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L'B~ARY
ROOM 5030
SEP 111972
TREASURY DEPARTMENT
the Department of the TRfASU RY
~SHINGTON.
D.C. 20220
TELEPHONE W04-2041
REMARKS OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
(ENFORCEMENT, TARIFF AND TRADE AFFAIRS, AND OPERATIONS)
before the
.
24th ANNUAL DINNER-DANCE
of the
HELLENIC-AMERICAN CHAMBER OF COMMERCE
PIERRE HOTEL, NEW YORK, NEW YORK
April 28, 1972
9:00 p.m.
PRESIDENT NIXON'S NEW ECONOMIC POLICY AND THE
DOCTRINE OF FAIRNESS IN INTERNATIONAL TRADE
President Nixon's New Economic Policy, announced on
August 15, 1971, marked a watershed in world history, not
just U. S. history. The President's actions marked the
end of one era -- "the end of the post-war world" as
Secretary Connally said last month -- and the dawn of a
new era in international economic relationships.
The President's goals were three -- to curb inflation,
to generate jobs by stimulating responsible economic growth,
and to strengthen the position of the United States in the
international trade and financial community.
Today, I shall talk primarily about the U. S. position
in international trade -- a Doctrine of Fairness -- with
special emphasis on Treasury's role and responsibilities in
this area, and the need to perfect international organization
and procedures for effective solutions of trade problems.
Why Are We in a New Era?
At the end of World War II, the United States was the
wealthiest, most powerful nation on earth. A large part of
the world was in ruins, physically, politically, and
- 2 economically, after the holocaust that it had just experienced.
The United States exhibited truly unselfish and generous
leadership in an effort to bring these ravaged areas back
to normal. We did this in our own long-range national
interest but at considerable sacrifice.
It made sense for the United States to do everything
possible to assist both our former allies and enemies to
regain their feet. And so, we literally showered U. S.
dollars and expertise on these countries. The American
taxpayer accepted the burden of the nearly $150 billion in
economic and military aid that was made available over the
past 25 years, for he understood the relationship between
a prosperous world economy and his own well-being.
But conditions have changed and we now find ourselves
confronted with an entirely different picture. Although
the United States is still the most important free world
power, it is no longer the only free world power~ Other
nations are again in a position to challenge us economically
and politically. The United States is now one giant among
several.
The Long-Run Task
What does this new era signify for the United States and
the rest of the trading world? Essentially, the'long-run
task facing the United States and the world community is
the creation of an international economic system which,
on the basis of mutual advantage, will stimulate international
trade and freer competition, draw nations and people together,
and thus form the basis for ~ lasting peace with prosperity.
Progress Made Since August 15, 1971
In his policy role as Chief Economic Spokesman for the
President, Secretary Connally has already sketched in broad
outline form the new policies to be followed. The domestic
and international fronts, which cannot be separated, have
seen considerable progress in the eight months since
August 15, 1971.
- 3 On the domestic side, economists are virtually
unanimous that activity is expanding vigorously. Industrial
production rose strongly in March, the seventh consecutive
monthly advance. The other two economic indicators for
March presently available -- total employment and retail
sales -- also showed strong gains. Employment rose by
620,000 to 81.2 million -- the largest gain for a month
since mid-1967. These indicators are further evidence
that the economy is in a strong expansionary phase.
On the international side, the Smithsonian Agreement
of December 18, 1971, was a significant breakthrough and
has given the new era a substantial forward thrust. That
agreement included a multilateral realignment of exchange
rates, commitments to discuss more general reforms of the
international monetary system, and commitments to begin discussions to reduce trade barriers, including some most harmful to the United States. For its part, the Unit·ed States
agreed to recommend to the Congress that the price of gold
in dollars be raised when progress had been made in trade
liberalization.
On February 9, Secretary Connally transmitted to the
Congress a draft bill providing for devaluation of the dollar
by 8.57% to $38 per ounce of gold. In signing that bill
into law on Monday, April 3, the President said that the basic
significance of the Smithson~an Agreement and the legislation is:
" ••• that it provides for continued cooperation
among our allies and ourselves--and thus
strengthens our unity--as we work toward an
'open world' based on a more balanced monetary
system and a more equitable international
trading environment."
Simultaneously with the Smithsonian Agreement, commitments
were made by some of our allies to assume a larger share of
the costs of common defense.
.es
- 4 Substantive agreements have also been reached with
the European Cormnunity and with Japan to remove or lower
certain barriers against U. S. products and to support
multilateral and comprehensive trade negotiations in 1973,
meanwhile solving more immediate problems in 1972 through
the GATT. The Administration will seek the necessary
legislative authority for these comprehensive negotiations.
Doctrine of Fairness in International Trade -Abroad and at Home
Abroad
These are some of the accomplishments to date on the
international trade front. All of the United States' efforts
in international discussions have been dedicated to one
objective--the establishment of a Doctrine of Fairness in
International Trade.
The president and Secretary Connally have served notice
that the United States is no longer going to compete with
one hand behind its back. To compete fairly abroad, we must
have fair access to the markets of Europe, Asia, South
America, Africa, and the rest of the world.
I do not mean to imply that the United States is
expecting to obtain something for nothing. We recognize
that some of our practices are regarded by other countries
as discriminatory. But in our trade negotiations we do have
a right to demand a fair bargain. We insist only on the
right to compete fairly abroad.
As Secretary Connally said in Munich last May:
" ... no longer will the American people permit
their government to engage in international
actions in which the true long-run interests of
the U. S. are not just as clearly recognized
as those of the nations with which we deal."
- 5 -
The point he conveyed to all is that the United
States can no longer stand by complacently when markets
are closed to us or where the "rules of the game" seem
to be rigged against us.
When our foreign friends complained about the
temporary 10% additional duty adopted as part of the
president's new economic program, they did not
mention in their complaints the barriers they maintain against U. S. exports to their countries.
These barriers take various forms--quotas no
longer justified by economic factors, discriminatory
taxes such as progressive taxes on horsepower which
affect the export of U. S. automobiles, discriminatory
tariff arrangements such as the Common Market preferences
and reverse preferences, 'which establish a lower tariff
on the exports of Common Market members than on those
of the U. S. and others into third markets, both in
developing and developed countries. These barriers
were not wiped out by the Smithsonian Agreement. We
have a long way to go in order to achieve a fair break
in international trade for American industry and
agriculture.
Since the post-war years, the United Kingdom has
maintained quotas for balance of payments reasons on
imports from the dollar area of fresh, frozen, and
canned grapefruit, orange juice, and rum--this despite
the fact that the balance of payments justification
for these quotas has long since passed. Indeed, the
British are now in balance of payments surplus, and
removal of these quotas, 'which the United States has
been seeking for over 20 years, is certainly long
overdue. Is this fair trade?
- 6 Similarly, France imposed quotas several years ago
for balance of payments reasons on imports of semiconductors. Although the French authorities have liberalized
these quotas over the years, an intricate licensing system
inhibits our exporters from supplying the French market.
The balance of payments justification for protection has
long since ceased and this obstacle to trade should have
been eliminated years ago. Is this fair trade?
In the past few 'weeks, the European Community has
instituted a new system of compensatory duties so as to continue
to protect its domestic agricultural markets from more
efficient foreign production in the face of the recent
currency realignments. In so doing, the European Community
did not hesitate to break the negotiated rates (to which
all negotiating parties are supposedly bound) on some
40 million dollars'worth of trade. They did this despite
the fact that it was a clear violation of the GAtT. The
United States has some interest in the EC's actions, for
our cost of production for basic agricultural commodities
approximates half of that in the Common Market. Is this
fair trade?
The Community's regulations have restricted Japanese
imports to 6 percent of that country's overall exports-this in contrast to the 30 percent which Japan exports to
the United States. By restrictions such as these, the
Common Market has literally· forced the Japanese to concentrate their export drive on the United States. Is this fair
trade?
Japan now has $17 billion in foreign assets reserves.
We have approximately $12.5 billion. While the United States
had a balance of payments deficit last year--and has had
one for over 20 years--and our first trade deficit since
1888--Japan hada trade surplus last year of 7.9 billion
dollars, the highest in the world. This year's balance
for them will be even larger since their exports are likely
to run 20% above 1971. 3.2 billion dollars of Japan's
trade surplus in 1971 was 'with the United States.
- 7 -
Many factors, in addition to U.S. policy, contributed
to Japan's economic success. Japan, which was allowed to
maintain quotas for balance of payments reasons when it
entered GATT, still retains many of these quotas, this despite
an economic recovery which is commonly referred to as the
Japanese miracle. "Administrative guidance" by Japan which
impedes our exports and focuses on their export drive to
the U.S. is a central factor in Japan's economic success.
Is this fair trade?
We have heard from our good and valued neighbors to the
north in great detail about the "unfairness" of the New Economic
Policy from their standpoint.
What our Canadian neighbors fail to mention, however, is
that their basic balance of payments surplus has averaged 1.2
billion dollars annually over the last five years.
What they also tend to overlook is that the patently onesided automobile agreement contributed to a swing of over
800 million dollars in our trade balance. While we impose no
tariffs or barriers on Canadian exports of automobiles, Canada
imposes a 15 percent tariff on individual purchases of U.S.
automobiles. Although Canadian manufacturers may import American
automobiles duty-free, this is only if they meet certain minimum
Canadian production requirements.
These provisions of the automobile agreement were intended
as "temporary" safesuards for our Canadian friends, which may
have been appropriate at the time the agreement was negotiated.
For the past three years we have been negotiating for the removal
of these "temporary" safeguards, but to no avail . . . this despite
Canada's continuing large balance of trade surplus with the United
States -- a huge $1,880 million in 1971. Is this fair trade?
Also, notwithstanding the balance of trade which is now so
favorable to Canada, our friends to the north continue to be
considerably less liberal than the United States in granting
exemptions to returning tourists. Here again we have an example
of a measure which might have been "temporarily" justified at the
time it was introduced, but which is no longer supportable in the
light of today's realities. Is this consistent with a Doctrine
of Fairness?
- 8 -
The Canadians likewise continue to insist on retaining
other trade advantages which are a carryover from a bygone
era when we were in a position to, and did, assist unstintingly
our northern friends.
Is this consistent with a Doctrine of Fairness?
At Home--Treasury's Role in Combatting
Unfair Trade Practices
Against this backdrop, there are very positive measures
this Administration has already taken at home to rectify our
trade imbalance and protect jobs in the U.S.
From the inception of President Nixon's Administration, the
Treasury Department has vigorously attacked discriminatory
pricing techniques of foreign exporters. Treasury and its
Bureau of Customs have accelerated and expanded the use of
statutes specifically designed to protect U.S. industry
against unfair foreign competition. We have institutionalized
the supervision of the administration of the Antidumping Act
and the countervailing duty statute and other aspects of
tariff and trade relations by setting up an Office of Tariff
and Trade Affairs in the Office of the Secretary.
The Antidumping Act is designed to prevent injurious
international price discrimination--typically, selling in
the U.s. market at prices lower than in the foreign home
market. The countervailing duty statute is designed to
counteract and prevent foreign subsidies on exports to the
U.S.
The Treasury, under this Administration, has rejuvenated
what was largely a moribund Antidumping Statute. We have
significantly increased actions under this statute in the
past three years. We have eliminated loopholes. And we have
expedited consideration of complaints from domestic
manufacturers by adding manpower and streamlining procedures.
- 9 -
In short, Treasury is now administering the Antidumping Act
more nearly in the manner intended by Congress. This is
what industry has a right to expect. But more is needed.
Perhaps, criticism from abroad had to be expected.
But, the point is that these actions are taken and justified
in defense of fair trade--and without a sense of fairness,
the prospects for freer trade would be bleek.
Now, we are studying possible refinements and expansions
of the use of these measures which protect U.S. industry
against unfair competition. In new proposed antidumping
regulations which were published last week, we moved one step
further in our plan to clarify and tighten further the procedures
of the Antidumping Act.
Amendments of our Antidumping Act and countervailing duty
statute may be required to achieve freer and fairer competition
in international trade. And, once the long-range adjustments
of tariffs, quotas, and other barriers are accomplished, these
same measures can serve to maintain the integrity of those
agreements.
International Reforms
In analyzing what we can do to enable U. S. producers
to compete more effectively under fair rules of international
trade, we must of necessity examine closely the implementation
of those rules and even question the nature of the rules
themselves.
We face a situation in which such basic GATT rules as
most-favored-nation treatment are increasingly violated.
We are also concerned that foreign dumping and subsidizing
of exports to third countries have the effect of freezing
u.s. manufacturers out of these markets. Moreover, while
we favor U. S. capital investment abroad on as liberal terms
as our balance of payments allows, we cannot continue to
permit U. S. capital to create jobs abroad if domestic U. S.
manufacturers are prevented by discriminatory barriers from
selling in these markets on' equal terms.
Les
- 10 If the GATT itself proves unable to face up to the
realities of today's world, and we hope that it can measure
up to its responsibilities,we may have to give thought to
other ways of meeting the needs. If we are to reach our
goal of a bright new international future, the rules and
procedures of the past must be adapted to the world of the
1970's.
There is clearly a need for an international forum
or forums in which the interrelationship of all the factors
affecting international economic matters--monetary, tax,
and trade--can be discussed, not piece-meal, but as part
of a whole problem of economic health for all participating
nations.
secretary Connally, in his March 15 remarks, stressed
the need to recognize such links in the international economy
when approaching the issue of monetary reform.
Indeed, the international discussions of ·last fall,
following the president's declaration of his New Economic
Policy, were successful in achieving the recognition of the
interrelationship between international monetary and trade
matters. Accordingly, the President placed in the hands
of Secretary Connally, his Chief Economic Spokesman, the
broad responsibility and negotiating authority to do the job.
Secretary Connally has commissioned Under Secretary
Volcker to discuss with our" principal trading partners the
development of an appropriate forum or forums. Under
Secretary Volcker has recently talked with his colleagues
in Europe and Japan regarding this matter.
Implementation Versus Policy-Making
It has often been said, "Important as it is to make
policy, it is even more important to implement it."
- 11 -
It could verv well be that more forceful administration
of the Antidumping Act and countervailing duty law in
earlier years would have eased our problems today. I can
well remember my confirmation hearing when each and every
question of the Senate Finance Committee dealt with these
two statutes and whether I intended to enforce them. For
months thereafter, the same Senators were telling me,
"You have those statutes, use them." Well, this Administration
has used the Antidumping Act effectively, and as I'
mentioned, is reviewing the countervailing duty law.
But, there are other aspects of implementing trade
policy in day-to-day operations which strongly affect
our international trade and our balance of payments.
The main day-to-day operating bureau in the U. S.
Government affecting international trade is the Bureau of
Customs. Secretary Connally has directed that the trade and
tariff aspects of that Bureau's operations be given the
highest priority. This included not only the,operating
responsibilities of the Bureau of Customs in the area of
antidumping and countervailing duty, but also its role in
classification and valuation of imported merchandise,
administration of quotas and marking requirements, prevention
of &muggling, monitoring voluntary restraint arrangements,
and investigation of commercial frauds.
We also have under 'way a Treasury study to analyze the
data that is available in international trade matters. Here
again, the Bureau of Customs is the prime source for data
regarding trade matters and yet, for analyzing and
interpreting that data, its resources have not heretofore
been fully utilized. This also we are moving to correct.
The Future
In summary, President Nixon's Administration has moved
forcefully to improve our international trade and monetary
position. We have given our anti-price discrimination tools
the most vigorous exercise they have ever had. We have
negotiated the removal of various trade barriers and set the
stage for an overhaul of the international trade mechanisms
in the near future.
ies
.' 12 -
Secretary Connally has demonstrated ~7hat can be
accomplished by a single chief economic spokesman for the
President. We are seeking an international forum which will
enable us to deal with the problems in their full depth
and perspective. And we have identified the need within
the Executive Branch to institutionalize these capabilities.
The President has made it clear that he intends to meet
the challenge of the future by stimulating our economy to
ensure our continued efficient and competitive position in
the world. This means that inflation and unemployment in
the United States will be reduced while investment in new
plants and equipment by the private sector are stimulated.
While building this stronger economy at home, we
must remain outward looking and international in our
initiatives overseas. This Administration is committed to
such a course. Of course, our foreign friends and trading
partners must be equally outward looking and international
in their approach to their prob lems.
As Secretary Connally said when he addressed the
Economic Club of New York last fall:
'~e
do not intend to become provincial.
We shall not resort to protectionism. We
shall carry our burdens on the international
scene. But to do so it is essential to
attain an equilibrium in our overall financial
balance with the rest of the world. We seek
no advantage of others. We propose to suffer
no disadvantage. We seek a balance which will
be to the benefit of all the nations."
'~t
stake are not narrow or selfish
economic goals; beyond a fair balance of
opportunity, we seek none. The basic issue
is much broader. It is nothing less than
rebuilding the economic foundation for
promoting economic development, military
security, and the free flow of commerce.
- 13 -
"To fail in our effort would be to
fail not only as an Administration, nor
even as a Nation. At stake is nothing
less than the foundation for the freedom
and security of this generation, and
those that follow."
All Americans and all countries must be willing to
make the necessary sacrifices and, as a result, all Americans
and all countries will be beneficiaries.
What we seek are the conditions that will encourage
freer and fairer trade throughout the entire world, develop
growing domestic enterprise and employment, and insure
these gains against the erosion of inflation.
The President's New Economic Policy advances these
goals by laying the foundation for peace with prosperity
throughout the world.
000
The Department of the TREASURY
ASHINGTON. D.C. 20220
TELEPHONE W04·2041
FOR RELEASE AT 8:00 P.M.
EST
April 28, 1972
JAPANESE-U.S. TECHNICAL DISCUSSIONS ON ANTIDUMPING
The Treasury Department said today that on April 27 and
28, representatives of the Japanese and U.S. Governments
held technical discussions regarding the administration
of the Antidumping Act.
The discussions were held in a cordial atmosphere and
helped develop clarification of the administration of the
U.S. Antidumping Act.
Among the specific subjects discussed were the
proposed amendments of the U.S. Antidumoing Regulations
issued by the Treasury Department on Aoril 18; Treasury's
policy concerning acce~tance of price assurances; the
methods by which the Department makes its price adjustments
in determining fair value in antidumping investigations;
and the impact of the recent international currency
realignments on the administration of the antidumping law.
000
The Department of the TREASURY
IASHINGTON. D.C. 20220
TELEPHONE W04-2041
May 1, 1971
FOR IMMEDIATE RELEASE
UNDER SECRETARY CHARLS E. WALKER TO HEAD
UoS o DELEGATION TO ANNUAL MEETING OF THE
INTER-AMERICAN DEVELOPMENT BANK AT QUITO, ECUADOR
Char1s Eo Walker, Under Secretary of the Treasury, will
head the United States delegation to the 13th Annual Meeting
of the Inter-American Development Bank at Quito, Ecuador,
May 8-120
Dro Walker will be Temporary Alternate Governor for the
United States, representing Treasury Secretary John B. Connally,
who is the United States Governor of the Banko
The delegation also will include John M. Hennessy,
Assistant Secretary of the Treasury for International Affairs,
and Daniel Szabo, Deputy Assistant Secretary of State for
Economic Policy in the Bureau of Inter-American Affairso
The Inter-American Development Bank was established in
1959 to assist the economic development of the Latin American
nations o
000
C-301
The Department of the
ASHINGTON. D.C. 20220
TREASURY
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 1, 1972
DECISION ON RAILROAD PASSENGER VEHICLES
FROM CANADA UNDER THE ANTIDUMPING ACT
The Treasury Department announced today that a determination
has been made that railroad passenger vehicles from Canada are not
being, nor likely to be, sold at less than fair value within the
meaning of the Antidumping Act, 1921, as amended (19
et
u.s.c.
160
~.).
On February 1, 1972, the Department published a 6-month
"Withholding of Appraisement Notice" in the Federal Register which
stated that there were reasonable grounds to believe or suspect
that there were sales at less than fair value.
This notice also
indicated that interested parties could make written submissions
or request an opportunity to present their views orally at the
Treasury Department.
Subsequent information submitted in writing
and orally indicated that there were no sales at less than fair
value and led Treasury to this determination.
Railroad passenger vehicles valued at approximately $8.4 million
have been ordered in Canada for importation into the United States.
II II II
The Department of the TRfASURY
WASHINGTON. O.C. 20220
TELEPHONE W04-2041
FOR RELEASE UPON DELIVERY
STATEMENT OF THE HONORABLE EDWIN S. COHEN
ASSISTANT SECRETARY OF THE TREASURY FOR TAX POLICY
BEFORE THE COMMITTEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESENTATIVES
May 1, 1972
Mr. Chairman and Members of the Committee:
It is a great pleasure for me to appear before this
Committee today to discuss with you the tax treatment of
married couples and single persons.
The fairness of the relative tax burdens of single
persons and married couples has been questioned since
the early days of the income tax. In 1948, when married
couples were first given the option of income splitting,
many thought the problem had been resolved, but it has
continued to be troublesome. The current controversy
involves a confrontation between two groups:
those who contend that the income splitting
privilege afforded to married couples results
in an excessive tax burden on single persons; and
those who contend that the provisions of present
law create a penalty on marriage or an incentive
to "live together in sin," because the tax burden
on two single persons is less than that on a
married couple where both spouses earn similar
amounts of income.
C-300
- 2 Thus, single persons are complaining that the
present system unfairly discriminates against them
under certain circumstances, and certain married
couples allege discrimination under other circumstances.
As so often occurs in matters of this sort, there is
some merit in both of these contentions. In some
instances, married couples pay more than two single
persons and in other instances the reverse is true.
The problem is inherent in a progressive income tax
and there is no easy solution. The question is whether
the present structure represents a reasonable compromise
or can be improved.
In effect, the use of income splitting by a married
couple results in a tax on the married couple as if the
couple consisted of two single individuals each with
one-half the couple's total income. Under our progressive
tax rates, this 50-50 split of income between spouses
produces a lower tax than any other division of income.
Until enactment of the Tax Reform Act of 1969,
single persons who did not qualify as heads of household
generally paid higher taxes than married couples with
the same aggregate income. The 1969 Act significantly
altered the relative tax burdens of married couples and
single persons by
lowering the tax rates of single persons;
adopting the low-income allowance; and
increasing the maximum standard deduction.
Neither the low income allowance nor the maximum
standard deduction are involved where taxpayers itemize
their personal deductions, but they sometimes have a
significant effect on this problem where deductions
are not itemized.
- 3 -
The Rate Schedule. From 1948 to 1969 the primary
cause of the inequity of the relative tax burdens of married
couples and single persons was the allowance of full income
splitting to married couples and no income splitting to
single persons. This produced a tax burden on single
persons quite heavy relative to that of married couplps
with the same aggregate amount of income; at some income
levels, a single person's tax was more than 42 percent
greater than the tax paid by married couples with the same
amount of taxable income, the peak differential occurring
at about the $25,000 taxable income level. The 1969 Act
redressed the twenty-year old complaint of single persons,
adding a new rate schedule for single persons which reduced
the amount of tax of a single person compared to that of
a married couple where one spouse earns income; the new
rates insured that in no case would a single person's
tax become more than 20 percent greater than the tax of a
married couple with the same taxable income.
In 1969, when the new rate schedule for single persons
was adopted it was recognized that this change would result
in some cases in a married couple filing a joint return
being required to pay more tax than two single persons
with the same total income -- the so-called marriage
penalty. This result was justified on the grounds that
although a married couple will have greater living expenses
than one single person and thus should pay less taxes, the
married couple's expenses are likely to be less than those
of two single persons so that the couple has an ability to
pay taxes somewhat higher than that of two single persons.
(See the General Explanation of the Tax Reform Act of 1969
prepared by the staff of the Joint Committee on Internal
Revenue Taxation, page 223.)
Since the relative tax burdens of single persons and
married couples vary depending upon how much of the couple's
total income is earned by the husband and how much by the
wife, it is important to consider data as to typical distributions of earnings between spouses. Table 1 attached
shows dataas to the distribution of wages and salaries on
joint returns in 1969 as shown by the Forms W-2 attached
to the returns.
ies
- 4 The data indicates that in the case of more than
half of all married couples the entire earnings are
derived by one spouse. In nearly three-fourths of the
cases, one spouse earns at least 80 percent of the
income. Thus, for most married couples, the advantages
of income splitting are significant.
Where one spouse earns 80 percent or more of the
couple's earnings the tax under the married person tables
is almost always less than the tax on two single persons
with the same earnings. Only about 20 percent of married
couples have an earnings split that results in their
paying more tax than they would pay as single persons.
This so-called "marriage penalty," except where it reflects
different standard deductions, tends to be less than 10
percent of the married tax even where the married couple's
income is divided 50-50, an uncommon occurrence.
The Low Income Allowancec The second provision of
the 1969 Act which affected the relative tax burdens of
married couples and single persons was the low income
allowance, proposed by the President to assure that
persons or families whose income did not exceed the
poverty level would no longer be required to pay any
federal income taxes. During the period from 1969 to
1972, rising prices have increased the amount of income
that persons need in order to be above the poverty level.
Hence, the Revenue Act of 1971 increased the low income
allowance to $1,300 so that, in conjunction with the
personal exemption of $750 per person, incomes approximating the 1972 poverty levels would continue to be tax
exempt.
Two single persons are each entitled to a low income
allowance of $1,300 for a total of $2,600. A married
couple is limited to the $1,300 low income allowance.
In effect, the low income allowance represents a
floor under the 15 percent standard deduction; it thus
can apply until the adjusted gross income exceeds $8,667
(15 percent of that amount equals $1,300).
- 5 Table 2 attached shows estimated 1972 poverty
levels and the present levels of tax-free income. Of
course, many factors, such as geographical location,
affect poverty levels and an exact correlation of taxfree incomes and poverty levels is not practical.
For example, so-called transfer payments (such as
social security benefits, unemployment insurance and
welfare payments) are treated as income for poverty level
purposes but not for income tax purposes. Nevertheless,
despite some imperfections, the low income allowance was
designed as a broad principle to remove from the tax rolls
persons with incomes below the poverty levels.
The estimated poverty level for single persons assumes
that single persons maintain separate households, and the
estimate for married couples assumes husband and wife are
living together. To the extent that the expenses of single
persons are reduced by living together, or that the expenses
of married couples are increased when the spouses are living
apart, the assumptions underlying the estimates of poverty
levels -- and of the corresponding levels of tax free income
are not accurate.
While exact figures are not available, we have made
some rough estimates based on Census data in an effort to
determine the percentage of single individuals who maintain
their own household. A substantial percentage -- perhaps
half -- of the persons who file single returns live with
their parents or children, and in some cases may contribute
little toward maintaining the households in which they live.
Since the low income allowance was designed to exempt from
tax persons whose income is below the poverty level (with
poverty levels estimated on the assumption that single
persons maintain their own households), the amount of
relief afforded to these individuals might be considered
too great in some cases, given the limited nature of their
living expenses.
- 6 -
To design tax rules for single persons that would
depend upon whether he or she was sharing a household
to some degree with another person where neither is a
dependent of the other would be impractical and, I fear,
sometimes ludicrous. If desired, consideration could be
given to a rule that would deny the low income allowance
to persons who are claimed as dependents on the return of
another person. The 1971 Revenue Act moved in this
direction by limiting the use of the low income allowance
and the standard deduction to offset unearned income of
persons who are claimed as dependents on the return of
another person. But the present rule permitting the low
income allowance to persons claimed as dependents on the
return of another person is of material benefit to students
who are helping to earn part of their education costs, and
this seems to be a desirable result.
Of the remaining persons who file single.returns
(i.e., those not living with their parent or child), our
best estimate is that about three-fourths of these persons
maintain their own households. These figures suggest that,
for this group of single persons, the assumptions underlying the low income allowance and the new rates for single
persons provided by the 1969 Act are generally accurate.
Maximum Standard Deduction. Finally, the 1969 Tax
Reform Act changed the relative tax burdens of single
persons and married couples in some cases by increasing
the maximum standard deduction from $1,000 to $2,000.
The $2,000 ceiling on the 15 percent standard deduction
applies equally to married couples and to single persons.
In effect, the ceiling applies only if (1) the persons
do not itemize deductions and (2) their adjusted gross
income in their tax return exceeds $13,333 (15 percent
of that amount equals $2,000). Two single persons are
each entitled to a standard deduction of up to $2,000 for
a total of $4,000, but a married couple is limited to
$2,000 of standard deduction.
- 7 Unlike the low income allowance, the ceiling on
the amount of the standard deduction was not based upon
extrinsic evidence, but was arrived at in part because
of revenue considerations and in part because at an
income level above $13,333 the need for simplification
that Is served by the standard deductLon was not believed
to be as great as in the case of the large number of
persons with lower incomes.
Our analysis indicates that the additional $2,000
of deductions available to two single persons claiming
the maximum standard deduction can be a significant
factor contributing to an increased tax for married
persons over single persons with income above $13,333
if they do not itemize deductions. (The significance
of this factor can be seen by comparing Charts 1 and 2
and their accompanying tables, Tables 3 and 4, attached
to this statement.)
Consideration might well be given to changing the
maximum standard deduction as between single and married
persons. The revenue effects of such a decision can be
Significant. If the maximum standard deduction for single
persons were reduced from $2,000 to $1,300, about $140
million of revenue would be gained. If the ceiling for
married persons were increased from $2,000 to $4,000,
$1 billion of revenue would be lost; increasing the maximum standard deduction to $3,000 for married couples
would cost about $770 million.
There can be no question that the present system does
not provide perfect results in every instance, but the inequities generally arise from atypical living conditions,
for example where two single people live together, or
because of a particular division of income between husband
and wife. Tax laws cannot be written which will apply to
a nation of 200 million persons and provide precise equity
in all cases. And, as I noted earlier, we cannot devise
ies
- 8 rules which demand varying tax burdens depending upon
the type of household in which a single person lives.
The Internal Revenue Service does not have the personnel
to make such inquiries, nor is this the sort of inquiry
which would be appropriate for it to make.
Unfortunately we cannot devise rules which will
equitably apply the competing principles underlying our
tax system to every conceivable set of circumstances.
Let me illustrate the problem by assuming four cases:
Case
Case
Case
Case
1.
2.
3.
4.
A single person earns $20,000.
Two single persons each earn $10,000.
A husband earns $20,000 and a wife earns zero.
A husband and wife each earn $10,000.
If we want no penalty on remaining single,
Case 1 must pay the same tax as Case 3.
(Single person earning $20,000 pays the same
as married couple earning $20,000.)
If we want no penalty on marrying, Case 2 must
pay the same tax as Case 4. (Two single
persons earning $10,000 each pay the same
tax as a married couple each earning $10,000.)
If we want husband and wife to pay the same
tax however they contribute to the family
earnings, Case 3 pays the same tax as Case 4.
To summarize the tax results:
Case 1 = Case 3
Case 2 = Case 4
Case 3 = Case 4
Based on the fundamental mathematical principle that
things equal to the same thing must be equal to each other,
the result should then be that Case 1 = Case 2
- 9 -
or, in other words, that the tax on a single person
earning $20,000 equals the tax on two single persons
each earning $10,000.
But that cannot be SOt because that result would
violate the basic tenet of the progressive income tax
s true ture • The tax on a sing 1e pers on earning $ 20 ,000
(Case 1) must be greater than the total tax on two
single persons each earning $10,000, if we are to have
a progressive rate structure.
It is apparent that we cannot have each of these
principles operating simultaneously, and that there is
no one principle of equity that covers all of these
cas,es. No algebraic equation, no matter how sophisticated,
can solve this dilemma. Both ends of a seesaw cannot be
up at the same time. Any rule that is selected will in
some cases appear to penalize married couples and in other
cases seem to penalize single persons. All that we can
hope for is a reasonable compromise.
The 1969 compromise assumes, in general, that a
married couple maintaining one household incurs greater
expense (and has less ability to pay tax) than one single
person maintaining a separate household, but the couple
incurs less expense (and has less ability to pay tax)
than two single persons each maintaining a separate household. Obviously the assumption as to maintenance of
households can be erroneous for reasons that I need not
detail, but I think in general it provides a reasonable
framework.
As a consequence of the rule, marriage can produce
a tax reduction for a single person marrying someone who
has no income, and a tax increase when marrying someone
with substantial income. If there is a "penalty" on
marriage, it occurs when two people having substantial
separate incomes marry to maintain a single household,
thus reducing their total living expenses and increasing
.their total ability to pay taxes.
- 10 It is our conclusion that, with the possible
exception of the maximum limit on the standard
deduction, which seems to work unevenly, the present
structure seems to have effectuated a reasonable
compromise.
I have included as appendices to my statement
a number of tables which might be useful to the
Committee in its consideration of this matter.
000
Excess Tax
oq~~rried
Couple Over Tax on Two Single Persons
With Same Combined Income, 1972
Assumes Deductible Expenses Equal to 15 Percent of Income
*'
+$2,000
I Income Split
I
75% -25%"\
+$1,000 I
~
!
~
.!!?
~
~
I
~.~;:.:.~'='~
:...t=.:.:••:.::!!!!~
---+
••M?
o
-----
c::.
"'"
~
"'>
"'>
~-a
lnCO!'le Split
60% - 40%
Q:)
~
- - ~.~~
-
,
-$1000
I
I~ome Split .- /
mo%-o%~
---1-'---
--
-$2,000 I
$4,000
~- ......
$8,000
$12,000
$16,000
$20,,000
-
$24,000
$28,000
Combined Adjusted Gross Income of Both Tax payers
$32,000
*inliikclIon of low Income Al/owance-7i Greater Than Deductible Expenses,
$36,000
$40,000
CHART 2
Excess Tax on Married Couple Over Tax on Two Single Persons
With Same Combined Income, 1972
Assumes Election of the Standard Deduction at all Income levels
+$2,000
+$1,000
•• •......
...
• •••
Income Split
~
~
:::,
.......- '-- Income Split
60%-40%
•
~
75% - 25%
~
.~
........
Cb
~
.....
0
t::)
~
~
."
."
<l:>
...,
~
-..._-- --.........
-$1,OOP
-'...
Income Split
100% -0%
J
...
---.... .........
...............
-$2,000
$4,000
$8,000
$12,000
$16,000
$20,000
$24,000
$28,000
Combined Adiusted Gross Income of Both Taxpayers
... .........
$32,000
......... ...
$36,000
$40,000
Table 1
Frequency Distribution of Joint Returns by the Division of Wages
and Salaries Between Spouses, 1969
(1)
Adjusted gross
income
class
o-
$ 3,000
$ 3,000 -
0%
(5 )
(4 )
(3 )
Earnings of spouse with lesser earnings
as a ercent of combined earnin s are-31% to 40%
21% to 30%
1% to 10%
11% to 20%
(2 )
(6 )
(7)
Total
41% to 50%
4.3%
0.4%
0.2%
0.2%
0.3%
0.3%
5.5%
5,000
6.1
0.5
0.5
0.4
0.4
0.6
8.4
5,000 -
7,000
7.9
1.0
1.0
0.9
0.7
0.6
12.2
7,000 -
10,000
14.5
2.8
1.9
1.8
2.1
1.6
24.8
10,000 -
15,000
13.8
2.9
2.7
3.2
4.6
3.8
31.0
15,000 -
20,000
4.2
0.8
0.8
1.3
2.0
2.0
11.1
20,000 -
50,000
3.3
0.5
0.4
0.6
0.7
0.6
6.2
50,000 or more
~
0.1
*
*
*
*
0.7
Total
54.6
9.0
7.6
8.5
10.8
9.5
*[ess than- .05 percent.
-
100.0
Table 2
A Comparison of Tax-free Levels of Income and Estimated
Poverty Levels of Income, 1972
~L)
lJ.)
Age and family size
Low-income
allowance
l J)
.....
)
Tax-free income in
excess of poverty
level income
Minimum
tax-free
income
Est imated
poverty level
income
750
$2,050
$2,170
$ -120
Personal
exemptions
Under age 65
Single individual
living alone
$1,300
Married couple, no
dependents
1,300
1,500
2,800
2,810
-10
Married couple, one
dependent
1,300
2,250
3,550
3,350
200
Married couple,
two dependents
1,300
3,000
4,300
4,290
10
Married couple,
three dependents
1,300
3,750
5,050
5,050
Single individual
living alone
1,300
1,500
2,800
2,010
790
Married couple,
no dependents
1,300
3,000
4,300
2,540
1,760
$
Age 65 or older
Table 3
Differences Between the Tax of a Married Couple Filing a Joint Return and the Combined
Tax of Two Single Persons With the Same Combined Income as the ~!arried Couple
Present Law 1972
(Assumes deductible expenses equal 15 percent of income)
(1)
(2)
Adjusted
gross
income
(wages)
$
3,000
4,000
5,000
000
7,000
8,COO
9,000
0
12,000
14,000
16,000
18,000
20,000
25,000
30,000
35,000
Joint
return
tID[
$
28
170
322
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Excess of the joint return tax over the tax of two single individuals with the same combined income
Income split
Income split
Income split
Income split
Income split
Income split
1007. - 07.
75% - 257.
67% - 337.
607.
40%
55% - 45%
50% - 50%
: Amount: as
: Amount as
: Amount as
: Amount: as
: Amount: as
: Amount: as
: a percent
: a percent
: a percent
: a percent
: a percent
: a percent
Amount :of the joint: Amount :of the joint: Amount :of the jOint: Amount :of the joint: Amount :of the joint: Amount :of the jOint
return tax :
: return tax :
: return tax :
: return tax :
: return tax :
: return tax
$-
109
131
168
r
1.0,000
50,000
75,OGO
100,000
658
848
1,029
1,534
1,908
2,285
2,710
3,135
4,310
5,660
7,198
8,870
12,620
23,185
33,810
-
-
231
251
297
419
493
592
671
780
-1,110
-1,430
-1,742
-2,045
-2,545
-2,605
-2,605
-389.29%
77 .06
52.17
o 50
35.11
29.60
28.86
-
27.31
25.84
25.91
24.76
24.88
25.75
25.27
24.20
23.06
20.17
11. 24
7.70
0
33
63
89
120
168
164
1
70
57
31
29
15
0
21
99
250
665
1,766
2,600
$
.00%
19.41
19.57
18.39
18.24
19.81
15.94
11 18
4.56
2.99
1.36
1.07
.48
.00
.37
1.38
2.82
5.27
7.70
7.69
28
82
132
182
191
207
211
180
133
87
62
77
68
91
215
416
664
1,277
2,600
3,259
$
100.00%
48.24
40.99
37.60
29.03
24.41
20.51
15.13
8.67
4.56
2.71
2.84
2.17
2.11
3.80
5.78
7.49
10.12
11.21
9.64
$
28
121
184
201
212
226
229
208
150
109
73
81
83
150
327
593
889
1,615
3,055
3,480
100.007.
71.18
57.14
41.53
32.
26.65
22.25
17.48
9.78
5.71
3.19
2.99
2.65
3.48
5.78
8.24
10.02
12.80
13.18
10.29
$
28
149
194
206
238
238
209
129
68
78
69
174
374
673
996
1,735
3,277
3,480
100.007.
87.65
60.25
42.56
.
a.76
2.98
2.88
2.20
4.04
6.61
9.35
11.23
13.75
14.13
10.29
$
28
170
196
209
129
86
58
75
192
400
700
1,040
1,780
3,392
3,480
May":., ":.972
......
m
Ul
100.00%
100.00
60.87
43.18
6.76
3.76
2.14
2.39
4.45
7.07
9.72
11.72
14.10
14.63
10.29
';'able L
Differences Between the Tax of a Married Couple Filing a Joint Return and the Combined
Tax of Two Single Persons IHth the Same Combined Income as the Narried Couple
Present Law (1972)
(Assumes deductible expenses never exceed the standard deduction)
(1)
Adjusted
gross
income
(wages)
$
3,000
4,000
5,000
6 1 000
7,000
8,CCO
9,000
10,000
12,000
14,000
16,000
(2)
Joint
return
tax
$
28
170
322
484
658
848
1,029
1,190
1,534
1,930
2,385
lB,OOQ
2,8!!~
20,000
25,000
30,000
3,400
4,860
6,560
8,465
10,565
15,310
27,810
40,310
35,000
40,000
50,000
75,000
100,000
cn
(3)
(4)
(5)
(6)
(7)
(8)
(10)
(:1)
(12)
(13)
(14)
Excess of the joint ~eturn tax over the tax of t\"O single individuals with the same co..:bined inco:::e
Income split
Income split
Income sp1~t
Income split
Income split
Income split
.100% - 0%
75% - 25%
67% - 337,
60% - 40%
55% - 45%
507. - 507,
: Amount as
: Amount as
: Amount as
: Amount as
: Amount as
: Amount as
: a percent
: a percent
: a percent
: a percent
: a percent
: a percent
Amount :of the joint: Amount :of the jOint: Amount :of the joint: Amount :of the joint: Amount :of the joint: Amount :of the joint
: return tax
return tax:
: return tax :
: return tax :
: return tax :
: return tax :
109
131
168
196
231
251
297
340
419
497
607
112
855
- 1,230
- 1,592
- 1,950
- 2,350
- 2,605
- 2,605
- 2,605
$-
-389.29%
- 17.06
- 52.17
- 40.50
- 35.11
- 29.60
- 28.86
- 28.57
- 27.31
- 25.75
- 25.45
- 24,68
- 25.15
- 25.31
- 24.27
- 23.04
- 22.24
- 17.02
9.37
- 6.46
-
0
33
63
89
120
168
164
133
70
79
131
197
207
298
426
600
883
1,586
2,940
3,8iJ5
$
.00%
19.41
19.57
18.39
18.24
19.81
15.94
11.18
4.56
4.09
5.49
6.83
6.09
6.13
6.49
7.09
8.36
10.36
10.57
9.44
28
100.00%
82
48.24
132
40.99
182
37.60
191
29.03
207
24.41
211
20,51
180
15.13
133
8.67
109
5.65
162
6.79
252
8.73
333
9.79
10.21
496
775
11.81
1...t~l2_ _
13.37
1,561
14.78
2,472
16.15
3,805
13.68
4,409
10.94
$
$
28
121
184
201
212
226
229
208
150
131
173
256
348
627
1,010
1,437
1,867
2,902
4,242
4,480
100.007,
71.18
57.14
41.53
32.22
26.65
22.25
17.48
9.78
6.79
7.25
8.87
10.24
12.90
15.40
16.98
·ij~67·--
18.95
15.25
11.11
S
28
149
194
206
221
238
238
209
162
151
168
253
334
707
1,130
1,545
2,007
3,080
4,430
4,480
100.007.
87.65
60.25
43.56
33. '59
28.07
23.l3
28
170
196
209
224
245
238
100.007,
100.00
60.87
1Z,~2
ZQ2
10.56
7.82
7.04
8.77
9.82
14.55
17.23
18.25
19.00
20.12
15.93
11.11
173
151
186
233
340
742
1,155
1,580
2,055
3,l30
4,480
4,480
11. ~12
S
4~.1!!
34.04
28.89
23.13
11.28
7.82
7.80
8.08
10.00
15.27
17.61
18.67
19.45
20.44
16.11
11.11
Table!
Explanation of the Excess Tax of a Married Couple Over The Combined Tax of Two Single Individuals, Each With Half The Combined Income
Assuming Election of The Standard Deduction at All Income Levels
(2)
(1)
(3)
Adjusted
gross income
~Wa8es
Earnings
of male
and salaries~
oa~a~~col
Earnings
ComDl.nea
of female
earnings
$
4,000
5,000
6,000
7,000
8,000
(12)
(10)
(11)
(8)
(9)
(7 )
(5)
(6)
1972
Excess of a married couple's tax over the combineotaxof two single individ-uals
__ _
tax
Total
:Breakdown of the total tax difference under 1972 law by contributing factor JJ
:Joint return: Combined tax:
tax
Tax
Additional tax differences resulting from
Additional
:tax on com- : on separate :difference:difference :
provisions of the Tax Reform. Act of 1969
:tax.difference
:bined income: incomes of
under
under
$1,000 :15% - $2,000: Reduced tax :50% maximum:resulting from
of married :tt·;o unmarried: 1972 law :1964 - 1969:10w income: standard :rates for single:tax rate on: the Revenue
couple
: individuals :(4) - (5)
law lJ
:allowance: deduction: individuals : earnings :Actof 197111
(4)
1,029
1,190
1,534
2,385
3,400
791
981
1,361
2,199
3,060
238
209
173
186
340
44
150
280
24,000
28,000
32,000
36,000
40,000
4,540
5,840
7,295
8,870
10,565
3,905
4,855
5,985
7,195
8,510
635
985
1,310
1,675
2,055
320
360
390
420
450
148
300
345
375
405
167
325
575
880
1,200
50,000
60,000
70,000
80,000
90,000
100,000
15,310
20,310
25,310
30,310
36,310
40,310
12,180
16,305
20,830
25,830
30,830
35,830
3,130
4,005
4,480
4,480
4,480
4,480
500
530
550
580
580
600
500
530
550
535
580
600
2,130
3,080
3,865
4,500
5,000
6,000
8,000
10,000
4,500
5,000
6,000
8,000
10,000
9,000
10,000
12,000
16,000
20,000
12,000
14,000
16,000
18,000
20,000
12,000
14,000
16,000
18,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
25,000
30,000
35,000
40,000
45,000
50,000
$
$
$
$ 32
$ 25
41
44
54
93
170
196
209
224
245
$ 2,000
2,500
3,000
3,500
4,000
170
322
484
658
848
$113
138
165
180
190
126
275
434
603
$ 2,000
2,500
3,000
3,500
4,000
17
190
190
176
100
$- 10
- 38
- 66
- 95
-176
-150
- 15
$
114
1.14
124
45
5
41
75
4~385
4,695
4,800
135
485
-1,020
-1,375
-1,520
$-
-
Mly 1, ]972
!/
21
II
Columns (7) through (12) illustrate increments in the excess tax (of jOint returns over the tax of two single returns) attributable to provisions of the law
specified in the respective column headings, when read in the order given (left to right). Entries in columns (7) through (12) add to the totals in column (6).
These tax differences result from the 1964-1969 law standard and minimum standard deduction.
These tax differences result from the increase in the low income allowance from $1,000 to $1,300.
Table B
Estimated Revenue Changes Resulting from Alternatives to
Adjust the Relationship Between Married and Single Tax Burdens
(1971 Levels of Income)
Ad .
d
: Lower the standard: Allow married taxpayers:
: Provide 15 percen t·
Juste :Raise the standard deductibn: deduction ceiling:election to file as two:Provide joint return: $1,000 earned
~ross
:ceiling for joint returns ta
for single
single individuals, :rates for all single: income deduction
~ncome
.
returns
to
each
reporting own
taxpayers
for work1ng
c 1ass
.
:$2.250:$2,500:$3.000:$4--990:
$1,300 1/
ancome and deductions 2/:
_:
couples
(. . .. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $ millions ................................................
($000)
o-
3
-3.0
-2.0
-0.4
3 -
5
-32.0
-109.0
-9.8
5 -
7
-0.2
-0.2
-0.2
-0.2
-131.0
-226.0
-46.8
7 -
10
-3.8
-7.1
-10.4
-10.4
16.4
-443.0
-395.0
-171.4
10 -
15
-49.7
-52.0
-60.4
-62.3
79.5
-742.0
-296.0
-589.6
15 -
20
-131.9 -254.2 -374.5 -344.6
30.2
-420.0
-131.0
-374.9
20 -
50
-48.4 -110.3 -311.6 -560.8
11.0
-788.0
-188.0
-348.5
50 - 100
-1.9
-4.3
-12.6
-31.8
0.5
-792.0
-87.0
-48.3
100 and over
-0.2
-0.5
-1.4
-3.4
0.1
-327.0
-70.0
-14.5
-236.1 -428.6 -771.1-1013.5
137.6
-3,678.0
-1,504.0
-1,604.2
Total
ivIay
1, 1?72
Reducing the standard deduction to a flat $1,000 for single persons would increase revenues by approximately
$900 million.
J
Table C
Analysis of Single Rate Change 1969
.Tayab1e
Income
Top of Br3nket:Married
$ 000
%
1
2
3
4
8
12
16
20
24
28
32
36
40
44
52
64
76
88
100
120
140
160
180
200
TOP
14
15
16
17
19
22
25
28
32
36
39
42
45
48
50
53
55
58
60
62
64
66
68
69
70
: Single tax as % of:
Married
TAX RATES
Tax at tOE of Bracket
:Old Sing1e:Difference:New Sing1e:Difference: Married :Old Sing1e:New Sing1e:01d Sing1e:New Single
%
%
%
Points
$
%
$
$
14-15
16-17
19
19
22-25
28-32
36-39
42-45
48-50
50-53
53
55
55-58
58
60-62
62-64
64-66
66-68
68-69
70
70
70
70
70
70
0-1
1-2
3
2
3-6
6-10
11-14
14-17
16-18
14-17
14
13
10-13
10
10-12
9-11
9-12
8-10
8-9
8
6
4
2
1
0
Same
Of
21-24
25-27
29-31
34-36
38-40
40-45
45
50
50-55
55
"
" "
" "
2-5
3-5
4-6
6-8
6-8
4-9
6
8
5-10
7
Same
" "
"
"
"
"
"
"
"
" "
" "
140
290
450
620
1,380
2,260
3,260
4,380
5,660
7,100
8,660
10,,340
12,140
14,060
18,060
24,420
31,020
37,980
45,180
57,580
70,380
83,580
97,180
110,980
145
310
500
690
1,630
2,830
4',330
6,070
8,030
10,090
12,210
14,410
16,670
18,990
23,830
31,350
39,150
47,230
55,490
69,490
83,490
97,490
III ,490
125,490
Same
" "
"
"
"
"
1,590
2,630
3,830
5,230
6,790
8.,490
10,290
12,290
14,390
16,590
21,430
28,950
36,750
44,830
53,090
67,090
81,090
95,090
109,090
123,090
104
107
111
111
118
125
133
139
142
142
141
139
137
135
132
128
126
124
123
12l
119
117
115
113
May 1, 1972
Same
" "
" "
" "
115
116
117
119
120
120
119
119
119
118
119
119
118
118
118
117
116
115
112
III
May 1, 1972
MEMORANDUM TO CORRESPONDENTS:
Attached is a letter which Assistant Secretary
for Tax Policy Edwin S. Cohen has sent to
Congressman Henry S. Reuss in response to an inquiry'
from Mr. Reuss.
Attachment
000
April 28, 1972
Dear Nr. Reuss:
I Sill writing in reply to your letter of 11arch 23.
1972. requesting further information with respect to
individuals reporting adjusted grosG incomes of $200.000
or more for 1970 who paid no Federal income tax for that
year. As you noted, I reviewed the nature of these returns in my letter of Horch 1, 1972, to Congressman
Barber B. Conable, Jr •• which was reprinted in the
Congressional Record on that day.
In your letter to me you asked if I could select a
representative sampling of those returns and analyze them
in the way that eleven returns of high income individuals
were analyzed in the 1968 IITax Reform Studies and Proposals" (PP. 89-94). This would involve summarizing various
itelilB of income, deductions and credits on the individual
returns. \~e have given careful consideration to your request and I have revietved it at length t.,ith Dr. Laurence
N. ~~oodworth t Chief of Staff of the Joint Committee on
Internal Revenue Taxation.
As I advised Hr. Verdier of your office, we have
concluded that, even deleting the names, addresses and
identification numbers of those individuals, we could not
disclose the information publicly \'1ithout breaching the
requirements of confidentiality of tax returns. Disclosure
of salary or other large items of income or deductions for
the year 1970 would make it possible to identify some of
the individuals from information that is either publicly
available or known to other persons {-lho were involved in
transactions with those individuals; ~nd once the individual is so identified from particular items, his other income and deductions ~'lould become knOt-ln. By contrast, the
cases described in the 1968 Studies by the prior adwiniutrut10n t'1ere taken from returns filed in various eurlier yeclrs
that were not identified.
- 2 -
Dr. Woodworth and I concluded that the best method of
giving the information to you without breach of disclosure
requirements was to set forth' the aggregate totals for the
items of income and deduction you requested for all the
returns in each of the five categories referred to in my
letter to Congressman Conable. Those categories were
selected according to the principal item of credit or deduction that made the return nontaxable: (1) foreign ta~
credit; (2) taxes; (3) contributions; (4) interest and
(5) miscellaneous. In addition, data includes the grand
total for all five categories as a group. In each instance
the data includes items you requested, as follows:
Adjusted gross income
Amended gross income
\vages and salaries
Dividends
Interest
Capital gains (100 percent)
Other income (net)
Total deductions
Contributions
Interest
Taxes
Medical
Other
Taxable income
Tax
A schedule showing this information, prepared in a
cooperative effort by the staff of the Treasury Department
and the Joint Committee on Internal Revenue Taxation, is
attached. Some minor changes have been required in the
draft schedule that was given to you by Dr. Hoodworth on
April 15; first, one previously included return that had
contributions as the principal deduction has been deleted
because, as noted in my letter to Mr. Conable, it was a
return for a fiscal year that began in 1969 and ended in
1970, and accordingly was not governed by the Tax Reform
Act of 1969, which in general· took effect for the first
time for years beginning in 1970; and, second, three additional returns have been located. The attached schedule,
therefore, includes 106 returns instead of the 104 returns
previously included.
You ask.ed that the schedules 8hOlv not only "adjusted
gross income" but also "amended gross income." The term
'tamended gross income" is not used in the tax law, but we
understand that you intended it to include in addition to
the above items found in adjusted gross income 100 percent
instead of 50 percent of long-term capital gains, as well
as tax exempt interest on state and local obligations,
percentage depletion in excess of cost depletion and depreciation in excess of straight-line depreciation.
As you will notice in the schedule, we have included
in the table 100 percent of capital gains, although only
50 percent are included under the Internal Revenue Code.
However, ~le are unable at this time to include amounts
for tax e)~l2mpt interest on stnte and local bonds because
those amounts are not required to be reported on the tax
returns and cannot be obtained prior to audit of the returns.
There has been included in "amended gross income" the
amount of percentage depletion Bhmvn in the individual tax
returns in excess of vlhat is estimated cost depletion might
have been and depreciation shown in the return in excess of
estLmates of straight-line depreciation.
With re8pect to the 12 returns in which tho principal
deduction was taxe~ paid, aggregating $4,160,000, it may be
noted th~t of this amount $4,046,000 represented state and
local income taxes paid. As I remarked in my letter to
Congrcs5m~n Canable, it appears likely that these large
deductions ',jere dUG to the fact that individual taxpayers
generally file their returns on a cash basis; and these
deductions seem to represent payments in 1970 on the filing
of state and local income tax returns for 1969 in which
large gnins or income \-1ere reported. We have nm.., obtllined
- 4 data as to the 1969 Federal income tax returns of 11 of
these 12 individuals, and find that they paid 1969 Feder21
income tax totaling about $18 million, an average of more
than $1.6 million of tax per individual.
With respect to returns in which miscellaneous deductions were the largest item, the aggregate of $10,371,000
in miscellaneous deductions included the following:
of securities pledged to secure
loans, 10s8 on guarantees of loans,
and payments in settlement of
litigation
Accounting, bookkeeping and
professional fees, investment
counsel and management fees
Theft nnd casualty losses
Other
Total
LOBS
$ 5,510,000
2,155,000
658,000
2,1.93,000
$10,516 J?QQ
I would emphasi%e, as I did in .,IY letter to Congressman Conable, that this information has been compiled from
the return3 as filed without audit, that most of these
returns nre under audit, and that these audits may produce
substantial assessments of tax. In particular, it appearE
that a number of the returns vlill be subjected to the minimum tax on audit, and that some of the miscellaneous deductions may be disallmved or reduced, or treated as capital
losses vlhich may be deducted only against $1,000 of income
other than capital gains. To the extent that the interest
and miscellaneous deductions are allmved on audit, it
appears likely that many of them represent business and
investment expenses or losses that perhaps should be deducted in computing adjusted gross income instead of being
included llIDong miscellaneous deductions.
You asked for a statement of the percentage which the
tax puid on. these returns bears to amended gross income an:::'
amended taxable income. Since these returns constitute a
- s ..
group in which no Federal income tax was paid, that percentage is necessarily zero, except to the extent that tax will
prove to be due following audit of the returns. However,
with respect to the seven cases in which the U. S. tax was
offset in full by foreign tax paid, the taxpayers paid
foreign income tax aggregating about $1.5 billion. This
represented an effective foreign income tax rate of 70 percent of the U. S. taxable income and 62 percent of the
U. s. adjusted gross income and U. S. amended gross income.
You also inquired as to the effective rate of tax on
persons at the poverty level. Prior to the Tax Reform Act
of 1969, Federal income tax was imposed on the income of
single persons in excess of $900 (personal exemption of
$600 plus minimum standard deduction of $300); and, in
general, this minimum level was increased by 0700 for each
additional person included in the return (additional personal e;,cemption of $600 plus $100 minimum standard deduction). This resulted in taxes being imposed on persons
below the poverty level.
However, the President recommended in 1969 the insti ..
tution of the LO\v Income AllO\v,,1Oce Nhich HClS incorporated
in the Tax Refol.i:n Act of 1969 so as to raise the minimum
level to which the income tax could be applied to approximately the then estimated poverty levels. Under the 1969
Act the minimum level of tax was to be adjusted to a small
extent in the yecr.: 1971-1973. In the Revenue Act of 1971,
effective for the year 1972, the minimum levels for tax
were increased as follows:
Estimated Povert~
Level
Family Si~c
(up to 4)
Minimum l.evel
for l'<iX
1
2
3
$ 2,050
$ 2,170
2,800
3,550
4,300
2,810
4
.
3,350
4,290
BeCDUDe of the need to have systematic increases as
the si:::e of the family increases, the minimum level of tax
is sometimes sommvhnt belm} and sometimes somewhat above
- 6 the estimated poverty level. For a single person in 1972 it
1s possible for a person to pay tax at a tax rate of 14 percent on $120 of income below the estimated poverty level of
$2,170, or a tax of $16.80, an effective rate of less than
one percent. A married couple could pay tax of $1.40 if
their income was $2,800, which would be $10 below the estimated $2,810 poverty level -- an effective tax rate of 0.05%.
Income for poverty level purposes includes so-called
"transfer payments" (such as social security benefits,
unemployment insurance and welfare payments) which are not
included in income for tax purposes; and the poverty levels
are based upon the assumption that the individual occupies
his own separate household, which it has not been considered
feasible to require for tax purposes. Thus while there are
some minor differences between the minimum income tax level
and the estimated poverty level, the general plan of the
law since the 1969 Act has been to impose no Federal income
tax on persons belmv the estimated poverty levels.
Enclosed for your convenience is a copy of my letter
of 11Brch 1, 1972, to Congressman Conab1e.
I trust this provides the information '''hich you
requested.
Respectfully yours,
(Signed) Edwin S.. Cohen
Edwin S. Cohen
The Honorable
Henry S. Reuss
House of Reprcnentatives
Washington, D. C. 20515
Enclosures
ESC:cd/rrnn
N.ljor SourCCD of Incomc
mHl
Deduction!l for 106 Nont.:lxaLle Income T.lX Iteturns
Y1th Adjusted Cross Incomes of $200,000 or More in 1970, Classified By Lorgest Deduction or Credit 1/
(Dollar amounts in thousands)
Income and deductions z returns for which largest deduction or credit wasi
Foreign
Miscellaneous :
Taxes : Charitable
Interest
tax
Total
deduction
credit
paid : contributions
paid
106
20
55
12
12
7
..
of.~eturns
Number
I
Wages and salaries
Dividends ••
Interest
Capital gains (1007.)
Other income
Adjusted gross income
Amended gross income 2/
•
;
-
Contributions deductions
Interest deductions
Tax deductions
Medical deductions
i 1-1iscellaneous deductions
Total deductions
$
767
1,015
701
2
( 20 t
2,462
2 t 471
39
89
111
*
55
294
$
562
1,700
2,467
563
18,470
20,166
1,445
6,525
1,395
21,466
533
11,134
12,392
4,227
1,327
973
39
2 2 380
8 t 947
2,019
17,337
1,106
74
1 2 533
22,069
1,976
1,261
1,426
56
10 2 516
15,235
4,123
4,427
372
7,506
1,009
108
(424)
8,516
8,606
389
416
4,160
29
417
5,412
~893)
$
$
2,673
11,402
5,132
5,132
~4z353)
$
),
$
5,819
28,148
10,704
8,271
(5,157)
44,705
48,062
8,650
20,430
7,776
198
14 z901
51,957
Taxable income
Ordinary tax
l1inimum tax
2,156
1,384
*
*
67
21
205
84
2,428
1,489
foreign tax credit
~ther credits
1,384
*
7
14
84
1,475
14
*
~ax
after credits
Wfice of the--Secretary ot the Treasury
Office of Tax Analysis
~/
2/
-
April 21, 1972
Excludes one fiscal-year return for which the provisions of the Tax Reform Act of 1969 were inapplicable.
Adjusted gross income plus the excluded half of net long-term capital gains plus deductions for depletion and
depreciation reported on the tax returns which are estimated to be in excess of deductions allowed under cost
depletion and straight-line depreciation accountin2 methods.
The Department 01 the TREASURY
ASHINGTON, D.C. 20220
TENTION:
'R
TELEPHONE W04-2041
FINANCIAL EDITOR
May 1, 1972
RELEASE 6: 30 P.M.,
RESULTS OF TREASURY t S WEEKLY BILL OFFERING
1be Treasury Department announced that the tenders for two series of Treasury
.11s, one series to be an additional issue of the bills dated February 3, 1972
,and
Ie other series to be dated May 4, 1972
, which were offered on April 25, 1972,
!re opened at the Federal Reserve Banks today. Tenders were invited for $2,300,000,000
. thereabouts, of 91-day bills and for $1,800,000,000 or thereabouts, of 182 -day
.1ls. The details of the two series are as follows:
INGE OF ACCEPTED
lMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing August 3, 1972
Approx. Equiv.
Price
Annual Rate
99.093
99.079
99.089
3.588%
3.644%
3.604%
Y
18a-day Treasury bills
maturing November 2, 1972
Approx. Equi v .
Price
Annual Rate
97.990
97.965
97.979
3.976%
4.025%
3.998%
Y
30% of the amount of 91-day bills bid for at the low price was accepted
5% of the amount of 182 -day bills bid for at the low price was accepted
)TAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
Applied For
Accepted
$ 28,825,000 $ 11,855,000
3,180,300,000
2 ,006, 7 90 , 000
9,195,000
9,195,000
22,310,000
20,860,000
10,105,000
7,855,000
39,850,000
20,150,000
277 , 930 ,000
130,065 ,000
45,200,000
30,500,000
33,530,000
16,730 ,000
33,765 ,000
19,380,000
41,265,000
12,765 ,000
68,345,000
15 ,195 ,000
$3,790,620,000
Applied For
$ 28,905,000
3,068,150,000
25,870,000
7,880,000
12,390,000
31,300,000
244,320,000
22,600,000
26,405,000
22,450,000
42,395 ,000
82,355,000
Accepted
$
2,915,000
1,615,650,000
5,770,000
7,080,000
2,390,000
17,460,000
79,180,000
12,100,000
15,405,000
8,650,000
8,645,000
25,555,000
$2,301,340,000 ~ $3,615,020,000
$1,800,800,000
EI
I Includes $177,700,000 noncompetitive tenders accepted at the average price of 99.089
/ Includes $ 81,485,000 noncompetitive tenders accepted at the average price of 97.979
I These rates are on a bank discount basis. The equivalent coupon issue yields are
3.69 %for the 91-day bills, and 4.14% for the 182 -day bills.
The Department of the TREASURY
SHINGTON, D.C. 20220
TELEPHONE W04-2041
May 2, 1972
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public
notice~
invites tenders
for two series of Treasury bills to the aggregate amount of
$4,100,000,000, or thereabouts, for cash and in exchange for Treasury
in the amount of $4,105,695,000,
bills maturing May 11, 1972,
as follows:
91-day bills (to maturity date) to be issued May 11, 1972,
in the amount of $2,300,000,000,
or thereabouts, representing an
additional amount of bills dated February 10, 1972, and to mature
August 10, 1972
(CUSIP No. 912793 NY8),originally issued in
the amount of $1,600,175,000, the additional and original bills to be
freely interchangeable.
182- day bills, for $1,800,000,000, or thereabouts, to be dated
May 11, 1972,
and to mature November 9, 1972,
(CUSIP No. 912793 PL4)o
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,
$15,000, $50,000, $100,000, $)00,000 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 8, 1972.
Tenders will not be received
at the Treasury Department, Washington. Each tender must be for a
minimum'of $10,000. Tenders over $10,000 must be in mUltip'les of
$5,000. 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
(0 VER)
- 2 submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized 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 accompanh
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announcement
will be made by the Treasury Department of the amount and price range
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or re;ect any or all
tenders, in whole or in part, and his action in any such respect shall
be final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three decimals
of accepted competitive bids for the respective issues. Settlement for
accepted tenders in accordance with the bids must be made or completed
at the Federal Reserve Bank on May 11, 1972,
in cash or other immediately available funds or in a like face amount
Treasury bills maturing May 11, 1972
Cash and exchange tender
will receive equal treatment. Cash adjustments will be made for
differences between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
0
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code
of 1954 the amount of discount at which bills issued hereunder are so~
is considered to accrue when the bills are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price paU
for the bills, whether on original issue or on subsequent purchase, a~
the amount actually received either upon sale or redemption at maturit)
during the taxable year for which the return is made.
Treasury Department Circular No. 418 (current revision) and this
notice, prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained'froo
any Federal Reserve Bank or Branch.
000
The Department of the
ASHINGTON. D.C 20220
TRfASURY
TELEPHONE WD4-2041
FOR IMMEDIATE RELEASE
May 2, 1972
COUNTERVAILING DUTY ORDER ON
COMPRESSORS AND PARTS THEREOF FROM ITALY
Assistant Secretary of the Treasury Eugene T. Rossides
announced today the issuance of a countervailing duty order
against compressors and parts thereof from Italy. Compressors
are found principally in refrigerators, air conditioners, and
other cooling units. Their basic function is to convert the
freon or other refrigerant from its ga·seous form into a liquid.
A countervailing duty action arises under section 303
of the Tariff Act of 1930 (19 U.S.C. 1303). Under this
section, the Secretary of the Treasury is required to assess
a duty equal to a bounty or grant which is paid or bestowed
in the exporting country within the meaning of section 303.
The order will be published in the Federal Register of
May 3, 1972. Countervailing duties will be assessed 30 days
after publication in the Customs Bulletin of May 17, 1972.
The duties will thus become effective on Saturday, June 17,
1972.
Based upon information presently available, compressors
receive payments which vary from 5.53 to 16.93 lire per kilogram,
or from approximately 0.4¢ per pound to 2.7¢ per pound.
Compressor parts receive payments ranging from 15 lire per
kilogram, or approximately l.l¢ per pound, to 80 lire per
kilogram, or approximately 6.1¢ per pound.
During the period January 1971 through January 1972,
imports of Italian compressors and compressor parts totaled
approximately $19,800,000.
000
The Department of the
VASHINGTON. D.C. 20220
TRfASURY
TELEPHONE W04-2041
MEMORANDUM TO CORRESPONDENTS:
May 2, 1972
Secretary of the Treasury, John B. Connally, today
issued the following statement:
I am deeply saddened by the passing of
J. Edgar Hoover, who in decades of service, set
high professional standards for law enforcement
in this nation.
His leadership, his cooperation with other
agencies, and his campaign to professionalize
anti-crime efforts at local, state and national
levels will be long remembered.
The country will sorely miss him.
000
The Department of the TREASURY
iINGTON. D.C. 20220
TElEPHONE W04-2041
ATTENTION: FINANCIAL EDITOR
FOR RELEASE AT 6:30 P.M.
May 2, 1972
RESULTS OF TREASURY'S NOTE AND BOND AUCTIONS
The Treasury announced that it has accepted $1,251 million of tenders
for the new 4-3/4% one-year notes and $500 million of tenders for the 6-3/8%
bonds of 1982 auctioned today. Total tenders received were $3,349 million for
the notes and $1,300 million for the bonds.
The range of accepted competitive bids was as follows:
High
Low
Average
4-3!.4~ Notes of 1973
6-3!.8~ Bonds of 1982
Price
Price
100.50
100.27
100.30
AEErox. Yield
4.23%
4.47%
4.44%
.YlO 1.06
100.37
100.60
Approx. Yield
6.23%
6.32%
6.29%
'yExcepting two tenders totaling $203,000
Accepted tenders for the notes included 83 %of the amount bid for at the low
price, and $250 million of noncompetitive tenders accepted at the average price.
Accepted tenders for the bonds included 83 %of the amount bid for at the low
price, and $43 million of noncompetitive tenders accepted at the average price.
In addition to the amount allotted to the public, $2,514 million of the notes
were allotted to Federal Reserve Banks and Government accounts at the average price,
in exchange for notes maturing May 15.
The' Department 01 the TREASURY
TELEPHONE W04·2041
ASHINGTON. O.C. 20220
FOR RELEASE UPON DELIVERY
STATEMENT OF THE HONORABLE EDWIN s. COHEN
ASSISTANT SECRETARY OF THE TREASURY FOR TAX POLICY
BEFORE THE COMMITTEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESENTATIVES
ON H. R. 11720
May 3, 1972
Mr. Chairman and Members of the Committee:
I am pleased to appear before you this morning to
discuss H. R. 13720, which is a bill to "Amend the Internal
Revenue Code of 1954 with respect to lobbying by certain
types of exempt organizations."
A brief surmnary of the bill
is attached.
The Treasury has given substantial consideration to
this matter and has conferred with numerous groups concerning it.
We are concerned about ambiguities and problems in
the existing law and are sympathetic to some of the objections that have been voiced against it.
We are also con-
cerned, however, that in its present form the pending bill
is too broad, and that it contains provisions with new ambiguities and new problems.
- 2 For almost forty years the Internal Revenue Code has
granted exemption to
"corporations, and any community chest, fund,
or foundation, organized and operated exclusively for religious, charitable, scientific,
testing for public safety, literary, or educational purposes, or for the prevention of
cruelty to children or animals, no part of
the net earnings of which inures to the benefit of any private shareholder or individual,
'no substantial part of the activities of
which is carrying on propaganda, or otherwise
attempting, to influence legislation, and which
does not participate in, or intervene in
(including the publishing or distributing of
statements), any political campaign on behalf
of any candidate for public office!! (Section 501(c)(3».
Among the problems presented by this section are
(1) determining whether organizations are exclusively
engaged in charitable operations, (2) defining the
phrase "carrying on propaganda, or otherwise attempting to influence legislation," and (3) deciding whether the
latter activities represent "a substantial part" of total
activities of the organization.
We appreciate full well the important contributions
"to society that are made by these organizations through
their research and consideration of important problems of
the day.
We have tried to avoid interpreting the word
- 3 -
"charitable" in a fixed, immutable fashion.
As the courts
have done in many nontax settings, we have tried to give it
a meaning that changes and expands as the needs of society
change and expand.
As to the phrase "carrying on propaganda, or otherwise
attempting to influence legislation," we have interpreted
it so as to permit research and study of matters that may
become the subject of legislation, and the publication of
those studies.
We have also interpreted it as permitting
attempts to influence administrative decisions as to the
application of legislation, and to influence the exercise
by administrative officials of discretion given to them by
legislation.
We have interpreted it to permit litigation
in the courts to construe legislation that has been enacted
or to construe the provisions of constitutions.
Thus far we have not interpreted it to permit attempts
to persuade legislative bodies as to the enactment of
legislation, and especially not to permit so-called "grass
'roots" lobbying to persuade the public to bring influence
to bear upon members of legislative bodies to affect their
vote.
- 4 He have given extensive consideration to the possibility
of modifying the existing regulations to construe the present
statutory language to permit the presentation of views concerning legislation in public hearings of the Congress and other
legislative bodies.
We have, however, interpreted the lan-
guage to permit the organizations to make available the results
of their research and study to committees of legislative bodies
when requested by those committees.
We are inclined to believe that this right of presentation
of views to legislative bodies in public hearings should be
available to the organizations, whether or not by invitation
of the committee.
We believe that the views of these organiza-
tions should be publicly available to the members of the legislative bodies, whenever public views are sought, as an aid to
the legislators in the many difficult decisions with which
they are faced.
For technical legal reasons involving the
history of these provisions and Congressional committee reports
explaining them, we have not been able to accomplish this by
regulation, but we would be pleased to see this authorized by
statutory change.
We think this would be a 1!10St significant
step and we would support such action by the Congress.
- 5 -
That leaves for consideration the question whether the
organization should be permitted to go beyond presentation
of views in open hearings.
Should charitable and educa-
tional organizations be permitted to present their views
(1) in communications to members of legislative bodies
other than in open hearings; (2) in communications to
"members" of the organization and (3) in so-called "grass
roots" efforts to influence the general public with respect
to legislation?
The argument has been advanced to us that these organizations are now at a competitive disadvantage when confronted
by opposing business organizations which are permitted
deductions for expenses of certain legislative activities
under Internal Revenue Code Section 162(e).
This can occur,
for example, in environmental and ecological matters.
Section 162(e), enacted in 1962, permits business taxpayers to deduct expenses of appearances before legislative
committees, or of communications to the committees, to
individual members of legislative bodies, or to members of
the business organization.
But such expenses may be deducted
only when incurred with respect to legislation that is "of
- 6 -
direct interest to the taxpayer" or "an organization of
which he is a member."
A tax upon income cannot always keep all competing interests in perfect balance, because expenses incurred in business
matters are generally deductible and expenses incurred in
personal matters are generally not deductible.
Nevertheless,
in such broad issues of social and governmental policies as
are here involved, there is much to be said for the argument
that where business and non-business interests confront each
other before legislative bodies there should be comparable
tax treatment.
Accordingly, where there is a legislative matter that is
"of direct interest" to business taxpayers on one side, a true
balance would indicate that if the matter is also "of direct
interest" to competing non-business charitable interests, the
charities should also be permitted to communicate their views
to members of the legislative bodies, even apart from open
hearings; and they should then also be allowed to communicate
their views to the "members" of their organizations (assuming,
as discussed later, we can adequately define in this setting
the term "members").
We must also be sure that in trying to
redress an imbalance, we are not, in fact, creating a new
imbalance in the other direction.
- 7 The "balancing" argument, with its inherent emphasis
upbn fairness, seems equally to indicate that where this
confrontation exists, the non-business charitable interest
should not be permitted to engage in "grass roots" lobbying
that is denied to the competing business interests that
would be affected by the legislation.
Section l62(e)
specifically provides that its provisions shall not be
construed as allowing a deduction for amounts expenses "in
connection with any attempt to influence the general public,
or segments thereof, with respect to legislative matters
Moreover, the "balancing" argument does not provide
justification for communications to members of legislative
bodies or members of organizations when there is no competing
business interest.
The current proposal would go far beyond
such cases of competition and confrontation, such as are
involved in environmental and ecological matters, to cover
a wide range of topics that occupy the attention of the
Congress and state and local legislative bodies.
As an illustration, the bill would permit lobbying on
either side of such controversial public issues as abortion
laws, divorce laws, busing, etc., where organizations on both
- 8 sides are today subject to the prohibition against influencing legislation.
Moreover, many of the issues presented
to legislative bodies have a distinctly political context,
such as laws governing the conduct of primaries and elections, the drawing of legislative districts, the eligibility
of voters, etc.
Drawing the line between charity and educa-
tion on the one hand, and politics on the other hand, would
involve a delicacy of decision that would try the capacities
of the most able administrator or judge.
d~sirability
We question the
of extending income tax advantages to lobbying
on issues of these types, beyond expression of views in
public hearings, or communications with legislators that
are incidental to such public appearances.
In the Revenue Act of 1971 Congress permitted a deduction of $50 or a credit of $12.50 ($100 and $25 on joint
returns) for political contributions.
Some two months ago
we issued guidelines under this provision that seem to have
proved generally acceptable.
There were serious problems
involved in the interpretation of that provision, both as
a technical matter and as deep-seated matters of policy,
but in general we construed the provision as favorably as
we could toward the allowance of the deduction or credit
- 9 because of the strict limitations upon the amount of the
allowance.
Had it not been for the ceiling on the amount
of the allowance, we would have had many qualms about the
issues involved under that provision.
We call to your atten-
tion the fact that the bill now pending before you contains
no limits upon the amount of the deductions to individual
contributors to these organizations, other than those
present provisions of the Code relating to the percentage
of the taxpayer's adjusted gross income for which charitable
contribution deductions may be claimed.
Where lobbying on
political or quasi-political matters is involved, the Committee may want to consider the size of the donations that may
be deductible to particular contributors.
The bill does contain percentage limitations as to the
proportion of the total expenditures of the organization that
may be made by the organization for lobbying purposes.
In
general, it permits a charitable organization (other than a
private foundation) to elect, in lieu of the existing provisions of law, to spend any amounts on influencing legislation
if those amounts do not normally exceed 20 percent of its
total expenditures for charitable purposes.
It also permits
- 10 the organization to spend any amounts on "grass roots lobbying" that do not normally exceed 5 percent of total expenditures for charitable purposes.
It has been urged upon us that the present law provision
permitting no "substantial part of the activities of the
organization to be involved in influencing legislation is
ambiguous; because the word "substantial" is not defined.
The determination of substantiality is indeed a difficult
matter both for the organizations concerned and the Internal
Revenue Service.
For the reasons indicated above, we would
question whether any"grass roots" lobbying should be permitted
with income tax advantages.
Beyond that, it should be noted
that the 5 percent and 20 percent tests in the bill can permit
very large lobbying expenditures,. because those permitted
percentages are applied to the total expenditures of the organizations for charitable purposes during the year in question.
For some charitable and educational organizations of substantia
size, these rules could permit very large lobbying expenditures
to be pinpointed on particular issues or in particular geograpb
ical areas.
The Internal Revenue Service has approximately 175,000
organizations officially on file as tax exempt charities.
It
- 11 is estimated that there are several hundred thousand additional
exempt organizations which have never filed with the Internal
Revenue Service for official ruling of exemption, or which
are covered as subordinates of other organizations that have
filed.
The most recent data from the IRS master file for
exempt organizations for the year 1970 includes roughly 82,000
-
returns of charitable organizations that show aggregate disbursements of roughly $36 billion.
Of this $36 billion total,
about $30 billion represents disbursements by public charities
as distinguished from private foundations.
If 5 percent or 20 percent of these amounts were expended
on lobbying in the ways permitted by the bill -- and we do not
mean to suggest that all of these organizations would make the
maximum permitted lobbying expenditures -- the bill could permit
$6 billion to be spent in influencing legislation, of which at
least $1-1/2 billion could be expended on"grass roots'lobbying.
An organization with annual expenditures of $25 million could
spend $1.25 million
on'~rass root~'lobbying
.lobbying in the aggregate.
stantial amount of lobbying.
and $5 million on
This would suggest a rather sub-
- 12 Under the pending bill, private foundations would not
be permitted to lobby but they could make contributions to
public charities that engage in permitted lobbying activities so long as overall the recipient charities qualify as
"publicly supported."
So long as the recipient organiza-
tion continues to derive at least one-third of its receipts
for public support (or in some cases even less than onethird for public support), they could be funded by contributions from private foundations, but the private foundations could not earmark the contribution to be used for
lobbying purposes.
There are a few other aspects which the Committee may
wish to note.
Only the states of New York and California and
a few others have any effective regulations or supervision of
solicitation by, or the activities of, public charities.
There
are no federal regulations of charities except to the extent
of the federal income tax law requirements.
The present in-
come tax law requires public disclosure of receipts and expenditures in tax returns filed by the organization to the total
amount expended by the organization to influence legislation,
but public identification of the legislation sought to be
influenced is not now required.
Nor is there supervision
in federal law to require that the purposes for which
- 13 the funds are solicited be adhered to in the expenditure of
those funds.
The Committee may want to consider some provi-
sion for public recording of all legislation that the organization is supporting or opposing.
A subsidiary problem relates to the decision as to who
is to be regarded as a "member" of the organization if communications to members about lobbying are to be permitted.
The problem exists with respect to trade associations under
Section l62(e), but would be considerably more difficult
with respect to various types of exempt organizations.
The
term "member" has varying meanings under state laws; and it
may mean one thing with respect to one form of organization
and another thing with another form, for some organizations
are incorporated and some are loose associations.
The rela-
tionships between parent or national organizations and subsidiary or local organizations provide
in this regard.
particular problems
The membership of some large parent organi-
zations may encompass a large segment of the population,
and may assume the proportions of "gras s roots" lobbying.
Another factor the Committee may wish to consider is
the relationship of the bill to the lobbying laws.
The
- 14 Federal Regulation of Lobbying Act applies only to attempts
to.influence legislation in Congress, and does not apply to
efforts made before state and local legislative bodies.
The
federal law itself has perplexing ambiguities, without provision for administrative interpretations, and it is enforceable only by criminal indictment.
It requires quarterly
reports of lobbying expenditures, and the latest reports
indicate that for the year 1970 the total amount reported
for lobbying expenditures was less than $6 million (see
Congressional Quarterly, August 6, 1971, pp. 1680 et seq.).
The Committee may wish to consider some coordination between
the tax law provisions and non-tax lobbying legislation.
In summary, we support the major purposes sought to be
obtained by the proposed bill, but we respectfully suggest
that it requires modification as I have indicated.
ATTACHMENT
Summary of H. R. 13720
Under present law an organization cannot be exempt from
taxation under Section 50l(c)(3) unless "no substantial part
of its activities" consists of "carrying on propaganda, or
otherwise attempting to influence legislation."
Under H. R. 13720 an electing public charity would be
given the leeway to spend on attempts to influence legislation up to 20 percent of its annual disbursements for charitable purposes.
Expressly permitted within the percentage
limitation would be communications with members or employees
of a legislative body, communications wfrh any other government official or employee who may participate in the formulation of the legislation, and direct communications of
information between the organization and its members as long
as the legislative matters involved directly affect a charitable purpose of the organization.
However, of the 20 per-
cent generally permitted under the bill, an amount equal to
5 percent of the organization's charitable disbursements could
be devoted to attempts to influence the general public ("grass
roots lobbying") and attempts to influence legislation not
directly relating to a charitable purpose of the organization.
ATTACHMENT
- 2 -
The bill makes clear that there are no restrictions on
an organization's making available the results of non-partisan
analysis, study or research, providing technical assistance
to a governmental body or committee on written request, or
lobbying activities in regard to matters that might affect the
existence of the organization, its exempt status or the deduction for contributions to it.
Under the bill organizations may choose to remain under
present law.
Election to have the new provisions apply would
be made as prescribed by Treasury.
Such an election would be
effective for all taxable years ending after the election and
beginning before the earlier the date on which the election is
revoked or the date on which the organization ceases to be the
type of organization described in the bill.
The bill would also deny the section 170 deduction for
contributions "for the use of" an organization if made for
the purpose of influencing legislation.
COMMENTS OF THE STAFF OF THE EMERGENCY LOA.1If GUA.'qANTEE BOARD
May 3, 1972
Yesterday afternoon the Emergency Loan Guarantee Board staff
received a copy of a release issued by Senator Proxmire's office
concerning a question which had been raised concerning the authority
of the General Accounting Office to review decisions of the Emergency
Loan Guarantee Board.
That release contained the text of a letter
which the Senator has written to its Chairman, Secretary of the
Treasury Connally.
1etter.
The Board will, of course, respond to the Senator's
However, in view of certain statements made in the release·,
the Emergency Loan Guarantee Board staff, by way of background, would
like to make the following comments:
(1)
Charges that the Guarantee Board is trying to hide something
by declining permission to the Comptroller General to examine a portion
of the Board's records should not be allowed to obscure the real issue in
this case--whether the Controller is correct in his assertion that he has
statutory authority to review the decisions of the Board.
(2)
Although the Comptroller only raised a legal question
in his testimony, it is now asserted that it is inappropriate for
the General Counsel of the Treasury in his capacities as executive
director and general counsel of the Loan Guarantee Board to appear
to testify on this technical question.
Since the Emergency Loan Guarantee Board relied on the
opinion of its General Counsel and Executive Director with respect
to the question of whether the GAO had authority to review Board
decisions, it was thought logical for the person who gave this advice
and who performed the research to appear before the Committee to
explain the legal basis for the Board's decision.
The question raised
in the Comptroller General's testimony was a legal question.
The
Board's General Counsel is fully prepared to speak to the legal issue
of the question of the GAO's statutory authority with respect to
the Guarantee Board.
The Board believes that the proposition is
settled that GAO has no authority to review the Board's decision
making process.
Rhetoric is not a satisfactory substitute for
GAO's statutory authority.
In today's May 3rd release by Senator Proxmire, reference is made to
the Comptroller General's assertions before Senator Proxmire on April 12,
1972, that there were clear violations of law.
Nowhere in the release
is there any mention of the fact that the Comptroller was incorrect in
asserting that the Board had not furnished the GAO with any information.
Contrary to Mr. Staat's statements of April 12, the Board has cooperated
fully with his agency in making available to it all of the Board's
records with respect to its receipts and
expendftur~s.
The legal issue
raised by the Comptroller and which served as the basis for inviting the
Chairman of the Guarantee Board to testify on April 19 has been replaced
by what is referred to as "policy questions."
(5)
As was stated in the General Counsel's April 27, 1972, letter
to Senator Proxmire, the GAO has complete and ready access to all of Lockheed's records including all documents furnished to the Guarantee Board and
to the participating banks.
The assertions that something is being "hidden" must be weighed
against the information presently available to the GAO.
In fact, the GAO
has more information concerning the company than does the Board.
This
results from the fact that the statute requires the GAO to "audit the
borrower," and from the fact that Lockheed is a major defense contractor.
If there be any facts which would indicate that Lockheed does
have a "precarious financial future" or might become an "insolvent company,"
GAO would be, and should be, the first in the government to discover these
facts.
To be
certain.th~t
the GAO had full access to Lockheed's records,
the Guarantee Agreement between the Board, the banks, and Lockheed removed
beyond a shadow of a doubt the GAO's authority to inspect and copy Lockheed's
records.
This section provides the GAO with access to all cumpany records
including Lockheed's "files" thus permitting GAO to copy any records as they
in their "sole discretion" may deem necessary or appropriate.
(See enclosed
addendum.)
Illustrative of the type of information presently being received
and reviewed by GAO auditors is the following:
1.
Detailed cost studies and break-even analyses of the L-1011
aircraft program.
2.
Copies of 1-1011 sales agreements.
3. Copies of major 1-1011 subcontractors and purchase orders.
4.
Information and details' concerning properties pledged as
.'.
collateral under the Guarantee Act.
5. Personal interviews as requested by the GAO of members of
management and various subject matters.
6. Internal audit reports on various subject matters.
7. Detailed analyses of cash flow forecasts.
8. Work papers of Lockheed's auditors.
In short, the GAO has complete access to all of Lockheed's records
and files, and the information they have gathered is presently being sifted
and sorted by GAO auditors in California.
The pertinent documents
includir~
the Guarantee Agreement, which is the product of the Board's deliberations,
and
th~
underlying Loan Agreement are available and are public information.
The basic facts concerning the cumpany's operations are likewise public
information.
Lastly,-the GAO has access to the Board's records at the
Bureau of Accounts relating to all of the Board's receipts and expenditures.
To my knowledge, the GAO has not discovered anything which would
substantiate the assertion that Lockheed is in a precarious financial
situation.
Lockheed is neither insolvent nor in a precarious financial
situation.
In fact, Lockheed is rapidly gaining financial strength, and
to imply otherwise is to ignore tr1e financial facts.
What the GAO seeks in its September letter is the Board's internal
documents relating to the Board's
deci~ion
making process.
These include
minutes of the Board's four meetings and related internal memoranda and
correspondence.
The GAO claims authority and responsibility to review
Board "decisions".
In other words, the authority to question and dispute
the Board on matters which by statute are the Board's sole responsibility.
The reason that John B. Connally, the Secretary of the Treasury,
Arthur Burns, the Chairman of the Board of the Federal Reserve System,
and William Casey, the Chairman of the Securities and Exchange Commission
were placed on the Board is that Congress believed they were uniquely
and thoroughly qualified to form judgements with respect to the required
statutory determinations.
Releasing the Board's internal files so that
the GAO can review the minutes and staffmemoranda allows the GAO's
viewpoint as to what the decision should be to be surperimposed upon
the Board's decisionS, It is not believed that Congress intended this
added voice in the Board's decision making process.
To permit it in
the form requested by the GAO would raise basic questions concerning
the division of authority between the Congress and the Executive Branch.
The Board believes that Congress made a wise and logical distinction
as to the responsibilities under the Guarantee Act.
It charged the Guarantee
Board with the responsibility to make the required statutory determinations
and the GAO with the responsibility to "aUdit" the borrower--and to report
the results to both the Guarantee Board and the Congress.
The Board is to
make a "full report" of its operations directly to the Congress.
This
report, as I mentioned in my April 27 letter to Senator Proxmire, will be
made in August of this year and will disclose fully the Board's operations
and the bases for its decisions.
The Emergency Loan Guarantee Board agrees with Senator Proxmire's
statement that Congress has the right to know whether the Board is complying
witn the statutory requirements.
This, in fact, is the statutory require-
ment, that the :Board make a full report to the Congress on its operations.
Beyond the reporting requirement, and of some significance, is
the fact that the Guarantee Board on September 10, 1971, wrote to the
Senator stating its willingness to make information on the Board's actions
directly available to the Congress through the Chairmen of the Committees
which considered the loan guarantee legislation.
pondence are being released.
Copies of that corres-
The substance of the Board's letter is
contained in the second paragraph and reads as follows:
As to other information L~ther than the agreementsJ, the
Board has decided it wuuld prefer that requests concerning
Board action and supporting data originate with the Chairmen
of the Committees which considered the guarantee legislation.
lhe Board believes that this procedure will serve to inform the
Congress of any action taken by the Board and at the same time
meet the concern of any borrower concerning proprietary information.
This letter was signed by Samuel R. Pierce, Jr., General Counsel of
the Treasury.
As has been explained, the Board disagrees with the proposition that
the GAO, whose principal purpose is to audit the expenditure of appropriated
funds, has any authority to review the Board's decision making process.
The characterization of Lockheed as "insolvent" and that t'tax
dollars are being .:;;quandered in a hopeless venture" are unfortunate.
are inaccurate and will mislead the public' and the Congress.
are not involved in the loan guarantee.
They
Tax dollars
Representations were made to the
Congress that even if the company borrowed $250 million under government
guarantee, the government's exposure on the guarantee would be fully
collateralized by the company's assets.
This continues to be the case.
Far from being insolvent, the company is regaining its financial strength.
Information on the financial condition of the company is publicly available
and shows that the company is making progress.
It is noteworthy that the
company borrowed $45 million less under government guarantee than it forecasted it would require at year end 1971.
At present the company has borrowed
$100 million under government guarantee which is $25 million less than it
forecasted it would require.
Also, at year end the company had substantial
cash balances over that which it had anticipated.
April 30, 1972
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
(Dollar amounts in millions - rounded and will not necessarily add to total.)
OESCRIPTION
MATURED
Series A-1935 thru D-1941
Series F and G-1941 thru 1952
Series J and K-1952 thru 1957
"MOUNT
OUTST"NOINGli
"70 0UTSTANOING
OF AMOUNT ISSUED
"MOUNT ISSUEOU
"MOUNT
REOEEMEOU
5,003
29,521
3,754
4,998
29,495
3,744
5
25
10
.10
.08
.27
1,911
8,430
13,556
15,815
12,445
5,669
5,397
5,592
5,543
4,860
4,204
4,406
5,036
5,136
5,352
5,175
4,880
4,768
4,477
4,498
4,578
4,445
4,984
4,850
4,725
5,097
5,047
4,791
4,500
4,700
5,383
1,036
379
1,719
7,576
12,212
14,179
11,009
4,853
4,485
4,568
4,452
3,851
3,330
3,464
3,885
3,905
4,026
3,858
3,587
3,408
3,157
3,075
3,001
2,821
2,963
2,876
2,792
2,887
2,820
2,611
2,298
2,021
1,533
44
321
192
854
1,344
1,636
1,436
815
913
1,024
1,091
1,009
874
942
1,151
1,231
1,326
1,317
1,293
1,360
1,320
1,423
1,577
1,625
2,021
1,975
1,933
2,210
2,228
2,180
2,202
2,678
3,850
992
58
10.05
10.13
9.91
10.34
11.54
14.38
16.92
18.31
19.68
20.76
20.79
21.38
22.86
23.97
24.78
25.45
26.50
28.52
29.48
31.64
34.45
36.56
40.55
40.72
40.91
43.36
44.15
45.50
48.93
56.98
71.52
95 .. 75
15.30
181,664
133,587
48,077
26.46
5,485
8,352
3,865
2,700
1,619
5,652
29.52
67.67
13,837
6,566
7,272
52.55
195,501
140,152
55,349
28.31
38,277
195,501
233,779
38,237
140,152
178,390
40
55,349
55,389
.10
28.31
23.69
UNMATURED
Series E.1J :
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
1971
1972
Unclassified
Total Series E
Series H (1952 thru May, 1959)}j
H (June, 1959 thru 1972)
Total Series H
Total Series E and H
All Series
{ Tota] matmed
Total unmatured
Grand Total
Include. accrued discount.
