidated
Law Enforcement Training Center.
I. The Inter-Agency Steering Committee that in
September, 1968, developed the Proposal for a consolidated Federal Law Enforcement Training Center
limited its study to those law enforcement agents
who carry firearms, have arrest authority as Federal
Agents, and are primarily concerned with the prevention
of crime and criminal investigations.
The scope of the Steering Committee's study was
based on a "Survey of Federal Law Enforcement Training
Facilities", prepared by the Office of Management and
Organization, Bureau of the Budget, June, 1967. I
will quote from pages 2 and 3 of the 1967 Survey report:
"Initially, the survey was to include
all Federal law enforcement officers. However,
it became apparent early in the study that the
term "law enforcement" could be construed to
cover a vast number of Federal employees
engaged in some type of investigative or
security work, such as building guards,
internal compliance investigators, auditors,
inspectors, document examiners, personnel
background investigators, military intelligence
agents, and many others. Although some aspects
of the training for these groups are related to
criminal investigation or other police-type
activities and it may be desirable to make some
of the proposed law enforcement trainiRg
facilities available to them, such as use of
the firing ranges for GSA Guard training, the
14
orientation is quite different or the
training in other subjects is interwoven
with law enforcement to a major extent.
Consequently, the survey was limited to
those law enforcement agents who carry
firearms, have explicit arrest authority
as Federal agents, and are primarily
concerned with the prevention of crime
and criminal investigations.
"Although falling within this
definition, the Federal Bureau of
Investigation and the criminal investigation
units of the military services were also
excluded. They now have, and will continue
to have for the foreseeable future,
facilities of their own to meet their needs,
although these facilities either are not
capable of, or are not available for, use
by the other agencies. Other groups such
as the six-man municipal police force of
Page, Arizona, under the Bureau of
Reclamation; police forces in U.S. territories
and the Trust Territories of the Pacific
Islan~under the jurisdiction of the Interior
Department; and the law enforcement officers
of the U.s. Forest Service were excluded
because of their unique needs or small size.
However, it may prove to be desirable to
provide some training for such groups within
the overall program recommended herein. After
consideration of all of these agents, the
survey was focused onfue 19 specific law
enforcement groups set forth ... " below.
Agency
15
Department of Justice
u.s.
Marshals
Border Patrol Inspectors
Immigrations Investigators
Treasury Department
Secret Service Special Agents
White House Police
Customs Port Investigators
Customs Agents
Narcotics Special Agents
Internal Revenue A&TT Special
Investigators
Internal Revenue Intelligence
Special Agents
Department of the Interior
u.S. Park Rangers
U.S. Park Police
Bureau of Indian Affairs
Investigators
Indian Police
Sport Fisheries & Wildlife Game
Management Agents
Post Office Department
Postal Inspectors
Department of Health, Education, & Welfare
FDA, BDAC Special Agents
Department of State
Security Agents
Department of Transportation
FAA Airport Police
II. With respect to the scope of participation in
C.F.L.E.T.C., Treasury has proceeded on the basis of
the 1968 proposal of the Inter-Agency Steering Committee.
16
~h0
1.
sys~~ms
3~~rc~ch
to tr&ining.
The systems aprroach tc training was selected
mp8ns of
:j~v'?lcping
the curriculum of the Centpr.
~8
th~
most Rppropriate
This approach was selE'cted
discuss ions '.d th knowledgeable ind i vidua 1s and extensive review of literature
pertaining to educational systems and law enforcement training.
The systems approach to tm1n1ng 18 an orgl1ll1zed, 8ywtematic J
or "scientif1c" manner ot doveloping a tra1n1ns program. It 'Provid.
a manns by vh1cb tmlning obJect1ves can be clearly stated, both Instruot1on and learning can be IDCasurably evaluated, and tra 1nh16 caa
be directly related to the Job as It 1s currently performed.
Under the systems appro&ch to training, curriculum devclO'plDeQt
beg1ns v1 tb an organized examination ot the duties performed on the
job by an exper1enced 08cnt. Encb ot the tasks he 10 required to
perform 1s descr1bed with 0. statement ot the cond1tions under which
they ere performed J the frequency 1n terms ot both the Job of' one
individual and the tot&l population ot the organization, and the
crl tlcall ty ot his 'Protlclency. The task descript10ns are anal.yze4
to deCide vh1ch should be leIu"ned in a fonnal. tra1n1na course,
through on-the-Job traill1n8, through experience, or from 8.lIsigned
rco.d1n8 • The tasks to be learned 1n a fonnal training course are
furtber analyzed and a term1nal. performance obJect1 ve i8 formulated
for each to.sk. The terminal -performance obJective sete torth a
description ot the behavior the· student must be able to demonatrate
at the end ot the tralnill8J the conditions Wldor vh1ch he muat pertOI'll,
and the criterion by which sa.t1afactory pertonnance vlll be measurw4.
Emphasis is placod on litudents ~lcl-p&tlng 1n c:laes actlylt1e.
under Instructor superv1a101l 1n groupa small enough to allOY each
student suN'1cient time to repeat hi. -perfon.nce until he meet.
the performance • taOOaro. •
The systems awroach offen the diSCipline ot concentratln& on
the needs ot the Job and the student, \/hereM, trad1 tlonal 1natructioa
focuses on the instructor and the development ot a descr1~t1oD ot
vhat 1s to be taUGht in the course rather than a descr1~tion ot vb&t
1s to be lecrned by the student. The preparation ot terminal performance object1ves torces an ~1a ot Job-related taaka and
highlights the tasks tor \Ih1ch formal training 18 needed. Tho
teminal performance obJectlw prov1c1e. a clear .tatewnt of vhat i.
to be learned, prov14 1ng 41ac.1pl 'na tor the 1natnlQ~ and m1p1mS&iAI
suoaawrk by tho at\a4ent, aQd it prov14ea & .CND4 aa4 818temaUo
bu1a tor nal,\\&\ioDi tbe etteotiV8DU8 ot \nspsnc.
The Treasury Law Enforcement School, the U. S. Secret Service, the
~e~
)f Customs, and the Internal Revenue Service are using variations of the trai~
systems approach in their respective Criminal Investigator Training programs.
11
ION
#5
\dherence to Classification and Qualification Standards pertaining to
Gigative personnel devised by the Civil Service Commission and the
rry Department's supplements thereto.
Treasury Criminal Investigators in the GS-lSll series are hired,
:eassigned, and promoted in accordance with the provisions of a single
~gency qualification standard issued by the Civil Service Commission.
be standard, developed jointly by the Treasury Department and the ~ivil
,ervice Commission, has been modified from tUne to t~e to meet changes
.n the occupation' and in labor market conditions. A copy of the most
'ecent edition approved by the Civil Service Commission, April 30, 1970, is
~ilable if the Committee wishes to see it.
There is no provision for variation
rom. the standard for appointments leading to competitive status except:
(A)
In rare individual cases specifically approved by the
Civil Service Commission,~r
(B)
As authorized under specia', training agreements approved
by the Civil Service Commi sion in which intensive Crtminal
Investigator training may ~e substituted for certain
periods of Crtminal Investigator experience.
urlng fiscal year 1970,on1y 11 individual variations from the standard
are made. These related specifically to the visual requirement and all
ere approved by the Civil Service Commission.
The Department has been authorized a 1 imited number of Criminal
lvestigator positions excepted from the competitive Civil Service under
~hed.ule A. Tb~§:® pe~,iti~~rz (25 in CutOlll! 'aM -50· in Internal Revenue
~rvice) were authorized tor special. assigmllcnt, primarily those requiring
lique skills 'or special background for undercover operat1oraa. Appointment
I these positions i.s' not subject to the qualifications standard.
18
II.
Adherence to Classification Standards
Classification standards for CrUninal Investigators were issued by the
Civil Service Commission in 1958.
These standards were so general in nature
that it was suggested that agencies develop supplemental- guides to implement
the general standards.
The Treasury Department conducted a two-year stud1
including questionnaires and personal contacts with investigators in order
to develop guides.
The study was headed by the Office of the Secretary and
bureau classifiers partiCipated in the development of details.
I have with.
copies of the Civil Service stand.al"d.s and Treasury's supplementary guides"if
you wish to see them.
From time to time as new developments occur in the
occupation, additional study leading to possible modifications of the
is required.
stan~
For example, the Treasury Department is currently looking at
the impact of the firearms control legislation upon Alcohol, Tobacco, and
Firearms Agent guides.
The Civil Service Commission is also undertaking a full·
scale study of the Criminal Investigation occupation, and the Department will
participate.
III. Up until recently, Treasury has had no major problems in adhering to the
GS-l811, Criminal Investigator classification and qualification standards.
However, because of developments in the last few years in law enforcement,
are finding that we are having to push the lim! ts of the standards.
developments are:
W
The
(l) new legislation'-- e.g., the gun-control laws, (2) in·
creasing emphasis on special programs-- e.g., strike forces, Swiss bank
acc~
undercover in militant and paramilitary groups, and (3) the changing lawenforcement environment--i.e., the investigator's increasing use of
technol~
and other disciplines, and the more demanding proof requirements faced 1n tile
courts, and (4) drug traffic, smuggling and smiliar law enforcement progr&lll.
/~I
19
The basic Civil Service standards could be more descriptive of the
I&ture of the work ao that the recent development a can be ideDtified and
lroperl), made a grade determinent.
In addition, the standards must now do
,he Job of describing many occupations ranging fran background inveatiga-
,ioDa to undercover work in narcotica and uncovering ingeniOUS tax avoidance
:chaea. Aa a Nault, the basic standards tend to be general to the extent that
hes. differences cannot be easily evaluated.
20
Question
#6
The programs and actions of your Department undertaken pursuant to the
Government Employees Training Aet 1958, P. L. 85-507, and the Jxeeut1ft
Order 11348 titled "Providing for the Further Training of Government
Employees."
I.
All the training. government and nongovermnent, provided tor
employees of the Department of the Treasury is eonducted under the authorltr
ot the Goveraaent Employees Training Act of 1958, p. L. 85-507 and
Executive Order 11348.
th~
21
QUESTION
II 7
The content and scope of courses to be offered at the Beltsville
Training Center which are designed to equip personnel with improved
capabilities in dealing with organized crime matters.
I.
Recruit Training
All newly-appointed officers of the participating agencies will
attend one of the two basic recruit curricula (one for criminal
investigators and one for police). In addition, most of the agencies
themselves will conduct a specialized recruit curriculum following
the basic common curriculum.
Since these curricula will be based on the systems approach
to training, the "courses" are task oriented rather than classified
according to types of investigations. For example, a course based
on the task of performing surveillance would be applicable to ~ny
different types of investigations, including organized crime investigations. For this reason, the basic recruit curricula and the
specialized recruit curricula (with the exception of the specialized
recruit curricula of the Alcohol, Tobacco and Firearms Division and
the Bureau of Narcotics and Dangerous Drugs) do not have courses
specifically entitled Organized Crime. Both basic recruit curricula
(investigators and police) will have about ~ hours of instruction,
included in a course entitled Organization and Functions of Law
Enforcement AgenCies, specifically on Organized Crime. However,
virtually all the courses in the basic recruit curricula and most
of the courses in the various specialized recruit curricula provide
training in investigative tasks that are required for the conduct
of organized crime investigations. In addition, the design of the
range facilities being constructed at Beltsville will provide for
highly sophisticated firearms training for Criminal Investigative
personnel who are engaged in organized crime matters. I am prepared
to furnish you lists of the course titles for the basic recruit curricula
and the specialized recruit curricula on which we have identified those
courses directly related to the conduct of organized crime investigations.
II.
Advanced and Refresher Training
Some of the participating agencies will conduct their advanced
and refresher training at decentralized field location; others will
use the faculities of the Center. For the most part, the participating
agencies do not have fixed curricula for their advanced and refresher
training. Rather, these curricula are based on current training needs
and problems that have been identified in the field. I am sure that
in these programs appropriate emphasis will be placed on organized
crime.
Advanced training programs that have already been planned by
the Bureau of Customs and the Bureau of Narcotics and Dangerous
Drugs include courses on or related to organized crime.
22
III. Organized CrtMe strike Forces
The agents especially selected for asaignaents with Organized
Cr1llle Strike Forees, receive a DlinUlua of 2 weeks of tralnins at
the Department of Justice. This includes lectures by Treasury
persODDel.
In add! tion the Special Assistant to the Secretary of the
Treasury for Organized CrtM personally briefs each 'l'reu\U"y Agent
cODeern1ng the plans and operation of the particular strike Force
to vb1ch he vill be assigned.
artment 01 the TREASURY
tElEPHONE W04·2041
IMMEDIATE RELEASE
May 20, 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
,00,000,000, or thereabouts, for cash and in exchange for
sury bills maturing May 28, 1970,
in the amount of
102,293,000,
as follows:
9l-day bills (to maturity date) to be issued May 28, 1970,
he amount of $1,800,000,000,
or thereabouts, representing
dditional amount of bills dated February 26, 1970, and to
re August 27, 1970,
originally issued in the amount of
00,775,000,
the additional and original bills to be
ly interchangeable.
l83-day bills, for $1,300,000,000,
or thereabouts, to be
d May 28, 1970,
and to mature November 27, 1970.
The bills of both series will be issued on a discount basis
r competitive and noncompetive bidding as hereinafter provided,
it maturity their face amount will be payable without i.nterest.
will be issued in bearer form only, and in denominations of
)00, $50,000, $100,000, $500,000, and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches
) the closing hour, one-thirty p. m., Eastern Daylight Saving
Monday, May 25, 1970.
Tenders will not be
~ved -at the Treasury Department, Washington.
Each tender must
)r an even mUltiple of $10,000, and in the case of competitive
!rs the price offered must be expressed on the basis of 100,
not more than three decimals, e. g., 99.925. Fractions may
Ie used. It is urged that tenders be made on the printed
i and forwarded in the special envelopes which will be supplied
!deral Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
mers provided the names of the customers are set forth in such
rs. ,Others than banking institutions will not be permitted to
t tenders except for ~heir own account. Tenders will be received
ut deposit from incorporated banks and trust companies and from
- 2 responsible and recognized dealers in investment securities. Tende'
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 b~
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 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 May 28, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing May 28, 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, 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 exclud~
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereun"
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which ~
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and dBII
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obta~
from any Federal Reserve Bank 0bO~ranch.
ortmento/ the TREASURY
tElEPHONE W04·2041
IR
IMMEDIATE REL,EASE
May 20, 1970
TREASURY'S MONTHLY BILL OFFERING
the Treasury Department, by this public notice, invites tenders
)r two series of Treasury bills to the aggregate amount of
1,700,000,000, or thereabouts, for cash and in exchange for
reasury bills maturing May 31, 1970,
in the amount of
1,500,544,000,
as follows:
27~day
bills (to maturity date) to be issued June 1, 1970,
1 the amount of $500,900,000,
or thereabouts, representing
1 additional amount of bills dated
February 28,1970, and to
lture February 28,1971,
originally issued in the amount of
~200,147,000,
the additional and original bills to be
~eely interchangeable.
365-day bills, for $1,200,000,000,
lted May 31, 1970,
and to mature
or thereabouts, to be
May 31, 1971.
The bills of both series will be issued on a discount basis
Ider competitive and noncompetive bidding as hereinafter provided,
,d at maturity their face amount will be payable without i.nterest.
ey will be issued in bearer form only, and in denominations of
0,000, $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
me, Tuesday, May 26, 1970.
Tenders will not be
ceivedat 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,
th not more than three decimals, e. g., 99.925. Fractions may
~ be used.
(Notwithstanding the fact that the one-year bills will
1 for 365 days, the discount rate will be computed on a bank
ICount basis of 360 days, as is currently the practice on all issues
Treasury bills.) It is urged' that tenders be made on the printed
'~ and forwarded in the special envelopes which will be supplied by
,eral Rese rve Banks or Branches on application therefor.
Banking institutions generally may submit tenders forac'count of
~omers provided the names of the customers are set forth in such
ers. Others than banking institutions will not be permitted to
- 2 -
submit tenders except for their own account. Tenders will be receh
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenden
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 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
June 1, 1970, 10
cash or other immediately available funds or in a like face amount
of Treasury bills maturing May 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 ~
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obta1uelfrom any Federal Reserve Bank o~O~ranch.
artment of the TRfASURY
tElEPHONE W04·2041
FOR IMMEDIATE RELEASE
STATEMENT OF
THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE THE HOUSE WAYS AND MEANS COMMITTEE
MAY 25, 1970
MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE:
We greatly appreciate the prompt scheduling of these
hearings on the debt limit in view of the need to complete
action before the end of the fiscal year.
As you will recall, in the debt limit hearings a year
ago we requested a new permanent statutory ceiling for the
Federal debt on a basis which would be more consistent with
the unified budget concept than the present definition. As
I said on that o.ccasion, the intent was to establish a
ceiling which would meet the Federal Government's needs
indefinitely so long as we were successful in maintaining
a balance in the budget.
I am sure you are all aware of the announcement of
May 19 that the unified budget for fiscal year 1970 is now
estimated to be in deficit by approximately $1.8 billion,
compared with the surplus of $1.5 billion estimated in
February. And, similarly, the budget for fiscal year 1971,
taking into account both our policies to restrain expenditures and our requests for an additional $3.1 billion of
taxes, is expected to be in deficit by approximately $1.3
billion, compared with the February estimate of a surplus
of $1.3 billion.
The Budget Director will comment in more detail on the
expenditure outlook. I would emphasize, however, that the
new estimates for outlays in both fiscal year 1970 and
fiscal year 1971, if held with the help of the Congress,
demonstrate the strength of our commitment to expenditure
control. The projected spending increase of $7.4 billion
from fiscal 1970 to fiscal 1971 amounts, for instance, to
~.7 percent, which would be the lowest percentage increase
In a number of years.
- 2 Lower estimated revenues contribute to the small
projected deficits in both fiscal year 1970 and 1971.
Apart from the effects of proposed legislation, revenues
have been reduced by $3 billion in the current year and
$1.1 billion in fiscal 1971, in both cases largely reflecting lower estimates of corporate profit tax receipts. This
slippage, in part at least, appears to reflect a lower than
anticipated level of corporate profits during the first
part of this calendar year.
It does not reflect any relaxation of our continuing efforts to control inflation.
I might also emphasize that the changes in the estimates
are relatively small. Therefore, if the Congress had adopted
our recommendation of a year ago for a statutory debt limit
~onsistent with the unified budget concept, it would probably
not be necessary to reconsider the limit at this time. It
is my continuing judgment, indeed, that the interest of both
the Congress and the public would best be served if the debt
subject to limit were brought more in accord with the unified
budget concept. At the very least, then, changes in the
debt subject to limit could be related more directly and
more easily to the overall surplus or deficit in the unified
budget.
In view of the very heavy legislative burden which
rests upon this Committee and upon the Congress at the present
time, this may not be a timely occasion for pursuing a basic
revision in the concept of the debt limit.
I recognize, for
example, that this Committee has had to put aside temporarily
the very important foreign trade hearings on which it had
been focusing its attention to consider the question of the
debt limit.
I am, therefore, providing the Committee with
a table showing what will be required to permit an orderly
financing of the Federal Government's requirements during
fiscal year 1971 based upon the present definition of the
debt subject to limit. (See Table I)
This table has been drawn on the assumption of a constant
cash balance of $6.0 billion with a further allowance for
contingencies of $3.0 billion.
In the past, we have for these
purposes usually assumed a cash balance of $4 billion. That
figure has become increasingly unrealistic in view of the
greater size of the Federal budget and unavoidable fluctuations in the balance from day-to-day and week-to-week. As
shown in Table II, our actual cash balance has averaged more
than $5 billion in recent years, and has declined in relation
to expenditures? to little more than 'one week's outpayments.
We cannot practlcably plan on reducing our balances further.
To the contrary, prudent management of our financial affairs
may well require,somewhat larger balances in the future. On
- 3 -
particular days, to be sure, the cash balance can safely
be reduced to lower levels in anticipation of heavy scheduled
receipts. Nevertheless, sharp intramonthly swings are
inevitable and require that, even during perio~of the year
when the debt is fluctuating about peak needs, we sometimes
must carry balances well in excess of the average.
I feel certain you will agree that a $3 billion allowance for contingencies, which we retain unchanged from
earlier presentations, provides a minimum degree of protection for unforeseen circumstances over a twelve month
period ahead.
As you will see on Table I, with the specified assumptions, the debt limit need between December and March will
fluctuate generally between about $388 and $393 billion.
However, the peak requirement reached just prior to midApril will be above $395 billion.
The present temporary ceiling is $377 billion. On the
basis of our current projections, we are requesting a new
temporary ceiling of $395 billion, an increase of $18 billion.
If the present definition of debt subject to limit is
continued, we see no pressing reason to ask for a change in
the present permanent limit of $365 billion. However, it is
now apparent that at the end of the fiscal year the outstanding debt will substantially exceed that limit. If the
Committee wishes to provide a permanent limit more appropriate
to the projected debt at the end of fiscal 1971, that limit
should also be raised by $18 billion to $383 billion.
I am sure that questions will be raised as to the ~eed
for an increase of the magnitude we are requesting when the
unified budget is wi thin $1.8 billion of .balance in fiscal
year 1970 and within $1.3 billion of balance in fiscal year
1971.
There are several elements which need to be taken into
account.
First, a sizable portion of the increase reflects the
need to restore a reasonable margin for contingencies and
for adequate cash balances. To illustrate, this year our
peak cash requirements developed on April 14. The actual
debt subject to limit on that date was $375.9 billion, and
OUr cash balance was only $2.4 billion. In other words, we
were $1.9 billion below the desired margin for contingencies,
and our cash balance was $3.6 billion below the assumed
requirement of $6 billion. An increase in the debt limit of
$5.5 billion is therefore required simply to provide the
assumed operating margins.
- 4 Second, the debt ceiling must be increased sufficiently
to cover the anticipated investment of trust funds and other
government accounts in Treasury debt. This is estimated to
amount to slightly over $6 billion from mid-April 1970 to
mid-April 1971, when our debt will again reach a seasonal
peak.
Third, the deficit in the unified budget, requiring a
comparable increase in debt outside of government accounts,
will be considerably greater -- approaching $7 billion -from the April peak to the April peak than for either fiscal
1970 or fiscal 1971. This primarily reflects (1) the bunching of retroactive pay in the current quarter; (2) the
timing of the anticipated revenues from the proposed speedup in estate and gift taxes, which are not expected to be
large until the last quarter of fiscal 1971, after the peak
in the debt has passed; (3) the current short-fall in corporate profit tax collections; (4) current peak interest
rate levels, which are expected to subside before the end
of fiscal 1971; and (5) the anticipated declining trend of
military expenditures.
Taken together these factors require the ceiling be
increased by early April 1971 by some $18 billion over the
present ceiling if we are to maintain the full assumed margin for contingencies and the cash balance. I would emphasia
this calculation bears little relationship to our borrowings
from the general public, which on present estimates should
increase little, if at all, over the year as a whole.
You will recognize that, today as always in the past,
our receipt and expenditure estimates are subject to some
uncertainty. While the estimating task is no more uncertain
today than at times in the past, I would like to recall to
the Committee that the conventional assumptions of a const~t
$4 billion cash balance and a $3 billion reserve for contingencies were established many years ago at a time when
Federal expenditures and receipts were far below present
levels. They are less than adequate if we are to assure the
prudent management of the Government's finances. Thus, I
would re-emphasize the desirability that the temporary limit
not be :educed below the $395 billion figure which we are
request1.ng.
I would also like to raise with the Committee for its
an additional and broader question, which w~ll
cont1.nue to be of concern whether the debt limit concept 1.8
altered as we have recommended or whether the conventional
concept is continued for another year.
cons~deration
-
5 -
The debt limit has been used -- or at least an attempt
has been made to use the debt limit -- as a means for controlling Federal expenditures. My predecessors have
unanimously agreed that the debt limit is neither an appropriate nor an effective instrument for this purpose, and I
concur in their view. I believe, however, that it is of
utmost importance that both the Executive Branch and the
Cong~ess pay heed to the total of Federal expenditures.
Fiscal discipline is essential if we are to have a responsible fiscal policy. There is no perfect solution to this
difficult problem, but we must continue to seach for better
answers.
000
TABLE" I
ESTIMATED DEBT SUBJECT TO LIMIT
FIScAL YEAR 1971
(in billions of dollars)
1970
Debt with
6.0 cash balance
Wi th 3. 0 margin
for Contingencies
June
30
369.0
372.0
July
15
31
375.6
375.4
378.6
378.4
Aug.
15
31
380.8
380.2
383.8
383.2
Sept. 15
30
385.5
376.7
388.5
379.7
Oct.
15
31
382.1
381.3
385.1
384.3
Nov.
15
30
384.9
384.2
387.9
387.2
Dec.
15
31
389.9
386.3
392.9
389.3
Jan.
15
31
389.3
382.6
392.3
385.6
Feb.
15
29
385.8
385.3
388.8
388.3
Mar.
15
31
390.3
387.7
393.3
390.7
Apr.
15
30
391.8
382.1
394.8
385.1
May
15
30
386.3
385.6
389.3
388.6
June
15
30
388.7
378.8
391.7
381.8
-1971
May 22, 1970
/')-(
TABLE .. II
RELATION OF AVERAGE CASH BALANCE
TO WITHDRAWALS FROM TREASURER'S ACCOUNT
BY FISCAL YEARS
Average
Operating
Balance
(excl. Gold)
Total
Withdrawals
(DTS)
%
1962
4.934
112.188
4.4
1963
6.010
118.477
5.1
1964
5.664
124.066
4.6
1965
6.293
126.395
5.0
1966
5.086
142.190
3.6
1967
4.526
164.591
2.7
1968
5.145
184.581
2.8
1969
5.043
201.491
2 .5
Fiscal Year
ortmento/ the TREASURY
tElEPHONE W04·2041
trION:
FIlWiCIAL EDITOR
JEIEASE 6:30 P.M.,
LY, May 25 J 1970.
RESULTS OF TREASURY I 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 February 26, 1970, and
Ither series to be dated May 28, 1910, which were offered on May 20, 1970, were
d at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
ereabouts, of 91-day bills and for $1,300,000,000, or thereabouts, of 183-day
. The details of the two series are as follows:
·
OF ACCEPrED
91-day Treasury bills
•
maturing
August
27
,
1970
rITm BIDS: _.....;;;;;;:;.;;.;;=......,;;,;;;,;;;;;w=..........;;;";""OIo..o;:;;~
••
Approx. Equi v •
Price
Annual Rate
iigh
98.230 !l
7.0021'
1.180;,
t.ow
98.185
lverage
98.197
7.1331!I
183-day Treasury bills
November 21, 1910
Approx. Equi v •
Price
Annual ~te
maturi~
··
96.29'
'Pi
1.290
96.256
7.565~
9S.Z61
7.3Ssj
Y
L} Excepting 2 tenders totaling $~O,ooO; !!IExcepting Z tenders totaling $520,000
3J of
the amount of 9l-day bills bid for at the low price was accepted
14J of the amount of 183 -day bills bid for at the low price was accepted
'rDDERS APPLIED FOR AND ACCEPl'ED BY FEDERAL RESERVE DISTRICTS:
rict
on
fork
9.delphia
eland
nond
lta
~o
~u1s
!apolis
~s City
.8
rancisco
TOWS
APElied For
,
Acce~ted
:
20,110,000 ,0,110,000 :
Z,175,060,OOO
1,268,510,000 :
35,950,000
20,950,000 :
43,420,000
~,'20,OOO
30,860,000
26,4:4.0,000 :
39,900,000
34.,500,000 :
191,280,000 :
225,270,000
31,070,000 :
35,260,000
15,820,000 :
28,730,000
31,430,000 :
33,200,000
15,530,000 :
21,530,000
100,980,000 :
156 , 600 z 000
$2,851,950,000 $1,800,100,000
A'PElied For
$
6,£00,000
2,500,860,000
9,710,000
41,390,000
23,750,000
42,960,000
285,760,000
26,220,000
2Z,420,000
29,190,000
24.,.s0,000
194,080,000
£I $3,215,920,000
Acce:eted
•
6,150,000
1,013,270,000
9,710,000
21,960,000
10,050,000
17,'70,000
lZ6,500,OOO
23,020,000
4:,530,000
22,950,000
11,1.80,000
23,480,000
$1,300,270,000 gJ
~des $328,4:00,000 noncompetitive tenders accepted at the average price or 98.191
Qdea $193,220 000 noncompetitive tenders accepted at the average price of 96.261
e rates are o~ a bank. diseount basis. The equivalent coupon issue yields are
, for the 91-day bills, and 1.1_ for the 183-day bills.
ortmento/ the TREASURY
tElEPHONE W04·2041
irION: FIlWfCIAL EDITOR
RELIASE 6:30 P.M.,
day, MaY 26, 197
°.
RESULTS OF TREASURY' S MONTHLY BILL OFFERIIG
The Treasury Department announced that the tenders for tvo series of Treasury
I, one series to be an additional issue of the bills dated February 28, 1910, and
other series to be dated MIq 31, 1910, whicb were offered on May 20, 1970, were
ed at the Federal Reserve Banks today. Tenders were invited tor $500,000,000,
tlereabouts, of 272-day bills and for $1,200,000,000, or thereabouts, of 365-day
I. !be details ot the two series are as tollows:
or ACCEPTED
!:ll'rIVE BmS:
£
High
Low
Average
·•
·••
·
·••
·••
Y ·•
21Z-day Treasury bills
maturing February 28 1 1911
Approlt. Equiv .
Price
Annual Bate
7.25E$
94.siB !I
7.403~
9'.407
7.3S~
9'.44:5
365-daJ Treasury bills
maturiga May 31. 1911
Approx. Equiv.
Price
Annual ~te
7.2!
92.610 W
7.300j
92.599
92.622
7.2771-
Y
1 tender of $1,010,000; BJ Excepting 1 tender totaling $10,000
L~ of the amount of 272-da,y bills bid for at the low price was accepted
S~ of the amount of 365-day bills bid for at the low price was aecepted
WExeepting
I
TIlmDS .APPLIED FOR AND ACCEPrED BY FEDERAL RESERVE DISTRICTS:
trict
ton
, York
lade1phia
veland
baOlld
anta
eago
!Quia
lleapol1a
las City
Las
Praneisco
TOWs
A'POl1ed For
Acc!Eted
4:70,000 $
$
'70,000
331,820,000
1,~,8Z0,000
680,000
680,000
2,840,000
2,8'0,000
7,9~,OOO
3,9'0,000
9,160,000
14:,160,000
70,890,000
16,190,000
12,780,000
12,ZSO,OOO
3,820,000
3,820,000
1,520,000
1,520,000
4:,150,000
14:,150,000
58,430,000
94 ,430 ,000
$1,292,800,000
~lUde8 $19,310,000
!~del $53,680,000
$ 500,000,000
••
Acce;2ted
A'PElied For
1,100,000
•
11,100,000 •
915,ZOO,000
1,901,880,000
•
2,610,000
2,610,000
•
6,150,000
9,150,000
6,660,000
15,160,000
•
1l,060,000
24:,860,000
123 ,130,000
lB7,030,000
•
19,630,000
21,630,000
2,300,000
',500,000
',270,000
4:,270,000
•
2,530,000
15,530,000
•
'4,210,000
203 , 210 , 000
•
·
·
·
·
·
·
·
·
·
£I
$2,400 , 930,000
$1,200,050,000
gj
noncompetitive tenders accepted at the average price of 94:.4:45
noncompetitive tenders accepted at the average price ot 92.622
tl' rates are on a bank discount basis. The equivalent coupon issue yields are
' . tor the 212-day bills, and 7 .811- tor the 365-day bills.
ortmento/ the TREASURY
tElEPHONE W04·2041
FOR TIMMEDIATE RELEASE
May 26, 1970
TREASURY TIGHTENS ANTIDUMPING POLICY IN
ACCEPTING PRICE ASSURANCES
Assistant Secretary of the Treasury Eugene T. Rossides
announced that the Department is tightening existing
Treasury policy with respect to price assurances.
Mr. Rossides stated, "Price assurances are· now
being accepted only in cases where dumping margins are
minimal in terms of the volume of sales involved."
In the past, a foreign exporter who sold in the
United States at prices below those in his home market could
be reasonably c~rtain of avoiding a Treasury determination
of "sales at les s than fair value" by revising his prices
and offering assurances that he would not engage in these
practices in the future. This allowed foreign exporters
to undercut the prices of their U. S. competition in
American markets without undue concern for the possible
consequences under the Antidumping Act.
Mr. Rossides expressed the belief that the change in
price assurance policy would have a significant psychological
impact in discouraging dumping.
000
artment of the TRfASURY
tElEPHONE W04·2041
FOR IMMEDIATE RELEASE
May 27, 1970
DECISION ON STYREN$-BUTADIENE TYPE SYNTHETIC RUBBER
UNDER THE ANTIDUMPING ACT
The Treasury Department announced today that it has
investigated charges of possible dumping of styrene-butadiene
type synthetic rubber from Italy.
The Notice
anno~ncing
a tentative determination that this
merchandise is not being, nor likely to be, sold at less than
fair value within the meaning of the Antidumping Act will be
published in the Federal Register of Thursday, May 28, 1970.
Information gathered in this investigation shows that
sales to the United States of standard grade material failed
to materialize after an attempt was made to locate buyers in
the United States market.
There has been no information to
indicate that styrene-butadiene type synthetic rubber in
standard grades will be shipped to the United States in the
lear future.
Nor is there any indication that non-standard
Jrades of this product are being shipped into the United States
it less than fair value.
Appraisement of the above-described merchandise from Italy
las not been withheld.
The importations from May 1968 to May 1969 were valued at
,pproximate1y $240,000.
hen.
There have been no importations since
ortmento/ the TREASURY
tElEPHONE W04·2041
ADVANCE FOR RELEASE AT 11:00 AM (EDT)
THURSDAY, MAY 28, 1970
REMARKS BY THE HONORABLE JOHN R. PETTY
ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS
UNITED STATES TREASURY
BEFORE THE
CONFERENCE ON ECONOMIC GROWTH
SPONSORED BY THE TORONTO STOCX EXCHANGE
TORONTO, ONTARIO
Thursday, May 28, 1970
THE WORLD, NORTH AMERICA AND CANADA
Introduction
In view of the course of stock market prices around the
world these past few weeks, I am sure you understand that
it is with some relief that my assignment is to speak- about
North America in the context of longer-term economic factors.
In preparing these remarks, I have taken to heart that
over the years discussions across our long border have been
noted for their candor.
tradition.
I will not deviate from this
However, I will try to avoid those aspects of this
same tradition which have contributed to misunderstandings
however candid the remarks may have been.
*
*
*
-
2 -
There are several recurrent themes which can be traced
back through the history of Canadian-American intercourse.
I have three in particular in mind.
The tariff issue has
had high and low protagonists both north and south.
Increased commercial
~raffic
has stirred ambitions on one
side of the border and fears of political annexation on the
other.
A third theme was the conflicting Canadian commitment
between Old World ties and New World realities, a fear that
reciprocity and trade with the United States involved
disloyalty to the European ties.
Fortunately, the 1970's can be faced with these issues
resolved.
We have corne a long way from the days when tariff levels
were the subject of shouts across the table -- with advocates
of each extreme well represented on either side.
Today,
Canada is a leader in the liberal trade movement and can be
counted on to move progressively with others toward further
multilateral reductions in barriers to trade.
The united
States, too, is determined to continue its liberal trade
posture and participate 1n the reduction of these barriers
around the world.
Next, the political annexation issue is dead and forgotten.
If it isn't, it should be.
The 1911 Canadian election
results killed it; although, some might say the
-
3 -
body was not finally put to rest until the mid-1940's.
Whichever, we are now able to talk about and work toward
the more efficient development of our economies without
being concerned over the motives of the participants.
It is no longer necessary to impute political ambitions
into an examination of what is best for our economies and
our people.
Finally, the old dicotomy between Canadian trade with
the United States and allegiance to the Old World is resolved.
The issues are now understood to be unrelated.
History shows
this theme to have been expressed in terms of which flag flies
at the head of the mast:
the "Union Jack or Ole Glory"?
Well,
the Maple Leaf is up there where it belongs.
True, new issues have replaced the old ones.
of the past remain too.
Canada today is her
tomorrow.
Vestiges
But the dominant characteristic of
self-confidence.
This augurs well for
with this maturity will come a better understanding
of our respective places in the hemisphere.
It should provide
the basis to resolve common problems to our mutual benefit.
*
*
*
With that brief treatment of the past and before
mov~ng
on to the issues of today we should note long-term trends in
the world economic order.
These developments can then be
related to our North American continent.
- 4 -
Evolution of the World Economic Order
The recent post World War II years have-seen the free
world economies surge in international investment and trade.
The achievement of convertibility by many industrial countries
the improved liquidity of the international monetary system
and progress in the adjustment of balance of payments
positions has made this investment and this transfer of
resources possible.
Economies and people have prospered.
Commencing with the achievement of foreign exchange
convertibility in the late 1950's the industrial economies
of the world accelerated their trade with one another as
well as their investment across national borders.
This
brought about large movements of capital and the need to
settle imbalances between nations.
Responding to this
need the liquidity to finance these capital flows has been
substantially increased through the expansion of quotas in
the International Monetary Fund, supplemented by the General
Agreements to Borrow, and Central Bank swap facilities.
Significantly, quotas have been reinforced by the development
of a new supplementary reserve asset, Special Drawing Rights,
now created and distributed annually.
/3 L
- 5 -
The facility with which imbalances between nations are
adjusted, however, has a less even record of successes.
Increased liquidity only provides additional time.
But time
and restraints on internal demand may not be all that is
required and, therefore, it is the
balanc~
of payments
adjustment process which is now the subject of discussion
in international monetary circles.
We have reached the point where international financial
markets, international banking, and multinational companies,
and other factors tend to equalize credit market conditions
in different countries, consequently requiring some coordination of one element of national economic policies.
This
involves, however, a delicate problem of how to reconcile
external needs with domestic objectives.
To avoid protracted
payments disequilibrium, how can we achieve better coordination
when countries face different economic circumstances and
structures and·there is no uniform ordering of priorities?
The stresses to which the international monetary system
was subjected in 1968 and 1969 have led to discussions, now
going on in the International Monetary Fund, concerning proposals for some evolutionary changes in the procedures and
- 6 -
attitudes with respect to exchange rates.
The founders of
the Bretton Woods system did not have in mind the magnitude
and volatility of international movements of capital that
take place in today's world.
As Secretary Kennedy stated
recently:
"All nations need to have the capacity to deal in an
orderly way with wide swings in volatile elements in
their international accounts.
All will benefit if
we can find ways to dampen incentives to speculation,
and make exchange rate adjustments more smoothly and
in more timely fashion when they become necessary
II
What is under examination in the Fund is nothing
revolutionary; it is evolutionary within the basic principles
of the Bretton Woods system.
Discrete changes in exchange
rates would be exceptional for industrialized countries.
Moreover, exchange rate decisions would continue as in the
past to be made at the initiative of the country concerned.
Also as in the past, they would be matters for international
consideration and should fall within internationally accepted
"rules of the game".
- 7 -
within these parameters the Fund is examining proposals
for wider bands, moving parities, and also transitional
exchange adjustments.
The latter would allow for some modest
experimentation when moving from one parity to another, as
in the recent German experience.
The examination in the Fund
seeks to determine whether any of these techniques would
achieve a broader stability of the international financial
system as a whole, while providing some better reconciliation
of this objective with the desired independence of national
policies.
Whatever results from the examination will
at most
involve a continued orderly evolution in the monetary system.
We do not need more but we would not want less.
*
*
*
Interrelationship of National Economies
Evolution in the international monetary system has had its
counterpart in national economies.
The growth of trade and
investment, accelerated by convertibility, has helped create
a marked interrelationship of national economies that will
continue and may accelerate in the future.
This fundamental
economic'fact is reinforced by political, transportation and
communications achievements.
international awareness in
~ll
These achievements create an
of the people of the world.
now relate internationally as well as nationally.
This
characteristic of today's world has implications that affect
national and corporate life dramatically.
People
- 8 -
Look, if you will, at one aspect of this economic
interrelationship:
internationally.
technology and its present transfer
At the time of Adam Smith, cotton spin-
ning machinery was virtually a British monopoly, the
preservation of which was anxiously, and for a period of
years effectively, pursued.
The plans are said to have
moved to the United States finally in the brain of Samuel
Slater.
In due course, the machinery was duplicated over
here and then reproduced and improved upon.
the number of years it took.
But consider
The technological advantage
achieved and preserved by British industry brought with
it an economic monopoly good for decades.
This is not the story today.
Licensing agreements covering existing products and
processes are signed daily.
What is more, most of these
agreements not only cover proven technological achievements
but they guarantee the availability of new technology even
before it is created and before one knows exactly what it
is.
- 9 -
The development of technology and its transfer does not
stop there:
countries admitting foreign investment frequently
seek applied research to be undertaken within their own
borders and often pure research as well.
In fact, the usual
wrinkle in licensing agreements is to provide reciprocal
features so the parent company can obtain technological
advantages which foreign subsidiary research facilities are
now increasingly creating.
To a country, and to one involved in long range economic
considerations, the preservation of comparative advantage
through a significant and natural lag in technology transfers
can no longer be looked upon as a sustaining feature of a
country's payments position.
Because this technological transfer is made throu.gh
licensing arrangements between affiliated and unaffiliated
companies alike, and because scientific and production
interchange and managerial relationships are all elements
of licensing arrangements, this development is fundamental.
It is also representative of basic integrative forces in
the world's economy.
The Euro-dollar market can be cited as another illustration of the interrelationship of economic forces.
Whatever
annoyance the Euro-dollar market may provide to financial
officials seeking to supervise money supply and credit growth,
one cannot deny that the very existence of the market, its
- 10 -
size, its flexibility, its durability and its availability to
all
c~mers,
markets.
betokens the interrelationship of our capital
For the world financial community it could be
likened to the sole water fountain in the peasant villaqe,
providing all ladies the chance to partake commonly.
These illustrations demonstrate the remarkable commercial
and financial developments of recent years which require a
reordering of our traditional concepts.
Measuring achieve-
ments by the speed of light, not the speed of sound,
introduces a whole new theory of relativity:
with the jet
replacing the sail man achieves the moon by design, he does
not find a continent by accident.
In my mind the most interesting feature of the growing
interrelationships in financial and commercial matters is
that this intercourse proceeds without a corresponding
political involvement.
1960's.
This certainly is the lesson of the
Commercial activities have intensified but political
arrangements have been affected only when there have been
other, non-economic motivations.
Indeed, the United Kingdom's
decision to seek membership in the Common Market is not
evidence of the influence of an economic imperative; the
/31
- lOamotivating factor there is primarily political.
the reason behind this lesson is simple.
I believe
Economic strength
is enhanced through expanded reciprocal trade and investment.
Increased economic strength permits greater political
independence.
Whether or not an economic interrelationship
is translated into movements toward political inteqration is
primarily a function of non-economic considerations.
It is interesting to look upon post war economic
developments in Canada in this light.
*
*
*
- 11 -
Canada and an Interrelated World
How does Canada's position compare with other economiel?
I think what is most significant is that through the fruita of
Canada's own labor she has achieved new balance in the form
of her trade and substantial industrial capacity here within
her borders.
The image of this great land "being hewers of
wood and drawers of water" is just out of date.
Today, over
one quarter of the labor force is employed in the manufacturing
sector -- a fact explaining why automotive products are fast
becoming Canada's
large~t
export.
The labor force proportion
in the United States is only a couple of percentage points
higher than that in Canada.
I
noted with interest the Economic Council of Canada's
Sixth Annual Review which looked ahead to the middle of the
decade.
The Council expects exports of "highly manufactured ft
products to triple between 1967 and 1975.
This would be on
top of a tenfold increase during the previous decade.
Over
40 percent of Canada's total exports are expected then to
consist of these highly manufactured products.
Their
export value is expected to rise to 10 percent of GNP by
1975, compared with only one percent ten to fifteen years ago.
-12 The benefits of the increasing
eco~omic
interrelation-
ship of the world have clearly fallen to Canada:
Canada's
trade with the world--and particularly with the United
States--has grown more rapidly than her own economy.
As a
result Canadian export trade as a percentage of GNP has
increased from 18 to 24 percent over the past decade.
Developments in commercial relations have their
parallel in the financial field.
Links with external
markets are important to Canadian borrowers.
It seems that
last year provinces and municipalities relied almost entirely
on foreign markets to meet their borrowing requirements
(apart from pension plan funds).
Canadian corporations also
rely heavily on non-residents to provide both long-term and
short-term funds.
Yet the flow is not all one way.
Canada
is investing and lending abroad as well as at home.
Do not accept just my judgment of Canada's achievements.
The International Monetary Fund reviews the economic progress
of its members in connection with quota reviews conducted
every five years.
This permits an adjustment of quotas in
order to reflect relative changes in economies when economic
performance is above average.
As a result of this review
last year--concurred to by over 100 countries--Canada's quota
was raised by almost 50 percent; the average increase for
members was only 35 percent.
- 13 -
These figures are impressive and I believe they have
considerable significance.
They are significant because
they respond to those who wonder whether Canada can increase economic inter-relationships with the rest of the
world -- including the United States -- without assuminq
unacceptable risks to her national identity.
Perhaps basic
distrusts dating back to the old and now dead annexation issue
prompt the question.
Nevertheless, the question should be
answered as well as asked.
The best answer is that Canada
already has increased her relationship with other economies
and particularly with the United States and she has done this
without any sacrifice whatever to her national identity.
In-
deed, it seems to me that as this inter-relationship has
increased Canadian economic prowess has been enhanced and
with that, her self-confidence, her political position and
her national identity.
*
*
*
If you assume, as I do, that economic relations between
Canada and the United States cannot avoid the increased interrelationship other economies of the world are experiencing -that is, cannot without depriving the people of substantial
benefits
then the issue which faces us is not whether, but
how, within the framework of our existing political predilections,
we can fashion our economic involvement more efficiently.
haps I am posing a question that has no single answer.
Per-
More
likely, it involves a never-ending examination of ourselves and
of our role in a changing world.
- 14 -
One of the economic constants in this changing world
of ours is that our financial systems and considerable
segments of our economy are already heavily inter-related.
They have become so primarily because sound economic forces
have made them so.
We must recognize that the course of
Canadian economic development is not unrelated to the
course of the U. S. economy.
The U. S.--particularly some
border areas--is influenced by the Canadian economy too.
The Canadian fiscal and monetary policies steer the Canadian
economy, but it seems to me that Canada and the United
States travel down much the
in step than not.
is not unique.
same~onomic
road more often
In this sense, our inter-relationship
There are many countries in Europe about
which the same could be said.
To my mind, this just
emphasizes the basic principle which must be involved in
any examination of our relationship.
The governing principle has to be that a balanced
economic arrangement must be reached if the inter-relationship
is to prove viable.
In times past, long-term economic
relationships have survived in an unbalanced form.
We have
seen extractive industries involving production in one
country with fabrication and processing in another.
A
viable relationship cannot be built upon those terms today.
Old relationships of that type are bound to change.
- 15 We have a recent example in the United States, the outcome of which has not been particularly happy.
I refer to
our sale of unprocessed logs from the Pacific Northwest to
Japan.
Our efforts to permit U. S. mills to fabricate
board and sell abroad encountered restrictive import and
buying practices.
The ability to deliver lumber at substantial.
lower prices was not the prevailing consideration •. Our
Congress took the matter into its own hands and imposed
export controls on raw logs.
This is an example of legislatiw
action responding to understandable frustrations in the
private sector.
British Columbia avoids a problem of this
particular type by concentrating processing in the Province.
We in the United States understand the issue too:
while we
are anxious to develop and export the resources of Alaska,
we cannot forget the need to create jobs in that area.
balanced arrangements are not easy to achieve.
But
They require
a willingness to accept the responsibilities of the multilateral world--in order to avoid unsustainable situations
of one party enjoying substantial benefits with
few costs.
disproportion~
It~
The principle of balance in economic relations must
recognize that a demand without a related supply is
unsatisfactory just as a supply without a related demand
is unsatisfactory.
The seller needs the buyer and the buyer
needs the seller.
Once the tactic of bargaining for maximum
advantage is set aside for more realistic and enduring
arrangements, then economic accords can be reached.
This
principle has not always guided United States economic
negotiations in the post-war years but I doubt very much if it
will not be the guiding principle in the future.
For those
who doubt this last point, let me remind you that in the
early days when the United States gave foreign aid, we
structured it in such a way that procurement took place outside the United States.
Of course, it has been some time since
we have done that and we have passed through the phase of
restricting procurement to the United States.
Today, however,
we are prepared to neqotiate multilaterally the untying of
bilateral aid on the condition that all other donor countries
also subject themselves to the identical disciplines of worldwide competitive bidding.
A unilateral gesture in this direction
by the United States would not satisfy the principle of balance.
- 17 Canada has benefited from this earlier attitude.
For example, some years ago the
U~
S. Government gave a
50 percent preference to domestic suppliers of defense
equipment.
We extended this same preference to Canadian
suppliers expecting to create a balance between the two
countries in defense procurement.
that way.
It has not worked out
There are other examples, in the financial
field, for instance.
But the point of my comments is not to review the
past but to express what I view will have to be the
guiding principle for the future.
about jobs in your country.
in ours too.
You are concerned
We are concerned about jobs
Each of us is concerned about national
feelings and each of us is anxious to enhance the economic
well-being of our people.
Balanced arrangements between
us can help us both to achieve this objective.
No
arrangement other than one which balances the benefits and
costs satisfies this common and minimum objective.
*
*
*
11 3
- 18 What are some of the elements we should keep in mind as
7e look ahead to our hope for mutually beneficial arrange~nts
in this decade?
It might be a familiar outline to this audience if, in
'esponding to this question, I were to speak in terms of
upply, demand and the role of government.
Governments--all of them--will be occupied throughout
his decade with calls upon their financial resources far in
xcess of revenues.
Each will be greatly concerned with the
roblem of setting priorities and rationing funds.
The calls
pon these resources will grow geometrically because social
apital investment, not normally associated with private
lterprise endeavors, will rank higher on our list of priorities.
;tablished governmental programs will be re-examined to see
they are relevant to the present day.
This process can
lly be heal thy for a country.
The economic planners in government will continue to
~ek
the appropriate relationship between employment, growth
d reasonable price stability.
We are all
bec~ming
a bit
re humble about the ability to call the shots exactly on
anomies, large or small.
Statistical information lags,
formation dissemination, as well as differences and errors
judgment, compound the problem.
The 1970's will offer
- 19 fewer perfect batting averages than we dream about, but I
suspect achievements high above what our critics predict.
This problem of balancing priorities within a national economy
will be experienced in all of the countries of the world.
With the differing relative values nations assign at a given
time to the employment, growth and stability equation,
imbalances in international payments must be expected as a
natural function of the system.
Our understanding of this,
our institutional framework for dealing with it, and perhaps
an increased readiness to take necessary action in a timely
manner, should make the 1970's less accident prone than the
end of the 1960's.
Looking ahead, the supply factor in the economic equation
will play "follow the leader".
The leader will be demand.
In
a predominantly buyers' market situation, it will not be the
strain of plant capacity or inadequacy of available services
which will dominate investment decisions and directors I meetings.
Demand, especially the changing nature of demand, is the
economic phenomenon which we are now experiencing.
I come North from a troubled country.
The issues over
which my country is agonizing are fundamental issues.
are posed in moral terms.
Some are posed
~n
They
eternal terms.
America is going through a re-examination of its values and a
self-appraisal of its conscience.
The gyrations of the
process may distract many, and many especially in Canada.
- 20 But I for one am heartened that our society and our political
system are viable enough to sustain, indeed benefit from just
this type of concern.
How could one not recognize the positive
elements in this turmoil?
we get out, but how.
The debate on Vietnam is not whether
The concern with our universities is not
one of whether education is desirable but whether the school
programs are relevant to needs students now feel.
The concern
for minorities is not whether the Nation is moving in the
direction of increasing their share of our society but whether
we can move faster.
The issue on communications is whether
balanced reporting is provided.
The concern over television is
about the impact of violent shows upon oUr children, and whether
there are enough meaningful shows for adults.
The time to worry is when people are afraid to ask these
questions.
The time to worry is when there is no official
concern or response.
This mood and this concern in the United States is not
peculiar to my country.
The value and the benefits of re-
examination are known to many peoples.
In economic terms, this new element in demand means that
an increasing number of people refuse to equate change with
progress.
These new values mean that the consumer will not
seek "more" but "better".
Increasingly, the public is not
concerned with "having" but with his own "state of being".
The
search for a better quality life--an age-long quest of the few-is becoming a dedication of the many.
I
belle~e
we can ncw look back upon the long developing
p~eo2cupation
and supremely important
as an ear}; expr2ss1on of the
se~rch
with population growth
for a better life.
With less need tG satisfy growlng numbers, greater effort
Environmental needs
0ccelerated race
management dops
as
busines~;[!cl1
= would
3~d
have to be satisfied at an
be sJrprised if corporate
respond to these factors.
~O~
~~u:.:.
~ill
Not only
as consumers themselves they will see
oi life and will translate it meaningfully into product
desiql'
.':l' .. ·.3er"lce
delivery.
The demand ingredient
lS
changing ara w l_h this chClngE the defini tion of optimum
L
grov-,th ;-na.y take on c:. nc"
dimens ion.
It does not seem to
me that a country will sacrlfice in the future human
values and social obligations in a one-tracked pursuit
of growth as
~~:sure:~
ln thp traditional quantitative
. '<,.-
~_
it
~[0
~2n
Canada and
The inter'- c
Rivers
Air that
- 22 is polluted in the United States travels North.
Surely
anything but a common approach to these basic issues shortchanges our people.
In this area, as we have found in the
financial area, we must work together.
So too, in the
commercial area will the 1970's find the United States and
Canada searching for arrangements involving balanced
benefits, responsive to our respective national needs.
May 31, 1970
MEMORANDUM TO THE PRESS:
The U.S. Treasury issued the following statement in
response to inquiries:
The Canadian Government has announced a suspension
of the 1 percent margins within which the exchange rate
of the Canadian dollar is normally maintained.
The
intent is to permit the exchange rate to move over a
broader range above the existing parity, with the
aim of dampening a sharp increase in reserves and
internal liquidity which has been aggravated by shortterm capital inflows.
The UoS. Government, while recognizing the
circumstances that motivated this action, welcomes the
intention of Canada to remain in close consultation with
the International Monetary Fund, with a view to a return
to normal practices at the earliest possible date.
The U.S. dollar is not affected o
n()n
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMED lATE RELEAS E
June 1, 1970
UNITED STATES FOREIGN MONETARY GOLD TRANSACTIONS
(First Quarter 1970)
The United States made net purchases of $44 million of
gold during January-March 1970.
Transactions with the International Monetary Fund resulted
in a net gain of nearly $24 million.
About $32 million was
purchased from the Fund, which sold gold to several countries,
including the United states, for currencies needed in connection
with a Fund drawing by France.
This sale by the Fund was offset
to the extent of $9 million by the withdrawal of gold by the
Fund from its gold mitigation deposit with the Treasury.
Other transactions involving $5 million or more were the
purchase of $25 million from Kuwait and the sale of $5 million to
Argentina.
Details are shown ln the attached table.
K-430
(OVER)
UNITED STATES NET HONETAHY GOLD TRANSACTIJi-JS ~ITH
FOREIGN COUNTRIES AND IN'rERNATIONAL INSTITU'rIONS
January I-March 31, 1970
(In millions of dollars at $35 per fine troy ounce)
First
Quarter
Area and Country
Western Europe
Iceland
Ireland
Malta
Turkey
Total
-001
+2.2
+2.5
.- 0 . 3
+4.4
Latin America
Argentina
Bolivia
Chile
Colombia
Dominican Republic
El Salvador
Guatemala
Peru
Uruguay
Total
-5.0
*
-0.8
-1.1
-0.1
-0.1
-0.1
-0.1
-0.1
-7.3
Asia
---p;:fghanistan
Korea
Kuwait
Pakistan
Philippines
Syria
Yemen Arab Republic
Total
-0.2
*
+24.9
-0.4
+1.2
*
-1.5
+24.0
Africa
Guinea
Liberia
Morocco
Sudan
Tunisia
*
-0.1
-0.2
-0.4
*
Total
H1F
+23,/
TOTAL
*Under $50,000.00.
Figures may not add to totals
+44.0
b"
P
--cause of rounding.
FOR RELEASE ON TUESDAY, JUNE 2,1970,10:00 A.M., EDT
summary of Weidenbaum Testimony on Priorities, June 2, 1970
1.
A program budget is presented for the entire U. S.
Government, which permits comparing alternative programs
for fulfilling national goals. Applying the analysis to
the FY 1971 Budget shows the important implicit changes
in national priorities. The application of this approach
could be a valuable asset to future public sector decisionmaking.
2.
Two major types of governmentally-related activities not
included in the budget are incorporated into the analysis
government-assisted credit programs and tax aids (or "tax
expenditures") .
3.
Of the $22 billion net increase in Federal and Federallyassisted lending in the fiscal year 1971, less that $2
billion shows up in the budget. Ways of including these
programs in comprehensive reviews of government resource
allocation are indicated.
4.
Over $44 billion of tax aids are estimated for the fiscal
year 1979. These special provisions (exemptions, deduction~,
credits, etc.) have the outward appearance of involving no
government costs. However, there is a real cost to the
government in terms of revenue foregone; major examples
are shown and quantified.
S.
The implici t ranking of priori ties changes somewhat, but
perhaps not drastically, when the analysis of budget outlays is broadened to include credit programs and tax aids
as well as direct expenditures.
DEPARTMENT OF THE TREASURY
Washington, D. C.
FOR RELEASE UPON DELIVERY
STATEMENT BY THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE SUBCOMMITTEE ON ECONOMY IN GOVERNMENT OF THE
JOINT ECONOMIC COMMITTEE
TUESDAY, JUNE 2, 1970, 10:00 A.M., EDT
HOW TO MAKE DECISIONS ON PRIORITIES
It is always a pleasure to appear before the Joint
Economic Committee.
I hope that you find my testimony useful.
Basically, what I would like to do is to offer a mechanism
for making more enlightened choices on national priorities.
In doing so, I will be drawing on work that I did as a
professor of economics before joining this Administration.
As you will see, the methodology may be useful for illuminating
both current decisions on priorities as well as future actions.
As you can appreciate, this will be a very personal statement.
A Government-Wide Program Budget
In a sense, the following approach builds on the PlanningProgramming-Budgeting (PPB) System and attempts to fill a major
remaining gap.
~proach
Despite its accomplishments to date, the PPB
is not coming to grips with the larger choices in
lllocating Federal funds among different agencies and programs.
:-429
)
-
2 -
"Would a dollar be more wisely spent for education or
for pub 1 ic works?"
Th is fund amen tal ques t ion is not rai sed
in the budgetary process at the present time.
The current
and, of course important, emphasis is on choosing among more
specific alternatives within the education and public works
categories.
Furthermore, the choices usually are restricted
to those which can be made within each of the many agencies
involved in education or public works.
A program budget for the entire U. S. Government can be
developed from available budget materials.
Such a government-
wide program analysis permits comparing alternative programs
of different agencies for"fulfilling broad national goals,
rather than merely examining the alternatives available to
a single Federal agency.
The hypothetical program analysis for the entire Federal
Government, which I present here, is based on the fundamental
end purposes for which the various government programs are
carried on.
..!/
In a world of critical international tensions, the initial
purpose that comes to mind is the protection of the Nation
against external aggression -- to maintain the national security.
A variety of Federal programs exists in this category, ranging
from equipping and maintaining our own military establishment,
to bolstering the armed forces of other nations whom we consider
actual or potential allies, to various types of nonmilitary
competition, and to negotiating arms control agreements.
Y
This analys is draws on Chapter VI I of my recen t book,
The Modern Public Sec~~~, New York, Basic Books, Inc.
- 3 -
A second basic national purpose, one also going back
to the Constitution, is the promotion of the public welfare.
Here, we find the Federal Government operating in the fields
of unemployment compensation, social security, veterans'
pensions, and many other such activities.
A third major purpose of government programs has received
an increasing amount of attention in recent years
continued development of the American economy.
the
This area
covers the various programs to develop our natural resources
and transportation facilities, as well as support of education,
health, research and development, and other attempts to increase
economic growth.
Finally, there is the routine day-to-day operation
of
the government, such as the functioning of the Congress and
the Federal courts, the collection of revenues, and the
payment of interest on the national debt.
Table 1 shows how the requested funds in the Federal
Budget for the fiscal year 1971 are allocated among the four
major purposes sketched out above.
It may come as a surprise
to many people to learn that public welfare programs, rather
than national security activities, receive the largest single
share of the budget.
- 4 -
Tab Ie 1
Bud et for the U. S. Government
Plus Loan Aut orlty
1971)
Amount
($ billions)
Broad Purpose
Percent
Public Welfare
95.6
41.1
National Security
74.3
32.0
Economic Development
35.2
15.1
Government Operations, etc.
27 .5
11.8
232.6
100%
Total
Source:
Appendix A
A comparatively small portion is devoted to the economic
development items, such as education, research, natural
resources, etc.
An examination of the Federal Budget and
congressional appropriation hearings over the years reveals
little systematic attempt to appraise the wisdom or desirability
of these overall choices implicitly made in the allocation of
government resources among these major alternative uses.
It may be mere conjecture to conclude that, possibly,
the allocation of funds would have been somewhat different
if the appropriation
r~quests
had been reviewed with an eye
on the total picture, instead of examined as individual
- 5 -
appropriation items in relative isolation.
Added insight
to the possible program choices that can be made, using the
type of framework suggested here, may be gained from a somewhat deeper analysis of the content of each of these categories.
National Security
As would be expected, the bulk of the national security
budget is devoted to the U. S. military forces.
However,
one-tenth of the total is comprised of programs that would
promote the national security through somewhat more indirect
means, such as conducting nonmilitary forms of competition
(NASA and USIA) or increasing the military capabilities of
friendly nations.
The data in Table 2 can be used to indicate the types
of "strategic" choices that can be made -- or are currently
being made only indirectly -- in allocating funds for
national security.
related programs are
First of all, these various defensenot~
to my knowledge, currently brought
together and viewed as a totality anywhere in the budget
process.
The groupings, of course, are arbitrary and
illustrative; some, for example, may contend that NASA's
contribution to American economic development is greater
than its national security role.
- 6 Table 2
National Security Programs
(Fiscal Year 1971)
Program Category
Amount
($ billions)
U. S. Military Forces
Percent
68.2
91. 8
Scientific Competition (NASA)
3.3
4.5
Foreign Non-Military Aid
1.9
2.6
Foreign Military Forces
•5
.7
Psychological Competition (USIA)
.3
.4
U. S. Passive Defense
.1
**
**
Arms Control and Disarmament
Total
*
**
*
74.3
100%
Less than $50 million.
Less than 1/2 of 1 percent.
The approach suggested here could lend itself to first
raising and then answering questions such as the following:
Would national security be improved by
shifting some or all of the $5.7 billion
for foreign aid and non-military competition
to the U. S. military establishment itself?
Conversely, would the national security be
strengthened by moving a proportionately
small share of the direct military budget,
say $500 million, to the USIA or the arms
control effort and thereby obtaining
proportionately large increases in these
latter programs?
- 7 -
Are we putting tao much into foreign economic
aid and not enough into the space program?
Or vice versa?
Would the Nation be better off if we shifted
some of the funds now going to passive (civil)
defense to the U. S. Arms Control and Disarmament Agency?
Or vice versa?
The very existence of the type of information presented
here may lead not only to attempts to answer questions such
as these, but, more fundamentally, to widen the horizons of
budget reviewers.
Public Welfare
Over two-fifths of the 1971 budget is devoted to
programs in the general area of the public welfare.
Again,
these activities are nowhere brought together so that the
various spending
progr~ms
can be compared against each other.
The tabulation of public welfare programs contained in
Table 3 shows a rather large assortment.
- 8 -
Table 3
Public Welfare pro,rams
(Fiscal Year 19 1)
Amount
Program Category
($ billions)
Life Insurance and Retirement
(including Medicare)
Percent
60.8
63.6
Public Assistance
9.0
9.4
Assistance to Farmers and Rural Areas
8.0
8.4
Veterans' Compensation and Pensions
7.4
7.7
Unemployment Insurance
4.0
4.2
Urban Housing and Facilities
3.7
3.9
Anti-Poverty Programs
1.5
1.6
Specialized Welfare Programs
1.2
1.2
Total
95.6
100%
The various quasi-life insurance, unemployment compensation, and retirement programs receive the great bulk of
the funds for public welfare.
a conscious decision.
However, this may be hardly
The level of expenditure for these
programs -- such as the Old-Age and Survivors' Insurance
System -- is predetermined by basic, continuing statutes; they
are financed by permanent, indefinite appropriations which are
not subject to review during the budget process because they
do not even appear in the annual appropriation bills.
Hence,
it is not surprising that these programs have grown to dominate the nondefense budget, exceeding by far the total outlays
for the various economic development programs.
- 9 -
Likewise, the expenditures under the various agricultural
price support programs (which dominate the category of "Assistance to Farmers and Rural Areas") exceed all of the outlays
for the programs of urban housing, anti-poverty, and other
specialized welfare activities combined.
Again, the farm
subsidy program is generally set by the substantive laws on
price supports and farm aid, rather than through annual
appropriations.
Also, this level of detail permits some cross-comparisons
of government programs which are not currently made.
For
example, the $1.5 bil1ion.for formal efforts to reduce proverty
in the United States is less than the $1.9 billion for foreign
economic aid.
Would some trade-off between the public welfare
and national security areas result in a net advantage?
This
type of analysis is attempting to answer the fundamental
question, "Would an extra dollar (a billion, in the case of
the government) be more wisely spent for Program A or for
Program B?"
Economic Development
In this exploratory categorization of government programs, a number of activities are listed under the heading,
"EconomlC
. Deve1opment. "
A good share of them, such as the
development of needed natural resources or the improvement
of necessary transportation facilities, may contribute to
the more rapid growth and development of the American economy.
I~
- 10 Others, such as various subsidies, may be more questionable.
Of course, it is inevitable that any such classification will
contain many borderline cases.
A brief examination of the composition of the Economic
Development category is revealing (see Table 4).
Transporta-
tion facilities account for the largest single share, and
when combined with natural resource development and related
aids to business, account for almost two-thirds of the total.
A government-wide program budget would focus attention on
questions such as, "Would a shift of funds between trans-
.
portation and education be advisable?
sources and research?"
Between natural re-
Raising these questions need not be
taken as expressing value judgments, but rather as indicating
a pattern for governmental decision-making.
Table 4
Economic Development Programs
(Fiscal Year 1971)
Amount
($ billions)
Program Category
Percent
Transportation Facilities
13.0
36.9
Natural Resources and
Regional Development
10.1
28.7
Health Research and Development
5.3
15.1
Education and General Research
4.2
11.9
Manpower Development
1.7
4.8
.9
2.6
Aids and Subsidies to Business
Total
35.2
100%
- 11 -
Government Operations
The final category of government programs represents
the general costs of operating the government, the relatively
day-to-day functions.
More than 80 percent of the funds in
this category cover the payment of interest on the public debt.
The bulk of the remaining outlays for government operations
is devoted to collecting internal revenue and the housekeeping activities of the General Services Administration.
Implementation
The incorporation in the President's Budget Message
and the annual budget document of the approach here suggested
might result in growing congressional and public concern and
awareness of the problems of choosing among alternative uses
)f government funds.
In the absence of an automatic market
nechanism, such an approach might introduce a healthy degree
)f competition in governmental resource allocation.
l
In
sense, the adoption of a government-wide program budget
~uld
represent a logical expansion of the current program
udgeting effort to work across rather than only down the
raditional departmental lines.
An alternative means of implementation would be for
Congressional committee staff to rework the existing
ldget submissions within this framework for review, say, by
1e entire Appropriations Committee prior to its detailed
- 12 -
examination of individual appropriation requests.
This
would permit the parent appropriation committees to set
general guidelines and ground rules for the detailed budgetary
review performed by the specialized subcommittees.
It would
also permit some improvement over the current situation, in
which overall government policy often seems to be the accidental byproduct of budget decisions on the various departmental requests -- rather than the guiding hand behind those
decisions.
The underlying theme.of this program approach to
government budgeting is the need to array the alternatives
so that deliberate choice may be made among them.
its counterpart in the private sector.
It has
Many families might
rush out and spend the Christmas bonus for a new car; a more
prudent family may carefully, although subjectively, consider
the relative benefits af a new car, a long summer vacation,
or remodeling the basement.
Similarly, a well-managed company
would not impulsively decide to devote an increase in earnings
to raising dividends, but would consider in detail the alternative uses of the funds -- embarking on a new research
program, rebuilding an obsolescent manufacturing plant, or
developing a new overseas operation.
-
I
i" ('
rl(,
I
.
- 13 -
Application to the Fiscal Year 1971
Bud~
It might be useful to analyze the President's budget
for the fiscal year 1971 using the framework here presented
so as to see what changes in priorities are implicit in it.
The actual figures for the fiscal year 1969 are taken as the
basis for comparison; hence, the increases (and decreases)
between 1969 and 1971 are indicative of the revisions in
priorities made thus far by the Nixon Administration.
As shown in Table 5, the Public Welfare area is the
major area of expansion;
~t
has received slightly more than
one-half of the increased funds during the two-year period.
In contrast, National Security has been reduced substantially,
Both Economic Development and Government Operations show
expansion between 1969 and 1971, but of considerably smaller
magnitudes than Public Welfare.
The lower-half of the table shows the more specific
program categories which have experienced gains or losses
of $1 billion or more during the two-year period.
They
correspond by and large to the movements in the larger
functional categories.
- 14 -
Table 5
Major Shifts in the Federal Budget, Fiscal Years 1969-71
(in billions of dollars~----'--'-"--"-
A.
Bas ic Goal
Public Welfare
+15.9
Economic Development
+10.4
Government Operations, etc.
+6.6
National Security
-7 . 3
B.
Program Area
Life insurance and retirement
(including Medicare)
+12.8
Natural resources and regional development
+4.2
Transportation facilities
+3.6
Public assistance
+2.6
~ayments
+2.4
Interest
Civilian and military pay increases
+1.4
Contingencies
+1. 2
Manpower development
+1.0
U. S. military forces
-7.3
! l /'3
r
- 15 -
Two Shortcomings in the Analysis
Any analysis of governmental priorities is inherently
limited to the items which are con1ained in the budget itself.
At present two major types of governmentally-related activities are not included in the budget proper.
Let us try
to identify these activities and attempt to incorporate them
into the analysis.
Governmental Credit Programs
The first category of items omitted from the Federal
Budget consists primarily of uses of the credit of the
Federal Government.
The bulk of Federal credit assistance
programs is now financed outside the budget by means of
(1) various loan guarantee techniques and (2) loans made by
Federally-sponsored but ostensibly privately-owned agencies.
Of the estimated $22.2 billion net increase in Federal
and Federally-assisted loans outstanding for the fiscal year
1971, only $1. 6 billion are direct loans which show up
in the budget.
Table 6 contains detail on the composition
of the $20.6 billion of Federally-assisted credit programs
which are not contained in the budget proper.
There is little
Government control over the expansion of these Federallyassisted loans outside the budget and, hence, little overall
consideration Can be given to their impact on financial
markets and on the economy.
- 16 Table 6
NET CHANGE IN OUTSTANDING FEDERALLY ASSISTED PRIVATE CREDIT
I
__----1~9-6~9~-~7~0__--~($~m~i~11ions)
1970-71
Guaranteed
Govt.
Guaranteed
Govt .
.;.,a.;.;n;.;;d-...;;i;.;;n;;.;;s;.;;u;.;;r;.;;e:....;d~...-:s:Jp~o;::.:n::.::.s.: . o. :. r.: . e.=d
~a;.;;.;n;.;;d--.;;;i;.;;.n;..;;s...:u,;..:r:....;e:....;d:..--_s;..,jp'-o~n_s~o_r_e_d
ted Programs
lal Defense
~gn mIlitary aid
lationa1 Affairs & Fina,nce
~ign economic aid
lrt- Import Bank
Ilture & Rural Deve1opm~nt
lers Home Adm.
~ for Cooperatives
,rmediate Credi t Banks
ra1 Land Banks
i
'ce & Transportation
.ornic Development Adm.
time Administration
1 Bus iness Adm.
rstate Commerce Cornrn.
90
25
366
1,179
513
1,301
2,258
587
97
436
577
14
23
365
-10
24
131
481
-10
ity Development &Housing
n renewal
371
ic hous ing
1,043
uni ties loans
40
ra1 Housing Adm.
5,202
gage-backed securities (GNMA)
500
y Mae (FNMA)
ral Home Loan Banks
456
1,426
55
7,877
1,000
ion & Manpower
ent loans
ernic facilities loans
ege hous ing loan~
704
200
200
713
100
50
92
Benefi ts & Services
Government
Total
:t:
double counting
Net total
4,600
2,400
5,648
4,487
Medical facilities
1S
103
479
582
130
1,888
-2
111
10,751
11,245
8,164
-5,938
-6,548
4,203
18,731
11,245
12,793
8,164
- 17 -
The largest single category of Federally-assisted
private credit is to the horne mortgage market.
accomplished through a variety of mechanisms.
This is
The Federal
Housing Administration and the Veterans Administration
guarantee and insure individual horne mortgages.
The now
privately-owned Federal National Mortgage Association
(Fanny Mae) operates a secondary market for FHA mortgage
lenders.
The Federal Horne Loan Banks raise and provide
funds for the savings and loan institutions which are
important sources of mortgage credit.
Most recently, the
wholly Federally-owned Government National Mortgage Association
(Ginny Mae) issues mortgage-backed
securitie~,which
is an
attempt to sell indirectly mortgages to investors who prefer
other types of investment instruments.
So long as Federally-assisted loans and loan guarantees
are excluded from the budget and thus are not subject to
effective controls, there are strong incentives to convert
from direct loans to these more indirect techniques.
We need
to acknowledge that these indirect techniques possess important
advantages (particularly from the viewpoint of the program
advocates) as well as disadvantages.
Viewed objectively, these Federally-assisted borrowings
are absorbing a rapidly increasing portion of the total of
private credit flows in the economy, up from 13 percent in
- 18 -
the fiscal year 1969 to perhaps 25 percent in fiscal 1971.
Because they are based on the
~redit
standing of the U.
s.
Government, these programs are largely insulated from the
credit rationing impact of monetary policy and financial
market restraints imposed on other private loans.
Beyond
that, in many cases, Federal interest subsidies insulate
these borrowers from increases in market rates of interest.
As you may know, a subcommittee of the Cabinet Committee
on Economic Policy has been studying the operation of the
unified budget, with special attention to the treatment of
Federal credit programs.
As chairman of this activity, I
would like to be in a position to report that we have come
up with a sure fire solution.
However, that is not the case,
at least not yet.
We have been exploring alternative methods whereby the
various forms of Federally-assisted credit can be reviewed
in a more comprehensive manner so as to permit more effective
allocation of credit resources.
While the precise economic
impact of credit assistance is difficult to determine,
certainly it would be desirable to focus greater attention
on these programs, both those "in" and Hout" of tlie budget,
in the formulation of overall fiscal and monetary policy.
One method of providing some aggregate control over
these "extra-budget" credi t programs would be to impose a
ceiling on the total borrowing of Federal and Federallysponsored credi t agencies;, both those "in" and "out" of the
- 19 -
budget.
Also, such a ceiling could be enacted on the overall
volume of debt created under Federal loan insurance and
guarantee activities.
Another alternative would be to establish quantitative
controls over all Federal credit programs, including
government-guaranteed and government-sponsored loans as well
as on direct lending by Federal agencies.
Several steps in this direction were taken in the fiscal
1971 budget document.
For the first time, the basic summary
table in the President's Budget Message included a section
on outstanding Federal and Federally-assisted credit.
More-
over, the companion volume of special analyses of the budget
contains an expanded section on "Federal Credit Programs,"
which provides considerable detail on Federal loan guarantees
and government-sponsored agency credit.
Any comprehensive analysis of governmental priorities
needs to take account of the operation of these Federallyassisted credit programs.
They can strongly influence the
allocation of credit and, hence, the distribution of real
resources, thus adding to the economic impact implied from
an examination limited to the budget proper.
Tax Aids
There is a second type of governmentally-related activity
which is not included in the budget proper.
Through special
exemptions, deductions, and credits, and through departures
1/b '(
(.
,I
- 20 -
from general concepts of net income, the tax system operates
so as to affect the private economy in ways that might
alternatively be accomplished by direct Government expenditures.
For example, the expendi ture side of the budget properly records
items for medical assistctnce.
However, nowhere in the budget
is account taken of the $95 million a year foregone by the tax
system by reason of the special exemption for sick pay paid to
employees.