Current redemption value.
At option of owner bonds may be held and will earn Interest for additional periods after orliJinal maturity dates .
.. """ 1'1) ~
thy. Feb. 1972) - Dept. of the Treasury - Bureau of the Public Debt
b
The Department of the
;HINGTON. D.C. 20220
TREASURY
TELEPHONE W04-2041
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE EUGENE T. ROSSIDES
ASS I STANT SECRETARY OF THE TREASURY
(ENFORCEMENT, TARIFF AND TRADE AFFAIRS, AND OPERATIONS)
before the
EXECUTIVES OF THE HAND TOOL MANUFACTURING INDUSTRY
(SERVICE TOOLS INSTITUTE)
at the
MARRIOTT MOTOR HOTEL, O'HARE AIRPORT, CHICAGO, ILLINOIS
May 5, 1972
PRESIDENT NIXON'S NEW ECONOMIC POLICY AND THE
DOCTRINE OF FAIRNESS IN INTERNATIONAL TRADE
President Nixon's New Economic Policy, announced
on August 15, 1971, marked a watershed in world
history, not just U. S. history. The President's
actions marked the end of one era -- "the end of
the post-war world" as Secretary Connally said last
month -- and the dawn of a new era in international
economic relationships.
The presidedt's goals were three -- to curb
inflation, to generate jobs by stimulating
responsible economic growth, and to strengthen
the position of the United States in the international trade and financial community
0
- 2 Today, I shall talk primarily about the U. S.
position in international trade -- a Doctrine of
Fairness -- with special emphasis on Treasury's
role and responsibilities in this area, and the
need to perfect international organization and
procedures for effective solutions of trade
problems.
Why Are We in a New Era?
At the end of World War II, the United States
was the wealthiest, most powerful nation on earth.
A large part of the 'world was in ruins, physically,
politically, and economically, after the holocaust
that it had just experienced. The United States
exhibited truly unselfish and generous leadership
in an effort to bring these ravaged areas back to
normal. We did this in our own long-range national
interest but at considerable sacrifice.
It made sense for the United States to do
everything possible to assist both our former allies
and enemies to regain their feet. And so, we literally
showered U. S. dollars and expertise on these countries.
The American taxpayer accepted th, burden of the nearly
$150 billion in economic and milItary aid that ~.,as
made available over the past 25 years, for he understood the relationship between a prosperous world
economy and his own well-being.
But conditions have changed and we now find
ourselves confronted with an entirely different picture.
Although the United States is still the most important
free world power, it is no longer the only free world
power. Other nations are again in a position to
challenge us economically and politically. The United
States is now one giant among several.
- 3 The Long-Run Task
What does this new era signify for the United
States and the rest of the trading world? Essentially,
the long-run task facing the United States and the
world community is the creation of an international
economic system which, on the basis of mutual
advantage, will stimulate international trade and
freer competition, draw nations and people together,
and thus form the basis for a lasting peace with
prosperity.
Progress Made Since August 15, 1971
In his policy role as Chief Economic Spokesman
for the President, Secretary Connally has already
sketched in broad outline form the new policies to
be followed. The domestic and international fronts,
which cannot be separated, have seen considerable
progress in the eight months since August 15, 1971.
On the domestic side, ~conomists are virtually
unanimous that activity is expanding vigorously.
Industrial production rose strongly in March, the
seventh consecutive monthly advance. Total employment
and retail sales also showed strong gains. Employment
rose by 620,000 to 81.2 million -- the largest gai~
for a month since mid-1967. Overall, the Commerce'
Department's index of leading economic indicators,which
includes such things as new orders for plant and equipment and for durable goods, rose another 0.9 percent.
All those indicators combine as further evidence that
the economy is in a strong expansionary phase.
On the international side, the Smithsonian
Agreement of December 18, 1971, was a significant
breakthrough and has given the new era a substantial
forward thrust. That agreement included a multilateral
- 4 -
realignment of exchange rates, commitments to discuss
more general reforms of the international monetary
system, and commitments to begin discussions to
reduce trade barriers, including some most harmful
to the United States. Simultaneously with the
Smithsonian Agreement, commitments were made by some
of our allies to assume a larger share of the costs
of common defense.
For its part, the United States agreed to
recommend to the Congress that the price of gold in
dollars be raised when progress had been made in trade
liberalization. Further, President Nixon moved
promptly to terminate the temporary 10% surcharge,
effective December 20.
On February 9, 1972, Secretary Connally transmitted
to the Congress a draft bill providing for devaluation
of the dollar by 8.5% to $38 per ounce of gold. In
signing that bill into law on Monday, April 3, the
President said that the basic significance of the
Smithsonian Agreement and the legislation is:
1f •• Gthat it provides for continued
cooperation among our allies and ourselves-and thus strengthens our unity--as we work
toward an 'open world' based on a more
balanced monetary system and a more equitable
international trading environment.1f
Substantive agreements have also been reached
with the European Community and with Japan to remove
or lower certain barriers against U. S. products and
to support multilateral and comprehensive trade
negotiations in 1973, menawhile solving more immediate
prohlems in 1972 through the GATT. The Administration
will seek the necessary legislative authority for
these comprehensive negotiations.
- 5 Doctrine of Fairness in International
Trade -- Abroad and at Home
Abroad
These are some of the accomplishments to date on
the international trade front. All of the United
States' efforts in international discussions have
been dedicated to one objective -- the establishment
of a Doctrine of Fairness in International Trade.
The President and Secretary Connally have
served notice that the United States is no longer
going to compete with one hand behind its back. To
compete fairly abroad, we must have fair access to
all the markets of the world.
I do not mean to imply that the United States
is expecting to obtain something for nothing. We
recognize that some of our practices are regarded
by other countries as discriminatory. But in our
trade negotiations we do have a right to demand a
fair bargain. We insist only on the right to compete
fairly abroad.
As Secretary Connally said
i~
Munich last May:
" ••• no longer will the American people
permit their government to engage in international actions in which the true long-run
interests of the U. S. are not just as clearly
recognized as those of the nations with which
we deal."
The point he conveyed to all is that the United
States can no longer stand by complacently when
markets are closed to us or where the "rules of the
game" seem to be rigged against us.
- 6 When our foreign friends complained about the
temporary 10% additional duty adopted as part of the
President's new economic program, they did not mention
in their complaints the barriers they maintain against
U. S. exports to their countries.
These barriers take various forms--quotas no
longer justified by economic factors, discriminatory
taxes such as progressive taxes on horsepower directed
at the export of U. S. automobiles, discriminatory
tariff arrangements such as the Common Market
preferences and reverse preferences, which establish
a lower tariff on the exports of Common Market
members than on those of the U. S. and others into
third markets, both in developing and. developed
countries.
At the same time the United States has followed
an open and liberal policy in trade. We have one
of the most open markets in the world, but now one
of the questions we have to ask ourselves is whether
the European Economic Community, which claims to
have an outward-looking poltcy, is not turning its
gaze inward instead. Let us look at some specific
recent actions by the Community.
The EC has concluded preferential trade agreements with 28 countries which discriminate against
third-country trade. It is now in the process of
negotiating similar preferential arrangements with
at least four other countries: Algeria, Cyprus,
Egypt and Lebanon. At the same time, it is negotiating
agreements with Iceland and Portugal as well as with
the EFTA neutrals, Austria, Finland, Sweden, and
Switzerland. These negotiations presumably are being
based on a free trade area in the industrial sector
with the possibility of including preferential
'
advantages for EC agriculture in some of these markets.
Is this fair trade?
- 7 -
As the EC expands its membership from 6 to la,
the UK, Denmark, Ireland, and Norway will, of
course, have to adopt the high]y protectionist
Common Agricultural Policy of the EC. Furthermore,
the EC recently raised the support prices on corn,
among other agricultural items, thereby increasing
its variable or sliding levy -- a levy system
which incidentally is in complete contempt of
accepted trading practices -- against imports of
U. S. corn into the EC by 11 percent. Through this
variable levy system -- which, at present levels,
almost doubles the cost of U. S. corn to Community
users -- American farmers,who are more efficient
producers of corn, are excluded from the EC market
in favor of the less efficient European farmers.
Is this fair trade?
In the past few weeks, the European Community
has instituted a new system of compensatory duties
so as to continue to protect its domestic agricultural
markets from more efficient foreign production in
the face of the recent curr~ncy realignments. In so
doing, the European Community did not hesitate to
break the negotiated rates (to wQjch they are bound)
on some 40 million dollars' worth of trade. They did
this despite the fact that it was a clear violation
of the GATT. The United States has some interest in
the EC's actions, for our cost of production for .
basic agricultural commodities approximates half
of that in the Common Market. Is this fair trade?
- 8 Since the post-war years, the United Kingdom,
soon to become a member of the Community, has
maintained quotas for balance of payments reasons
on imports from the dollar area of fresh, frozen,
and canned grapefrui~, orange juice, and rum -this despite the fact that the balance of payments
justification for these quotas has long since passed.
Indeed, the British are now in balance of payments
surplus, and removal of these quotas, which the
United States has been seeking for over 20 years,
is certainly long overdue. Is this fair trade?
Similarly, France imposed quotas several
years ago for balance of payments reasons on imports
of semi-conductors. Although the French authorities
have liberalized these quotas over the years, an
intricate licensing system inhibits our exporters
from supplying the French marketo The balance of
payments justification for protection has long
since ceased and this obstacle to trade should
have been eliminated years ag90
- 9 -
Now I ask: Are these the policies of an outwardlooking trading bloc interested in the expansion of
world trade?
The Community's regulations have restricted
Japanese imports to 6 percent of that country's overall
exports--this in contrast to the 30 percent which Japan
exports to the United States. By restrictions such as
these, the Common Market has literally forced the
Japanese to concentrate their export drive on the
United States. Is this fair trade?
Japan now has $17 billion in foreign assets
reserves. We have approximately $12.5 billion. While
the United States had a balance of payments deficit
last year--and has had one for over 20 years--and our
first trade deficit since l888--Japan had a trade
surplus last year of 7.9 billion dollars, the highest
in the world. This year's balance for them will be
even larger since their exports are likely to run 20%
above 1971. 3.2 billion dollars of Japan's trade
surplus in 1971 was with the United States.
Many factors, in addition to U.S. policy, contributed
to Japan's economic success. Japap, which was allowed
to maintain quotas for balance of' payments reasons when
it entered GATT, still retains many of these quotas,
this despite an economic recovery which is commonly.
referred to as the Japanese miracle. '~dministrati~e
guidance" by Japan which impedes our exports and focuses
on their export drive to the U.S. is a central factor in
Japan's economic success. Is this fair trade?
We have heard from our good and valued neighbors to
the north in great detail about the "unfairness" of the
New Economic Policy from their standpoint.
What our Canadian neighbors fail to mention, however,
is that their basic balance of payments surplus has averaged
1.2 billion dollars annually over the last five years.
10
What they also tend to overlook is that the patently
one-sided automobile agreement contributed to a swing of
over 800 million dollars in our trade balance. While we
impose no tariffs or barriers on Canadian exports of
automobiles, Canada imposes a 15 percent tariff on
individual purchases of u.s. automobiles. Although
Canadian manufacturers may import American automobiles
duty-free, this is only if they meet certain minimum
Canadian production requirements.
These provisions of the automobile agreement were
intended as "temporary" safeguards for our Canadian
friends, which may have been appropriate at the time the
agreement was negotiated. For the past three years, we
have been negotiating for the removal of these "temporary"
safeguards, but to no avail •.. this despite Canada's
continuing large balance of trade surplus with the
United States--a huge $1,880 million in 1971. Is this
fair trade?
Also, notwithstanding the balance of trade which is
now so favorable to Canada, our friends to the north
continue to be considerably lftss liberal than the United
States in granting exemptions to returning tourists.
Here, again, we have an example of~ measure which might
have been "temporarily" justified' at the time it was
introduced, but which is no longer supportable in the
light of today's realities. Is this consistent with a
Doctrine of Fairness?
.
"
The Canadians likewise continue to insist on retainin~
other trade advantages which are a carryover from a bygone
era when we were in a position to, and did, assist
unstintingly our northern friends.
Is this consistent with a Doctrine of Fairness?
- 11 -
At Home--Treasury's Role in Combatting
Unfair Trade Practices
Against this backdrop, there are very positive
measures this Administration has already taken at horne
to rectify our trade imbalance and protect jobs in the
U.S.
From the inception of President Nixon's Administration,
the Treasury Department has vigorously attacked
discriminatory pricing techniques of foreign exporters.
Treasury and its Bureau of Customs have accelerated and
expanded the use of statutes specifically designed to
protect U.S. industry against unfair foreign competition.
We have institutionalized the supervision of the
administration of the Antidumping Act and the countervaling duty statute and other aspects of tariff and trade
relations by setting up an Office of Tariff and Trade
Affairs in the Office of the Secretary.
The Antidumping Act is designed to prevent injurious
international price discrimination--typically, selling in
the U.S. market at prices lo~er than in the foreign horne
market. The countervailing duty statute is designed to
counteract and prevent foreign sup9idies on exports to
the U.S.
The Treasury, under this Administration, has
rejuvenated what was largely a moribund Antidumping
Statute. We have significantly increased actions under
this statute in the past three years. We have eliminated
loopholes. And, we have expedited consideration of
complaints from domestic manufacturers by adding manpower
and streamlining procedures. In short, Treasury is now
administering the Antidumping Act more nearly in the
manner intended by Congress. This is what industry has
a right to expect. But more is needed.
- 12 -
Perhaps, criticism from abroad had to be expected.
But, the point is that these actions are taken and
justified in defense of fair trade--and without a sense
of fairness, the prospects for freer trade would be
bleak.
Now, we are studying possible refinements and
expansions of the use of these measures which protect
U.S. industry against unfair competition. In new
proposed antidumping regulations which were published
on April 19, we moved one step further in our plan to
clarify and tighten further the procedures of the
Antidumping Act.
Amendments of our Antidumping Act and countervailing
duty statute may be required to achieve freer and fairer
competition in international trade. And, once the
long-range adjustments of tariffs, quotas, and other
barriers are accomplished, these same measures can serve
to maintain the integrity of those agreements.
International Reforms
In analyzing what we can do to enable U.S. producers
to compete more effectively under- ~air rules of international trade, we must of necessity examine closely the
implementation of those rules and even question the
nature of the rules themselves.
We face a situation in which such basic GATT rules
as most-favored-nation treatment are increasingly violated.
We are also concerned that foreign dumping and subsidizing
of exports to third countries have the effect of freezing
U.S.manufacturers out of these markets. Moreover, while
we favor U.S. capital investment abroad on as liberal
terms as our balance of payments allows, we cannot
continue to permit U.S. capital to crea~jobs abroad if
domestic U.S. manufacturers are prevented by discriminatory
barriers from selling in these markets on equal terms.
- 13 -
If the GATT itself proves unable to face up to the
realities of today's world, and we hope that it can
measure up to its responsibilities, we may have to give
thought to other ways of meeting the needs. If we are
to reach our goal of a bright new international future,
the rules and procedures of the past must be adapted to
the world of the 1970's.
There is clearly a need for an international foru=
or forums in which the interrelationship of all the
factors affecting international economic matters--monet~~:,
tax, and trade--can be discussed, not piece-meal, but
as part of a whole problem of economic health for all
participating nations.
secretary Connally, in his March 15 remarks, stresse~
the need to recognize such links in the international
economy when. approaching the issue of monetary reform.
Indeed, the international discussions of last fall,
following the President's declaration of his New Econo=ic
Policy, were successful in achieving the recognition of
the interrelationship between~international monetary and
trade matters. Accordingly, the President placed in the
hands of Secretary Connally, his Cijief Economic Spokes=~~.
the broad responsibility and negotiating authority to do
. the job.
.
Secretary Connally has commissioned Under Secretary
Volcker to discuss with our principal trading partners
the development of an appropriate forum or forums. Cnde~
Secretary Volcker has recently talked with his colleagues
in Europe and Japan regarding this matter.
Implementation Versus Policy-Making
It has often been said, "Important as it is to
policy, it is even more important to implement it."
ma~e
- 14 -
It could very well be that more forceful administration of the Antidumping Act and countervailing duty
law in earlier years would have eased our problems
today. I can well remember my confirmation hearing
when each and every question of the Senate Finance
Committee dealt with these two statutes and whether I
intended to enforce them. For months thereafter, the
same Senators were telling me, "You have those statutes,
use them." Well, this Administration has used the
Antidumping Act effectively, and as I mentioned, is
reviewing the countervailing duty law.
But, there are other aspects of implementing trade
policy in day-to-day operations which strongly affect
our international trade and our balance of payments.
The main day-to-day operating bureau in the U.S.
Government affecting international trade is the Bureau of
Customs. Secretary Connally has directed that the trade
and tariff aspects of that Bureau's operations be given
the highest priority. This includes not only the
operating responsibilities of the Bureau of Customs in
the area of antidumping and countervailing duty, but
also its role in c1assificat10n and valuation of imported
merchandise, administration of quotas and marking
requirements, prevention of smugglIng, monitoring
voluntary restraint arrangements, and investigation of
commercial frauds.
All policy decisions in these matters and
of priorities will, of course, be made
the Secretary.
in~:the
determinat~~
Office of
We also have under way a Treasury study to analyze
the data that is available in international trade matters.
Here again, the Bureau of Customs is the prime source for
data regarding trade matters and yet, for analyzing and
interpreting that data, its resources have not heretofore
been fully utilized. This also we are moving to correct.
- 15 -
The Future
In summary, President Nixon's Administration has
moved forcefully to improve our international trade
and monetary position. We have given our anti-price
discrimination tools the most vigorous exercise they
have ever had. We have negotiated the removal of
various trade barriers and set the stage for an overhaul of the international trade mechanisms.
secretary Connally has demonstrated what can be
accomplished by a single chief economic spokesman for
the President. We are seeking an international forum
which will enable us to deal with the problems in
their full depth and perspective. And we have identified
the need within the Executive Branch to institutionalize
these capabilities.
The President has made it clear that he intends to
meet the challenge of the future by stimulating our
economy to ensure our continued efficient and competitive
position in the world. This means that inflation and
unemployment in the United States will be reduced while
investment in new plants and equipment by the private
sector are stimulated.
While building this stronger economy at home, we
must remain outward looking and international ~n ou~
initiatives overseas. This Administration is committed
to such a course. Of course, our foreign friends
and trading partners must be equally outward looking and
international in their approach to their problems.
As Secretary Connally said when he addressed the
Economic Club of New York last fall:
t~e do not intend to become provincial.
We shall not resort to protectionism. We
shall carry our burdens on the international
- 16 -
scene. But to do so it is essential to
attain an equilibrium in our overall
financial balance with the rest of the
world. We seek no advantage over others.
We propose to suffer no disadvantage.
We seek a balance which will be to the
benefit of all the nations."
***
"At stake are not narrow or selfish
economic goals; beyond a fair balance of
opportunity, we seek none. The basic
issue is much broader. It is nothing
less than rebuilding the economic
foundation for promoting economic
development, military security, and the
free flow of commerce.
"To fail in our effort would be to
fail not only as an Administration, nor
even as a Nation. At stake is nothing
less than the foundation for the freedom
and security of this generation, and
those that follow."
All Americans and all countries must be l\~lling to
make the necessary sacrifices and, as a result, all
Americans and all countries will be beneficiaries.
What we seek are the conditions that will encourage
freer and fairer trade throughout the entire world,
develop growing domestic enterprise and emplo:~ent, anc
insure these gains against the erosion of inflation.
The President's New Economic Policy advances these
goals by laying the foundation for peace with prosperity
throughout the world.
000
The Department of theTRfASU RY
TElEPHONE W04-2041
;HINGTON. D.C. 20220
FOR RELEASE UPON DELIVERY
STATEMENT BY THE HONORABLE JOHN B. CONNALLY
SECRETARY OF THE TREASURY
BEFORE
THE SENATE SUBCOMMITTEE ON TREASURY,
POSTAL SERVICE AND GENERAL GOVERNMENT
WEDNESDAY, MAY 10, 1972, 10:00 A. M.
Mr. Chairman and members of the Subcommittee, I am pleased to
appear before you to discuss the fiscal year 1973 budget requests of
the Department of the Treasury.
I regret that my appearance before
your Committee could not have been made earlier.
I understand that
you have now completed hearings from all of the Treasury bureaus.
We
appreciate the cooperation and support of this Committee.
I have with me Mr. Eugene Rossides, Assistant Secretary for
Enforcement, Tariff and Trade Affairs, and Operations; Mr. Warren Brecht,
Assistant Secretary for Administration; Mr. Elton Greenlee, Deputy
Assistant Secretary for Administration; Dr. Benjamin Caplan, the Program
and Planning Officer; and Mr. Edward Widmayer, the Acting Departmental
Budget Officer.
This is Mr. Brecht's first appearance before this
Committee and I would like to submit his biographical sketch.
With your permission, I would like to insert for the record the
prepared statement that I presented to the House Subcommittee on
Appropriations.
I have a somewhat briefer statement which I would like
to read this morning.
I think that it is highly important to reiterate for this Committee the demands and complex problems that were imposed on the
Department during the past year.
th~we ~
We were called on to help develop and
giyen me job of administering extremely complex, new
- 2 -
economic programs, ranging from the complete wage-price freeze
to the negotiations on international monetary affairs and the
allied trade negotiations.
Treasury had the lead in carrying out all of the major programs announced in the PresidentTs historic address of last August
15.
Treasury was directed to administer the 90-day wage-price
freeze.
Treasury was directed to draw up and present to Congress
legislation to provide a job development tax credit
designed to increase employment o
Treasury was directed to prepare legislation to repeal
the auto excise tax and to increase the personal income
tax exemption and present both plans to Congress.
Treasury was directed to aid in the plan for reducing
federal spending in 1972 by $5 billion.
Treasury carried out the PresidentTs plan to suspend
the convertibility of the dollar into gold, to administer
the temporary ten percent import surcharge and to carry
on the associated negotiations.
This entire new economic policy was imposed in an extraordinarily busy year in which Treasury also was involved in a host
of other activities--ranging from collection of $195 billion
in taxes, to helping fight the war on chugs
against aerial piracy.
and the campaign
This varied program--from complex monetary
programs to sky marshaling--is a tribute to the men and women of the
- 3 -
Department.
The dedication to duty and energy expended by them
cannot be simply measured in TTman-yearsTT--they must be viewed as
an extraordinary effort in an historic year.
Participation in the Economic Stabilization Program
Beginning with Phase I activities in mid-August 1971, the
Internal Revenue Service undertook the establishment and operation
of local service and compliance centers in some 360 of its nationwide district and local offices.
In Phase II it is continuing to
dispense information, monitor compliance, process exemption and
exception requests and issue rulings.
In return for assuming these
difficult tasks, the Service was excused from the 5 percent personnel
reduction which the President assessed generally against all agencies.
The exchange of some $34.5 million and 1,900
av~rage
positions for
FY 1972 operations was roughly equivalent in manpower and dollars to
the reduction that would have been made.
There has been, however,
an equivalent loss of resources available for tax administration such
that improvement in audit and collection levels expected in 1972
cannot be made and 1973 must carry some requests for tax administration improvement.
The economic stabilization activities continue in
FY 1973 for 9 months at a cost of $42.3 million.
Other than IRS, only Customs was excused from personnel reductions in FY 1972--because of its adminstration of the 10 percent duty
surcharge, and because of worMoadresulting from currency revaluations throughout the world.
Customs has been reduced by 5 percent in 1973.
The other bureaus of the Department were assessed the 5 percent personnel
- 4 -
reduction in FY 1972 and have built their 1973 budget requests from
the reduced levels.
Response to Other Programs
Treasury's response to the need for effective immediate action
in economic stabilization is but one more demonstration of managerial
ability and dedication that successive secretaries and your Committee have learned to expect from Treasury employees.
For example:
Candidate protection was required--the Secret Service immediately
assumed the task.
I mentioned earlier that when airline hijacking
became intolerable, we reacted and assumed responsibility for recruit.
ing, training and directing the sky marshal program.
Foreign missions
and dignitaries were being molested--Secret Service was assigned.
Treasury forces have long been the mainstay in actions against
organized crime.
In the crash need to interdict narcotics and to
break up the network of those financing -the distribution of narcotics,
the Bureau of Customs and Internal Revenue Service have the leading
roles.
These new functions were imposed on top of the demands for less
glamorous but essential ongoing programs.
The growth of the nation
results in more tax returns of increasing complexity.
We must provide
prompt service to the public in clearance of passengers and cargo,
tax assistance and claims settlements.
The Congress has insisted on
stricter examination of tax-exempt organizations and faster investigation of anti-dumping and countervailing duty cases.
The central
accounting, disbursement and payment and debt management operations
must meet the growing demands of work generated outside of the Depa~
- 5 -
It is with a concern for both new and basic priorities that
I presented this Treasury budget.
geared to
These budget levels are
the importance of the tasks to be accomplished while
recognizing the budget restraints within which the government must
act.
Budget Changes for 1972 and 1973
There have been a few changes since I appeared before the House
Committee to discuss this budget request.
At that time, I was dis-
cussing a request for operating appropriations of $1.625 billion.
This amount is in agreement with the amounts transmitted to you in
the PresidentTs Budget on January 24.
On March 20, 1972, the
President transmitted requests for proposed supplemental appropriations for fiscal year 1972 and amendments to the request for
appropriations for fiscal year 1973.
House Document No. 92-267.
The changes are published in
I have available for the record, a table
(attachment 1) which shows these adjustments to fiscal years 1972
and 1973.
From the table, you will observe that the cost of pay
increases, effective in January, increases the estimates for 1972 by
$25.5 million and for 1973 by $66.8 million.
The table also shows two program amendments for fiscal year 1973
that are included in the Document.
These amendments represent a
trade off resulting in a budget reduction of $583 thousand.
First the
reduction. We had provided $1.7 million in the Compliance appropriation
estimate to hire revenue agents and special agents at higher rates
allowed by the Civil Service Commission for hard-to-hire skills. The
- 6 -
need for these higher rates to attract recruits no longer obtains and
we have eliminated the item from our budget.
The second budget amendment, which is an increase for the IRS
Accounts, Collection and Taxpayer Service account, increases the
original estimate by $1.1 million to establish a comprehensive file of
pension plans, profit sharing plans, and similar deferred employee compensation plans.
There is a great need for pension plan reform and I
believe that establishment of this Employees T Plan Master File should
not be postponed beyond Fiscal Year 1973.
This is the first requisite
for providing full information on the number and characteristics of
pension plans, for processing related returns and for maintaining
current accounts on all pension plans.
Our revised total for the operating appropriations after the foregoing adjustments is $1.692 billion.
Fiscal Year 1973 Increases
Turning now to the dollar increases requested--which have been
adjusted for the budget amenrunents:
meet workload
Our major item of increase is to
that results from demands caused by the growth of the
population and the economy.
For this we need $42.6 million.
Of this
amount, $24.9 million is to strengthen the tax collection activity
and prevent a further dwindling of audit coverage.
The remaining
amount is principally to process tax returns, administer the public debt,
and issue and pay checks.
Our next category of increase is $24 million for major equipment
and capital improvements--that includes $12 million for equipping
- 7 service centers and $6 million for continuation of the modernization
of equipment in the Bureau of Engraving and Printing.
The IRS economic stabilization participation will cost $4.3 million
more in 1973 in order to continue the field activities of the program
through March 1973.
In Secret Service, we have an increase of $2.4 million in travel
and technical support costs of which $2.1 million is a one-time
expense for protective responsibilities during the 1972 campaign.
Only four items represent program expansion-
(1) $8.2 million
for increased narcotics enforcement by the Bureau of Customs;
(2)
$2 million
for Customs to gather and verify valuation data for
import statistics needed for economic analysis by the Interagency
Committee on Foreign Trade Statistics; (3) $1.6 million for full
implementation of an Office of Industrial Economics in IRS that will
formulate recommendations in administering the Assets Depreciation
Range System, and (4)
$1 million
for establishing the Employees
Plan Master File.
Our net cost to maintain the current level of employment and
operations is $13.6 million.
We are asking for a net increase of 3,963 average positions of
employment--l,242 are to put position increases of 1972 on a full-year
basis and another 337 apply to Economic Stabilization field activities
of the IRS.
The bulk of the remainder is to meet workload increases.
This concludes my general remarks.
Again, I would like to express
my appreciation for the time that you have devoted to our bureau witnesses.
If you have questions, I shall be glad to answer them.
SUfV.:>L-"\.J't,y
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The Department of the TREASURY
SHINGTON, D.C. 20220
TELEPHONE WD4-2041
FOR IMHEDIATE RELEASE
May 5, 1972
U!HTED STATES FORMALLY NOTIFIES IMF OF DOLLAR DEVALUA'l'IOh
Secretary of the Treasury John B. Connally today
formally notified the Managing Director of the International
Monetary Fund of the intention of the United States to change
the par value of the dollar from one thirty-fifth to one
thirty-eight of a fine troy ounce of gold. The change is to
become effective at 12:00 noon, May 8, 1972.
This notification by the Secretary of the Treasury
represents the final official step by the United States to
fulfill its agreement at the Smithsonian last December to
devalue the dollar by raising the official price of gold from
$35 to $38 an ounce. It follows Congressional action, completed
today, on appropriation legislation enabling the United States
to fulfill it so-called "maintenance of value" obligations
resulting directly from the increase in the official price of
gold. These obligations call for increases in U.S. subscriptions
to the IMF and other international financial institutions proportionate to the gold price increase.
The notification was authorized and directed by the "Par
Value Modification Act" which was signed into law by President
Nixon on March 31, 1972.
Since the change is less than ten percent of the initial
par value of the dollar, under the Articles of Agreement of
the IMF, approval by the IMF is not required.
The change in par value of the dollar in terms of gold
will have no effect on the value of the dollar in foreign
exchange markets. These markets have reflected, since the
Smithsonian Agreement in December, the change in exchange
rates agreed to and announced at that time.
000
C-305
The Department of the
HINGTON. D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR RELEASE UPON DELIVERY
STATEMENT OF THE HONORABLE EDWIN S. COHEN
ASSISTANT SECRE~RY OF THE TREASURY FOR TAX POLICY
BEFORE THE COMMITTEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESEN~TIVES
ON H. R. 12272
May 8, 1972
Mr. Chairman and Members of the Committee:
I appreciate the opportunity of appearing before you in
support of H. R. 12272, "The Individual Retirement Benefits
Act of 1971."
This bill embodies the President's proposals
for reforming and expanding the private means for assuring
retirement security for older Americans.
We have prepared and will submit for the record a Technical Explanation of the bill together with certain proposed
amendments of a technical nature.
Briefly, H. R. 12272 would:
(1)
provide an income tax deduction for retirement
savings by employees who are not covered by
employer-financed plans or who participate in
plans with inadequate benefits;
C-304
- 2 (2)
provide minimum standards for the vesting of
benefits under qualified pension and profitsharing plans, and for participation in those
plans; and
(3)
raise the limits on deductible contributions
that may be made to retirement plans established
by self-employed individuals.
The private pension system is a vital supplement to our
social security and old age assistance programs.
President said in his message of December 8, 1971
As the
to the
Congress transmitting these proposals:
"The achievements of our private pension plans
are a tribute to the cooperation and creativeness
of American labor and management. Over 4 million
retired workers are now receiving benefits from
private plans and these benefits total about $7 billion annually. More than $140 billion has been accumulated by these plans to pay retirement benefits
in the future. But there is still much room for expanding and strengthening our private pension system."
1.
Employee Deductions for Voluntary Retirement Savings.
About half of the full-time private non-agricultural
adult work force is covered by existing retirement plans,
and
the average annual private pension benefit is about $1,600.
Unfortunately, the other half is not covered today, and many
- 3 -
of those covered do not have sufficient retirement benefits.
We believe it is of prime importance to offer a remedy for
the millions of employees who are not covered or are inadequately covered by employer plans.
The bill before you would
do this by providing income tax benefits to encourage and
assist these employees to save for retirement.
Under present law, employer contributions on behalf of
an employee made to a private qualified retirement plan, and
the investment earnings on these. contributions, are generally
not subject to tax until paid to the employee or his beneficiaries.
The tax is deferred even if the employee's rights
to receive these amounts become nonforfeitable before the
payment is made.
Employee contributions to employer plans
are currently subject to tax as made (that is, no income tax
deduction is allowed), but tax on the investment earnings on
such contributions is deferred.
Yet amounts saved independent-
ly for retirement by an individual employee, as well as investment earnings on those savings, are taxed currently as they
are earned, for no deduction is allowed for the amount set
aside for retirement savings and the investment earnings are
taxed as earned.
- 4 As a consequence, present law discriminates substantially against those individuals who do not participate in
employer-sponsored qualified plans or who participate in
plans providing small benefits.
Under the bill before you, employees not covered by
employer plans would be allowed to establish their own
qualified retirement plans and take an income tax deduction
for contributions up to 20 percent of their earned income
that does not exceed $7,500.
would be $1,500.
Thus the maximum deduction
As is the case under existing law for
qualified pension plans, investment earnings on these
contributions would be exempt from tax.
Amounts distributed
from the plan after retirement would be treated as income
to the employee at that time; the tax is usually less after
retirement because income is reduced and higher exemptions
are accorded to persons age 65 and over.
There would be
restrictions against early withdrawals, as is the case under
existing law for self-employed individuals, and penalties
for violation of the restrictions, to insure that the contributions are used to provide retirement income.
The proposal would extend also to employees who are
covered by employer-financed plans to assist those employees
- 5 if the employer contributions are not adequate to provide
sufficient retirement earnings.
To accomplish this, the
limit on the amount deductible by the employee would be
reduced to reflect pension plan contributions made by the
employer.
For this purpose, the employee can assume that
employer contributions amount to 7 percent of his earnings,
but he would be permitted to show, under regulations that
would be provided, that the employer contributions were in
fact a lesser amount, if such were the case.
In the case of employees who are not covered by social
security (such as certain government employees) a deduction
would be allowed for contributions only to the extent that
they exceed the assumed amount of social security tax that
would be imposed in employment covered by social security.
Individuals would be permitted to invest their retirement savings in a broad range of assets including stocks,
corporate or government bonds, savings accounts, mutual fund
shares, annuity and other life insurance contracts.
Partic-
ipants in qualified employer-sponsored retirement plans
could make their investments for retirement savings in contributions to these plans.
To permit transfers of retire-
ment savings from one type of investment to another, no
- 6 -
penalties or other tax consequences would result if the
amount withdrawn were redeposited in another qualified plan
within 60 days.
The proposed limitations on the amount of deductible
contributions direct the tax benefit primarily to low and
moderate income workers.
Yet the permitted contributions
would provide substantial amounts of retirement income.
For example, contributions of $1,500 annually beginning
at age 40 would provide for males at age 65, assuming a
5 percent investment return, a retirement income of $7,500
to supplement social security benefits.
(See Table I
attached.)
The permitted contribution level is not so high, however, as to undermine the incentive in existing law for
the creation and maintenance of employer-financed retirement plans that cannot discriminate in favor of employees
who are officers, shareholders, or supervisory or highly
compensated employees.
The employer-established nondiscrim-
inatory plan is the heart of the present private pension
system and should be maintained.
We estimate that approximately 14 million individuals
will be eligible to benefit from this proposal for deductible
- 7 employee contributions.
The revenue cost of the proposal
is estimated at $300 million in the first year of operation,
rising to an estimated $480 million in the fourth year.
It
is estimated that 70 percent of the tax benefits will go to
persons with incomes below $15,000.
2.
Vesting Requirements and the Proposed Rule of 50.
Under existing law many employees now covered by pension
plans and expecting retirement benefits could lose these
benefits if they were separated from their jobs, either voluntarily or involuntarily, prior to retirement.
The loss of
expected retirement benefits accompanying termination of
employment can represent a grievous personal tragedy, especially in the case of older workers.
Vesting -- the right to receive retirement benefits even
though the employee terminates employment before .retirement -does not now exist for many plan participants.
Under present
law, except in certain plans created by self-employed persons,
vesting is not required except to the extent it is necessary
to prevent discrimination in favor of officers, stockholders,
and supervisory and highly compensated employees.
Almost 70 percent of participants in all corporate pension
plans today are not vested.
This percentage, of course,
- 8 -
includes many young employees with short service.
Many
of them will remain with their current employers and later
obtain vested rights.
Many of them, because they are young,
will have opportunity to obtain vested rights if they move
on to other employment and participate in other pension plans.
We should look more properly at older workers, for whom the
matter of retirement security is essential.
With respect to age of employee.s participating in retirement plans today, we find that -40 percent of participants age 45 or more are
not vested;
34 percent of participants age 50 or more are
not vested;
26 percent of participants age 55 or more are
not vested.
This degree of forfeitable benefits among older workers is
critical.
If these older workers terminate employment,
voluntarily or involuntarily, they will not have the same
opportunities to obtain vested rights as younger workers.
With respect to years of service, we find that 13 percent of participants are in plans which provide no vesting
- 9 -
whatsoever before retirement.
More than half of pension plan
participants are required both (a) to have at least 15 years
of service and (b) to have reached age 45 before at least 50
percent vesting occurso
We have studied in depth many different possibilities as
to vesting requirements and have developed and recommend to
you for adoption a standard known as the "Rule of 50."
Under
this rule an employee's benefits must be at least 50 percent
vested when the sum of his age and years of plan participation
equals 50.
In the following· five years, the percentage vested
would have to increase ratably until the end of the five year
period after he has satisfied the Rule of 50. at which time
his benefits would be fully vested.
As an illustration, a worker who begins to participate in
a plan at age 30 would became 50 percent vested when he reached age 40, because his then age (40) plus years of participation (10) would equal 50; and his benefits would be fully
vested five years later when he reached age 45.
Similarly, a worker who begins to participate at age 40
would become 50 percent vested at age 45 (age 45 plus five
years' service equals 50) and would become fully vested five
years later at age 50.
(See Table II attached.)
- 10 -
To complement the vesting proposal, the bill provides
minimum service and age standards for eligibility to participa.te in a qualified plan.
An employer would be permitted to
exclude from plan participation an employee who has less than
three years' service or who has not attained age 30, but he
could not impose any stricter requirement for minimum age or
minimum years of service.
In addition, an employer would not
be required to cover an employee who first becomes eligible
to participate after he has attained an age within five years
of normal retirement age under the plan.
Thus, if normal
retirement age is 65, employees who are older than 60 when
they first satisfy the other eligibility requirements would
not have to be allowed to participate.
The "Rule of 50" would be a major step in assuring pension
benefits, particularly among older workers.
Overall, it would
raise the number of participants with vested rights from 31
percent of all participants to 46 percent of all participants.
But more important, among participants age 45 and over, the
percentage with vesting would rise from 60 percent to 92 percent.
Thus, the "Rule of 50" would assure vesting of retire-
ment benefit rights for virtually all older plan participants.
- 11 -
Because it concentrates particularly on the vesting
problem of the older employee, the cost of the Rule of 50
is modest.
We estimate it would raise overall pension
costs by about 0.3 percent of covered payroll.
For plans
currently providing no vesting before retirement, we estimate
it would increase plan costs by about 0.4 percent of covered
payroll.
The limited cost involved in this solution to the vesting
problem is important because to the extent employer contributions must be allocated to the cost of vesting, the level
of retirement income that can be provided under the plan will
be reduced for those who remain employed until they retire.
A balance must be struck between the various considerations.
We believe the Rule of 50, which protects primarily the older
worker without increasing cost unduly, strikes
balance.
t~e
proper
Other vesting proposals that have been advanced and
that we have studied carefully are more costly and do not
concentrate as well on the problem of the older worker.
(See
Tables III and IV attached.)
We have carefully considered the question whether the Rule
of 50 could seriously affect the hiring of older employees and
have concluded that it would not do so.
We find that the
- 12 discounted single-premium cost of providing $100 of retirement income for a worker age 55 is $570 if no vesting is
provided, and the cost rises only $15 to $585 if the Rule of
50 is operative.
The increase is greater for younger workers;
for example, at age 35 the cost is $125 without vesting and
$155 under the Rule of 50.
The reason for this is that the
employee turnover rate is considerably higher at the younger
age levels than at the older.
(See Table V attached.)
The proposed Rule of 50 would apply fully to all plans
established after November 30, 1971.
But for plans existing
on that date the rule generally would apply to benefits accrued
beginning in 1974, or upon expiration of current collective
bargaining agreements.
However, plan participation prior to
1974 would be considered in meeting the age and participation
test.
Vesting in Plans of the Self-employed.
Under present law
a plan benefitting a self-employed person must include any
employee with at least three years of service, and his rights
must be fully vested.
The vesting and participation rules
result in vested rights for many young workers who have short
periods of service.
Their benefits are generally small, and
- 13 -
the administrative costs of handling these cases are
relatively high.
We recommend some relaxation of these
requirements.
The proposed legislation would provide that in selfemployed retirement plans an employee would become 50 percent vested when he qualified under a "Rule of 35," i.e.,
when his age plus years of participation total 35.
As in
the case of the Rule of 50, his vesting would increase to
100 percent ratably over the following five years.
An
employee could be required to have at least one year's
service before being eligible to participate in the plan,
or two years' service if he is between age 30 and age 35,
or three years' service if he is under age 30.
Thus, under present law, in the case of plans established
by self-employed persons, an employee hired at age 20 must
begin to participate and become fully vested at 23.
Under
the proposed legislation, he must begin to participate at 23,
must become 50 percent vested at 29, and fully vested at 34.
An employee hired at 35 would become 50 percent vested at 36,
when he begins to participate, and fully vested at 41.
Vesting and Eligibility in Plans of Closely-Held Firms.
There is now uncertainty and variation in administrative practice
- 14 -
with respect to vesting and eligibility requirements in
determining whether a plan of a closely-held firm satisfies
the nondiscrimination requirements of present law.
The bill
would authorize the Treasury to set forth in regulations
consistent rules regarding the circumstances in which shorter
service requirements and more rapid vesting would be required.
These regulatory requirements could not be more restrictive
than the statutory requirements that would be imposed on
plans benefitting self-employed persons who are owner-employees.
3.
Increase in Contribution Limits for the Self-emploxed.
Present law limits contributions to qualified pension and
profit-sharing plans made by self-employed individuals.
The
self-employed are subject to a limit of the lesser of 10 percent of earned income or $2,500 on deductions for retirement
savings.
No such limits apply to employer contributions on
behalf of corporate employees.
As a consequence, corporate
executives and corporate-owner managers have substantial tax
benefits as compared with self-employed persons.
Yet corporate
owner-managers and self-employed typically perform the same
economic function.
This and other disparities have discouraged
i
I
the formation of self-employed plans and encouraged many
se~
employed individuals to incorporate their businesses simply
- 15 to avoid these limitations.
To reduce this inequity, the bill would raise the
deduction limit for the self-employed to 15 percent of the
first $50,000 of earned income, a maximum deduction of $7,500.
The limitation of section l379(b) on excludable contributions
on behalf of shareholder-employees of subchapter S corporations
would also be increased to this level.
We estimate that this proposal would involve a revenue
cost of $55 million in the first year of operation, rising to
$110 million in subsequent years.
The proposal would reduce considerably the tax motivation
to incorporate.
In addition, it would promote the growth of
self-employed plans and have a beneficial impact on the coverage of employees in unincorporated enterprise and on their
level of benefits.
4.
Plan Terminations.
The bill does not deal with the issue of loss of employee
benefits due to plan terminations.
The Administration recog-
nizes the seriousness of the possibility that an employee can
lose part or all of his retirement benefits -- even vested
benefits -- as a result of a plan termination.
As the President
- 16 -
stated in his message of December 8, 1971, "even one worker
whose retirement security is destroyed by the termination of
a plan is one too many."
However, there is not sufficient information available
at present to formulate appropriate Federal policy in this
area.
Plan terminations do not necessarily result in benefit
losses.
We do not have sufficient data as to how many plans
terminate with benefit losses, nor in what circumstances
these terminations occur.
Nor do we know the number of workers
who are affected and the degree to which they are harmed by
plan terminations.
Without this information, no reasonable
basis exists for deciding Federal policy on these issues.
To meet this need for information, the President stated
in his message of December 8, 1971
that he has directed the
Departments of Treasury and Labor to make a thorough study
of the nature and extent of benefit losses resulting from
plan terminations and to complete this study within one year.
The study has been underway since the beginning of January.
Information from the study will be used in designing the
specific legislative proposals that may be required to resolve
this problem.
- 17 -
5.
Employee Benefits Protection Act.
We call to the attention of the Committee that in March
1970 the President also sent to the Congress a recommendation
for enactment of the Employee Benefits Protection Act.
That
legislation would provide important necessary rules with
respect to nontax matters relating to the responsibilities
of persons who adminster pension funds.
It would broaden
reporting and disclosure requirements, and strengthen investigation and enforcement practices.
Although that legis-
lation is not pending before this Committee, we trust it
will soon receive the attention of the Congress and become
law.
000
Table I
EMPLOYEE DEDUCTION FOR RETIREMENT SAVINGS
Annual Pensions That Can Be Financed By $1500
Contributions Begun At Different Ages
The table below shows the annual pensions beginning at age 65 that would
be financed by annual contributions of $1500 beginning at ages 40 through 60.
Age when $1~500
Contributions Begin
40
45
50
55
60
*
Annual Pension Beginning
at Age 65~'(
$7,500
5,200
3,375
1,950
900
Pensions are straight-life pensions for males payable in monthly installments.
A 5 percent interest rate is assumed.
Table II
VESTING STANDARD
RULE OF 50
··50% VESTED WHEN AGE PLUS YEARS OF PARTICIPA TlOH IN A PLAN EQUAL 50; 10% MORE EACH YEAR THEREAFTER.
··PARTICIPATION flWST START WITHIN 3 YEARS AFTER
HIRlr~G,
EFFECT OF RULE:
A \n'O~,KtR ViHO BtGIHS
p~RrICI?ATIGH
AT AGE
VESTS
50~~AT A~£
AFHR PARTICI?ATISG FOR : AND IS 100%VESTED AT AGE:
AfTER P~P.TIC!?~T'ISG FOR
30
40
10 YEARS
45
15 YEARS
40
45
5 YEARS
50
10 YEARS
50
50
o YEARS
55
5 YEARS
All THOSE 30 OR OVER MUST BE ELIGIBLE TO PARTICIPATE
Table III
c 0 r\~ PAR ISO N
0 F B Ef\! EFI T5 FRO f\' V EST IN G
(5 0% VEST11~ GOR BEITER)
(MIL LI 011 S 0f PER SON S)
CURRENT SITUATIOH
10 YEAR SERVICE
RULE OF 50
PERCENT VESTED
PERmIT VESTEO
PEECENT VESTED
6.3
1.6
3.2
1.6
30 . 40
5.3
13.2
35.8
15.1
40 . 45
3.0
36.7
60.0
55.7
AGE
TOTAL PARTICIPANTS
UNDER 30
45 . 50
2.9
44.8
65.5
50 . 55
2.5
56.0
76.0
··
·
····
·
75.8
100.0
~
I
55 . EO
2.0
70.0
85.0
1CO.0!
60 AHD OVER
1.5
so.o
86.1
1OJ.O
TOTAl
23.5
~o
J
,.
.0
··
•
45.5
..
r9
'1J.
I
Table IV
CO!\1PARISON OF VESTING COSTS
[CURRENT SERVICE ONLY)
All PRIVA IE PENSION PLANS
RULE OF 50
10 YEAR SERVICE
VESTING AT 10~6PER
YEAR BEGINNiNG YEAR 6
PERCENTAGE INCREASE OF PLAN COSTS
5.0
8.6
11.1
PERCENTAGE INCREASE OF PAYROLL COSTS
.3
.5
.6
1.5
2.5
3.2
PERCENTAGE INCREASE OF PLAN COSTS
8
14
18
PERCENTAGE INCREASE OF PAYROLL COSTS
0.4
0.7
0.9
1.8
3.2
4.1
INCREASEO COSTS IN CENTS PER HOUR PER EMPLOYEE
)RIVAH PENSION PLANS WITH NO VESTING
INCREASED COSTS IN CENTS PER HOUR PER EMPLOYEE
-
-----
---
•
EFFECT OF RULE OF 50 ON HIRING OF OLDER Er;~PlOYEES
1. EM PlOYER'S DISCO UNUD COST OF PROMISIU G $100 PENSION AT AGE 65 TO AN EM PlOYH
AGE
WITHOUT VESTING
UHDER RULE OF 50
25
$20
$30
35
$125
$155
45
$310
$340
55
$510
$585
·ASSUMES STRAIGHT LIFE MHWITY FOR MALES, WITH ASSETS HlVESTED AT 5%.
·ASSUMES TYPICAL EMPLOYEE TURrlOVER RATE [FOR EXAMPLE, 85% OF EMPLOYEES AGE 25 WILL LEAVE THEIR PRESENf
EMPLOYMENT BEFORE AGE 65; OBlY 3% OF THOSE AGE 55 WilL LEAVLj
2. EMPLOYEES HIRED WITHIN 5 YEARS OF RETIRH1ENT NEED NOT BE VESTED
3.
PARTICIPATlO~l
NEED NOT BEGIN UnTiL 3 YEARS AFTER HInIiIG
The Department of the TREASURY
TELEPHONE W04-2041
,HINGTON. D.C. 20220
rENTION:
FINANCIAL EDITOR
{ RELEASE 6:30 P.M.
May 8, 1972
RESULTS OF TRE.ASURY' 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 February 10, 1972 , and
~ other series to be'dated
M~ 11, 1972
,which were offered on M~ 2, 1972,
'e opened at the Federal Reserve Banks today.
Tenders were invited for $2,300,000,000,
thereabouts, of 91-day bills and for $1,800,000,000, or thereabouts, of 182-day
.ls. The details of the two series are as follows:
rGE OF ACCEPTED
lPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing August 10, 1972
Approx. Equiv.
Annual Rate
Price
99.139
99.115
99.125
182-day Treasury bills
maturing November 9, 1972
Approx. Equi v .
Price
Annual Rate
3.406%
3.501%
3.462%
98.031
98.004
98.025
3.895%
3.948%
3.907%
73%of the amount of 91-day bills bid for at the low price was accepted
61%of the amount of 182-day bills bid for at the low price was accepted
!u,
TENDERS APPLIED FOR AND ACCEP'fED BY FEDERAL RESERVE DISTRICTS:
istrict
)ston
=w York
liladelphia
Leveland
Lchmond
~lanta
lie ago
~. Louis
.nneapo1is
I.Ilsas City
i.llas
i.Il Francisco
TOTALS
AcceEted
For
7,260,000
22,260,000 $
1,952,575,000
3,086,075,000
11,565 ,000
11,565 ,000
17,970,000
18,035,000
8,110,000
8,110,000
22,525,000
38,590 ,000
142,515,000
291,485,000
41,465,000
50,005,000
24,855,000
31,945,000
19,745,000
30,945,000
13,130,000
27 ,4e>5 ,000
99 2 915 2°°0
38 2 64°2°°0
~lied
$ 3,716,395 ,000 $ 2,300 ,355 ,OOO~
ApE1ied For
18,350,000
2,544,840,000
26,250,000
8,040,000
11,050,000
36,555,000
327,945,000
27,645,000
28,825,000
23,770,000
21,745,000
104 266°2°° 0
AcceEted
$
3,350,000
1,465 ,675 ,000
6,250,000
7,890,000
3,660,000
$3,179,675,000
$1,800,160,000
r
11,165 ,obo
223,255,000
16,755,000
20,435,000
7,770,000
5,545,000
28 241°2°° 0
EJ
...
nc1udes $ 168,745 ,000 noncompetitive tenders accepted at the average price of 99.125
ncludes $ 72,870,000 noncompetitive tenders accepted at the average price of 98.025
hese rates are on a bank discount basis. The equivalent coupon issue yields are
)4 % for the 91-day bills, and 4.04 %for the 182-day bills.
The Department of the
S:HINGTON. D.C. 20220
TREASURY
TElEPHONE W04-2041
FOR RELEASE AT 9:30 MDT
REMARKS BY THE HONORABLE JACK F. BENNETT
DEPUTY UNDER SECRETARY FOR MONETARY AFFAIRS
BEFORE
THE 50TH ANNUAL CONVENTION
BA~KERS ASSOCIATION FOR FOREIGN TRADE
THE BROADMOOR HOTEL
COLORADO SPRINGS, COLORADO
MONDAY, MAY 8, 1972
George, I appreciate your kind woeds and the warm reception
which all of you have given me here at your annual meeting. Back
in the days when I was dealing with some of you on behalf of a
different institution, I formed the conclusion that it is generally
more productive to deal with international bankers, not one at a
time, but simultaneously with a group large enough to generate
some competition. You can imagine, then, my feeling of good
fortune in being able to deal at one time with such a large and
influential group today.
Several of you have expressed puzzlement, however, as to
just what a Deputy Under Secretary for MOnetary Affairs does. I
can tell you. He does what a hard-working but over-worked boss
finds at the last minute he just can't do. Several weeks ago I
learned at 10:02 a.m. that I had to give an hour's speech to a
visiting group of California bankers starting at 10:00 a.m. Three
weeks ago I learned on Friday afternoon that I was leaving
Sunday morning for the UNCTAD conference in Chile. Two weeks ago
I learned on Wednesday afternoon that I was leaving Wednesday
afternoon for the Economic Policy Committee meeting of the OECD
in Paris. And last Thursday I learned that I would have the
opportunity to visit Colorado on the weekend. But the last trip
was different; I knew when I got there I'd be among friends.
You should know, however, that Paul Vo1cker reached with
extreme reluctance the conclusion that he would not be able to
be with you. Among many other duties, Paul is particularly
involved these days in attempting to reach international agreement
on the forum and procedures for the forthcoming negotiations on the
basic rules of the world's international financial system
C-3Q
- 2 -
representing the less developed countries; he has travelled to
Tokyo; he has met in Europe with the members of the Working
Party 3; there have been numerous bilateral discussions; and
discussions are continuing this week.
The resul t is that there is today cons iderable confidence that
we shall soon have agreement on a forum which meets the four
criteria which Paul suggested when he undertook the project.
These criteria were, firstly, fairness, which means in particular
adequate representation for the less developed countries and those
developed countries, such as Australia, which are not represented
in the Group of Ten.
Secondly, was manageable size for the negotiating body.
Thirdly, was a broad mandate, one not limited narrowly just to
monetary techniques nor too involved in specifics, s~ch,fo~
example, as negotiations of the tariffs on particular products;
rather, a mandate covering the inter-related complex of general
international monetary and trade rules. And the fourth criteria
was "fresh air", meaning that provisions should be made to give
the negotiating group access to expert staff assistance from a
variety of sources.
A consensus now seems likely on placing primary negotiating
responsibility on a group of 20 ministers representing
constituencies such as those now represented by the 20 Executive
Directors in the IMF. The existence of this group would not mean,
however, that other groups could not also make valuable
contributions to thinking on reform.
We have been spending a lot of time on the prospective shape
of the table, but we make no apology for that. The forthcoming
negotiations are important. The system which results may be
with us for quite a few years, as the pre-August 15 Bretton Woods
s ys tern was __
Yet I can assure you that The Wall Street Journal was very wid
of the mark in its editorial last Wednesday suggesting that we
are so pre-occupied with procedural matters that we are giving no
thought to the substance of the negotiations. I was particularly
disappointed in comment since I know that I have for several
months been spending a good deal of my time in the work of an
inter-agency committee charged with commissioning and reviewing
studies on the basic aspects and fundamental alternatives for the
future international financial system. That committee has met
frequently; in fact, it has two meetings scheduled this week. In
those meetings we are attempting to hammer out statements on areas
of agreement and disagreement for consideration by our high-level
- 3 -
bosses. Incidentally, the reporters often enjoy referring to my
immediate boss as a high, that is, 6' 7", Treasury source.
As Secretary Connally has stated, however, there is not now
a detailed "American Plan" which we are about to unveil to the
world. This is the case, I think, for a number of reasons.
Firstly, as I have already indicated, we are trying to do a
careful job of preparation and not to jump over-hastily to
conclusions. Secondly, there has been a lot to be said for
letting things settle down a bit after the excitement of the last
half of last year in the international monetary area. And,
thirdly, and most importantly, it would be unwise to try to
settle on the details of a system until some clarification can be
achieved on the basic premises on which the world's trade and
investment transactions will be based in the future.
One fundamental question is whether· major foreign governments
intend in the future to try to maintain strong and systematic
subsidies for their producers of commodity exports and import
substitutes at the expense of their consumers and other producers.
One not unknown approach to this objective would be for a
government to build up large foreign exchange reserves, to seek to
hold on to an under-stated official value for its currency, and to
maintain a variety of other direct measures to benefit exports and
to retard imports. A world in which such behavior were widespread
would obviously be one in which the world could derive far less
than the maximum available benefit from international trade.
And clearly it would not be a world in which the U.S. could agree
to a.monetary system based on a confident expectation that the
present large holdings of dollar-denominated exchange reserves
would be worked off in a reasonable period through U.S. export
surpluses. Yet improvement of the U.S. trade position must be a
fundamental objective of U.S. policy in view of the fact that
between 1964 and 1971 our annual trade balance worsened by
$9 billion.
For this reason, we must also be concerned about a second
fundamental question. Do major foreign governments intend as a
matter of continuing policy to buttress export-subsidizing undervalued exchange rates -- and to protect their domestic lenders at
the expense of their domestic borrowers and producers -- by
erecting and maintaining barriers against borrowing and raising
capital from abroad? Such actions are, of course, sometimes put
forward as being necessary to avoid over-heating of a domestic
economy, but, when I hear such arguments, I can't forget that
demand pressure on an economy could just as well be reduced by
discontinuance of export subsidies. We in the U.S. may have
particular reason to be concerned about such capital import
contc-1a ~road over the long-term since it may be that the patience
- 4 and the various services that accompany such transactions will be
among our most feasible exports. Yet foreign governments frequently
try to supplement their capital import controls by trying to talk us
into tightening our remaining capital export controls.
Just on Friday I noted in the news ticker that the head of a
European central bank was advocating a significant tightening by us,
I have not yet seen the full text of his remarks, but from past
experience, I am led to wonder whether at the same time he also
called for a reduction in the controls, often discriminatory agairut
the dollar, which are maintained in some countries against the
outflow of investment. After all, imposition of capital controls
here or removal of the controls there tend to have similar
effects in terms of foreign exchange markets.
A third fundamental issue is whether we shall have a world
characterized by MFN, by most-favored-nation trade rules, or by
discrimination systematically erected by regional blocs. It would
be possible to design agreements for a nation to join -- or become
associated with -- a regional bloc without reducing the totality
of its productive trade with the remainder of the world. Yet it is
not blindingly obvious that that is the course being planned in
important instances in the world today. In these circumstances
should we be planning a future international economic system based
on MFN behavior by the United States, or would such a system leave
many countries around the world under irresistible pressure to
enter into reciprocal preference ~greements with others on the
assumption that there would be no counter-vailing danger to their
exports to the United States?
A fourth fundamental question which must be considered is the
probable extent to which governments in the future will be willing
to change their choice of domestic economic policies in an effort
to try to uphold rigidity for the foreign exchange value of their
currencies. It has often been hoped that external "discipline"
would restrain profligate domestic policies, but in many cases the
practical effect may merely have been controls on the external
symptoms of the domestic policies rather than real changes in the
polic ies.
M'Jreover, given the demonstrations all around the world of the
intractable nature of the task of choosing the right mix of
domestic policies simultaneously to avoid inflation and unemploymeol
it is possible that governments in the future -- whatever their
present expectations -- will decide when the time comes that they
have enough problems just trying to choose the right policy mix for
I
- 5 domestic objectives and that they have no time to spare for efforts
at external stability.
In considering these various fundamental issues we must be
realistic, lest we develop a future system which will collapse in
short order with great damage to the world economy. We must be
realistic about ourselves as well as about others; we must not
justify the old accusation that we judge others by what they do and
judge ourselves by what we say. We must recognize that the issues
I have listed are not narrowly monetary but cut across the whole
spectrum of international economic relations.
Under the circumstances, we are consciously refraining from
trying to settle on detailed mechanics before we settle on basic
principles. There is thus a lot more I can't tell you than there
is I can tell you about what the eventual specific U.S. position
will be. A few aspects of the Administrations thinking have,
however, already been made clear.
One is that gold is a potential disruptive element and should
be phased out of its central role in the international monetary
system. This remains our position despite the action which becomes
effective in about a half hour from now to change the price at
which we don't sell gold to $38 an ounce. I can also assure you
that there was no truth in last week's rumors that the U.S. was
contemplating negotiating with the Soviet Union for a $55 gold
price. In view of the lack of foundation for the rumor, we can
only surmise that its origin was self-serving.
Another conclusion we have reached is that the future
international monetary system must somehow insure greater flexibility
than there has been in the past for exchange rates to adjust
promptly to differential rates of growth in productivity and
inflation among nations.
Finally, it seems quite probable to us that the future system
must be able to provide international pressure on a transgressing
nation, not only in the case when it is attempting to prevent an
appropriate decline in the market value of its currency, but also
in the event of- other forms of internationally anti-social behavior.
That's as far as I can go in summarizing agreed Administration
thinking for you, but since I'm so far away today from high Treasury
officials, perhaps I should reveal a bit more of Bennett thinking.
I can take inspiration from the bravery of Ed Cohen, Assistant
Secretary for Tax Policy. About ten days ago he was only as far
away as Boston and he revealed the Cohen tax reform plan. He
proposed lower taxes on everyone under 5' 7". The Bennett plan
would call for all countries with allegedly excess holdings of
dollar reserves to put 1 percent of their excess in a pot and then
leave to me the details of proving -- with the help of my large
family that those reserves are in fact fully convertible
into useful U.S. source goods and services. I realize that the
Bennett plan may seem contentious to some, but I think we must
realize that, while ending the U S. payments deficit is fundamentally
i~ everyone's interest, it is bound to be a contentious process o
0
There has, for example, been ill feeling in some places because
there has not been the massive reflow of private capital which some
had predicted after the Smithsonian settlement o In fact, over the
period of almost five months since December 18 there has probably
been an increase of over a billion dollars in foreign official
holdings of dollar reserve assets o But that increase in official
holdings is probably substantially less than the continuing deficit
during that period in the basic U.So current and long-term investment accountso Over the whole period, therefore, there has apparently been a significant reflow of short-term private capital to
the UoS. And this would be particularly true over the last seven
weeks when foreign holders on balance probably reduced their dollar
holdingso
As you well know, the exchange markets have been calm during
that period despite the fact that we had to report that our merchandise trade deficit, which had been running about $300 million
a month, seasonally adjusted, grew to about $600 million in
February and again in March o
On the basis of their experience our British colleagues tell
us that after the devaluation of the dollar in the market place
last fall we should expect the trade statistics to exhibit a "J"
shape. Well, we've seen the down stroke and maybe the bottoming
out. We are awaiting eagerly the first signs of the upstroke!
Meanwhile, we have taken care not to rock the boato Sometimes
we have sensed a little inconsistency in the advice of bankers who
have come around to urge us not to be nasty to foreign monetary
authorities, and then, as they were leaving, suggested by the way
that we should promptly remove our capital export controlso In the
event I think I can safely say that, despite our objective of
getting rid of those controls, none of you is likely to accuse us
of having displayed undue haste in phasing out those alphabetical
burdens, the VFCR, the FDIC, and the IETo
In judging the market situation today, we take some comfort
from the consensus forecast of official augurs both in Washington
and abroad that the U.S. economy is likely to have the lowest rate
of price inflation and the most substantial percentage rebound in
economic activity of any major economy in 1972
In the present
0
- 7 -
situation we have no qualms whatsoever about the durability of the
Smithsonian structure of exchange rates in the coming months o
Whether they will turn out to be "museum pieces" which last for
years is another question, one to which only considerable time
can provide the verdict o Meanwhile, we need to design a system
which will function well whatever the verdict eventually is.
And meanwhile, we need to work on that trade deficito As
most of you know, one aspect of that effort in which the Treasury
has been particularly involved was the Administration proposal,
enacted by the Congress late last year, to authorize DISC's,
Domestic International Sales Corporations, to remove a competitive
disadvantage of U.S. exporters
Today, four months after the DISC
provisions became effective, over 1700 DISC's have been formed,
and more are expected o
0
While the DISC is basically simple in concept, its provisions
have had to take into account the great variety of ways in which
business transactions are conducted and the new provisions had to
be integrated into the already complex Internal Revenue Codeo We
believe that the Treasury has already gone a long way to guide taxpayers in the use of DISC's by issuing a handbook in January and an
important Revenue Ruling in March. This material, as well as
detailed guidance on other questions which have been raised by
taxpayers, will be set forth in regulations, the first set of which
is expected to appear in proposed form in the Federal Register this
week. In addition, procedures have been established so that the
ruling process can proceed even prior to the final promulgation
of regulations, and rulings are being issued.
In this connection, I would like to comment specifically on
one aspect which may be of interest to some of you. The legislation
states that banks may not form DISC's. The question has arisen
whether bank subsidiaries may form DISC's. In our view it would
be permissible for a bank subsidiary to utilize a DISC for leasing
or other qualified export activities and for the DISC to invest a
portion of the earnings from such activity into qualified assets.
But the Treasury does not believe it would be appropriate for bank
subsidiaries, other financial institutions, or even non-financial
organizations to form DISC's solely as a vehicle for investment in
Eximbank obligations, obligations guaranteed by the Eximbank or
FCIA, or obligations issued by PEFCOo If it should prove necessary,
we would not hesitate to recommend legislation to this effect. It
is Ol.lr belief that the legislative intent was that such investment
opportunities should be available as an outlet for deferred export
- 8 -
earnings and for any interest earned on them o Besides, we don't
need any special tax provisions in order to find a market for
obligations issued or guaranteed by the U.S o Government o This fact
will, I hope, be made even more obvious in the near future by
enactment of the Administration proposal for a Federal Financing
Bank which would be authorized, but not obligated, to purchase
any obligation issued or guaranteed by a federal agency. The
Bank, in turn, would be financed by issuance of securities comparable
to those regularly used by the Treasury in financing the national
debto Hearings on the Bank are scheduled for a week from today in
the Senate Banking Committee, and we are hopeful that a representative of the UoS. banking community will be there, to support the
legislation.
Before I conclude, I would like to invite you to pass on to
us in Washington any thoughts you have on steps we should take to
facilitate the export type earnings of U.So banks through provision
of services to foreigners and on international transactions. We
should have your advice as we conduct the international negotiations
which are about to begin.
We believe those negotiations will play an important role in
the total program to create a productive, non-inflationary U.S.
economy at work in a world which offers to the UoS. a fair share
of the great benefits available from mutually advantageous
participation in international trade and investment o With that
object always in mind, I look forward to listening to your discussions today in order to be able to take back to Washington all
the advice I can on how we can get from here to there o
Thank you!
000
The Department 01 the TREASURY
TELEPHONE W04-2041
ASHINGTON, D.C. 20220
MEMORANDUM FOR THE PRESS:
May 9, 1972
The attached notice announcing a technical
study in the anti-dumping area was published in
the Federal Register for May 5th, 1972.
000
Attachment
Proposed Rule Making
DEPARTMENT OF THE TREASURY
Buteau of Cus~m.
I 19 Cfa Part 1'53 J
ANTIDUMPING; FAIR YAWE
DETERMINATIONS
a.low Cost of Production;
SolidtaHon of View.
Saf..
Notice is hereby given that the Treasury Department Is tmdertaldng a review
pi the extent to which price information
i'elatlng to sales below coat of production
IJl&7 be used in determining "fair value"
within the meaning of section 201 (a) of
tIw Antidumping Act. 1921. as amended
(1&U.8.C.160(a) ).
Pair value determinations result from
a comparison of the price of merchandise
to the United States with the price of
such or similar merchandise in the home
market (1153.3. CUstoms regulations; 19
CPR 153.3). or to a third country
(§ 153.4. Customs regulations; 19 CPR
153.4) ot with the constructed value of
the merchandise (1153.5. Customs regulations; 19 CPR 153.5). as applicable.
Information before the Bureau of Customs in resPect of pending antidumping
investigations indicates the possibility
that foreign merchandise is being. or is
likely to be. sold to the United States. in
the home market. and for exportation to
COtmtries other than the United States
at prices below cost of productiOn.
Interested parties accordingly are invited to submit written comments as to
whether. and under what circumstances.
sales below cost of production in the
home market or for exportation to countries other than the United States may
be disregarded in the ascertainment of
"fair value" "within the meaning of section 201 (a) of the Antidumping Act and
whether. if such sales are disregarded.
resort to "constructed value" (section
206 of the Antidumping Act) would be
appropriate.
ConSideration will be given to all rele.vant data. views. or arguments which are
submitted in writing to the Commissioner of Customs. 2100 K Street NW .•
Wash1ngtoR, DC 20226. not later than 30
days from the date of publication of this
notiCe in the FEDERAL REGISTER. Written
niaterial or suggestions submitted will
be available for public inspection in accordance with 1103.3(b). Customs regulations <19 CPR 103.3 (b». at the Bu·
reau of Customs. Wasb1Jlrton. D.C.
. [SEAL]
VaNOK D. ACRD.
Commissioner 0/ Customs.
APproved: May 3.19'12.
EuODB T. RossIDa.
AuiBta"t Secretar7/
0/ the Treasurt/.
[PB Doc.72-6995 Pllecl5-4-7:1;9:40 am]
The Department of the
~GTON.
D.C. 20220
TRfASURY
TELEPHONE WD4-2041
FOR INMEDIATE RELEASE
May 9, 1972
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
.$ 4,100,000,000, or thereabouts, for cash and in exchange for Treasury
bills maturing May 18, 1972,
in the amount of $4,211,555,000,
as follows:
91 -day bills (to maturity date) to be issued May 18, 1972,
in the amount of $ 2,300,000,000, or thereabouts, representing an
additional amount of bills dated February 17,1972,
and to mature
August 17, 1972
(CUSIP No. 912793 NZ5),originally issued in
the amount of $1,800,540,000, the additional and' original bills to be
freely interchangeable.
.
182- day bills, for $ 1,800,000,000, or thereabouts, to be dated
May 18, 1972,
and to mature
November 16, 1972
(CUSIP No. 912793 PM2).
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,
$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, May 15, 1972.
Tenders will not be received
at the Treasury Department, Washington. Each tender must ~e for a
minimum'of $10,000. Tenders over $10,000 must be in mu1tip'les of
$5,000. In the case of competitive tenders the price offered must be
expressed on the basis of 100, with not moce 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 accoant of
customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
-
2 -
submit tenders except for their Qwn account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announcement
will be made by the Treasury Department of the amount and price range
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reiect any or all
tenders, in whole or in part, and his action in any such respect shall
be final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three decimals)
of accepted competitive bids for the respective issues. Settlement for
accepted tenders in accordance with the bids must be made or completed
at the Federal Reserve Bank on May 18, 1972,
in cash or other immediately available funds or in a like face amount of
Treasury bills maturing May 18, 1972.
Cash and exchange tenders
will receive equal treatment. Cash adjustments will be made for
differences between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue C~e
of 1954 the amount of discount at which bills issued hereunder are sold
is considered to pccrue when the bills are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price pa~
for the bills, whether on original issue or on subsequent purchase, a~
the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
Treasury Department Circular No. 418 (current revision) and this
notice, prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained froo
any Federal Reserve Bank or Branch.
000
I
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AS SECTION 1 OF 4 QUITO 1859
JEGT: HENNESSY 103 STATEMENT
OllOWING TEXT HENNESSY STATEMENT MAY BE RELEASED.
Al DELIVERY TIME®11: 03 A. ~l. QUITO TIME.
EGIN TEXT:
EMENT BY JOHN M. HENN£SSY
ORARY ALTERNATE GOVERNOR FOR THE UNITED STATES
RE THE 13TH ANNUAL
R- AMERI CAn
I~EETING
DEVElOP~';E~)T
OF THE
BANK
0, ECUADOR, MAY 8-12, 1972
HAllMAN ,
P;;ESIDENT ORTIZ l'lENA, FEllOW GOVERNORS
DISrINGUii~~ GllESTS·
iOULD LIKE TO EXPRESS ,THE APPRECIATION OF THE
rED STATES
DELEGATIot~
TO THE GOVERN:'1EnT OF ECUJADOR
THE OPPOijTUNITY OF PA~TicIPATI~G IN THE THIRTEENTH
JAL MEETH:G OF THE INTER- AI':ERICArl D.EVELOP:1ENT 3ANK IN
; BEAUTIFUL CITY OF THE ANDES. MY
DELEGATIO~
WISHES
flANK YOU, on ~ GRAC!TOUfj POSTS FeR yqUR \-.ILltH
)ITALIIY. WE CONGRATULATE YOU ON THE EXCELLENT
~~~GD1ENTS
YOU HAVE
~1ADE
FOR OUR nEETING.
:RNOR CONNALLY HAS ASKED
~ET
AT
~OT
2EING ABLE TO
lOIN WITH OUR FELLOW
~E
TO EXPRESS HIS SINCERE
ATTE~D
ME~BERS
THIS
MEETI~G.
IN WELCOMING CANADIAN
ERSHIP IN THE BANK. THIS ADDITION NOT
O~LY
STRENGTH~~S
BANK, BUT IT BRINGS OUR HEMISPHERE CLOSER TOGETHER.
lOIN ALSO IN CONGRATULATING LIC. ANTONIO ORTIZ
" ON THE
CO~PLETION
OF HIS FIRST YEAR AS PRESIDENT.
[ ENERGY, VISION AND DEDICATION HE HAS
DE~ONSTRATED
CAPACITY FOR INNOVATIVE LEADERSHIP.
LAST WE GATHERED, ONE YEAR AGO,
~E
SPOKE OF
.UTION IN THE WORLD'S ECONOMIC AND POLITICAL RELA:S. TODAY THERE IS A
~ORE
GENERAL REALIZATION THAT
WORLD HAS CHAN GED. OUR DISCUSS I Oi\S LAST YEAR- AND
!RE HAVE EEEN GIVEN POINT AKD URGENCY BY THE VISI3LE
ONS AND SWIFT CHANGES OF THE PAST YEAR. BY THESE
IGES WE HAVE, I EELIEVE, 3EGUN TO FACE UP MORE
HRIGHTLY TO THE ECGXQMIC REALITIES OF OUR
:AMENTAL AND
LO~G
'HE INTERNATIONAL
:ONAL
~ONETARY
TI~ES.
LASTING CHANGES HAVE OCCURRED
ECONO~Y.
ON AUGUST 15TH THE INTER-
SYSTEM AS WE HAVE KNOW IT FOR 25 YEARS
: TO AN END. AUGUST 15 MARKED THE END OF THE POST
ERA HIE
ERA CHARACTERIZED BY THE ECONOMIC
A~
~~ATION
- THE
STATES.
U~ITED
971, THE POSITIONS OF THE MAJOR
ONS OF THE
THESE HAD
~JORLD
HAD CHAnGED
CH.4~~GED
E THE mUTED STATES ',lIAS
rr~GS
OF
I~DUSTRIAL
ENORr'~OUSL
~Y
Lot~G
AUTO:~03ILE
INTERNATIO~!AL
TAKE~
l,.iT~.R
HO!.~
HAS
COUNTRY. IN AREAS
THE LEA9ING NfI,IION, FOR
PRODUCT Ion, v.:oRLD TR.4DE
A~D
RESEr,VES, OTHER NATIONS OR
PINS OF NATIONS, SUCH AS THE ECUROPEAN
NOW
Y. JUST
SItlCE THE SECOND ',,'ORLD
[CIATED 3Y FEW - EVEN IN
PLE STEEL AND
DO~INANCE
cor~U~ITY,
THE LEAD.
MANY GOVERNMENTS - THIS INCLUDED IN SOME DEGREE
WN GOVERNMENT -
CONTI~UED
TO OPERATE UNDER EARLIER
-WAR ASSUMPTIONS. THOSE ASSUMPTIONS ARE NO LONGER
). WE MUST BEGIN TO FACE THE NEW REALITIES IN OUR
)~IC
RELATIONSHIPS. WHAT ARE THESE NEW REALITIES 7
E FIRST REALITY IS THAT. ECONml IC
r:CEFORTH
LATIO~S
ST.~~m
:'ll'CH
NEARE~
CO~:C£R~:S
vJILL
THE CENTER OF THE FOREIGN
OF .THE UNITED STAiES, AS THEY LONG HAVE FOR
ST r:ATIONS. THESE Cm;CERNS HAVE ACHIEV:::O A STATUS
PARALLEL
I~PORTA~CE
D SECURITY
CmlCER~~S
WITH POLITICAL, IDEOLOGICAL
'nnCH HAVE
EEE~
DO:iU:A:n IN TH:':
ST. INDEED, THERE IS A nEll: iEALIZATION THAT ECONO:HC
RENGTH MUST UNDERLIE OUR OTHER INTERESTS.
E SECOND REALITY IS THAT THE
INTER~ATIONAL
D MONETARY SYSTEMS
FRON THE EARLY POST-WAR
RI~D
I~HERITED
TRADI~G
NEED FUNDAMENTAL RESTRUCTURING. ECONOMIC
ATES~EN
O~CE ~OPE
WILL EE CALLED UPON TO SHAPE THE
FE-} OF TRADE M.JD PA nlD!T
ARRAt;GE~lENTS
FOR THE NEXT
NERATION.
THIRD REALITY IS THE
EXISTE~CE EVERYVHE~E
OF STRONG
RCD
OF PROTECTIotHSI'l, ISOLATIONISt/: A:m
THE NEGOTIATIONS THAT
~ILL
NATIC;\J.~LIS:-~.
BE NECESSARY FOR
INTE~NATIaNAL
FOR, THE mJITED STATES IS Cm:I·jITTEJ TO oun.:ARD LOOKI:·JG,
EN TRADING AND MONETARY SYSTE~S. 3UT TO ACHIEVE THIS
JECTIVE THOSE SYSTE~S MUST BE DE~ONSTRA3LY EQUITABLE STEMS IN V:HICH OUR NAT Im:AL nJTERESTS ARE SECURED ,\S
E THOSE OF OTHER NATIONS. HERE THERE IS CLEAR IDENTITY
U.S. OBJECTIVES ~ITH THOSE OF LATI~ A~jERICA.
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4311
QUITO 1859
'OURTH M:D CLOSELY RELATED REALITY IS THAT THE
LITY OF THE
:EIGN
U~ITED
ECONO~IC
STATES TO CONTINUE TO SEAR ITS
AND DEFENSE RESPONSI2ILITIES
D~PE~DS
OUR ABILITY TO ACHIEVE STRENGTH IN OUR
ECONO~IC
:ITIot!, DOi-iESTIC MlD
cor1:-iIT:':~NT
ECmlOt1IC
DEVELopr'lE~:T
THE PERIOD
I
~HEN
TODAY IS
$1~~
iLD
~'AR
I'W
LESS STROnG THAN
THE UNITED STATES WAS THE ARCHITECT
CHIEF CONTRI3UTOR OF ECmlO;lIC
:R
OUR
ItHEf..L\ATIO~)t~L.
~,SSISTAt:CE,
BILLImJ DOLLARS IN LOMJS At.1D
GRA~;TS
II. 3UT OUR FINAPiCIAL POSITIon
:ESSARILY
DETEF~.JI~)E
THE EXTENT MJD
PnOVI:)ING
SINCE
~JILL
~~ATURE
CF' THAT
::lITrENT IN THE FCTURE.
A TI~E OF' RAPID CHArSE - OF NECESSARY
) OF MORE EQUALITY IN THE
)USTRIALIZED
~
~ASIC ECO~G~IC STRE~GTH
- I 3ELIEVE YOU
~ILL
UNITED STATES MUST SPEAK OUT FRANKLY, AS
~AKING
~T
NATIO~S
ADJUST~E~T,
OF
RECOGNIZE
~E
ARE
HERE TODAY. WE ALSO RECOGNIZE THAT SOLUTIONS
at ACH Til'.
fiir'IIiiOUS H
0
10 n:T EF FORT. i'S HAVE t',1O
USION THAT - InDIVIDUALLY - IXE ALONE
EeT THE
ELOP[~ENT
INTEF.~!ATlct\{l,L
OR
r'lO:~[TARY
E I '.WULD LIKE TO
u.s.
SHt'\PE OR
Ecouornc SYSTD; FOR TRADE,
AFFAIRS.
ELI'lH~PITE
u.s.
POSITIOl-J: THE
CAt~
M;Y DOUBT' REGA::'.DI/\G
STF:O~)GLY
ELOPH:G cout:Trn::s' CLAI:': fOR
SUPPORTS THE
RE?RES::~'TATIO:·1
:,~or:~TA~Y
H'
TRADE ;{:: F 0 pt.; ti EGO T I ATIC ~; S • F U? THE: R, 'i!::: EEL I EVE-
IN AtiERIC.o. HAS .t\r·; H:PORTM'T RCLE n: H:::L?I:'JG
ORLD ORDER THAT
U2 I SH 'I'; I TH T HE
:;~ CESS ARY
1'; OR
PER~ITS
LEA~T
CO~~T
CAPITAL
fLO~S
A~J
SH.~P:::
TF.A~E
I r:?ED L: Et~T - COt:D IT I O~)~:
n; UED
\' HI
TO
CH
DE: VLL8 P:: E:1':1.
Ik? LOOK AT LATnJ ALr:RICr~ .~~;J THE DEVELOPH:G
EHPI::S, AS A 1;;hOLE, \'E SEE
ALTHOUG~
:RLY
E~~OUGH
TH:'~.T
~E~AI~S
=CO~~8:lIC
R2:ALI1 I~S
THAT TH::: PAC: IS
~CT
THE BEULFITS OF GEOi,i,'TH ARs
~~CT
CONCERN
;T nWUGH AND
~;£'JJ
DISTRI2UTED. v.'E: SHARE Ti-':IS
CPTHiISTIC. THE \J:ORK OF THE
COU~ni1I:::S
co~~c::.;:m
BUT
TH::::::SLLVES
ETHER vJITH THE 2Ai'!K M~9 SHULAr: I~;STITLTIC\S IS
ISING f:(UIT A~m PRO:f;ISES i':UCH r~ORE.
OF ThE: :':OST STRIKP~G RL4LITIES H~ LATIt~ A;·~:'::RICA
THAT THE EARLIER ~YTH THAT COUNTPI~S COULD ~0T
i':A::U,TLY S~1E.~K FRr:~ Of THEIr< LO'~T L~VE:LS Of I>!CO:::: T THEY I.(TEP:: ;'10T ~ASTERS OF Tl-:EIR C'..'~) [CO>l~'.;IC
TI t! Y - S r: 0 L! L 9 ~ AV~ 2. EEt: D::: CIS I VEL Y ~~ ~(? L0 DED:' Y THE
TS. HO~'EV[.g
I.llf f1Hr:TO;IC DOES ~~OT SE~.:~ TO H.~Vr.:
t\U:~5ER
ISHT UP TO THOSE FACTS, \'.'HICH AE£ THAT fJ.
",
L.~RG::
COU::TRIES GOTH
M:D St:ALL -
R~PF\C:SE:1TING
AJOEITY OF LATH; A:,;ERICA - HAV: EXPERID\CED VIGO?iOUS
SLSTAINED GRO~TH FOR THE EETTER PARi OF A DECA~E ALL INDICATIONS ARE FOR A CONTINUATION OF THIS
ARKA2LE RECORD. THE
~;AJOR
:RE IS TO \<JORK TO PROV IDE:
PhOI:LE:J FACH:G
l~ORE
:H~Jl CAL Aim F H: Ai"; C I AL , C0 UP LED
ORDER TO
FIND -
~.SSUR E 3;'.LA:~CED
REASO~ABLY
::<SELVES H,:WE
iAJOR
somm
EEE~\!
CO~lTRIGUTINS
G£i\~ERAL
E~OU8H
,~SS I STA~C[
!;}
fiE:lIS-
OF ,;LL T Y?ES -
I T H BIT T ER ? 0 L I C I E S
GROtHH.
- THAT THE
COU~TR!ES
RESPQ1-lSI5L£ FOR THIS
FACTOR HAS
ECO~W:;IC
nr::
2EE~)
POLICIES.
THE
~.'c:
PROG~::SS
C:FFECTIv:~r::ss
H.AVE
SEF.~J:
HA T SAVI NGS CA:' 1 BE ;1 0 S I LIZ ED M m C Hfl, ~~ n:. LED 1:\ T C
DUCTIVE njVEST:'1St:TS, EVEN n; THE FACE OF
'HAT,
~,'ITH
FLEXIELE AND REALISTIC
EXCH~NGE
P~ICE
R.ATS
.IelES 3ALMJCED GPO'IJTH CAN 5E ATTAINED EVHl ',nTH
'LATIONARY PRESSURES,
IT EXPORT
E.~R~ I~
G CM! BE I ~JCREASED THROCGH
ES TO 30TH INDUSTRIALIZED AUD D£VELOPI\:G COU:;T?IES,
HAT IT IS PCSSIBLE TO REDUCE INFLATION, AND
DO SO IN A
~AY
THAT SUPPORTS, RATHER THAN TAKES
FRO~,
OTHER OEJECTIVES.
~AKES
US
TO THE
C?TI~ISTIC
bY THE cM:K. IN
TH~
FUTURE
THAT :';ORI: ATTenION
Cm:CL~3Im~
GIVEN TO GENERAL
ABOUT
Ecm~o:'ilC
LEADS
A~D
EVER :iUST
THA~j
?JLI CY AREAS BY EACH COUNTRY
THISt-lHROC~SS
JRSE, HAVE TO BUILD UPON ITS
EACE
O~~
~·:ATION
1.nLL, HEX
TRADITIONS, CAPA3I-
IES AND UPON ITS OWN LEADERSHIP.
THIS
CO~T~XT,
~O~PLE~E~TARY
EXTER~AL
ASSISTANCE CAN ONLY PLAY
ROLE. 3UT IT IS A KEY ROLE. I WOULD
<E TO CALL TO THE
ATTE~HIor~
ETHER THE U. s. IS
DOH~G
OF THOSE
I HELAT IVE
NATIO~S
ECO~JO~~ I C
QUESTION
ITS PART THAT TH:: U. S. STILL
)VIDES OVER 40 PERCENT OF THE
E INDUSTRIALIZED
:lHO
ECO~Wi~IC
ASSIST.~;jCE
IN SPITE OF THE GREAT SHIFTS
ST RENGTH I HAV E :·!G:T I O~JED. THE
IS WILLING TO CONTINUE TO DO ITS PART IN THIS
3ARD
359/2
8IVH~
2UT EXPECTS EQUAL EfFORTS OF
S~LF-H~L?
2Y
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QUITO
RUEATRS/TREASURY 1}.'ASHDC n;r·:EDIATE
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I:'1~~EDIATE L;312
LAS SECTION 3 OF 4 QUITO 1859
THER
LATI~ A~lERICA1J
REt,LITY IS THAT lJ.'IDELY
FERENT VIEWPOINTS EXIST ON THE UTILITY AND ROLE OF
VAlE
INVEST~ENT
-
DO~ESTIC
AND FOREIGN.
~ANY
INIRIES HAVE SUCCESSFULLY INTEGRATED FOREIGN IMVESTI INTO THEIR NATIONAL
DEVELOP~E~T
~JITHOUT
PLANS
~ITH
GRSAT
I~W:'lIC
3H:EFIT, AND
IO~AL
DIGNITY OR SOVEREIGNTY. OBVIOUSLY, NOT ALL
cmlPRQ[USING EITHER
PREPARED TO TAKE THIS APPROACH.
IS OUR STRONG
CONVICTIO~
THAT PRIVATE INVEST-
I IS ESSENTIAL TO THE RAPID
DEVELOPME~T
OF THt
ISPHERE. IT IS ALSO OUR STRONG CONVICTION THAT WE
I SQUARELY FACE THE ISSUE OF EXPROPRIATION ON PRIVATE
ERPRISE, BECAUSE IT IS SO
I~?ORTANT
AND
SE~SITIVE
A
TER. PRESIDENT NIXON AND OUR CONGRESS HAVE STATED
I
U.S. ?OSITIOlJ CLEARLY. 'lHILE EACH NATION HAS THE
HI TO EXPROPRIATE PROPERTY FOR A PU3LIC PURPOSE, IN
RY CASE
THEJ~E
?ENSATION,
I~J
SHOULD BE
PRO~·J?T
ACCORDANCE l;.'ITH
ADEQUATE AtlD EFFECTIVE:
INTER~:ATIO~,jAL LA\~'.
THIS CONNECTION, RECENT LEGISLATION REQUIRES THAT
UNITED STATES WITHHOLD. ITS SUPPORT
LOANS IN
FRO~
TILATERAL DEVELOPMENT EANKS UNLSKS AND UNTIL IT IS
ER~INED
THAT THE
PROVIDE ADEQUATE
COe~TRY
IS TAKING REASONASLE STEPS
CO~?ENSATION.
THIS
POSITIO~
IS
A POLITIC!\L ACTIO!'J - AS SO:lE 'AlOULD HAVE US 2:::LIEVE RATHER IS SASSO ONLY ON
CO~SIDERATIO~S
OF
INTERNATIO~AL
PDiSATE ADEQUATELY CM'.) ONLY AFFECT THE NLOlJ.' OF
~l:':t:D;::D
IrAL, AND AFFECT THE CREDIT WORTHINESS OF A COUNTRY. IN
T, THE WISDOM OF ANY
N WHEN AEEQUATE
EXPROPRIATIO~
CO~PE~SATION
CA~
EE
QUESTIO~ED,
IS PAID. THE RESOURCES
rSRTED TO Cm!PENSATE INVEsn:E;as THAT ARE ALREADY
DUCING EMPLOYMENT AND TAXES OFTEN COULD BE USED
E PRODUCT I VEL Y TO F I NM~CE NEW INVESTrI] ENT I ~J THE
ESTIC ECONOMY, PARTICULARLY IN AREAS OF HIGH
IAL PRIORITY TO WHICH FOREIGN CAPITAL DOES NOT
AYS FLOW.
:RE IS otJE OTHER ISSUE THAT l'lUST 2E
IS THE
H)TERr~/~TIO~'IAL
~~OTED:
ILLICIT DRUG Tr<AFFIC THAT AFFECTS
PEOPLE M:D PARTICULARLY OUR YOUTH. THIS IS At"
DEEP CONCERt: TO THE UI'ITED STATES NID TO ALL
EV IDENCED IN V.!\R 10IJS
U:~
ISSUE
~'ATIO!\;S,
RESOLUT I ot-~S. T HE UP I TED
,
TES HAS TAKEN STEPS TO CON3AT THE DRUG
O~OU5LY
AND ON A BROAD
COU~TI~G
ERNATIONALLY,
'IuNS. AS
REQUI~ES
O~JE
FHor~T,
PR03LE~
bOTH DO;-;EST IC£\LL Y M!D
ON THE COOPERATION OF MANY
ELniENT IN OUR EFFO;=;TS, NE!.'i
U.S.
RE?~ESENTATIVES
INTERNATIONAL INSTITUTIONS TO
LEG1SLATIm~
TO VOTE AGAINST LOANS
COU~TRIES
~HICH
ARE
COOPER.4TING IN KESOLVH1G THIS PROBLE>1. !.I.IE EXPECT
NO ONE '.HLL EE. NEUTRAL
ot~
THIS ISSUE OF GREAT
)ORTANCE TO US ALL.
THIS PERIOD OF CHANGE, OF GREATER EQUALITY IN
mC)lIC STREnGTH, THE :']ULTILATERAL
AN
Il~PORT4NT
DEVELOP~Ef~T
BANKS
ROLS TO PLAY. ThE UrITEQ 3To.T£S AND
ITR NATIONS AS WELL, A2E RELYI~S I~CREASI~GLY UPON
~SE
INSTITUTIm·!S AS CHMlNELS FOR DEV:::LOP~lH~T
ISTAi~CE.
ThIS ['~EA~JS THE INTEP.-P.'.'l~RICt\N 5Ah!:\ IHLL
TO CONTINUE TO ASSUME GREATER A~
~? IN THE HE~ISPHERE.
GR~AT~R LEADER-
J ~OULD LIKE TO REPEAT OUR
:DGE OF FULL SUPPORT FOR THE tANK AS I T DOES SO.
,
j
{~At;AGE:1nH
iFOPNA~CE
IS TO BE CONGRATULATED FOR M~ CUTSTAtlDING
LAST YEAR. ~E CONFIJENTLY EX?~CT THE BA~K
:'if\DlTAI:-J THE HH3H LEV::LS OF PERFOR:'lANCC: A:JD LErJCI~~3
HAS ,~CHIZVSD.
U~JDE:RST~~;DHlG
lTR;P,Y TO THE
lGRESS
H~S
m~LY
)-{OL:JI~~2:3
~HICH
WILL RESULT
Ji 2 75 :,: ILL I mJ J F
G()V~R~J;1E:~T
I~
)ERTOOK L"IST
~.lT 'v'
YE~R
rJR~:.~LLY
FCR
THE ?FOVISION OF
hE SOU RCEST 0 THE
TH~T
~
A~! K•
THE E,;'.'X
A ;'lAJOR STUDY 'nTH THE PCF:?OSf.: Of
1...
'.~Y
ORS.;~iIZATIJ:'J;
)A~ILITIES
I~
VERY PLE,;SE:D TO S[Z
H STUDY ?On:TS THE
~ICIH)T
OF D8LLARS - A\ 03LIG.t.Tlot.; '/r.ICH
T'lO DAYS ASO l;,'HEN THE DOLLAR 'lAS
IALUED AND
~?
our~
PROVIDED FULL AUTHORITY TO CArRY CUT THE
:1\' S PR:SE:JT
)SF.
HEF~E,
OF SOjS
TO A
O~E
nJJLpn·;DLi~T
STRO:~GER
'/HICH IJ.'ILL
MID i':ORE:
J-iAV~
E~:H(4.NCED
?ROJECT :':PPS.4ISAL,
:OUF?t;G£: M:J EVELOP BLTTEr; H~VEST:;E~lT CP?O~TU:'!ITIES,
)VIDE CLOSER SUPERVISION TO E~SU~E SUCCESSFGL PROJECT
)LH:EJ:T~TIO;.:,
MW SERVE ITS :'lL:-E~[RS i'lOKE: :':FFICIErTLY.
LOOK FO~~ARD TO EA?LY ACTIC~ THAT IS ESSE~TIAL I~
[S ARE_~.
AS A:·!OT HER ~.SPECT OF THE EFF CRT TO 1.: ?POV::::
~~:U Inc EFFECT Ivn:ESS,
SEV[R:'L
:-:n'
STUDI ES
;PLETED H: TH:: ,!\UDIT M1D ~VALU~Tlm; _~F~,t;S,
M:n
'~'E LOOK
;'vAF;D TO :,\~J H~CRE~.SI\)3 t~U:'13ER OF T}-<:E.S~ USEFUL M:ALYSES
67
~~;VZCZCCRQLj
'UZYUI)/ RUEtiES 822CS
EUESQI
13:22254- UUUU- - ?,U~ATRS.
13r;j2228
lE59/4
, UUUUU ZZH
:92 1ZCZ ~'1 AY 7 2 Z F' F' - 1;
At,:E!13ASSY
~UITO
RUEt..TRS/T REASURY
~JASHDC I:1~j!EDI AT~
'0 RUEHC/SECSTATE
'.~ASP'JC
:LAS
SECTIO~1
4
I:'}/I:DIATr:
ot « QUITO
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1859
T
f\.c.\.IV\,)".1.,",~,,\,)
~R'~I'lG
A
J',I:.
lVI:.l!.U
COU~TRIES
30ROUSLY
uH
PURSUED.
OF OUR HEMISPHERE. THIS HAS TO BE
THIS IS, OF COURSE, A PART OF
OVERALL QUESTION OF THE GEOGRAPHIC
E FUND FOR SPECIAL OPERATIONS. THE
DISTRI3UTIO~
ECOKO~IES
13ERS ARE RAPIDLY REACHING THE POINT AT
<E THE
j.
MJD SUST An-lED DRIVE TO HELP T;IE RELAT I VEL Y LE~S
JELOPED
~
4313
TRM~SITION FROr~
~RATIONS
IN
DRA~I~G O~
RELIANCE
O:~
~HICH
~y ~JOLJLD
IELO?~1ENT
I~
THEY CAN
THE BANK'S ORDINARY CAPITAL
RESOLUTIO~
1970. IT SHOULJ BE EXPECTED THAT
IN TH1E BE A2LE TO JOIN THE
LENDERS.
SO~E
THE FUND FOR SPECIAL
;OURCES - AS FORESEEN IN THE PUNTA DEL ESTE
REPLENISH~ENT
OF
OF
CO:1~':U~·jITY
OF
WE DO NOT
THIS REGARD,
THI~K
t\DVM~C£D
1£ OF OUR r'IORE
IT IS TOO EARLY FOR
ASSISTANC~
:'lL1SERS TO PROVIDE
THE LESSER-D[VLLOPED COU;'JTRIES It: THr.. hLHSPHEF.L.
ECmW[~n::s
'lr: t'lEf':bERS AFE DOn:G THIS ALRZlWY. AS 'THE
TH:SE MORE DEVELOPED NATIONS CO~TI~UE TO EXPAND AND
)SPEF., THE EVOLUTIO:J OF HaFA- ,~.:':EF:ICA:J
~~OT
;ISTAt·jCE SHOL'LD
D:::Vr::LJ?'<~:~~T
ONLY BE a;C:JUl,;GED, IT SHOULD Bf:
::lEeTED.
rHI RD DIRECT I ON ',vE I!II SH TO Er:CCUK{iGE
)su,r IS TO "OP'/
IN
t.
,
'L
~
t
HI"
':,
1,.JORLD
8/'l,r::-<
A~l[)
conD"I~lAT7;'1'"I
V " ~}
.',
I- J
Tl-i~
2Mi~
TO
"'ITi-{ Tj-{':,~,,-\
"' CI"P ,
[rA\-::liIO~l
~ r,
,~"
I'·:F TO'::l;i\D HELPE!G CCUYTRIFS TO
'nOVe: T}1EI? Ecm:o:uc POLICI?S. '.,'E EE'LIEVE THE
[D H~ CE
I S CLE.~ R T HAT SOU N:.J F I S CAL, "i 0 ~; ;:;: T A~ Y
:HM:SE RATE POLICIES, COL.!?LED
)'JS-PU3LIC A:m PFIVAT£ -
CA~~
~,.;ITH
EXTLR~JAL
ACHIEVE
::OCI.~L
:~ ~ lD
CAPIT.tIL
AlE")
IT HAS Al.READY H; SEVE:iAL.
~t -
'IN
1::
r']UCH [~OFE ~~EEDS TO BE :"10E£ DOI~E TO ~4CHIE.VE
A~(iERIC,t;~,)
SOALS OF SOCIAL ArlD
ECO~.;o:lIC
D£VELOP~(C:~JT.
JOSS, BETTER LIVING COt·,DITIC)S Arm F.t\IRER
;TRISUTlm; AnE
t·~E:EDED.
TO
~:::SCKICE
THES;:
FICO~';E
t~E:E:DS
IS Te
'H~E THE CH,'~LL[~JG:':S cm·JFROrnnJG THE It ' TER-,Cl.:-:ERICAN
lK.
nEALITIE~
A30UT
~HICH
I HAVE SPOKEN TODAY
RESPONSES MlD n:N8VATIVE
THAT IS IN US, BUT THE
POLICI~S.
E~D
riO:HC PROGRESS AND PEACEFUL
PLlN
59/4
DE~AND
THFY CALL FOR THE
IS WORTH IT - A ~O~LD OF
D~VELOP1·jE~a.
F.~~D
TEXT.
The Department of the TRfASU RY
SHINGTON. D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 10, 1972
l.vITHHOLDING OF APPRAISEMENT ON ~~700LA.ND
POLYESTER/WOOL WORSTED FABRICS FROM JAPAN
Assistant Secretary of the Treasury Eugene T. Rossines
announced today the withholding of appraisement of wool
and polyester/wool worsted fabrics from Japan pending a
determination as to whether this merchandise is being, or
is likely to be, sold at less than fair value within the
meaning of the Antidumping Act, 1921, as amended (19 U.S.C.
160 et seq.).
Under the Antidumping Act the Secretary of the Treasury
is required to withhold appraisement whenever he has
reasonable cause to believe or suspect that sales at less
than fair value may be taking place.
A final Treasury decision in this investigation will be
made within three months. Appraisement will be withheld for
a period not to exceed six months from the date of publication
of the ",".vi thholding of Appraisement Notice" in the Federal
Register.
Under the Antidumping Act a determination of sales in
the United States at less than fair value requires that the
case be referred to the Tariff Commission, which would then
consider whether an American industry was beinq injured.
Both sales at less than fair value and injury must be shown
to justify a finding of dum~ing under the law. Upon a finding
of dumping, a special duty ~s assessed.
The total value of wool and polyester/wool worsted fabrics
imported from Japan during the perion January 1970 through
December 1971 amounted to approximately $57,900,000.
000
The Deportment of the TRfASU RY
IINGTON, D.C. 20220
TELEPHONE W04-2041
Memorandum to the Press
March 9, 1972
The attached proposed amendments to H.R. 12272, the Individual Retirement Tax Act of 1971 and technical explanation
of the bill were submitted for the record by Assistant
Treasury Secretary Edwin S. Cohen to the Committee on Ways
and Means in connection with his testimony on the Administration's pension proposals on May 8, 1972.
000
Attachment
Proposed Amendments to H.R. 12272, 92d Congress
Page 2, line 19, strike out "when" and insert ftthat tr •
Page 3, line 7, strike out "unless" and insert "unless,".
Page 3, line 9, strike out "accrued benefit" and insert
"accrued benefit derived from employer contributions".
Page 3, line 13, strike out "his period of" and insert "the
period of his".
Page 3, line 21, strike out "his" and insert "such".
Page 3, line 22, strike out "than rapidly" and insert "than
ratably" •
Page
4, line 5, strike out "to" and insert "to benefits or".
Page 4, line 15, strike out "and" and insert "or".
Page 5, line 6, strike out "actuarial" and insert "fair
market".
Page 6, line 6, strike out " accrued benefit" and insert
"accrued benefit derived from employer contributions".
Page 6, line 8, strike out "as" and insert "as of".
Page 6, line 10, strike out "his period of" and insert
"the period of his".
Page 6, line 12, strike out "his" and insert "such".
Page 6, line 18, strike out "profit sharing" and insert
"profit-sharing".
Page 6, line 19, strike out "(j)" and insert "SUbsection
(j)".
Page 7, line 16, strike out "(2" and insert "(2)".
Page 7, line 23, strike out "profit sharing" and insert
"profit-sharing".
Page 10, line 20, strike out "section 218" and insert
- 2 -
"section 219".
Page 10, line 21, strike out "219" and insert "220".
Page 10, line 21, strike out "section 217" and insert
"section 218".
Page 10, line 23, strike out "SEC. 218" and insert "SEC.
219".
Page 11, insert after line 14 the following:
"If a taxpayer has earned income for the taxable year which is
not subject to tax under chapter 2, 21, or 22, no deduction shall
be allowed with respect to amounts described in the preceding
sentence except to the extent that such amounts exceed an amount
equal to the tax (or the increase in tax) that -would be imposed
upon such income under section 3101 for the taxable year if such
income constituted wages (as defined in section 312l(a)) received
by him. with respect to employment (as defined in section 3121 (b) ) •"
Page 12, strike out line 22 and all that follows down through
page 13, line 7.
Page 13, line 8, strike out "(4) and insert "(3)".
Page 13, line 16, strike out "(5)" and insert "(4)".
Page 13, line 24, strike out "profit shar-" and insert
"profit-shar-".
Page 14, line 15, strike out "section 218(b)" and insert
- 3 "section 219(b)".
Page 16, line 14, strike out "excess" and insert "excess
contributions on behalf of owner-employees) shaJ.l apply to" •
Page 18, line 25,
strike out "account" and insert "account
(as defined in section 408(a))".
Page 19, line 4, insert a comma after "attributable".
Page 19, line 5, insert a comma after "delegate".
Page 19, line 6, strike out "under section 218" and insert
"allowed under section 219".
Page 19, line
7, insert a period after "savings)".
Page 20, line 9, strike out "section 218" and insert
"section 219".
Page 20, line 20, strike out "section 218" and insert
"section 219".
Page 21, 'line 7, stike out "withinll and insert" (within".
Page 21, line 19, strike out "section 218" and insert
IIsection 219".
Page 22, line 4, strike out "Subtitle D" and insert "Subtitle D (relating to miscellaneous excise taxes)".
Page 22, line 13, strike out "excessive accumulation" and
insert "excessive accumulation in such account".
Page 22, line 14, strike out "shaJ.l not apply' I and insert
"shall apply only".
Page 22, line 15, strike out "any taxable year prior to"
and insert
If
taxable years beginning after".
- 4Page 22, line 16, strike out "the plan" and insert "such
account".
Page 22, line 19, strike out "excessive accumulation" and
insert "excessive accumulation in a qualified individual retirement account".
Page 22, line 22, strike out "held by the plan" and insert
"of such account".
Page 23, line 2, strike out "individual" and insert "individual who established such account".
Page 23, line 5, strike out "under the plan to the individual"
and insert "by such account to such individual".
Page 23, line 16, strike out "section 218" and insert "section 219".
Page 24, line 16, strike "section 218" and insert "section
219".
Page 24, strike out the matter following line 17 and insert:
"'Sec. 219.
"'Sec. 220.
Retirement savings.
Cross references. ,II
Page 28, strike out lines 5 through 18 and insert the following:
"(A) Clauses (iii and (iv) of section 401(e)(1)(B)
(relating to definition of excess contributions on behalf of
owner-employees) are amended to read as follows:
" , ( iii) the amount of any contribution made by
any owner-employee (as an employee) which exceeds
- 5 10 percent of so much of the earned income for such
taxable year derived by such owner-employee from the
trade or business with respect to which the plan is
established as does not exceed $50,000; and
"'(iv)
in .the case of any individual on whose
behalf contributions are made under more than one
plan as an owner-employee, the amount of any contribution made by such owner-employee (as an employee)
under all such plans which exceeds $5,000; and'.
" (B)
Section 401 (e) (3) (relating to contributions on
behalf of owner-employees for premiums on annuity, etc.,
contracts) is amended by striking out '$2,500' and inserting in lieu thereof '$7,500'."
Page 29, line 9, strike out "compensation" and insert "so much
of the compensation".
llIDIVIDUAL RETIREMENT mC,)ME TAX ACT OF 1971
Technical Explanation
section 1.
Short Title, Etc.
(a) Short title.--Section lea) of the bill provides that the
bill may be cited as the " Individual Retirement Income Tax Act of
1971" •
(b)
Amendment of 1954 Code.--Section l(b) of the bill pro-
vides that whenever in the bill an amendment is expressed in terms
of an amendment to a section or other provision, the reference is
to a section or other provision of the Internal Revenue Code of
1954.
Section 2.
(a)
Minimum Standards Relating to Eligibility and Vesting.
In general.--Section 2(a) of the bill would amend section
40l(a) of the code by adding thereto new paragraphs (11), (12), and
(13) •
Proposed section 401 ( a)( 11) would impose limits upon the age
and service conditions for participation in a qualified pension,
profit-sharing, or stock bonus plan.
Proposed sections 40l(a)(12)
and (13) would require such a plan to include provisions according
participants nonforfeitable rights under the plan before they
attain retirement age.
Proposed section 40l(a)(11)
Section 40l(a) of the code does not now:eontain any generally
applicable, specific requirements concerning conditions for participants based on age and service that may be included in a qualified
pensio~
profit-sharing, or stock bonus plan.
Treasury regulations
- 2 -
permit such a plan to provide that participation in the plan is
limited to employees who have attained a specified age or have a specified period of service with the employer if the effect of such limitations does not discriminate in favor of officers, shareholders,
supervisory employees, or highly compensated employees.
In addition,
employees who, when they first otherwise became eligible to participate in such a plan, have attained a specified age close to normal
retirement age
m8lf
be excluded if the effect is not the discrimina-
tion prohibited under the code.
Subparagraph (A) of proposed section 401(a)(1l) provides that
an employees' trust is not to constitute a qualified trust under
section 401 of the code (i.e., is not to be exempt from tax under
section 501(a) of the code) if the plan of which such trust is a
part requires that an employee have completed a specified period of
service with the employer before he may participate in the plan and
such period of service exceeds 3 years.
Subparagraph (B) of proposed
section 401(a)(ll) provides that an employees' trust is not to constitute a qualified trust if the plan of which such trust is a part
requires as a condition of participation that an employee have attained a specified age and such age exceeds 30 years.
Accordingly,
a plan must provide that any employee who has attained age 30 and
has completed 3 years of service as of the close of any plan year
may not be excluded from the plan if he meets all other conditions of
participation in order that any trust forming part of the plan constitute a qualified trust under section 401.
For purposes of these
- 3 provisions, the term "plan year" means the annuaJ. accounting period
for the plan or, if no such period has been established, the taxable
year of the trust forming a part of the plan.
Proposed section 401 ( a)(ll )( C) provides that an employee s' trust
is not to constitute a qua.lified trust if an employee who meets a.ll
other conditions of participation in the plan (including any service
requirement a.llowable under proposed section 40l(a)(ll)(A»
is excluded
because his age exceeds a specified age and such specified age is less
than 5 years less than the earliest age under the plan at which an
employee may receive benefits which are not actuaria.lly reduced.
For this purpose, there is to be disregarded a provision in a plan
that an employee with a specified period of service with the employer
or participation in the plan may retire and receive actuaria.lly unreduced benefits before attaining same greater age at which he could retire and receive actuaria.lly unreduced benefits without having completed such specified Reriod of service or participation.
Thus, for
example, if a plan provides that an employee may retire and receive
actuarlally unreduced benefits at age 65 or, if he has participated
in the plan for at least 25 years, at age 60, the requirements of
proposed section 40l(a)(ll)(C) would not be satisfied if under the
plan employees who are otherwise eligible to participate in the plan
are excluded because
their~age-exceeds,60
(i.e., 65 reduced by 5).
The second sentence of proposed section 40l(a)(ll) provides
that the foregoing requirements are genera.lly not applicable, in
the case of plans in existence on November 30, 1971, to plan years
beginning before January 1, 1974.
Thus, the qua.lifled status of a
_ 4 -
trust forming a part of such a plan will not be adversely affected
by the continued application of present age and service conditions
for participation during plan years beginning before January 1, 19'74.
In addition, in the case of a union-negotiated plan in existence on
November 30, 1971, the foregoing requirements are not applicable to
plan years beginning before the termination of the collective bargaining agreement in effect on November 30, 1971, which relates to the
plan.
In the case of a plan not in existence on November 30, 1971,
provisions of the plan satisfying the requirements of proposed section 401(a)(n) would be required for determining the eligibility of
employees to participate in the plan during plan years ending after
the date of enactment of the bill.
Proposed section 401(a)(12)
Section 401(a) of the code does not now specifica.l1.y require that
a qualified pension, profit-sharing, or stock bonus plan provide that
a participant in the plan have at any time before he becomes eligible
to retire a nonforfeitable right to his accrued benefit under the
plan.
(Section 401(a)(7) of the code provides, however, that such a
plan must provide that, upon its termination or upon complete discontinuance of contributions under the plan, the rights of all employees
in their accrued benefits to the extent then funded or the amounts
credited to their accounts are nonforfeitable)
However, the failure
to provide pre-retirement vesting is taken into account by the
Internal Revenue Service in determining whether a plan satisfies the
- 5 statutory requirement that it not discriminate in favor of officers,
shareholders, supervisory employees, or highly compensated employees.
Subparagraph (A) of proposed section 40l(a) (12) provides that an
employees' trust is not to constitute a qualified trust under section
401 of the code unless the plan of which such trust is a part provides
that an employee's rights in at least 50 percent of his accrued benefit are nonforfeitable as of the close of the first plan year in
which the sum of his age and the period. of' his participation in the
plan equals or exceeds 50 years.
A plan could provide, however, that
an employee's rights will remain forfeitable until he has participated
in the plan for a period. equal to 3 years reduced by any period of
service with the employer during which he was not eligible to participate in the plan.
Proposed section 40l(a)(12)(A) further requires
that an employee's rights in the balance of his accrued benefit become
nonforfeitable not less rapidly than ratably over the 5-year period.
following the close of the first plan year in which he satisfies the
initial nonforfeitability requirement.
In the case of a contributory plan, the portion of an employee's
accrued benefit which is attributable to his contributions to the
plan is to be disregarded in determining the extent to which his
rights under the plan are required to be nonforfeitable under pro-
- 6 -
posed section 401(a)(12)(A).
Thus, for example, if at the time an
employee terminates employment the value of his entire accrued
benefit is $10,000, of which $4,000 is attributable to his contributions to the plan, and he is required to have nonforfeitable rights
in 70 percent of his accrued benefit, the value of his entire
accrued benefit in which his rights are nonforfeitable is $8,200,
the sum of $4,000 (the portion of his accrued benefit which is
attributable to his contributions) and $4,200 (70 percent of $6,000
(the portion of his accrued benefit which is attributable to employer contributions)).
Thus, for example, if a plan provides that an employee is ineligible to participate in the plan until completing one year of service with the employer, the requirements of proposed section 40l(a)
(12)(A) would be satisfied if the plan provides that an employee's
rights in 50 percent of his accrued benefit are nonforfeitable as of
the close of the first plan year in which'the sum of his age and the
- 7period of his plan participation equals 50 years or, if later, after
participating in the plan for 2 years (i.e., 3 years reduced by the
l-year period during which an employee is ineligible to participate
in 'the plan), and that his rights in an addi tiona.l 10 percent of his
accrued benefit will become nonforfeitable as of the close of each
of the succeeding 5 plan years.
An employee hired at age 50 would
therefore begin to participate in the plan at age 51, would have a
nonforfeitable interest in 50 percent of his accrued benefit at age
53, and would have a nonforfeitable interest in his entire accrued
benefit at age 58.
Subparagraph (B) of proposed section 401(a)(12) provides that
proposed section 401(a)(12)(A) shall not be applied to prohibit a plan
to which employees are required to contribute as a condition of participation (or
So
plan to which the amount (if any) of the employer's
contribution on behalf-·of
an~
employee is
deterrnined~
by
reference to the amount of the. employee's contribution to the plan)
from providing that if an employee voluntarily withdraws his contributions upon termination of employment or active participation in the
plan, his rights in that portion of his accrued benefit which is
attributable to employer contributions will be forfeited.
Such a
plan must provide that a terminating employee need not withdraw
his contributions to the plan and that if he does not do so, his
rights in his accrued benefit will be nonforfeitable in accordance
with provisions of the plan satisfying the requirements of proposed
- 8 section 401(a)(12)(A).
Moreover, proposed section 401(a)(12)(B)
does not apply to a plan which merely permits an employee to make
voluntary contributions to the plan, and an employee's rights in
that portion of his accrued benefit which is attributable to employer contributions must be nonforfeitable in accordance with provisions of the plan satisfying the requirements of proposed section
401( a)(12 )(A).
Subparagraph (C) of proposed section 401(a)(12) provides that
an employee's rights in employer contributions to a plan are not required to be nonforfeitable to the extent that, under provisions of
the plan adopted pursuant to regulations prescribed by the Secretary
or his delegate to preclude the discrimination prohibited by section
401(a)(4) of the code, such contributions may not be used to provide
benefits for designated employees in the event of early termination
of the plan.
However, the plan must provide that except for such
contingency the rights of such an employee are nonforfeitable in
accordance with provisions of the plan satisfying the requirements of
proposed section 401(a)(12)(A).
Proposed section 40l(a)(12)(D) provides that the foregoing requirements are generally applicable, in the case of plans in existence
- 9 on November 30, 1971, only to benefits accrued during plan years beginning on or after January 1, 1974.
However, for purposes of deter-
mining the extent to which an employee's rights in the benefits he
accrues during such plan years is to be determined by taking into
account his entire period of participation in the plan, including
any participation before November 30, 1971.
In the case of a union-
negotiated plan in existence on November 30, 1971, the requirements
of proposed section 40l(a)(12) are not applicable to benefits accrued
during plan years begjnnjng before the termination of the collective
bargainjng agreement in effect on November 30, 1971, which relates to
the plan.
In the case of a plan which is not in existence on Novem-
ber 30, 1971, these requirements apply to all benefits accrued under
the plan by employees whose service or active participation in the
plan terminates after the date of the enactment of the bill.
Proposed section 40l(a)(13)
Proposed section 4ol(a)(13) provides that a trust forming part
of a plan which is in' existence on November 30, 1m., shall not be
considered not to constitute a qualified trust for any plan merely
because such plan contains a provision to the effect that benefits
accrued thereunder during a plan year are forfeitable if both of the
following conditions are satisfied: (1) the periodic benefit payments
to retired participants during the plan year eIeft'lit. :i:i8a lJ -t4:t.--...-wem aJ s
t
- 10 -
by active participants during the plan year, and (2) as of the beginning of the plan year, the present actuarial value of accrued
plan liabilities to both retired and active participants in the plan
exceeds the fair market value of plan assets.
Benefits accrued by an
employee during such a plan year could remain forfeitable until the
employee attains retirement age.
The second sentence of proposed section 401(a)(13) provides that
this exception is not to apply to benefits accrued during any plan
year if the plan is amended to increase benefits directly or indirectly
(for example, by lowering the retirement age) wi thin the 5-year period following the close of such plan year.
Thus, if the plan is so
amended within such 5-year period, any trust forming a part of such
plan will cease to constitute a qualified trust unless this provision is deleted from the plan and the rights of employees who are
participants when such amendment is effective in benefits accrued
during such period became nonforfeitable to the extent provided by
provisions of the plan satisfying section 401(a)(12).
- II -
(b)
Plans benefiting owner-employees.--Section 2(b) of the bill
would amend section 401(d) of the code
(relating to additional re-
quirements for qualification of trusts and plans benefiting owneremployees).
Paragraph (1) of section 2(b) would revise the service
conditions for participation in a qualified plan benefiting owneremployees.
Paragraph (2) would revise the conditions for nonfor-
feitability of benefits under such a plan.
Conditions for participation--section 401{d)(3)
Section 401(d)(3) of the code now provides that an employees'
trust,in which an owner-employee (defined in section 401(c)(3) of
the code as a sole proprietor or a partner who owns more than 10
percent of the capital interest or the profits interest in a partnership) participates,constitutes a qualified trust under section 401
of the code only if the plan of which such trust is a part benefits
each employee having a period of employment of 3 years or more.
For this purpose, the term "employee" does not include any employee
whose customary employment is not for more than 20 hours in anyone
week or is for not more than 5 months in any calendar year.
Section 2(b)(1) of the bill would amend section 401(d)(3) to
- 12 -
provide that such a trust is to constitute a qualified trust under
section 401 only if the plan benefits each employee having a period
of employment of 3 years or more if his age is less than 30 years,
each employee having a period of employment of 2 years or more if his
age is not less than 30 years but less than 35 years, and each employee
having a period of employment of 1 year or more if his age is not less
than 35 years.
No change would be made to the exclusion for part-time
and seasonal workers from the term "employee".
Conditions for nonforfeitability of benefits--section 401(d)(2)(A)
Section 401(d)(2)(A) of the code now provides that an employees'
trust in which an owner-employee (as defined in section 401(c)(3))
participates constitutes a qualified trust under section 401, only if
under the plan of which such trust is a part the rights of each participant in the plan to or derived from employer contributions are
fully nonforfeitable at the time such contributions are made.
Paragraph (2) of section 2(b) of the bill would amend section
401(d)(2)(A) to provide that such a trust is not to constitute a qualified trust under section 401 unless the plan of which such trust is
a part provides that an employee's rights in at least 50 percent of his
accrued benefit are nonforfeitable as of the close of the first plan
year in which the sum of his age and the period of his participation in
the plan equals or exceeds 35 years, and that his rights in the balance
of his accrued benefit become nonforfeitable not less rapidly than
ratably over the 5-year period following the close of such plan year.
As under present law, an employee's rights in employer contributions to
a plan would not be required to be nonforfeitable to the extent that,
-u under provisions of the plan adopted pursuant to regulations prescribed
by the Secretary or his delegate to preclude the discrimination prohibited by section 401(a)(4) of the code, such contributions may not be
used to provide benefits for designated employees in the event of early
termination of the plan.
(c) Conditions of participation and nonforfeitability of benefits
to insure satisfaction of nondiscrimination requirements.--Section 2(c)
of the bill would amend section 401 of the code by adding thereto a
new subsection (j)
In general, proposed section 401(j) would author-
ize the Secretary or his delegate to prescribe regulations requiring
certain
pensio~profit-sharing,
and stock
bDnas~Plaas+toiinc~..te
shorter service or lower age requirements for participation in the
plan than is required under proposed section 401(a)(11) or more rapid
vesting than is required under proposed section 401(a)(12) to prevent
discrimination in favor of officers, shareholders, supervisory employees, or highly compensated employees.
Proposed section 401(j)(1)
Section 401(a)(3) of the code provides that if a
pensio~profit
sharing, or stock bonus plan does not benefit specified percentages
of the employer's employees, a trust forming part of the plan constitutes a qualified trust
onlJ~the
plan benefits employees quali-
fying under a classification found by the Secretary or his delegate
not to be discriminatory in favor of officers, shareholders, supervisory employees, or highly compensated employees.
Section 401(a)(4)
- 14 provides an employees' trust constitutes a qualified trust if the
contributions or benefits provided under the plan of which such trust
is a part do not discriminate in favor of officers, shareholders,
supervisory employees, or highly compensated employees. While age
and service requirements for participation in a plan and the extent
of pre-retirement vesting provided by a plan are given consideration
in determining whether the foregoing statutory requirements are satisfied, no clearly defined guidelines concerning these matters have
been established, and the determination is made on an essentially
subjective basis.
Paragraph (1) of ~roposed section 40l(j) authorizes the Secretary
or his delegate to prescribe regulations which set forth (i) the
circumstances under which a plan will, in the judgment of the Secretary
or his delegate, satisfy the requirements of sections 40l(a)(3)(B) and
40l(a)(4) only if the conditions of participation in the plan are less
restrictive than conditions which satisfy proposed section 40l(a)(11)
and the conditions
o~
nonforfeitability of benefits under the plan are
less restrictive than conditions which satisfy proposed section 401
(a)(12), and (ii) the conditions of participation and nonforfeitability
of benefits which will, in the judgment of the Secretary or his delegate, insure that the plan will satisfy such requirements in light of
such circumstances.
Such regulations may not, however, require that
a plan include conditions of participation and nonforfeitability of
benefits which are less restrictive than conditions which satisfy
- 15 paragraphs (3) and (2}{A), respectively, of section 40l(d), as proposed to be amended by section 2(b) of the bill.
Among the factors to be taken into account in determining whether
more restrictive conditions of participation and nonforfeitability of
benefits are to be required are the difference between the actual
and expected turnover rates of employees in whose favor the plan may
not discriminate and the actual and expected turnover rates of other
employees, and the relationship between the expected annual benefit
accruaJ..s by aJ..l of the employees in whose favor the plan may not discriminate and the expected annual benefit accruals by aJ..l other employees.
Proposed section 40l(j)(2)
Paragraph (2) of proposed section 40l(j) provides that if a plan
to which proposed section 40l(j) applies does not include conditions
of participation and nonforfeitability of benefits which satisfy the
requirements imposed upon the plan under the regulations prescribed
by the Secretary or his delegate pursuant to proposed section 40l(j),
no trust forming a part of the plan shaJ..l constitute a qualified trust
under section 401 of the code.
PrOposed section 40l(j)(3)
Proposed section 40l(j)(3) specifies the plans to which proposed
section 40l(j) is to apply.
Subparagraph (A) of proposed section 401
(j)(3) provides that proposed section 40l(j) applies to any pension or
profit-sharing plan established by a partnership which provides benefits for any active or retired partner (who is not an owner-employee
- 16 within the meaning of section 401(c)(3)) who owns (i) more than 5
percent of either the capital interest or the profits interest in such
partnership or (ii) more than 1 percent, but not more than 5 percent,
of either the capital interest or the profits interest in such partnership if all such partners own more than 50 percent of either of such
interests.
Subparagraph (B) of proposed section 401(j)(3) provides
that proposed section 401(j) applies to any pension, profit-sharing,
or stock bonus plan established by a corporation which provides benefits for any active or retired shareholder who owns (or is considered
as owning within the meaning of section 318(a)(1) of the code (relating to
attribution of stock ownership between family members)) (i) more than 5
percent in value of the outstanding stock of such corporation or (ii)
more than 1 percent, but not more than 5 percent, in value of the
outstanding stock of such corporation if all such shareholders own
(or are considered as owning within the meeting of section 318(a)(1))
more than 50 percent in value of the outstanding stock of such corporation.
Proposed section 401(j)(4)
Paragraph (4) of proposed section 401(j) provides transitional
rules Which limit in the case of plans in existence on November 30,
1971, the applicability of the requirements set forth in the regulations presecribed by the Secretary or his delegate pursuant to the
authority granted by proposed section 401(j)(1).
Subparagraph (A)
of proposed section 401(j)(4) provides that in the case of a plan in
existence on November 30, 1971, the conditions of participation set
- 17forth in such regulations are not to apply to plan years beginning
before January 1, 1974.
Proposed section 40l(j)(4)(B) provides that
in the case of a plan in existence on November 30, 1971, the conditions of nonforfeitability of benefits set forth in such regulations
are not to apply to benefits accrued under the plan during plan years
beginning before January 1, 1974.
In the case of a plan which is not
in existence on November 30, 1971, the conditions of participation
set forth in such regulations would have to be satisfied for plan
years ending after the date of enactment of the bill, except toathe
extent that, pursuant to the authority panted by section 7805(b) of
the code, such regulations are not applied retroactively.
Likewise,
in the case of such a plan, the conditiona of nonforfeitabili ty of
benefits set forth in such regulations would apply to benefits accrued
during plan years ending after the date of enactment of the bill, except to the extent that such regulations are not applied retroactively.
(d)
Conforming amendments.--Section 2(d) of the bill would make
conforming amendments to section 404(a)(2) of the code (relating to
deduction for contributions of an·empl~to ~oyees' annUity plan)
and section 805(d)(1)(C) of the code (relating to definition of pension
plan reserves).
Paragraph (1) of section 2(d) would extend to em.-
.ployees' annuity plans that do not utilize trusts the requirements
that would be imposed upon plans utilizing trusts by subsections (a),
(b), and (c) of section 2 of the bill.
Paragraph (2) of section 2(d)
_ 18would extend to an annuity plan established by a life insurance
CaD.-
pany for its awn employees the requirements that would be imposed upon
utilizing trusts by subsections (a) and (c) of section 2 of the bill.
(e)
Effective dates.--Section 2(e) of the bill provides that the
amendments proposed to be made by subsections (a), (b)(2), (c), and
(d) of section 2 of the bill are to become effective upon the day
after the enactment of the bill.
The amendment proposed to be made to
section 401(d) (3) of the code by section 2(b)(1) of the bill is not
to apply to plan years beginning before January 1, 1974, except that
if a plan is amended before such date so that it no longer satisfies
the requirement imposed by section 401(d)(2)(A) of the code without
regard to the amendment proposed to be made thereto by section 2(b)
(2) of the bill, the amendment proposed to be made by section 2(b)
(1) of the bill is to apply to the plan year for which such amendment to the plan is effective and for all succeeding plan years.
Section 3.
(a)
Deduction for Retirement Savings.
In
general.--Section 3(a) of the bill would amend part VII
of subchapter B of chapter 1 of the code (relating to additional itemized deductions for individuals) by renumbering existing section 219
(containing cross references) as section 220 and by inserting after
section 218 a new section 219 which would allow individuals a lim!ted
deduction for certain amounts saved for retirement purposes.
Pl~
-
l~-
Proposed section 219(a)
Under existing law, an individual is not allowed any deduction
for amounts which he saves for retirement purposes.
On the other
hand, a participant in a qualified pension, profit-sharing, or
stock bonus plan is allowed· to exclude from his gross income amounts
contributed by his employer on his behalf to the plan, even though
his rights in such amounts may be nonforfeitable.
Proposed section
2l~( a)
provides that an individual (including
a self-employed individual) is to be allowed a deduction for amounts
paid during his taxable year to a qualified individual retirement
account (as defined in section 408(a) of the code (as proposed to
be added by section 3(b) of the bill)), to an employees' trust described in section 401(a) of the code which is exempt from tax under
section 501(a) of the code, for the purchase of an annuity contract
under a plan which meets the requirements of section 404(a)(2) of
the code, to or under a qualified bond purchase plan (as defined in
section 405 of the code), or for the purchase of an·annuity contract
described in section 403(b) of the code.
- 20 The second sentence of proposed section 2l9(a) provides that, in
in the case of a taxpayer who has earned income which is not subject
to tax under the Self-Employment Contributions Act (chapter 2 of
the code), the Federal Insurance Contributions Act (chapter 2l of the
code), or the Railroad Retirement Tax Act (chapter 22 of the code),
no deduction is to be allowed with respect to amounts described in
the first sentence of proposed section 2l9(a) except to the extent
that such amounts exceed an amount equal to the tax (or, if the taxpayer has some earned income which is subject to any of such taxes,
the increase in the tax) that would be imposed upon such income by
section 3l0l of the code (relating to rate of tax on employees under
the Federal Insurance Contributions Act) for such taxable year if
such income constitute wages (as defined in section 3l2l(a) of the
code) received by the taxpayer with respect to employment (as defined
in section 3l2l(b) of the code).
Proposed section 219(b)
Paragraph (l) of proposed section 2l9(b) provides that the amount
allowable as a deduction under proposed s.ection 219 (a) to an individual for any taxable year is not 'to exceed 20 percent of so much of
his earned income for such taxable year as does not exceed $7,500 •
- 21 Thus, the maximum amount allowable as a deduction under proposed
section 2l9(a) is $1,500.
Paragraph (2) of proposed section 219(b) provides that the
limitation otherwise determined under proposed section 219(b) for any
taxable year is to be reduced by the amount of any contribution
made on behalf of the taxpayer during such taxable year by his employer
(or another member of the same affiliated group of corporations Within the meaning of section 1504 of the code)) to an employees
trust
described in section 401(a) which is exempt from tax under section
50l(a), for the purchase of an annuity contract under a plan which
meets the requirements of section 404(a)(2), to or under a qualified
bond purchase plan (as defined in section 405), or for the purchase
of an annuity contract described in section 403(b).
This reduction
is to be made even though the employee's rights under the plan are
forfeitable in whole or in part.
Such a contribution is to be con-
sidered to be made on behalf of the taxpayer even though a portion of
it is used to provide survivor benefits for his beneficiaries.
Pro-
posed section 219(b)(2) f'urther provides that the amount of any such
contribution is to be determined under regulations prescribed by the
Secretary or his delegate.
For this purpose, this amount is to be
determined under the rules that have been prescribed for purposes of
determining the portion of a total distribution frmm a quatified
pensio~
annuity,profit-sharing, or stock bonus plan that is consid-
ered to consist of employer contributions and therefore is not to be
- 22 -
treated as long-term capital gain.
The second sentence of proposed section 219(b)(2) provides that
for purposes of computing the reduction on account of employer contributions to qualified pension, etc., plans, a taxpayer may choose
to treat as the amount of any such contributions by any employer
during the taxpayer's taxable year 7 percent of his earned income
for such year which is attributable to the performance of personal
services for such employer.
it may be readily
This choice is to be available even where
demonstrated that the actual employer contribu-
tions to such plans on behalf of the taxpayer exceed 7 percent of such
earned income.
Paragraph (3) of proposed section 219 (b) provides special rules
for determining the limitation under proposed section 219(b) in the
case of a married individual.
For this purpose, the marital status
of an individual is to be determined under the rules provided in
section 153 of the code.
In the case of a married couple, each
spouse is to compute the limitation under proposed sect ian 219(b)
only with regard to his own earned income and only with regard to
employer contributions on his behalf to qualified pension, etc., plans.
For this purpose, contributions by the employer of one spouse to such
a plan are not to be considered to be made on behalf of the other
spouse by reason of the latter spouse's rights under the plan upon
the death of the former spouse.
The second sentence of proposed
section 2l9(b)(3) provides that, for purposes of determining the
limitation under proposed section 219(b), the earned income of a
- 23 married individual is to be determined without regard to community
property laws.
Paragraph (4) of proposed section 2l9(b) defines the term "earned
income" for purposes of the limitation under proposed section 2l9(b).
In the case of a self-employed individual, any gross income that is
earned income within the meaning of section 40l(c)(2) of the code is to
be considered earned income for purposes of proposed section 2l9(b).
In the case of an individual who is an employee, any gros s income
that is earned income within the meaning of section 911(b) of the
code is to be considered earned income for purposes of proposed section 2l9(b).
The application of proposed section 219(b) may be illustrated
by the following example:
Example.
A is an employee of the United states who partici-
pates in the Civil Service Retirement system.
A's taxable year is the
calendar year, and for 1973, his compensation is $10,000 and the amount
of his contributions to the Civil Service Retirement system is $700.
The amount allowable as a deduction under proposed section 219(a) for
1973 is determined in the following manner:
1.
2.
3.
4.
A's contributions to Civil
Service Retirement system
for 1973
Less: Tax that would be imposed for 1973 under section 3101 if compensation
constituted wages (5.65
percent of $9,000)
Contributions which may be
taken into account under
proposed section 219(a)
20 percent of the lesser of
earned income for 1973 or
$7,500
$
700.00
508.50
$ 191.50
- 24 -
5.
Less: reduction on account
of employer contributions
to Civil Service Retirement system (7 percent of
$10,000)
700.00
6.
Limitation under proposed
section 219(b)
$ 800.00
7.
Amount allowable as a deduction
under proposed section 219(a)
(lesser of item (3) or item
(6) )
$ 191.50
(b )
Individual retirement accounts. --Section 3 (b) of the bill
would amend part I of subchapter D of chapter 1 of the code (relating
to pension, profit-sharing, stock bonus plans, etc.) by adding thereto
a new section 408.
Proposed section 408 would provide rules for the
establishment of qualified individual retirement accounts which
individuals may utilize for saving for retirement purposes, and
would also provide rules for the taxation of distributions from quslified individual retirement accounts.
- 25Proposed section 408(a)
Under existing law, the income derived from amounts saved by an
individual for retirement purposes is currently includable in his
gross income.
On the other hand, no tax is ordinarily imposed upon
any of the income derived from both employer and employee contributions to a qualified pension, profit-sharing, or stock bonus plan.
Proposed section 408(a) provides that if certain requirements
are satisfied, a trust, custodial account, or other similar arrangement created or organized in the United States is to constitute a
qualified individual. retirement account.
For this purpose, the term
"other similar arrangement" includes accounts with firms which are
members of stock exchanges, deposit arrangements with financial institutions, and other arrangements whereby one person has legal awnership or custody of property belonging to another person.
Any such
arrangement must be evidenced in writing.
Paragraph (1) of proposed section 408(a) provides that an ind.i vidual retirement account is not to constitute a qualified individ-
ual retirement account unless it is maintained for the purpose of
distributing to the individual who established it, his spouse, or his
beneficiaries, the contributions to such account and the income derived from such contributions.
Distributions from such an account
may be in the form of money, property, or services, and the payment
of an expense (such as a health insurance premium) on behalf of a
beneficiary is to be considered a distribution to such beneficiary.
- 26 Such an account is to be considered to be maintained for the purpose
of distributing the contributions to such account and the income derived from such contributions to the individual who established it,
his spouse, or his beneficiaries even though it includes life or disability insurance features if they are incidental to the purpose of
providing benefits in a manner which satisfies proposed section 408
(a)(5).
Paragraph (2) of proposed section 408(a) provides that, except
as provided in proposed section 408(b)(1) (relating to transfer of
assets between qualified individual retirement accounts) and proposed section 408(b)(2)(relating to special rules for limitation
on contributions to qualified individual retirement accounts), an
individual retirement account is not to constitute a qualified individual retirement account unless the document evidencing it specifically provides that contributions to such account
~
be made only
by the individual who established it or his spouse and that the amount
of the contributions to such account by such individual or his spouse
during any taxable year may not exceed the limitation provided by
proposed section 2l9(b) for such taxable year, or if both spouses contribute, the sum of such limitation with respect to
e~~spoueer
- 27 -
Paragraph (3) of proposed section 408(a) provides that, except as
provided in proposed section 408(b)(3) (relating to use of common trust
funds)
the assets of a qualified individual retirement account may
not be commingled with the other property of the individual who established it or his spouse.
Proposed section 408(a)(3) also provides that
such assets must be held in trust by, or in the custody of, a bank
(as defined in section 40l(d)(1) of the code), a credit union described
in section 50l(c)(14) of the code, or other person (such as, for ex-
ample, a fir.m which is a member of a stock exchange or a civic organization) who demonstrates to the satisfaction of the Secretary or his
delegate that the manner in which he will hold or have custody of such
assets will be consistent with the requirements of proposed section
408(a)(3) and that he will satisfy any other requirements imposed upon
by the applicable provisions of the code.
Proposed section 408(a)(4) provides that, except as otherwise
provided in proposed section 408(b)(1) (relating to transfer of assets
- 28 between qualified individual retirement accounts), the document evidencing a qualified individual retirement account must provide that
no benefits may be paid to the individual who established such account,
except in the case of his becoming disabled (within the meaning of
section 72(m)(7) of the codeh before he or his spouse attains the age
of 59-1/2 years.
For purposes of proposed section 408(a)(4), amounts
included in gross income under section 72(m)(3)(B) of the code (relating to inclusion in gross income of amounts applied to purchase
insurance protection) are not to be treated as distributions.
l~fe
Pro-
posed section 408(a)(4) does not preclude the distribution of benefits
to the estate or other beneficiary of a deceased individual who established a qualified individual retirement account before the time he
would have attained age 59-1/2 if he had lived.
Paragraph (5) of proposed section 408(a) provides that the document evidencing a qualified individual retirement account must provide
that the entire interest (that is, the contributions to such account
and the income derived from such contributions) of the individual who
established such account will be distributed to him not later than
the last day of his taxable year in which he attains the age of 70-1/2.
Alternatively, such document may provide that such interest may be
distributed periodically commencing no later than the last day of such
taxable year over the life of such individual or the lives of such
individual and his spouse or over a period not extending beyond the
life expectancy of such individual or the life expectancy of such
- 29-indi vidual and h:L:; spouse.
T!~ i:'l!"";:!:l j.l'cUv::'..d.~l.:;U!
s -2ntire Llterest is
distributed in the form of an arn11Ii ty contraet, the re quirements of
proposed section 408(a) (5) are sattc':'ied if the distribution of such
contract takes place before tLe :::..st
df.~'-
of'
~=-:le
taxabl.e year in which
such individual attains the age of 70-1/2 and if such interest is to
be paid over a period a.llowable under proposed section
L~o8 (a)
(5) •
Paragraph (6) of proposed sectioD 1.,.08(a) :r:;Tovides that if any of
the contributions to a qualified hdi'riCiual ret:trement account may be
used for the purchase of annuity or sim:Uar contra.cts issued by
8.
life
insurance company, the document evidencing such account must pro-vide
that any refunds of prerr.iU1ll.s and any amounts in the nature of a di vidend or similar distribution must be held by the issuer of the contract with respect to Wllich such refund of premiums or such dividend
or similar distributi.on arises, and may be applied only toward the
payment of future premiums under such contract or toward the purchase
of additional similar benefits.
Proposed section 408(b)(1)
Proposed section 408(b)(1) pro\~des that the limitation on contributions to a qualified individual retirement account under proposed
section 408(a)(2) and the prohibition against payment of benefits from
such an accolmt under proposed 2ection 4-08 (a) (4) are not to prevent the
contribution to a qualified indi-ridual retirement account of amounts
which are distributed from a..l1other queJ.ifiec1 in:.'i.i vidual retirement for
- 30 the benefit of the same taxpayer or the same taxpayer and his spouse
(or from a qualified pension, etc. plan to the extent attributable to
amounts deducted by the taxpayer under proposed section 219(a)), and
to which proposed section 72(p) (relating to premature distributions
from qualified individual retirement accounts) would apply if such
amounts were not so contributed.
Thus, a qualified individual retire-
ment account may permit the contribution of amounts exceeding the
limitation of proposed section 219(b) but only to the extent that such
amounts consist of distributions from. another qualified individual
retirement account or so much of the employee contributions (and the income derived from such contributions) to a qualified pension, annuity,
profit-sharing, or stock bonus plan with respect to which a deduction
was allowed under proposed section 219(a).
Proposed section 408(b)(2)
Proposed section 408(b)(2) provides that, under regulations prescribed by the Secretary or his delegate, rules similar to the rules provided in section 401(e)(2) of the code (relating to effect of excess contribution on behalf of owner-employees) and section 401(e)(3) of the code
(relating to contributions for premiums on annuity, etc., contracts) are
to apply to contributions to a qualified individual retirement account to
the extent necessary to carry out the purposes of proposed section 408.
Thus, if the contributions during any taxable year to such an account
are not fUlly deductible under proposed section 219(a) (because they
exceed the limitation of proposed section 219(b)), the account is to be
considered as not meeting the requirements of proposed section 408(a)
for such taxable year and all succeeding taxable years unless such excess (and the income derived therefrom) is repaid to the taxpayer
before the close of the 6-month period beginning on the day on which
the Secretary or his delegate sends notice to the person to whom
such excess was paid of the amount of such excess and the income
derived therefrom.
In addition, if a contribution exceeding the
limitation of proposed section 219(b) is determined to have been
willfully made, the taxpayer's interest in all individual retirement
accounts is to be distributed to him, and any individual retirement
account established by him during his taxable year in which such excess contribution is made and the 5 succeeding taxable years is not
to be considered a qualified individual retirement account.
The foregoing rules are not to apply to contributions to a qualified individual retirement account if, under the document evidencing
such account, such contributions must be applied to pay premiums or
other consideration for one or more annuity, endowment, 'or life insurance
contrac~on
the life of the individual making any such contribu-
tion and if the amount of such contributions does not exceed the limitation under proposed section 2l~(b) for the first 3 taxable years
preceding the year in which the last such contract was issued.
Thus,
for example, if an individual who has earned income of $6,000 per
year for a 3-year period purchases through a qualified individual
- 32 retirement account a life insurance policy on which the annual premium
is $1,200 (that is, 20 percent of $6,000), he may continue to contribute
the amount of the premirun annually even though his earned income falls
below $6,000.
However, amounts which may be contributed under this
exception are to be deductible only to the extent that they do not exceed the limitation of section 2l9(b).
Proposed section 408(b)(3)
Proposed section 408(b)(3) provides that the prohibition against
the commingling of assets of a qualified individual retirement account
with the other property of the individual who established it or his
spouse under proposed section 408(a)(3) is not to prevent the investment of such assets in a common trust fund even though such individual or his spouse may be beneficiaries of a trust participating in
such common trust fund.
Likewise, the fact that an individual or his
spouse has an account with a firm which is a member ofa stock exchange is not, in and of itself, to prevent the establishment by such
individual of a qualified individual retirement account with such firm.
Proposed section 408(c)
Proposed section 408(c) provides that, for purposes of subchapter
F of chapter 1 of the code (relating to exempt organizations) and subtitle F of the code (relating to procedure and administration), a
qualified individual retirement account is to be treated as a trust
described in section 401(a) of the code which is part of a plan providing contributions or benefits for employees some or all of whom
- 33 are owner-employees (as defined in section 401(c)(3) of the code),
the individual who established such account and his spouse are to be
treated as oYnler-employees for whom such contributions and benefits
are provided, and the person holding or having custody of the assets
of such account is to be treated as the trustee of such trust.
Thus,
the income derived from contributions to such an account is to be exempt from tax except to the extent that such income constitutes unrelated business taxable income to which the tax imposed by section 511(b)
of the code applies.
In addition, the requirements for exemption set
forth in section 503 of the code, including the additional requirements of section 503(g) of the code (relating to trusts benefiting certain
owner-employees'h.a.:re~
to appl.w- in
a:eti:rminid@,tilhmt~r&:such
exempt under section 5Ql(a) of the code.
Moreove~
an account is
the provistons of sec-
tion 6033 of the code (relating to returns by exempt organization~ and section
6047 of the code (relating to information relating to certain trusts
and annuity and 90nd purchase plans) are also to apply, and the person holding or having custody of the assets of such an account must
file the information returns and other material required under those
provisions.
Since a qualified individual retirement account is not
to be treated as a trust described in section 401(a) for purposes of
subtitle B of the code (relating to estate and gift taxes), the exclusions provided by section 2039(c) of the code (relating to annuities
under certain trusts and plans) and section 2517 (relating to certain
- 34 annuities under qualified plans) are not to apply with respect to
transfers of interests in a qualified individual retirement account.
Proposed section 408(d)(1)
Paragraph (1) of proposed section 408(d) provides that, except
as provided in proposed.section 408(d)(2), amounts actually distributed
or made available to any beneficiary by a qualified individual. retirement account are to be taxable to h:iln, when so distributed or made
available, to the extent provided in section 72 of the code (relating to annuities).
Proposed section 408(d)(2)
Proposed section 408(d)(2) provides that proposed section 408(d)
(1) is not to apply to any amount distributed or· made available by a
qualified individual retirement account to the individual. who established it to the extent that, within 60 days after the day on which
such amount is distributed or first made available, such amount is contributed to a qualified individual. retirement account for the benefit
of such individual or such individual and his spouse.
Thus, if an
individual who established a qualified individual. retirement account
desires to change the funding medium and such change requires a distribution from such account and a contribution of the amount distributed
to another such account, no tax is to be :ilnposed on the amount distributed if the recontribution occurs within 60 days of such distribution.
The exception provided by proposed section 408(d)(2) is not to
- 35apply to
~lY
individual
amount distributed or made available by a qualified
retire~ent
account pursuant to provisions of the docu-
ment evidencing such account which are intended to satisfy the requirements set forth in paragraph (5) of proposed section 408(a).
Thus, for example, if an individual who established a qualified
individual retirement account to provide an annuity beginning,when
he attains the age of 70 years, any distributions received from such
account are includable in his gross income to the extent provided
in section 72 of the code, notwithstanding the fact that such amounts
are contributed to another qualified individual retirement account
for his benefit.
Proposed section 408(d)(3)
Proposed section 408(d)(3) pr0vides that, under regulations
prescribed by the Secretary or his delegate, an individual establishing a qualified individual retirement account is to be treated
as an owner-employee (as defined in section 401(c)(3) of the code)
for purposes of applying the provisions of paragraphs (1), (2), (3),
and (4) of section 72 (m) of the code (relating to special rules
applicable to employee annuities and distributions under employee
plans).
Thus, amounts received from such an account before the
annuity starting date which are not received as an annuity are to
be included in the recipient's gross income for the taxable year in
which received to the extent that such amounts, plus all amounts
previously received from any such account and includible in gross
- 36 income do not exceed the aggregate contributions to any such account
which were allowed as deductions under proposed section 2l9(a)
Any
amounts so received which are not includible in gross income under
the preceding sentence are to be subject to the provisions of section
72(e) of the co~e (relating to amounts not received as annuities)
and are therefore to be included in gross income only to the extent
that they exceed the individual's investment in the contract.
The
foregoing rules are not to apply, and no amount is to be included
in gross income, to the extent that any amount otherwise includable
in gross income is contributed to another qualified individual retirement account.
Moreover, for purposes of computing the investment in the contract, amounts allowed as a deduction under proposed section 2l9(a)
and any portion of the premiums or other consideration for the contract which is
p~operly
allocable to the cost of life, accident,
health, or other insurance are not to be taken into account.
In
this regard, any contribution to a qualified individual retirement
account which is allowed as a deduction under proposed section 2l9(a)
and any income of such account which is applied to purchase the life
insurance protection
lli~der
any retirement income, endowment, or other
life insurance contract is includible in the gross income of the
individual who established such account for the year in which so
applied.
In the case of the death of such individual, an amount
equal to the cash surrender value of such contract immediately before
- 37 -
his death is to be treated as a distribution by such account, and
the excess of the amount payable by reason of such individual's death
over such cash surrender value is not includible in gross income and
is to be treated in the manner provided in section 101 of the code
(relating to certain death benefits).
If an individual who establishes a qualified individual retirement account assigns or pledges (or agrees to assign or pledge) any
portion of his interest in such account, such portion is to be treated
as having been received by such individuaL as a distribution fram
s~ch
account for his taxable year in which such assignment, pledge, or
agreement occurs.
If the assets of a qualified individual retirement
account include any life insurance contract, and the individual who
established such account receives, directly or indirectly, any amount
fram the issuer of such contract as a loan under such contract, such
amount is to be treated as an amount received under such contract.
Thus, such an individual is to be considered to have received an
amount under such a contract, if a premium which is otherwise in default is paid by the issuer of such contract in the form of a loan
against the cash surrender value of such contract.
Proposed section 408(e)
Proposed section 408(e) provides that section 72(n) of the code
(relating to treatment of total distributions), section 402(a)(2) of
the code (relating to capital gains treatment for certain distributions fram exempt employees' trust), and section 403(a)(2) of the code
- 38 (relating to capital gains treatment for certain distributions under
qualified annuity plans) are not to apply to any amount distributed
or made available by a qualified individual retirement account.
Thus,
no part of any such amount is to be treated as gain from the sale or
exchange of a capital asset, and the tax imposed by section 1 on any
such amount is not to be limited under section 72(n).
(c)
Treatment of distributions from qualified individual re-
tirement accounts.--Section 3(c) of the bill would amend section 72
of the code (relating to annuities) to provide rules for the taxation
of distributions from qualified individual retirement accounts.
Paragraph (1) of section 3(c) would add a new subsection (p) to section 72 imposing a 30 percent penalty on the receipt of premature
distributions from such accounts.
Paragraph (2) would revise the
rules for determining an employee's investment in the contract where
his contributions have been allowed in whole or in part as a deduction under proposed section 2l9(a).
Paragraph (3) would amend sec-
tion 72(m)(1) of the code to provide rules for distributions from
qualified individual retirement accounts before the annuity starting
date.
Taxation of premature distributions--proposed section 72(p)
Paragraph (1) of proposed section 72(p) provides that the
penalty imposed by proposed section 72(p)(2) is to apply to (i) any
distribution from a qualified individual retirement account and (ii)
any amount received from a qualified trust (described in section 401
- 39 -
(a) of the code) or under a qualified annuity plan (described in section 403(a) of the code), but only to the extent that such amount is
attributabl~
to amounts with respect to which a deduction was allowed
under proposed section 219(a)
which distribution or amount is in-
cludible in gross income and is received by the individual who established such account or who was allowed such deduction (or by the
spouse of such individual) before he or his spouse attams the age of
59-1 / 2 years, for any reason other than his becoming disabled (within
the meaning of section 72(m)(7) of the code).
However, the penalty
imposed by proposed section 72(p)(2) is not to apply to the extent
that such distribution or amount is contributed, within 60 days after
the date on which it is distributed or made available, to a qualified
individual retirement account for the benefit of such individual or
such individual and his spouse.
Moreover, this penalty is not to
apply to amounts· distributed or made available to the estate or other
beneficiary of a deceased individual before the time he would have
attained age 59-1/2 if he had lived.
The extent to which any such
distribution is includible in gross income and therefore subject to
the penalty imposed by proposed section 72(p)(2) is to be determined
under proposed section 408(d) and section 72(m)(1) of the code (relating to certain amounts received before annuity starting date).
Paragraph (2) of proposed section 72(p) provides that if an individual is required to include in his gross income for any taxable
year an amount to which proposed section 72 (p) applies, there is to
be imposed an additional tax for such taxable year equal to 30 percent of such amount.
The only credits by which the tax imposed by
- 40 -
proposed section 72(p)(2) may be reduced are the credits allowed by
section 31 of the code (relating to tax withheld on wages) and section
39 of the code (relating to certain uses of gasoline and lubricating
oil).
In addition, such tax is not to be treated as tax imposed by
chapter 1 of the code for purpose3 of section 56 of the code (relating to imposition of minimum tax for tax preferences).
Investment in the contract--sections 72(c)(1)(A) and 72(d)(2)
Section 72(c)(1) of the code now.defines the term "investment
in the contract" as of the annuity starting date as the excess of the
aggregate amount of premiums or other consideration paid for the contract over the aggregate amount received under the contract before the
annuity starting date to the extent such amount was excludable from
gross income.
Paragraph (2)(A) of section 3(c) of the bill would
amend subparagraph (A) of section 72(c)(1) to provide that the investment in the contract is to be determined only with regard to premiums
and other consideration for which no deduction was allowed under
proposed section 219(a).
Thus, amounts contributed by an employee to
a qualified pension, annuity, profit-sharing, or stock bonus plan are
to be disregarded in determining the employee's investment in the contract to the extent such amounts were deducted under proposed section
2l9(a).
Section 72(d)(2) of the code provides special rules for applying
section 72(d)(1) of the code, which permits an employee receiving bene-
- 41 -
fits under a plan to which both the employer and the employee have contributed to exclude from his gross income all amounts received as an
annuity until there has been so excluded an amount equal to the employee r S investment in the contract, but onl;yr if the amounts receivable by
the employee during the 3-year period beginning when the first such
amount is received equals or exceeds the employee's investment in the
contract.
Paragraph (2) (B )of section 3 ( c) of the bill would add a new
subparagraph (C) to section 72(d)(2) to provide that, for purposes of
section 72(d)(l) of the code, any contribution made with respect to
the contract is not to be treated as consideration for the contract
contributed by the employee to the extent that a deduction was allowed
under proposed section 2l9(a) for such contribution.
Amounts received before annuity starting date--section 72(m)(1)
Under section 72(e)(1)(B) of the code, if an amount is not received as an annuity and is received before the annuity starting date,
such amount is to be included in gross income only to the extent that
it (when added to amounts previously received under the contract which
were excludable from gross income) exceeds the aggregate premiums or
other consideration paid.
The effect of this provision is to permit
the tax-free recovery of the amounts contributed by an employee.
How-
ever, section 72(m)(1) of the code now provides that if an amount is
not received as an annuity and is received before the annuity starting
date, such amount is to be included in gross income to the extent that
such amount, plus all amounts previously received under the contract
and includible in gross income do not exceed the aggregate premiums or
- 42 -
other consideration paid while the employee was an owner-employee (as
defined in section 401(c)(3) of the cod~which were allowed as deductions under section 404 of the code (relating to deduction for contributions of an employer to an employees I trust or annuity plan).
The
combined effect of sections 72(m)(1) and 72(e)(1)(B) is to provide
that distributions before the annuity starting date which are not received as an annuity are considered to consist, first, of amounts deductible under section 404 of the code while the employee was an owneremployee; second, of amounts contributed by him which were not deductible; and last, of the balance of his interest.
Section 3(c)(3) of the bill would amend section 72(m)(1) of the
code to extend the treatment which now applies where contributions
on behalf of an employee were allowed as deductions under section
404 while he was an owner-employee to the situation where contributions by an employee to a qualified pension, etc., plan which are
allowed as deductions under proposed section 219(a).
(d)
Excise tax on excessive accumulaGions.--Section 3(d) of
the bill would amend subtitle D of the code (relating to miscellaneous taxes) by adding at the end thereof a new chapter 43 and new
section 4960.
Proposed section 4960 would impose an annual excise
tax of 10 percent of the excess of the assets of a qualified individual retirement account over the present value of the expected
distributions by such account.
- 43 Proposed se£tion 4g60(a)
Proposed section 4960(a) imposes for each taxable year of a
qualified individual retirement account on the assets of such account
an excise tax equal to 10 percent of the excessive accumulation in
such account for such taxable year (as defined in proposed section
4g60(b)).
The tax imposed by proposed section 4g60(a) is to apply
only for taxable years beginning after the taxable year in which any
individual who contributed to such account attains the age of 70-1/2
years.
For purposes of proposed section 4g60, the taxable year of a
qualified individual retirement account is the taxable year of the
individual who established such account.
Prgposed section 4g60(b)
Proposed section 4g60(b) provides that the excessive accumulation in a qualified individual retirement account for any taxable year
of such account is the excess (if any) of (i) an amount equal to the
value of the assets of such account at the beginning of such taxable
year, over (ii) the present value (determined in accordance with regulations prescribed by the Secretary or his delegate) as of
tbe~bBgiDping
of such taxable year of an immediate annuity payable to the individual
who established such account (or, if he is married, an immediate
joint and survivor annuity payable to him and his spouse) providing
for an annual payment payable at the beginning of each year in an
amount equal to the total amount actua.lly distributed by such account
to such individual (and, if he is married, his spouse) during such
taxable year.
- 44 -
(e)
Conforming amendments. --Section 3 (e) of the bill would make
conforming amendments to section 62 of the code (relating to definition of adjusted gross income), section 805(d)(1) of the code (relating to definition of pension plan reserves), section 1302(a)(2)(A) of
the code (relating to definition of averagable income), and section
1348(b)(1) of the code (relating to defiriition of earned income).
Par~raph
(1) of section 3(e) of the bill would amend and add
a new paragraph (10) to section 62, providing that the deduction
allowed by proposed section 219(a)
adjusted gross income.
i~
to be allowed in determining
Accordingly, this deduction would be allowed
whether the taxpayer elects to use the standard deduction or to itemize
his deductions.
Paragraph (2) of section 3(e) of the bill would add
a new subparagraph (E) to section 805(d)(1), extending to life insurance reserves allocable to contracts purchased under contracts entered
into with qualified individual retirement accounts the treatment
presently applicable to life insurance reserves allocable to contracts
purchased under contracts entered into with qualified pension, etc.,
plans.
Paragraph (3) of section 3(e) of the bill would amend section
1302(a)(2)(A) to provide that averagable income is to be determined
by reducing taxable income for the computation year (as defined in
section 1302(c)(1) of the code) by any amount to. which the additional
tax imposed by proposed section 72(p)(2) applies.
As a result, the
tax imposed on any such amount by section 1 of the code would be
determined with regard to the benefits of income averaging.
Para-
graph (4) of section 3(e) of the bill would amend section 1348(b)(1)
- 45 to provide that the term "earned income" does not include any amount
to which the additional tax imposed by proposed section 72(p)(2)
applies.
(f) Clerical amendments.--Section 3(f) of the bill would amend
the tables of sections for part VII of subchapter B of chapter 1 of
the code and part I of subchapter D of chapter 1 of the code, and the
table of chapters for subtitle D of the code to reflect the enactment
of proposed section 219,
proposed section 408, and proposed chapter
43, respectively.
(g)
Effective date.--Section 3(g) of the bill provides that the
amendments proposed to be made by section 3 are to apply to taxable
years ending after the date of enactment of the bill.
Section 4.
Contributions on Behalf of Self -Employed Individuals and
Shareholder-Employees of Electing Small Business Corporations.
(a)
Contributions on behalf of self-employed individuals--(l)
Special limitations for self-employed individuals.
Section 4(a)(1)
of the bill would amend section 404(e) of the code (relating to special limitations for self-employed individuals) by revising paragraphs
(1) and (2)(A) thereof and by adding thereto a new paragraph (3).
Pro-
posed paragraphs (1) and (2)(A) of section 404(e) would permit a selfemployed individual to make deductible contributions to a qualified
pension, annuity, or profit-sharing plan at the rate
a~
which contribu-
tions are made on behalf of other participants in such plan (but not
in excess of 15 percent) with respect to so much of his earned income
as does not exceed $50,000.
Proposed section 404(e)(3) would provide
rules for adjusting this limitation in respect of forfeitures under
such plans.
-
~
-
Proposed section 404(e)(1)
Section 404(e)(1) of the code now provides that, in the case of a
qualified pension, annuity, or profit-sharing plan which provides contributions or benefits for employees some or all of whom are employees
within the meaning of section 401(c)(1) of the code (i.e., selfemployed individuals), the amounts deductible under section 404(a) of
the code in any taxable year with respect to contributions on behalf
of any employee within the meaning of section 401(c)(1) of the code
are subject to the provisions of section 404(e)(2) of the code (relating to limitation where contributions are made under more than one
plan) not exceed $2,500, or 10 percent of the earned income (as defined in section 401(c)(2) of the code) derived by such employee from
the trade or business with respect to which the plan is established,
whichever is the lesser.
As proposed to be amended, section 404(e)(1) would provide that
the amounts deductible in any taxable year with respect to contributions to a qualified pension, annuity, or profit-sharing plan on behalf of
any self-employed individual are, subject to the provisions:ef section
404(e)(2) (as proposed to be amended), not exceed the product of (i)
so much of the earned income (as defined in section 401(c)(2) of the
code) derived by such individual from the trade or business with
respect to which the plan is established as does not exceed $5 0 ,000,
and (ii)
a rate which does not exceed 15 percent.
In general, this
rate is not to exceed the lowest rate at which contributions (including, in the case of a plan benefiting owner-employees (as defined in
section 401(c)(3) of the code), amoLmts which are treated as contributions pursuant to section 401(d)(6) of the code (relating to integration of plans benefiting owner-employee s with social secm i ty) )
are paid or accrued on behalf of any participant in the plan who is
not ,an employee within the meaning of section 401(c)(1).
In the case
of a plan which is integrated with social security and which does not
benefit owner-employees, this rate is to be determined without regard
to compensation not in excess of the integration level of the plan
and without regard to contributions with respect to such compensation.
Proposed section 404(e)(2)(A)
Section 404(e)(2)(A) of the code now provides an overall limitation on the amounts deductible with respect to contributions under
two or more plans on behalf of an individual who is an employee wi thin
the meaning of section 401 ( c )( 1) of the code with re spect to such
plans.
In
such a case, the amounts deductible are not to exceed
$2,500, or 10 percent of the earned income derived by such individual
from the trades or businesses with respect to which the plans are
established, whichever is the lesser.
As proposed to be amended, section 404(e)(2)(A) would provide
that the amounts deductible in such a case are not to exceed the product of (i) so much of the earned income derived by such individual
from the trades or businesses with respect to which the plans are
established as does not exceed $50,000, and (ii) a rate which does
not exceed 15 percent.
In
general, this rate is not to exceed the
- 48 lowest rate at which contributions (including amounts which are
treated as contributions pursuant to section 40l(d)(6) of the code)
are paid or accrued under any of such plans on behalf of any participant in such plans who is not an employee within the meaning of section 40l(c)(1) of the code.
If any of such plans is integrated with
social security and does not benefit owner-employees, this rate is
to be determined without regard to compensation not in excess of the
integration level of the plan and without regard to contributions with
respect to such compensation.
Proposed section 404(e)(3)
Proposed section 404(e)(3) provides rules for the application
of paragraphs (1) and (2) of section 404(e) of the code with respect
to plans in which forfeitures arise.
In such a case, the limita-
tion on the deduction allowable under section 404(a) of the code
otherwise determined under paragraph (1) and (2) with respect to any
employee within the meaning of section 401(c)(1) for any taxable year
is to be reduced by the amount of any forfeitures credited to his
account.
For purposes of proposed section 404(e)(3), forfeitures
used to reduce the employer's contributions on behalf of all employees
(including employees within the meaning of section 401(c)(1) of the
code) under the plan are not to be considered to have been credited
to the account of any employee.
(2)
Excess contributions on behalf of owner-employees.--Sec-
tion 4(a)(2) of the bill would amend section 401(e) of the code (relating to excess contributions on behalf of owner-employees) to conform to section 404(e) as proposed to be amended by section 4(a)(1)
of the bill.
Subparagraph (A) would increase the limitations under
section 401(e)(1)(B) on the amount that an owner-employee may make as
an employee (Le., on a nondeductible basis).
Subparag-raph (B) would
increase the limitation under section 401(e)(3) on the total amount
which may ·be contributed to two or more fully-insured plans without
regard to the general limitations provided by section 401(e)(1).
Contributions made as an employee--sections 401( e) (1) (B)( iii) and (iv)
Section 401(e)(1)(B)(iii) of the code now provides that the term
"eX1!ess contribution" includes, with respect to a plan under which
contributions are made on behalf of employees other thaa_owner-employees, the amount of any contribution made by an owner-employee (as an
employee) which exceeds the lesser of $2,500 or 10 percent of the
earned income for the taxable year derived by such owner-employee from
the trade or business with respect to which the plan is established.
Section 401(e)(1)(B)(iv) of the code now provides that the term
"excess contribution" includes, in the case of an individual on whose
behalf contributions are made as an owner-employee under more than
one plan under which contributions are made on behalf of employees
other than owner-employees, the amount of any contribution, made by such
ower-employee (as an ,employee l-tmder .all
~sucll.
plans which exeeeds t$2, 500.
- 50 Section 4(a)(2)(A) of the bill would amend section 401(e)(1)(B)
(iii) to increase the limitation on contributions made by an owneremployee (as an employee) to 10 percent (the maximum rate under Internal
Revenue Service rulings at which employees may contribute to a qualified
pension, etc., plan) of so much of the earned income for the taxable year
derived by such owner-employer from the trade or business with respect
to which the plan is established as does not exceed $50,000.
Section
(a)(2)(A) of the bill would also amend section 401(e)(1)(B)(iv) to increase the limitation on contributions made by an owner-employee (as
an employee) to more than one plan to $5,000.
Fully-insured plans--section 401(e)(3)
Section 401(e)(3) of the code provides that a contribution on
behalf of an owner-employee is not to be considered an excess contribution within the meaning of section 404(e)(1) of the code if under
the plan such contribution is required to be applied to pay premiums
or other consideration for one or more annuity, endowment, or life
insurance contracts on the life of such owner-employee and if the
amount of such contribution does not exceed the average of the amounts
which were deductible under section 404 of the code with respect to
contributions made by the employer on behalf of such owner-employee
under the plan for the first 3 taxable years preceding year in which
the last such contract was issued.
4
- 51 This exception does not apply in the case of an individual on
whose behalf such contributions are made under more than one plan
as an owner-employee if the amount of all such contributions exceeds
$2,500.
Section 4(a)(2)(B) would amend the second sentence of sec-
tion 40l(e)(3) to increase this limitation to $7,500.
(3) Penalties applicable to certain amounts received by ownerempl0yees.--Section 4(a)(3) of the bill would amend section 72(m)(5)
(B)(i) of the code to increase fram $2,500 to $7,500 the amounts
described in section 72(m)(5)(A) of the code (generally, amounts received by an owner-employee before he attains the age of 59-1/2 (for
any reason other than his becoming disabled), amounts received by an
owner-employee in excess of the benefits provideq for him under the
plan formula, and amounts received by reason of a wilfully made excess contribution) which must be received in any year for the penalty
imposed by section 72(m)(5)(B) of the code to apply.
If such amounts
do not equal or exceed $7,500, the penalty imposed by section 72(m)
(5)(C) of the code is to apply.
(b)
Contributions on behalf of shareholder-employees of elect-
ing small business corporations.--8ection 4(b) of the bill would
amend,section l379(b)(1) of the code (relating to taxability of shareholder-employee beneficiaries of qualified pension, etc., plans) to
increase the amount of the contributions paid by an electing small
business corporation on behalf of a shareholder-employer (an employee
or officer who owns (or is considered as owning within the meaning of
section 318(a)(1))of the cod~ more than 5 percent of the outstanding
-~-
stock of the corporation) which may be excluded from his gross income.
Section 1379(b)(1) now provides that the excess of such con-
tributions for any taxable year of the corporation over the lesser of
(i) 10 percent of the compensation received or accrued by the shareholder-employee from such corporation during its taxable year or (ii)
$2,500 must be included in his gross income for his taxable year in
which or with which the taxable year of the corporation ends.
As proposed to be amended, secti~n 1379(b)(1) would provide that
contributions on behalf of a
shareholder~employee
are to be included
in his-gross income only to the extent that they exceed the product
of (i) so much of the compensation otherwise received or accrued by
him from the corporation during its taxable year as does not exceed
$50,000, and (ii) a rate which does not exceed 15 percent.
This rate
is not to exceed the lowest rate at which contributions are paid or
accrued on behalf of any employee who is not a shareholder-employee.
In the case of a plan which is integrated with social security, such
lowest rate is to be determined without regard to compensation not
in excess of the integration level of the plan and without regard to
contributions with respect to such
(c)
campensatio~
Effective date.--Section 4(c) of the bill provides that the
amendments proposed to be made by section 4 of the bill are to apply
with respect to taxable years beginning after December 31, 1972, or,
• ~3 if a taxpayer chooses, with respect to taxable years ending after
December 31, 1972.
Such choice is to be indicated by amending a
plan to conform to the applicable provisions of the code, as proposed
to be amended by the bill.
The Department of the
SHINGTON. D.C. 20220
TREASURY
TElEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 11, 1972
TREASURY ISSUES COUNTERVAILING DUTY PROCEEDING
NOTICE ON X-RADIAL STEEL BELTED TIRES FROM CANADA
Assistant Secretary of the Treasury Eugene T. Rossides
announced today the issuance of a countervailing duty proceeding notice covering X-radial steel belted tires from
Michelin Tires Manufacturing Company of Canada Ltd.
The notice states that the Treasury has received information which raises a question whether Michelin Tires
Manufacturing Company of Canada Ltd. receives certain payments
upon the manufacture, production, or exportation of X-radial
steel belted tires, which constitute the payment or bestowal
of a "bounty or grant" within the meaning of the United States
countervailing duty law.
If this is found to be the case,
the imports in question would be subject to an additional
(countervailing) duty equivalent to the net amount of the
bounty or grant.
The notice invites submission of comments in time to be
received 30 days from the date of publication in the Federal
Register.
It is scheduled to be published on May 12, 1972.
If the Treasury finds that bounties or grants are being
paid or bestowed within the meaning of the countervailing duty
law, it will issue a countervailing duty order proclaiming the
amount of countervailing duties to be assessed on imports of
X-radial steel belted tires from Michelin Tires Manufacturing
Company of Canada Ltd. The countervailing duty would become
effective 30 days after publication of the order in the Customs
Bulletin.
During the period December 1971 through April 1972, imports
of X-radial steel belted truck tires from Michelin Tires
Manufacturing Company of Canada Ltd. totaled slightly more than
$3,300,000.
000
The Department of the
iHINGTON, D.C. 20220
TREASURY
TELEPHONE W04-2041
FOR I~1Mm IATE RELEASE
DECISION ON
May 11, 1972
TURELESS TIRE VALVES FROM WEST GERMANY
UNDER THE MJT IDUtvlP ING ACT
FI~JlSHED
The Treasury Department announcAd today thA isslJance
of a tAntativA determination of no sales at less than fair
value in connection with its antidumrino investiaation of
finished tubeless tire valves from West Germany.
The notice wi I I be publ ished in the Federal Reqister
on
May 12, 1972.
Information qathered in this investiqation showed that
the price to buyers in the home market and third country markets,
as appropriate, was lower than the price to buyers in the United
States.
Appraisement of the above described merchandise from West
Germany has not been withheld.
Durinq the period from January 1971 throuqh December 1971.
imports of finished tubeless tire valves from West Germany were
valued at approximately $465,000.
# # #
The Department of the
'ASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04-2041
FOR RELEASE ON DELIVERY
REMARKS OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
(ENFORCEMENT, TARIFF AND TRADE AFFAIRS, AND OPERATIONS)
before the
FIFTY-FOURTH ANNUAL MEETING OF THE
AMERICAN ORDNANCE ASSOCIATION
THE WASHINGTON HILTON, WASHINGTON, D.C.
May 11, 1972
7:30 p.m.
The Role of International Trade and the
Doctrine of Fairness in president Nixon's
Program to Achieve Peace With Prosperity
It is a special privilege to represent
Secretary of the Treasury John B. Connally
before this assemblage of distinguished and
dedicated Americans. I bring you his greetings
and his deep appreciation for the honor you
have conferred on him by the award of the
Baruch Gold Medal.
The theme of your seminar this year -The Strategic and Economic Role of the United
States in Free World Security -- is particularly
appropriate in view of current events. This
meeting comes at a critical juncture in strategic
and economic developments for our nation and
also for our Free World allies.
C-307
- 2 The president this week, with courage and
statesmanship, took decisive steps to attenuate
North Vietnam's undisguised invasion of South
Vietnam. The president's decisions were actions
which responsible leadership had to take, not
only to protect our residual forces in Vietnam,
but also to preserve the credibility of our
support for independent Free World countries
elsewhere in Southeast Asia as well as in the
Middle East and Europe.
At today's critical point in world affairs,
I am especially glad to be here tonight among
so many leaders of our nation who have maintained
America's military and economic strength and
supported our goal of preserving independence and
self-determination for small nations.
Secretary Connally has asked me particularly
to discuss with you the second half of your theme,
the economic aspect of national security, and the
tasks which that involves. Those tasks were set
out by President Nixon in his historic address
on August 15, 1971.
"The End of the Post-War World"
The President's New Economic Policy,
announced that night marked a watershed in
world history, not just U.S. history. The
President's actions marked the end of one era
"the end of the post-war world" as Secretary
Connally has said -- and the dawn of a new era
in international economic relationships.
- 3 -
The president's goals were three -- to curb
inflation, to generate jobs by stimulating
responsible economic growth, and to strengthen
the position of the United States in the international trade and financial community.
Tonight, I shall talk primarily about the
U.S. position in international trade -- a
Doctrine of Fairness -- with special emphasis
on Treasury's role and responsibilities in this
area.
Why Are We in a New Era?
At the end of World War II, the United States
was the wealthiest, most powerful nation on earth.
A large part of the world was in ruins, physically,
politically, and economically, after the holocaust
that it had just experienced. The United States
exhibited truly unselfish and generous leadership
in an effort to bring these ravaged areas back to
normal. We did this in our own long-range national
interest but at considerable sacrifice.
It made sense for the United States to do
everything possible to assist both our former
allies and enemies to regain their feet. And so,
we literally showered U.S. dollars and expertise
on these countries. The American taxpayer
accepted the burden of the nearly $150 billion
in economic and military aid that was made
available over the past 25 years, for he understood the relationship between a prosperous
world economy and his own well-being.
- 4 But conditions have changed and we now find
ourselves confronted with an entirely different
picture. Although the United States is still the
most important free world power, it is no longer
the only free world power. Other nations are
again in a position to challenge us economically
and politically. The United States is now one
giant among several.
The Long-Run Task
What does this new era signify for the
United States and the rest of the trading world?
Essentially, the long-run task facing the United
States and the world community is the creation
of an international economic system which, on the
basis of mutual advantage, will stimulate international trade and freer competition, draw nations
and people together, and thus form the basis for
a lasting peace with prosperity.
Progress Made Since August 15, 1971
In his policy role as Chief Economic Spokesman
for the President, Secretary Connally has already
sketched in broad outline form the new policies to
be followed. The domestic and international fronts,
which are interdependent, have seen considerable
progress in the nine months since August 15, 1971.
- 5 -
On the domestic side, economic activity
continues to expand vigorously. Industrial production and retail sales are showing strong gains.
The latest survey of plant and equipment investment
in 1972 indicates an even larger increase than had
been earlier expected. Overall, the Commerce
Department's index of leading economic indicators
remains favorable. All of this is convincing
evidence that the economy is in a strong expansionary phase.
the international side, the Smithsonian
Agreement of December 18, 1971, was a significant
breakthrough and has given the new era a substantial
forward thrust. That agreement included a multi~teralrealignment of exchange rates, commitments to
discuss more general reforms of the international
monetary system, and commitments to begin discussions
to reduce trade barriers, including some most harmful
to the United States. Simultaneously with the
Smithsonian Agreement, commitments were made by some
of our allies to assume a larger share of the costs
of common defense.
On
For its part, the United States agreed to
recommend to the Congress that the price of gold
in dollars be raised when progress had been made
in trade liberalization. Further, president Nixon
moved promptly to terminate the temporary 10%
surcharge, effective December 20.
On February 9, 1972, Secretary Connally
transmitted to the Congress a draft bill providing
for devaluation of the dollar by 8.5% to $38 per
ounce of gold. In signing that bill into law on
April 3, the president said that the basic
significance of the Smithsonian Agreement and the
legislation is:
- 6 -
" ... that it provides for continued
cooperation among our allies and ourselves-and thus strengthens our unity--as we work
toward an 'open world' based on a more
balanced monetary system and a more equitable
international trading environment."
Substantive agreements have also been reached
with the European Community and with Japan to remove
or lower certain barriers against U.S. products and
to support multilateral and comprehensive trade
negotiations in 1973, meanwhile solving more
immediate problems in 1972 through the GATT. The
Administration will seek the necessary legislative
authority for these comprehensive negotiations.
Secretary Connally, in his March 15 remarks
before the Council of Foreign Relations, stressed
the need for an international forum or forums in
which the interrelationship of all the factors
affecting international economic matters--monetary,
tax, and trade--can be discussed, not piecemeal,
but as part of the whole endeavor to achieve
economic health for all participating nations.
Indeed, the international discussions of last
fall, following the President's declaration of his
New Economic Policy, were successful in achieving
the recognition of the interrelationship between
international monetary and trade matters.
Accordingly, the President placed in the hands of
Secretary Connally, his Chief Economic Spokesman,
the broad responsibility and negotiating authority
to do the job.
Secretary Connally has commissioned Under
Secretary Volcker to discuss with our principal
trading partners the development of an appropriate
forum or forums.
- 7 Under Secretary Volcker has been meeting
representatives of our partners in Tokyo, in
Europe, and in Montreal. The result is that
there is now considerable confidence that we
shall soon have agreement on a forum which
meets the basic criteria essential for real
progress toward monetary reform in the months
ahead.
There has been some criticism recently in
the press and elsewhere that we are so preoccupied with procedural matters that we are
giving no thought to the substance of the
negotiations. Nothing is further from the
truth. Work has been proceeding vigorously
within the Administration on the basic aspects
and fundamental alternatives for the future
international financial system.
I would point out that there is a logical
sequence for working toward monetary reform in
which the basic questions before the negotiators
must be defined and established before meaningful international discussions on the various
alternatives can be undertaken and decisions
reached. This is the key principle which must
underlie any constructive negotiating process.
- 8 -
Doctrine of Fairness in International
Trade--Abroad and at Home
Abroad
These are some of the accomplishments to date on
the international trade front. All of the United
States' efforts in international discussions have
been dedicated to one objective--the establishment of
a Doctrine of Fairness in International Trade.
The President and Secretary
notice that the United States is
compete with one hand behind its
fairly abroad, we must have fair
markets of the world o
Connally have served
no longer going to
back. To compete
access to all the
I do not mean to imply that the United States is
expecting to obtain something for nothing. We
recognize that some of our practices are regarded by
other countries as discriminatory. But in our trade
negotiations we do have a right to demand a fair
bargain. We insist only on the right to compete fairly
abroad.
As Secretary Connally said in Munich last May:
" .•. no longer will the American people
permit their government to engage in international actions in which the true long-run
interests of the U.S. are not just as clearly
recognized as those of the nations with which
we deal."
The p oint he conveyed to all is that the United
States can no longer stand by complacently when markets
are closed to us or where the "rules of the game" seem
to be rigged against us.
- 9 -
When our foreign friends complained about the
temporary 10% additional duty adopted as part of the
President's new economic program, they did not mention
in their complaints the barriers they maintain against
u.s. exports to their countries.
These barriers take various forms--quotas no
longer justified by economic factors, discriminatory
taxes such as progressive taxes on horsepower directed
at the export of U.S.automobiles, and discriminatory
tariff arrangements such as the Common Market
preferences and reverse preferences, which establish
a lower tariff on the exports of Common Market
members than on those of the u.s. and others into
third markets, both in developing and developed countries.
The Common Market--A Closing Circle?
At the same time, the United States has followed
an open and liberal policy in tradeo We have one of
the most open markets in the world, but now one of the
questions we have to ask ourselves is whether the
European Economic Community, which claims to have an
outward-looking policy, is not turning its gaze inward
instead. Let us look at some specific recent actions
by the Community.
The EC has concluded preferential trade agreements
with 28 countries which discriminate against thirdcountry trade. It is now in the process of negotiating
similar preferential arrangements with at least four
other countries: Algeria, Cyprus, Egypt, and Lebanon.
At the same time, it is negotiating other agreements
with Iceland and Portugal as well as with the EFTA
neutrals, Austria, Finland, Sweden, and Switzerland.
These negotiations presumably are being based on a free
trade area in the industrial sector, with the possibility
of including preferential advantages for EC agriculture
in some of these markets. Is this fair trade?
-
LO -
As the EC expands its membership from 6 to 10,
the UK, Denmark, Ireland, and Norway will, of course,
have to adopt the highly protectionist Common
Agricultural Policy of the EC. Furthermore, the EC
recently raised the support prices on corn, among
other agricultural items, thereby increasing its
variable or sliding levy--a levy system which
incidentally is in complete contempt of accepted
trading practices--against imports of U.S. corn into
the EC by 11 percent. Through this variable levy
system--which, at present levels, almost doubles the
cost of U.S. corn to Community users--American farmers,
who are more efficient producers of corn, are excluded
from the EC market in favor of the less efficient
European farmers. Is this fair trade?
In the past few weeks, the European Community
has instituted a new system of compensatory duties
so as to continue to protect its domestic agricultural
markets from more efficient foreign production in
the face of the recent currency realignments. In so
doing, the European Community did not hesitate to
break the negotiated rates (to which they are bound) on
some 40 million dollars' worth of trade. They did
this despite the fact that it was a clear violation of
the GATTu The United States has some interest in the
EC's actions, for our cost of production for basic
agricultural commodities approximates half of that in
the Common Market. Is this fair trade?
Since the post-war years, the United Kingdom, soon
to become a member of the Community, has maintained
quotas for balance of payments reasons on imports from
the dollar area of fresh, frozen, and canned grapefruit,
orange juice, and rum--this despite the fact that the
balance of payments justification for these quotas has
long since passed. Indeed, the British are now in
balance of payments surplus, and removal of these quotas,
which the United States has been seeking for over 20
years, is certainly long overdue. Is this fair trade?
- 11 -
Similarly, France imposed quotas several years
ago for balance of payments reasons on imports of
semi-conductors. Although the French authorities
have liberalized these quotas over the years, an
intricate licensing system inhibits our exporters from
supplying the French marketo The balance of payments
justification for protection has long since ceased
and this obstacle to trade should have been eliminated
years agoo
The Community's regulations have restricted
Japanese imports to 6 percent of that country's overall
exports--this in contrast to the 30 percent which
Japan exports to the United States. By restrictions
such as these, the Common Market has literally forced
the Japanese to concentrate their export drive on the
United States.
Now I ask: Are these the policies of an outwardlooking trading block interested in the expansion of
world trade?
Japan--An Open Market?
Japan now has $17 billion in foreign assets
reserves. We have approximately $12.5 billion. While
the United States had a balance of payments deficit
last year--and has had one for over 20 years--and our
first trade deficit since l888--Japan had a trade
surplus last year of 7.9 billion dollars, the highest
in the world. This year's balance for them will be
even larger since their exports are likely to run 20%
above 19710 3.2 billion dollars of Japan's trade
surplus in 1971 was with the United States.
Many factors, in addition to UoS.policy, contributed
to Japan's economic success. Japan, which was allowed
to maintain quotas for balance of payments reasons when
it entered GATT, still retains many of these quotas,
this despite an economic recovery which is commonly
- 12 -
referred to as the Japanese miracle.
'~dministrative
guidance" by Japan which impedes our exports and focuses
on their export drive to the D,S. is a central factor
in Japan's econooic success.
Is this fair trade?
Canada--A Door Swinging One Way?
Our good and valued neighbors to the north complain
about the "unfairness" of the New Economic Policy from
their standpoint.
What Canadians fail to mention, however, is that
their basic balance of payments surplus has averaged
1.2 billion dollars annually over the last five years.
What they also tend to overlook is that the patently
one-sided automobile agreement contributed to a swing of
over 800 million dollars in our trade balance. While we
impose no tariffs or barriers on Canadian exports of
automobiles, Canada imposes a 15 percent tariff on
individual purchases of D,S.automobiles. Although
Canadian manufacturers may import American automobiles
duty-free, this is only if they meet certain minimum
Canadian production requirements.
These provisions of the automobile agreement were
intended as "temporary" safeguards for our Canadian
friends, which may have been appropriate at the time
the agreement was negotiated~ For the past three years,
we have been negotiating for the removal of these
"temporary" safeguards, but to no avail_.this despite
Canada's continuing large balance of trade surplus with
the United States--a huge $1,880 million in 1971.