The natural resource agencies of the Federal Department,
such as the Department of the Interior, dutifully record
outlays for programs in those areas.
However, no mention is
made of the substantial assistance to natural resource
industries through depletion allowances and other special
tax provis ions.
It may be useful, therefore, to attempt to quantify the
expenditure equivalents of at least the more obvious benefit
provisions.
To be sure, this is a difficult undertaking
involving -- as in the other classifications presented in
this statement -- many arbitrary categorizations.
Just which
tax measures can be said to fall in the category of special
provisions often requires subjective decisions.
It is difficult to decide which tax rules are integral
to a tax system in order to provide a balanced tax structure
and a proper measure of net income -- as opposed to those
(ef
I
- 21 -
I
provisions which represent departures from that net income
concept to provide relief, assistance, or incentive to a
particular group or activity.
Tax aids have the outward appearance of involving no
government costs.
They are, in effect, netted out of receipts
by the taxpayers themselves so that taxes paid by taxpayers,
and hence taxes collected by the Government, are net after
adjustment for tax concessions.
There is a real cost to the
Government in terms of foregone revenue and to the economy
as a whole in terms of the increased share of
current~ational
output available to the beneficiary of the particular tax aid.
In theory, government accounting could take account of
the explicit inclusion of a non-cash transaction such as tax
aids.
There is some precedent in business accounting practices.
One business item related to sales, sales discounts, is explicitly measured.
Sales discounts are similar to tax aids; both
are non-monetary transactions.
The tax aid as measured in Table 7 is the difference
between the tax actually paid and the tax that would otherwise
be paid in the absence of the tax aid provision.
The difference
is solely the immediate revenue effect on the public sector
and hence the immediate, direct income effect on the private
sector.
No induced or indirect effects are taken into account,
although these could be significant in some cases.
, - I
- 22 Table 7
SUMMARY OF ESTIMATED TAX AIDS
(Fiscal Years. In Millions of Dollars)
Amount
Tax Aids by Budget Function
1968
1969
National defense
500
550
International affairs and finance
370
410
Agriculture and rural development
930
1,000
Natural resources (e.g., depletion
allowances)
1,605
1,765
Commerce and transportation, (e.g.,
investment credit and surtax
exemption)
7,775
9,200
Community development and housing
(e.g., deduction of interest
and taxes on residence)
3,950
4,800
12,950
15,905
2,600
3,000
Education
720
800
Veterans' benefits and services
550
600
4,600
6,150
36,550
44,180
Income security (e.g., personal
deductions)
Health (e.g., deduction of medical
expenses)
Aid to state and local government
(e.g., deduction of state-local
taxes)
Total
Source:
Appendix B
f
ii
- 23 Table 7 is an updated version of a
Trea~ury
Department
analysis earlier referred to as "Tax Expenditures."
word~
of caution are essential.
A few
First of all, the very
phrase, "Tax Expenditures," is a contradiction in terms.
In reviewing the staff work that underlies that earlier
work, I found that the original term was "Tax Aids."
I
believe that it is more useful to utilize that term.
My more fundamental concern is that a mere tabulation
of tax aids should not be labeled a listing of "loopholes."
The purpose is informational, to illuminate the cost of
these provisions.
As a general matter, I find the case rather
persuasive that tax incentives often can result in more of a
private sector solution of some pressing national problem
than a direct Federal expenditure.
However, I see no need to beg the question as to whether
direct expenditures or tax aids are preferable in any given
program area.
Tax aids are one among alternative uses of
potential Federal revenues and any comprehensive analysis
needs to take account of them.
Like the earlier attempt
previously cited, the current effort is not a complete
listing of all the tax provisions which vary from a strict
definition of net income.
In good measure, the purpose is
to be illustrative rather than exhaustive.
<
/
I
/
. 24 -
As shown in Table 7, personal deductions and related
tax benefits to individuals in the category of "Income
Security" constitute by far the largest single portion
of tax aids -- $16 billion out of $44 billion in the
fiscal year 1969.
Tax provisions benefiting business in general -such as the since-repealed investment credit and the
continuing surtax exemption (shown under "Commerce and
Transportation") -- are the second largest type of tax
aid.
Their estimated cost, in foregone revenue, came
to $9 billion in the fiscal year 1969.
The third largest tax aid category benefits are
directed to state and local governments.
The deducta-
bility of state and local taxes and related provisions
came to an estimated revenue cost of $6 billion in 1969.
As will be brought out more clearly in the following
section, the implied priorities in the allocation of tax
aids differs somewhat from that of direct budget outlays.
< \
I
I~'"
.,} r.(
·f
.
i
"
- 25 -
A Summing Up
It may be useful to attempt to bring together in one
analysis the direct outlays of the Federal Government, the
tax aids, and the various credit programs.
Frankly, I hesi-
tate to do so for fear of adding the proverbial apples and
oranges
fruit.
although those do add up to pieces or pounds of
In this case, they all add up in terms of dollars,
but not necessarily in terms of total economic impact.
There
are undoubtedly different effects on resource allocation
among direct Federal purchases, transfer payments, loans,
tax aids and credit-backing.
Nevertheless, I believe that
the results of a total "summing up" are helpful to any
comprehensive analysis of governmental priorities.
Table 8 shows, on the basis of the Federal Government's
existing functional classification, direct outlays as well
as some of the related governmental programs that are not
included in the budget.
In a number of cases, it can be seen that the direct
Federal outlays constitute a relatively small proportion of
the total volume of governmentally-related financial activity
affecting a given program area.
The leading example may be
community development and housing where only $2.0 billion,
or one percent, of the Federal expenditures were devoted to
this area in the fiscal year 1969, but the assistance through
$4.8 billion of tax aids and $8.7 billion of credit programs
- 26 -
Table 8
Federal Government Outlays and Related Activities
Fiscal Year 1969. In Millions of Dollars.
Direct
Outlays
Function
Selected
Tax Aids
Govt.Assisted
Credit
Total
81,240
550
115
81,905
International affairs
and finance
3,785
410
490
4,685
Space research and
te chnology
4,247
Agriculture and rural
development
6,221
1,000
Natural resources
2,129
1,765
Commerce and
transportation
7,873
9,200
220
17,293
Community development
and housing
1,961
4,800
8,656
15,417
Education and manpower
6,825
800
632
8,257
Health
11,696
3,000
14,696
Income security
37,399
15,905
53,304
7,640
600
National defense
Veterans benefits
and services
Interest
General government
Total
2,308
9,529
3,894
1,558
9,798
15,791
15,791
2,866
2,866
. Assistance to state and
local governments
Adjustments
4,247
6,150
6,150
-5,117
184,556
44,180
-2,244
-7,361
11,735
240,472
/
- 27 -
came to over six times the budget amount.
Other program
areas where the extra-budget activities are substantial
include commerce and transportation ($9 billion of tax aids),
income security ($16 billion of tax aids), and agriculture
($3 billion of tax aids and credit assistance).
However, in the case of national defense, the direct
outlays account for virtually all of the program area.
For
space, interest, and general government, no tax aids or
governmentally-assisted credit activities are shown.
In contrast, the category of general assistance to
state and local governments shows no direct Federal expenditures in the fiscal year 1969, but substantial amounts of
tax aids (mainly through the deductibility of state and local
taxes and the tax exemption of interest on state and local
bonds).
The proposed program of Federal revenue sharing
would involve direct Federal expenditures for unrestricted
aid to states and localities.
Clearly, the implied ranking of priorities which is
based on examining direct Federal Budget outlays is subject
to considerable modification when account is taken of those
related Government activities which take the place of direct
expenditure.
However, that implicit change in priorities is
hardly drastic.
At the least, some attempts to more formally
include tax aids and credit programs in an analysis of
Federal priorities would appear to be desirable.
- 28 -
Conclusion
This presentation has offered several analytical
techniques for improving the quality of decision-making
on national priorities.
As we enter the 1970's, filled with
a mixture of hope and uncertainty toward our national future,
it seems clear that many difficult and important decisions
and choices will face national policy makers.
Even in an economy as rich and productive as ours,
resources are limited.
Claims on output must be balanced
against the economy's capacity to produce.
As always,
priorities will be established, either by design or by default,
to permit the satisfaction of some demands over others.
But
any enlightened attempt to reorder and establish priorities
cannot take place until we possess a clear understanding both
of the existing general ordering of priorities and the nature
of the possible choices to be made.
Development of a government-wide program budget,
enabling us to evaluate choices which cut across existing
agency and program lines, would be a valuable asset to our
decision-making efforts.
In addition, bringing such "extra-
budgetary" items as Federal credit assistance and Federal
tax aids into the analytical framework would enable us to
have a more complete accounting of the existing order of
Federal priorities.
- 29 -
In this statement, I have tried to show how both of
these analytical techniques can assist Federal policy makers.
The pressure of competing demands and the need for exercising
hard choices makes this process difficult enough without
further complicating matters by the absence of adequate
information.
Hopefully, improvement in the quality of our
information can lead to improvement in the quality of our
decisions.
- 30 -
\)
!
Appendix A
HYPOTHETICAL GOVERNMENTWIDE PROGRAM BUDGET
Fiscal Year 1971
(In billions of dollars)
Category
.:Interior:.
HEW: HUD
VA
.
AEC :Defense
.
onal Security
s. Military Forces ••..•••••.
1.2
S. Passive Defense .••••.....
reign Military Aid ••••. ~ ....
n-Mili tary Aid •••••.••..••.•
ientific Competition •••.••..
ychological Competition •••.•
ms Control ••••••••••••.••...
.1
Total . . . . . . . . . . . . . . . . . . . .
1.2
ic Welfare
surance and Retirement •....•
employment Benefits •.••••••.
blic Assistance •••••••..••.•
terans Benefits ••••.•••.••..
sistance to Farmers ••••..•••
ban Housing ••••••••••.•••.••
:cialized Welfare •.••.•••.••
50.9
67.1
3.2
9.0
7.3
3.0
.7
1.2
ti - Poverty . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
)mic Development
tural Resources ..••.••.•.••.
67.0
61.1
3.0
7.3
6.1
3.9
1.2
1.3
lpower . . . . . . . . . . . . . . . . . . . . . .
lnsporta tion •.•.••••••.••...
lea tion .................... .
3.6
3.2
2.0
6.1
6.8
2.0
1.2
1.3
6.1
68.0
9.4
2.4
72.3
11 th . . . . . . . . . . . . . . . . . . . . . . . .
iiness Subsidies ••.•....••..
Total . . . . . . . . . . . . . . . . . . . .
ltions
~erest ..............•....•..
'islative
.; ..
..lc.lal
. . . .................
.................. .
'ulation . . . . . . . . . . . . . . . . . . . .
. ••••••••••••••••••
,sek eep~ng
eign Relations ••.•.•••••.•.
enue Sharing ••••••.••••.•••
Total . . . . . . . . . . . . . . . . . . . .
ance s ••••••••••••••••••••••
Gr and Total ••••••••••••••.•
3.0
- 31 Appendix A
(Continued)
Hypothetical Governmentwide Program Budget
Fiscal Year 1971
(In billions of dollars)
Category
:Treas-: Post :Com~
State : ury :Office:merce
ational Security
. S. Military Forces ••••••
. S. Passive Defense ••••••
oreign Military Aid •••••••
oreign Non-Military Aid •• ~
:ientific Competition •••••
sychological Competi tion .•
rrns Control ...•••.•••.•••.
Total . . . . . . . . . . . . . . . . . . .
lblic Welfare
lsurance and Retirement •• ,
lernploymen t Benef i ts ••••••
lblic Assistance ••••.•••••
~terans Benefits •••••••••.
;sistance to Farmers ••••••
:ban Hous ing ...•..••••••••
)ecialized Welfare ..••••••
lti-Poverty ••...•.••••••••
To tal . . . . . . . . . . . . . . . . • . .
:onornic Development
ltural Resources .•.•••••••
GRAND TOTAL •••••••••••••
Agric.
4.0
8.0
4.0
8.0
.6
.3
1.7
lnpower •••.•••••••••••••••
:ansporta tion ••....•.•••••
luca tion . . . . . . . . . . . . . . . . . .
~al th . . . . . . . . . . . . . . . . . . . . .
lsiness Subsidies ..••••••.
Total . . . . . . . . . . . . . . . . . . .
'erations
.terest . . . . . . . . . . . . . . . . . . .
gislative ....••...••••••.
.dicial .................. .
gulations ....•••.••••••••
usekeeping ...•.•...••.•••
reign Relations ..••••••.•
venu e Sh ar1ng
.
...•.••••.••
Total . . . . . . . . . . . . . . . . . . .
lowances . . . . . . . . . . . . . . . . .
Labor
.6
.4
.4
.1
.6
1.2
11'
.6
19.0
.2
1.5
.5
.5
20.5
.5
20.5
.2
.6
1.2
5.8
8.6
- 32 -
Appendix A
(Continued)
Hypothetical Governmentwide Program Budget
Fiscal Year 1971
(In billions of dollars)
Category
NASA
tional Secur i ty
S. Military Forces •.••••.•••
S. Passive Defense ••••••••••
reign Military Aid .••.•••••••
reign Non-Military Aid •••.•••
ientific Competition ••••.•••••
ychological Competition •..•••
~ Control ..•••.•••.••••.••••
Total ••••••••••••••.••••••••
DOT
e' • • • • • • •
Total ....••••••••••.•••.•.••
Other
.1
•5
1.9
1.9
3.3
3.3
.3
.3
2.8
74.3
1.9
60,,$
4.0
9.0
4.9
7.4
8.0
----
4.9
1.5
3.4
.6
lpower •••••••••••••••••••••••
.8
.1
11.3
msportation •••.••.•••••.•.•.
lea tion •.••••••••••••••••••••
II th •••.••••••••••••••••.••••
liness Subsidies •.••••..•••..
11.3
Total . . . . . . . . . . . . . . . . . . . . . . . .
.......••.•.••.••..••..
'isla ti ve .•..•••.••.•..•• ~ .•.
~erest
.icial .............•..•.••.•.
'ulations .•.•.••....••.•••..•
sekeeping •...•.••••.......•.
.1
eign Relations .•..••••..•...
enue Sharing ..•.••••••••..••
Total •••••.•.••..•.•..•.•.••
.1
Owance s •••••••••••••••••••••
3.3
11. 3
5.0
3.7
1.2
1.5
95.6
10.1
1.7
13.1
4.2
5.3
.8
.9
2.3
35.3
.4
19.0
.4
1.3
1.3
.2
.8
.8
.3
2.5
1.2
3.9
25.0
2.6
2.6
14.7
232.6
!..ations
....................
68.2
.5
3.3
>nomie Development
~ral Resources .••••..•.••.•.
ND TOTAL
Total
.1
blie Welfare
surance and Retirement •••••.•
employment Benefits •.••••••••
:llie Assistance ..••••••••••••
~rans Benefits •.•••.••••••••
3istance to Farmers •••.•••••.
~n Housing •..•.•.••••••••.••
~cialized Welfare •••.•••••••.
:i-Poverty ...••...•..
CSC
.3
.3
- 33 Appendix B
Explanation of Tax Aids
An important recent development in the effort to
make the Federal Budget a more useful tool of economic policy
has been an increasing awareness of the growing magnitude of
fiscal benefits accruing to various categories of taxpayers.
Over the years the Federal income tax structure has gradually
accumulated a host of special deductions, credits, exclusions,
exemptions and preferential rates designed to achieve various
social and economic objectives.
It has been recognized that
these selective reductions in tax liabilities have the same
fiscal impact on the budget surplus or deficit as direct
increases in expenditures.
In this context they have been
termed "tax expenditures."
A more appropriate term might
be "tax aids."
In the broadest sense a tax aid can be defined as any
identifiable reduction in tax liability by an individual or
bUsiness compared to a tax base totally devoid of any deduction
.
from income or distinction of treatment of different kinds of
income.
Such a dis tinction of tax expenditures would include
differences in tax liability because the individual was married
or single, old or young, healthy or disabled, lived at home or
lbroad, was charitable or uncharitable, was a homeowner or
~enter,
etc.
')
I c/ ~-
!
-
/
~
f
34 -
But to group together without distinction all deviations
from a theoretically neutral tax system would be hopelessly
cumbersome and
r~duce
the usefulness of the tax expenditure
concept as an added measure of the total fiscal impact of the
Federal Budget!
The more practical approach is to group by
functional spending category those tax aids intended to
encourage private action to resolve various social and economic problems or to give fiscal relief to those who might
receive an inadequate share of current productive resources
under a completely neutral tax system.
In most cases these
tax aids are clearly an alternative to an equivalent increase
in Federal expenditures that would otherwise be required.
The first compilation of tax aids under this approach
was published in the 1968 Annual Report of the Secretary of
the Treasury.
This compilation helped create public discussion
and improved understanding of the program aspects of tax aids.
It also helped to stimulate program analysis of tax aids, an
approach which has received the endorsement of President Nixon.
In his Tax Message to the Congress of April 1969 the President
stated:
"Tax dollars the government del iberate1y waives
should be viewed as a form of expenditure, and weighed against
the priority of other exp~nditures.
When the preference
device provides more sOcial benefit than government collections
and spending, that 'incentive' should be expanded; when the
preference is inefficient or subject to abuse, it should be
ended".
- 35 -
In addition to its value as a catalyst for program
analysis, the compilation has value for economic analysis.
Such compilations focus
o~
tax aids as important determinants
of the size of budget deficits and surpluses.
The overall
magnitude of foregone revenues due to tax aids is substantial
and, if the budget is not balanced, the deficit and surplus
is only a small fraction of that magnitude.
Year to year
:hanges in tax aid magnitudes, either because of economic
;rowth or through legislative actions, affect substantially
the size of the budget deficit (or surplus) and the expaniionary (or restrictive) course of the economy.
Table B presents an updating of data on estimated tax
lids for the fiscal years 1968 and 1969 on the basis of the
urrent functional breakdown of Federal expenditures.
The
resent compilation is not intended to provide a full and
omplete accounting in a theoretical sense of all tax aids
n the income tax structure.
It is, in fact, a minimal
election of tax aids -- miniman in the sense of including
nly acceptable and practical choices.
Certain tax provisions
re omitted because their inclusion would require controversial
r highly theoretical justifications.
~cause
1
Others are omitted
the underlying data is difficult to compile and present
understandable form or because the amounts involved are not
lantitatively significant.
In short, the choice of the tax
- 36 Appendix Table B
ESTIMATED TAX AIDS, FISCAL YEARS 1968 and 1969
(Millions of Dollars)
Tax Aids by Budget Function
National defense
Exclusion of benefits and allowances to
Armed Forces personnel
International affairs and finance
Exemption for certain income earned abroad
by United States citizens
Western Hemisphere Trade Corporations
Exclusion of gross-up on dividends of
less-developed country corporations
Exclusion of controlled foreign subsidiaries
Exclusion of income earned in United States
possessions
Total
A ricu1 ture and
FarmIng: expensIng an capIta gain treatment
Timber:
capital gain treatment for
certain income
Total
Natural resources
Expensing of exploration and development costs
Excess of percentage over cost depletion
Capital gains treatment of royalties on
coal and iron ore
Total
1968
1969
500
550
40
50
45
55
50
150
55
165
80
90
370
410
800
860
130
140
930
1,000
300
1,300
330
1,430
5
5
1,605
1,765
r
/
- 37 -
f
I
:
'ax Aids by Budget Function - Cont'd.
:onunerce and transportation
Investment credit
Excess depreciation on buildings
(other than rental housing)
Dividend exclusion
Capital gains: corporation (other than
agriculture and natural resources)
Excess bad debt reserves of
financial institutions
Exemption of credit unions
Deductability of interest on consumer credit
Expensing of research and development
expenditures
$25,000 surtax exemption
Deferral of tax on shipping companies
Total
ommunity development and housin&
DeductIbility of interest on mortgages
on owner-occupied homes
Deductibility of property taxes
on owner-occupied homes
Excess depreciation on rental housing
Total
ncome Securi ty
Disability Insurance benefits
Provisions relating to aged, blind, and
disabled: Combined cost for additional
exemption for aged, retirement income
credit, and exclusion of social security
payments
Additional exemption for blind
"S'IC k pay" excl us i on
Exclusion of unemployment insurance benefits
Exclusion of workmen'S compensation benefits
Exclusion of public assistance benefits
Treatment of pension plans:
Plan~ for employees
Plans for self-employed persons
EXclusion of other employee benefits:
Premiums on group term life insurance
De~uctibility of accident and death benefits
PrIvately financed supplementary
unemployment benefits
Meals and lodging
}
1968
1969
2,300
3,000
SOO
225
S50
260
SOO
S25
600
40
1,300
660
45
1,600
500
1,800
10
550
2,000
10
7 2 775
9 2 200
1,900
2,200
1,800
250
2,350
250
3,950
4,800
100
2,300
10
85
300
150
50
2,700
10
95
325
180
50
3,000
60
4,000
135
400
25
400
25
25
150
15
165
(
J
,,
;'~.
- 38 -
Tax Aids by Budget Function - Cont' d.
/
1968
Income Security - Cont'd
Exclusion of interest on life insurance savings
900
Deductibility of charitable contributions
(other than education)
2 ,200
Deductibility of child and dependent
care e xpens e s
25
Deductibility of casualty losses
70
Standard deduction
3,200
Total
:feal th
Deductibility of medical expenses
Exclusion of medical insurance premiums
and medical care
Total
Education and Manpower
Educational expense deduction
Additional personal exemption for students
Deductibility of contributions to
educational institutions
Exclusion of scholarships and fellowships
Total
Veterans' benefits and services
Exclusion of certain benefits
Ud to s ta te and local governmen t
Exemption of interest on state and local debt
Deductibility of nonbusiness state and local
taxes (other than on owner-occupied homes)
Total
y'
II
1''''-
i _,
</
1969
1,000
3,000
25
80
3,600
15,550
18,905
1,500
1,600
1,100
1,400
2,600
3,000
500
40
500
170
50
200
60
720
800
550
600
1,800
2,000
2,800
4,150
4,600
6,150
- 39 -
aids listed is largely governed by the criteria of public
acceptability and practicality.
!/
1/
For a detailed explanation of the tax aids in Table B,
see Annual Report of the Secretary of the Treasury on the
State of the Finances for the Fiscal Year Ended June 30, 1968.
Washington, D. C., U. S. Government Printing Office, pp. 330-337.
Iff
'Department of the
TREASURY
-.:IN. D.C. 20220
TELEPHONE W04-2041
rION: FIlWfCIAL EDITOR
BL&ASE 6:30 P oM.,
l. June 1, 1970.
RESULTS OF TREASURY I S WEEKLY BILL OFFERING
rhe Treasury Department announced that the tenders for two series of Treasury
, one series to be an additional issue of the bills dated March 5, 1910, and
~her series to be dated June 4:, 1910, which were offered on May 21, 1910, were
i at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
~reabouts, of 91-day bills and for $1,300,000,000, or thereabouts, of 18Z-day
. The details of the two series are as follows:
OF ACCEPTED
~ITIVE
91-~
BIDS:
maturiBS;
Price
98 .294:
98.266
98 .275
11gb
:,ow
lverage
Treasury bills
Se~ember 3 a 191O
Approx. Equiv .
Annual. Rate
6.1'~
6.86~
6.82'~
··
11
182-day Treasury bills
maturing December 3. 1910
Approx. Eq·.~ -: v •
Annual Rate
Price
96.555
6.81'~
96.530
6 .864:~
96.533
6.858j Y
~D
of the amount of 91-day bills bid for at the low price was accepted
~ of the amount of 182-day bills bid for at the low price was accepted
TENDERS APPLIED FOR AND ACCEPrED BY FEDERAL RESERVE DISTRICTS:
,rict
·on
York
adelphia
'eland
!Iond
I1ta
ago
*
Applied For
:
:
Accepted
Applied For
•
19,100,000 $
8,050,000
930,340,000
2,033,0'0,000
12,580,000
11,280,000
4.6 ,830,000
26,060,000
32,820,000
19,320,000
«,470,000
18,110,000
325,380,000
165 ,300 , 000
19,180,000
42,100,000
27,100,000
4,100,000
18,130,000
26,530,000
25,290,000
12,290,000
114,44.0,000
72,200,000
eapolis
a.s Cit,'
as
rranc is co
31,64:0,000
1,892,320,000
53 ,940 , 000
",4.60,000
«,4.80,000
4.6,980,000
299,950,000
'1,900,000
4:0,110,000
29,790,000
30,810,000
186,500,000
$1,620,000
1,1.31,620,000
25,530,000
36,100,000
31,980,000
3',890,000
250,260,000
35,970,000
34:,54:0,000
28,680,000
19,870,000
128,800,000
···
··:
··
···
··
TOTALs
$2,743,000,000
$1,800,460,000
!I $2,808,280,000
Louis
·
·:
$1,305,620,000
BI
LUdes $347,"0,000 noncompetitive tenders accepted at the average price of 98.275
wdes $214,090,000 noncompetitive tenders accepted at the average price of 96.533
:: rates are on a bank discount basis. The equivalent coupon issue yields are
." for the 91-da\Y bills, and 7 .2~ for the 182-day bills.
FOR TIMMEDIATE RELEASE
June 3, 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
June 11, 1970,
in the amount of
$2,998,363,000,
as follows:
9l-nay bills (to maturity date) to be issued June 11, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing
an additional amount of bills dated March 12, 1970,
and to
mature September 10, 1970,
originally issued in the amount of
$1,301,270,000,
the additional and original bills to be
freely interchangeable.
l82-day bills, for $1,300,000,000,
dated June 11, 1970,
and to mature
or thereabouts, to be
December 10, 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
u~ to the closing hour, one-thirty p. m.,
Eastern Daylight Saving
time,
Monday, June 8, 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
s~bmit tenders except for their own account.
Tenders will be received
wlthout deQosit from incorporated banks and trust companies and from
- 2 -
responsible and recognized dealers in investment securities. Tendtr..
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 ran;
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or L-ejection 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 June 11, 1970, in
cash or other irnmediately available funds or in a like face amount
of Treasury bills maturing
June 11, 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 tQ 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.
~1 J
Department of the iRfASURY
ilrON. D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
June 3, 1970
Secretary of the Treasury David M. Kennedy has named
Mrs. Esther C. Lawton as the Chairman of the Department's Federal
Women's Program Committee.
Mrs. Lawton, Assistant Director of Personnel, Treasury
Department was a recipient of the 1969 Annual Federal Women's
Award and is a former national president of the Society for
Personnel Administration.
In this new assignment Mrs. Lawton will head a committee
to advise the Secretary and the Director of Treasury's Equal
Opportunity Program on the special concerns of women employed
by Treasury and will assure the necessary specific actions
regarding equal opportunity for women.
Mrs. Lawton is a graduate of the University of Rochester
and received her Masters from George Washington University. She
is a member of Phi Beta Kappa, is well known as an advisor, a
lecturer on personnel administration status of women, and
position classification careers. Serving with Mrs. Lawton in
this important new Equal Opportunity for Women's Program of the
Department of the Treasury are:
1. Mrs. Barbara Gainey - Equal Employment Opportunity
Assistant, Bureau of Customs
2. Mrs. Erma Cordover
- Director, Personnel, U.S. Savings
Bonds Division
3. Mr. Philip N. Sansotta - Equal Employment Opportunity Officer,
Internal Revenue Service
Assistant Superintendent, Examining
Division, Bureau of Engraving and
Printing
4. Mrs. Sadie Mitchell -
5. Mrs. Barbara R. Vatran - Chief, Corporation Statistics Staff,
Internal Revenue Service
6. Mrs. Dolores Morgan
- Personnel Officer, Bureau of Accounts
000
Department of the
TREAt"RY
INGTON. D.C. 20220
TELEPHONE W04-2041
FOR RELEASE AMs
MONDAY, JUNE 8, 1970
COMMENCEMENT ADDRESS BY THE HONORABLE CHARLS E. WALKER
UNDER SECRETARY OF THE TREASURY
BEFORE
THE GRADUATING CLASS OF ASHLAND COLLEGE
ASHLAND, OHIO
SUNDAY, JUNE 7, 1970
At the outset I should confess that I had mixed emotions
about accepting the invitation to join you here today;
As a former college professor who has participated in
and attended many graduation ceremonies, I realize that this
last day as an undergraduate is filled with anxious moments.
You have achieved a goal. You are looking beyond the official
recognition of that goal to other endeavors. Moreover, these
are times you want to share with family and friends.
These conditions would normally call for some brief and
general comments from someone filling the spot I am in today.
But as an economist and government official, who has spent
many hours talking to students -- particularly in the past
few weeks -- I know that the times and circumstances call for
some serious and straight talk.
The most encouraging note about my visits with student
groups was their awareness of and interest in a wide range
of national problems and issues. As you would expect, the
war in Indochina -- particularly the operations in Cambodia
headed the list. But the fact of the matter is that I spent
most of the time fielding tough questions on the economy in
general, the quality of the environment, the need for
changing national priorities, the responsiveness of our
democratic process, and the ability of a market economy to
adjust to changing social goals.
K-43l
- 2 -
I am not a military expert. My views on the war carry
little more weight than those of other individuals in or out
of government. But I would like to make two passing
observations before turning to my main subject.
First, the President has pledged that he will
systematically reduce our participation in the war in
Indochina. He has followed through by bringing home
115,000 troops. He has announced his plans to bring home
another 150,000 over the next eleven months, including
50,000 before mid-October. To date, he has met every such
pledge.
As a professor I always avoided passing final judgment
on a student midway through the course. I hope you too will
continue to examine the evidence as the president follows
through on his plans.
Secondly, fue war has had a major impact on our economy.
The inflation we are suffering today can be traced directly
to the escalation of the war. But in the two-year span from
fiscal 1969 to fiscal 1971, defense expenditures are budgeted
to drop by $12 billion. I don't think there is any better
indication of the President's intentions in Southeast Asia,
not to mention the favorable implications for the economy.
Many Washington observers expect that the war~ll fade
as an issue as the President pulls out combat troops as he
has promised. They doubt that the Vietnam issue will play
an important part in the November elections.
Perhaps they are wrong. But what is certain is that
there are many other problems and issues which, in varying
intensity, will be with us not only in November but for
years to come. The sense of awareness and dedication that is
apparent in your generation convinces me that you want to
tackle those problems, and tackle them effectively. My own
view is that you have a splendid opportunity to do just
that -- and in so doing, to make this world a better place
in which to live.
I am not an inspirational speaker; I therefore doubt
that I can inspire you to this goal, if indeed you need any
such inspiration, However, some frank comments growing out
of my experience in economics and Government might be
helpful to those of you who are interested in bettering our
society -- and who want to do so by working through, rather
than by destroying, our economic and political system. I
feel sure that this applies to most of you.
- 3 -
To illustrate, let me take as an example the pollution
control problem. Let's look at its dimensions, possible
solutions, and how to achieve them. The process will not
vary much with other problems; many of the elements can be
readily transferred to your own special interests.
Earth Day was a moving and worthwhile experience. But
in the burst of rhetoric too many people said some crazy
things about solving the problem of pollution in our freechoice, market economy. Since Earth Day there has been a
rash of pessimistic statements to the effect that it was a
useless exercise, with little prospect of progress.
Many laymen -- and several ecologists -- seem to be
obsessed with a non sequitur: Since industrial output
usually releases pollutants, the goal of economic growth
must be cast aside if the environment is to be restored
and maintained. Let's examine this idea.
Suppose the Federal economic policies were successful
in holding Gross National Product -- this nation's total
output -- constant for the next five years. The result
would probably be some reduction in the rate at which we
have been polluting our water, air, and countryside. But
since a major function of economic growth is to provide jobs,
new entrants to our growing labor force would find it
increasingly difficult to find work. Unemployment would
rise dramatically.
Long before that situation developed, a justifiable
)utcry from the ranks of the unemployed would force re~establishment of economic growth as a major goal of public
policy.
Rather than being the enemy of the environment, soundly
:;conceived and managed economic growth is fully compatible
with quality in life, as pointed out by Russell Train,
~Chairman of the President's Council on the Environment.
Indeed, it is the static, nongrowing economy which is likely
to lack the wherewithal to deal with the pollution problem.
As Chairman Train so aptly concludes: Growth for the sake
of growth is an absurd objective. The test for any economic
:mechanism should not be whether it contributes to growth,
but to human well-being.
- 4 Those of you who have been exposed to a course in
economics are not likely to get caught in the anti-growth trap.
Nor are you likely to conclude that the outlook for dealing
with environmental problems is bleak, based upon the idea
that such problems can be solved only by a huge outpouring
of Federal funds, and the assertion that no such outpouring
with be forthcoming. Let's look at these arguments.
One ecologist said recently that President Nixon's
advocacy of "only a $4 billion program" to build and
modernize local facilities for treatment of human waste is too
small. Actually, the proposal is for a $10 billion effort,
with the remaining $6 billion to come from State and local
governments.
The construction of adequate waste-treatment facilities
is a local as well as a Federal responsibility. Since states
and localities might have difficulty in raising their portion
of the money at reasonable rates of interest, the legislation
provides for an imaginative new money-raising technique in
the form of an Environmental Financing Authority. Un~er this
device, dubbed "Little EFA," the Federal Government would
sell its own securities and re-lend the funds to State and
local governments.
"Little EFA" may be an important first step towards
solving the growing financial problems of State and local
governments. Coupled with the Nixon Administration's proposal
for turning back a portion of Federal tax receipts to State
and local governments ("revenue-sharing"), it could help
significantly in meeting the financial needs of these hardpressed units.
Still, the ecologists argue, $10 billion is peanuts
when it comes to the costs of cleaning up and protecting the
environment. Perhaps so, but there are a number of ways of
absorbing these costs without increasing Federal spending.
For example, governmental rules and regulations at the
local, state, or national level can effectively prevent
continued actions that pollute the environment. Fines can
be levied against companies exceeding minimum anti-pollution
standards. Not that this avoids the cost; but in this
instance it would be borne by the stockholders of a
corporation, as a result of lower profits, and the customers,
as a result of higher prices.
I
/c:-
7
;l
~~
- 5 -
Nor should the tax system be overlooked as a powerful
device for achieving social ends. The proposed tax on
lead additives for gasoline is a case in point.
Doubtless other such penalty taxes can be devised, and
study is proceeding on taxes that can be used to finance the
disposal of solid waste, such as soft-drink and beer cans,
disposable bottles, and junked automobiles.
Tax preferences can also play a powerful role in the
pollution fight. One preference added by the Tax Reform
Act of 1969 provides for rapid amortization of new
investment in anti-pollution equipment.
With imagination, the credit system can be effectively
used to promote social objectives, including pollution
control. Government guarantees, subsidies, or, again, the
tax system, can be so adjusted that market forces themselves
will move credit where society wants it to go. Last year
the Senate rejected an innovati~e Treasury proposal which
could have been highly effective. It provided for a tax
deduction on the interest income from socially preferable
loans. This approach has been resurrected in the small
business legislation now before Congress. I predict that
you have not heard the last of it.
This brief listing indicates that massive Federal
spending is by no means the end-all and be-all of pollution
control. Yet the costs will be heavy. How then can we be
optimistic that this nation will face up to those costs and
move ahead?
I am shocked -- and I use that verb advisedly -- that
so many people who should know better have so little faith
in our democratic process.
If it were true, as some argue, that entrenched
interests are too powerful to permit effective anti-pollution
efforts, then I submit that the Sherman and Clayton
anti-trust acts would never have been passed, that the trusts
would not have been broken up, that the natural tendency of
business and finance to combine rather than disperse would
have been widely carried out, and that the U.S. economy
tOday would have a much larger concentration of power in
- 6 fewer hands. Nor would many other major pieces of reform
legislation opposed by entrenched interests have become
law.
Let me cite one contemporary example of the impact of
an aroused electorate. The Tax Reform Act of~69, by
reducing tax preferences, or closing tax "loopholes,"
raised the taxes on business corporations and high-income
individuals by some $6~ billion. How was it that the
economic and political power of these interest groups was
overcome in the Congress? Because disclosures in early
1969 that many rich people had been paying little or no
Federal income taxes set off a taxpayers' revolt. Th~
signal came through loud and clear in Washington. The
result was a massive tax reform bill which moved through
Congress in less than a year.
Can this track record be matched by the fighters for
pollution control or any other goals? Certainly it can.
Continuing with the fight against pollution as an example,
let me give some advice to those of you who want to do
something about it.
First, learn your subject. Learn it thoroughly from
every angle. If pollution control is your interest, pull
together all the literature you can f~nd, both good and
bad (sometimes you can learn more from tbe frauds than
the true experts), and digest it thoroughly.
This is of vital importance: ~ben you get to the action
stage -- the time when you want to convince the community
leaders, the media, and others, including members of
Congress -- you must have a firm grasp of your subject.
Congressmen especially respect people who "do their
homework."
Know your subject.
That's first and foremost.
Second, find an intelligent, articulate leader for your
group. Pull together young people who share your views.
Insist that the group become steeped in the subject. Meet
frequently to exchange ideas. Assign research projects to
keep abreast of new developments. And plan your strategy
and tactics.
- 7 Third, develop proposals to fight pollution in your city,
your district, your state, and in the nation. Put a price tag
on each project and devise ways of paying for them.
Be specific. Don't deal in generalities and don't accept a
general commitment from those whom you are trying to convince.
Fourth, once you are well versed in your subject and have
your solutions laid out in apple-pie order, organize a
program to bring home to the leaders in your area the
urgency of the problem, along with your proposed solutions.
Concentrate especially on the news media. Present your
ideas, not as the only solutions or the ideal solutions, but
as starting points for discussion. Give and take and,- if
necessary, adjust your solutions
but not your principles -to the realities of society.
Finally, lay it all out to your candidates for the
Senate and the House and work hard for those who give you
the most explicit commitment, and who otherwise come closest
to your own philosophy. And when I say "work," I mean
exactly that -- contribute all you can in time, effort, and
money.
All that I am saying to you is that the Congress in
the long run responds to what the people want. This is a
democracy, hard to turn and almost always slow-moving, but
one which over the years has shown amazing resilience and
adaptability. The students visiting Washington in recent
weeks have engaged in a worthwhile effort. But the real
field of action is not the Congressman's office in
Washington; it's in your home district. In the final
analysis, your representatives in Washington will respond
to what their constituents want.
Pollution control is only one part of the effort to
enhance the quality of life. You have been raised in what,
on average, is a very affluent economy. Averages can be
deceiving. Those unfortunate citizens mired in either rural
or urban poverty have no use for any such average and view
the "quality-of-life" problem as simply one of getting three
square meals a day, adequate housing, and the opportunity to
get a decent education for their children.
- 8 -
If, as I indicated earlier, many in your generation are
devoted to enhancing the quality of life in both a material
and nonmaterial sense, then you must ask a deeper, more
perplexing question: Is our market economy constituted in
such manner that in the decades ahead it is likely to further
quality of life as a major national goal?
Unfortunately, the answer at the moment is no. Now don 't
get me wrong; I'm looking forward, not backward. The u. S.
Market economy is the most productive the world has ever
known. By rewarding workers, owners, and lenders in rough
approximation to their contributions to the economy, high
levels of output and growth are stimulated. Through a
painful process of trial and error, the business cycle, if not
whipped, has at least been tamed. And, aside from our large
Government sector, the consumer in effect calls the tune
with respect to what is produced and in what amounts -with perhaps some help from Madison Avenue.
Moreover, the lesson of recent centuries seems to be
that freedom of political choice and freedom of economic
choice go hand in hand -- one cannot long exist without the
other.
We are therefore faced with an apparent dilemma: Our
type of free-choice, market economy has by far the best
track record for producing the goods and services that can
help enhance the quality of life; but the decision-making
processes in such a society, resting on individual initiative
and self-interest, tend to promote the goals of the
individual rather than those of society. I say "apparent
dilemma" becaus e I do not bel ieve it is a real dilemma; the
answer seems to me to be simple to state, although admittedly
difficult to achieve.
Rather than throwing out the baby with the bath water
rather than junking the market economy with all of its
powerful attributes -- the task that confronts us is to
develop more techniques and ideas which will induce market
participants to act in a way that serves social goals as
well as individual goals.
/7:;·----
I
- 9 -
There are at least two promising avenues of approach.
The first is through the political process; the second
through education.
On the political side, I have already said enough to
indicate my conviction that our Government responds, sooner
or later, to the will of the people. Beyond that,
experience has demonstrated that through carefully devised
and implemented legislation, market decisions can be shaped
so as to serve the public good without destroying the basic
drive of the system.
My earlier remarks on handling the costs of
environmental reform provide some of the specifics.
Governmental rules and regulations -- a technique as old
as the Republic -- can effectively prevent undesirable
actions. Tax preferences can be especially useful. Such
preferences are not inherently bad. Quite the contrary,
they can be highly useful in promoting almost any type of
economic activity' which society deems desirable, just 'as
tax penalties will deter undesirable actions.
Credit flows can and have been shaped to serve social
ends. For years Federal policies have been used to augment
the flow of funds into such areas as housing, agriculture,
and small business. Selective credit controls may also
have a place, but the administrative burdens which they
entail can offset much of their benefit. Take another piece
of advice from an old Washington hand: Try to find solutions
that minimize rather than augment the Federal bureaucracy.
In a broader sense, much can be accomplished to promote
social goals through innovative but soundly conceived
programs such as the president's family assistance and
revenue-sharing proposals, neither of which would impede the
operation of our market economy. The family assistance
program, by injecting effective work incentives into welfare,
would actually reinforce the drive of the market economy.
Revenue-sharing will help hard-pressed State and local
governments -- the units closest to the people and, in many
instances, most effective in dealing with our problems -- by
tapping Federal revenues which, in contrast to State and
local revenues, expand significantly with the growth of the
economy.
- 10 The role of the educational system in this effort seems
equally clear-cut and promising. One strand lies in broadening the perspective and understanding of coming generations
of business managers, a program which is well under way. I
do not think we can or should abandon the profit motive; it
is a tremendous driving force which even socialist nations
have found highly useful in stimulating effort and efficiency.
But I do believe that, tnrough broadening the perspective of
business managers, the profit motive can be adjusted -- not
abandoned -- so as to accommodate and even promote a better
life in the qualitative as well as the quantitative sense.
Needless to say, the ability of both contemporary and
future business managers to make this adjustment will be
enhanced if a national consensus toward this view
emerges -- especially if the consensus includes the principal
stockholders of the corporations which the managers run.
You have your work cut out for you in building and
shaping the conse'nsus.
One highly promising approach to this aspect of the
problem has been put into practice here at Ashland College
and, according to my information, is off to an exceedingly
good start. I refer to the series of meetings and
dialogues that the college, with the support of the
Republic Industrial Educational Institute, is sponsoring
among students, faculty, and business leaders. If my
experience is any guide, all three of these participating
groups will broaden their perspectives as a result of the
discussions.
Finally, our market economy can effectively serve
pressing social goals only if future leaders fully
understand how the system works today and why it has been
so successful in meeting man's material needs. Therefore,
the second strand in the efforts of the educational system
to reshape the system consists of a broad program to raise
the level of economic understanding. This is a job
undertaken with great promise by your Center for Business
and Economic Education, established almost two years ago.
I tj c"
I
... 11 ..
Starting from none just over a decade ago, there are
now 61 such centers in 30 States. These centers are vital
parts of the increasingly effective role the national and
State councils on economic education are playing in reducing
economic illiteracy. Success in this worthy program will
not only build support for better Federal economic policies.
It will also help create an understanding that will do much
to assure that the governmental steps taken to promote social
goals blend with, rather than undermine, our market economy.
Let me close on the same note on which I began: Your
generation has a splendid opportunity to make this a better
world in which to live. You start from a base of a
powerfully productive economy which, with proper adjustments
through the legislative process, and in the education of
business managers, can be influenced as necessary to serve
the social as well as the material goals of this nation.
Happily, this· can be done without destroying the essential
vigor of our free"'choice, market system.
You also start with a democratic government which is
responsive to the will of the people. By understanding
that process, and by working with it, and through it,
rather than a.ttempting to destroy it, you can make the
things happen that you so badly want to happen.
What more can I say except to urge you to get on with
the job.
Thank you very much.
000
I
/,
Department of the
INGTON,
o.c. 20220
TREASURY
TELEPHONE W04-2041
FOR RELEASE ON DELIVERY
S!A!EMENT BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE THE'SUBCOMMITTEE ON AIR AND WATER
POLLUTION OF THE SENATE PUBLIC
WORKS COMMITTEE ON S. 3468
ON TUESDAY, JUNE 9, 1970
10: 30 A.M., EDT
Mr. Chairman:
It is a pleasure to appear before you today and present
the Nixon Administration's position in favor of S. 3468, "A
bill to establish an Environmental Financing Authority to
assist in the financing of waste treatment facilities, and
for other purposes."·
In his Message on Environment on February 10, 1970
the President proposed creation of a new Environmental
Financing Authority to insure that every municipality in
the country has an opportunity to sell its waste treatment
plant construction bonds. On that date I submitted draft
legislation to the Congress to implement the President's
proposal. I am pleased to note that this legislation has
been introduced in the Congress by about one-third of the
members of both bodies, which I believe indicates significant
support for the President's anti-pollution program.
K-432
- 2 -
Concern about the quality of life in America is, of
course, not limited to the Congress. In my travels around
the country, I have found that this concern has become a
central issue of public debate and discussion in all corners
of the Nation. It is emerging as a unifying force for public
and social action.
I firmly be1:1.eve that the preservation and restoration
of our environment is a principal challenge which faces
all of us as public leaders or as concerned citizens,
whatever our role.
We must CDSu):,= that the result of aroused public
opinion is cOt!t:i...i:uctive debate and action, and it is in
that context. that I view the proposed Environmental Financing
Authority -- as a tool to assure that no community will be
unable to fulfill its responsibilities in this area because
of an inabilicy to sell its bonds in the financial markets
at a reasonable cost.
I know that your subcommittee is receiving extensive
testimony by Secretary Hickel and other witnesses on the
total environmental package prepared by the President, and
since Treasury has primary responsibility for the Environmental
Financing Authority, I would like to focus my remarks on the
method of financing as proposed in S. 3468.
The Environmental Financing Authority would be an
instrumentality of the United States subject to the general
supervision and direction of the Secretary of the Treasury.
It would borrow funds in the private market for the sole
purpose of purchasing obligations issued by State and local
public bodies to finance their share of the cost of construction
of those waste treatment facilities which receive construction
grants from the Secretary of the Interior.
The function of the Authority would be purely financial.
It would not make judgments regarding either environmental
matters, or the needs or credit-worthiness of its borrowers.
These judgments would be the responsibility of the Secretary
of the Interior, who will in every case be directly involved
with the borrower in determining project eligibility under
the Interior Department's grant program.
- 3 The Authority could not purchase any obligation ui:d.ess
the Secretary of the Interior had certified that the seller
was unable to obtain sufficient funds at reasonable rates of
interest, and unless the Secretary of the Interior had
guaranteed principal and interest payments on the obligation.
This would assure that the Authority would be self-supporting
(except for the interest subsidy which I will discuss below),
and that any cost to the Government resulting from 10cSD
defaults would be a cost of the Interior Department program.
The interest rate at which the Authority would lend
would be determined by the Secretary of the Treasury taking
into consideration (I) the current market yields on obligations
of comparable maturities issued by the Treasury or the
Authority and (II) market yields on municipal bonds. This
provision would provide sufficient ad:.ninistrative flexibility
to vary the interest rate charged by the Authority on new
purchases as market conditions change. In this manner, the
rate established could be kept in line with the rate on, sa),
medium quality tax-exempt bonds -- but would not be allowed
to go so low as to encourage borrowing from the Authority by
public bodies that are able to place their bonds in the private
market at reasonable rates.
I want to emphasize that our goal is to make sure that
lhe lending rate for the Environmental Financing Authority
will be a reasonable rate in terms of the current financial
markets.
Recent experience has shown that rates on municipal
obligations tend to rise more rapidly in periods of credit
stringency than do rates on either the Treasury's own
.obligations, or the obligations of Federal agencies such as
the Environmental Financing Authority. We anticipate, therefore,
the possibility that the Environmental Financin~ Authority
would aCiuire a higher proportion of bonds issued to finance
pollution projects in periods of credit stringency (such as
we experienced last year), than in periods when credit conditions
are easier and the general level of interest rates is lower.
- 4 I also want to point out that the problem of a statutory
interest rate ceiling in local jurisdictions is not overcome
by this proposal. Nor will the Environmental Financing
Authority do anything about easing the restrictions imposed
by local statutory debt limits. We are aware of the large
volume of municipal obligations that have not been marketed
because of an inability to get bids below these statutory
ceilings. Both of these problems are fundamental responsibilities of State and local governments.
The Environmental
Financing Authority, however, is consistent with this
Administration's belief that State and local governments
should be given appropriate kinds of assistance in order to
more adequately discharge responsibilities which properly
are theirs.
The Authority would issue its own obligations in the
private market.
The Secretary of the Treasury could purchase
these obligations, but only to the extent authorized by
Congressional appropriations acts.
It is anticipated that
the Secretary of the Treasury would use this authorization
only to the extent necessary to facilitate the efficient sale
of the Authority's obligatio~s in the market. Thus the
Treasury would provide the Authority with a source of funds
for short periods in the interim between its market borrowings,
or to meet temporary problems.
The primary purpose, however,
of authorizing Treasury loans to the Authority is to assure
private investors that the Authority would always have a
source of funds to make timely payment of principal and
lnterest on its market issues. This will enable the Authority
to borrow in the market at the lowest possible rates.
The Secretary of the Treasury would be directed under
the bill to make payments to the Authority to cover the
difference between the Authority's borrowing and lending
rates. This is essential since the Authority, for example,
might be paying 8 percent on its own taxable bond issues,
and would be purchasing municipal obligations at a rate of,
say, 7 percent. There must be an assured source of funds to
cover the I percent differential, and this legislation would
provide that by means of a permanent indefinite appropriation
to the Treasury for the purpose of making the interest subsidy
payments to the Authority. The interest subsidy payment would
require current budget outlays, but these outlays will be
offset by increased Treasury tax receipts since the interest
on the Authority's bonds will be taxable.
- 5 -
The Secretary of the Treasury would also be authorized
to advance up to $100 million of appropriated funds for the
purpose of providing initial capital to the Authority. This
would provide a source of funds for initial administrative
expenses of the Authority, as well as funds to finance
obligations purchased by the Authority but not yet financed
through the issuance of the Authority's own obligations in
the market. It is not expected that the entire $100 million
would be used, and any amounts used would be repaid with
interest at a rate approximating the Treasury's current
borrowing costs.
In time the Authority should be able to
finance all of its administrative expenses from fees paid
by its borrowers.
Thus, aside from the interest subsidy payment (which
would be recaptured through higher income tax receipts) the
Authority is expected to be entirely self-supporting.
Mr. Chairman, we will be most pleased to respond to any
question which you or your committee members may have with
respect to the details or the fundamental philosophy of the
Environmental Financing Authority. We look upon this as a
practical, efficient, and effective solution to a particular
and limited problem.
I am sure there are those who will
suggest that the device of the Environmental Financing
Authority should be broadened to cover many more areas in
which there is both a Federal and a local interest, and in
which the financing of capital investment through state and
local government bond issues is a problem.
I am sure that
it would be desirable to give considerable study to such
questions. But I also believe it would be premature to go
beyond the bounds established in the proposed legislation
at this time. The Environmental Financing Authority will
be a real step toward achieving our national objective of
improving the quality of life.
I urge that the Congress
enact this legislation promptly.
000
UIITED nATES SAVllas 1010S ISSUED AND REDEEMED THROUGH May 31, 1970
(Dollar olllounts in ",lIIionl - rounded ond will not necessorily odd to totols)
DESCRIPTION
e8 A-1935 tbru 0-1941
e8 F and 0-1941 thru 1952
e8 J and K-1952 thru 1957
'10 OUTSTANOING
OF AMOUNT ISSUED
AMOUNT
REOEEMEOY
AMOUNT
OUTSTANOINGY
5,003
29,521
3,754
4,997
29,488
3,736
6
33
17
1,890
8,343
13,424
15,657
12,314
5,592
5,312
5,497
5,435
4,754
4,111
4,307
4,922
5,018
5,229
5,053
4,761
4,643
4,352
4,367
4,427
4,299
4,771
4,650
4,546
4,897
4,847
4,599
4,295
606
729
1,683
7,436
11,994
13,911
10,773
4,722
4,337
4,404
4,280
3,687
3,190
3,319
- 3,710
3,717
3,821
3,651
3,380
3,183
2,929
2,818
2,718
2,522
2,621
2,580
2,502
2,541
2,421
2,131
1,485
33
977
167,650
123,478
44,172
26.35
5,485
7,401
3,618
2,134
1,867
5,268
34.04
71.18
12,886
5,751
7,135
55.37
180,536
129,229
51,307
28.42
38,277
180,536
218,813
38,221
129,229
167,450
56
51,307
51,363
.15
28.42
23.47
AMOUNT ISSUEOY
RED
~-l
.12
.11
.45
rURED
es Ell ;
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
1970
Inclassified
'otal Series E
!S
H (1952 thru May, 1959)11
H (June. 1959 thru 19'70)
otaI Series H
otal Series E and H
ieries
-
rota,
matured
Total unmatured
Orand Total
207
907
1,430
1,746
1,541
871
975
1,093
1,155
1,067
921
988
1,213 .
1,301
1,407
1,402
1,381
1,460
1,424
1,548
1,709
1,777
2,150
2,069
2,045
2,356
2,426
2,468
2,810
573
-248
eccrUed dlacoun/.
"demp/lon value.
, 01 Owner bond. mel' be held and will earn inlereet for addillonal periods afler orillln,,1 ma/urlty dales.
Form PD SIft fAa
yo:
1970)
= TREASURY DEPARTMENT - Bureau 01 the Public Debt
10.95
10.87
10.65
11.15
12.51
15.58
18.35
19.88
21.25
22.44
22.40
22.94
24.64
25.93
26.91
27.75
29.01
31.45
32.72
35.45
38.60
41.34
45.06
44.49
44.98
48.11
50.05
53.66
65.42
94.55
-
~) 0 /
Department of the TREASURY
TELEPHONE W04-2041
NGTON. D.C. 20220
:NTION:
FINANCIAL EDITOR
RELEASE 6: 30 P.M.,
lay, June 8, 1970
RESULTS OF TREASURY'S "iv"2EKLY
BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
s, one series to be an additional issue of the bills dated >12 reh 12, 1970
, and
other series to be dated June 11, 1970
, which were offered on June 3, 1970,
opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000
hereabouts, of 91 -day bills and for $1,300,000,000 or thereabouts, of
182-dilY
s. The details of the two series are as follows:
E OF ACCEPTED
f<:TITIVE BIDS:
High
Low
Averaee
91 -day Treasury bills
Se:Qtember 10 2 1970:
Approx. Equiv.
Price
Annual Rate
18?-day Treasury bills
maturing Dec~mber 10, 1970
Approx. Equiv.
Price
Annual Rate
98.299
98.282
98.285
96.542 ~
96.496
96.514
maturin~
6.729%
6.796%
6.785%
Y
6.840%
6.931%
6.895%
Y
~ Excepting 1 tender of $20,000
47% of the amount of 91 -day bills bid for at the low price was accepted
19% of the amount of 182 -day bills bid for at the low price was accepted
J
T~NDERS
APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
trict
ton
, York
lade1phia
ve1and
hmond
anta
cago
LOUis
neapolis
sas City
las
Francisco
TOTALS
A,E,Elied For
$ 31,520,000
2,151,540,000
54,770,000
56,700,000
39,900,000
44,920,000
303,110,000
51,400,000
35,680,000
39,400,000
32,310,000
158,400,000
Acce,Eted
$ 18,240,000
1,262,970,000
22,410,000
45,130,000
27,640,000
25,150,000
216,450,000
35,860,000
20,490,000
28,580,000
18,710,000
78,820,000
$2,999,650,000
$1,800,450,000
~
~ludes $372,370,000
~ludes $216,510,000
Flied For
17,730,000
1,554,860,000
15,250,000
49,000,000
13,350,000
50,670,000
240,550,000
33,350,000
25,260,000
29,000,000
24,200,000
154,290,000
Accerted
$ 17,730,000
844,850,000
13,320,000
49,400,000
10,850,000
22,220,000
188,250,000
29,210,000
18,260,000
28,000,000
11,200,000
66,990,000
$2,208,110,000
$1,300,280,000 ~
noncompetitive tenders accepted at the average price of 98.285
noncompetitive tenders accepted at the average price of 96.514
;se rates are on a bank discount basis. The equivalent coupon issue yields are
)0/0 for the 9l-dav bi11g _ ::mil 7. 240i f',....,..,.. f.'h ~ ,
rl ~-- l...'"
f".<')
. . J-c -_
.)
.
..,
~ Department of the TREASURY
iHINGTON. D.C. 20220
TELEPHONE W04-2041
FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
FOR ENFORCEMENT AND OPERATIONS
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS OF THE
SENATE BANKING AND CURRENCY COMMITTEE
TUESDAY, JUNE 9, 1970, 10:00 A.M. (EDT)
Mr. Chairman and Members of the Committee:
The Treasury Department appreciates this opportunity
to present the Administration's reform program to combat the
use of secret foreign bank accounts by orga~ized crime and
white collar crime to violate U.S. tax and other laws, and
to testify on S. 3678 and on H.R. 15073 which was passed by
the House on May 25, 1970.
When this Administration took office, it decided to do
something about this problem. We point out with pride that
this is the first Administration [eriously to study the matter
and recommend action designed for correction of this longstanding problem area.
The Treasury is in the forefront of
this effort. Treasury organized a 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 combat organized
crime and white collar crime and to deter and prevent the use
of secret foreign bank accounts for tax fraud and their use to
screen from view a wide variety of criminally related financial
activities, and to conceal and cleanse criminal wealth.
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.
K-433
- 2 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. We are reviewing all of our tax treaties with
this problem in mind.
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.
We have already decided, wi th respect to taxable years beginning
January 1, 1970, to require every united States taxpayer to discic
his direct or indirect interests in foreign bank, brokerage and
similar accounts on his tax return.
Third:
The Treasury has made, on behalf of the Administratic
certain legislative proposals regarding this problem, many of
which are incorporated in the bills before this Committee.
Further views on legislation are being presented in this state~nt
and in Attachments A and B.
Proposals for the amendments to the
Internal Revenue Code will be presented to the House Ways and
Means Committee and the Senate Finance Committee.
Fourth: The Treasury is using the expertise of the private
sector in this work, especially to obtain information on the
methods by which international financial transactions are actual~
or might be carried out.
Before discussing our actions in these four areas, I must
emphasize three fundamental concerns that predominate in formulating Treasury's enforcement efforts.
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
-
3 -
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 revenue system and to o~r law enforcement
objectives outweigh costs and inconveniences of the proposals.
Finally, we have kept firmly in view our traditional
freedoms, such as the Constitutional prohibition against
unreasonable searches and seizures and the right of our
citizens to privacy.
In strengthening enforcement, we
must not jeopardize these principles.
There is no certainty as to the extent foreign baDk accounts
3.re used by U.S. citizens and residents, the number being used
for illegal purposes, or the size of the tax fraud and other
~riminal violations shielded by such accounts.
Even though
:he number of persons involved and the amounts of tax frauduLently evaded by these means may be small in comparison to the
:otal number of U.S. taxpayers and total tax collections, the
)rinciple involved is central to proper administration of our
;elf-assessment system of taxation:
tax fraud schemes must be
lttacked vigorously.
Rapid means of international transportation and communication
ave greatly facilitated the free flow of funds and commerce
cross what were once thought to be great distances. While
hese advances are of great benefit to the world economy and
nternational understanding, they have also added to the problem
f tax fraud and other crimes through the use of secret foreign
ank accounts.
During the last few decades the use of commercial banks
D gather savings and hold the deposits of individuals has
rown substantially.
In times past, financial obligations were
~ttled through the transfer of coin and paper currencies, but now lth few exceptions -- the personal or corporate check settles
:counts. The request for a bank to transfer funds is an act~ve
Lternative to the check.
With the convertibility of currenCles,
- 4 -
particularly the dollar, and with the increasing interrelationship of our economies, international financial transactions often
involve foreign bank accounts in at least one stage or another~
The united States, of course, does not have nor should it
seek jurisdiction over foreign financial institutions not engaged
in trade or business in the United States. Once funds owned by
U.S. citizens and residents leave the United States, the Internal
Revenue Service, the Securities and Exchange Commission and other
U.S. law enforcement agencies cannot normally trace these funds
in the foreign country unless the foreign government has agreed
to conduct investigations on our behalf. In contrast, where only
domestic financial institutions are used, our investigators can
frequently pick up the trail at various junctures and trace transactions from bank to bank.
-
I.
5 -
Foreign Policy - Discussions with Switzerland
As you know, we have been holding discussions with
the Swiss government to explore the possibilities for a
treaty for mutual assistance in criminal matters. We are
also reviewing our 1951 income tax treaty with Switzerland
to make sure that we are making full use of the provisions
which provide for the exchange 0 f information "for the
prevention of fraud or the like in relation to taxes"
covered by the treaty.
Our third round of talks with the
Swiss was held in Washington in March, the United States
being represented by an interdepartmental group from the
State, Treasury and Justice Departments and the Securities
and Exchange Commission. A Treasury delegation visited
Bern in May and further talks are scheduled for next month.
The talks are at a crucial stage, but it will probably not
be until the FaIlor later when we know whether an agreement
can be reached.
We believe Article XVI of the existing tax treaty already
requires, except in a narrow range of circumstances, the exchange of information in tax fraud investigations and proceedings to the extent that the laws of both countries provide for
the obtaining of the type of information sought. Swiss law
makes an important distinction between simple tax evasion and
tax fraud, which is an aggravated form of ·;:ax 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 twentyfive 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, not only because the tax
treaty requires the exchange of information in tax fraud
cases, but also 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.
- 6 We believe that our tax treaty entitles us to obtain
no less information than is obtainable by Swiss authorities
in comparable proceedings.
However, some have suggested an
interpretation significantly at variance with that of the
United States which could severely restrict the exchange of
information under the tax treaty.
Our program involving foreign policy has not been solely
focused upon Switzerland. The Treasury also has been reviewing the operation of our other tax treaty exchange of information
provisions. We are examining the use of financial facilities
in other foreign jurisdictions which offer shields of financial
secrecy to United States taxpayers.
Moreover, other countries
have recognized that evaders and other criminals often go
beyond national boundaries and have raised the possibility of
international cooperation.
II.
The Administration's Program for Obtaining Information
on Foreign Accounts and Transactions
The Treasury, as part of the Administration's program,
has been developing a system for obtaining information on
foreign bank, brokerage and similar accounts and international
transactions of U. S. citizens and residents for use in tax
determinations and criminal and regulatory investigations
and proceedings.
I will discuss each of the ~arts of our
system in turn and indicate how it relates to the bills before
the Committee and to other legislation.
1.
Foreign Account Disclosure Requirement
Each U. S. taxpayer will, with respect to taxable years
beginning on or after January 1 i 19,0, be required to disclose
his interests at any time during the taxable year in foreign
bank, brokerage, and similar accounts on his tax return. This
requirement will be imposed under section 60ll(a) of the
Internal Revenue Code. We mav also recommend to the House
Ways and Means Committee and the Senate Finance Committee
a special penalty for failure to furnish this information.
In connection with this disclosure requirement, we have
under consideration a proposal to issue regulations, pursuant
to existing statutory authority, requiring taxpayers with su~
interests to maintain specified records of transactions they
have with these accounts. These records would correspond
to the type of evidence taxpayers are now expected to produce
when their returns are audited.
)
-
7 -
We believe that this disclosure requirement will
constitute a significant deterrent to the use of foreign
accounts for tax evasion and other illegal purposes while
in no way affecting the legitimate use of such facilities.
2.
International Transactions Recordkeeping by
Banks and Other Financial Institutions.
The extent to which our financial institutions have
been keeping records of domestic and international transactions has undergone considerable change in the last few
years as a result of technological advancements in the
industry. The multiplication of transactions in the banking
industry has only been made possible through the extensive
use of electrical office machinery and computers. All of
us have noticed how our own monthly bank statements have
changed in format and procedures in the last few years,
reflecting at a personal level the changes that have taken
place in the industry. With these changes, the traditional
copies and forms which the banks have retained in their own
files have been reduced primarily for reasons of operating
efficiency. This has occurred at the same time th~ public
has focused on the use of international banking transactions
to disguise criminal acts.
Since bank records can help in dealing with such crime,
the Treasury recommends that banks and other financial
institutions located in the United States be required to
maintain certain minimum records of foreign transactions.
This would assist our law enforcement agencies to trace
transfers of funds across our borcers by U. S. citizens and
residents and help investigation of foreign accounts subject
to the foreign account disclosure requirement.
In many cases,
these requirements would codify present practices. Primarily,
we seek improved availability of records.
The legislation could establish requirements for recordkeeping with respect to internatiJnal transactions by
authorizing the Secretary of the Treasury to prescribe
particular records which must be maintained. While we
originally recommended this approach, it now seems to us
that in addition the legislation can appropriately provide
that banks and other financial institutions located in the
United States be required to maintain six specific types of
records as follows:
- 8 -
(1)
Records of foreign remittances transferring
funds abroad.
(2)
Records of foreign remittances transferring
funds to the united States.
(3)
Records of large checks negotiated abroad
drawn on banks located in the united States
and records of large foreign credit card
purchases by U. S. citizens and residents.
(4)
Records of foreign checks transmitted abroad
for collection.
(5)
Records of foreign drafts.
(6)
Records of letters of credit and documentary
collections.
As experience is gained and methods of business change,
the Secretary would be authorized to issue regulations adding specific types of international records to those required
or to suspend the requirement as to any type of record
specified in the statute. With respect to retention period,
we recommend that the statute prescribe a gen~ral six-year
retention period with authority conferred on the Secretary
to reduce the period where appropriate. The Secretary should
have authority to establish the magnitude of transactions or
documents subject to the requirements or to set exceptions
on the basis of other criteria.
A further description of the international records
we recommend and some details on the contemplated recordkeeping requirements are set forth in Attachment A.
If the Internal Revenue Service could survey the foregoing records of international transactions, either by
examining L~em on the premises of the bank or other financial
insti tutions or by requiring information returns as to some
of the contents of the records, the usefulness of the records
in providing initial leads to cases of possible tax evasion
would be enhanced.
Such surveys, however, would extend the
utilization of the records beyond their traditional role as
a source of information and evidence in an examination of a
particular taxpayer.
I
- 9 The Internal Revenue Code authorizes the Internal
Revenue Service to obtain and examine records maintained
by banks and others in connection with the determination
of the tax liability of particular taxpayers.
There is
also a statutory basis for arguing that the Internal Revenue
Code authorizes the use of compulsory process for a survey
of the records of a financial institution located in the
united States. Nevertheless, the Internal Revenue Service
has not generally asserted such survey authority, the scope
of which has not been reviewed by the courts.
We decided against seeking specific statutory authority
extending the rights of the Internal Revenue Service to
survey the records of international transactions in banks
and other financial institutions.
In deciding this, we
considered the constitutional prohibition against unreasonable searches and seizures and the need to avoid unnecessary
incursions against the right of privacy. While it is clear
that obtaining records by established discovery procedures from
the banks and other institutions in connection with the
examination of a particular taxpayer would not violate
these rights, provision for a survey of such records raises
a much more serious question. We are also concerned that
surveys or information returns could have an adverse effect
on legitimate foreign investment in the United States. It
has been the tradition overseas to place great emphasis on
the privacy of financial transactions and a breach of this
tradition could adversely affect the flow of foreign funds
to the United States.
Balancing these factors, we concluded that it would not
be appropriate for us to suggest legislation extending the
rights of the Internal Revenue Service to survey the records
of banks and other institutions.
Next we considered the approach taken in sections 241
and 242 of S. 3678 and H.R. 15073 which could be used to
accomplish the same result by requiring banks and other
financial institutions to file information returns setting
forth the information contained in the international records.
For the same reasons that we have concluded that we cannot
support new legislative authority for the survey of records
not tied to a particular taxpayer investigation, we believe
it inappropriate to support legislation requiring reports of
information obtained from the records of international
- 10 -
transactions.
Since sections 241 and 242 of the bills
authorize such reports, we cannot support their inclusion
unless they are substantially amended.
This is a very delicate area which requires full
consideration of the constitutional prohibition against
unreasonable searches and seizures, the need to avoid unnecessary incursions against the right of privacy, the
international reaction, and the needs of the Internal
Revenue Service for information. We intend to do additional work in this area with the thought that if a sound
proposal can be developed, it will be presented to the
Congress.
3.
Reports of Exports and Imports of Currency
In addition to international transfers through banks
and other financial institutions, funds can be transferred
directly by the physical movement of U. S. currency or its
equivalent.
In order to make sure that records of such direct
transfers are available for the purpose of verifying income
tax returns and for criminal law enforcement, the Treasury
proposes that persons importing or exporting on one occasion
$5,000 or more of U. S. currency or its equivalent be required
to file an information return prior to the importation or
exportation.
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 international t:rraveller would not be affected by
this requirement.
Those who reach this level could comply
with this requirement by simply completing or turning in ~e
report form which would be provided.
Enforcement of this provision, which would include a
forfeiture provision, would require substantial additional
manpower in the Bureau of Customs.
4.
Rebuttable Presumptions that u. S. Citizens and
Residents Engaging in Certain Foreign Transactions
are Dealing with Their Own Untaxed Income
By means of the disclosure of foreign accounts, the
required international records, reports of exports or
imports of currency and, to a certain extent, Treasury
)
-
11 -
Currency Reports, the Internal Revenue Service will be in
a much better position to identify instances of tax evasion
by U. S. taxpayers involving foreign accounts and international transactions than now. While such information
would certainly be of use in reducing such evasion, there
are limits to the benefits of the proposals so far made.
We believe our effectiveness in law enforcement would be
enhanced if the Internal Revenue Code were amended to
provide rebuttable presumptions that persons who engage
in certain international transactions and who do not furnish
satisfactory information with respect thereto are dealing
with their own untaxed income.
Legislative implementation of the presumptions would
be through amendment to the Internal Revenue Code. The
Treasury has discussed these matters with the staff of the
Joint Committee on Internal Revenue Taxation and is developing proposals for submission to the House Ways and Means
Committee and the Senate Finance Committee.
5.
Administrative Measures
The previous four parts of the Treasury's program to
deal with tax evasion and other crimes facilitated by the
use of foreign bank accounts have involved rules which
would be applicable to taxpayers or financial institutions.
There is, however, an important additional element that is
necessary to make any law enforcement system work -- adequate
numbers of informed personnel and vigorous and comprehensive
enforcement. The measures made available by the new legislation would require additional manpower.
A number of new approaches are being considered, including
the establishment of a specialized group in the National Office
of the Internal Revenue Service, with expertise in foreign
banking and international transactions and the various
possibilities for obtaining information. This group would
be immediately available to field agents for consultation
and guidance in cases which involve or might involve an undisclosed foreign account or international transaction.
In
addition, new instructions are being prepared for use by
field agents which would require informing the National Office
at an early stage about cases involving foreign banks for
possible requests for information to foreign governments
under treaty provisions.
- 12 -
The Internal Revenue Service also is evaluating whether
it has in the past fully used the information which it
has been able to obtain to draw inferences as to untaxed
income. This is closely related to the statutory presumptions discussed above. While statutory presumptions will
add strength to the inferences that are appropriate, even
without these presumptions we believe that inferences can
be properly drawn and tax liability established based on
information which heretofore has not been considered suffificient to support a claim.
The Treasury recognizes that increased audit and
enforcement activity will require additional manpower and
perhaps data processing facilities in the Internal Revenue
Service. Every attempt will be made to obtain sufficient
funds for these needs and Bureau of Customs' needs in
forthcoming Treasury appropriation requests.
- 13 -
III.
The Administration's Proposal for Obtaining
Domestic Information
In addition to dealing with the problem of secret foreign
bank accounts, S. 3678 and H.R. 15073 also deal with a basically
separate problem area, law enforcement in a purely domestic
context. Two provisions are involved:
requirements for recordkeeping by banks and other financial institutions of records of
domestic financial transactions, and Treasury Currency Reports.
1.
Domestic Transaction Records of Banks
and Other Institutions
While unlimited requirements for recordkeeping by banking
institutions of all domestic transactions are undesirable and
unnecessary, records of certain domestic transactions are often
essential in the fight against tax evasion and other crime,
especially organized crime.
Therefore, we recommend that the legislation provide discretionary authority in the Secretary of the Treasury 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 minimum 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.
2.
Treasury Currency Reports
Turning to the second domestic requirement, financial institutions currently are required to file Treasury Currency Reports
in cases where persons who use their facilities engage in "unusual"
currency transactions.
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.
We support in general the concept of Sections 221 and 222
of H.R. 15073 and S. 3678 for a new statutory basis for Treasury
Currency Reports, provided that these reports are limited by
statute to those concerning transactions likely to have a high
degree of usefulness in criminal, tax, or regulatory investigations or proceedings.
- 14 The following summarizes the legislative aspects of the
Treasury proposals:
--A bill (i) requiring u.s. banks and other financial
institutions to maintain records of specified international
transactions, (ii) requiring persons importing or exporting
from the u.s. large amounts of currency or its equivalent
to file reports, (iii) authorizing the Secretary of the
Treasury to impose recordkeeping requirements on banks and
other financial insti tu tions wi th respect to domestic transactions, and (iv) requiring Treasury Currency Reports, to
the extent it is found that such records and reports are
likely to have a high degree of usefulness in criminal,
tax and regulatory investigations and proceedings;
--A bill amending the Internal Revenue Code to provide a
specific penalty for failure to comply with the foreign
account disclosure requirement and to provide statutory
presumptions that u.s. taxpayers engaging in certain forei~
transactions and not furnishing complete information with
respect thereto are dealing with their own untaxed income.
H.R. 16444, prepared by the Treasury and introduced by
Representative Widnall on March 12, 1970, would provide the
legislative framework, other than the Internal Revenue Code
amendments, for the enforcement system which we recollunend.
We would recommend amending HoR. 16444 to specify the required
records of international transactions in a separate section. In
addi tion, I am sure that Treasury and Congressional staffs could
make a number of technical improvements.
IV.
Administration Position on Extending Margin Requirements
to Borrowers and Restricting De~lings with Foreign Financi~ .
Agencies
1.
Margin Requirements
Section 301 of the bills would give the Federal Reserve Board
clear authori ty to apply margin requirements not only to lenders
but also to borrowers. This is an entirely new concept in the
regulation of credit as margin rules have been only applied in ilie.
past to lenders.
1
--~
~
I
- 15 The Administration supports the extension of the margin
requirements to borrowers provided it is made clear that this
is not intended to regulate the availability of credit abroad
to foreigners.
Therefore, Section 301 should be amended to
provide that only borrowers who are American citizens or residents and foreign persons controlled by or acting for them are
subject to these requirements.
In addition, it should be made
clear that the requirements are applicable only with respect to
the purchase of United States securities, or of foreign securities
where the transaction is executed in the United States.
It is not our intention to engender direct jurisdictional
conflicts with foreign countries which have sovereign authority
to regulate the availability of their own domestic credit. Any
problems that may be raised by foreign participation in our
securities markets should be approached through international
cooperation.
2.
Restricting Dealing with Foreign Financial Agencies
A new section appears in S. 3678 which does not appear in
H.R.15073 which aims at identifying users of foreign financial
facilities. The new provision, Title IV of S. 3678, would accomplish
this objective by providing that no person may effect any transaction in a domestic security within the United States if such
transaction was initiated by a foreign financial agency, unless
such person either obtains from the foreign financial agency
the identity of all persons having any beneficial interest in
the transaction, or has in good faith accepted a certification
from the foreign financial agency that no citizen or resident
of the united States had any beneficial interest in the transaction. In addition, it provides that any U.S. citizen or resident
who purchases or sells domestic securities through a foreign
financial agency must both authorize that foreign financial
agency to disclose the citizen's or resident's identity to
the U.S. broker or dealer executing the transaction and file
periodic reports with the Securities and Exchange Commission
disclosing details of purchases and sales as may be required
by the SEC.
We must be careful to avoid provisions that are too stringent
and which may have the effect of impeding the channels of trade
and this defect exists in Title IV.
Moreover, I believe that foreign financial agencies might
find it extremely difficult to comply with this provislon. Even
Nith the best of will, a foreign financial agency might be unaware
)f the real parties in interest in a transaction. Consequently,
fear of the consequences of failure to comply with this section,
- 16 particularly if criminal or other penalties were to attach to
a false identification or certification, could have serious
effects on the willingness of foreigners to invest in the
United States. Thus, this provision is likely to produce
little in the way of reliable information and could have
limiting effects on investment in the U.S.
At the same time, Title IV would put a heavy administrative
burden on those foreign securities dealers and banks seeking to
make portfolio investments in the United States. Yet the infol'lll
tion obtained under Title IV would in part duplicate information
obtainable under other provisions of the bill which will
achieve many of the same objectives as those sought to be accomplished by Title IV, but without the significant drawbacks of
this provision.
For these important reasons, the Treasury recommends the
deletion of this provision from S. 3678.
In our view it does .
not meet the goals set by Senator Proxmire in introducing S. 367r
that, "Our law enforcement authorities need additional tools to
trace the international flow of funds into and out of the United
States without impairing the international mobility of capital
or infringing upon the sovereign rights of foreign countries. II
V.
Proposed Amendments to H.R. 15073 and S. 3678
While H.R. 15073 and S. 3678 incorporate a number of Treasuf
recommended improvements, further amendments are required to insg:'
adequate enforcement authority and responsibility and eliminate ~
provisions which would or could lead to unnecesssry and counter-:
productive paper work and potentially unwarranted invasions of .
privacy. I will outline in this statement the principal arnendmeD·
which the Treasury feels are necessary. These and other arnendmeJf:
which we urge are discussed in Attachment B.
I have already
stated our views on the margin requirements provision and on .;
the provision restricting dealings with foreign financial agenC18~
The major additional amendments which we suggest in S. 3678.
and H.R. 15073 are as follows:
1.
Purpose
As introduced, H.R. 15073 stated a number of purposes, .:
including faci Ii tating the supervision of the business of banklnl
the establishment of civil liabilities, the regulation of ~e va
of money and the collection of statistics necesssry for the fO~:
lation of monetary and economic policy.
The Treasury argued tha .:
the only proper purpose of H.R. 15073 is to assist criminal, taXI
and regulatory investigations and proceedings. Title I of H.R. •
- 17 was amended in the House in conformity therewith and Title I
of s. 3678 also reflects this view.
However, the stated purposes of Title II, set forth in
Section 202 of H.R. 15073 and S. 3678, have not been changed.
section 202 still provides, "The purposes of this ti tIe are
(1) to facilitate the supervision of financial institutions
properly subject to Federal supervision, (2) to aid duly
constituted authorities in lawful investigations, and (3) to
provide for the collection of statistics necessary for the
formulation of monetary and economic policy."
The Treasury urges that Section 202 be amended to make it
clear that the only purpose of Title II is to assist criminal,
tax and regulatory investigations and proceedings. The need for
such a change is especially great in view of the growing concern
in America over possible incursions by Government into individual
privacy.
Where reporting is recommended, as in the case of the
Treasury Currency Reports, the purpose of the requirement should
be appropriately limited.
If such reporting requirements are
limited 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 limitedi such might not be the case under
present S. 3678 and H.R. 15073 language which permits the requiring of reports without any comparable purpose limitation.
Limiting the purpose of the bill is also important because
under section 204 the authority of the Secretary of the Treasury
to prescribe regulations for the implementation of Title II is
limi ted to those "he may deem appropriate to carry out the purposes
of this title n (emphasis supplied).
2.
Unnecessary and Counter-Productive Domestic Records
Both bills provide that
n(d)
Each insured bank shall make, to the extent
that the regulations of the Secretary so require -n(l)
a photocopy or other copy of each check, draft,
or similar instrument drawn on it and presented to it for
paymenti"
In addition, H.R. 15073, but not S. 3678, provides:
n(i)
Notwithstanding any other provisions of this
section the recordkeeping requirements referred to in
- 18
this section shall not apply to domestic financial transactions involving less than $500."
There seems to be some disagreement as to the meaning of
these provisions. Our concern is that the basic provision
might be interpreted as requiring the Secretary of the Treasury
to issue regulations providing that all banks photocopy all
checks drawn on them, or under the House bill all checks except
checks of less than $500 used in domestic financial transactions.
We believe that the imposi tion of an all-encompassing requil'1
ment to photograph all checks drawn on U. S. banks (wi th or wi thou'
a $500 domestic exclusion) could be impractical, wasteful, and
counter-productive.
In excess of 20 billion checks are drawn annually in the
United States and flow through the banking system and only a
small percentage of these are likely to be of use in criminal,
tax or regulatory investigations and proceedings. In designing
recordkeeping requirements, a balance has to be struck between
the cost to maintain the records (and let us be sure to recogni~
that this cost will be borne by the American public that uses ~e
banks) and their likely use in investigations and proceedings.
While the Treasury has developed precise recommendations
as to the records of foreign transactions \vhich banks and other
institutions should be required to maintain, neither Treasury
nor any other group has done adequate work so as to determine
the records of purely domestic transactions which are likely
to have a high degree of usefulness in criminal, tax and regulatory investigations and proceedings. We fee 1 that it is unwise
to adopt legislation with such mandatory requirements on the
ground that the cost of compliance :.s not great without some
better idea of the use to which such records could be put, how
this might be accomplished and the costs involved.
3.
Sections 241 and 242
Sections 241 and 242 authorize the Secretary of the Treasury
to impose fonr independent types of requirements in connection,
with international transactions and relationships:
(1) reporb~
by financial institutions of their clients' international trans- ,
actions and relationships; (2)
reporting of international trans'
actions and relationships by the principals; (3)
recordkeepi~
by financial institutions of their clients' international traU- .
actions and relationships; and (4) recordkeeping of international·
tranactions and relationships by the principals.
,
~
/
I
- 19 As I stated in connection with the international transactions records of banks and other financial institutions,
legislation for reports of international transactions by such
institutions is not desirable.
As for the other three types
of requirements which sections 241 and 242 would permit, one
is inappropriate (reports of foreign transactions by principals)
while another is duplicative (required recordkeeping by principals).
The only proper use of these sections would be to impose international recordkeeping requirements on banks and other financial
institutions.
If these sections are to be used for that purpose,
they should be amended along the lines that I have indicated above
and to delete the inappropriate and duplicative material.
4.
Administrative Responsibility and Authority
The Treasury Department believes that the intent of the
bills is to assign to the appropriate Federal agency the responsibility to make sure that banks, brokers and other financial institutions are complying with the requirements imposed upon them by
the bills and the regulations issued thereunder.
Such an intent
was made specific in H.R. 16444, which states the responsibility
of the Secretary of the Treasury to assure that the requirements
of the bill are being carried out and to make appropriate delegations to that end. We urge that a similar provision be included
in the legislation enacted.
Section 302(g) of H.R. 16444 specifically authorizes the
Secretary of the Treasury to prescribe regulations including
"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." While i t is believed the intent of
H.R. 15073 and S. 3678 is to authorize such procedures, it would
seem desirable if the bills contained a provision similar to
that in H.R. 16444.
5.
Inconsistency with S. 30, the Organized Crime
Control Act
We endorse the recommendation of Assistant Attorney General
Wilson that the immunity provision set forth in section 211
either be deleted or made consistent with the testimonial immunity
approach contained in S. 30, the Organized Crime Control Act.
These and other changes which are discussed in Attachment B
are needed to make S. 3678 and H.R. 15073 a more effective and
efficient tool in criminal, tax, and regulatory investigations
- 20 -
and proceedings without undue cost or interference with the
other national policies which I referred to at the beginning
of this statement.
Conclusion
The Treasury has undertaken actively and vigorously to
curtail the use of foreign bank accounts and international
transactions for tax evasion and other crimes. Our progr~
includes administrative action, new regulations, treaty negotiation, legislative proposals, and cooperation with the priva
sector. Today I have presented our proposals for legislatioo
and for improvements in the bills before this Committee which
legislation we urge the Committee to adopt. We believe that
such legislation would contribute to our efforts to curb tax
evasion and other crimes by u.s. citizens and residents when
foreign accounts and international financial transactions an
involved assuming budgetary resources for proper enforcement
are obtained. However, past experience indicates that no
system is foolproof. We will continue to be alert to new devil
developed by those seeking to evade taxes or otherwise violate
our criminal laws.
We feel that the measures that we have undertaken and the
legislation we have recommended, when fully utilized by the
Internal Revenue Service and other Federal law enforcement
agencies, will result in improvement in our continuing efforts
to curb tax evasion and other whi te collar crimes as well as tc
suppress organized crime.
)
/
,J--.,
ATTACHMENT A
/_
June 9, 1970
International Transactions Recordkeeping
by Banks and other Financial Institutions
Treasury's Proposal as to Records to be Required
(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 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 through 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 U. S.
bank or the foreign currency account of the U. S. bank at the
foreign bank.
The customer of the U. S. bank will either
instruct the U. S. 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. This is the converse case to the one
just described.
U. S. banks instructed by foreign banks to
make a payment ei ther directly or through another insti tution
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 identification of the payee.
(3)
Records of checks negotiated abroad and foreign
credit card purchases. Checks drawn on U. S. banks, including
cashier's checks issued by 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. correspondents
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.
- 2 -
(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.
(5) Records of fore~n drafts. A foreign draft (also
called a banker 1 s dra~ls 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 sen~
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 forei~
drafts sold by foreign banks 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 employed in export
and import transactions, U. S. banks also would have to maintail
records along the lines customarily maintained by most banks
which engage in such transactions.
ATTACHMENT B
June 9, 1970
TreaSury Department Recommended
Amendments to S. 3678 and H.R. 15073.
1,
Title I - Financial Institution Records of Domestic
Transactions.
The Treasury Department took separate approaches to
recordkeeping of international and domestic transactions
in the statements of Assistant Secretary of the Treasury
Rossides before the Subcommittee on Financial Institutions
of the Senate Banking and Currency Committee on June 9,
1970 and before the House Banking and Currency Committee
on March 2, 1970. With respect to international transactions it listed six specific types of records which it
thought should be required, while with respect to domestic
transactions it left the specific requirements to future
development. The reason for this is simple. The Treasury
Task Force on Secret Foreign Bank Accounts concentrated
on its assigned problem -- evasion aided by international
means -- and was able to develop recordkeeping requirements
responsive to the relevant international transactions. The
Treasury Task Force then turned to the question of evasion
involving purely domestic transactions, but concluded that
insufficient work had been completed to enable it to recommend
specific recordkeeping requirements which would have a
maximum law enforcement potential with a minimum of interference with commerce and a minimum cost to financial
institutions and their customers. The Treasury therefore
suggested that the responsibility for developing specific
domestic requirements be assigned to the Secretary of the
Treasury.
As introduced, H.R. 15073 would have required each
insured bank to photocopy all checks drawn on it and
presented to it for payment. Largely in response to the
views expressed by the Treasury, the House Banking and
Currency Committee adopted a number of amendments which
reduced this inflexibility.
Although not recommended by the Treasury, one amendment
added to new section 21 of the Federal Deposit Insurance Act,
subsection (i) provided:
"Notwithstanding any other provisions of this section the recordkeeping requirements referred
to in this section shall not apply to domestic financial
transactions involving less than $500."
- 2 The Committee also amended subsection (d) of new
section 21 to provide:
"Each insured bank shall make,
to the extent that the regulations of the Secretary so
require, (1) a photocopy or other copy of each check,
draft, or similar instrument drawn on it and presented
to it for payment." The addi tion of the words "to the
extent that ... so require" would appear to be a clear
grant of power to the Secretary of the Treasury to
provide that the photocopying requirement does not extend
to all international transactions and to all domestic
transactions involving $500 or more.
In other words, he
is given the authority to prescribe the extent of the
photocopying requirement. While the Committee Report
recognizes this power, it indicated that, in view of the
Congressional findings, the Secretary is left with "little
choice but to require, upon the effective date of the
legislation, that banks photocopy all checks except" those
covered by the $500 exemption provision. But the report
does recognize that "the Secretary I s duty to impose such a
requirement is neither absolute nor permanent." In introducing S. 3678 on April 6, 1970, which contains a new
section 21 similar to that in H.R. 15073 as passed except
that S. 3678 does not contain the less-than-$500 exemption
provision, Senator Proxmire explained the authority of the
Secretary as follows:
"Nonetheles s, the expense involved
might outweigh the potential benefit and for this reason,
the Secretary of the Treasury is given full authority to
exempt certain classes of checks from the photocopy requirement. "
The Treasury is concerned that the language of Subsection (d) and the somewhat conflicting statements of
legislative intent might lead to an interpretation requiring
the Secretary of the Treasury to issue regulations providing
that all banks photocopy all checks drawn on them, or, under
H.R. 15073, all checks except checks of less than $500 used
in domestic financial transactions.
Since, as indicated above, additional work must be done
to develop efficient recordkeeping requirements for domestic
transactions, Treasury urges that the bill be further amended
to eliminate the reference to specific types of domestic
records, and to place the responsibility to develop specific
-
3 -
requirements on the Secretary of the Treasury.
Regulations
would be developed to identify the types of documents subject
to these requirements, specify the minimum amounts, establish
the classification of documents (such as checks paid or checks
deposited) and other classifications subject to these requirements.
It would be unwise to adopt legislation with such
mandatory requirements without greater knowledge of the use
to which such records could be put, and little more than a
cursory idea of the costs involved.
It should also be noted that the $500 domestic exemption
provision contained in H.R. 15073 most likely would not
accomplish its apparent purpose, to eliminate the recordkeeping requirements in connection with relatively small
domestic checks.
It would be impossible for banks to ascertain
with certainty whether a particular small check was negotiated
abroad or was a domestic item. One could not tell simply from
the name of the endorser whether a check were endorsed abroad.
Therefore, in order to be in certain compliance with the international recordkeeping requirement which has no minimum exemption,
banks would have to microfilm all checks regardless of amount.
2.
Type of Records
Title I of both bills contains language related to
recordkeeping requirements in terms of "photocopies" and
"a photocopy or other copy" of enumerated instruments. This
terminology raises a possible implication that only hard copies
rather than microfilm or other film records would be acceptable
or could be required by the Secretary in lieu of actual photocopies. Since microfilm is much less expensive than hard copy
processes and provides acceptable repreductions of the records
in question, it is suggested that the use of the term
"photocopies" in section 21 (a) (I) and "photocopy or other
copy"
in section 21 (d) (1) be replaced by "microfilm or
other reproductions" and "microfilm or other reproduction"
respectively.
3.
Records of Identity of Customers and Signatories
Subsection (c) of new section 21 of the Federal Deposit
Insurance Act provides:
"Each insured bank shall maintain.
such records and other evidence as the Secretary shall requlre
of the identity of each person having an account with the bank
- 4 and of each individual authorized to sign checks, make
withdrawals, or otherwise act with respect to any such
account." The Treasury agrees with the purpose of this
provision, but believes that the Secretary of the Treasury
should specifically be given the authority to establish
exemptions. For example, it might be decided to limit
the requirement for identity records to certain types of
accounts involving minimum amounts or to exclude from the
identity record requirements employees with authority to
sign checks or make deposits where the account owner
maintains complete personnel records.
4.
Annual Report to Congress
Subsection (h) of new section 21 of the Federal Deposit
Insurance Act provides:
"The Secretary shall make an annual
report to the Congress of his implementa tion of the authority
conferred by this section and any similar authority wi~
respect to recordkeeping or reporting requirements conferred
by other provisions of law." The Secretary of the Treasury
already makes an annual report to Congress and it should be
made clear that the information requirement by subsection (h)
may be furnished as part of that report.
5.
Geographical Scope
In accordance with recommendations made by the Treasury,
the geographical scope of Title II of H.R. 15073 has been
clarified so that financial insti tutions are subject to the
reporting requirements only to the extent they perform
functions wi th in the United States. Thus, a United States
branch of a foreign bank would be required to file relevant
reports while a foreign branch of aU. S. bank would not be
subject to these requirements.
However, S. 3678 does not
contain this clarification, but rather has retained in
Section 203 (f) and (h), the original language of H. R. 15073,
which could be construed to require comparable reports from,
foreign branches of U. S. banks and other financial institutlO
Under this language, for example, any bank which has a branch
abroad would be both a "domestic financial institution" and
a "foreign financial agency" within the meaning of these
definitions in s. 3678.
It is recommended S. 3678 be amended
to conform to Section 203(g) and (h) of H.R. 15073.
Moreover, it would appear that the Secretary of the Treasl
does have authority to similarly confine the applicability o~
Title I, of both H.R. 15073 and S. 3678 to offices of financl a
institutions located within the United States. However, it wo
be desirable for this authority to be clarified in both bills.
'1
C
/ )
- 5 -
6.
Retention Periods
The bills presently do not limit the authority of
the Secretary to specify retention periods or required
records.
It is recommended the bills prescribe a general
six-year retention period with authority conferred on the
Secretary to reduce the period generally or for specific
types of records.
It should also be provided that any
record which has been called for by a Federal agency in
connection with an investigation or proceeding must be
retained while the investigation or proceeding is pending.
7.
Types of Institutions to Maintain Records or File Reports
With respect to the persons engaged in various businesses
which must maintain records under Title I of the bills, it
should be noted that in Section 123, S. 3678 applies to a
much narrower group of functions than H.R. 15073. The reason
for this is not clear.
Since the purpose of this section
should be to eliminate potential loopholes which otherwise
could permit the international transfer of funds through
businesses which would not have to maintain records of such
transfers, it is recommended the language of section 123
in S. 3678 be amended to h~.consistent with and as broad as
the language of H.R. 15073.
With respect to the definition of a "financial institution" found in section 203(e) of Title II of the bills, the
New York Clearing House has recommended it be broadened to
also include specifically agencies within the united States
of foreign banks, travel agencies, licensed transmitters of
funds, and telegraph companies. The Treasury believes this
recommendation has merit.
8.
Purpose of Title II
As originally introduced, H.R. 15073 stated a number of
purposes, including facilitating the supervision of the
business of banking, the establishment of civil liabilities,
the regulation of the value of money and the collection of
statistics necessary for the formulation of monetary and
economic policy.
The Treasury argued that the only proper
purpose of the bill is to assist criminal, tax and regulatory
investigations and proceedings. The House accepted this view
in part and amended Title I in conformity therewith. For
example, new section 21 of the Federal Deposit Insurance Act
was amended by the House to provide:
- 6 "It is the purpose of this section to require
the maintenance of appropriate types of records
by insured banks where such records may have a
high degree of usefulness in criminal,tax, or
regulatory investigations or proceedings."
(Section 21 (a) (2) ) .
However, the stated purposes of Title II, set forth
in Section 202 of H.R. 15073 and S. 3678 have not been
changed.
Section 202 s till provides, "The purposes of
this title are (1) to facilitate the supervision of
financial institutions properly subject to Federal supervision, (2) to aid duly constituted authorities in lawful
investigations, and (3) to provide for the collection of
statistics necessary for the formulation of monetary and
economic policy." The Treasury urges that Section 202 be
amended to make it clear that the only purpose of Title II
is to assist criminal, tax and regulatory investigations
and proceedings. This is especially important to avoid
unnecessary incursions on the right of privacy. Also,
under Section 204 of the bills the authority of the Secretary
of the Treasury to prescribe regulations for the implementation
of Ti tIe II is limited to those "he may deem appropriate to
carry out the purposes of this title."
9.
Definition of Monetary Instruments
Originally the reporting requirements of H.R. 15073
were limited to specified transactions in U. S. currency.
The Treasury recommended that this be enlarged to include
items equivalent to u. S. currency.
The purpose of this
change was to close a potential loophole through which
reporting requirements could be avoided by not using U. S.
currency but rather its equivalent. The House Banking and
Currency Committee responded by extending the reporting
requirements to specified transactions in monetary instruments
and Section 203
defined "monetary instruments" to include
"coin and currencies of the United States, and in addition
such foreign coin and currencies and such types of checks,
bills, notes, bonds, or other obligation or instruments as
the Secretary may by regulation specify •.. " The Committee
Report on H.R. 15073 clearly indicates this definition is
intended to be no broader than to include "bearer instruments
which may substitute for currency." (page 22).
In order to
- 7 more restrictively define the types of non-currency
items included wi thin the term "monetary instruments"
within the statute itself, it is suggested the definition
of "monetary instruments" be amended to include "coin and
currency of the United States, and in addition such foreign
coin and currencies, and such types of travelers' checks,
bearer negotiable instruments, bearer investment seCurities,
or their equivalent, as the Secretary may by regulation
specify." The term "or their equivalent" is necessary to
per.mit the Secretary of the Treasury the necessary discretion
to include other types of instruments which are easily
transferable which may not be bearer in form.
For example,
a non-bearer security accompanied by a power of attorney
could be negotiated by a series of individuals without leaving
a record of the chain of ownership.
The Secretary should
be empowered to include such instruments within the definition of "monetary instruments." Otherwise, serious loopholes
in the legislation could develop.
10.
8 -
Inconsistency with S. 30, the Organized Crime Control Act
The immunity provision in S. 3678 and H.R. 15073 is inconsistent with S. 30, the pending Organized Crime Control Act.
The immunity granted by Section 211 of S. 3678 and H.R. 15073
would apply to the transaction with respect to which the witnesl
is compelled to testify.
On the other hand, the policy of ~e
Administration reflected in S. 30 and as expressed in the testil
of Assistant Attorney General Wilson, is that the appropriab~
of immunity is with respect to the testimony and that the inununJ
should not bar prosecution with respect to the transactions test
fied to if other evidence is obtained wi th respect to that trans
action as long as the other evidence is obtained independent~c
the testimony wi th respect to which the immunity applies. There
fore, the Treasury endorses the recommendation of Assistant
Attorney General Wilson that Section 211 either be deleted or
made to conform to the immunity provision now appearing in S. 30
11.
Filing Treasury Currency Reports
Section 223 of the bills provides for a reporting procedure
under which domestic financial institutions could be designated
to receive Treasury Currency Reports to which they were not a
party, and then transmit them to the Treasury Department. Since
the Treasury helieves all Treasury Currency Reports should be
filed directly with the Treasury Department, Section 223 is sup~
fluous and should be deleted.
12.
Cumulative Exports and Imports of Monetary Instruments
Section 231 of H.R. 15073 and S. 3678 requires that any
person who participates in the transportation of monetary .
instruments in an amount exceeding $5,000 on anyone occaSlon
or $10,000 in any calendar year to report such activity if it
involves a place outside the United States. The reporting
requirements applicable to cumulative transportation of monetary
instruments in excess of $10,000 would be extremely diffiCUlt,~
if not impossible, to implement from an adminis trati ve standpOl
For example, if an individual failing to file a report were fo
to be transporting less than $5,000 worth of n,onetary instrumen
in his possession, it wo~ld not be ascertainable whether be h~
transported an additional amount du~ing the calendar year to
reach a cumulative figure in excess of $10,000.
Therefore, the Treasury recommends the deletion of the
$10,000 cumulative reporting requirement.
- 9 -
13.
Reports of Exports and Imports of
Moneta~
Instruments
section 23l(b} of the bills sets forth the information
that can be required by the Secretary of the Treasury in
reports of exports and imports of monetary instruments. As
presently drafted, this provision does not provide sufficient
authority to the Secretary to require additional information
which he may deem necessary for these reports to be effectively
utilized. For example, it would not presently permit the Secretary
to require individuals filing these reports to provide their
Social Security numbers which are necessary to relate the information contained in the reports to taxpayers' general tax records.
This section should be redrafted to broaden the Secretary's
authority to require relevant information in reports of exports
and imports of monetary instruments.
14.
Section 241
Section 241 authorizes the Secretary of the Treasury to
impose four independent requirements in connection with international transactions and relationships:
(1) require reporting
by financial institutions of their clients' international transactions and relationships: (2) require reporting of these transactions and relationships by the clients (U.S. citzens, residents,
and persons in the U.S. doing business therein) themselves:
(3) require recordkeeping by financial institutions of their
clients' international transactions and relationships: and
(4) require recordkeeping of these transactions and relationships
by the clients themselves.
With respect to the first requirement, reporting by financial
institutions, for the reasons set forth in the June 9, 1970
testimony of Assistant Secretary Rossides, the Treasury Department
has concluded it would be inappropriate to support legislation
requiring reports by financial institutions of information obtained
from the records of international transactions.
With respect to the second requirement, reporting by clients,
the Treasury already has announced that taxpayers will be required
~nder existing statutory authority to report the existence of
lnterests in foreign bank, brokerage, and similar accounts on
their tax returns. Since the Internal Revenue Service already
is empowered to issue a summons for records of any specific
taxpayer involving his transactions with a forei9n ban~ ac~ou~t!
a burdensome reporting requirement on taxpayers 1nvolv1ng 1nd1v1dual
transactions with these accounts would not be justifiable. In
any instance in which the disclosure of the existence of an
account or other information raises questions of tax liability
- 10 -
for which the Internal Revenue Service would need additional
information of individual transactions, the IRS can obtain
such records through the issuance of a summons. Therefore,
the authority in Section 241 to require reports by individuals
of transactions with foreign accounts is unnecessary.
Wi th respect to the third requirement provided in Section 241
recordkeeping by financial institutions, the Treasury has indi- .
cated the need for such records. However, Treasury has suggest~
that these requirements be implemented in a more straightforward
approach, under which international recordkeeping requirements
would be limited to banks and other listed financial institutioM
in the United States, specified types of records would be listed,
and the Secretary would be empowered to substitute for, eliminate
from or add to the requirements by regulation. This could be
accomplished by amending Sections 241 and 242 or by amending Titl
With respect to the fourth requirement of Section 241,
recordkeeping of foreign transactions by individuals, the
Treasury has stated that it is considering the issuance of
regulations pursuant to existing statutory authority requiring
taxpayers with interests in foreign bank, brokerage and similar
accounts to maintain specified records of transactions they have
with these accounts. In view of the existing authority to
implement such a proposal, the corresponding authority provided
in Section 241 is superfluous.
Based upon the foregoing, Treasury recommends the deletion
of Sections 241 and 242 of the bills, or its amendment along
the lines suggested.
15.
Administrative Responsibility to Assure Compliance
by Financial Institutions
The Treasury Department believes that the intent of the
bills is to assign to the appropriate Federal agency the
responsibility to make sure that banks, brokers and other
financial institutions are complying with the requirements
imposed upon them by the bills and the regulations issued
thereunder. Such an intent was made specific in H.R. 16444
introduced by Representative Widnall on March 12, 1970.
Section 405 of that bill provides -"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 superviso~
(]
- 11 -
H.R. 15073 and S. 3678 impose recordkeeping requirements for
insured banks and for insured savings institutions in Title ~
in the form of amendments to existing statutes the enforcement
of which has already been assigned to various federal regulatory
agencies.
In addition, the bills elsewhere impose recordkeeping
and reporting requirements on uninsured bank and savings institutions and on certain other businesses which perform financial
functions, as well as reporting requirements on insured entities.
with respect to these recordkeeping and reporting requirements,
it would be desirable for the bills to specify the responsibility
of the Secretary of the Treasury to make sure that the requirements
are being carried out and to make appropriate delegations of
responsibility.
The Treasury urges that the bills be amended
accordingly.
16.
Enforcement Authority with respect to Reports of
Exports and Imports of Monetary Instruments
Section 302(g) of H.R. 16444 specifically authorizes
the Secretary of the Treasury to prescribe regulations including
"the procedures to be followed by the Bureau of Customs, includll.g
Dorder and mail checks, to assure compliance with the requirements
imposed by this chapter." Whi Ie i t is believed the intent of
H.R. 15073 and S. 3678 is to authorize such procedures, it
would seem desirable that the bills contain a provision comparable
to Section 302 (g), H.R. 16444.
17.
Sharing Information Contained in Reports with Other
Federal Agencies
The reports required to be filed under Title II of
LR. 15073 and S. 3678 are to b e filed with the Treasury
)epartment.
In order for full use to be made of these reports
in accordance with their intended purpose, it will be necessary
_ur other agencies to have access to them.
While the Federal
"-e0 .... ts Act of 1942 (44 USC 3507) provides fur the sha~- __ i:L; 'J .•
-.. ;:ormation between Federal agencies, it does not apply '-',": release of informa~ion by the Internal-,,~venue Service.
\e1ease of informatio.r. oy the Internal Re\J,.;,"u.e Service is
" . . ·:c::Led by Section 6103 of the In terral R," j,Y,1ue Code wL-,_ cl:
JCOvlaes that returns made wi th :::-espect tc .Lncone and cer ..;,~ . ,i
Jt:her taxes "shall be open to inspection only upon order of
the President and under rules and regulations prescribed by
the Secretary or his delegate and approved by the President."
While it would appear that the quoted language would give
~he President authority to provide for the sharing of the
Information obtained from reports filed under Title II by
the Internal Revenue Service with other agencies, it would he
useful to clarify this authority.
)
- 12 -
18.
Margin Requirements
section 301 of the bills would give the Federal Reserve
Board clear authority to apply margin requirements not only
to lenders but also to borrowers. This is an entirely new
concept in the regulation of credit as margin rules have been
only applied in the past to lenders.
The Administration supports the extension of the margin '
requirements to borrowers provided it is made clear that there
is no intent to regulate the availability of credit abroad
to foreigners. Therefore, Section 301 should be amended to
provide that only borrowers who are American citizens or
residents and foreign persons controlled by or acting for
them are subject to these requirements. In addition, it shoulc
be made clear that the requirements are applicable only witl
respect to the purchase of united States securities, or of fu~
eign securities where the tranaction is executed in the United
States.
Moreover, as a technical matter the Treasury recommends
these sUbstantive changes in the margin requirement law be
accomplished through the enactment of a new section rather
than by amendment of Section 7(a) of the 1934 Act.
19.
Restrictions on Dealing with Foreign Financial Agencies
For the reasons stated in the statement of Assistant
Secretary Rossides on June 9, 1970, the Treasury recommends
the deletion of this provision.
20.
Administrative Procedure Act
In promulgating regulations under this legis lation, the
Administrati -l1e Procedure Act would be applicable. This woul~
require that the notice and public procedure provisions proVldl
in 5 U.S.C. 553 be followed.
~!r
Department 01 theTREASURY
_ON. D.C. 20220
TELEPHONE W04-2041
FOR RELEASE AT 1 P.M. EDT
WEDNESDAY, JUNE 10, 1970
REMARKS BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
AT
THE 13TH ANNUAL UNIVERSITY OF CONNECTICUT
LOEB AWARDS PRESENTATION LUNCHEON
HOTEL PLAZA, NEW YORK CITY
WEDNESDAY, JUNE 10, 1970
It is a pleasure to be
achievement in the field of
This is a field in which we
high standard of reporting.
Awards should recognize the
with you today to honor distinguished
business and financial journalism.
need, and have come to expect, a
It is fitting that the Loeb
importance of this work.
Your job is particularly difficult and important in a time
of transition such as we are experiencing today. In the face
of apparently contradictory economic and financial developments,
it is difficult to see precisely where we are and where we
are heading.
It is now clear that excess demand has been reduced by
the application of restrictive fiscal and monetary policies.
The basic sources of inflationary pressures that gathered
momentum for nearly four years have thus been sharply
reduced. Yet it is equally clear that prices continue to
to advance in spite of the decline in economic activity.
Under the circumstances, it is only reasonable to ask
whether the Administration's policies are working. Are we
getting where we want to go? If not, what changes should
be made?
K-434
- 2 Econoillic policy cannot be static; it must change as
circumstances change. Our approach to economic and
financial problems has always been pragmatic. On balance,
that approach has served us well. But we must also be wary
of changing policies prematurely out of impatience or for the
sake of doing someching. I believe this applies in the
present situation. I can think of nothing more damaging to
our nation's economic welfare than to change course abruptly
before the task of adjustment to non-inflationary growth
has been completed.
Policy has now shifted from a restrictive to an
essentially neutral position which seems to me to be broadly
correct. Monetary growth has resumed, and the Federal
budget has moved to greater ease. I think that posture is
appropriate. It is designed to guard against any
~umulating decline in production without, at the same time,
risking a new burst of inflation. Important progress has
already been made in reducing basic inflationary pressures.
I believe we stand on the threshold of much better
performance. But with consumer prices recently rising at
a 6 percent rate, it would be reckless to assume that the
inflationary risks now lie behind us.
In evaluating our policies, we need to retain a sense
of perspective. Fundamentally, our economy is strong.
There are few signs that the decline in production will go
much farther and no signs -- to my knowledge -- that any
sharp downward movement is a likely prospect. With total
demand no longer excessive, we have every reason to expect
that the cost-price sicuation will begin to show steady and
continuous improvement.
Some moderate expansion in production is expected to
take place during the second half of the year. Resumption
of growth in output should be associated with the
reappearance of sizable gains in productivity. As the
economy slows down, productivity typically falls off, but then
rises substantially as output re-expands. Given a greater
degree of wage restraint, this can appreciably reduce upward
pressures on costs and lead directly to better price
performance.
·1
~
}
(/
- 3 -
In the financial area, interest rates are still high, but
credit flows are not blocked. Special efforts have been
successful in increasing the flow of funds moving into the
housing sector. Other sectors find credit available,
although very expensive by historical standards.
The slide in stock market values cannot be dismissed
lightly. But those who search for ominous parallels with the
distant past neglect the fact that credit is used in a much
more limited and controlled way in today's market.
Forecasting interest rates or stock prices is inherently
very difficult, as a lifetime spent in or near the financial
markets has taught me. But I would expect the general
financial atmosphere to improve during the rest of the year.
All things considered, the financial markets are now
functioning relatively smoothly during this transition to
a stable economic environment, with the stock market having
had perhaps the biggest adjustment to make. Price movements
in the financial markets sometimes seem to have been overdone, but a more settled atmosphere may be emerging.
The FedeLal fiscal position also is reasonably
satisfactory when viewed objectively. The unified
budget for fiscal year 1970 is estimated to be in deficit
by about $1.8 billion instead of the $1.5 billion surplus
estimated in February. But this is primarily because
revenues are running below earlier projections, which reflects
the slower pace of the economy. More important, expenditures
are being held very near to targeted levels. In fiscal 1971,
a deficit of $1.3 billion is projected, but this depends
upon expenditure restraint and favorable legislative action,
as well as a speed-up in collections, to provide an
additional $3.1 billion in taxes.
While the outlook for the economy and financial markets
should brighten considerably in the months to come, economic
expansion cannot be allowed to quicken too rapidly. After a
difficult 18 months of effort, we have the objective of our
economic policies well within our grasp. The surest way to
surrender the gains that have been made would be to allow
the pace of economic activity to increase too abruptly and
provoke a renewal of inflationary psychology and pressureo
- 4 I will not pretend that economic transition is a painless
p roces s • Nearly everyone of our fellow citizens is affected
to some degree, and some much more than others. For
any President, stopping inflation is a difficult and
thankless responsibility. It is never easy -- either in
human or political terms. But I can assure you that
president Nixon intends to stay the course because he knows
the alternative would be much worse: ever-mounting prices,
growing economic waste and distortions and eventual ~conomic
adjustment that would make today's transition feel mild
by comparison o And hopefully the lessons we are relearning today will lead all of us in the future to exercise
greater restraint and caution during the heady and
exhilarating days of economic expansion.
Our policy is designed to avoid either deep and prolonged
recession or the renewal of serious inflation. By perseveri~
and steering between these extremes, we insure a safe passage
and re-establish the basis for stable expansion of the
economy. The temporary coexistence of higher unemployment
and inflation does not mean that we have the worst of both
worlds. It is,rather, a stage in the adjustment process.
No one ever believed that prices would respond immediately
to a slowdown in economic activity.
It has been suggested that direct controls in the wageprice or capital market areas would have assisted or would
now help in this necessary transition. I find those
suggestions unconvincing. Direct controls are cumbersome,
unfair, and, if past experience is any guide, ineffective.
They can be used only at great cost and at the risk of
causing serious imbalances in the economy.
Wage and price as well as credit controls present virtually
insurmountable adminis tration problems. They raise very serious
economic questions as well. Capital market controls, for
example, could do real damage if they were to disrupt the
orderly provision of liquidity through the market mechanism.
Our financial markets have been under considerable strain
but they are providing a steady flow of funds. Where flows
are inadequate -- as in the case of housing -- we have taken
specia~ action to supplement themo
This is far preferable
to forcing the market mechanism to do our bidding.
- 5 Credit controls may be a lesser evil in a situation where
serious excess demand cannot be avoided and resources must be
shifted away from civilian uses. This hardly characterizes
the recent situation. The fundamental corrective was to deal
with causes by removing excess demand from the economy. This
,has been accomplished, admittedly with some pain, over the
'past year and a half.
There has been considerable strain imposed on liquidity
:positions throughout the economy in recent years. The
adjustment to new levels of interest rates and equity values is
inevitably a difficult one. If this process were to be
further complicated by some form of external direction, the
results might be far from those intended. The government and
its central banks have a responsibility to provide the
financial underpinning in the unlikely event that a generalized
need for liquidity should ever arise. But capital market
controls would, in my opinion, be much more likely to cause
problems than to solve them.
It is clear that our own problems in coping with inflation
are far from unique. Few countries have been able to find and
hold to the path which harmonizes the objectives of rapid
growth, reasonable price stability and external balance. In
our own case, however, there are special responsibilities.
Beyond the fact of our size and importance in world markets,
the dollar plays a pivotal role in the international
monetary system.
If left unchecked, inflationary pressures in this country
radiate throughout the international trading and financial
network. This can, to s~me degree, complicate stabilization
2fforts abroad. Over a long period of time inflation here might
~ven begin to threaten the smooth functioning of the international
nonetary system o The effective control of inflation -- so
leCessary for our own domestic well-being -- is also very much
~~ the interest of our trading and financial partners abroad.
i\They are, of course, equally concerned that we avoid combatting
::inflation by any sharp contraction of demand.
"
~
The dollar was quite strong throughout last year.
';But some of this strength was temporary and due to severe
~credit tightness in this countryo
On the official reserves
i,transactions basis, there was a surplus last year of
~2.7 billion despite a large deficit on the liquidity basis.
It was recognized that dollars would probably flow
back into foreign official hands this year.
- 6 -
The balance of payments statistics reveal that this is
taking place. As such, the short-term ebb and flow of
international reserves is not a matter of grave concern.
What does matter, of course, is that we make fairly
steady progress in strengthening our basic position. Recent
figures suggest that some recovery is underway in our
trade accounts. We must enlarge that trade surplus very
substantially in the period ahead. This will require
cooperation abroad since our exports are not always accorded
an equal competitive basis.
In addition, there are some things that we can do here.
For example, I recently presented to Congress a proposal to
permit tax deferral of export income, within certain clearly
defined rules. But, in the last analysis, the key to
international competitiveness is a productive domestic
economy with reasonably stable costs and prices.
It seems clear to me that at the present time our
requirements for a strong international position are much the
same as those for strong domestic performance. Achievement
of a reasonable degree of price stability within the context
of an expanding economy will insure the continued strength
of the dollar in all its uses -- domestic and international.
That is why the current period of transition is so necessary
and why it must be carried through to a successful conclusion.
Let me emphasize again that our present policies of monetar
moderation and budget restraint are broadly correct. To
answer the questions I raised at the outset of my remarks,
I do strongly believe that these policies are working. They
are taking us where we want to go. And they are doing so wi~
the minimum amount of pain.
This Administration, let me remind you, could have
pounded inflation into submission. But this would have been
sudden and bruisingly painful.
We believe that the control of inflation demands
perseverance rather than a knock-out punch or confinement
in the straight-jacket of direct controls. Our policies
shall continue to reflect this philosophy.
Thank you
and may you all win awards next year when
you are writing about the success of the Administration's
economic policies.
000
,/ ;;2
Department of theTREASURY
~GTON, D.C. 20220
2-
~~I~
TElEPHONE W04-2041
IMMEDIATE RELEASE
June 10, 1970
TREASURY'S WEEKLY BILL OFFERING
'fue Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
,100,000,000, or thereabouts, for cash and in exchange for
asury bills maturing June 18, 1970,
in the amount of
n03,4l9,000,
as follows:
9l-oay bills (to maturity date) to be issued June 18, 1970,
the amount of $ 1,800,000,000,
or thereabouts, representing
additional amount of bills dated March 19, 1970,
and to
ure September 17, 1970,
originally issued in the amount of
,303,370,000,
the additional and original bills to be
ely interchangeable.
l8~day bills, for $1,300,000,000,
or thereabouts, to be
ed June 18, 1970,
and to mature December 17, 1970.
The bills of both series will be issued on a discount basis
competitive and noncompetive bidding as hereinafter provided,
at maturity their face amount will be payable without i.nterest.
, will be issued in bearer form only, and in denominations of
.000, $50,000, $100,000, $500,000, and $1,000,000 (maturity value).
~r
Tenders will be received at Federal Reserve Banks and Branches
a the closing hour, one-thirty p. m., Eastern Daylight Saving
~ Monday, June IS, 1970.
Tenders will not be
lved at the Treasury Department, Washington. Each tender must
-or an even mUltiple of $10,000, and in the case of competitive
;lers the price offered must be expressed on the basis of 100,
~ not more than three decimals, e. g., 99.925.
Fractions may
be used. It is urged that tenders be made on the printed
:5 and forwarded in the special envelopes which will be supplied
ederal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
omers provided the names of the customers are set forth in such
:rs. Others than banking institutions will not be permitted to
lt tenders except for their own account. Tenders will be received
out deposit from incorporated banks and trust companies and from
- 2 responsible and recognized dealers in investment securities. Tend~~
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 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 rc
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rej ec tion thereof. The Sec retary 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, noncompetit~ve 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 0[" completed at the Federal Reserve Bank on June 18, 1970, in
cash Ot~ other immediately available funds or in a like face amount
of Treasury bills maturing June 18, 1970.
Cash and exchange
tende t's will receive equal treatment. Cash adjus,tments will be made
for differ£L~es between the par value of maturing bills accepted in
exchange and th~ 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 ot'iginally 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~O~ranch.
)J-~
)eportment of the TRfASURY
.sTON, D.C. 20220
TElEPHONE W04-2041
FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE CHARLS E. WALKER
THE UNDER SECRETARY OF THE TREASURY
BEFORE THE
SPECIAL SUBCOMMITTEE ON EDUCATION (NO.1) OF THE
HOUSE COMMITTEE ON EDUCATION AND LABOR
THURSDAY, JUNE 11, 1970, 10:00 A.M. (EDT)
As one who has had a deep commitment to student loan
programs for close to a decade, it is both a pleasure and a
privilege to appear again before this Special Subcommittee
on Education.
My primary purpose here today is to discuss the secondary market provisions of the Administration's Higher Education Opportunity Act of 1970.
I want to concentrate my remarks on the secondary market
aspects for two reasons: First, since the secondary market,
unlike other provisions of the Act, is primarily a financing
matter and therefore of particular interest to the Treasury,
we participated in drafting it. Secondly, if my mail from
lenders, schools, state guarantee agencies, and financial
aid officers is any indication, the secondary market is most
urgently needed.
The guaranteed loan plan, for all intents and purposes,
is just completing its fourth school year. So far 2\ million
loans totaling $2t billion have been made to students attending some 7000 educational institutions. Close to 20,000
lenders -- mainly banks -- have participated in this program.
The cost to the government in interest benefits through
June 1, 1970, has been just under $155 million.
K-435
- 2 -
Let me make a flat statement in which I strongly believe:
The guaranteed loan program has helped more students, with
more money, at a lower cost to the government per student
(han any other type of student financial aid program. That
is quite a record.
The program continues to grow. During the year ending
June 30, we expect $840 million in loans will have been made
to some 950,000 students. That is $153 million more than
last year. The program has grown because more students have
learned about the program, more students need loans to meet
the rising costs of education, more schools have become
eligible, and more lenders are participating.
This growth is all the more encouraging when you consider that student loan volume continued to expand while
other long-term borrowers were cut back during the past year.
I am sure I do not have to tell any member of Congress about
the problems home buyers and state and local governments had
in raising funds.
Yet, the very growth and success of the student loan
program is cause for serious concern in the long run. For as
lenders continue to make the loans, they also put themselves
in a liquidity squeeze. Some student borrowers, for example,
who were freshmen in 1966 when the program got under way,
will not make their first principal payment on the loan for
nine more months. For those who go to graduate school, into
the service, or join the Peace Corps or Vista, still more
years will elapse before repayment starts.
These loans have a mixture of characteristics that make
them different from other loans. Like a consumer loan, the
size is small, payments are made monthly, and the handling
costs are large. In terms of repayment schedules, the loans
are more like mortgage loans. Yet, unlike consumer and mortgage Loans, payment of principal is deferred. Despite these
chnracteristics, lenders are devising ways to handle them
r'
f f 1. (~ ~
e~ t
1 j" •
The liquidity squeeze will eventually catch up with any
who is really active in the program. Those who have
~('.·Il.::
'-
/
- 3 -
made these loans from the outset are starting to feel the
squeeze now. Their problems are complicated by the general
liquidity squeeze on financial institutions and the rising
demand for capital from all quarters. These developments
have caused several states to design their own secondary
markets.
The general liquidity squeeze plus the particular squeeze
on student loans necessitates urgent action on a secondary
market mechanism.
Although the detailed operations of any secondary financial market are necessarily complicated, the concept is simple.
Briefly stated, H.R. 16621 would establish a National
Student Loan Association, a private corporation which would
buy, sell, and otherwise deal in all types of student loans
insured under the Higher Education Act of 1965.
The Association would raise its initial capital by selling common stock to eligible lenders -- commercial banks,
savings and loan associations, mutual savings banks, credit
unions. and educational institutions. It could also sell
preferred stock to anyone interested in supporting higher
education. The Association would then issue its own obligations which are guaranteed in terms of both principal and
interest, thus attracting new sources of funds into the
student loan program. Pension funds, foundations, college
endowment funds, and insurance companies which, for a variety
of reasons, are not equipped to serve as lenders under the
program, should be interested in supporting this program.
The Association would use the money thus raised to make
advances against student loans (warehousing) or to purchase
loans from qualified lenders.
The warehousing provision stipulates that the Association
will advance no more than 80 percent of the face value of the
insured loans pledged. It further states that the proceeds
from such an advance can be reinvested only in additional
s tuden t loans.
- 4 -
The warehousing operation is needed because the various
state guarantee programs are not uniform. For example, some
do not guarantee 100 percent of the loan, making them hard
to sell. Warehousing is not a sale; it is a temporary
arrangement in which the original lender pledges the loan
for a set period and agrees to take it back. The originator,
of course, would have to pay interest on the funds advanced
to him under the warehousing proposal.
The warehousing arrangement can provide a temporary
source of liquidity for lend~~s, but by itself it would not
have the flexibility or tmpact that can be achieved with a
full-fledged secondary market operation.
In the purchasing operation, the Association would
adjust the rates at which it buys student loans with fluctuations in the money markets. Since this approach is similar
to "Fannie Mae" (the Federal National Mortgage Association),
the secondary market has already been dubbed "Sallie Mae."
How would this work? Sallie Mae would invite bids from
originators of student loans. In effect, the Association
would ask lenders what price they would be willing to take
for student loans in their portfolio. The prices -- at a
discount or a premium -- would vary according to both the
interest rate on the loan (some have a six percent rate,
some have seven, etc.) and the length of time before the
note is finally paid off.
As I said earlier, this may sound very complicated, but
every lender in the country has access to books and tables
which show how various prices, interest rates, and maturities
interact on loans of this type.
Loan originators would continue to service the loans for
a fee. This fee, which would be set by the Association,
would probably have to be in the range of 1\ to 1% percent
at the outset. The figure may sound high, stated as a percentage, but in dollar terms it is not. For example, the
l~ percent fee would mean that the lender would receive $15
for handling the billing and collection procedure for a $1,000
loan for one year. While the figure may not be a break-even
Ii )
.,/"
- 5 -
proposition for a lender on a $1,000 loan, it would average
out with larger loans in the consolidated stages. The
Association could adjust this fee as it gains experience in
the operation.
A major purpose of the secondary market would be to
relieve pressure points -- for example, lenders in college
towns with a high percentage of loanable funds in student
loans. It would have the flexibility to show preference
for freshmen loans, minority loans, or loans in specific
geographic areas where demand is outrunning supply. Sallie
Mae could buy certain amounts of various types of loans in
package deals.
When interest rates come down, Sallie Mae could sell
loans from its portfolio. And, over a period of, say, five
years, the Association could take advantage of fluctuations
in money markets in order to balance out its operations and
earn a profit.
The proposal to establish the National Student Loan
Association is intentionally broad as far as its operations
are concerned. It would have to adjust and adapt its Operating procedures with experience and as market conditions dictated. Flexibility is of paramount importance within the
framework of the goals and purposes as set forth in the
legislation. Within limits, the Association should be able
to establish its own rules and by-laws, and not have these
set by legislation. Obviously -- and again, within limits -a new venture such as this should be able to experiment with
different approaches.
The secondary market for student loans is needed ~ to
help assure liquidity to financial institutions which hold
$2~ billion in student loan paper. With a new source of
funds -- perhaps never tapped by many of them -- they will
continue to support this program.
Office of Education estimates the demand for student
loans will exceed one billion dollars in the school year
starting in September. With the weakness in labor markets,
many students may not earn as much as usual this summer.
That factor, plus the continuing rise in the cost of education, will push up demand for loan funds.
- 6 -
The establishment of a true secondary market is essential
if the student loan program is to reach its full potential
in the months and years ahead.
By way of summarizing these brief remarks, let me stress
three points.
First, the liquidity problem caused by the long-term
nature of these loans is the biggest problem confronting the
continued expansion of the guaranteed student loan plan.
Second, while proposals to set up warehousing operations
would provide limited funds, a secondary market, with a warehousing facility included, would be much more flexible and
more effective in increasing the flow of funds into student
loans.
Third, the liquidity situation in financial institutions
today is very tight. Under these circumstances, lenders want
to preserve their own flexibility and options as much as possible. Yet, there is nothing flexible or assuring about a
student loan which might be on the lender's books for 15
years or more. Just knowing the loans can be sold to obtain
additional funds will increase their attractiveness. This
factor, coupled with the strong commitment of the majority of
institutions making these loans, should enable the program to
meet its full potential during the 1970's.
NEW TAX BENEFITS FOR COLLEGE STUDENTS AND THEIR FAMILIES
Some critics of the Administration's proposals claim that
the middle-income families are being ignored. To put the
whole matter in its proper context, it is imperative that the
impact of the Tax Reform Act of 1969 be considered, par~icular
ly those provisions dealing with tax liabilities of students
and their families.
" I
~
l (
~
~.
./
- 7 I have a table which shows the impact on a family of
four under different circumstances and assumptions.
In 1973, when these provisions became fully effective,
a student who earns less than $1,750 will not have any taxes
withheld from his pay and will not have any tax liability.
In 1969, this same student would have become taxable with
only $900 of earned income, and if he earned $1,750 would
have had to pay $124 in taxes. More importantly, parents
will still be able to claim these students as dependents
if they contribute more than half of their support.
For example, a married couple with $7,500 in income and
two student dependents who each earn the maximum $1,750 will
have a total family tax bill of $518 when the law is fully
effective in 1973. Last year the same family would have had
a tax of $1,004.
The table shows the impact on families with different
income levels and with one or two students in school earning
the maximum. The two most important factors causing the
change are the increase in the personal exemption and the
increase in family income which is not subject to taxes.
I didn't want to take a lot of time with this matter but
I know you have discussed it and I thought the table might be
helpful in considering the total matter of student financial
affairs. Although I have only submitted one table to show
the full impact of the whole Act, I would be happy to furnish
other tables showing the impact in each year, or any other
combination that might be helpful to the Committee.
*k***
Illuz."[.:!'[.:tic.'1 foy:' Cc.lcnd,:I' Year lsr(3 o~ i:c., TLix 1,:n·,
on J?c;:;-,ilics \!~.t,:1 Cr.:i.lclrcn E~:!.·!"1::.n0 1_'1c:crr!~ 0:2 ~n,750
(Incl~dcs 10 Percent Surchurge Under Old ~aw)
.
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Pm'()l1ts
_____ inC:O:T'.2
JJ
St.u.d.~:1"~,s
j.ncC'r,~e
.
}'a:uLly
_ ____21
,L ____
inco:K!
.~~_________________________
~
__________
Old ID',.,:/
.~~__
•_____
:--·1:~'.,
C~•
Married 'Couple With One Student Dependent
$ 7,500
$1,150
$ 9,250
$1,005
10,00J
1,75 0
11,150
1,475
1,0~
15,000
1, "(50
16,150
2,537
1,93'
20,000
1,150
21,750
3,772
3,?(X
Married Couple
~1ith
T,·.ro Stude.:1t
$
61il
Dcp~.:1dents
$ "(,500
$3,5 00
$11,000
$1, 001~
10,000
3,500
13,500
1,lf13
9~
15,000
3,500
18,500
2,516
1,02
20,000
3,500
23,5 00
3,724
3,Ol
Off'iC:c of the Secr(;:te.ry of t:1e 'l'yeasury
Off'icc of Tc~x P.n2.,lys is
lJ
Parents contributc .·IT:ore than one-haJS of the sUJ?port of' the student.( s).
?:J
SWll
~,
of'
511
1I,
JUr.c
of parent.s 'and students inco:-ne.
'J
L:"\r prj.o:::, to tax, ye2.r 1970 j assumes the standard deduction or deductior!s 1:) r~r~c
of inco:nc \,:hic;'cvcr is hiGher, in cOtnl'utin8 par'2nts t~:< and students to":~' 'l'hr ~~
. '. of th~ one student u:,cler olel 1<.1:.• is $12 1f. The t~x ot: the tvo s tude!yts u;';~C:l' old
is $2 1:8. The combined pn.rents 2.!1d students tax is shm,n. Includ.es 10 t::''::X'CC;lt 5U;'
~
Perr.o!1:>.l excr.i::>t.:iO!1 of ~;7)O, minbJur.l st2.!1":'l'.:.rd dccJuctioG of $1,000 and sto.:·,c:.C'.!·a
. 'deducti0!~ or 1) pe~:ceat; $2, 000 c~ilinc or itsci::ccl dc:ciuction of 10 PCl'C:!it.
1
"'/ "7
,-'- ,"-
Department of the
HINGTON, DC 20220
TRfASURY
TELEPHONE WD4-2041
ADVANCE FOR RELEASE AT 10;30 A.M., MDT
TUESDAY. JUNE 16, 1970
REMARKS BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
U.S. CONFERENCE OF MAYORS
DENVER, COLORADO
TUESDAY, JUNE 16, 1970
It is indeed a great honor and privilege to address
this distinguished group. All of you are serving on the
front lines in our nation's efforts to solve some of its
serious domestic problems. We have heard a great deal
about the New Federalism in recent years.
It is people
like you -- working in partnership with Washington and
your state governments -- who will make this challenging
concept a living reality.
The Treasury Department is usually identified with
the nation's economy -- and rightly so. We are greatly
concerned at the moment with this period of economic
transition and especially with its impact on financial
markets. Borrowing costs are at historic highs and no one
is better aware of this fact than the states and municipalities.
But the transition we are now experiencing is absolutely
vital to the return of economic health and stability.
If we persevere, we will indeed witness a return to calmer
markets and lower interest rates more in line with
historical levels.
However, I have not come to talk to you about the
nation's economic difficulties.
Instead I want to discuss
some of the major policy problems which currently face us
all in the area of law enforcement and the chain of events
which links my area of responsibility with yours in a very
real way.
K-436
- 2 In this regard, I speak from two vantage points -one as a concerned American Citizen, and one as the
Secretary of the Treasury. As you are all aware, the
Treasury Department plays a very major role in Federal
law enforcement. The Internal Revenue Service, for example,
is closely involved with enforcement measures related to
its tax collection responsibilities, which range from
Federal tax fraud matters to the pursuit of the legendary
moonshiners. The Secret Service, formed initially to
stop counterfeiting of our currency after the Civil War,
is currently associated most frequently with the protection
of the President -- a responsibility it has performed
so w~ll partly because of the close cooperation it receives
from State and local law enforcement agencies. I would like
to note, however, that the Secret Service continues to
effectively protect the integrity of the dollar. In 1969
alone, it seized $16 million of counterfeit currency.
Finally, Treasury's Bureau of Customs, in addition
to collecting import duties, has a vital role to play in
preventing the smuggling of goods, as well as the movement
of illicit drugs, into the United States. I need hardly
remind you of the importance of this function. Smuggled
drugs, such as cocaine, heroin, and marijuana translate
into very human terms. Last year in New York City, for
example, more young people between the ages of 18 and 35
died from heroin than from auto accidents.
The broad enforcement policies under which Treasury
operates are set by the President. In his State of the
Union Message this year he said, "We must declare and win
the war against the criminal elements which increasingly
threaten our cities, our homes and our lives."
In that same speech he also noted that the primary
responsibility to curb most crimes that affect individuals
rests with local and state rather than with the Federal
government. But, he said, "In the field of organized crime,
narcotics and pornography the Federal government has a
special role it should fulfill."
- 3 -
In the Executive Order on June 4th creating
the new National Council on Organized Crime, the President
also reiterated another policy ... the promotion of close
and continuing cooperation among agencies fighting crime.
He has also made clear his intention to increase Federal
spending and Federal aid to states and cities for these
purposes.
These Federal commitments must find expression at
all levels of government if we are to succeed in our fight
against criminal activity that threatens not only our
personal security but ,our national stability as well.
Although the Internal Revenue Service, the Secret Service,
and the Bureau of Customs are Treasury's three main
law enforcement bodies, it is the Bureau of Customs which is
most closely concerned with the growing national problem of
drugs and drug addiction. Because of the magnitude of
this problem, I would like to focus attention on current
activities of Customs in this area. In a very real sense,
the Customs agents and inspectors are our first line of
defense against narcotics and dangerous drugs.
As we all know, the drug problem has become the drug
crisis. Statistics make clear how serious the problem is.
In fiscal 1969 only 623 pounds of hashish were seized -yet during the first quarter of this year hashish seizures
climbed to 1,334 pounds. This is equivalent to 400 tons
of marijuana -- in just three months.
Five years ago Customs seized a little more than
24 pounds of heroin. Last year that figure was 245 pounds.
This is worth over $60 million on the street -- and I think
you can all imagine the uncounted crimes and deaths that
could have resulted in your cities from the availability
of this additional supply of drugs.
No one is more aware of the magnitude of this problem
than the President. Shortly after taking office, he sent
a message to Congress on the Control of Narcotics and
Dangerous Drugs. In it the President states, "The Department
of the Treasury, through the Bureau of Customs, is charged
with enforcing the Nation's smuggling laws. I have
- 4 directed the Secretary of the Treasury to initiate a
major new effort to guard the Nation's borders and protect
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."
Before I tell you what we in Treasury have accomplished
since this mandate from the President less than one
year ago, I want you to appreciate the dimensions of the
problem which faces us --even with expanded men and material
The physical problems of intercepting contraband
w~en it enters the country are staggering.
More than
225 million travelers pass through United States Customs
each year, and anyone of them could be concealing drugs
on his person. In addition, agents of the Bureau of Customs
must restrict any illegal boat or aircraft entry by
patrolling the entire U S. Border area -- which represents
20,000 miles of border and coastline and 290 international
ports of entry.
The smugglers themselves vary from small groups
to organized crime syndicates with operations spanning
oceans and continents. More and more often these drug
smugglers are using cargo as a hiding place, and there are
two and one-half million separate entries of cargo a year
in this country.
I do not want to over-dramatize -- but I feel that a
recent example of cargo smuggling will show you the kinds
of problems we face, and how we handle them. Last year two
ships carrying a combined total of over 1,100 cases of
sealed cans of codfish and paella landed in New York. The
cargo was being sent to a dummy import firm -- which was
in reality an illegal narcotics front. Inside 12 of the
1,100 cases almost $20 million worth of heroin had been sealed.
The scheme was so exact that leaded weights had been added to th
cans of heroin to make the weights of the illegal cases the
same as the legitimate cases of canned fish. When the cargo
reached the dock, Treasury Customs agents notified
the Bureau of Narcotics and Dangerous Drugs as well as the
New York City police. Agents of all three forces kept
"hands off" when the shipments landed. They allowed the
heroin to be picked up, and they kept an around-the-clock
C:l1r\T~;ll::lnr~ nf rh~ m~n T.;hn h::lrl rho "hinmonr
tJh~n rhese
) )-7
- 5 -
men made their contact, and went to Grand Central to hide the
narcotics in a public locker, the agents moved in. By
waiting to seize the illegal narcotics, the police and
federal agents not only recovered the $20 million worth
of heroin, but they also arrested five recipients. This
case, which involved more thanffi months of detective work
here and abroad, also resulted in arrest of eight persons
in Europe.
As I said earlier, the President's mandate to me when
I took office was to initiate a major new effort to guard
the nation's borders and ports against this growing volume of
narcotics from abroad. We have accomplished many things
since then.
First, that directive was backed up with a substantial
supplemental budget request. Congress responded
magnificently and passed in late December of 1969 an
appropriation for $8.75 million for 915 additional men and
for equipment.
anti~narcotic
Since then, Customs has moved swiftly to implement
that supplemental appropriation. The 915 additional persons
authorized have been hired and many began work this month.
Several new programs and facilities have also been set up to
help the Department fight the illegal drug traffic
and
these additions should make drugs harder to obtain in your
local areas.
We have established international narcotic
intelligence groups with offices in major
U. S. cities, to provide better evaluation of
information relating to smuggling into the
United States.
In support of the intensified enforcement effort,
Customs has installed a central automatic data
processing intelligence network which provides
a comprehensive bank of suspect information on
a 24-hours-a-day basis to Customs officers. Much
of our information comes from local law enforcement
officials -- and increased cooperation with your
cities will be essential in this operation.
- 6 -
We have opened two new Customs stations in the
remote Big Bend area of Texas, a favorite
section of the border for smugglers.
New laboratories which provide rapid identification
of narcotics and dangerous substances have been
established, and their prompt analysis of
narcotics will speed the judicial processing
of violators.
We have equipped our Customs officers with
more aircraft and boats capable of pursuing
smugglers along our southern border and at major
lakes and coastal areas.
Customs has embarked on a major training program
stressing techniques of narcotics smuggling. This
is particularly important for Customs inspectors
and import specialists who appraise commercial
shipments. In addition, a new Federal law
enforcement training center is being created to
insure the highest training standards for our
agents.
Customs has just concluded an agreement with the
government of Mexico in which our two Customs
services will cooperate more extensively in the
prevention of smuggling of illicit drugs in the
United States from south of the border.
Finally, the most dramatic change in Customs
is the new emphasis on intensified examination,
particularly of commercial cargo.
These are some of the steps we have taken in response
to this growing problem. Already we have received
encouraging results, such as those experienced with the
new "re-check" procedure for "pre-cleared" travelers from
abroad. For example, on the first flight which was
re-checked after entry into the United States, at Buffalo,
New York, over one million dollars worth of cocaine was seized.
)
- 7 The person possessing the narcotic had been pre-cleared
for U. S. Customs entry in Canada. Without the expanded
Customs procedure these drugs would have been successfully
smuggled into the country.
I would like to point out that overall, this new
program may cause some unpopular delays for passengers corning
into the United States -- but VJe must remember that the
slight inconvenience may ultimately result in the saving of
a child's life, and a few extra minutes in line seems but a
small price to pay.
Since the seizures of the illegal cocaine in Buffalo,
other dangerous drugs have also been confiscated by our
expanded operation. However, I think it is important to
stress that we are not measuring our effectiveness by the
amOU'"1t of illegal narcotics we seize -- but rather by the
reduction in deaths and drug addiction among the young men
and women in our country.
In our close work with the Justice Department's
Bureau of Narcotics and Dangerous Drugs, I feel we are now
making progress which will help lead to a reduction in this
senseless loss of young lives.
The drug problem grew to its present intensity
so quickly that we were not as prepared as we would like to
have been. However, the deep commitment by the Nixon
Administration, and the programs we have undertaken in the
Treasury Department will help to reduce this problem -- but
we can only do this be going "full speed ahead."
This is what I hope we will all do -- "go full speed
ahead." In this respect I would like to mention other
Treasury proposals to strengthen our present capabilities to
fight other areas of crime. One such proposal concerns theft
of cargo from ports of entry. Legislation which we plan
to submit to Congress shortly would place all landing cargo
within the jurisdiction of the Customs service until it is
delivered to the receiver. It would, in addition, give us
greater control of smuggling.
- 8 We are also actively seeking legislation which will
enable us to better cope with so-called "white collar"
crime, especially that involving secret foreign bank
accounts. Millions of dollars are siphoned out of the
country each year and deposited in secret, numbered bank
accounts in foreign countries to escape payment of income
taxes. Perhaps more serious, a substantial portion comes
back into the country in innocent guise and is used by
organized crime to buy into legitimate businesses.
The House has passed a bill, and the Senate is
considering it now, which will give us some tools to track and
identify these illegal.currency movements. We have proposed
cer~ain amendments which we believe will strengthen the bill.
I would like to mention one other aspect of law
enforcement -- and that is crime prevention. To the extent
that your cities can set up programs which will help educate
the young about drugs, and involve them in worthwhile
programs for individual improvement, then you will be doing
a great deal to prevent future problems. Such programs would
make the duty of law enforcement not only an easier but also
a much better understood job in our society.
The Federal government is working diligently to help
provide some of the necessary new funds for these programs at
the state and local level. We hope to do more through such
proposals as Revenue Sharing. The Nixon Administration has
proposed to allocate approximately one-half billion dollars in
1971, and up to five billion dollars in 1975 to state and local
governments through Federal Revenue Sharing.
Each state would receive a revenue allocation based on its
share of the national population as well as its own effort to
raise revenue on a per capita basis. The state would be requir~
to pass on a set portion of its revenues to your local
governments. We are keenly aware of the financial squeeze
facing many of you at the state and local levels -- and we
feel that this program should help to provide the increased fu~~
which is needed for such essential programs as municipal
law enforcement
0
I am convinced that we can and will cooperate closely to
solve the very difficult law enforcement problems which we face.
To the extent that we do, the United States will be a better
place to live for ourselves, our children, and generations
thereafter. There is no cornmon obj ective more important than thiS
000
(ADVANCE FOR RELEASE AT 10'30 AM, MDT
TUESDAY, JUNE 16, 1970)
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE j''1!URRAY L. WE I DENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE
McGRAW-HILL CONFERENCE ON INDUSTRY AND THE ENVIRONMENT
NEW YORK CITY, JUNE 16, 1970, 12:00 NOON, EDT
ECONOMICS AND THE ENVIRONMENT
In any consideration of the environment and how to improve
it, there seems to be a division of labor. Ecologists and
other scientists are supposed to dramatically and vividly get
across the notion that we have a severe pollution problem.
Engineers and other more practical types are subsequently
charged with coming up with ways of cleaning up the pollution
and thus improving the quality of our environment. However,
then the economists are expected to fill their unique role.
We are supposed to get up and say why we cannot afford to do
any of these desirable things.
I am going to try to depart from tradition today and
not play the proverbial role of the wet blanket. Rather,
my task is to attempt to show how we can -- not necessarily
that we will -- but how, using sensible solutions, we can
very much afford to clean up our environment.
First of all, some perspective is useful. The Federal
Government currently is embarking upon a major increase in
expenditures for reducing pollution and otherwise improving
the quality of the American environment. From a level of
$644 million last year, we anticipate that such outlays are
running at the rate of $785 million this year and will reach
$1.1 billion in the fiscal year 1971. This more than 50
percent expansion during a two-year period is creating
undoubtedly one of the major growth areas of the American
economy. The 1971 figure rep res en ts a more th an five fo ld
increase from a decade ago.
K-437
- 2 -
All indications point to a long-term continuation of the
growth of government spending in the area of the environment.
However, candor requires me to point out that very heavy
pressures on the Federal budget are likely to dampen down
the growth rate of any government spending program, no matter
how worthy.
The Administration has announced revisions in the budget
estimates for the fiscal years 1970 and 1971 which show small
deficits rather than the small surpluses indicated earlier.
The budget situation is likely to remain relatively tight for
some time. Nevertheless, environmental planning is basically
a long-term affair. Hence, I believe that it would be useful
to focus on the period beyond' the immediate short-run.
As a starting point for any long-term economic and
financial analysis, I find it useful to refer to the innovative
5-year projections that the Administration economists prepared
and which were included in the President's budget for the
fiscal year 1971. These projections show that, by the fiscal
year 1975, Federal revenues from the existing tax system will
increase by about $64 billion from the current level. Of course,
these and the other figures that I will present are based on a
set of economic assumptions. Although I will not go into them,
I think that you will find that they are quite reasonable.
On the other side of the ledger, when we cost out the
future impact of the existing program structure of the Federal
Government, we estimate that expenditures for all government
programs in the fiscal year 1975 would be about $28 billion
above the current level. The revenue growth of $64 billion,
less the expenditure increase of $28 billion, would seem to
provide a comfortable cushion of $36 billion for fiscal 1975.
I am afraid that, here, I am going to be, at least for
awhile, the wet blanket. The Federal Dudget is not set in
concrete; changes will continue to De made in it. For example,
the 1971 budget itself contains new initiatives -- such as
welfare reform and revenue sharing -- which are estimated to
cost $16 billion in the fiscal year 1975. At this point, I,
of course, do not know what new initiatives will be undertaken
in the fiscal year 1972, or 1973, or 1974, or 1975. But there
is something that I can say with considerable assurance, and
that is that there will be new initiatives over these years.
- 3 -
Clearly, several more sets of $16 billion a year in
new initiatives would more than use up that $36 billion
margin in the fiscal year 1975.
Hence, even though there is some room for flexibility
in the Federal budget, it is quite clear to me that the
existing revenue structure -- which is not a particularly
. low one -- does not permit too great a variety of ambitious
and costly new undertakings in the years ahead. One rather
simple reaction to this type of analysis, of course, is to
blithely corne up with large new tax programs to cover new
expenditure recommendations (which I take to be quite a
different matter from raising revenues to meet expenditure
commitments which already have been made). New taxes may
seem to be an easy financing approach for the proponents
of a new spending program. However, I have failed in recent
years to notice any ground swell of public opinion in favor
of raising taxes substantially above their current levels.
Indeed, while I have corne across numbers of people who think
that the other fellow may be undertaxed, I do not recall many
complaining to the Treasury that their own tax bills were
too low.
Hence, I think that we need to be thinking of some hard
answers to the hard question of how are we going to finance
the necessary improvements in the quality of our environment.
Here I would think that an economist has something to say.
It may not be pleasant, but I hope that it is useful.
As I survey the various estimates of the growing future
costs of cleaning up the pollution which has not yet been
created, but which is likely to occur on the basis of present
practices, the economist in me is greatly stirred.
In a sense, I am offended by the prospect of our having
to devote an ever larger share of our national resources to
cleaning up an even faster growing mountain of pollution.
Rather, I am impressed by the desirability of all of us
adopting methods of producing and consuming which are less
polluting than our present practices.
The President was getting at this point in his environmental
message of February 10, 1970. In discussing one particular
aspect of the pollution problem, the disposal of solid waste,
he said:
- 4 -
"One way to meet the problem 'of solid
wastes is simply to surrender to it:
to continue pouring more and more public
money into collection and disposal of
what happens to be privately produced
and discarded."
However, President Nixon went on to state, "This is the
old way; it amounts to a public subsidy of waste pollution."
He pointed to a more constructive approach:
"If we ar~ ever truly to gain control of
the problem, our goal must be broader:
to reduce the volume of wastes and the
difficulty of their disposal, and to
encourage their constructive re-use
instead."
In that vein, as an economis t, I find one general approach
particularly appealing -- to make the act of polluting more
expensive to the polluter than not polluting, and sufficiently
more expensive that he, she, or it will change their current
ways of doing things.
Let us face it. Far too frequently, polluting is more
profitable, or cheaper, or easier, than not polluting. The
simple-minded solution that we hear far too often these days
seems to be to tear down that capitalistic structure which is
doing the polluting. To use the most scholarly and expressive
language that I can marshal, that is pretty stupid. It is
certainly hardly necessary for the purpose. For one .thing,
I am not aware of any highly advanced noncapitalistic society
that has been able to avoid pollution on a large scale.
Here the economist, I think, does have a way out. The
pri ce sys tern really does work to allocate resources efficiently,
whether the society is capitalistic or socialistic. Hence, in
order to make the price system work in the way that we want
it -- to discourage pollution -- we need to attach some form
of economic disincentive to the creation of pollution.
In a sense, the social cost of pollution now borne by
society as a whole -- whether in the form of smog or contaminat e d r i ve r s - - nee d s t 0 b e s h i f ted b a c k tot he poll ute r h i ms e1£. .
I do not mean this as a form of punishment but, rather, as a .
direct incentive to change to less polluting ways of doing thlngS.
-
5 -
This is a critical point.
If instead we are going the
eleemosynary route and have society or the Treasury pick
up the cost, we are not introducing any incentive to reduce
pollution.
Again, I would like to quote a pertinent section from
the President's landmark message on the environment:
"The fight against pollution ... is not
a search for villains. For the most
part, the damage done to our environment has not been the work of evil
men .... It· results not so much from
choices made, as from choices neglected;
not from malign intention, but from
failure to take into account the full
consequences of our actions."
The next passage, again, is not taken from the works of
an economist -- although many of us might like to be able to
claim the authorship -- but from the President's message:
"Quite inadvertently, by ignoring environmental costs, we have given an economic
advantage to the careless polluter over
his more conscientious rival. While
adopting laws prohibiting injury to
persons or property, we have freely
allowed injury to our shared surroundings."
The basic idea is that a product should be valued partly
in terms of its burden on the environment. At present, much
of the "cost" of pollution is borne by the public at large.
To the extent that individuals, business firms, or other
organizations whose actions contribute to pollution can be
forced to absorb some of these hi therto "external costs,"
the market can be made to work against, rather than for,
pollution. Thus, producers will have more incentive to
"economize" on pollution, similar to their developing methods
of reducing labor and materiel costs.
There are a number of alternative ways of promoting this
general approach. For example, a tax could be levied upon the
legal act of polluting. Alternatively, regulator~ actions.
could be instituted either separately or perhaps In connectIon
with a related tax payment. At the other end of the spectrum
- 6 -
is legal action to make certain types of pollution unlawful.
Enforcement could include perhaps levying fines, or taking
more drastic action if the polluting continues to be performed.
I do not mean to beg the question as to what level of
pollution control or reduction to aim for.
I merely leave that
most important determination to others. However, I sense that,
of necessity, we will have to stop substantially short of any
simple-minded notion of totally eliminating pollution. Let me
cite a small, personal example.
I find that my office generall\'
is cleaned once a day.
I am sure that it would be cleaner if that were done hourly; but the inconvenience that it would cause
me, plus the added cost, would not be worth it. In a crude
sense, I also find a parallel with the concern over obtaining
the-best possible education. There used to be a running
debate between some professional educators, who favored "the
best possible education," and those of us more mercenary types
who advocate high quality education but would stop somewhat
short of devoting 100 percent of the GNP to education. In the
case of environmental pollution, as well as other potential
ob j ects of governmen t spending, we are going to have to consider
determining where the costs begin to exceed the benefits and
even where the margin of benefits over costs is less than that
for other claims on our resources.
Getting back to taxes as
pollution, I find an array of
tax might well be high enough
up the pollution. This would
costs closer together.
an instrument for reducing
alternatives available. The
to cover the cost of cleaning
bring the social and private
One possible application is to the junk automobile,
which we are "producing" in ever growing numbers. The rate
of abandonment is increasing rapidly. Here in New York City,
2,500 cars were towed away as abandoned on the streets a
decade ago. In 1964, 25,000 were towed away as abandoned;
in 1969 the figure was more than 50,000.
The way to provide the needed incentive is to apply to
the automobile the principle that its price should include not
only the cost of producing it, but also the cost of disposing
of it. The Council on Environmental Quality is now studying
methods such as the bounty payment (financed by a special tax
~n auto production) to promote the prompt scrapping of all
Junk autos.
OJ
/
) ,,/
~
- 7 -
In many other cases, however, the tax could be sufficiently high that it becomes a type of protective tariff.
That is, it does not really bring in any substantial amount
of revenue. But by encouraging less polluting methods, the
tax reduces the need for government expenditures to clean up
the pollution. This latter approach, of course, is reinforced
by the budget outlook analysis that I presented here earlier.
But even if that were not the case -- even if the budget
situation were a happier one -- I still would see great charm
to a "birth control" approach to pollution, to the extent
possible.
Even though I fina this approach instinctively attractive,
I doubt whether it will suffice. It is more likely to work on
prospective new production and consumption facilities -- which
have not yet been built and paid for. However, it may be
inappropriate or highly inequitable in the case of facilities
which are already in existence and which were constructed in
good faith under a different set of ground rules.
Hence, the case for some direct government expenditures
and/or substantial tax benefits, particularly during a long
transition period, may be quite strong.
However, I doubt whether the tax and expenditure systems
themselves will suffice as devices for achieving the desired
level of improvement in the quality of our physical environment.
Despite our general distaste for governmental controls, pollution control appears to be one of the necessary exceptions.
by
In many areas, strict standards and strict enforcement
will be necessary, not only to insure compliance but also in
fairness to those who have voluntarily assumed the often
costly burden while their competitors or neighbors have not.