Is
this fair trade?
Also, notwithstanding the balance of trade which is
now so favorable to Canada, our friends to the north
continue to be considerably less liberal than the United
States in granting exemptions to returning tourists.
Here, again, we have an example of a measure which might
- 13 -
have been "temporarily" justified at the time it was
introduced; but which is no longer supportable in the
light of today's realities
Is this consistent with a
Doctrine of Fair~ess?
The Canadians likewise continue to insist on
retaining other trade advantages which are a carryover
from a bygone era when we were in a position to, and
did, assist unstintin~ our northern friends.
Is this consistent with a Doctrine of Fairness?
At Home--Treasury's Role in Combatting
Unfair Trade Practices
Against this backdrop, there Are very positive
measures this Administration has already taken at
home to rectify our trade imbalance and protect jobs
in the U.s.
From the inception of President Nixon's Administration,
the Treasury Department has vigorously attacked
discriminatory pricing techniques of foreign exporters.
Treasury and its Bureau of Customs have accelerated and
expanded the use of statutes specifically designed to
protect U.So industry against unfair foreign competition.
We have institutioualized the supervision of the
administration of the Antidumping Act and the countervailing duty statute and other aspects of tariff and trade
relations by setting up an Office of Tariff and Trade
Affairs in the Office of the Secretary.
The Antidumping Act is designed to prevent injurious
international price discrimination--typically, selling in
the U.S" market at prices lower than in the foreign home
market. The countervailing duty statute is designed to
counteract and prevent foreign subsidies on exports to the
U.S.
-14 -
The Treasury, under this Administration, has
rejuvenated what was largely a moribund Antidumping
Statute. We have significantly increased actions under
this statute in the past three years. We have eliminated
loopholes. And, we have expedited consideration of
complaints from domestic manufacturers by adding manpower
and streamlining procedures. In short, Treasury is now
administering the Antidumping Act more nearly in the
manner intended by Congress. This is what industry has
a right to expect. But more is neededo
Perhaps criticism from abroad had to be expected.
But the point is that our actions are taken in defense
of fair trade Bnd without fairness, prospects for freer
trade would be bleak.
Now we are studying possible refinement and
expansion of the use of these measures which protect
U.S. industry against unfair competition.
In new proposed antidumping regulations which
were published on April 19, we moved one step further
in our plan to clarify and tighten the procedures of
the Antidumping Act.
We are examining questions which have been raised
regarding the possibility that some countries are
providing incentives for their exports which might be
bounties or grants under our countervailing duty law.
As we move to resolve these questions on a case-by-case
basis, the need for reaching an international agreement
regarding subsidization of exports should become
apparent to all trading nations and the mutual experience
gained should be a fertile source fur developing fair
international rules.
Amendments of our Antidumping Act and countervailing
duty statute may be required to achieve freer and fairer
competition in international trade. And, once the longrange adjustments of tariffs, quotas, and other barriers
-15 -
are accomplished, these same measures can serve to
maintain the integrity of those agreements.
International Reforms--GATT
In analyzing what we can do to enable u.s.
producers to compete more effectively under fair rules
of international trade, we must of necessity examine
closely the implementation of those rules and even
question the nature of the rules themselves.
We face a situation in which such basic GATT
rules as most-favored-nation treatment are increasingly
violated. We are also concerned that foreign dumping
and subsidizing of exports to third countries have the
effect of freezing UoS. manufacturers out of these
markets. Moreover, while we favor u.s. capital
investment abroad on as liberal terms as our balance
of payments allows, we cannot continue to permit UoSo
capital to create jobs abroad if domestic u.s.
manufacturers are prevented by discrimininatory barriers
from selling in these markets on equal terms.
If the GATT itself proves unable to face up to
the realities of today's world, and we hope that it can
meaIDre up to its responsibilities, we may have to
give thought to other ways of meeting the needs. The
rules and procedures of the past must be adapted to the
world of the 1970's.
Implementation Versus Policy-Making
It has often been said, "Important as it is to
make policy, it is even more important to implement it."
This Administration has used the Antidumping Act
effectively, and as I mentioned, is reviewing the
countervailing duty law. But, there are other aspects
of implementing trade policy in day-to-day operations
which strongly affect our international trade and our
balance of payments.
- 16 -
The main day-to-day operating bureau in the U.S.
Government affecting international trade is the Bureau
of Customso Secretary Connally has directed that the
trade and tariff aspects of that Bureau's operations
be given the highest priority. This includes not only
the operating responsibilities of the Bureau of Customs
in the area of antidumping and countervailing duty, but
also its role in classification and valuation of
imported merchandise, administration of quotas and
marking requirements, prevention of smuggling, monitoring
voluntary restraint arrangements, and investigation of
commercial frauds.
All policy decisions in these matters and
determinations of priorities will, of course, be made
in the Office of the Secretary.
We also have under way a Treasury study to analyze
the data that is available in international trade
matters. Here again, the Bureau of Customs is the prime
source for data regarding trade matters and yet, for
analyzing and interpreting that data, its resources
have not heretofore been fully uti1ized o This also we
are moving to correct.
In summary, President Nixon's Administration has
moved forcefully to improve our international trade
and monetary position. We have given our anti-price
discrimination tools the most vigorous exercise they
have ever had. We have negotiated the removal of various
trade barriers and set the stage for an overhaul of the
international monetary and trade mechanisms.
While building a stronger economy at home, we
remain outward-looking and international in our
initiatives ahroad. This Administration is committed
- 17 -
to such a course. Of course, our foreign friends and
trading partners must be equally outward-looking and
international in their approach to their problemso
As Secretary Connally said when he addressed the
Economic Club of New York last fall:
"We do not intend to become provincialo
We shall not resort to protectionismo We
shall carry our burdens on the international
scene. , But to do so it is essential to
attain an equilibrium in our overall financial
balance with the rest of the world. We seek
no advantage over otherso We propose to suffer
no disadvantageo We seek a balance which will
be to the benefit of all the nations.
At 3take
is nothing less than the foundation for the
freedom and security of this generation, and
those that follow."
00
000
0
1
1
rfITE
DEPAR'l'I1EJ~T
OF TIlE
TnEl\~-mnY
2
INTERVIEWS OF'
4
HONORABLE JOHN B. CONN2\LLY f
5
SECRETARY OF THE TREASURY
6
I'HTH
7
ABC, NBC, CBS CORRESPONDENTS
8
9
10
11
12
13
14
15
I?
Hay 11, 1972
18
Washington, D. C.
19
20
21
22
23
24
25
[This transcript was prepared from tape recordings.]
CORRESPONDENT:
1
t1r.
SCC1~otCtry,
hOI)
C,il1
you justify
li~ht
2
the administration's adopting such stringent actions in
:J
of the political situation not. only in this country but aroun,}
4
the world as well?
5
SECRETARY
CONN~LLY:
Well, you make an assumption
6
that I am not will ing to 1l1ake.
Your question is phrased in
7
such a way that it inaicates that the political
8
in the country is strongly against the position that the
9
President took, and I disagree with that.
10
that most people take is in support of the President and what
11
he did.
environm~nt
I think the positionl
Now, he justified it on the basis that it was an
12
13
action that, in my judgment, the President felt he had to take.!
14
He had to take it.
15
to me, over the past three and
16
of Vietnam.
17
the l\merican troops.
18
them that were there \vhen he CClrte into office.
Nm""
19
He has made it ahundantly clear, it seerns
i'
half years that he wants out
He wants to end the \';ar.
IIe
wants to wi thdra\'l
And he has ·.,i thdraHan
il
half million of
no persona:, no ra.tional person that ",ants to be
20
objective can say anything exce~~ that the President is trying
21
to extricate this Nation from South vietnam.
22
do it?
23
negotiating.
24
Dr. Kissinger to Paris only a ,·,reck before his speech.
25
talked to Le Duc Tho and he got nothing but arrogance and
Now, he has tried.
Now, hm'" do you
He sent in reserves.
We have been trying to negotiate.
We have heen
He sent
Be
1
insults from him.
\'7e obviously were
2
negotiating tClble.
D
really were running out for l1iM.
lo<~inq
He ",cren't gaining ground.
He obviously wants to get out.
4
ground Clt the
So the options
He wants to get out
5
in such a way, he has made clear, wi th honor.
6
out in such a way that the United States maintains some
7
options in its foreign relations around the world, that it not
8
he
9
nation because it gets run over by another country -- North
10
Vietnam.
comple~ely
destroyed, that it not become a second rate
So he felt that undcr all the circumstances that he
11
12
He "'1ants to get
really had no choice but to do what he has done.
CORnESPOtJDENT:
13
But hCls it amounted really to some
14
of the analysis that we have heard, that the President was
15
faced with jeopardizing detente with Russia?
SECRETARY CONNALLY:
16
No.
A lot of people say that.
17
A lot of people say, oh, this is terrible, that it is a
18
confrol: tation with Russia.
19
at all.
20
not even comparable really, I suppose, but let's go back in
21
his tor'.' a little bit, to Hungary.
22
Russians moved into Hungary?
23
it.
24
nation.
25
and it violated every precept and concept of this l\merican
I don't think so.
I don't think so
I liken it very much to the situation -- oh, it is
lilhat happened when the
He didn't like it.
~\Te protested
We thought it was a terrible cruel thing to do to that
And it was a naked aggression really on their part,
Illation and our search for freedom and peace.
But we didn't
2
vie\·, it as a confrontation Hi th the Uni ted States.
3
it was a reprehensible act.
4
r'le thou'jht.
Now they are going to deplore what we did, mining
5
the harbor of IIaiphong.
6
new.
7
a confrontation Hith tbe USSR, nor is there any reason \vhy
8
they ought to assume it, and I don't think they will.
9
10
11
He bombed before.
That is nothing
There is no reason why we ought to assume that this is
CORRESPONDEKT:
Well, if it does not bring about
either cancellation or postponement of the summit conference
SECRETARY CONNALLY:
Oh, it might do that.
I
12
personally don't think it will, but it might do it.
13
does, so what?
14
conference?
15
run out and destroying the viability of any foreign policy
16
for this Nation.
17
conference vii th the Russians.
18
I
But if it
\'!hat price are \ve willinq to pay for a summit
think He can't pay the price of being completely
That. is i:oo high a price to pay for a summit
CORRESPONDENT:
How can you justify the decision
19
that would jeopardize the fleet, the ship, and the personnel
20
of so powerful a third party as the Soviet Union and unilater-
21
ally taking that action, as COmI:'ander in Chief \Vi thout any
22
conSUltation at all with the Conqress?
23
constitutionally?
24
25
SECRETARY CONNALLY:
Em" does this set
\'iTell, in the first place, we
are not doing all of those things.
The Present \Vent on
1
nationwide television, he not only spoke to the Uni ted Stato~.;,
2
he spoke to the world.
He told them precisely what he was
going to do, he was going to mine the harbor of Haiphong and
4
that those mines were timed where they had ample opportunity
5
tb get their ships out.
6
them, to that extent.
7
now if you don't get out within. three daylight periods, then
8
the mines are going to become effective and you may have to
9
stay in there.
But that is a choice they had to make.
10
had an option.
They had a choice.
11
We didn't lay down any gauntlet to
He said we are going to mine the harbor,
They
And when you say "consult with the Conqress," what
12
do you mean?
I don't knmv how to ans\\'er that.
13
Congress?
14
the Congress?
15
\vith "ble Congress"?
Nhat is the
Do you mean get a vote of all the 535 members of
Or who does he talk to?
TIm', does he consult
t·Jho are we talking about?
16
CORRESPONDENT:
The leadership.
17
SECRETARY CONNALLY:
Well, he talked to the leadershi
18
It is a deicision -- he can't run the foreign policy of the
19
country on a majority vote or the leadership of the Congress.
20
I don't know of any constitutional authority that the leader-
21
ship of the Congress has .. _Now, Congress obviously has certain
22
powers, and it is well that they have them.
23
charged under the Constitution with the conduct of the foreign
24
policy of the Nation.
25
of both parties, in both houses, and told them before he did
The President is
lIe called in the congressional leaders
1
what he did, what he was going to do.
CORRESPONDENT:
2
That was after the decision \,,ras mac1C'
SECRETARY CONNALLY:
Well, it was after the decision.
4
But suppose he called them in before and made the same
5
decision, would it have made any difference?
6
done the same thing.
CORRESPONDEN'l':
7
He would have
\\fell, I am trying to understand nO\".
8
You are saying that there is no requirement or no need under
9
our system of government for prior consultation
10
SECRETARY CONNALLY:
11
CORRESPONDENT:
12
13
•
No, I didn't say that.
-- with the leadership or anyone
else.
SECRETARY COlJNALLY:
I question -- and I don't \Vant
14
to here get into any legal argument about the legality, we
15
can discuss that at some other point -- I certainly thinL there
16
is a political need, yes, to consult with the leadership.
17
There is a political need.
18
requirement necessarily ".,Then the President moves in taking an
19
action that he took.
20
variance with past behavior that he needed to consult with
21
them, except for the general purpose of politically infor~ing
22
them of trying to retain obviously the support of the Congress,
23
because he has to have the support of the Congress.
24
not in any sense trying to diminish the influence of the
25
Congress or the role that they play because, in the final
I don't think it is a constutiona1
I don't think it was an action of such
And I
a~
1
analysis, they appropriate the money and no President can do
2
anything unless he has the resources with which to do it.
.)
to that extent he has to maintain a rapport vd th them, and he
4
should do it, and he tries to do it.
5
So
So when I just hear these comments about, "Hell, he
6
didn't consult 'vi th the Congress," well, the Congress is 535
7
people and he can't consult with all of them and he can't run
8
a foreign policy on the basis of a majority vote.
CORRESPONDENT:
9
There is something else contained in
10
the President's statement that has brought about some specu-
11
lation.
12
for the full withdrawal of American forces.
13
any hope for an earlier settlement --
There seems to be quite new peace proposals and terms.
14
SECRE'l'ARY CONNALLY:
15
CORRESPONDENT:
16
SECRETARY CONNALLY:
Does this hold out
Yes.
-- and the gaining of a cease-fire?
It certainly should.
And really
17
there has not been enough attention paid to this peace proposal
18
because it is a rather amazing proposal when you really analyze
19
it, because he said, as I recall -- and I am not trying to
20
quote him now -- but in effect he says return our prisoners of
21
war, cease activities and within four months we will withdraw
22
all American troops.
23
24
25
CORRESPONDENT:
The one thing that hasn't
SECRETARY CONNALLY:
Nmv, any nation that can't take
that obviously doesn't want to end these hostilities.
Now,
1
this is a peace proposa 1 that any nation that has any ~3('Tllbl ilnC(;
2
of good-will in its actions ought to take.
~
them, give us our prisoners of war back, cease military
4
activities, and within four months we will be aone.
-'
5
do they want?
6
CORRESPONDENT:
7
standstill cease-fire?
8
cease-fire?
What more
Can you tell me, does this mean a
What are we talking about when we say
SECRETARY CONNALLY:
9
It just sayR to
Well, I don't want to elaborate
10
on what the President said because you really have me discussin.
11
matters here that I probably shouldn't be talking about in the
12
first place, and I am doing it, I am afraid, too forcefully
13
and too fully.
14
CORRESPONDENT:
And rather well.
15
SECRETARY CONNALLY:
No, I don't knm" about rather
16
well.
I feel very strongly about it and I do have some
17
knowledge about it but there are better spokesmen obviousl],
18
Secretary Laird, Secretary Rogers, Dr. Kissinger, and
19
President himself has talked about these things, so I don't
20
'"ant to try to either add to or subtract from or to try to
21
interpret what the President said.
22
CORRESPONDENT:
l'Jell, you Here in the counsels vlhile
23
this decision was involving.
24
stories, a spate of stories about --
25
th(~
SECRETARY CONNALLY:
There have been quite a few
Unfortunately there are always
1
stories.
I don't knoH how you all gGt them, but you get thC?fT1.
CORRESPOHDEHT:
2
There have bCGn qui tc.: a fpw recently
.)
about dissent in the counsels, right up until the last moment,
4
even after the decision was made.
5
you were a part of that
6
really meaningful dissent?
decision~making
SECRETARY CONNALLY:
7
Since you WGre so close and
process, was there
I don't think so.
I think
8
there was, in the process of the discussion, I think a numher
9
of different views were heard, and you obviously have to do
10
that.
11
you are going to discuss different options, then at some
12
point or another, if for no other purpose than to be a devil's
13
a.dvocate, you have to say, v.rell, whaJc if such and such
14
happens, what will we do; what if such and such happens vnder
15
this set of circumstances, where would we be.
If you are going to
16
prese~t
the President options, if
So as a result of several hours of discussion on a
17
problem as delicate as this, you obviously have different views
18
expressed.
19
raising points of issue.
20
arguments, the pros and the cons, to be sure that you haven't
21
overlooked something.
22
and basic dissent.
23
basic dissent with the President's decision.
24
25
Some of them are so_: ely for the purposes of
Others are solely to develop the
Others may really reflect and inherent
I am not prepared to say that there was any
Now, you all get these stories.
-- I don't know where they come from.
They certainly don't
They are not always
1
accurate.
2
made by individuals in the meetings, perhaps for purposes
~
other than reflecting their own views of dissent.
4
individual has to speak for themselves, I suppose, ultimately.
5
I think they sometimes reflect
CORRESPONDENT:
argunl~nts
th0t
~cre
But each
Well, there has been some very basic
6
dissent in Congress, particularly in your own political party,
7
the Democrats, almost overwhelmi:1q.
8
stern words to deliver to your fellow Democrats about this.
9
Do you consider that dissent and the criticism that is being
10
voiced really that damaging to the prospects of the President's
11
policies?
SECRETARY CONNALLY:
12
You have had some pretty
Yes, I think it is very damaging
13
yes.
14
had a Democratic caucus.
15
voted, Dut the vote, as I recall, was 29 to'14, so there were
16
14 men, Democrats, in that conference who stood up, who didn't
17
want to in effect denounce the Presfdent's actions.
18
And I am not talking ahout all of the Democrats.
They
I don't know how all the Senators
No\v, here again we come, it is a question of degree.
19
It is a question of how you are going to operate.
20
to me that of all the people who should not be denouncing the
21
President of the United states because of what has happened in
22
South Vietnam, it ought to be this many Democrats.
23
But it seems
I think you could justifiably make the argument that
24
it was a Democratic President that got us into Vietnam in the
25
first place and another Democratic President that enlarged the
1
forces there.
2
successful refutation, that this President,
.)
\-laS
4:
are dm"n to 60,000.
5
He is trying to'wind down a war that he didn't start.
6
that is a fair statement.
7
I
think you can say, ,·,i thout any hope> of
wh~n
he came in,
faced \-lith approximately S60,000 nen In Vietnam, and
VIC'
He has removed half a million of them.
think
I
Regardless of who started it or who expanded it, it
8
seems to me that in the conduct of foreign affairs of this
9
Nation that the Congress, to the extent that they want to hold
10
hearings, to the extent that they want to have arguments, to
11
the extent that they want to oppose policies of this adminis-
12
tration, there are ample opportunities to do it.
13
President has taken a strong position such as he has Jone
14
here, under all the circumstances, \vhere everybody in this
15
country knm\ls what the stakes are, once he takes a position
16
it seems to me that it behooves every single one of' us
17
support the President of the united states.
18
supporting him as an individual, we are supporting the
19
policies of this Nation.
20
send a message to Hanoi and to other countries around the
21
world that there is great dissension here, if you will just
22
hold tight maybe things '\lill be different here, we will
23
you how much dissent there is in the country.
24
frankly, they put party and personal views above the interest
25
of this Nation, and to me it is reprehensible action.
Once a
t~
We are not
And what these 29 Democrats djd was
ShOH
And in my view,
1
CORRESPOND:CNT:
I think one of
thos(~
))0mocratic
2
Presidents we both know rather well, once voiced a philosonhy
~
that politics ought to stop at the water's edge.
4
to be about the same sentiment.
SECRETARY CONNALLY:
5
That seems
That is exactly the way I feel
6
about it.
Now, I don't mean that we ought not to have dis-
7
cussions about poli2ies or differences of views.
8
President, who is charged with the conduct of the foreign
9
policy of the country, under ttese circumstances, once he makes
10
a decision, even if we disagree with it, it seems to me that
11
we owe it to ourselves, we owe it to our Nation, we owe it to
12
this country to at least maintain silence if we can't voi2e
13
an approval.
CORRESPONDENT:
14
But once a
Let's go back for just a moment for
15
a final question, I1r. Secretary.
16
President's actions were absolutely necessary under the cir-
17
cumstances, that if it did result in the cancellation or
18
postponement of the summit conference, sobei t.
19
remark, let me ask you this:
20
cancellation of a summit confereDce, as it has byen planned
21
now?
22
sniping at each other, of losing an air of detente?
23
You have mentioned that the
Hell, with that
\']hat would be lost really in the
Would it indeed throw us back into this business of
SECRETARY CONNALLY:
Oh, not necessarily.
It
24
obviously wouldn't improve the atmosphere, and I hope that the
25
summit is not cancelled.
I hope the Russians won't cancel it.
1
In my reason th(~y have no reason to.
2
that are important in this \,.,rorlcJ in the relvtionship bctvlocn
3
the united States and the USSR, that our actions in North
4
Vietnam really should not impair those in the Russian's minds,
5
in my judgment.
6
There arc ~jO ffiuny thiwr'
I think it is important that \Ye maintain a coopera--
7
tive spirit, that we continue to promote the good feelings
8
c..nd expand the mutual understanding bet'ivcen our t'i-lO nations as
9
much as we can and as quickly as we can.
10
to the good.
11
conference, the opportunity to do will be delayed.
12
event, I don't think they or we should ever close the door to
13
the halls of peaceful negotiatiolls and the search for peace
14
throughout this world.
15
if they cancelled the sumit.
16
17
18
19
20
21
22
23
24
25
I think that is all
And obviously, if we don't have the sunmit
CORRESPONDENT:
In any
And that is really what would happen
I hope they won't.
Thank you, sir.
1
2
CORRESPONDENT:
Mr. Secretary, how do you account
for the mild Russian and Chinese reactions so far?
SECRETARY CONl.JALLY:
Irving, I don't think that the
4:
action ",hich the President took should be construed very
5
frankly by any nation as throvling down the gauntlet or as a
6
confrontation.
7
certainly should not be so construed and I hope they won't
8
construe it that way.
9
From our standpoint and our
CORRESPONDENT:
vie~',point,
it
Is that your interpretation cf the
10
mild reaction, that they are not interpreting it that way, or
11
do you think it i$ just too early?
12
SECRETARY CONNALLY:
I wouldn't want to try to speak
13
for Either of the countries.
14
going to do.
15
continuation of the summit.
16
of the United States we should expect that.
17
obviously will have to speak for themsleves, and I don't know
18
when or in what vein they "Till do it.
19
I don't know what they are
I really hope that we can anticipate the
CORRESPONDENT:
And I think from the standp8int
But they
Mr. Secretary, was there any secret
20
arrangement with the .Russians that they would not challenge
21
our closing of the North vietnamese ports if President Nixon
22
would offer a cease-fire followed by a complete withdrawal in
23
four months?
24
25
SECRETARY CONNALLY:
Irving, if there was any such
agreement, I was certainly not privy to it.
I don't know of
1
any such arrangement.
2
be perfectly ccJ.nclid wi th you, th!::?rc are bet tc r sourc(~ s tlJ ,111 I
D
for an answer to such il question.
4
Secretary Rogers, Secretilry Laird all are more familiar with
5
the immediate details -than I.
6
tion along that line.
7
8
l';OH,
CORRESPONDENT:
I must say at the outset th" l, to
As you know, Dr.
Kis~in<Jer,
Certainly I have no informa-
But you don't exclude that or fore-
close that as a possibility?
9
SECRETARY CONNALLY:
Well, even to answer that I
10
think lends encouragement to the thought that perhaps there
11
was such an agreement and I just had no idea of such.
12
international diplomatic matt-ers, I am reluctant to close the
13
door on anything as a
po~sibility.
CORRESPONDENT:
14
But in
I don't mean to press you on this,
15
Mr. Secretary, but it is generally believed that you have
16
been very close to the decision-making process, that the
17
President has sought your
18
be aware, or perhaps would you be purposely not made aware of
19
this?
cQuns~l
SECRETARY CONNALLY:
20
th~t
of it.
22
and I will just have to leave it at that.
23
there had been, I would have known about it.
24
guarantee that.
CORRESPONDENT:
Would you not
Well, I certainly am not aware
21
25
I have no indication
and so on.
there was any such agreement
I assume that if
But I can't
Mr. Secretary, do you believe the
1
President's trip to Moscow will
SECRETi\RY CONNlI.LLY:
2
ta~c
place?
I hope it vli 11.
From the
D
united states' standpoint, r don't think there
4
why the Russians should assume that vle have taken an action
5
that at least we interpret
6
them.
7
things.
8
Vietnam.
9
hasn't been viewed as any confrontation.
10
the harbor of Haiphong.
11
discussed for years, it obviously was not any Move against the
12
Russians themselves.
13
14
Vietnam, bringing in armaments, supplies for lJorth Vietnam,
,
some British ships, some Cuban ships, some Somalia ships,
15
and oth0r nations around the world.
16
not be interpreted, at least from our standpoint, as a
17
confro~tation.
18
n~
i~
any reason
any sort of a confrontation to
After all, \·,hat did we do?
It seems to me we did three
We continues Qr renewed the hombing in North
We have been doing that for years.
That certainly
Secondly, we mined
That is nevI, although it has been
There are a number of ships serving North
So that certainly ought
And third, what else did the President do?
He laid
19
down, it seems to me, the most generous peace terms that he
20
possibly could lay down.
21
CORRESPONDENT:
Yes, in fact, at the core of the
22
President's latest action are these farthest reaching peace
23
offers ever made.
24
the Communists accepting the peace offer if it \Vere not
25
accompanied by the closing of the North vietnilmese harbors?
But will there not be a better chance of
SECRE'l'l\RY CONNl'.LLY:
1
No, I cJi sagrec with Ch'-l t
C0[11-
2
pletely.
~
it seems to me we have been through that.
4
enumerated time and again peace offers that he had made.
5
n
President Nixon has indicated in recent months the pnac
'-'-'
6
that he has made.
7
night and his actions in closing and mining the harbor at
8
Haiphong, Henry Kissinger was in Paris talking with Le Due Tho,
9
and to what end?
10
This is my persona 1 Vie\·l. J.JOH, Irving, over the
YC(l
rs
President Johnson
And only a week before his speech on
0
ff ers:'
~londay
Le Duc Tho, because he thought they had had great
11
success in their military invasion of South Vietnam, was -- to
12
use the President's words -- arrogant and insulting.
13
what you get.
14
being closed to us one by one until they finally all have
15
been closed, for all practical purposes.
16
you can just throw out a peace offer and say that they will
17
take it, the ans,ver is no.
18
accepted.
19
would have undoubtedly come back and said, "1'7ell, if you ",ill
20
withdraw your troops and get all of your troops out of South
21
Vietnam, we might have a peace settlement, if you ",ill also
22
agree to overthrow President Thieu, if you will also agree not
23
to give any type of aid to Vietnam, to Laos, to Cambodia or
24
any other country in Southeast Asia" -- they ah.,ays impose
25
additional requirements any time they think you are in a
That is
Now, obvi.ously, the avenue of negotiatioLs were
NOH,
the idea that
I don't think it would have been
They could have come back with something else.
They
I
position of Vlcakncs~;.
2
havin(] in trying to negotiute
'l'hitt is tho problem thJt \Ye ha.ve: hum
CORRESPONDEHT:
(l
peace settlement "~lith
Ul:'Fl.
So t.hat your belief i~; that by
4
imposing a stick, the can:ot may be accepted to have the sticJ:
5
withdra\"n?
6
SECRETAR.Y CON1V\LLY:
It certainly is our hope that
it vii 11 be.
7
8
CORRESPONDENT:
Do you feel that this action in
9
effect in the long run undermines the Thieu government in
10
South Vietnam if an internationally supervised cease-fire is
11
imposed and the North Vietnamese move?
12
international force would have to take the place of the
13
American forces, and that seems unlikely, doesn't it?
14
SECRETARY CONW\LLY:
It means that the
I'Jell, I don't think it neces-
15
sarily rleans that he is undermined at elll.
16
get a cease-fire, if we can get our prisoners of war back,
17
and four months after that time the President said he would
18
19
I think if
\'Je
can
I
wi thdra;,· our troops.
\ve have made a very conscious effort over the past
20
several years to strengthen economically and otherwise the
21
south Vietnamese people to ",here they can make the choice for
22
themselves about what type of government they want.
23
know, we previously even reached an agreement with President
24
Thieu tha t elections \"lOuld be called and he \',70uld step c1mm, he
25
would resign thirty days before those elections so that he
As you
presi.(J(~ncy
1
\'lOuld not have the pressure of the
2
So I don't think it would undcrwine hiT'l CIt all.
CORRESPONDENT:
aVc'1.:i lohJc: to hi:".
Mr. Secretary, do you believe that
4
the Russians may be waiting to sec how stringently we enforce
5
the ports closing before deciding on going ahead with the
6
summit?
SECRETARY COl'mALLY:
7
I vlOuld be the last persOfl I
8
think around that would try to read the minds of the Soviets
9
or their intentions.
CORRESPONDENT:
10
11
I don't
~now.
If the summit is cancelled or post--
poned, would you consider this too high a price to pay?
SECRETARY CONHALLY:
12
No.
I think, on the other hand
13
if we had indeed not done anything, the price might have been
14
too high just to insure the sUIYUni t.
15
holds great promise for bringing about a better relationship
16
and a closer rapport with the Soviet Union, and I think this
17
is good.
18
It is good for the peace of the
19
cancellation or postponement of it will be all that damaging.
20
I hope, as I say, that it will not happen.
21
point, we see no reason why they should cancel it.
22
Nm'l,
I think the summi t
I think it is good for them and it is good for us.
CORRESPONDENT:
~orld.
But I don't think the
And from our stand-
Some critics of the President's
23
action say that since the closing of the ports is not likely
24
to stop the present offensive, it just makes it inevitable
25
that the President Hill in the near future hClve to folloH this
1
escalation with another
2
escaI2tio~.
SECRETARY cormALLY:
mean by "another escalation."
Hell, I don 't kno'i\1 Hllat they
que~)tion
I think beyond any
the:
4
closing of the harbor of Haiphong is not going to have a tre-
5
rnendollsly adverse impact on the military actions of the North
6
vietnamese in the next hm or three 'weeks, or it mi<Jh t not.
7
Psychol0gically, it could have an enormous impact, and this
8
is one of the problems that ''1e have.
9
invasion of South vietnam, and we also have a psychological
10
problem on both the part of the North Vietnamese,
11
that North Vietnam is a sanctuary, that they can op,?rate Hi th
12
complete impunity
13
Vietnamese feel that they were crnnpletely on the defensive,
14
that they can never be on the offensive, and that all they can
15
do is just counter-punch, and this is a terrible position for
16
a boxer to be in or a football player or for a soldier in the
17
trenches.
We have a Mili ta:~y
feel
~~lO
I
and safetYi on the other hand, the South
This takes them out of that posture.
18
This
put.~
them
19
at least where they feel like they can really counter-punch
20
and they can
21
lead~
as a matter of fact.
CORRESPONDENT:
The President explained that
h'~
22
this action because American troops are endangered by the
23
offensive.
24
prompt effect on the offensive and the danger to American
25
troops grows, would it not require further action?
If as you have indicated, this does not have a
took
SECRETARY CONNALLY:
1
It
por-:;~::ibly
.
).
mlCJ·l1:: •
J~r:()'.'
c1on't
I
2
of any such action.
I clon' t knmv WhCl t you have in milld.
I
.)
don't knmv of any presently contemplated further action.
I
4
think what the President has done in cutting the rail supplies
5
from the North and mining the harbor of HaiphOl;g is goin9 to
6
make the North Vietnamese
7
their resupply of
8
resources,
9
not going to go up to the last post and say I have got ofur
10
months' supply and I am going to spend it all and wind up
11
three or four months from now with absolutely nothing.
12
think they have to take a look at their hold card, and I think
13
to this extent that it adds immeasurable: protection to the
14
troops that we have in south Vietnam.
15
thos~
t~~e
a long look at their resources,
resources, the husbandring of those
I think inevitably.
CORRESPONDENT:
Any military
co~nander
is
I
If American troops are further
16
er:dange:t:'ed, would 'vO be prepared to bomb the bridges across
17
th(~
18
riv2r
SECRETARY CONNALLY:
Nmv, this is a matter it seems
19
to me for the President as Commander in Chief, and decisions
20
that he and his military advisers arc going to have to make,
21
and I f rankly am not in a position to make that type of
22
conj ecture .
23
CORRESPONDENT:
Hr. Secretary, what occurred between
24
the President's speech on April 26, when he
25
Vietnami zation was working
and the
sai~
lI.'i thdrawal
that
of U.
s.
troops
1
would continue on schedule, unO. his speech on J1onc1uy' when h(;
2
said l\merican troops are endany-crcd by th(~ lJorth Victn(1J~lCSC
.)
advances?
4
SECHETARY CONW\IJLY:
~'Jcll,
I think onc thing- that
5
certainly has happened is the ferocity of the North VietnaJTlose
6
military invasion, and it is a rank vio12t.Lon -- their crossing!
I
I
i
7
0-
8
of these many tortuous months, at least they have honored
9
that agreement wi th
10
flaunted it, they have --
11
12
13
14
the DMZ is a rank violntion of the 19G8 agrc0ment.
resp0~ct
CORRESPONDENT:
was made
a[tc~'
In all
to the m'1Z, but no\.; they hc've
The President's speech -- excuse me
the crossing of the DI1Z, the
off€n~:;ive
,vas
in progress.
SECHETARY CONlJALLY:
I\lell, I don't think his speech
15
on Monday night should indicate that the vietnamization Jrogram
16
is not working.
17
successes that the North Vietnamese have had has aggravated
18
the situation.
19
doesn't mean that inevitably vietnamization has failed.
20
have to remember, in 1968 Hue fell.
It has been occupied
21
before by the North Vietnamese.
He have built it all up,
22
they say, well, if Hue falls, it is the end of the ",orld.
23
it isn't at all.
24
by South Vietnam.
25
the highlands that they can take any time they ",ant to, and I
Now, beyond any question, the military
There is no question about that.
NOvl
N01:d,
t'lat
We
Hell
It has been occupied and it has been retaken
It may fall again.
Thcre are outposts in
Vietnafi1c~~C:'.
1
am talkinq about the north
2
militarily disastrous, nor psychologically or politically
.)
disastrous.
4
It i
c:~
not
~To:i
lJC/
to
b~
But beyond any question, I think the principal thing
5
that had changed was the attitude that manifested with Le Duc
6
Tho perhaps in his conversations with Dr. Kissinger in Paris
7
only a week before the. President's speech, where it \-las very
8
apparent that so long as they were making military headway
9
that there was really no evidence for negotiation with them,
10
under any conditions.
11
CORRESPONDENT:
The North Vietnamese say that they
12
expected further meetings with Dr. Kissinger and they were
13
surprised when he Halkecl out after that one.
14
SECRETAHY CONNALLY:
\·1el1, they might have expected
15
them but I personally think that we can take statements from
16
the North Vietnamese and the aftermath of the President's
17
actions with a considerable grain of salt.
18
CORRESPONDENT:
Let us say that a Soviet ship is --
19
let us say that a Soviet ship hits a mine and is damaged or
20
sunk and the soviets respond by torpedoing an American
21
battleship.
22
action that. we have taken as part of the acceptable risk, or
23
would this require escalated response?
Would we consider this within the context of the
I
24
SECRETARY CONNALLY:
I am not goiner to respond to
25
that, Irving, for a number of reasons.
First, I don't think I
\
\
\
1
should
I think it is a hypothetical situation \llJiclJ
2
not respond to.
Secondly, even
j
~~lloulJ
a member of t.he ?Ia tiol}Cl 1
ClS
security Council, I shouldn't be responding to such questions.
That is a matter of jUdgment for the President and his military
5
commanders, and I am certainly not one of his commanders and
,
6
I am certainly not in a position to make that type of judgment.
I
7
And I don't think we should speculate to that extent.
8
Very frankly, the President notified the world that
t~1e
9
he was going to mine
10
mines to give the ships ample time to get out of the harbor,
11
those that were there.
12
So I don't think any nation is going to just willfully go in
13
and try to suffer some dama<:Je to one of i ts
14
to create an incident.
15
regrettable incident, but it will be something that will be
16
laid at the door of the nation that does it.
17
CORRESPONDEKT:
18
over there now?
19
their course?
20
harbor.
Timers were put on those
The world knows the harbor is mined.
vcs::=~els
in order
If it does, it is going to be a very
Mr. Secretary, what is happening
Are soviet shir::s moving?
SECRETARY CONNALLY:
Have they changed
i'7ell, I wouldn't -- there have
21
been -- I frankly know nothing rrore this morning than you do
22
from the press accounts.
I have not had an opportunity to
23
even discuss the matter.
There is some evidence that ships
24
destined for Haiphong have been diverted, a number of them,
25
not just Russian ships, but others.
nut beyond that, I have
1
no competence.
CORRESPONDEUT:
2
oJ
Have been di vcrtec1
the
pCl.~; t
24 hours?
4
SECRETARY CONNALLY:
5
CORRESPONDENT:
6
SECRETARY CONNALLY:
7
~.d_ thin
Yes.
Soviet, Chinese ships?
I would not attempt to identify
them.
CORRESPONDENT:
8
Mr. Secretary, the administration has
9
presumably thought all of this through.
10
the likely sequence of events nml?
SECRETARY CONNALLY:
11
l'ifhat do you
se(~
as
Well, I am very hopeful again
12
that the summit vlith the Soviets \vill take place, that in the
13
process this avenue of support for cessation of hostilities
14
in Vietnam can be pursued, that we can enlist the aggressive
15
help of the Soviets to try to use their influence on the North
16
Vietnamese to accept the terms Hhich the PresicJent has offered.
17
And there is no reason why reasonable shouldn't accept
18
terms.
t~ose
19
We have gone over it before, but the cessation of
20
hostilities, the return of the prisoners of war, and within
21
four months we \vill be gone.
22
23
24
25
CORRESPONDENT:
v7hat more could any nation Hant?
Do you see this taking place before,
say, October?
SECRETARY CONNALLY:
I don't knmv, and I certainly
would not want to try to put it into a time capsule.
I don't
1
knm., when i t mi9ht happen.
2
happens very shortly.
CORRESPOIJDEN'l':
4
5
6
I hope
j
t happew:, ("lncl I
llo)Jl'
it
lIow do you interpret Soviet
l\mbassador Dobrynin I s remark this mornj ng?
SECRETARY CONNALLY:
You are leading me a little bit
far afield, and I am not gOlng to try to --
7
CORRESPONDEN'I'·:
You arc:. aware of his
8
SECRETARY COlJNALLY:
I'Jell, I am aware of it, but I am
9
not going to try to interpret the Soviet AmbRssaclor' s reJllarks.
10
I don't think I should.
11
CORRESPONDENT:
Do you believe the mining of lJorth
12
Vietnamese harbors years ago, when we had 500,000 troops there,
13
would have resulted in a
14
u.s.
SECRETARY COl',mALLY:
victory in Vietnam?
Irving, on one of the pillars of
15
the Archi.ves in 'dashington, D. C. is a statement that I think
16
is particularly apropos here -- "\-lhat is past is prologue,
17
ane there is no point in going back and trying to relive what
18
might h.lve been, because it. \,,1aSn' t, unfortunately.
19
CORRESPONDENT:
11
Why is there any reason to believe
20
that this action will succeed in cutting off supplies to the
21
enemy, :cd nee recently intens i ve bombing has not done the job
22
and the Russians and Chinese may convert from sea routes to
23
air or land routes for supplies?
24
25
SECRETl\l~Y
CONNALLY:
Well, this is not easy.
l\bout
90 pp-rcent of all supplies that come into North vietnLlP.l come
1
by ship, and when the ships can't get in i t
2
affect them.
;S
affect them immediately.
4
CORRESPONDENT:
5
ohviou;~
It is just that simple, . that i t
ly hets to
hein0~;
to
Docs the President's 'vi thdrawal offer
include naval and air units from the area of South Vietnam?
6
SECRETAR~!
CONlJl\LLY:
I am not going to try to inter-
7
pret the President's words.
8
he vlanted to say, dnd I certainly am not going to try to add
9
nor subtract from it.
10
11
CORRESPOND~NT:
I think he made quite clear flhat
Mr. Secretary, could you tell us
what your role was in this decision-making?
SECRETARY CONNALLY:
12
One of those who did his best
13
to try to offer some helpful advice and suggestions to the
14
President.
15
that he talked to.
16
I was one of the advisers.
CORRESPONDEKT:
17
these advisers?
18
finally decided on?
19
~'7as
I was one of the many
there difference of opinion among
Was there dissent to the action that was
SECRETARY CONNALLY:
No, I ,,,ould not say so, at least
20
to my knowledge.
v-7e sat in the National Security Council
21
meeting for approximately three hours, and we talked about all
22
types of possibilities.
23
positions that we really did not believe in ourselves, merely
24
for the purpose of bringing it to the floor and analyzinq it,
25
to discuss the matter so that we didn't overlook any
Frankly,. at times some of us advocated
1
possibili ties.
But ultir:lately and finally, _I \'lould l-Ll.ve to ~:;()y tlli1t
2
~
there was no
4
talked to a great many people over a long period of time, and
5
by that I mean days, and I was not privy to all those conver-
6
sations.
7
dissen~ion
within that group_
Now, the PrcsidenL
I was just one of many Hho talked wi th hirn_
CORRESPONDENT:
What is your reaction to the 8ritics
8
who say that Congress Has bypassed and that tJlis ,vas an unwise
9
thing for the President to have done?
10
SECRETARY CONNALLY:
It is always wise for a Presiden
11
to bring into consultation the Congress Hhenever possible, for
12
the simple reason that ultimately the Congress controls the
13
purse strings, the Congress has certain responsibilities in
14
areas such as this.
15
took actions that were not unlike actions that have previously
16
been taken over the years.
17
of every single member of the leadership of the Congress.
18
Now, as Commander in Chief, frankly, he
He certainly \Vas av7are of
th(C~
views
Now, obviously, he can't -- talking about const lting
19
with the Congress, you can't consult with 535 members of
20
Congress.
21
vote of the committees of the Congress, Vlhether they are the
22
Foreign Relations Committee or the Armed Services Committee of
23
the Senate or the House, or the Appropriations Cornmi ttee of
24
either one.
25
He can't be guided in his decisions by a majority
NOH,
he does try to consult with the leac1ership every
l(~&d(>r~;l1
1
time he has an opportuni ty.
2
He met with his leadership prior to his speech the other niq)lt.
:3
But he knmvs their vievls.
4
one of those men.
5
those into account, those and many, many others who don't even
6
occupy leadership roles in the Congress.
7
he maintain the rapport with tha Congress and support in
8
Congress, because they ultimately have to decide what support
9
they are going to give to the resources that make up the
10
foreign policy of this country.
11
th&t he have their support as well as the support of the
12
people of this country.
He did consult \.!i th the
lIe. knoyrc
the
'-!
•
.oJ
V"l ell
- I
lIe knoVls those vievls \1(::.11.
of eV0ry
. .
i
P.
S J.. ng 1 e
And hc takes
It is important that
th~
I
13
CORRESPONDENT:
And it is extremely important
Mr. Secretary, is the administration
14
concerned about the reaction of the country and the world in
15
general?
1£
SECRETARY CONNALLY:
Of course the administration is.
17
Now, it was the President's view, and it certainly I think has
18
been
19
of the American people \-vould support him I and they have
20
indicated that they do support him, and I don't think the
21
America.1 people is misinterpreting '\vhat he is trying to do.
22
He is trying to end this war.
23
He is trying to extricate the United States in such a \'lay that
24
he does it \vi th honor and to \"here he can maintain a viable
25
foreign policy for himself during his rcmaininC} days in office
co~firmed,
that given his objectives that the vast majorit
He is trying to get out of it.
1
and for his successor, \vhoovcr he miqht he, [or himself if
2
Hins a scconcl term,
3
President of the United states.
h(~
but aside from thut, for whoever is
4
He does not want to see us humiliated and
5
in the operations or militarily chased out of South Vietnam,
6
to the point \vhere it destroys the credibility of the Uni ted
7
states and v/here vie hecome u second rate nation.
8
CORRESPOI~DENT:
A final question:
clisgr~ced
Since:: our objective
9
is to get out, ure the risks of this action worth taking for
10
that objective?
11
SECRETARY CONNALLY:
Oh, I think so, sure.
~vhen
I
12
say get out -- he has mude clear that he wants to get out with
13
peace and with honor and with some hope of continuing peace.
14
By all odds, I think the risk that we take is worth it.
15
CORRESPONDENT:
16
SECRETARY CONNALLY:
17
18
19
20
21
22
23
24
25
Thank you very much, Mr. Secretary.
Thank you.
31
SECRETARY CONNALLY:
1
14 voiced their
objoctio~~
to
2
the President's action.
.)
candidate and prospr:ctivc can(lj date for the presidency on
4
Democratic ticket voted with the majority, with the 29.
5
think this action, coming in the aften'lClth of the Presid2n c' s
6
decision and in the aftermath of his orders to execute the
7
mining of the harbor frankly is an irresponsible act.
8
grieves me that my own party did it.
9
There are mechanisms for disagreement.
10
holding hearings.
11
to hold hearings, to determine the views of this administration,
12
to enforce their own views personally and politically and as a
13
party.
14
caucus after a President has acted in a matter of foreign
15
policy as Commander in Chief, and to meet and 29 to 14 object
16
to that action, it seems to me is frankly putting the pa~ty
17
above their country.
18
exceedingly.
19
think it is a sad state of affairs when we have reached that
20
point in this country, because this was not true in the past.
21
In";o'::ar as Iknml, every princjp':il.
Ute?
And I
J
And it
It is fine to disagree.
There are metho1s for
No one questions that they have the right
But for a majority party of this country to hold a
And I regret it and I regret it
I don't knovl hmV' better to express it.
I -'lust
I quite well remember the Cuban missile crisis.
I
22
quite remember the Bay of Pigs.
23
Johnson and his support of President Eisenhower, when he said
24
that the partisanship stops at the water's edge, and I think
25
that is the way it ought to be.
And I quite remember President
}2
1
2
4
5
6
7
8
9
10
11
12
13
14
15
IE
18
19
20
21
22
23
24
25
COHRESPONDEN'l':
Thi1nk you very much, tir.
Sccrc~ l:C:1TY •
33
1
COHRESI'OlJDEi.~T:
11r. Sccrc.:tury, ycstcrdiJY ynu
~;i1ic1
2
that it is inconceivable to you that. we have reached the; point
,)
in this country v.lhere people put
4
were you referring to?
5
SECRETARY CONNALLY:
majori~y
p~rty
above country.
Hho
George, I was ohviously refer-
6
ring to the
7
yesterday in effect voiced their objections to the actions
8
which the President took as a party matter.
9
critical of tbem for doing it, and I certainly think they
10
deserve this criticism.
11
the 14 -- and I don't know their names, because the vote was
12
not announced other than the totals, the 29 to 14 -- I
13
certainly want to commend them for standing up or not going
14
along with the majority of their own party in being critical
15
of a President after he had taken an action that he felt with
16
all of the factors considered was necessary to protect the
17
interests of our soldiers overseas and the interests of this
18
country.
19
of the Democrats in the caucus who
CORRESPONDENT:
Now, I was
By the sarne token, I want to commend
You characterize this as an action
20
taken for party reasons rather than out of genuine conviction
21
about what is right and wrong in Vietnam?
22
SECRETARY CONNALLY:
Well, it has to be.
There is
23
no question but what a man has a right to disagree.
24
mechanics for disagreement within this government, within this
25
democracy.
He hear it all the time.
There are
He sec it in the
He see it in the l\pproprL:tions
1
committecs of the Congress.
2
Committec, we see it in the ['orei0n P,clations Committee,
;)
it in the Armed Services ComT'li ttr?c.
4
there is not agreement on what has transpired over the lRst
5
decade in South VieLnum.
6
tial action \.,hich did three things:
7
J~vnryhody
\F:!
s(>c
knmls that
But in the aftermath of a presiden-
First, it just resumed bombing, which we have done
8
off and on for years, it was no new action at all.
9
he mined the harbor at Haiphong f v1hich has teen discussed for
10
years, although it was a new action.
11
the most generous peace offer that has heen mnde with respect
12
to the conflict in South Vietnam, to try to hring it \:0 a
13
conclusion.
14
Secondly,
And, third, he laid down
lIe said that if \'7e can have a cease-fire, if '.'le can
15
have a return of prisoners, within four months thereafter we
16
will get
17
And notwithstanding that, thcn the majority of the
18
29 to 14, voiced their specific disapproval, and I think it
19
was a very regrettable act and I am sorry that the leading
20
contenders for the presidency on the Democratic ticket
21
apparently all joined with the majority.
22
that "Scoop" Jackson, who I understand did not.
23
o~t.
Now, this is a very generous peace offering.
CORRESPONDENT:
D~mocrats,
I must except from
Is it your feeling then that \·.rhen a
24
President makes an offer or takes n.n initiative of this kind
25
that it should not be objected to, it should not be
que~tioned
1
under pa.rti Seln poli tics?
2
SECRETl\RY CmnJ}\LLY:
i-lell, Geonw, \'1e ou']llt at
lca~5 L
;)
to give it an opportunity to worl~.
4
going to have plenty of opportunity for t.he next four or five
5
months to criticize the
6
to vietnam.
7
political hay out of it, because. he has brought home 500,000
8
troops that he found there when he took over, but that is
9
beside the point.
10
I
Prc~sident
IJo\"l,
t.he DemocrCtts are
for hi;,; actions with respect
don't knml ho''1 they are goinq to mu.kc a lot of
They have time.
Now, the mining of the harbor, 1.--:he bombing tha. t he
11
has renewed in North Vietnam, the peace offer that he has
12
extended all are going to bear fruit one way or the other, or
13
prove barren, within a matter of the next couple of months or
14
so.
Now, this is r·1ay, t.he middle of t1a.y, so we have ha.lf
15
16
of Hay and all of June and July and l\ugust and September and
17
October, and during that time they will have ample opportunity
18
on every stump in the country to voice their disapproval of
19
the presidential actions.
20
action vJhich the President has taken, \-lhere obviously he is
21
trying to lay it on the line, where this Nation's credibility
22
in the development of a foreign policy is also at stake, Hhy
23
they feel compelled to go up and just denounce it is frankly
24
beyond me.
25
But why they do it in the face of an
I don't understand it.
President Johnson never did it when Eisenhower wa.s
President.
2
abou·t the partisanship s-t.ops
;)
1\.nd even \'7hen the Cuban mi;;silc crisis -- and nm-,1 President
4
Hixon, who was certainly not President back at the time of
5
the Cuban missile crisis,
6
the President, he :mpported his actions.
7
when people have to support the President, even if they think
8
he is wrong.
9
'l'llcy ahJays ta.lkcd, he emu Speaker L!yburIl
taL~,~d
1
CORRESPONDENT:
Zlt
un~cr
the water I s eclc;e
f
<1ncJ it (1id.
John P. Kennedy, supported
There an; times
Are there times when the people
10
should not support the President and foreign policy beyond the
11
water's edge, when it is so wrong that it can lead us into,
12
say, a Vietnam?
13
SECRETARY CO:Jl;jl\I,LY:
No, not under these
circums~:ancec
14
Now I just think that, you only have one President at a time
15
and he is charged under the Constitution with the conduct of
16
the foreign affairs of
17
Chief under the Consti.tution.
18
people to express themselves and they have done so, and people
19
have done so for months and years over the war in Vietnam.
20
has a very clear understanding of the mood of the people, the
21
meod of America, and the mood of the Congress, and yet he took
22
this action and I think it is
23
is really not quite understandable to me that under all the
24
circumstances, the Democrats part.icularly, in the light of
25
their past association, not our past association with the war
thi~;
country.
1\'ov1,
He is Commander in
there are amples "laYs for
He
it is regrettable to me, it
1
in Vietnar.1, would
2
all wash their hands of the affair.
.)
easily.
4
nO\'l
taJ':o this action to try to apparr;nt Iy
CORRESPONDEHT:
You can't do it
You say there are ample ways to voice
5
your opinion.
6
did this is \Vrong or the tiMing is \'lrontj?
7
about it made you characterize it as
8
thi~
Is it your fcc liner that the format in \vhich they
SECRE'l'ARY CONN}\.LLY:
~vell,
Hhy is it -- \'lhat
ahsolu~ely
simply
shocki~g?
it \Vas a
becau~~e
9
concerted, deliberate action on the part of the Democrats as a
10
party, as a group.
11
I·1ansfield, he has had reservations about many
12
conduct of the Vietnamese war, and he has expressed them from
13
time to time, always though Hi th reason, al\\7ays
14
objective man.
15
Nmv, obviously,
leader
~1ansfield,
thing~
~1~
Hike
in the
i.s a very
Obviously, Chairman Fulbright, Chairman of the Foreig
16
Relations Committee, he certainly has had doubt.s
17
has expressed it many times, on every television,
18
the media that this country affords.
19
others have done the same.
ab~ut.
ttroug~
lIe
all
But this was different.
20
This was a caucus of the Democratic Senators, where they came
21
together to take a party position, and to that extent it is
22
distinguished from other individual actions.
23
CORRESPONDENT:
He sometimes tell our youthful
24
dissenters that they should have more faith in the systen, and
25
by that we sometimes mean the two-party system,
that the t\\'O-
1
party system can handle these thillrp:;.
2
itself to mat:ters like this?
SECRE'rll.PY COmJJ\.LLY:
4
Should i"t not 2(1c1rr:':;s
Sure, i.t can.
Sure f i t can.
And the young people can dissent, but --
5
CORRESPONDEHT:
6
SECRETA~Y
Hi thin t:he party?
CONNALLY:
lqithin the party, but their
7
dissent ought not to go to the p0int of destroying a laboratory
8
simply because there happens to be an ROTC on the campus, for
9
heaven~)
10
sake.
It is a question ('If degree.
It is a question of
judgment, of ho\'1 you voice your dissent.
No, no one is trying to stifle dissent.
11
No one is
12
trying to say that there can't be disagreements with respect
13
to policy.
14
voice it, and the matter of doing it.
15
was I regretted to see the majority of the Democrats put party
16
above their interest of their country, and I think they have.
17
And wher, they met as a caucus and voted two-to-one to object
18
to the Iresident's actions, to voice their strong objections
19
to
20
political issue.
21
to the
22
hi~
It is a qnec;tion of hord you voice it r "ldhcn
yo'~
And what I said yesterda 1
actions, I think they indeed were trying to make a
I don't think they were trying to contribute
olution of a problem.
CORRESPONDENT:
That is ",hat I am trying to pin dO\,m
1
He sa.y to our
23
as you can sec by this line of questioning.
24
young people the two-party system, the dialogue between the two
25
parties can solve problems.
Now
YOll
COi'le along c.nd
5;'.. y
hut the
dis~Grvc(
1
party should not enter this particular problcn nnd
2
and that is where I have a little difficulty undcrsLnndins
o
exactly your point.
\'lell, I think I have tried to
SECRETARY CONNALLY:
4.
explain it now.
6
\ve Democrats will, in !-1iami in July', the RerJUblicans \'Jill in
7
August, and they will each have a platform and they 'dill -:?ach
8
take a position and they can take whatever position they want
9
to take, and I think that is fine.
10
which they can run.
11
They are going to
~nvc
5
a party convention,
That is a platform on
Here though you have a specific action by the
12
President of the united states, really in his capacity as
13
Cornmandcr in Chief, dealing with a very difficult situation.
14
And the Democrats convened, all of the Democratic Senators, to
15
express their views, and they
16
the actions that he took.
ex~ressed
them as objecting to
17
Now, toward what end?
Did it rescind the action?
18
Was it calculated to rescind the action?
19
already taken.
20
been made.
21
fait accompli.
22
couldn't be any reason except for pGrtisan political purposes,
23
that is all.
24
and november to engage in partisan poli tic(ll acti vi ties, vlherc
25
everybody can express themselves.
The action had been taken.
The action had been
The decision had
The orders to execute had been given.
To what end?
N0t~ing
in the world.
It was a
There
And I think there is ample time left between now
But it should not h<1vC'
com(~
tfo
in my juc1grnr~nt., and 1
1
in this manner i:l.ncl at this tirlC
2
one individual, hut I feel very stronrJly about it.
CORRE[;PO;'JDENT:
I
iJT:l
You feel so strongly about it that
4
you said "it docs raise doubt.s in my mind about the basic
5
stability of some of the Scno.tors.
6
SECRETARY COWJALLY:
7
CORRESPONDENT:
8
SECRETARY CONNl\LLY:
9
CORRESPONDENT:
10
ju:;t
II
Yes.
I presume you meant the cand:i_c1ates.
l~lat
Yes.
kind of stability are you
worried about?
11
SECRETARY CONNALLY:
Well, I am talking about the
12
emotional stability and the intellectual stability that -- and
13
it raises questions about their perception of the presidency
14
itself, of the job itself.
15
President, \vould they have taken the same position?
16
it.
17
President, my position would still be the same.
18
was the same under President Johnson, under President I<er,nedy,
19
and it is the same under President Nixon.
20
in the Cuban missile crisis, and the President of the United
21
States 'vas then engaged in very delicate negotiations, mcrG
22
psychological then than military, but possible both.
23
entitled to the support of the American people.
24
right mind can assume that the President of the United States
25
is there for some evil nefarious reason.
Suppose one of them had been
I doubt that they ",auld.
And if one of them h,1d
I doubt
D2E;:'1
My position
I felt the same way
lIe was
No man in his
l\nybody in this
1-J
J~ng
Ii ~;ll languClgc
1
country that ccJ.n unders tand the
2
read it or can hear it and int.crpret it at all Yeno',?") that t;lL:;
oJ
President is trying- to end this v' ar in Vietnam, he is t.ryL1()
4
to extricate the United States from Southeast Asia to the
5
extent that it has been involved.
6
that.
And the ques tion is
7
hO~l
Ot-
\:".h0 t
Everybody ought to
do you do it.
(;(1.'1
kno~
lImv do you do
8
it?
Now, I noticed -- you can just see headlines after head-
9
lines, "Let's Get Out."
10
get out?
11
It is a question of hm.; do you accomplir;h these things, and
12
somebody has to deal Hith, you knovl, the nuts and bolts of hm"
13
you do it.
14
\'~ell,
Do you get run out?
hO'.>1 do you get out?
lIm"
do you
Do you have a aerial Dunkirk?
It is fine to get out and make an impassioned plea
15
and an E':!loquent speech and speak in abstract general ·terms,
H
but thai: is a little bit different from l:!hen you are charged
1?
with the responsibility of accomplishing it.
18
execute
19
20
21
22
somebody has to execute.
CORRESPONDENT:
And for these reasons you doubt the
stability, the basic stability as you say
SECRETARY CONNALLY:
I think it raises questions
about it, yes.
23
CORRESPONDENT:
24
l'luskie, Senator Humphrey
25
When they say
Of the basic stability of Senator
SECRETARY CONNALLY:
I didn't name anyhody.
I just
1
said it raises doubts in my ],Ii no abOll t the s tablli ty of
2
of the people involved.
CORRESPONDElJT:
4
~;(),'''~
Some or all?
SECRETARY CONNALLY:
h1el1, I would say that I \'lOuld
5
have to include most of the 29.
6
read each of their individual minds'.
7
sure, has some degree of difference even with what they
8
yesterday, being part of the majority.
9
behoove a candidate for President, if he hopes to be President,
10
to begin to act like one, even as a candidate.
11
act like one as a candidate, I am not sure he can act like one
12
if he were elected.
13
CORRESPONDEHT:
14
SECRETARY
15
16
And I don't want to try to
Each one of them, I am
But I think it d00s
And if he can't
And you think so far these three
CO~'JJ~ALI.Y:
Well, I 'dould say that they
haven't covered themselves with glory.
CORRESPONDENT:
You have had some confusion in your
17
speech here about "we" or "they," the Democrats.
18
"we Democrats ll or
19
d~d
SECRETARY CONNALLY:
Which is it,
Well, I am a Democra't but I
20
don't like to associate myself wi~h them when I am talking abou
21
them in that vain because I so h'~a,rtily disagree with ",hat the
22
majority did, and I want to again commend the 14 who had the
23
courage to stand up in the face of a two-to-one defeat that
24
they were facing and hold their ground.
25
CORRESPONDENT:
1\1hen you \Yere talking abou t the' J1i<lmi
I
1
convention of the DClTlocr<:tts, you ~;(}id
2
SECTIETl\RY CONNALLY:
"\·.1C"
or
II
thr..:y. "
T'lcll, I usee] "they" because; I
;)
don't intend to be there
4
because I don't anticipate that I am going to be in Miami for
5
either convention.
6
so I have to refer to i t a s
I
CORRESPONDEnT:
they, /,
It has gotten to be kind of fashion-
7
able lately, it seems, to change parties.
8
ceivable chance that you will follow the f~shion?
9
II
SECRETARY CONNALLY:
Is there any con-
I am not in the process
~f
10
changing parties, and I don't know what has made it fashionable.
11
I will contest your basic assumption.
12
but not highly successful.
13
14
CORR.ESPO:~DEIJT:
It may be fashionable
Do you think it is inconceivable
that you will change parties in the next year or two?
15
SECRETARY COTJNALLY:
No, it is not inconceivab.i.e at
16
all.
17
doing it.
18
Because I don't make any bones about it.
19
I
20
above my party loyalty.
21
going to be in a position of supporting my party where I t.hink
22
it is not in the best interests of my country.
23
24
25
I don't have any plans to.
I am not in the proces:3 of
But I certainly don't think it is inconceivable.
I like to
thin:~
that
have put my OVln interest in this country, my own philosophy
CORRESPONDENT:
I
can't
--
I
never have and I am not
Are you displeased or disgusted with
your party?
SECRETARY CONNALLY:
Hell, let me put it this \,-lay,
trCln::;pirc~C:l,
1
that I am not overjoyed \dth what
2
necessarily agree with the approach that many of the
~
leaders of the Democratic Party has taken on a great many
4
issues.
5
the mainstream of America and I am afraid the Democrats are
6
going to find themselves out in left field with a wide open
7
center field and without a
8
afraid.
short~top
CORRESPONDENT:
10
SECRETARY CONNALLY:
12
nor
(:0
J
~o-callcd
And I think they have frankly begun to depart from
9
11
hClS
or second baseman, I'm
Hhich are you?
~dell,
I am not anything at the
moment.
CORRESPONDENT:
But as a member of the Republican
13
administration, you must occasionCllly find yourself nore in
14
agreement with the Republican Party than the Democratic Party?
15
SECRETARY CONNALLY:
At times I do.
It depends on
16
what the issue is.
17
\-las truE:.! v,hen I \\1as Governor.
18
of Texa!i, I didn't agree with everything that President Johnson
19
did, and I said so, privately and publicly.
20
anything new.
21
But that is not a new experience.
CORRESPONDENT:
This
I certainly -- as the Governor
So it is not
In this latest issue, which has
22
aroused the ire of most of the Democratic candidates, you arc
23
reported to have been a very close confidante of the President.
24
Is that true?
25
You saw him most and last an --
SECRETARY CONN1\LLY:
Ho, I certainly wouldn't :;(1Y I
auvi~~cr;.;,
t'\l-;i~
1
saw him most.
2
to say.
;)
which I have been doing for many, milny months, and I did the
4
other day.
And I have discussed it with him on several
5
occasions.
Dut I ce:r..-1:ainly think. t1l0re are others who have
6
probably discussed it with him more than I have.
7
certainly fair to say that I was one of his advisers.
I was one of his
I did si t~ in the IJa tional
CORRESP01JD:CNT:
8
I thilJK
Scc\l)~i ty
i:.:; L,ir
Council ];!C'cc-line],
Dut it is
You sound, from v.rhat you have said
9
previously, as though you were thoroughly in agreement with
10
the action he has decided on.
11
SECRETARY CONNALLY:
12
it was the right action.
13
CORRESPOHDENT:
14
SECRETARY CONNALLY:
15
CORRESPOlJDENT:
Yes, I am.
I think basicully
You hilvc no demurrers from it?
None at all.
It seems \\'Ie have been hearing a
16
sudden spate the last day or two from an awful lot of Cabinet
17
members.
18
able?
19
Is there sort of a decision to muke you all avail-
SECRETARY CONNALLY:
No.
20
much as I cun.
21
available from time to time, Gecr<:.w.
22
some time, but I have --
23
CORRESPONDENT:
24
SECRETARY CONlJALLY:
25
I try to be available uS
I can't speak for the others.
with thn other networks.
I have been
I haven't seen you for
To our loss.
-- a number of the other £ello'·.'J8
And I try not to ever seek out these
1
types of intervieHs, and I didn't: sed: this one.
2
were told that I Has being intervi.C';v70d by one of the other
D
networks and if you were interested we would he glad to sec
4
you as well.
5
we couldn't be accused of being partial.
6
happens that at this moment I Has a· part of this decision, I
7
was one of the advisers, so I am a bi t ne'i'lsvlorthy at the
8
moment nOH.
9
on any -- without being interviewed by the national press at
10
all.
11
Treasury's regulars, as we call them, but this is a continuing
12
sort of thing.
13
yesterday or the day before, I hRd lunch with th0 Treasury
14
regulars and then today this intervieH.
15
16
17
18
I t.hlni. you
But that vIas out of a sense of fairness so that
I
Now, it just so
have gone for YAars here though vli t.hou t being
This week, as a routine fashion, I had lunch with
~he
So it is just as a happenstance that, either
CORRESPONDENT:
There is no concerted idea
tha~
it
v!Ould be a good idea to have some Cabinet people -SECRETARY CONNALLY:
Not to my
knowl(~dge,
al th:>ugh
that may well be, I don't knm¥.
19
CORRESPONDENT:
You are not part of the plot?
20
SECRETARY CONNALLY:
No, if it is part of a plJ:, I
21
am not part of it and, again, I quite frankly try not to be
22
exposed to the news media unless I
23
sayar something that \vould be helpful.
24
just to get pUblicity, and I
25
that purpose.
feel I have something to
I
didn't come up here
am not going to stay here for
1
COERE~)PONDLlJ'I':
2
ence the othor day to Uw
.)
this year.
4
proposed for this year?
~~ecretary,
po~;~;ibili ty.
you Tr\udc
~~(q('
U';: ('r-
of a tax lcophole 1:-1'.:
Is there going 'Lo be a tax reform 1<1\1 do you think
SECRETARY
5
Ilr.
CONN~LLY:
George, I
~on't
think so.
I
6
know we are giving a great deaJ of thought, very deliberate,
7
methodical, thorough considerati0n of the tax .laws of this
8
80untry.
9
joint staff, of Dr. Woodworth and his people.
10
there will be, for a number of reasons.
11
I knmv the Y'!ays and T1eans COlnT:1i ttee is; and the
I don't think
First, we will not be able to get complete data for
12
1970, which will be the first year after the Tax Reform Act
13
of 1969, until October of this y2ar.
14
that we really need to see what the 1969 changes have meant.
15
So we don't have the data
Secondly, with the two conventions that are occurring
16
this year, I think it is absolutely impossible to assume that
17
we could. have any major tax reform legislation for this year.
18
And I might say parenthetically that I don't think we should.
19
I don't think we should try in a volatile presidential
20
election year to try to do it.
21
Nmv, in 1969, they started early in January.
They
22
finally wound up in December.
23
the only time in the history of the united States that thr:y
24
have introduced and passed maJor tax legislation in 011e y(~Clr.
25
It is the only time in history.
It took twelve rnonLl1s.
That is
And I don't believe it can be
1
done again.
2
~'i1e don't have time to do it.
First, \ve don't have the data; second
f
He don't
hel.ve;
~
many answers that I think we are going to have to get the rest
4
of the year; and, third,
5
major tax reform bill this year.
CORRESPO~DENT:
6
~nd
~:!e
don I t have the time to have the
One of the items that I heard brought
7
up and mentioned over
8
reforms of 1969's la\v, a
9
did not have to pay any income tax at all in the last year, a
10
fairly large number.
11
over again is that even since the
numbe~
SECRI:TARY CONHlI.LLY:
of United states corporations
I don't think that is quite
12
true, George.
13
there are unusual circumstances in each of the cases, as to
14
why they didn't.
15
governments, or there vJere the results of law suits, or there
16
were losses carried fan-lard, one thing and another.
17
is nothing inherently in the law that permitted them to escape
18
their fair share of the taxes.
19
Some of them, if they didn't pay any taxes,
There was a question of taxes paid to foreign
But there
Now, with respect to individuals, the same thing
20
applies.
He nO\'l have the minimum tax.
NoV!, there has been
21
much said about the 112 people t'le t supposedly made over
22
$200,000, had adjusted gross inco~e above that, and paid no
23
taxes.
24
kind of like Voltaire said, "The holy Roman r.mpire, neither
25
holy, Roman nor an empire."
Well, in the first place, there wasn't 112.
It was
Hell, there ,-Jere not 112, there
1
were 104.
l\nd Hhen you oxarnin2 those: Hlt1 --- ,\'e. h::vCTl It
2
any of them yet -- ancl a gre0. t nlClny of thcr:1 DTe (Join,] to pc']'
,)
taxes.
4
because i t vlOuld take too long.
And I Hon' t
try to run dm'm the variou s
C(l
teqori e.::-, ,
But this is one of those things thClt people
5
6
of the air that maJ-::es a great poli tical
7
founded on fundamental facts.
8
CORHESPONDENl';
spe(~ch
i;\I(:)'ced
~rr(lb out.
hut f3C'ldom is
Is it your feeling that l\me.rican
9
businesses, l\mcrican corporations are carrying a fair share of
10
the tax load?
11
SECRETARY CONNALLY:
Nell, they are certainly carry-
12
ing the share that the laH requires them to carry, and \"rhether
13
or not -- you }:no,:l, every man ha:; his o":m idea of Ilh,c t
14
fair, hovl much should corporations pay, hml much should
15
individuals pay, what should the corporate rate be, how much
16
should the'maximum individual rate be.
17
18
CORRESPONDEN'l':
is
That is ",hat I am pressing for, your
feeling.
SECRETARY CONNALLY:
Well, I think the present level
20
has evolved over a long period of time, and I would say it is
21
probably as fair as you are going to get.
22
CORRESPONDENT:
As you know. an awful lot of individul1
23
taxpayers feel that they are paying very heavily and corporatiol;~;
24
are not.
25
SECRETARY CONNALLY:
H(~ll,
if the corporLltions Clre
1
not, it is because of the Clppl i ca t ion of the 12\.':~ r or
2
reason, because the rates are there and if they
,)
they hClve got to pay the tClxes.
4
other some of them in some years don't pay, but you hClve to
5
look at them case by casp, and there is always aD answer, and
6
we have looked at hundred s of them.
7
8
CORRESPONDElJT':
NOI'}'
lndJ'J>
;;C'il.'
)'1onoy
an',!
for some reuson or
NO\\7--
One man's anS'ltler is ClnotJler man's
loophole.
9
SECRETARY CONNALLY:
That's right, but there is
10
another factor that ought to be brought in here, George, and
11
it is one nobody talks about.
12
up with the level of taxes.
13
question about it.
14
local and federal, \'le now take about 35 percent of the gross
15
national product for taxes.
16
really thinks we can take and that we ought to take and main-
17
tain a democracy.
18
I think people are getting fed
I don't think there is any
Counting all levels of taxation, state,
That is about as high as anybody
NOH, v.,hat are all the rising rates though?
The
19
rising rates of taxation are not at the federal level.
20
President has since, since 1969, that we have reduced federal
21
taxes
22
that since 1962, if you want to go back a bit, in terms of
23
present-day dollars, that since '62 we have reduced federal
24
income taxes at the rate of $35 billion.
25
0.1
individuals by $22 billion.
The
Chairman nills told me
Now, where are the taxes being increased?
'1hy arc
of the
incr(';)~)(~
in
P~-O;);·:rt·/
people unhappJ!?
2
taxes.
Now, \--,here are those taxc ~ imposp(l?
3
level.
They are imposed at the state and local level, anct
4
they are imposed by school districts and other local taxing
5
authorities.
6
Lrtrgely
becaus(~
1
not. C1. t
the f C'clcr iJ.l
So you have to separate out these things, and at
7
some point you have to c1efj_nc 'i:he terms and you have to get
8
dovm to specifics i and that is vIhy, when they start talkinq
9
about tax loopholes, I frankly want to
10
about tax reform and talk about making additional resources
11
available to spend, I want to look at the spending loopholes.
12
CORRESPONDENT:
talJ~,
before
~'le
talk
Well, let me take you back to the
13
tax loopholes.
14
have to pay any income taxes last year or the year before
15
because of unusual circumstances, those are presumably some
16
kind of a loophole that allows them -- these are not corpora-
l?
tions that went
18
that kind of a loophole justified?
19
a national --
20
If, as has been SC1.id, some businesses did not
backr~pt,
t~at
SECRETARY CONNALLY:
allowed them not to pay.
Is
Is there a good reason for
Every single preference provisio
21
in those tax laws has been thou~ht about, argued over, fought
22
over for years.
23
were dried out and examined in 19G9.
24
'rhey got the full baptism.
25
was the old Baptist revival in the creek.
t-10st every one of them took a drenching and
They were all dunked.
It wasn't just a sprinklinq.
It
ri'hcy were really
1
dunked, cJ.ncl. -CORRESPONDElJ'r:
2
:J
But the question
is \'Jere they fished out by pressu.re
SECRETARY CONNALLY;
4
SOlK'
<]roup~~
people \·:cul,1
a:~}'
and J obbies.
SO:~10
SO!Tle of "c.hem \'7Cre, yes.
5
of them were.
6
home mortgages.
7
knock it out?
8
it is a big one.
9
am a rich man I can go and invest in tax-free rr,unicipal bonas.
10
I don't have to invest in anything else.
11
enough money and want to invest in nothing but tax-free
12
municipal bonds, that income to me can be quite considerable
13
and until 1969 was not taxable.
14
minimum tax, regardless of the source of your j.neome.
15
that is a big one.
That is a deductible item.
It is a loophole.
Do you want to
Let I s tFtke another one rand
This is the tax-free Dunicipal
CORRESPONDENT:
16
17
Lot's take one, one classic one, interest on
~onds.
If I
If I l:ave got
It is now hecause there is a
But
For Vlhat corporations, what arc the
big ones?
SECRETARY CONNALLY:
18
Oh -- again, these are no
They have foreign tax \vri teoffs.
loop-
19
holes, certainly.
If
20
foreign governments tax their income, this is one.
21
casualty losses, depending on what type of business.
22
have a major fire, a law suit for one reason or another, or
23
state taxes are deductible items.
24
argument with the state and you have got lour or five yeilrs,
25
\<le
Losses,
If you
Hh<1t if you helve a big
,.,ill say, of \.,i thheld taxes, ",here you h<wcn I t paid sLate
1
taxes because you ldere in
2
law suit or the court enters final judgment, you pay ~ll of
D
that tax in one year.
4
tion, but it is a deductible item against the federal taxes,
5
so it might mean in that one year that they didn't pay federal
6
tax.
7
the things that works in the
8
in the.,sense that most people think of loopholes.
law sui t.
Suddenly yon ;,(d- Llc tl\r-
That puts you in a very unusual situa-
But over a span of time,
9
10
i1
CORRESPONDENT:
the~
ta~
did, and this is one of
law, but it is not a loophole
Depletion allowances and things of
that sort?
SECRETAH.Y CONNALLY:
11
Depletion allOl'lance is in the
12
tax law.
13
are there as an incentive for drilling and exploration of
14
largely of oil and gas.
15
have been there, in spite of the fact that the incentive has
16
beE:!n thc!re -- incidentally, the depletion l,vas decrpasccl by 5
17
percent in 1969, and a number of other changes were made in tha
18
tax law in 1969.
19
They have been there, as I recall, since 1926.
They
And in spite of the fact that they
Again, that is an incentive.
There is no question
20
but what it is beneficial to those who seek and pursue the
21
product jon of 6il and gas.
22
unfortunately, in spite of these incentives, we have got an
23
energy crisis in this country because we haven't found enough
24
oil and gas.
25
to, but what arc you going to do?
Nmv I
But anybody can go do it.
Now,
you can abolish the incentives if you \'lant
All you arc going to do is
1
raise the
2
gO.L~ 11',[.
pricc~
of
CJasolin(~
to I)ay
for._ 2' t ,
.
pro(lucb~
~vr>,""y}-'Od\T.
'co
\C. _
-'
~
that is (11J,
r
'1"'101-"'"
j
. • '-'
J. S
(;fJrJ
'/(;1.1
a cos t
.0 t
evp rl
'I ::.;\1.. nc; .
Sure, you can J:nock out th0. j.ncc-'!ntive?s.
You can
4
knock out depletion.
5
it?
But who is going to ultimately pay for
6
up to the pump,
7
that heats his home, and the utili ties that burn the gus or
8
the coal, because they all have depletion.
9
So it is a ques·tion cf
The user is going t.o pay for :ii_
t.ht~
C::lY('
the fello,'7
t
\,.'110
drives
felloH \'1ho cooks on his stove, the? fc11m!
hOVI
you 'vJant to pay for it.
10
~vhat
11
to do it?
12
get a lot of demagogic speeches made about the subject, but
13
that doesn't contribute to the solution of a single problem
14
that I know of, and He have got an energy crisis facing this
15
country right today.
/ as a matter of government policy, Ivhat is the "lise
'rhat is what 'de talk abOllt.
NOIv,
'I'1<lY
it May not even
16
And we talk about -- we have got a situation right
17
here in Washington where this gas distributor has said he is
18
not going to take on any more custo~ers because he can't get
19
the gas.
20
been paying anywhere from 16 to 35 cents at. the '\vellhead in
21
Texas.
22
Algerian gas, Russian gas in for?
23
of 40 or 50 cents laid dOlvn in New Yor}:, it. will cost you $1.25
24
a thousand cu])ic-feet.
25
It ju;;t depends on how you '\vant t.o pay for it and when yon
Now, what have they been paying for gas?
They have
Do you know what they are going to be bringing the
It is going to cost, inst.ead
So you can have it any way you want it.
1
"!ant to
2
pCly
f 0:(' it..
COPP.ESPOtJDENT:
Have you, in your
])l."C;l(, i:il t j
.)
possible eventual tax refonn bi11 founc1 any of
4
or allm'lances or ";..rhatevcr. for business ()nd
5
you think should be removed?
6
SECRETARY CONNALLY:
\Jell,
\\78
U1C'SC'
on s for
corporc~tions
whic~1
helve a lar<]c nunbor of
7
ideas of things that can be done, in the estate nnd qift tax
8
field
9
closely.
10
recommend changing the tax laHs
11
months to come.
12
~)ns
c1cc.1ucU
this is certainly one that we arc looking at very
But we have made no judgments about how we would
CORRESPONDENT:
f
and vle probably won't for
Let me turn the question
ar~und.
Do
13
you think that most of the exist,i.ng allo 1·;Cl.nce for corpora.tions
14
and business are things \vhich \'lere \Vorked agairst the \·.rill of
15
the people by lobbies or were they done by Congress for the
16
good of
17
th~
Nation?
SECRE'I'ARY CONNALLY:
They \vere done by Congress for
18
the good of the Nation.
19
fluence, believe me.
20
capital gains is itself a loophole.
21
creased from 25 percent to 35 percent in recent years.
22
largely increased in 1969.
23
Everybody knows about capital gains.
24
it out or don't you?
25
comes dmlJ1 here and lobbies for i. t.
The lobbies don't have that muct. in-
Now, you get into all of these thin0s:
Now, that' has been iL~
t
\'la~'
But it is available to everybody.
Now, do you want to \Vipe
You know, it is not any big lobhy thRt
It is just
Ct
question of
1
people allover this country tllac bc;licvc t.Jwt if
2
something and hold it <::inc} gUCl.lify it or th(:y hole] it: for
3
months, they are entitled to capital gains on it.
4
people have advocating extending the time from six months to
5
a year, and He are looking at that.
So there are an infinite variety
6
i_ll\c:y
huy
Sl>:
A lot of
Georrrc, I carne
7
in here and the first thing I did, we started work on simplify-
8
ing the tax law, seeing if we couldn't come up with some
9
recomm:2ndations to really simplify t.he tax 1m..,.
10
you, it is an unbelievable problem to try to arrive at what
11
ca~
I will tell
be an acceptable simplification of the tax law.
lve take chari table deductions --- this is a big so-
12
13
called loophole.
14
deductions.
15
front
16
charitable organization, none-profit organization in the countr
17
that lives on these charitable donations.
18
an
19
deductions.
20
is trying to be evil, or the deduction of a charitable contri-
21
bution js ineguitous.
22
e~ery
upri~ing,
All right, say you knock out charitable
Hell, who do you immediately confront?
You con--
university, every hospital, every museum, every
So, sure, there is
there is a welling up of support for charitable
That is why it is in the law, not because anybody
It was felt that you ought to be able to qlve some
23
of your money and get a tax deduction if you gave it for charit-
24
able purposes, because those charities arc supposed to be doing
25
things that contribute to the social wc]forc and the soci3l
1
benef i t of thi s country, and tllC'y do.
2
again, of judgment.
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
.:L S
il
r;uC's tion ,
It is a question of ~~at you ~ant to ~o.
CORRESPONDENT:
4
So it
Tha~~
you vory much.
- - -
The Department of the
ASHINGTON. O.C. 20220
TREASURY
TELEPHONE W04-2041
STATEMENT BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE
SENATE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MONDAY, MAY 15. 1972, AT 10:00 A. M.
Mr.
Chairman:
I
am pleased to be here today to express the views
of the Administration on S.
1015,
the Environmental
Financing Act; S.
1699,
the National Environmental
Financing Act;
3001.
the Federal Financing Bank Act;
and S.
3215,
S.
the Municipal Capital Market Expansion Act.
The Environmental Financing Act
The Administration strongly endorses S.
Environmental Financing Act.
1015,
the
The bill would establish
an Environmental Financing Authority,
or EFA, which
would make a significant contribution to our program
for a better environment by facilitating the efforts
of State and local governments to construct waste
treatment facilities.
EFA would purchase municipal
waste treatment bonds which could not otherwise be sold
on reasonable terms.
To finance
these purchases EFA
would issue its own taxable securities in the market.
EFA could not purchase any obligations unless
the
Administrator of the Environmental Protection Agency
C-308
-
(1)
on
has
certified that
reasonable
actual needs,
f
ct"
a '.va s t e
terms
(2)
the borrower is
sufficient credit
has
t rea t men t
2 -
to
to obtain
finance
its
approved the project as eligible
con s t r u c t ion g ran tun de r
Federal Water Pollution Control Act,
to gllarantee
unable
and (3)
the
has agreed
timely payment of principal and interest
on the obligations.
EFA was
first proposed by the President and
submitted to
the
Congress by
Treasury in February 1970.
the Secretary of the
Hearings on the EFA
proposal were held by the Senate Public Works
in 1970,
Committee
and additional hearings were held in 1971 by
both the Senate and House Public Works
Committees.
The House included the Administration's EFA
proposal as
Section 12 of the
Control Act Amendments
of 1972
passed the House on March 29,
Federal Water Pollution
(H.R.
1972.
that EFA is now being considered by
11896). which
We
understand
the conferees on
the overall Water Pollution Control Act Amendments.
and we strongly urge
that
that the conferees adopt
by
the House.
this
Committee
recommend
the EFA provisions passed
The
Senate-passed version
Pollution
include
Control Act
EFA~
Public Works
amen dmen t .
Public Works
Works
that
the
Committee
advisability
of S.
1015
in
which
its
expertise
of
obtain
on
finance
for
the
of
this
We
that
section 5(b)
though
the
"reasonable
terms
that
is
Senate
Senate
and
to both
the
that
Committee
it
to
the
Public
recognizes
Committee
consider
in section 5(b)
Administrator of
to
certify
EFA loan
is
sufficient
concern has
too broad,
eligible
terms,"
that
bond market,
and
local
an
could borrow on
bureaucracy,
and
for
certified as
they
not
the
that
unable
credit
a
to
to
actual needs.
understand
might be
on
applying
the
the Banking
provisions
require
reasonable
its
the
report
Environmental Protection Agency
public body
does
reported EFA favorably without
referred
appropriate
Federal Water
of 1972
and Banking committees,
financial
it
the
in November 1971
Committee stated in
makes
the
Amendments
although
EFA was
of
that
been expresaed
that
for
an
their own
i t would be
independence.
EFA loan even
in
the
market
EFA would become a
i t would undermine
that
Some public bodies
a
the
large
tax-exempt
threat
to
State
- 4 -
I would like
to assure
this
intent of the Administration,
that
Committee of the clear
as indicated in S.
the purpose of EFA is simply to assure
municipality in this
to sell its waste
country is
1015,
that no
denied the opportunity
treatment construction bonds on
Without EFA,
those
communities
that
reasonable
terms.
are unable
to borrow the funds necessary to meet their
share of construction costs will also be unable
comply with Federal water
qualify for
q~ality
to
standards and to
the Federal grant program under which the
Congress has authorized grants for 30
to 55 percent
of the construction costs of liquid waste treatment
facilities.
EFA is designed to
take care of this
one specific
problem -- to remove an impediment to successful
implementation of the water pollution control program
already enacted by the Congress.
authorized to do anything else.
EFA would not be
EFA could not become
involved in a single municipal project that
the
Government is not already involved in through
underlying grant program.
~o
Federal
the
municipality would be
required to borrow from EFA in order to get the Federal
grant.
Thus EFA would in no way be a threat to State
and local independence,
undermine the
and it certainly would not
tax-exempt bond
marke~
-
5 -
The demand for EFA loans would depend upon the
interest rate at which EFA lends,
S.
1015 requires
and section Sed)
of
the Secretary of the Treasury to
determine EFA's lending rate after considering current
market yields on obligations issued by the Treasury, by
EFA, and by municipalities.
pro v i-d e s
a s u f f i c i en t
We feel that
ex pre s s ion
0
f
this section
Con g res s ion a l i n ten t
that the EFA lending rate be established so that EFA will
not require a large Federal subsidy but will have the
flexibility to adjust to changing market conditions and
to offer communities with borrowing problems an interest
rate which is reasonably in line with the rates paid by
other communities.
We expect that most municipal waste
treatment bonds will be readily saleable in the private
market and will not require assistance from EFA.
EFA will
be concerned only with the one out of perhaps every five
bond issues
that is not readily marketable on reasonable terms.
Under current market conditions EFA might stand ready
to lend at an interest rate of about 6 percent, which is
approximately the rate currently paid by public bodies on
tax-exempt bonds of medium quality.
Since most public
bodies can now issue their tax-exempt bonds at interest
rates below 6 percent,
apply for an EFA loan.
of funds
to the less
they would have no incentive to
Yet EFA would assure the availability
fortunate communities.
Since EFA
- 6 -
mig h t
b epa yin g as mu c h as 7 per c e n ton its
borrowings
in
the
current market
0
wn
Ion g - t e r m
there would be a
1 percent
difference between EFA's borrowing and lending rates,
the bill provides
for an annual payment
of the Treasury to EFA to cover this
believe
the
that
and
from the Secretary
Yet we
difference.
this payment would not involve a net cost to
Federal Government since it would be offset by the
additional revenues which
because of the
obligations
the Treasury would receive
use of taxable
rather than
tax-exempt
to finance EFA.
In sharp contrast
to EFA,
Environmental Financing Act
(S.
the
proposed National
1699)
a large broad-purpose lending agency,
would establish
the National
Environmental Bank, which would make unlimited amounts of
credit available
to public bodies
environmental purposes.
a
3 percent interest
for a wide variety of
The Bank could lend directly at
rate and also guarantee obligations
issued by public bodieR, which would be
Administration
recommends
Department will submit a
against S.
report
tax-exempt.
1699, and
The
the Treasury
to your Committee at
the
earliest possible date indicating our specific problems
with the bill.
I would also like
to aSSure your Committee
that
EFA will not become a large or wasteful bureaucracy.
In
fact,
we have developed this
rather novel EFA proposal
-
7 -
specifically to avoid such problems.
structured that its
EFA is so
functions will be carried out
largely by existing personnel in the Environmental
Protection Agency and in Treasury.
EPA,
in the course
of administering its grant program, will identify
those projects in need of credit assistance;
and EFA,
under the direction of the Treasury, will arrange
the financing.
Thus, we hope to avoid the problems
created in the past by legislation requiring various
agricultural, health, education and other program
agencies
to become instant financiers.
Those agencies
have been required to develop debt management staffs
to engage in complicated market borrowing operations.
The result has been a proliferation of Federal
borrowing entities competing with each other in
the Government agency securities market and selling
guaranteed obligations at substantially higher interest
costs than would be required if their financing were
consolidated.
The EFA mechanism would permit savings
to the Federal Government from both (1)
consolidated
financing of the public body obligations guaranteed
by EPA and (2)
debt management
centralization of the financing and
functions in the Treasury Department,
which is already equipped to do the job.
-
8
Federal Financing Bank Act
On this note of more efficiency in
operations,
I would like
to turn
Federal Financing Bank Act.
llOW
This
Federal financing
to S.
3001,
the
legislation was
submitted to the Congress by Secretary Connally in
December 1971.
The bill would establish a Federal
Financing Bank (FFB)
more efficient
to provide
for coordinated and
financing of Federal and Federally
assisted borrowings
from the public.
Just as EFA would permit consolidation and
Treasury coordination of the
guaranteed waste
financing of Federally
treatment obligations,
the
FFB would
permit consolidation and coordination of market
borrowing activities of all Federal agencies.
fact,
it has been suggested that enactment of the
FFB would eliminate
the
In
the need for EFA.
FFB would be essentially a
would not be able
since
financial shell,
and
to lend for any purposes not
otherwise authorized by the Congress,
such as EFA would still be necessary
basic authorities
Yet,
legislation
to provide the
for EPA loan guarantees
and for
Treasury interest subsidy payments.
Moreover,
is
conferees on the
currently being considered by
the
overall pollution control bill and is
EFA
urgently needed
-
9 -
noW as a vital link in the chain of Federal, State,
and local anti-pollution measures, which are long
overdue.
While we are also hoping for prompt enactment
of the Federal Financing Bank Act, We urge in any event
that EFA's important contribution to the anti-pollution
program not be further delayed in the process.
The Federal Financing Bank Act was
first suggested
in the President's January 1971 Budget Message, when
he indicated his concern with the lack of coordination
of Federal credit programs with overall fiscal and
public debt management policy.
The President stated
that legislation will be proposed to permit the review
and coordination of Federal credit programs along with
other Federal programS.
The Federal Financing Bank Act
would implement the President's statement by providing
a means
(1)
to centralize the marketing and reduce the
cost of Federal and Federally assisted borrowing
activities,
(2)
to aSsure debt management coordination
by the Secretary of the Treasury of Federal agency
direct and guaranteed borrowing plans,
and (3)
to
facilitate Presidential review of loan guarantee
activity in the light of fiscal requirements and
demands on U.
S.
financial markets.
overall
-
10 -
The need for more effective financing and
coordination of Federal credit programs has been
recognized in a number of Government and private
studies over the past decade and was
a matter of
particular concern in the 1967 Report of the
President's Commission on Budget Concepts.
pressing need for the
this
juncture arises
The
Federal Financing Bank Act at
from both (1)
the sheer growth
in the number and dollar volume of Federal and
Federally assisted borrowing activities and (2)
growing tendency to finance
in the securities markets
the
these activities directly
rather than through lending
institutions.
Because of the proliferation of new Federal
borrowing activities we are already at
the point where
some Federal financing is coming to market at least
three out of every
f~ve
business days.
at the point where borrowings
We are also
for Federal programs,
which have increased about twice as
fast
as other
borrowings over the past decade, now require nearly
half the total credit available in the economy.
That is,
the combined net market demands of Federal
and Federally assisted borrowers are estimated to total
-
11 -
$58 billion in the fiscal year 1973, or nearly 50
percent of the expected total of funds advanced in
credit markets in fiscal 1973, compared to just 22
percent in fiscal 1963.
Until recent years the typical forms of credit
assistance by Federal agencies were either direct
budget loans financed by the Treasury or guarantees
of loans generally made by lending institutions, such
as commercial banks and thrift institutions, who were
normally engaged in that type of lending activity and
were equipped to service the loans and aSSume some
portion of the loan risks.
th~ volum~ of direct
In recent years, however,
Federal loans has dwindled and
we have moved toward full guarantees of timely payment
of principal and interest on loans made by private
lenders so that the share of risk borne by the lender
has steadily declined.