Without effective government standards, industrial firms that
spend the necessary money for pollution control may find themselves at a serious economic disadvantage as against their
less conscientious competitors.
Similarly, without effective Federal standards, states
and communities that require such controls may find themselves
at a disadvantage in attracting industry, as against more
permissive rivals. Air pollution, particularly, is no
respecter of political boundaries. A community that sets
and enforces strict standards may still find its air polluted
from sources in another communi ty or s ta te .
- 8 -
To sum up, I do not believe that we will have availahle
resources to clean up all of the pollution that could possibly
be generated in the United States in the coming decade, much
less in the period beyond that. The approach that is feasihll'
and more economically desirable is to encourage business,
government, and consumers alike to so change their ways of
producing and consuming as to reduce the amount of pollution
that is created in the first place.
As President Nixon stated in transmitting his message
presenting a comprehensive program to reduce pollution,
" ... We at last will succeed in restoring the kind of environment we deserve."
000
Department of the
iINGTON. D.C. 20220
~NTION:
TREASURY
TElEPHONE W04-2041
FINANC i l l ED ITOR
RELEASE 6: 30 P.M.,
iay, June 15, 1970.
RESULTS OF TREASURY'S WEEKLY
BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
_s, one series to b~ an additional issue of the bills dated March 19, 1970
, and
other series to be dated June 18,.1970
, which were offered on June 10,1970,
~ opened at the Federal Reserve Banks today.
Tenders were invited for $1,800,000,000
;hereabouts, of 91-day bills and for $1,300,000,000 or thereabouts, of 182 -day
.s. The details of the two series are as follows:
fE OF ACCEPTED
'ETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturinf! September 17, 1970:
Approx. Equiv.
Price
Annual Rate
98.312
98.295
98.298
6.678%
6.745%
6.733%
182-day Treasury bills
maturin~ December 17, 1970
Approx. Equi v .
Annual Rate
Price
6.876%
96.524 ~
96.466
6.990%
96.488
6.947%
Y
Y
~ Excepting 1 tender of $150,000
92% of the amount of 91-day bills bid for at the low price was accepted
60% of the amount of 182_d~ bills bid for at the low price was accepted
1 TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
strict
ston
w York
iladelphia
eve land
chmond
lanta
Lcago
. LOUis
meapolis
lsas City
LIas
1 Francisco
TOTALS
AEElied For
AcceEted
$ 38,820,000 $ 25,390,000
1,201,960,000
2,147,275,000
23,870,000
44,410,000
41,910,000
67,950,000
26,120,000
26,120,000
27,740,000
50,460,000
290,530,000
357,530,000
37,640,000
50,970,000
18,390,000
32,150,000
23,000,000
26,070,000
14,810,000
28,310,000
191 236°2°°0
69 2 °1°2°°0
$3,061,425,000
$1,800,370,000
AEElied For
72 ,390,000
1,552,580,000
11,080,000
38,830,000
10,160,000
36,970,000
141,490,000
32,660,000
18,740,000
27,710,000
31,250,000
139 2°7°2°°0
Acce:.eted
$ 20,890,000
943,580,000
11,080,000
29,430,000
10,160,000
28,120,000
113,990,000
28,260,000
15,340,000
26,500,000
20,250,000
53 2°7°2°°0
$2,112,930,000
$1,300,670,000
$
£I
£I
lcludes $364,850,000 noncompetitive tenders accepted at the average price of 98.298
lcludes $215,540,000 noncompetitive tenders accepted at the average price of 96.488
lese rates are on a bank discount basis. The equivalent coupon issue yields are
34 %for the 91 -day bills, and 7.30'/0 for the 182 -day bills.
, IMMEDIATE RELEASE
June 17, 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
100,000,000, or thereabouts, for cash and in exchange for
asury bills maturing June 25, 1970,
in the amount of
013,205,000,
as follows:
91-day bills (to maturity date) to be issued June 25, 1970,
the amount of $1,800,000,000,
or thereabouts, representing
additional amount of bills dated March 26, 1970,
and to
ure September 24, 1970,
originally issued in the amount of
302,370,000,
the additional and original bills to be
ely interchangeable.
ed
182-day bills, for $1,300,000,000,
June 25, 1970,
and to mature
or thereabouts, to be
December 24, 1970.
The bills of both series will be issued on a discount basis
er competitive and noncompetive bidding as hereinafter provided,
at maturity their face amount will be payable without i.nterest.
y will be issued in bearer form only, and in denomin'ations of
,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
e,. Monday, June 22 , 1970.
Tenders will not be
elved 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 decimals, e. g., 99.925. Fractions may
be used. It is urged that tenders be made on the printed
rns and forwarded in the special envelopes which will be supplied
Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
tamers provided the names of the customers are set forth in such
ders. Others than banking institutions will not be permitted to
mit tenders except for their own account. Tenders will be received
hout deposit from incorporated banks and trust companies and from
- 2 responsible and recognized dealers in investment securities. Tenden
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 b~
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 his action in any such respect
shall be final. Subj ect to these reservations, noncompetitive tenderl
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) ot 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 June 25, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
June 25, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for diffen: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, 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 ornBranch_
'OR IMMEDIATE RELEASE
.June 17, 1970
TREASURY'S MONTHLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
L,700,000,000, or thereabouts, for cash and in exchange for
~easury bills maturing June 30, 1970,
in the amount of
L,701,673,000,
as follows:
lr
274-day bills (to maturity date) to be issued June 30, 1970
1 the amount of $500,000,000,
or thereabouts, representing
1 additional amount of bills dated March 31, 1970,
and to
lture March 31, 1971,
originally issued in the amount of
l,201,060,000,
the additional and original bills to be
~ee1y interchangeable.
365-day bills, for $ 1,200,000,000,
or thereabouts, to be
lted June 30, 1970,
and to mature June 30, 1971.
The bills of both series will be issued on a discount basis
lder competitive and noncompetive bidding as hereinafter provided,
ld at maturity their face amount will be payable without i.nterest.
ley will be issued in bearer form only, and in denominations of
0,000, $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
me, Tuesday, June 23, 1970.
Tenders will not be
ceived at the Treasury Department, Washington. Each tender must
for an even mUltiple of $10,000, and in the case of competitive
nders the price offered must be expressed on the basis of 100,
th not more than three decimals, e. g., 99.925. Fractions may
t be used. (Notwithstanding the tact that the one-year bills will
n for 365 days, the discount rate will be computed on a bank
Scount basis of 360 days, as is currently the practice on all
~ues of Treasury bills.)
It is urged that tenders be made on the
lnted forms and forwarded in the special envelopes which will be
pp1ied by Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
stomers provided the names of the customers are set forth in such
... 2 submit tenders except for their own account. Tenders will be rece~
without deposit from incorporated banks and trust companies and fn.
responsible and recognized dealers 1n investment securities. T~et·
from others must be accompanied by payment of 2 percent of the face 1
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 I
of accepted bids. Only those submitting_competitive tenders will be
advised of the acceptance or rej ection thereof. The Secretary d the
Treasury expressly reserves the right to accept or reject any or. all
tenders, in whole or in part, and his action in any such respect
shall be final. Subj ec t to these reservations, noncompetitive 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 June 30, 1970, in
cash or other immediately av~ilable funds or in a like face amount
of Treasury bills maturing June 30, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be mace
for differel1ces 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.
lepartmentoftheTRfASURY 0
mON. D.C. 20220
~~I~
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 CONFERENCE OF LIEUTENANT GOVERNORS
ATLANTA, GEORGIA
JUNE 20, 1970, 9:00 A.M., EDT
STATE AND LOCAL GOVERNMENT:
A NATIONAL PRIORITY
It has become fashionable in recent months to talk
about the Nation's priorities and especially about the
need to change them.
I should like to suggest that a
most significant reordering of our priorities is taking
place right now, but in a rather quiet and undramatic
fashion: the shift in emphasis within the American public
sector from Federal Government departments and agencies to
state and local governments.
Nowhere is this fundamental shift more evident than in
the President's new budget. In the fiscal year 1971 budget,
total Federal spending is held virtually flat, while financial
assistance to state and local governments reaches an all-time
high of approximately $28 billion. This sum is almost four
times the amount of Federal aid 10 years ago. These grantsin-aid and related assistance come to almost one-fourth of
all domestic outlays of the Federal Government.
However, the change is more than merely quantitative.
Basic qualitative changes are being made at the same time.
Before I present the details, some perspective may be helpful.
Federal aid to state and local governments predates the
Constitution. Under the Articles of Confederation, the Congress
provided grants of Federal land in 1785 to support education
in the Northwest Territory. This policy was reaffirmed in
1787, the year of the adoption of the Constitution.
K-438
- 2 Grants and other forms of Federal aid have grown
rapidly over the past two decades. The Federal-Aid Highway
Act of 1954 significantly modified the pattern of aid to
state and local governments. It moved transportation programs
to a dominant position in Federal assistance by 1960 over
two-fifths of the total.
The more recent change has been the increase in human
resource programs during the past decade to almost threefifths in 1971. Transportation meanwhile is declining to
less than two-fifths in 1971.
Apart from direct Federal aid, many other Federal
activities affect the finances of state and local governments.
Examples are state and local participation in Federal employee
training programs and technical assistance provided by Federal
agencies. States and localities also have first calIon
obtaining, at relatively nominal costs, land and equipment
which Federal Government agencies declare are surplus to
their present needs.
State and local governments also receive special
benefits through the tax system. Interest cost savings
that result from the exemption of interest on state and
local bonds from Federal income taxes are estimated at
$2 billion in 1969. The Federal credit for payment of
state inheritance and estate taxes has encouraged states
to make more effective use of this source at a Federal
revenue cost of $350 million a year. Similarly, since
taxpayers may deduct local property taxes from Federal
taxable income, a portion of state and local taxes is
offset by a reduction in the taxpayers' Federal liability.
In 1969, the value of this deduction in terms of tax savings
to individuals was approximately $2 billion. Other state
and local taxes deducted from Federal tax liability amounted
to an additional $4 billion with approximately half accounted
for by personal income taxes in 1969.
Impacts of Federal Aid
The rapid increase in Federal aid to state and local
governments has become an increasingly important factor in
the finances of all levels of government. Federal aid has
risen sharply as a proportion of Federal spending in the
past decade -- going from 7 percent of the total in 1961
to an estimated 14 percent in 1971. Because of successful
- 3 -
efforts by state and local governments to increase revenues
from their own sources, the relative increase in the impact
of Federal aid has not been quite as marked for the state
and local governments which receive the money as it has been
for the Federal Government. Nevertheless, Federal aid has
risen as a proportion of state and local revenues, moving
from 13 percent in 1960 to 18 percent in 1970.
The pattern of state and local spending is influenced
by Federal grants requiring the recipient government to
match Federal-aid funds with its own resources.
In 1966, state and local governments provided an
estimated $5.5 billion of their own funds to receive the
$13 billion of Federal grants spent in that year. This
means that, on the average, recipients raise $1 for every
$2 forthcoming from the Federal Government. However, state
and local government matching funds account for only about
10 percent to 14 percent of general expenditure out of their
own revenue sources.
In 1971, required matching funds will
rise to an estimated range of $14 billion to $16 billion.
Federal Aid to Urban Areas
Within the rising total of Federal financial assistance
to state and local governments, another important qualitative
shift is taking place -- the increasing emphasis on urban
areas.
In 1971, approximately $19 billion of the $28 billion
of total Federal aids will be spent in the major metropolitan
areas. This is an increase of about $15 billion or nearly
300 percent over the amount of aid provided to these urban
areas in 1961 and almost $5 billion in the short span of only
three years. The major increases in Federal Grants for urban
areas occur in law enforcement, Model Cities, and public
assistance.
There are a number of other Federal programs that have
an important bearing on urban development including direct
Federal construction and 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 now running
at about $44 billion a year compared to $2] billion in 1964.
- 4 -
Because of limitations of the data, it is not possible
to trace funds directly from the Federal Government to most
metropolitan areas. However, a pilot study conducted in
San Francisco traced $23 million that went directly to the
city in 1968 and an additional $41 million that went throuih
the state or other intervening jurisdictions, subsequently
benefiting the city. The total of $64 million accounted for
10 percent of San Francisco's total revenues in that year.
State and Local Fiscal Problems
As is well known, an imbalance exists between public
services demands on state and local governments and the
revenues produced by their tax systems which tend to be
relatively unresponsive to economic growth.
State and local expenditures rose by $90 billion from
1948 to 1968, whereas revenue from their own sources increased
$72 billion. Over the same period, state and local debt rose
by more than $110 billion.
State and local governments rely principally on consumer
and property taxes, which grow at a rate barely sufficient to
keep up with the growth in the economy. In an attempt to
meet growing service demands, states made more than 300 rate
increases in major taxes over the last decade. In 1969, 36
state legislatures approved new taxes or increased existing
ones that will augment tax receipts by a record $4 billion
a year. This is significantly larger than the $2.5 billion
and $1.3 billion added to state tax receipts in 1967 and
1965, respectively. Local property taxes were also raised
frequently during this period.
Personal income tax receipts accounted for 45 percent of
total Federal revenues, but only about 8 percent of total state
and local government revenues. These taxes more than keep
with the growth of the national economy. They are estimated
to increase in yield by roughly 15 percent for every 10 percent
rise in GNP.
The response of the Federal Government to the fiscal
plight of state and local governments over the past two
decades has been to increase Federal grants from less than
$2 billion in 1948 to over $18 billion in 1968. While
effective in many instances, this rapid growth in Federal
grants has been accompanied by many undesirable aspects.
-
5 -
One unfortunate result is overlapping programs at the
state and local level. Another undesirable byproduct is
increased administrative costs. Still other negative
characteristics are program delays and uncertainty.
Perhaps a more fundamental concern is the resultant
decline in the authority and responsibility of chief
executives, as grants have become tied to functional
bureaucracies. Related to this is often the creation of
new and frequently competitive state and local governmental
institutions.
In recognition of these problems, the Administration
has'proposed basic reforms in the structure of Federal aid
to state and local governments. We refer to these changes
altogether as the "New Federalism." This concept embraces
three major sets of actions: improving the basic programs,
modernizing management, and decentralizing decision-making
in the public sector.
As President Nixon stated in his nationwide address
launching the New Federalism, "After a third of a century
of power flowing from the people and the states to Washington,
it is time for a New Federalism in which power, funds, and
responsibility will flow from Washington to the states and
to the people."
Improving the Basic Programs
Basic reform of Federal programs is being undertaken
in such major functional areas as pollution control, welfare,
unemployment insurance, and mass transit; legislation to bring
about these changes has already made considerable headway in the
Congress. A new environmental financing authority is being
developed which is designed to ease the pressures on state and
local bond markets. The Administration has recommended a new
l2-year program to assist urban transportation, through $10
billion of grants to communities to modernize and expand mass
transit facilities and services. We have designed the first
fundamental overhaul of the unemployment compensation system
since the 1930's. Our family assistance program combines
income maintenance with work and training requirements.
- 6 -
Modernizing Management
Management processes for Federal aid and other programs
also are being overhauled. This is an area that has long
been overdue for attention. The regional boundaries of the
major domestic departments of the Federal Government are being
modified so that their headquarter cities are the same and
the regions which they cover conform. A new Office of
Intergovernmental Relations has been created in the Office
of the Vice President. It is headed by the former governor
of South Dakota. His chief assistant is the former mayor
of Ann Arbor, Michigan.
. In order to foster more rational decision-making on
the whole gamut of domestic programs, President Nixon has
presented a far-reaching reorganization plan. Unless Congress
rejects it, the plan will establish a new Domestic Affairs
Council. All of the Cabinet officers with important responsibilities for domestic programs will be on the Council -- the
Secretaries of Health-Education-Welfare, Transportation, Housing
and Urban Development, Agriculture, Interior, Labor, Commerce,
and Treasury, the Attorney General, and the Postmaster General.
The Domestic Affairs Council will provide a forum for
considering all of the various Federal activities and functions
that affect the states and their subdivisions.
Decentralizing the Public Sector
We are attempting to decentralize the public sector in
several ways -- through revising grant program procedures,
through an overhauled manpower training program, and, most
strikingly, through the innovation of revenue sharing. In
the grant-in-aid area, the Nixon Administration has recommended legislation that would (1) authorize the President
~o con~olidate closely related programs, (2) fund jointly
ln a slngle package closely related grant programs within
the same Federal agency, and (3) authorize joint funding
of projects across agency lines.
The manpower training changes are basically intended
to encourage the states to take on responsibilities which
are now frequently carried out mainly at the Federal level.
- 7 -
But perhaps the most innovative aspect of the New
Federalism is the proposal for a program of sharing Federal
revenue wi th state and local governments.
It is the revenue
sharing program that he was describing when President Nixon
stated in a message to the Congress:
"Ultimately, it is our hope to use this
mechanism to so strengthen state and local
government that by the end of the corning decade,
the political landscape of America will be
visibly altered, and states and cities will
have a far greater share of po~er and responsibilities for solving their own problems."
Because revenue sharing is a relatively new idea, I would
like to describe it in some detail. There are five major
characteristics of our revenue sharing plan:
The first distinguishing characteristic is its
predictability. The amounts to be shared will be geared
to a specified percentage of the personal income tax base.
The payments will be made automatically every three months.
The second distinguishing characteristic is the
ex andin scale of the Federal ayments. Along wIth the
natural growt in t e Fe eral tax base, the percentage
applied to the base will grow in amount from one-sixth of
one percent for the last half of 1971 to one percent by
1976. The absolute amounts will rise from $275 million
in 1971 to an estimated $4 billion for 1975. The first
quarterly payment of $275 million will be made in the final
quarter of 1971. The second payment will be made early in
1972.
Perha s the most im ortant characteristic of our revenue
sharin
Ian IS t at t e Fe eral al wIll e uncon Itlonal.
Revenue sharing funds will not be tied to speci ic requIrements
or 1imit~d to certain programs. The allocation of funds will
be based on formulas prescribed by law and linked to data
prepared on a regu1a~ basis by the Department of Commerce.
The fourth characteristic is that the Federal funds
will be distributed on a fair and objective basis. The
am?unt to be shared with any given state will be based
p:lmari1y on its population. There will be a single and
slmp1e adjustment for combined state and local tax effort.
- 8 -
States with greater relative revenue effort will get more
than they would otherwise.
(Table 1 shows the state distribution of revenue sharing based on a $1 billion fund
to facilitate percentage comparisons.)
The fifth and extremel
our revenue s arlng proposal
characteristic of
We are moving on all three fronts at once -- decentralizing
more public responsibilities to state and local governments,
improving the basic programs that the Federal Government
conducts, and modernizing the Government's entire management
structure.
Personally, I would be surprised if this three-pronged
approach produced any dramatic results immediately. Actually,
I would be concerned that such initial reactions would not be
durable. Rather, I expect that gradually over the decade of
the 1970's, we will witness some rather fundamental but
evolving developments. These relatively subtle changes will
mainly be in the nature of increased emphasis on solving
domestic problems of general significance at the state level
and also at the community level. The approaches adopted by
each of these governments are not likely to be uniform. That
in itself may be a major source of strength, that solutions
will be tailormade to fit each different local requiTement.
To the extent that more of the decision-making and
hence action is shifted to the states and their subdivisions,
they will be more capable of attracting high caliber personnel
and thus become more effective at carrying out their functions
and programs. This perhaps fundamental objective of the New
Federalism will be basically the achievement not of the Federal
Government itself but of units of government closer to the
people. That too would represent a fundamental and highly
desirable shift of the focus of Federal pOlicymaking.
9 (.
Table 1
'"
,STATE AND LOCAL SHARES UNDER ADMINISTRATION
REVENUE S!f.\IUNG Pi<OPOSAl.
!a million. 01 dollar.
SUte
Stote./
totol
Loul
.h.,.
Stale
.horc
-----------------.-------1---~::~~~::::::::::::::::::::::::::::::::::::::::::~::~::~~
11:~
~:~
13. 5
1.1
2.9
6.0
74.0
~:r::s~~::::::::::::::::::::::::::::::::::::::::::::::::::
California._ - _- ____ • ___ ._ -••• ____ • __ • ___ " _. ______ • ____ • ___
I~:~
107.3
~:~
33.2
COnnecticut __ • _____ • _____ • __ •• _. __ •••••••••••• ___ .________
Delaware_. __ •• _••• __________ • ____ ••• __ • __ •.. ____
District of COlumbia ••• _••• _•• _._ •••• __ • ____ ._. ______ •• ____
Florida. __ • ___ •••• _. _. ___ • _• ."___ • __ • _. ____ . ___ • ____ • ___ ,,_.
2.8
1,.5
31. '1
...
9.2
~::~t-::::::::::::::::::::::::::::::::.:
Idaho _______ • ____ ••• _____ • __ ._ •• __ • __ • ___:::::::::
• _______ ::::::::
._. ____ .
~: ~
i:.9~
17.3
3.5
IlIinois_ •• ________ • __ • ____________ •• ___ •. _____ ._. __ ._. ___ ...
Indian;,.._ •• ___ • ___ • ___ •• _____ • ___ . _________________ • ___ '0_'
42.·3
24.3
32.1
19.1
12.1
18.3
2.7
Co orado. ___ • _______________________________ • ___ • ____ _____
ow _
•• _
••• _
11.9
12.1
~.3
JOWI _______ ._._ •••• _______ • _________ •• ___ •.. _. ______ •• __ • _
15.2
K11I8as. __ •• _________ •• ___ ._. _______________ • __ •• _______ __
12.3
:::~~i;~;:::::::::::::::::::::::::::::::::::::::::::::::::
l\1aine. ___ • ______ .-_ .•••• _._ •• _. ____ ..... _... ___ .•• _. __ .. '
~:~
4.1
~:~
2.0
~aryland
••••• •••
--.-__••• ____________________
-.-----.------- .. -.- ._
•• .•
--------Massachuseth_
________•..
• __-___
...
~ichigan--.-_._ •••• _. _______ • ____ • _____ ._ .. ____ ._________
17.4
26.1
42. l
21. "j
1!.1
7.9
13.9
10.5
6.0
~. 2
.10.5
5.0
t.(.
•
•
•
Mi::~~~~~~::::: ::: ::::::::: :::::::::::: ::::: :~::::: :::::::
MOlltanil_ •• __ • _____ • __ •• _•• ___ • ______ • ___ • ____ • __ • ____ .___
Nebraska _______________ • ________ • __________ . ____ • _____ .__
NC\'adl ____ • _____ ., _____________ • ___ . __ . ___ ______ ______ ___
New Hampshire. _. _______ •.• _• __ • _•. _. ___ •. _•. __ • _... _._ __
New Jersey ____ •• __ • _______ •. ___ .... ___ woo .••. __ . _._. ___ . _
NewMe~ico_._._ •••• __ ._. ______ • __ . ___ ·_ ••.••• _.. __ .•. _.• _..
New York_ ••• _._ •••••.. _. __ • __ • __ .. _. __ .•. _•.•..... _•. __ ..
North Carolina _____ ••••• ____________________________ . ___ •.
North Dakota ••• _. ___________ • _____ ". ___ . _________ .•. _____
Ohio •••••••• ______ • _. _• __ • __ • _. _. __ • _• ___________________
Oklahoma_ •••••• _. __ • __ . _____ •• _________________ • ______ .__
Oregon
~h~d:fi:~~::::~::=====:~:===:~==:=:::=::~=:=::~=:=~:====
.South
Carolina ______________________ . ___________ ._._______
South Dakota_. ___________ . __________________ . ___ __ __ ___ __
I. 5
2.1
4.0
6. 9
2. '5
.9
2.9
JO.:!
Ii. v
100.')
I. 0
II. 9
1.1
45.6
7.6
I. 2
12. 0
2.8
2.2
2-1.'
4.6
43. 5
13. 'j
I:!. l
~j:r!.. ~
Ii:I. 9~
,j
Tennenee _______,______ .. _______ • _______ • _______________ .___
J8. j
i. 2
1\.0
Texas _____ • ____ • __ ••• __ •• _. ____________________ . ____ ____ _
Utah. ___________ •• _•• _. _______ • _______ .____________ _____
4()' 6
,•. 1
12.5
1.1
~~~~r~~~~~:::::: :::::::::::::: :::: =~:::::::: ~::: ~:::: ~:::
:1: :
f~
.
·
Wt~co'!Sln-----.---_.... ---- ......
---.- .-.----.--.--~
W)ommc_ ••••••
_. ____
•• __ • __________
,, ___________
.. _ ._____
~:',
.. .
We,t Virtinia __ •• _______ ... _________ ._. _____ . ___ ..•. __ •. _
-4. !
United States total I. __ . _____ ::' __ . ___ ._ . ____ . ______ ow. _ J,i()o ~
I Det~il ma" lIot add d"c to roundine.
1,4,
·t)
"
f}
8.9
6.1
2.4
4.5 ___ •. ___ _
2U
10.7
5.3
3.8
3. 8
l\1innesola __ • __ •• _. ___ • _____ • __ ••• _. ______ . ___ . ____ ._ __ __ _
8.1
8.4
I
6R
.S
.
3.4
11.4
8.6
9.5
13.0
32.2
15.6
10.2
15.5
.2.S
4.8
1.7
2.0
18.2
5.S
62.9
16.7
3.4
31.5
10.7
9.1
38. I
2.2
10.7
2.9
10.4
37. I
4.9
1.9
11.8
Its
7.5
17.1
1.(,
~-I-"""300.JI--69-9.-9
- 10 -
As President Nixon stated in his revenue sharing message
"Th i s prop os a 1 marks a turn ing po in t in Fede ral- s ta te re la t io~s
the beginning of decentralization of governmental power, the
'
restoration of a rightful balance between the state capitals
and the National Capital."
000
2
/'1-
c
Department of the TREASURY
IIGTON. D.C. 20220
TELEPHONE W04·2041
FOR RELEASE UPON DELIVERY
STATEMENT OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
THE SENATE FINANCE COMMITTEE
THURSDAY, JUNE 18, 1970
MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE:
You have before you H.R. 17802, which was passed by the
House of Representatives on June 3, and which would provide
a new permanent debt ceiling of $380 billion and a new
temporary debt ceiling of $395 billion through June 30, 1971.
We appreciate the promptness with which the Committee
has scheduled the hearings on this bill.
It is essential that the Congress give final approval
to an increase in the debt limit by June 30 when the present
temporary limit of $377 billion expires and the limit
reverts to the permanent ceiling of $365 billion. Our
projections indicate that on June 30 the debt subject to
limit, assuming a realistic cash balance, is likely to be in
the vicinity of $370 billion, which is in excess of the
present permanent limit. Consequently, if a new limit has not
been approved, the Treasury Department will be unable to
refund any maturing debt or to issue any new debt. I need not
dwell on the extraordinarily serious consequences of such a
situation. The chaos that would be created would cause severe
additional strains on the Nation's already strained financial
markets. Public confidence in the ability of the Government
to manage its affairs rationally would be seriously undermined.
K-439
- 2 I would like to begin by explaining why we are asking
for an increase of $18 billion in the temporary debt ceiling,
from $377 billion currently, to $395 billion for Fiscal Year
1971. In estimating our needs, we have in the past assumed
a constant cash balance of $4 billion, with a further
allowance for contingencies of $3 billion. But the conventional
assumption of only $4 billion for operating cash needs has
become increasingly unrealistic, in view of the greater size
of the Federal budget and unavoidable fluctuations in the
balance from day-to-day and week-to-week.
As shown in Table II, our actual cash balance has
averaged more than $5 billion in recent years, and has
declined in relation to expenditures to little more than one
week's outpayments. We cannot practicably plan on reducing
our balances further. To the contrary, prudent management
of our financial affairs may well require somewhat larger
balances in the future.
On particular days, to be sure, the cash balance can
safely be reduced to lower levels in anticipation of heavy
scheduled receipts. Nevertheless, sharp intramonthly swings
are inevitable and require that, even during periods of the
year when the debt is fluctuating about its peak, we
sometimes must carry balances well in excess of the average.
I feel certain you will agree that a $3 billion allowance
for contingencies, which we retain unchanged from earlier
presentations, provides a minimum degree of protection for
unforeseen circumstances over a twelve month period ahead.
With these working assumptions, I think that the
arithmetic of the needed increase in the debt limit is most
clearly seen by starting with our position on April 14 of
this year. That was the date on which the debt subject to
limit was close to its peak, and we expect a similar peak at
about the same time next year. Now on April 14, the debt
subject to limit was $375.9 billion, only about $1 billion
short of the present ceiling. (On March 30, we came within
$100 million of the ceiling). But our operating balance was
down to $2.4 billion, and we were only $1.1 billion away
from the ceiling instead of the $3 billion allowance for
contingencies that is needed. In other words, just to
restore the leeway necessary for prudent operations, the
debt limit would have to be raised by $5.5 billion (i.e.,
$3.6 billion to provide an operating balance of $6 billion,
and $1.9 billion to restore the $3 billion allowance for
contingencies).
('! J, J
j
- 3 -
To this $5.5 billion one must add the anticipated deficit
in the Government's own operations during this period
April 1970 - April 1971 -- the so-called Federal Funds deficit.
As you know, we expect the Federal Funds deficit for the entire
fiscal year 1971 to amount to $10 billion, compared with
$11 billion this ye"ar. But the deficit during the twelve months
between peak debts -- April to April -- is expected to be larger
than for either fiscal year. Our current estimate is about
$13.2 billion.
There are a number of factors that contribute to the
concentration of the deficit during this particular twelve
months. For one thing, the payment of retroactive Government
wage increases in the current quarter is a non-recurring
outlay. In addition, with an approximate $6 billion decline
in defense expenditures from fiscal year 1970 to fiscal year
1971, it is anticipated that second half defense expenditures
will be lower than during the first half. The anticipated
revenue from the proposed speed-up of estate and gift taxes
is not expected until the last quarter of fiscal 1971. Interest
expenditures are expected to be relatively heavier in the first
half of the fiscal year than in the second half when lower
interest rates are anticipated.
Adding the $13 billion of Federal funds deficit to the
$5.5 billion needed to restore working leeway, one comes to
a figure just over the $18 billion we requested, a figure
approved by the House.
You will see from Table I that the debt limit need between
December and March will fluctuate generally between $388 and
$393 billion. The peak requirement will be reached just prior
to mid-April, and that peak will be slightly above $395 billion.
We believe that a temporary limit of $395 billion
adequate to carry us through FY 1971. Budget Director
can comment in detail on the outlook for expenditures,
basis for our belief that these expenditures, with the
Congress, can be held to projected levels.
will be
Mayo
and the
help of
On the receipts side, we are counting on an additional
$3.8 billion of taxes in fiscal 1971 which will require
leg~slation.
These include the proposed taxes on lead used
in gasoline and the speed up in the estate and gift tax
collections. We are anticipating that the Congress will act
- 4 -
favorably on both of these proposals as well as on the other
tax proposals which it has before it, including extension of
excise taxes on automobiles and telephone services through
December 1971. The House has already approved 'an increase
in the wage base for social security to $9,000, as was
recommended in the budget, and this Committee now has this
proposal before it.
If Congress fails to act in a timely way on these
proposals, a substantial part of the revenue loss will not
occur until after the peak in the debt subject to limit has
been passed. Consequently, short-falls from these sources
would not necessarily use up the entire allowance for
contingencies although they would, of course, narrow the
margin of safety.
In our eyes, a more serious question is raised by the
estimate by the staff of the Joint Committee on Internal
Revenue that fiscal 1971 receipts would be $3 billion below
our estimates.
We have carefully reviewed the differences between our
estimates and the estimates of the Joint Committee and it
appears that, except for minor amounts, the entire difference
lies in somewhat more pessimistic economic estimates by the
Joint Committee Staff.
We believe that there is no strong reason to alter our
economic projections at this time. But we recognize the
difficulties of making precise forecasts for a year ahead
in the present state of the economy and, consequently, we
realize that our revenue estimates could turn out to be on
the high side. This simply emphasizes the need for an
adequate contingency allowance.
In order that there be no misapprehension about the
Treasury's need for new funds during the corning year, let
me stress that Treasury net borrowing from the public for
the year as a whole will be only a small fraction of the
$18 billion increase in the temporary ceiling that we seek.
As I indicated earlier, we anticipate a deficit in the
Federal Funds accounts for FY 1971 of approximately $10 billion.
}_/c/
- 5 -
But the trust funds are expected to be in surplus by
about $8.8 billion during the same period. This trust
fund surplus will be invested in Government securities, as
in the past, leaving only about $1.3 billion to be financed
by the general public.
One final word. The House Ways and Means Committee
considered it desirable to raise the permanent debt ceiling
as well as the temporary ceiling. They proposed a permanent
ceiling of $380 billion, $15 billion above the present
ceiling of $365 billion. This will give us somewhat less
room than the related increase in the temporary ceiling,
because it does not allow fully for contingencies. But it
is a ceiling that I believe we can live with.
I urge the Committee and the Senate to act promptly
on H.R. 17802. Prompt action will assure the ability of the
Federal Government to finance its requirements in a
responsible way and will help in restoring and maintaining
much needed confidence to financial markets and the financial
community generally.
- 6 TABLE I
ESTIMATED DEBT SUBJECT TO LIMIT
FIScAL YEAR 1971
(in billions of dollars)
Debt with
1970
6.0 cash balance
Wi th 3.0 margin
for Continlencies
June
30
369.0
372.0
July
15
31
375.6
375.4
378.6
378.4
Aug.
15
31
380.8
380.2
383.8
383.2
Sept. 15
30
385.5
376.7
388.5
379.7
Oct.
15
31
382.1
381.3
385.1
384.3
Nov.
15
30
384.9
384.2
387.9
387.2
Dec.
15
31
389.9
386.3
392.9
389.3
Jan.
15
31
389. 3
382.6
392.3
385.6
Feb.
15
29
385.8
385.3
388.8
388.3
Mar.
15
31
390.3
387.7
393.3
390.7
Apr.
15
30
391.8
382.1
394.8
385.1
May
15
30
386.3
385.6
389.3
388.6
June
15
30
388.7
378.8
391. 7
381. 8
1971
May 22, 1970
TABLE .11
- 7 -
RELATION OF AVERAGE CASH BALANCE
TO WITHDRAWALS FROM TREASURER'S ACCOUNT
BY FISCAL YEARS
Average
Operating
Balance
(excl. Gold)
Total
Withdrawals
(DTS)
%
1962
4.934
112.188
4.4
1963
6.010
118.477
5.1
1964
5.664
124.066
4.6
1965
6.293
126.395
5.0
1966
5.086
142.190
3.6
1967
4.526
164.591
2. 7
1968
5.145
184.581
2.8
1969
5.043
201.491
2.5
Fiscal Year
J'/G
~ Department of the TRfASURY
INGTDN. D.C. 20220
TELEPHONE W04-2041
MEMORANDUM TO THE PRESS:
June 18, 1970
In answer to inquiries Assistant Secretary of the
Treasury Eugene T. Rossides tOday issued the following
statement concerning the weekly sale of silver through
General Services Administration:
"The Treasury Department will continue
to sell silver from its existing stock at
the current rate of 1.5 million ounces per
week through November 10, 1970, as previously
announced on May 13, 1970, following the
Joint Coinage Commission meeting.
"Sales of silver recovered from the
melting of dimes and quarters will continue
until July 21, 1970.
This will be followed
by the sale of refined silver bars 996-999
fine through September 15.
Sales from
September 22 through November 10, 1970, will
consist of silver bars below 996 fine."
000
1eportment of the TREASURY
~TON, D.C. 20220
TElEPHONE W04-2041
FOR RELEASE ON DELIVERY
STATEMENr BY THE HONORABLE CHARLS E. WALKER
THE UNDER SECRETARY OF THE TREASURY
BEFORE THE COMMITT EE ON BANKING AND CURRENCY
OF THE HOUSE OF REPRESENTATIVES
JUNE 22, 1970, 10 A.M. EDT
Mr. Chairman, I welcome this opportunity to testify
before your Committee on the proposed Title II of the amendments to the Defense Production Act of 1950. The main
provision of this title reads as follows:
The President is authorized to issue such
orders and regulations as he may deem
appropriate to stabilize prices, rents,
wages, and salaries at levels not less
than those prevailing on May 25, 1970.
Such. orders and regulations may provide
for the making of such adjustments as may
be necessary to prevent gross inequities.
Needless to say, this proposal is of great Significance
to the Administration and to the economy. As you know,
President Nixon took special note of this type of proposal
in his nationwide economic address last week.
We are strongly opposed to its enactment.
I
In spelling out the reasons for this opposition, I think
it is important first to analyze the record of recent economic
~istory. A close look at the American economy of today shows
:learly that the fundamental economic forces at work are
~uite different than at any ttme in the past five years.
C-441
- 2 -
Inflation is still a stubbom problem. However, the
forces now pushing up prices are not the same as last year
or in the three preceding years. We are in a different and
later phase of the inflationary process. In designing
policies to restore price stability, it is essential to
recognize this new environment.
First, we have now el~inated -- for the time being -the inflationary pressure of excess demand in the economy.
You will recall that several years ago the "economic gap"
concept was devised to measure the difference between potential and actual real output. The objective of policy in the
early 1960s was to close this gap and afterwards to maintain
actual output at its potential rate. By the middle of 1965
the gap was closed, but instead of moderating increases in
the demand for output, the pressure of successively larger
Federal deficits caused demand to surge far beyond the
economy's capacity to produce.
The result was an unbroken string of "negative gaps,"
running from late 1965 well into 1969. During most of this
four-year period, demands were placed on the economy far in
excess of its capacity to produce. The result was rapidly
accelerating inflation -- the classical "demand-pull" inflation brought on by "too much money chasing too few goods."
Beginning with the third quarter of last year, underlying economic forces changed markedly. This change was the
virtual elimination -- resulting directly from the coordinated
application of fiscal and monetary restraint -- of demand-pull
forces as the primary source of inflationary pressure. While
some markets continue under pressure, most current price
increases stem not from excess demands generally, but from
the relentless upward pressure of costs, particularly labor
costs. While these "cost-push" pressures are
direct outgrowth of four years of "demand-pull" inflation, the different
nature of the underlying cause must be considered in choosing
appropriate economic policies.
a
A second distinguishing feature about today's economy,
as emphasized by the President last week, is our current
state of transition from a wartime to a peacetime environment.
Defense spending is declining. This year, while fully meeting
- 3 -
our security needs, we are spending $1.7 billion less on
defense than a year ago; in the coming year, we plan to reduce spending by another $5.2 billion. These reductions contrast sharply with, the rapid acceleration in defense spending
from the middle of 1965 to 1968 -- an increase of more than
$30 billion.
These cuts in defense spending have produced significant
economic distress for certain producers and employees, with
nearly three quarters of a mdllion workers already affected.
The hard fact is that Federal spending priorities are being
substantially reordered -- from military resources to urgent
domestic programs -- but with inevitable repercussions in
defense industries. These transition difficulties are indeed
painful for the individuals involved, but the underlying fact
is that this progress toward a peacetime economy is a highly
beneficial element in the long-term business outlook.
I have taken this time to describe the current, and
different, economic environment in order to illustrate the
need for appraisal of economic policy choices in this new
light. Unlike the previous four-year period, we are not
experiencing excess demand pressures spurred by accelerating
defense spending. It therefore follows that additional doses
of heavy fiscal and monetary restraint aimed at slowing the
rise in total output are not the appropriate medicine for
moderating price increases in the months ahead.
II
On the basis of this analysis, the question arises as
to whether 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
wage-price stability.
More specifically, the question of late has been whether
some Federal action could be taken to directly influence
wages and prices. This is the point of Title II in H.R. 17880.
Most economists would agree that the standard demand
management policies of monetary and fiscal restraint are
absolutely essential to the restoration of price stability
- 4 -
and will produce that result if pursued long enough. After
all, the fundamental cause of any inflation is excess demand.
If sufficient demand is not present to clear markets at
inflated prices, then involuntary inventory accu.ulationa,
unemployment, and eventual price markdowns must follow.
However, in the late stages of an inflationary cycle, such
as now, the upward pressure of costs can prolong price
increases for an uncomfortably long ttme. At that point,
after excess demand has been pretty much eltminated but
before stability has returned, it is rea.onable to ask whether
the adjustment can be hastened by application of additional
policies.
In this spirit, I believe it is appropriate to take s~
form of Federal action in the wage-productivity-price area
as the Administration is now doing. I emphasize strongly,
however, the tmportance of economic climate in relation to
this question. The Johnson Administration wage-price guideposts were overrun by a tide of excess demand that began in
1965-1966. Any s~ilar efforts of this type would have been
equally futile during most of 1969.
III
But while I believe a case can be made for appropriate
wage-productivity-price policies to supplement general stabilization measures, I also believe that we must take a hard
look at the consequences of any such proposals. We have
studied the amendment under consideration today -- Title II
of H. R. 17880 -- and find it unacceptable on two major counts.
First of all, it is deficient substantively. It points
toward a regime of mandatory price and income controls, and
1970 is stmply not the time or place for this approach.
Application of such controls is only warranted on extreme
and rare occasions. Moreover, we must be wary not only of
creating or impOSing controls, but even threatening to take
such actions, lest we set off a series of defensive wage and
price increases.
Let me read the follOWing quotation:
- 5 ..
Mandatory price and wage controls . . •
freeze the market mechanism which guides
the economy in responding to the changing
pattern and volume of demand; they distort
decisions on production and employment; they
require a huge and cumbersome bureaucracy;
they impose a heavy and costly burden on
business; they perpetrate inevitable injustices. They are incompatible with a free
enterprise economy and must be regarded as
a last resort appropriate only in an extreme
emergency such as all out war.
That statement appeared in the 1969 Annual Report of the
Johnson Administration's Council of Economic Advisers. I
endorse it wholeheartedly today as an excellent policy
statement on the ~position of controls.
Too often, advocates of wage and price controls see
them as a seemingly painless way to speed the transition to
stability. To these people, controls have a deceptively
stmple attraction. They talk about administering a control
program with "only a few hundred people."
This
view that
wages and
amendment
contention is evidently based upon the erroneous
the President could simply call for a freeze of
prices -- as of the May 25 date specified in the
-- to be enforced by a small cadre of officials.
Nothing could be further from the truth. Regardless
of the date selected -- and it would have to be retroactive
in order to forestall defensive price and wage increases ...
literally hundreds of thousands of inequities would be
incorporated into the system. These inequities would, as
the legislation envisages, have to be worked out. The situation would be aggravated by the fact that almost every worker
and businessman is likely to think that his particular case
is an exception which requires relief.
The conclusion is that the only real purpose of a freeze
is to pave the way for a network of controls. In fact, the
f~~eze would almost naturally be transformed into a control
- 6 network, administered by an army of bureaucrats at considerable expense, as the Government attempted to deal with the
so-called exceptions.
During World, War II, over a quarter of a million people
were involved in the price stabilization effort. During the
Korean War, a much'smalle~ and less ambitious control effort
employed more than 17,000 Americans and cost $137 .illion per
year. In fact, about 600 persons were involved simply in
planning for the Korean War controls prior to their actual
institution.
Despite all this bureaucratic effort during the ~orean
conflict, there is considerable evidence in support of the
thesis that strong monetary and fiscal policies -- not the
controls -- brought prices into line after 1951. We tend
to forget that individual incame taxes were raised twice,
corporate income taxes raised three times, and an exc's.
profits tax ~posed -- all in slightly over a one-year period
during 1950-1951. Unlike our Vietnam experience, the Federll
budget was in surplus during the Korean War.
The experience of history strongly suggests that wage
and price controls must be ruled out completely in the
present economic environment.
In addition to our substantive opposition to economic
controls, we also object to the procedure by which H.R. 17880
offers this policy instrument for consideration --.namely,
to "authorize" the President to institute controls. The
President made h~self quite clear on this point last week
when he said:
This is not the t~e for the Congress to
;play politics with inflation by passing
legislation granting me standby powers to
impose controls on wages and prices. The
Congress knows I will not impose controls
because they would do far more harm than
good.
History has shown that these controls are relevant to In
extr~~~ emergency situation, as the Johnson Administration'.
- 7 last economic report made clear. If such an emergency should
ever arise again, the Congress can promptly take action to
impose these controls. The Congress did take prompt action
in both the Korean conflict and in World War II.
If, despite the ~pressive evidence to the contrary, the
members of this committee are convinced that we are now in
an emergency situation that justifies wage and price controls,
then it would seem far more appropriate to consider that
question directly and legislate such controls, rather than
to grant the President an authority he clearly has no desire
to exercise.
IV
While we strongly object to any version of wage and price
controls, this Administration does believe in pursuing responsible and workable policies that can return us to price
stability in the fastest, surest, and least disruptive manner.
At the heart of our policy approach is an insistence on dealing directly with "f1.mdamentals," rather than jousting with
superficial issues. By "fundamentals" I mean those key economic variables which, if affected, can produce measurable
and lasting improvement.
I
Monetary and fiscal policy are fundamentals. By disciplined application of restrictive policies last year, we were
able to cool an overheated economy. There were plenty of
skeptics who asserted that these standard policies could not
possibly restrain our superheated economy. Today, those
skeptics are in a fast state of retreat -- victims of fundamental economics.
In like manner, our analysis reveals that remaining inflationary pressures do not stem from excessive spending.
Accordingly, we have moved gradually to ease our restrictive
demand management policies. What is now fundamental to
economic improvement is the relationship between labor productivity and compensation. In a stable growth situation,
increases in labor's compensation are offset by gains in
productivity. Although total incomes rise, the increase in
output per manhour keeps labor costs per unit of output
stable and there is no pressure for higher prices. Without
inflation, wage gains represent real improvements in living
- 8 standards. In the long run, productivity is the only source
of any increase in real incomes.
This is more. than a theory. Between 1960 and 1965
compensation per manhour -- wages and benefits -- increased
at an average annual rate of 3.9 percent. Yet, unit labor
costs over the period rose hardly at all. Increased output
offset increased compensation. As a result, unit labor COlt.
and the general price indexes remained relatively stable.
Nineteen sixty-five was the last year of such stability.
In 1966, although output per manhour rose by 3-1/2 percent,
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 again in 1968, and more than
6 percent in 1969. These growing cost-push pressures reinforced the pull of excess demand. All major price indexes
rose at an increaSing rate until the latter part of 1969.
This recounting of history simply emphasizes the point
that productivity is a fundamental economic variable. If we
can directly improve productivity, the result can be a desirable combination of less inflation, ~provements in our
international competitive position, and higher real living
standards for American workers. It was the recognition of
the key Significance of productivity that formed the basis
for the President's announcement last week of new economic
actions . . The National Commission on Productivity and the
President's Conference on Productivity will focus attention
directly on this issue.
The other parts of the President's new proposal -preparation of a periodic Inflation Alert and establishment
of a Government Regulations and Purchasing Review Board -are also grounded in fundamentals. These steps represent
appropriate Federal actions that are amenable to prompt
undertaking. By spotlighting significant wage and price
developments and by taking steps to keep all Federal activities
in harmony with our economic stabilization objectives, these
measures can assist materially in moving us to renewed stability·
- 9 -
v
The economic theme of the ma.ent is one of transition:
transition from, a' disruptive inflation to a stable and real
prosperity; transition from a war-oriented to a peace-oriented
economy. We are determined to make this transition without
suffering unnecessary costs in terms of unemployed resources.
Careful attention to the fundamental economic climate, and
maintenance of economic policies in harmony with that climate,
are vitally ~portant to our prospects for success.
The economic facts of today support policies of moderation .. - moderation in the fiscal area, the monetary area, and
in the private sector as business and labor engage in wageprice actions.
The economic facts definitely do not support a need for
any regtme of wage and price controls. Title II of H.R. 17880
is plainly not responsive to the current environment. We
find no basis whatsoever for encouraging its consideration
by the Congress.
000
!partment of the TREASURY
rtlN DC. 20220
TElEPHONE W04·2041
For Release at 1 P. M. CDT Monday, June 22, 1970
Excerpts from an Address
Delivered By
The Honorable David M. Kennedy
Secretary of the Treasury
Before the
National Association of Accountants
Minneapolis, Minnesota
June 22, 1970
The speech deals with where the economy was, fundamental
measures of fiscal and monetary restraint to cool the inflation, the current period of transition, Administration
supplemental measures and the basic strength of the economy.
A Period of Transition
"We are moving from a war to a peace time economy.
Defense spending is declining.
While fully meeting our
security needs, we are spending $1.7 billion less on defense
today than we were a year ago.
In the coming year we plan
to reduce military spending by an additional $5.2 billion.
These reductions are especially significant when contrasted
with the rapid rise in defense spending from the middle of
1965 to 1968 -- an increase of more than $30 billion.
Quite clearly, such a substantial shift in defense spending
will lead to temporarily higher unemployment in the affected
industries while that adjustment is proceeding."
- 2 "The latest figures now place the level of unemployment
at 5 percent -- a rate ... that is below the average for the
first half of the 1960' s."
The labor force is growing and
"about two million more people are at work today than when
the Administration took office 18 months ago."
The economy also is undergoing a transition from
"demand-pull inflation to cost-push inflation to prlce
stability."
Altering economic policies prematurely would
risk "los ing all of the gains against inflation that have
been won over the last year and a half."
While administration policy is still to concentrate on
economic fundamentals, (fiscal and monetary policies) the
transition problems led President Nixon to announce supplementary measures "to assist us through this difficult
period."
Supplementary Measures
The National Commission on Productivity will focus
attention directly on ... "the issue of labor productivity
and wages."
"If we can directly improve productivity,
the result can be a desirable combination of less inflationary pressure, higher real living standards and improvement ln our international competitive position ... "
The inflation alert to be signaled by the President's
Council of Economic Advisors will spotlight "significant
wage and price developments."
"The Government Regulations
and Purchasing Review Board will assist us in assuring that
Federal economic activity is kept in harmony with our
economic stabilization objectives."
-
3 -
The U. S. economy is strong, "stronger than any
economy, or collection of economies, in the world.
It
is moving once agqin toward stability, and it is doing
so with a minimum of the pain that of necessity accompanies
this proce ss . "
For Release at 1 P. M. eDT Monday, June 22, 1970
Departmentot the TREASURY
TElEPHONE W04-2041
IIfGTDN. D.C. 20220
NTION:
FINANCIAIJ EDITOR
RELEASE 6: 30 P.M.,
ay, June 22, 1970.
RESULTS OF TREASURY'S VlEEKLY
BILL OFFERING
The Treasury Department announced that the tenders for two series of T'reasur:;
s, one series to b~ an additional issue of the bills dated I·larch 26, 1970
, and
other series to be dated June 25, 1970
, which were offered on
June 17, 1970,
opened at the Federal Reserve Banks today. Tenders were invited for $ 1,808 ,O'J:) ,000,
Ilereabouts, of 91-day. bills and for $1,300,000,000, or thereabouts, of 182 -day
s. The details of the two series are as follows:
8 OF ACCEPTED
ETITlVE BIDS:
High
Low
Aver8f!,e
91-day Treasury bills
maturing September 24, 1970:
Approx. Equiv.
Price
Annual Rate
98.338
98.318
98.325
§}
1$2 -day Treasury bills
maturing Dece:~.oe!' 2~ ~ 1970
Approx. .:C!'.li V •
Annual :::s:: e
Price
96.520 E.I
6.575%
6.654%
6.626%
96.491
96.497
6.8c,;·"(;
6 . 9.1.1
~
--,.I
6 • 9 ~c-1
L. v ~t;
E.I
~I Excepting one tender of $50,000;
Excepting 1 tender of $300, OCtO
6% of the amount of 91-day bills bid for at the low price vTaS accepted
49% of the amount of 182-day bills bid for at the low price was accepted
J
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
itrict
iton
r York
.ladelphia
~veland
~hmond
.anta
eago
Louis
neapolis
sas City
las
Francisco
TOTALS
AEElied For
$ 31,420,000
1,963,080,000
57,190,000
43,610,000
49,120,000
53,450,000
296,810,000
58,350,000
37,180,000
64,070,000
32,070,000
151,490,000
Accepted
$2,837,840,000
$1,800,510,000
$
AEplied For
$
18,800,000
~6,120,OOO
1,854,330,000
9,410,000
43,870,000
13,400,000
45,590,000
135,660,000
46,380,000
25,310,000
36,000,000
32,100,000
132,150,000
1,154,180,000
26,180,000
42,440,000
47,120,000
37,110,000
230,840,000
46,350,000
27,300,000
63,670,000
15,770,000
90,750,000
sJ
$2,410,320,000
Accepted
r,UI.-,C-':J
$
1,052,OEO,OClO
8,710,000
27,220,COO
10,900,CCO
26,HO,CJO
39,"=.7C,000
43,280,000
6,310,080
26,3cO,OOO
15,680,000
36.97 2 c:::)
°
$1,300,720,000 ~
cludes $361,440,000 noncompetitive tenders accepted at the avera.£;e price of 93.325
eludes $229,500,000 noncompeti ti ve tenders accepted at the average price o=~ 92..497
ese rates are on a bank discount bD.sis. The equivalent coupon issue yiel·::'s s.re
8?ifo for the 91-dD.Y bills, and 7.28% for the 182 -day bills.
\
.,
STATEMENT OF THE HONORABLE JOHN S. NOLAN
DEPUTY ASSISTANT SECRETARY
BEFORE THE
'
SENATE INTERIOR AND INSULAR AFFAIRS COMMITTEE
ON S.3l55 AND THE GENERAL TAX RELATIONSHIPS
BETWEEN GUAM AND THE UNITED STATES
10:00 A.M. (EDT), JUNE 23, 1970
Mr. Chairman and Members of the Committee:
I am pleased to appear to'day to present the Treasury
Department '.s proposals for changes in the existing tax
relationship·between the United States and Guam.
The bill pending before this Committee, S. 3155,
would eliminate the 30% withholding tax on
dividends,
interest and other payments from a Guam subsidiary to a
United States parent corporation imposed as part of the
territorial income tax of Guam.
While our
proposals
include the specific change which would be accomplished by
enactment of S. 3155, we believe tnat it would be
priate at this time to
in existing law.
propose more comprehensive
appro~
c~nges
Our proposed changes are designed to
modernize and render more efficient the tax relationship
between the United States and Guam.
I will explain briefly why we have taken this approach
and outline the substance of our proposals.
They are ex-
plained in greater detail in the General Explanation which
- 2 we have submitted to the Committee and whicn is' available
at the Treasury's Public Information Office.
We are in
the process qf drafting implementing legislative language
which we will submit to the Committee.
Since the language
would also require amendments. to the U. S
Internal Revenue
Code, it will also be submitted to the House Ways and Means
Committee and tne Senate Finance Connnittee in the near
future.
The Organic Act of Guam provides that the United States
Internal Revenue Code shall apply in Guam as a territorial
income tax; for this purpose, references to the United States
are treated as referring to Guam except where that substitution is manifestly incompatible with application of the Code
in Guam.
Section 932 of the Code provides.that citizens
of Guam not resident in the United States shall be subject
to Federal income tax as non-resident aliens under the Code.
Section 7701 of the Code has the effect of characterizing
.::
Guam corporations as foreign corporations for United States
tax purposes.
of
t~
The converse of these rules in
the
appllcati~
Code as a territorial tax in Guam is that mainland
,
."
citizens not resident in Guam are taxed in Guam as
non-re8id~
aliens and U. S. corporations are treated as foreign to
for Guam tax purposes.
G~m
- 3 Under this regime, individuals and corporations with
bot~
U. S. and Guam source income must pay taxes to both
jurisd:! ctions.
They report all of t.leir income in tLle
returns at their place of citizenship and residence and are
allowed a credit for taxes paid to toe
t~ley
pay tax only on
t~le
ot~er
jursidiction;
income ilaving its source in the
oUler j urisdic tion to tlla t j urisdic tion.
Officials of the U. S. Departmen ts of Lle Treasury
and the Interior met in December, 1968, with representatives
of Guam, tile Virgin Is lands and American Samoa to discuss
tax problems that have arisen in
eaca of these possessions.
Two conclusions became evident as a result of tilat conference:
first, aprlication
of the Internal Revenue Code as a
territorial tax presents difficulties in many particulars
which were not anticipated when the system was devised,
especially with regard to tax relations between
tne
possessions and tLle Uni ted States; and second, each of
the possessions has tax problems w,lic,l are so unique tLlat
developing a uniform method of taxation to cover all of them
would be difficult at t;lis stage.
- 4 The need for changes in Guam's tax status became
especially
ap~arent
introduction
T~e
as a result of tnat conference.
of S. 3155, touching as it does one aspect
of Guam's tax status vis-~-vis tle United States, is an
appropriate occasion for seeking a legislative solution
for t,le most troublesome of tile difficulties regarding
Guam.
Treasury.has periodically consulted
wit~l
officials since the introduction of this bill,
Guam
an~
we nave
developed the following proposals in light of those consulta tions.
We propose two fundamental changes in
slip between Guam and t.le United States.
of
t~e
t~
tax relation-
First, in lieu
non-resident alien status of Guamanian citizens
for U. S. tax purposes, and ti1e converse non -res iden t a lien
status of U. S. citizens for Guam tax purposes, we propose
a single filing return system for individuals.
Under t.lis
system an individual wit,l bot:1 U. S. and Guam source income
will file a single return at
t~
place of his residence on
the last day of tne tax year in whicn ;1e will report his
world-wide income.
ment to
eit~er
He will have no other reporting require-
jurisdiction but will be allowed an unlimited
credi t for any income taxes wi th~1e ld on
wages and any
estimated tax payments made during the year to the otrler jurisdicti
_.
)
- 5 -
,
The single filing system for individuals
~ill
permit
repeal of the Code provision designating Guamanians as nonresident aliens for U. S. tax purposes, a characteristic
which Guamanians find objectionable.
Substantively, it will
avoid excessive taxation which occurs under existing law and
which is unavoidable without a change in the statute.
For
example, a citizen of Hawaii who works for most of a tax
year in Guam without permanently residing there will have
taxes withheld in Guam.
His status in Guam will have been
that of a non-resident alien, and thus taxes will have been
withheld on the basis of the single exemption to which nonresident aliens are limited.
In his U. S. tax return filed
in Hawaii, he will report his Guam source income together with
his other income.
He will be entitled to a'foreign tax credit
for taxes withheld in
, Guam, but the credit is limited under
sectiJn 904 of the Internal Revenue Code to the effective
U.s. tax on the Guam income.
Because the total U. S. tax
will be reduced by operation of all allowable exemptions and
deductions (including the standard deduction where elected),
and because joint return privileges are available, the taxpayer will not be entitled to a credit for the full tax paid
to Guam.
Thus, ultimately he will have paid a higher overall
-
b -
tax than he would if all of his income were earned in the United States, or alternatively, were earned entirely in Guam whilE
he
"'Jas
a permanent resident of Guam.
Under the system we propose, Guam would withhold from
this taxpayer's compensation in Guam no differently than it
would for a citizen and resident of Guam.
The taxpayer would
file a single United States return on which he would claim a
full credit, with no limitation, for the taxes withheld by
Guam.
The same regime would apply in the converse situation
of a Guamani.an citizen temporarily employed in the United StatE
with the Guamanian filing his return in Guam rather than in
the United States.
Insofar as this proposal affects persons who are resident in Guam on the last day of the year, it follows the singlE
filing return system added to the Organic Act of the Virgin
Islands in 1954.
It goes beyond the Virgin Islands system in
extending the single filing provisions to persons resident in
the United States on the last day of the taxable year.
We
s~
no justification for now establishing the single filing requi!(
ment on an asymmetrical basis, especially in view of the
Gu~·
anian attitude toward non-resident alien characterization.
- 7 -
One effect of eliminating the non-resident alien status
would be that U. S. citizens and Guamanian citizens could join
in Subchapter S corporations of both jurisdictions.
We do not
believe that the non-resident alien shareholder exclusion for
subchapter S corporation status should apply to possession
residents and citizens.
Neither should Guam corporations be
considered foreign to the United States for purposes of the Subchapter S election.
In the case of a Subchapter S election by
a Guam corporation, however, each shareholder should be required
to report his share of the Guam corporation's Guam source income
to Guam and then receive a credit on his United States return for
the tax paid to Guam.
The current arrangements for servicemen
and civilian
employees of the United States Government stationed in Guam
would continue.
These arrangements are described in the Gen-
eral Explanation.
The second fundamental change we propose would alter the
status of United States corporations as foreign to Guam and
Guamanian corporations as foreign to the United States.
This
would be applicable for purposes of the 30% withholding tax on
dividends, interest, and other such income and, as I have mentioned, for purposes of the Subchapter S electiono
Section 881
- 8 -
of the Code imposes that tax on dividends, interest, and certain other forms of income paid from U. S. sources to foreign
corporations.
The 30% withholding rate is, practically speaking,
a sufficiently high rate of tax that it is frequently reduced
by our treaties with other countries to 15% or less as to dividends and to no tax as to interest and royalties.
Naturally
enough, U.S. corporations planning operations in Guam use branch
offices in lieu of separate Guam subsidiaries in almost every
case to avoid che 30% tax which would be imposed on dividends,
interest, and royalties repatriated to the U. S. parent by a
separate Guam subsidiary.
To the extent that u.S. corporations
would prefer to invest in Guam through a subsidiary, the present
law is a deterrent to such investments.
More significant is the unavoidable negative impact the
existence of the 30% tax has on prospective loans to Guam by
financial institutions in the United States.
Such institutions
are generally unwilling or unable to establish branches in Guam
because the volume of business in Guam would make such a course
unrealistic for most financial institutions.
These United States
financial institutions cannot realistically expect to profit from
loans in Guam if they must bear a 30% tax on interest received.
This high rate is applied to the gross interest received. As a
result, the tax so paid is often creditable only in part against
the United States tax liability of the financial
in&tit~ion
be-
,
(
I
- 9 -
cause the credit is limited to the effective rate on the tax~
income of the U. S. corporation from such source.
The
evidence collected by the ]overnor of Guam demonstrates that
in all probability repeal of the 30% tax will substantially
enhance the attractiveness of Guam for loans and other investments from the United States.
loss to Guam.
There will be little revenue
The economy of Guam will be strengthened, and
greater opportunities for investment in Guam by U. S. interests
will be made available.
Although estimates are difficult, it appears that
the only substantial income presently derived by Guam from the
30% tax on corporations is paid on royalties from the distribution of motion pictures, and that amount is approximately $200,000
per year.
In the case of individuals, the 30% withholding tax
yields at best an amount of $300,000 annually.
This later an-
nual amount, however, has never been actually collected by Guam
because of certain disputes with a number of large taxpayers under existing law and is the subject of continuous litigation.
In
any event, it is anticipated that over time any revenue loss to
Guam as a result of elimination of this 30% withholding tax will
be more than recouped by the increased taxes resulting from augmented economic activity in Guam resulting from these proposals.
- 10 The Treasury Department therefore recommends elimination
of the 30% withholding tax both as it applies to United States
corporations with dividend, interest, and similar income from
Guam sources, and as it applies to Guam corporations with such
income from U. S. sources.
While the effect of the latter changE
will be negligible under present circumstances, we think that in
principle the law should retain its symmetry so that the status
of Guam corporat·ions vis-~-vis the United States is not differenl
I
from the status of United States corporations vis-a-vis Guam.
Payors should. be required to report dividend and interest paymen
as they do under domestic law.
\
,
~'7
L
indi\. iduals,
the 30'~~ withlwldir.g tax
'...]ould b2 eli.minaL(>d by tile 5in6le filing requi ement
:JLU
:osa1.
C, )•. \, Ii t Lee,
:.
~1)5,
VlU-...L
ld I2lil;lina lc on ly the 3C~~ wi thLlO ld ing tax
t
1('
bill r~ow pending befol"e t lis
on di\ idend~~ :laid ~i..'\lDl a Guall\ subsidiary to a controlling
United Stat2s
Jarenl.
',Jhile Treasury has no objection to
~. J 155 so far as i L f.)l.es,
S
"IC
be lie\le Lle \Vi tlilC lding tax
hil.ld be rC'%)ved ent...icelv and in
but'l dil'ections.
The net.. result of ()ur .)ro,oosal will resl~ect to coqJoratl.:)[;S
\'h)uld be.: La;'.atiol,
iL
Gual'J only (In tIle ir,come of
Ln"!;) iOl v.':lic 1 ccmductPci, alld credit would be avai lablc in
tdt: United ~ L.aLeS Undel" sccti(.ns 9Ul and 902 f"l" Guam
- 11 -
taxes paid with respect to income derived from Guam or
received in the form of dividends from a Guam subsidiary.
In those cases in
w~ich
a Guam subsidiary of a United States
corporation pays no taxes to Guam by reason of its qualification for a tax holiday under Guam's Economic Development
Act, there will be no current U. S. tax on
t,lat subsidiary's
earnings,. and when the earnings are paid to the U. S. parent
in the form of dividends, they will be taxed at
U. S. rate because,
to tne extent of the tax
t~e
full
~lOliday,
they
will carry no foreign tax credit.
In addition to substantive changes
w~lich
I have
discussed, we are considering a number of administrative
matters, some of wnich it may be advisable to include in
tLle legislation.
It may be advisable to provide a specific
statutory basis under which the two jurisdictions will
furnish each other information for tax audits and collection
assistance.' Further, arrangements have been made in certain
instances to insure uniform allocations of income and the
avoidance of double taxation.
In short, we
propose two subs tan tive Cl.langes in
the
existing system of tax relationships between Guam and
the United States.
The cnanges will eliminate excessive
- 12 -
taxation on individuals temporarily working in the other
jurisdiction, will remove a significant barrier to loans
to and investment in Guam, will involve only a modest
revenue loss, and will simtJlify and render more efficient
tl.e
~a};
collection systems of bot.l jUl"isdicliuIls.
tionally, classification
Addi-
of Guamanians as lion-resident
a liens for tax '(Iur i)oses, a c las b ifica tiun to wLlich Lhe
Guamanians ,lave long objected, will be eliminated.
/
June 23, 1970
General Explanation of Treasury's
Proposed Revision of the Tax Relationship between
Guam ann the United States
I.
The Present Income Tax System
Section 31 of the Organic Act of Guam (48 U.S.C.
l42li) provides that the Internal Revenue Code shall be
applicable iri Guam as the "Guam Territorial income tax,"
the administration and enforcement of which shall be
under the supervision of the Governor of Guam.
Section
31 further provides that in applying the territorial tax
references to the United States should be read as referring
to Guam.
Section 932 of the Code provides that citizens of
the possessions, including Guam,
shall be treated as
non-resident aliens for purposes of U. S. taxation and
section 770l(a) defines domestic corporations to include
only those organized under the laws of any State or
Territory, a reference historically construed as excluding
Guam.
The result of these provisions is that a Guam
citizen not resident in the United States is taxed as a
non-resident alien by the United States and Guam corporations are treated as foreign to the United States.
The
converse of these rules in the application of the Code
- 2 as a territorial tax in Guam is that mainland citizens
not resident in Guam are taxed there as non-resident
aliens and U. S. corporations with Guam source income are
taxed as foreign corporations under the appropriate Code
provisions.
This converse result, described in operation
as the "mirror" theory, has been sustained by the courts
as a correct interpretation of the Organic Act and the
Internal Revenue Code provisions.
Procedurally, the result of the "mirror" concept is
that persons and corporations with both Guam source and
U. S. source income must file two returns, one in each
jurisdiction.
World-wide income is reported on the return
to the jurisdiction of citizenship and residence with a
foreign tax credit allowed for the tax paid to the other
jurisdiction on income sourced there.
The full 30 percent
withholding tax on dividends, interest, royalties, etc.,
applies in each jurisdiction
of the other jurisdiction.
to income paid to residents
Individuals with earned income
in one jurisdiction but who do not reside there are limited
to a single exemption and are denied the privilege of
filing a joint return.
Section 30 of the Organic Act of Guam (48 U.S.C.
l42lh) provides that the Federal income taxes, among
others, derived from Guam shall be covered into the Guam
Treasury by the United States.
The meaning of this
)
-
(
I
3 -
provision has never been entirely clear and the tax
administrators of both jurisdictions have developed
certain mutually agreeable formulae and procedures to
meet its terms, as is described more fully below.
Guamanian revenue derives almost entirely from
income, gross receipts and excise taxes collected
directly by the Guamanian Government and income taxes
covered into the Guam Treasury by the United States.
In fiscal 1969 Guam collected $26.5 million in income
taxes, $8.95 million of which was paid over by the
United States for taxes withheld from military and
civilian federal employees.
Of total operating revenues
of $47.6 million, the remainder derived from local gross
receipts, excise and property taxes, and approximately
$4 million in federal grants.
II.
Treasury's Proposed Revision of the Existing System
A.
Individuals
Residents of Guam or of the mainland United States
will file a single tax return in the jurisdiction where
they reside on the last day of the tax year.
This return
will report the taxpayer's world-wide income for the
entire year and the tax will be paid to the jurisdiction
with which the return is filed.
Thus, a mainland resident
with Guam source income will have no filing requirement or
- 4 tax liability in Guam.
Likewise, a Guam resident with
mainland source income will have no tax liability or
filing requirement in the United States.
In the event
the taxpayer had tax on his salary or wages withheld,
or made payments of estimated tax, during the course of
the year by or to the jurisdiction other than the one
in which he files his return, the jurisdiction with
which he files his return will allow a credit for the
tax withheld or estimated tax so paid and will pay any
refund due.
The purpose and effect of this proposal
is to permit repeal of section 932 of the Code as it
applies to Guamanians and to do away with the dual filing
requirements to which Guamanians and U. S. citizens with
Guam source income are subject.
Thus, each jurisdiction
will give up the tax it now collects (other than that
which it has collected by withholding on salary and
wages and by way of estimated tax payments) on the income
of persons who are both citizens and residents of the other
J u.~ ~.:,"
L.
~ion
derived from sources within the taxing
jurisdiction.
Citizens who are third country residents
will also have a single filing requirement based upon their
last place of residence within either of the two taxing
jurisdictions.
- 5 An exception to the single filing requirement
will be made for U. S. shareholders of a Guam corporation, or Guam shareholders of a U. S. corporation, who
elect Subchapter S treatment for the corporation.
In
that event each shareholder will file a return with
the jurisdiction in which the corporation operates
reporting and paying tax on this share of the corporation's
income and will be allowed a credit for that tax on his
return in the jurisdiction of his residence.
B.
Corporations
.
Mainland corporations operating in Guam through
branches will continue to report in tax returns to Guam
their income effectively connected with their branch
operations; in their U. S. returns they will also continue
to report that income and receive a foreign tax credit
for taxes paid to Guam.
Similarly, Guamanian corporations
operating in the U. S. through branches will continue to
report their branch income in U. S. tax returns and will
receive a credit for U. S. taxes in their Guam returns.
However, U. S. corporations will not be treated as foreign
to Guam for purposes of section 881 of the Code and will
therefore be exempt from the Guam withholding tax on
dividends, interest, royalties and other categories of
passive income.
Likewise, Guam corporations will not be
- 6 considered foreign to the U. S. for purposes of section
881 as applied in the U. S.
In short, each jurisdiction
will tax corporations of the other jurisdiction on their
income effectively connected with their operations in
the taxing jurisdiction but will not tax passive income
and distributions paid to corporations of the other
jurisdiction.
This requires that each jurisdiction give
up the tax it now collects on the passive income and
distributions paid from its sources to corporations of
the other jurisdiction.
In addition, Guam and U. S.
corporations will not be considered foreign to the other
jurisdic~ion
C.
for purposes of the Subchapter Selection.
The "covering over" question
Section 30 of the Guam Organic Act (48 U.S.C. 1421h)
provides that all customs duties and Federal income taxes
derived from Guam shall be covered into the Treasury of
Guam.
Under this provision taxes withheld from military
and civilian Government personnel working in Guam are
annually paid over to Guam by the U. S.
Federal income
taxes paid by military personnel are considered as having
been derived from sources in Guam notwithstanding that,
by reason of the Soldiers and Sailors Civil Relief Act,
military personnel stationed in Guam do not acquire
residence there.
Moreover, by administrative arrangement,
-
7 -
Federal civilian personnel file returns only with the
U. s. irrespective of their technical residence for tax
purposes.
Under the above
proposal military personnel
would remain free of any Guam filing requirement.
However,
consideration should be given to whether Federal agencies
should be authorized to withhold the Guam territorial tax
on behalf of Guam to be paid directly by such agencies
to the Government of Guam.
Treasury is continuing to
study this possible solution to the covering over question,
Under the proposed revision, the United states would
be collecting a tax on Guam source income of persons not
resident in Guam on the last day of the taxable year and
of U. S. corporations with respect to which a tax is
presently being paid to Guam and a foreign tax credit
is presently allowed by the United States.
Under the
proposed system, and with no further change in the covering over provision, this increment of tax would be
subjec;'~
to covering over as a tax collected by the Uni ted ;:;'C3,-_'
but derived from Guam.
To avoid the considerable ad-
ministrative problem of identifying the tax colI ected 0:'
such income for purposes of payment over to Guam,
t.hE
Organic Act should be amended to exclude from the
coV\",:(:""j_
over provision income taxes paid to the United States by
non-residents of Guam other than Federal military and
civilian employees.
- 8 D.
Revenue Effects
The Government of Guam estimates that under the proposed system wi'th respect to individual residents of Guam
it expects to realize a small gain in revenue.
This is
based upon the assumption that among persons who split
their residence in a tax year between Guam and the mainland, but who will file their returns in Guam at the end
of the year, the additional tax due at the end of the year
will exceed the amount of refunds to which they are entitled.
Treasury believes that it is at least as likely that with
respect to the totality of individuals who split a tax year
between Guam and the mainland, neither Guam nor the united
States will experience more than a token gain or loss of
revenue.
The Government of Guam estimates that with respect
to non-resident alien individuals who are U. S. citizens
and realize income effectively connected with a trade or
business in Guam (including the performance of personal
services), Guam paid refunds totalling $22,450 in 1968
and $28,625.06 in 1969, amounts which under the proposed
system it would retain.
With respect to the 30 percent withholding tax on investment income paid to non-Guamanian individuals, Guam's
- 9 best estimate is that $339,420 of asserted annual tax liabilities would be foregone.
This figure, however, does not
represent collectible taxes because much of it is directly
or indirectly involved in pending litigation which challenges
the right of Guam to collect the tax, the outcome of which
is something less than certain.
With respect to corporations,
Guam estimates a loss of $205,717.25, based upon 1968 returns,
representing '30 percent of royalties paid to u.s. film distributors for films shown in Guam.
It is expected that these
revenue losses will be more than made up in the long run from
the extra revenues derived from the increased economic activity
financed by mainland lending institutions which are presently
inhibited from making capital available in Guam because of the
30 percent withholding tax.
The revenue effect in the united States of the changes
proposed herein is expected to be negligible.
It is probable
that the loss in revenue attributable to individuals who split
the tax year between Guam and the mainland and file their returns in Guam will be substantially offset by the gain in revenue
attributable to persons who reside in the United States at the
end of the tax year and no longer will file returns in Guam.
The loss in revenue attributable to elimination of the withholding tax on u.s. source income p<.id to Guam individuals and
corporations is token at the most.
On the corporate side, the
only measurable revenue effect will occur in Guam.
- 10 -
III.
Purpose of the Changes
The above proposals accept the view that it is inap-
propriate to treat Guamanians as non-resident aliens for
tax purposes, both for the symbolic significance attached
to that nomenclature and because the economic relationship
between Guam and the mainland is, as a practical matter,
different from and closer than the relationship between the
United states and foreign countries.
Nonetheless, Treasury
believes that the dual law theory should otherwise remain
in effect and that Guam should continue to administer the
Code as a separate taxing jurisdiction.
This aspect of the
relationship between the U. S. and Guam is part of the overall policy objective of achieving in Guam a substantial measure of fiscal independence from the Federal government, and
•
it is not intended that these proposals should alter that
policy.
The status of individuals who split a tax year be-
tween the mainland and Guam is most easily determined as of
the last day of the year, and each individual taxpayer's
single filing requirement is determined on the basis of residence as of the last day of the year.
A credit for taxes
witheld by the other jurisdiction on salaries and wages and
estimated tax payments without any covering over requirement
is thought to be the most efficient means of accomodating
the interests of each jurisdiction consistently with a single filing requirement.
It is expected that the credits
~-
'I
-
/
\
/
'~
- 11 -
allowed by Guam and the United States, respectively, under
this system will roughly equal one another, thus justifying
the termination of two filing requirements for each taxpayer
in this position.
u.
There would be no covering over by the
S. of taxes it collects on the Guam source income of U.S.
persons and corporations
sho~n
on returns to the U. S. other
fuan U. S. military and civilian employees stationed in Guam.
Most important, these changes will cure the inequity
which arises when a mainland citizen in Guam, or a Guamanian
in the mainland, pays tax on earned income as a non-resident
alien which, because of the limitation on exemptions and deductions available to non-resident aliens, is taxed a higher
rate than he would bear as a resident.
When such a taxpayer
claims a foreign tax credit in his return filed with the
jurisdiction of his residence, he confronts the credit
limitation which limits the credit to the tax on that incorne as shown in the return.
For example, a Hawaiian who
works part of the year in Guam where tax is withheld as if
he were a non-resident alien, and who then reports the
income on his return filed in Hawaii, is allowed in Hawaii
a credit for taxes paid to Guam which in most cases will be
less than the actual tax paid to Guam, resulting in a higher
tax burden for such persons than for persons who earn all
of their income either in Guam or Hawaii.
The filing and withholding requirements under existing law
in both Guam and the U. S. for persons who receive passive income from the jurisdiction in which they do not reside seems an
- 12 unnecessary burden for the small amounts involved.
Guam
is willing to give up its tax on Guam source income of nonresident individuals in order to achieve the single filing
requirement, so long as the United States does the converse.
The proposal implements this position.
Insofar as the pro-
posal eliminates dual filing for Guamanians it merely follows
the provisions of section 28(a) of the Organic Act of the Virgin Islands (48 U.S.C. 1642).
This proposal goes further,
however, and provides the converse for U.s. residents with
Guam source income.
Treasury believes that if non-resident individuals are
no longer to be treated as "foreign" to the other taxing juris
diction, then corporations should no longer be "foreign" ei the:
for withholding tax purposes.
Very little revenue is obtained
under the withholding provisions by Guam because almost all
U.S. corporations operating in Guam do so through branches.
Treasury believes that U.s. corporations ought to be free to
operate through subsidiaries in Guam without any withholding
tax, as should Guam corporations in the United States.
More-
over, it appears likely that removal of the withholding provisions would attract more investment capital into Guam from
the mainland from investment sources not willing or able to
establish branches in Guam.
This result may be more beneficia
to Guam than what appears to be the relatively small tax collections now made under section 881.
- 13 -
The tax system described herein would overlay the tax
hOliday available to certain Guam corporations under the
Guam Economic :qevelopment Act of
196~5.
The assumption above
has been that either a Guam corporate tax or a
u.s.
corporate
tax would be paid on corporate income arising in Guam.
Since
the tax rates in the two jurisdictions are identical, the effect of the foreign tax credit for taxes paid to Guam is to reduce the
u.s.
to zero.
tax on business income derived from Guam sources
Where a Guam tax holiday for a Guamanian subsidiary
of a U.S. corporation reduces the Guam income tax on that subsidiary's current income below the
u.s.
corporate rate, the
United States will in effect tax the difference, through operation of the deemed-paid foreign tax credit, if and when earnings are paid back to the parent corporation in the form of
dividends.
FOR IMMEDIATE RELEASE
June
23, 1970
APPOINTMENT OF DIRECTOR OF OFFICE OF
LAW ENFORCEMENT
The appointment of Martin R. Pollner, 35, of New York
as Director of the Office of Law Enforcement for the Treasury was announced today by David M. Kennedy, Secretary of
the Treasury.
Pollner, an attorney with Mudge, Rose, Guthrie &
Alexander in New York, served from 1960 to 1962 in Washington
in the office of Deputy Attorney General Lawrence E. Walsh
and his successor, Byron R. White.
From 1963 to 1966 he
was a prosecutor with the United States Attorney's Office
for the Eastern District of New York.
He was Executive
Director of President Nixon's Advisory Council on Crime and
Law Enforcement during the 1968 campaign.
Mr. Pollner will serve under the direction of Eugene T.
Rossides, Assistant Secretary for Enforcement and Operations.
Mr. Pollner holds degrees from the City College of New
York and Brooklyn Law School and was admitted to the bar in
November 1960.
K.. 442
He is married and has two children.
000
!partment of the TREASURY
.J)'C. 20220
TELEPHONE W04-2041
June 23, 1970
FOR IMMEDIATE RELEASE
The Treasury Department said today it is investigating
reports that efforts are being made to redeem substantial
sums of partly-burned U. S. currency believed to have been
recently in North Vietnamese hands.
The Treasury said a "tip" led to the investigation.
Informants said about $7 million of partly-burned currency
had been abandoned when the North Vietnamese evacuated their
embassy at Phnom Penh, Cambodia, in March.
Another report
told of similarly burned currency from the Viet Cong Embassy
at Phnom Penh.
The investigation disclosed immediately that $96,000
ln bills of the type described by the informant had been
turned into the Treasury for redemption in new bills.
Sub-
sequently, additional bills have been presented and these
are being held pending completion of the inquiry.
To date,
the overall total presented for redemption is $168,000.
The
government normally replaces partly-burned currency, after
verification, in a routine program that aids victims of
legitimate fires.
(m,..,'n'" ,
- 2 All the currency involved in the Cambodian case consists of $100 Federal Reserve notes, a Treasury spokesman
said.
Most are Federal Reserve Bank of San Francisco notes,
with Dallas issues "a distant second."
All other Federal
Reserve banks, are, however, represented.
involved were 1934 issues and some 1950.
Some of the notes
The Treasury said
it would not speculate on how the North Vietnamese might
have obtained the currency.
The Treasury's Foreign Assets Control office has moved
to "block" cashing of any further bills which are "presumed
to have been in North Vietnamese or Viet Cong hands" while
the investigation continues.
The action was taken under
Foreign Assets regulations.
Treasury experts determined that the bills are genuine.
Evidence was turned up which strongly indicated that the
bills were in North Vietnamese or Viet Cong hands.
Banks were then notified to watch for and report all
offers of
exchang~of
bills mutilated in the fashion of
those already turned In.
Treasury has also notified all
foreign embassies to be alert for attempts to pass bills
of the type in question.
The partly-burned bills came to the Treasury from
banks including the Raffles Place Branch of the Bank of
America in Singapore; the First National Ci ty Bank of Bogota,
Columbia;
Wi~g
Hang Bank, Ltd., Hong Kong; and Hong Tai
(more)
- 3 -
Finance Company, Hong Kong.
The bills were forwarded through
banks in the United States to Treasury for redemption.
The
Treasury emphasized that all the domestic banks involved
were merely performing normal, helpful assistance to persons
they believed to be legitimate fire victims.
Some of the bills were burned on both edges and others
"straight down the middle," the Treasury spokesman said.
All bore symptoms of having been packed closely together or
In boxes prior to burning.
One case involved presentation
by one foreign bank of 744 individual partly-burned notes.
"The bills are definitely genuine," the Treasury
spokesman said.
Black market rumors indicate that the bills were being
offered at 50 to 60 percent discounts in various Far Eastern
countries.
000
Department 01 the TREASURY
NGTON. D.C. 20220
TElEPHONE W04-2041
FOR RELEASE AT 12 NOON CDT,
WEDNESDAY, JUNE 24, 1970.
REMARKS BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE THE
CHICAGO COUNCIL ON FOREIGN RELATIONS
CHICAGO, ILLINOIS, JUNE 24, 1970
It is always a real pleasure to return to Chicago.
And it is especially enjoyable when the occasion allows
me to meet with my friends of the Chicago Council on
Foreign Relations.
At the moment, there are many problems and questions
in the domestic and international fields which seriously
concern us. I would like to discuss with you a timely
topic that has always been vital to this nation -- the
competitive position of the U.S. in international markets.
I need hardly remind this group that a strong trade
balance -- and a strong current account position in general
is a necessary counterpart to our role as the world's
major supplier of aid and investment. We must not forget
that international money and capital markets are largely
dollar markets. We must never lose sight of the fact that
the dollar is the leading reserve and transactions currency.
If we are to maintain our role in
providing aid and investment abroad, and
If the dollar is to continue to be
pivotal in international markets,
Then we must take care of one fundamental -- the U.S. trade
balance. For only if that balance is strong -- only if
the competitive position of the U.S. abroad is sound -- can
we continue to shoulder our international responsibilities.
K-44R'
- 2 This Administration is moving on several fronts to
strengthen our position in international markets. We all
recognize, of course, that the most important front is
here at home. For the course of the domestic economy
has a profound impact on our international trade and capital
accounts and, therefore, on the strength of the dollar
abroad. Consequently, I would like to pause a moment and
say a few words about the state of the economy -- where we
are today and what we can expect to see in coming months.
First and most important, our restrictive monetary
and fiscal policies have eliminated excess demand. The
economy has been cooled. Industrial production and real
GNP levelled off in the first quarter of this year. Real
GNP may well dip slightly when the second quarter figures
are in.
Even so, we continue to experience substantial price
increases. We might ask -- Does this mean our policies
have failed? I do not believe this to be the case. The
apparent paradox of falling real output and rising prices
is to be expected as we move from demand-pull inflation
to price stability. In the early stages of a demand-pull
inflation, prices and profits traditionally increase more
rapidly than wages. Subsequent wage demands, then, attempt
to recover losses in real income suffered when wages rose
less rapidly than prices and productivity. The result
of these catch-up wage demands is cost-push inflation.
In view of the fact that excess demand has been
eliminated, it remains to reduce the cost pressures still
in the economy. That process is taking place right now.
Both markets for goods and labor are slack; expectations
of continuing inflation are down; the public is resisting
price increases, and the businessman is resisting inflationary
wage demands.
Yet the lags involved in the transition from cost-push
inflation to price stability are substantial. They are
usually painful as well. But,if we retreat from our basic
policies now, we risk losing all of the gains against
inflation that have been won over the past year and a half.
- 3 -
Our projected budget posture for both fiscal 1970 and
fiscal 1971 is sound
Although we initially projected a
budget surplus for this fiscal year, it appears now that the
budget will be in some deficit.
0
The major cause of the pending fiscal '70 deficit
is a revenue shortfall resulting from the economic slowdown.
This puts the deficit in a different light. A deficit
occurring primarily because of a drop in revenue indicate~
the success of our anti-inflatio~ efforts. Had a deficit
resulted from an increase in Government expenditures, we
would indeed have cause for alarm.
With respect to fiscal '71, President Nixon has
recommended acceleration of estate and gift taxes as well
as a tax on lead in gasoline in order to maintain the
necessary budget posture.
Although our policies have not been unduly harsh
or abrupt in their impact, they have contributed to a rise
in the unemployment rate. The latest figures now place
the level of unemployment at 5 percent -. a rate that is
too high~ Yet, we should understand that this rate is below the
average for the first hal:f of the 1960' s. At: the l:ii:WU;:: time
our labor force has been growing. About two mi.llion more
people are at work today than when this Administration took
office 18 months ago.
In part, the rise in unemployment over the past few
months reflects a shifting in our national priorities.
We are moving from a war to a peacetime economy
Defense spending is declining. While fully meeting our
security needs, we are spending $17 billion less on defense
today than we were a year ago. The size of our armed forces
has been reduced by over 200,000 men. In the coming year
we plan to reduce military spending by an additional $5 2 billion.
These reductions are in sharp contrast with the rapid rise in
defense spending from the middle of 1965 to 1968 -- an
increase of more than $30 billion. Quite clearly, such a
substantial shift in ·defense spending will lead to temporarily
higher unemployment in the affected industries while that
adjustment is in process.
- 4 These transitions: from inflation to price stability
and from a wartime ·,to a peacetime enviror'lIhent led
President Nixon to announce supplementary measures to assist
us through this difficult period. These measures are
appropriate in a period of slack demand and continuing
cost pressures. However, we do not intend to neglect
"fundamentals." -If'our fiscal and monetary policy shifts
abruptly to expansicm, we risk another explosion of demand.
With fiscal policy about in balance between receipts and
expenditures, :it is appropriate in this period of
transition for the Federal Reserve to move -- as it has
done
to a moderately easier monetary policy.
In addition to maintaining an orderly expansion of
demand, what is now crucial" in completing the transition to
a stable economy is the relation between labor productivity
and wages. The National Commission on Productivity, announced
recently by the President, as well as his Conference' on
Productivity, will focus attention directly on this issue.
In a stable growth situation, increases in wages and
'salaries are offset by gains in productivity. This keeps
labor costs per unit of 6utput stable and, consequently,·
eliminates presSure for higher prices. 'Further, in the
absence of inflation, wage gains represent real improvement
in living standards. We recognize the fact over the long
run increases in real income can expand no faster than
increases in productivity.
Between 1960 and 1965 compensation per manhour -- wages
and benefits --'increased at an average annual rate of 3.9
percent. Increased output offset increased compensation,
and unit labor remained virtually constant over the period.
As a result, the general price indexes remained relatively
stable.
'
Yet in 1966 compensation began to outstrip productivity.
Unit labor costs increased from 2-1/2 percent in 1966 to
more than 6 percent in 1969. Growing cost-push pressures
materially reinforced the pull of excess demand.
These facts illustrate the importance of the relationship
between productivity and compensation. They illustrate the
importance of the National Commission on Productivity.
I
J
-,
)
- 5 For if we can directly improve productivity, the result
can be a desirable ~ombination of less inflationary pressure,
higher real living standards, and improvement in our
international competitive position.
The measures announced by the President are welcome
supplements to our basic policies. Attention to the issue
of productivity and unit labor costs is especially timely -both for our domestic economy and our international economic
posture as well.
Yet we are doing more than relying on dome~tic
economic policies to help our trade balance. We are highly
concerned about a trade surplus that averaged $5.4 billion
in the first half of the 1960's yet averaged less than
$1 billion in the past two years.
The first quarter results of this year suggest some
recovery may be underway, but our trade balance is still
far from what we need to support a strong payments position.
It would be wrong to underestimate the challenge we
face in achieving the necessary degree of improvement in our
current account and trade balances. We have, however, been
reviewing our approach in several key areas to make sure
that our exporters are not placed at a disadvantage with
respect to foreign producers. We recognize, for example,
that the types of product s in which we excel
typically
require medium-term financing.
While we have no desire to take
part in any competitive easing of terms for commercial
advantage, we remain eager to work with other countries to
define appropriate limits for official credit assistance.
We are moving to assure industry the degree of support to
which it is entitled.
I believe some fruits of this effort
are already emerging from the revitalization of the ExportImport Bank.
In addition to adequate trade financing, Treasury has turned
its attention to the area of tax policy. We want to
determine how adjustm~nts in current policy can improve our
competitive pO,sition in intern(itional markets.
- 6 As one means of doing so, we recently proposed to
Congress the creation of a Domestic International Sales
Corporation, or DISC. Under this proposal, taxation of
profits from export sales of a DISC would be deferred until
such time as dividends from that income are distributed to
the shareholders.
Deferment of' tax payments on such income will have
a two-fold effect. First, it will encourage exporting efforts.
And secondly, it will improve the alternatives to direct
investment abroad. Consequently, our trade balance, as well
as the balance of our capital accounts, will correspondingly
benefit.
The DISC proposal recognizes that export income is
partly foreign source income, just as income from foreign
subsidiaries is foreign source income. Deferral is consistent
with present U.S. taxation of subsidiaries incorporated abroad.
It is also consistent with the tax laws of other countries
which tend to impose taxes on the basis of territorial
concepts rather than on the basis of the nationality of a
corporation.
Deferral is also consistent with our international
trading obligations. In formulating this proposal, we
implicitly recognize that the mere place of incorporation
should not determine all of the tax consequences for income
resulting from sales outside the United States. Finally,
let me add that DISC is, in our opinion, entirely consistent
with the provisions of the General Agreement on Tariffs and
Trade.
We strongly feel that the DISC proposal represents a
positive effort to expand and encourage U.S. exports. It
will do so by eliminating our existing tax preferences for
foreign manufacturing. When enacted, it will benefit our
trade balance, our overall balance of payments -- measured
on either basis -- and the strength of the dollar abroad.
DISC js
Yet it needs
successfully
have to show
will in fact
highly important to our trade balance objectives.
strong support from industry if it is to move
through the legislative process. Business will
Congress how and to what extent this proposal
increase exports.
- 7 In addition to encouraging exports, DISC also
represents a first step toward equalizing U.S. and foreign
corporate tax burdens for companies competing in
international markets. In the Common Market, the value-added
tax will shortly be in use in all member nations. Use of
the tax simplifies equalizing border tax adjustment of
goods moving in international trade. Since many of our
major trading partners currently use this tax, our
competitive trading position -- and our trade balance -has suffered.
Treasury is, therefore, studying the value-added tax
in depth. We recognize both its apparent advantages as well
as the difficulties that would arise in its application.
I might add, too, that examination of the value-added tax
as a possible solution to the border tax adjustment problem
raises many questions about our whole system of taxation.
The answers are by no means obvious.
Whether we shall seriously move on the value-added
tax will be decided as a result of our evaluation of its
potential impact on many areas of economic activity. If we
do not act favorably, we must then turn our attention to
revising border tax adjustments under GATT in order to
allow U.S. exporters to compete on an equal footing with
their trading partners. Otherwise, we will remain hampered
in our attempt to rebuild the strong trade balance necessary
to preserve the strength and position of the dollar abroad.
Exim-Bank financing, DISC, and attention to the
border tax problem are highly important in helping us
achieve our international economic objectives. Yet, as I
stated at the outset, it is the domestic policies of this
Administration which, in the final analysis, will determine
the degree of our success on the international front.
These policies are broadly on target. They have cooled
off the economy. They will continue to moderate demand as we
move through the final transition from cost-push inflation
to economic stability.
The economic theme of the moment is transition -transition from inflation to a stable and real prosperity;
transition from wartime to peacetime. The proposals announced
by President Nixon will assist us substantially in the process.
Moreover, they will help us look down the road toward more
rapid increases in our real living standards in a non-inflatio,ary
environment.
- 8 -
As we move through this period of transition, let
me leave you with one final thought. The U.S economy
today is strong -- far stronger than any economy, or
collection of economies, in the world. It is moving
once again toward stability. And it is doing so with a
minimum of the pain that has always accompanied this
process.
000
FOR RELEASE AT 12 NOON CDT,
WEDNESDAY, JUNE 24, 1970.
~7
{-
~Departmentolthe TREASURY
TELEPHONE W04-2041
'GTON. D.C. 20220
f'
'TENTION:
FINANCIAL EDITOR
R RELEASE 6: 30 P.M.,
J870
RESULTS OF TREASURY'S MONTHLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
lIs, one series to be an additional issue of the bills dated March 31, 1970
,and
e other series to be dated June 30, 1970
, which were offered on June 17, 1970
re opened at the Federal Reserve Banks today. Tenders were invited for $500,000,000
thereabouts, of 274 -day bills and for .$1,200,000,000 or thereabouts, of 365 -day
lIs. The details of the two series are as follows:
NGE OF ACCEPTED
MPETITIVE BIDS:
High
Low
Average
274 -day Treasury bills
maturing March 31 , 1971
Approx. Equiv.
Price
Annual Rate
94.695
94.604
94.620
§}
365-day Treasury bills
maturing June 30, 1~71
Approx. Equiv.
Price
Annual Rate
6.970%
7.090%
7.069%
92.923
92.766
92.823
6.980%
7.135%
7.079%
Y
~ Excepting 1 tender of $800,000
96% of the amount of 274 -day bills bid for at the low price was accepted
28% of the amount of 365 -day bills bid for at the low price was accepted
rAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
)istrict
~oston
lew York
'hilade1phia
:Ieve1and
tichmond
~t1anta
:I1icago
:t. Louis
linneapo1is
:ansas City
lallas
an Francisco
TOTALS
AEElied For
430,000
$
984,210,000
1,150,000
1,280,000
3,350,000
14,360,000
106,280,000
8,610,000
2,610,000
7,130,000
14,210,000
99 256°2°° 0
AcceEted
430,000
$
388,410,000
1,150,000
1,280,000
2,350,000
6,920,000
31,080,000
7,110,000
2,110,000
2,130,000
1,210,000
56 236°2°°0
$1,243,180,000
$
500,540,000
EJ
AEElied For
$ 22,040,000
1,405,910,000
3,710,000
13,120,000
6,950,000
19,940,000
154,420,000
14,840,000
5,890,000
13,670,000
16,390,000
95 297°2°° 0
AcceEted
$ 12,040,000
961,870,000
3,710,000
11,120,000
6,950,000
17,940,000
106,420,000
14,840,000
3,890,000
8,670,000
7,390,000
45 2 4°°2°° 0
$1,772,850,000
$1,200,240,000 ~
Includes $21,440,000
noncompetitive tenders accepted at the average price of 94.620
InclUdes $74,010,000
noncompetitive tenders accepted at the average price of 92.823
These rates are on a bank discount basis. The equivalent coupon issue yields are
7.49% for the 274 -day bills, and 7.59% for the 365-day bills.
FOR IMMEDIATE RELEASE
June 24, 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
~,100,000,000,
or thereabouts, for cash and in exchange for
Treasury bills maturing
July 2, 1970,
in the amount of
$ 3,001,941,000,
as follows:
9l-riay bills (to maturity date) to be issued July 2, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing
an additional amount of bills dated
April 2, 1970,
and to
mature October 1, 1970,
originally issued in the amount of
$1,301,180,000,
the additional and original bills to be
freely interchangeable.
182-day bills (to maturity date) to be issued July 2, 1970, in the
amount of $1,300,000,000, 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 (an additional
$500,400,000 was issued March 31, 1970), the additional and
original bills to be freely interchangeable.
The bills of both series will be issued on a discount basis
under competitive and noncompetive bidding as hereinafter provided,
and at maturity their face amount will be payable without i.nterest.
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 Daylight Saving
time,
Monday, June 29, 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
s~bmit tenders except for their own account. Tenders will be received
Nlthout deposit from incorporated banks and trust companies and from
- 2 responsible and recognized dealers in investment securities. Tende.
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 Bapks 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
ad-vised 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 July 2, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
July 2, 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 050~ranch. /
STATEMENT OF
EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
(ENFORCEMENT AND OPERATIONS)
BEFORE
THE SENATE SELECT COMMITTEE ON SMALL BUSINESS
June 24, 1970
Mr. Chairman and members of the Select Committee on
Small Business:
I am pleased to be here today to present the views
of the Treasury Department on international cargo theft
and pilferage in general, and to report to you on the
current drive of the Treasury to combat such theft
through a three-point action program of the Bureau of
Customs.
Our action program attacks cargo theft and pilferage
through:
Stricter cargo accountability,
New regulations providing for personnel
identification and improved physical security of cargo, and
-- Reviewing the desirability of additional authority
for establishing national standards for cargo facilities
and extending licensing requirements.
This action program ties in with two top priority
Presidential concerns -- the drive to stop smuggling of
narcotics into the United States and the campaign against
organized crime.
- 2 The Treasury Department has followed with great interest
the investigations of your committee.
We congratulate
your committee for spotlighting this very important problem
area.
We will submit a technical report on S. 3595.
Although your staff is familiar with the role of the
Bureau of Customs, I would like to establish the perspective from which customs sees its involvement in the matter
of security of cargo.
Cargo in international trade is exposed to theft and
pilferage at many points from the time it leaves the
foreign producer until it reaches the consumer in the
United States.
Some losses, of course, occur in transit
in the foreign country and while awaiting loading either
at docks or airports abroad prior to transoceanic shipment.
The shipment arrives in the United States, is held by the
carrier for a brief period until it has been cleared by
Customs, and is then transported inland either by freight
forwarders or by the importers via their own transport.
From the time that the merchandise physically touches
the territory of the United States, either being unladen
from an airplane at an airport of entry or from a vessel
onto a dock, it is under "custons custody" until released
by Customs for entry into the commerce of the United States.
After this release, delivery may be made by the carrier
-
3 -
either directly to the importer or to a designated agent,
such as a customhouse broker or freight forwarder.
It is this, period of "customs custody," including the
point of delivery by the carrier, with which customs is
and should be concerned.
During this period the carrier
is responsible for insuring the physical security of the
merchandise.
Customs, however, does exercise control
over movement of the cargo by the carrier until a suitable
arrangement for payment of duty has been made and until
customs is satisfied that contraband, such as heroin and
cocaine, is not being smuggled into the United states.
Clearly, any theft or pilferage of merchandise,
once it has landed and until its release from customs
custody, threatens the proper collection of duty and the
prevention of smuggling, with which customs is charged.
Moreover, Customs already has personnel physically present
at the airports and docks, at the terminals and warehouses.
And these personnel
inspectors, agents, and enforcement
officers -- are vested with unique powers of search and
seizure without being required to show ~robable caus~, v7hich
makes for strengthened law enforcement at our borders
and ports of entry.
It is on the basis of these interests and capabilities
that I am able to report to you this morning a threefold
- 4 program upon which the Treasury Department has embarked
to contribute its full share to the protection of cargo
against theft
~nd
trade chain.
This will strengthen our ability to collect
pilferage during this segment of the
revenue and, as important, our ability to contribute
strongly to the President's drives against drug smuggling
and organized crime.
Treasury's Three-Part Program
The Treasury established early this year a special
task force to study the problem of cargo theft prevention.
The task force first examined what we could do administratively, and we have already moved forward in that area.
~'le
are now determining what additional legislative authority
appears necessary or desirable.
The Treasury program focuses on the problem in three
principal ways:
1.
Cargo Accountability - We propose to tighten the
carriers' accountability for cargo from the moment of
unlading until the moment of delivery to the importer or
his bona fide agent, so that there can be no question
whether a loss has occurred while the merchandise is in
the physical custody of the carrier.
- 5 -
2.
Personnel Identification and Improved Physical
Security - We intend to intensify greatly our investigations of persons associated with cargo handling so as to
reduce to a minimum the number of individuals with
criminal backgrounds or susceptible to criminal inducements
who may have access to customs documents and to merchandise
under customs custody.
Also, permits to unlade would be
contingent on transport and storage of the cargo under
security conditions approved by Customs.
3.
National Standards for Storage and Handling of
Cargo and Extended Licensing - We are reviewing the
desirability of obtaining additional legislative
authority to establish more extensive physical standards
for the protection of cargo and to extend licensing to
additional personnel and firms.
In order to clarify the applicability of each of
these measures to the period of customs custody, several
points of particular vulnerability for cargo theft and
pilferage should be noted:
-- The first of these is the process of unlading and
movement to terminal storage.
When cargo is being unladen
from an aircraft and transported, frequently several miles,
to the air carrier's terminal warehouse, there are
opportunities for removing a package from the aircraft
directly into private channels, or for dropping off the
- 6 transporting truck or van one or more packages which
can be picked up by a confederate in a following vehicle.
Similar diversion of a package or carton can be effected
on the docks.
-- In the terminal, merchandise, especially high value
merchandise, if not given separate secure storage, is
vulnerable to theft and pilferage.
-- And, at the time of delivery from the terminal
to the
i~porter
or the freight forwarder, additional
merchandise beyond that for which the trucker has legitimate
papers can be added to the loading of the truck, or
delivery can be made to a false claimant.
As your Committee has noted, objective data on the
incidence of theft during these stages is not available.
However, the consensus of a number of supervisory customs
inspectors involved in clearing cargo at airports suggests
that, of the total losses during "customs custody," perhaps
5 to 10 percent of the theft or pilferage occurs between
the aircraft and the terminal warehouse, perhaps 15 percent
by pilferage within the warehouse, and 75 to 80 percent
through collusion between truckers and the carrier's cargo
handlers in delivering goods at the warehouse dock. We
would expect roughly similar ratios on the waterfront.
- 7 -
Organized crime is undoubtedly a significant factor
in theft of cargo.
recognized and
~ealt
This is a development that must be
with effectively if any meaningful
progress is to be achieved.
A favorite device of organized
crime is placing invididuals with serious criminal records
on air freight, airline, and warehouse company payrolls
as cargo handlers.
These corrupt and corruptible handlers
then become principal actors in collusive theft.
Customs' Pilot Program at JFK International Airport
JFK Airport presented such a special problem, includinq
involvement of organized crime, that we began a pilot
program of immediate remedies there in May.
These are
administrative measures that the Bureau of Customs has
undertaken under its current authority.
In late April, our Customs director at JFK Airport
net with all airline managers
at JFK and outlined the following new procedures:
1.
Carriers are required to segregate high-value
merchandise and any broken packages or cartons as they are
unladen from the aircraft and to transport these promtply
to terminal warehouses in closed trucks.
2.
On arrival at the warehouse, high-value goods
nust be moved into "strong rooms" or special security
storage cages, and broken packages repaired or repacked.
- 8 Customs will deny to importing carriers permission to
unlade their aircraft if these procedures are not carried
out.
3.
A new pick-up document is now in universal use
at JFK Airport.
This form employs authentication by the
consignee or, in the case of brokers, validation similar
to that used in mechanical checkwriters and is designed to
prevent unauthorized truckmen from driving off with whole
loads by presenting false documents.
A stamped copy of the
pick-up form must be retained by the trucker as proof of
authority to have the merchandise on his truck if he is
stopped by Customs agents at check points.
4.
Backing this up are fraud-prevention cameras
which take simultaneous photos of the pick-up form and
of the trucker or other person receipting for the merchandise.
5.
New lock boxes, similar to post office boxes,
have been installed at Kennedy Airport to insure that
papers for importers and customhouse brokers cannot be
taken, or even scanned, by unauthorized individuals.
The 35 airline representatives attending the meeting
pledged support for this enforcement program.
customs
inspectors will insure compliance by spot checking unlading
of aircraft and deliveries from carriers to truckers.
-
9 -
Regulation Changes
The second phase of our program would apply these and
additional measures nationwide by changes in Customs
Regulations.
One of these notices of proposed rule-
making, which appeared in the Federal Register on June 6
(35 FR 8829), would, we believe, improve the accounting
for cargo by carriers, from unlading to delivery to
importer, by
~ncreasing
the incentive to avoid payment
of duty on undelivered merchandise.
The second notice of proposed rule-making will be
published later this week.
If placed in effect in their
proposed form, these regulations would empower District
Directors throughout the country to adopt measures similar
to those in effect at Kennedy, as well as additional measures
in the area of personnel controls, wherever a high incidence
of theft warrants such action.
Under the new personnel measures,> carriers would be
required to furnish lists of persons employed in connection
with unlading, storage and delivery of imported merchandise;
in high-risk areas, such employees would be required to
be fingerprinted, and if they met customs standards,
Customs photo 1D cards would be issued to them, without
which access to cargo in customs custody would be denied.
These are proposed as conditions for a permit to unlade.
- 10 Similar requirements would be levied on bonded
warehouses and licensed cartmen and lightermen.
Since customhouse brokers are required to exercise
"responsible supervision and control" over the transaction
of Customs business, similar listing of personnel or
qualification by their personnel for an ID card would
be required.
And when a broker employs a messenger firm
to transport Customs documents, similar listing and
identification would be imposed on employees of the
messenger firm.
The Orga.nized Crime Section of the Bureau of Customs
already has underway a reinvestigation of all licensed
cartmen, customhouse brokers, and operators of bonded
warehouses and container stations.
This will cover not
only the individuals holding the licenses, but also
stockholders, directors, and officers of firms involved.
The same increased investigation standards will, of course,
apply to the issuance of new licenses.
Legislative Considerations
In addition to these administrative
measur~s,
we
are examining the need for additional legislative authority.
such legislation may include action areas such as:
1.
Establishment in high-risk areas of additional
security standards covering physical facilities and equipment.
-
2.
11 -
Licensing of truckers, trucking firms, and
certain other personnel seeking access to these highrisk areas.
To summarize, Treasury feels it has a special responsibility to deal with theft of cargo in international trade
and a special capability to do so.
We have already in
effect at Kennedy Airport measures to tighten Customs'
controls and to establish certain cargo handling and storage
standards.
These measures are incorporated in the proposed
changes to Customs regulations, which would also improve the
carriers' cargo accountability and would enable Customs to
identify those individuals handling or processing international cargo who have organized crime connections or criminal
backgrounds, and those who fraudulently take delivery of
merchandise.
And p thirdly, we are investigating legislation
to cover national standards for cargo facilities and
licensing of additional personnel and firms.
We are not, of course, pretending to eliminate all
theft of cargo.
For instance, hijackings which occur after
merchandise has been released by Customs are outside our
purview.
Nor are we proposing to replace local police or
private security guards.
Imported merchandise is in the
physical possession of the carriers until it is delivered
to the consignee or his agent, and responsibility for
safeguarding it rests squarely on the carriers. And, as
you are probably aware, the Department of Transportation is also
in the process of studying this problem area.
- 12 -
However, through this Treasury three-part action
progr~1
we believe swift and substantial improvement can be made
In combatting tneft and pilferage of cargo, while also
aiding in the vital areas of President Nixon's top
priority programs against the smuggling of narcotics
and against organized crime.
te Department of the
TREASURY
SHINGTON. D.C. 20220
TElEPHONE W04-2041
FOR RELEASE UPON DELIVERY
STATEMENT OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
FOR ENFORCEMENT AND OPERATIONS
BEFORE THE
HOUSE SELECT COMMITTEE ON CRIME
UNITED STATES CUSTOMS COURT HOUSE
NEW YORK, NEW YORK
June 26, 1970
2:00 PoM. (EDT)
Mr. Chairman and Members of the Select Committee
on Crime:
I am pleased to be here today to discuss the
heroin problem in the United States, with particular
reference to the very serious situation in New York;
to outline for you the Administration's response to
the challenges it presents, and Treasury's vital
role in that response.
President Nixon's anti-heroin program is a
major part of the overall anti-drug abuse program of
this Administration. We are aware that the drug
abuse problem, particularly the heroin problem, did
not arise overnight, and we are equally aware that
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, St~te, and local
levels to wi~ this battle.
K-443
President Nixon has moved forcefully on
several fron~s:
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 need for
cooperation with the States and the
involvement of the private sector.
Third, he has stressed the role of
education, research and rehabilitation
and provided for increased funds and
emphasis in these essential areas.
Fourth, he has recommended differentiation
in the criminal penalty structure between
heroin and marijuana.
Fifth, he has provided a substantial
increase in budgetary support for law
enforcement in this area.
In short, the President has highlighted the
multi-dimensional aspects of the problem and has
moved on many fronts. both governmental and nongovernmental, 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 i~ the battle against drug abuse, but also
the personal involveme~t of the President himself.
3
Foreign Policy
President Nixon has made the drug problem a
foreign policy issue and has taken personal
initiatives in eliciting the cooperation of other
governments.
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 advance our drug abuse policy through
diplomacy.
Secretary of State William P. Rogers has given
high priority and personal leadership to the State
Department's efforts in this area. Last year, he
appointed a senior Foreign Service Officer as his
Special Assistant for Narcotics 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 area had been almost
exclusively limited to the enforcement level. Through
the use of diplomacy, however, we have achieved a
substantial advance in -our objectives.
Cooperation with the States and the Private Sector
No one is more aw~re than President Nixon of the
vital and necessary role of the States in the battle
against drug abuse. In December, 1969, 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, 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 and under
confinement and treatment where they can help
themselves." More than 14,000 addicts are under
treatment in programs under the supervision of the
New York State Narcotic Addiction Control Commission.
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 hardcore heroin addicts to an orderly and productive life.
In May, he signed an important bill creating
a temporary commission to evaluate and make recommendations on all of New York's drug laws.
Governor Rockefeller has recognized the crucial
role of education in this battle and has provided
substantial funds for this vital part of the effort
against drug abuse.
5
The Governor has pioneered with the establishment of a special statewide prosecutor against
organized crime.
Further innovative action was taken by
Governor Rockefeller and the five other Governors
of the Mid~Atlantic States only a few days ago with
the establishment of a committee of the Governors
on organized crime with particular emphasis on the
drug traffic.
Federal-State cooperation is one of the
essential elements for success in the struggle
against drug abuse and this Administration is
working closely with the States in this effort.
6
Education
The drug abuse problem is one of both supply
and demand, and President Nixon's response has
been guided accordingly. While we are working
to eliminate the supply at the source, to stop
the smuggling of illicit drugs into the United
States, and to stop the distribution of illicit
drugs internally, the goal of eliminating the
demand for 'drugs among our young is 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 deal with the 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, in March of this year,
President Nixon released funds to the National
Institute of Mental Health for marijuana
research, and for an expanded program of public
education and information on drug abuse, including creation of a national clearing house for
drug abuse information.
7
Differentiation in Penalty Structure
Between HerOin and Marijuana
President Nixon's decision to reverse the
traditional approach to marijuana by differentiating in the penalty structure between heroin,
a true narcotic, and marijuana, an hallucinogen,
is most timely. 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.
Treasu~~'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 primary 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 pledge.
In his July 14, 1969, Message to the Congress on the
Control of Narcotics and Dangerous Drugs, he stated:
8
"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 substantial
anti-narcotic smuggling supplemental budget request.
The Congress responded magnificently and passed in
late December of 1969 an appropriation of 8.75
million dollars for 915 additional men and for
equipment. It was an outstanding example of bipartisan action in our Nation's war against drug
abuse.
The House Appropriations Committee Report, in
part, stated:
"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:
'Almost all of the marihuana, all of
the hashish, all of the cocaine, and
all of the smoking opium used in the
United States'is smuggled into this
country. '
1
9
"The Committee strongly supports the Department's
objective of reducing to a minimum the smuggling of this contraband into the United Stateso
The Committee specifically allows the 915
additional positions requested and urges the
Department to move ahead on this project as
rapidly as practicable."
The Treasury has moved forward rapidly to implement
fully the supplemental appropriation and to exploit
its resources to the utmost in the drive against
drug smuggling generally, and heroin in particular.
The State of New York and its unusually severe
heroin problem are receiving special attention in our
efforts but I shall leave the details of this matter,
and Customs anti-drug smuggling program, to Commissioner
of Customs Myles J. Ambrose who will testify before
you on Monday.
In summary, the President has moved on several
fronts to deal with this multi-dimensional problem.
Treasury, in fulfilling the President's directive
to mount a major new effort to stop the smuggling
of illicit drugs into the United States, is
currently engaged in a drive against drug smuggling-particularly heroin--to an unprecedented degree.
~)
r
~
Department of the
TREASURY ~ ~I~
IJGTON. D.C. 20220
TELEPHONE W04·2041
June 26, 1970
FOR IMMEDIATE RELEASE
SALE OF $2.5 BILLION MARCH TAX ANTICIPATION BILLS
'Ihe Treasury Department tod8\Y announced the sale
of $2.5 billion·of tax anticipation bills which will
mature in March 1971.
'Ihe bills will be auctioned on Thursd8\Y, July 2,
for payment on Wednesday, July 8.
make
p~ent
Commercial banks may
for their own and their customers' accepted
tenders by crediting Treasury tax and loan accounts.
'Ihe bills will mature on March 22, 1971, but may be
used at face value in p8\YIDent of Federal income taxes due
on March 15, 1971.
An additional cash offering in the neighborhood of $2 billion
is now planned prior to the refunding of the August 15 maturities.
000
;) 'i;
7
~ Department of the TREASURY
_Otl D.C. 20220
~DIATE
RELEASE
TElEPHONE W04·2041
June 26, 1970
TREASURY OFFERS $2.5 BILLION IN MARCH TAX BILLS
The Treasury Department, by this public notice, invites tenders
$2,500,000,000, or thereabouts, of 257-day Treasury bills, to be
ed on a discount basis under competitive and noncompetitive bidding
ereinafter provided. The bills of this series will be dated
8, 1970, and will mature March 22, 1971. They will be accepted
ace value in payment of income taxes due on March 15, 1971, and to
extent they are not presented for this purpose the face amount of
e bills will be payable without interest at maturity. Taxpayers
ring to apply these bills in payment of March 15, 1971, income taxes
submit the bills to a Federal Reserve Bank or Branch or to the Office
he Treasurer of the United States, Washington, not more than fifteen
before that date. In the case of bills submitted in payment of income
s of a corporation they shall be accompanied by a duly completed
503 and the office receiving these items will effect the deposit on
h 15, 1971. In the case of bills submitted in payment of income taxes
11 other taxpayers, the office receiving the bills will issue receipts
efor, the original of which the taxpayer shall submit on or before
1 15, 1971, to the District Director of Internal Revenue for the
rict in which such taxes are payable. The bills will be issued in
er form only, and in denominations of $10,000, $50,000,$100,000,
,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to
:losing hour, one-thirty p.m., Eastern Daylight Saving time, Thursday,
2, 1970. Tenders will not be received at the Treasury Department,
lngton. Each tender must be for an even multiple of $10,000, and in the
of competitive tenders the price offered must be expressed on the basis
)0, with not more than three decimals, e.g., 99.925. Fractions may
)e used. It is urged that tenders be made on the printed forms and
irded in the special envelopes which will be supplied by Federal Reserve
; or Branches on application therefor.
Banking institutions generally may submit tenders for account of
)mers·provided the names of the customers are set forth in such tenders.
~s than banking institutions will not be permitted to submit tenders
>t for their own account. Tenders will be received without deposit
incorporated banks and trust companies and from responsible and
~nized dealers in investment securities.
Tenders from others must be
~panied by payment of 2 percent of the face amount of Treasury bills
,ed for, unless the tenders are accompanied by an express guaranty of
!nt by an ~orporated tnmk 'Qr trust company.
- 2 All bidders are required to agree not to purchase or to sell, or
make any agreements with respect to the purchase or sale or other dis.
position of any bills of this issue at a specific rate or price, until
after one-thirty p.m., Eastern Daylight Saving time, Thursday, July 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 01
accepted bids. Only those submitting competitive tenders will be advist
of the acceptance or rejection thereof. The Secretary of the Treasury t
pressly reserves the right to accept or rej ect any or all tenders, in wi
or in part, and his action in any such respect shall be final. Subject
these reservations, non-competitive tenders for $400,OOOor less without
stated price from anyone bidder will be accepted in full at the averagE
price (in three decimals) of accepted competitive bids. Payment of
accepted tenders at the prices offered must be made or completed at the
Federal Reserve Bank in cash or other immediately available funds on
July B, 1970. Any qualified depositary will be permitted to make settlE
ment by credit in its Treasury tax and loan account for Treasury bills
allotted to it for itself and its customes.
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 bill s are subj ect 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) a~
1221 (5) of the Internal Revenue Code of 1954 the amount of discount at
'lIhich bills issued hereunder are sold is not considered to accrue until S
bills are sold, redeemed or otherwise disposed of, and such bills are
excluded from consideration as capital assets. Accordingly, the owner 0,
Treasury bills (other than life insurance companies) issued hereunder ne
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 matur
during the taxable year for which the return is made, as ordinary gain 0
loss.
Treasury Department Circular No.41B (current revision) and this n~
prescribe the terms of the Treasury bills and govern the conditions oft
issue. Copies of the circular may be obtained from any Federal Res~n
Bank or Branch.
000
FOR IMMEDIATE RELEASE
June 29, 1970
TREASURY REVISES CONFIDENTIALITY PROVISIONS OF
ANTIDUMPING REGULATIONS
In order to avoid any possible ambiguity in the
Customs antidumping regulations relating to confidentiality
of information received, the Treasury Department has issued
a technical revision of the regulations designed to clarify
this point.
A copy of the revised regulations, which will appear
in the Federal Register of Tuesday, June 30, is attached.
K;.444
(T.D. 70-150)
Antidumping--Custams Regulations amended
Section 153.23(c)(2), relating to information ~rdinarily
regarded as appropriate for disclosure, amended.
TREASURY DEPARTto1EN'l'
OFFICE OF THE COMHISSImIER OF
Washington, D. C.
TITLE 19--CUSTOMS DUTIES
CHAP'J.'ER I--BUREAU OF CUSTOHS
PART 153--ANTIDill4PllID
In order to eliminate any possible ambiguity between section
l53.23(c)(2), Customs
Regulations, which states that, in an antidumping
,.
proceeding, information will ordina.rily be regarded as appropriate for
disclosure if it relates to price information, and section 153.23(c)(3),
which states that infol"!Il.."\tion which would disclose , the names of
partiCular customers or the price or prices at which particular sales
were made is ordinarily regarded as confidential, section 153.23(c)(2)
1s amended to read as follows:
(2) In:fornl3,tion ordiMrily rege.r~_ as a;ppro~riate
for disclosl~e. Except as provided in section 153.23(c)(3),
information will ordinarily be regarded as appropriate for
disclosure if it
(i) Relates to price information;
(ii) Relates to claimed freely available price
allowances for quantity purchases; or
(ii1) Relates to cL"\imed differences in circumstances
of sale.
cusro
2
(Sees. 201, 407, 42 Stat. 11, as amended, 18; 19 U.S.C. 160,
173.)
Effective
Dat~:
This amendment shall become effective on the
date of its publication in the Federal Register.
£J~~
Act-ins Commissioner of Customs
Approved: JU N.:1.4
1970
WlIG£.IE _T. 10S8(DE.I
Assistant Secretary of the Treasury
epartment of the TREASURY
TElEPHONE W04-2041
nON, D.C. 20220
June 29,1970
MEMORANDUM FOR THE PRESS
Samuel R. Pierce will be sworn in Wednesday,
July 1, as General Counsel of the Treasury Department in
ceremonies at Automation House Auditorium, 49 East 68th
'Street ,New York City.
Secretary of the Treasury David
M. Kennedy will attend. The oath will be administered by
Chief Judge J. Edward Lumbard of the u.S. Court of Appeals
for the Second Circuit. The ceremonies will start at 4 p.m.
Attachment
BIOGRAPHICAL SKETCH OF
SAMUEL R. PIERCE, JR.,
GENERAL COUNSEL
. U.. S. TREASURY DEPARTMENT
Samuel R. Pierce, Jr., was sworn in as General Counsel
on July 1, 1970. Mr. Pierce, a former Judge of the Court of
General Sessions (now part of the Supreme Court) in New York,
is presently a partner in the law firm of Battle, Fowler,
Strokes ~ Kheel; a member of the New York State Banking Board;
a member of the Executive Committee and Board of Directors
of the Prudential Insurance Company of America as well as a
member of the Boards of Directors of U.S. Industries and
Freedom National Bank of New York. He is also Chairman of
the Impartial Disciplinary Review Board of the New York City
Transit System; a member of the Battery Park City Authority;
and an Adjunct Professor of Law at the New York University
School of Law.
Judge Pierce took his A.B. degree from Cornell University
where he played half-back on the varsity football team,
led that team in scoring in 1941 and won a Phi Beta Kappa key
for outstanding scholarship in his junior year. Later he
received a J.D. from the Cornell Law School, where he was a
Telluride Fellow and President of Cornell Law Students
Association, and an LL.M. in Taxation from the New York
University School of Law, where he was a Graduate Editor of the
Tax Law Review. Subsequently, he did post graduate study as
a Ford Foundation Fellow at the Yale Law School.
Mr. Pierce has been very active in Bar association and
related activities. He is currently Chairman of the Committee
on Equal Protection of the Laws of the American Bar Association,
a member of its Special Committee on Uniform Evidence Rules
for Federal Courts, and a me~ber of the Council of the Section
of Individual Rights and Responsibilities of the American Bar
Association. He has served on a number of committees of the
Bar Association of the City of New York, including its
Judiciary Committee; was a Director of the New York County
Lawyers Association for six years; and represented the County
(OVER)
- 2 -
Association on Ma~or Lindsay's Ad-Hoc Committee on the
Administration of justice Under Emergency Conditions in the
~er of 1968.
He is also a member of the Administrative
Conference of the United States and the Institute of
Judicial Administration.
Judge Pierce is very active in many civic, educational,
religious and charitable organizations. Among other things,
he is a trustee' of Mount Holyoke College; a Trustee of the
Institute of Int~rnational Education; a Trustee of Hampton
Institute; a Trustee of the Brearley School; a member of
the National Executive Board of the Boy Scouts of America;
Co-Chairman of the Interracial Council for Business Opportunity
Guaranty Fund; a member of the National Industrial Conference
Board; a member, Board of Overseers' Visiting Committee for
Behavioral Sciences, Harvard University; Vice President and
member of the Board of Directors of the YMCA of Greater
New York, Inc. and General Chairman of its 1969-70 Fund Drive;
a member of the National Council of the YMCA; and a former
member of the Commission on Interjurisdictional Relations of
the Methodist Church. Judge Pierce was also Chairman of the
Annual Dinner of the New York Urban League in 1961 and again
in 1967.
Mr. Pierce was born on September 8, 1922. On April 1,
1948, he married Barbara P. Wright, who is a physician and
a graduate of Mount Holyoke College and of Columbia University
College of Physicians and Surgeons. The Pierces have one
daughter, Victoria, who is twenty years of age and a junior
at Mount Holyoke.
000
July 1, 1970
PRESIDENTIAL COMMISSION ON FINANCIAL STRUCTURE AND REGULATION
For further information call:
Allen R. Rule (212) 522-2853
FOR IMMEDIATE RELEASE:
June 29, 1970
Washington, D.C., June 27--The Presidential Commission
on Financial Structure and Regulation held its first meeting
June 27 in Washington, D. C.
An office of the Commission will be established at
1015 Second Avenue, Seattle, Washington
98104.
The Commission
will also have an administrative office at 1016 16th Street,
N.W., Washington, D.C.
20036.
Allen R. Rule was appointed as Special Assistant to the
Chairman, and he will be located at the Commission's Seattle
office.
Almarin Phillips, of the Wharton School of Finance
and Commerce, University of Pennsylvania, was appointed as
Director of Financial Studies.
The Commission will begin working through a series of
special study groups to formulate recommendations for longrange improvements in the structure and regulation of
financial institutions in the United States.
An important
ultimate objective will be to seek the implementation of
needed legislation.
- 2 Four study groups whose work will begin immediately
will be concerned with (1) The functional specialization of
financial institutions; (2) The regulation of interest rates
on deposits of financial institutions; (3) Deposit insurance;
and (4) Problems of the mortgage market and residential construction.
The Commission will also form study groups in
other problem areas, and it will begin commissioning survey
papers on selected problems.
The Commission's study groups are expected to draw
heavily on a wealth of existing studies on the pr001ems of
financial Llstitutions.
They will also be seeking the help
of academicians, industry experts, representatives of the
re5ulatory a 6 encies, and others.
Ti1e Chairman and six teen of the Commiss ion members took
their oaths of office at the first
meetin~.
o
The other three
Commiss ion members are expec ted to take their oaths of office
at an early date.
The members of the Presidential Commission on Financial
Structure and Regulation are:
- 3 -
Reed O. Hunt, Chairman
Former Chairman of the Board and Chief
Executive Officer of the Crown
Zellarbach Corporation
Atherton Bean
Chairman of the Executive Committee
of" tne Board of Directors
International Multifoods Corporation
Minneapolis, Minnesota
Morris D. Crawford, Jr.
Chairman of the Board
The Bowery Savings Bank
New York, New York
Morgan G. Earnest
Earnest Homes, Inc.
New Orleans, Louisiana
J. Howard Edgerton
Chairman, California Federal
Savings and Lean Association
Los Angeles, California
Richard G. Gilbert
President
Citizens Savings
Canton, Ohio
William D. Grant
President
Businessmen's Assurance Company
Kansas City, Missouri
- 4 Alan Greenspan
President
Townsend-Greenspan and Company
New York, New York
Walter S. Holmes, Jr.
President
C.I.T. Financial Corporation
New York, New York
Lane KirklanJ
Secretary-Treasurer
AFL-CIO
Washington, D.C.
Edward H. Malone
Vice President, Trust Operations
General Electric Corporation
New York, New York
Rex J. Morthland
President, Peoples Bank & Trust Co.
Selma, Alabama
William H. Morton
President, American Express Co.
New York, New York
Donald S. MacNaughton
Chairman, The Prudential Insurance
Company of America
Newark, New Jersey
- 5 Ellmore ,C, Fatterson
President
Morgan Guaranty Trust Co.
New York, New York
K. A. Randall
Vice.Chairman
United Virginia Bankshares, Inc.
Richmohd, Virginia
R:ilph S. Regula
Attorney
Navarre, Ohio
Dr. R. J. Saulnier
Professor of Economics
Barnard College
New York, New York
Dr. Ezra Solomon
Dean Witter Distinguished Professorship
in Finance
Stanford University
Stanford, California
Robert H. Stewart, III
Chairman
First National Bank in Dallas
Dallas, Texas
7- G/
Itportment of the
TREASURY
ION. D.C. 20220
TElEPHONE W04-2041
rrON:
FINANCIAL EDITOR
~LEABE
r,
6:30 P.M.,
June 29, 1970.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
fue Treasury Department announced that the tenders for two series of Treasury
, one series to be an additional issue of the bills dated April 2, 1970, and the
series to be an additional issue of the bills dated December 31, 1969, which were
~d on June 24, 1970, were opened at the Federal Reserve Banks today.
Tenders were
!d for $1,800,000,00(1, or thereabouts, of 91-day bills and for $1,300,000,000, or
iliouts, of 182-day bills. The details of the two series are as follows:
OF ACCEPTED
'ITIVE BIDS:
91 -day Treasury bills
maturing October 1, 1970
Approx. Equiv.
Price
Annual Rate
igh
ow
verage
98.407
98.359
98.377
6.302%
6.492%
6.421%
182-day Treasury bills
maturing December 31, 1970
Approx. Equi v .
Price
Annual Rate
96.672
96.654
96.662
]J
6.583%
6.618%
6.603%
Y
1% of the amount of 91 -day bills bid for at the low price was accepted
b% of the amount of 182-day bills bid for at the low price was accepted
rENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
'ict
In
'ark
.delphia
-land
lond
ta
go
ouis
apolis
S City
s
rancisco
TOTALS
AEElied For
Acce12ted
$ 27,550,000 $
27,550,000
1,692,670,000
1,225,670,000
22,740,000
37,740,000
32,690,000
32,690,000
18,110,000
18,610,000
44,880,000
42,880,000
204,350,000
225,600,000
44,760,000
47,760,000
34,840,000
34,840,000
35,310,000
37,830,000
19,880,000
28,570,000
91,430,000
121,430,000
$2,350,170,000
$1,800,210,000 ~
A12121ied For
25,910,000
2,007,970,000
8,950,000
43,680,000
19,340,000
54,190,000
206,360,000
35,090,000
35,460 ,000
42,710,000
34,760,000
142,540,000
Acce12ted
7,640,000
$
977,040,000
7,710,000
32,580,000
11,540,000
19,600,000
134,230,000
19,670,000
10,110,000
30,220,000
21,560,000
28,810,000
$2,656,960,000
$1,300,710,000
$
EI
ldes $ 338,550 ,000 noncompetitive tenders accepted at the average price of 98.377
ldes $ 249,790,000 noncompetitive tenders accepted at the average price of 96.662
; rates are on a bank discount basis. The equivalent coupon issue yields are
~ for the 91 -day bills, and 6.93% for the 182-day bills.
tpartment of the
TREASURY
TELEPHONE W04·2041
IN. D.C. 20220
STATEMENT BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE TijE
HOUSE BANKING AND CURRENCY COMMITTEE
ON PROPOSED REPLENISHMENT OF THE
INTER-AMERICAN DEVELOPMENT BANK
TUESDAY, JUNE 30, 1970, 10:00 A.M.
Mr. Chairman and Members of the Committee:
I appear to support the Administration's request for
authority to join with 22 Latin American nations in a further replenishment of the Inter-American Development Bank
(lOB) •
The United States has a deep and traditional commitment
to hemispheric cooperation. The Inter-American Bank, born
as a financial expression of this cooperation a decade ago,
has become the key multilateral instrument of hemispheric
financing for development. It requires expanded resources
to meet the challenges of Latin American development as we
advance further into this decade.
I have found in my participation as u.S. Governor in
the formulation of this proposal at the recent IDB meeting
in Punta del Este, Uruguay, that it is a true expression of
partnership. This proposal has as an integral feature commitments by the Latin Americans to provide a significant
input of their own resources along with ours, and to implement important new policy undertakings relating to the Bank's
operations. These commitments testify to Latin America's
determination to assume an increased responsibility for
development within the area as a whole as well as within
individual Latin American countries. The support the united
States is prepared to offer will be an importan~ ~ac~or in.
deter.mining whether or not this constructive sp1r1t 1n Lat1n
America can achieve its goals in the time ahead.
.
In these opening remarks I first will to~ch on ~he.spe
C1fic legislative request which is described 1n deta1l 1n
the report of the National Advisory Council before you.
Second, I will review some more general aspects of this
multilateral approach to development financing.
K-44~
~
- 2 -
Authorization Request
The request before you involves the Bank's Ordinary
Capital window, which lends on conventional terms that
reflect the cost of capital, and its Fund for Special Operations, which lends on concessional repayment terms.
On Ordinary Capital, we are seeking authority to
subscribe to $150 million of paid-in capital stock,
in three annual $50 million payments beginning in
fiscal 1971. Our Latin American partners will more
than match this with subscriptions totaling $236 million. As the companion to this payment, we seek
guarantee authority in the form of a subscription to
$673.5 million of callable capital stock which is not
expected to result in cash outlays. Half of this
callable subscription would be made in FY 1971 and
half in FY 1973. The Latin American members would
subscribe to $879 million of callable capital.
On the Fund for Special Operations (FSO), we are
seeking authority to contribute $1 billion to the
Fund's resources over a three-year period, at the
rate of $100 million in fiscal 1971 and $450 million
in each of the following two years. The U.S. contribution of $1 billion compares with the $900 million
contribution the u.s. made in the last replenishment,
while the Latin Americans will contribute the equivalent of $500 million for this replenishment or $200
million more than their contributions last time.
Action to replenish the Bank's resources at this time
is essential to permit the Bank to continue its existing loan
programs and meet the important target, established by the
Bank's Board of Governors, of a 50 percent increase in lending volume before the middle of this decade. By the end of
calendar 1970, the Bank's Ordinary Capital resources in hard
currencies will be insufficient to carryon another full year
of operations even at current levels -- about $200 million a
year recently .. With the paid-in and callable resources now
being sought, the Bank would be able to reach or somewhat
exceed a lending level of $300 million per year, and maintain
it until calendar 1975.
Although its resource situation is currently somewhat
less stringent, the FSO also will enter 1971 with less than
will be required for the amount of loan commitments that will
be needed in that year. Lending in all currencies from the,
Fund for Special Operations reached a level of about $400 mlllion last year. The new resources are intended to permit a
,
,/
I. {
/
('
/
- 3 progressive increase in FSO lending reaching the equivalent
about $600 million a year and to cover funding requirements
through 1973.
~f
In its ten-year operating history, the IDB has lent
$3.5 billion in support of Latin American development.
These sums were part of projects involving a total investment of almost three times this amount. Roughly a quarter
of its loans financed high-priority agricultural development
projects. The Bank lent over $500 million to industrial and
mining projects, and a similar amount for transportation and
communications projects. It also provided substantial sums
in the electric power, water supply, housing and education
sectors. While carrying on this impressive and rising volume
Jf lending, the Bank has maintained itself on a financially
sound basis with a $20 million net income in 1969 and total
reserves at the end of the year of $85 million. It has
~ttracted resources from non-member countries.
The Bank's
)onds are fully accepted in the world's capital markets; a
:unded debt of $767 million was outstanding at the close of
Lts fiscal year on December 31, 1969; about one-half or $375
lillion is held outside the United States.
ludget Impact
_
The impact of this request on the United States budget
pver the next years is acceptable and substantially less
,than the total authorization figure of this legislation.
!~r $674 million of callable capital is not expected to
result in any expenditures now or in the future. Appropria~ion of the first $50 million of the three equal installments
;)f paid-in capital would be sought in FY 1971, and payment
Nould be expressed in the form of a letter of credit. Only
;1 part would result in cash or budget expenditures in fiscal
L972. Similarly, appropriations would be sought in FY 1971
Eor the first $100 million of the U.S. contribution to the
~SO, but only a fraction of this would result in cash budget
~xpenditures in fiscal 1972.
.
Thus, there would be no expenditure impact result~ng
:rom this request in FY 1971 and only a modest amount ln
~y 1972.
Expenditures would rise by FY 1973 but probably
~u1d not exceed $125 million.
The proposal overall calls
~r $1,150 million to be paid to the Bank (as letters of
:redit) by the end of fiscal 1973 and this entire amount of
:ourse would eventually be expended and reflected in budgetary
:ash outlays in the years in which they are disbursed, but
his process would be spread over a number of years well
eyond fiscal 1973.
- 4 On completion of the proposed increases, the total U.S.
investment in the IDB's Ordinary Capital from its inception
will amount to $1,997 million, consisting of $300 million of
paid-in capital and $1,697 million of callable capital. The
U.S. share of total subscriptions would remain practically
unchanged at 42.47 percent.
Cumulative U.S. contributions
to the FSO would rise to $2.8 billion, or 73 percent of the
total.
New Policy Directions
Besides the quantitative aspects of the proposed IDB
replenishment I have just outlined, there are some important
qualitative aspects arising from the Punta del Este meeting
that deserve emphasis.
First, the Latin American members of the Bank have
agreed to a further increase in their relative share of the
contributions to the Bank's soft loan resources.
In 1964, the Latins provided $20 of their currencies for each $100 provided by the United States.
In 1967, they provided $33 for each $100 from the
United States. NOW, the Latins will put up the
equivalent of $50 for every $100 provided by us.
This steady improvement in the ratio of contributions is direct evidence of the increased degree
of multilateralism and self-help that we have been
able to elicit through the IDB mechanism.
Second, two more countries, Chile and Colombia, have
~sreed, along with Argentina, Brazil, Mexico and Venezuela,
to make up to half their contributions to the Fund for Special Operations available for lending to other member countries.
This means that the countries with the six largest Latin subscriptions in the Bank have now agreed
to such arrangements, thereby increasing substantially the usefulness of Latin American local currency subscriptions.
Third, Latin countries have endorsed a policy statement
giving the least developed countries of the region a first
priority claim on FSO loan resources.
Correspondingly, this help will steer the relatively advanced countries more heavily toward the
Bank's conventional loan window. This is further
- 5 -
evidence of a recognition of intra-regional cooperation.
Fourth, it was agreed that loans made from the new
resources of the Fund for Special Operations would be repayable in the currencies lent, instead of local currencies.
Dollars loaned out by the Bank would be repayable
to it in dollars. This over the longer run will
better assure the revolving fund nature of the FSO.
Other loan terms would be adjusted in order to
maintain the necessary concessional character of
the FSO.
Fifth, the Bank's Governors endorsed a strengthened
statement regarding the importance of sound national economic
policies and satisfactory over-all economic performance as
factors in determining the character and amount of Bank
assistance.
In this connection, the same policy statement
pledged Bank support of the efforts of the InterAmerican Committee on the Alliance for Progress
(ClAP) and other international financial entities toward coordinated lending efforts in particular countries.
Finally, provision has been made to consider the matter
of admission of developed countries not presently members of
the Bank.
This is aimed at assuring an increased flow of
resources on improved conditions to the Bank in
a manner consistent with the maintenance of its
regional character. Currently, membership in the
Organization of American States is a prerequisite
for Bank membership. This has posed an obstacle
to serious consideration of membership by other
developed countries. At Punta del Este, the Latin
Americans agreed to the creation of a new and s~e
cial committee of the Governors that would exam1ne
the membership question on an inter-governmental
level and report with recommendations by the end
of the year.
While maintaining the inter-American character of ~he
Bank, we are interested in determining whether the qual1ty
and flow of resources to the Bank from other developed countries can be increased and regularized.
- 6 Multilateral Approach
Let me turn now to some broader perspectives of the
Inter-American Bank as a multilateral institution and on Our
relationships with such institutions.
I think it is timely to recall that u.s. financial cooperation for development with other nations through multilateral
institutions has always had strong bipartisan support in the
Congress. We have progressed in this development endeavor
because Congress over the years has made judgments that
there were concrete advantages for the United States in the
multilateral approach to development financing.
The Executive and the Legislative Branch have agreed
many times on the advantages in many circumstances of the
multilateral approach. Without in any way prejudging or
forecasting the outcome of the current review of our total
foreign assistance effort, I can safely say that the benefits
inherent in doing our development business multilaterally
argue for greater, not lesser, reliance on multilateral insti- ,:
tutions. Let me just mention some of the advantages of this
approach: the sharing of the financial burdens of development financing, so that we do not carryall of the cost; the
greater likelihood that lending judgments will be made on
strictly economic grounds; and the desirable maintenance of
economic discipline on borrowing countries through a collective judgment, not one determined by the United States alone.
We must recognize, however, that if we wish to continue
to enjoy the benefits of a cooperative partnership in the
international field, we cannot expect to enjoy the same independence of action we have when we proceed bilaterally.
Multilateral development institutions serve well our broad
foreign policy goals, but they should not and cannot be asked
to serve particular u.S. foreign policy interests. To try
would be to jeopardize their multilateral status.
Just as we must not seek to employ a multilateral bank
as an instrument serving particular foreign policy interests,:
so is it not consistent with a workable multilateral approach'
to impose unilaterally narrow limitations on the ways that
regular contributions provided by the United States may be
used or may not be used. Such efforts would affect not only
our funds but contributions other countries ,have made to the
institution. Moreover, these efforts would prompt similar
efforts from other participants. The result would be not a
multilateral agency with a manageable and coherent progr~,
t
-
7 -
but a collection of national trust funds to be used under
highly special and often conflicting criteria.
In making this point I am seeking to convey the distinction between unilaterally imposed limitations by one
donor and conditions or new policies that are negotiated and
accepted multilaterally by member
countries. I have just
outlined new policy directions which we have agreed to with
our Latin partners in Punta del Este. They are an integral
part of the replenishment we are now asking Congress to
authorize. This is an example of the method and the manner
in which we work together to shape the policies of the institution in which 23 countries share membership. This achievement is current .testimony of the effectiveness and the value
of this approach.
In considering the role the United States plays as a
major member country in the Inter-American Development Bank,
we must remember that we have the benefit of a highly experienced Executive Director and Alternate, long acquainted with
both the problems of development finance and the concerns of
the Treasury. He is a full-time Executive Director, as is
his Alternate, with their offices in the Bank, representing
the United States in the Bank's deliberations. Through Mr.
Costanzo the United States receives full information upon
not only lending operations but also policy issues as they
evolve. This information is used by the Treasury staff and
the other agencies of the NAC -- including the Department of
State, the Federal Reserve, the Export-Import Bank, and the
Department of Commerce -- in advising me how the United States
should instruct the U.S. Executive Director to vote on a particular issue. Therefore, it is with experience, exposure,
and full information that the United States pursues its
responsibilities with this Bank.
I mention these considerations which touch upon a proper
and workable relationship with the multilateral financial
bodies because over the years Treasury has been acutely conscious of these issues. Now -- as we place more reliance on
them -- it is quite natural that we be expected to demonstrate
that our national interests are being well served through the
productive employment of our contributions. What assurances
now exist and where should improvements be sought within,a ,
framework that recognizes the multilateral character of lnstltutions such as the IDB?
,
A description of the established controls and procedures
the Inter-American Bank would be helpful. The Bank fo~lows
lnternationally accepted standards and criteria of operatlon
7n
- 8 that are compatible with our own methods.
are:
The main elements
Internal audit.
This is a full-time audit staff of
the Bank . . It reports to the Bank's President. Operating with broad audit authority, it functions in a
way similar to comparable staffs in major private
corporations and lending institutions. Their responsibilities range from assuring compliance with procedures and cash controls to developing new internal
controls and procedures to meet the expanding activities of the Bank.
External.comprehensive financial audit.
From its
founding the Bank has asked an important and much
experienced accounting firm of international reputation to conduct a comprehensive financial audit on
behalf of the Governors.
This is exactly the same
type of audit this firm makes of many of our own
large financial institutions.
An independent review and evaluation audit group.
This is a multilateral group composed of three persons of competence and high standing, chosen from
outside of governments, to provide an independent
overview into the effectiveness of programs and
operations of the Bank.
It reports to the Executive
Directors and Governors.
This group is relatively
new and, due to illness, somewhat slow starting.
However, we expect much of it in the future.
It was
created by multilateral agreement, under the stimulUS
of the Selden Amendment to the IDB Act.
But it is not enough to describe what we rely upon now.
Treasury must continually ask where improvements can be made.
First, we can strengthen the mechanisms for executivelegislation contact in the overview of our participation in
the IDB -- as well as the other multilateral institutions.
I share the view expressed by Committee members on other occasions that we should ensure that these mechanisms function on
a continuing basis. We are happy to do this.
Second, we can encourage the development into full effectiveness of the IDB's relatively new arrangements for the
independent oversight group for measuring the effectiveness
of its programs which I just mentioned.
Such audits are an
important management tool and should be used to assure effective and efficient operations. While there have been delays,
f
)
,
f'J)
)O~
- 9 -
a start has been made by this "Group of Controllers of the
Review and Evaluation System." It is important that the
work of this group move forward effectively and efficiently.
Third, we look forward to benefits and insights that may
be obtained from the review the General Accounting Office now
has underway regarding the u.s. management of its participation in the multilateral institutions. Pursuit of this examination has been clarified through testimony by GAO officials
before the Congress in which it is recognized that direct
GAO audit of the multilateral institutions would be inconsistent with the basic legal framework under which we participate in those institutions. While speaking of United Nations
international organizations and noting probable opportunities
for improvement in the management of u.s. participation in
that family of U.N. organizations, the Comptroller General
stated,
"We recognize that u.s. efforts toward improved
management of activities of international organizations, of \"lhich :.:he United States is a member, must
be undertaken and assessed within the framework of
the international character of the organization and
that membership presumes a willingness on the part
of member nations to rely on the management of the
organization. We also recognize that constraints
on actions that can be taken unilaterally are an
inherent part of such membership no matter how constructive the proposed actions might be."
This common view of the u.s. relationship with international
organizations -- which applies at least as fully to the multilateral lending institutions -- permits us to respect the
vital distinction between examining the u.s. management of
its participation in such an institution and examining that
institution itself. The GAO staff is presently in Treasury
making its examination on this basis.
Mainly because this vital distinction is overlooked in
the proposed Section 504 of this year's Foreign Aid Appropriation Bill, which would require a GAO audit of the IDA
and Asian Bank, I feel it necessary to register ~he st~ongest
objections to that provision. Very similar conslderatlons
apply to the accompanying proposed Section 505 of the same
Bill, which would also be harmful to the multilateral status
of these institutions by requiring unilateral just~fication
of each international lending action by these multllateral
institutions. Justification of our participation takes place
in sessions with Congress such as is taking place today.
- 10 Moreover, we are prepared to discuss frankly and for.thrightly some recent unfavorable allegations concerning the
conduct of the Bank's affairs. I can assure the Committee
that all the critical points of which I am aware have been
carefully reviewea.. I remain convinced that the Bank is a
sound institution operating effectively in support of the
hemisphere's development. It is well placed to meet the
challenges of the 1970' s. We stand ready to respond to any
further inquiries you may have in this area.
Conclusion
Mr. Chairman, the proposal before you has President
Nixon's full support. The authorization amounts we are seeking today are large, just as the development financing needs
in Latin America are large. The institution through which
these funds will be channeled, along with comparable funds
from all of the other member countries, is the primary vehicle
for financial cooperation in this hemisphere. The lOB continues to show satisfactory financial results, enabling it
to strengthen its reserve position and maintain the confiden~
of the purchasers of its securities around the world. The
U.S. stake in it is large, not simply in financial terms but
also in terms of our entire foreign economic policy stance
toward Latin America. Both our national interests and the
development aspirations of Latin America have been well served
by the constructive contribution made by the Bank in its tenyear history. I urge that you endorse the legislation before
you for its early adoption by the Congress.
000
203
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
July 1, 1970
TREASURY DEPARTMENT AMENDS
TRANSACTION CONTROL REGULATIONS
The Treasury Department announced today that it has
issued an amendment to the Transaction Control Regulations.
The new amendment is a general license authorizing the
shipment of merchandise subject to the Transaction Control
Regulations to Eastern European countries by subsidiaries
and branches of United States firms located abroad. The
license permits those firms to export commodities subject
to COCOM control from COCOM member countries to Eastern
Europe, provided the COCOM member country has licensed the
goods to be shipped to that destination. (COCOM is the
informal intergovernmental Coordinating Committee composed
of all NATO member countries except Iceland, plus Japan. It
was established to facilitate consultation among its members
with respect to possible exports of strategic commodities to
Eastern Europe, the U.S.S.R., and the Asian Communist
countries.)
The new amendment will not result in any substantive
change in the level of existing East-West trade controls.
The new general license is being issued as an amendment
(section 505.31) to the Transaction Control Regulations,
which are administered by the Office of Foreign Assets
Control.
Its effect will be to eliminate the need to obtain two
licenses for the same transaction. Previously, foreign
Subsidiaries and branches of United States firms needed a
license from the exporting country, while the United States
parent firm was also required to obtain a license from the
Treasury. Under the new procedure, only a license issued
by the COCOM exporting country is needed. The United States
K-447
(OVER)
- 2 -
will be able to inform the COCOM country of its views on the
strategic significance of the export through existing COCOM
consultative mechanisms.
Treasury licenses will still be needed for shipments by
foreign subsidiaries and branches of United States firms to Eas
Europe from non-COCOM countries, since these countries may not
maintain the same level of controls on exports to Eastern
Europe as do COCOM members. There is no change in the
controls applicable to subsidiary trade with Communist
China, North Korea, North Vietnam, Cuba or Southern Rhodesia.
Also, Department of Commerce export controls applicable to
exports by foreign firms to Eastern Europe of goods and data
of United States origin, or which contain components of
United States origin, or which are the product of
United States data remain unchanged.
000
30~
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
July 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
July 9, 1970,
in the amount of
$3,009,340,000,
as follows:
9l-day bills (to maturity date) to be issued July 9, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing
an additional amount of bills dated April 9, 1970,
and to
mature October 8, 1970,
originally issued in the amount of
$1,304,990,000,
the additional and original bills to be
freely interchangeable.
dated
182-day bills, for $1,300,000,000,
July 9, 1970,
and to mature
or thereabouts, to be
January 7, 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.
ntey will be issued in bearer form only, and in denominations of
$lQ,OOO, $50,000, $100,000, $500,000, and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches
lp to the closing hour, one-thirty p. m.,
Eastern Daylight Saving
:ime,
Monday, July 6, 1970.
Tenders will not be
~eceived at the Treasury Department, Washington.
Each tender must
)e for an even multiple of $10,000, and in the case of competitive
:enders the price offered must be expressed on the basis of 100,
dth 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 supp1 ied
~ 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
:enders. Others than banking institutions will not be permitted to
lubmit 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 securities.
from others must be accompanied by payment of 2 percent of the
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated
or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public ann~,
ment will be made by the Treasury Department of the amount and price 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 July 9, 1970, in
cash or other immediately available funds or in a like face" amount
of Treasury bills maturing
July 9, 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 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 ~axab1e 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 0So~ranch.
The Department of the
TREASURY
TELEPHONE W04·2041
WASHINGTON, D.C. 20220
FllJANCIAL EDITOR
ATTENTION:
FOR RELEASE 6: 30 P.M. "
lhursday, July 2, 1970.
RESULTS OF TREASURY'S OFFER OF .2.5 BILLION OF MARCH TAX BILLS
The Treasury Department announced that the tenders for $2,500,000,000, or thereabouts, of 257-day Treasury Tax Anticipation bills to be dated July 8, 1970, and to
mature March 22, 1971, which were offered on June 26, 1970, were opened at the Federal
Reserve Banks tod~.
The details of this issue are as follows:
Total applied for - $ 4,726,400,000
Total accepted
- $ 2,501,130,000
Range of accepted competitive bids:
High
Low
Average
95.471
95.360
95.394
~5%
(includes $ 246,600,000 ent ered on
a noncompetitive basis and accepted in
full at the average price shown below)
(Excepting 1 tender of $1,000,000)
Equivalent rate of discount approx. 6.344% per annum
II
II
II
II
II
6.500 %"
"
"
""
II
II
6 .452 %"
II
of the amount bid for at the low price was accepted)
Federal Reserve
District
Total
AJ?J?lied for
Total
Accepted
Boston
$
$
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. LOUis
Minneapolis
Kansas City
Dallas
San Francisco
Total
'Ibis rate is on a bank discount basis.
202,530,000
2,002,930,000
307,200,000
306,120,000
101,840,000
89,910,000
581,120,000
96,800,000
317,160,000
79,380,000
125,480,000
515,930,000
$4,726,400,000
158,430,000
739,630,000
206,200,000
250,770,000
81,840,000
83,810,000
255,400,000
71,630,000
306,250,000
61,510,000
58,730,000
226,930,000
$2,501,130,000
The equivalent coupon issue yield is 6.79%.
)0
The Department of the
WASHINGTON, D.C. 20220
~
TREASURY
TELEPHONE W04·2041
July 6,1970
FOR IMMEDIATE RELEASE
Daniel Halperin Receives Meritorious Award
The Treasury Department's Meritorious Service Award
has been presented to Daniel I. Halperin, Deputy Tax Legislative Counsel, by Secretary David M. Kennedy.
Mr. Halperin, who 1S leaving the Treasury to become
an Associate Professor of Law at the Univestity of
Pennsylvania Law School, was cited for assisting in
"developing comprehensive tax reform proposals, which 1n
large part were incorporated into the Tax Reform Act of
1969."
The citation, in part, said:
As Deputy Tax Legislative Counsel during
the period June 1969 through June 1970, Daniel I.
Halperin has rendered outstanding service to the
Department of the Treasury. He has been brilliant, devoted, diligent and untiring in his
work -- an inspiration to those who have worked
with him.