Also,
the Congress has
increasingly provided for direct Federal interest
subsidies on loans made by private lenders so that
a portion or all of any extra borrowing costs
resulting from inefficient financing of these loans
is now borne directly by the Federal taxpayer rather
than by the borrower.
_. 12 -
Moreover, even with complete Federal guarantees
and interest subsidies,
of credit at
it was
found
reasonable interest
that
rates
the flow
for the various
purposes authorized to be assisted by the Congress
was not always adequate.
Thus,
more and more of these
programs have come to be financed,
borrowings,
like Treasury
directly in the securities markets
than through lending institutions.
rather
This has been
particularly true during tight money periods when the
flow of deposit funds
to banks and thrift institutions
has not been sufficient to assure the availability of
financing for Federal credit assistance programs.
Thus, we have relied more and more on direct securities
market financing by means of issues by Federally
sponsored agencies, such as
FNMA and the farm credit
agencies; by direct Federal borrowings by budget
agencies such as
the Export-Import Bank,
TVA, and the
Postal Service; by loan asset sales in the securities
market by the Farmers Home Administration, the Defense
Department, HUD,
VA, SBA, and others; and by other
Federal guarantees of securities such as
GNMA mortgage-
backed securities, public housing bonds,
urban renewal
notes, new community debentures, merchant marine bonds,
etc.
Similar financing arrangements have been proposed
for a number of new agencies or programs.
- 13 -
Federal credit agencies are thus
required to
develop their own financing staffs, and their
abilities to cope with their principal program
functions are lessened by the need also to deal with
the complex debt management operations essential to
minimizing their borrowing costs and avoiding cash
flow problems which could disrupt their basic
lending programs.
Borrowing costs of the various Federal agency
financing methods normally exceed Treasury borrowing
costs by substantial amounts, despite the fact
that
these issues are backed by the Federal Government.
Borrowing costs are increased because of the sheer
proliferation of competing issues crowding each other
in the financing calendar,
the cumbersome nature of
many of the securities, problems of timing and small
size of issues, and the limited markets in which they
are sold.
Underwriting costs are often a significant
additional cost factor due to the method of marketing.
Under the proposed Federal Financing Bank Act
these essentially debt management problems could be
shifted from the program agencies to the Federal
Financing Bank.
Many of the obligations which are
- 14 -
now placed directly in the private market under
numerous
Federal programs would instead be
The Bank in turn would issue its own
by the Bank.
The Bank would have
securities.
expertise,
financed
flexibility,
volume,
the necessary
and marketing power
to minimize financing costs and to aSSure an effective
flow of credit for programs established by the Congress.
The proposed legislation would also assure more
orderly and effective Federal financial management by
requiring the submission of agency
financing plans to
the Secretary of the Treasury and the coordination of
borrowing activities by the Secretary.
has
The
Congress
required such Treasury coordination of agency
borrowings in many cases, but some agencies are not
subject
to the
requirements,
and in many cases the
requirements are vague or incomplete.
Finally,
the legislation provides that loan
guarantee commitments, which are not subject
overall Federal budget restraints,
to the
could be made only
in accordance with budget programs submitted to the
President.
The President would be authorized to limit
guarantee programs when necessary in view of the
overall fiscal
requirements and demands
for credit.
- 15 -
The Federal Financing Bank Act would thus provide
both a more effective means of financing as well as a
focal point for early recognition of the volume of the
proposed level of Government assisted credit and its
likely impact on financial markets.
During the course of our discussions of the
Federal Financing Bank with the various agencies
involved, with public interest groups and with capital
market participants, considerable support for the
legislation has developed.
Most people agree that the
coordinated and economical financing of the Government's
activities and programs is clearly in the public
interest.
In those discussions I
found it helpful to
emphasize the following points:
The Bank would not be a program agency.
That is, it would neither add to nor subtract
from existing Federal credit assistance
programs.
The Bank would not be authorized,
nor would the Secretary of the Treasury be
authorized,
to make any judgments with
respect to the purposes of Federal agency programs.
The Bank is designed merely to improve
- 16 -
the
financing of programs otherwise
authorized by the Congress.
The Federal Financing Bank would not be
another big bureaucracy.
It would rely
upon the existing staff and facilities of
the Treasury Department and the
Federal
Reserve banks in its borrowing operations.
In fact,
the establishment of the Bank would
reduce Federal bureaucracy since it would
eliminate the need for establishing new
financing staffs
for each new Federal credit
program or agency.
The Federal Financing Bank is not a device
to remove programs from the Federal budget;
nor is it a device to bring programs back
into the budget.
The Bank would in no way
affect the existing budget treatment of
Federal credit programs.
If a program is
now financed outside of the budget,
treatment would continue.
If a program is
now financed in the budget,
would continue.
that
that treatment
The Bank is intended to
improve the
financing of all Federal borrowing
activities,
regardless of
~fte!r ea~K~e
!l ••
~ment.
- 17 -
The Federal Financing Bank Act is not an
assault on the
market.
tax-exempt municipal bond
Rather than involving the Federal
Government in the
tax-exempt market,
Bank would permit the
Federal Government to
withdraw from that market.
arrangements
the
Under existing
Federal agencies
finance Some
of their programs in the municipal market by
means of Federal guarantees and debt service
subsidies on tax-exempt obligations, e.g.,
for public housing and urban renewal.
programs
These
currently require about one out of
every eight dollars invested in tax-exempt
obligations.
Over time
Bank would permit the
the Federal Financing
removal of the financing
of these Federally-impacted programs
tax-exempt market,
that market.
thus
from the
reducing pressures on
Consequently, State and local
governments should benefit,
receptive markets
in terms of more
for all their borrowings,
by enactment of this legislation.
We feel strongly,
sharing proposals,
as
is evident
from our revenue
that State and local governments
- 18 -
should have more,
rather than less,
independence.
In
emphasize
the
that
this
regard,
I would like
to
Federal Financing Bank should
not be confused with
Urbank or with other legislative
proposals which would permit the
Federal Government
to subsidize all municipal bonds,
new central
financial
either through a
financing institution or through guarantees
and interest subsidy payments on taxable municipal
bonds.
The major concern with those proposals,
understand it,
is
So irresistible
that
the
I
Federal subsidy will be
to local officials
to a drying up of the
as
that it will lead
tax-exempt bond market,
Federal control over municipal
finance,
Federally-imposed restrictions
on
the
to
and to
volume or
purpose of municipal borrowing.
The Federal
authority
Financing Bank itself would have no
to subsidize municipal obligations,
would be authorized to purchase only
those municipal
obligations which are issued under those
which are
and it
few programs
directly subsidized by other Federal agencies.
To the extent
that a
decision is made
those particular programs
Financing Bank there
through
the
to
finance
Federal
could be significant savings
- 19 -
to government at all levels.
not involve the
Such financing would
Federal Government in any municipal
borrowing or project it was not already involved in.
If the Congress should determine at some future
date that direct Federal subsidies or guarantees
should be made available for all of the bonds or
notes of all 50 states,
or just for municipalities,
or just for the weaker borrowers,
or just for general
obligations rather than revenue bonds,
certain essential public facilities,
legislation,
or just for
then,
decisions must be made with
the degree of Federal control,
and the method of financing.
in that
respect to
the degree of subsidy,
The Federal Financing
Bank Act does not prejudge those issues.
Municipal Capital Market Expansion Act
Mr.
Chairman, you have also requested the views
of the Treasury Department on S.
Capital Market Expansion Act.
for a 33-1/3 percent
3215,
the Municipal
That bill would provide
Federal interest rate subsidy for
the apparent purpose of encouraging States and local
-
public bodies to issue
20
-
taxable obligations.
Yet
the bill does not contain a provision making such
obligations
taxable,
and the effect of the bill would
be to provide direct subsidies on tax-exempt bonds.
There are also some technical problems with the
bill, but we are not prepared at
this point to make
recommendations as to the bill's substantive provisions
and we
recommend against action on the bill at this
time.
Somewhat similar bills were introduced in both
the Senate and House recently.
Some of the bills
provide for a 50 percent subsidy on taxable municipal
bonds,
and others provide
percent
for a subsidy of 25
to 40
to be determined by the Secretary of the
Treasury.
We believe
that
these proposals deserve
careful consideration, but we must face
the fact
they raise complex and difficult issues of the
that
role
of the Federal Government in relation to State and
local authorities.
They must be studied in the light
of revenue sharing and other proposed legiSlation and
with due
recognition of the importance of financial
independence for State and local governments.
The issues
raised by S.
3215, however,
are not
raised by the Environmental Financing Act and the
Federal Financing Bank Act,
which are designed
- 21 -
merely to facilitate
the financing of programs alreadY
authorized by the Congress and to permit greater order
and efficiency in the management of the Government's
finances.
I strongly urge your approval of those
two
bills.
Mr.
Chairman,
that concludes my prepared statement.
I would be happy to try to answer any questions
regarding this legislation.
000
The Department of the TREASURY
ISTON. D.C. 20220
TELEPHONE W04-2041
FOR RELEASE ON DELIVERY
REMARKS OF THE HONORABLE PAUL Ao VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
AT THE 1972 INTERNATIONAL MONETARY CONFERENCE
AT LE CHATEAU CHAMPLAIN, MONTREAL, CANADA
FRIDAY, MAY 12, 1972, at 12:30 PM
Given my personal activities of the past month in trying
to help arrange international mOnetary forums, I want to claim
a certain expertise on the subject. On that basis, I pronounce
the judgment that the sponsors of the International Monetary
Conference have scored again in providing just what they set
out to do -- the setting for an uninhibited exchange of views
to stimulate the thinking of everyone of uSo
I do envy their freedom from any obligation to work to a
consensus~
I can
this vital
and new in
heritageo
easing our
only admire their fine judgment in bringing us to
cosmopolitan center, blending elements of the old
a manner that exemplifies the unique Canadian
I add my personal thanks to our Canadian hosts for
way with such splendid arrangements o
Most of you share with me certain memories of the meeting
at Munich a year ago.
It opened against a backdrop of heavy
speculative pressures and shifting exchange rates -- the
visible symptoms of an unravelling of has been known as the
Bretton Woods system u
It concluded with the hardly less
visible entry of Secretary Connally onto what he has called
tne "well manicured playing fields of internat ional finance 0"
He warned that we were entering a difficult and different
period -- that we needed to face up to new economic realities
that our mutual capacity to cooperate together in the common
interest of our economic prosperity would be testedo
With the perspective of a
he did not overstate his case.
C-309
year~
I am sure you will agree
- 2 -
This has been a period of strain and ferment.
the crisis has come progress:
But from
Internationally, we have openly faced up to the
festering sore of the persistent and growing imbalance
in trade and payments within the industrialized
world -- the deepening deficit of the U.S., and its
counterpart in the large surpluses of others o Needed
changes in exchange rates have been put in place. A
small start -- but no more than that -- has been made
toward more balanced defense and trading arrangements.
At home in the United States, we cannot help but take
some satisfaction in the present evidence of both a
quickening expansion and somewhat greater price
stabilityo In this city, I would hasten to add,
Canada could lay claim to comparable prospectso
Looking at growth and price performance together, the
North American continent need yield to no other o
. Finally, after several years marked by turbulence and
alarm, domestic financial and international exchange
markets have settled this Spring into a calmer period o
I count this as progress o But I would serve neither you
nor myself if 1 conveyed any sense of complacency. Far from
it~ sometimes, when I talk with people at home or abroad -very often when I read the press -- always when I try coldly
to assess what needs to be done, I am struck by one simple
facto In important respects, a common appreciation of our
problems and purposes is still lacking.
I hope we have laid to rest fears that the actions of
August 15 marked a retreat by the United States into provincialism and protectionism o Of course, we took strong and
unilateral actions o We did so for a good reason: they were
needed o
Financially, the flow of dollars overseas had swelled
to a torrent, eventually reaching about $30 billion in
1971, far beyond what we or foreign countries were
prepared to tolerate o
Abstracting from speculative forces and short-term
capital, our basic balance of payments was
- 3 -
deteriorating at an alarming rate, reaching more than
$9 billion last year o
Underlying that deterioration, our once strong trade
and current balance had disappeared, we were hurtling
into a large trade deficit, even at a time of slow
growth and heavy unemployment o
Yet, by December, just as soon as the needed exchange
rate realignment was achieved and trade negotiations actively
started, the temporary import surcharge was gone and the Job
Development Credit was extended to imported products. By
February, the short-term trade negotiations were pressed to a
conclusion -- not without difficulty -- with Japan and the
European Community
The net result was some immediate
reduction in trade barriers and new commitments to liberalizing
trade negotiations in the future
0
0
This record reflects no protectionist purpose. But we
would be blind if we fail to recognize that such pressures do
exist in the United States and that the temptations to look
inward extend to slashing defense commitments and our development
aid program o
We can -- and we do -- deplore those pressures o More
important, if they are not to spillover into crippling
legislation, we need to deal with the causes o Those causes
have certainly included a deteriorating trade position and
the strains on the dollar.
The continuing purpose of the President and Secretary
Connally is to demonstrate the Administration has a much more
constructive approach -- one. that supports a fair and liberal
trading order o
In that approach, we neither seek nor require any special
advantage or favor in world monetary and trading arrangements.
We recognize that, in the end, the growth, productivity, and
stability of the American economy will be essential to success o
But we also maintain -- and I believe the facts of our position
and the monetary turmoil we have seen demonstrate -- that a
new balance must be struck among the benefits and burdens of
the nations of the industrialized world o
This is fundamentally what our discussions on reform are
all
about~
- 4 I am often counseled by thoughtful men -- including some
of our best friends abroad -- that we have already accomplished
a great deal o Don't press our friends o I am told, to do
uncomfortable thingso Above all, don't forget the political,
and defense, and aid, and foreign policy prioritieso There
is another refrain in such advice -- exert American "leadership"o
Now, I am the last to reject American leadershipo Indeed,
the events of August 15, in my opinion, were one manifestation
of American leadershipo
But it is apparent my counselors usually have something
else in mind o That something, upon examination, often seems
very much like a static adherence to the foreign economic
policies followed throughout the postwar period.
In practical terms, for instance, we are asked to provide
more economic aid, on better terms. This, of course, costs
money and foreign exchangeo Some suggest we could raise that
money elsewhere -- perhaps, for example, by cutting defense
spending overseas o But mutual security is a vital mattero
The case is pressed at least as strongly that, in the absence
of other volunteers, the U.S. must continue to bear a
disproportionate share of the defense costs of the Free World.
This also costs money and foreign exchangeo
On the premise that trade liberalization is in the world's
interest -- a proper premise -- we are urged to make the first
concession to move trade negotiations along, even at the risk
of weakening our trade and payments position o If that is a
problem, well then we are blithely told to look to a change in
our exchange rate -- as if we had not just gone through that
trauma and further change would be calmly accepted by others.
In the strictly monetary sphere, the call for leadership
has been translated by some into a move toward quickly
restoring convertibility or accepting other financial
obligations -- at a time when we have no assured means of
discharging such obligations o
My purpose in this recital is not a futile
bring tears to an audience of bankers about the
demands on a finance ministryo Even less, do I
the policies advocated are individually foolish
effort to
conflicting
suggest that
or ignoble.
- 5 -
But we have to face the simple fact tic; .. ,.;, in their totality,
such policies are inconsistent and unsustaj L~,~ble without the
strong foundation of external economic streLlgth, we see the
restoration of a strong trade and payments position as
fundamental to lasting strength for the dollar, to the stability
of the monetary system, and to maintenance of outward-looking,
liberal policies o
If you think we have become preoccupied with the problem
of getting our trade and balance of payments in order, you are
right. If you consider this a mean and selfish preoccupation,
of little or no relevance to the important problems of peace
and prosperity, you are wrongo If you consider it will entail
a difficult, complex and potentially contentious negotiating
process, then we agree, for all the evidence is on that sideo
In broad principle, the basic elements for success are
present. Our enormous deficits are reflected in a surfeit of
reserves -- specifically, a surfeit of dollars -- held by a
number of other industrial countries o Several of those countries
are enjoying record or near-record trade and current account
surpluses, in many instances far larger, in relation to their
economies, than any surpluses within memory for the United States o
In logic, here is an opportunity, it would seem, for those
reserve-rich surplus countries to help promote balance of
payments adjustment by, for instance, taking such actions as
benefitting their domestic consumers by reducing barriers to
trade, or their industry by removing barriers to external
investment
0
But the answers to such suggestions are not slow in comingo
We hear that other nations are too divided o They are too small
and too uncertain of their future prospects o They fear
domestic political consequences
They need more time to adjust
and changeo We are told to find some other way to eliminate
our deficit -- almost as if we could trade with the moon!
0
A good and sensitive friend of the U. S put it to me this
way: "I understand what you are saying, but the world simply
isn't accustomed to looking at it that way. After all, we
like to be in surplus o We liked you to be in deficit -- so
long as it was not too large!"
0
One can recognize and even sympathize with that nostalgia o
But that system broke down o The political and economic
- 6 -
tolerance -- at home and abroad -- for an over-extended dollar
is gone. A kind of cultural lag in thinking cannot change the
reality that underlying shifts in the locus of world economic
power from a single country to several centers has profound
implications for our trade and monetary arrangements o
No single nation today stands in a position to direct
or dominate the process of reform o Nor can we ex~ect to look
outside ourselves for some authority to enforce rules and
conduct that do not fairly reflect the realities of national
objectives and behavior and the economic facts of life o
The real challenge for UoS. economic leadership is this:
we need to make our case clearly and forcibly for new policies
that will adequately reflect the new balance of powero At the
same time, we need to build institutions and codes of conduct
that will provide a base for maintaining harmony in a context
of expanding trade and mutual prosperityo
In the course of this Conference, we have all heard lucid
and brilliant expositions of the ills that beset the monetary
system, and methods of dealing with themo Yet, after hearing
the range of opinion, I suspect you can understand why we in
the United States have no prepackaged plan for reform to
spring on a waiting world -- nor, frankly, have we found other
nations yet ready to pronounce their considered judgmentso
Even the consensus that is said to be emerging that more
flexibility in exchange rates is needed in any future system
hides substantial differences in philosophy and brushes over
some unresolved dilemmas and difficulties in operational
mechanisms
0
We have also heard different op~n~ons about convertibility, funding mechanisms, methods of reserve creation, phasing
out of the dollar as a reserve currency, reserve settlement
accounts, and all the resto
These are relevant and important items on the agenda for
discussion of monetary reform o In approaching that agenda,
our views will be firm on some matters -- such as reinforcing
the trend toward de-emphasis of gold -- and openminded on
others -- such as the role for reserve currencies o
More important, we insist that, in considering the
various monetary mechanisms, they be cast against a vision
- 7 of our objectives and a realistic appraisal of underlying
economic forceso Particular mechanisms will work well or
badly as they fit an agreed view of the kind of international
economic system nations really wanto Basic objectives,
philosophies, and economic structures should determine the
mechanisms, not the other way around o
I would like to touch upon just four of the underlying
issues against which any model of reform must be tested o I
do not pretend this listing is all inclusive o I do think it
encompasses problems of critical importance
Certainly, it
reflects some of the basic concerns of the Dnited States o
0
First, we need to look hard at the implications of
forcing symmetry in our monetary arrangements. The concept
of symmetry is usually associated with what might be called
a pure asset settlement system, an end to the role of reserve
currencies, and early and effective action to deal with
emerging imbalances in paymentso Among other things, it
implies use of exchange rate changes and other tools of
external adjustment by the DoSo fully comparable to those
long available to other countries o
After more than 20 years of deficit, and realizing the
heavy burdens on the dollar, there are some features of such
a system that have a natural appeal to the DoSo But let's
also examine the full implications o Given our attenuated
external financial position, we would have to start off with
a succession of DoSo surpluses, strengthening our reserves o
In the long run, beyond the transitional period, ~ country
could expect to maintain consistent surpluses
0
Fine
0
That is the logic·o
But what will be the practice?
Do we have candidates among the surplus countries for
moving their exchange rates, for liberalizing their imports,
or for adopting other policies to change surplus positions
promptly into deficit? We know how to bring pressure on
deficit countries; what are the appropriate mechanisms and
the disciplines for enforcing action on surplus countries?
Alternatively -- and what amounts to the same thing in
economic terms -- will other countries be willing in the
future to see their surpluses transformed into deficits by
the exercise of DoSo freedom to change its exchange rate or
other policies?
-
<)
()
-
If not , then we had better consider some other system.
Certainly, we would reject, and every other nation would as
well, a system that forces balance only by means of an
internal deflation no modern government is willing to accepto
Second, assuming for the moment agreement in principle
on the desirability of a symmetrical system and quick payments
adjustments, there remain basic differences over how the
adjustment might be made o The United States has a deep-seated
view, rooted both in philosophy and practicality, that we want
a market equilibrium -- not a balance that can only be maintained by permanent or recurrent controls on capital or other
payments
Such an equilibrium implies for the U.S o the need
for a large current account surplus -- which will in turn
require a sizeable trade surplus. Otherwise, we will be in no
position to supply aid. We would, in effect, be asking (against
the natural forces) for capital to run uphill to the richest
country from those less well endowed.
0
Despite our basic views on this score, we have felt it
necessary, during this transitional period before our payments
move toward equilibrium, to maintain the existing controls on
capital outflows from the United States o A message confirming
that decision for all of 1972 is in the mail to companies
operating under the direct investment restraint program o The
only program modification will be that special care will be
taken to avoid inadvertently impeding the ability of these
companies to finance their exportso
Thirdly, some proposed models for the monetary system
presume by their nature a high degree of coordination among
national monetary, fiscal and other policies o None of us who
want the benefits of international commerce can be an island
unto ourselves o But detailed and continuous coordination of
various policy instruments would impose severe restraints
beyond those any national goverTh~ent has been willing or able
to accepto
Finally, there is an issue of a different kind and
character sweeping across the entire fabric of our monetary
and trading order o It has implications for every ~untry,
but in today' s context I can sum it up in two words, "Whither
Europe?"
We hear a great deal about the virtues of a "one-world"
system, and fear of blocs o Yet, the palpable fact is that
- 9 -
we have a large and expanding preferential rading bloc in
being
Seldom a week passes that we do not hear a report of
one meeting or another to expand that area through preferential
agreements, or to reinforce its cohesion in the monetary area.
0
"Bloc" is an emotive word, but I use it in no necessarily
critical sense o After all, the United States has long politically supported the development of the Common Market o
Moreover, monetary unity in Europe, taken by itself and if
it could be achieved, could, on balance, become a constructive
element in a world monetary order o
What we fear, of course, are antagonistic, competing
blocs, aggressively building and extending a pattern of trade
and financial restrictions and controls around themse1veso
We are frankly disturbed by some such tendencies, as we see
them, in Europe o
With the enlargement of the Community, supplemented by
preferential trade agreements -- actual or under discussion
covering over 60 countries and over half of industrial trade,
what is left of that cornerstone of our trading system called
the "most-favored nation" principle? Will a regional payments
system substitute for, instead of being integrated with, a
multi-lateral system? What is the meaning of exchange rate
adjustment when, in the large agricultural sector where the
UoS o and Canada are producing at roughly half European prices
and have a large competitive advantage, a system of variable
levies automatically discourages our products?
The conclusion seems to me inescapable that here we have
a phenomenon that cries out for wider analysis and considerationo It is one prime example of how trade and monetary issues
are inextricably tied o Consideration of one without the other
would be sterile o
As you long since have realized, I did not conceive of
my assignment today as suggesting we face an easy job,
capable of quick solution from an existing b1ueprint o After
all, we face no less a task than reconciling vital national
interests in an agreed, realistic, and desirable monetary and
trading systemo We must pick our way through a~ obstacle
course of political sensitivities and simple failures of
communication.
- 10 At the same time. I have a sense of growing confidence o
I believe a consensus is emerging on the manner of proceeding under a suitable broad mandate, reflecting the common
will to move ahead and to come to grips with the underlying
issues o We are freeing ourselves from the inhibition of
defending what is familiar simply because it is familiar,
even though it no longer works o We share a common sense of
dissatisfaction with the present o
We also share a common responsibility for the future.
At stake is our common prosperity and the larger harmony of
the world political and economic communityo
Make no mistake about the role of the United States in
all of this o It would be folly to think we could do it alone o
But you know our basic traditions and instinct -- to look
outward, to work with others, to find our prosperity in a
larger whole o We expect others to discharge the heavy
responsibilities that go with strength o
On that basis, we have every reason to anticipate we
can together build on the achievements of the pasto
00000
The Department of the TREASURY
ASHINGTON, D.C. 20220
';NTION:
TELEPHONE W04-2041
FINANCIAL EDITOR
May 15, 1972
RELEASE 6:30 P.M.
RESULTS OF TRF..ASURY' S WEEKLY BILL OFFERING
lhe Treasury Department announced that the tenders for two series of Treasury
s, one series to be an additional issue of the bills dated February 17, 1972 , and
other series to be' dated
May 18, 1972
,which were offered on May 9, 1972,
opened at the Federal Reserve Banks today. Tenders were invited for $2,300,000,000,
hereabouts, of 91-day bills and for $1,800,000,000, or thereabouts, of
182-day
,s. The details of the two series are as follows:
E OF ACCEPTED
)ETITlVE BIDS:
High
Low
Aver8€,e
91-day Treasury bills
maturing August 17, 1972
Approx. Equiv.
Price
Annual Rate
99.080 ~
99.057
99.065
3.640%
3.731%
3.699%
182-day Treasury bills
maturing November 16, 1972
Approx. Equiv.
Price
Annual Rate
97.937
97.905
97.918
4.081%
4.144%
4.118%
!I
Except 1 tender of $160,000
32% of the amount of 91-day bills bid for at the low price was accepted
94% of the amount of 182-d~ bills bid for at the low price was accepted
L TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
strict
ston
w York
iladelphia
eveland
chmond
lanta
icago
. Louis
nneapolis
nsas City
llas
n Francisco
TorrALS
AEE1ied For
$ 22,985,000
3,016,585 ,000
12,530,000
17,740,000
6,895 ,000
36,110,000
249,010,000
35,910,000
32,600,000
33,605,000
32,265 ,000
67,875,000
AEE1ied For
$ 12,020,000
2,664,220,000
26,085 ,000
20,070,000
3,040,000
23,135,000
214,965,000
22,060,000
27,400,000
18,725,000
27,720,000
53,485,000
AcceEted
2,020,000
$
1,642,320,000
6,085,000
10,070,000
3,040,000
11,135,000
86,065 ,000
9,560,000
6,400,000
7,525,000
9,720,000
6,480,000
2,300,200,000 ~ $3,112,925,000
$1,800,420,000
AcceEted
$
$ 3,564,110,000 $
12, 985 ,000
2,018,585,000
12,530,000
17,740,000
6,895 ,000
20,110,000
97,810,000
25,230,000
20,600,000
23,555,000
10,265 ,000
33,895 ,000
£I
ncludes $ 172,055,000 noncompetitive tenders accepted at the average price of 99.065
nclUdes $ 75,600,000 noncompeti ti ve tenders accepted at the average price of 97.918
hese rates are on a bank discount basis. The equivalent coupon issue yields are
79 %for the 91-d~ bills, and 4. 2ff'/o for the 182 -day bills.
The Deportment of the
lISTON, D.C. 20220
TREASURY
TELEPHONE W04-2041
FOR RELEASE UPON DELIVERY
RE1~RKS OF EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
(ENFORCEMENT, 'rA.RIFF AND TRADE AFFAIRS, AND OPERATIONS)
before the
NATIONAL CUSTOMS BROKERS AND
FORWARDERS ASSOCIATION OF AMERICA, INC.
WHITEHALL CLUB
NEW YORK, NEW YORK
May 16, 1972
12:00 Noon
TREASURY'S ACTION PROGRAM TO COMBAT
THEFT OF INTERNATIONAL CARGO
This Administration, I am pleased to report, has
made substantial progress in the fight to curb theft of
international cargo. While the tide is turning, more
needs to be done.
Let's look at the record of what
Treasury has accomplished.
Early in this Administration, President Nixon
directed an all-out drive against drug smuggling and
organized crime.
These became Treasury's highest priorities in the area of law enforcement.
It became evident
in 1969 that the long-neglected problem of cargo theft
fell into both these priority areas; Treasury, therefore,
developed an action program and charged the Bureau of
Customs with implementing it.
The Treasury program has two main thrusts-prevention of theft by improving cargo security and
deterrence of theft by intensifying our law enforcement
efforts.
- 2 -
The Preventive Program
There are four separate but interrelated parts
to our preventive program.
First, we issued several regulations to improve
security of high risk cargo and to obtain data on
cargo losses, by cOlmnodit:y and location.
Second, we instituted pilot programs in New
York, San Francisco and Oakland to demonstrate that,
if a few basic security measures are adopted, cargo
theft can be significantly reduced.
Third, Treasury, on behalf of the Administration,
proposed legislation to Congress which would give Customs
the additional tools it needs to combat cargo theft
and pilferage effectively.
The passage of this legislation (H. R.,8476, the
Mills-Byrnes Bill and the identical s. 1654, the
Bennett Bill), known as the Customs Port Security Act,
would, in my judgment, result in the reduction of cargo
theft to a minimum at all airports of entry throughout
the United States within 6 months to one year and a
substantial reduction of cargo theft at all seaports
of entry w~thin one year.
Fourth, we published the Standards for Cargo
Security to stimulate carriers and other operators
of cargo terminals to improve voluntarily the physical
and procedural security of their facilities.
These
standards, where implemented by industry, will produce
a marked reduction in cargo theft.
Although the Treasury Department's preventive
program centers on international cargo at ports of
entry, an important by-product is improved security
for the large amounts of domestic cargo flowing
through or temporarily stored at the same facilities.
Furthermore, the measures we are urging as a minimQ~
response to this problem are equally applicable to
terminals handling domestic cargo.
-
The Law
Enforco~ent
3 -
Program
In March of this year I ordered a step-up
in our law enforcement efforts against. cargo theft
and we are already beginning to see some results.
Nationwide in the last two months we have
apprehended a total of 189 individuals and recovered
cargo valued at $280,000.
In the Port of New York
alone during that period, we have apprehended 28
individuals on cargo theft Charges and recovered
merchandise valued at $230,000.
The close relationship between this drive against
cargo thieves and Customs' other law enforcement
missions can be readily seen in the following cases.
In New York, Treasury Agents working with the New
York Police Department were able to crack two
truck hijacking rings, arrest a total of 7 individuals and recover two truck loads of electronic
equipment and general merchandise valued at $105,000.
In both cases, the "hijacks" proved to be phony-that is, the truck driver simply gave up his load
t:o accomplices.
The role of organized crime in
these cases lS being investigated further.
In MiaDi, Customs Patrol Officers on a routine
cargo securit.y patrol of the seaport observed a
crew member acting suspiciously.
He left his ship
carrying a suitcase which he loaded into a vehicle
parked on the dock.
When the car attempted to leave
the dock, it was stopped and a search of the suitcase
revealed 70 plastic bags containing twenty-two
pounds of pure heroin having a wholesale value of
$2.5 million.
The crew member and two other persons
in the car were arrested.
In addition to added pressure against drug
smuggling and organized crime, one of the goals of
this stepped-up enforceme~t campaign is to put the
brakes on petty thievery WillCh, when multiplied
over and over again, constitutes an insidious and
dangerous drain on cOlrunerce.
- 4 Senator Bible deserves a great deal of credit
for focussing attention on the nationwide nature of
the cargo theft problem through the hearings held
by the Senate Select Committee on Small B~siness.
Senator Bible's estimate that cargo theft amounts
to $1.5 billion annually has received much attention
and it does underscore the magnitude of the problem.
In fact, the depredations of cargo thieves
cost much more;
in lost sales, markets, ann jobs,
in swollen insurance rates, and especially in
unfair competition to the honest businessman. The
Federal Government is directly affected.
Treasury
may not be able to collect customs duties and
excise taxes on imported merchandise that has
vanished, and income taxes are lost because the
importers have lower incomes and claim deductions
for their uninsured theft losses. And the loss of
cargo hurts our balance of payments position.
As a result of the hearings held by Senator
Bible's Committee, the Interagency Cowmittee on
Cargo Security was formed in 1971 to coo~dinate the
response of the various agencies of the Federal
Government. Customs, v-lhich has been active in this
area since 1969, spearheads this effort at all
seaports and airports of entry.
The following is a brief report on the
substantial progress that Treasury has made so
far and what still needs to be done.
1.
The Cargo Security Regulations
The first phase of the Treasury cargo security
program involved writing regulations to increase
the physical protection given cargo in international
trade and to tighten up carriers accountability
for cargo in their custody. Most of these regulations
became effective on April If 1971.
The physical security regulations require all
carriers to have special areas for the storage of
high value and broken-packaged merchandise and, at
airports, an adequate number of lockable vehicles
to transport such cargo from aircraft to terminal.
Failure to comply can result in the denial of a
permit to unlade international cargo.
These
regulations have resulted in a substantial
- 5 improvement in the security of high-risk, easily
pilfered cargo.
As you are aware, the cargo accountability
regulations require that discrepancies between
delivered and manifested quantities be reported
to Customs (on u.s. Customs Form 5931 or by
submitting an amended copy of the manifest). A
recent review of this reporting program revealed
that in New York some carriers are filing
inaccurate or unsubstantiated reports in many
cases.
In addition, some carriers are not
reporting losses. Apart from the fact that the
carriers involved may be violating the law and
subjecting themselves to penalties, it is in
the best interest of the importing community to
report accurately and fully the extent and
location of the cargo theft problem.
I, therefore, strongly urge importers and customhouse
brokers to comply with Customs' appeal that
reports be filed immediately when shortages are
discovered.
I have also directed Customs to develop
a special theft loss report which is to be filled
out whenever any Customs officer learns of the
theft or unexplained loss of international cargo.
Data from this form, which should be distributed
to the field shortly, will provide us with a
cross-check on the accuracy of the reporting system.
While the loss reporting system is still not
functioning adequately, particularly in New York,
I can assure you that we are reviewing our regulations
and their enforcement and we intend to take every reasonable
step to ensure that all losses of imported cargo
in Customs custody are accurately reported to Customs.
Your views and suggestions on how to improve the
program are invited.
- 6 2.
The pilot Projects
The cargo security regulations, which merely
apply sound security measures where laxity had
become a tradition, were developed partly out of
Customs' experience with a pilot project still in
progress at New York's JFK International Airport.
Measures prescribed in the regulations have been
put into practice there, plus others recommended
by Customs for greater cargo security, such as
locked boxes to keep papers out of unauthorized
hands and the use of cameras which simultaneously
photograph the person who receives the merchandise,
his identification card and a special pick-up form.
The program has been getting results.
In the
program's first year, reported cargo thefts at JFK
declined by 28% and the dollar value of stolen
goods by 69% (from $3.3 million). For the tenmonth period ending March 31, 1972, further reductions of 21% in number and 41% in value, were
achieved.
I must point out that these figures
were obtained from the Airport Security Council
and that it deserves a great deal of credit for
the success of this program.
Similar pilot projects have been undertaken
at selected piers in New York, San Francisco,
and Oakland. Customs has finished its comprehensive security surveys of these piers and the
terminal operators who have received our
recommendations are commencing to implement
them.
It is too earJy to tell if we are going to
have as dramatic results on the New York and San
Francisco waterfronts as we had at JFK Airport,
but the initial results on the New York ~Naterfront
have been encouraging.
3.
Treasury's Legislative Proposal
An important part of the Treasury Department
program was to develop Federal legislation that
would plug the loopholes still existing in
Customs' control of the movement of international
- 7 cargo so that it could tackle the cargo _neft
problem with full effectiveness. This Administration
legislation was referred one year ago to the Senate
Finance and the House Ways and Means Committees.
Known as the Customs Port Security Act, the bill's
main features are the establishment of national
standards for cargo security, the screening of
persons seeking access to high-risk areas, and the
restructuring of certain penalties to facilitate
prosecution of cargo theft cases.
A most important provision in the Customs
Port Security Act is the one giving the Secretary
of the Treasury authority to establish national
standards for cargo security at all ports of entry.
These standards will relate to matters such as
special storage areas for high-value merchandise,
lighting, fencing, alarm systems, patrols and
guards, and separate private parking areas.
I
would like to emphasize that we are talking about
measures as basic as putting up fences and locking
doors. The lack of these basic physical and
procedural safequards is responsible for a large
portion of the cargo theft problem today.
Because issuing these national standards may
not be sufficient to curb theft in all instances,
the bill also authorizes the Secretary to designate
special "Customs-security areas" within ports
where he finds there is an unusual risk of theft.
Customs-security areas would be subject to more
stringent security measures.
The Secretary could
require businesses whose employees sought access
to these areas to be Jicensed, and anyone entering
would have to display an approved identification
card or badge. Customs officers would carry out
these procedures and control the restricted areas.
However, the main thrust of the bill is to
empower the Secretary of the Treasury to make
certain that minimum security measures are adopted
at all international ports of entry.
By requiring
the same minimum security standards at all ports
and terminals, the proposed legislation avoids
any port obtaining a competitive advantage over
- 8 another--a major defect of some regional programs
to combat cargo theft. At the same time, it
provides flexibility and controls costs by spotting
"Customs-security areas" only where and when
they are needed; not an entire port if a dock
area could be specified as especified vulnerable
to theft, not an entire airport if a particular
carrier terminal could be pinpointed. Treasury,
in fact, expects that few "Customs-security area"
will be established and that those that are will
not be needed long.
The Treasury Department views passage of the
Customs Port Security Act as an appropriate
development of Customs' inherent strength. Customs
is the only enforcement agency with a presence,
and over 180 years of experience, in all of the
nation's ports of entry. To carry out its mission
to collect revenue and to intercept contraband,
it has acquired a tremendous expertise in cargo
security matters.
The proposed legislation is supported by
groups which know about international cargo,
including:
American Importers Association, Inc.
American Institute of Marine Underwriters
American watch Association, Inc.
Airport Security Council
Air Transport Association of America
Commerce & Industry Association of New York
Foreign Commerce Club of New York, Inc.
National Customs Brokers & ForvJarders Association
of America, Inc.
New York City Chamber of Commerce
New York State Council of Retail Merchants, Inc.
Security Bureau, Inc.
Transportation Association of America
Transportation Cargo Security Council
We are still hopeful there will be hearings on the
bill in this session of Congress.
4.
The Voluntary Program and the Standards for Cargo
Security
In the meantime, to provide guidance to industry
and Customs officers in locating and correcting
security problems, Customs developed and issued in
- 9 January, 1972, the "Standards for Cargo Securitv."
These standards, which will form the basis for the
national standards to be issued pursuant to the
Customs Port Security Act, constitute the physical
and procedural security measures which we believe
should be implemented by most terminal operators
to provide a minimum level of cargo protection.
Underneath each standard in this pamphlet
there is set forth some"recommended specifications"
or suggested ways of meeting it. There may be
alternate means of meeting some of these general
standards and each terminal operator should determine
what remedial action is most appropriate. Reactions
from industry indicate it has found these guidelines
useful. Our Regional Commissioners report that
industry is taking steps to observe these standards
and we expect that there will be significant reduction
in cargo theft as a result.
You can help by
insisting that terminal operators observe these
standards.
While Customs can lead the way, businesses
engaged in handling cargo have the primary
responsibility for achieving good cargo security.
The joint Customs-industry effort was the key
to success at ~K Airport. Customs helped develop
a few common sense rules and saw to it that all
airlines participated. The airlines at JFK-under the guidance of their own Airport Security
Council--then pitched in with determination to
implement the protective measures needed at each
terminal. This is the sort of venture that succeeds.
I am confident that, with the cooperation of your
Association, Customs and industry can achieve similar
results at all ports of entry.
Conclusion
This is an action program which has made
maximum use of the limited resources available.
It
also ties in with two top priority concerns of
President Nixon--the drive to stop smuggling of
narcotics and dangerous drugs into the united States
and the campaign against organized crime.
- 10 If the drug smuggler can remove packages
containing narcotics before entry is made, he does
not have to fear the more rigorous inspection of
cargo which Customs has implemented in order to
reduce the influx of illegal drugs into this country.
For organized crime, cargo theft has become
a profitable business, especially at large deep-water
ports and at major airports. For example, there
was considerable evidence that organized crime was
responsible for the substantial losses experienced
at JFK before the institution of the pilot project.
In my judgment, the tide is turning in the war
on theft of international cargo. With the cooperation of the cargo handling industry and only a
modest addition of funds and authority in Treasury,
we should be able to reduce cargo theft at our major
airports and seaports to a minimum within a very
short time. While I am optimistic, passage of the
Customs Port Security Act and your full cooperation
are needed if we are to succeed.
000
The Department of the TRfASURY
ASHINGTON. D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 16, 1972
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
$4,100,000,000, or thereabouts, for cash and in exchange for Treasury
bills maturing May 25, 1972,
in the amount of $4,205,430,000,
as follows:
91 -day bills (to maturity date) to be issued May 25, 1972,
in the amount of $ 2 300,000,000, or thereabouts, representing an
additional amount of bills dated February 24, 1972, and to mature
August 24, 1972
(CUSIP No. 912793 PA8),originally issued in
the amount of $1,802,700,000, the additional and original bills to be
freely interchangeable.
18~ day bills, for $ 1,800,000,000, or thereabouts, to be dated
May 25,_ 1972,
and to mature November 24, 1972
(CUSIP No. 912793 PNO).
The bills of both series will be issued on a discount basis under
competitive and noncompetive bidding as hereinafter provided, and at
maturity theii face amount will be payable without interest. They will
be issued in bearer form onl~l and in den6minations of $10,000.
$15,000, $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 22,1972
Tenders will not be recei.ved
at the Treasury Department~ Washington. Each tender must be for a
minimum'of $10,000. Tenders over $10,000 must be in mUltiples of
$5,000. 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.
0
Banking institutions generally may submit tenders for account of
Customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
(OVER)
- 2 -
submit tenders except for their own account. Tenders will be receiwd
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announcement
will be made by the Treasury Department of the amount and price range
of accepted bids. 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 reiect 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 25, 1972,
in cash or other immediately available funds or in a like face amount of
Treasury bills maturing May 25, 1972.
Cash and exchange tenders
will receive equal treatment. Cash adjustments will be made for
differences between the par value of maturing bills accepted in
exchange and the issue price of the new bills
Under Sections 454 (b) and 1221 (5) of the Internal Revenue CoJe
of 1954 the amount of discount at which bills issued hereunder are sold
is considered to accrue when the bills are sold, redeemed or otherwise
disposed of, dnd the bills are excluded from consideration as capital
assets. Accordingly, the owner :1 Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price paid
for the bills, wh2ther 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.
Treasury Department Circular No. 418 (current revision) and this
notice, prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained from
any Federal Reserve Bank or Branch.
000
The Department of the
IIiSTON. D.C. 20220
TREASURY
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 16, 1972
President Nixon visited the Treasury Department
today to praise outgoing Secretary John B. Connally and
to introduce to the Treasury Staff the new nominee,
George B. Shultz.
There was no official transcript made of the
President's remarks of those of Secretary Connally and
Secretary-Designate Shultz. However, pool reporters
gave to other newsmen the following notes:
President Nixon said, among other things:
"Secretary Connally has agreed to stay
until his successor is confirmed by the Senate ...
The Secretary has been here for a year and
one half; it doesn't seem that long.
It
has been a hard time, a difficult time, a
challenging time and in some ways a very good
time and in some ways there must be regrets
about it.
But in no similar period in the
195 year history of this Republic has Treasury
done more or played a more effective role ...
No member of the Cabinet has been more closely
associated with me in a personal sense .... He has
given counsel and advice in a whole number of
areas .... When the decision is the toughest,
this man is at his best .... He has been a tower
of strength and has made a contribution of which
all Americans should be appreciative .... When
he leaves he will be available for temporary
.
asslgnments
.... "
"The decision was made several weeks ago ....
We agreed the man best qualified to step into
these very big shoes is George Shultz .... He has
a background in government and a background in
economics, and also he happens to believe in
C-311
-2-
the same things we do.
This is important.
There will be a changing of the guard but no
change of the rules .... 1 mean whether it is in
the field of international economics, the
fight against inflation or the need for fiscal
integrity ... George Shultz, John Connally and I
see the situation in the same way."
Secretary Connally told the staff:
"I know there will be a considerable
speculation about my leaving.
It is fair to
say that.
But all of you know that when I
came there was a terminal date, and that date
was reached and exceeded -- exceeded by a
considerable amount.
Perhaps 50 percent. We
have reached that terminal date.
So the time
has come when I must leave. I do so with mixed
emotions, obviously . . . . I want you all to know
what a great and rare privilege it is to serve
in the Cabinet of President Nixon for whom I
have such a very deep respect and admiration ....
I hope you all know, as I think you do, that
nothing he has done in the conduct or the
policies of this government is in any way
responsible for my leaving. What he has done
in the field of international diplomacy, and
the war on Viet Nam all have my full and my
enthusiastic support.
I certainly believe ln
those pOlicies .... I think they n"eed to be
pursued with determination, enthusiasm and vigor."
George Shultz said:
"Big John Connally has put on an extraordinary
performance .... I ,am amazed at how much he knows,
how fast he acquires information and ideas ... "
"I recognize the greatness of this
department, and the very high quality of work
you do.
I recognize the need for your
cooperation and I am sure I will get it.
I
will roll up my sleeves this afternoon and
start to work .... You have made a magnificent
contribution to government as a whole and to
this department, and I look to you to continue
with the same spark."
000
The Department of the TREASURY
IKINGTON. D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 17, 1972
ANTIDUMPING INVESTIGATION INITIATED ON
ALUMINUM INGOT FROM CANADA
Assistant Secretary of the Treasury Eugene T. Rossides
announced today the initiation of an antidumping investigation
of imports of aluminum ingot from Canada.
Mr. Rossides' announcement followed a summary investigation
conducted by the Bureau of Customs after receipt of a complaint
alleging that dumping was taking place in the United States.
The total value of aluminum ingot imported from Canada
during the period from January 1971 through January 1972
amounted to approximately $216,000,000.
000
The Department of the
IHIN6TON, D.C. 20220
TRfASURY
TElEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 17, 1972
ANTIDUMPING INVESTIGATIONS INITIATED ON PRINTED
VINYL FILM FROM ARGENTINA AND BRAZIL
Assistant Secretary of the Treasury Eugene T. Rossides
announced today the initiation of antidumping investigations
of imports of printed vinyl film from Argentina and Brazil.
This product is used primarily for tablecloths, shower
curtains, and similar items.
Mr. Rossides' announcement followed a summary investigat ion conducted by the Bureau of Customs after receipt. of a
complaint alleging that dumping was taking place in the United
States.
The total value of printed vinyl film imported from
Argentina during the period from January 1971 through March
1972 amounted to approximately $150,000.
During the same
period, the total value of printed vinyl film imported from
Brazil amounted to approximately $30,000.
000
The Department of the
~SHINGTON, D.C. 20220
TRfASURY
TELfPHONE WD4-2041
FOR IMMEDIA'l'E RELEASE
Nay 17, 1972
Sl'ATEMENT OF EUGENE T. ROSSIDES
ASSISTANT SECRE1'ARY OF THE TREASURY
(ENFORCEMENT, TARIFF AND TRADE AFFAIRS, AND OPEP~TIONS)
TEN MONTH RE PO R'l' OF THE
TREASURY/IRS NARCOTICS TRAFFICKER PROGRAM
The following
combined ten-month
Trafficker Program
and fact sheets on
is the report for April 1972, and for the
period of the Treasury/IRS Narcotics
initiated by President Nixon in June 1971,
the program in key locations.
April 1972
In April 1972, we added 73 targets for intensive tax
scrutiny and we assessed an additional $7.9 million in taxes
and penalties, of which $2.7 million was seized. Also,
two drug traffickers were convicted on tax charges, and
indictments 'were returned in six mOl::e cases that are now
awaiting trial in U.S. District Courts.
Ten Month Period (July 1, 1971 - April 30, 1972)
1.
603 targets in 37 states, 58 cit.ies and the Distri.c.'~
of Columbia were selected by Treasury's Ta~get Selection
Committee and referred to the IRS.
(See attached Table 1.)
Under the direction of IRS Commissioner Johnnie Walters,
369 Treasury Agents and 104 support personnel are presently
conducting intensive tax inv~stigations on 530 of these.
2.
$41.5 million in taxes and penalties have been
assessed under the program, of which more than $6.8 million
has already been collected in the form of cash or valued
property.
3. Four men have been convicted on criminal tax charges~
13 other criminal tax cases are pending in Federal District
Courts in New York, Miami, Det.roi t, Los l\ngeles Indianapolis
Baltimore and Washington, D.C.; and another 12 investigations
have been completed wi th prosecuti()c, ~E~or:unenda t::'orLs.
f
C-312
- 2 -
We believe this represents a significant achievement.
By focusing attention on the key figures responsible for the
narcotics distribution, this program "will make a major
additional contribution to the President's offensive
against drug abuse." The word for the drug traffickers is
"get out of the illegal drug traffic or face up to
"intensive tax investigation."
The program is designed to take the profit out of the
illegal traffic in narcotics and thereby further disrupt
the traffic. This is to be accomplished in two ways:
(1) By conducting systematic tax investigations of
middle and upper echelon narcotic traffickers, smugglers
and financiers. These are the people who frequently
are insulated from the daily operations of the drug
traffic through intermediaries;
(2) By the systematic drive underway to seize - to
be applied to taxes and penalties owing - the substantial
amounts of cash that are frequently found in the hands
of Narcotics Traffickers below the middle and upper
echelon level. This aspect of the program is being
conducted through the close coordination we have
established with State and local police departments
throughout the country, the Bureau of Narcotics and
Dangerous Drugs of the Department of Justice and
Treasury's Bureau of Customs.
In each area of the country, cadres of Treasury Agents
have been established to concentrate full time on intensive
tax investigations of major narcotics traffickers, smugglers
and financiers. The objective is to increase the pressure
at all levels on those who traffic in narcotics.
Computers are now being used in this program to facilitate
the year in, year out scrutiny of the finances of these
narcotics traffickers. By computerizing our information we
will be able to systematically and quickl: examine each
trafficker targeted under this program.
Although all of the penalties and taxes that have been
asseEsed may not be collected, in my judgment the impact of
~_-ni3:)rograIn on the narcotics traffic is already substantial
~nd jncreasing each month.
There have been recent indications
Jf a scarcity of herein on the street. The drug has been
:2S5 available, as a result of which it appears that it is
';)E!:!1~ .:jold at a higher price or in a diluted form.
- 3 -
Attached are program fact sheets for the following
locations:
New York State
Newark
Miami
Washington, D.C.
Chicago
Detroit
Austin
San Francisco
Los Angeles
BACKGROUND PAPER
secretary John B. Connally, in the spring of 1971,
recommended to the President this nationwide program.
President Nixon announced the program of tax
investigations of major narcotics traffickers on June 17,
1971, as part of a message on his multi-dimensional
approach to combat drug abuse. The objective of the
program is to disrupt the narcotics distribution system
by taking the profits out of the illegal traffic
in drugs.
Reflecting the high priority given this program
by the President, Congress provided financial support
for it amounting to $7.5 million in Fiscal 1972 and
authorization for 541 additional positions in IRS -200 Treasury Intelligence Agents, 200 Treasury Revenue
Agents, and 141 support personnel.
Treasury has coordinated this tax program with the
anti-smuggling drive of its Bureau of Customs, the drive
against narcotics distribution of the Bureau of Narcotics
and Dangerous Drugs, and the prosecution efforts of the
Tax and Criminal Divisions of the Department of Justice.
We have also had the full support and cooperation of State
and local enforcement agencies in the conduct of this
program.
This program is a major enforcement effort but it
must be emphasized that it is only one part of this
Administration's comprehensive drive against narcotics.
The President's Multi-Dimensional War on Drug Abuse
President Nixon started his war on drugs the first
month of his Administration when he established the
Interdepartmental Task Force on Narcotics, Marijuana and
Dangerous Drugs that led to Operation Int rcept in
September, 1969, and Operation Cooperation in October,
1969. He has escalated that war with a series of action
programs, and progress has been made.
First, he elevated the druS problem to the foreign
policy level and has taken personal initiatives in
soliciting the cooperation of other governments. The aim
of our diplomatic efforts is to have each nation do its
share and meet its responsibilities in the worldwide
war against drug abuse.
-
2 -
He established the Cabinet Committee on International
Narcotics Control, under the Chairmanship of Secretary of
State Rog8rs, to coordinate the United States initiative
on the international level.
Second, he placed particular emphasis on the
crucial roles of educatiun, research, and rehabilitation.
The Special Action Office for Drug Abuse Prevention was
established within the White House to coorainate Federal
action in the fields of education, research, and rehabilitation.
In 1971, nearly 150 million dollars were
devoted to education, research, and rehabilitation. That
figure will be doubled in 1972" and increased further in
1973.
Third, he recommended differentiation in the criminal
penalty structure between heroin and marijuana, and
flexible provisions for handling first offenders.
Fourth, he stressed total community involvement
the private sector as well as governmental agencies -in this anti-drug abuse program.
Fifth, he provided a substantial increase in budgetary
support for the Bureau of Narcotics and Dangerous Drugs and
the Bureau of Customs and initiated the IRS tax drive on
drug traffickers.
He established the Office of Drug Abuse
Law Enforcement in the Department of Jus~ice to concentrate
an assault on the street level -heroin pusher working
closely with state arid local enforcement agencies.
Sixth, he recognized the central role of the states
and the need for close Federal-state cooperation in a
unified drive against drug abuse.
In this program, we have seen for the first time
the total involvement of the institution of the Presidency
in the battle against drug abuse.
TADLE I
..
ST.\T~
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Denver
Col()T:'.Jo
Connecticut
District of
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Colu~bi~
Indiana
Louisana
J.1aine
Haryland
Massachusetts
Michigan
Minnesot.1
Hississippi
Hissouri
Nevaua
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Al b ,:my
Buffalo
North CJ.rolin,
Ohio
Oregon
Pennsylvania
Rhode Island
South CaTolinZ'.
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
T r e ;1 5 U r y Dc' l' .1 Y' t ~~ c n t
Off icc 0 [ Lz; \,' [ f'. for c CIT: C n t
Greensboro
Cincinnati
Cleveland
Portland
Philadelphia
Pittsburgh
Providence
Columbia
Nashville
Austin-Houston
Dallas
Sal t Ll1:e Ci ty
Burlington
Richr.1cnd-Norfolk
Seattle
Parkersburg
Hil,."aukcc
24
28
S4
7
Atlanta
Chicago
Indianapolis
Ne ,., 0 rIc <~ n s
Bangor
Baltimore
Boston
Detroit
St. Paul-}.!inneapolis
Gulfport
St. Louis
Las Ve[;as
Ne ,./ a T k - C(l mden
Albuquerque
Neh' York Ci ty &
1
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19
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April 30,
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April 30, 1972
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36
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16
Target Assessments:
$ 4,276,400
Regular Assessments
Jeopardy Assessments
8,989,600
!I
$13,265,400
Total
spontaneous Assessments ~I
(Jeopardy Assessments and Tax Year
Terminations ll)
Total Assessments
$28,221,200
$41,486,600
Tax Year Terminations
Dollars Seized
$ 5,984,700
Property Seized
$
15
Cases Recommended for prosecution
Criminal tax cases in u.S. Courts
Criminal tax convictions
844,400
awaiting trial
13
4
II Jeopardy assessments are additional assessments of taxes
made where a return has been filed, but whe~e circumstances
exist under which delay might jeopardize collection of the
revenue.
21 Spontaneous Assessments are expedited assessments made
against narcotics traffickers as a result of seizures by
other law enforcement agencies of substantial cash or other
assets during the course of an arrest or a search. Because
of the expedited procedures employed, the figures for
spontaneous assessments are frequently in excess of the
amount ultimately determined to be due.
31
Termination of Tax Year is a computation of the tax due
and assessment made where the time for filing the return
has not become due where circumstances exist under which
delay might jeopardize collection of the revenue.
Treasury Department
Office of Law Enforcement
April 30, 1972
NEW YORK STATE TARGETS
New York State
New York County
Kings County
Bronx County
Nassau County
Queens County
Suffolk County
Westchester County-
120
31
14
22
11
21
3
6
Albany Area
3
Buffalo Area
9
Regular Assessments
$ 1,064,800
Spontaneous Assessments II
(JeopardY,Assessments and Tax Year
Terminations 2_/)
Total Assessments
$10,261,000
$11,325,800
Tax Year Terminations
Dollars Seized
$ 3,895,000
Property Seized
$
101,000
Prosecution Recommendations
5
Criminal tax
1
II
~I
cases in u.S. Courts awaiting trial
See footnote 2 on Table II.
See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
April 30, 1972
NEWA7J< TARGETS
32
Total Targets
Regular Assessments
$
207,400
Spontaneous Assessments 1/
$
937,400
(Jeopardy Assessments and Tax Year
Terminations ~/)
Total Assessments
$ 1,144,800
Tax "Year Terminations
Dollars Seized
$
10,500
Property Seized
$
150,000
Prosecution Recommendations
1/
2/
1
See footnote 2 on Table II.
See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
April 30, 1972
MIAMI TARGETS
Total Targets
54
Regular Assessments
$ 9,408,800
Spontaneous Assessments II
$
347,100
(Jeopardy Assessments and Tax Year
Terminations J:../)
Total Assessments
$ 9,755,900
Tax Year Terminations
Dollars Seized
$
63,300
Property Seized
$
197,000
Criminal tax cases in u.S. Courts awaiting trial
3
Convictions
2
II
~I
See footnote 2 on Table II.
See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
April 30, 1972
WASHINGTON, D.C. TARGETS
Total Targets
20
Regular Assessments
$
937,700
Spontaneous Assessments 1/
$
512,600
(Jeopardy Assessments and Tax Year
Terminations 2:../)
Total Assessments
$ 1,450,300
Tax Year Terminations
Dollars Seized
$
44,900
Property Seized
$
40,800
Criminal tax cases in u.S. courts awaiting
trial (2 in D.C. & 1 in Md.)
1/
2/
3
See footnote 2 on Table II.
See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
Ap~il 30, 197:l
CHICAGO TARGETS
Total Targets
36
Regular Assessments
spontaneous Assessments
.!/
$
20,000
$
440,700
$
460,700
$
46,800
(Jeopardy Assessments and Tax Year
Terminations ~/)
Total Assessments
Tax Year Terminations
Dollars Seized
Property Seized
Prosecution Recommendations
II
~I
-01
See footnote 2 on Table II.
See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
April 30, 1972
DETRCIT ';'}\RGETS
32
Total Targets
Regular
Ass~Ssr~~ts
spontaneous Assessments
11
$
444,000
$
646,900
(Jeopardy Assessments and Tax Year
Term:'nations ~/)
$ 1,090,900
Total h3sessments
Tax Year Terminations
D:::;llars Seized
$
157,100
Property Seized
$
4,000
Prosecution Recommendations
1
Criminal tax cases in u.S. Courts awaiting trial
2
II
21
See footnote 2 on Table II.
See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
April 30, 1972
AUSTIN TARGETS
36
Total Targets
Regular Assessments
$
17,400
spontaneous Assessments II
$
303,600
$
321,000
$
180,600
(Jeopardy Assessments and Tax Year
Terminations ~/)
Total Assessments
Tax Year Terminations
Dollars Seized
Property Seized
Prosecution Recommendations
II
~I
-02
See footnote 2 on Table II.
See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
April 30, 1972
SAN FRANCISCO TARGETS
Total Targets
28
Regular Assessments
$
Spontaneous Assessments 1/
$ 2,160,500
313,500
(Jeopardy Assessments and Tax Year
Terminations ~/)
Total Assessments
$ 2,474,000
Tax Year Terminations
Dollars Seized
$
182,400
Property Seized
$
83,000
Prosecution Recommendations
1/
2/
2
See footnote 2 on Table II.
See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
April 30, 1972
LOS ANGELES TARGETS
Total Targets
24
Regular Assessments
Spontaneous Assessments
$
II
34,500
$ 1,884,900
(Jeopardy Assessments and Tax Year
Terminations ~/)
Total Assessments
$ 1,919,400
Tax Year Terminations
Dollars Seized
$
438,200
Property Seized
$
35,000
Criminal tax cases in u.S. Courts awaiting trial
II
21
1
See footnote 2 on Table II.
See footnotes 1&2 on Table II.
Treasury Department
Office £f Law Enforcement
April 30, 1972
The Department 01 the TREASURY
STON D.C. 20220
TELEPHONE W04-2041
May 17 s 1 S' 72
FOR
IMMEDI.·f\T'~
RELEASE
TREASURY'S MONTHLY BILL OFFERING
The Treasury DepaL-tmen,t,
two series of Treasury bills
or thereabouts, for cash and
maturing May 31, 1972,
as follows:
by this public notice, invites tenders fo::to the aggregate amount of $1,700,000,000,
in exchange for Treasury bills
in the amount of $1,701,075,000,
273-day bills (to maturity date) to be issued May 31, 1972,
in the amount of $500,000,000,
or thereabouts, representing ali
additional amount of bills dated February 29, 1972,
and to mature
February 28, 1973
(CUSIP No.912793 pu4 ), originally issued in the
amount of $1,200,095,000,
the additional and original bills to be
freely interchangeable.
365-day bills, for $1,200,000,000,
or thereabouts, to be dated
May 31, 1972,
and to mature May 31, 1973
(CUSIP No. 912793 PX8)
0
The bills of both seLies will be issued on a discount basis 1ll1': t'L
competitive and noncompetitive bidding as hereinafter prov:ded, aod at
maturity their face amount will be payable without interest,
They WJ_!_!
be issued in bearer form only, and in denominations of $10,000, $15.000,
$50,000, $100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
to the clOSing hour, one-thirty p.m., Eastern Daylight Saving
time, Tuesday~ May 23,1972
Tenders will not be rev:·1."\:2d
at the Treasury Department, Washington.
Each tender must be fOL a
minimum of $16,000.
Tenders over $10,000 mu~t be in multiples cf
$5,000.
In the case of competitive tenders the price offe~ed must
be expressed en the basis of 100 i with not more than th~ee decimals
e.g. 99.925.
Fractions may not be USi2d,
(Notwithstanding j-he rF!:'~-'
that the one-year bills will run for 365 d<':!ys ~ t',-,e ci:Lscour~:~ :i.8tf.:: ;,1._1
be computed on a bank discount basis of 36() riays! AS ~3 CU(C;-:c:tL'l t~:c:.
practice on all issues of Treasury bills.)
It is urged t-l13X If'c:,"::::f':-; ':~:,
made on the printed forms and forwarded in the special U~,;::'\T~, l,vi-_':':.;~
will be supplied by Federal Reserve Banks or Branches on applicL'"lr ~[I:
therefor.
0
(OVER)
- 2 Banking institutions generally may submit tenders for account of
customers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in invesbment 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 0
tru:o:t company.
Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announcement
will be made by the Treasury Department of the amount and price range c
accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or re;ection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect shall
be final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone biddf
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 31, 1972,
in cash or other immediately available funds or in a like face amount
Tr-easury bills maturing May 31, 1972
Cash and exchange tendecs will receive equal treatment. Cash -adjustmel
will be made for differences between the p~r value of maturing bills
accepted in exchange and the issue price of the new bills.
0
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code
1954 the amount of discount at which bills issued hereunder are sold i
considered to accrue when the bills are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insu;,.-ance companies) issued hereunder must include in his income tax.
return, as ordinary gain or loss, the difference between the price pal
fJr the bills, whether on original issue or on subsequent purchase, an
tn2 amount actually received either upon sale or redemption at matur it
dL~ing the taxable year for which the return is made.
J>::·ea.stl'" y Depa r':lre t1t Ci L'll"!.. at'" No. 6·18 ,~ cur ren t revis ion) and t.his
l10tice, prescribe t~le ter-ms of the Treasury bills anci govern tr,e
conditions of their issue. Copies of the circular may be obtained fre
any Federal Reserve Bank or Branch.
000
The Department of the TRfASU RY
.SHINGTON. D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 17,1972
The Treasury today announced that Secretary
John B. Connally has regretfully cancelled his plans
to attend the DECD Ministerial Meeting in Paris,
May 24-26.
Under Secretary for Monetary Affairs
Paul A. Volcker will represent the Treasury Department
at the meeting.
The U.S. delegation will be announced
shortly.
000
C-3l3
The Department of the TRfASURY
WASHINGTON. O.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 18, 1972
TRE.ASURY ISSUES COUHTERVAILING DUTY PROCEEDIl'JG NOTICE
ON CERTAIN ELECTRONIC PRODUCTS FROM JAPAN
Assistant Secretary of the Treasury Eugene T. Rossides
announced today the issuance of a countervailing duty
proceeding notice covering certain consumer electronic
products from Japan.
The notice states that the Treasury has received
information which raises a question as to whether the
Japanese Government makes certain payments, bestowals,
rebates, or refunds upon the manufacture, production, or
exportation of certain consumer electronic products, which
constitute the payment or bestowal of a "bounty or grant"
within the meaning of the U.S. countervailing duty law.
If Treasury finds that a bounty or grant has been paid or
bestowed, the imports in question would be subject to an
additional (countervailing) duty equivalent to the net
amount of the bounty or grant.
Products covered by the proceeding notice include
television and radio receivers, mono and stereo systems,
and tape recorders.
The notice invites submission of comments in time to
be received within 30 days from the date of publication in
the Federal Register.
It is scheduled to be published on
May 19, 1972.
If the Treasury Department finds that bounties or grants
are being paid or bestowed within the meaning of the countervailing duty law, it will issue a countervailing duty order
proclaiming the amount of countervailing duties to be assessed
on imports of these electronic products. The countervailing
duty would become effective 30 days after publication of the
order in the Customs Bulletin.
During the period January 1971 through December 1971,
imports of certain consumer electronic products from Japan
totaled slightly more than $831 million.
000
The Department of the TRfASURY
liSTON, D-.C. 20220
TELEPHONE W04-2041
FOR RELEASE ON DELIVERY
REMARKS OF MR. H. I. LIEBLING
DEPUTY DIRECTOR, OFFICE OF FINANCIAL ANALYSIS,
OFFICE OF THE SECRETARY, U.s. TREASURY DEPARTMENT,
AT THE ECONOMIC OUTLOOK DINNER SPONSORED BY
AMERICAN STATISTICAL ASSOCIATION PHILADELPHIA CHAPTER
AND CHAMBER OF COMMERCE OF GREATER PHILADELPHIA
THURSDAY, MAY 18, 1972, AT 7:30 PM
THE ECONOMIC OUTLOOK:
AND CONFIRMATIONS
~ISGIVINGS
Solid progress towards the attainment of the officially
forecasted $100 billion GNP increase in 1972 is clearly indicated by the first-quarter results and those other measures
available for April.
That may not be news, but it should be considered against
the view of the standard private forecast made last December
anc,. January at several billion dollars below that officially
projected. Indeed, by February, some misgivings emerged over
the attainment of this low forecast in reaction to publication of the preliminary retail sales figures for January and
February. As I will show below, those forecasters were looking at the wrong player in the game -- when the action was
taking place elsewhere.
There remain a few diehards, who have raised their
nominal GNP forecasts but remain unchanged in forecasting
real output gains in the range of 5% to 5~%.
What is news is that the major uncertainties mentioned
in the Economic Report, which could have led to a higher or
lower than officially forecast gain for 1972, appear to have
been resolved on the high side. Not only does the $100 billion advance appear increasingly certain of att~inment, it
has been my personal opinion all along, and presently,that
- 2 this gain will be exceeded. Furthermore, if that be so, it
would imply a momentum into 1973 that could hardly fail to
extend a 1972 period of vigorous growth in production, employment, and incomes. That, of course, is my personal view,
because no official reworking of the economic forecast is
available.
My confidence on the robust character o~ this upswing
both for 1972 and going into 1973 may become clear in the
perspective of a comparison of the sectoral forecasts made in
the Economic Report and what they now might look like in view
of more recent information:
Business fixed investment in 1972 was projected to
advance 8%, because the then available Commerce-SEC survey
had anticipated a 9% rise and little change was expected in
items not covered by the survey. Subsequent. official and
private surveys indicate capital outlays in the range of lO~%
to 14%.
Residential construction outlays in 1972 were expected
to exceed 1971 by 15% on the assumption that private housing
starts would total 2.2 million units this year. That forecast
would need to be revised up substantially. Housing starts at
2.5 million units, annual rate, in the first quarter already
were nearly one-tenth higher, and outlays about 5% higher, than
had been implicit in the official projection.
State and local government expenditures in the first
quarter are running above earlier estimates, and so are consumer expenditures, although by a smaller margin than business
investment and construction outlays.
The case for an 'upward reV1S10n of the forecasted GNP
would be overwhelming, if it were not for the drag on the
arithmetic of the GNP exerted by less-than-expected investment
in inventories and in the net exports of goods and services
account. Excluding these two sectors, which leaves us with
final sales less net exports, GNP in the first quarter rose
$34 billion -- several billion more than had been expected
last January.
The arithmetic of the GNP, which after accounting for
net exports and inventory reduces the quarterly gain to
$30 billion, should not disuade us from perceiving the underlying vigor of an economy in which production, employment,
- 3 and incomes are increasing at an accelerated pace. Furthermore, the economy is proceeding much in the tradition of
earlier economic expansions in the postwar period, with
respect to overall momentum and sources of stimulation.
Indeed, it is this momentum which makes 1973 look bright at
this time. But, the forces which will be operating on the
economic environment at that time are so uncertain as to
make any judgment hazardous. As a career forecaster in
several Administrations, I know that the prudent forecast is
the one better left unsaid.
Now, an optimistic view in part reflects a somewhat
different analysis of 1971, and that of circumstances developing in 1972, than has been incorporated in many forecasts. It
will be recalled that the consumer frequently was characterized
as the "key" to whatever economic expansion would develop in
1972. If only that player, it was said, would perform well,
that is to say reduce his saving from what appeared to be
abnormally high rates, the economy would turn around and the
expansion would be assured.
Surprisingly, this view was held not only by those
economists of a monetarist persuasion, who tend to view
economic developments as reactions to disturbances and
reattainments of ratios of cash balances to income of persons
and business. Others who tend to view the dynamic fac~ors of
the economy as positioned elsewhere appeared to forgp-t their
own theories. Finally, there were those who did view players
other than the consumer as dynamic, but assigned them minor
roles.
This consumer-oriented view of developments appears to me
to be a misreading o~ the experience of business cycle developments in the postwar period. The characteristically dynamic
forces of an expansion typically are found in the so-called
nonconsumption sectors of the economy. In my view, the consumer is not at all the "key" to comprehension of recent
economic developments. The characteristically dynamic forces
in the early stages of an expansion typically are the
acceleration of plant and equipment spending) heavier
investment in inventory, or rising Federal outlays. At the
outset of economic expansion, the dynamic movers are not
consumers) but producers or government.
Certainly, this was apparent in the last three economic
expansioLs. Perhaps, it can most vividly oe illustrated by
- 4 citing the ratio of personal consumption expenditures to
total GNP in earlier expansions. During the upswing beginning
in 1954, this ratio declined from 65.1% to 63.8% from trough
to six quarters later. In the expansion beginning in the
fourth quarter of 1958, the ratio declined from 65.6% to 64.5%
in six quarters. In the expansion starting in the first quarter of 1961, this ratio declined from 65.2% to 63.3% in six
quarters. In the current expansion, a high" in this ratio
developed in the third quarter of 1971 and has since declined
apparently a beginning in the typical sequence of the earlier
expansions. Indeed, the sector analysis given above for 1972
would suggest that a further decline in this ratio may be
expected in subsequent quarters of this year, as nonconsumer
demands continue to rise. Accordingly, an optimistic view of
1972, as well as the implications for early 1973, clearly
points toward a buoyant performance.
A second implication of this analysis relates to the
dampening effect that the overwithho1ding of taxes of
individuals, at an annual rate estimated at $8 billion, was
presumed to have exerted on the economy. If the forces of
expansion reside in the nonconsurner sectors, as suggested
here, then the overwithholding would be expected to have
provided little deterrent to total spending in the economy.
That now appears to have been so.
Indeed, what may appear ironic to fine tuners of a fiscal
persuasion, the increased overwithhb1ding may have exerted an
effect that is opposite to their usual prescriptions and
remedies. To the extent that increased overwithho1ding
contributed to stability in market interest rates because of
lessened Federal borrowing requirements, the total impact of
the overwithho1ding ncaper" might well have been supportive
of the expansion. As one result, the flow of savings to
depository institutions has continued to mount impressively
in 1972 in reaction to relatively low interest yields. This
has created the underlying support for the ongoing housing
boom. This is an unusual bonus for overall economic activity
because housing typically begins to wane as an economic
2YD2DSlCn develops.
Last January, the Economic Report had indicated that
mRjor uncertainties existed which could produce a level af
economic activity either higher or lower than has been forecast. l1y personal view is that the weighted sum of uncertainties v7ill be resolved tmvard a higher GNP than had been
- 5 forecast then. Moreover, these forces (such as business
spending on plant and equipment, restoration of a more normal
inventory-sales relationship, and eventual improvement in the
net export position) will continue to exert their influence
in the first part of 1973. Against this perspective, the
problem in the quarters ahead might need to be restructured
in terms of some reduction in the thrust of fiscal policy to
assure greater stability in rates of economic growth.
00000
The Department of the
IASHINGTON. D.C 20220
TRfASURY
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 19, 1972
TREASURY ANNOUNCES FIRST PROPOSED REGULATiONS
FOR DOMESTIC I~1'fERNATIONAL SALES CORPORATIONS cnSCs)
The Treasury Department today announced the first of its
proposed regulations governing the organization and operation
of Domestic International Sales Corporations (DISCs).
The proposed rules specify the general conditions a
corporation must meet to be treated for tax purposes as a DISC,
the required capitalization, the method of accounting that may
be used by a DISC, and the election of a taxable year by a DISC.
The new regulations conform to the requirements contained
in Revenue Ruling 72-166, which the Internal Revenue Service
announced on March 16, 1972.
Treasury's proposed regulations were issued under Sections 991
and 992 of the Internal Revenue Code, which were added to the
Code by the Revenue Act of 1971. The regulations will be
published in the Federal Register for Saturday, May 20, 1972.
Before adopting the regulations, Treasury will consider comments
or suggestions submitted in writing to the Commissioner of
Internal Revenue, Attention: CC:LR:T, Washington. D.C. 20224.
within 30 days after after publication in the Federal Register.
0, request, Treasury will hold a public hearing on its proposals.
Under the Revenue Act of 1971, Congress provided that DISCs
are entitled to special tax treatment for taxable years beginning
after January 1, 1972. The Act makes it possible for United
States exporters to receive,through a domestic corporation
qualifying as a DISC, favorable tax treatment for their export
income. The DISC itself is not subject to United States Federal
income tax. THE DISC's shareholders are treated as receiving onehalf of the DISC's earnings currently, whether or not actually
distributed. The remaining one-half of the DISC's earnings may be
retained by the DISC and reinvested in its export business, or used
for other specified purposes, without, in general, liability for
Federal inc orne tax.
000
C-3l4
The Deportment of the
lISTON, D.C. 20220
TREASURY
TElEPHONE .W04-2041
FOR IMMEDIATE RELEASE
May 19, 1972
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
$4,100,000,000, or thereabouts, for cash and in exchange for Treasury
bills maturing June 1, 1972,
in the amount of $4,205,745,000,
as follows:
91 -day bills (to maturity date) to be issued June 1, 1972,
in the amount of $ 2,300,000,000, or thereabouts, representing an
additional amount of bills dated August 31,1971,
and to mature
August 31, 1972
(CUSIP No. 912793 NK8) ,originally issued in
the amount of $1,199,890,000 (additional amounts of $500,275,000 and
$1,796,105,000 were issued'November 30, 1971 and March 2,1972,
respectively), the additional and original bills to be freely interchangeable, .,
182-day bills (to maturity date) to be issued June 1,1972, in the
amount of $1,800,000,000, or thereabouts, representing an additional
amount of bills dated November 30, 1971, to mature November 30,1972,
(CUSIP No. 912793 NN2), originally issued in the amount of
$1,200,655,000 (an additional $500,080,000 was issued February 29,1972),
the additional and original bills to be freely interchangeable.
The bills of both series will be issued on a discount.bas1s 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,
$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
to the clOSing hour, one-thirty p.m., Eastern Daylight Saving
time, Friday, May 26, 1972.
Tenders will not be received
at the Treasury Department, Washington. Each tender must be for a
minimum'of $10,000. Tenders over $10,000 must be in multiples of
$5,000. 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. rractions 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
- 2 -
submit tenders except for their own account. Tenders will be recei~d
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are accompani,
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 announcemen
will be made by the Treasury Department of the amount and price range
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reiect 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 decimal
of accepted competitive bids for the respective issues. Settlement fc
accepted tenders in accordance with the bids must be made or completed
at the Federal Reserve Bank on
June 1, 1972,
in cash or other immediately available funds or in a like face amount
Treasury bills maturing
June 1, 19720
Cash and exchange tendE
will receive equal treatment. Cash adjustments will be made for
differences between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue C~E
of 1954 the amount of discount at which bills issued hereunder are sol
is considered to accrue when the bills are sold, redeemed or otherwisE
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price pa:
for the bills, whether on original issue or on subsequent purchase, al
the amount actually received either upon sale or redemption at maturil
during the taxable year for which the return is made.
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 frl
any Federal Reserve Bank or Branch.
UNITED STATES DEPARTMENT OF THE TREASURY
OFFICE OF THE SECRETARY
PRESS CONFERENCE
held by
TREASURY UNDER SECRETARY for MONETARY AFFAIRS
PAUL A. VOLCKER
at the
LE CHATEAU CHAMPLAIN
MONTREAL, QUEBEC
MAY 12, 1972
This transcript was made from a tape recording.
}lr. Vo lcker, VJould you have te'1 well chosen
QUEST Ion:
CO~Fe~ts
on Dr.
~urnsl
te~
point monetary reform prOJram?
,l,NSilER:
sa" I ha';e aot examined
t~is
thorOtl~~:hl~i.
tIe \Jas settin:'~ out
Imat, 1.n :-:is opinion I tjink, are some of the c;'}aracteri.stics
0;
t~e
reform
system.
a~d
matters.
But it certainly wasn't any kind of a model for
it doesn't sug3est any
specif~c U.S.
pOSition on these
Sut otviously he was setting out some general principles
that, in
~is
mind, are valid and certainly I would share some of
them.
QUESTION:
Hr. Volcker, I am 5_nterested in the last point
he makes about the urgent necessity to start the
process quite promptly.
Do you agree with the urgency of the
situation, I mean, is there any sort of
of
tin~e
d~fference
in the sense
tac'le?
;\nSWER:
table.
rebuild~~g
I am not aware of any difIerence in a sense of time
We certainly want to move ahead
with the progress we are
in two directions.
ffiakin~.
this is something that could be put
a very short period of t·i_me.
this.
I am encouraged
Now let me say I am encouraged
a~>Nare,
As you are
w~t~
we have not thought that
to~ether
in finished form in
He think there are very large
issues involved and part of my encoura3ement is, I think, that
that point is basically and
You see it
I think
~ve
increasin~,:ly
accepted 0:' others.
,
LO
such th in2"s
as L:e discus s ions o :c tne Lorum, Where
v
~
are 20ing to corre up
\'7it~1
1
a fort 1 m or a combination of
forums fairly promptly that have a su itably wide hor:i_zon for
- 2 -
looking at these problems.
They are going to look at it in
the right context, which is the context that we are really
re0l 1 ilding and reconsidering, not only the monetary order,
~"1t
t>e trading order ;_n many ways because they are intimately
related and this kind of consideration, I think, is much better
recognized today than it was, let's say on August 15.
That it's
not just a matter of going back to Bretton Woods, putting
together some monetary mechanics and then proceeding --- a
recognition that the monetary mechanics, important as they are,
rest llpon some much deeper and more fundamental characterist5_cs
of the world economic system.
I am distinctly encouraged by the
fact that that kind of approach is, I think, much more generally
recogn ized .
Now that kind of approach and realization,I
thin~has
the
corollary that you don't solve these problems overnight--that
there are some very tough and difficult issues upon which there
is and will be a good deal of contention and we have to work
our way through that, but there is no substitute for that.
QUESTION:
Could you follow up that point about the forums.
vIe have heard a lot about the Group of Twenty and I think everyone
is familiar with that.
But there have been suggestions, now .. that
there will be trade talks somewhere within the framework of the
OECD, presumably providing a bridge with the GATT in much the
same way as the Grollp of Twenty will provide a bridge with the
IHF.
- 3 -
ANSWER:
Given the very breadth of the problem about which
I was just speaking, I think that you can expect that a number of
groups are going to be involved in this and properly involved,
in my opinion.
There are the trade negotiations proper, so-called
that we had commitments made for as long-ago as February.
This
entails some kind of specific negotiations on trade, tariffs, and
non-tariff barriers and all the rest.
You tend to think of that
locus as GATT or surrounding GATT.
We've got the DECD which, by its very mandate, covers a gamut
of issues here that are relevant---monetary, trade, harmonizing
fiscal policies, tax policies, investment policies.
Certainly
the DECD, if it is a live and useful organization, I think has
a role to play in this process and I think they are going to be
able to playa role.
There is room for discussions in the DECD
and there have been some discussions as to how, if at all, there
needs to be some restructuring of the GATT internal organization
to facilitate this.
It's an organization which, in its nature
in effect, recognizes the linkages here.
So I think that they
will have a role to play.
You referred to the Group of TwEn ty.
I think there is some
consensus developing there and that, in the end, is, in a sense,
the prime negotiating group, the constitutional negotiating
group on the monetary issues.
But even there, and I think this
.
is recognized, they can't be look at as ~f in a vacuum, and the
Group of Twenty if that's what emerges, is going to have to have
a broad horizon and I think it will have a broad horizon.
-
QUESTION:
:~irst
L~
-
Mr. Vo1cker, I have sort of a two part question
of a11 i were you somewhat surprised by the points that Dr.
Burns advanced in his suggested reform of the international
monetary system?
The second part is did you discuss this
pa rt iC:1 1ar Eu rns' ta 1k with Mr. Conna 11y th is morn i.ng?
ANSvJER:
No!
On the latter, no!
You may have read Mr.
Burns a bit more carefully than I this morning.
I
th~nk
Mr.
Burns is settin8 down some points which are important, many of
which I would th:;.nk are as important as he does.
The emphasis
may vary on other points.
QUESTION:
Hou1d you comment on Mr. Burns' conclusion that
eventual convertibility of the dollar is an essential element?
Convertibility oE the dollar is certainly going
ANSWER:
be one of the subjects under discussion and we are going to
d·i.scuss it.
of
som~thing
Converti.bi1ity of the dollar is a typical example
you can't consider 5_n a vacuum.
There is nothing
in convertibility itself as a mechanism that's goj_ng to deal wi
the under1yi.ng problems of the system.
It's a relevant mechani
If we are go:Lng to have a convertibility system, it :l.mp1ies, I
think, a host of other consequences.
shape
It's certa in1y possible t
a system in which the convertibility of the dollar (and
there are all sorts of convertibility) is appropriate and Llsefu
,ve are not rejecting those systems.
Df this, say:
We will, and you can be su
if that's the kind of a system we are going to
.1ave, we better make sure that all the other parts of the syste
are in place t:1at make this a useful, workable and ~elpfu1 part
J£ the system.
TZ1at' s what concerns us, not the convertibility
- 5 -
QUESTION:
In that case Mr. Vo1cker, would you specify what
the other parts of the system are?
ANSWER:
What the conditions are?
Let me answer the question a little more broadly
than you posed it.
Let me go all the way, in a sense, and look
at the convertibility of the dollar in the sense of what's called
a kind of asset settlement system---a11 deficits are paid for by
the use of reserve assets by all countries, the United States and
others.
Let's rule out reserve currencies in this kind of a
system entirely, just to make your
in a sense.
question even more pointed,
And we say, well fine, we understand, I think, some
of the characteristics of that kind of a system, anyway.
what does it imply?
But
Well it implies in the short run (and the
short run here is a period of years)
I
think, for the United
States, starting from an extremely attenuated international
financial situation, if you want that kind of a system to work
well we'd better think about running a surplus for a while so we
.
get the assets to make asset settlements possible. You are not
going to have a successful asset settlement system if you have m
~sets.
I think you take that as a given.
If you have too few
assets and too many liabilities, it's not going to work.
We
have a lot of liabilities and not many assets because we have been
running deficits for twenty years.
So the first thing we say is,
okay, but that kind afa system really, in a very pointed way, says
the United States better move into surplus.
And that raises
all the questions involved for ourselves and for other countries,
-
,-
c
-
__ I
.
..
irrpll'cit
ion t1a'L-.
-tn the longer run, it certainly sllggests all countries
NOTV
are going to have to remain close to
'~Ol1
ver:l s irr.ply, fine.
def~cits.
eq~ilibriurn
So we say
knovJ, we are not llappy abol' t runn ing
When you look at our past experience, that implies
a n improvement, bu t when we look a t other
COlm tries,
they've
rather heen used to runnin3 surpluses and what you are saying
in this system, and let's be perfectly clear abollt it, what
you are saying in this system is that other countries are not
going to he able to run surpluses for any sustained period of
time ...
Okay, fine, but that's what we want to point out.
That is
the implication and is tGis the way countries are willing to
operate their economies, willing to operate
financial systeml
t~e
international
There may be some suggestion I think, in
history, that countries are not ea3er to voluntarily give up
surpluses.
They rather find surpluses comfortable, for very
obvious reasons.
So that then raises the next question.
1u_' nd of d'lSC1P
. l'lnes, wh a t k'1n d
arran~ements
h'
mec.an1sms,
wh at k'
.1n d
0
f
do you have to overco.ne the natural instinct to
want to run a
really says
f
0:
What
s~rplus.
may~e
We don't want the kind of a system which
tv70
things:
yOll
rna inta in this kind of
jalance in an asset settlement system by the brute force of contro
on the one hand, or ty creating deflationary pressures allover
the place on the other hand.
\~);,iC~l
S :-8
So that's the kind of question
I t:1ink underlies that kind of a system.
terr,
\,Je'
d
jet ter
look at the impl ica tions ,
In buying the
- 7 -
QUESTION:
Mr. Volcker, do I understand correctly that,
notwithstanding Mr. Burns' personal relationship with President
Nixon, that you regard his statement today as a purely personal
one which should not be interpreted, in any sense, as an
initial
statement of basic principles by the United States?
ANSWER:
You've got some advantage on me in having read his
statement, I am sure more fully than I have.
not sure I read the final vers ion.
some point.
statement.
I've read it.
I'm
I read a copy that I had at
I didn't find anything revolutionary in much of that
He emphasized the need for cooperation and consulta-
tion, working without partners.
I fully share that.
That is
United States policy, no quest ion about that.
He emphasized, as I recall, some difficulties in expecting
too much perfection in coordinating national policies.
I happen
to agree with that, and I am sure Mr. Connally agrees with that
and I am sure the President agrees wlth that.
principle I think it is a fair statement.
At tbat level of
You are going to have
to be more specific.
QUESTION:
ANSWER:
Taken as a whole, as a ten point program is this ....
We have no ten point program.
Burns has a ten point program.
I am not sure Mr.
He was stating some general
considerations that he thinks underly some mechanisms.
If you
want to pick one point or another of it, you are going to have
to tell me what the point is.
QUESTION:
One specific point, Hr. Volcker, that is
controversial in Dr. ?urns' speech that hasn't been mentioned
-is ti·lat be does sa'
that perhaps the dollar should remain as
a reserve ci'rrency after all and I wonder ....
ANS~'!ER:
on that.
t,.]ell, all right!
Tile have, I
think, no fixed view
It's obviously a question which is of concern and
should be examined, I think, with an open mind.
QUESTION:
Hr. Volcker, you sa:Ld earlier that yOll thought
that perhaps the Treasury Department was at variance with some
of the principles, as you call them, that Dr. Burns ....
ANSHER:
I don't recall saying that.
QUESTION:
Then I misunderstood you.
You said that
YOll
are
not at variance with any ....
ANSHER:
Hell, you will Llave to ask me a particular princip
and I'll tell whether I think we are at variance.
QUESTION:
("!ell, I thought that's what yOll had said, th:at's
why I brought it up.
QUESTION:
J>1r. Vo lcker, one princ iple which I'll just read.
He says, "It's sometimes argued that, as a part of reform, gold
s:lould be demonitized.
As a practical matter, it seems doubtfl1l
to me that there is any broad support for eliminating the
mone~
role of gold :i.n the .-,ear :::ptpre---nevertheless, I would expect t
monetary role of zold to continue to diminish in the years ahead
willIe the role 0:::: special drawing rights 5.ncreases. II
My under-
standing of the Treasury position,has been a little more de-emph
0:;'
~old
t~lan
tl-lis impi ies ..
0
•
- 9 -
ANSWER:
Well, certainly I think you can say the United
States government position is that the role of gold should continue
to dtminish.
It's been a long trend in that direction.
expect it to continue.
QUESTION:
We
We will encourage it to continue.
Rightly or wrongly, a number of Europeans have,
in fact, mentioned that they have no idea exactly what the
United States wants.
Does this speech in any way assist them,
do you think, in indicating what a proper agenda for refonn
might be?
ANSWER:
I don't know what you mean by the word "agenda."
QUESTION:
Without trying to indicate that this is an agenda
but questions in particular that you would like to see ....
ANSWER:
Well, I think the specific questions, in terms of
devices, mechanisms or whatever, are not very difficult to make into
an agenda.
It was already made at the Smithsonian--- the question
of convertibility, the question of exchange rate regime, the
question of dealing with short-term capital controls.
In that
sense, the Smithsonian already had a pretty good agenda.
is questioning the agenda in that sense.
Nobody
What we are saying is,
as I said earlier, Okay, those are devices, those are mechanisms.
What we are really talking about in the end is the world economic
order.
And we have to assess each of those questions and there
is a great variety of proposals surrounding each of them.
Let's
examine them individually and together in a coherent whole against
what we really want and w',at' s really workable.
-10 QUESTION:
Do you believe that there is any substance in
t:le complaint that we hear from
8
nnmber of Europeans that
nobody knows precisely what you v\1ant?
ANSHER:
If the complaint is the United States :las no plan
that it is willing to put on the table at this point, I plead
that we are in the same position as every other government for
good reason.
QUESTION:
I think it is too early to be at that stage.
Doesn't that illustrate perhaps another philo-
soph:i_cal difference between the government position then, and
what Dr. Burns sa id .
Because the over riding quality, as I real
it, or this whole statement of Dr. Eurns gives you a sense of
urgency.
He said, "Indeed I feel it is an urgent necess i.ty to
start the rebuilding process quite promptly.1I
ANSWER:
No, I think you are reading too much into this.
I am a,'Jare of no difference with Dr. Burns as to urgency or to
the wisdom of putt ing forward a plan, so -called, at this point.
To the best of my knmvledge, Dr. Burns has no such plan.
QUEST ION:
timing.
I
\Ai
onder, if I could ra ise a general po in t of
It seems to De agreed that not much could be done this
year in v:Lew of the election here and some oi: the variot1s probl
on the European plate, but would it be reasonable to expect an
agreement, say, by the Fund meet:Lng in September, '73 or shauldi
one look more, say, towards the Fund meeting in '7L:-: the year
after.
ANSl-JER:
QUESTIO~:
By saying election here, you mean Canada?
No I am sorry, I mean the States.
- 11 -
ANSWER:
I have a certain sensitivity to that point.
The
Fund meeting of '73 seems to me a useful target date.
QUESTION:
ANSWER:
For an agreement?
What do you mean by agreement?
stages of this process.
There are several
It took, in actually writing the SDR
amendment, as I recall, a long time after there was basic
agreement.
I don't think I should be more specific.
QUESTION:
Well, what do you mean by target date?
Target
date for what?
ANSWER:
Target date for getting a general agreement.
we can do more than that, fine.
If
Maybe the general agreement can
be agreed amendments, maybe it can't be.
You go into technical
problems, too.
QUESTION:
Mr. Volcker, Dr. Burns in his speech suggested that
trade talks be held in parallel or complementary to the monetary
talks.
Do you agree with him that they should be held separately,
or do you ....
ANSWER:
Let rIle make a distinction between trade talks, I
tried to make earlier.
There are trade talks in the nature, as I
indicated, of what do you do with this non-tariff barrier, what
do you do with agricultural policy, what do you do in very specific
terms.