He ably assisted the Assistant Secretary for Tax Policy in developing comprehensive
tax reform proposals, which in large part were
incorporated into the Tax Reform Act of 1969.
His penetrating analytical review of concepts
and transactions, his ingenious solutions to
complex problems, and his skill in drafting
statutory language materially assisted both
the Department and the Congress in achieving
major tax reform in 1969.
(OVER)
- 2 Mr. Halperin, 33, has served as Deputy Tax Legislative
Counsel since June 1969 under Edwin S. Cohen, Assistant
Secretary for Tax Policy.
He joined the Office of Tax
Legislative Counsel in May 1967 beginning as an AttorneyAdviser on Tax Legislation.
Prior to Treasury service,
he was associated with the firm of Kaye, Scholer, Fierman,
Hays & Handler of New York.
Mr. Halperin
lS
of Beacon, New York.
married to the former Marcia Hellman
They have three children and will
make their home in Philadelphia.
000
30 7
The Department of the
TELEPHONE W04·2041
WASHINGTON, D.C. 20220
~ENTION:
TREASURY
FINANCIAL EDITOR
t RELEASE 6: 30 P.M.,
nday, July 6, 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 April 9, 1970
, and
other series to be'dated July 9, 1970
, which were offered on July 1, 1970,
e opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
thereabouts, of 91-day bills and for $1,300,000,000, or thereabouts, of
182-day
ls. The details of the two series are as follows:
GE OF ACCEPTED
PETITIVE BIDS:
High
Low
Average
!I Excepting
91-day Treasury bills
maturing October 8, 1970
Approx. Equiv.
Price
Annual Rate
98,.360
98.300
98.321
Y
6.488%
6.725%
6.642%
182-day Treasury bills
maturing January 7 2 1971
Appl'ox. Equi v .
Price
Annual Rate
96.704
96.612
96.635
Y
6.520%
6.702%
6.656%
Y
1 tender of $300,000
69% 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
~ rnNDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
,strict
lston
!w York
.iladelphia
eveland
chmond
lanta
icago
. LOUis
Dneapolis
nsas City
Uas
n Francisco
TOTALS
AEElied For
$
29,490,000
1,677 ,290,000
35,740,000
47,530,000
38,910,000
49,090,000
206,040,000
57,220,000
36,940,000
40,330,000
33,020,000
128,630,000
AcceEted
$ 19,490,000
1,150,740,000
20,740,000
47,530,000
36,600,000
49,090,000
206,040,000
56,220,000
36,940,000
40,330,000
27,710,000
108,630,000
$2,380,230,000
$1,800,060,000
AcceEted
AEElied For
7,900,000
$
17,950,000
$
874,630,000
1,502,130,000
12,680,000
12,680,000
37,880,000
.
42,880,000
18,720,000
23,720,000
:I
45,650,000
: I
53,450,000
106,150,000
213,700,000
34,810,000
37,510,000
19,590,000
22,140,000
42,330,000
43,330,000
29,980,000
42,250,000
69,810,000
147,670,000
V,
$2,159,410,000 $1,300,130,000£/
lcludes $ 389,670,000 noncompetitive tenders accepted at the average price of 98.321
lcludes $ 328,070,000 noncompetitive tenders accepted at the average price of 96.635
rates are on a bank discount basis. The equivalent coupon issue yields are
%for the 91-day bills, and 6.98 % for the 182 -day bills.
:e
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
July 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 maturing
July 16, 1970,
in the amount of
$3,007,674,000,
as follows:
91-day bills (to maturity date) to be issued July 16, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing
an additional amount of bills dated
April 16, 1970,
and to
~ture
October 15, 1970,
originally issued in the amount of
$1,300,850,000,
the additional and original bills to be
freely interchangeable.
182-day bills, for $1,300,000,000,
dated July 16, 1970,
and to mature
or thereabouts, to be
January 14, 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 i.nterest.
!'hey will be issued in bearer form only, and in denominations of
~lO,OOO, $50,000, $100,000, $500,000, and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches
Eastern Daylight Saving
:ime,
Monday, July 13, 1970.
Tenders will not be
;eceived at the Treasury Department, Washington. Each tender must
)e for an even mUltiple of $10,000, and in the case of competitive
:;nders the price offered must be expressed on the basis of 100,
vlth not more than three decimals, e. g., 99.925. Fractions may
~t be used.
It is urged that tenders be made on the printed
corms and forwarded in the special envelopes which will be supplied
~ Federal Reserve Banks or Branches on application therefor.
lp to the closing hour, one-thirty p. m.,
Banking institutions generally may submit tenders for account of
!Ustomers provided the names of the cllstomers are set forth in such
:enders. Others than banking institutions will not be permitted to
~bmit tenders except for their own account. Tenders will be received
Qthout deposit from incorporated banks and trust companies and from
- 2 responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the fa~
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 his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenderl
for each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on July 16, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
July 16, 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 hereunde
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and thl'
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.
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR RELEASE ON DELIVERY
STATEMENT BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE THE
SENATE FOREIGN RELATIONS COMMITTEE
ON PROPOSED REPLENISHMENT OF THE
INTER-AMERICAN DEVELOPMENT BANK
THURSDAY, JULY 9, 1970, 10:00 A.M.
Mr. Chairman and Members of the Committee:
I appear in support of S. 3934. This bill would authorize
the United States to join with 22 Latin American nations in a
further replenishment of the Inter-American Development Bank
(IDB) •
Our country has a deep and traditional commitment to hemiThis cooperation gave rise to the InterBank a decade ago. The Bank has now
become the key multilateral instrument of hemispheric financing for development. It requires expanded resources to meet
the challenges of Latin American development as we advance
further into this decade.
sph~ric cooperation.
Am~:tican Development
As U.S. Governor, I participated in the formulation of
this proposal at the lOB meeting in Punta del Este, Uruguay,
in April. The proposal before you is a true expression of
partnership. Under it the Latin Americans would provide a
significant·, input of their own resources along with ours, and
new policy undertakings relating to the Bank's operations
would be implemented. These commitments testify to Latin
~erica'sdeterrnination to assume an increased responsibility
for development wi thin the area as a whole as well as wi thin
individual Latin American countries. The support the United
states is prepared to offer will be an important factor in
determining whether or not this constructive spirit in Latin
~erica can achieve its goals in the time ahead.
. In these opening remarks I first will touch on the speClfic legislative request which is described in detail in
the report before you of the National Advisory Council.
Second, I will review some more general aspects of this
multilateral approach to development financing.
- 2 -
Authorization Request
The request before you involves the Bank's Ordinary
Capital window, w~ich lends on conventional terms that
reflect the cost of capital, and its Fund for Special Operations, which lends on concessional repayment terms.
On Ordinary Capital, we are seeking authority to
subscribe to $150 million of paid-in capital stock,
in three annual $50 million payments beginning in
fiscal 1971. Our Latin American partners will more
than match this with subscriptions totaling $236 million. As the companion to this payment, we seek
guarantee authority in the form of a subscription to
$673.5 million of callable capital stock which is not
expected to result in cash outlays. Half of this
callable subscription would be made in FY 1971 and
half in FY 1973. The Latin American members would
subscribe to $879 million of callable capital.
On the Fund for Special Operations (FSO), we are
seeking authority to contribute $1 billion to the
Fund's resources over a three-year period, at the
rate of $100 million in fiscal 1971 and $450 million
in each of the following two years. The u.S. contribution of $1 billion compares with the $900 million
contribution the u.S. made in the last replenishment,
while the Latin Americans will contribute the equivalent of $500 million for this replenishment or $200
million more than their contributions last time.
Action to replenish the Bank's resources at this time
is essential to permit the Bank to continue its existing loan
programs and meet the important target, established by the
Bank's Board of Governors, of a 50 percent increase in lending volume before the middle of this decade. By the end of
calendar 1970, the Bank's Ordinary Capital resources in hard
currencies will be insufficient to carryon another full year
of operations even at current levels -- about $200 million a
year recently. With the paid-in and callable resources now
being sought, the Bank would be able to reach or somewhat
exceed a lending level of $300 million per year, and maintain
it until calendar 1975.
Although its resource situation is currently somewhat
less stringent, the FSO also will enter 1971 with less than
will be required for the amount of loan commitments that will
be needed in that year. Lending in all currencies from the
Fund for Special Operations reached a level of about $400 million last year. The new resources are intended to permit a
- 3 -
progressive increase in FSO lending reaching the equivalent
of about $600 million a year and to cover funding requirements
through 1973.
In its ten-year operating history, the IDB has lent
$3.5 billion in support of Latin American development.
These sums were part of projects involving a total investment of almost three times this amount. Roughly a quarter
of its loans financed high-priority agricultural development
projects. The Bank lent over $500 million to industrial and
mining projects, and a similar amount for transportation and
communications projects. It also provided substantial sums
in the electric power, water supply, housing and education
sectors. While carrying on this impressive and rising volume
of lending, the Bank has maintained itself on a financially
sound basis with a $20 million net income in 1969 and total
reserves at the end of the year of $85 million. It has
attracted resources from non-member countries. The Bank's
bonds are fully accepted in the world's capital markets; a
funded debt of $767 million was outstanding at the close of
its fiscal year on December 31, 1969; about one-half or $375
million is held outside the United States.
Budget Impact
The impact of this request on the United States budget
over the next years· is acceptable and substantially less
than the total authorization figure of this legislation.
Our $674 million of callable capital is not expected to
result in any expenditures now or in the future. Appropriation of the first $50 million of the three equal installments
of paid-in capital would be sought in FY 1971, and payment
would be expressed in the form of a letter of credit. Only
a part would result in cash or budget expenditures in fiscal
1972. Similarly, appropriations would be sought in FY 1971
for the first $100 mi.llion of the U. S. contribution to the
FSO, but only a fraction of this would result in cash budget
expenditures in fiscal 1972.
Thus, there would be no expenditure impact resulting
from this request in FY 1971 and only a modest amount in
FY 1972. Expenditures would rise by FY 1973 but probably
would not exceed $125 million. The proposal overall calls
for $1,150 million to be paid to the Bank (as letters of
credit) by the end of fiscal 1973 and this entire amount of
course would eventually be expended and reflected in budgetary
cash outlays in the years in which they are disbursed, but
this process would be spread over a number of years well
beyond fiscal 1973.
- 4 On completion of the proposed increases, the total U.S.
investment in the lOB's Ordinary Capital from its inception
will amount to $1,997 million, consisting of $300 million of
paid-in capital a~d $1,697 million of callable capital. The
U.s. share of total subscriptions would remain practically
unchanged at 42.47 percent. Cumulative U.s. contributions
to the FSO would rise to $2.8 billion, or 73 percent of the
total.
New Policy Directions
Besides the quantitative aspects of the proposed lOB
replenishment I have just outlined, there are some important
qualitative aspects arising from the Punta del Este meeting
that deserve emphasis.
First, the Latin American members of the Bank have
agreed to a further increase in their relative share of the
contributions to the Bank's soft loan resources.
In 1964, the Latins provided $20 of their currencies for each $100 provided by the United States.
In 1967, they provided $33 for each $100 from the
United States. Now, the Latins will put up the
equivalent of $50 for every $100 provided by us.
This steady improvement in the ratio of contributions is direct evidence of the increased degree
of multilateralism and self-help that we have been
able to elicit through the IDB mechanism.
Second, two more countries, Chile and Colombia, have
a.greed, along with Argentina, Brazil, Mexico and Venezuela,
to make u to half their contributions to the Fund for S ecial Operations available for lend1ng to other me
tries.
This means that the countries with the six largest Latin subscriptions in the Bank have now agreed
to such arrangements, thereby increasing substantially the usefulness of Latin American local currency subscriptions.
Third, Latin countries have endorsed a policy statement
giving the least developed countries of the region a first
priority claim on FSO loan resources.
Correspondingly, this help will steer the relatively advanced countries more heavily toward the
Bank's conventional loan window. This is further
!. ( \
~
l
- 5 -
evidence of a recognition of intra-regional cooperation.
Fourth, it was agreed that loans made from the new
resources of the Fund for Special Operations would be repayable in the currencies lent, instead of local currencies.
Dollars loaned out by the Bank would be repayable
to it in dollars. This over the longer run will
better assure the revolving fund nature of the FSO.
Other loan terms would be adjusted in order to
maintain the necessary concessional character of
the FSO.
Fifth, the Bank's Governors endorsed a strengthened
statement regarding the imeortance of sound national economic
policies and satisfactory over-all economic performance as
factors in determining the character and amount of Bank
assistance.
In this connection, the same policy statement
pledged Bank support of the efforts of the InterAmerican Committee on the Alliance for Progress
(ClAP) and other international financial entities toward coordinated lending efforts in particular countries.
Finally, provision has been made to consider the matter
of admission of developed countries not eresently members of
the Bank.
.
This is aimed at assuring an increased flow of
resources on improved conditions to the Bank in
a manner consistent with the maintenance of its
regional character. Currently, membership in the
Organization of American States is a prerequisite
for Bank membership. This has posed an obstacle
to serious consideration of membership by other
developed countries. At Punta del Este, the Latin
Americans agreed to the creation of a new and special committee of the Governors that would examine
the membership question on an inter-governmental
level and report with recommendations by the end
of the year.
While maintaining the inter-American character of the
Bank, we are interested in determining whether the quality
and flow of resources to the Bank from other developed countries can be increased and regularized.
- 6 Multilateral Approach
Let me turn now to some broader perspectives of. the
Inter-American Bank as a multilateral institution and on our
relationships with such institutions.
u.s. financial cooperation for development with other
nations through multilateral institutions has always had
strong bipartisan support in the Congress. This Committee
over the years has pointed to the concrete advantages for
the United States in the multilateral approach to development
financing. Without in any way prejudging or forecasting the
outcome of the current review of our total foreign assistance
effort, I can safely say that the benefits inherent in doing
our development business multilaterally argue for greater,·
not lesser, reliance on multilateral institutions~ At the
same time, in my view there is an important role for bilateral
assistance.
Let me just mention some of the advantages of the multilateral approach: the sharing of the financial burdens of
development financing, so that we do not carryall of the
cost; the greater likelihood that lending judgments will be
made on strictly economic grounds; and the desirable maintenance of economic discipline on borrowing countries through
a collective judgment, not one determined by the United States
alone.
.
We must recognize, however, that if we wish to continue
to enjoy the benefits of a cooperative partnership in the
international field, we cannot expect to enjoy the same independence of action we have when we proceed bilaterally.
Multilateral development institutions serve well our broad
foreign policy goals, but they should not and cannot be asked
to serve particular u.s. foreign policy interests. To try
would be to jeopardize their multilateral status.
Just as we must not seek to employ a multilateral bank
as an instrument serving particular foreign policy interests,
so is it not consistent with a workable multilateral approach
to impose unilaterally narrow limitations on the ways that
regular contributions provided by the united States may be
used or may not be used. Such efforts would affect not only
our funds but contributions other countries have made to the
institution. Moreover, these efforts would prompt similar
efforts from other participants. The result would be not a
multilateral agency with a manageable and coherent program,
- 7 but a collection of national trust funds to be used under
highly special and often conflicting criteria.
In making this point I am seeking to convey the distinction between unilaterally imposed limitations by one
donor and conditions or new policies that are negotiated and
accepted multilaterally by member
countries. I have just
outlined new policy directions which we have agreed to with
our Latin partners in Punta del Este. They are an integral
part of the replenishment we are now asking Congress to
authorize. This is an example of the method and the manner
in which we work together to shape the policies of the institution in which 23 countries share membership. This achievement is current testimony of the effectiveness and the value
of this approach.
In considering the role the United States plays as a
major member country in the Inter-American Development Bank,
we must remember that we have the benefit of a highly experienced Executive Director and Alternate, long acquainted with
both the problems of development finance and the concerns of
the Treasury. He is a full-time Executive Director, as is
his Alternate, with their offices in the Bank, representing
the United States in the Bank's deliberations. Through Mr.
Costanzo the United States receives full information upon
not only lending operations but also policy issues as they
evolve. This information is used by the Treasury staff and
the other agencies of the NAC -- including the Department of
State, the Federal Reserve, the Export-Import Bank, and the
Department of Commerce -- in advising me how the United States
should instruct the U.S. Executive Director to vote on a particular issue. Therefore, it is with experience, exposure,
and full information that the United States pursues its
responsibilities with this Bank.
I mention these considerations which touch upon a proper
and workable relationship with the multilateral financial
bodies because over the years Treasury has been acutely conscious of these issues. Now -- as we place more reliance on
them -- it is quite natural that we be expected to demonstrate
that our national interests are being well served through the
preductive employment of our contributions. What assurances
now exist and where should improvements be sought within a
framework that recognizes the multilateral character of institutions such as the lOB?
.
A description of the established controls and procedures
The Bank follows
lnternationally accepted standards and criteria of operation
7n the Inter-American Bank would be helpful.
- 8 -
that are compatible with our own methods.
are:
The main elements
Internal audit. This is a full-time audit staff of
the Bank. It reports to the Bank's President. Operating with broad audit authority, it functions in a
way similar to comparable staffs in major private
corporations and lending institutions. Their responsibilities range from assuring compliance with procedures and cash controls to developing new internal
controls and procedures to meet the expanding activities of the Bank.
.
External comprehensive financial audit. From its
founding the Bank has asked an important and much
experienced accounting firm of international reputation to conduct a comprehensive financial audit on
behalf of the Governors. This is exactly the same
type of audit this firm makes of many of our own
large financial institutions.
independent review and evaluation audit group.
This is a multilateral group composed of three persons of competence and high standing, chosen from
outside of governments, to provide an independent
overview into the effectiveness of programs and
operations of the Bank. It reports to the Executive
Directors and Governors. This group is relatively
new and, due to illness, somewhat slow starting.
However, we expect much of it in the future. It was
created by multilateral agreement, under the stimUlUS
of the Selden Amendment to the lOB Act.
An
But it is not enough to describe what we rely upon now.
TLeasury must continually ask where improvements can be made.
First, we can strengthen the mechanisms for executivelegislative contact in the overview of our participation in
the lOB -- as well as the other multilateral institutions.
I expressed this view to the Committee in testimony in May.
It is my hope that these mechanisms can function on a continuing basis.
Second, we can encourage the development into full effectiveness of the lOB's relatively new arrangements for the
independent oversight group for measuring the effectiveness
of its programs which I just mentioned. Such audits are an
important management tool and should be used to assure effec·
tive and efficient operations. While there have been delays,
)
- 9 -
a start has been made by this "Group of Controllers of the
Review and Evaluation System. II It is important that the
work of this group move forward effectively and efficiently.
Third, we look forward to benefits and insights that may
be obtained from the review the General Accounting Office now
has underway regarding the U.S. management of its participation in the multilateral institutions. Pursuit of this examination has been clarified through testimony by GAO officials
before the Congress in which it is recognized that direct GAO
audit of the multilateral institutions would be inconsistent
with the basic legal framework under which we participate in
those institutions. While speaking of United Nations international organizations and noting probable opportunities for
improvement in the management of U.S. participation in that
family of U.N. o~ganizations, the Comptroller General stated,
"We recognize that U.S. efforts toward improved
management of activities of international organizations, of which the United States is a member, must
be undertaken and assessed within the framework of
the international character of the organization and
that membership presumes a willingness on the part
of member nations to rely on the management of the
organization. We also recognize that constraints
on actions that can be taken unilaterally are an
inherent part of such membership no matter how constructive the. proposed actions might be."
This common view of the U.S. relationship with international
organizations -- which applies at least as fully to the muitilateral lending institutions -- permits us to respect the
vital distinction between examining the U.S. management of
its participation in such an institution and examining that
institution itself. The GAO staff is presently in Treasury
making its examination on this basis.
Mainly because this vital distinction is overlooked in
the proposed Section 504 of this year's Foreign Aid Appropriation Bill, which would require a GAO audit of the IDA
and Asian Bank, I feel it necessary to register the strongest
objections to that provision. In further testimony last week
before the House Banking and Currency Committee, GAO witnesses
confirmed that the GAO neither had nor was seeking authority
to carry out direct audits of the activities of the multilateral financial institutions. Very similar considerations
apply to the accompanying proposed Section 505 of the same
Bill, which would also be harmful to the multilateral status
of these institutions by requiring unilateral justification
?f each international lending action by these multilateral
~nstitutions.
Justification of our participation takes place
In sessions with Congress such as is taking place today.
- 10 Moreover, we are prepared to discuss frankly and forthrightly some recent unfavorable allegations concerning the
conduct of the Bank's affairs. I can assure the Committee
that all the critical points of which I am aware have been
carefully reviewed. I remain convinced that the Bank is a
sound institution operating effectively in support of the
hemisphere's development. It is well placed to meet the
challenges of the 1970's. We stand ready to respond to any
further inquiries you may have in this area.
Conclusion
Mr. Chairman, the proposal before you has President
Nixon's full support. The authorization amounts we are seeking today are large, just as the development financing needs
in Latin America are large. The institution through which
these funds will be channeled, along with comparable funds
from all of the other member countries, is the primary vehicle
for financial cooperation in this hemisphere. The lOB continues to show satisfactory financial results, enabling it
to strengthen its reserve position and maintain the confidence
of the purchasers of its securities around the world. The
u.s. stake in it is large, not simply in financial terms but
also in terms of our entire foreign economic policy stance
towa.rd Latin America. Both our national interests and the
development aspirations of Latin America have been well served
by the constructive contribution made by the Bank in its tenyear history. I urge that you endorse the legislation before
you for its early adoption by the Congress.
000
~/;I
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
June 30, 1970
(Dollar amounts In millions - round.d and will not noc ...arily add to totals)
AMOUNT ISSUEoll
OESCRIPTION
'~RED
ries A-1935 thru D-1941
lies F and G-1941 thru 1952
ries J and K-1952 thru 1957
AMOUNT
REDEEMEoll
AMOUNT
OUTSTANDINGlI
% OUTSTANDING
OF AMOUNT ISSUED
5,,003
29,521
3,754
4,997
29,488
3,737
6
32
16
.12
.11
.43
1,892
8,347
13,427
15,668
12,323
5,596
5,315
5,501
5,440
4,759
4,115
4,308
4,926
5,022
5,233
5,057
4,763
4,649
4,358
4,368
4,432
4,287
4,778
4,657
4,554
4,906
4,856
4,607
4,310
924
837
1,685
7,442
12,005
13,924
10,785
4,728
4,344
4,413
4,289
3,696
3,196
3,326
3,719
3,727
3,832
3,662
3,391
3,196
2,942
2,833
2,733
2,539
2,635
2,596
2,516
2,562
2,443
2,161
1,572
90
1,068
207
904
1,422
1,743
1,539
868
971
1,089
1,151
1,063
918
983
1,207
1,295
1,401
1,395
1,372
1,453
1,415
1,535
1,699
1,748
2,143
2,062
2,038
2,344
2,413
2,446
2,738
834
- 232
10.94
10.83
10.59
11.12
12.49
15.51
18.27
19.80
21.16
22.34
22.31
22.82
24.50
25.79
26.77
27.59
28.81
31.25
32.47
35.14
38.33
40.77
44.85
44.28
44.75
47.78
49.69
53.09
63.53
90.26
168;216
124,049
44,167
26.26
5,485
7,437
3,638
2,170
1,847
5,267
33.74
70.82
12,922
5,808
7,114
55.05
181,138
129,857
51,281
28.31
38,277
181,138
219,415
38,223
129,857
168,080
55
51,281
51,336
.14
28.31
23.40
~TURED
ries Ell :
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
. 1970
Unclassified
rotal Series E
les H (1952 thru May, 1959) 11
H (June, 1959 thru 1970)
,
rota! Series H
rotal Series E and H
folal
matured
Series Total unmatured
Grand Total
_
• "ClUed dl.c_I.
""""011 "./v••
.. III......, bOlld. m.y b. h.ld .nd will ••rn In,.r •• ' for .ddll Ion. , ·,..rlod• • fl.r or'./n.' rnatvrlly d.t •••
Form P...,18., '2
-
Usc 1nO)
!!II
IREASURY DEPARTMENT - Bureau of the Public ... _11'
3/ ~
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
Statement of Bruce K. MacLaury
Deputy Under Secretary for Monetary Affairs
United States Treasury Department
Before the Subcommittee on Commerce & Finance
of the Committee on Interstate and Foreign Commerce
On H.R. 18081
July 9, 1970 10:00 a.m.
Mr. Chairman and members of the subcommittee, I
appreciate this opportunity to present the views of the
Administration on the proposed legislation to provide
protection and insurance against certain non-market losses
to customers of brokers and dealers in securities.
I
regret that Secretary Kennedy is unable to be here this
morning because of previously scheduled testimony before
the Senate Foreign Relations Committee.
I know that your committee has had the benefit of
testimony from Chairman Budge on several occasions within
the past month on the question of how best to provide
protection to customers of securities brokers and dealers.
When he last appeared before you on June 16, he presented
- 2 -
a bill which
Chai~man
Moss introduced as H.R. 18081 that
incorporated the views of the SEC and the Administration at
that time.
Since then, the SEC and the Administration have
been working intensively with representatives of the industry
to reconcile the differences between that bill and the
industry's proposal which you introduced as H.R. 18109.
The
results of these efforts are incorporated in the version of
the bill which Chairman Budge has presented to you this
morning.
For obvious reasons, the Commission and its able staff
have carried the burden for the Administration in refining
the ideas that have been presented over the past year or so
in this area.
These ideas include those incorporated in
H.R. 13308, introduced by Chairman Moss in August of last
year.
In my relatively brief association with the task of
drafting legislation in this area, I can wholeheartedly attest
to the complexities of finding equitable and meaningful
answers to the difficult problems raised.
I think, however,
that the version presented by Chairman Budge today deals
effectively with these complexities.
- 3 -
As I see it, my function this morning, as a non-expert
in the securities business, is first of all to confirm to
this committee the importance the Administration attaches to
the quick passage of this legislation.
Chairman Budge on
earlier occasions has outlined the need for additional
protection for customers of securities brokers and dealers,
and there is little that I can add to the points he has made.
The fact that Chairman Moss introduced a bill nearly a year
ago to deal with this problem indicates this committee's
own concern with the issue.
And I am sure you are aware
that President Nixon, in his address to the Nation on Economic
Policy and Productivity last month, specifically endorsed the
concept of insurance protection for investors in securities.
He said:
"To further protect the small investor, I support
the establishment of an insurance corporation with a
Federal backstop to guarantee the investor against
losses that could be caused by financial difficulties
of brokerage houses.
While this would not affect the
equity risk that is always present in stock market
investment, it will assure the investor that the stability
of the securities industry itself' does not become cause
for concern."
- 4 -
In the Treasury, we are particularly conscious of the
difficulties that can be created for financial markets
and
for the economy that 4e:pends on the functioning of tho.se
markets for its financial needs
-~
by any loss of confidence
on the part of investors in the institutional arrangements in
those markets.
We believe that the present bill will help
substantially to preserve that confidence.
Secondly, I should like to assure this subcommittee that
the major policy decisions incorporated in this latest version
of the bill have been reviewed by the Administration and have
its endorsement.
Chairman Budge mentioned in his statement
to this committee 'on June 16 that in view of the importance
of this legislation and the time element, the Commission had
been working closely with other interested agencies of the
Government in developing its views.
As I have already indicated,
that close cooperation has continued in recent weeks, and the
present draft bill is truly a joint product, both within the
Government and between the Government and the securities industry.
On previous occasions, as well as this morning, Chairman
Budge has emphasized those features of any investor protection
bill on which he placed great stress.
He mentioned specifically
J!f
- 5 when he was before you on June 16 that the Commission endorsed
the principle of a non-governmental corporation "only if the
Commission is directed and empowered to exercise adequate
supervision over the industry in order to minimize risks to
customers' funds and securities, and the costs of insuring
against such risks."
The Administration strongly supports the
Chairman's views on this matter, and we believe that the
version of the bill presented to you this morning provides
the necessary degree of supervisory power to the Commission.
This expressed need for adequate supervision, in my view,
is not in any way a reflection on the industry, but simply a
recognition of the fact that $1 billion of public funds are
being put on the line to backstop the newly created corporation
in providing insurance protection to customers of securities
brokers and dealers.
The taxpayer has every right to expect
that the Government has taken all reasonable precautions in
protecting the use of his funds.
This brings me to the final point I wish to make:
it
concerns the adequacy of the financial provisions of the bill.
It seems most unlikely that the authority of the Corporation
to borrow from the Treasury through the Commission will need to
- 6 -
be used.
The bill provides that the industry will make
available to the Corporation within 120 days of enactment a
fund of $75 million.
This fund will consist of cash provided
through assessments and transfers, and of confirmed lines of
credit.
Within five years, the fund is to aggregate $150 million.
To build up this fund, the Corporation is empowered to levy
assessments on members, subject to Commission approval.
However,
to protect firms from open-ended assessments, the bill places
an outside limit on annual assessments for any member of 1/2
percent of the member's gross revenues.
The Corporation would
be authorized to impose, and the Commission could require, this
maximum assessment whenever the Corporation had borrowings
outstanding from banks or the Treasury.
This maximum assessment
would produce approximately $25 million in payments to the
Corporation based on 1969 revenues.
In the absence of any
borrowings by the Corporation, the bill provides that the
Corporation would assess its members at an average rate of 1/4
percent of their gross revenues.
In either case, assessments
could be based on factors other than gross revenues, with a
view to bringing relative charges into line with risk exposure.
- 7 These rates of assessment should permit an adequate buildup
of the fund as required in the bill.
In the event that the
financial resources of the Corporation were not sufficient to
meet its insurance obligations, it would have available to it,
as I have indicated, a $1 billion line of credit with the
U. S. Treasury.
I recite these facts
and they by no means exhaust the
provisions of the bill -- to point out that while we conceive
of the $1 billion borrowing authority at the Treasury as a
backstop only, should circumstances require heavy use of
Treasury borrowing by the Corporation, the assessments could
well fall short of providing the funds necessary for interest
and amortization.
To take an extreme example, if $500 million
of the Treasury line had to be drawn upon, the $25 million
maximum assessment, based on 1969 revenues, would fall
substantially short of the $35 million needed simply to service
the loan at 7% interest.
And this calculation makes no allowance
for the need to repay bank credits which would have been called
on prior to the use of Government funds.
While it is reasonable
to expect industry revenues to continue to grow in the future,
thus providing greater assessment potential, a different base
than gross revenues could reduce this potential.
5)~
- 8 -
Given these facts, while we feel that the 1/2% limit on
assessments proviaes reasonable assurance that the fund will
be self-sustaining, we feel strongly that some additional
source of revenue must be provided to service any Government
loan to the Corporation through the SEC.
For this reason, the
bill provides authority to the Secretary of the Treasury to
levy a charge on transactions in equities payable directly
by customers whenever the Corporation is indebted to the
Government and assessments do not appear adequate to assure
prompt repayment.
The maximum discretionary charge of 20 cents
per $1,000 would yield some $37 million annually based on
transactions on stock exchanges in 1969, and somewhat more
th~
that amount in view of its application to certain non--
exchange transactions as well.
I recognize fully that there are difficulties in levying
such a charge equitably on different classes of transactions.
But I believe that it is not only possible to devise and
a~inister
such a charge, but that it would be irresponsible
not to make provision for such a charge when a billion dollars
of public funds are theoretically at risk.
00
00
00
July
10~
1970
FOR n1J:vlED IATE RELEASE
SALE
Q}'
~j2-1/~ BILLION AFT·al, TAX Al~'IICIP/;,'nON EJLl,S
The rCreasury Depoyt'Jent today 2Jmm.U1ccd the sale e'f
$2-1/4
l;illion of tax anticipation bills l"1bicn ,·rill Elo,tu:n;
in AprE. 1971.
~[rhe -i)ill~;
will be auctior18u
011
by crccli tj.ng 'j'rcasury to,.x <md loc.n
Thursday, July 16; :fo:".
accolLr}t;~.
The bills will matu:re on Apy·j.l 22, 1971, bO.t
lilay
be
used at fc,c;e vc:tlue in pa,:,rment of Federal income tD.xes due
on April 15, 1971.
'jJ-
Department 01 the
·,nON. D.C, 20220
r;
TREASURY
TELEPHONE WD4-2041
July 10) 1970
FOR IlftlvmDIATE RELE.AST":
TREASUT<:{ OT'FEL3 $.2':.1/4 BILIJIOH HJ N'>U:C,
TAX
]3ILl;~:
The r.rrea.~ D:~:p3.2·tir:ent) b>r this }:,ub.l.ie nutice; :Lll<;rltes tenders fo}'" ~:2)2S0~OOO;C'::'
or therce.bouts, of 2"i~j-d.ay 'l'I'e[\o:U}.~y blLL:J~ 'co l:~~ j~~~'l,,'j on a 6'j~~,;c~mt bn~~ir~ )ud,cr
competiti ve and noncot11:,;:::ti.ti ve biu.d.ing ()J; h8:~'cii12~t'G0<',' :V,.oov-:i def,I. The "en.lr, ()::: th,; EO
series ¥Till be dated <July 23, 1970,
8Xld ~d,ll m~'t:;l~e 1':lJri1 22, 1971.
'[f:,c;y \:1J,'.
be accepted at f2.ce ''11lue .tn I"\/l;lent of in.co)ne taX(;L; du.e on JI,};Li.l IS, 1971/
and 'L c:.
the extent they a;~e not pr('::~en.GC:J for thi,s pn)::oose t.,.,=, fe,co S);'lO'lT,'(, 0:':' 'l:,n2~e b:U1s '\rLL:~
be pay8ble ,·r1thout intt.:::t'2st ErG DliYCttl'i ty
~raz::puyeI'S (o'(:orLr:l_l1(S to 8J):::'<Ly tl'J:r:e biD.s iI,)
payment of April 15, 1071,
in':.!ome tsx(',', mo_y suL,,;,-)- '(.[iC 'bDJ.s '(.0 (" Fcrlcr2_:L Resrs:c\(
Bank or Brs.nch or to the Off:ic(.; of 'che 'l'r.ef~f.U.i..'0r of 'l;rK~ 'Jnit:"d, ~~;~cd~(,:.::, V::<:>(!_j-'.;';,o[j l lX'<:
nore thr:n fifteen days before 'c1nt elate
III t:1C C5:,~<:, of ~~l1J.s ;, I,;> ,:i. t'::,u"i. :~n l-J~':::"'f,~,;r((, (If
Lncome t2xe8 of 2. corporation <-,118:( sha:U be 8.C(~(;[.~:;::.l;:L":.(;_ by 2, (~. ,'v>;',:plc;:,c:'; FeY,i; 50Z~
ll1d the offiCe reed. \rj.n,g th(~8e j.tC1.IlS ","'1:1.1 cfi.'ect '(:};(; C~;l=,osit on l'J):'il 2.5;, 19'( J.
[n the caGe of bills suomi tt,cc] In IiI'.ymC!1t of il1col1'c -i,.(:,:'(':: of' B:l1 o:l)c~j~ tC::':~:)2.:;-f~~:·.o;, 'i.,Le
)ffice reC'ei iring the biJJ_B irllJ. i G[, UG re('>..!il)b; thc:<'-.:FoJ:', the m.':ic-LLJ_ cf ~fJ:\ :::~l til:::
;axpayer shall sub~d t on or be:fo:re .Ll~:;Jril 15 ~ 1971,
'[;0 the J):; f,,;~/,"ct D.Li.'(' :"o:,~ cf
:nterna.1, Rc:v,:;i1ue fCJi' the' Dlsil':tC'C. ,;"11 \~b:tch [:p(:r). 'LIX\,:;,: o,:ce p~;:,';'i, i "
'J':18 ·[i:\_~L.c:' '\i:i.:L~ 1~,,~
ssued in bea.rer form only, D.j')(!. if.! de; D OYJ (i. 1,utiullS of :,' LO ,(00)' ~'oC:, QC\):
u..0v, Ow, ;~~00, 00J ana. ~l. ~ Cliu vOC) (lila t uri ty Y2j:c:.C)
<
j
0
Tendere w:UJ. be re(:eived ".t. Federal Reserve T:3arJ:s and BJ.°i..\~.(">'~::; l).J; to tl"i~' clc::::i ,'<'.,
our, one-·thi.rty p.m., Eastern D2~ylight ~~2;ling till;c: Th:JTSd8,Y; ,l,)~Ly 16, 1970.
enders v:ill not be received c:c thl,3 T're2.sury De})ax'tL1C'nt ~ Fac;}?:r:::~Gc)";c Eaeh "(.rc.llC1.;,or nr.,l':-t,
e for an even multip:'e of' $10 ,(lUG, t'tl1d in the (:asc of comrc:tiL:;,\'c tenck:cs 'i-jK p:~'icc
ffered must be expressed. on th\'; basis of 100, "rith not more ';.. )),,::1 -~ln'ce O,U:ij,l';.l::;)
. g., 99.925. l;r9.ctions J118.y not be used. It is tu'(~ed that '~eYiC1c:c;3 be n[~C:,c 0:.'1 \:Ill?
rinted forms and forwarded in the special envelopes 'ilhich 'KiD. be ~3ul)}Jlied. b~) r'ed.cl'Jl
~serve Banks or Branches on ap?lication therefor.
Banking insti t.utions generally may sut.:.-m:i.t tende},'s foY' account of custUTJ]erS provic.L:L';
le na1'Jles of the customers arc set forth in such tenders. othe::.'s than ban'\;:l1\; insti t:j.'
,ons will not be perrl'u tted to suow.i, t tenuers exce~l:!t.; :Cor their CMn aCCODnJG, Tender.::
.U be received id thoutl o.eposi t frem inco:cporated hnrill.s and t1'u8 ~ compa,nie:::; 8_nd fro;;1
lSponsible and recognized dealers in inv'estment ::;eeuri"t:i.es. Tcmle:rs fl'ol1l o'i:,}j:::~}'s muc-::-.
! accompanied by payment of. 2 1'e2"Cent of the face 81ilount of Trcasu.ry bil1f~ appl:i.ed
Ir, unless the tenders are ac(~on:cprD1icd by an express gU8.1'anty of pG.;yment by an
lcorporuted bank or trust compa:(.y.
All bidders are required to agree not to purCh.af;C o:t to sell, or to mC.:;e [lJ1Y
reements loti th respect to' the pUTchase or sale 0'1' other dio:po:;~"t;:on of arr,f l)ills of
is issue at a specific rate or price, until af'ter ol1e:-thirty :p.m., EastclT.\ DayliGht
\ving time, Thursday, July 16, 1970.
- 2 ImmecUate1y after the closing bour, tenders will be opened at the Federal He.serve
:a.nks and-b1'a..'1ches, following which public ann01mcement I'lill be mcde by the Treasury De,artment of the arnount and price range of accepted bids. OnJ_y t'hose submitting cOlnpetiive tenders Hill be advised of tbe accept&.nce or re;jection t.hereof. The Secret8_ry 0:' "c:_:
'reasury eAk:ressly reserves the rj [';ht to accc:pt or reject any or all t.enders, in \'Ih02.e
r in part, and his actlon in any C'lICh rcspc~t shall be final. Subject to these resel:Vc_ions, nonc':'1Jnpetitive tenders for *100,000 o:c less vritllOut f~tated price from anyone
idder vlil1_ be accepted in full at the aver8ge :price (in three dec:irilo..ls) of accepted
ompetitive ldds. PEt;Y1l1ent of accc:r:ted tenders at the Fciccs offered must be mEl-de or
ompleted 8.~L trle Federal Resenre Bank in casll or. other immediately av[t~_lEl-ble fU~YJd~; on
uly 23, 1970. Any qU:11ified depositctry ,\Till be penni tted to make s';;cr,lcment by ::;re~L:. -~
n its Treasury tax and. 10em account for TrcC'vGury bills allotted to it for itself a.11cJ.
ts eus tomeT S •
The income deri ~,'·ed. from Tre2.su:c~r bi.1~s, lrh9thr::r interest or ga:in from the sale or
,ther disposition of' the bills, docs not.l1a\re 81W exem.po~~j.OD, as sucl':\) and loss fl'Ot'!
;he sale or other ci:icj)osi tion of 'J'rCCGUI';'{ bills docs noc, have 8.ny sI·.:;cial trcatrr.ent,
,S such, und01'" the Inte:rna.l H.2venue Colle of J~;~_>±'
Tns bills 2.r':~ 8,·bj:~d:. to estate,
.nheritance, gift O:f o>.:.her exC'i.:::c:: ta:~es, \>!hC-~:her Federe:t or StB_te, Lut 8:te exempt fl'om
11 taxation now or hereafter i.n~'pJsccl on the ))).'inci\J3l or intel"'cst tbc~,'eof by 8_~W
;tate, or a::(,/ of the posseRsions of the In:::.. tcd Statp.s, or by an:! lOf:s.:L tDX)_nc; fluthori-::y.
'or purposes of taxc.t.io:1 the arnow-:t"i; of' cliscowrc at \-Thier. 'I'rcc.sn:cy bi 118 arc OJ:j-7,in.:':Uy
old by the united S·:;::.:,tes is c:on::;icJ.cl'cd to 't'G intcTe~t, Dnde:::' SCC'~'.:' ons 454· (b) E.nd
221 (5) of the Intern-::J. R,_'venue Code of 195~, the amo1J':1c of d.i3COl'Xl<~ ["~to ..;hieh b).lls
edeemed or othel'l·;ise cliST)0Sed of. and su('ll biJ~s are exclude(l from considel'ct.io:ll a:
apital assets. Accordingly, the' O'WTCf.' of Treasury h:Uls (othe2' tL<'D life j.mill"G.J1ce
ompanies) issued hereWider need. include in his income tax return only the d.ifference
etween the price p&id for such biJ_ls, ' . . hether on originsl iSSUe or on subsequent
urchase, a..'1d the ml10unt actually receJved e:1. 'eher t.-rpon G3J_C or redc,lpt.ion at ffi(>,turi ty
uring the taxable yea.r for whic.:h the retu..rn is made, as or-dinary g2.in or 108s.
Treasury Department Circular No. 418 (current revision) and -chis notice,
rescribe the terms of the Treasury bills and govern the conditions of their :i_ssue.
~pies of the circular may be obtained !'rom any Federal Reserv-e Bar!..l:. or Branch.
"l'ENTION:
FINANCIAL EDITOR
R'RELEASE 6: 30 P.M.,
:lday, July 13, 1970.
RESULTS OF TREASURY'S WEEKLY
BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
lls, one series to be an additional issue of the bills dated April 16, 1970
, and
~ other series to be' dated
July 16, 1970
, which were offered on July 8, 1970,
'e opened at the Federal Reserve Banks today. Tenders were invited for 4> 1,800,000,000,
thereabouts, of 91-day bills and for $ 1,300',000,000, or thereabouts, of 182 -day
.ls. The details of the two series are as follows:
fdE OF ACCEPTED
IPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing October 15, 1970
Approx. Equiv.
Price
Annual Rate
98.367
98.339
98.345
182-day Treasury bills
maturin& January 14, 1971
Approx. Equiv.
Price
Annual Rate
6.628%
6.648%
96.649
96.639
96.641
6.460%
6.571%
6.547%
6.644%
Y
72% of the amount of 91-day bills bid for at the low price was accepted
83% of the amount of 182. day bills bid for at the low price was accepted
1 TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
strict
st1n
ttl
York
iladelphia
~veland
~ond
Lanta
lcago
, LOUis
mea.polis
lsas City
las
Francisco
TOTALS
Applied For
~
32,590,000
1,959,040,000
43,590 ,000
58,520,000
48,420,000
52,550,000
320,140,000
55,420,000
67,740,000
50,700,000
32,030,000
191 a620,000
Accepted
$ 22,040,000
1,104,050,000
25,840,000
52,820,000
44,320,000
36,820,000
212,140,000
52,070,000
66,600,000
42,600,000
18,570,000
122,170,000
$2,912,360,000
$1,800,040,000
Applied For
iii 21,490,000
2,032,930,000
14,940,000
66,090,000
29,040,000
61,800,000
237,520,000
47,980,000
31,240,000
46,750,000
43,850,000
234,700,000
~
$2,868,330,000
Accepted
10,040,000
962,430,000
14,020,000
52,030,000
22,040,000
28,200,000
59,810,000
26,780,000
9,490,000
37,310,000
30,110,000
47,760,000
$
$1,300,020,000
E/
~ludes $457,120,000 noncompetitive tenders accepted at the aver8.Ge price of 98.345
~lUdes $377 ,870 ,000 noncompeti ti ve tenders accepted at the avcrar;e price of 96.641
!se rates are on a bank dj.scount basis. 'l'he equivalent coupon issue yields are
15% for the 91 -day bills, and 6.97% for the 182-day bills.
~;2~
Department of the TREASURY
. . . , . O:C. 20220
FOR
TelEPHONE W04-2041
IMMEDIATE RELEASE
July 14, 1970
TREASURY SAYS JAPANESE TUNERS ARE BEING
SOLD AT LESS THAN FAIR VALUE
Assistant Secretary of the Treasury Rossides announced
today that tuners (of the type used in consumer electronic
products) from Japan are being, and are likely to be, sold
at less than fair value within the meaning of the
Antidumping Act, 1921, as amended. Sterophonic tuners are
excluded from the determination.
Notice of this determination will be published in the
Federal Register of Wednesday, July 15, 1970. The case is
now being referred to the Tariff Commission for a
determination as to whether injury exists.
During the period January 1, 1968, through October 30,
1969, tuners valued at approximately $10,500,000 were
imported from Japan.
This is the first caSe in which the Treasury is carrying
out its recently announced revised price assurance policy.
Price assurances were offered by the Japanese exporters,
but were rejected by Treasury on grounds they did not meet
new standards which require that the margin of dumping be
minimal in terms of the volume of sales involved.
000
K-449
FOR RELEASE.UPON DELIVERY
STATEMENT OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
FOR ENFORCEMENT AND OPERATIONS
BEFORE THE
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
OF THE SENATE GOVERNMENT OPERATIONS COMMITTEE
JULY 15, 1970
10:00 A. M.
Mr. Chairman and members of the Subcommittee on
Investigations:
I am very pleased to be here this morning to report
to you on behalf of the Department of the Treasury on
the results of our recent survey of the incidents of
terrorist acts of violence by bombing in the United
States.
You will recall, Mr. Chairman, in your letter to
Secretary Kennedy of April 21, 1970 you asked the
assistance of the Treasury, specifically of our Alcohol,
Tobacco and Firearms Division, in surveying the incidents
of bombing in the United States, occurring from the period
of January 1, 1969 to April 15, 1970, and that the survey
be broken down in detail, state by state.
In your letter
you mentioned to Secretary Kennedy that you believed the
results of such a survey would be likely to "graphically
K-4S0
- 2 -
reveal to the Congress and the American people the
scope and threat of these terrorist acts of violence
and anarchy."
Mr. Chairman, the results of the survey by Treasury's
Alcohol, Tobacco and Firearms Division of the Internal
Revenue Service have been posted to a chart which we have
with us today for the assistance of the Committee, and I
shall refer to it from time to time during my remarks.
It should be understood that the survey by the Treasury
was made by compiling submissions which were solicited from
state and local law enforcement agencies on a regional
basis.
As we were not able to contact every law enforcement
agency in the country, and some contacted have not yet
responded, the figures are, to some extent, incomplete and
may contain a few inconsistencies.
We were requested by your Committee to limit the time
period from January 1, 1969 through April 1S, 1970.
In
the Southern District of California and the State of
Colorado, however, we were unable to obtain such a breakdown
and, as a result, those figures include the year 1968 as
well as 1969 and the first three months of 1970.
- 3 -
Another caveat to be borne in mind is in the area
of attribution.
The attribution figures submitted to
us contained no breakdown as to what proportion of the
figures applied to actual bombings as distinguished
from
att~mpted
bombings or bombing threats.
In spite of the foregoing cautions, Mr. Chairman, we
do believe that the figures will be of assistance to the
committee and the attribution figures clearly establish
certain trends of significance.
And we believe, Mr. Chairman, in reviewing the results
of Treasury's survey that
th~
prediction in your letter
to Secretary Kennedy seems quite accurate:
Th~
figures do graphically reveal that terrorist
acts of violence and anarchy by bombing have reached menacing
proportions in our country.
From January 1969 to April of this year -- a scant 15
month period -- this country suffered a total of 4,330
bombings, an additional 1,475 attempted bombings, and a
reported 35,129 threatened bombings.
Of the 4,330 actual bombings, 3,355 were incendiary in
nature, and 975 were explosive.
From these figures, Mr.
Chairman, it is clear that the incendiary bomb, the molotov
- 4 -
cocktail and the like have been chosen three to one
over explosives by the terrorists.
In our judgment, however, Mr. Chairman, the incendiary
bomb cannot be compared on an equal basis with the high
explosive bomb.
When an incendiary, such as a mo1otov
cocktail, explodes, there is usually ample time to evacuate
the premises, and often sufficient time for the fire
department to extinguish the blaze and limit the damage
done.
When a high explosive bomb is detonated, however,
it is allover within seconds.
Little can be done by the
authorities to reduce casualties other than to knock down
remaining walls which threaten to topple onto passersby in
the streets.
I think we can all agree that the explosive
bomb presents a greater hazard to the public, and is capable
.~
of inducing greater terror and consternation among our
people than the ordinary incendiary bomb.
Further bringing home the seriousness of the situation,
Mr. Chairman, is the fact that the Treasury survey reveals
that in the reporting period bombings in America were
responsible for the deaths of 43 people and $21.8 million
of property damage.
- 5 ..
Mr~
Chairman, the chart we have here gives individual
totals for every state in the union, with the exception of
Hawaii, which was not included in the survey.
I will not
take the Committee's time now to repeat each statistic,
but a reproduction of the chart is included as an appendix
to this statement, and the figures would be available to
all Members who may, understandably, be particularly
interested in the result of the survey a.s it pertains to
their home states.
I would like to turn now to the attribution figures
we have collected.
First, I should point out that these
figures represent the best estimate of police sources from
around the country and can best be expressed on a percentage
basis.
The total number of incidents of bombings, attempts,
and threats reported was 40,934.
in only 36% of this total.
Attribution can be estimated
stated another way, 64% of the
total are of unknown attribution.
Of the 36% in which there is an
estimat~
of attribution,
56% are attributed to campus disturbances and student unrest.
Nineteen
perc~nt
are attributed to black extremists, and
14% are attributed to white extremists.
Eight percent are
- 6 -
attributed
to activities in aid of criminal pursuits,
such as extortion, robbery and insurance fraud.
Only
2% are attributed to labor disputes and 1% to religious
difficulties.
When we use the term black extremists and white
extremists, Mr. Chairman, we mean those of both the left
and the right.
Similarly, when we speak of student and
campus unrest, we include the activities of campus hangerson -- that is, those non-students, usually college or
graduate level dropouts -- who continue extracurricular
activities on or about one or more campuses.
Mr. Chairman, we believe that the Treasury survey
does make certain things quite clear.
While the weapon
of choice of the bombers is overwhelmingly the incendiary,
a significant amount of explosive materials is used.
think it fair to
s~y,
I
Mr. Chairman, that anyone who can
synthesize LSD, for example, would have no di.fficulty at
all in formulating explosive materials or constructing an
explosive device.
- 7 -
We in the Treasury are aware of the great concern about
this situation among the members of this Subcommittee and
this
Adminis~ration
shares your concern.
This matter has been
the subject of intensive study by this Administration since
the submission of S. 3650 in March, 1970.
A White House task
force addressing itself to this problem has consisted of
representatives of the Department of the
Interio~,
the
Department of Justice, the Department of the Treasury, the
Department of Transportation, the Department of Agriculture,
the Department of Commerce, and the Office of Management and
Budget. This task force has had the benefit of consultations
with the explosives industry.
It is the purpose of the task
force to develop an Administration bill which will be outlined
by the Department of the Interior in testimony before Sub-
committee No. 5 of the House Committee 0n the Judiciary next week.
As the Committee is aware, there are already a great
many state laws with respect to explosives and flammable
materials.
Most of them relate to questions of safety in
storage and handling.
The Department of Transportation
by statute controls the interstate
transporta~ion
of
explosive materials, and the Department of the Treasury
is responsible for the administration of the Gun Control
Act of 1968, which, among other things, regulates such
lid es t ruct~ve
.
d ev~ces
. " as any exp1
· ·~ncen d·~a r y, or
os~ve,
POison gas bomb, or grenade; rockets having a propellant
- 8 -
charge of more than four ounces; missiles having an
explosive or incendiary charge of more than one-quarter
of an ounce; mines; or devices similar to any of the
foregoing.
The Treasury also administers certain provisions of
the Mutual Security Act of 1954 which deal, among other
things, with military explosives, and the Department of
Interior through its Bureau of Mines also has certain
statutory authority with respect to explosives, such as
regulating the use of explosives in the mining industry.
As I understand that Assistant Attorney General Wilson,
who is scheduled to appear before this committee, will
discuss the existing body of law on explosives, I shall
not go into the matter further at this time.
As I know this Committee is also aware, explosives
play a vital role in the construction, mining and agricultural industries in the United States.
In addition, as
smokeless propellants are employed in small arms ammunition
and black powder is employed in small arms designed for
its use, there is extensive use of these two items by
millions of our citizens for lawful sporting purposes.
- 9 -
Small arms ammunition, as you know, is also covered by
the Gun Control Act of 1968.
There would seem to be, Mr. Chairman, a need to
upgrade the security with which the most dangerous
explosives, such as the dynamites, are stored, in order
to retard theft.
It would also be helpful for enforcement
agencies to have access to records of the sale, at least,
of commercial high explosives.
However, we are aware from
our work with the Administration task force that there are
many technical problems which must be taken into consideration in deciding what additional legislation is necessary.
We hope, Mr. Chairman, that the survey we have provided
today will prove to be a helpful addition to the body of
knowledge under study by the Administration and by this
committee.
- 10 -
33/
"Clap ot bbtnc 8t.aUetiee
"'rlo<l .r JImI&l7 '. 1969 throur» April 15. 1970
(StatUt.1cI INppUed by St.ate and loed 1a" entorc... nt ...nct •• )
.-.... -
1/1/69 - VIS/70
K
' l..h
Art.ona
Ixplol!1"
Int'endl&ry
Total
.ltteJIIPUld
80"*>1,,,.
BolllblnSIl
Bombtnge
Bombinge
1
3
3S
IcIoI>D
0
lIo.tana
8
....d.
5
16
1
90
80
0..,..
r.u~i..tan
• So. JwU.d&l 1)1.t:t1t't. of Cautornia
76
Sou~.t
76
2Jl
97
..
30
0
11
17e
1
92la
2
-
78l
0
000
550 000
153
254
2432
1
,
0
0
0
62
25
1
0
1
0
'6
27
'7
36
144
2
0
45
442
3
5
680
79
)71
959
0
0
0
0
-
7
1
Death•
4
17
3
5
3
96
PereOJ'l&l
Injury
-
1
38
1
3~8
1
5
0
0
5
1
7
Relion
!Ar-k.....
0
61
rona ..
12
-
LouiSiana
•• *21rD
kl.ho....
42
1
• Icol••a<!o
-._--
167
~
~~L
11
5
....
Orand Total
,!J 161
97
15'
264
270
707
II
0
~
0
- . .2-
)
293
40
0
0
67
9
3
1)67
0
0
1
0
24
232
536
)65
60
0
0
_l.l
661
16
139
1
l
0
5
0
,
4
66
62
486
IS
-1J!j
. _ III
---~
4
.... ---- "---
0_- •
6
27
- 21
61
1C
10
w.....w
1._
46
2
1
Orand Total
,
(
924
lltU
hreat.
1
10
Collforni' (1••• So. Judicial Dietri.t)
","oporty Do...
in M DoUare)
"",,*>lng
li2
J!lI6
2855 I 707
2809
2
4
0
5
6outhe.. t Rolion
-
~Or1da
- --- ------ ----- ______2 -_.---_.-_.
30
Po°rlu
~ .. t"lppi
Qrt.h Cvol1na
GOth 0.. 0111111.
Ire.......
9
,
13
---._----------- r"
---
27
.0
-~~
224
10
83
'94
1
1)(
-
9
. (
17
.
-
1
5
549
987
4
235
25
15
0
'3
72
'59
941
23
26
11
.J..lll
,
38
22'
20
28
0
2
1
1
Q
0
2
0
2',5
Q
~.
,
...li2
lO14
0
0
14
1500
1
0
0
0
0
15
11
0
2
0
0
6
14
260
l'5
0
0
1
2
1912
93
L.l~
5)0
109
3328
ninoh
.21
§~
~ ....ota
~o.""'i
105
0
10)
.~~
180
,.ll
174
721
15
3
38
1
0
I!ob,aak.
orth Dako~
..\II Dakota
1It......in
'6
0
1
2
43
0
0
10
'41
59
0
1
12
6
S9
0
0
0
164
881
1051
27)
'0
57
7
2
86
11
10
625
397
64)
948
n
3S1
10
82
)8
1)
95
11
.5..
2492
1767
109
57<
696
163.
1
3
_!6
Orand Total
0
2
MU".. t Ro&1an
-
Orand Total
l75
,OS
640
211
2
Q
0
0
0
0
0
0
0
1
Central Re,lC1ft
Indiana
IInt\JC'1o'
lIl.hi,,,,
28
2
"""'iO
hie.. "liuinia
,2.l!
Orand Tot.l.1
,
62
)S,
1163
15
,7
5J'JO
.1!ll!i.
ill
8
,
II1d-Atl..t1. lIe,ion
~l~
1
~land
r--
.4
Jer.,,..
iPann 71vuu.a
'
~"'"'' I""'''io' ot Co1_blol
2
20
2SS
2
20
240
803
4)
11 19
440
0
0
2
890
0
2
0
3'92
146
IS
0
S
0
'6
3
SS
4'
221
267
6
9C
~
61
12
431
117
2622
4526
18
7
1267
136
294'
'56S
,6
23
0
,0
68
Grand Total
0
0
0
4
165
2
1
J6
-North ltlantle kelton
o. .ctic,,"
11
Mai..
SC
)0
7
12
55
86
0
80
(
6
1
)
-'.lctlUHtt..
5
)1
Mav ~.h1r.
jIov York
6
121
'7
4
10
~ho" Illand
'.rmon,
0
38J
561
290
..
4330
0
ill
Grand TotAl
'n
Nat-1.onal. Total
• J1cuM ~d '07 poli •• otl,.loll
Uuo _
::
163
16
0
ill
-.... WI tile Soutll... hdoral
915 1091
_1}55 1264
27
Io' 1Dcludod ~ til. total
-biDsI an 7
_bina'"
lS129
133
co data
_o1al II1otrl,.' ot Caj,ltorD1. and
Color.... wn tor tIIo,..... 1968, 1969
• J _t.IIo or 1970. 1'l1li7 c _ t be
bl'Clkoa _
.. ,.~ ODII .... IIOt iAc1ud.d
not id••tit)' i'" .itll.r ap at .... or
iDcendiU'7 11 nature. M
..oult
111 tIIo CIruwI Total t<lr tile lIe.torn
200.
~D1\.
Total.
s,o._.t 1\q10. or tile lat10Dal
tra.
reBp'c~
'"' poll ..... 1•• did
·~l'~-~
,
2000
)11
0
1li
_'412.6
1475 JUS
actual.lT
,
262
'81
9412
666
218)8
1
106
8
0
0
35
0
16
4'55
708
0
0
1
384
10
1
40
- 11 -
PERPETRATORS AND RESPONSIBILITY FOR BOMBINGS
Attri.buti:on of Those Responsible for Bombings
Bombings (Explosive, Incendiary) •....•....•••
4,330
Attempts to Bomb ••••••••••••••••••••••••••••• 1,475
Threa t s to Bomb .•.•.••••••.••••..•.........•. 35,129
Total Bombings, Attempts or Threats •.•.•... 40,934
64% unknown to law officers
36% where police indicate the perpetrators fall into the
following categories:
56% are attributed to Campus disturbances
19% are attributed to black extremists
14% are attributed to white extremists
2% are attributed to Labor disputes
1% are attributed to attacks on Religious
Institutions
8% are in aid of criminal activities
(Extortion, Robbery, and Arson for
Insurance) •
EXHIBIT 2
The Department of the
WASHINGTON, D.C. 20220
TRfASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
July 14, 1970
TREASURY SAYS JAPANESE TUNERS ARE BEING
SOLD AT LESS THAN FAIR VALUE
Assistant Secretary of the Treasury Rossides announced
today that tuners (of the type used in consumer electronic
products) from Japan are being, and are likely to be, sold
at less than fair value within the meaning of the
Antidumping Act, 1921, as amended. Sterophonic tuners are
excluded from the determination.
Notice of this determination will be published in the
Federal Register of Wednesday, July 15, 1970. The case is
now being referred to the Tariff Commission for a
determination as to whether injury exists.
During the period January 1, 1968, through October 30,
1969, tuners valued at approximately $10,500,000 were
imported from Japan.
This is the first case in which the Treasury is carrying
out its recently announced revised price assurance policy.
Price assurances were offered by the Japanese exporters,
but were rejected by Treasury on grounds they did not meet
new standards which require that the margin of dumping be
minimal in terms of the volume of sales involved.
000
K-449
jc.f()
The Department of the
TREASURY
TELEPHONE W04·2041
WASHINGTON, D.C. 20220
OR LMMEDIATE RELEASE
July 15, 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
reasury bills maturing
July 23, 1970,
in the amount of
3,006,897,000,
as follows:
91-day bills (to maturity date) to be issued July 23, 1970,
:1 the amount of $1,800,000,000,
or thereabouts, representing
:1 additional amount of bills dated
April 23, 1970,
and to
lture October 22, 1970,
originally issued in the amount of
L,~02 ,550 ,000,
the additional and original bills to be
~ee1y interchangeable.
182-day bills, for $1,300,000,000,
Ited
July 23, 1970,
and to mature
or thereabouts, to be
January 21, 1971.
The bills of both series will be issued on a discount basis
Ider competitive and noncompetive bidding as hereinafter provided,
ld at maturity their face amount will be payable without i.nterest.
ey will be issued in bearer form only, and in denominations of
0,000, $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 Sa~ing
me,
Monday, July 20, 1970.
Tenders will not be
ceived at the Treasury Department, Washington. Each tender must
for an even mUltiple of $10,000, and in the case of competitive
nders the price offered must be expressed on the basis of 100,
th not more than three decimals, e. g., 99.925. Fractions may
t be used. It is urged that tenders be made on the printed
t'ms and forwarded in the special envelopes which will be supplied
Federal Reserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
Itomers provided the names of the customers are set forth in· such
ld~rs. Others than banking institutions will not be permitted to
~lt tenders except for their own account.
Tenders will be received
:hout depo,sit from incorporated banks and trust companies and from
- 2 responsible and recognized dealers in investment securities. Tendefl
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 bini
or trust c.ompany.
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 expcess1y 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 July 23, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
July 23, 1970.
Cash and exchange
tenders will receive equal treatment. Cash adjustments will be made
for differ€.dces between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of· the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
thp principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank ornBranch.
FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
FOR ENFORCEMENT AND OPERATIONS
BEFORE
SUBCOMMITTEE NO. 5
HOUSE COMMITTEE ON THE JUDICIARY
JULY 16, 1970
10:00 A.M.
Mr. Chairman and members of Subcommittee No. 5
of the Committee on the Judiciary:
It is a pleasure to
appe~r
before you today on
behalf of the Department of the Treasury on the
occasion of your hearings on H.R. 16699 and HoR. 17154,
and to present to you the results of the recent Treasury
survey of the incidents of terrorist acts of violence
by. bombing in the United States.
H.R. 16699 would amend section 837 of title 18, United
States Code, to strengthen the laws concerning illegal use,
transportation, or possession of explosives and the
penalties with respect thereto.
This bill is sponsored
by the Administration, and the Treasury urges its enactment.
- 2 Incidentally, both Treasury and, we understand,
the Justice Department, have received inquiries as to
whether it would be approprIate to amend H.R. 16699 to
provide for the lawful sporting use of small arms
ammunition and components, and black powder by sportsmen
who load their own ammunition, and who use black powder as
a small arms propellant.
Such an amendment is supported
by the Treasury, and, as indicated in Assistant Attorney
General Wilson's statement yesterday, the Department of
Justice would not object.
Your bill, Mr. Chairman, H.R. 17154, is principally
regulatory in nature and deals with a subject which has been
the subject of intensive study by this Administration since
the submission of H.R. 16699 on March 25, 1970.
A White House
task force addressing itself to this problem has consisted of
representatives of the Department of the Interior, the Department of Justice, the Department of the Treasury, the Department
of Transportation, the Department of Agriculture, the Department
of Commerce, and the Office of Management and Budget.
This task force has had the benefit of consultations with
the explosives industry.
It is the purpose of this task force
- 4 was made by compiling submissions which were solicited
from state and local law enforcement agencies on a
regional basis.
As we were not able to contact every
law enforcement agency in the country, and some contacted
have not yet responded, the figures are, to some extent,
incomplete.
As I mentioned, the time period of the survey was
from January 1, 1969 through April 15, 1970.
In the
Southern District of California and the State of Colorado,
however, we were unable to obtain such a breakdown.and,
as a result, those figures include the year 1968 as well
as 1969 and the first three months of 1970.
Another caveat to be borne in mind is in the area
of attribution.
The attribution figures submitted to
us contained no breakdown as to what proportion of the
figures applied to actual bombings as distinguished from
attempted bombings or bombing threats.
In spite of the foregoing cautions, Mr. Chairman, we
do believe that the figures will be of assistance to the
Committee and the attribution figures clearly establish
- 5 -
certain trends of significance.
And we believe, Mr. Chairman, in reviewing the
results of Treasury's survey that the figures do graphically
reveal that terrorist acts of violence and anarchy by
bombing have reached menacing proportions in our country.
From January 1969 to April of this year -- a scant 15
month period -- this country suffered a total of 4,330
bombings, an additional 1,475 attempted bombings, and a
reported 35,129 threatened bombings.
Of the 4,330 actual bombings, 3,355 were incendiary
in nature, and 975 were explosive.
From these figures,
Mr. Chairman, it is clear that the incendiary bomb, the
molotov cocktail and the like have been chosen three to one
over explosives by the terrorists.
In our judgment, however, Mr. Chairman, the incendiary
bomb cannot be compared on an equal basis with the high
explosive bomb.
When an incendiary, such as a molotov
cocktail, explodes, there is usually ample time to evacuate
the premises, and often sufficient time for the fire
department to extinguish the blaze and limit the damage
done.
When a high explosive bomb is detonated, it is all
- 6 -
over within seconds.
Little can be done by the
authorities to reduce casualties other than to knock
down remaining walls which threaten to topple onto
passersby in the streets.
We can all agree that the
explosive bomb presents a greater hazard to the public,
and is capable of inducing greater terror among our
people than the ordinary incendiary bomb.
Further bringing home the seriousness of the situation,
Mr. Chairman, is the fact that the Treasury survey reveals
that in the reporting period bombings in America were
responsible for the deaths of 40 people and $21.8 million
of property damage.
Mr. Chairman, the chart gives individual totals for
every state in the union, with the exception of Hawaii,
Which was not included in the survey.
I will not take
the Committee's time now to repeat each statistic, but
the chart is included as an appendix to this statement,
and the figures would be available to all Members who may,
understandably, be particularly interested in the result
of the survey as it pertains to their home states.
- 7 -
I would like to turn now to the attribution
figures we
hav~
collected.
First, I should point out
that these figures represent the best estimate of police
sources from around the country and can best be
expressed on a percentage basis.
The total number of incidents of bombings, attempts,
and threats reported was 40,934.
Attribution can be
estimated in only 36% of this total.
Stated another way,
64% of the total are of unknown attribution.
Of the 36% in which there is an estimate of attribution,
56% are attributed
LO
campus disturbances and student unrest.
Nineteen percent are attributed to black extremists, and
14% are attributed to white extremists.
Eight percent are
attributed to activities in aid of criminal pursuits, such
as extortion, robbery and insurance fraud.
Only 2% are
attri.buted to labor disputes and 1% to religious difficulties.
Mr. Chairman, we believe that the Treasury survey
does make certain things quite clear.
While the weapon
of choice of the bombers is overwhelmingly the incendiary,
a Significant amount of explosive materials is used.
I
think it fair to say, Mr. Chairman, that anyone who can
synthesize LSD, for example, would have no difficulty at
~
( I!
~
'--fI
- 8 -
all in formulating explosive materials or constructing
an explosive device.
We in the Treasury are aware of the great concern
about this situation among the members of this Subcommittee
and this Administration shares your concern.
It was this
concern which led to the formation of the White House task
force on explosives to which I referred previously.
There are already a great many state laws with respect
to explosives and flammable materials.
Most of them relate
to questions of safety in storage and handling.
The
Department of Transportation by statute controls the
interstate transportation of explosive materials, and the
Department of the Treasury is responsible for the administration of the Gun Control Act of 1968, which, among
other things, regulates such "destructive devices" as any
explosive, incendiary, or poison gas bomb, or grenade;
rockets having a propellant charge of more than four
ounces; missiles having an explosive or incendiary charge
of more than one-quarter of an ounce; mines; or devices
similar to any of the foregoing.
The Treasury also administers certain provisions of
the Mutual Security Act of 1954 which deal, among other
things, with military explosives, and the Department of
/,
- 9 -
the Interior through its Bureau of Mines also has
certain statutory authority with respect to explosives,
such as regulating the use of explosives in the mining
industry.
As I understand that Assistant Attorney General Wilson,
in his appearance before this Committee, discussed the
existing body of law on explosives, I shall not go into
the matter further at this time.
Explosives play a vital role in the construction,
mining and agricultural industries in the United States.
In addition, as smokeless propellants are employed in small
arms ammunition and black powder is employed in small
arms designed for its use, there is extensive use of these
two items by our citizens for lawful sporting purposes.
Small arms ammunition is also covered by the Gun Control
Act of 1968.
There would seem to be, Mr. Chairman, a need to
upgrade the security with which the most dangerous explosives,
such as the dynamites, are stored, in order to retard theft.
It would also be helpful for enforcement agencies to have
access to records of the sale, at.1east, of commercial
- 10 -
high explosives.
However, we are aware from our work
with the Administration task force that there a.re m:my
technical problems which must be taken into consideration
in deciding what additional legislation is necessary.
Mr. Chairman, we hope that the surv.ey we have provided
today will prove to be a helpful addition to the body of
knowledge under study by the Administration and by this
Committee.
- 0 -
'!JS /
11
IxploetWl
Int"endtarv
.,...,t",.
.
'/1/69 • 1./'5110
~
Total
8olllbtng.
80"*'1.:1111
1
AI"ke
Callt..nt. (la•• So. oIudldal DI..trlct)
.0
)5
C
IIoIIta..
8
oro...
~
2
18
7
8
Utah
orand .,....1
'70
•
235 9%.
16
2
.
.
78 S
0
000
1
1000
550
Doat/uo
0
0
'5)
0
0
)0
25ld
24)2
0
0
0
7
17
)8
82
I
1
25
0
0
144
2
0
J
5
16
J
9!5
924
76
.
4
0
11
hraOMl
In.!W7
11
C
90
...hl......
.... Jodl.lal DI..trl.t or C.ut.nl1.
46
rroplM.1 Do...
In M Doll ....
•
5
I~'
" • ..:1_
~
•
)
K ArlIOftli
...
"",.,1,,,
At ..........d
80..,1l1li'
n
45
660
1
79
.
442
•
)71 2959
ll1LJ.
1
m8
•
•
5
J
I
5
0
0
~
1
-'1
!
Sout. . st. le,tOll
0
~Icana"
• ~olor~o
66
167
91
.,
1WIa..
12
!.oulal...
42
5
~. "n1t'o
OIclah...
....
~
.16!;
,
-
,
...
0 _____
.JiQ
'*n'
4
orand T....1
91
113 167
'51 2610
n
66
62
l&
1ar
0
0
.-.2..
2ji
1
29)
4n
c
0
6'
10
.67
1)67
0
0
9
24
212
5)8
)6$
60
0
0
0
7)9
,
10
~.
6
27
)
-~
.. .lil
861
4
1
'6
2855
270
27
1.J~
Jol6
1
,
7ar
2809
)
$
0
0
2
4
0
5
Sootheu, Roll"
l .....
-
r·
fioor,a
nda
--- _.. _---- ---'- ___ . __ 2 .-
8)
~@
1
194
1
224
10
5
1
1)0
25
15
0
0
9
17
93
--
)0
~.. t .. tPPl
~r\ll Carolina
ih"h Carol1U .. -
11-._
9
1)
--- -- --.- ---
2
-. - ..
Orand 'total
0
549
987
)8
0
0
22'
2
2
4
1)
2)$
20
1
1
159
28
0
~
72
'lfIl
2155
2
1
23
0
0
1
26
11
'552
0
0
loll
_510
109
4lJ.
))28
-
]014
)
Ill....' 1Io1i_
-....
21
.~
~~
lOS
180
~
174
121
75
)
0
)
0
lOS
)8
10)
141
8
16
41
0
59
0
640
211
UbtU
~-
ta,·.,.!
~"ka
14
lS00
T
7S
)75
0
0
••2
0
0
I'-ihlllkeia
I
2
0
10
,
iIue...l.n
12
0
14
260
0
1
0
0
0
'610
887
10$.
m
2332
"I:
13
0
~1ana
'0
76
86
11
625
610)
0
...t.u.1I:I'
51
25
8
'0
)91
4
0
0
1*~l&i'_
27
26
2
)56
)6
9S
2492
9t.8
)S5
'65
7
.05
')
62
'161
.0
116)
)5
2
•0
.-'"
572
6911
.8.3
Sl90
)144
172
8
2
1
_'6
2
20
240
1S5
4)
•
0
2
0
2
55
20
BO)
890
Z
0
8'
.2
'''9
440
)'92
1106
'S
$
0
2622
1oSa6
II
.1..
0
0
Orlllld .,....1
6
0
0
0
59
0
0
,,","ih 1IIk...
lI$
0
0
0
0
0
Central ...I ..
"~1'
..... Wi,
Or_ 'otal
•
I
•
Itld.....Uuttic .,1_
'1101_
•
...,land
•
4
.... Jar..,
16
refta."lnnt.
41
I ....... IDI...... eI Oal_u)
Orand To"'l
)
6
9(1
26
!IE
68
~
.JoJl
'li
$(
)0
1267
'S'S
ZJ
1
5S
'2
86
0
60
'36
'6
0
2'lf1'
262
1
6
1
.6.
2000
.011
668
)11
)$
0
.61
.6
0
94.2
'0
291
'09
•
0
Q
0
.56'
2 <Xl
'51
.h158
0
J8J
41SS
16S
'0
226
II
-'
Worth Atlantic IIollon
onneet.1eut.
I.
~
,.
5
~ ..etna .. t.t.a
"'"
~.hlro
~
~tork
G
'1
'2'
L
~. Ialand
hr-.
0
l.Ill
Orand TaUl
I
Jlettonal Total
'7)
'09'
975
_01
• rscuu
~d lit' poU.. ottlclW III
tM _
- . . . ,. "'" ao.ua....
ohdlolal
~t.r1.,
of CoUt..lII.a _
~ . . for"," 1M"
II1II , _ " " of '970.
..... _
Ia "'" _
.lI68,
..1)55
'2610
-
.,69
'41S J445
.,..t: I-- .t_
baablDe· .... 1 _blllp 111
tow ...
'" poll .. _
ID _
_ IJ
not
1deat.11)
~_tbe
total
200.
1'oMl ,... "" ........
or "" Motional
27
... iDo111llod ~ t.Il. total
lit' ,.... _ ......t IDcl..ted
Iepea. "._n 1IoP"
.......
4330
I
.bl.a!
3$'29
1))
c.bclaia
i.-did
ap a1ft 01'
D.t.... _
...nlt
tn_....
aat.ual.l;J
708
218)8
7
)810
•
0
•
8
0
,
.0
- 12 -
PERPETRATORS AND RESPONSIBILITY FOR BOMBINGS
Attributton of Those Responsible for Bombings
Bombings (Explosive, Incendiary) •••.••.••••••
Attempts to Bomb •••••••••••••.••••.•••. ~ •••••
4,330
1,475
Threa t s· to Bomb •••.••••••••.•..•••..••...•... 35,129
Total Bombings, Attempts or Threats •.•••••• 40,934
64% unknown to law officers
36% where police indicate the perpetrators fall into the
following categories:
56% are attributed to Campus disturbances
19% are attributed to black extremists
14% are attributed to white extremists
2% are a.ttributed to "Labor disputes
1% are attributed to attacks on Religious
Institutions
8% are in aid of criminal activities
(Extortion, Robbery, and Arson for
Insurance) •
EXHIBIT 2
Statement of The Honorable David M. Kennedy
Secretary of the Treasury
Before the Subcommittee on Securities
of· the Banking and Currency Committee
July 16, 1970 10:00 AoM.
Mr. Chairman and members of the subcommittee, I
appreciate this opportunity to present the views of the
Administration on the proposed legislation to provide
protection and insurance against certain non-market losses
to customers of brokers and dealers in securities.
need for such protection is clear.
The
That need was recognized
more than a year ago when Senator Muskie introduced a bill
to establish a program of insurance for the protection of
securities industry customers.
And I am sure you are aware that President Nixon, in
his address to the Nation on Economic Policy and Productivity
last month, specifically endorsed the concept of insurance
protection for investors in securities.
He said:
"To further protect the small investor, I
support the establishment of an insurance corporation
with a Federal backstop to guarantee the investor
against losses that could be caused by financial
difficulties of brokerage houses.
While this would
not affect the equity risk that is always present
.. 2 -
in stock market investment, it will assure
the investor that the stability of the securities
industrr itself does not become cause for concern."
Your
c~ittee
has had the benefit of testimony from
Chairman Budge on the question of how best to provide protection to customers of
s~curities
brokers and dealers.
For obvious reasons, the Commission and its able staff
~ave
carried the
bur~en £o~
the Administration in refining
the ideas that have been presented over the past year or so
in this area.
During the past month, the SEC and the
Administration have been working intensively with representatives of the industry to develop a common position.
The
results of these efforts are incorporated in the version
of the bill which Chairman Budge has presented to you this
morning.
This Gommtttee is well aware of the complexities in
finding equitaple and meaningful answers to the difficult
problems raised by CQstomer insurance for the securities
industry.
I think, however, that the version of the bill
presented by Ohairman Budge today deals effectively with
these complexities.
for additional
Chairman Budge has outlined the need
prote~tion
for customers of securities brokers
- 3 and dealers, and there is little that I can add to the
points he has made.
My function this morning is first of all to confirm
to this committee the importance the Administration attaches
to the quick passage of this legislation.
In the Treasury,
we are particularly conscious of the difficulties that can
be created for financial markets
and for the economy that
depends on the functioning of those markets for its financial
needs -- by any loss of confidence on the part of investors
in the institutional arrangements in those markets.
We
believe that the present bill will help substantially to
preserve that confidence.
Secondly, I should like to assure this subcommittee
that the major policy decisions incorporated in this latest
version of the bill have been reviewed by the Administration
and have its endorsement.
Chairman Budge has indicated that
in view of the importance of this legislation and the time
element, the Commission had been working closely with other
interested agencies of the Government in developing its views.
As I have already indicated, that close cooperation has
continued in recent weeks, and the present draft bill is
truly a joint product, both within the Government and between
the Government and the securities industry.
- 4 On previous occasions, as well as this morning,
Chairman Budge has emphasized those features of any
investor protection bill on which he placed great stress.
In particular, the Commission has endorsed the principle
of a non-governmental corporation "only if the Commission
is directed and empowered to exercise adequate supervision
over the industry in order to minimize risks to customers'
funds and securities, and the costs of insuring against
such risks."
The Administration strongly supports the
Chairman's views on this matter, andwe believe .that the
version of the bill presented to you this morning provides
the necessary degree of supervisory power to the Commission.
I would like to focus my remaining remarks on the
adequacy of the financial provisions of the bill.
There
are three aspects of this analysis that deserve separate
attention
with a common thread of concern running
throughout.
First, we must concern ourselves with the
immediate future after enactment of the legislation -the "start up" period.
Second, we must consider the
operations of the Corporation as a "going concern".
Third, we must consider the operations of the Corporation
during periods of great financial stress.
Our common
thread of concern relates to whether the Corporation can
do the job for which it is designed.
- 5 The bill provides that the industry will make available
to the Corporation within 120 days of enactment a fund of
$75 million.
This fund will consist of cash
provid~d
through
assessments and transfers, and of confirmed lines of credit.
We believe that these "start up" provisions are realistic.
However, in all candor I must point out that the Corporation
is most vulnerable during this early period.
That is why
the Administration wants it clearly understood that in the
event that the financial resources of the Corporation were
insufficient to meet its insurance obligations, it would
have available to it, a $1 billion line of credit with
the U.S. Treasury.
Given this backstop, there can be no
doubt as to the adequacy of the resources of the Corporation.
For the longer run, the fund within five years is to
aggregate $150 million.
To build up this fund, the Corporation
iS,empowered to levy assessments on members, subject to
Commission approval.
However, to protect firms from open-
ended assessments, the bill places an outside limit on annual
assessments for any member of 1/2 percent of the member's
gross revenues.
The Corporation would be authorized to impose,
and the Commission could require, this maximum assessment
Whenever the Corporation had borrowings outstanding from
banks or the Treasury.
This maximum assessment would produce
- 6 approximately $25 million in payments to the Corporation
based on 1969 revenues.
In the absence of any borrowings
by the Corporation, this bill provides that the Corporation
would assess its members at an average rate of 1/4 percent
of their gross revenues.
In either case, assessments could
be based on factors other than gross revenues, with a view
to bringing relative charges into line with risk exposure.
These rates of assessment should permit an adequate buildup
of the fund as required in the bill.
And in this longer-run
setting there is every reason to expect that the Corporation
can provide adequate insurance within its own resources.
But what about the viability of the Corporation during
periods of great financial stress.
After all, for insurance
of this type to be fully effective it must be adequate to
meet even extreme situations -- no matter how remote the
possibility of their occurrence.
It is for this reason
that the Corporation would continue to have available to it
i
$1 billion line of credit with the U.S. Treasury.
We
)elieve this borrowing authority is fully adequate to assure
:hat claims could be met even during a period of substantial
:~ancial disturbance.
- 7 But while this backstop line of credit at the Treasury
provides needed assurance to investors that their claims
can be met, it is important to recognize that in the event
of heavy use of Treasury borrowing by the Corporation, the
assessments could well fall short of providing the funds
necessary for interest and amortization.
To take an extreme
example, if $500 million of the Treasury line had to be
drawn upon, the $25 million maximum assessment, based on
1969 revenues, would fall substantially short of the $35
million needed simply to service the loan at 7 percent
interest.
And this calculation makes no allowance for the
need to repay bank credits which would have been called on
prior to the use of Government funds.
While it is reasonable
to expect industry revenues to continue to grow in the future,
thus providing greater assessment potential, a different
base than gross revenues could reduce this potential.
Given these facts, while we feel that the 1/2 percent
limit on assessments provides reasonable assurance that the
fund will be self-sustaining, we feel strongly that some
additional source of revenue must be provided to service
(I
",-') >/
L'j)
- 8 -
any Government loan to the Corporation through the SEC.
For this reason, the bill provides authority to the
Commission to levy a charge on transactions in equities
payable directly by customers whenever the Corporation
is indebted to the Government and assessments do not
appear adequate to assure prompt repayment.
The maximum
discretionary charge of 20 cents per $1,000 would yield
some $38 million annually based on transactions on stock
exchanges in 1969, and somewhat more than that amount in
view of its application to certain non-exchange transactions
as well.
I understand that some question has been raised as to
whether it is equitable to levy a charge on all purchasers
of securities to satisfy the claims for losses of certain
customers.
I must say it strikes me as far less equitable
to place the burden for this insurance on the general public
the taxpayer -- which would be the result if adequate provision
for repayment of Treasury loans is not
this charge.
provid~d
by means of
In any case, I would emphasize, in closing,
that we would expect assessments on industry firms to provide
adequate revenues except in cases where large claims had to
be satisfied.
~~f
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
July 16, 1970
JOEL SEGALL NAMED TO NEW TAX POST AT TREASURY
Treasury Secretary David M. Kennedy today announced
the appointmentci Joel Segall to the newly created position
of Deputy Assistant Secretary for Tax Analysis.
Mr. Segall, 47 years old, will act as the principal
economic adviser to Edwin S. Cohen, Assistant Secretary for
Tax Policy. The appointee will also act as Director of the
Office of Tax Analysis, which evaluates the short-term and
long-term implications of tax changes.
Mr. Segall, who was Professor of Finance at the
University of Chicago, has been a member of the faculty
there since 1951. He also taught finance and economics
at Allegheny College, Meadville, Pennsylvania.
In addition to teaching, the appointee has written
extensively on economics and finance in professional
journals. His articles have appeared in the Journal of
Business, Journal of Accounting Research, Journal of Finance
and Journal of Political Economy. He was editor,
Journal of Finance, from 1957-1960.
Mr. Segall, holds a Master of Business Administration,
a Master of Arts in Economics and a ph.D. in finance from
the University of Chicago.
The appointee is married to the former Joan Downey of
Chicago. They have two daughters and will make their home
in Chevy Chase, Maryland.
000
K- 451
FOR IMMEDIATE RELEASE
July 16, 1970
NEW U.S.-BELGIUM INCOME TAX CONVENTION SIGNED
The Treasury Department has announced that a new income
tax convention between Belgium and the United States was
signed on July 9 in Brussels. The new convention will
replace in its entirety the existing income tax convention
of 1948, as modified by supplementary conventions of 1952
and 1957 and a supplementary protocol of 1965. The 1965
protocol was designed to modify certain provisions of the
earlier convention in response to the new Belgian income
tax law of November 1962. It provided that it would expire
at the close of 1970 in recognition of the need-for a
comprehensive revision of the convention at the earliest
possible time.
The new convention takes account of changes in the income
tax laws of both countries. It also reflects the desire of
both countries to develop their international tax relations
in light of the model draft convention developed by the
Organization for Economic Cooperation and Development (OECD)
Fiscal Committee published in 1963.
In general, the changes in the new convention result
from the reconsideration of tax treaty concepts since 1948.
They are similar to the provisions of other recent U.S.
conventions such as those with France, the United Kingdom,
Germany, and the Netherlands. For example, the concept of
a permanent establishment has been modernized and the
"force-of-attraction" principle has been abandoned. Formerly,
if a resident of either state maintained a permanent
establishment in the other state all his income from that
other state was taxed together with the profits of the
permanent establishment. Now, income which is not attributable
to the permanent establishment is taxed separately, and thus
may enj oy the benefit of treaty rate reductions.
K-452
(OVER)
- 2 The new convention also extends to income from activlt18
on the continental shelf of both countries.
The investment income provisions retain a maximum tax
limit at source of 15 percent on dividends and the"exemptlon
from tax at sour~e of royalty payments. The general limit
of a 15 percent tax at source on interest is also maintained,
but exemption is provided for four types of transactions:
a) interest paid to governments and their instrumentalities,
b) interest arising from commercial credit, c) inter-bank
interest, and d) interest on bank deposits.
Under the convention Belgium extends its split rate
corporate tax to the profits of Belgian branches of U.S.
corporations instead of taxing them entirely at the higher
rate.
The administrative provisions of the convention include
a mutual agreement procedure under which the authorities of
both countries will seek to reach agreement on various tax
problems. These include the uniform allocation of 'income
between related companies as well as a uniform determination
of the source of particular types of income. These
provisions authorize both countries to make appropriate
refunds when necessary.
The United States grants a foreign tax credit for
Belgian taxes paid by U.s. residents and citizens on income
derived from Belgium. Belgium will give a foreign tax
credit for certain items of income of U.s. source deroived
by residents of Belgium and will allow a deduction for
U.s. taxes and a reduced rate of tax with respect to other
U.s. source income.
The convention will enter into force one month after
the exchange of instruments of ratification. The provisions
will take effect with respect to income of calendar or
taxable years beginning on or after January 1, 1971 (or in the
case of taxes payable at the source, payments made after
that date).
000
~
IMMEDIATE RELEASE
July 16, 1970
TREASURY MONTHLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
,700,000,000, or thereabouts, for cash and in exchange for
!asury bills maturing July 21, 1970,
in the amount of
,702,317,000,
as follows:
~
27~day
bills (to maturity date) to be issued July 31, 197P,
the amount of $500,000,000,
or thereabouts, representing
additional amount of bills dated April 30, 1970,
and to
:ure
April 30, 1971,
originally issued in the amount of
,199,980,000,
the additional and original bills to be
ee1y interchangeable.
365-day bills, for $1,200,000,000,
ted July 31, 1970,
and to mature
or thereabouts, to be
July 31, 1971.
The bills of both series will be issued on a discount basis
jer competitive and noncompetive bidding as hereinafter provided,
j at maturity their face amount will be payable without i.nterest.
ey will be issued in bearer form only, and in denominations of
),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
ne,
Thursday, July 23, 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
lders the price offered must be expressed on the basis of 100,
:h not more than three decimals, e. g., 99.925. Fractions may
: be used. (Notwithstanding the fact that the one-year bills will run
~ 365 days, the discount rate will be computed on a bank discount basis
~60 days, as is currently the practice on all issues of Treasury billsJ
l~ urged that tenders be made on the printed forms and forwarded in the
!clal envelopes which will be supplied by Federal Reserve Banks and
inches on application therefor.
Banking institutions generally may submit tenders for account of
·qJUH~gv~O ~UHH aAJasa~ IH~apad Aue wO~J
paulu~qo aq auw ~HlnJ~lJ aq4 JO saldo J
·anssl ~laq~ JO suol~lpuOJ
- 2 ..
submit tenders except for their own account. Tenders will be rec~u
without deposit from incorporated banks and trust companies and fr~
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 opened at
the Federal Reserve B~nks and Branches, following which public anno~c
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 July 31, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
July 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 riot 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
·~~Gcl
The Department of the
WASHINGTON, D.C. 20220
tfTION:
TREASURY
TELEPHONE W04·2041
FJNANCIAL EDITOR
RELEASE 6 :30 P.M.,
sday, July 16, 1970.
RESULTS OF TREASURY'S OFFER OF $2-1/4 BILLION OF APRIL TAX BILLS
~e Treasury Department announced that the tenders for $2,250,000,000, or therets, of 273-day Treasury Tax Anticipation bills to be dated July 23, 1970, and to
re April 22, 1971, which were offered on July 10, 1970, were opened at the Federal
rve Banks today.
~e
deta.ils of this issue are as follows:
Total applied for - $4,744,650,000
Total a.ccepted
- $2,250,890,000
Range of accepted competi ti ve bids:
High
Low
Average
95.109
95.048
95.068
(includes $222,030,000 entered on
a noncompetitive basis and accepted in
full at the average price shown below)
(Excepting 1 tender of $3,000,000)
Equivalent rate of discount approx. 6.450% per annum
"
"
"
"
"
"
"
"
6.530%
6.504%
"
"
"
"
"
"y'
(32 % of the amount bid for at the low price was accepted)
Federal Reserve
District
-Boston
New ,York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTAL
his rate is on a bank discount basis.
Total
Applied for
Total
Accepted
$
$
214,380,000
2,101,790,000
175,880,000
148,740,000
53,900,000
114,450,000
653,620,000
109,250,000
334,750,000
79,330,000
168,130,000
590,430,000
$ 4,744,650,000
110,800,000
827,010,000
75,080,000
79,540,000
17,100,000
59,500,000
429,320,000
58,270,000
213,850,000
71,320,000
36,950,000
272 ,150,000
$2,250,8901,000
The equivalent coupon issue yield is 6.86%
;'
/'
!~!~:~~~::ofther~~~~!f ~ ~I~
FOR ..RELEASE
UPON DELIVERY
.-.
:..~,
".
STATEMENT OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
THE COMMITTEE ON WAYS AND MEANS
ON H.R. 17463
MONDAY, JULY 20, 1970, 2:00 P.M., EDT
Mr. Chairman and Members of the Committee:
On behalf of the Treasury Department, I wish
to thank you for the opportunity to appear here today
to comment upon H.R. 17463 and further to discuss
other matters of concern to this Connnittee.
No genuine dispute exists concerning the
dange,rous dimensions of drug abuse in the United
States. I am sure every member of this Committee is
fully informed on how the overall traffic in drugs
has grown in recent years. From the viewpoint of
Treasury's Bureau of Customs, which has responsibility
for preventing illegal importations of drugs, this
rapid escalation is confirmed by smuggling statistics.
IuFiscal Year 1969, Customs seized 141 kilograms of
heroin at United States borders and ports of entry -this represents a growth of 300 percent over Fiscal
Year 1967, 25 percent over Fiscal Year 1968. Cocaine
sei.zures rose from 18 ki lograms in Fiscal Year 1967
to 44 in Fiscal Year 1968 to 90 in Fiscal Year 1969 -and in the one month of June this year we seized nearly
12 kilograms of cocaine. Marijuana seizure.:: are now
more conveniently measured in tons -- 9 tons in June
1970 alone, plus 92 kilograms of hashish, which represents the concentration of 600 times that much marijuana.
K-454
- 2 No one is more aware of the magnitude of the
drug problem than the President. Shortly after taking
office, he sent a message to Congress on the Control
of Narcotics and Dangerous Drugs. In it the President
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 protect 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 request for
a substantial supplemental budget to counter narcotics
smuggling. The Congress cooperated fully by passing
in late December of 1969 an appropriation of 8.75 million
dollars which provided for 915 additional men and for
improved equipment. This action demonstrated bipartisan
concern and determination to combat drug abuse.
The House Appropriations Committee Report, in
part, stated:
"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:
'Almost all of the marijuana, all of the
hashish, all of the cocaine, and all of
the smoking opium used in the United States
is smuggled into this country.'
"The Committee strongly supports the Department's
objective of reducing to a minimum the smuggling
- 3 -
of this contraband into the United States. The
Connnittee specifically allows the 915 additional
positions requested and urges the Department to
move ahead on this project as rapidly as practicable."
Treasury has now fully implemented the supplemental
appropriation and Customs has either on the operating
line or in training all the authorized additional personnel.
On June 1, as soon as the major portion of these resources
became operational, we initiated an intensified enforcement program which has been cracking down on every
avenue and mode of drug smuggling -- by ship, by plane,
by truck and by car; in cargo, in mail packages, in
baggage, and on the person of travelers. The transportation and other affected industries and labor unions
are cooperating fully.
In our first month of operation under the
intensified enforcement program, we made such seizures
as 2 kilograms of cocaine at Baltimore on a vessel
arriving from South America; 60 kilograms of hashish
contained in air cargo at John F. Kennedy International
Airport at New York; 23 kilograms of marijuana in air
cargo at Buffalo; 25 kilograms of hashish taped to the
bodies of a group of three airline passengers arriving
at New York; one kilogram of cocaine at Miami concealed
in the false bottom of an attache case of an air passenger
from South America; 25 kilograms of hashish concealed
in an air cargo shipment of magazines at Miami; a
ton and a quarter of marijuana concealed in the paneling
of a truck trailer at Tecate; and 94,000 tablets of
dangerous drugs concealed inside a spare tire and the
fender walls of an automobile crossing the border at
San Ysidro.
I think it is an interesting sidelight that one
of our new recruits, on his first day of actual duty
following graduation from Customs' training course, and
on the second day of the intensified enforcement program,
arrested in Buffalo, New York, a courier carrying
- 4 6 pounds of cocaine. This courier had traveled from
Chile to Canada in order to enter the United States
through the preclearance operation at Toronto. The
team of which this recruit was a part was making
selective personal searches on these precleared
passengers who could not be so examined while on
foreign territory. He was a proud young man and we
are proud of him and the selection and training
programs which put him into this battle against drug
abuse.
Tremendous physical problems are encountered
by Customs in intercepting contraband. More than
225 million travelers clear Customs entry procedures
annually, and any individual might be concealing drugs
on his person. Agents of the Bureau of Customs must
also intercept illegal boat or aircraft entries along
20,000 miles of the United States border and coastline
and at about 290 international ports of entry. Drug
smuggling operations vary from individuals carrying
a small supply for themselves and friends to organized
crime syndicates with activities spanning oceans and
continents. Cargo has become a primary means or
vehicle for smuggling, and separate cargo entries into
the United States exceed two and one-half million annually.
H. R. 17463
The bill under consideration represents a
comprehensive system of controls over narcotics,
marijuana and dangerous drugs. It would repeal the
Title 26 taxes on narcotics and marijuana on the
ground that the Federal role in the control of dangerous substances can be satisfactorily· founded on powers
other than the taxing power. The Treasury Department
supports this view and advocate~ the passage of this
legislation. Certain technical changes which we wish
to recommend will be conveyed to you by a supplemental
report on the bill.
.~
i
- 5 -
The administrative responsibilities of the
Internal Revenue Service with respect to the narcotics
tax (26 U.S.C. 4701 et seq.) have not been particularly
burdensome. The aggregate revenue from taxes and
one-dollar registration fees is largely offset by the
costs of processing the registrations required for
conducting legitimate transactions in narcotics. The
bulk of narcotic tax receipts resul~from voluntary
compliance with the laws by individuals engaged in
legitimate narcotics activities and most are collected
without IRS enforcement action. Elimination of the
tax would neither impair the effectiveness of the
regulatory aspects nor significantly reduce net tax
receipts nationally.
Collection of the transfer tax on mar~Juana
(26 U.s.c. 4741 et seq.) has been troublesome and the
income so derived, when offset by the costs of
administration, has been even less significant than
that derived from narcotics taxes. Because of recent
increased activity in the illegitimate use of marijuana,
IRS has been obliged to mak€ assessments in numbers
and amounts where chances of collection are practically
nil. For example, in one IRS region during calendar
year 1968, there were 1,837 large marijuana transfer
tax assessments made amounting to $62,921,170 and at
the close of that year only $340,287 had been collected.
Dur~ng the year, $47,253,431 or 75 percent of the amount
assessed was reported as uncollectible, and it is
expected that a major portion of the balance will be
declared uncollectible.
In the course of the subcommittee hearings on
the supplemental appropriation to intensify the Bureau
of Customs' anti-narcotics smuggling campaign, concern
was expressed by some of the Members that certain
repealers of existing legislation contained in S. 3246,
the so-called "Dodd" bill, would have the effect of
stripping Customs of its investigative jurisdiction
in enforcing the laws against the unlawful importation
- 6 of controlled dangerous substances. Similar repealer
provisions are found in Section 103 of this bill.
During the months when the Administration's bill
was being drafted, the Treasury Department was consulted
and offered its views to the Bureau of the Budget and
the Department of Justice regarding the proposal. We
did not object to the proposed repeals, because the
Department of Justice draft proposal was not regarded
as changing the role or modifying the authority of the
Treasury Department with respect to its responsibilities
regarding the importation of narcotics and dangerous
drugs.
Neither that bill nor the present bill changes
the Treasury Department's existing enforcement and
investigative responsibilities -- as exercised through
the Bureau of Customs -- to deal with offenses under
Customs and related laws, whether or not some or all
of the merchandise involved may consist of narcotics
and dangerous drugs. Section 70l(b) of the bill
expressly so provides, stating: "Nothing in this Act
shall derogate from the authority of the Secretary of
the Treasury under the Customs and related laws."
The basic "smuggling" statute is 18 U.S.C. 545.
It was once part of the Tariff Act of 1930 and was
transferred to the Criminal Code when that Code was
revised and enacted into positive law in 1948 as
Title 18, United States Code. That section, along with
a number of others, is incorporated in Chapter 27 of
Title 18 under the chapter heading "Customs." Thus,
Section 545 is a "Customs law."
The words "and related" pertain to and embrace
over 40 separate statutes that Customs enforces or
assists to enforce. Any law that controls or relates
to the importation of anything into the United States
is either a Customs law or a law related to Customs and
is covered by the language "Customs and related laws."
- 7 -
The proposed amendment of Title 26 U.S.C.,
Section 7607, contained in Section 104(r) of the
present bill 'expressly preserves the existing
authority of officers of the Customs to make arrests
without warrant for violation of any law of the United
States relating to narcotic drugs and marijuana as
defined in the bill.
Section 701(a)(5) of the bill authorizes the
Attorney General to designate any officer or employee
of the Bureau of Narcotics and Dangerous Drugs to
"perform such other law enforcement duties as the
Attorney General may designate." This provision
permits the Attorney General to respond to requests
from other agencies which may require the assistance
of enforcement personnel. For example, if the Post
Office Department or the Treasury Department requested
law enforcement assistance from the Attorney General,
Section 701(a)(5) would authorize him to designate
BNDD agents to respond.
Thus, Mr. Chairman, as mentioned, we support
and advocate the passage of this legislation. The
technical changes which we wish to recommend will be
conveyed to you by a supplemental report on the bill.
We can point to many accomplishments in suppressing drug abuse since the President's mandate. Many
new programs and facilities have been set up to fight
the illegal drug traffic -- and these should eventually
make drugs harder to obtain all across the nation.
The great majority of the American people fully
support this program. Enforcement officials cannot
do the job alone. We need the cooperation of the
Congress and the public on many fronts. With such
cooperation and support we are confident we can succeed
- s in our mission. He have no common objective ::lore
important than this.
Thank you, Nr. Chainnan. I \,'ould be pleased to
ans\Ver any ques tions the Commi ttee might have.
~~Cq
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR RELEASE UPON DELIVERY
STATEMENT OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE THE
JOINT ECONOMIC COMMITTEE
JULY 21, 1970
10: 00 A. M. , . EDT
Mr. Chairman and Members of the Committee:
It is an honor to appear again before this distinguished
committee. These hearings provide a timely opportunity to
appraise the recent performance of the economy and to examine
the prospects for the future. Since you have already been
over this ground in some detail, my prepared statement is
relatively brief and concentrates on matters of basic economic
policy.
The .Domestic Economy
The economy is currently in the latter stages of
a successful transition from prolonged overheating to renewed
expansion in a less inflationary environment. An earlier and
crucial stage was the removal or excess demand. This was
accomplished, through coordinated application of appropriate
monetary and fiscal policies. .But so much inflationary momentum
was allowed to build up after 1965 that even now cost-price
pressures remain strong, even though excess demand pressures
have abated. However, there are now multiplying signs that the
~ost-price situation is in the process of showing significant
Improvement. Our patience is being rewarded. The orthodox
policies of this Administration are working. Inflationary
pr~ssures are receding, and they should continue to recede
whIle the economy expands,
.
It is not always fully appreciated that two difficult
have been proceeding simultaneously. The economy
IS recovering from a most severe inflation. At the same time,
~dJustments
1C--4SS
- 2 -
we are successfully making the transition from a wartime to
a peacetime economy. As President Nixon recently pointed out:
for the first time in 20 years, the Federal
Government is spending, in this fisc~l year,
more on human resource programs than on
national defense;
by the end of this fiscal, year, defense
expenditures are expected to be $7 billion
below the fiscal 1969 level;
over 400,000 mil{tary and'civilian employees
have been released in the past year from our
armed forces, and defense. cutbacks. have led
to a reduction-iIi the labor fotce bf defense
plants by 300,000.
The transition to ~.more·civiii~n~oriented economy is
surely welcome to all Americans. But it does calise some
temporary hardships and complicates the tasks .of economic
policy. The-remarkable thing, to'~y ~ind~ i~ the'r~lative ,
smoothness with ~hichthe economic adjust~ent has proceeded,
given all the difficulties involved.
Impat ience by some with the -cdurse of economic events is
inevitable when unemployment rise~ and relief from advancing
prices is slow in corning. Bdt the price .picture itself is now
in the early stages of showing significant improvement. As we,
would expect, the first signs are corning in the area of sensitlV,
raw material and wholesale prices.'. The spot market price index
of 22 basic commodities has declined about 4 percent since early
March. On a seasonally adjusted b.sis, the increase between
the first and second quarters in the more comprehensive who~esa]
price index was down ,to a 1. i percent average annual. rate, .
compared to 4.6 perc~nt betweert the fo~rth 'arid first quarters.
The consumer price index ros~ f6ur-tenths of one percent ~n M~~
compared to six-tenths of one percent -in April.
.
It took time for ourpolicfes of restraint to slow the
pace of total spending -- a conside~able per~od of time
because expectations of ,continuing inflation were so strong.
It is taking even more tim'e for the effect's of resfraint to
reach the cost-price area
bu't this' is now beg1nning to
happen. Experience tells us'thilt still more time will have
- 3 -
to pass before the rate of increase in consumer prices recedes
to more tolerable levels. These adjustments are occurring in
the expected sequence -- if not always exactly on the desired
schedule. The outlook for early reduction in the rate of
inflation is now much brighter.
It is well to recognize that some of the improvement
observed up to this point in the price picture stems not only
from softer demand, but that some is also the result, in part,
of special factors, such as the reduced rise in farm and food
products. Wholesale prices of many industrial commodi ties
have continued to rise at a fairly steady rate. This indicates
that. the "cost-push" problem is not yet altogether solved.
There are some encouraging signs. Labor costs per unit of
output in manufacturing have shown definite signs of flattening
out in recent months. But clear signs of better productivity
performance are coming into view. There is still some way to
go before a satisfactory balance will be established between
productivity, costs, and prices.
There is strong indication that the first quarter of this
year may have been the low point in producti vi ty performance.
More rapid productivity gains are likely during the remainder
of the year. Given some degree of restraint in wage demands,
this should lead to a substantial lessening of cost-push
pressures. The usual process can be assisted by the "inflation
alert" and Producti vi ty Commis s ion recently estab I ished by
President Nixon.
While the inflationary process unwinds , it is particularly
that fiscal and monetary policy continue to play a
stabilizing role. Some gradual lessening of restraint on
total demand was surely appropriate in the first half of this
year. With demand no longer excessive and unemployment in the
area of 5 percent, continuation of restraint throughout this
year at last year's intensity would have had too severe an
impact. The phased expiration of the income tax surcharge
and the resumption of growth in the monetary aggrega tes ha~
helped to insure against any cumulating downward movement In
the economy.
i~ortant
Continuation of the present directions of fiscal and
monetary policy throughout the remainder of the year would
seem to be the indicated course of action. By its nature,
the monetary side of the policy equation is more quickly and
flexibly adjusted to the short-term needs of the situatio.n,
- 4 -
although frequently with lagging effect. For the time being,
the responsibility of the executive and legislative branches
is to keep fiscal policy in a relatively neutral position.
Above all, fiscal policy should not veer off on a sharply
expansionary course with the consequent strains this would
place on the credit markets.
Some economists outside of government are now contending
that a line of analysis -- using the so-called "full employment
budget" concept -- would show that the degree of economic
restraint implicit in the Federal budget may become even
greater than they would care to see. I do not share their
confidence in the exactness of such calculations. I believe
that the Administration must continue to maintain a posture
of fiscal restraint.
The actual budget results for fiscal 1970 will be
available shortly. I do not have the data today, but it
appears that expenditures will be brought in very near to
target, if not a bit lower. Revenues will be down somewhat
from the estimates made in May. The movement from the small
surplus estimated in February to the small deficit now
anticipated is due to a revenue shortfall rather than a
rise in expenditures.
It will be extremely important to keep a close rein on
Federal expenditures in the present fiscal year and beyond.
There has been a tendency -- particularly evident after the
mid-1960's -- to spend first and try to find the tax revenues
later. This is one lag relationship that we can -- and must -do something about. Otherwise we face the recurring prospect
of large Federal deficits at high levels of economic activity.
Financing large Federal deficits under such conditions means
severe strains on the credit markets, high interest rates, and
restricted availability of credit to private borrowers.
Given the probability that economic activity will be
rising throughout this fiscal year, it will be extremely
important, from a financial markets standpoint, to avoid a
sizable budget deficit. This will require close restraint
on Federal expenditures and favorable action on proposals
already submitted to the Congress to raise needed revenues.
In the domestic financial area, it seems to me that we
have laid the basis for substantial improvement since the
beginning of the year. It is true that some difficulties,
latent earlier, have since come into sharper focus. As a
- 5 -
result, there has been some concern about the threat of a
so-called "liquidity crisis." While the markets have
continued to function effectively, orderly planning to
cope with even such a remote possibility is, of course,
the only sensible' course of action. To a large extent,
this falls within the purview of the Federal Reserve System.
But the Treasury has an obvious concern for the smooth
functioning of the financial system.
Most of the conventional statistical indicators show
sizable declines in private-sector liquidity. While some
of these follow trends of long standing and reflect basic
changes in financial management practice, there is little
question that liquidity has been strained, both in the
financial and the nonfinancial sectors of the economy.
Pressures on profits and cash flow obviously aggravate the
situation. In isolated cases, corporations can encounter
serious temporary financial problems despite favorable
long-term prospects. But recent actions by the monetary
authorities and the demonstrated resilience of financial
markets should have done much to allay any fears that
strains should unduly inhibit financing of sound companies.
A better balance has been emerging in the credit markets
during the course of the year. Treasury bill rates are down
about 1-1/2 percentage points from their earlier peaks. Key
long-term interest rates have also been coming down. New Aa
corporates and municipals are about 3/4 percentage point
below the peaks of mid-June. Mortgage rates are slower to
respond but may well have also passed their peaks.
The decline in short-term interest rates has helped
restore a more satisfactory pattern of savings flows to
thrift institutions. In conjunction with special Federal
efforts, this has supported a welcome rise in mortgage
lending commitments which is being reflected in higher
levels of housing starts.
Interest rates remain at high levels by historical
standards in view of the gradual unwinding of inflationary
pressures, but it seems to me that the highest peaks now lie
behind us. Nevertheless, the demands for capital to meet the
expanding needs of our economy will remain high. Hence, it
~ill be lncumbent upon the Federal Government to so conduct
Its own financial affairs as not to absorb unduly resources
needed in the private sector.
- 6 -
The International Economy
In the balance-of-payments field, the cooling-off of our
domestic economy is being reflected in improvement in our
current account position. Our trade balance for 1970 may show
a rise of close to $2 billion over last year. Nevertheless,
it is evident that we still face a strong challenge in this
area.
Our recent progress is largely due to the strong growth
of our exports, partly in response to the demands of temporarily
overheated economies abroad. If inflation abates in these
countries as expansion resumes in the U. S., our exports may not
grow at the rapid recent pace. Meanwhile, our imports have
continued to rise somewhat despite the limited GNP growth in
the last six months. Plainly the need to reinforce the
recent improvement in the trade balance clearly emphasizes
the need to keep domestic inflation under control and to
achieve rapid gains in productivity. We must not only match,
we must surpass other countries' performances with regard to
price stability to regain our competitive edge.
It is important that we direct more of our energies to
selling abroad. It is for this reason that we are urging the
Congress to approve a bill which would provide more equitable
and competitive tax treatment for export income. We are also
trying to assure that financing facilities for our exports are
not inferior to those of other countries. We realize these are
not the only steps needed for the strong export performance
vital for a healthy U. S. balance of payments, but constructive
actions along these lines can play an important role in favorably
disposing business management towards exporting.
In our efforts to achieve such a surplus, we must not
follow the self-defeating course of widespread barriers to
imports. Such a course invites foreign retaliation, fosters
inefficiency at home, and retards the growth of real income.
Our interest in restoring our trade surplus does not
reflect a mercantilist attitude on our part. Rather, it
reflects the fact that the United States will continue to be
a large, natural source of capital outflow to the rest of the
world. Accordingly, it must cover a substantial portion of
that outflow by a surplus on goods and services transaction~ .
if we are to restore a satisfactory balance-of-payments POSltlo n
and discharge our responsibilities for maintaining a strong
dollar.
- 7 Despite improvement in our trade and current account
the United States had a large official settlements deficit
of about $3 billion in the first quarter of 1970, and a still
sizable although apparently significantly smaller deficit in
the second quarter as well. In broad terms, these deficits
reflect the fact that our trade position and current account,
despite the real improvement this year, remain at unsatisfactory
levels, while capital flows have moved more adversely than in
recent years.
Thus far, these deficits have not contributed to an
excessive growth of world liquidity. This is partly because
both the United Kingdom and France have employed substantial
foreign exchange receipts to repay outstanding emergency credits.
Indeed, it is worth noting that the available data for May
indicate that the reserves of Continental European industrial
countries as a group still stood well below the level recorded
at the end of 1967.
In the IMF, exploration of possible modifications of
exchange rate practices is now centering on three practical
possibilities: authority for a country to maintain slightly
wider margins for fluctuation of market exchange rates around
the official parity than the present limit of one percent;
arrangements by which the IMF, in specific instances, might
more readily or speedily authorize small parity adjustments -say by 2 or 3 percent a year; and legalization of a transitional
period during which a currency might float, while seeking the
proper level for a new parity.
Limited, evolutionary changes of this kind would, I believe,
be consistent with the basic purpose and functioning of the
exchange rate system established at Bretton Woods. But they
could be important, partly by reducing the possibility of
speculative disturbances arising particularly out of those
changes in official exchange parities that may be necessary
from time to time, and that might otherwise be unduly delayed
or large. At this time, I cannot report a consensus among
the Fund membership on any of these proposals, although the
discussions have been extremely useful already in clarifying
and limiting the remaining issues in a highly complex area.
From our standpoint, we must recognize that these
proposals in the exchange rate area cannot, in any sense,
provide an escape from our own serious balance of payments
problem. Indeed, none of the three procedures under discussion
would be applied by the United States. This c~un~ry bears
~ heavy responsibility for the effective func~lonIng o~ the
International monetary system, and that f~nct~o~ can, In th: .
end, be discharged effectively only by maIntaInIng the stabIlIty
of the dollar as the major reserve and transaction currency.
- 8 -
Improvement both in the structure and overall net balance
of our international accounts, in turn, depends fundamentally
upon the success of the domestic policies upon which you are
concentrating your attention.
The Needs of Economic Policy
I would like to emphasize the underlying strength of
thf' Al.er~ can ecc--"Jmy':urirlg the difficult period of transj tion
t~~~: _ .~ which WE have been going.
Total employment in the
IJ~j~ed States has risen considerably in the past year and
a half, by about 1-1/2 million. Disposable personal income
the spending power available to the average consumer -- rose
tv an all-time high in the April-June quarter, whether measured
in real or current dollar terms.
patience and determination to carry out our policies
of ~dj~~tment to d healthier economy are paying off. I expect
tty .,~ t: (.vllsici.er<.;.ble progress in the remainder of this year and
i~ ~S:l, both in lower rates of inflation and higher levels of
pr~~~ction and employment.
Even so, there is much that remains
tc ~c done in terms of economic policy actions.
O~r
th~~
};i~}-l
I would like to indicate some of the specific actions
&re required in order to regain economic stability and
level employmer:..t ·while reducing inflationary pressures.
1'·lOS
t important of all, in my opinion, the Federal budget
JL~
he kept
I h:· llt.eU for
in a stabilizing position. In turn, this suggests
prompt congressional action on the Administration's
revenue proposals.
The Congress should speedily approve the
?residentfs request for accelerated payment
of gift and estate taxes. If enacted
promptly, this could yield an additional
$1.5 billion of revenues in this fiscal year.
The Congress should speedily approve the
President's request for an environmental
control tax on the lead additives in motor
fuels. If enacted before autumn, this
cuulci vield over $1 billion in additional
revenues in this fiscal year.
:he C()llgl'eSS should speedily approve the
Fresldent's recommended postal reform
:egislation, which provides for postal
rate increases.
- 9 -
A strong budgetary position will also require a continuation of close control over Federal expenditures. The
Administration will work with the Congress to achieve that
objective.
Another set of actions can help to ease the current
transition and promote the early achievement of stable
growth. Chief among these are the new initiatives in the
productivity and cost-price area described last month by the
President. In addition, there are important items of legislation which need to be enacted promptly:
Legislation to expand and strengthen the
unemployment insurance system.
The proposed Manpower Training Act, which
would automatically increase manpower
training funds at times of unemployment.
Legislation to protect investors from loss
due to financial difficulties of brokerage
firms.
The Emergency Home Finance Act of 1970 to
help attract more money into the housing
market.
Pending legislation to help small businessmen
get necessary credit.
Railroad loan guarantee legislation to
provide emergency assistance to railroads
in financial difficulty.
This is a difficult period of economic transition. It
emphasizes the need to get back on a stable pattern of high
employment growth and stay there. In time, the balance of
payments should benefit from the same corrective forces that
are at work in the domestic economy. In the simplest terms,
our most pressing need is for more productivity growth and
better price performance. Both should be forthcoming over
the remainder of this year and into 1971, providing moderate
and sensible economic policies are maintained.
THE SECRETARY OF THE TREASURY
WASHINGTON
Dear Sir:
Although you probably have seen news reports
of President Nixon's July 18 statement on "Congressional Action and Government Spending," it
occurs to me that you would be interested in the
text, which is attached.
You will note that the President emphasizes
the Administration's effective work to hold down
expenditures and that he calls on the Congress
for cooperation.
I can only emphasize that it should be the
priority interest of every concerned citizen and
of each branch of government that Federal expenditures be held below levels which would raise
taxes and prices.
Sincerely,
FOR IMlviEDIA TE
JULY 18, 1970
£~LEA";E
Office of the White House Fress Secretary
-
THE Wr-llTE HOU'::;E
ON
':;TATEW£NT BY THE FRE31.UENT
ACTION AND GOVERNMENT ':;PENDING
CONG.i.~ESSIONAL
I am issuing this statement today because I view with deepenine concern the
course of events in the Cong:.:ess affecti.ng the expenditure of the taxpayers
money. There is a persistent and growing te1".dency on Capitol Hill to approve
increases in expenditures without providing the revenue to pay the costs. For
just one example, the Congress seems on the verge of approving an education
appropriation bill that provides nearly half a billion dollars more than I
requested.
Given this situation, it is time to face some hard figures and SOine troublesome
pos sibilities and to strive for solutions.
Our Federal budget totals over $200 billion. If we allow these outlays to overshoot the basic revenue-{.roducing capacity of our tax system -- a3 happened
particularly in 1967 and 1968 -_ we will produce the same result: inflation of a
magnitude that will take difficult and painful measures to eliminate.
In Fiscal Year 1970, which ended June 30, we worked very hard and effectively -in the midst of continuing controversy __ to hold the expenditure line. As a
result, any deficit will largely reflect a short-fall of revenues fro",1 the
adjustment of the economy to policies designed to cor•• bat inflation.
For Fiscal Year 1971, which began July 1, this Administration transmitted to
the Congreo s a budget calling for expenditure s of $200 billion, and estimating
revenues at $2.02. billion. If the Congress continues in its preoent pattern of
proposed increases in expenditures, the total for this fiocal year will actually
reach a substantially larger figure.
Some $3.5 billion of increases are cau:;ed by mandatory and virtually
uncontrollable rises in costs __ such as increases in the interest on the national
debt ($1. 8 billion) and in public as:;istance (over $500 million). The major pay
increase for Federal employees added $1.4 billion over the amount originally
budgeted. Come increases are the result of necessary new prograrns. But
much of the total increase is due to threatened Congressional action or inaction.
On the receipts side of the ledger, the Congress has failed to provide necessary
revenue. :;3y its action on the tax bill last year, the Congres:; had already
reduced projected revenue for Fiscal Year 1971 by $3 billion a nd for Fiscal
Year 1972 by $5 billion below my request. Beyond this, the Congres s has as
yet failed to take action on my proposals for a tax on lead used in gasoline, an
advance in the time of collection of estate and gift taxes and an increase in
postal rates. The Congress must produce action on these measures, or we can
expect to collect .·nuch less than the $202 billion estimated in February.
And that is not all. The 1971 expenditures are an inevitable spdngboard for the
budget of 1972. Unless the present trend is corrected by the Congress, the
resulting 19"12. spending could produce a mas si ve deficit.
It has become almost a <'liche to say that all we need do to resolve this dilemma
with regard to our Federal budget is to cut space and defense outlays and "change
our national priorities." Let's set the record straight. We ~ changed our
priorities.
nanonal
(OVER)
In the budget that I proposed {or fiscal 1971, spending for defense is exceeded by
spending for human resources for t:1C fL"st ti::-:.e in 20 yeal':'. In all of the lalt
three adrninbt.ation3, military tipendini; ,,'an far acov,c'spending for otber
purposes. In 1962 under Fresident iCennedy the Federal goverrunent spent 48
percent of its budget for defense and only 29 percent for hu..,an resources.
By 1968, the comparison was ~5 percent to 32 percent. My bud3E:t for 1971
sharply reversed these prio'rities. It calls for spending 37 pel'cent for defense
and 41 pel'cent for human resources programs. To accomFlish this maSlive
change in emphasis, military and space expenditures were cut by aome $6 billion.
As a former r::er.,ber of the House and the Senate, I fully understand that the
members consider appropriations and spending bills one at a ti.':')e. The trouble
is that the total of the parts, each in itself attractive and even meritorious, 11 too
large a figure. Unless the Congress makes a very special effort to look at the
total picture, the members may not fully appreciate the overall effect of their
fiscal actions.
In raising the issue of budget deficits, I am not suggesting that the Federal
government should necessarily adhere to a strict. pattern of a balanced budget
every yeal·. At times the economic situation permits __ even calls for -- a
budget deficit. There is one basic guideline for the budget, however, which we
should never violate: except in emergency conditions. expenditures must never
be allowed to outrun the revenues that the tax system would produce at reasonably
full employo.lent. When the Federal goverlU"lIent l s spendine actions over an
extended period push outlays sharply higher, increased tax rates or inflation
inevitably follow. We had such a period in the 19605. We bave been paying the
high price -- and higher prices _. for that recently.
We must not let that happen again. It need not happen. Responsible government
cannot let it happen. This is a tb-... e when the t"" payers of the United ~tatea will
not tolerate irresponsible spending. The Congress should ask itseU in every can:
Will this new expenditure, when tied to all the others, require increased tax.s or
cause a deficit which would bring about an increase in prices. The Congre .. mUlt
examine with special care those spendine programs which benefit Gome of the
people but which really raise taxes and prices for all the people.
Recently I :JiBned into law a bill fixing a "ceiling" on Federal spending for the
current fiscal year. I accept that ceiling and intend to live under it. But the
Congress. by nlaking exceptions and approving measures with rr.andatory
spending provision!l, has made a travesty of this legislation.
I now ask the Congress to establish a firm ceiling on total expenditures -- a
ceiUng from which only specific and genuine "uncontrollableo" auch as interest
on the public debt would be exeRlpt -_ a ceiling within which the Prellident can
determine priorities
a ceiling that would apply to the Conaress as well as to
the Executive. This will require of the Congress -- as well as the President -the hard task of adjusting and pruning individual program outlays to hold their
total within thie ceiling. With this we can reassure citizens generally that
Washington will not take spending actiono that will impose on their' future incomel
the burden3 of evel' increasing tax rates. With this we can pursue vigorous
policies of ex-pansion to achieve full employn1ent, rapid improvements in our
material levels of living. and a more ;;t.able dollar.
u
*
TREASUT\Y DEPARTHENT
WashingtoIl~,
MENOJ~j:,NDUH
FOR THE
PRES~);
----------.----~-.
I).C.
July
2~,
Attached are copies of two letters
of condolence signed by Secretary Kennedy
one to Prime Minister Heath and one to
Mrs. lain Macleod.
000
Attachments
1970
COpy
July 21, 1970
Dear Mr. Prime Minister:
My colleagues and I were saddened to
learn of the untimely death of Chancellor Macleod
last night.
The passing of such a skilled and
effective leader of a major department of your
Government is a great loss both to Great Britain
and to the world financial
co~nunity.
Sincerely yours,
/s/ David M. Kennedy
The Right Honorable
Edward Heath, M.B.E., M.Po
London, England
COpy
July 21, 1970
Via Air Mail
Dear Mrs. Macleod:
I was most grieved to learn of the untimely
death of the Chancellor last night.
Mrs. Kennedy joins me in expressing to you
our heartfelt sympathy upon your loss.
At this
time of great distress be assured that our
thoughts and prayers are with you.
Sincerely yours,
/s/ David M. Kennedy
Mrs. lain Macleod
11 Downing Street
LonsIon, England
3l i
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
TREASURY'S
July 22, 1970
WE~KLY
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 July 30, 1970,
in the amount of
$3,001,595,000,
as follows:
9~day
bills (to maturity date) to be issued July 30, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing
an additional amount of bills dated April 30, 1970,
and to
mature October 29, 1970,
originally issued in the amount of
$1,301,230,000,
the additional and original bills to be
~ee1y interchangeable.
182-day bills, for $1,300,000,000,
dated
July 30, 1970,
and to mature
or thereabouts, to be
January 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 i.nterest.
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 Daylight Saving
time,
Monday, July 27, 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
~ 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
- 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 tender. are
accompanied by an express guaranty of payment by an incorporated blnk
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 r.
of accepted bids. Only those submitting.competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly r~serves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect
shall be rinal. 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 July 30, 1970, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing
July 30, 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 o~o~ranch.
)<t D
lbe Deportment of the TREASURY
TELEPHONE W04-2041
WASHINGTON, D.C. 20220
'OR RELEASE 6: 30 P.M.,
'hursday, July 23, 1970
C
RESULTS OF TREASURY'S MONTHLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
ills, one series to be an additional issue of the bills dated April 30, 1970
,and
he other series to be dated July 31, 1970
, which were offered on July 16, 1970,
ere opened at the Federal Reserve Banks today. Tenders were invited for $500,000,000
r thereabouts, of 273-day bills and for $1,200,000,000 or thereabouts, of
365 -day
ills. The details of the two series are as follows:
I
IlJIGE OF ACCEPTED
)MPETITlVE BIDS:
High
Low
Aver~e
365-day Treasury bills
maturing July 31, 1971
Approx. Equi v .
Annual Rate
Price
6.364%
93.548
6.389%
93.522
93.532
6.379% Y
273-day Treasury bills
maturing April 30, 1971
Approx. Equiv.
Price
Annual Rate
6.435%
95.120
6.488%
95.080
95.096
6.467% Y
&
. ~excepting 1 tender of $190,000
51% of the amount of 273 ... day bills bid for at the low price was accepted
45% of the amount of 365-day bills bid for at the low price was accepted
.TAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
·~strict
Boston
New York
Philadelphia
~leveland
iichmond
ttlanta
:!iicago
It. Louis
linneapolis
tans as City
lallas
ian Francisco
TO'fALS
Applied For
Accepted
880,000 $
880,000
$
1,232,400,000
426,540,000
760,000
760,000
1,630,000
3,630,000
350,000
10,850,000
1,370,000
22,670,000
23,720,000
113,920,000
1,710,000
7,210,000
890,000
15,890,000
3,390,000
8,390,000
1,520,000
14,520,000
165,450 ,000
37 ,35° 2 °00
$1,596,570,000
$
500,1l0,000
~lied
Acce:eted
$
2,000,000
1,098,540,000
4,740,000
8,960,000
9,610,000
5,920,000
29,790,000
4,500,000
1,350,000
8,530,000
3,530,000
23,570,000
$2,487,630,000
$1,201,040,000 ~
For
12,000,000
1,949,380,000
5,300,000
15,280,000
20,110,000
37,220,000
197,680,000
30,900,000
16,350,000
17,040,000
16,830,000
169,540,000
£I
Includes $21,090,000 noncompetitive tenders accepted at the average price of 95.096
InclUdes $ 82,750,000 noncompeti ti ve tenders accepted at the average price of 93.532
i'hes e rates are on a bank discount basis. The equivalent coupon issue yields are
6.82% for the 273-day bills, and 6. 80 %for the 365-day bills.
') 1{. (
lbe Department of the TREASURY
TELEPHONE W04·2041
WASHINGTON, D.C. 20220
July 24, 1970
FOR
~ELEASE
IN AM'S FRIDAY, JULY 24
Robert A. Merchant, former Chief of
for the U. S,
M~rine
In~elligence
Corps, has been appointed Assistant
for Intelligence to the Treasury Department's Assistant
Secretary for Enforcement and Operations, Eugene T.
Rossides.
Mr. Merchant will be responsible for coordinating
the exchange of intelligence between the Treasury and
other government agencies and the overall intelligence
effort of Treasury's enforcement agencies.
Besides his 27 years of service as a Marine
officer, Mr. Merchant recently served as Director of
International Technology Affairs in the Office of
International Affairs at NASA.
Mr. Merchant and his wife and daughter live in
Potomac, Maryland.
000
K-456
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
July 27, 1970
COR R E C T ION
----~-----
Reference is Treasury News Release
No.K-457 (TREASURY ISSUES COUNTERVAILING DUTY
PROCEEDING NOTICES ON BARLEY AND MOLASSES FROM
FRANCE) dated July 23, 1970.
The first sentence in the next-to-1ast
paragraph (page 2) should read as follows:
"Treasury's information indicates that
the subsidy payments on molasses are $5.50 per
metric ton."
000
FOR RELEASE AT NOON
THURSDAY, JULY 23, 1970
TREASURY ISSUES COUNTERVAILING DUTY PROCEEDING NOTICES
ON BARLEY AND MOLASSES FROM FRANCE
Assistant Secretary of the Treasury Eugene T. Rossides
announced today that he has signed two countervailing duty
proceeding notices, one covering barley and the other molasses
from France.
The notices state that the Treasury has received
information that subsidies are being paid on exports of French
barley and molasses to the United States.
If this information
is accurate, the subsidies would constitute the payment or
bestowal of a "bounty or grant" within the meaning of the
United States countervailing duty law, and the imports in
question would be subject to an additional (countervailing)
duty equivalent to the amount of the subsidy.
The notices invite submission of comments in time to
be received within 30 days from the date of publication in the
Federal Register.
They are scheduled to be published in the
Federal Register of Friday, July 24, 1970.
If the Treasury finds that "bounties or grants" are being
paid or bestowed within the meaning of the countervailing duty
law, it would issue countervailing duty orders proclaiming
1{-457
(MORE)
- 2 -
the amounts.
The countervailing duties would become
effective 30 days after publication of the orders in the
Customs Bulletin.
According to the information received by Treasury,
the amount of the subsidy on barley exports is approximately
$0.90 per bushel.
Barley imports from France in Fiscal Year
1969 totaled approximately 1.5 million bushels valued at
slightly more than one and a half million dollars.
Treasury's information indicates that the subsidy
payments on molasses are a little more than $38 per metric ton.
From July 1, 1968, through June 30, 1969, the French shipped
approximately 56 thousand tons of molasses to the United States
valued at about 1.7 million dollars.
It is the Treasury's understanding that these subsidies
are paid under the Common Agricultural Policy of the Common
Market.
000
JUL 23 1970
FOR :n.tomDIATE RELEASE
DECISION ON STYRENE-BUTADIENE TYPE SYNTHETIC RUBBER
UNDER THE ANTIDUMPING ACT
The Treasury Department announces that a determination has
been made that styrene-butadiene type synthetic rubber from Italy
is not being, nor likely to be, sold at less than fair value within
the meaning of the Antidumping Act, 1921, as amended (19
u.s.c.
160 et seg.).
A tentative negative determination was published in the
Federal Register on May 28, 1970.
This notice invited submission
of written views and requests for an opportunity to present views
orally.
No submissions or requests were received.
During the period May 1968 to May 1969, synthetic rubber
valued at apprOximately $240,000 was exported to the t1nit.ed States
by Anic, S. p.A., Milan, Italy.
There have been
of significance since then.
000
K-458
DO
importations
\TTENTION:
FINANCIAL EDITOR
~ORRELEASE
6:30 P.M.,
onday, July 27, 1970.
RESULTS OF TREASURY'S WEEKLY
BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
lills, one series to be an additional issue of the bills dated April 30, 1970
,and
~he other series to be dated
July 30, 1970
, which were offered on July 22, 1970
{ere opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000
)r thereabouts, of
91-day bills and for $1,300,000,000 or thereabouts, of 182-day
>ills. The details of the two series are as follows:
lANGE OF ACCEPTED
:OMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing October 29, 1970
Approx. Equiv.
Price
Annual Rate
98.408
6.298%
98.387
6.381~
98.396
6.345%
182-d~
Treasury bills
maturing January 28, 1971
Approx. Equi v .
Price
Annual Rate
96.767
96.746
96.750
6.395~
6.436~
6.429~
Y
58% of the' amount of 91-day bills bid for at the low price was accepted
40% of the amount of 182 -day bills bid for at the low price was accepted
QTAL 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
Applied For
Acce12ted
$ 34,170,000 $ 23,560,000
1,855,770,000
1,159,570,000
41,560,000
25,740,000
51,670,000
46,100,000
35,130,000
30,130,000
46,740,000
30,730,000
299,990,000
270,810,000
51,260,000
49,450,000
28,860,000
18,760,000
44,550,000
44,250,000
31,730,000
18,730,000
141 02 410,2000
83,2710,2000
$2,662,840,000
$i,801,540,000 ~
Applied For
$ 17,800,000
1,830,510,000
14,540,000
35,870,000
14,920,000
43,600,000
164,470,000
26,690,000
25,300,000
31,340,000
31,320,000
228,2230,2000
AcceEted
7,600,000
$
1,057,790,000
13,420,000
34,320,000
12,420,000
18,870,000
63,530,000
17,340,000
8,800,000
24,520,000
17,520,000
24 02 °7° 2 °00
$2,464,590,000
$1,300,200,000 ~
I
, Includes $390,230,000 noncompetitive tenders accepted at the average price of 98.396
mclUdes $242,820,000 noncompetitive tenders accepted at the average price of 96.750
/ These rates are on a bank discount basis . The equivalent coupon issue yields are
6.54% for the 91-day bills, and 6.7410 for the 182 -day bills.
July 28. 1970
JOINT STATEMENT OF DAVID M. KENNEDY. SECRETARY OF THE TREASURY. AND
GEORGE P. SHULTZ. DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET.
ON BUDGET RESULTS FOR FISCAL YEAR 1970
SUMMARY
The June Monthly Statement of Receipts and Expend! tures of the
United States Government released todq provides preliminary budg;et
totals for fiscal year 1970.
It shows receipts of $193.8 billion and
outlSiYs of $196.8 billion for the fiscal year 1970. which ended on
June 30.
The budget deficit was $2.9 billion.
Receipts were $2.6 billion below the
M~
19 estimate and $5.5
billion below the February budget estimate. reflecting lower than
expected levels of individual and corporate tax receipts.
OutlayS were $1.4 billion below the MBJ estimate and $1.1
billion below the budget estimate. despite the $1.1 billion retroactive Federal pay increase enacted in April and higher outlay'S for
such uncontrollable items as interest on the public debt and farm
price support pqments.
The budget deficit of $2.9 billion was $1.1 billion hlil1er than
the May estimate. compared to the projected surplus of $1.5 billia1 in
the February budget.
RECEIPTS
Budget receipts in the fiscal year 1970 were $5.5 billion 1es8
than the February budget estimate.
1(-459
Income tax receipts accounted for
2
all of the shortfall.
Receipts from individual income taxes were $1.8
billion below the estimate and corporation receipts were $4.2 billion
below the estimate.
Approximately $450 million of the lower individual income taxes
resulted from higher than expected refunds.
The bulk of the re-
maining $1.4 billion shortfall represented p~nts of final taxes
on calendar year 1969 liabilities and declaration payments on 1970
incomes that were substantially below the amounts estimated. largely
reflecting lower than expected capital gains.
Larger than expected refunds accounted for about $300 million of
the $4.2 billion decline of corporate tax receipts from the budget
estimate.
The remaining $3.9 billion reflected shortfalls in final
P8¥ments of 1969 liabiliti~s and declaration payments of 1970 liabilities
that were below the amounts estimated earlier.
Social insurance taxes and contributions were almost $500 million
more than estimated in the February budget. while excise taxes were
$229 million below the budget estimate.
Estate and gift taxes and
customs duties exceeded the budget estimates by $120 million and $170
million. respectively.
Miscellaneous receipts were $94 million below
the budget estimate.
Ot1l'LAYS
Total outl~s in fiscal year 1970 were $196.8 billion. $1.1 billion
lower than the February budget estimate.
of a number of increases and decreases.
The principal increases:
This change was the net result
3
•
The Federal comparability pa,,:y raise added an estimated $1.1
billion to fiscal 1970 budget outlqs.
factor accounting for the increase in
This was the only
outl~s
over the budget
estimate for the military functions of the Department of Defense.
A complete report of the effect of this
p~
raise on appro-
priations is due to be made to the Congress by October 15.
1970.
•
Pqments of interest on the public debt were $457 million
over the budget estimate largely because interest rates
were higher than expected.
Also. borrOlling ran higher in
order to finance the unantiCipated deficit.
•
The Post Office increase of $267 million over the budget
estimate was due to the postal pq raise and to inaction
by the Congress on the proposed postal rate increase.
•
Department of Airi culture Commodi ty eredi t COrROl" at! on
net outlays were $251 million over the budget estimate
because of increases in far.m price support
•
p~nt8.
Outlays for the military assistance programs exceeded
the budget estimate by $236 million principally due to
lower than projected receipts paid into the foreign
military sales trust fund.
•
Higher than anticipated unemployment in the second half
of the fiscal year was primarily responsible for the $127
million" increase in outlays over the budget estimate for
the Department of Labor.
The principal decreases:
•
Net
outl~s
of the Export-Import Bank of the United
States were $381 million below the budget estimate due
primarily to lower than anticipated levels of loan disbursements under the Bank's regular and discount 10m
programs.
•
Department of Health I Education and Welfare outl8iYs
were $321 million \UHler the budget estimate as a result
of lower than expected spending in the Medicare program.
•
General program underruns were responsible for the
Department of Transportation spending $254 million less
than the budget estimate.
•
Department. of Housing and Urban Development outlqa were
$173 million below the budget estimate due to slower than
projected spendout in the Model Cities program.
•
Outlays of the National Aeronautics and Space Administration were $137 million lower than the budget estimate,
reflecting program deletions and a rephasing of program
effort.
5
•
Net outlqs of
~he
PtRartment
of,
.
.'
Ae&C\LLture,
;
exclud1n,
4
the Commodity
Cre d1t Corporation,
were $132 million lover
. , • . . 1.
;
.I
j
than estimate~. mainly 'Qeca,., of hipeer than'exPected
asset sales by the hriDers Home Adm1n!itrat:fbnanda
general underrun in the Rural
Eiectrif1c~tion
Adftdnie-
tration. partially offset by lower receipts of the Forest
Service.
•
DeP~meJlt of JU8~ice ~utl'fJtsye!re $lo6.'mi,11ion belov the
budget estimate caused primari'ly oy ael.CLYs in ave.rding
Law
EnforceJllftnt Assistancesrants$l1d.l6V implementation
of'these grants'~ at 'tlie State ana. lCieal'level.
FEDERAL FINANCES.; FISCAL YEAR 1970
(b~lliQns
Desc;:rietion
.
;
·of dollars)
Budget
Estimate
Actual
Change fr
Budget EltS:
Budget Receipts, Expenditures
and Lending:
Expenditure account:
Receipts •••••••••••••••••••
Expenditures •••••••••••••••
199.4
195.0
193.B
195.0
Expenditure surplus (+)
or deficit (-) •••••••
+4.4
-1.1
-5,
..............
Loan account:
Net lending
,
Total budget:
Receipts ••••••••••••••••••
Outlays ••• ~ •••••••••••••••
2.9
1.B
-1.
199.4
197.9
193.B
196.8
-5,
-1.
Budget surplus (+) or
deficit (-) ••••••••••
+1.5
...2.9
-4.
-1.0
5.4
+6;
-1
-0.5
-1.5
-1.0
-1.5
2.9
+4
Means of Financing:
Borrowing from the public •••
Reduction of cash and monetary assets, increase (-) ••
Other means •••••••••••••••••
Total budget financing.
NOTE:
-
-0
Detail will not 'necessarily add to totals because of rounding
* Less than $50 million.
BUDGET RECEIPTS AND OUTLAYS
(Fiscal Years - $ in
million~)
1970
Description
1969
Actual
Budget
Estimate
,
Actual
Change from
Budget.
Estimate
Receipts by source
~Individual income taxes •••••••
~Corporation income taxes ••••••
Social insurance taxes
and contributions:
Employment taxes &
contributions ••••••••••••••
Unemployment insurance ••••••
Contributions for other
insurance & retirement •••••
Excise taxes •••••••.••••••••••
Estate and gift taxes •••••••••
Customs •••••••••••••••••••••••
Miscellaneous •••••••••••••••••
Total receipts .••••••••••
87,249
36,678
92,200
37,000
90,371
32,829
-1,829
-4,171
34,236
3,328
38,914
3,340
39,132
3,465
218
125
2,353
15,222
3,491
2,319
2,916
2,551
15,940
3,500
2,260
3,681
2,699
15,711
3,620
2,430
3,587
149
... 229
120
170
-94
,
..
=1=8=7=,=7=92=====1=9=9=,=3=8~6==~1=9~3=,=8~4~4===-=5==,S=4:=2
OUtlays by rna j or agency
Legislative Branch and
the Judiciary •.••••••••••••••
Executive Office of the
386
466
468
2
president.,-..........•...•....
31
39
36
-3
164
255
193
-62
121
789
1,781
256
495
1,700
224
-32
236
-94
1,813
300
1,841
272
1,801
Other . . . . . • . . . . . . . . . . . . . . . . .
222
-40
-50
Other . . . . . . . • . . . • . . . • . . . . . . .
Connnerce ••••••••••••••••••••••
5,159
3,171
854
4,617
3,790
1,078
4,869
3,659
1,027
251
-132
-51
77,877
1,268
76,505
1,270
77,100
1,210
595
-60
Funds Appropr ia ted to the
President:
Appalachian regional
development programs •••••••
International financial
institutions •••••••••••••••
Military assistance •••••••••
Economic assistance •••••••••
Office of Economic
Opportuni ty ••••••••••••••••
Agricul ture:
Commodity Credit
Corporation ••••••••••••••••
Defense:
M'l'
1 1 tary ..................... .
C'lVll
. .•.•...•••••.•.•.•••.•.
731
1,606
2
1970
1969
Description
Health, Education &
Welfare •.•••.•.•••••••••••.••
Housing and Urban
Development ••.•••••.•••••••••
Interior ......•.•...•.•••.•.•.
Justice .........•.......•...•.
Labor .•••••.•••••.•.••• ,. ••••••
Post Office •••.•••.•••••••••.•
State •.....•. ~ .•••.•.• ,. •••••••
Transportation ••.•••••••••••••
Treasury:
Interest on the public debt.
Other ...• ~ •••••••••••••• ~ •••
Atomic Energy Commission ••••••
General Services Administration .......................... .
National Aeronautics and
Space Administration. e.' • • • • • • •
Veterans Administration ••.••••
Civil Service Commission ••••••
Export-Import Bank of
the U. S ••••••••••••••••••••••
Railroad Retirement Board •••.•
Small Business Administration.
U.S. Information Agency •••••••
Other Independent agencies .•••
Allowances, undistributed ••.••
Undistributed intrabudgetary
transactions:
Federal employer contributions to retirement
funds •••••••••••••••••• : •••
Actual
Budget
Estimate
Change fz
Budget
Estimate
-
Actual
46,594
52,670
52,350
-321
1,529
837
515
3,475
920
437
5,970
2,776
1,164
743
4,232
1,247
447
6,673
2,603
1,119
637
4,358
1,514
447
6,418
-173
16,588
336
2,450
18,800
307
2,46l.
19,257
234
2,453
457
-73
425
454
458
4
4,247
7,669
1,682
3,886
8,657
2,733
3,749
8,653
2,647
... 137·
246
1,491
110
183
258
600
1,677
273
197
918
475
219
1,600
253
197
819
-381'
-46
-106
127"
2~1'
*
-25"4
-8
-4.
·1':
'~
"'77',
-20
1
-9')
-47~
"
-2,018
-2,307
-2,443
Interest credited to
certain Government
accounts •.•.•••.•••••.•••••
__-;3~,~0~9~9~____-~.3~,~7~8~1~____
-~3~,~9~3~4____~~
Total outlays •.•.•••.•.•
=1=8=4~5=5=6~==1=9=7==,8=8=5====1=9;6==7=5=2======-.
Budget surplus (+) or
deficit (-) •.•.•••.•.•.•.•.••
+3,236
+1,501
-2,908
-4,4;
.W
NOTE:
Detail will not necessarily add to totals because of
* Less than $500 thousand.
roundinf·
Preliminary! Statement of
leceipts and Expenditures of the United States Government
for the period from July 1, 1969 through June 30, 1970
~'
(In thousands, hundreds of dollars not printed, therefore details may not add to totals)
TABLE I--SUMMARY (In millions)
Budget Receipts, Expenditures and Lending
Means of Financing
The Expenditure Account
Fiscal Year
Loan Account Budget
Surplus (+)
or
Surplus (+)
Net
Deficit H
or
Lending
Deficit H
By Reduction
By
Cash
Borrowing andofMonetary
from the
Assets
Public
Increase (-)
By
Other
Means
Total
Budget
Financing
Receipts
Expenditures
$al2,103
$200,088
+$2,014
-$683
+$1,331
-$1,200
.............
-$131
-$1,33
•••••••
199,386
194,985
+4,401
-2,900
+1,501
-1,000
..............
-501
-1 50
~1970 •••••••••••
193,844
194,968
-1,124
-1,784
-2,908
5,397
-$1,467
-1,021
2,90
(twlve months)
ldll11969 •••••••..••
187,792
183,080
+4,712
-1,476
+3,236
-11,146
-2,086
9,996
-3,~
l.u-ted 19712 •••••••
_edI970
2
TABLE II·.SUMMARY OF BUDGET RECEIPTS AND OUTLAYS (In thousands)
Classification
Total
Budget
Budget
Estimates 2
RECEIPTS
income taxes ••••••••••••••••••••••••••••••••••• • ••••.•••••
alion income taxes •••••••••••••••••••••••••••••••••••••••••••
insurance taxes and contributions:
oyment taxes and contributions ••••••••••••••••••.•••••••••••••
ployment insurance ••••••••••••••••••••••••••••••••••••••••••
ibutions for other lnsurance and retirement •••••••••••••••••••• ,
I]
I!
taxes •••••••••••••••••••••••••••••••••••••••••••••••••••••••
and gift taxes •••••••••••••••••••••••••••••.••••••••••••••••••
_s .................................. "...................... " " .............. " " ........ " .... " ...... " ...... " .... ~
, eous ••••••••••••••••••••••••••••••••••••••••••••••••••••••
$90,370,894
32,829,074
..................
................
$90,370,894
32,829,074
$92,200,(
37,000,(
39,131,703
3,465,301
2,699,469
15,711,007
3,619,531
2,429,799
3,587,013
...............
...............
...............
.....................
...............
...............
...............
39,131,703
3,465,301
2,699,469
15,711,007
3,619,531
2,429,799
3,587,013
38,914,1
3,340,1
2,550,1
15,940,1
3,500,1
2,260,1
3,680,:
ftIIl .•.••........ " .. '" •••.•.• , .••••.•••••••.••. " •••.....•....
OUTLAYS
.. ~f th~'p~~~id~~t:::::::::::::::::::::::::::::::::::::
,-IDI:lrnr.r;.LtM to the President:
~======~=========4========~========
340,155
127,877
36,214
730,761
1,606,137
2,444,426
8,613,887
983,872
Der:fart:ment :::::::::::::::::::::::::::::::::::::::::::::::::
..................................................
.................................................
Bpart:ment •••••••••••••••••••••••••••••••••••••••••••••••••••
uellarl,me,nt...................................................... .
=~~t~[:~.!~s: : : : :: : ::: : : : : : : : : : : : : : : : : : : : : : : : : : : :: : : : : :
transactions:
employer
to retirement funds •••••••••••••••••
credited to certain Government accounts ••••••••••••••••••••
intlrab'udj~et:ary
Total •••••••••••••••••••••••••••••••••••••••••••••••••••••
(+) or deficit (-) and net lending ••••••••••••••••••••••••••••••.
on page 3.
77,100,499
1,210,640
52,227,621
1,687,264
1,118,760
636,749
4,358,169
1,513,905
447,006
6,418,322
19,256,821
234,339
2,453,091
437,925
3,748,948
8,448,137
5,163,610
...............
...............
...............
...............
................
-$5,884
-86,610
43,160
-258
-186
122,040
915,434
-137
................
......................
...............
...............
...............
...............
-242
...............
20,022
...............
204,377
571,977
.............. ...............
-2,443,185 ...............
-3,933,690
.....................
340,155
127,877
36,214
341,'
124,:
39,
730,761
1,606,137
2,438,541
8,527,277
1,027,032
495,'
1,699,'
2,622,
8,407,'
1,078,
77,100,241
1,210,454
52,349,661
2,602,698
1,118,623
636,749
4,358,169
31,513,905
447,006
6,418,322
76,505,1
1,270,;
52,670,
2,775,
1,164,
743,
4,231,
1,247,
447,
6,672,
19,256,821
234,096
2,453,091
457,947
3,748,948
8,652,514
5,735,587
..............
18,800,'
306,
2,460,
454,
3,886"
8,656,
6,397"
475,'
-2,443,185
-3,933,690
-2,306,
-3,781,'
I.,;IaSSnlcanon or
Individual income taxes:
Withheld ••.•••••...••••...•..•••••• ••••••••••···•• •
Other .••••••••.....••.••.•••• ·•·•••···•···••·••••• •
4
4
Refunds
(Deduct)
Gross
Receipts
Net
Receipts
Refunds
(Deduct)
Gross
Receipts
RECEIPTS
!;5,975,102
3,806,469
4
Gross
Receipts
Net
Receipts
Refunds
(Deduct)
Net
Receipts
$70,182,174
27,258,231
f77,376,704
26,244,617
4
Total--Individual income taxes .••••••••.••..•.•.•.•
9,781,571
$469,058
$9,312,514
103,621,322
$13,250,428
$90,370,894
97,440,406
$10,191,456
$87,248,949
7,514,339
185,459
7,328,880
35,034,504
2,205,430
32,829,074
38,337,646
1,660,088
36,677,558
Corporation income taxes .•...•.••..••••.••••••••••••••
25,370,826
1,564,817
2,777,085
.............
298,406
22,326,452
1,370,350
2,260,117
473,183
.............
25,072,419
1,564,817
2,777,085
............
..............
21,853,270
1,370,350
2,260,117
29,712,727
298,406
29,414,321
25,956,919
473,183
25,483,737
3,522,284
4 208,146
362,472
38,488
.............
.............
3,483,796
208,146
362,472
3,001,577
186,730
337,398
.............
.............
56,270
2,945,307
186,730
337,398
4,092,902
38,488
4,054,414
3,525,704
56,270
3,469,434
4,128,895
4 169,230
61,307
435,107
.............
.............
49,200
.............
4,079,695
169,230
61,307
435,107
3,836,363
157,471
53,776
425,902
75,500
..............
............
.............
3,760,863
157,471
53,776
425,902
4,473,512
75,500
4,398,012
Social insurance taxes and contributions:
Employment taxes and contributions:
Federal old-age and survivors ins. trust fund:
Federal Insurance Contributions Act taxes .•••..•••
Self-Employment Contribution Act taxes ••••.••.•••
Deposits by States •••••.....••..••..•••••••••.•••
Total--FOASI trust fund .••.••••.••.••••.•••..•
Federal disability insurance trust fund:
Federal Insurance Contributions Act taxes ••.••••••
Self-Employment Contributions Act taxes .••••..••.
Deposits by States .•••••.•..••••.•.••..••••••••••
4
2,438,374
96,908
-24,087
2,511,195
............
............
360,753
17,302
12,907
............
............
............
360,753
17,302
12,907
390,962
............
390,962
4
4
Total--FDI trust fund .•••..•••..•••••.•.•••••.
Federal hospital insurance trust fund:
Federal Insurance Contributions Act taxes •••••••••
Self-Employment Contributions Act taxes .•••••••••
Receipts from Railroad retirement account •..•••••
Deposits by States .•••••••••••••••••••••••.••••••
.............
...........
2,438,374
4 96,908
-24,087
4
2,511,195
405,032
............
12,750
............
.............
............
.............
14,080
14,080 ............
4
4
405,032
12,750
4
4
4
Total--FHI trust fund .•.••••.•••••••.•••.•••.••
431,862
............
431,862
4,794,540
49,200
4,745,340
Railroad retirement accounts:
Railroad Retirement Tax Act taxes ••••••••••••••••
85,688
44
85,644
918,336
708
917,628
884,908
159
884,748
Total--Employment taxes and contributions ••....
3,419,707
44
3,419,663
39,518,505
386,802
39,131,703
34,841,043
605,112
34,235,931
Unemployment insurance:
Unemployment trust fund:
State taxes deposited in Treasury ••••••••••••••••.
Federal Unemployment Tax Act taxes ••..••••••••••
Railroad Unemployment Ins. Act contributions •••••
36,633
5,859
28,919
............
623
............
36,633
5,236
28,919
2,563,401
777,502
130,898
.............
6,500
.............
2,563,401
771,002
130,898
2,560,913
640,030
134,400
.............
6,852
.............
2,560,913
633,178
134,400
Total--Unemployment trust fund •••••••••••.••••
71,410
623
70,787
3,471,801
6,500
3,465,301
3,335,344
6,852
3,328,491
Contributions for other insurance and retirement:
Federal supplementary medical ins. trust fund:
Premiums deducted from benefit payments •••••••••
Premiums collected by Social Security Admin ••••••
Premiums deposited by States ••••••••••••••••••••
63,707
9,453
9,968
............
............
............
63,707
9,453
9,968
763,516
75,011
97,186
763,516
75,011
97,186
750,755
76,214
75,852
Total--FSMl trust fund ••••••••••••••••••••••••
83,127
............