You strike bargains.
Those talks clearly are in a sense
parallel.
There are aspects of the trading system, in a sense the basic
rules of the trading system, where I don't think it's a question
of being parallel.
They are part and parcel of the economic
- 12 and monetar'.· and trad ill: s truc tLl re of the world and I ju st can't
co:[cei.ve of considering them separately hecause they go together
Now let me
~~ive
VOll
just one example of that.
W:lat is the Common Market?
That's what it has ;Jeen.
11
n it, a monetary reg ion.
It
The Common Market
It's a trading bloc, in one aspect.
It's working hard to become a monetary
NO\-l
they reflec t bad: on each other.
is a maj or phenomena in the world economic s ys tern.
the rules
~or
Ttlha tare
regional arrangements of this type, trading rules,
monetary rules.
~iO'iv
do they get integrated into a world order?
Well, you can say let's go consider the trading aspects in that
corner and the monetary aspects in the other corner, but if you
ask me to say that is the wi.sest way to proceed, I am not going
to
a~ree
with you.
QUESTION:
Mr. Volcker, I don't know whether you are
intend in: to confine this merely to the international but can I
talk about Canada-U.S.?
Al[ythin~,;
ANSHER:
QUESTION:
is free ::3ame, I 2:uess.
Is a rev:le\V of
t~le
U.S. position on these trade
talks with Cailada now underwav?
./
ANSWER:
We're always reviewing our position.
QUESTION:
Well in specific response to Mr. Nixon's Mid-Apri
visit to Ottawa, i_s there some other review t1nderway then, or some
special review underway?
AnSWER:
QUESTION:
ANSHf;'R:
",Te're always ready to look at this.
Ivhen do you expect a resumption of the trade talk:
I don't kno T,,7.
I don't know whether Canada is
prepared to come vlith any nel7 proposals.
- 13 QUESTION:
ANSWER:
Is it cont ingent on Canada corning forward?
Well, certainly I think it was clear, the position
we were in in FeLruary.
We had no satisfactory proposals and
i;: that's the position, there's no
QUESTION:
ANSWER:
basis.
There's no basis for resl.1 mption of the talks?
I say "ifi'!
QUESTION:
No, as I say, there is no bas is :for resumpt ion
\... ta 11~s, ~1..
. .c: t"ere
h
h
,
. t he C
d '~an
as ':Jeen no cnange
~n
ana
of tde
. .
pos~t~on.
T:1at 's your point.
ANSWER:
Well, I think that's clear, sure.
QUESTION:
the s ide of
You expect, in other words, the full movement on
t~e
ANSWER:
Ca'1ad ians?
I never sa{d that.
I think we've always made clear
that there's nothing in our positio, that says that this item or
that item is absolutely criti.cal.
QUESTION:
of
the~,e
We look at it in a totality.
So where must the initiation corne from for resumpti.on
talks?
ANS~ER:
We're in a position where we had a set of
propo~al~,
ii you will, that really in our jlldgement dtd not advance the
cause.
Well now,
i~
we're still in that position, there's obviously
no a.;reement and that iE the pos ition that we've been in.
not aware of any change in the Canadian position at this
QUESTION:
~ut
I am
po~nt.
you were also sug:;esting earlier then, that the
U.S. positions has not shifted.
ANSWER:
The U.S
0
position is always sl.'bject forreview blit
I'm not aware that we have ever had a position, in t::le sense,
- 14 -
that there are a series of inviolate propositions.
QUESTION:
How imperati.ve is it to the U.S. that strDct!1ral
changes be made in the automotive agreement at this point in
tiIT'e?
ANSWER:
The automotive agreement is certainly one element
Ln our proi)lems, as we see it.
·
s an
lmportant
ItI
•
~n
d ustry.
I
think you probably know the general fact is that we have an
agreement that philosophically is based upon the notion of free
trade in that particular sector between the countries.
there are, in
But
our opinion some impediments on that philosophy·
that were considered to be of a transitional nature that are
still there.
QUESTION:
Does the U.S. feel tbat Canada shol1ld return to
exchange rate?
P ea~ed
00
ANSWER:
Well, there was certainly some feeling at the
time of the Smithsonian Agreement that, not simply the United
but
tbe zeneral consensus of
~vorld
Stl
financial and indtlstrial
policies was very strongly expressed in terms of fixed exchange
rates at that time---that the rule of the game
~_n
effect should
fixed exchange rates.
\.Jell now, Canada chose not to parti.ci.pate
consensus
that consensus bu.t I don 't pin that! on the United States. That
was a very strongly expressed view around the table.
QUESTION:
Do you realistically expect a resumption of thes:
trade talks, bilateral trade talks, before the election takes
place in Canada?
1
- 15 ANSWER:
I don't know when the election cakes place in
Canada.
QUESTION:
Before an election takes place in Canada.
You
made the comment immediately, the day or so the Canadian package
was rejected, that it was a political problem.
ANSWER:
Well, there are political problems in all these
things.
QUESTION:
ANSWER:
In what respect?
There are all sorts of political problems but I
am not going to answer any questions about a Canadian election
that I have no knowledge about.
QUESTION:
The day before yesterday Mr. Connally had a
discussion with the press and these reporters said he thought
that the Conunon Market was going to be an inward
and that Canada and Japan would not
~ive
economic concessions that they wanted.
100 king
affair
the United States the
Where does this leave
your target date that you mentioned for monetary reform?
kind of options will be available to the United States
What
;.ll
tl.,is
kind of a situation?
ANSWER:
interview.
Well, I don't want to conunent specificalLY. on the
I read the paper
q~lickly,
but of course I wasn't
there, so I don't think I want to get into any detailed comments
on what Mr. Connally said.
I certainly know, and I don' t
thin~:
it's confined to Mr. Connally, that there are tende~~ies within
t~e Common Market that tend to discriminate against other countries,
t~la
l L.
-
c. tellU tc loc'k inward and tha t they are in, allu !-:ave been Iii,
develop~ng
a periGd where they have a very difficult problem in
c..ei.r own cOllesiveness; there own unity.
danger and CE'nd2ncy
pa t ion with one';;
UU.r.~116
i~.:::c .ella 1
l.-~l':"S
;~i.nci
o:~
problems in
And there
a period
ou lid ing
i~
a .Lt:al
with a preoccua very dramatic
new orocr and sy3tem wichin Europe) that tile external gets
neglected, and I think that's Mr. Connally's concern.
.I:.
QUESTI01'l;
concern tha t
Volcker, it also seems to·.)e Dr. ?uras'
....
ANS~TER:
I say the concern is not lindted to
QUESTION:
ANS\";ER:
~lr.
Connally.
A.'; you've noticed, certainly, the threat he raise:
I assure you you have read "j.r. Burns' speech in mort
del.-a.;_L and more carefully ti.lan I have.
I will read it with
gC1..8.
-'_L1 ceres c .
T~ie
QUESTION:
de~.ay
point 'Ls a well known one that if, in fact,
continues that there
ANS\iJER:
delay at all.
istic blocs.
i~
a danger of competing blocs
vlell, yoP say delay; I don't put that entirely on
I'm concerned
a~out
He need to find some new language nere;
we need to find some new semantics
si~nais
~ignals
0-LOC.
becaus.~
bloc s0-nds off all
in people's minds, sometimes, and different
in dii£erent people's minds.
dE:~inition
a
dangers of competing, antagon-
That is certainly one of the challenges, but let
me make a point here.
kinds of
rais~g
I think by the ordinary
of the word, as I understand it, ttle Common Market is
1 say tilat, I co n' t mean to be perjorative in saying it.
- 17 -
There is a problem whether we have, as you suggested, antagonistic,
competing blocs.
That is a problem.
I can quite conceive of
having blocs in the world that are cooperating and tend to
minimize restrictions among them.
If you look at in the narrow
focus oi the monetary side of the equation, in some respects, certainly it seems to me monetary unity in Europe gets rid of some
problems and maybe, if they can pull it off, which is a very
difficult thing, but after all we have had a certain amount of
monetary turmoil with in Europe, a certa in amount of monetary
strains.
Now, if one dreams and says well, we're going to do
away with all those because they are going to have, and now I'm
way down the road, a common currency, we don't have to worry about
a speculative problem or lack of adjustment between the guilder
and the franc or the mark and the Belgian franc or whatever, that's
all now subsumed in a cmmnon currency.
You know from the inter-
national standpoint, it may give them some problems in Europe, but
from an international standpoint, I don't see that there it's
anything to resist.
It's perhaps a new focus of stability, a
larger area of almost automatic stability in tJ:-:e world.
QUESTION:
But the point is if, while this thing is in
bUiliing, is it not better for you, I mean for the United States
and for other nations, in effect to get in on the ground floor
and see that the direction is
ANSWER:
I think that is true.
They're going tobe in
a difficult period, that I referred to, for some period of
time and we want to be in a dialogue with them.
We want to
- 18 bring the pxternal consideratic: . .:. to bear as oest we
recognizing that, as I presume
~r.
can~
Connally was emphasizing,
the very strong temptations and incent5. vt::s to some degree
look inward.
Olr. Vo 1 cker, Dr. Burn.s in his speech seems tu
QUESTION:
el':"eve lilac a system of basically fixed parities 3hou"Ld
continue w.;.. .... u perhaps more flexibility than we have had in the
past.
Do you think that part of the agenda that should be
discussed might also incl.,lde much more freely floating excnange
rates either among aI-I countr Les or Lletween blocs?
ANS'ER:
~ou
I really don't know quite how to answer that.
know, we have a very
sides there are or used
grea~
LO
spectrum of opinion and on soms
oe pretty strongly fixed rate ppople
aud on the other side there are or used to be some pretty free
floaters.
Now I understand we have a consensus of flexibility
and I will admit..
L.~.aL
I
am a L:_ttle suspicious of a consensus
that somei10W encompasses that broad a spectrum.
is Some
con~ensus
I
think
th~re
that there has to be some kind of a compromise
in effect oetween the two and this raises some very difficult
technical proolems.
But having said that much, some kind of
compromise iJetween t he two leaves us with, I
"
t11ink , some excru-
ciatingly diffi_cult problems in what that compromise should be
and
~'iOW
it works and how it's formulated.
QUESTION:
Can you tell us wilici.1 way you lean toward more
flexibility or less flexibility within tnis range, this ~road
range?
- 19 ANS'~!ER:
I'd like to say slice it down the middle but I'm
very conscious of the very severe kinds of technical problems
that we have ana Lhey're not just technical.
You know, it's
been said by someone, and I think there's a lot of wisdom in
this comment, that he understood how floating exchange rates
worked, he thought, and he understood how fixed exchange rates
worked, he thought.
But he wasn't sure he understood how any of
these things in between worked.
And I think this is one of the
problems we are really going to be struggling with.
Now there are all sorts of attempts to come to grips with
this problem intellectually, crawling pegs is one kind of version.
I can conceive of a system, as a combination, with some countries
on fixed rates; other countries on flexible rates.
that system at the moment.
Canada is on a flexible rate, a
floating rate, not only flexible, floating.
on fixed rates.
We've got
Other countries are
\vell, is there some intelligent combination of
these that makes sense in the future?
It's obviously a relevant
issue and it's one of those issues that has to be looked at.
Are there oppotunities, and let me say just one more word
on this, for another kind of compromise?
Smaller countries of
Europe, in particular, feel urgent about fixed rates covering
the major portions of their trade, and rather rigidly fixed rates
covering the major portion of their trade.
Is
tr~re
some way
of satisfying that desire with perhaps a little greater flexibility vis-a-vis the rest of the world?
Now, in a very limited
sense, that also is the system we now have in that European countries
· 20·
arc mC'v-:_::g toward a narrow:"r 1.Jand among them::;elves within the
concept oC a wider ))an.d
QUESTION:
[ww
'_'od _'_2~
res tr ..,"'; L'-L
So there's more than one
permani:-~nce
COL!ld I a.sk you aOollt the
l.~.aL
·,ii:',
els~~l7here.
of these
you are .sett ing up, the Croup of Twenty and the
of ;-'ATT and OECD?
Do you see these as th ings
~s
whicll w i1 i have a 1 imited job to do and after agr(.e;;!me!Lt
reac~led,
they will be disbanded, or do you think they are going
to UeCc.ffiL pcl:matlellt features of t{,e ne\l7 economic landscape?
ANS\tJER:
tllis
1
:~roup
l.:,~nk
Well, my presumption, at the
morn'';L'~'
':"s certainly
of Twen ty would be a group with a spec ific job to do.
that the discussion is based upon that premise.
QUESTION:
Sir, is the member:""ip, a.,j well as
the ,_:ruup uf iWeli.ty, now largely aC;.LeeJ allU :...:.
S0,
tl~e
size of
you
..... o.11u
6ive us some indication as to which countries would be included?
':;.~ .. S~VEK:
pes:~
Hell, much of the discl1s3ion has converged on the
Lu U i ty tha Cel) L
~rot1p
01.' T--wen ty be chosen in a fashion
cempacaole to U.e execut5.ve directors of ti-:e Fi. 1 uu.
So, in that
pad
~en~~, I think there is some con3ensus developing on a specifia
~~ow,
ci:~ectors
if you say
particL~lar
~L~rectors
QUESTIO:-,:
pa~ticipation
~~SWER:
'-,-cEi·,E'O
sorice o:i ;':;,ose executive
tD~y
are chosen by a group of countries and whetier
Clloc:;e thE .:iame cOlmtr) for tllis
ExeCt'tivC:!
countr_:_e~,
p,_~rpo:Je
as they cn03e the
is up to bIen:.
Can the fact tnat ;'ir.
Connali~__ -w':'(.~ldrew
from
in this conference ....
~o,
may I interject?
Some months ago,
w~en
he
all invitaticn,ir. Connally indicated that he was not
- 21 -
going to be able to come to this conference.
There is no
question of withdrawal.
QUESTION:
ANSWER:
QUESTION:
He never accepted the invitation?
Never accepted it.
The Canadian float, as an example, they talk
about a relatively clean float.
Do we consider it more relative
or more clean?
ANSWER:
That's an interesting question.
There has been a
certain amount of intervention, as you are undoubtedly aware,
and I don't think it's appropriate for me to try to characterize
that intervention.
QUESTION:
ANSWER:
Does it meet with your satisfaction--?
I think the Canadian exchange rate has moved some.
I wouldn't want to characterize that.
QUESTION:
Can I come back to the question
of the dollar as a reserve currency.
o~
the role
You said in an answer to
a question before that this was one area where perhaps the U.S.
government position did not exactly match Dr. Burns' position
which, as he stated here, was that he wasn't persuaded that it
was a wise thing to allow the role of the dollar as a reserve
currency to diminish.
ANSWER:
QUESTION:
To diminish?
He said, in his talk, that there "seems to be
significant sentiment in favor of diminishing, or even phasing
out, the role of the dollar" and then he continued to say, "I
1m
not persuaded by this line of reasoning, for I see advantages
- 22 -'..Jet\)
tile United States ...
i:C
QUESTION:
You said, didn't yc',-' that this wa:.; a point on
which that clle Unitcd States war:ted to
dce~'
-ut wLlicn
k~ep
an open mind?
n' t imply tnat we
:L t i s age 0 G i '-. <2 a to do away wit b .L t
.:~ 0 r
ar.~
pec5uadeo tna
dol t h ink,
up th:?
sy~;,t€"m
that 100i_s
rt~a.30naOle
W':"Luout a
whether .Le's tILe dollar or anycling e13e.
turn:: is not pc:rsuadec!, 1
not persuaded
1 cc k at.
a~1,
tnin~
re~~erve
think it
~_;:;i
to dr,
clrrenc)
So, if you sa) Dr.
':our square w.;. .... Dr . .':!urllS.
_-'dC I
eit~1Cr.
n
n t i~
Of[~.lia .. ,)
pact:i_cl 1.l_ar case., tbat a gooa many oth.=r countries or
1::" s one thing to say th_:_.:>, anotlkr
0
.le5.Lt~mate
a
lam
iS3ue to
If Dr • .l)urns is saying tills is not an issue to look a
1,[ he sa ys ne'
I gue.:- s I d L:a ree wit:, h i.m.
0
II iii,
all wi tl1
S
not pel.' ::>~aded, I
.
l.'io, I
QUESTION:
(le
ttd.,dcs~he
[) e
t<. e pta n d
use of:
as I
:~e
:S.NSvlER:
lJ
(11.;.n1<.
t~l';~
w~la
t
Lle
I
s
say ing i.:, that, on
oa lane.
dollar as a reserve cl1rrency OUgi.lt to
n a ('~ r s toe d w: .a '-
~~eems
,
>() usa ~_ d
to ru:. tc ;_;e
:...- e .: ere
eil..p.L~ssing
....
a certain skept:C
that s,-me of i:',e morl2 S1;Jeep.;.l1g prcpc:3als i:or co::_ng away with th
dollar or other reserve c'lrrencies will, in the end, prove
prac~.Lcal.
0.[ t~,e
Certainly, tc a oegree, I personally ru-'_c;::t
~kep L
:_c i3m, a 1 though
~
t cou Id c haflge .
it Cepend3 upon \\fhat the resr oi LLle system
certa inl_Y cOflceive 0;-- a system
desira~ic
of view
0_
whei..·'~
s~.aL.-e ,0
I don't know.
lOOKS
l.:..:ce.
.;g
I can
t:,is was not necessary,
or possi~~e, aua particularly desira Le _com the pain
Li)'2
Uni_tEcl States.
This isn't a..Ll beer a.1d skittle:
- 23 -
as we have long since discovered.
I don't cHink, again without
looking at his precise language and so forth, you can't drive a
wedge between us on that one.
QUESTION:
If I can, again, belabor the point.
How important
to the United States is it or how imperative or whatever that it
achieve a surplus on trade account?
ANSWER:
Surplus on the trade account-- I think is imperative.
QUESTION:
ANSWER:
\-lith Canada?
Oh, no.
There seems to oe confusion on this issue.
We've tried to state the position and somehow it doesn't come
through.
We are looking at our totai position, our total equili-
brium in the world.
Now you ask me, do I think we can achieve an
-quilibrium in t:.e world without a substantial currel.t. aCCQUllt
surpius for the United Sta tes, I say no, I don't think we can.
If you say, can we achieve a substantial current account surpius
for the United States without a substantial trade surplus, I again
say, no, I do not think we can.
If you ask me whether an equili-
urium for the United States balance of payments
~s
essential to be
strong dollar, a stable monetary system, I say yes, sir, I do
think it is essential to a strong dollar, a stable monetary
system and international narmony.
That's our position.
OKay, we don't trade with ourselves.
If we are going to
achieve this kind of equilibrium, obviously it is going to be
reflected in the trade of other countries.
the world and we say:
Now we look around
equilibrium for the United States is
necessarily going to have to mean an equilibrium
other countries.
for
Naturaily, we tend to look at the surplus
- 24-
conntries.
Japan is a prime exampte---a trade surplus this year
or what, eight, nine, ten Dillion dollars, I don't know.
~igger
than the United States has ever had.
surpluses and
~ig ~alance
I know
We look at big
cra~
of payments surpluses in Europe.
:";ow you lock a c Canada and certa inly we say Canada is in a
strong balance of payments position overall.
If I recall the
figures correctly, and I baven't looked at these recently,
tl~
Canad ian oa3 ic balance of pa yrnents, trade, other current account
item3, long term capital together has run over a billion do11an
a year on
t~e
average in the past three or four or five years.
Well, we are saying if other countries run surpluses
obviou sly we can I t De in equ il ibrium.
continuous~
If we are not an equili-
brium, we don't have a st.aole dollar, we don't have a stable
international financial system, we have all sorts of room for
tension and difficulties with others, and all we are trying to
is to point out this relationship which, if somebody could show
us bow it works some other way, fine.
This is not the equivalent
o[ saying the Canadian trade position has to be any particular
figure, much less the Canadian trade position with the United
States has to be any particular relationship.
We certainly make.
the o'uservation, which I think is a fair one, that the strong
Canadian position which has developed in recent years has been
accompanied by a very major change in their trade
relation~h~q
with the United States.
QUESTION;
Is there any deadline then, Mr. Volcker, for
the internal deadline set within the U.S. adminis trat:i.on for the
resumpt ion of trade talks w..i..ei.1 Canada, or tne reaching of a
- 2.J settlement with Canada.
In other words, Canada would be left to
set for seven months, a year, two years ....
ANSWER:
We're ready to talk at any time and nave been.
But
we haven't got any deadline.
QUESTION:
SO in other words, if someone on this side of
the uorder wanted to just cool tne whole thing down and just
sit back, you peoplt.. aren't goi.ng to take the initiative ....
If everybody in the world--you say 'l.C:w . . ~.e whole
ANSWER:
thing down?
QUESTION:
ANSWEK:
Cool it.
Cool trie whole thing down.
some co~c~rn.
the world.
I must admit, we have
It's not just the Canadian problem.
There are surplus countries.
We loc~ around
If every country in
the world says well, we are going to cool it or we are going to
wait indefinitely to do anything, WC:Ll, OJviously we are in for
a long period.
Where's ail. this sense of urgency that I've been
hearing about gett5_ng on with the job?
~'Je
don't want to cool anything; we want to move toward an
~uilibrium
in our payments and we think that's essential.
trying our "!Jest to do it.
N~
if
every~ody
objective::.
t:~is
~"ere
We're
We're trying our damnedest to do it.
else wants to cool it, we've got some inconsistent
but I think this is an interesting twist.
~laybe
exposes a dilemma on what we consider some very real adO :"asic
issues.
Everybody wants to cool it.
r,.j~.eLL
we corne to some
monetary m2chanisms, which, in our position, depend upon the basic
issues, somehow there's a great sense of urgency, which I share,
out what's the consistency between cooling it and urgency?
- 26 -
We don't want to cool it; we want to press.
U.S.
QUESTION:
Hhat's the likelihood, or tile chances, of the
a~rogating
either the Auto Pact or
t~e
Defense Production
Sharing Arrangement?
ANS~';ER:
I r m not go ing to corrrrnent on the deta il s of the
relationship.
QUESTION:
Do we assume that yesterday's announcement tllat
the Treasury Department will put a countervailing duty on Michelin
tires entering the U.S. from Canada, is this an escalation of the
U.S. position?
ANS~TER:
It's no escalation.
But there's a technical point.
The announcement is that a question has been raised, and indeed
a question has
~een
raised in this situation, but the technical
action announced yesterday was not an action to put on a countervailing duty.
This is no sense represents any escalation.
has been a complaint.
There
A preliminary look at that complaint
justifies the question being ra "'.sed, quite clearly, in our positio[
tile have a law, a mandatory countervailing duty statue that says,
in effect, Ii sU0sidies or counties or grants are paid,
countervail.
YOll
Against that background, a complaint has been
received; a preliminary investigation says yes, there is evidence
here that raises a question whether that is not, indeed, tbe fact
of the situat:i_on.
And the action followed, the notlce followed.
The Department 01 the TREASURY
ASHINGTON, D.C. 20220
ATTENTION:
TELEPHONE W04-2041
FINANCIAL EDITOR
FOR RELEASE 6: 30 P.M.
May 22, 1972
RESULTS OF TREASURY 1 S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
bills, one series to be an additional issue of the bills dated February 24, 1972 , and
the other series to be dated
May 25, 1972
,which were offered on May 16, 1972,
were opened at the Federal Reserve Banks today. Tenders were invited for $2,300,000,000,
or thereabouts, of 91-day bills and for $1,800,000,000, or thereabouts, of
183-day
bjlls. The details of the two series are as follows:
RANGE OF ACCEPTED
COHPETITIVE BIDS:
High
Low
Aver8€,e
91-day Treasury bills
maturing August 24, 1972
Approx: Equiv.
Price
Annual Rate
99.040
99.025
99.033
3.798%
3.857%
3.825%
183-day Treasury bills
maturing November 24, 1972
Approx. Equiv.
Price
Annual Rate
97.855
97.845
97.848
!y
4.220%
4.239%
4.233%
Y
~ Excepting one tender of $400,000
60% of the amount of 91-day bills bid for at the low price was accepted
25% of the amount of 183-day bills bid for at the low price was accepted
WTAL 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
EI
£I
!I
AI2I21ied For
$ 26,385,000
2,947,885,000
25,640,000
18,075,000
22,050,000
25,040,000
231,010,000
19,720,000
32,955,000
20,700,000
18,370,000
331,940,000
AcceEted
2,705,000
$
1,705,015,000
4,960,000
7,310,000
3,050,000
8,120,000
24,475,000
7,720,000
8,705,000
9,890,000
8,170,000
10,140,000
$2,300,005,000 }d $3,719,770,000
$1,800,260,000
AcceI2ted
AI2I21ied For
9,515,000
$ 19,515,000 $
1,966,690,000
3,022,090,000
13,525,000
13,525,000
25,070,000
25,605,000
8,410,000
8,570,000
26,370,000
41,720,000
131,405,000
246,905,000
29,470,000
37,670,000
17,390,000
32,490,000
21,755,000
31,935,000
20,410,000
10,210,000
76 ,895 ,000
40,195,000
$3,577 ,330,000
:J
Includes $166,345,000 noncompetitive tenders accepted at the average price of 99.033
Includes $ 80,345,000 noncompetitive tenders accepted at the average price of 97.848
These rates are on a bank discount basis. The equivalent coupon issue yields are
3.92 %for the 9l-day bills, and 4~3910 for the l83-day bills.
The Department of the
ASHINGTON, D.C. 20220
TTENTION:
~IR
TRfASURY
TELEPHONE W04·2041
I'lay 23, 1972
FINANCIAL EDITOR
RELEASE 6: 30 P.M.
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 February 29, 1972 , Cl.l1d
he other series to be dated
May 31, 1972
, which were offered on May 17, 1972,
ere opened at the Federal Reserve Banks today.
Tenders ,,,ere invited for $500,000 ,OOG,
r thereabouts, of 273-day bills and for $1,200,000,000, or thereabouts, of
365 -d3.:Y
ills. The details of the two series are as follows:
ANGE OF ACCEPTED
OMPETITIVE BIDS:
High
Low
Aver8f!,e
273-day Treasury bills
maturing Februar;y: 28: 1973
Approx. Equiv.
Annual Rate
Price
96.713
96.675
96.688
4.335%
4.385%
4.367%
365-day Treasury bills
maturin~ May 31, 1973
Approx. Equiv.
Price
Annual Rate
95.519
95,412
95.473
1/
=..;
4.420~
4.525%
4, 465:~
y
76% of the amount of 273-day bills bid for at the low price was accepted
58% of the amount of 365-day bills bid for at the low price was accepted
)T~
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
Louis
Hinneapolis
Kansas City
Dallas
San Francisco
St,
TOTALS
Applied For
$ 15 , 210 , 000
1,306,355,000
420,000
5,185,000
700,000
12,765 ,000
131,840,000
16,570,000
17,630,000
12,570,000
23,970,000
71,700,000
$1,614,915,000 $
Accepted
$
210,000
457,870,000
420,000
5,185,000
700,000
765,000
13,870,000
11,330,000
630,000
2,570,000
1,970,000
4,700,000
500,220,000
Applied For
15,030,000
1,776,255 ,000
1,775,000
1,340,000
12,385,000
17 ,770,000
123,555,000
32,465,000
18,260,000
16,640,000
23,620,000
110,975,000
Accepted
$
1,030,000
963,255,000
1,775,000
1,340,000
8,385,000
9,770,000
62> 715,000
31,465 ,000
14,260,000
6,640,000
6,620,000
92,765 ,000
$2,150,070,000
.$1. 200,020, 000
$
§}
~/
mCludes $ 10,670,000 noncompetitive tenders accepted at the average p~ice o~ 93,3SB
Includes $ 20,005,000 noncompetitive tenders accepted at the average price of 95.47:3
These rates are on a bank discount basis.
The equivalent coupon issue yiel,is ar~
4\55 %for tha 213-da;y bil.ltt-,- ~ 4.6':1'/0 for the 365-day bills.
The Department of tlle
IASHINGTON. DC 2022U
TREASURY
TELEPHONE W04-204
FOR IMMEDIATE RELEASE
May 25, 1972
ANTIDUMPING PROCEEDING INITIATED ON
STAINLESS STEEL PLATE FROM SWEDEN
Assistant Secretary of the Treasury Eugene T. Rossides
announced today the initiation of an antidumping investigation of imports of stainless steel plate from Sweden.
Mr. Rossides' announcement followed a summary investigation conducted by the Bureau of Customs after receipt of
a complaint alleging that dumping was taking place in the
United States.
The total value of stainless steel plate imported from
Sweden during the period from January 1971 through December
1971 amounted to almost $3.2 million.
000
The Department of the
TREASURY
TElEPHONE W04-2041
IASHINGTON, D.C. 20220
FOR IMMEDIATE RELEASE
May 26, 1972
DECISION ON STAINLESS STEEL SHEET FROM JAPAN
UNDER THE ANTIDUMPING ACT
Assistant Secretary of the Treasury Euqene T. Rossides announced
today that the Treasury Department wi I I publ ish a notice announcing
Its Intent to discontinue the antidumping investigation with respect
to stainless steel sheet from Japan.
The notice wi I I appear in the
Federal Register of May 27,1972.
The Investigation revealed some instances where purchase price
was lower than the adjusted home market price of such or simi lar
merchandise.
However, these were determined to be minimal in terms
of volume of export sales involved.
Formal assurances have been
received from the manufacturers that no future sales of stainless
steel sheet for exportation to the United States wi I I be made at less
than fair value.
The notice of intent to discontinue the Investiga-
tlon is based on these assurances and the facts just described.
Durl ng the peri od January 1970 through December 1971, imports of
stainless steel sheet from Japan were valued at approximately
$98,000,000.
#
#
#
The Department of the TREASURY
'ASHINGTON. D.C. 20220
'TENTION:
IR
TELEPHONE W04·2041
FINANCIAL EDITOR
May 26, 1972
RELEASE 6: 30 P.M.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
11s, one series to be an additional issue of the bills dated
August 31, 1971 , and
e other series to be an additional issue of the bills dated November 30, 1971, which
~re
offered on May 19, 1972, were opened at the Federal Reserve Banks today.
Tenders
~re invited for $2,300,000,000, or thereabouts, of 91-day bjlls~ and for $1,800,000,000,
'thereabouts, of 182-day bills.
J'lGE OF ACCEPTED
IMPETITIVE BIDS:
High
Low
Average
The details of the two series are as follows:
91-day Treasury bills
maturing August 31, 1972
Approx. Equiv.
Price
Annual Rate
99.059
99.041
99.049
3.723%
3.794%
3.762%
Y
182-day Treasury bills
maturing November 30, 1972
Approx. Equiv.
Price
Annual Rate
97.951
97.906
97.924
4.053%
4.142%
4.106%
Y
34% of the amount of 91-day bills bid for at the low price was accepted
91% of the amount of 182-day bills bid for at the low price was accepted
lTAL 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
! Includes
I InclUdes
Accepted
Applied For
$ 20,600,000 $ 10,600,000
3,080,000,000
2,027,700,000
13,005,000
13,005,000
17,770,000
17,770,000
6,885,000
6,885,000
23,525,000
34,525,000
202,590,000
85,190,000
26,735,000
37,385,000
31,740,000
12,420,000
27,870,000
17,370,000
36,135,000
17,135,000
160,305,000
42,295 ,000
Applied For
$ 32,1l0,000
2,416,935,000
24,655,000
19,305,000
3,340,000
37,990,000
237,785,000
31,405,000
33,235,000
20,750,000
28,485,000
87,845,000
Accepted
$
2,110,000
1,502,685,000
4,655,000
19,305,000
2,340,000
22,790 ,000
103, 985 ,000
24,405,000
20,145,000
10,750,000
7,485,000
79,595 ,000
$ 3,668,810,000 $ 2,300,630,000
~ $2,973,840,000
$1,800,250,000
EI
$156,210,000 noncompetitive tenders accepted at the average price of 99.049
$ 80,935,000 noncompetitive tenders accepted at the average price of 97.924
I These rates are on a bank discount basis. The equivalent coupon issue yields are
3.85 %for the 91-day bills, and 4.25% for the 182 -day bills.
The Department 01 the TREASURY
ASHINGTON, D.C. 20220
TELEPHONE W04-2041
FOR IMHE]2IATr;. RELEASE
May 30, 1972
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
$4,100,000,000,
or thereabouts, for cash and in exchange for Treas.ury
bills maturing ,June 8, 1972,
in the amount of $4,206,245,000,
as follows:
91 -day bills (to maturity date) to be issued June 8, 1972
in the amount of $2,300,000,000,
or thereabouts, representing an
additional amount of bills dated March 9, 1972,
and to mature
September 7, 1972
(CUSIP No. 912793 PB6) ,originally issued in
the amount of $1,800,315,000, the additional and original bills to be
freely interchangeable.
182- day bills, for $ 1,800,000,000, or thereabouts, to be dated
June 8, 1972,
and to mature December 7, 1972
(CUSIP No. 912793 PP5).
The bills of both series will be issued on a discount basis under
competitive and noncompetive bidding as hereinafter provided, and at
maturity theii face amount will be payable without interest. They will
be issued in bearer form only, and in denominations of $10,000,
$15,000, $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 5, 1972.
Tenders will not be received
at the Treasury Department, Washington. Each tender must qe for a
minimum· of $10,000. Tenders over $10,000 must be in mu1 tip'les of
$5,000. 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 6f
CUstomers provided the names of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
- 2 submit tenders except for their own account. Tenders will be receiwd
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are accompanil
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announcement
will be made by the Treasury Department of the amount and price range
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reiect 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 decimalE
of accepted competitive bids for the respective issues. Settlement fOI
accepted tenders in accordance with the bids must be made or completed
at the Federal Reserve Bank on June 8, 1972,
in cash or other immediately available funds or in a like face amount
Treasury bills maturing June 8, 1972.
Cash and exchange tende
will receive equal treatment. Cash adjustments will be made for
differences between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code
of 1954 the amount of discount at which bills issued hereunder are sole
is considered to accrue when the bills are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price paie
for the bills, whether on original issue or on subsequent purchase, am
the amount actually received either upon sale or redemption at maturit~
during the taxable year for which the return is made.
Treasury Department Circular No. 418 (current revision) and this
notice, prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained fr~
any Federal Reserve Bank or Branch.
000
The Department of the TREASURY
ASHINGTON, D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
STATEMENT OF THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY
TO
THE ORGANIZATION FOR ECONOMIC COOPERATION
AND DEVELOPMENT COUNCIL MEETING IN
PARIS, FRANCE
THURSDAY, MAY 25, 1972
Mr. Chairman:
If I may, I would like first to convey to you and to the
others here the greetings and regrets of Secretary Connally
who, as you know, intended, until a certain event last week, to
attend the Council meeting here today. I bring the same
greetings from Secretary-Designate Shultz, who was particularly
concerned to have me convey to the group that, while there
would be a certain change in the personalities at the Treasury,
as the President indicated in making that change, it is a
changing of the guard and not a changing of policies.
I welcome the SecretarY-General's initiative in scheduling
this discussion of international monetary and trade issues and
raising the question of the role of the OECD -- and particularly
the breadth with which he has dealt with this subject.
It seems obvious to me, and I am sure to everyone around
the table, that no subject could be more timely. After a
period of relatively smooth and really unparalleled progress
in trade during the post-war period, the monetary and economic
system has been through a period of some tension and shock
over the course of the past year. Certainly one of the most
urgent tasks now facing all our governments is to undertake
serious work on the arrangements which are really going to
condition international economic relations for the next 25 years,
just as the post-war arrangements served us so well in the past
25 years.
C-315
- 2 -
I should say, in that connection, that I am pleased, as
others have ~lso suggested by the calmer atmosphere in exchange
markets and 1n other relationships that have developed in recent
months. But I also want to say that I don't derive from that
experie~ce any sense of complacency whatsoever. To the contrary
we cont1nue to be impressed by both the need and difficultv of
achieving sustainable balance in the economic relationships
among our countries, most broadly -- and I would say
specifically in our own balance of payments. We indeed have
a strong conviction that equilibrium in the u.s. payments is
an essential ingredient for stability world-wide in the
monetary system and in trading arrangements -- perhaps the
single largest factor and challenge ahead of us. I would
certainly hope and expect that that conviction is common
ground. Of course, it is not just a short-run problem of
making the adjustment that has to be made in present
circumstances. We have to look at the problem of sustaining
balance of the United States and for others in the broad
perspective of the years ahead and the kind of perspective the
Secretary-General has been emphasizing.
I am sure, as Chancellor Barber and others have already
suggested, that all of us share an interest in moving ahead
to reorder the international economic system in a way that
really reflects the present and foreseeable realities, and
in a way that supports a common interest in liberal and open
trade and political harmony.
It struck me, in listening to the opening ceremonies
yesterday, Mr. Chairman, how different the world is that we
live in today from the day when the Marshall Plan was
inaugurated.
We are no longer dealing with the world of the late 1940's
when one na~ion was dominant. On the other hand, we are not
dealing with the world implied by the economic textbooks
very often -- a world of equal and atomistic states. We quite
obviously have a world of several major power centers: the
United States, the European Community, Japan, just to name
some of the largest.
To be perfectly frank, I am not sure that our thinking has
been fully adjusted to this change in circumstances. It does
require a rethinking of basic philosophy, basic premises of
the system, in many ways, to make sure the structure of
monetary arrangements and the structure of our trading
arrangements fit present needs.
If I state the issue most broadly, and I think it is useful
to state it broadly, the links between the various aspects
of the problem -- monetary, trade, investment, whatever -seem rather obvious. A common expression is that money is the
handmaiden of trade and investment. ~ ~t ~~epl ~hat.
- 3 -
We all accept, I think, in the broadest terms, that the
pmlosophy and structure of our monetary relationships have
some relation to the philosophy and structure of our trading
relationships.
We established in the post-war period, quite rightly, a
non-discriminatory, multilateral payments system. And that
had its counterpart very directly, in the trading order, in
the most-favored-nation clause, the cornerstone of liberal and
non-discriminatory trade policies.
I think there is an assumption, implicit or otherwise, in
a system of relatively unchanging exchange rates, that other
elements in the system must contribute heavily to a more
smoothly-working adjustment process. Or conversely, to take
the other extreme, if one assumes flexible exchange rates and
heavy emphasis on adjustment through exchange rates, we have
to assume that trade is free to move in response to the
relative price changes that the exchange rate change entails.
If large segments of trade or investment are insulated from the
adjusbmnt process -- through government intervention, through
quotas, through whatever restraints exist -- the prospects for
smooth adjustment are hampered, whatever the monetary arrangements.
We often hear it said that monetary breakdown can lead to
inhibitions on trade, perhaps the growth of blocs -- antagonistic
blocs, competing blocs -- and certainly that seems to me a
legitimate concern and fear, one that we share. I think it's
equally true that trading arrangements out of keeping with
economic realities can lead to monetary problems, inhibit
adjustment and contribute to a breakdown of the monetary system.
I think we have had some examples of that around the world.
For those reasons, my government strongly supports the
view that monetary and trade arrangments, in particular, are
closely inter-related and must be considered jointly.
We certainly put ourselves fully in support of the notion
that the OEeD, by its nature, its charter, its experience, is
especially well-placed to equip itself to deal with the interrelated problems.
- 4 Indeed, I think the DECD has the potential of making a
unique contribution to this field. I think we would really be
negligent in fulfilling our responsibilities, and the DECD in
fulfilling its responsibilities, if this organization did not
move promptly to prepare itself to make a full and maximum
contribution to the task ahead v
Now I would like to be a little more specific, Mr. Chairman,
about some of the trade and monetary linkages that we see
immediately ahead of us, particularly in terms of the reform of
the monetary system.
Mro Van Lennep referred to the discussion of a more
symmetrical monetary system. I think we are all familiar with
some elements of tha t discussion. It may have different meanings,
as he suggested, for different people in different contexts o
But it does at the least, I think, mean a system in which nations
are required to settle payments deficits and surpluses with
reserve assets (to look at the monetary implication) and to
eliminate the imbalances promptly and to move rapidly on the
adjustment process.
That kind of system, I will tell you quite frankly, has a
certain amount of appeal to the United States after more than
20 years of deficit. I should say it means that, for a starting
period, the United States should think in terms of running a
surplus to restore the strength of our internattional financial
position, but in the longer run it means the United States and
all countries would have to stay close to approximate balance
in their international payments. Now for the United States
that means moving from a long period of deficit. For other
countries it would mean moving the opposite direction o
This, of course, raises the question of what the disciplines
are in the system, what pressures there are for adjustments that
in many cases may not appear -- looking at an individual country
and its immediate interests -- will not appear the most delightful or pleasing kind of adjustment. If this kind of a system
is going to be a reality, if quick and full adjustments are to
be more than pious hopes and become practical realities, we
have to think about what kind of disciplines are necessary.
- 5 -
The disciplines on deficit countries, I think, have received
a good deal of attention and they should o But the question is
equally raised, what about the disciplines on the surplus
countries? I think there must be a symmetry here for the
system to work correctly.
If that is correct, it immediately raises a further
question: To what extent do we rely upon monetary measures,
ruch as exchange rate changes, in this adjustment process, and
to what extent should there be reliance on trade or other
measures, particularly when the case for exchange rate changes
may be less than clear-cut and ambiguous -- trade changes,
either in the sense thought of in terms of the IMF scarce
currency clause where the question of trade restraints is
relevant, or trade action in terms of liberalization of
restrictions that might exist?
Now when this question is raised, in my experience at
least, there is a quite predictable reaction, depending upon
what group one is talking too Trade people are inclined to
take the position that these are very interesting and relevant
problems, but, of course, it's a monetary problem, and one
should look to the exchange rate area or otherwise. When one
talks to a monetary group and they are impressed with the
difficulties of exchange rate changes, they are inclined to
say, well, of course, this is a difficult and relevant problem,
but go discuss it with the trade people
I think this is
illustrative of the kind of link, the kind of problem to which
we must address ourselves.
Q
Then there are immediately related questions as to what
actions are appropriate in particular circumstances. What
particular techniques are appropriate?As you know, the GATT
presently justifies use of quotas for a nation in payments
deficit but not surcharges, but experience suggests that
countries have found it, I think for good and solid reasons,
more convenient and more desirable, often, to use surcharges
rather than quotas. It is appropriate to ask whether a
distinction created 25 years ago is still valid, is still
sensible in the light of recent experience and foreseeable
circumstances. Then, of course, you can ask whether the use
of either quotas or surcharges is appropriate, or in what
circumstances.
- 6 -
Now another kind of question, I think, arises with quite
apparent differences of opinion as to whether, and to what
extent, equilibrium might be achieved through the use of
controls and perhaps, particularly, controls on the investment
side of the balance of payments equation. There are those
that distinguish sharply between trade and investment in this
respect, and would focus the adjustment more largely on the
investment side of the equation. Obviously, this is a major
issue and there was some reference to it yesterday, I recall,
by our Canadian colleague, and it implies, in turn, different
monetary mechanisms.
I think we, too, Mr. Chairman, have to recognize that
regional arrangements in trade and money are a fact of life,
and that these phenomena have to be related, the trade and the
monetary, in a regional sense, one to the other. Yet I think
we have to admit that the size and extent of present
arrangements of this sort really weren't contemplated in either
the basic trading rules or the basic monetary rules under which
we are now operating, and there is a real need for developing
a new consensus and a new doctrine in this area.
Now I don't raise this point at all in suggesting that
the United States has consistently supported the Common Market.
But there are important issues emerging from this development th
I think we need to deal with frankly and openly, lest, by lack
of design, we do fall into an environment of competing and
inward-looking blocs. And I would be frank to say we are
disturbed by some tendencies we see in Europe in the
proliferation of trading arrangements and association
agreements. On the other hand, my own opinion is that European
monetary unity could become an extremely important building
bloc for a more satisfactory world system and a more stable
monetary system. My point is simply that We can't separate one
from the other and its a phenomena that does need examination.
I don't
want to comment, in substance , on the deliberations
.
of the h1gh level group and I won't claim that degree of
familiarity. I was interested in listening to Mr. Rey's
comments, but I would just observe in this connection that this
group which was established, of course, with a mandate in
trade as I understand it, has found, in the course of its
deliberations, that monetary questions kept arising and
.emerging and could not be put down. I take it that this is an
illustration of the inextricable link that I think does exist
between these subjects.
- 7 I've been interested too in observing the Japanese
actions which we had described to us yesterday. It was quite
clear they looked upon certain trading actions as substitutes
for exchange rate action. And I welcome their program and I
hope that it will be effectively implemented. Again, it is
another illustration of the way these factors are linked.
Now I want to make sure my comments are not misunderstood
in one rather specific way. In discussing trade and monetary
linkage and in insisting that they be looked at as part of a
coherent whole, I'm talking essentially about reforming the
basic rules of the game -- the fact that we need a consistent,
compatible code of conduct in both of these areas and, without
this consistency, I think we run into grave danger that either
the trading arrangements or the monetary arrangements, or both,
will break down.
I
am not referring to specific trade negotiations, in the
traditional sense, over the price of oranges or particular quota~,
or non-tariff barriers. Those negotiations, I hope, are being
prepared for in the proper forum of the GATT. We expect they
will take place in that forum. We are looking, not at those
specific types of negotiations, but the general types of rules
that should govern trade and monetary relationships and be
compati.ble with each other.
Now one word about the relationship I see here be~ween
the OEeD and other forums, actual or proposedu We pla1nly
hope and anticipate that a group will be set up under ~he
.
, f the IMF the so-called G-20 to take under 1tS
ausp1ces 0 ,
. f
d relate
wing promptly the questions of monetar~ re._orm ar:
~,
'1 1,
·
·
Th1s
group
1n
a
,:,en~e, W1.those to the wider tr,q d J.ng lssues.
be we hope the fully appointed, constitut10nal.forum where
th~ real ne~otiations should appropriate world-w~de rep~:s~~~~~
tion o At the other end of the spectrum, the tra e nego a. -'
-'
..
a~e properly the ~0n~~rr
to which I referred, trade negot1at~ons -.
. - h0R~
of GATT and I thi.nk GATT ·ts going to h~vc 1.ts hand full ~n t
,-_ ..
terms.
<
'
- 8 -
The DECD, on the other hand, is not a negotiating body.
It is a discussion forum, and we think a highly important forum
for discussion among a group of countries with very direct
interests and, as I suggested, a group that, by its experiences,
competence and talents and charter, is well suited for the job
of examining interrelationshipso
So far as the organization of the DECD is concerned, we
think it has a great many talents, Mr. Chairman, but it is
not fully structured to do the job and meet the challenge that
is now before uSo The Secretary-General, I think, has made
some proposals that seem to us useful in terms of bringing
the organization fully in accord with the needs. We have
essentially what has been a vertically organized organization,
dividing up the substantive areas o What we need to do is bring
some of the substantive areas into better focus on a horizontal
basis.
None of the existing groups, as we see it, has sufficiently
broad competence to fully examine the linkages. And there could
be a danger that no DECD body, despite its general competence,
will do the job of looking at the interrelationships.
So we do feel there is need of focussing attention, having
a group at an appropriate level, a relatively manageable group
with broad competence to consider the linkages of the trade
and monetary fields, and we think it is extremely important
that the DEeD take up this challenge and fully equip itself to
do that job. We shouldn't let present organizational structure
and restrictions stand in the way of the DECD participating
fully in this work in the best way possible.
The challenge is clearlv here, Mr. Chairman~ I am
absolutely convinced that the negotiations, as a whole, will
be speeded and facilitated if the DECD itself is equipped to
make a maximum contribution to the effort~ I think we are at
a point of decision o We can by indecision in effect, opt out
of these very important negotiations o I don't think we should
opt out, we should move to seize the opportunity, to take
advantage of the very great competence of this organi~ation~
The people competent to make the decision are assembled here
and we believe we should act now o
Thank you Mro Chairman.
000
The Department of the TREASURY
WASHINGTON. D.C. 20220
TelEPHONE W04-2041
FOR IMMEDIATE RELEASE
REMARKS OF THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
AT
THE CONFERENCE BOARD'S THIRD INTERNATIONAL CONFERENCE ON
THE FINANCIAL OUTLOOK
AT THE HOTEL INTERCONTINENTAL GENEVA, GENEVA, SWITZERLAND
TUESDAY, MAY 30, 1972
REALISM IN INTERNATTIDNAL MONETARY REFORM
I appreciate this opportunity to participate in the
Third International Conference on the Financial Outlook, and
to meet directly with a cross-section of leaders intimately
concerned with the practical problems of international business
and finance. The setting at the Conference in this
internationally-minded city of Geneva itself emphasizes that
we are dealing with issues that cut across national boundaries
and interests, and can only be resolved with close cooperation
and understanding.
I suspect there would be no disagreement with a statement
that we have been through a period of considerable financial
turmoil and uncertainty in the past year.
Monetary arrangements to which we had long grown accustomed
have been changed. They have been changed not out of whimsy or
neglect or selfishness. Rather, they had to be changed,
because the basic premises underlying those arrangements were
no longer valid.
You -- and I -- have had to adjust our thinking to new
economic circumstances and to a fundamentally new balance in
world economic power. These circumstances evolved over a
period of years. The evolution of the monetary and trading
system failed to keep pace -- until, finally,
sudden change was forced upon us.
C-3l7
- 2 The process of change is never easy -- never painless.
The general realignment of exchange rates, including the
change in the parity of the dollar itself, was a difficult
process. We are today operating without the familiar
convertibility of the dollar into reserve assets. Important
issues of trade policy -- more or less submerged for a time -have been projected forcibly into our consciousness.
Underlying much of the turmoil has been the prolonged
and aggravated weakness in the external financial and economic
position of the United States. That weakness must be
corrected if there is to be any lasting prospect of stability
in the international monetary system. More thah that, a
stable dollar and repair of the competitive position of the
'United States seems to me an essential ingredient of any effort
to work together to extend the liberal and open trading order
that has been the hallmark of the post-war world.
The essential facts that reflect our balance of payments
difficulties are well known:
After 20 years of more or less limited balance of
payments deficits, the accumulating pressures on
the external position of the United States were
reflected in a basic deficit on current and longterm capital on the order of some $10 billion last year.
The primary factor in the deterioration in our balance
of payments has been a shift from a once large trade
surplus -- a peak of about $7 billion in 1964 -- to a
sizable deficit today, a stark reflection of the
cumulative pressures on the relative competitive
capabilities and opportunities of United States
industry.
Obviously, U.S. inflation in the latter part of
the 1960's contributed to those pressures. Yet,
overall, our internal price performance over a
period of years has been better than that of
virtually any other major industrialized country.
Clearly, the causes go deeper. The remarkable
resurgence of the productivity, capacity, and
marketing capability of industry in Europe and
Japan during the post-war years has not been matched
by needed changes in our monetary and trading
arrangements.
- 3 -
I will be emphasizing today both the need for, and the
difficulties of, change. I also want to retain a sense of
peespective. In the face of monetary adjustments without
parallel since the late 1940's, world trade is today
substantially greater than a year ago. Private financial
markets themselves -- including the huge Euro-dollar market
about which we have heard so much -- proved capable of
adjusting to the new circumstances with remarkable resiliency.
Since late winter, calm has returned to exchange markets.
Indeed, very little Central bank intervention in exchange
markets has taken place for almost three months. Reflect upon
that fact a moment. There have been few periods of
comparable length in recent years in which a similar statement
could be made.
We cannot conclude from this experience that present
arrangements are satisfactory for the longer run. In the
Smith.a6tan Agreement, new exchange rates, were put in place,
after hard bargaining to reconcile differing national views.
The United States, as other leading countries, accepts the
eXchange rates then established as a basic point of departure in
dealing with Te1paining problems.
A wider band for fluctuation around those exchange rates
was also introduced at the Smithsonian. Trade agreemencs were
soon reached to deal with certain immediate problems in a
sensible and effective way, and to prepare the ground for more
comprehensive negotiations.
But all of this is an interim phase. The necessary
adjustments have been launched, but not completed. The
challenge remains to rebuild monetary and trading agreements
and institutions to serve the world for the next generation.
There is impatience to get ahead with that job. I share
that impatience. Indeed, I admit to a certain volume of
travels and discussions in recent weeks to that end. ~ut I am
also convienced that, if we are to achieve lasting progress,
we must b; willing to take the time to face squarely and openly
the diffi: ..dties and obstacles in our path.
In terms of procedures alone, we have the task of finding
appropriate forums for carrying the work forward most
effectively and expeditiously. These forums must combine
equitable representation, breadth of focus, and manageable
Size.
- 4 That is no small order, but I can report considerable
progress. Specifically, we look forward to the formation of
one group under the general auspices of the International
Monetary Fund, but able to draw on the resources of other
competent organizations as well. Even before its formation,
it has been popularly labelled the "Group of 20".
On the basis of my own recent contacts with officials of
a number of other leading countries, and discussions in other
places such as UNCTAD, I believe that a strong consensus has
emerged that the group should be directed not only to examine an
-propo_s_e changes in the "Constitutio£\" of the monetary system, bu
also to consider the essential inter-relationships between the
monetary system and the world trading order. That thought is
incorporated in IMF draft proposals on the group's mandate
now circulating.
We ·a1so hope and anticipate that the OECD can play an
effective role in speeding and facilitating the task before us,
especially in relating the monetary questions to trade and
investment issues about which it has a high degree of
competence. I would confess to some disappointment that there
was resistance in meetings in Paris last week to some reshaping
of the structure of the organization to focus its unique
;capabi1ities more directly on this effort. What did emerge,
however, was clear recognition that the issues of trade, money,
and investment are interrelated, and that the organization
should play a role in developing a synthesis among them.
We are, of course, also preparing trade negotiations in
the framework of GATT, so that we can deal with specific
impediments to trade.
The broader common understanding of the nature of the
overall problem reflected at the OECD meeting and elsewhere
is one reason for encouragement as we look ahead. We can
'also take some·satisfaction, I believe, from what has already
been accomplished. To appreciate that, cast your thoughts
backwards to the situation a year ago.
It was a time of great uncertainty in exchange
markets; financial crisis was in the air, following
a succession of increasingly serious monetary
disturbanceh over the previous decade.
- 5 The United States balance of payments was not only
deteriorating at an alarming pace, but correctives
adequate to the scale of the problem has not yet
been put in place.
In the absence of more constructive approaches,
pressures for protectionism and temptations to retreat
inwards were growing in the United States and in
other countries.
! ,do not suggest that the needed adjustments have yet been
dealt with fully and adequately. I do suggest that the
problems have now been openly recognized, that fundamental
correctives have been adopted, and that the stage is being
set for useful negotiations on the remaining and longe~term
issues.
My confidence in a successful outcome of these
negotiations stems in part from a conviction on all sides
that we have much to gain in mutual prosperity from working
together to preserve a cooperative world order, liberal
trade and open economies. But my confidence stems from more
than that generality. There are more specific accomplishments
and attitudes that provide the needed foundations for
negotiations.
These accomplishments have come with what may seem to be
agonizing slowness. In the isolation of our offices or on
the lecture platform, each of us can spin out our personal
version of a comprehensive plan addressed to all our economic
problems.
The difficulty is, of course, that those plans often do
not converge in their major elements. We sometimes tend to
forget we are dealing with matters little understood even by
relatively informed citizens. Yet, they are matters of vital
national interest, and they have sensitive political as well
as economic dimensions.
Perhaps the greatest challenge of all is that we need
to adapt our collective thinking to fundamentally new
circumstances in the world economy. Those circumstances
did not, of course, arise suddenly last summer. They
emerged more gradually over a period of years. But, as
profound changes took place in the world economy, we were
intellectually coasting on premises no longer
valid.
- 6 -
Today, we are no longer coasting, instead, by facing
openly the fundamental problems and the new realities, I
believe we are laying the indispensable intellectual
groundwork for the needed consensus on reform.
There are, it seems to me, several important elements in
this "new realism".
First is the simple fact that it is now generally accepted
that our monetary system is in need of fundamental repair and
reform -- that new concepts of monetary arrangements are
required to replace those which emerged at the end of World
War II. In the immediate aftermath of the suspension of the
convertibility of the U.S. dollar on August 15, there was an
understandable tendency by some to try to return as fast as
possible to the old mechanisms. But given the vast changes
in the world economy, a patch-up of Bretton Woods could not
do the job. Today, the more realistic premise is widely
accepted that thorough-going reform of the ~ystem is
needed.
Secondly, we see recognition today that the problems of
the monetary system are inextricably linked to those of the
trading order. Last summer, this concept was highly
controversial. Yet, within the past two weeks, a general
consensus was affirmed at both the ministerial meeting at the
DECD in Paris and at the UNCTAD meeting in Santiago that
we need to aim at a synchronized approach to monetary, trade,
investment, and related matters, policies in these interrelated
areas should mutually reinforce each other in encouraging and
facilitating needed adjustments.
In some respects, the rules of the trading system
and the rules of the monetary system directly overlap.
For instance, when we face imbalances in payments, the
proper role and function of trade measures -- such as
surcharge~,quotas, or steps to liberalize imports -- and
of monetary measures -- such as exchange rate changes -need to be freshly examined and clarified~ The implications
of the visible tendency toward a proliferation of perferrential
trading agreements and the drive toward greater monetary
unity among some countries of the world requires a new look,
today, these phenomena are prominent features of the world
- 7 landscape -- but they were almost ignored in shaping the
monetary and trading system at the end of World War II.
Third, there is much greater understanding today
in contrast to August 15 and December 18 -- about the
length of time that it will take to eliminate the
existing payments imbalances. The recent trade figures of
the United States, showing continuation of a large deficit
four months after the Smithsonian Agreement, emphasize again
the simple fact that adjustment does take time.
There is no reason to question that the exchange rate
adjustments agreed last December will importantly support
the United States trade and current account position
as traders and businesses adjust to new competitive
conditions. The relatively better price performance of the
United States also promises to yield results over time.
But it is equally true that the initial effects of the
dollar devaluation have been perverse, and that the
imbalances in payments have been aggravated by the cyclical
phasing of the world economy.
The United States economy is now expanding over a broad
front and at a more rapid pace. A number of our major
trading partners across the Atlantic and the Pacific are
still in a phase of ~attvely slow growth -- and therefore
of relatively low import demand. In the short run, these
cyclical influences tend to dominate trade flows. Fortunately,
these same influences have also provided a setting in which
international interest rate levels could move toward better
alignment, so that short-term capital flows need not aggravate
underlying payment imbalances.
Fourth and finally, I believe a consensus is emerging on
some of the basic concepts that must govern any new monetary
and tradin~ order. I will mention three in particular.
I se. ~ a convergence of thinking that our
international arrangements must leave reasonable scope for
independent action by sovereign nations in shaping their
internal policies. No nation will depart from basic
policies aimed at high employment, reasonable price stability,
and growth, ~or can we ignore the plain evidence
that internal policy flexibility is neither so
- 8 -
complete, so instantaneous, or so effective as we would like. In
short, we have to face the fact we neither know enough, nor can
practically implement, a finely tuned mix of internal policies
adequate to square domestic objectives with every shift in international circumstanceso
Certainly, any nation expecting to benefit from international
trade and investment must be prepared to accept obligations toward
the common order. But we cannot build a durable international monetary system on dreams of full international coordination. We must
recognize the hard reality that, in particular situations, objective
will conflict.
There is a direct corollary to this point: the instruments
available for balance of payments adjustment need to be reexamined
and broadened, and the necessary disciplines need to be enforced
reasonab1, and equitable on deficit and surplus countries a1ikeo
Obviously, large and difficult questions arise in developing and
implementing effective means to this end. As I suggested earlier,
a choice between monetary devices (such as exchange rates) and
trade devices (such as surcharges or special efforts to liberalize
imports) may arise. These questions are unresolved. But the first
vital step is taken -recognition of the problem and a willingness
to deal with ito
The emerging consensus seems to me to extend to the further pointj
whatever the particular mechanics of the new system, additional
flexibility ~ust be built into the exchange rate regime o Of all the
technical problems before us, this may be the most difficult. Fixed
exchange rates to be defended through thick and thin entail a s~le,
easily-understood ru1e o We know how that system works-- or at least
how it is supposed to work. We also know that in today's world,
that system broke down because frozen exchange rates lose touch
with real it yo
What we need is to build enough "flex" or elasticity into the
system to permit it to adapt to change more smoothly, thus preserving the larger stability and durability of the who1e o
Certainly, there are also important areas in which no
is yet emerging in terms of shaping a new system o
consen~s
I referred earlier to the fact that regional monetary and
trading areas are a phenomena essentially outside the framework
of the old system. Yet, the Common Market is a fact of life.
Indeed, the United States has long supported its deve10pment o
- 9 -
I see no inconsistency between that support and our deep
concern over the proliferation by the European Community of
preferential trading agreements, actual or under discussion,
to some 50 trading partners beyond the boundaries of the
Community itselfo We are also concerned about the external
implications of its agricultural policies o
At the same time, I personally believe that greater monetary
cohesion within a large part of Europe, taken by itself, could
potentially become an important building block in the emerging
international monetary system o The challenge is to develop the
potential in the situation, while resisting the threat of a lapse
into the kind of regional blocs that are antagonistic in trade
and monetary affairs and disintegrating in terms of our common
economic and political objectives o
Another area of contention - present and potential - relates
to capital controls. I often hear it said that the United States
balance of payments problem reduces itself largely or entirely to
a question of outflow of capital. This seems to me an illusion o
It is, for instance, a fact that on balance over recent years,before
the heavy speculative influences in 1971, the U. S. experienced a
net inflow of long-term capital from Europe. It also seems to me
undeniable that, if the U. So is to support an aid program worthy
of our nation and permit capital to flow to the LDC's, we will need
a sizable current account and trade surplus, in contrast to our
present deficit.
The United States approaches the question of international
capital movements with a conviction that in seeking payments
equilibrium - and sustainable equilibrium - balance cannot be
forced permanently or recurrently by the use of capital controls o
This is partly a question of economic philosophyo But it is also
a highly practical judgment that our ability to develop and enforce
such controls effectively over a sustained period of time is
extremely limited without damaging the very fabric of trade and
commerce we seek to support.
The \ .atility and size of international capital flows - most
particularly in the short-term area - give rise to problems that
must be dealt with effectively and pragmaticallyo More than one
technique can be and has been adopted to that purposeo Contrasting
views on these techniques need to be brought into confrontation
and resolved.
No doubt we can also expect controversy about what I think of
as the mechenics of the system - the nature, volume, and use of
-1'0 -
of reserve assets; the role (if any) for reserve currencies; and,
I would add, appropriate ways and means for avoiding dependence
on gold in the monetary system o
In one sense, these matters are the nuts and bolts of the
international monetary machine, and they provide a natural agen~
for discussion o But I would also urge that in putting those nuts
and bolts together, we first need a common vision of the ki.nd of
machine we need and wanto In other words, the mechanics have to
be looked at as part of a coherent whole o
I think it is plain to all of you that I do not minimize the
challenge which remains aheado
In facing this challenge, I take as a fundamental premise th
need for leadership from the United Stateso We, after all, remai'
the largest and strongest of the world economies o Indeed, I am
proud of American leadership in these recent months - our recognition of the need for change, and for fundamental change; our
willingness to take hard measures domestically and internationall
which, however distasteful in the short run, will accelerate the
needed adjustments; our insistence that the old international
system could not simply be patched up, but requires a fundamental
rethinking in cooperation with our trading partners.
I also believe there needs to be some understanding that the
nature of American leadership must inevitable change. We are no
longer a colossus standing astride the world's economy, with
unparalleled productivity, competitive position, wealth, and
political and military power. Leadership cannot, in the circumstances of today, be equated with tolerating disproportionate
burdens for aid and for defense, and not least for the dollar
itself.
Like other countries, we in the United States must fit our
performance and our aspirations to our capabilities. All of us
have to recognize that today economic power has become much more
balanced: that the United States has had deficits in its payment
for more than 20 years, and that these deficits had reached an
unbearable size; that the international assets and the international credit of the United States had been stretched to the
breaking point; that other nations, often with the help and prod
of American capital, have made enormous economic strides. We
need to recognize, too, that with economic strength goes politicS
responsibility.
- 11-
I put the point very simply and b1unt1yo We live in a world
in which benefits and burdens - monetary, trade, defense, and aid
- must be more equitable shared o
It is not a question simply of economic capacity but of a
state of mind o National psychologies and national responsibilities do not change overnighto But change they musto
I believe that evolution is going on now o In many ways, it
is a wrenching process, for it challenges long-accepted assumptions,
and our capacity to understand and to cooperate togethero
But it is also a fundamentally healthy process. I am convinced
that out of these changes we can lay a fresh basis for extending
and reinforcing the prosperity and political harmony that have
been our common heritage from the post-war monetary and trading
system.
The Department 01 the TREASURY
ASHINGTON, D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
May 31, 1972
TREASURY PROPOSES NEW RULES ON "ARBITRAGE BONDS," OFFERS
SPECIAL SECURITIES TO STATE, LOCAL GOVERNMENTS
The Treasury Department today announced a series of related
actions affecting the marketing of bond issues by State, county,
and municipal governments throughout the country.
Treasury's moves are designed to clarify the Federal tax
status of State and local bond issues under the "arbitrage bonds"
provision of the 1969 Tax Reform Act, and to assist State and
local governments in selling their bonds.
The Internal Revenue Code provides that interest paid on
bonds issued by a State or local government is exempt from
Federal income tax. However, under the Reform Act, if a State
or local government will use funds from a bond issue to purchase
other securities providing a "materially higher yield" than the
bonds themselves -- that is, will engage in an "arbitrage"
transaction -- the interest paid to the bond holders will be
subject to Federal income tax.
For example, if a local government plans to issue bonds at
5 percent and invest the proceeds in obligations yielding 7 percent,
the bonds will generally be treated as arbitrage bonds and the
interest paid to the bond holders will be taxable.
In today's actions, the Treasury:
Issued proposed arbitrage bond regulations which
supplement temporary regulations announced by the
Department on November 12, 1970.
Amended the temporary regulations, principally to
re-define "materially higher yield".
C-3l6
- 2 Announced issuance of two special series of nonmarketable Treasury securities tailored to the needs
of State and local governments, to facilitate
compliance with the applicable provisions of the
Tax Reform Act.
The proposed regulations announced today incorporate most of
the previously announced rules, including guidelines for computing
the yield on State and local bonds and on obligations acquired
with the bond proceeds. In addition, the new regulations give
guidance on other matters, including:
1.
How a State or local government can identify the
"proceeds" of a bond issue for purposes of computing
the yield on investment of the bond-raised funds.
2.
A definition of the "temporary periods" provided for
in the Tax Reform Act during which a S~ate or local
government may invest bond proceeds in obligations of
a materially higher yield without loss of the taxexempt status of interest paid on their bonds.
3.
The method of determining a "reasonably required
reserve or replacement fund" -- also as provided for
in the Reform Act -- that may be invested without
restriction in obligations producing a materially
higher yield.
4.
The treatment of advance refunding issues.
The amendment to the temporary regulations defines "materiall
higher yield" as more than 1 /8 of one percentage point, compared to
1/2 of one percentage point under the previous regulations
This
amendment applies to bonds issued more than 30 days after date of
publication of the amendments in the Federal Register.
0
The proposed regulations and amendment to the temporary
regulations will be published in the Federal Register for Thursday,
June 1, 1972, and will provide an opportunity for interested
persons to comment on the proposals. Treasury also will hold a
public hearing on the proposals on August 15, 1972.
- 3 -
In another action, Treasury offered new nonmarketable
securities to State and local government bodies. The nonmarketable
securities are United States Treasury Certificates of Indebtedness
State and Local Government Series, and United States Treasury
Notes -- State and Local Government Series. Certificates will be
issued for periods of three, six and nine months, and one year.
Notes will be available for terms of 18 months to seven years o
The interest rate on the new securities will be established
by the State or local government, so long as that rate is IDwer
than the yield on marketable Treasury securities of comparable
maturities. Thus, the new special securities will provide a
convenient means of investment by which State and local governments
can avoid loss of exemption from Federal income tax for the
interest on their own obligations.
Subscriptions for the new securities, which will be issued
in book-entry form, must be in multiples of $5,000.
Application for purchase of the certificates and notes may
be made at any Federal Reserve Bank or Branch. Although
subscription forms will not be available immediately, the Treasury
said that applications for the new offering will be accepted
without delay, provided they are accompanied by full payment and
appropriate instructions, including the amount of the certificates
or notes desired, the terms of maturity thereof, the interest
rates, and the title of the State or- local official authorized
to redeem the securities.
000
The Department 01 the TREASURY
ASHINGTON, D.C. 20220
TELEPHONE W04-2041
FOR RELEASE UPON DELIVERY
EXCERPTS FROM THE REMARKS OF THE HONORABLE EDGAR R. FIEDLER
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
TO THE MUNICIPAL FINANCE OFFICERS ASSOCIATION
OF THE UNITED STATES AND CANADA
DENVER, COLORADO
MAY 31, 1972
11:00 A.M., MDT
The President's New Economic Program:
A Progress Report
Nine months have elapsed since the new economic program
was initiated in midsummer 1971, and during that time the
economic climate has been altered in many important ways.
Perhaps the most dramatic changes in the economy have
occurred in our international trading and monetary arrangements, where the dollar is no longer convertible into gold
and where a major realignment of currency exchange rates has
been negotiated.
This realignment has improved the exchange
position of our exports materially, though the impact is yet
to be felt on our trade balance. A new and difficult round of
negotiations is getting underway now to achieve a more fundamental and more lasting reform of the international monetary
system.
Probably the most significant factor in these changes to
the international economic system is the fact that they are
being effected in the framework of the relatively liberal trade
policies that have characterized the system since World War II.
In a period like the present, there is always a risk that the
world will make a sharp turn toward economic nationalism and
strict protectionism; thus far, that danger has been avoided.
Another major change that has taken place since last
summer is the sharp acceleration in the growth of economic
activity in the United States. Total real output -- after
adjustment for inflation -- is advancing at a rate of around
six percent this year, compared to less than three percent
from 1970 to 1971.
Personal income and sales and profits
C-31B _
- 2 and employment are all rising rapidly as well; indeed, every
major sector of the economy is participating. But the job
is not finished.
Growth in the labor force has matched the
rapid growth in employment and the unemployment rate remains
too high.
The continuing climb of employment -- where all
the advance signs are presently favorable -- is anticipated
to reduce the ranks of the jobless soon.
On the inflation front, it is clear that both price and
wage inflation have slowed since the Economic Stabilization
Program began last August.
The most telling evidence is the
increase in the real purchasing power of the average worker's
take-home pay, which has advanced at an annual rate of 5.5
percent since the program began, compared to a 1.3 percent
rate of improvement in the previous six months and no meaningful gain at all during the period 1965-70 when inflation and
higher taxes ate up all of the large gains in wage rates. It
is, however, too early to know whether the stabilization program
will achieve its interim goal of cutting the rate of inflation
to between 2 and 3 percent by the end of this year -- although
I personally believe the target will be reached.
Consequently, the New Economic Program has made progress
on all fronts: major steps have been taken to bolster our
international economic position, while at horne economic growth
has accelerated and inflation has been slowed. Yet in each
case, much remains to be done: new and tough negotiations
on a revised international monetary and trading system lie
ahead, the unemployment rate must be brought down, and the
rate of inflation must be reduced further.
Thus, while the
economy has improved, the task of the President's New Economic
Program has not been completed.
000
The Department 01 the TREASURY
WASHINGTON. D.C. 20220
TElEPHONE W04-2041
FOR RELEASE AT 3:30 P.M.
May 31, 1972
TREASURY WILL NOT REFUND BONDS MATURING JUNE 15
The Treasury announced today that it will not refund
the $1,226 million of 2-1/2% bonds maturing on June 15,
1972.
The Treasury said that it could payoff the bonds
because its cash position is expected to remain strong
for the rest of the fiscal year.
The public holds about $1,074 million of the maturing
bonds'; Government accounts and Federal Reserve Banks hold
the remaining $152 million.
The'Departmento!the TREASURY
'ASHINGTON. D.C: 20220
TELEPHONE WD4-2041
FOR IMMEDIATE RElEASE
May 31, 1972
A Treasury spokesman today issued the following statement:
Chairman Mills has proposed an interesting procedural
format for the comprehensive and systematic review of the
Internal Revenue Code. Any definitive comment by the
Administration must, of course, await an analysis of the
actual mechanics of the proposal. However, the 8 tated objective
of assuring that future reform of the tax code occurs in the
next two Congresses and therefore in a climate and at a pace
that will permit thoughtful review and deliberation is completely
consistent with the views of this Administration.
But we should also recognize that the tax provisions
involved affect the economic status and well-being of millions
of taxpayers. As a result, the procedure itself requires the
most intensive study in order to make certain that the approach
would not in itself create severe dislocations which might
seriously affect the health and stability of the nation's
economy.
It is most ;mportant to emphasize, in addition, that this
proposed procedure should not in any way be the excuse tor
additional Federal spending. Indeed, we badly need a
parallel, systematic and careful review that will end
spending programs which have outlived their usefulness or
are otherwise of questionable value.
C-319
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 2, 1972
TREASURY ANNOUNCES PENTAERYTHRITOL FROM JAPAN
IS BEING SOLD AT LESS THAN FAIR VALUE
Assistant Secretary of the Treasury Eugene T. Rossides
announced today that pentaerythritol, including nitration
grade pentaerythritol, monopentaerythritol, technical
pentaerythritol, dipentaerythritol, tripentaerythritol, and
mixtures thereof, from Japan is being, or is likely to be,
sold at less than fair value within the meaning of the
Antidumping Act, 1921, as amended. Notice of the determination
will be published in the Federal Register of June 3, 1972.
Pentaerythritol is an odorless, white, crystalline, watersoluble powder used chiefly in the manufacture of alkyd,
varnishes, plasticizers and explosives.
The case will now be referred to the Tariff Commission
for a determination as to whether an American industry is
being, or is likely to be, injured. In the event of an
affirmative determination, dumping duties will be assessed on
all entries of pentaerythritol from Japan which have not been
appraised and on which dumping margins exist.
A notice of "Withholding of Appraisement was issued on
March 2, 1972, which stated that there was reasonable cause to
believe or suspect that there were sales at less than fair value.
Pursuant to this notice, interested parties were afforded the
opportunity to present oral and written views prior to the final
determination in this case.
ll
During the period from January 1971 through December 1971
imports of pentaerythritol from Japan were valued at approximately
$1.2 million
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 2, 1972
STATEMENT OF EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
(ENFORCEMENT, TARIFF AND TRADE AFFAIRS, AND OPERATIONS)
ELEVEN MONTH REPORT OF THE
TREASURY/IRS NARCOTICS TRAFFICKER PROGRAM
The following is the report for May 1972, and for the
combined eleven-month period of the Treasury/IRS Narcotics
Trafficker Program initiated by President Nixon in June 1971,
and fact sheets on the program in key locations.
May 1972
An additional $1,078,000 was seized for a total of
$7.8 million in the II-month period. This is more
than the $7.5 million appropriated for the program
by Congress. We can now say that the drug trafficker's
illegal profits are being used to put them out of
busir~ ss.
116 targets for intensive tax scrutiny were added
for the first time suspects in the
Little Rock, Arkansas, and Springfield, Illinois
Metropolitan areas); an additional $8 million in
taxes and penalties were assessed; one drug
trafficker was convicted on tax charges; three
indictments were returned on cases now awaiting
trial in U.S. District Courts, and 10 cases were
recommended for prosecution.
~ncluding
Eleven Month Period (July 1, 1971 - May 31, 1972)
1. 718 major targets in 38 states, 51 Metropolitan areas
and the District of Columbia were selected by Treasury's Target
Selection Committee and referred to the IRS. (See attached Table 1.)
In addition 469 minor traffickers are under tax action. Under
the direction of IRS Commissioner Johnnie M. Walters, 410 Treasury
Agents and 112 support personnel are presently conducting the
intensive tax investigations.
C-321
- 2 2. $49.5 million in taxes and penalties have been
assessed under the program, of which more than $7.8 million
has already been collected in the form of cash or valued
property.
3. Five men have been convicted on criminal tax
charges; 15 other criminal tax cases are pending in Federal
District Courts in New York, Miami, Detroit, Los Angeles,
San Francisco, Indianapolis, Baltimore and Washington, D. C.;
and another 22 investigations have been completed with prosecution recommendations.
We believe this represents a significant achievement.
By focusing attention on the key figures responsible fur the
narcotics distribution, this program will make a major additional
contribution to the President's offensive against drug abuse.
The word for the drug traffickers is get out of the illegal
drug traffic or face up to intensive tax investigation.
The program is designed to take the profit out of the
illegal traffic in narcotics and thereby further disrupt
the traffic. This is to be accomplished in blO ways:
(1) By conducting systematic tax investigations of
middle and upper echelon narcotic traffickers, smugglers
and financiers. These are the people who frequently
are insulated from the daily operations of the drug
traffic through intermediaries;
(2) By the systematic drive underway to seize - to
be applied to taxes and penalties owing - the substantial
amounts of cash that are frequently found in the hands
of Narcotics Traffickers below the middle and upper
echelon level. This aspect of the program is being
conducted through the close coordination we have
established with State and local police departments
throughout the country, the Bureau of Narcotics and
Dangerous Drugs of the Department of Justice and
Treasury's Bureau of Customs.
In each area of the country, cadres of Treasury Agents
have been established to concentrate full time on intensive
tax investigations of major narcotics traffickers, smugglers
and financiers. The objective is t6 increase the pressure
at all levels on those who traffic in narcotics.
- 3 -
computers are now being used in this program to facilitate
the year in, year out scrutiny of the finances of these
narcotics traffickers. By computerizing our information we
will be able to systematically and quickly examine each
trafficker targeted under this program.
.
Alt.hough all of the penalties and taxes that have been
may ~ot be collected, in my judgment the impact of
U"1.f, program on the narcotics traffic is already substantial
~n~ increasing each month.
There have been recent indications
of ] ~carcity of heroin on the street. The drug has been
1.~·HS available, as a result of which it appears that it is
I . : ) nq sold at a higher price or in a diluted form.
il~; ~~;'_;;:;E'd
BACKGROUND PAPER
President Nixon announced the program of tax
irr!0stiqations of major narcotics traffickers on June 17,
19 , d...:. ..: ~L l oi. d inessag·:! on his multi-dimensional
approach to combat drug abuse. The objective of the
program is to disrupt the narcotics distribution system
by taking the profits out of the illegal traffic
in drugs.
Reflecting the high priority given this program
by the President, Congress provided financial support
for it amounting to $7.5 million in Fiscal 1972 and
authorization for 541 additional positions in IRS -200 Treasury Intelligence Agents, 200 Treasury Revenue
. Age.nts, and 141 support personnel.
Treasury has coordinated this tax program with the
anti-smuggling drive of its Bureau of Customs, the drive
against narcotics distribution of the Bureau of Narcotics
and Dangerous Drugs, 'and the prosecution efforts of the
Tax and Criminal Divisions of the Department of Justice.
We have also had the full support and cooperation of State
and local enforcement agencies in the conduct of this
program.
This program is a major enforcement effort but it
must be emphasized that it is only one part of this
Administration's comprehensive drive against narcotics.
The President's Multi-pimensional War on Drug Abuse
President Nixei'! started his war on drugs the first
month of his Administration when he established the
Interdepartmental Task Force on Narcotics, Marijuana and
Dangerous Drugs that led to Operation Int rcept in
September, 1969, and Operation Cooperatio,n in October,
1969. He has escalated that war with a series of action
programs, and progress has been made.
First, he elevated the dru~ problem to the foreign
policy level and has taken personal initiatives in
soliciting the cooperation of other governments. The aim
of our uiplomatic efforts is to have each nation do its
share and meet its responsibilities in the worldwide
war against drug abuse.
- 2 -
He established the Cabinet Committee on Inter~
~l
Narcotics Control, under the Chairmanship of Secre __ ~y of
State Rogers, to coordinate the United States initiative
on the international level.
Second, he placed particular emphasis on the
crucial roles of educati0n, research, and rehabilitation.
The Special Action Office for Drug Abuse Prevention was
established within the White House to coorBinate Federal
action in the fields of education, research, and rehabilitation. In 1971, nearly 150 million dollars were
devoted to education, research, and rehabilitation. That
figure will be doubled in 1972· and increased further in
1973.
Third, he recommended differentiation in the criminal
penalty structure between heroin and marijuana, and
flexible provisions for handling first offenders.
Fourth, he stressed total community involvement
the private sector as well as governmental agencies -in this anti-drug abuse program.
Fifth, he provided a sUbstantial increase in budgetary
support for the Bureau of Narcotics and Dangerous Drugs and
the Bureau of Customs and initiated the IRS tax drive on
drug traffickers. He established the Office of Drug Abuse
Law Enforcement in the Department of Jus~ice to concentrate
an assault on the street level -heroin pusher working
closely with state arid local enforcement agencies.
Sixth, he recognized the central role of the states
and the need for close Federal-state cooperation in a
unified drive against drug abuse.
TABLE I
STATE
METROPOLITAN AREA
Alabama
Mobile
1
Alaska
Anchorage
1
Arizon2,
Phoenix-Tucson
Arkansas
Little Rock
California
Los Angeles-San Diego
San Francisco-Oakland
Colorado
Denver
Cormecticut
Hartford
11
District of Columbia
Washington, D. C.
16
Florida
Miami
55
Hawaii
Honolulu
Georgia
Atlanta
19
Illinois
Chicago
Springfield
40
Indiana
Indianapolis
8
Louisiana
New Orleans
12
Maine
Bangor
1
Maryland
Baltimore
4
Massachusetts
Boston
12
Michigan
Detroit
48
Minnesota
St. Paul-Minneapolis
2
Mississippi
Gulfport
1
Missouri
St. Louis
7
Nevada
Las Vegas
3
New Hampshire
Portsmouth
2
SELECTED TARGID
24
2
34
29
8
7
4
-2-
STATE
----
METROPOLITAN AREA
lew Jersey
Newaxk-Camden
New Mexico
Albuquerque
9
New York
Albany
Buffalo
New York City & Suburbs
4
SELECTED TARGETS
48
9
122
North Carolina
Greensboro
15
Ohio
Cincinnati
Cleveland
6
Oregon
Portland
9
Permsylvania
Philadelphia
Pittsburgh
Rhode Island
Providence
1
South Carolina
Columbia
5
Tennessee
Nashville
4
Texas
Austin-Houston
Dallas
37
3
utah
Sal t Lake City
2
Virginia
Richmond-Norfolk
19
Washington
Seattle
11
West Virginia
Parkersburg
Wisconsin
Milwaukee
Treasury Department
Office of Law Enforcement
7
39
15
1
1
718
May 31, 1972
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.21
'l'AlILE ! T
R~gular Assess~ents
Sp-J21tane:ms AssessmentsY
(Jeopardy Assessments and Tax year
Terminationsl/ )
Total Assessments
$36)077)945
$49,5 2 0)5 43
Tax Year Terminations
Dollars Seized
$ 6)671)226
Cases Recommended for prosecution
22
Criminal tax cases in U.S. Courts awaiting trial
15
Criminal tax convictions
5
1/
Jeopardy assessments are additional assessments of taxes
made where a return has been filed) but where circumstances exist
under which delay might jeopardize collection of the revenue.
g/
Spontaneous Assessments are expedited assessments made against
narcotics traffickers as a result of seizures by other law enforcement
agencies of sUbstantial cash or other assets during the course of an arrest
or a search. Because of the expedited procedures employed) the figures for
spontaneous assessments are frequently in excess of the amount ultimately
determined to be due.
Termination of Tax Year is a computation of the tax due and assessment made where the time for filing the return has not become due where
circumstances exist under which delay might jeopardize collection of
the revenue.
Treasury Department
Office of Law Enforcement
May 31, 1972
135
New York State
New York County
Kings County
Bronx County
Nassau County
Queens County
Suffolk County
Westchester County
-
35
16
26
12
22
-
9
5
Albany Area
4
Buffalo Area
9
Regular Assessments
$ 1,232,940
Spontaneous Assessments 1/
$ 10,430,921
(Jeopardy Assessments and Tax
Year Terminations ~/)
Total Assessments
$
11,325)~OO
Tax Year Terminations
Dollars Seized
$ 3,973,294
Property Seized
$
126,801
Prosecution Recommendations
6
Criminal tax cases in U. S. Courts
awaiting trial
1
1/ See footnote 2 on Table II.
I/ See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
May 31, 1972
NEWARK TARGETS
Total Targets
48
Regular Assessments
$
207,400
Spontaneous Assessments 1/
$3,784,348
(Jeopardy Assessments and Tax
Year Terminations ~/)
Total Assessments
$ 3,991,748
Tax Year Terminations
Dollars Seized
$
24,313
Property Seized
$
150,000
Prosecution Recommendations
II
1
See footnote 2 on Table II.
I/ See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
Mav 31,
1972
WASHINGTON, D. C. TARGETS
21
Total Targets
Regular Assessments
$
937,700
Spontaneous Assessments 1/
$
512,600
(Jeopardy Assessments and Tax
Year Terminations ~/)
$ 1,450,300
Total Assessments
Tax Year Terminations
Dollars Seized
$
44,900
Property Seized
$
40,800
Criminal tax cases in U. S. Courts
awaiting trial (2 in D. C. &2 in
Maryland)
17
See footnote
2 on
Table
4
II.
I/ See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
May 31, 1972
NEWARK TARGETS
Total Targets
48
Regular Assessments
$
Spontaneous Assessments 1/
$3,784,348
207,400
(Jeopardy Assessments and Tax
Year Terminations ~/)
Total Assessments
$ 3,991,748
Tax Year Terminations
Dollars Seized
$
24,313
Property Seized
$
150,000
Prosecution Recommendations
1
1/ See footnote 2 on Table II.
2/ See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
May 31, 1972
WASHINGTON, D. C. TARGETS
21
Total Targets
Regular Assessments
$
937,700
Spontaneous Assessments 1/
$
512,600
(Jeopardy Assessments and Tax
Year Terminations ~/)
Total Assessments
$ 1,450,300
Tax Year Terminations
Dollars Seized
$
44,900
Property Seized
$
40,800
Criminal tax cases in U. S. Courts
awaiting trial (2 in D. C. &2 in
Maryland)
4
17 See footnote 2 on Table II.
I/ See footnotes 1&2 on Table II.
freasury Department
otfi~e of Law Enforcement
May 31, 1972
MIAMI TARGETS
Total Targets
55
Regular Assessments
$ 9,633,139
Spontaneous Assessments 1/
$
307,863
(Jeopardy Assessments and Tax Year
Terminations 7:../)
Total Assessments
$ 9,755,900
Tax Year Terminations
Dollars Seized
$
74,202
Property Seized
$
249,000
Criminal tax cases In U. S. Courts awaiting trial
3
Convictions
2
17
See footnote 2 on Table II.
7/ See footnotes 1&2 on Table IT.
Treasury Department
Office of Law Enforcement
May 31, 1972
DETROIT TARGETS
48
Total Targets
Regular Assessments
Spontaneous Assessments
II
$
444,000
$
926,174
(Jeopardy Assessments and Tax
Year Terminations ~/)
Total Assessments
$ 1,090,900
Tax Year Terminations
Dollars Seized
$
260,833
Property Seized
$
33,521
Prosecution Recommendations
1
Criminal tax cases in U. S. Courts
awaiting trial
2
1/ See footnote 2 on Table II.
1/ See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
May :11, 1972
CHICAGO TARGETS
Total Targets
40
Regular Assessments
$
Spontaneous Assessments 1/
$ 527,670
20,000
(Jeopardy Assessments and Tax
Year Terminations ~/)
Total Assessments
$ 460,700
Tax Year Terminations
Dollars Seized
Property Seized
Prosecution Recommendations
1/ See footnote 2 on Table II.
Z/ See footnotes l&@ on Table II.
Treasury Department
Office of Law Enforcement
$ 63,539
-01
AUSTIN TARGETS
Total Targets
38
Regular Assessments
$ 17,400
Spon~aneous
$505,828
Assessments 1/
(Jeopardy Assessments and Tax Year
Terrnina t ions II)
Total Assessments
$321,000
Tax Year Terminations
Dollars Seized
$331,299
Property Seized
$ 40,000
Prosecution Recommendations
2
1/ See footnote 2 on Table II.
See footnotes 1&2 on Table II.
I/
Treasury Department
Office of Law Enforcement
May 31, 1972
LOS ANGELES TARGETS
Total Targets
34
Regular Assessments
Spontaneous Assessments
$
11
221,728
$ 4,352,047
(Jeopardy Assessments and Tax Year
Terminations ~/)
Total Assessments
$ 1,919,400
Tax Year Terminations
Dollars Seized
$
514,538
Property Seized
$
42,000
Criminal tax cases in U.S. Courts awaiting trial
1
1/ See footnote 2 on Table II.
See footnotes 1&2 on Table II.
I/
Treasury Department
Office of Law Enforcement
~Ia y
31, 19 - 2
SAN FRANCISCO TARGETS
29
Total Targets
Regular Assessments
$
Spontaneous Assessments 1/
$ 2,236,465
313,500
(Jeopardy Assessments and Tax Year
Terminations 2/)
Total Assessments
$ 2,474,000
Tax Year Terminations
Dollars Seized
$
246,902
Property Seized
$
171,485
Criminal tax cases in U.S. Courts awaiting trial
2
1/ See footnote 2 on Table II.
1/ See footnotes 1&2 on Table II.
Treasury Department
Office of Law Enforcement
May 31, 1972
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR RELEASE ON DELIVERY
COMMENCEMENT ADDRESS
BY
THE HONORABLE SAMUEL R. PIERCE, JR.
GENERAL COUNSEL OF THE U.S. TREASURY
JOHN JAY COLLEGE OF CRIMINAL JUSTICE
CITY UNIVERSITY OF NEW YORK
AT
CARNEGIE HALL
SUNDAY, JUNE 4,1972,2:30 P.M., E. D. T.
CRIME CONTROL:
SOME COMMENTS AND SUGGESTIONS
Since the prohibition era, when the seeds of organized crime were
first sown, crime has been a major problem in the United States. How to
control crime effectively -- how to eliminate it or reduce it to an
absolute minimum -- has received a great deal of attention from legislators,
law enforcement officials, judges, criminologists, penologists, and other
students of human behavior in this Country over the past half century.
I first became interested in crime control some 20 odd years ago
when I was a young Assistant District Attorney in Frank Hogan's office
here in New York County. It is a fascinating subject and my interest in
it has continued through the years. When I was invited to speak here, I
could not help but think about the many changes that had taken place in
crime control since I first became interested in it.
Changes Effected by Supreme Court Decisions
One of the first things I thought about was the effect of Supreme
Court decisions on crime control. The prevention and detection of crime
as well as punishment for the commission of crime are fundamental to
crime control. Each of those elements were effected by the criminal law
revolution that took place between 1960 and 1970. During those years the
Supreme Court, with Chief Justice Warren at its helm, revolutionized the
criminal law by extending to the States the application of various
gUarantees under the Bill of Rights of the Federal Constitution.
C-323
- 2 The revolution began when the Warren Court ruled in Mapp V. Ohio
(367 L,S. 643) that evidence secured in violation of the Fourth
Amendment, relating to unreasonable searches and seizures, could not
be introduced at a State trial. Thus, the Court, for the first time,
applied to the States, the Federal exclusionary rule on evidence
obtained through illegal search and seizure in violation of the Fourth
Amendment.
The ~ case had a sharp impact on law enforcement. I can recall
when I was an Assistant District Attorney it was quite common for the
police to search for and seize evidence without a search warrant. Before the ~ case, such evidence was not excluded and could be introduced
against a defendant at his trial. After that case, of course, this could
not be done. Consequently, while guarantying an important individual
right against State action, the case made the job of law enforcement in
many States a hit more difficult.
The ~ case was followed by a multitude of cases during the decade
of the 1960's in which the Supreme Court extended various Bill of Rights
guarantees to the States. By the end of that decade nearly all of the
guarantees of the Fourth Amendment (which protects against unreasonable
searches and seizures), the Fifth Amendment (which protects against double
jeopardy, self-incrimination and guarantees due process), and the Sixth
Amendment (which guarantees an accused a fair and speedy trial) had been
made binding upon the States.
The criminal law revolution that was effected by the Warren Court
resulted in forcing the States to give defendants in criminal cases far
more protection than they had ever had in the past. Not only did the
Court rule that individual rights guaranteed by certain amendments to
the Federal Constitution were enforceable against the States, but, in
interpreting those amendments, the Court strengthened and expanded them
to the benefit of those charged with the commission of crimes.