83,127
935,713
.............
.............
.............
.............
935,713
902,821
Federal employees retirement contributions:
CivU service retirement and disability fund ••••.•.•.
Foreip service retirement and disability fund ••••••
vther ......................................... .
190,995
586
58
............
............
..............
190,995
586
58
1,726,429
7,192
.............
.............
1,726,429
7,192
681
1,417,974
5,669
2,579
181,_
1,'IM,lDlI
.............
1,7M,lDlI
1,428,221
.......... .
Total--Fed==~~~ .~~~~~~~~
181,_
--
.~.
............
,.><.
_.
~
681
...............
..............
............
.............
.............
.............
.............
750,755
76,214
75,852
902,821
...............
1,417,974
5,669
2,579
...........••
1,4.,221
• ~DL~ ••• --_U.,....,~.
.
Classification of
RECEIPTS - -Continued
Social insurance taxes and contributions--Continued
Contributions for other insurance and retirement--Continued
Other retirement contributions:
Civil service retirement and disability fund ........
-.I& ........ r
...................... ·v ... _ . _ - - _ ............ _ . . . , ••• ••• ...1.........-....-;.
SECTION A--THE EXPENDITURE ACCOUNT--Continued
This Month
Gross
Receipts
Refunds
(Deduct)
Net
Receipts
Current Fiscal Year to Date
Gross
Refunds
Net
Receipts
(Deduct)
Receipts
Comparable Period Prior Fiscal Year
Gross
Refunds
Net
Receipts
(Deduct)
Receipts
$2,200
.............
$2,200
$29,454
............ .
$29,454
$24,291
. ...••..•..•
$24,291
Total--Contributions for other insurance and
retirement ................... , .... , ... , .....
276,965
.............
276,965
2,699,469
.............
2,699,469
2,353,333
............
2,353,333
Total--Social insurance taxes and contributions ...
3,768,083
$667
3,767,416
45,689,776
$393,302
45,296,474
40,529,720
$611,964
39,917,756
!Excise taxes:
Internal Revenue Code: Subtitle D:
Miscellaneous excise taxes, ....... , ............ , ...
Highway Revenue Act of 1956, as amended:
Highway trust fund, ............. , ......... , ........
955,265
9,803
945,462
10,517,186
159,806
10,357,380
10,681,115
96,035
10,585,080
437,900
11,000
426,900
5,385,701
32,074
5,353,627
4,860,931
223,755
4,637,176
Total- -Excise taxes ... , .. , .....................
1,393,165
20,803
1,372,362
15,902,887
191,880
15,711,007
15,542,046
319,789
15,222,257
Estate and gift taxes.......... , ........................
307,064
3,733
303,331
3,655,186
35,655
3,619,531
3,530,065
39,211
3,490,854
Customs duties ................. , ... , , ....... , •... , ...
216,125
9,391
206,735
2,493,878
64,079
2,429,799
2,387,190
68,228
2,318,962
Miscellaneous receipts:
DepOSits of earnings by Federal Reserve Banks , ......
All other ................ " •......... , .....•.......
299,125
58,588
......•.•...•
299,125
58,583
3,265,900
321,173
............•
60
3,265,900
321,112
2,661,524
254,861
..•...•.....
383
2,661,524
254,478
60
3,587,013
2,916,385
383
2,916,002
200,683,457
12,891,120
187,792,337
Total- -Miscellaneous receipts .................... , .
Total--Budget receipts .............. , ... , .........
5
357,713
5
357,708
3,587,073
23,338,059
689,114
22,648,945
209,984,625
.
16,140,834
.
193,843,791
.
FOOTNOTES
Source: Prepared by the Department of the Treasury, Bureau of Accounts, on the basis of reports received from disbursing, collecting and administrative
agencies of the Government.
1 This statement is preliminary and is based on reports from disbursing,
colle",ting and administrative agencies of the Government, Final reports of
Government disbursing, collecting and administrative agencies, including
certain overseas transactions for the year ended June 30, 1970, which it
has not been possible to include in this statement will be incorporated in the
final statement for fiscal year 1970 to be published at a later date,
2 From the 1971 Budget Document released February 2., 1970. Later estimates, released May 19, 1970 in the Revision of the Fiscal Year 1970 and 1971
Budget Estimates showed: receipts of $196.4 billion, outlays $198.2 billion,
resulting in a deficit of $1,8 billion for fiscal 1970, and receipts of $2.04,3 billion, outlays $205.6 billion, resulting ina deficitof $1.3 billion for fiscal 1971.
3 Transactions cover the period July I, 1969 through June 30, 1970 and
are partially estimated,
4 In accordance with the provisions of the Social Security Act, as amended,
"Individual income taxes withheld" have been decreased and "Federal insurance Contributions Act taxes" have been increased in the amount of
$84,159,354 to correct estimates for quarter ended September 30, 1969 and
prior, "Individual income taxes other" have been decreased and "SelfEmployment Contributions Act taxes" have been increased in the amount
of $15,960,290 to correct estimates for the calendar year 1968 and
prior.
*Less than $500,
Co)
•
TABLE III--BUDGET RECEIPTS AND OUTLAYS--Continued (In thousands)
SECTION A--THE EXPENDITURE ACCOUNT --Continued
Legislative Branch:
Senate ..........................................
House of Representatives .........................
Joint items for Senate and House ..................
Architect of the Capltol. ..........................
Botanic Garden ..................................
Library of Congress .............................
Government Printing Office:
General fWld ap8r~rlations•••••••••• , ••••••••••
Revolving fWld net ............................
General AccOWlting Office ........................
Proprietary receipts from the publlc•••••••• " •• " •
lntrabudgetary transactions •••••••••••••••••••••••
Total--Legislative Branch ....................
Net
Expenditures ,I Applicable
Expenditures I 1 Applicable 1
Receipts
Expenditures (Disbursements) Receipts
(Disbursements)
-141
...........
.........
...........
...........
.........
.........
..........
..........
..........
81,334
..........
25,440
1,334
!5,077
9,518
391
1,549
47
3,766
3,605
-4,086
5,711
..............
..........
..........
..........
..........
............
.........
.........
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
This Month
Classification of
EXPENDITURES
1
EXPenditures)1 Applicable
Net
Expenditures (Disbursements)
Receipts
-554
..........
..........
..........
..........
..........
..........
..........
..........
..........
811,590
..........
340,155
288,906
11,590
3,386
592
2,054
1,875
3,386
592
2,054
1,875
2,867
124,051
536
696
.............
-477
.........
.........
..........
.........
.........
.........
..........
........
811,723
.........
24,106
351,878
11,723
284
55
205
184
85,0'17
9,518
391
1,549
47
3,766
$57,583
108,279
13,296
18,817
620
49,771
3,605
-4,086
5,711
-1,334
-141
39,956
-5,813
69,847
............
$57,583
108,279
13,296
18,817
620
49,771
1147,620
90,582
12,133
18,395
610
42,679
39,956
-5,813
69,847
-11,723
-477
30,381
-11,917
56,997
.............
The Judiciary:
Supreme Court of the United States ••••••••••••••••
Court of Customs and Patent Appeals ••• " •••••••••
Customs Court ..................................
Court of Claims .................................
Courts of appeals, district courts, and other Judicial
services ......................................
Federal Judicial Center ..........................
Judicial survivors annuity fund ••••••••••••••••••••
Proprietary receipts from the publlc. ••••••••••••••
..............
323
11,789
111
75
-323
............
5,314
124,051
536
696
-5,314
Total--The Judiciary...... , ..................
12,703
323
12,380
133,191
5,314
127 ,877
110,582
21
315
206
-183
1,132
88
42
..........
..........
..........
..........
..........
..........
............
21
315
206
-183
1,132
88
42
250
3,722
2,497
715
11,676
1,188
535
250
3,722
2,497
715
11,676
1,188
535
195
3,0'17
1,305
904
9,674
1,020
471
77
..........
216
..........
785
..........
15
..........
122
..........
102
.......... ...........
..........
39
..........
9
937
1,418
9,883
53
1,850
937
1,418
9,883
53
1,850
1,549
9,754
..............
1,493
............
499
737
.............
499
606
Executive Office of the PreSident:
Compensation of the President ••••••••••••••••••••
The White House office ...........................
Special projects .................................
Executive residence. .............................
Bureau of the Budget .............................
COWlCll of Economic Advisers ••••••••••••••••••••
National Aeronautics and Space COWlCll ••••••••••••
National COWlCll on Marine Resources and
Engineering Development •••••••••••••••• " •••••
National Security COWlCll .........................
Office of Emergency Preparedness ••••••••••••••••
Office of lntergovernmental Relations ••••••••••••••
Office of Science and Technology ••••••••••••••••••
President's Advisory COWlCll on Executive
Organization ••••••••••••••••••••••••••••••••••
PreSident's CommiSSion on Postal Organization ••••
SpeCial representative for trade negotiations •••••••
Miscellaneous •••••••••••••••••••••••••••••••••••
284
55
205
184
11,789
111
75
77
216
785
15
122
102
.............
39
9
2,986
Total--Executive Office of the President •••••••
Funds appropriated to the President:
Appalachian regional development programs:
Public enterprise funds ........................
Other ........................................
Disaster relief ..................................
Emergency fuDd for the President •••••••••••••••••
ElqIanalon of defense production •••••••••••••••••••
~T..:rr~~=~~o,:.~ent ••••••••••••
A.tan De...lopment Bank .......................
In....tm_t In Ibter-AmerlCIID Deftlopment BUlk •
tID _lbtenaatlaaalDeftlapmentA.......
.....:rJ:
.7.~~~,::.~~..................
14
18,736
38,599
130
10,487
7
............
12,Il00
............
-I.
o.
...........
...........
...........
...........
..........
...........
~-,
1,719
1,643
103,036
162
649
668
737
............
252
252
2,986
36,214
36,214
30,735
14
18,736
36,599
130
2,148
7
699
191,986
144,909
848
85,550
119
622
191,966
144,909
848
-13,961
1111
389
163,643
18,968
152
222,775
575
10,000
1511,2113
10,000
74,800
31,800
8,348
..........
.......... ...........
..........
12,Il00
........... ...........
., .....
507
...
.."
78
99,511
10,000
1511,2113
11',_
......
I._.at
11',_
....iii
1 . . . . aaJ
..!.!!f
53
65
._-
1,81I1.alI
e•. ,
...........
...........
.........
.........
...........
..........
.........
1 Expenditures
Net
S47,620
90,562
12,133
18,395
610
42,679
30,381
-11,917
58,997
-11,590
-554
277,316
2,867
507
1,719
1,643
2,059
103,036
162
649
-2,059
2,059
108,524
..........
...........
...........
.........
.........
...........
.........
.........
............
.........
..........
..........
.........
............
.........
..........
..........
10
...........
.........
..........
54,549
..........
..........
..........
••••••••• 0
.-
..· .. i;•
195
3,077
1,305
904
9,674
1,020
471
1,549
668
9,754
.............
1,483
.............56
606
65
30,735
379
163,643
18,968
152
168,228
575
10,000
74,800
31,100
on
I.•__lt"au
SEelIIft)N A--THFlxPENDl'l'URE ACCOUNT--Continued
Expenditures
(Disbursements)
Funds appropriated to the President--Continued
Public works acceleration •••••••••••••••••••••••••••
Special foreign currency activities••••••••••••••••••••
Southeast hurricane disaster •••••••••••••••••••••••••
Foreign assistance:
Military assistance:
Defense Department, ••••••••••••••••••••.•••••••
All other agencies ..............................
Foreign military credit sales ••••••••••••••••••••
Foreign military sales fund ......................
Military assistance advances•••••••••••••••••••••
Proprietary receipts from the public:
Military assistance advances•••••••••••••••••••
Other........................................
Total--Military assistance ••••••••••••••••••
Applicable
Receipts
Net
Expenditures
Expenditures (Disbursements)
AppUcable
Receipts
................ ...........
...............
. ..........
...........
..........
..........
82,704
-451
19,622
24,719
95,155
...........
...........
· .. ·$75;458
...........
82,704
-451
19,622
-50,740
95,155
549,009
-564
92,392
216,720
950,186
... ..........
............
...... .... .....
...... .........
89,922
941
-89,922
-941
221,749
166,321
14,560
6,739
4,570
48,535
4,751
828
9,646
$151
Comparable Period Prior Fiscal Year
CUrrent Fiscal Year to Date
This Month
Classification of
EXPENDITURES--Continued
$151
............
Expenditures
Applicable
Net
Expenditures (Disbursements) Receipts
Net
Expenditures
...........
$909
$2,048
654
...........
...........
82,048
•.. ••• ..377
•• , '$250;094
613,009
-3,11K1
17,500
315,320
1,061,857
...........
............
549,009
-564
92,392
-33,373
950,186
...........
'''i257;6iJ8
...........
613,009
-3,11K1
17500
57;632
1,061,857
...............
.............. .
812,029
14,861
-812,029
-14,861
..............
..............
958,538
346
55,428
1,1KI7,744
1,076,983
730,761
2,005,306
1,216,572
788,733
...........
...........
...........
...........
...........
.... .......
...........
14,560
6,739
4,570
48,535
4,751
828
9,646
180,794
75,962
56,090
459,432
99,724
33,069
69,781
............
.............
............
............
............
............
......... , ..
llK1,794
75,962
56,090
459,432
99,724
33,069
69,781
196,276
73,257
71,930
473,768
181,461
28,195
75,214
............
...........
...........
...........
...........
............
..........
196,276
73,257
71,930
473,768
181,461
28,195
75,214
383,770
613,979
12,611
..............
83,513
74,154
22,022
149,814
300,258
539,825
-9,411
-149,814
2,110,462
329,502
1, 71K1, 960
.............. ...........
..............
$909
....
············377 ........
............
(*)
Economic assistance:
Grants and other programs;
Technical cooperation and development granis •••
Alliance for Progress .........................
Social progress fund, Inter-American Dev. Bank ••
Supporting assistance ...........................
International organizations and programs. •••••••••
Contingencies ..................................
Other .........................................
Public enterprise funds:
Alliance for progress development loans •••.•••
Development loan funds .......................
Foreign investment guarantee fund •• , ••••••••••
Proprietary receipts from the public •••••••••••••
44,555
47,134
3,039
..................
4,475
41,830
4,21K1
-12,779
40,080
5,304
-1,241
12,779
351,328
558,192
13,221
...............
54,943
125,750
29,192
81,571
296,384
432,442
-15,971
-81,571
Total--Economic assistance •••••••••••••••••••
184,356
37,806
146,551
1,897,592
291,456
1,606,137
Overseas Private Investment Corporation •••••••••••
-277
...........
-277
-782
.......... ..
-782
1,368,439
2,336,116
4,115,768
(*)
654
-958,538
-346,
Total--Foreign assistance •••••••••••••••••••••
405,829
204,127
201,702
3,704,555
Proprietary receipts from the public. •••••••••••••••••
................
52
-52
. ..............
345
-345
..............
372
-372
Total--Funds appropriated to the President •••••
713,382
212,680
500,702
6,251,971
1,470,648
4,781,323
6,575,279
1,604,116
4,971,163
23,001
6,233
11,970
141
...........
...........
...........
...........
...........
...........
...........
...........
...........
23,001
6,233
11,970
141
287,486
61,868
124,526
1,664
...........
..............
...........
267,486
61,868
124,526
1,664
251,996
59,811
97,215
1,412
...........
............
...........
11,367
11,994
2,093
1,242
3,010
138,667
115,050
16,414
15,457
17,51K1
............
............
............
............
.............
138,687
115,050
16,414
15,457
17,51K1
125,777
101,113
15,952
13,053
14,916
...........
...........
............
137,278
1,600
449,903
14,706
33,264
. ...........
............
...... i4;8iil
............
137,278
1,600
449,903
-111
33,264
112,343
1,600
414,901
15,014
33,182
..........
............
15,783
...........
112,343
1,600
414,901
-769
33,182
\griculture Department:
Agricultural Research Service •••••.••••••••••••••••••
Cooperative State Research Service ••••••••••••••••••
Extension Service ••••.•••••• '" .......... '" ....... '
Farmer Cooperative Service •••••• , ..................
Soil Conservation Service:
Conservation operations ...........................
Flood prevention, watershed protection and other ••••
Great Plains conservation program ••••••••••••••••
EconOmic Research Service .........................
Statistical ReSOrting Service ........................
Consumer an Marketing Service;
Consumer protective, marketing and regulatory
11,367
11,994
2,093
1,242
3,010
............
1,546,075
2,569,693
251,996
59,811
97,215
1,412
............
............
..........
125,777
101,113
15,952
13,053
14,916
Payments to States and possessions ••••••••••••••••
Removal of Surplus agricultural commodities ••••••••
Milk market orders assessment fund •••••••••••••••
Other ........................................... 1
programs.........................................
11,366
108
26,870
690
-547
............
.. · .. 'i;aiti
...........
11,366
108
26,870
-625
-547
Total--Consumer and Marketing Service ••••••••••
38,487
1,315
37,172
636,752
14,818
621,934
577,041
15,783
561,258
1,043
21,328
93,309
...........
...........
...........
...........
1,043
21,328
93,309
83, IKl9
298,888
573,464
.............
............
............
83,009
298,668
573,464
101,925
237,007
247,766
...........
. ...........
...........
101,925
237,007
247,766
115,61K1
955,942
............
955,942
586,698
...........
1
Food and Nutrition Service:
Special milk program ............. , ...............
Child nutrition programs ..........................
Food stamp program .............................. I
Total--Food and Nutrition Service ••••••••••••••••
i
115,61K1
.............
. ..........
-
586,698
u.
0-
TABLE III--BUDGET RECEIPTS AND OUTLAYS--Continued {In thousands'
SECTION A--THE EXPENDITURE ACCOUNT--Continued
Classification of
EXPENDITURES--Continued
Agriculture Department -Continued
Foreign Agricultural Service.........................
Foreign Economic Development Service. • . • . • • . • • • . • • •
Commodity Exchange Authority.. • • • •• • • • • • • • • ••• . • • ••
Agricultural Stabilization and Conservation Service:
Expenses........ •••••••.• •... •••••••••••••••••••
Sugar act program......... ••••.• ••••••.•.• ••••••.
Agricultural conservation program .................
Cropland conversion program...... ................
Cropland adjustment program.. .. .. • • . . .. .. .. • .. .. •
Emergency conservation measures.................
Conservation reserve program (soil bank)...........
Indemnity payments to dairy farmers ........ • • .. • ..
Total--Agricultural Stab. and Conservation Service..
I Applicable
Receipts
Expenditures
(Disbursements)
$2,996 ••• ••••••••••
••••••••••••••• •••••••••••••
190 .............
11,074
2,263
9,661
10
28
366
-600
24
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
This Month
I
I
Net
Expenditures Applicable
Expenditures (Disbursements) Receipts
Net
1 Expenditures I Applicable
Expenditures (Disbursements~
Receipts
$2,996
$24,923 ••••••••••••
••••••••••••• ••••••••••••••• ••••••••••••
190
2,165 ............
$24,923
•••••••••••••
2,165
$23,687
-ID9
1,732
• ••••• ••••• •••
..............
..............
$23,687
-ID9
1,732
Net
Expenditures
.............
.............
.............
.............
.............
.............
••• ..........
.............
11,074
2,263
9,661
10
28
366
-600
24
152,777
92,702
180,325
2,274
77,346
7,634
38,022
126
............
............
............
............
............
............
............
............
152,777
92,702
180,325
2,274
77,346
7,634
38,022
126
147,175
87,139
199,406
2,952
79,529
7,144
106,733
137
..............
..............
..............
..............
.......... ....
..............
....... .......
..............
147,175
87,139
199,406
2,952
79,529
7,144
106,733
137
22,825 .............
22,825
551,ID5 ............
551,ID5
630,216
..............
630,216
Commodity Credit Corporation:
Public enterprise funds:
Price support and related programs ••.••••••••••.
Special activities ••••.••.•••••.••••.••••••••••••
Foreign assistance and special export programs •••••••
225,171
3,780
126,560
$401,211
-6
-176,040
3,786
126,560
7,842,769
85,150
864,600
$3,943,200
31,304
3,899,569
53,847
864,600
11,161,760
253,060
830,000
$7,129,384
40,766
4,032,376
212,295
830,000
Total--Commodity Credit Corporation and foreign
assistance and special export programs •.••••••..
355,510
401,205
-45,695
8,792,519
3,974,504
4,818,015
12,244,820
7,170,149
5,074,671
304
2,319
1,174
11,770 , .......... ..
48,136
38,674
14,681 .......... ..
11,770
9,462
14,681
11,768
46,459
84,773
..............
11,768
7,143
84,773
3,272
6,909
31,858
73,972
31,858
73,972
32,213
60,423
2,399
27,999
-76
40,945
910
56,358
419,673
7,915
450,106
2,085
65,275
123,404
2,505
112,679
1,297
-8,916
296,269
5,410
337,427
788
65,238
70,494
8,686
118,126
82,359
1,041,968
305,160
736,807
393
14,761
3,337
5,588
2,460
3,895
3,414
393
14,761
3,337
5,588
3,895
3,414
426
12,957
2,744
4,788
2,056
4,429
2,939
426
12,957
2,744
4,788
2,056
4,429
2,939
390
-171
5,194
-171
5,194
551
4,509
551
4,509
-667
2,871
552,879
Federal Crop Insurance Corporation:
Administrative expenses ••.••••.••.••••••••••.•••••
Federal Crop Insurance Corporation fund ••••••.••.••
Rural Electrification Administration ••••••••••••.•••••
Farmers Home Administration:
Community development programs ••••••••••..•••.••
Salaries and expenses •••••••••••••••••.•••••••••••
Public enterprise funds:
Direct loan account ••••••••••••••••••••••••••..•
Rural housing insurance fund •••••••••••.••••.•••
Emergency credit revolving fund •••••••••••••••••
Agricultural credit insurance fund ••••••••.•••••••
Other •••••.•••••••••••••••••.••••.••••.••••••••••
44,822
919
-6
2,894
4,458
70
3,877
9
Total--Farmers Home Administration ••••••••••••
93,668
11,309
mal Community Development Service •••••••••.••••.
ce of the Inspector General •••••••••••••••••••••••
ackers and stockyards Administration ••••••.••••••••
Uice of General Counsel•••••••••••••.••••••••••••••
Uice of Information ............................... .
'ational Agricultural Library •••••••••••••••••••••••.
)fUce of Management Services •••••••••••..•••.••.•••
leneral administration:
Intragovernmental funds (net) ••••••••••••••••••••••
Salaries and expenses •.•••••••••••••••••••••••••••
Forest service:
tntragovernmental funds (net) ••••••••••••••••••••••
43
1,283
303
451
43
1,283
303
451
357
293
357
293
-557
390
-557
~
Other ........................................... .
Proprietary receipts from the pubUc ••••••••••••••••••
Total--Atp'iCNlture Department••••••••••••••••.••
304
2,787
1,174
.............
469
3,272
6,909
5293
32;458
154
667
154
........... ..
38:130 1 ....... 98:937
...............
7"",851
513,234
38,130
-98,937
231,817
13,433,414
2,460
39,317
32,213
60,423
-749
-50,764
4,804
-7,812
604
65,988
121,258
3,881
125,938
1,150
355,784
318,215
37,569
·····4i8:i~
-488,3'10
2,871
552,879
472,293
·· .. · ..iii;.
4,818,112'1'
8.813,88'7
ID, 752. IIOt5
8,0118,121
79'1
-546
797
472,293
-DID, 8118
7,",.'
SECTION A--THE EXPENDITURE ACCOUNT--Continued
I
ClassUication of
EXPENDITURES--Continued
This Month
Expenditures
Applicable
(Disbursements) Receipts
Commerce Department:
General administration ............................... .
Business Economics and statistics:
Office of BUSiness Economics ••••••••••• " •••••••••..
Bureau of the Census •••••••••••••.•••••.••••••••••.•
Economic Development Assistance:
EconomiC Development Administration:
Public enterprise funds............................
other ...................... , .....................
Regional action planning commissions.................
Promotion of Industry and Commerce:
BUSiness and Defense SerVices AdminlStration.........
International Activities..............................
Office of Field SerVices..............................
Participation in U. S. Expositions.....................
Foreign Direct Investment Regulation.................
Minority Business Enterprise.. .. • • . .. .. • ... • .. • •• . • .
U.S. Travel SerVice ................... '" ..... ••.••
Comparable Period Prior FiScal Year
CUrrent Fiscal Year to Date
IExpenditures
Net
I Expenditures I Applicable
IExpenditures
Net
I(Disbursementsll
Expenditures I Applicable
Receipts
Receipts
(Disbursements~
\
Net
Expenditures
$696
$696
$5,910
$5,910
$5,679
$5,679
245
40,831
245
40,831
3,624
140,213
3,624
140,213
2,697
48,162
2,697
48,162
$989
.............
•••••• •••••••
2,910
24,228
1,032
13,948
186,170
7,140
$11,103
••••••••••••
............
2,845
186,170
7,140
2,491
172,162
5,168
637 .............
2,202.. ...........
425 •••••••••••••
16 ..... ........
272 .............
151 .............
700 •••••••••••••
637
2,202
425
16
272
151
700
7,155
25,484
5,612
242
3,237
891
4,806
4,403
••••••••••• ,.
4,403
15,807
4,784
•••••••••••••
.............
-638
3,463
225
23,641
$11 ,983
••••••••••••
••••••••••••
172,162
5,168
••••••••••••
••••••••••••
............
•••••••• ....
••••••••••••
••••••••••••
••••••••••••
7,155
5,932 ••••••••••••
25,484
21,108 ••••••••••••
5,612
5,110 ............
242
1,287 ••••• ,. •••••
3,237
2,968 ............
891...................... •••
4,806
3,742 ............
5,932
21,108
5,110
1,287
2,988
• ........... ..
3,742
47,427
............
47,427
40,147
15,807
4,784
197,903
48,673
••••••••••••
............
197,903
48,673
178,626
42,620
............
............
178,626
42,620
.............
.............
.............
-638
3,463
225
-106
45,665
4,570
............
............
••••••••••••
-106
45,665
4,570
-3,319
41,891
4,838
............
••••••••••••
••••••••••••
-3,319
41,691
4,838
•••••••••••••
23,641
296,704
............
296,704
264,456
••••••••••••
264,456
1,606
1,524
16,307. ••••• •••••••
14,159 •••••••••••••
82
16,307
14,159
70,720
70,666
205,732.. ••••••• •••
119,731 ••••••••••••
55
205,732
119,731
158,316
194,703
127,107
158, 512
•••• ..... •••
••••••••••••
194,703
127,107
32,072
1,524
30,548
396,183
70,686
325,517
480,126
158,512
321,614
Proprietary receipts from the public................... ...............
2,761
Intrabudgetary transactions............................
_1,655.. ...........
-2,761
-1,655
•••••••••••••
-6,644
25,034
••••••••••••
-25,034
-6,644
.............
-7,503
23,396
••••••••••••
-23,396
-7,503
3,899
24,228
1,032
Total--Promotton of Industry and Commerce........
Science and Teclmology:
Environmental SCience SerVices Administration........
Patent Office....................... ................
National Bureau of Standards:
Intragovernmental funds (net) ......................
other............................................
Office of State Technical SerVices ••.••••••..•••••••••
Total--Science and Technology.....................
Ocean Shipping:
Maritime Administration:
Public enterprise funds... ........... •••••••••••••
Ship operation subsidies.............. .............
Other...... ....... ............... ................
Total--Ocean Shipping........ .....................
40.147
Total--Commerce Department •••..••••••.••••••.•••.
129,393
5,273
124,119
1,090,675
106,803
983,872
1,013,585
193,890
819,695
Defense Department:
Military:
Military personnel:
Department of the Army........ •••••• •••••••••••••
Department of the Navy ......... ..................
Department of the Air Force........ ...... •••••••••
Defense agencies.................................
1,093,895
614,110
575,794
251,053
.............
.............
.............
.............
1,093,895
614,110
575,794
251,053
9,692,096
6,662,955
6,658,486
2,849,334
............
............
............
............
9,692,096
6,662,955
6,658,466
2,849,334
9,047,387
6,143,496
6,182,693
2,444,071
••••••••••••
............
............
............
9.047,387
6,143,496
6,182,693
2,444,071
2,534,852
.............
2,534,852
25,862,851
............
25,862,851
23,817,647
............
23,817,647
748,923
436,635
592,138
118,621
.............
.............
.............
.............
748,923
436,635
592,138
118,621
7,846,760
5,556,556
6,991,647
1,180.611
............
............
............
............
7,846,760
5,556,556
6,991,647
1,180,611
8,299,710
5,757,299
7,073,158
1,096,692
............
............
............
............
8,299,710
5,757,299
7,073,158
1,096,892
1 896 316
.............
1 696316
21 575 575
............
21 575 575
22 227 060
Total--Military personnel .......................
I
Operation and maintenance:
DepartmentoftheArmy...........................
Department of the Navy............................
Department of the Air Force.......................
Defense agencies.................................
I
Total--Operation and maintenance ................
1
i
..........
22 227 060
'I
CD
TABLE III--BUDGET RECEIPTS AND OUTLAYS--Continued (In thousands)
SECTION A--THE EXPENDITURE ACCOUNT--Continued
I
This Month
Classification of
EXPENDITURES--Continued
Expenditures
(Disbursements)
Defense Department--Continued
M1litary - -Continued
Procurement:
Department of the Army •.•.•••.•••.••••.•••••.••••
Department of the Navy •••.•••.••..•..••••••••••••.
Department of the Air Force •••••••••••.••••••••••.
Defense agencies ••••••••••••••••.•••..•••.•••••••
$293,593
643,606
688,597
2,863
Total--Procurement ............................
1,628,659
Research, development, test and evaluation:
Department of the Army •••••...•••••••••••.•••••••
Department of the Navy ••••••••••••••••.••.•.••••••
Department of the Air force ••.•••.••••..••.•••.•••
Defense agencies .••.•••.••.••••••.•.•••..••••••••
162,807
204,954
199,950
48,853
Total--Research, development, test and
evaluation•.•..••••••.•••••••••••••••••••.•••••
616,564
·1
Applicable
Expenditures
Net
Expenditures (Disbursements) Receipts
Applicable
Receipts
............
............
............
............
............
.............
...........
............
I
Current Fiscal Year to Date
Comparable Period Prior Fiscal Year
Appllcable
Expenditures
Net
Expenditures (Disbursements) Receipts
Net
Expenditures
$5,208,831
7,938,964
8,360,933
70,906
$6,116,741
8,522,612
9,293,795
54,442
21,579,634
23,987,590
1,664,630
2,084,406
2,937,097
479,261
............
............
............
............
............
............
............
............
............
1,664,630
2,084,406
2,937,097
479,261
1,520,840
2,045,479
3,385,521
505,387
...........
...........
...........
...........
...........
...........
...........
.. """ ... .
."." ... " ...
616,564
7,165,394
............
7,165,394
7,457,227
.......•...
7,457,227
36,834
00,247
21,739
901
453,525
300,410
364,593
11,115
453,525
330,410
364,593
11,115
460,209
424,838
493,544
10,066
460,3:19
424,838
493,544
10,066
1,159,643
1,388,656
.•...•.....
.••..•.....
..•....•...
..••...•...
••..•.....•
1,388,656
$155
...........
14,750
557,216
155
571,965
$293,593
643,606
688,597
2,863
$5,208,831
7,938,964
8,360,933
70,906
1,628,659
21,579,634
162,807
204,954
199,950
48,853
"
,,
$6,116,741
8,522,612
9,293,795
54,442
23,987,590
1,520,840
2,045,479
3,385,521
505,387
Military construction:
Department of the Army .•.••.••••••••••••••••••••• I
Department of the Navy •.•••••.••.•••••••••.••••••. !
Der,artment of the Air Force ....................... '
De ense agencies •••.•••••..•••••••••••••••.•••.•• II
36,834
00,247
21,739
901
.. .. ""."." .
....•.•..•..
.............
... ...... ,,"
..........•.
... ..... ....
Total- - Military construction ••••••••••••••••••..• :
89,722
............
89,722
1,159,643
••••.....•..
............
..•.........
.•.••..••...
.......••...
Family housing:
I
Homeowners assistance fund ..••••••..••..•••••••••
Other •.•.•.•••••.•••••••••..•••.•••••••••••.••••• I
1,147
50,766
...•....•...
$2,003
-856
50,766
11,667
608,235
............
$8,075
3,593
608,235
14,905
557,216
2,003
49,910
619,902
8,075
572,13:1
80,084
849
...........•.
......•...•
611,827
7,464
100
80,084
849
86,887
1,289
..........•.
..........
2
1,107
3
17
1,381
39
-15
-274
-37
3
1,934
5
22
986
42
-3:1
948
-37
............
............
.............
...••..•..•
-13:1,723
-39,976
-430,738
-3:13,978
-347,879
-348,931
-507,853
-329,227
.............
..........
..........
-347,879
-348,931
-507,853
-329,2Z1
"
Total--Family housing •••••...•.•••.•••.••••••••
51,913
Civil Defense •••••••••••.•••••.••••.•••••••••••••••
Special foreign currency program •••••••••••.•.••••••
Revolving and management funds:
Public enterprise funds:
Department of the Army •••••••••••••••••••••••••
Department of the Navy ••••••••••••••••••••••••••
Department of the Air Force •••••••••••••••••••••
Intragovernmental funds (net):
Department of the Army ••••••••••••••••••••.••••
Department of the Navy. • • • • • • • • • • • • • • • • • • • • • • • ••
Department of the Air Force .•.••••••.••.•..••..•
Defense agencies ••••••••••.••••••••••••••••••••
7,464
100
............
............
1
92
·········i2il
:
.
!
I
,
'
(*)
-2
1
-36
3
-62,509
33,570
-83,488
-118,548
............
............
............
............
-62,509
33,570
-83,488
-118,548
-120,723
-39,976
-430,738
-203,978
.......••..
88,887
1,289
Total--Revolving and management funds •••••••••••
-230,881
126
-231,007
-794,004
1,437
-795,741
-1,531,948
1,051
-1,532,999
Trust revolving funds •••••••••••••••••••••••••••••••
Other ••••••••••••••••••••••••••••••••••••••••••••••
Proprietary receipts from the publlc••••••••••••••••••
Intrabudgetary transacUons •••••••••••••••••••••••••
4,312
639
6,246
49,879
6,733
...............
-6,807
54,281
i3S;i4i
.· ....
...........
-4,402
6,733
-135,141
-6,807
38,786
7,621
35,934
·······s;9ii
-1,933
639
-8,912
4
2,853
7,621
-128,412
-8,03'1
6,599,665
17,287
6,582,378
77,299,433
198,93t
7'1,100,499
78,044,897
165,551
77,879,346
189,131
...........•
189,131
1,188,oeD
.....
1, 189,oeD
1, lIllO, lII8
-15, 'leI
....•..•..•
1, lIIIO,lII8
·······i:~
.•.••...••..
....... ~ ~ •.•.;'~::.t
Total--Milltary••••••••••••••••••••••••••••••••• "
.•..•.••.•....•4 ............
ClvU:
~art_t of the Army:
~ of BDPI&era:
. .r r e _ development ••••••••••••••••••••••
__
~1ImdIIi~•••••••••••••••••••••
~~~~~~_~ ~"'uu vabUc•••••••••••••••
""".1188
\~
' \.
~
""",8M ......•••.•.
·········,;awe
------------
""",Me
"',188
_ . .£uo
••.• ii8;4U
.......•....•.
-8,037 ....•..•.•.
········iii~w
·..··i7;ou
-----------
if='llJl
-_·m
SECTION A--THE EXPENDITURE ACCOUNT--Continued
Classlflcation of
EXPENDITURES--Continued
Defense Department- -Continued
Civfi--Continued
Soldiers' Home:
U. S. Soldiers' Home revolving fund •••••••••••••••••
Other ••••••••••••••••••••••••••••••••••••••••••••
The Panama Canal:
Canal Zone Government •••••••••••••••••••••••••••
Panama Canal Company •••••••••••••••••••••••••••
Proprietary receipts from the public ••••••••••••••••••
Intrabudgetary transactions •••• " ••••••••••••••••••••
This Month
Expendltures
Appl1cable
(Disbursements) Receipts
$19
895
6,727
11,744
.............
-2,927
$18
...........
...........
13,673
948
...........
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
Net
Expenditures Applicable
Expenditures
AppUcable
Net
Net
Expenditures (Disbursements) Receipts
Expenditures (Disbursements) Receipts
Expenditures
$1
895
$170
10,022
6,727
-1,929
-948
-2,927
43,768
166,034
..............
-18,270
$175
...........
............
172,134
19,186
...........
-$4
10,022
$167
10,297
...........
43,768
-6,100
-19,186
-18,270
43,386
158,682
............
-14,589
...........
..............
$159
166,452
17,559
$7
10,297
43,386
-7,770
-17,559
-14,589
Total--Civfi •••••••••••••••••••••••••••••••••••••
183,086
16,118
166,968
1,422,323
211,683
1,210,640
1,478,787
211,184
1,267,604
Total--Defense Department ••••••••••••••••••••••
6,782,751
33,405
6,749,346
78,721,756
410,617
78,311,139
79,523,684
376,735
79,146,950
Health, Education, and WeUare Department:
Consumer Protection and Environmental Health Service:
Public enterprise funds ••••••••••••••••••••••••.••••
Food and drug control •••••••••••••••••••••••••••••••
Air pOllution control ••••••••••••••••••••••••••••••••
Environmental control •••••••••••••••••••••••••••••••
Other ••••••••.•••••••••••••••••••••••••••••••••••••
424
8,729
8,039
6,405
385
...........
...........
...........
364
3,521
68,566
78,284
52,273
12,162
4,055
...........
,. .... '" .... ,. ...
...........
. ............
-533
68,566
78,284
52,273
12,162
3,661
61,173
56,922
36,193
19,883
...........
3,893
...........
60
8,729
8,039
6,405
385
............
...........
...........
-233
61,173
56,922
36,193
19,883
Total--Consumer Protection and Environmental
Health Service ••••••••••••••••••••••••••••••••••
23,982
364
23,618
214,806
4,055
210,751
177,832
3,893
173,939
Health Services and Mental Health Administration:
Public entergrise funds •••••.•••••••••••••••••••••••
Mental heaU •••••••.••••••••••••••••.•••••••••••••
Health planning and regional programs ••••••••••••••••
Maternal and child weUare ••••••••..•••••••••••••••••
Hospital construction ••••••••••.•••••••••••••••••••••
Direct care programs •••••••••••••••••••••••••••••••
Other ••••••••• '" ••••••••• , .•••••••.•••••••••••••••
15
33,252
56,258
28,926
33,015
21,822
15,804
...........
14
148
321,994
327,594
269,870
272,508
196,961
122,538
. ..........
. ............
. ..........
149
. ..........
-2
321,994
327,594
269,870
272,508
196,961
122,538
179
285,481
249,986
250,467
264,168
173,749
118,094
184
...........
1
33,252
56,258
28,926
33,015
21,822
15,804
. ..........
. ..........
. ..........
. ..........
. ...........
. ..........
-5
285,481
249,986
250,467
264,168
173,749
118,094
Total--Health Services and Mental Health
Administration •••••••••••••••••••.••••••••••••••
189,092
14
189,078
1,511,611
149
1,511,462
1,342,124
184
1,341,940
National Institutes of Health:
Public enterprise funds ••••••••••••••••••••••••••••••
Institute research and training activities ••••••••••••••
Health manpower and dental health ••••••••••••••••••••
Construction grants ••••••.••••••••••••••••••••••••••
Other .........................................................
570
72,100
20,668
8,053
-80,983
...........
...........
...........
41
11,371
969,384
173,189
139,075
132,331
362
...........
. ..........
...........
. ..........
11,009
969,384
173,189
139,075
132,331
19,265
948,954
120,816
133,432
101,947
141
...........
529
72,100
20,668
8,053
-80,983
...........
. ..........
. ..........
. ..........
19,124
948,954
120,816
133,432
101,947
Total--National Institutes of Health •• '" ••••••••••••
20,408
41
20,367
1,425,351
362
1,424,989
1,324,414
141
1,324,273
Office of Education:
Public enterprise funds:
Student loan insurance fund ••••••••••••••••••••••••
Higher education facilities loan fund ••••••••••••••••
Assistance for vocational education •••••••••••••••.•••
School assistance in federally affected areas ••••••••••
Elementary and secondary education •••••••••••••• , •••
Higher education •••••••••••••••••••••••••••••••••••
Defense educational activities •••••••••••••••••••••••.
other ••••••••••••.•••••••••••••••.••••••••••••••••.
21,086
48,945
168,185
254,155
141,378
707
96,185
...........
261
631
-5
31,673
286,364
656,381
1,461,504
1,013,612
4,694
553,709
1,401
11,657
. ..........
. ..........
. ..........
. ..........
...........
. ..........
-1,406
20,016
286,364
656,381
1,461,504
1,013,612
4,694
553,709
-30
11,523
280,052
397,581
1,433,070
918,217
19,725
348,899
770
8,481
...........
...........
...........
...........
...........
-261
20,455
48,945
168,185
254,155
141,378
707
96,185
............
..........
. ..........
...........
.. ..........
...........
-799
3,042
260,052
397,581
1,433,070
918,217
19,725
348,899
729,749
4,007,931
13,058
3,994,873
3,389,036
9,250
3,379,786
539,160
49,346
1,766
30,131
7,452,673
424,394
14,454
. ..........
...........
...........
7,452,673
424,394
14,454
288,205
6,280,335
350,910
32,563
175,560
620,403
8,179,726
...........
8,179,726
6,839,368
...........
...........
..........
............
...........
(*)
.............
...........
...........
............
Total--Office of Education ••••••••••••• '" •••••••••
730,642
893
Social and Rehabilitation Service:
Grants to States for public assistance •••••••••••••••••
Grants for rehabilitation services and facilities •••••.••
Work incentives ............................................
other••••••••••••••••••••••••••••••••••••••••••••••
539,160
49,346
1,766
30,131
Total--Social and Rehabfiitation Service ••••••••••••
620,403
...........
...........
...........
...........
...........
288,205
............
............
. ..........
6,280,335
350,910
32,563
175,560
6,839,368
-0
o
TABLE III--BUDGET RECEIPTS AND OUTLAYS--Continued (In thousands)
SECTION A--THE EXPENDITURE ACCOUNT--Continued
Classification of
EXPENDITURES--Continued
Expenditures
(Disbursements)
Health, Education, and Welfare Dept. --Cont'd.
Soc1al Security Administration:
Operating fund, Bureau of Federal Credit Unions. . . .. .
Payment to trust funds for health Insurance for
the aged.................................... ....
Payment for military service credits.... ... . . .. . .. . .
Payment for special benefits for the aged......... ....
Federal old-age and survivors ins. trust fund:
Administrative expenses and construction..........
Benefit payments. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .
Vocational rehabilitation services.................
Payment to railroad retirement account..... . . . .. . .
I Applicable
Receipts
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
This Month
I
Net
Expenditures
Expenditures (Disbursements)
I Applicable
Receipts
I
I
Net
Expenditures
Applicable
Expenditures (Disbursements) Receipts
Net
Expenditures
1535
S529
$6
$6,718
S6,980
-$~··62
$6,166
1248
66,806
...........
...........
.........
.........
.........
66,806
.........
.........
1,545,413
105,000
364,151
........
........
........
1,545,413
105,000
364,151
1,733,255
........
210,000. .......
225,545
........
1,733,255
210,000
225,545
64,377
.........
2,414,721
.........
...........
.........
578,818.... .....
64,377
2,414,721
.........
578,818
481,598
........
26,266,674
........
900
........
578,818.. ......
481,598
26,266,674
900
578,818
485,087
........
23,732,119
........
1,806
........
491,482........
485,087
23,732,119
1,806
491,482
.........
3,057,915
27,327,990
........
27,327,990
24,690,495
........
24,690,495
9,305.. .......
254,776
.........
2,398.........
10,439.........
9,305
254,776
2,398
10,439
149,030.. ......
2,778,016
.........
16,449........
10,439........
149,030
2,778,016
16,449
10,439
133,514........
2,443,437
........
14,891........
21,328........
133,514
2,443,437
14,891
21,328
276,918
.........
276,918
2,953,934
........
2,953,934
2,613,170
........
2,613,170
19,109
425,837
.........
.........
19,109
425,837
148,669... .....
4,804,242
.. ......
148,669
4,804,242
104,196
4,653,976
........
........
104,196
4,653,976
Total--Federal hospital ins. trust fund .......... 1
444,946
.........
444,948
4,952,911
........
4,952,911
4,758,172
........
4,758,172
Federal supplementary medical ins. trust fund:
Administrative expenses and construction .......... l
Benefit payments ............................. "'1
27,536
151,811
.........
.. .......
27,536
151,811
217,009
1,979,287
........
... .....
217,009
1,979,287
194,687
1,644,842
........
........
194,687
1,644,842
179,347
.........
179,347
2,196,296
........
2,196,296
1,839,530
........
1,839,530
Total--Federal old-age and survivors insurance
trustfund...................................
3,057,915
Federal disability insurance trust fund:
Administrative expenses and construction. .... .. ...
Benefit payments................................
Vocational rehabilitation services.. . .... ...... ....
Payment to railroad retirement account. ........... i
Total--Federal disability ins. trust fund ......... :
Federal hospital insurance trust fund:
Administrative expenses and construction..........
Benefit payments ................................
Total--Federal supplementary medical
insurance trust fund ..........................
j
1
other .............................................. 1
Total--Social Security Administration ............. ,
Special institutions:
American Printing House for the Blind .............. .
National Technical Institute for the Deaf ............. .
Model Secondary School for the Deaf ................ .
Gallaudet College ................................. .
Howard University ................................ .
Departmental management:
Intragovernmental funds (net~ ...............•.......
other ..•..........................................
Proprietary receipts from the public .................. .
Intrabudgetary transactions:
Payments for health insurance for the aged:
Federal hospital insurance trust fund ............. .
Federal supplementary medical Insurance trust
6,413.. .......
4,032,880
529
6,413
10,837
........
10,637
1
........
1
4,032,351
39,463,051
6,980
39,456,070
36,076,579
6,166
36,070,413
54
1,274
114
1,404
3,198
681
5,154
32,737
1,404
3,198
681
5,154
32,737
1,340
1,780
143
4,316
30,358
6,248
38,779
613
26,201
54
1,274
114
438
3,899
438
3,899
251
6,392
251
6,392
-20,621
20,621
6,248
38,779
34,831
-34,631
1,3c)
1,780
143
4,3)6
30,358
13,727
613
26,201
-13,727
-617,262
-617,262
-748,966
-748,966
fund ••..••.••.•..•.•..•...............•.•..••.
-66,806
-66,806
-928,151
-928,151
-984,287
-984,2l1I
fund.. ........................................
Federal disability inBurance trust fund. . • . •. . . . . . . .
Federal hoaD1tal inBurance trust fund .. . • • . • . . • . . . .
a.c.lpla t .......rred to railroad retirement account. . .
.............
• ••••• ••• ••••
• ••• •• • • • • • • •
...........
•••••••••••
• • • • • • • • • ••
-I11III,25'1
-442,151
-16,000
-11,000
-442,151
-16,000
-11,000
-I11III,25'1
-381,546
-32,000
-22,000
-512,810
-381,546
-32,000
-22,000
-1112,810
Paymente for military service credits and special
beneflte for the aged:
Federal old-age and survivors Insurance trust
w.;~=_!"-!.~_~ ___ ~ __~~:--:1!.~~:n~~'. ~!~.llare
-588,2Ii'l
~i- _~b
it'
-IIIIII,2Ii'l
~_
s~e,=" a'.:.-TH'.R+iNUIi'6*E AccddNl;..-Continued
--
ClassUication of
EXPENDITURES--Continued
Expenditures
Applicable
(Disbursements) Receipts
Applicable
Net
Expenditures
Expenditures (Disbursements) Receipts
--
-
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
This Month
AppUcable
Expenditures
Net
Expenditures (Disbursements) Receipts
Net
Expenditures
-.
t-
Hl)uSing and Urban Development Department:
Renewal and housing aSSistance:
Public enterprise funds:
College housing loan fund •.....•.................
Urban renewal programs ....•.......•......•....
Low-rent public housing ..................... '"
Other •..•.....••...•.........•.......•....•....
Other ...•...........•..........•.....•.......•...
$6,762
139,817
48,847
1,197
2,392
$3,996
5,223
3,982
306
.................. ..
$2,766
134,594
44,865
891
2,392
$160,865
1,096,059
453,598
1,416
24,408
$101,717
87,482
24,464
1,805
.......... .....
$59,148
1,008,576
429,134
-389
24,408
$155,664
552,581
351,033
318
11,557
$102,568
17,600
11,916
945
..•........
$53,096
534,981
339,117
-627
11,557
Total--Renewal and housing aSSistance ............
199,015
13,508
185,508
1,736,345
215,468
1, 5111, 877
1,071,153
133,030
938,124
Metropolitan development:
P.lblic enterprise funds .......•....................
Open space land programs ....•........ , ...........
Grants for baSic water and sewer facilities ..........
Other .............•.•....••.•.............•......
1,194
6,268
8,543
4,721
.............
.........•...
1,619
-425
6,268
8,543
4,721
21,986
43,414
109,011
47,477
21,551
435
43,414
109,011
47,477
24,493
43,278
80,189
36,461
1ll,434
...........
................. ..
•.......••.
•...•......
...................
4,059
43,278
80,189
36,461
Total--Metropolitan development .................
1ll,725
1,619
19,106
221,889
21,551
200,338
184,422
1ll,434
163,988
Model cities and governmental relations •.............•
Urban technology and research ..............••......•
17,663
1,416
............ ..... ...
17,663
1,416
85,893
9,579
.......•..•
...........
85,893
9,579
15,421
8,676
...................
.. ................
15,421
8,676
50,763
303
272
6,073
2,398
70,308
5,067
186
-19,545
-4,764
85
6,073
2,398
531,383
7,196
1,337
23,473
18,728
-185,935
-10,278
-37
23,473
18,728
435,685
7,303
-1,539
1,138
5,917
582,759
10,973
3,579
-147,074
-3,670
.............
.•....••..
-12,796
12
-8,190
823
143,621
48
187,699
-8,647
137,854
144,297
Mortgage credit:
Federal HOUSing Administration:
Public enterprise funds:
Federal Housing Administration fund ...........
Housing for the elderly or handicapped ..........
Other•........•.....................•........
Home ownership and rental housing assistance .....
Rent supplement program ...................•....
Government National Mortgage Association:
Management and liqUidating functions .............
Guarantees of mortgage backed securities ••••.••••
Special assistance functions .................•....
Participation sales fund .........................
Secondary market operations .•.••...........•....
Proceeds from sale of Federal National
Mortgage Association (net) ...................
Total--Mortgage credit •.........................
Federal Insurance Administration:
Public enterprise funds ............................
Other ..•..........•.••.......•..............•....
Fair housing and equal opportunity ..................•.
Departmental management ....•..•...................
Proprietary receipts from the public ..........•.......
lntrabudgetary transactions ............•.............
Total--Housing and Urban Development Department ..
Interior Department:
Public Land Management:
Bureau of Land Management .......................
Bureau of Indian Affairs:
Public enterprise funds .........................
Indian tribal funds .........•....•...............
Other ..........................................
Bureau of Outdoor Recreation .•...........•......•.
Office of Territories ......................•.......
Total--Public Land Management .........•.......
6,145
29
8,198
823
.............
.............
.............
..............
18,940
17
16,388
.............
............... ............. .............
............... ............. . ............
...........
717,318
17,474
1,373
...........
...........
158,927
48
181,637
...........
............. ...........
............. ...........
-15,305
...... m;456 ...........
145,085
~,618
...........
~,118
1,138
5,917
-6,443
..............
·· .. ··6;062
-8,647
...........
...........
37,143
67,180
-10,630
-54,618
-30,037
..............
163,8W
-l63,Blll
75,003
110,906
-35,903
904,838
1,076,778
-171,939
703,338
1,117,694
-414,356
-1,297
107
.............
1,428
-2,725
107
-2,075
959
5,875
64,260
...........
...........
26,365
-28,440
959
5,875
64,260
-138
-5,452
678
2,000
53,582
28,178
-33,630
678
2,000
53,582
............... ............. ...... ·"7;549
7,549
............... ·· .. ······ii6
-116
................. ...... ....... .............
............. ········i38
............. ...........
...........
...........
...........
..•.....•..
.............
69
-12,836 ..•..•.....
-69
-12,836
3111,182
127,577
192,605
3,027,563
1,340,300
1,687,264
2,01ll,983
1,299,405
721,578
8,153
.............
8,153
196,851
.............
196,851
167,554
...........
167,554
18
-825
23,913
8,565
11,145
191
.............
..............
.............
.............
-172
-825
23,913
8,565
11,145
24
53,589
303,939
116,376
65,591
646
...........
...........
.............
..........
~22
53,589
303,939
116,376
65,591
634
108,783
268,369
129,482
60,683
..........
.............
...........
..........
762
-129
108,783
268,369
129,482
60,683
50,969
191
50,778
736,370
646
735,724
_'73 5,505_
762
734,743
-
....
1'0)
TABLE III--BUDGET RECEIPTS AND OUTLAYS--Continued {In thousands}
SECTION A--THE EXPENDITURE ACCOUNT --Continued
I
Current Fiscal Year to Date
This Month
Classification of
EXPENDITURES--Continued
Applicable
Expenditures
(Disbursements) Receipts
Expenditures
Net
Expenditures (Disbursements)
$6,307
........... .
$6,307
$103,025
1,057
5,476
1,307
106
$1,016
...........
........... ..
............
41
5,476
1,307
106
42,247
61,985
17,164
1,014
14,252
1,016
13,237
111
4,619
12,127
13,157
..............
..... .....51
.....•••....
30,016
$91,773
••..•...•.••
$91,773
33,989
56,326
8,429
874
$17,856
••.........
30,229
61,985
17,164
1,014
..••••.....•.•
...........
.•.........
16,133
56,326
8,429
874
225,435
12,018
213,416
191,391
17,856
173,535
60
4,619
12,127
13,157
426
54,460
114,707
138,440
•.•.••.•...
..........
..........
564
-139
54,460
114,707
138,440
903
51,735
109,284
133,141
661
....•••.•.•..
...•..•.....
.•.........
242
51,735
109,284
133,141
51
29,964
308,032
564
307,468
295,062
661
294,401
3,361
3,215
189
1
13,641 •• r'•••••••••
7,156
78
11,005
50
737
47,280
-2,369
142,252
96,858
1,003
131,448
818
6,853
37,751
10
............
............
..........
..........
...........
...........
9,529
-2,379
142,252
96,858
1,003
131,448
818
6,853
65,130
1,501
166,611
90,871
916
130,512
874
7,648
35,622
5,015
............
............
............
............
............
-146
189
13,641
7,156
78
11,005
50
737
...•..•.•...•
•.........•
...•.•....•
..............
.......••..
............
29,508
-3,514
166,611
90,871
916
130,512
874
7,648
36,071
3,362
32,710
424,142
37,761
386,381
464,063
40,637
423,426
3,555
29,927
............
............
3,555
29,927
30,220
263,149
......•.....
...........•
513
1,531
1,811
6,156
9,797
11,551
............•
...•.•.....
.............
•...•...•••
.•.........•
37,450
214,940
513
1,531
1,811
37,450
30,220
263,149
....•••...••
..........
214,940
6,156
5,533
.•..•.....
....••.....•.
........•.
9,797
8,052
11,551
10,810
..••...•..•
.......•...•
-505
813,667
-813,667 .....•••...•••.
-40,268
....••....•
-31,235
(*)
166,644
9,311
22,169
9,594
-45
364
'7,80'7
8,173
2,458
94,334
............
............
............
•••••••• ·373
............
............
...... ......... ............M
-----..............
<--
.......... .
$12,018
..........
.
...........
Net
Expenditures
$103,025
............
...............
...........
......•......
.•........•....
89,714
............... .............
-89,714 ...•...........
(*)
-31,235
;r
Applicable
Receipts
Comparable Period Prior Fiscal Year
Applicable
Expenditures
Net
Expenditures (Disbursements) Receipts
.~
--
74,310
1,983,617
9,311
22,169
9,594
102,725
252,902
103,958
-45
-10
'7,8O'l
8,1'73
2,458
-1,482
3,863
88, '109
65,419
25,938
-M
.--
..
864,857
............
•.•......•
...•...•••.
...........
4,002
...........
...........
••....••.•••... •••••. i;i7i
--
.···i;043;373
...........
5,533
8,052
10,810
-505
-1,043,373
-40,268
1,118,760
1,922,032
1,103,289
818,743
102,725
252,902
103,958
66,925
217,560
90,013
.......•.•...
...........
....•••....•
86,925
217,580
90,013
-1,482
-139
85,419
88,'109
25,938
- .....
-1,3'18
•...•••.....
3,'102
..•....•...•
.•....•....•
1,_
.....•..••.•••• ............
-8,111
3,838
'19,413
33,535
1'7,351
.........
.--
-8,111
-64
'19,413
33 UI5
1'1;"1
-1, . .
.....
~;.
5~nuN A--TH" .. " ...... DITURE
This Month
Classification of
EXPENDITURES- -Continued
Labor Department:
Manpower Administration:
Manpower development and training activities •••••••
Salaries, expenses and other ••••••••••••••••••••••
Bureau of Apprenticeship and Training ••••••••••••••
Unemployment compensation for Federal employees
and ex-servicemen and trade adjustment ••••••••••
Advances to employment security administration
account, unemployment trust fund ••••••••••••••••
Unemployment trust fund:
Employment security administration account:
Salaries and expenses .........................
Grants to States for unemployment compo
and employment service administration •••••••
Payments to general fund:
Reimbursements and recoveries ••••••••••••••
Interest on refunds of taxes ••••••••••••••••••
Interest on advances from geperal
(revolvinfc) fund ••••••••••••••••••••••••••
Railroad unemp oyment insurance account:
Benefit payments •••••••••••••••••••••••••••••
Interest on advances from railroad retirement
account ....................................
Railroad unemployment insurance adm. fund ••••••
State accounts: Withdrawals by States ••••••••••••
Federal extended compensation account •••••••••••
Expenditures
Applicable
(DIsbursements) ReceIpts
..............
ACCOUNT--Continued
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
Net
Applicable
E~enditures
Expenditures (Dis ursements) ReceIpts
Net
Expenditures
ExpendItures (Disbursements)
Applicable
Receipts
.. ......................
.. ..........
$407,069
37,205
7,363
$377,353
31,815
9,188
..........
..........
186,389
126,605
--4,379
-4,379
-3,832
. ...........
............
. ...........
. ...........
2,154
19,204
..........
19,204
20,805
. . . . . . . . . . . . . o. ..
72,938
620,129
..........
6al,129
588,062
100
18
10,635
242
..........
..........
10,635
242
9,555
248
............
4,379
4,379
............
7,412
92,955
3,705
548
304,595
............
3,705
548
304,595
...........
4,876
6,618
2,792,794
. ..............
. ...........
..........
. .........
..........
. .........
..........
...........
Total--Unemployment trust fund •••••••••••••••
391,470
391,470
3,551,832
..........
3,551,832
Other ............................................
...............
............
. ............
. ...........
-1
Total--Manpower Administration ••••••••••••••••.
478,919
............
478,919
Labor-Management relations •••••••••••••••••••••••••
Wage and Labor Standards:
Wage and Labor Standards Administration •••••••••••
Bureau of Employees' Compensation:
Employees' compensation claims and expenses •••••
Other..........................................
1,483
.............
1,483
4,506
4,506
43,382
12,440
122
............
............
............
12,440
122
Total--Wage and Labor Standards ••••••••••••••
17,068
Bureau of Labor Statistics •••••••••••••••••••••••••••
Bureau of International Labor Affairs •••••••••••••••••
Office of the Solicitor ...............................
Office of the Secretary •••••••••••••.••••••••••••••••
Proprietary receipts from the public •••••••••••••••••
2,399
276
779
1,781
............
............
............
............
...............
Total--Labor Department .........................
502,706
P ost Office Department: Postal Fund •••••••••••••••••••
656,120
S55,753
3,910
777
.............
............
$55,753
3,910
777
............
............
27,010
186,389
...............
...........
2,154
............
............
100 ............
18 ............
............... .............
7,412
27,010
72,938
...............
............
............
. ...........
$407,069
37,205
7,363
. ..........
. .........
$377,353
31,815
9,188
126,605
-3,832
al,805
588,062
3,832
............
. ...........
. ...........
. ...........
92,955
96,588
. ...........
96,588
4,876
6,618
2,792,794
5,730
6,089
2,061,135
. ............
. ...........
5,730
6,089
2,061,135
(*)
............
............
9,555
248
3,832
H
2,792,043
. ............
2,792,043
-1
-100
............
-100
4,185,478
..........
. .........
4,185,478
3,333,072
. ...........
3,333,072
11,870
..........
11,870
8,971
............
. ............
43,382
37,103
81,410
489
..........
. .........
. .........
81,410
489
67,263
404
17,068
125,281
. .........
125,281
104,771
24,027
1,829
6,915
6,616
...........
$10
2,399
276
779
1,781
-10
.................
24,027
1,829
6,915
6,616
-3,847
22,032
1,716
6,122
5,688
10
502,695
4,362,016
3,847
515,360
140,759
8,080,151
6,566,246
............
Net
Expenditures
. .........
. .........
. .........
$3,847
3
. ............
. ............
. ...........
. ...........
............
. ...........
. ...........
. ...........
8,971
37,103
67,263
404
104,771
$7,384
22,032
1,716
6,122
5,688
-7,384
4,358,169
3,482,373
7,384
3,474,989
1,513,905
7 273 102
6 352 768
920 334
See footnotes on page 3.
c;)
-•
TABLE III--BUDGET RECEIPTS AND OUTLAYS--Continued (In thousands'
SECTION A--THE EXPENDITURE ACCOUNT--Continued
Classification of
EXPENDITURES--Continued
State Department:
Administration of foreign affai rs:
Salaries and expenses .................•...........
Acquisition, operation and maintenance of buildings
abroad ........................................
Intragovernmental funds (net~ ......................
Foreign service retirement and disability fund .......
Other ...........................................
Total--Administration of foreign affairs ...•......
International organizations and conferences:
Contributions to international organizations .........
Other ...•.•......................................
International commissions ...........................
Educational exchange ...............................
Other ..............................................
Proprietary receipts from the pUblic ... , ..............
Intrabudgetary transactions:
Foreign service retirement and disability fund:
Receipts transferred to Civil Service retirement
and disability fund ...............•............
Other ..................•.........................
Total--State Department. ......................
Transportation Department:
Office of the Secretary ..............................
Coast Guard:
Trust revolving funds .•...........................
Intragovernmental funds (net) ......................
Other ..........•.........•......•................
Federal Aviation Administration:
Public enterprise funds ....•......................
Facilities and equipment .....•...•........•.......
Grants-in-aid for airports ..•......................
Civil supersonic aircraft development •..•...........
Other ........•.••...••.......•....•..............
Federal Highway Administration:
Highway beautification .............................
State and community highway safety programs .......
Highway trust fund:
Federal-aid highways ....•......••..............
Interest on advances ..•.....................•...
Other ....•.•..•.•...•....•..•..•...•............
Federal Railroad Administration:
Alaska Railroad ..................................
Other ..•.•..•..•........•.•.•.•••................
Urban Mass Transportation Administration:
Urban mass transportation fund ....••.............•
Other ..•.......•.••.•..•..........•.......•......
Saint Lawrence Seaway Development Corporation .......
National Transportation Safety Board ...............•.
Proprietary receipts from the public .....•...••.......
Total--TransportaUon Department .•.......•...
Treaaury Department:
OUlae at the Seer_ry:
!!L~fI!I ~ ~~:.: -";:':':' .._·ll:~~:""·_~"'::': .:.;.:. .......
•
'''-';''~.:''~~""o?:.~~'~-;'=i.~::.~.'';".'~'.
- ~ -..••••...••..•
Expenditures
(Disbursements)
Applicable
Receipts
Applicable
Expenditure
Net
Expenditures (Disbursements) Receipts
!10,407
$225,546
7,736
67
1,962
60
16,026
51
17,213
2,989
20,232
261,825
$699
2,562
676
728
3,681
3,077
-699
128,841
6,825
7,488
36,330
11,678
.............
..........
..........
..........
..........
..........
..........
..........
..........
..........
...........
.........
............
..........
..........
-36
..........
-36
!1O,407
7,736
67
1,962
60
20,232
2,562
678
728
3,681
3,077
............
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
This Month
..........
..........
..........
..........
...........
..........
..........
..........
..........
..........
..........
Net
Expenditures
Applicable
Expenditures
(Disbursements) Receipts
$225,546
8208,365
16,026
51
1'7,213
2,989
18,717
180
14,144
3,164
261,825
244,569
$5,418
128,841
6,825
7,488
36,330
11,678
-5,418
118,526
5,695
14,804
46,956
11,515
-135
-430
..........
.....•••..
.........
.........
.........
.........
.........
.........
Net
Expenditures
$21>8,365
18,717
180
14,144
3,164
244,569
..•.•...•
.............
.........
.........
.........
.........
$4,731
118,526
5,695
14,804
46,956
11,515
-4,731
-135
-430
-184
-430
..........
........
-184
-430
30,921
699
30,223
452,424
5,418
447,006
441,450
4,731
436,719
1,267
......... .
1,267
20,689
••.....•..
20,689
15,837
.........
15,837
-96
703
58,379
2,106
3,057
584,472
......... .
2,157
-51
3,057
584,472
128
552,~
38
..........
........
552,~
6
9,481
10,215
14,842
76,153
20
105,931
83,155
111,348
886,000
..........
9
10
105,931
83,155
111,348
886,000
17
74,532
103,671
80,603
739,171
1,891
10,845
13,845
74,724
13,845
74,724
21,329
40,169
120
703
58,379
..........
7
9,481
10,215
14,842
76,153
..........
..........
1,891
10,845
216
..........
1
.........
...........
...........
.........
..........
.........
....•••....•
.........
...........
.........
459,097
459,097
4,378,535
...........
4,378,535
............
. ..........
...........
......... ...........
.•...••......
..•...... ...........
4,139
4,139
.
.........
48,541
48,541
2,633
2,323
309
28,223
28,478
-254
..........
1,911
1,911
16,845
..........
16,845
10,829
129
10,700
105,224
846
104,378
..........
288
288
1,516
.....•....
1,516
1,064
841
223
586
.............
664,450
~~
•..••..•..
2,573
6,083
..........
/ .... _- ....~'. J.,.,'"'i •. ~ .... ~ ....
586
-2,573
658,36'7
'~~'.'~.
6,143
5,424
.............
......••..
19853
6 475.800
57.478
j •• , ...
o
6,135
._~:~~~ :;~_:"";;;;::
••• __
-4,284
19
-1
74,532
103,671
80,603
739,171
........••••••
..••.••..
•.•..•..•
•..•.•.•.
....•..••
..•..•.•.
.........
.........
.........
24,586
16,679
....••...
25,087
-501
16,679
139,710
715
11,256
4,725
139,358
715
4,885
4,725
-20L 388
5 969 8'13
4,150,575
50,506
.............•
352
.........
6,371
.........
ID 386
8022127
52254
8.218
7.588
-!
21,329
40,169:
I
4,150,575
.............
50,506
.........
8
5,424
-19 853
6,418 322
.~
90
-4,284
.........
.........
,
7'~
..
Ii_DL~ "1--In;l'I:lru~1 Ke<c~I".:O AND·OUTLAYS--Continued (In thousands)
SECTION A--THE EXPENDITURE ACCOUNT-":Continued
-
Classification of
EXPENDlTUREB--Continued
'reasury Department--Continued
Bureau of Accounts:
Salaries and expenses •....................•........
Claims, judgements and relief acts .....••.....•...•.
Interest on uninvested funds ...................•...•.
Government losses in Shipment ...........•..........
Reconstruction Finance Corp. liquidation fund ••••••••
Other ....••......•...•.•.....•...••.....•.........
Bureau of Customs:
Salaries and expenses .....•...•......•....•...•.•..
Intragovernmental funds (net) .•............•........
Other ....•.....•.......•.....•.•...............•..
Bureau of Engraving and Printing:
Intragovernmental funds (net) ........................
Other .............................................
Bureau of the Mint:
Salaries and expenses .............•...•..•.•.......
Other .•..•...........•...............•.........•..
Bureau of the Public Debt .......•..........•........•.
Internal Revenue Service:
Salaries and expenses ...................•..........
Revenue accounting and processing .•................
Compliance .•.....•...............................
Interest on refunds of taxes ........•................
Payments to Puerto Rico for taxes collected .....•....
Federal tax lien revolving fund ......................
Office of the Comptroller of the Currency ..............
Office of the Treasurer:
Salaries and expenses •..........................•..
Check forgery insurance fund ...............•.....•.
U. S. Secret Service ..........•.......................
This Month
Applicable
E~enditures
(Dis ursernents) Receipts
$2,290
1,224
121
19
.. .. ........................
~
21
...........
...........
...........
...........
$90
...........
3,243
............
. ...................
...........
-868
...........
10,811
...............
$2,290
1,224
121
19
-90
21
$45,239
52,677
6,226
167
..............
1,900
............
121,698
-356
54,060
10,811
3,243
...........
..........
...........
..........
$180
..........
..........
..........
..........
...............
............
...........
...........
...........
. ..........
...........
99,072 ............
............... ...........
...........
44,882
393
845,243
62,2'75
7,254
330
...............
393
99,072
...............
44,882
............
............
-7
403
16,111
5,900
64,215
14,216
7,006
57,408
...........
14,216
7,006
57,408
25,329
213,084
631,591
112,708
85,125
15
-5,051
21,247
187,325
537,252
119,841
80,238
14
25,785
7,911
105
30,271
7,065
447
23,704
15,797,300
3,459,521
13,961,219
2,627,018
19,256,821
16,588,237
..........
-389,693
-853,836
...............
268,340
-716,923
. ..........
-268,340
-716,923
19,917,229
426,069
19,491,160
17,220,330
296,489
16,923,841
234,964
2,455,209
2,118
2,453,091
2,451,137
760
2,450,377
8,116
3,274
5,062
34,276
2,379
59,670
327,019
77,328
4,351
19,962
..........
..........
..........
..........
59,670
327,019
77,328
4,351
19,962
68,158
290,550
73,947
-12,663
24,855
. ..........
. ..........
. ..........
. ..........
68,158
290,550
73,947
-12,663
24,855
59,335
4,793
22,731
82,878
..........
..........
22,731
82,878
33,218
75,584
-173
1,748
5,997
2,201
24,164
10,118
2,160
..........
40
24,164
10,118
1,156
20,868
5,217
-799
319
25,460
..........
. .........
-838
319
25,460
. ...............
-868
-236
96
1,275
372
9,371
16,111
5,900
64,215
2,646
318
2,329
25,329
213,084
631,591
112,708
85,125
107
30,351
..........
...............
2,184
23,363
51,069
8,711
8,329
940
73
3,211
...........
63
...........
940
10
3,211
7,911
806
30,271
..........
Interest on the public debt (accrual basis):
Public issues ......................................
Special issues ...•.................................
1,350,262
367,332
1,350,262
367,332
15,797,300
3,459,521
Total--Interest on the public debt ..........•.....•.
1,717,594
...........
...........
...........
1,717,594
19,256,821
Proprietary receipts from the public ..........•.....•.
Intrabudgetary transactions ...........................
............... .
17,593
...........
-17,593
-80,859
..............
-80,859
-853,836
Total--Treasury Department .....................
1,766,060
18,064
1,747,996
A tomic Energy Commission ............................
234,979
15
............
2,184
23,363
51,069
8,711
8,329
121,698
-356
54,060
$45,243
62,275
7,254
330
-7
403
. ...........
1,275
372
9,371
$45,239
52,677
6,226
167
-180
1,900
-236
94
..........
..........
..........
..........
..........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...............
-
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
Expenditures Applicable
Net
Applicable
Net
Net
E~ditures
Expenditures
Expenditures (Dis
sements), Receipts Expenditures (Disbursements) Receipts
. ...........
..........
...........
..........
..........
92
35,402
701
..........
........... .
..........
..........
389,693
...........
...........
...........
...........
...........
...........
...........
$15
27,684
...........
450
............
...........
...........
. ..........
21,247
187,325
537,252
119,841
80,238
-1
-1,899
7,065
-3
23,704
13,961,219
2,627,018
16,588,237
General Services Administration:
Real property activities:
Construction, public buildings projects ....•.........
Operating expenses, public buildings service .........
Repair and improvement of public buildings ....•.....
Intragovernmental funds (net) .......................
Other •............................................
Personal property activities:
Intragovernmental funds (net) .......................
Other .............................................
Records activities:
National Archives trust fund ........................
Other .............................................
Transportation and communications activities ...........
Property management and disposal activities:
Public enterprise funds ............................
Intragovernmental fundS (net) .......................
Other .............................................
8,116
3,274
5,062
34,276
2,379
59,335
4,793
233
1,748
5,997
...............
193
1,893
...........
...........
...........
............... .
...........
...........
406
...........
...........
(*)
...........
...........
.
( )
193
1,893
..........
...........
39
308
27,155
...........
. ..........
. ..........
33,218
75,584
1,335
-179
20,868
5,217
15
-15
308
27,155
.. ..........
. ..........
. ..........
. ..........
U1
-
(1)
TABLE III--BUDGET RECEIPTS AND OUTLAYS--Continued {In thousands)
SECTION A--THE EXPENDITURE ACCOUNT--Continued
Current Fiscal Year to Date
This Month
Classification of
EXPENDITURES--Contlnued
Expenditures
(Disbursements)
Applicable
Receipts
Applicable
Expenditures
Net
Expenditures ,(Disbursements) Receipts
Comparable Period Prior Fiscal Year
Expenditures
Net
Expenditures (Disbursements)
Applicable
Receipts
Net
Expenditures
General Services Admlnistration--Contlnued
General activities:
Surplus real property credit sales •••••••••••••••••••
Public enterprise funds •••••••••••••••• " •••••..••••
Intragovernmental funds (net) .•••••••••.••••••••••••
other ••••.•••••••••••.•.•••••.•.•••.•.••..••..••••
Proprietary receipts from the public •.••.•••.••••••.••
... ........... ...
·······27;452
Total--General Services Administration ••••••••••.
lal,259
27,859
92,4.01
604,623
166,697
437,925
582,673
162,921
419,752
378,509
495
378,014
3,754,839
5,891
3,748,948
4,252,749
6,235
4,246,514
581,083
138,771
.....
.........
.... ............
581,083
138,771
6,337,997
1,652,616
...........
...........
6,337,997
1,652,616
5,593,809
1,450,038
...................
..••..••••..
5,593,809
1,450,038
7,392
-4,937
15,611
10,710
-1,223
43,132
-3,318
-3,714
-27,521
105,785
102,162
222,909
118,994
126,198
303,749
-13,209
-24,036
-80,84.0
108,426
114,447
301,096
115,693
131,599
374,881
-7,267
-17,151
-73,786
7,804
48,807
35,419
.............
.............
.............
7,804
48,807
35,419
81,392
593,069
379,868
81,392
593,069
379,868
77,847
587,906
321,618
77,847
587,906
321,618
...............
-1,121
-43,863
-all
10,123
463,091
2,124
-10,123
-463,091
-2,124
.................
..............
..............
.....................
...............
............
1,121
43,863
201
...............
...............
...............
...........
............
..........
10,967
477,984
1,865
-10,967
-477,984
-1,885
-5
-216
.............
.............
-5
-216
-58
-3,324
............
..........
-58
-3,324
-50
-5,84.0
..............
............
-50
-5,84.0
829,730
97,804
731,926
9,472,416
1,024,279
8,448,137
8,529,297
1,112,989
7,416,309
26
al9
451
.........• (;j
28
209
451
253
2,257
10,642
··········2
253
2,255
10,842
238
2,350
9,8>1
476
(*)
-67
58
36,546
11,184
-125
9,839
...............
...$8,121
-3
924
161
National Aeronautics and Space Administration .••••••••••
Veterans Administration:
Compensation, penSions, and benefit programs ••.••.•••
Medical care •••••••••..•••••••••••••.••..•..•••••.••
PubliC enterprise funds:
Direct loan revolving fund
Loan guaranty revolving fund •••.••••••.••••••••••••
Other ••.•••.•••••...••••••••••..•.••..•••.••.•••••
Benefits, refunds and dividends:
Government Ufe insurance fund ••.•••.••••••••••••••
National service life Insurance •••••••••••• , •••••••••
Other •••••••••.••.••..••••.•••••••••••••••••••••••••
Proprietary receipts from the public:
Government life Insurance fund •••• , •••••••.•
@FedFRASER