For example, the Court, in its interpretation of the Sixth Amendment
which relates to fair trials -- held that a defendant had the right to
counsel during the preparation and trial stages of his case. Subsequently
it extended that right to the interrogation room, and held that any suspec
in the custody of the police had the right to consult with his attorney
before he was interrogated by the police. (See Gideon v. Wainwright,
372 U.S. 335 and Escobedo v. Illinois 378 U.S. 478).
The Warren Court's handling of the privilege of self-incrimination
provides a further illustration. The Court decided that the Fifth Amendme
Privilege against self-incrimination applied to the States (Malloy V. Ho~
378 U.S. 1). Subsequently, it went further. In one of its most famous an
indeed, most controversial cases -- Miranda vs. Arizona (384 U.S. 436) -the Warren Court held that from the moment a suspect is taken into custody
- 3 -
he must be warned by the police of his privilege against self-incrimination
and of his right to counsel during interrogation.
Another example is that Court's interpretation of the Fourth Amendment in such a manner as to give greater protection against electronic
eavesdropping to criminal suspects and defendants. The Court considered
electronic eavesdropping to be an unlawful invasion of privacy in violation of the Fourth Amendment unless the eavesdropping was carried out
p~rsuant to a court order issued under certain, very strict requirements
as defined by that Court in the case of Berger v. New York (388 U.S. 41).
The effect of the Berger case and other decisions of the Warren Court on
eavesdropping was to curtail drastically the use of electronic eavesdropping as a legitimate means of law enforcement (see U.S. v. Katz,
389 U.S. 347, Lee v. Florida, 392 U.S. 378, Alderman v. U.S., 394 U.S. 165,
Cf. Osborne v. U.S., 385 U.S. 323.)
The criminal law revolution came to an end in 1969. In retrospect,
some might say that the decisions of the Warren Court in the area of
criminal law during the decade of the '60's were bold, extremely imaginative,
and very necessary to protect the civil liberties of individuals against
improper actions by the States. Others might argue that the Court was too
liberal in its construction of law and this resulted in numerous decisions
which helped criminals, encouraged crime, and made the job of law enforcement unnecessarily more difficult. Whether one agrees or disagrees with
what the Warren Court did to criminal law, he would have to admit that
the decisions of that Court had a very substantial and profound impact on
crime control. In fact, many people blamed the substantial increase in
crime in the late sixties on the decisions of that Court.
Since Chief Justice Burger became head of the Supreme Court about
three years ago, defendants have gained some additional protections, but
in several important instances, the Court has ruled in favor of Federal
and State positions. For example, just recently -- on May 22 of this
year -- the Court held that unanimous jury verdicts are not required for
convictions in criminal cases in State courts (Johnson v. Louisiana,
40 L.W. 4524). On the same date, it decided that the United States
Government may compel testimony from an unwilling witness, who invokes
the Fifth Amendment privilege against compulsory self-incrimination,
even though that witness may be later convicted on the basis of other
eVidence for committing the crime he was forced to discuss. (Kastigar v.
~, 40 L.W. 4550).
It is too early to state exactly what overall effect the Burger
Court will have on crime control, but I believe it is fair to predict
that it will be more conservative -- more strict -- in construing the
law than the Warren Court.
- 4Other Changes
Aside from the effect Supreme Court decisions have had upon crime
control, several other changes in crime control have taken place over the
years that are worthy of comment. There have been significant changes in
methods and practices used by police. Some of these changes have been
forced upon the police by Supreme Court decisions. For example, the
requirement that a person taken into custody must be warned against selfincrimination and of his right to counsel before he is interrogated.
Others, which I shall stress here, were primarily brought about by the
police themselves.
When I was an Assistant District Attorney the emphasis of the police
was upon arrest -- upon detection of crime. Police relied primarily upon
punishment to deter people from committing criminal acts. The gist of
the thinking was that if a person thought he would get caught and put in
jail for committing a crime, he probably would not do it.
The role of police in society has changed markedly since then.
Police have found that it takes more than police science -- such as
fingerprinting, ballistics, etc. -- and technical police skill -- such as
knowledge of the laws for which a person can be arrested, ability to
handle firearms, competence in self-defense, knowledge of what to do when
placing a suspect under arrest, etc. -- to prevent and detect crime
effectively.
Among other things they have found that training in community relatiol
is important; that such training results in reducing hostilities between
the police and the communities in which they operate; and that leads to
greater community cooperation with the police which is helpful in both
crime prevention and detection. The Brandeis University Center for the
Study of Violence has cited better training in community relations as one
reason for the decline in disorders over the past five years.
Today, more and more police in the United States realize that to
achieve optimum effectiveness, they must perform many tasks in addition
to identifying and apprehending persons committing serious criminal
offenses. Such other tasks include, for example, the protection of
Constitutional guarantees such as the rights to speak and to assemble;
participation either directly or in conjunction with other public and
social agencies in the prevention of criminal and delinquent behavior;
resolution of conflict between individuals or among groups of individuals;
and assistance to citizens in need of help such as a person who is mental1
ill; the chronic alcoholic; or the drug addict.
- 5 Since police must engage in a multitude of complicated tasks in
order to be most effective in their jobs, it is generally agreed t~
they should be as broadly trained as possible. Some years ago,
would have been considered unnecessary, and by some even a waste nt
time, to train a police officer in such subjects as sociology,
psychology, constitutional law, political science, English, Spanish,
and public relations. Yet, today, these and other subjects -- which
do not directly relate to basic police skills, but which better prepare
an officer to perform his many responsibilities -- are considered highly
appropriate in the education of a police officer.
In the late 1960's there were enormous increases in crime. This
led the Federal Government to acknowledge that it had a direct responsibility to help state and local governments combat crime. As a consequence,
Congress passed the Omnibus Crime Control and Safe Streets Act of 1968
committing the Federal Government to provide substantial financial
assistance to police and other state and local agencies in the criminal
justice system. Well over a billion dollars has already been spent on
this program.
The program has had problems. For example, a common criticism is
that too much of the money is spent to maintain the status quo. For
instance, much of the Federal aid has gone for such traditional items
as helicopters, weapons, and communications systems. It is felt that
more should be spent experimenting with new crime reduction methods.
Although the program may not be as effective as it should be, I think all
would agree that it has -- to some extent at least -- had a positive
impact on crime control.
In 1965 President Johnson established a Commission on Law Enforcement and the Administration of Justice -- generally known as the Crime
Commission. Among other things, the Commission recommended a shift from
the use of prisons to community treatment of offenders as one of the
means of reducing crime.
The Commission reasoned that if a person, whose criminal conduct
shows that he cannot manage his life, is locked up with others like himself, there will be an increase in his frustrations and anger, and that
it will take away from him any responsibility for planning his life.
Consequently, he is almost certain to be more dangerous when he gets
out than when he went in.
On the basis of that rationale, the Commission urged that only the
very dangerous should be held in prison. It called for the development
of halfway houses, programs to send offenders home under intensive supervision, special school and employment programs, and other forms of nonprison treatment.
- 6 date, only two states, California and Massachusetts, have made
substantial progress along the lines suggested by the Commission. A
few other states are moving cautiously in the same direction, but on
the whole, the Country has continued to place heavy emphasis on prisons.
'10
As time goes on, however, I believe that more and more states will
follow the leads of California and Massachusetts and the recommendations
of the Crime Commission in this area. Some states will move in this
direction out of a sense of humanity and a belief that such action will
reduce crime. Others will move in this direction out offear of prison
riots or for fiscal reasons. The programs suggested by the Crime
Commission cost less than maintaining prisons, and in these years of
the "fiscal squeeze", this may be enough to cause a state to seek ways
to reduce its prison population and close prisons.
For many years, even before I was an Assistant District Attorney,
persons interested in criminal justice have been urging reorganization
of and various changes in criminal courts in large cities so that they
might cope more efficiently with the huge volumes of cases they have to
handle. Many lower criminal courts in big cities look ~ore liKe fa~tories
than halls of justice. Under such circumstances, whatever deterrence of
crime the threat of penal sanctions might exercise is undermined as
thousands of defendants go free or are permitted to plead guilty to lesser
crimes than they have been charged with, not because they deserve such
treatment, but because courts and prosecutors are too overwhelmed by
their workload to give fair and just consideration to their cases.
Cities have increased the number of courtrooms, judges, and
prosecutors, but still have not been able to keep up with the ever growing
volume of traffic in criminal cases. It is clear that something more than
an increase in facilities and staff must be done in order to reduce this
traffic. It is an area that needs bold, imaginative, and creative action.
The Crime Commission recommended that most cases involving drunks, first
offenders, persons in need of psychiatric treatment, and non-dangerous
offenders should be handled outside the criminal system. It was also
suggested by the Crime Commission that courts adopt modern administrative
and business management methods that would avoid repeated appearances
and continuances. I believe that the recommendations of the Crime
Commission, and similar creative suggestions, must be adopted if there is
to be meaningful reduction in the congested calendars that currently exist
in the criminal courts of the major cities of this Nation.
- 7 Conclusion
I have spent a good deal of time today discussing certain changes
that have occurred over the years relating to the prevention and
detection of crime as well as to the punishment for crime, and the
effect these changes have had upon crime control. On the whole, I
believe the changes I discussed are encouraging as far as improvement
in crime control is concerned.
Recent statistics show that the war against crime is beginning to
be won. There has been a net decrease in local crime rate in over onethird of the major cities in the United States. The national crime
rate increase for 1971 is the lowest that it has been in the past six
years. Convictions obtained against organized crime increased by 50%
and indictments doubled between 1969 and 1971. Seizures of narcotics
and dangerous drugs increased by over 400% between 1969 and 1972.
I think that a great deal of improvement in crime control in this
Country is due to President Nixon's anti-crime programs. I also believe
that federal law enforcement grants totaling in excess of a billion
dollars in the past three years have been of considerable help because
they have enabled states and localities to better meet their responsibility of improving the criminal justice system.
Of course, the war against crime has certainly not yet been won.
More needs to be done.
I believe that the crime rate in this Country could be
substantially reduced if the economic and social conditions of nonwhites
residing in major cities were vastly improved. Nonwhites are responsible
for a substantial amount of the crime committed in the major cities of
this Nation. In a society which continues to deny a nonwhite opportunity,
and where he is forced to live in slums, and where his life has been
reduced to little more than a struggle to survive, it is not amazing
that such a person considers crime as his best route to a decent life.
It is only when people have decent enough lives that they are unwilling
to risk arrest and conviction by committing crime.
The Crime Commission unanimously stated that it had "no doubt whatever that the most significant action that can be taken against crime is
action designed to eliminate slums and ghettos, to improve education, to
provide jobs, to make sure that every American is given the opportunities
and freedoms that will enable him to assume his responsibilities".
I realize that what I am suggesting is a long term project. It will
require careful planning and will take substantial time and millions and
millions of dollars. However, I believe it must be done if crime in this
Country is to be reduced to the point where it is no longer a major problem
and the streets of our cities are to be safe again.
- 8 -
In Washington, we speak of the order of priorities in spending money.
In my judgment, I can think of no priority of greater importance because
not only would such action dramatically reduce crime in this Country,
but it would also result in millions of people becoming much more productive economically and much more responsible socially. A combination of
these factors would be of great and lasting benefit to all the people
of this Nation.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR RELEASE ON DELIVERY - 10:00 A.M., EDT
STATEMENT BY THE HONORABLE CHARLS E. WALKER
ACTING SECRETARY OF THE TREASURY
BEFORE THE HOUSE WAYS AND MEANS COMMITTEE
JUNE 5, 1972
Mr. Chairman and Members of the Coromittee:
On July 1, 1972, the $450 billion temporary debt
ceiling will revert to the permanent ceiling of $400
billion. The debt subject to statutory limit stood at
$429.2 billion on May 31 and will approximate $425 billion
on July 1. In addition, we now expect the debt to rise to
approximately $460 billion next February.
(This figure
assumes an operating cash balance of $6 billion.)
Accordingly, in order to provide a margin for contingencies -- and in order to give the new Congress an
opportunity to review the debt limit matter early in the
next session -- we recommend that the teroporary ceiling
be raised to $465 billion and extended to March 1, 1973.
The Federal fiscal situation has improved significantly
in recent months. The fiscal 1972 unified budget deficit is
now expected to be about $26 billion -- almost $13 billion
below the January estimate. This $13 billion decline reflects
primarily a $9.2 billion increase in revenues -- largely
because of higher individual income tax receipts -- and outlays
some $3.6 billion below the January estimates. Almost
two-thirds of this outlay shortfall results from the delay
in enacting the President's proposed revenue-sharing measure,
which would have added some $2.2 billion to fiscal 1972
expenditures.
I might note in passing that about two-thirds of the
expected $9.2 billion increase in individual income tax
receipts constitutes withheld taxes, and largely reflects
the overwithho1ding reSUlting from the Revenue Act of 1971.
C-322
- 2 Lookinq ahead, to fiscal 1973, ~e now expect a unified
budget deficit of $27 hillion, sowe SI.S billion above the
January esti~ate of 525.5 billion. It is noteworthy that this
$1.5 billion is some S700 rrillic'n less than the $2.2 billion in
revenue-sharing functs which we ex~ect to be spent in fiscal
1973 rather than this year.
Taken together, the 0eficits for fiscal years 1972 and
1973 are now expected to be about $11 billion less than
anticipated last January.
The figures that I have recounted -- along with those that
Director Shultz will submit -- will actually materialize only
if stern and continuous efforts are made to bring Federal
spending under firm control. With deficits this year and next,
the Federal budget will continue, appropriately, to stimulate
an economy in which unemployment is too high and plant utilization too low. But over the sawe period, we can and must prove
man is the master of the Federal budget -- that the spending
restraint necessary to guard against the return of demand infla
can be exercised. If we fail in this, we shall undo much of th'
good work of recent years -- efforts which are moving us steadi
towards our ultimate goal of high economic growth with low
unemployment and stable prices.
Let me direct my remaining remarks to two matters: some
specifics on the debt limit problem; and some COIllments on the
recurring calls for tax legislation which both this Committee
and the Administration have heard in recent months.
The size of the needed increase in the debt ceiling is
determined not only by the deficit in the unified budget (which
reflects transactions with general public), but also by the
amount of Treasury debt held by the-Federal trust funds and
other Government agencies. Since the trust funds are in substantial net surplus (that is, when transfers of Federal funds
are added to receipts fro~ social security taxes and then
balanced against outlays) and therefore acquiring Treasury
securities, the necessary increase must exceed the size of
the unified budget deficit. Table I shows our estimates of
Federal debt subject to limitation by ~cnths through June 29,
1973. Assuroing a constant $6 billion cash balance, our peak
calendar year 1972 level is $453.2 billion in December. In
February 1973, the peak level rises to $460 billion.
In proposing to this Committee that a new temporary debt
ceiling of $465 billion be set for the period through February,
1973, we recognize that early 1973 will again be an appropriate
- 3 -
time for Congress to review the budget and debt limit situation
against the background of actual experience in the first half
of fiscal 1973 and in relation to the fiscal 1974 budget outlook.
I am sure I need not belabor the need for Congressional
action on the debt ceiling by June 30. The result of inaction
on this matter would be a reversion to a debt ceiling some $25
billion below the level of the debt actually outstanding. This
would create an extremely difficult situation for the Government
in paying its bills and conducting its business. I therefore
recommend prompt and favorable consideration of this request
for a $465 billion temporary debt ceiling through February 1973.
In the context of this review of our debt situation, I
would again like to emphasize, as did Secretary Connally before
this Committee last January, the importance of setting an
effective limit on budget expenditures. The budget policy
of this Administration continues to be as the President stated
it in his Budget Message: "Except in emergency conditions,
expenditures should not exceed the level at which the budget
would be balanced under conditions of full employment." If
we adhere to that objective, our deficits will shrink and
disappear as the economy grows.
We have proposed that the Congress enact a limit of
$246.3 billion on expenditures for fiscal 1973 -- a ceiling
which would be binding both on the Executive Branch and the
Congress. If we are to gain control of budget expenditures,
it will require a strong mutual effort by both the Executive
Branch and the Congress. Achievement of that control is
essential if we are not to undermine the progress which we
have made against inflation and toward our other economic
objectives both domestically and internationally.
Mr. Chairm.an, I would also like to comment on our use
of the authority to issue $10 billion of bonds without
regard to the 4-1/4 percent interest rate limitation.
We have now utilized the authority on four occasions
to issue a total of $4.7 billion of bonds with original
maturities of 10 to 15 years. On the first three
occasions -- in August and November 1971 and February 1972
the new bonds were issued in exchange for maturing securities.
In accordance with our agreement with this Committee we gave
individuals the right to subscribe for cash for up to
$10,000 face value of bonds. In these three offerings
individuals subscribed for cash to $285 million of bonds.
- 4 -
The May 1972 operation was handled entirely as a
cash offering with the new securities sold at auction.
Tenders for up to $50,000 of bonds, however, were
accepted on a noncompetitive basis at the average price,
and there were $15 million of noncompetitive te~ders
submitted by individuals.
I should be happy, if the committee desires, to
submit for the record copies of our announcements of
these offerings and summaries of the results of these
four financing operations.
Mr. Chairman, on February 7 you wrote the President
inquiring as to whether he intends to request major tax
legislation this year. The President firmly believes that
the Administration and the Congress should constantly
strive to improve the tax structure, to increase its
fairness, to ~ake it simpler to understand and administer,
and to improve its effectiveness in furthering the economic
ana sccial goals of the nation.
The President intends to make recommendations to the
Congress to this end at the appropriate time, and the
Treasury will stand ready to devote its full resources
to working with the Committee to achieve this goal, as
it did in the major tax legislation enacted in 1969 and
1971.
We do not believe, however, that it is appropriate
to embark on such an extensive effort at this particular
time and in connection with revision of the debt ceiling.
The basic issues are deep and intricate, and the judgments
that must be made require calm and deliberate reflection.
In short, we firmly believe that the matter of further tax
revision should be dealt with in the next Congress.
TABLE I
Estimated Public Debt Subject to Limitation
Fiscal Year 1973
( $ billions)
With $6
cash balance
1972 :
June
30
425.4
July
17
28
31
434.0
432.0
15
30
31
439.1
440.7;':
439.4
September 15
29
446.4)':
439.0
October
16
30
31
444.7
447.3 1;
441. 8
Novembe-r
15
29
30
448.9
451.5 1;
447.1
December
15
29
453.2 1':
449.7
IS
31
455.4*
449.4
February
15
27
28
458.4
460.0 1':
456.8
March
15
29
30
463.5
469.81':
465 . 8
April
16
30
473.21':
463.3
May
15
30
31
470.2
475.4 1':
371.8
June
15
29
477.9~:
August
435.5~'~
1973:
January
1\
464.8
peak 1e.vel of month
June. 5. 1972
TABLE II
Budget Receipts
Outlays and Surplus or Deficit (-) by Fund
($ billions)
Fiscal Year
Actual: :Current Estimate
1971
1972
1973 ,
Receipts:
66.2
133.8
-11.6
73.2
147.1
-13 .3
152.6
-13.2
188.4
207.0
223.0
59.4
163.7
-11.6
67.0
179.3
72.8
-13 .3
190.4
-13.2
211.4
233.0
250.0
Trus t Funds . ".... "......... " ...... " ......... " ..... ".... ".....
Federal Funds ... "........... "............
+6 . 8
-29.9
+6.2
-32.2
+10.8
Total unified budget..................
-2300
-26.0
-27.0
Fund s ....... "................................................... .
Federal Funds "................. " ... ~ .... " ...................... .
TLUS t
Deduct: Intragovernmental receipts .•.....•.
Total unified budget
83.6
Outlays:
Trus t Funds ............ " ...... "...... "" .............................. .
Federal Funds ............................. " .............. " .......... ".
Deduct: Intragovernmental outlays .......•.•
Total unified budget
Budget surplus (+) or deficit (-):
II
Office of the Secretary of the Treasury
Office of Tax Analysis
.............
"
..
..
..
•
-37.8
May 26, 1972
TABLE III
Unified Budget Receipts
Outlays and Deficits (-)
($ billions)
Fiscal Year 1972
:January :Change from :
Current
1972 :January 1972:
estimate
:estimate: estimate
Receipts .•..
197.8
Outlays
236.6
Deficit (-).
-38.8
+9.2
+12.8
Fiscal Year 1973
:January :Change fram : Current
1972 :January 1972: estimate
:estimate: estimate
207.0
220.8
+2.2
223.0
233.0
246.3
+3,8
250.0
-26.0
-25.5
-1.6
-27.0
Office of the Secretary of the Treasury
Office of Tax Analysis
Note: Figures are rounded and may not necessarily add to totals.
May
26, 1972
TA~LE
-
r
IV
Comparison of Fiscal Year 1972 Receipts -- as Estimated in
January 1972 and Currently
($ billions)
January:: Change from Janurtry 1972 Budget
Cur'
1972 : : Economic and: Legis- . h : T l ' .
.] .
Ot er : ota .. estil
b udget:: re-est~mate: .atlon:
I
86.5
30.1
46.4
4.4
+6.4
+1.5
-0.1
+1. sll +7.9
+1.5
-0.1
-0.1
+0.1
+0.1
3.
15.
-0.1
-0.1
5.
:!iscellaneous receipts .....•.•••••
3.4
15.2
5.2
3.2
3.5
Total budget receipts ...•.•..•..
197.8
+7.8
Individual income tax ...........•.
Corporation income tax .••••.••..•.
Employment taxes and contributions.
Unemployment insurance ...•.•..••.•
Contributions for other insurance
and retirement .••......•..•.••••
Excise taxes •.•..•....•..•.•..••..
Estate and gift taxes ............ .
Cus toms dut ies •.••.•.•••.••••.•••.
~
-0.1
94.
31.
46.
4.
3.
3.
-0.1
+1.5
+9.2
207.
Underlying Income Assumptions -- Calendar Year 1971
G~P
•••••••••••••••••
0
•••••••••••••
Personal income ..........••.•.•••
Corporate profits before tax .•....
1047
857
85
Office of the Secretary of the Treasury
Office of Tax Analysis
11 Change in capital gains tax estimate.
i\;otc: The figures are rounded and may not necessarily add to totals.
May 26, 19
TABLE V
Comparison of Fiscal Year 1973 Receipts -- as Estimated in
January 1972 and Currently
($ billions)
January:: Change fram January 1972 Budget
Current
1972 ::Economic and:Legis-: h : T t l "estimate
O
l
'
t er
0 a
.
bu dget :: re-estDnate: at1on:
:
+1.511 +1.6
ilividua1 income tax
rporation income tax .•..•.••.••.
ployment taxes and contributions.
~ployment insurance .•.•.•..••.•
IItributions for other insurance
93.9
35.7
55.1
5.0
+0.1
+0.3
and retirement ................. .
eise taxes ................ ,. ... ,..
3.6
16.3
4.3
2.8
4.1
+0.1
+0.1
+0.1
+0.1
220.8
+0.6
tate and gift taxes •.••.••••••••
atoms duties ..................•.
scellaneous receipts ...•.•....•.
Total budget receipts •.••.
0
•••••
+0.3
+0.1
+0.1
95.5
36.0
55.2
5.0
+0.1
+1.5
+2.2
3.7
16.3
4.3
2.9
4.1
223.0
Underlying Income Assumptions -- Calendar Year 1972
p ..................
raona! incmne .................•
0
,.
••••••••••••
rporate profits before tax ••••••
1145
924
99
fice of the Secretary of the Treasury
Office of Tax Analys is
Change in capital gains tax estimate.
te: The figures are rounded and may not necessarily add to totals.
1145
924
99
May 25, 1972
TABLE VI
Unified Budget Receipts
Estimated Receipts, Fiscal Years 1972 and 1973,
January 1972 Budget and Current Estimate
($ bi 11ions)
Fiscal Year 1972
::
Fiscal Year 1973
Total recei ts
:Increase (+) or decrease (-)::
Total recei ts
Increase (+) or decrease (-)
:-____-::_p_ _~
Current estimate over
::
p
Current estimate oVer
January: Current:
January estimate
:: January: Current:
January budget
Other
budget :estimate: Total :Legislation: Other:~ budget :~~timate: Total :Legislation:
Individual income tax:
Gross:
Wi thhe Id ...............•.......•.••.•.••••..••..••.•••••••
Other than wi thhe Id ..•....••.....••••.••••••••.••••••••••.
Tota 1 gross . . . . . . ~ ...................................................................... ..
Less: Refunds ••..•.•.•..••.•.••••.•••.•••.••.••.•..•.•.•..•.
Net individual income tax ............................. ..
Corpora tion income tax ......•.••.......•..•.•....•..••••...•.•
Employment taxes and contributions .•.••...••..•.••.•.••.•..•..
Unemployment insurance •....•..•.•.....•.•.........•..••.•.••••
Contributions for other insurance and retirement ......•.••••••
Exe ise taxes
................................................................................................ ..
Estate and gift taxes •.•..•.••.•.••.••.••.•.••••••••••••••••••
Customs duties ......................................................................................... ..
Miscellaneous receipts ........................................................................ .
tota 1 receipts ••.••..•.••.••••••••••••••••••••••••••••.•..••
76.2
24.8
101.0
82.5
25.8
108.3
~
..1.L.2.
86.5
30.1
46.4
4.4
3.4
15.2
5.2
3.2
-..2..:2.
197.8
94.4
31.6
46.3
4.3
3.5
15.2
5.1
3.2
3.5
207.0
+6.3
+1.0
+7.3
-M
+7.9
+1.5
-0.1
-0.1
+0.1
-0.1
+0.1
*
·0.1
-0.1
*
*
+D
11 Effect of delaying of increase in wage base from $9,000 to $10,200 paat June 10, 1972.
Note: Figures are rounded and may not add to totals.
-0.1
*
Office of the Secretary of the Treasury
Office of Tax Analysis
*Less than $50 million.
+6.3
+1.0
+7.3
-0.6
+7.. 9
+1.5
-0:1
.*
+9.3
84.3
26.6
110.9
...!LQ
93.9
35.7
55.1
5.0
3.6
16.3
4.3
'2.8
~
220.8
94.8
24.9
119.7
...lid
95.5
36.0
55.2
5.0
3.7
16.3
4.3
2.9
4.1223.0
+10.5
-1.7
+8.8
+7.2
+1.6
+0.3
+0.1
+10.5
-1. 7
+8.8
+L1.
+1.6
+0.3
+0.1
11
+0.1
+0.1
i'O .1
+0.1
+2:2
+0.1
May 26, l.972
+D
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
TENTION:
FINANCIAL EDITOR
R RELEASE 6:30 P.M.
June 5, 1972
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
'!he Treasury Department announced that the tenders for two series of Treasury
11s, one series to be an additional issue of the bills dated
March 9, 1972
,and
eother series to be dated
June 8, 1972
,which were offered on May 30,1972,
re opened at the Federal Reserve Banks today. Tenders were invited for $2,300,000,000,
,~ereabouts, of 91-d~v bills and for $1,800,000,000, or thereabouts, of
182-day
Us. The details of the two series are as follows:
mE OF ACCEPTED
KPETITIVE BIDS:
High
Low
Average
91-d~ Treasury bills
maturing September 7, 1972
Approx. Equiv.
Price
Annual Rate
99.030
99.015
99.024
3.837%
3.897%
3.861%
182-d~ Treasury bills
maturing December 7, 1972
Approx. Equiv.
Price
Annual Rate
97.863
97.843
97.855
4.227%
4.267%
4.243%
68% of the amount of 91-day bills bid for at the low price was accepted
9% of the amount of 182-day bills bid for at the low price was accepted
W. TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
)istrict
!os ton
lew York
Mladelphia
:leveland
/i~nd
~tlanta
hie ago
:t. LoUis
linneapolis
~sas City
~as
ill
Francisco
TOTALS
AEElied For
$ 15,330,000
2,492,660,000
31,835,000
12,725,000
3,770,000
24,695 ,000
195,585,000
25,450,000
25,740,000
24,735 ,000
30,720,000
467,210,000
AcceEted
$
2,030,000
1,272 ,140 ,000
9,035,000
11,325,000
3,770,000
9,170,000
72,785,000
17,540,000
15,740,000
12,485,000
7,720,000
?£ 5 , 300 ,000
$ 3,661,780,000 $ 2,300,875,000 ~ $ 3,350,455,000
$ 1,800,040,000
AcceEted
AEElied For
$ 20,690,000 $ 10,675,000
1,972,480,000
3,083,130,000
13,245,000
13,245,000
31,095,000
31,095 ,000
7,150,000
7,150,000
14,625,000
28,930,000
157,725,000
252,695 ,000
28,395,000
37,395 ,000
18,180,000
25,500,000
15,745,000
30,230,000
13,310,000
33,950,000
18,250,000
97,770 ,000
EJ
~elUdes $166,195,000 noncompetitive tenders accepted at the average price of 99.024
~clUdes $ 89,825,000 noncompetitive tenders accepted at the average price of 97.855
~ese rates are on a bank discount basis. 'lhe equivalent coupon issue yields are
95 %for the 91-day bills, and 4. 4~ for the 182 -day bills.
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
'OR
IMMEDIATE RELEASE
June 6, 1972
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
$4,100,000,000, or thereabouts, for cash and in exchange for Treas.ury
bills maturing
June 15, 1972,
in the amount of $4,206,215,000,
as follows:
91 -day bills (to maturity date) to be issued June 15, 1972,
in the amount of $2,300,000,000,
or thereabouts, representing an
additional amount of bills dated March 16, 1972,
and to mature
;eptember 14, 1972
(CUSIP No. 912793 PC4) ,originally issued in
the amount of $1,800,670,000, the additional and origiLlal 'bills to be
freely interchangeable.
182- day bills, for $ 1,800,000,000, or thereabouts, to be dated
June 15, 1972,
and to mature December 14, 1972
(CUSIP No. 912793 PQ3).
The bills of both series will be issued on a discount basis under
competitive and noncompetive bidding as hereinafter provided, and at
matudty their face amount will be payable without interest. They will
be issued in bearer form onl.'J. and in denominations of $10,000,
$15,000, $50,000, $100,000, ~~OG,OOO and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches ~p
to the cloSing h;)ur, one-thirty p. m., Eastern Day1ig-ht Saving
time, Monday, June 12, 1972.
Tenders will not be received
at the Treasury Department, Washington. Each tender must be for a
minimum'of $10,000. Tenders over $10,000 must be in multip'les of
$5,000. In the case of competitive tenders the pr-ice offered must be
~pressed on the basis of 100, with not mor2 than three decimals,
e·g.,99.925. Fractions may not be used. It is urged that tender-s be
made On the pr-inted forms and forwarded in the special envelopes which
will be supplied by Federal Reserve Banks or Branches on application
therefor.
Banking institutions gener-ally may submit tenders for account of
CUstomers provided the names of the customers ar-e set forth in such
tenders. at he rs than banking ins t i tut ions wi 11 not be pe rmi tted to
- 2 submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized 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 wi.ll be opened at the
Federal Reserve Banks and Branches, following which public announcement
will be made by the Treasury Department of the amount and price range
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or re;ect any or all
tenders, in whole or in part, and his action in any such respect shall
be final. Subject to these reservations, noncompetitive tenders for
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 15, 1972,
in cash or other immediately available funds or in a like face amount of
Treasury bills m.'3.turing June 15, 1972.
Cash and exchange tenders
will receive equal treatment. Cash adjustments will be made for
differences between the par value of maturing bills accepted in
exchange and the issue price of the new bills.
Sections 454 (b) and 1221 (5) of the Internal Revenue CoJe
of 1954 the amount of aiscount at which bills issued hereunder are sold
is cor,s~derC'd ::0 [lccr'Je wben the bills are sold, redeemed or otherwise
disposed of, ,'nd the bills are excluded from consideration as capital
assets. Acccr.Jingly, the o,mer
Treasury bills (other than life
insurance comp30ies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price paid
for the bills, whEther on original issue or on subsequent purchase, and
the amount act'Jally received eithel" upon sale or redemption at maturity
during the trtx~ble year for which the return is made.
~nrl2r
Treasury Department Cilc~!ar No. 418 (current revision) and this
notice, prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained from
any Federal Reserve Bank or Branch.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 6, 1972
TREASURY ANNOUNCED ACTIONS ON
FOUR INVESTIGATIONS UNDER THE ANTIDUMPING ACT
Assistant Secretary of the Treasury Eugene T. Rossides
announced today Treasury's actions with respect to four
investigations under the Antidumping Act of 1921, as amended.
In the first case there is a final determination of
sales at less than fair value; in the second case, the
Treasury is withholding appraisement pending completion
of its investigation; and in the third and fourth cases,
antidumping investigations are being initiated.
The decisions are being published in the Federal Registers
of June 7 and 8, 1972.
In the first case, Assistant Secretary Rossides
announced that instant potato granules from Canada are
being, or are likely to be, sold at less than fair value
within the meaning of the Antidumping Act of 1921, as
amended. The case will now be referred to the Tariff
Commission for a determination as to whether an American
industry is being, or is likely to be, injured.
In the
event of an affirmative injury determination, dumping
duties will be assessed on all entries of instant potato
granules from Canada which have not been appraised and on
which dumping margins exist. A notice of "Withholding of
Appraisement" was issued on March 4, 1972, which stated that
there was reasonable cause to believe or suspect that there
were sales at less than fair value. Pursuant to this notice,
interested parties were afforded the opportunity to present
oral and written views prior to the final determination in
this case. During the period from April 1971 through
March 1972, imports of instant potato granules from Canada
were valued at approximately $1.1 million.
(OVER)
- 2 In the second case, the Treasury announced that the
Bureau of Customs is instructing Customs field officers
to withhold appraisement of base metal parts for incandescent
illuminating articles, suitable for residential use, from
Canada pending a determination as to whether this merchandise
is being sold at less than fair value. Under the Antidumping
Act, the Secretary of the Treasury is required to withhold
appraisement whenever he has reasonable cause to believe
or suspect that sales at less than fair value may be taking
place. A final Treasury decision in this investigation
will be made within 3 months. If a determination of sales
at less than fair value were made in this investigation,
the case would then be referred to the Tariff Commission,
which would consider whether an American industry is being
injured. Both dumping margins and injury must be shown to
justify a finding of dumping under the law. During the
period from January 1971 through December 1971, imports of
base metal parts for incandescent illuminating articles,
suitable for residential use, from Canada were valued at
approximately $165,000.
In the third case, the Department announced the
initiation of an antidumping investigation of imports of
permanent magnets of alnico or ceramic material from Japan.
Permanent magnets are used principally in communications
equipment, motors, and generators, and to a lesser extent
in holding and lifting applications, recording and measuring
meters, and ore separating equipment. This announcement
followed a summary investigation conducted by the Bureau
of Customs after receipt of a complaint alleging that dumping
was taking place in the United States. The total value of
permanent magnets of alnico or ceramic material imported
from Japan during the period from January 1971 through
February 1972 amounted to approximately $2.4 million.
In the fourth case, Mr. Rossides announced the
initiation of an antidumping investigation of imports of
slide fasteners and parts of slide fasteners from Japan.
Slide fasteners are commonly known as zippers and are
primarily used in wearing apparel. As in the third case,
this announcement followed a summary investigation conducted
by the Bureau of Customs after receipt of a complaint
alleging that dumping was taking place in the United States.
The total value
slide fasteners and parts of slide
fasteners imported from Japan during the period from April
1971 through March 1972 amounted to approximately $7.8 million.
0=
000
The Deportment of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 6, 1972
TREASURY DEPARTMENT AMENDS TWO COUNTERVAILING DUTY
PROCEEDING NOTICES AND A NOTICE SOLICITING VIEWS ON
SALES BELOW COST OF PRODUCTION UNDER THE ANTIDUMPING ACT.
Assistant Secretary of the Treasury Eugene T. Rossides
announced today amendments to two countervailing duty
proceedings and one solicitation of views affecting the
administration of the Antidumping Act. In both countervailing duty proceeding amendments there is an extension
of the time period in which written submissions of relevant
data, views or arguments must be received by the Commissioner
of Customs; and in one, the scope of the notice is also
expanded. In the amendment to the notice soliciting views
on the question concerning sales below cost of production
in fair value calculations under the Antidumping Act,
the time for submissions is also extended.
These amendments will be published in the Federal
Register of June 8, 1972.
The first amendment is to the "Notice of Countervailing
Duty Proceedings" published in the Federal Register of May 19,
1972, with respect to certain electronic products from Japan.
This notice is amended to apply to the following parts of
television receivers: color television picture tubes,
resistors, transformers (deflection components), and tuners
for receivers with.integrated circuits. In addition, the
amendment also extends the time for submission of views with
respect to the existence or nonexistence of a bounty or grant
. from 30 to 60 days.
The second amendment is to the "Notice of Countervailing
Duty Proceedings" published in the Federal Register of May 12,
1972, with respect to X-radial steel belted tires from
MiChelin Tire Manufacturing Company, Ltd., Canada. This
amendment also extends the time for submission of views with
respect to the existence or nonexistence of a bounty or grant
from 30 to 60 days.
(OVER)
- 2 -
The third amendment is to the notice published in
the Federal Register of May 5, 1972, soliciting views
on a question concerning the extent to which price
information relating to sales below cost of production
may be used in determining "fair value" within the meaning
of the Antidumping Act, 1921, as amended. This amendment
extends the time for submission in writing of all relevant
data, views or arguments to the Commissioner of Customs
from 30 to 60 days.
000
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
May 31, .1972
(Dollar amounts in millions - rounded and will not necessarily add to total.)
-\ATURED
DESCRIPTION
AMOUNT ISSUEDY
AMOUNT
REDEEMEDY
AMOUNT
OUTSTANDINGl/
'70 OUTSTANDING
OF AMOUNT ISSUED
5,003
29,521
3,754
4,998
29,495
3,744
5
25
10
00.10
00.08
1,911
8,434
13,560
15,820
12,455
5,672
5,400
5,596
5,547
4,864
4,207
4,408
5,041
5,141
5,358
5,18:]
4,886
4,774
4,479
4,503
4,584
4,452
4,993
4,862
4,732
5,105
5,056
4,799
4,508
4,709
5,397
1,703
255
1,720
7,583
12,222
14,191
II ,019
4,859
4,491
4,576
4,459
3,858
3,336
3,471
3,893
3,914
4,036
3,867
3,596
3,416
3,165
3,084
3,Oll
2,831
2,976
2,890
2,802
2,899
2,831
2,626
2,314
2,049
1,625
113
3J6
191
851
1,338
1,630
1,436
813
1,020
1,037
1,006
871
938
1,148
1,227
1,322
1,312
1,290
1,358
1,314
1,420
1,573
1,621
2,016
1,972
1,930
2,206
2,224
2,173
2,194
2,661
3,773
1,589
-51
9.99
10.09
9.87
10.30
11. 53
14.33
16.83
18.23
19.60
20.68
20.7'..'
21.28
22.77
23.87
24.67
25.33
26.40
28.45
29.34
31. 53
34.32
36.41
40.38
40. 5~
40.79
43.;:1
43.99
45.28
48.67
56.51
70.14
93.31
182,392
134.,031
48,361
26.51
5,485
8,407
3,873
2,723
1,612
5,685
29.39
67.62
13,893
6,596
7,297
52.52
Total Series E and H
196,284
140,627
55,658
28.36
{ Total matured
All Series Total unmatured
_
Grand Total
38,277
196,28.4234,562
33,238
140,627
178,864
40
55,658
55,697
on.lO
28.36
23.75
series A-1935 thru D-1941
series F and G-1941 thru 1952
series J and K-1952 thru 1957
0~.27
IHMATURED
Series ElI :
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
1971
1972
Unclassified
TGtal Series E
Series H (1952 thru May. 1959)11
H (June, 1959 thru 1972)
Total Series H
"'e/IId., accrued discount.
ledelltptlon va lue.
AloptlO/l 01 owner bond, . . . . . . I-.U . . .
c.r.ftI
9~9
~_ izILtlreat lor additional periods slter ori~insl maturity dateo,
(Rev.F.b.1972) -Dept. of the Treasurv-Bureau of the Publ,C' Debt
Form PD 3812
---
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 8, 1972
TREASURY ANNOUNCES ACTIONS ON TWO INVESTIGATIONS
UNDER THE ANTIDUMPING ACT
Assistant Secretary of the Treasury Eugene T. Rossides
announced today Treasury's actions with respect to two
investigations under the Antidumping Act of 1921, as amended.
In one case there is a finding of dumping, and in the
other case the antidumping investigation is being discontinued.
Both decisions will be published in the Federal Register of
June 9, 1972.
In the first case, the Treasury issued a dumping finding
with respect to fish netting of manmade fiber from Japan. On
January 18, 1972, the Treasury Department advised the Tariff
Commission that both fish netting and nets of manmade fibers
from Japan were being sold at less than fair value within the
meaning of the Antidumping Act. On April 18, 1972, the Tariff
Commission found injury with respect to imports of fish
netting of manmade fibers, but no injury with respect to imports
of fish nets.
The dumping finding on fish netting automatically follows as
the final administrative requirement in antidumping investigations where there have been determinations of sales at less
than fair value and injury. Dumping duties will be assessed
on imports of fish netting which have not been appraised and
on which dumping margins are found to exist, but no dumping
duties will be assessed on imports of fish nets. During the
period from January 1970 through January 1972, imports of
fish netting of manmade fibers from Japan were valued at approximately $2.7 million.
In the second case, the Department announced a discontinuance
of its antidumping investigation of fur felt hat bodies from
Czechoslovakia. On April 19, 1972, a six-month "Withholding
of Appraisement Notice" was published in the Federal Register
which stated that there were reasonable grounds to believe or
suspect there were sales at less than fair value. This notice
(OVER)
-2-
also indicated that interested persons could make written
submissions or request an opportunity to present their views
orally at the Treasury Department. Subsequent information
submitted in writing and orally indicated changes in circumstances on the basis of which it is no longer appropriate to
continue the investigation. In addition, a letter was received
from interested persons confirming these changes in circumstance
and requesting the investigation be terminated. During
calendar year 1971, imports of fur felt hat bodies from
Czechoslovakia were valued at roughly $140,000.
000
THE DEPARTMENT OF THE TREASURY
PRESS CONFERENCE
OF
HONORABLE PAUL A VOLCKER,
0
UNDER SECRETARY FOR MONETARY AFFAIRS
AND
HONORABLE JOHN N. IRWIN, II,
UNDER SECRETARY OF STATE
BEFORE
MEMBERS OF THE PRESS
AT THE CONCLUSION OF THE
MINISTERIAL MEETING OF THE OECD
Paris, France
MAY 26, 1972
(This transcript was prepared from a tape recording.)
MR. WEBER:
Ladies, and gentlemen, we are on the
record.
I would like to introduce at this time Under Secretary
of State John Irwin and Under Secretary for Monetary Affairs
of the U.S. Treasury Paul Volcker.
I would ask, please, that before you ask questions,
you raise your hand so that we can be sure that you have
activated the microphone for purposes of translation.
I would also perhaps make the announcement at this
time, I have been asked to inform you that at the conclusion
of
th~
press c0nference, the Australians will have a press
conference here in this same room.
I am informed that we have no opening statement, so we
can go directly to questions, if you would, please.
QUESTION:
Mr. Vo1cker, the final communique as regards
the essential element of linkage of monetary and trade states
:1
ministers exchanged views on the issues arising in the areas
of trade and international monetary reform and recognized
that some important issues arise from their interrelationship."
As far as I can tell, this is the only sentence in the entire
communique which deals with this, and my question is:
what
advance does this amount to on the Smithsonian communique
of December?
- 2 -
MR. VOLCKER:
I think this is an area where there has
been some continuing concern, perhaps lack of understanding.
We have been pressing this point fairly continuously, as
you know.
here.
We do think there are inherent interrelationships
We feel that at this meeting, again, the point was
accepted in the principle that these
interrelationships
exist, they cannot be ignored, they are an inherent part
of the process of monetary negotiation.
Now, at the time of the Smithsonian agreement, our
point was essentially the same, but it was put perhaps then
in a shorter term context.
It was interpreted by some in a
somewhat shorter term context and in a rather specific
context that isn't relevant today.
At that time we were
launching some very specific trade negotiations, some
short-term trade negotiations with the Cornmon Market, with
Japan, with Canada.
They were uppermost in mind.
In terms of this partLcular organization and the general
problem of international monetary reform, we are thinking in
terms of what you might call more structural linkages --- thE
rules of the game, the general codes of conduct
which an
inherently part of the monetary arrangements of L1e world,
and will be part of the new monetary arrangemen ts of the
world.
Complementary to those arrangements, in our view,
are certain codes of conduct, rules of the game for the trad
world.
That is the basic point we were trying to make, and
that this is an area in which this organization has some
- 3 -
particular competence.
And I think that point was basically
accepted, and we were glad to see it accepted.
QUESTION:
It does, if I may, seem to fall short of
the objectives that you outlined in your speech to the OECD.
MR. VOLCKER:
Well, I think you have to look at that
in two parts, sir.
In terms of the principle, the substance
of the issue, I was well satisfied with the discussion here.
I think there was more understanding of the issue, more
understanding of the interrelationships and their relevance
than perhaps have been apparent earlier.
Now, in terms of particular mecladsms, how well the
DEeD in its present structure is equipped to handle these
questions is a related but somewhat different matter.
We
had felt it wise to perhaps think in terms of some institutional changes along the lines that the Secretary General had
proposed as facilitating
(Laughter.)
QUESTION:
He had assured us he had made no proposals.
MR. VOLCKER:
MR. IRWIN:
He made no proposals?
I thought he said he made no proposals outside
the institutional framework.
(LAUGHTER)
MR. VOLCKER:
Well, I wasn't listening to Mr. van
Lennep.
QUESTION:
Nor were we.
MR. VOLCKER:
But there was some suggestion.
I think
- 4 it is fair to say that that suggestion was never in indelible
ink, in a sense.
QUESTION:
There was not a -It certainly wasn't.
It was invisible ink.
(Laughter)
MR. VOLCKER:
Well, I don't know what -- I am not in
on the in jokes.
There was certain consideration of some adaptation of a
rather more or less specific type.
des irable.
We thought it might be
We thought this organization should ps rt:eipate
fully, and not just for the sake of this organization -- we
are looking at this in the wider framework of facilitating
the negotiations as a whole, and we think that this organization can help to facilitate the negotiations as a whole.
Some changes might have been useful.
Now, there was a general feeling around the table that
we should utilize the existing organs - which certainly we
have no problem with, we always contemplated the existing
organs would be used -- and provide some opportunity to
adapt or improve those organs, but stop somewhat short of the
proposal that was made.
We would have preferred it the other way, frankly,
because we think it would have facilitated the whole negotition.
There was some resistance to it.
QUESTION:
Who backed you, sir?
- 5 -
MR. VOLCKER:
There were some countries that did.
There is another group of countries that tend to react in a
somewhat more coordinated way than other countries, as you
kno~7
.
QUESTION:
Was this meeting, from your view, from the
institutional side, a failure in terms of actual progress
towards real negotiations and real talk on monetary refo rm
and trade liberalization?
MR. VOLCKER:
I would by no means term it as a failure.
We would have liked to see more progress in the institutional
direction because, as I suggested) I think it would have
facilitated the negotiation most broadly.
Now, I am looking
outside of this organization into the whole of the monetary
and trading problem, and we were concerned that this institution play its full role.
We hope it still can.
The choice was made not to adopt at least one form of
institutional arrangement that, in our judgment, would have
facilitated and speeded this progress.
There was perhaps
some feeling that -- well, I ought to let you draw your own
conclusions, I guess, but we were hoping to facilitate the
progress as a whole.
MR. IRWIN:
You referred to negotiations, and perhaps
it would be clarifying to point out that there was no discussion within the group or no proposal by the United States
that this was a group for negotiation purposes.
It was purely
- 6 -
for discussion and the negotiations will take place in the
GATT and the IMF, and I just speak to be clear that when you
use the word "negotiations" Bnd we answer, we are not aSsunii
that that implies
MR. VOLCKER:
No,
it is quite clear, and I assume that
we are all -- just to clarify this further -- that we
certainly hope and expect that presumably a group of twenty
will be set up under the auspices of the Fund, and this will
be the formal negotiating group, in a sense, and tha t specif
trade negotiations will certainly we hope go ahead in the
GATT framework.
The question was whether it is useful in
this organization, with its particular competence, whether
t~
it didn't have a particular role to play in facilitating
discussion-consultation process which could indeed make a
major contribution to the constitutional negotiating body.
QUESTION:
Woulc it be possible to have details about
the institutional arrangements of which you have spoken?
MR. VOLCKER:
I am not sure how to answer that questior
You are familiar with the general institutional setup of thE
OECD, and there are various bodies within the DEeD that wi!:
certainly have a part to play in this process; Working part
3, the Trade Committee, the Executive Committee, I think
be adapted in some sense to this purpose, and
ther.~
Cal
is room
for adapting and improving these mechanisms that do exist,
and I think that is good.
- 7 QUESTION:
Mr. Volcker, what has gone wrong here?
The
United States -- you, as a representative of the United
States, yesterday made a very specific suggestion.
From
what we can gather, from Mr. van Lennep, no one else, not
even himself, in whose name the suggestion was said to have
been made, wants to claim any kinship with it.
you ascribe this lack of enthusiasm?
change their minds in the past weeks?
To what do
Did certain countries
Do you feel there
wasn't enough leg work done, not necessarily simply by you
and your services, but perhaps by the American embassies
abroad in canvassing the idea?
We are faced ''lith a rather
extraordinary situation in which the United States makes a
proposition and, from what we can gather, not a single
voice was
r~d
in support,
~ncluding
the rather unusual
situation in which Mr. van Lennep, during forty-fiNe
minutes, pretended that he had nothing to do with it.
I am sorry to talk about Mr. van Lennep in such terms
but had you been here, even you would have been amused by
the senatti..c gymnastics.
MR. VOLCKER:
Well, I was not here, but I -- first of
all, if there was a proposal around looking for paternity,
we don't want any orphans, whether it was our proposal or
not.
We thought it would be useful to have a focus for the
discussion.
There is no question about that, and I don't
think we were alone in that view.
There may have been
- 8 -
some shifts on the part of some other countries recently,
but we certainly were not alone in that view.
Now, there was a considerable number of countries,
for one reason or another, that decided they didn't want b
approach it in quite that way.
question, what went wrong?
not accepted.
a~
That particular proposal was
But in general I think quite a bit went rig
about this meeting.
I
But the introduction to you
I have been reading a lot in the pres
not sure the press that would be necessarily written
by you gentlemen -- in terms of the conflict about whether
trade was related to monetary, and whether there was any
agreement or consensus on that.
I think it is clear from
this meeting there is a consensus, an agreement, and a
recognition of the relationship of these issues.
I would
not say anything went wrong in that sense.
Now, I freely say that perhaps some modification of
institutional arrangements, in our opinion, would have
facilitated the total resolution of the problems before
world.
t~
Now, why that was resisted by others isn't altoget
clear to me.
QUESTION:
You spoke of a proposal, but what was it?
MR. VOLCKER:
and the proposal
I can't tell you all that specifically,
~vas
not imbedded in concrete in any senSE
There had been some discussion within this organization
0'
recent weeks of adapting and modifying essentially the
Executive Committee to deal particularly with the linkage!
- 9 -
to which we referred.
But even that proposal contemplated,
it was always contemplated that the existing organs of the
institution would be fully used.
The only open question,
in a sense, was whether there was an appropriate focus for
looking at the monetary, balance of payments, trade, investment problems, together, where they overlapped.
Now, there is a recognition that they overlap.
The
question was whether the institutional arrangement fully
recognized the substantive overlap.
There is no question
that the existing framework of the organization was adequate
to deal with each of the component problems.
The decision
was simply made that these horizontal questions, the overlap
questions, didn't necessarily require any specific new
inst~
ment in the institution.
QUESTION:
Mr. Volcker, you said that the fact that
these modifications were not accepted means possibly that
there will not -- to put it another way, that they would have
speeded progress had these modifications been accepted, and
would have facilitated things.
Could you be more specific on
that point in that -- does that mean, to look at it in the
reverse, that there will be very little progress now on the
whole question of monetary reform because these institutions
the changes have not been accepted?
MR. VOLCKER:
Oh, I certainly wouldn't go that far.
- 10 We felt that we were making suggestions, supporting a point
of vtew that would facilitate it.
I suppose I have to con-
clude from the fact that a somewhat different judgment was
made, that we think things might go somewhat slower than
they otherwise would have.
saying.
It is a reverse of what I am
But this institution, I still think has a contribu-
tion to be made, a little more cumbersome approach, perhaps,
in some respects, although there was never any doubt that
the existing organs themselves had a very considerable contribution to make.
MR. IRWIN:
But it may not.
The Secretary General
oelieves that he can facilitate and move along under the
present proposals, as well as perhaps he could have in
other ways, and so it is a difference of judgment, and one
of degree, and it mayor may not turn out to be correct.
QUESTION:
Could I just ask a supplementary question.
We were informed by very high sources that the International
Monetary Fund Managing Director had submitted a memorandum
on this question of a mandate for the Group of Twenty.
Now,
I realize that the Group of Twenty did not come up here in
meeting directly, but nevertheless it is related, and in thi
memorandum there was a relationship to these questions that
have been talked about at this ministerial meeting, namely,
the relationship between trade and monetary matters,
and
that one delegation has requested that there be an amendment
to this memorandum that was submitted by the Managing Direct
- 11 -
of the International Monetary Fund saying that there must not
be a relationship between trade and monetary issues.
So in other words, it looks as if we are going to
get -- the question is:
are we going to get the same type of
discussion in a different forum as we had here?
MR. VOLCKER:
Well, let me
you are telling me news.
But I am somewhat familiar with a draft mandate for the
Group of Twenty.
I have been rather active in that area and
I would say, based upon meetings that I have had recently,
both in Europe and to the north of the United States, and
in the United States with a number of countries, with a
sizable number of important countries, the portions of that
draft mandate to which I presume you were referring met with
no resistance whatsoever.
Now, you are suggesting that one country may at this
point be entering a reservation.
personal knowledge.
Now, I know that of no
I do know that people that I have talked
to, covering representatives of this continent, the North
American Continent, and the Asian Continent
that that
draft mandate has very wide suppOlrt.
~ESTION:
Today, Mr. Volcker, at the end of the
meeting, Valery Giscard d'Estaing, the French Finance
Minister, said he, his country had reservations, they tend to
MEMBER OF THE PRESS:
He didn't say that.
- 12 QUESTION:
He said they were making amendments, and
they did not want the mandate to be paralyzing -- what was
the other word?
Paralyzing.
MR. VOLCKER:
d'Estaing said.
Well, I don't know what Mr. Giscard
I have not seen any reservation and am
obviously unable to comment on it.
This is the first I
have heard of any reservations on that approach.
QUESTION:
Mr. Vo1cker, may I ask, in connection again
with this rather limp communique that we have been handed,
it falls considerably short of establishing linkage between
these two elements and one of the key decisions of the
meeting quite obviously was the decision of the Ministers
to instruct the Secretary General to set up machinery or
to try to set up machinery if he felt that the existing
situation was inadequate.
MR. VOLCKER:
QUESTION:
Precisely.
Why were you unable to get a communique
that was more precise and a little more definitive on these
two key points?
We were told by the President that, since
this was incorporated in the minutes, they were binding on
the council.
Was that the reason why
- 13 -
MR. VOLCKER:
Well, there is rather precise minute,
yes.
QUESTION:
Well, a public
~ommunique
tends to be a
more binding public commitment than a private memorandum
that is basically an organizational matter and an internal
bureaucratic matter.
The question -- the puzzle of the
meeting still remains
the gap between expectations and
hopes and the outcome.
MR. VOLCKER:
Well, there is one aspect of the meeting
that puzzles me, but I think in concept the point that we
were making was 3ccepted.
QUESTION:
What more can I say?
Why wasn't it accepted in the public com-
munique?
MR. VOLCKER:
The machinery decision was not quite
the way that we would have had it, and there was some
resistance which I think in my judgment will not facilitate
progress, but I wouldn't blow it up too much either.
QUESTION:
I understand, but still even such dynamism
as there was about the decisions were not incorporated in
the communique.
- 14 MR. IRWIN:
Well, you do have a
prec~se
sentence which
says that important issues arise from the interrelationship.
Are you saying that that should have been repeated in a
different paragraph in different ways?
QUESTION:
Well, first of all, it says important issues
Well, they aren't all important.
MR. IRWIN:
QUESTION:
-- which is always a useful qualifier.
And
the second thing is the decision or the ability of the
Secretary General to try to change the machinery was not
incorporated in the communique.
MR. VOLCKER:
Well, it is incorporated in the minute,
I don't think that is significant.
But the point is, in
substance, I think we can proceed in good faith in recognition that the countries around that table
and I should sa:
one of the results of the UNCTAD meeting was the countries
around the world, in a very clear resolution there, recognized the linkages between trade and monetary issues, and
I assure you, gentlemen, there has been some resistance to
that idea.
It seems to me that is accepted or reaffirmed,
if you will, in concept.
achievement.
I consider that a substantial
- 15 QUESTION:
Mr. Volcker, there were some views expressed
here at the meeting that the currency realignment and the
fact that most DECD nations are now following an expansionary policy, will in fact resolve the U.s. balance of payments
difficulties and that they will go away.
Do you share this
view?
MR. VDLCKER:
problem as that.
No, I don't think we have as simple a
I would say our problems at the moment
are somewhat aggravated by the fact that the American economy
is now expanding quite strongly, where some other economies,
either in Europe or Japan, are still in a phase of more sluggishness.
We are out of cyclical phasing and that, on top
of the initial perverse effects of the exchange rate realignment, contribute to the statistical extent of our balance
of payments problem now; that as this cyclical phasing is
straightened out, so to speak, that will be of some assistance
When Japan expands more strongly, as they have taken measures
recently to do, that will be of some help.
When some
European countries expand more rapidly, it will certainly
be of assistance.
But you may have gathered from all we have been saying
that we think we have a serious balance of payments problem
and it is going to take a lot of effort on a lot of fronts
- 16 over a period of time to deal with effectively, and we are
preoccupied with that problem, quite frankly, because when
one talks about monetary reform and monetary stability and
the stability of the dollar, in the end that comes back and
rests on our balance of payments performance.
That is the
single most important contribution we can make and the world
can make to international monetary stability.
So it is a problem that preoccupies us, concerns us,
and we mean to deal with that problem by every instrument
that we can.
OUESTION:
Mr. Volcker, in the past months, the United
States has been accused of dragging its feet about suggesting
ways of getting things going about these future negotiations.
In light of the very slim pickings in the last three days,
would you care to comment on whose feet you believe we are
going in which direction?
MR. VOLCKER:
I am somewhat aware of the accusation to
which you refer, which I never felt had any substance, and
if that has been clarified
cation.
q
bit, I appreciate the clarifi-
But I wouldn't want to comment on the other side
of the equation.
- 17 QUESTION:
Sir, in talking about linkage, I understand
that a lot of people who were here accept the idea that of
course there is linkage as an economic concept between
monetary and trade affairs, that they feel that the United
States was trying to establish a linkage between progress
in negotiations in one field with progress in negotiations
in the other, and that what they were resisting was being
held up in, say, trade negotiations, because things weren't
going the way the U.S. wanted them to, in monetary negotiations or vice VE:rsa.
MR. VOLCKEK!
confusion on this
Could you comment on that?
Well, there has been a great deal of
~ore,
I think unfortunately, and I think
this can only be approached by considering trade negotiations
in two different senses.
There is a division that comes to
people's mind in terms of the word trade negotiations, as
often particular tariff actions, quotas, government restraints,
particular actions that affect trade.
Now, we are concerned with trade negotiations and we
are deeply concerned with trade negotiations.
That was done
in some respects on a short-term basis back in December,
January.
But on a larger scale we look forward to that next
year, essentially in the framework of GATT.
portant component of the problem.
in the GATT arena primarily.
It is an im-
But that is negotiated
- 18 Now, what we were concerned about, the aspect we were
concerned about here, in terms of the contribution of this
organization, is what I term the structural aspects of
trade, the structural aspects of the monetary syatem.
What are the rules, what are the appropriate rules [or
preferences, for instance?
GATT has a
provis~on
or two on
this, but it obviously wasn't written for today's world,
with the Common Market as large as it is, and with the
amount of preferences that it has.
That rule has to be
looked at and modernized.
What do you do about the balance of payments adjustment
process?
What contribution do trade measures, trade rules
make there?
In some cases you have a choice between moneta1
actions and trade actions, and somehow that choice has to
be resolved and appropriate criteria and understandings
reached.
It is that kind of intrinsic structural linkage
that is peculiar to the problem that we were discussing
here.
Now the other negotiations are very important ln terms
of our balance of payments position and our balance of
payments position is important in
term~
whole stability of the monetary system
the dollar.
of, as I said, the
~nd
the stabilit;" of
So it is all linked together, it is
together in different ways.
link~d
- 19 QUESTION:
Last year, the U.S. delegation to OECD put
on the table the problem of the defense of the free world.
You apparently did not do so this year.
Could you glve
the reasons why not?
MR. VOLCKER:
tion.
I don't want to be accused of any absten-
Some progress, and clearly limited progress, was made
on that problem last December, at the time of the last NATO
meeting.
Am I satisfied with that progress?
know, all these areas are pretty tough.
No.
But, you
No volunteers
present themselves very quickly when the bills get passed
out, but yet we do have the problem of reaching this Equilibrium which I think everybody basically understands is in the
world's interest.
When you are at that level of abstraction, it is fine.
When you reduce that abstraction to some practical actions,
we find some resistance, and there is some tendency, of
course, for monetary people to say go make your improvement
on the trade side, and the trade people say go be successful
on burden-sharing, and the military people say forget about
us, go make a monetary change.
And that is one of the
reasons why these all have to be looked at in a reasonable
focus.
But I wouldn't want to neglect that side of the
problem, although it has certainly received less attention
recently, since the actions were taken and the agreements
were reached last D2cember.
- 20 ~ffi.
WEBER:
QUESTION:
No more questions?
Mav I make a request that has nothing to do
with the meeting, the substance of the m2eting, but does
to do with the press.
ha~
At the beginning of last year, at
the same time, largely I think because of Secretary Rogers'
presence here, the press, which had in the past been allowed
access to the delegates' coffee shop and also the pleasure
of your company, was excluded.
being what it is, has continued.
This practice, bureaucracy
This year we were allowed
the same level but we have our own little arrangement and,
although we like each other's company, we like yours better.
Could I, speaking for my colleagues, ask you to be so kind
as to bring up with Mr. van Lennep or with the American
delegation to the
O~CD
the suggestion that we go back to
th2 status quo ante.
MR. WEBER:
Thank you, gentlemen.
(Wh2re~po"
the press conference was concluded.)
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
NOTE TO CORRESPONDENTS:
June 9, 1972
The attached Treasury Department Order No.221
establishing the Bureau of Alcohol, Tobacco and
Firearms as a full Bureau under the supervision of
the Assistant Secretary of the Treasury (Enforcement,
•
Tariff and Trade Affairs, and Operations) will appear
in the Federal Register on June 10, 1972.
This
reorganization was announced by the Secretary of the
Treasury on March 8, 1972.
000
Attachment
DEPAR'1J4EM' OF
':t'!{J';
TREAb"L'RY
TREASURY DEPAR'DIENT ORDER NO. 221
ESTABLISBMEJf1' OF THE BUREAU OF ALCOHOL I TOBACCO AlID FIREARMS
By virtue ot the authority vested in me as Secretary of the
Treasury, including the authority in Reorganization Plan 10. 26 ot
1950, it is ordered that:
1.
The purpose ot this Order is to transter, as specified
herein, the tunctioas, powers and duties of the Iaternal Revenue
Service arising under laws relating to aleohol, tobacco, tire&r.ms, and explosives, (including the Aleohol, Tabaceo and Firearms
Division ot the Internal Revenue Service) to the Bureau of Aleohol,
Tobaeco and Firearms (hereinafter reterred to as the Bureau) wh1eh
is hereby established.
The Bureau shall be headed by the Director,
Bureau ot Alcohol, Tobacco and Firear.ms (hereiaatter reterred to
as the Direetor).
The Director shall perform his duties under the
general direction ot the Secretary ot the Treasury (hereinafter
referred to as the Secretary) and under the supervision ot the
Assistant seeretary (Enforcement, Taritt and Trade Aftairs, and
Operatians)(herelnatter referred to as the Assistant secretary).
2.
The Director shall perform the functions, exercise the
powers, and carry out the duties ot the secretary in the administration and enforcement ot the following prOVisions ot law:
(a)
Chapters 51, 52, and 53 of the Internal Revenue code
of 1954 and sections 7652 and 7653 of such Code insofar as they
relate to the commodities subject to tax under such chapters;
- 2 -
(b) Chapters 61 to 80, inclusive, of the Intel'lla1
Revenue Code of 1954, insofar as they relate to activities
administered and enforced with respect to chapters 51, 52,
and
53;
(c) The Federal Alcohol Administration Act (27 U.S.C.
Chapter 8);
(d) 18 U.S.C. Chapter 44 (relatillg to firearms);
(e) Title VII, ()nn1bus Crime control and Sate streets
Act of 1968 (18 U.S.C. Appendix, seetions 1201-1203);
(f) 18 U.S.C. l262-l265; 1952; 3615 (relatins to liquor
traffic );
(g) Act of August 9, 1939 (49 U.S.C. Chapter 11); insofar
as it involves matters relating to violations of the lationa!
Fire8l"!lS Act;
(h) 18 U.S.C. Chapter 40 (relating to explosives); cd
(i) Section 414 ot the Mutual Security Act of' 1954, as
mended (22 U.SoC. 1934) relating to the control of the
importation of' arms, ammunition and impleaents of war.
3. All functions, powers and duties of the secretary which
relate to the administration and enforcement of the laws specified
in
paragraph 2 hereof are delegated to the Director.
RegulatiOns
for the purposes of carrying out the functions, powers and duties
delegated to the Director may be issued by him with the approval
of the Secretary.
- 34. (a) All regulations prescribed, all rules and instructions issued, and all forma adopted for the administration and
enforcement of the lava specified in paragraph 2 hereot, which
are in effect or 1D use on the effective date ot this Order, shall
continue in effect as
r~tions,
rules, instructions and
fo~s
ot the Bureau until superseded or revisedj
(b) All existing activities relatizlg to the collection,
processing, depositing, or accOUDtfng for taxes (including
peDalties and iDterest), fees, or other moneys UDder the lava
specified in par.graph 2 hereot, shall continue to be
by the
C~ssioner
perto~ed
pert'o~ed
of IDternal Revenue to the extent not now
by the Alcohol, Tobacco and Firearms Division or the
Assistant Regional Commissioners (Alcohol, Tobacco and Firearms),
until the Director sball otherwise provide with the approval of
the Secretary;
(c) All existing activities relating to the laws specified
in paragraph 2 hereof which are nov performed by the Bureau of
cuatClll8, shall cClltinue to be pertomed by such Bureau until the
Director shall otherwise provide with the approval of the Secretary.
5.
(a) The
te~
"Director, Alcohol, Tobacco and Firea1"lls
Division" and "camnissioner of Internal Revenue" vherever used in
regulations, rules, instructions, and
fo~s,
issued or adopted for
the administration aDd enforcement of the lavs specified in paragraph
2 hereof, which are in effect or in use on the effective date of this
Order, shall be held to mean the Director.
- 4The terms "Assista..''1t Regional ccmmissioner" wherever
(b)
used in such regulations, rl.ll.es, instructions, and forms, shall
be held to
mean
(c)
Regional Directul'.
The terms lIinternal revenue officer" and "officer,
employee or agent of the i.nt.ernal revenue" wherever used in such
regulations, rules, instructions and forms, in any law specified
in paragraph 2 above,
&no
in 18
u.s.c.
1114, shall include all
officers and employees of the United states engaged in the administra.tion and enforcement of the laws administered by the Bureau,
who are appointed or employed by, or pursuant to the authority of,
or who are subject to the directions, instructions or orders of,
the Secretary.
(d)
The above terms, when used in regulations, rules,
instructions and forms of government agencies other than the Internal
Revenue Service, which relate to the administration and enforcement
of the laws specified in paragraph 2 hereof, shall be held to have
the same meaning as if used in regulations, rules, instructions and
forms of the Bureau.
6.
(a)
The~e
shall be transferred to the Bureau all positions,
personnel, records, property, and unexpended balances of appropriation:
allocations, and other funds of the Alcohol, Tobacco and Firearms
Division of the Internal Revenue Service, including those of the
Assistant Regional Commissioners (Alcohol, Tobacco and Firearms),
Internal Revenue Service.
- 5(b)
In addition, there sha.ll be transferred to the Bureau
such other positions, personnel, records, property, and unexpended
balances of appropriations J allocations, and other f'unds, as are
determined by the Assistant Secretary for Administration, in consUltation with the Assistant Secretary, the Director, and the
Commissioner of Internal Revenue, to be necessary or appropriate
to be transferred to carry out the purposes of this Order.
(c)
There shall be transferred to the Chief' Counsel of' the
Bureau such functions, powers and duties, and such positions,
personnel, records, property,
and
unexpended balances of' appro-
priations, allocations, and other tYnds, at the Chief Counsel of
the Internal Revenue Service as the General Counsel of the
Department shall direct.
7. All delegations inconsistent with this Order are revoked.
8. This order shall becane effective
Date:
JUN 6 - 1972
July
1, 1972.
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
For Release at 3 p.m. EDT, Today
Monday, June 12, 1972
NEW TREASURY SECRETARY
ADMINISTERS OATH TO TOP AIDES
As his first official duty, Secretary of the Treasury
George P. Shultz presided today at oath-taking ceremonies
for three of his top new aides, recently nominated to
higher positions by President Nixon. A fourth aide took
the oath of office at La Paz, Bolivia, where he is on a
Presidential mission.
Receiving the oath of office were Charls E. Walker
who became Deputy Secretary of the Treasury, Edwin S. Cohen
who became an Under Secretary of the Treasury, and Lee H.
Henkel who became Assistant General Counsel of Treasury and
Chief Counsel of the Internal Revenue Service. John M.
Hennessy became Assistant Secretary of the Treasury for
International Affairs in a ceremony in La Paz, Bolivia.
The oaths were administered by Supreme Court Justice
Lewis F. Powell.
Dr. Walker of Graham, Texas, became the first
Deputy Secretary of the Treasury. He will be the
second highest ranking official of the department, as he
was while serving as Under Secretary of the Treasury when
Congress earlier this month created the new post. An
economist, former professor and one time official of the
American Bankers Association, he is also an author.
8-1
(OVER)
- 2 -- Mr. Cohen of Charlottesville, Va., became an
Under Secretary of the Treasury, moving up from Assistant
Secretary for Tax Policy. A former New York attorney and
former law professor at the University of Virginia, he
has held the post of Assistant Secretary since March 1969.
-- Mr. Henkel of Columbus, Ga., became Chief Counsel
of the Internal Revenue Service and Assistant General
Counsel of the Treasury Department. A former Georgia
attorney, he has been serving as Deputy Chief Counsel of
IRS Slnce September 1971.
-- In the related action at La Paz, Mr. Hennessy of
Boston, took the oath of office as Assistant Secretary
of the Treasury for International Affairs. He is on a
Presidential mission in South America with outgoing
Treasury Secretary John B. Connally. Hennessy will
continue on the mission, which involves discussions with
15 nations around the Globe, returning to Treasury July 10.
He succeeds John R. Petty, who resigned. Hennessy at one
time lived in La Paz, where he established a branch of the
first National City Bank of New York.
Biographies attached
DEPUTY SECRETARY OF THE TREASURY
CHARLS E. WALKER
Dr. Charls E. (for Edward) Ualker was sworn in as
Deputy Secretary of the Treasury in a June 12, 1972
ceremony in the Treasury Department. He had been Under
Secretary of the Treasury and prior to that Executive
Vice President of the American Bankers Association from
1961 to 1969.
Born in Graham, Texas, December 24, 1923, the son of
Pinkney Clay and Sammye McCombs Walker, he attended Graham
public schools. He is an alumnus of the University of Texas
which granted him Bachelor an~ Master of Business Administration degrees in 1947 and 1948, respectively.
In his early career, Dr. Walker was an instructor (194748) in finance and later assistant and associate professor
(1950-54) at the University of Texas, in the interim teaching
at the vlharton ·School of Finance of the University of
Pennsylvania from which he received a Doctor of Philosophy
degree in Economics in 1955.
In 1953, Dr. Walker became an associate economist at
the Federal Reserve Bank of Philadelphia, moving in 1954 to
the Federal Re serve Bank of Dallas Hhere in the perioQ 1958-61
he was a vice president and financial economist. His service
with the Federal Reserve Billlk of Dallas was interrupted (195556) by association with the Republic National Bank of Dallas
as an econo~ist and special assistant to its president.
Dr. Walker took leave of absence from the Federal Reserve
Bank of Dallas to 'Serve in the Treasury at \'lashington as
Assistant to Secretary Robert B. Andel""'son from April 1959
to January 1961.
Dr. Walker is a trustee of the Joint Council on Economic
Education"and former member of the· board of editors of the
Journal of Finance. Co-editor of The Banker's Handbook, he
also has written articles for economic and ·.Jther journals.
During World War II he was a pilot in the U. S. Arcy Air
Force.
'i,
Dr. and ~1rs. vlalker, the former Harmolyn Hart of Laurens,
South Carolina, have two children: Carolyn (Mrs. William D.
Ek), of Landover, Md., and Charls Edward Jr., 20, a student
at Dartr:out~ College. The \\Talkers live in Washington, D. C.
000
June 12, 1972
June 12, 1972
NAME:
Edwin -S. Cohen
TITLE:
Under Secretary of the Treasury
PERSOML DATA:
Born:
Harried:
Children:
Home:
Address-:
Local:
Address:
Richmond, Virginia, September 27, 1914
Helen Herz, August 31, 1944
Edwin Carlin
Roger
Susan Wendy
104 Stuart Place
Ednam Forest
Charlottesville, Virginia 22901
4100 Cathedral Avenue, N. W., Apt. 606
Washington, D. C. 20016
EDUCATION:
University of Richmond, B.A., 1933
University of Virginia, LL.B., 1936
At University of Richmond:
Phi Beta Kappa
Omicron Delta Kappa
Pi Delta Epsilon
Editor-in-chief, College newspaper
Captain, tennis team
Intercollegiate debating team
At University of Virginia La\.; School:
Order of the Coif
Raven Society
Notes Edi tor, Virginia Law Rcvie~v
Instructor
CAREER SUMNARY:
Admitted to bar: Virginia, 1935; New York, 1937
Associated with Sullivan & Cromvcll, New York, N. Y.
(1936-1949)
Partner, Root, Barrctt, Cohen, Knapp & Smith,
New York, N. Y. (1949-1965)
- 2 -
Biographical Sketch of Edwin S. Cohen (continued)
CAREER SUMMARY (continued):
Counsel to Barrett, Knapp, Smith & Schapiro, New York,
N. Y. (1965-1969)
Professor of La\V, University of Virginia (1965~1968)
Joseph M. Hartfield Professor of Law, University of
Virginia (June.'196B to February 1969)
Assistant Secretary for Tax Policy, Department of
the Treasury (March,ll, 1969, to June 12, 1972)
Under Secretary of the Treasury (June 12, 1972, to date)
PROFESSIONAL AND CIVIC ACTIVITIES:
Member, Advisory Group to COhuuiss ioner of Internal
Revenue (1967-1968)
Member of and Counsel to Advisory Group on Subchapter C (Corporate Transactions) to Committee
on v.\'·/s and Means, House of Representatives
(195(,··1958)
In Amer.;can Bar Association, Section of Taxation:
Chairman, Co:nmittee on Corporate Stockholder
Relationships (1956-1958)
Member of Council (1958-1961)
Chairman, Special Committee on Substantive Tax
Refo~:m (1962-1963); Special Advisor (1963-1969)
Member, Planning Committee (1963 to date)
In American Lm., Ins titute:
Special Con:·u1tant on Corporations and Member of
Advisory Group (Project for Revision of Federal
Income Tax Statute (1950-1954)
Bomber of Advisory Group, Project for Revision of
Federal Estate a~d Gift Tax Laws (1963-1968)
In Association of the Bar of the City of New York:
Former Hember, Committee on Taxation
Former Nember, Admissions Committee
Menilier, Advisory Committee, New York University
Institute on Federal Taxation (lQ68 to date)
Consultant, Virginia Income Tax Study C01mnission
(1966-1968)
Bomher, Virginia Income Tax Conformity Study
Commission (1970)
- 3 Biographical Sketch of Edwin S. Cohen
(continu(~cl)
PROFESSIONAL AND CIVIC ACTIVITIES (continued)
Lecturer at variouslaH schools (including Columbia,
Cornell, Harvard, New York University, Virginia,
Yale); at various tax and legal institutes
(including Chicago, Missouri, Nebraska, New York
University, Southern California, Texas, Tulane,
Virginia, West Virginia, William and Hary,
Canadian Tax Foundation and Practising Law Institti'te); and before various bar associations and
other organizations.
Member: American Law Institute
American Judicature Society
American Bar Association
New York State Bar Association
Association of the Bar of the City
of Ne\v York
New York County Lawyers Association
Virginia State Bar Association
American Association of University
Professors
SPECIAL CAREER RECOGNITION:
Recipient of Alexander Hamilton AHard, presented
by Secretary Kennedy in January 1971, for
outstanding leadership in the work of the Treasury
Department
Phi Epsilon Pi National Achievement Award
Achievement A"vard of the Tax Society of New York
University (1970)
The 1971 Tax Alvord, URiversity of Hartford Tax
Institute
June 12, 1972
John M. Hennessy
4000 Fordham Road, N.M.
Washington, D. C. 20016
Age 36
Tel. 244-724b
Area Code 202
married
2 children
-
Ilmmary
u.s.
me 12, 1972 -
Assistant Secretary for International Affairs,
Iteer
DEPARTMENT OF THE TREASURY
Irch-June, 1972 - Acting Assistant Secretary for International Affairs
!pt.t 1970 -
eb., 1972
Deputy Assistant Secretary, in charge of developing
nations and international development institutions
~68
ARTHUR D. LITTLE, INC., CAMBRIDGE, MASS.
- 1970
Management and economic consulting in U.S. and
abroad. Major cases included:
industrial development projects for one U.S. state and in two ~~reign
less developed countries; management reorganization
for major bank; savings and loan industry study;
trade promotion project for a Latin American country.
~66
- 196R
FIRST NATIONAL crTY RANK)
N~W
YORK CTTV
General Manager, Peru.
Overall responsibility for
running autonomous profit center composed of 6
branches, total resources $35 MM and staff 250.
164 - 1966
General Manager, Bolivia.
Carried out negotiations
with Bolivian Government for approval of first
~yanch of U.S. bank in country; subsequentl?
organized and ran Bolivian operations with
responsibility for resources $5 MM:
Staff 30.
158 - 1964
Loaning officer, New York, working with major U.S.
corporations operating internationally; supervision
credit and money market operations in several
foreign markets.
-
IUcation
MASSACHUSETTS INSTITUTE OF TECHNOLOGY, CAMBRIDGE, MASS.
National Science Research Fellow at Sloan School,
in field of international finance and business.
Completed all requirements for Ph. D, except thesis,
in international business and economics. Appointed
part-time instructor of Institute for 1970/71 academic
year; resigned to take job in Treasury.
(OVER)
-2Education
(continued)
1958
B.A., Harvard University, Magna cum laude
Outside
Activities
and
Associations
Member American Economic Association and American
Academy of Political and Social Sciences; member
of Sloan School of Management Policy Committee
1969/1970. Board member, American Society of Peru.
President, Bolivian-American Business Council;
Director, American School, La Paz, Bolivia;
Director, Private Development Bank, La Paz, Bolivia.
Languages
Fluent Spanish and French.
BIOGRAPHICAL SKETCH OF
LEE H. HENKEL JR.
President Nixon nominated Lee H. Henkel Jr.,
of Colurr~us, Ga., to be an Assistant General Counsel
of the Treasury Department and Chief Counsel of the
InternaJ Revenue Service on April 11, 1972. Mr. Henkel
was SvlOrn in June 12th, succeeding K. Martin Worthy,
who resigned. At the time of his nomination, Mr. Henkel
was Deputy Chief Counsel of IRS, a post he had held since
Septemr)(;r 1971.
Born September 16, 1928 in Charleston, West Virginia,
Mr. Henkel received his A.B. degree from Duke University
in 194~ and his LL.B. degree from Duke Law School in
1952. He practiced law with the firm of Swift, Page,
Henkel & Chapman, P.C. in Columbus, Georgia (formerly
Swift, Pease, Davidson & Chapman) from 1952 until his
appointment at the Department of the Treasury in 1971.
Mr. Henkel has lectured at various tax seminars and
meetings throughout the United States, including the
Practicing Law Institute; Connecticut Bar Association;
Southe>rn Federal Tax Institute; Estate Planning Councils;
Southern Methodis"t University; Institute for Continuing
Le~al Education in Georgia; Georgia Society of CPAs;
Indianapolis Tax Institute; and Southwest Ohio Tax
Institute.
Mr. Henkel is married to the former Barbara Davidson
and they have three children.
J un (: 1 2, 19 7 2.
The Deportment of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
rENTION
~
FINANCi..\L EDITOR
RELEASE 6:30 P.M.,
June 12, 1972
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
Us, one series to be an additional issue of the bills dated
March 16, 1972
, and
~ other series to be dated
June 15, 1972
, which were offered on June 6, 1972,
'e opened at the Federal Reserve Banks today. Tenders were invited for $2,300,000,000
thereabouts, of 91-day bills and for $ 1,800,000,000 or thereabouts, of 182 -day
Us. The details of the two series are as follows:
~GE OF ACCEPTED
o1PETITIVE BIDS:
High
Low
Average
91-day Treasury bills
Se~tember 142 1972
Approx. Equiv.
Annual Rate
Price
maturin~
99.050
99.031
99.040
3.758%
3.833%
3.798%
182 -day Treasury bills
maturin~ December 142 1972
Approx. Equiv.
Price
Annual Rate
97.905
97.866
97.883
11
4.144%
4.221%
4.187%
Y
30% of the amount of 91-day bills bid for at the low price was accepted
21% of the amount of 182-d~ bills bid for at the low price was accepted
r~
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
3eston
~ew
Francisco
AcceEted
AEElied For
9,115,000
$ 24,115,000 $
1,926,040,000
3,041,890 ,000
15,475,000
15,965,000
29,610,000
29,635,000
9,565 ,000
9,565,000
17,655,000
35,155,000
169,375,000
226,875,000
27,835,000
40,145,000
19,600,000
25,300,000
28,530,000
38,280,000
15,530,000
46,330,000
31,775,000
92,985,000
TOTALS
$ 3,626,240,000 $ 2,300,105,000
York
Philadelphia
:level and
lichmond
\tlanta
:bicago
it. Louis
Unneapolis
lansas City
)allas
)an
AEElied For
$
23,110,000
2,680,530,000
24,210,000
15,915,000
2,410,000
34,470,000
175,225,000
25,670,000
25,690,000
28,950,000
34,980,000
133,755,000
~
AcceEted
8,110,000
$
1,531,080,000
4,210,000
10,495,000
2,410,000
15,940,000
103,425,000
15,670,000
19,690,000
18,555,000
6,980,000
64,520,000
$ 3,204,915,000 $ 1,801,085,000
EI
mcludes $ 187,350,000 noncompetitive tenders accepted at the average price of 99.040
InclUdes $ 89,380,000 noncompetitive tenders accepted at the average price of 97.883
These rates are on a bank discount basis. The equivalent coupon issue yields are
3.89 ~ for the 91 -day bills, and 4.34 % for the 182 -day bills.
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 13, 1972
TREASURY ISSUES DUMPING FINDING WITH RESPECT TO
LARGE POWER TRANSFORMERS FROM
FRANCE, ITALY, JAPAN
SWITZERLAND, AND THE UNITED KINGDOM
Assistant Secretary of the Treasury Eugene T. Rossides
announced today that the Treasury Department has issued
dumping findings with respect to large power transformers
from France, Italy, Japan, Switzerland, and the United Kingdom.
The finding will be published in the Federal Register of
June 14, 1972.
On January 20, 1972, the Treasury Department advised the
Tariff Commission that large power transformers from the
above-mentioned five countries were being sold at less than
fair value within the meaning of the Antidumping Act, 1921,
as amended. On April 20, 1972, the Tariff Commission issued
a determination that a U.s. industry is being injured by
imports of these large power transformers.
The dumping finding automatically follows as the final
administrative requirement in antidumping investigations after
these two determinations. Dumping duties will be assessed on
imports of large power transformers from France, Italy, Japan,
Switzerland, and the United Kingdom which have not been appraised
and on which dumping margins are found to exist.
During the two-year period from January 1970 through
December 1971, the value of large power transformer imports
totaled approximately $2,000,000 from France, approximately
$1,200,00 from Italy, approximately $4,400,000 from Japan,
approximately $2,400,000 from Switzerland, and approximately
$1,500,000 from the United Kingdom.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 13, 1972
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
$4,100,000,000, or thereabouts, for cash and in exchange for Treasury
bills maturing June 22, 1972,
in the amount of$4,206,785,000~
as follows:
9l-day bills (to maturity date) to be issued June 22, 1972,
in the amount of $ 2,300,000,000, or thereabouts, representing an
additional amount of bills dated March 23, 1972,
and to mature
September 21, 1972
(CUSIP No.912793 PD2 ) ,originally issued in
the amDunt of $1,800,975,000, the additional and original bills to be
freely interchangeable.
182- day bills, for $1,800,000,000, or thereabouts, to be dated
June 22, 1972,
and to mature December 21, 1972
(CUSIP No. 912793 PR1).
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,
$15,000, $50,000, $100,000, $SLO,OOO 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 19, 1972.
Tenders will not be received
at the Treasury Department, Washington. Each tender must ~e for a
minimum of $10,000. Tenders over $10,000 must be in mUltiples of
$5,000. In the case of competitive tenders the price offered must be
~xpressed on the basis of 100, with not moce 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
- 2 submit tenders except for their own account. Tenders will be receiwd
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders'
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tender~ are accompani~
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders \~li! ~ be opened at the
Federal Reserve Banks and Branches, following which PUblic announcement
will be made by the Treasury Deparcment of thE amount and price range
o~ accepted bids.
Only those sub~itting competitiv~ tender~ will be
a d vis e d 0 f the a c c e pta nceo r r e j t C t ion the, eo f. Tl' E: S f:' ere t a ~. v 0 f the
Treasury expressly reserves the ri~ht to accept or reiect an; or all
tenders, in whole or in part, and his action in any such respect shall
be final. Subject to these reservatio~s, noncompetitive tenders for
each issue for $200,000 or less without stated price from Rny one
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 h ith the bids IT'llst be [nade or completed
at the Federfll :leserve Bank on June 22, 1972,
in cash Dr other immediately available funds or in a like face amount 0
Treasury bills ITaturing June 22, 1972.
Cash and Gxcn.ange tender
will receive equal treatment. Cash adjustments will be made for
differences between the par value of maturi~g bills accepted in
exchange and th~ issue price of the new bills.
7
i.1lldec Secticns 45 0c (b) and 1221 (5) Df the lnternao~ Kevenue Coc.it
of -;"954 the amount of discount at which bills i:'-:sl1ed hereunder are sold
is cons~dered to Jccr~e when the bills are sold, redeemed or otherwise
d i ~ p :) sed c E, oj nul: h e '0 i 11 s are ex c 1 u de d fLO m con s i ci era t ion esc a pit a1
assets. Accor,~i'lL;}Y, the O\,mv' ~ Tl"ea.sury bills (oth(~r Lhan life
jn~\:r(1[lce Cl)[~lpanies) issued her-eunder must include in his income tax
rctu!:"rt, a::: ordinary gain oc loss, the diffprence betpeen the price paid
for the bills, whether 011 original issue or on sut:::;equent purchase, and
the amount actually received either upon sale Dr redemption at maturity
during the taxable year for which the return is made.'.
Treasur'J Department Cit:cular No. 418 (currEI;t rt'vision) and thi~
notice, prescrihe the terms of the Treasury bil:~ and go~e~n the
conditi.ons or their issue. Copies of the circular md\' bc ob[ained from
any Federal Reserve Bank or Branch.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR RELEASE UPON DELIVERY
STATEMENU' OF THE HONOPABLE EDWIN S. COHEN
UNDER SECRETP.RY OF THE TREASURY
BEFORE THE SUBCOl'-tl\1ITTEE ON CrOVERL'fMENT PROCUREMENT
OF rEHE HOUSE SELEC'I' COr'JHITTEE ON SMALL BUSINESS
10:00 a6m~ (ED'I'), June 14, 1972
Th.:..~Imp..!'1.C_:L
of DISC on Small Business
Mr. Chairman and Members of the
Subcommittee~
The Revenue Act of 1971 established new provisions regarding
the tax treatment of export earnings by exporters using Domestic
International Sales Corporations - DISCs.
With certain limited
exceptions, any corporation organized in one of the States or the
District of
Colu~bia
which is engaged solely or almost solely in
the export business can qualify as a DISC.
In general, Federal
income tax on one-half the export earnings of such a corporation
will be deferred until such time as such earnings are distributed
to the DISC's shareholders.
for determining the export
In addition, special rules are provided
ear~ings
of a DISC which purchases from,
or acts as commission agent for, a related manufacturer or other
supplier.
The DISC provisions became effective for taxable years
beginning on or af-ter ,Janu.ary 1, 1972.
8-2
- 2 -
As of May 31, 1972, the Internal Revenue Service had received
2,089 DISC elections.
Treasury has not published and indeed cannot
publish a list of the companJ.es that have filed DISC elections.
The reason for this is that the DISC election constitutes a "return"
and in general we are prohibited by statute from disclosing any
information derived from a return
e
Nevertheless, we realize the
great interest that this Subcommittee and others have in the DISC
program and the need for information.
For this reason \ve plan to
submit to Congress and publish statistical information which will
both preserve the confidentiality of tax returns and provide Congres~
and the public with the information it needs.*
*The Revenue Act of 1971 requires tbe Treasury to submit an
annual report to Congress setting forth an analysis of the operation
and effect of the DISC program, including its impact on our balance
of trade.
The first such report is due in April, 1974.
Moreover,
the Conference Committee which worked on the DISC legislation indicated that a comparative report should be furnished to Congress
February 1, 1973 and every three years thereafter} comparing the
by
t~
structures and practices of United States and foreign nations from th
point of view of their effect on the location of united States and
foreign manufacturing facilit.ies and the competitiveness of united
States exports.
- 3 -
The basic data. which \-Jill be used to prepare the stat.i<::tical
information will be obtained from the annual information returns
which DISCs mu.st file.
For those DISCs on a c3.1endar y.?ar basis,
the first returns are due September 1'7. 1973Pending the receipt of the DISC informal:.i()n teturns
I
the
primary source for: data on the DISCs is inforr.3.ti0n set forth
in the DISC elections which must be filed with the Internal
Revenue ServJ.ce in order to obtain DISC statl"lS.
elections do cont?.!,c)
11
SO:-rlG
extensive informatL::L:
,""
While the
se:::l)1 data, they do not require
'.
·r"~_,-·~,.
The DISC election requires the DISC to set forth
t:-~e
names
of its shareholders and from this information we have obtained
a picture of the extent to which small business is using the
DISC program.
We did this by analyzing a random sample of the
shareholders of 100 DISCs.
On the basis of this sample. it appears that at least 50
percent of the DISCs for which elections have been made are owned
by shareholders that can be classified as small business.
The
results of the sample and the basis for this conclusion are set
forth in Appendix A which I am submitting to
with my testimony.
t~e Subcorr~ittee
along
- 4 -
In addition to the sample, our contacts with taxpayers
throughout the country yield the clear impression that DISC
1.S
being turned to as a vehicle for export business, not only
by the large corporations, but also by the small and medium
slze firms.
From the beginning of our work
1.n
studying and developing
the DISC proposal, we have borne in mind the interest of smaller
businesses.
The Treasury proposal was designed to remove tax
impediments for all
u.s.
exporters, and the proposal and its
implementation have been specia:ly t::>..U.or2'.J. so that smaller
business as well as larger business can use DISC for exporting.
Indeed, one of the basic purposes of DISC was to extend to
small and
medi~~-size
exporters deferral possibilities that
larger exporters have been able to obtain through foreign selling
subsidiaries located in the Bahamas, Switzerland and other places
abroad.
In order to accomplis11 this, Treasury urged that the new
law permit domestic incorporation so that the exporter could obtain
the deferral benefits at far less expense and difficulty by followin
familiar incorporation procedures, maintaining books and records in
English, utilizing local lawyers and accountants and maintaining
export operations in the United States.
In addition four elements
of the DISC program of special interest to small business should
be pointed out:
- 5 -
First, a DISC can be formed with
j~st
$2,500
of capital.
Second, as indicated, an election to be a DISC
can be made simply and without supplying a great deal
of advance information.
To facilitate matters, the
IRS published in February a form for DISC elections.
Third, the Internal Revenue Service published a
ruling* in March which indicates that a manufacturing
company can use a DISC for its exports with a minimum
of disruption of the manufacturing company·s method of
operations.
For example, as provided in the ruling, a
DISC need not have its own inventory or employees, and
billings and collections can be handled directly by the
manufacturing company.
The DISC can be formed to operate
as a commission agent for one or more manufacturing firms,
and thus avoid the formalities of taking title in its own
name.
Fourth, special rules have been provided for determining the portion of the total earnings from the manufacture and sale of exports which can be allocated to the
* Rev. Rul.
72-166 published as Technical Information
Release 1152, March 16, 1972.
- 6 -
DISC.
These special rules make it unnecessary to
apply complicated intercompany pricing rules which
would ordinarily govern the allocation of income
between a sales company and its related supplier.
All of these elements were designed to simplify the formation
and operation of a DISC and to insure that small and medium
size firms would participate in the DISC program along with
our larger corporationso
'!'he DISC proposal and the legislation make DISC especiaU}
available to two types of small business:
the small export fil
and the small manufacturer which sells or wants to sell part oj
its production abroad.
Export firms, which are often referred to as combination
export managers, account for an important volume of united
States exports.
'!'hose firms are typically small.
Where those
export companies are exclusively engaged in exporting, they
C~
elect DISC status themselves, or where other business is combi
wi th exporting they can set up a new company to qualify as a D
This will entitle them to defer Federal income tax on one-half
their earnings from export sales whether they operate by buyin
- 7 -
and reselling or as a 'commission agent. In additon, those
export companies will be entitled to earn fees from services
rendered in managing export operations for other DISCs, where,
for example, a manufacturer wishes to have its own DISC but
lacks the experience to manage an export operation.
In addition to the small export firm, the small manufacturer
can take full advantage of the DISC program.
While some small
manufacturers might handle the entire export function "in house ll
just as a larger enterprise might organize its exports, other
small manufacturers might find it desirable to export through
an unrelated export firm.
The DISC legislation was especially
designed to provide the same amount of deferral where exports
are being routed through an export firm as in the case in which
a manufacturer and its wholly-owned DISC assume full responsibility
for exports.
This was accomplished by providing that a DISC can
earn qualified export receipts by selling to a second DISC, as
long as the second DISC is unrelated.
Thus, the small manufacturer
can set up its own DISC which would receive commissions on sales
(or resell) to an export firm which itself is a DISC.
The manu-
facturer's DISC and the export firm qualifying as a DISC would
together be entitled to the same deferral that could be obtained
by
the larger manufacturer exporting through its own DISCo
- 8 -
I would now like to describe the recent efforts of the
Administration to publicize DISC and to promote exports.
While directed at all u.S. business, we believe that these
efforts have been of special use to small business.
Since
the DISC became law in January 1972, Treasury and Commerce
Department representatives have appeared at almost 100
seminars or conferences in 63 different cities throughout
the country.
As indicated by the map of the united States
which is being submitted as Appendix B to my statement, these
workshops have been held in many different parts of the
countr~
A list of these appearances is being submitted as Appendix
c.
The workshop program was developed by the Treasury and the
Department of Commerce through the Commerce Department's natioI
wide network of 42 field offices.
We have had the active col-
laboration of the National Export Expansion Council and its
regional councils throughout the country.
As the list of
sponsoring organizations in Appendix C indicates, we have also
received the cooperation of
cham~ers
of commerce, internationa
trade clubs and industry associations representing every facet
of American business.
In addition, strong support has been
given to our effort by leading educational institutions and
professional organizations.
The response to
most entnu::d.C'l.stic ~
by
~":;'f.:Sf'
W.:'
over 10 , 000 peopl ~~.
1:.;3
<7·;;'1\ L ldrs
and '.:::onferences has been
tima.t.e '. J:.c;.~ . .:::.2"j ha\;e been attended
Audiences
grateful that Government officials
semi<
}-~ave
to have been especially
been willing to travel
allover the country to assis·t in expla.Hat ion and implementation
of the new law.
Some expressed that these extensive travels and
appearances indicated that the Government was sincerely interested
ill helping their firms to export.
The Treasury is making a major effort toward the preparation
and publication of proposed regulations on DISC.
As soon as the
principal regulations are proposed, which we hope will be cornpie ted be fore Labor Day, we i!1. tenCl. to ho -Ld fJ rther seminars and
conferences to make sure the conb:::llls of the proposed regulations
become known, and to obtain suggestions for modifications that
should be reflected in the final regulations.
We believe these seminars are of special benefit to smaller
or medium size firms, since they do not have large tax staff
,:J
study the new DISC provisions and consult with the National Office
of the Internal ReverJ.ue Service and Treasury in Washington.
- 10 As a key part of our progTam
I
'1' reasury published in January
a handbook explaining the DISC provisions in non-technical language and answering many of the most cornman questions put to us on
DISC.
This handbook has gone through three official printings,
with over 73,000 copies having been distributed to date.
More-
over, more than 100,000 caples of the handbook or extracts have
be~n
distributed commercially and by the Internal Revenue Service
in its weekly Internal Revenue Bulletin.
We believe this handbook
to be especially useful for smaller and medium size firms.
In addition, the Commerce Department has placed over 30
advertisements this year describing the advantages of exporting,
including references to DISC.
These advertisements have appeared
in such publications as the Wall Street Journal, U.Se News and
World Report, Business Week, Forbes, the New York Times and
Newsweek.
The National Office of the Department of Commerce
as well as the 42 field offices have also been active in distributing the DISC handbook and answering questions from the
general public concerning DISC.
Finally, as I have already mentioned, we are in the process
of issuing proposed regulations on DISC.
The first set of these
regulations was published on May 20, 1972, dealing with the genera
conditions a corporation must meet to be treated for tax purposes
as a DISC, the required capitalization, the method of accounting
that mav be used by a DISC, and the election of a taxable year
- 11 by a DISC.
Subsequent regulations, which will be issued during
the course of the summer, will deal with such topics as the
income allocable to a DISC under the special intercompany
pricing rules, the definition of important terms such as
"export property," "qualified export receipts," and "qualified
export assets," and the mechanics of the producer s loans pro1
visions, i.e., loans made by a DISC out of its export earnings
to a domestic manufacturer of export property.
Written comments
will be reviewed and public hearings conducted with respect to
these proposed regulations before they are finally adopted in
order to make sure that the regulations reflect fair and realistic
rules for those exporting through a DISC.
In addition to our regulations program, we have been issuing
private rulings on DISC.
As of the present time, the Internal
Revenue Service has received 177 requests for rulings pertaining
to the DISC provisions.
It has already issued 125 rulings and
is making every effort to expedite the issuance of other rulings.
As I indicated, we published the one important ruling in March,
relating to the degree of corporate activity which a DISC must
have, and we intend to publish additional rulings from time to
time.
- 12 In response to your request for a summary of other tax
programs which will benefit
u.s.
small business concerns in
the field of foreign trade and foreign investments, I can
indicate that while, aside from DISC
tax programs designed to benefit
U.s.
there are no specific
small business concerns
specifically in the fields of foreign trade and foreign investment, the Internal Revenue Code does contain a number of provisions which are intended to benefit small business corporations
generally.
To the extent that they are so benefited they are
better able to engage in foreign trade.
Among these tax benefits
are, Subchapter S of the Code which allows corporations to pass
gains or losses through to shareholders without an intervening
corporate tax, the surtax exemption which results in the impositic
of a lower corporate tax on corporations with less
than $25,000
taxable income, and provisions allowing deductions by shareholders
on losses of small business corporation stock.
In addition, the
Administration has proposed a small business bill which contains
additional tax incentives for small business corporations.
In conclusion, the DISC program has been designed to be used
by small business as well as by other
u.s.
exporters and small
business has shown every sign of responding enthusiastically.
000
June 14,1972
sales volume of the ::::tockholders of a random sample of 100
DISCs for the last reported
fisc~l
yea~.
Annual Sales
Number of DISCs
Over
5
1
$500
$250
$100
$ 50
$ 25
$ 15
$ 10
$ 5
$ 1
$
$
Billion
Billion
Million
Million
Million
Million
Million
Million
Million
Million
Million
To
............. ........................ .
..,
$
5 Billion . . . . . . . . . . . . . . . . . . . . .
$
1 Billion ..................... .
$ 500 Million . '" . .. . ................ .
$ 250 Million ....
$ 100 Million .................. ,,""""
$ 50 Million .......... . ........ .
$ 25 Million """"."",, . " " " " " " " .. " " "
$ 15 Million ......
.,,~.~
$
10 Million
$
5 MilliorJ . ." .. "" ~ .......... " ..
It
••
'
<!
. . . . . . . . . . . . . . .
•••••
.
••••••
o
6
6
4
6
3
11
7
2
1
3
49
No entry in standard sources
Total
51
100
Consolidated sales volume for the stockholders of 49 DISCs
were found in five standard sources
The nan;,,-~:. of these sources
and the criteria for inclusion are as follows:
Fortune Magazine provides data for the 500 largest indu3trial
firms in the country in terms of sales. Moody's Industrial Manual
and Moody's aTC Industrial Manual provide data for all publicly
held U.S. corporations with over 250 shareholders. Dun & Bradstreet's Middle Market Directory lists all U.S. corporations
whose net worth is greater than $500,000. Standard & Poor'~
Corporation Records provides data for all firms whIch meet each
of three tests:- more· than 40 employees; regional or national
operations; and annual sales exceedi~g ~l,OOO,OOO.
- 2 -
There was no entry for the stockholders of 51 DISCs,
including DISCs owned by one or more individuals.
It can be concluded that all or almost all of the
stockholders for which no entry was found (the stockholders of 51 DISCs) represent small business as any
stockholder (i) which itself has over 250 stockholders;
or (ii) which has over $500,000 in net assets; or (iii)
which has regional or national operations, more than 40
employees and more than $1 million sales is, in principle,
listed in one of the five sources consulted. In addition,
any business with annual sales of less than $10 million
can well be classified as small (the stockholders of 4 DISCs
On this basis, it has been concluded that the stockholders
of over 50 percent of the DISCs are small business.
DISC SPEAKING ENGAGEMENTS
(In wh;c~ Treasury or National Office of Commerce Participated
since approval of Revenue Act of 1971 by Congress)
n ,\\
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APPENDIX
June
C
14
1972
DISC SPEAKING ENGAGEMENTS
(In which Treasury or national Office of COlnmerce
Participated since approval of Revenue Act of 1971 by Congress)
DATE
PLACE
SPONSORING ORGANIZATION
COMMERCE
TREASURY
Dec. 9
New York
International Tax Institute
Mr. Rendell
Jan.
New York
International Executives Association
Mr. Kauder
Jan. 14
Washington
Machinery Allied Products Institute
Mr. Burt, Mr. Cole
J2n.
Washington
American Mining Congress
Mr. Cole
San Francisco
Regional Export Expansion Council
(REEC) and SF World Trade Club
Mr. Burt
Mr. Burt
~~
4
18
on. 26
Mr. Trav3.g1ini
J;, n. "
27
LCi3
Ang81es
Los Angeles Bar
v'
.: 8
La:)
."I.ngeles
PBEC, International 'l'l:c:de CJ'Jb ':"'03
Mr. Cohenl\1::-.
Ange:es, Foreism 'Ix ade i,ss;'. o.~ So.
accompanied
Cal.if. 1 Export l\lanageL:3 ASSn. o~
by Mx. B1.1rt
So. Ca:if.~ Mayor's Econoroic DevelopmerIt Board, Les Angeles Chamber. of Conunerce
1;
")
\
~
'1
.
F,'... )
Fe :) •
F0' ')
<
Fe ' I .
~'2b
,
.:
'..~.
('
,~
ASsGcj~tion
Tra\T}:~~iii
Bou:=;t.on
:REEC and local o.cganiz,ations
Mr. Kauder
Mr. Wagrle.c
Di',l:ias
Southern Methodist University
Mr. Cole/
Mr. Kaude:::
l'1,~
Commerce Textile Group
Mr. Pa tri cJ<
Jntern~tional
Mr. McSweeny
,:rt.on
'I::.i S " I
:\)2'1,7
1. o l k
'~~' " ~ ~'j ~~
ll"<F ('-,
:.
<jto:n
~
Tax Institute
Business International
Mld-South
Expo~ters
Roundtable
Mr.
Hi cJ<:£nc.:: /V;,
0
.
'~I\/ -:to"r.iG ~~
Co 1e;,
Mr. PatricK/Mr. Silve~::-stcLlE
Mr. McSweeny Mr. Free
•
b
'IF
Feb.
J
~~nc~nna_1
REEC and :ocal organizations
Mr. McSweeny Mr. Free
Chicago
International Trade Club
Mr. Hickman
Feb. 10
-
C::',
.
~.
PLACE
DATE
~-,
<;
SPONSORING ORGANIZATION
TREASURY
1
CO.>L\,1ERCE
(
Feb.
15
New York
International Tax Association
Mr.
Feb.
16
Cleveland
Cleveland World Trade Club
Mr. Cole/
Mr. GoldvJag
r'eb.
1- -I
New York
Textile Society
Mr. Kauder
Feb. 17
Philadelphia
REEC and local organizations
Mr. Burt
Mr.
Feb. 17
Kansas City
REEC and local organizations
Mr. Goldwag
Mr. l"7agner
Omaha
Dept. of Commerce Field Office
Feb. 18
Feb. 18
St. Paul
Minneaplis
kEEC
Feb. 22
l-\lbany, N. Y.
Greater Albany Chamber of Commerce
Mr.
Burt
Hr. Free
Feb. 23
Syracuse
Syracuse Chamber of Commerce
Mr.
Burt
Mr. Free
Feb. 23
hl ashi ngton,
D.C.
National Association of Manufacturers (NAM)
Messrs. Cohen/
Cole & McSweeny
Feb. 24
Pittsburgh
International Co~~ittee of
Chamber of Commerce
Mr. Patrick
Feb. 24
Chicago
Mr. Burt
Feb. 28
\vasrn~rc~ton ,
Ill. Dept. of Bus. & Economic
Development
Tax Executives Institute (TEl)
Mar. 1&2
New York
World Trade Institute
Messrs_
Feb.
17
st.
(WTC)
Paul Chamber of Commerce
Patrick
Mr. vlagner
Mr. \-vagner
Mr. Goldwag
M,J;", Goldwag
Mr. Cole.
~olel
.'.: r.
Patrlc~
Mid-American World
Mar. 2
Milwaukee
Milwaukee Int'l Trade Club
Mr.
B::r~
Mar.
Seattle
REEC
~:t".
E-
2
3
T~ade
Instit.
Mr. Co·""';e r;.
Chicago
Mar.
Travaglini
C".'
.<y
-= ~:. 2. 'J a. g
~. : 1
~VJ.VlJ."}.X;.t<.Cl!;
Mar.
Mr.
Travagl.i.ni.
Portl.and
REEC
Mr.
Mar. 6
Palo Alto
Western Electronics Manufacturers
Association (WEMA)
Mr. Burt
fv'I,')r.
7
Raleigh
REEC
Mr. Kauder
Mar.
7
rl-:loe~_ix
Vl7EKA.
Mr. Burt
Mar.
7
WasL.:;"ngton,
D,C.
Electronics Industry Association
Mr. Cole
Mar.
8
Greer,vi lie
REEC and local organizations
Mr. Kauder
Mur.
8
Sc'n Diego
WEMA
Mr. Burt
Mar. 9
Atlarta
?EEC; International Council
of AL:.ant.a ChaxnbEr of Commerce
Mr. Cole
Mar.
S;:H: ·ta AnA
~\lT;lviA
Mr. Burt
Mar. 10
Savannah
REEC
Mr. Cole
Mar. 10
Buo;."bank
WEMA
Mr. Burt
Mar. 14
Allentown
Lehigh V,1.'
Fort Wayne
Fort Way··
Mar. 14
Santa Barbara
Aerospace Ind. of America
Mar. 15
Indianapolis
Indiana WTC, Indianapolis Chamber
of Commerce
Mr. Burt
Mr. Free
16
Rock Island/
Moline, III.
Quad-Cities Chamber of Commerce
Mr. Burt
Mr. Free
Mar. 16
New Orleans
REEC' s, Chamber of Cor;unerce
Messrs. Hickman Mr.
Goldwag
:< .. 1
•
Cedar Rapids
Cedar Rapids, WTC
Mr. Bu:-t
'\~ ~y
•
Detroit
A~tomotive
Mar.
Mar.
6
9
14
1
-:
E
1..2:'
v.JT~
Chamber of Commerce
Orig, Eqpt. Mfgrs.
Patrick
Mr. Wagner
Mr. Wagner
Hr. Waqner
Mr. Wagner
Mr. Goldwag
Mr. Burt
Mr. Free
Mr. Travaglini
\~
Travaglini~~
Mr. Free
Mr. 'i,,;jasne.'
['LACE
1)1\'l'L
TREASURY
SPONSORING ORGANIZATION
COMlVi 1: [-tel':
---
-------=----=-
jVlr.
'l'dvac; 1 j
I'-1r.
Free
Mr.
Travaglini
Burt
Mr.
Travaglini
Mr.
Rendell
Mr.
Wagner
Mr.
Cole
Mr.
Wagner
Mr.
Goldwag
Mr.
Wagner
Mr.
Travaglini
Mr.
Travaglini
Mr.
Travaglini
Mr.
Wagner
Mr.
Kauder
l'1o.r.
21
Little" Rock
Arkansas Exporters Roundtable,
Chamber of Con@erce
Mar.
21
New York
Seaboard-World Airlines
Mar.
22
Denver
Int'l Trade Assn., REEC
Mr.
Mar.
23
Nashville
REEC, Chamber of Commerce
Mr. McSweeny
Mar.
23
St. Louis
REEC
Mr.
Mar.
24
Ann Arbor
Univ. of Michigan and Detroit
office
Mar.
27
Boston
New England WTC,
Mar.
28
Newark
REEC
]V\.ar.
28
Washington, D.C.
Union-Shell Gil
Mar.
29
New York
N.Y.
Mar.
30
New York
Mar.
31
Apr.
REEC
Patrick
Mr.
Cole
American Paper Institute
Mr.
Cole
Richmond
Richmond Export-Import Club
Mr.
Rendell
5
Washington, D.C.
Conunerce Orientation
Apr.
7
Miami
N.A.M.
Mr. Patrick
Apr.
7
Ann Arbor
Inst. of Cont. Legal Education
Univ. of Michigan
Mr.
Kauder
Apr.
10
Las Vegas
Practicing Law Institute
Mr.
Patrick
Apr.
11
Jacksonville
REEC
Mr.
Free
Apr.
12
Orlando
REEC
Mr.
Free
Chapter TEl
(PLI)
11 j
DATE
PLACE
SPONSORING ORGANIZATION
TREASURY
COMMERCE
Apr. 13
Tampa
REEC
Mr. Free
Apr. 14
St. Petersburg
REEC
Mr. Free
Apr. 14
Washington, D.C.
Govt. Adv. Committee on Int'l
Book & Lib. Programs
Mr. Travaglini
Apr. 19
Philadelphia
Foreign Traders Assoc.
Mr. Travaglini
Apr. 20
Washington, D.C.
Federal Bar Association
Apr. 24
Dorado Beach, P.R.
American Business Press, Inc.
Apr. 25
Bergen County, N.J. local Chambers of Commerce
Mr. Goldwag
Apr. 25
Miami
PLI
Mr. Cole
Apr. 27
Colorado Springs
Wester.,l In t' 1 Trade Group
Mr. Travaglini
Apr. 27
Washington, D.C.
Copper
Mr. Wagner
Apr. 27
New Orleans
Miss.
Apr. 29
Los Angeles
May 4
New York
USC & FEderal Tax Publications,
Tax Executives Institute
PLI
May 5
Scottsdale
National Machine Tool Builder's
Association
May 8
Chicago
Design Engineering Convention
Mr.
'}.Ta'lag~_i.ni
May 10
Baltimore
Maryland Nat'l Bank
Mr.
?'rE-e
May 11
Birmingham
1st Nat'l Bank of Birmingham
.'·1r.
:'rcvag.l. ; ni
May 11
Dallas
Southern Methodist U. Inst. of
Cant. ED.
Mr
'>Jagner
I,
Messrs. Patrick/
Kauder
Mr. Travaglini
Erass Fabricators
V~llay
WTC
Mr. Wagner
Mr. Burt
Mr. Patrick
Mr. Patrick
Mr. Rendell
0
DATE
PLACE
SPONSORING ORGANIZATION
TREASURY
COMMERCE
Mr. Free
May 12
Chicago
Meat Packers Eqpt. Assoc.
May 18
Memphis
Southeast REEC
May 19
Beaver Fall.s
Geneva College
Mr. Travaglini
May 23
St. Joseph
Michiana WTC
Mr. Travaglini
May 25
San Antonio
Houston, Texas - Dept. of Corom.
Field Office
Mr.
June 8
Grand Rapids,
Michigan
World Trade Conference
Mr. Burt
June 9
Mobile
International Business Forum
Mr. Rendell·
Mr. Rendell
Hr. Travaglini
Travaglini
Mr. Travaglini
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 16:. 1972
u.S. TO HOST CUSTOMS INVESTIGATIVE
SERVICES MEETING IN 1973
Eugene T. Rossides, Assistant Secretary of the Treasury,
announced today that the Customs Cooperation Council has
accepted the United States invitation to hold a meeting of the
Customs Investigative Services of its members in the United
States in the fall of 1973.
Mr. Rossides also reported on this year's annual meeting
of the full Council in Brussels, Belgium, June 5-9, 1972, at
which delegations representing more than two-thirds of the
67-nation membership were present. He said the United States
was particu1ary interested in implementation of the 1971
Council recommendation that nations exchange information on
the persons, methods, and kinds of drugs used in the illicit
traffic in narcotics and similar substances.
Mr. Rossides noted that this year's Customs Investigative
Service meeting in Bonn, Germany, which covered narcotics
smuggling, gave particular credit to the Council for the
initiative it had shown in adopting the narcotic drug information exchange recommendation.
Mr. Rossides praised the recent anti-narcotic efforts of
the French Government and other member nations. He added th3t}
"The success of the Bonn meetinr, pointed out the need for
holding such meetings annually. '
Mr. Rossides also brought attention to the need for
intensified cargo security measures to stop the pilferage of
cargoes.
During the meeting the United States signed the Customs
Convention on the International Transit of Goods (ITI Convention)
subject to ratification by the Congress. This convention is
expected to facilitate the movement of goods under Customs
control, particularly goods in containers.
8-3
(OVER)
- 2 -
A draft recommendation of the United States designed to
facilitate the Customs treatment of lighters or barges carried
on LASH-type ~hips, originally introduced by the United States,
was adopted w1thout amendment.
Mr. Rossides also announced that his Special Assistant,
Robert V. McIntyre, had been elected Chairman of the Council's
Finance Committee for the corning year, as well as Vice Chairman
of the Permanent Technical Committee.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 16, 1972
WITHHOLDING OF APPRAISEMENT ON 30-POUND MF (MACHINE FINISH)
KRAFT WRAPPING PAPER FROM CANADA
Assistant Secretary of the Treasury Eugene T. Rossides announced
today the withholding of appraisement of 30-pound MF (Machine Finish)
kraft wrapping paper from Canada pending a determination as to whether
this merchandise is being, or is likely to be, sold at less than fair
value within the meaning of the Antidumping Act, 1921, as amended
(19 U.S.C. 160.& ~.). This Canadian heavy duty paper is used for
making gummed paper tape.
Under the Antidumping Act, the Secretary of the Treasury is
required to withhold appraisement whenever he has reasonable cause to
believe or suspect that sales at less than fair value may be taking
place.
A final Treasury decision in this investigation will be made within
three months. Appraisement will be withheld for a period not to exceed
six months from the date of publication of the l~ithho1ding of Appraisement Notice" in the Federal Register.
Under the Antidumping Act, a determination of sales in the United
States at less than fair value requires that the case be referred to
the Tariff Commission, which would then consider whether an American
industry was being injured. Both sales at less than fair value and
injury must be shown to justify a finding of dumping under the law.
Upon a finding of dumping,a special duty is assessed.
The total value of 3D-pound MF (Machine Finish) kraft wrapping
paper imported from Canada during the period January 1971 through
December 1971 amounted to approximately $640,000.
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
June 19, 1972
FOR IMMEDIATE RELEASE
ANTIDUMPING INVESTIGATION INITIATED ON ELECTRONIC
CERAMIC PACKAGES AND PARTS THEREOF FROM JAPAN
Assistant Secretary of the Treasury Eugene T. Rossides announced
today the initiation of an antidumping investigation of imports of
electronic ceramic packages and parts thereof from Japan.
These
small ceramic chambers serve as a housing for integrated circuits
and provide a protective shield against heat and detrimental atmospheric conditions.
Mr. Rossides' announcement followed a summary investigation conducted by the Bureau of Customs after receipt of a complaint alleging
that dumping was taking place in the United States.
The total value of electronic ceramic packages and parts thereof
imported from Japan during the period from January 1971 through
December 1971 amounted to approximately $2 million.
/I II if
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMED lATE RELEASE
June 19, 1972
TREASURY ISSUES COUNTERVAILING DUTY PROCEEDING NOTICE
ON CERTAIN FOOTWEAR FROM THE REPUBLIC OF KOREA
Assistant Secretary of the Treasury Eugene T. Rossides
announced today the issuance of a countervailing duty proceeding
notice covering certain footwear from the Republic of Korea.
The notice states that the Treasury Department has received
information which raises a question as to whether the Republic
of Korea makes certain payments, bestowals, rebates, or refunds
upon the manufacture, production, or exportation of certain
footwear, which constitute the payment or bestowal of a "bounty
or grant" within the meaning of the U.s. countervailing duty law.
If Treasury finds that a bounty or grant has been paid or bestowed,
the imports in question would be subject to an additional
(countervailing) duty equivalent to the net amount of the bounty
or grant.
Footwear covered by the proceeding notice includes footwear
commonly referred to as sneakers, or tennis shoes, a technical
description of which is contained in the attached Countervailing
Duty Proceeding Notice.
The notice invites submission of comments in time to be
received within 30 days from the date of publication in the
Federal Register. It is scheduled to be published on Tuesday,
June 2 0, 19 72 .
If the Treasury Department finds that bounties or grants
are being paid or bestowed within the meaning of the countervailing
duty law, it will issue a countervailing duty order proclaiming
the amount of countervailing duties to be assessed on imports of
certain footwear from the Republic of Korea. The countervailing
duty would become effective 30 days after publication of the
order in the Customs Bulletin.
During the period January 1971 through December 1971, imports
of the footwear from the Republic of Korea covered by the proceeding notice totaled approximately $23 million.
000
DEPARTMENT OF THE TREASURY
BUREAU OF CUSTOMS
CERTAIN FOOTWEAR FROM THE REPUBLIC OF KOREA
NOTICE OF COUNTERVAILING DUTY PROCEEDINGS
Information has been received pursuant to the provisions. of section
l6.24 (b) of the Customs Regulations (19 CFR 16.24 (b»
which raises a
luestion as to whether certain payments, bestowals, rebates, or refunds
~anted
by the Republic of Korea upon the manufacture, ·production, or
!xportation of footwear (except footwear having uppers of which over 50
~rcent
~ight
of the exterior surface is leather) which is over 50 percent by
of rubber or plastics, or over 50 percent by weight of fibers and
:ubber or plastics with at least 10 percent by weight being rubber or
)lastics, classifiable in item 700.51, 700.52, 700.53, 700.55, or 700.60,
~ariff
Schedules of the United States, constitute the payment or bestowal
)f a bounty or grant, directly or indirectly, wi thin the meaning of section
103 of the Tariff Act of 1930
(19 U.S.C. 1303) upon the manufacture, pro-
Illction, or exportation of the merchandise to which the payments, bestowals,
:ebates, or refunds apply.
The approximate amount of the payments, bestowals, rebates, or refunds
~plicable
to footwear from the Republic of Korea covered by this notice
as not been determined or estimated.
After the expiration of the time limits set forth in this notice, a
~teTmination
will be made whether a bounty or grant is being paid or be-
itOlved in connection with any such manufacture, production, or export.
If
.t is determined that a bounty or grant is being paid or bestowed, an
lpprupriatc countervailing duty order will be issued and published in
~Cordance with section 16.24 of the Customs Regulations
(19 CPR l6.24).
Before a determination is made, consideration will be given to any rele-
J\t ,1J.tu, views, or urgurnents submitted in writing with respect to the
xistence or nonexis tence, and the net amount of a bounty or grant.
2
Submissions should be addressed to the Commissioner of Customs, 2100 K
Street, N.W., Washington, D. C. 20226, in time to be received by his offic
not later than 30 days from the date of publication of this notice in the
Federal Register.
This notice is published pursuant to section l6.24(d) of the Customs
Regulations (19 CrR l6.24(d».
;5:~~~
Aoting Commissioner of Customs
Edwin F. Rains
JUN 1 5 1 72
// i1
Approved;/,
,/
. 7"
I
,
J
~c;~~L-i
(}1~t..
Eugene T. Rossidcs
1
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'-
Assistant Secretary of the Treasury
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 19, 1972
TREASURY'S MONTHLY BILL OFFERING
The Treas"ry Departmen.t) by this public notice, invites tenders for
two series of lreasury bills to the aggregate amount of $ 1,700,000,000,
or thereabOllts, fnr cash and in exchange for Treasury bills
maturing June 30, 1972,
in the amount of $1,700,805,000,
as follows:
274-day bills (to maturity date) to be issued June 30, 1972,
in the amount of $500,000,000,
or thereabouts, representing an
additional amount of bills dated March 31, 1972,
and to mature
March 31, 1973
(CUSIP No. 912793 PV2) originally issued in the
amount of $1 , 200 , 810 , 000 ,
the additional and original bills to be
freely interchangeable.
365-day h;lls, for $1,200,000,000,
or thereabouts, to be dated
June 30,1972,
and to mature June 30,1973
(CUSIP No. 912.793 PY6).
The bill~ of both series will be issued on a discount basis under
competitive an(~ noncompetitive bidding as hereinafter provided, and at
maturity their face amount will be payable without interest. They will
be issued in benrer form only, and in denominations of $10,000, $15,000,
$50,000, $100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
to the clOSing hour, one-thirty p.m., Eastern Daylight Saving
time,
Friday, June 23, 1972.
Tenders will not be received
at the Treasury Department, Washington. Each tender must be for a
minimum of $le,OOO. Tenders over $10,000 must be in multiples of
$5,000. In the case of competitive tenders the price offered mu~t
be expressed on the basis of 100, with not more than thcee decimals,
e.g. 99.925. Fractions may not be used. (Notwithstanding the fact
that the one-year bills will run for 365 days, the discount rate will
be computed on a bank discount basis of 360 days, as is currently the
practice on all issues of Treasury bills.) It is urged that tenders be
~de on the printed forms and forwarded in the special envelopes which
will be supplied by Federal Reserve Banks or Branches on application
therefor.
- 2 -
Banking institul ill[1S generally may submit tenders for account of
customers provided the 1-,1,1:t?S of the customers are set forth in such
tenders. Others thar. \'Jnking institutions will not be permitted to
submit tenders e~cept j0r their own account. Tenders will be received
without deposi t ~ rO::1 ir,-~ orporated banks and trus t companies and from
responsible arj recugni zed dealers in invesbment securities. Tenders
from others ITlU~~ T be accompanied by payment of 2 percent of the face
amount of Trea~ Iry bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank or
trust company.
Immediatelv lfter the closing hour, tenders will be opened at the
Federal Reserve :,qnks and Brai.lches, following which public announcement
will be made by : :le Treasury Department of the amount and price range of
accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or re;ection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect shall
be final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone bidder
will be accepted in full at the average price (in three decimals) of
accepted competitive bids for the respective issues. Settlement for
accepted tenders in accordance with the bids must be made or completed
at the Federal Reserve Bank on June 30, 1972,
in cash or othl r immediately available funds or in a like face amount oj
Treasury bill~ ,naturing June 30, 1972.
Cash and exc hill. ~',e tend et"s will rec ei ve equal t reatmen t. Cash adjustment
will be made 1 ' differences between the par value of maturing bills
accepted in ex llange and the issue price of the new bills.
Unde r Sec [ions 454 (b) and 1221 (5) a f the lnte rnal Revenue Code oj
1954 the amount of discount at which bills issued hereunder are sold is
considered to accrue when the bills are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price paid
for the 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.
Treasurv Department Circular No. 418 (current revision) and this
notice, prec:'- ibe (he terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained from
any Federal Reserve Bank or Branch.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
l"J'UH'ION:
FINANCIAL EIHT(;I,
)l{ HEL~:A~:~;
6: 30 P.M.,
June 19, 1972
RESULTS OF 'l'REASURY I S WEEKLY
BILL OFFERING
'1118 'l'rcaGury [:epartmcnt announcP(1 that the tenders for two series of Treasury
illr;, onp series h) b8 an additional i.ssue of the bjlls dated March 23, 1972
,1U1d
lC other series to he dated June 22, 1972
, which were offered on June 13, 1972
:rr opened at the Federal Reserve Banks today.
Tenders were invited for ;p2,300,000,000
, Lhcn~abouts, of ~11 -day bills and for $1,800,000,000 or thereabouts, of 182 -deW
ilL:>. The details of the two series are as follows:
rvlGI~ OF ACCEPTED
(:llPF;TITIVE: RIDS:
91 -day Treasury bills
maturing September 21, 1972:
Approx. Equiv.
Price
Annual Rate
99.016
99.000
99.008
High
Low
Average
182-day Treasury blils
maturing December 21, 1972
Approx. Equjv.
Price
Annual Rate
4.308%
4.340%
4.328%
97.822
97.806
97.812
3.893%
3.956%
3.924%
32% of the amount of
91-day bills bid for at the low price was accepted
8% of the amount of 182-day bills bid for at the low price was accepted
UTAL TENDERS API'iJIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
Di:;trict
Boston
New York
Philadelphia
Cleveland
Riclunond
Atlanta
Chicago
St. Louiz
lHnneapolis
Kansas City
Dallas
San Francisco
TOTALS
A12121icd For
25,135,000
2,903,140,000
15,760,000
22,405,000
12,335,000
53,325,000
263,790,000
41,475,000
26,105,000
35,230,000
31,960,000
163,035,000
J
$
3,593,695,000
AcceEted
$
8,135,000
1,870,240,000
15,335,000
22,405,000
7,335,000
35,180,000
148,090,000
32,255,000
13,545,000
25,165,000
10,960,000
111,625,000
$
2,300,270,000 ~
~lied For
21,015,000
2,659,835,000
23,935,000
34,695,000
10,290,000
43,450,000
280,995,000
30,435,000
23,780,000
25,785,000
31,520,000
134,405,000
$
3,320,140,000
Acce12ted
1,745,000
1,558,215,000
3,655,000
13,540,000
4,990,000
17,635,000
109,095,000
21,705,000
6,660,000
12,545,000
9,420,000
41,195,000
$
$
1,800,400,000
£I
Includes ~ 180,135, 000 noncompetitive tenders accepted at the averaGe price of 99.008
Includes :t 102,445,000 noncompetitive tenders accepted at the average price of 97.812
These rates are on a bank discount basis. 1he equivalent coupon issue yields are
4.02 %for the 91 -day bills, and 4 .49 % for the 182 -day bills.
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR RELEASE UPON DELIVERY
REMARKS OF EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
(ENFORCEMENT, TARIFF AND TRADE AFFAIRS, AND OPERATIONS)
before the
NATIONAL CARGO SECURITY CONFERENCE
STATLER HILTON HOTEL
WASHINGTON, D. C.
June 20, 1972
9:30 a.m.
THE NIXON ADMINISTRATION'S
PROGRAM TO COMBAT THEFT OF INTERNATIONAL
CARGO IS SUCCEEDING
Mr'. Chairman and distinguished guests:
The Nixon Administration, I am pleased to report,
has made substantial progress during the last year
~n
the fight to curb cargo theft.
In my judgment, we have turned the tide in the drive
mounted by Treasury's Bureau of Customs against those who
prey upon international cargo at our nation's seaports and
airports of entry.
I also believe that the Interagency Committee on
Transportation Security has made substantial progress in
determining the precise nature and extent of this problem.
Early in this Administration, President Nixon directed
.an all out drive against drug smuggling and organized
crime. These became Treasury's highest priorities in the
area of law enforcement. It became evident in 1969 that
the long-neglected problem of cargo theft fell into both
these priority areas, and Treasury therefore developed
an action program and charged the Bureau of Customs with
implementing it.
- 2 --
The Treasury program has two main thrusts--deterrence
of theft by intensifying our law enforcement efforts and
prevention of theft by improving the security of goods in
Customs custody.
The Law Enforcement Program
Early last March the Treasury Department through
its Bureau of Customs initiated an intensified national
enforcement effort to crack down on cargo pilferage.
The results to date have been promising:
--nationwide 280 individuals have been apprehended
on cargo theft charges. Over one half of these
individuals have been or will be prosecuted.
--we recovered cargo valued at over $268,000.
--we also apprehended individuals for violations
of narcotics and firearms laws, as well as theft
of merchandise in violation of local laws. In
the latter case, local police, with our cooperation,
recovered merchandise valued at over $150,000.
On the west Coast, where our efforts were closely
coordinated with the Department of Justice and the local
U. S. Attorneys, petty pilferage in many ports has been
brought to a virtual halt.
There is a close relationship between this antitheft program and Customs other law enforcement missions.
For example, last October Treasury agents in Miami
seized a 66 pound heroin shipment from South America.
Subsequent investigations in this case led to the uncovering of a ring of cargo thieves several of whom were employeE
of a major u. S. airline. In another case in the same citYI
Customs Patrol Officers on a routine cargo security patrol
last April spotted a ship's crewman acting suspiciously
on a dock. They stopped the vehicle he had entered and
searched it. A suitcase containing $2.5 million worth
of heroin was found and the crew member and two other
persons in the car were ar~~sted. This particular case
came to the attention of President Nison who person n :1.?
commended the officers involved fer their ~lertness.
In New York, Treasury agents working with the
New :lork City Police Department were able to crack two
- 3 -
truck hijacking rings, arrest a total of eight individuals
and recover two truck loads of electronic equipment and
general merchandise valued at $105,000. Investigation
is continuing to determine the role of organized crime
in these hijacking cases.
These cases illustrate that this stepped-up
enforcement campaign ties in closely with our fight
against drug smuggling and organized crime. However,
its principal goal is to put the brakes on petty thievery,
which when mUltiplied over and over again, constitutes an
insidious and dangerous drain on the flow of American
commerce. We believe that this program has produced an
increased awareness of our presence at ports of entry, and
is therefore having a significant deterrent effect.
Treasury will continue to take positive action to
apprehend the criminals who prey on our vital transportation system. I am particularly gratified to report that
in some ports the longshoremens union has specifically
advised its members that theft and pilferage will not
be condoned. This is significant because more than
anything else we must have a moral climate in which cargo
theft and pilferage are condemned as the criminal acts
they are.
The Preventive Program
Treasury·s preventive program consists of several
separate but closely interrelated action areas.
1. We issued new regulations requiring improved
security for high-risk cargo, and reporting of loss data
by commodity and location.
2. We initiated pilot security programs in New York,
San Francisco, and Oakland to demonstrate that the adoption
of a few basic security measures can effectively produce
major theft reductions.
At J.F.K. International Airport, the only pilot proqram in operation long enough to assess results, the dollar
value of stolen goods has dropped from $3.4 million in 1969
to $568,000 in 1971, a decline of 83%. This trend has
continued to date. In the first five months of this year
there have only been 86 reported instances of theft and the
total value of merchandise stolen was only $192,000. To
put these figures in context you should know that
- 4 cargo valued at an e$timated $10.5 billion passed through
J.F.K. in 1970, up 20% from the year before. It is also
significant that there was not a single armed robbery
of a cargo terminal, and thp.re was not one hijacking of
an airline cargo truck during 1971. (Source: Port of
New York Authority and Airport Security Council.)
Treasury, on beh~lf of the Administration, proposed
legislation to Congress which would give Customs the
additional tools it needs to combat cargo theft and pilferage
effectively. The passage of this legislation, known as
the Customs Port Security Act (5. 1654, the Bennet bill and
the identical H.R. 8476, the Mills-Byrnes bill) would, in
my judgment, result in the reduction of cargo theft to a
minimum at all airports of entry throughout the United States
within 6 months to one year and a substantial reduction of ca:
theft at all seaports of entry within one year.
3,
4. We published and distributed to all carriers and
terminal operators handling international cargo a listing of
recommended physical and procedural cargo security standards.
These standards are being implemented by industry and we expe
that they will produce a marked reduction in cargo theft at
all 296 ports of entry.
5. Treasury headed up the IeOTS working group which
drafted the Guidelines for the Physical Security of Cargo,
published by the Department of Transportation. This handbook
is a comprehensive treatment of the topic of physical
security and should prove invaluable for the entire transportation industry.
Industry Cooperation
We have been generally gratified by the receptive and
cooperative spirit of the cargo handling industry and its
leaders. Significant gains have been registered in many vita
areas of cargo security. We are optimistic about the future.
For example, look what happened at Providence,
Rhode Island, after we initiated our programs:
--formerly open cargo pier areas have now been
completely enclosed with a la-foot high wire
fence topped with barbed wire.
--new gates have been strRtegically located for
better monitoring and access control.
--new regulations on parking have barred private
vehicles from cargo areas.
- 5 -
--security personnel have been assigned to all
cargo handling areas.
--a special secure cargo area was added to
Providence's Theodore Green Airport.
Our experience at Providence has been repeated at
terminals in Norfolk, Virginia; Baltimore, Maryland;
Chicago, Illinois; and St. Thomas, Virgin Islands, just
to name a few ports. The pattern generally includes the
upgrading of personnel security measures; improvements
to physical facilities, such as the addition of new
fencing and lighting; and a significant increase in the
awareness of terminal managers of the importance of
proper and effective cargo security. And, of course,
where we find facilities that do not comply with Customs
mandatory cargo security regulations we are taking
appropriate action to obtain compliance--including, if
necessary, and so far it has not been necessary, declining
to issue permits to unlade merchandise at these facilities.
Personnel Security Measures
Our experie~ce at many airports and seaports is
that personnel security measures are not as effective
as they should be. An IeOTS working group headed up
by the U. S. Postal Service has studied this problem
and reached the same conclusion. It is convinced
that employee theft and pilferage constitutes a
significant element of the cargo theft problem and that
the majority of cargo losses incurred are going out
the front door. Adequate screening of prospective
employees is one of the most important and underutilized
measures available to control cargo theft.
With respect to bonded cargo, customs Office of
Investigations conducts background checks on all applicants
for Customs licenses, permits or ID cards. The ICOTS
working group is making an inventory of existing statutes
and regulations and will report whether there is a need
for additional legislation or regulations in this area.
However, transportation management should become aware
of the magnitude of the problem and of the remedies
presently available to them. The problem can no longer
be ignored.
- 6 Loss Reporting
Programs
It is no secret that about a dozen commodities
are involved in the vast majority of cargo thefts.
TV sets, especially color models, clothing, alcoholic
beverages, jewelry, watches, and similar high value
items are most frequently the targets for thieves and
pilferers.
The Bureau of Customs has been moving ahead with
its computerized cargo accountability program. The
goal, of course, is to obtain an accurate composite
. picture of the national cargo theft and pilferage
situation.
What we don't know yet with the desired accuracy
is which item is the most likely target at what port. This
knowledge, combined with other information we expect to
have, will direct us along the lines offering the most
productive results. I don't have to tell you how
important industry cooperation is in an effort like this.
I must point out that Customs has been experiencing
difficulty in obtaining the information we need from
some carriers and we are having to assess penalties
against those not complying with our regulations. I
sincerely hope that will become past history.
The important and significant point is that we are
now moving forward, and in the months ahead we expect to
receive much valuable information, not only from Customs,
but from the loss reporting systems set up by FMC, ICC,
and CAB. For the first time we should be able to obtain
an approximate fix on the dimensions of this problem and
be able to deploy the Federal Government's limited resources
accordingly. I use the term "approximate fix" advisedly
because I know from our own experience that it takes time
to bring these loss reporting systems to an acceptable level
of accuracy. However, I am sure that once industry understands the need for this vital data, and the use to which
it will be put. we will be able to achieve that goal.
- 7 conclusion
Treasury's programs reflect the deep concern of
the Nixon Administration in stopping organized crime,
narcotic trafficking, and related criminal activities,
such as cargo theft and pilferage.
For organized crime, cargo theft is a lucrative
enterprise. This is particularly true at large deepwater ports and international airports.
For the drug smuggler--and I mean primarily the
professional operator--cargo theft can mean far less
risk of detection. If a package containing narcotics
can be removed before entry is made, there is no fear
of the rigorous cargo inspections now being made in
connection with Customs anti-narcotics program.
Industry has the prime responsibility for combatting
cargo theft. Government must do its best to assist. That
was the key to success at JFK Airport. customs helped
develop a few common sense rules on physical and procedural
security and saw to it that all airlines participated.
The airlines--unuer the guidance of their own AirpQrt
Security Council--then pitched in with determination to
implement the protective measures needed at each terminal.
This is the sort of venture that succeeds.
While the Treasury program focuses primarily on
international cargo problems, it is certain that the
result is improved security for the large amounts of
domestic cargo flowing through or temporarily stored
at the same cargo terminal facilities. Furthermore,
the measures we are urging as a minimum response to
this problem are equally applicable to terminals
handling domestic cargo. Indeed, ICOTS is recommending
that our physical security standards be adopted by
cargo operators throughout the country.
Many avenues of effective action are open to government and industry. Some of them have been explored and
found productive; others remain to be investigated. The
opportunity to act is ours. Now is the time.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 20, 1972
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,OOO,000,
or thereabouts, for cash and in exchange for Treas.ury
bills maturing June 29, 1972,
in the amount of $4,106,070,000,
as follows:
91-day bills (to maturity date) to be issued June 29, 1972,
in the amount of $2,300,000,000,
or thereabouts, representing an
additional amount of bills dated March 30, 1972,
and to mature
September 28,1972
(CUSIP No.912793 PEO \ originally issued in
the amount of $1,804,905,000, the additional and original -bills to be
freely interchangeable.
182 - day bills, for $1,800,000,000, or thereabouts, to be dated
June 29, 1972,
and to mature December 28, 1972
(CUSIP No. 912793 PS9).
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,
$15,000, $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 26, 1972.
Tenders will not be received
at the Treasury Department, Washington. Each tender must qe for a
minimum'of $10,000. Tenders over $10,000 must be in mU1tip'tes of
$5,000. 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
- 2 submit tenders except for their own account. Tenders will b~ recei~(
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are 8CCu;:1r;J2r:
by an express guaranty of payment by an incorporatec b&[~k ;)r t ::-:~" ~
company.
Imrnediately after the closing hour'~" tell~et:"s will b~ (Jpel'::-J ,;t. c~.
Federal Reserve Banks and Branches, following V-' hich public annnu;)ce:!.L'!
will be made by the Treasury Department of thE amount and price ran~_
ac::::epted bids. Only those subr:,itting competitive tenders \',:Ll be
advised of t:-i€ acceptance or rejection thereof. The SecretDry of thl
Treasury expressly reserves the right to accer·t or re~ect any or all
tenders, in ~hole or in part, and his action in any such resppc[ shal
be fin3.1. S:Jbject to these reservations, noncompetitive tenders to:
each issue for 5200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three ~eci~a
of 2ccept2d c:x."?ecitive bids for the respective issues. Settltdlenr ,',
ace ep ted terlJe r" in ace ordance with the bids mus t be made or c omplt':2
at the Yedera: ~eserve Bank on
June 29, 1972,
r
in cash Of othe - immediately available funds or in a like face amount
Treasury bill,: L~atl~.ring June 29, 1972.
Cash and exchange tend
will ~ecei'Je e::'[''':'.Jl t:.r2atment. Cash adjustments ~vill be made for
diff~rence3 ~etvp2i. (he par value of maturing 6ills accepted in
excilange and t:w i:;SLlC' price of the new l)ills.
c':
1
4.54 (b) and 1221 (5) of the lnternal Revenue ~.,:"
of J..l:~,-+ t"-l :111':1""' .•~ 'J[ discount at which bills issued hereunder arE ~o
18 c...:":~:':'~E;__ E:"_~ ::.. ' >,,::;~:11e when the bills are sold, redeemed or othenvls
Lli:o:p.Jst'c! (\L. L:~J tllE Gills are excluded from consideration as ca:lital
aSSUE . : _ cC~:~_.i,--lV, t:. 1i f lif,'rH:"
Treasury bills (other t-han life
insd::c=:nce cC',:_'1"iL''') i:;s~Jc'ri :~lereunder must incluch' in his i[1cC'.;,e tax
re:_ll:'-:"
Cl:C c··~:;'c1L\r gaL. . ;)r loss, the differenc(-' bet\.Jpu1 the price i)a
fo~' ~':l( bl~'L'~ , v tfC'.or en ,),.-:q;inal issue or on subsequent purchase, c:
thE: a~wu[',t 3ct'-":.:1 Lv [E:.CE'l.'Jcc! either upon sale or redemption at maturi
d~ring the Lax~~le year for which th~ return is maae.
·[.,~2:·
')htic.·i1S
Tr,)c~,:;;,".' [)qartment
Circular No. 418 (cllrrent revision) .?r,,1 t\i'
nc~~(~e. :-'!"f'::3cr~(':: t:,e teems of the Treasury t.iL~' a;:c' govern t:l(?
coodj~:on~i:' c:~ej r lSSL~e.
Copies of tiiF" cicc.• L3t" mav bf': cbtainec. :
an v
Fede r a ~
~,l',
;:,ve
FAnk
or Branch.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
AN ADDRESS BY THE HONORABLE JOHN B. CONNALLY
FORMER SECRETARY OF THE TREASURY
BEFORE
THE INSTITUTE OF DIRECTORS
SYDNEY, AUSTRALIA, TUESDAY, JUNE 20,1972
AT 2400 GMT
Your Excellency, President Robert Chrichton-Brown,
distinguished guest speakers, members and guests of the
Institute.
May I first express my deep appreciation to your president
for his gracious introduction. May I next assure you that I
come as a debtor and not as an owner. And thirdly, may I say
that I am very grateful for the opportunity to appear before
such a distinguished group of citizens at this particular
moment in time.
I wish each of you here could know the great thrill and
the great feeling of satisfaction that I have in being in
Australia. Being a boy of most modest means -- being reared
in South Texas -- I assure you that one of my lifelong
ambitions was to come to Australia to see this magnificent
country and its wonderful people, and to feel a part of it,
the growth and expansion, the vitality and the strength. And
now I have that great privilege and I assure you that it's
the fulfillment of a life's dream and not in any sense a
disappointment, because I liken the development of this
great land by the strong people in so many ways to the
development of my own nation.
We started as an agricultural,
emerging into a manufacturing and a
industrialized nation of tremendous
economies of the world. You are in
same.
pastoral society,
mining nation, an
impact throughout the
the process of doing the
- 2 -
Just a few short years ago, in the memory of each of you
in this room, you were indeed basically an agricultural
and a pastoral society. But in the past generation you have
made enormous strides in becoming an industrialized nation
in the world.
His Excellency has just pointed out that your
accumulation of reserve assets has reached the point of
approximately three and a half billion dollars at the present
time. You're trading around the world. Your trade is truly
a global economic matter. And it is this very change that
has been so much a part of Australian history that brought
about the incidents of August 15th in the United States last
year.
Let me very quickly try to paint a broad picture of what
had happened in the preceding quarter century. When the
Bretton Woods was originally entered into, I think it was
fair to say that in the aftermath of World War II, the
United States of America stood alone as a great, strong,
vital power, with all of its resources intact, with its
manufacturing capabilities humming at full speed, with no
substantial devastation or wrack or ruin as a part of the
landscape of that great land. Substantially every other
industrial nation of the world was in wrack and ruin. Eve~y
other society that had been a highly productive and
industriali~d society was on its knees economically speaking.
So, a system was fashioned, and it worked for a quarter
of a century. Because the United States had the reserves, it
had the vitality; it had the economic strength; it had the
political leadership and the military might to make it work.
Even by the 1950's, the reserve assets of the United States
were in excess of their liquid liabilities. But in the short
decade of the 60's that changed, and it changed radically. So
by the early 1970's, the foreign asset reserves of the
United States did not equal our liquid liabilities, but on
the contrary the liquid liabilities exceeded our assets by
five to one. So for a decade we had lived under an
arrangement as a matter of convenience and, even at times,
contrivance between nations, to retain the fiction that the
dollar was, in truth and in fact, convertible into gold. It
was obvious that with what happened to our trade balances in
1970, and our current account deficits of approximately
$10 billion, that we were headed for a crisis with our
- 3 -
trading partners around the world. If it had been a phenomenon
of a short period of time, obviously we could have withstood
it. But it was not to be such.
The first three months of 1971 reflected a greater
deficit than did the first six months of 1970, and we were
indeed looking in 1971 and 1972 at the first deficit in
our trade balance since 1883. So obviously conditions had
changed.
The strength that the nation had had, that it shared
to the tune of $150 billion with the rest of the world to try
to rehabilitate and reconstruct and to rebuild the nations
that had been devastated in the Great World War, had in
itself finally reached the point where it had depleted its
reserves and expended its credit. So obviously a change was
in order.
The President of the United States at that moment in
time recognized that there could not be a rapprochement
or a rapport between East and West in terms of military
strength, and in terms of peace in this generation in this
world, and that it could not be founded at a time when there
was such economic and political instability and monetary
instability as a part of the world scene. So he took the
drastic steps that he did, not alone affecting the economics
and the monies of the world, but again affecting most
vitally the United States of America. He imposed a Freeze
as you all know upon the entire economy -- a radical step
for any American President in peace time. We did indeed
impose a ten percent surcharge on many imported items into
the United States. We did suspend the convertibility of the
dollar -- all radical steps by any American President.
But it was not for the purpose of creating dissension,
or discord, or frustration, or indecision in the minds of
our trading partners around the world. It was rather a
recognition of a long overdue fact that the system that
had been created under Bretton Woods no longer was a
structure that would suffice to meet the needs of a changing
world, in which the United States stood not supreme but with
many peers, many economic peers, in the world. And there
are many peers. And there are going to be a great many peers.
And we do live in changing times and we live in a changed
order. It is the first recognition of that change that
- 4 -
a wise man makes in trying to restructure the system in order
to provide the flexibility that's needed in a changing world.
I think it's fair to say that everyone recognizes that
today we do have competitors throughout the world, economically
speaking. And I think that's great. I think that's good.
The United States has long advocated competition, within and
without its own borders. And, we do today.
I think it's fair to say that the nation of Japan, that
a few short years ago was indeed struggling for
revitalization of its economy, has today turned into an
economic colossus of incredible vitality. It is, I think,
recognized today that there is a great move in Western
Europe to expand and to consolidate the European Community
into a massive economic force in the Free World. And that
move has had the support in every way of the United States
of America. We have encouraged it. We have contributed to
its strengthening. And yet at the same time we paused a bit
now and then to wonder if indeed the special trade arrangements
that are now being offered, or are already offered to
approximately 50 nations around treworld, is indeed what the
world had in mind, and what we had in mind, at the time of
the encouragement of the creation of the Community.
Are we indeed moving towards a series of blocs around
the world -- of trading blocs? One of the great fears that
comes in the time of indecision is a wave of nationalism.
And I think it's fair to say today that there is a wave of
nationalism encompassing the minds of men everywhere.
It's true on every continent. Everyone is concerned about
themselves, about their own well-being, and well they should
be. But they also must recognize that if indeed a nation
moves to protect its productive capacity, and its productive
strengths, it might as well go one step further -- if indeed
it wants to be nationalistic and isolationist in character
then it might go one step further and assume that they
probably should not produce more than they can consume.
Because if there is nationalism, believe me, there is
nationalism on the part of the consumer as well as nationalism
on the part of the producer. And it is not reasonable to
assume that any nation can write rules and regulations around
which it can produce its products, or market its resources
on an unlimited basis, on the false assumption that other
nations of the world are bound to take the bounty of the land
we speak of.
- 5 -
And I must say to you that the United States is no
exception. There is a wave of nationalism -- in our case I
think it should more properly be called isolationism and
protectionism -- sweeping the United States today. It's of
unquestioned strength and unless there is a concerted effort,
which this Nixon Administration has been exercising, I am
afraid it will bear fruit.
We talked here -- your distinguished Governor, His
Excellency, spoke a bit ago, of foreign investment.
Strangely enough, most people around the world assume that
the United States' problems in respect to our current
account deficit and even our balance of payments deficit,
results from export of capital. But the facts don't bear
that out. Because the facts are that in recent years
we've had a net inflow of long-term capital into the
United States. Not short-term flows, not speculative flows,
some of which we had last year, 1971, but we have had a net
inflow of long-term capital into the United States.
Now while we talk about flows of capital, money is a
commodity like other things are commodities, and if indeed
we are going to embark on restrictive practices with respect
to capital flows around the world, then I think this is a
form of isolationism. It's a form of protectionism that's
going to have an impact on all the countries of the world,
developed and developing. Because there is, beyond any
doubt, a great shortage of investment capital in the world.
Now let me be quite candid about it. A great deal of
money, investment capital, comes out of the United States,
but it's not with the encouragement of the United States
Government. Frankly, we need all the money we can get at home.
The demands of our society are incredible. Our needs are
insatiable. We have just embarked. and we are just embarking
in a changing structure of our society as you will here. As
you already have.
We are looking at the environment in which we live,
water pollution and air pollution, the cleanliness of
our streams and the -purity of our water and our air.
The achievement of these goals envisions incredible
expenditu-res of money. We're talking about bill ions, and
billions, and billions, and billions, spent by both private
industry and the government in air and water purification
alone -- and that isn't even within the ballpark, it's tens
of billions. There is one bill before the Congress --
- 6 that was passed by Congress this year -- that in itself
anticipated the expenditure of $25 billion by the Federal
Government alone over a five-year period for water
purification and to prevent water pollution. So we have an
insatiable appetite for all the money and the capital that's
available there, and elsewhere very frankly, in the world.
I think in the restructuring of this international
monetary order we now have to do, that we need to
recognize that we can't do it within the narrow confines of
consideration of just monetary affairs. And, fortunately,
in the considerations that are now going forward in
Washington with respect to the creation of the Group of Twenty,
the United States insisted that the deliberations and the
decisions, with respect to the rebuilding of an International
Monetary Fund structure, not be carried on in the
Group of Ten, which were the rich nations of the world -Japan, Canada, the United States, and the remainder in Europe
but rather that we at least expand the Group to include those
countries represented on the Executive Board of the
International Monetary Fund, which would include Australia
and three representatives from Asia, three from Africa, and
three from Latin America. This would give us some diffusion,
some dispersion, some new ideas, some creative thought.
From this great country, that has contributed so much
to the GATT, to the IMF, and now more recently to the
OEeD, you have much to contribute.
The developing nations have a great stake in what rules
are established to try to provide economic and monetary
stability throughout this remainder of the decade, and
even for this next generation.
First, I think we have to recognize that the syst~m must
be far more flexible. Secondly, we can't deal in money alone~
We have to think in terms of trade; we have to think in terms
of investments; we have to think in terms of what controls
are going to be applied by nations around the world.
And incredibly enough, we all react as human beings when
you get right down to it. We all want to protect ourselves.
We went through 90 days of negotiations last Fall, looking
toward a realignment of rates, at least on a temporary Da$iS
after August 16th. It resulted in what is known as the Sntithso ni ,
Agreement, the re-establishment of exchange rates in wider bands.
And notwithstanding the fact that there was then, and there
- 7 has been since, considerable discussion and concern on the
part of many, let me point out to you that since that time
there really has been a great deal of stability in the
markets of the world. Very few central banks have been
required to intervene in the past 90 days. As a matter of
fact, the last 90 days have been about as stable as any period
of time for that length in many, many years. Now this is not
to say that the situation we have today is going to endure -should endure. It does mean there is stability in the
world because of the recognition of the fact that we have to
build a new structure under which we can live. We now live
in a world of economic ,equals.
Now this is not to say that the United States doesn't
recognize that it is the strongest, that it is the biggest
economic force in the world. This is not to say that the
United States is in any sense trying to shirk its
responsibilities or its duties of leadership. We are not,
and we won't. This is not to say that the United States and
the Government of the United States is in any sense becoming
protectionist or nationalistic in character. We are not.
We are committed to an expanded system of trade. We are
free traders. We want to expand it more.
The only thing that gives us concern, as I said a moment
ago, is the approaching wave of nationalism that's sweeping
the world. And this nationalism is being translated into
isolationism. This inevitably is going to create trading
blocs in the world, and this, I think, we have to avoid. You
can't stand that. We can't stand that. We must have
expanded global trade. We're going to provide what leadership
we can to see that that occurs.
But I must say to you here, that as the economic
vitality and strength and prosperity of many nations have
been in the ascendancy, and as they hav~ increased to a
remarkable degree, let me point out that that economic
prosperity places great responsibilities upon those nations
to assume leadership in the political arena as well. It's
not enough for a nation to merely reap the benefits of
economic prosperity without indeed contributing something to
the political stability of this world in which we live.
- 8 Let me also say that for 25 years the United States, under
the circumstances then existing, bore burdens that others were
not in a position to assume. But those conditions have
changed. The United States is committed to doing its part.
We recognize full well that the $80 billion that we spend on
defense each year, 3S percent of our National Budget,
9 percent of our Gross National Product, on defense to
maintain a nuclear deterrent, is an incredible expense and
drain on the American people, on the strength and the resources
of our nation. And yet we know that this is a responsibility
and a role and a burden of leadership and we willingly bear
it. And we bear it without complaint.
And we are particularly proud when we see Australia
emerging as a great nation, with great economic vitality,
assuming its proportionate and proper role among the nations
of the world, in providing aid and assistance to others.
You are now contributing over one percent of your Gross
National Product in the form of aid. That's more than we do.
It's more than any nation in the world does except two others.
And this is to your everlasting credit. You are providing
political and military stability and leadership in this
Great Basin of the Pacific, and this is unbelievably
important.
And this is finally all I am saying to you is that the
United States recognizes its role. It welcomes its
opportunity to provide political and economic and military
leadership in the world. It willingly bears the cost of the
nuclear deterrent that is so necessary in these troublesome
times. President Nixon has faced up to the political risks,
domestic and international, of new moves in the diplomatic
field, new moves in the economic field, in order to try to
bring about a greater realization among the peoples and the
natjons of the world, that indeed we are living in changing
times. And that each nation as it emerges, and each
nation as it progresses, and each nation as it prospers
has to aSSume a greater share of the burden. The benefits
and the burdens of nations must be borne more equitably
and more equaly.
- 9 I assure you that we, as objective observers, could not
be more proud of this great land, of its intelligent
dedication to its own building, and its commitment to its
responsibilities as a leader among the world nations. And
let me assure you, in the most sincere terms that I possibly
can, that the hand of the United States, the warm hand of
friendship of the United States, will be inextricably
interwoven with your own in a firm grip that marches
forward in tandem with you to provide our share of the
economic and the political leadership, along with you, that
is so critically important in these days in which we live.
Thank you very much.
000
FOR RELEASE ON
DEL~VERY
S'fATEMENT OF THE SOtj'J}(ABLE PAUL A, VOLCKER
UNDER SECRETARY OF THE TREASURY fOR MONETARY AFFAIRS
BEFORl'--:: THE SUBCOMMITTEE
ON INTER."~ATIONAL FINANCE
OF THE HO!JSE COMt1ITTEE ON BANKING AND CURRENCY
THURSDAY, Jill,IE 225 1.972, AT 10:00 A.M.
Mr. Cha.irman, as yeu 'nade c lear in calling these hearings, there is an intense interest in international monetary
refonn, and an understandable restiveness to see practical
results from this Important work.
shares that COhcern.
tinate.
The Administration fully
It is in no one's interest to procras-
Equally, it is crucially important that the job be
done right.
My intention ::onay is i.:0):~-ovide a brief "status report,"
to outline our brodd approach ..... v.la:cd the task ahead, and to
.....
t'
respon d t 0 th e quesL10nsoar
yu~
Movement toward international
launched by the forthrigh;: ElCti.OflS
Nixon las t Augus t 15.
t h at:
8-5
ViI h atever
t he
~'Y
1lave.
reform was
ID(IPf-t<:=XY
2r.r::'':- __ L'lc,?1
by President
In essence, thost'.: cJ: cions recognized
.,. hm ents or U-,c
aCCOTDpLlS
r-
-
••
e~;L')tlng
system --
- 2
~
and they were very substantial -- some of the basic
premises that underlay that sys [em
~Nere
no longer valid.
Fundamental changes would be necessary to meet the
problems and circumstances of the 1970's and beyond.
Those
changes must entail not just the mechanics of the monetary
system, but new ways of approaching problems chat will
fairly reflect the existing balance of \<JOrld economic power
and will result in a fair distribution of responsibilities
among nations.
Secretary Shultz has asked me to emphasize particularly
to the Subcommittee that the change in leadership at the
Treasury has in no way changed our goal, our basic approach,
or our resolve in seeking those changes.
The first few months after August 15 were necessa.rily
devoted to immediate and urgen: problems of achieving needed
exchange rate changes and resolving other short-range
problems essential to viable interim arrangements -- in the
process setting the stage for consideration of longer range
reform.
By March, we could point to a series of concrete
accomplishments:
- 3 -
A major and unprecedented exchangs cate realignment had been negotiated in the
Smithsonian Agreement, and legislative aecion
to modify the dollar's par value had been
completed.
Trade liberalization nteps of tangible value
had been concluded with the EC and Japan on
certain short-term problems, achieving in the
process greater recognition that the problems
of the monetary system are paralleled by
problems of the trading order.
Agreement was reached on (A]'ider bands of
fluctuation for market exchange rates about
the officially stated exchange rates -- a
potentially important ingredient in any more
permanent system as well as a means of
facilitating the exchange rate realignment.
Understandings were reached not only to
proceed with monetary reform discussions,
but to undertake broad trade negotiations
with the objective of supporting the goal
of an
open~
liberally-oriented \.Jo!"ld
t'_ -';:~!y.
- 4 -
It is natural that some time was needed for the
Smithsonian Agreement and related arrangements to be
digested and fully understood, and for the dollar exchange
markets to settle down.
By Spring, however, such under-
standing -- and particularly the recognition that we and
other nations wholeheartedly accepted and supported that
Agreement -- had been achieved.
We naturally welcome the
fact that the dollar has not, for some time, been under
pressure in exchange markets, and believe a foundation has
been established for dealing in an orderly way with the
difficult problems of long-term reform of the trade and
payments system.
One element in the more realistic appraisal of the
outlook is that it is now widely recognized that exchange
rate changes have perverse initial effects and may require
two yea.rs or so before yielding their full benefit toward
balance of payments adjustment.
Thus l U. S. trade
and basic payments deficits for a transitional period are
understandable.
deficit in our
Indeed, in recent months, the continuing
- 5 -
underlying accounts has been covered by a substantial reflux
of short-term capital, perhaps in part an unwinding of the
so-called "leads and lags" in payments that swung heavily
adverse in 1971.
I would be the first to emphasize these developments do
not, by any means, assure long-run stability.
~7e
continue
to face a major challenge in achieving and maintaining a
substantially stronger trade position -- which, in turn, must
be the foundation for lasting equilibrium in our internatoional payments as a whole.
The Smithsonian Agreement
provides a basic point of departure so far as exchange rates
are concerned.
But we cannot neglect the task of reinforcing
the competitive capabilities and opportunities of our
industry in ether directions -- not least by maintaining
better wage and price stability at home.
This effort is
absolutely fundamental, not just to us but to the world
trading community in general.
The stability of the inter-
national monetary system cannot be achieved without a stable
dollar.
These sensible and effective first steps that have been
taken are in no way cast in doubt by the erratic
- 6 -
fluctuation in the private market for gold -- influenced by
a combination of self-serving rumors and reduced sales by
South Africa, the main producer.
These fluctuations in
price have had no significant effect on exchange ·markets.
Indeed, the main lesson to be drawn, in my judgment, is the
fact that this corrnnodity -- characterized by almost fixed producti.on and increasing industrial use, and more than most
subject to speculative whims -- cannot provide a sensible
or lasting foundation for an international monetary system.
With the shift of attention from the innnediate issues
to long-term refonn of the system, we must face the clifft..
cult task of transferring agreement on the need for reform
in the abstract to hard agreement on specifics.
In
appro~ch
ing this task, we have felt it essential to ask fundamentnl
questions about the kind of world we have" and want.
Monetary issues cannot be considered in a vacuum, without
taking full account of the interrelationships with tradIng
rules and practices, the character and magnitude of capital
flows, and other questions of international economic policy.
Considering the range and complexity of the issues, no
one should be surprised that monetary reform will take time,
- 7 even among the most reasonable of men.
Monetary reform is
not a matter of finding an answer in the sense that one
discovers a unique solution to a puzzle or works out a
mathematical problem.
There is recognition that -all will
benefit fram a well functioning system, but that
generality cannot disguise the fact that vital national
interests are at stake, that perceptions of these interests
differ and
that~
in the end, they must be resolved in a
realistic manner.
International cooperation involves hard
decisions and compromise.
As you know, we have at this stage of discussion
presented no monetary blueprint for resolving and reconciling the questions.
The problems of technique and mechanism
-- such as the composition, volume and use of reserves; the
international role of the dollar; the nature of the exchange rate
regime itself; methods of influencing capital flows, and
the like -- are important and difficult.
They will not be
adequately resolved, in our judgment, without an adequate
conception of objectives and the nature of the underlying
problems -- and I would be less than frank if I did not
- 8 -
confess that much of the discussion to which I have been
exposed seems
to~ide
past these fundamental points.
For instance, we know that the so-called "adjustment
process"
-- the process by which surpluses or deficits
are corrected -- has not been working well.
is the key reason the system broke down.
Indeed, this
We suspect one
of the main factors behind this inadequate adjustment is
the fact that most advanced countries, for quite natural
reasons, like to run surpluses.
Over the years, they have
acted relatively quickly (and often are forced to act) to
correct their deficits.
correct surpluses.
There is no similar compulsion to
Yet, one country's surplus is another's
deficit -- and for too many years the United States had
provided the residual deficit.
Yet, our own efforts to
correct that deficit, as so vividly revealed last Autumn,
may be strongly resisted, since those efforts unavoidly
impinge on others.
A persistent residual deficit for the U.S.
~as ~ot
- 9 -
consistent, in the end, with the kind of monetary arrangements we had.
Many proposals for a new system would
require much more effective and rapid elimination of
imbalances.
In view of our accumulated deficits and the
erosion in our reserves, w.e would need to look forward to
a massive strengthening of our reserve position, the
prospect of a period of surpluses in our payments, and to
longer-term equilibrium.
The other side of this coin is
that others could not, on the average over the years,
continue their accustomed surpluses.
This seems to us to imply the need for strong
incentives or penalties for corrective action by surplus
countries as well as by deficit countries if this balance
is to be achieved.
How willing are countries to accept
such strong international
"dis~;~plines?"
such willingness, then monetary
s~'stems
If there is no
that depend for
their functioning on quick and effect.L\"-e adjustn.ent simply
will not work.
- 10 -
A related question is how the adjustment should be
made.
For both practical and philosophical reasons, we
seek a balance of payments equilibrium that can be maintained
without reliance on controls; indeed, the very word equilibrium
implies as much.
We believe in present and foreseeable
circumstances, sustainable balance in our accounts will
require a strong trade and current account position.
some others
~em
Yet,
to be saying that somehow we are not entitled
to such a surplus, that capital outflows lie at the heart
of our problem, and that they (and we) should force "equilibrium
by the indefinite use of controls on investment; or, perhaps,
by commitments to raise our domestic interest rates to levels
equal to or above those prevailing abroad.
Obviously, this
issue needs airing.
It is related to the degree of independence that countries
not just the U.S., but virtually every country -- seeks to
maintain for domestic policy.
None of us can live in
isolation, and proceed oblivious of the efforts of our
actions on others.
But if we build a system which unrealisticall
presumes domestic policies can practicably be tuned to each
twist and turn in external circumstances, the system would
not, in my judgment, work for long.
Some countries with particularly close trading and
political links -- such as the European Community -- may well
- 11 -
perceive a greater potential for coordination of internal
and external policies among them.
This issue is plainly
posed by the drive for greater monetary unity within Europe.
I believe we are only beginning to understand the
implication of economic and monetary union in Europe for the
world economy.
From a world standpoint, there seem to be
both dangers and potential advantages.
An aggressively
expanding preferential trading area with highly protectionist
policies in key sectors directly affects our trading capabilities,
and has broad implications for the world trading order and the
adjustment process.
On the other hand, success in achieving
monetary unity in Europe could help deal with one source of
monetary instability in the past, and permit Europe to cooperate
more effectively in building an effective world monetary system.
In both aspects, trade and money, the European Community is a
phenomenon that cries out for more thought as to how it can be
fit into arrangements consistent with the broader world interests.
This listing of issues
suggestive.
lS
hardly exhaustive, but it is
Without discussion and some common appreciation
of these basic problems, our examination of techniques will
hardly be fruitful.
Again and again, we find these are the
issues that lurk behind much of the controversy on mechanics.
- 12 -
Out of these discussions, some fundamental points of
convergence are already emerging.
On the question of the scope of the reform, I think
there is now almost general acceptance of the need for a
wide agenda--for extending the dimensions of the examination
to include related issues of trading rules, investment and
development.
There is greater recognition that the review
must be deep--that fundamental reform is required rather
than a patch-up of Bretton Woods, that new thinking and
new concepts are required to meet today's needs.
The question of finding the most appropriate and effective
forums for reform negotiations has been the subject of considerable discussion in recent months.
I confess these
decisions have not been reached as rapidly as I expected and
wished--they have taken time precisely because they are not
an idle debate over the "shape of the table," but because
real issues are involved.
There is genuine and legitimate
concern over the size of the table, for effective negotiation
requires that the number of voices be limited.
concern over who sits around
There is
the table, for membership must
be balanced, representative, and at a senior level of political
- 13-
authority.
And there is concern over what gets placed on the
table, in that the negotiators must be given a broad competence to consider all relevant aspects of the operation of
the trading order and monetary structure in their search for
solutions.
I can report that progress has been made.
Nations are
in substantial agreement on the formation of limited but
representative group, a
"Committee of Twenty," under the
general auspices of the International Monetary Fund.
We
have insisted that the mandate extend beyond narrow monetary
questions to related trade questions and other related issues,
and that the Committee be willing and able to draw on the
resources of competent persons and groups in a position to
assist even though
they may be outside the regular fabric
of the IMF.
We envisage that this Group of Twenty will be the main
negotiating forum, but we also hope and expect such other
bodies as the OECD will participate in the effort.
I should
note as a point of some importance that we do not believe
either the Group of Twenty or the OECD should attempt to
negotiate specific trade barriers.
That kind of bargaining
- 14 -
over specific trade measures--tariffs, quotas, and the like-liffiproperly in the framework of GATT or other forums.
Finally, there seems to be widespread agreement that,
whatever the particulars of the exchange rate regime, in
concept it must provide for greater flexibility than in the
past-- greater and smoother adaptability to changing economic
circumstances.
The issue, as I see it, is not stability versus
instability for the monetary system, but rather how more
flexibility in exchange rate practices in the shorter run
might contribute to the larger stability of the system as a
whole.
Obviously, translating even these broad principles
into a specific operat ional system will take time and, as I
have suggested, there are other points on which profound
differences remain to be resolved.
We have a lengthy agenda.
If that agenda is to be attacked
successfully, the Unite(
States must unquestionably playa leading role in this
effort.
We accept that challenge willingly.
But, in doing
so, there must be a realization that the nature of our
leadership must change as economic circumstances have
changed.
Leadership can no longer be equated with magnani-
mously accepting disproportionate burdens, acquiescing in
15
discriminatory arrangements, or granting one-sided privileges,
in the thought our strength is impregnable and others are
weak.
Leadership no longer can mean, if it ever did, that
the world is waiting for us to impose a "Made in the U.S."
label on the monetary order.
Leadership does mean using the
full measure of our influence and our strength to insist that
the monetary and trading system -- its burdens, its
responsibilities and its opportunities
fairly reflects
today's balance of economic and political capacities.
We take pride in the record of our leadership since last
August 15.
We recognized the need for fundamental change.
We took the painful measures needed to restore the domestic
and international strength of the U.S. economy which must
underlie any reformed monetary system.
We reached agreement
on moves which will yield major support to our balance of
payments in the course of 1972 and 1973 after the present
period of initial perverse effects ends.
We encouraged
recognition of the need for reform, and the breadth of
reform.
We pressed for the formation of institutional
arrangements in the Group of Twenty and the DEeD to facilitate
the negotiation.
And we helped to develop the consensus, to
the extent it has emerged, on the nature and direction of
the reform.
- 16 We want to move ahead with monetary reform as rapidly
as we can, and -- this is critical -- as rapidly as other
nations will move.
We also want to build a monetary
structure which will last for a generation.
It would be
foolish to idle away our chances for a new and better
system.
But it would be criminal to accept an unsatis-
factory agreement for the sake of a prompt agreement.
Ourefforrn will be aimed at building a sound and enduring
system.
The stakes are large, and recognized as such.
We
approach the task in the conviction that failure is not
tolerable; that, with persistence and resolve, success will
be achieved.
0000000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 23, 1972
MRS. ESTHER ~ LAWTON BECOMES
TREASURY SUPERGRADE AS DEPUTY DIRECTOR OF PERSONNEL
Secretary of the Treasury George P. Shultz has named
Mrs. Esther C. Lawton, a career Federal employee, to be the
Treasury Department Deputy Director of Personnel. Mrs. Lawton
becomes the fourth woman in the Treasury Department to hold a
supergrade position. Among those who hold supergrade jobs in
the Treasury are the Treasurer of the United States,
Mrs. Romana Banuelos, and the Director of the Mint,
Mrs. Mary Brooks.
Until her promotion, Mrs. Lawton was Assistant Director of
Personnel in the Treasury Department. She began her career in
1936 as a Grade 2 clerk. Along the way she has received many
honors including outstanding ratings and awards, membership in
or chairmanship of numerous intergovernmental and Treasury
Department committees, and recognition in her career field of
position analysis and pay administration.
Mrs. Lawton has served on a number of intergovernmental
committees on the status of women and conducted a special study
for the Civil Service Commission on an action program for the
better utilization of women. She is chairman of the Federal
Women's Program Coordinating Committee for Treasuryo
In 1969, Mrs. Lawton received the Federal Women's Award,
the highest award for women in the Federal government, for her
work in personnel administration and training. She has been
teaching night courses at George Washington University for
22 years and is recognized as an expert on French-English
trans la t ion
0
S-6
(OVER)
- 2 Mrs. Lawton was graduated cum laude from the University of
Rochester, where she was electe~o Phi Beta Kappa. She
received her M.A. degree with distinction from George Washington
University. She has been elected President of the D.C.
Chapter of Phi Beta Kappa for the 1972-1973 term.
In addition to her work in the Treasury, Mrs. Lawton has
been a consultant to the Ford Foundation to establish position
classification and pay systems for Lebanon and Jordan. She
has been an adviser on personnel matters to the Pan American
Union. Her community service includes volunteer work for the
Smithsonian Institution and the National Symphony.
Mrs. Lawton,the widow of David F. Lawton, former
Deputy Director of the Bureau of Retirement and Insurance at the
Civil Service Commission.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 23, 1972
DECISION ON BICYCLE SPEEDOMETERS FROM JAPAN
UNDER THE ANTIDUMPING ACT
Assistant Secretary of the Treasury Eugene T. Rossides announced
today that bicycle speedometers from Japan are being, or are likely to
be, sold at less than fair value within the meaning of the Antidumping
Act, 1921, as amended.
The case will now be referred to the Tariff Commission for a
determination as to whether an American industry is being, or is
likely to be, injured. In the event of an affirmative determination,
dumping duties will be assessed on all entries of bicycle speedometers
from Japan on which dumping margins exist.
Simultaneously with the determination of sales at less than
fair value, the Treasury Department issued a withholding of appraisement order on bicycle speedometers from Japan. The significance of
withholding appraisement is that if dumping duties become assessable,
the date such assessments become effective would be that of the withholding action.
Both the determination of sales at less than fair value and the
withholding order will be published in the Federal Register on
June 24, 1972.
The withholding order, by its terms, will terminate within three months after issuance.
The total value of bicycle speedometers imported from Japan during
the period January 1971 through December 1971 amounted to approximately
$670,000.
II II 1/
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 23, 1972
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 $ 4,100,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing July 6, 1972,
in the amount
of $ 4,106,995,000, as follows:
91- day bills (to maturity date) to be issued July 6, 1972,
in the amount
of $ 2,300,000,000, or thereabouts, representing an additional amount of bills
dated April 6, 1972,
and to mature October 5, 1972
originally issued in the amount of $ 1,800,340,000,
(CUSIP No. 912793PF7 ),
the additional and original
bills to be freely interchangeable.
182 -day bills, for $ 1,800,000,000, or thereabouts, to be dated
July.6, 1972,
and to mature January 4, 1973 (CUSIP No. 912793 PZ3 ).
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
~ount
will be payable without interest.
They will be issued in bearer form only,
and in denominations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000
(maturi ty value).
Tenders will be received at Federal Reserve Banks and Branches up to the closi~
hour, one-thirty p.m., Eastern Daylight Saving time, Friday, June 30, 1972.
T~ders
will not be received at the Treasury Department, Washington.
wst be for a minimum of $10,000.
~,OOO.
Each tender
Tenders over $10,000 must be in multiples of
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.
may not be used.
~ded
Fractions
It is urged that tenders be made on the printed forms and for-
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
b~ing institutions will not be permitted to submit tenders except for their own
(OVER)
-2-
account.
Tenders will be received without deposit from incorporated banks and
trust companies and from responsible and recognized dealers in investment
securities.
Tenders
fro~'others
must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids.
Only those
submitting competitive tenders will be advised of the 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 one bidder will be accepte
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 6, 1972,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing July 6, 1972.
treatment.
Cash and exchange tenders will receive equal
Cash adjustments will be made for differences between the par value of
maturing bills accepted in exchange and the issue price of the new bills.
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 considered to accrUE
when the bills are sold, redeemed or otherwise disposed of, and the bills are excluded from consideration as capital assets. Accordingly, the owner of Treasury
bills (other than life insurance companies) issued hereunder must include in his
income tax return, as ordinary gain or loss, the difference between the price paid
for the 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.
Treasury Department Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their issue,
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
For Immediate Release
June 23, 1972
The Treasury today issued the following statement:
The decision of the British government, in response
to speculative pressure over the past week, to permit the
pound sterling to float for a temporary period does not,
as the British authorities have emphasized, reflect the
existence of a fundamental disequilibrium in the British
balance of payments. The Treasury has been in touch with
other monetary authorities, and we share ~heir conviction
thai.: the British action need not disturb the basic exchange
rate relationships established by the Smithsonian Agreement.
This development arises out of particular circumstances
in the British situation. While in that sense the origin of
the problem is limited, it does focus fresh attention on the
need to move ahead with discussion of monetary reform and to
address central issues of the proper functioning of the
adjustment process.
000
8-7
The Department of the TREASURY
WASHINGTON, D.C. 20220
TTENTION:
TElEPHONE W04·2041
FINANCIAL EDITOR
OR RELEASE 6: 30 P.M.
June 23, 1972
RESULTS OF TREASURY'S MONTHLY BILL OFFERmG
The Treasury Department announced that the tenders for two series of Treasury
ills, one series to be an additional issue of the bills dated March 31, 1972
, and
he other series to be dated Jillle 30, 1972
, which were offered on June 19, 1972,
'ere opened at the Federal Reserve Banks today. Tenders were invited for $ 500,000,000
,r thereabouts, of 274-day bills and for $ 1,200,000,000 or thereabouts, of 365 -day
lills. The details of the two series are as follows:
.
lANGE OF ACCEPTED
:OMPETITIVE BIDS:
High
Low
Average
274-d~
Treasury bills
maturing March 31, 1973
Approx. Equiv.
Price
Annual Rate
96.439
96.347
96.382
365 -day Treasury bills
maturing
. June 30, 1973
Approx. Equiv.
Price
Annual Rate
95.155 ~
95.011
95.079
4.679%
4.800%
4.754%
4.779%
4.921%
4.854%
~ Excepting 1 tender of $285,000
59% of the amount of 274 -day bills bid for at the low price was accepted
55% of the amount of 365-d~ bills bid for at the low price was accepted
roTAL TENDERS APPLIED FOR AND ACCEPT1D BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Riclunond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
AcceEted
AEElied For
25,000
$
1,025,000 $
393,090,000
l,024,310,000
1,060,000
1,060,000
1,275,000
1,275,000
200,000
200,000
2,665,000
7,665,000
52,915,000
142,215,000
5,210,000
7,210,000
3,380,000
15,200,000
8,605,000
11,425,000
18,010,000
23,010,000
13~565,000
46,665,000
$ 1,281,260,000 $
500,000,000 E.J
Applied For
$
5,360,000
1,566,405,000
4,610,000
26,915,000
490,000
7,330,000
230,720,000
10,320,000
15,420,000
13,530,000
24,470,000
54 2475 2°°0
$1,960,045,000
Acce,Eted
2,360,000
$
908,405,000
4,610,000
21,915,000
490,000
2,330,000
175,220,000
10,320,000
7,420,000
13,530,000
21,470,000
31,975,000
$ 1,200,045,000 ~
U Includes $ 10, 760, 000 noncompetitive tenders accepted at the average price of 96.382
ij Includes $ 28,885,000 noncompetitive tenders accepted at the average price of 95.079
V These
rates are on a bank discount basis. '!he equivalent coupon issue yields are
4.96 % for the 274-day bills, and 5 .11 %for the 365 -d8\Y bills.
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
\T£ENTION:
FINANCIAL EDITOR
June 26, 1972
lOR RELEASE 6: 30 P.M.,
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
Jills J one series to be an additional issue of the bills dated March 30, 1972
and
the other series to be dated June 29 J 1972
, which were offered on June 20, 1972 J
lere opened at the Federal Reserve Banks today. Tenders were invited for $2,300,000,000
)r thereabouts, of 91-day bills and for $1,800,000,000 or thereabouts, of 182 -day
jills. The details of the two series are as follows:
RANGE OF ACCEPTED
~OMPETITIVE
BIDS:
High
Low
Average
91 -day Treasury bills
maturing September 28 , 1972:
Approx. Equiv.
Price
Annual Rate
98.996
98.975
98.983
3.972%
4.055%
4.023%
182 -day Treasury bills
maturing December 28, 1972
Approx. Equiv.
Price
Annual Rate
97.754 ~
97.714
97.733
4.443%
4.522%
4.484%
Y
!I
Excepting one tender of $1,000,000
47% of the amount of 91 -day bills bid for at the low price was accepted
59% of the amount of 182 -day bills bid for at the low price was accepted
ro~
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
AcceEted
AEElied For
$ 25,620,000 $ 13,620,000
1,946,920,000
2,967,820,000
10,825,000
10,825,000
28,335,000
51,335,000
5,825,000
5,825,000
15,320,000
30,980,000
127,650,000
212,300,000
35,480,000
43,010,000
21,495,000
32,615,000
23,880,000
34,405,000
9,700,000
31,700,000
61,225,000
90,580,000
$3,537,015,000
i~ mcludes
$169,615,000
mcludes $ 88,495,000
$2,300,275,000 ~/
AEElied For
$ 18,505,000
2,445,565,000
25,310,000
21,115,000
8,905,000
28,620,000
158,670,000
23,600,000
44,835,000
21,145,000
22,415,000
135,355,000
AcceEted
2,005,000
$
1,507,495,000
15,310,000
21,115,000
3,905,000
11,215,000
64,915,000
15,600,000
$2,954,040,000
$1,800,310,000 ~
35~835,000
11,145,000
7,415,000
104,355,000
noncompetitive tenders accepted at the average price of 98.93~
noncompetitive tenders accepted at the average price of 97.7-:3
Y These rates are on a bank discount basis. 'lbe equivalent coupon issue yields are
4.12 %for the 91 -day bills, and 4.65% for the 182 -day bills.
FOR IMMEDIATE RELEASE
JUNE 26, 1972
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
PRESS CONFERENCE
OF
GEORGE P. SHULTZ, SECRETARY OF TREASURY;
RAYMOND A. IOANES, ADMINISTRATOR,
FOREIGN AGRICULTURAL SERVICE,
DEPARTl"lENT OF AGRICULTURE;
AND
JULIUS L. KATZ,
DEPUTY ASSISTANT SECRETARY FOR INTERNATIONAL RESOURCES AND
FOOD POLICY,
DEPARTMENT OF STATE
THE BRIEFING ROOM
AT 11:06 A.M.
EDT
MR. ZIEGLER: President Nixon, as you know, has be~
concerned about the matter of rising food prices and
specifically the increasing prices of meat in this country
and has met over the past weeks and months, and epecifically
the last few days, with his economic advisers to talk about
what can be done to deal with the situation.
He had a meeting on Friday with George Shultz,
who is the Chairman of the Cost of Living Council and
Secretary of the Treasury, members of the Council of
Economic AdVisers, Secretary Butz of the Department of Agriculture, and Don Rumsfeld, to receive their recommendations
as to what actions he could take.
I think the material that you have this morning
outlines the action that he is taking today. He is lifting
all quantitati\erestraints on the import of beef into
the United States.
George Shultz is here to discuss this action
with you this morning.
Mr. Secretary.
SECRETARY SHULTZ: The President's purpose in
taking this action is to help the housewife keep meat on
the table at reasonable prices. Now what has been done is
the elimination of all quantitative restraints on the
importation of beef into this country.
The principal supplier of beef to the united States
is Australia and we are pleased to be able to say that
Secretary Rogers is in Australia today and he will be
discussing with the people in Australi.'3. the possibilities
of increasing the flow from Australia to this country.
r think it is important to know that the problem
It is to get a supply of meat onto the
here is twofold.
housewife's table, on the family table, at a reasonable
price. That being the case, it is important to approach
the problem from a standpoint of increasing our supply.
- 2 -
I think everybody understands the demand for this
product has been growing very rapidly. It has been growing
throughout the world, as people tend to demand more beef
when their incomes rise. It also has been growing in this
country, particularly in recent months as the economy has
been expanding, as people have been feeling more prosperous
and so on, so that we have had a situation here percipitated
by the increased demand for this product and the President
is trying to meet that by increasing the supply, which
we hope will have some price effect, as well as to increas~
the flow of beef to the market.
I think in a sense, on the price side, it is
almost as though you are taking out an insurance policy
against further surges in the basic wholesale price of
beef and we hope that it will have the effect of bringing
some stability to this market where prices have been going
up very rapidly in recent months.
I think that is an open statement.
Q
Is anything else contemplated in the food
control or price control following this?
SECRETARY SHULTZ: There are many other
possibilities under discussion and review. We had a
pretty wide ranging discussion with the President and he
has decided to take this step and whether or not we will
have additional steps remains to be seen, but certainly
the whole question is under intense scrutiny.
Q
Is it only beef?
SECRETARY SHULTZ:
This is primarily a beef
problem.
Q
\'H11 it bring more mutton into the country, too?
SECRETARY SHULTZ:
I think that is right.
Q
The lifting of the quotas affects more
than beef, does it not?
SECRETARY SHULTZ:
Beef, mutton and veal.
Q
Is there enough of a surplus in the world
market to make much of a difference in our supply?
SECRETARY SHULTZ: I think world demand is
strong and therefore it isn't as though there is a
tremendous amount of beef just waiting to come into this
country. On the other hand, we think that it may well
be possible for a greater flow of imports to come here.
As I said, Australia is our principal supplier and
we are hopeful there. At the same time, this is a market
where small shifts on the margin can make quite a
difference.
MORE
- 3 -
There also is this point: That the principal
supplier of the U.S. market, of course, is the U.S. producer
and the evidence that we have seems to show that the increase
in cattle in feed lots, comparing 1972 with 1971, exceeds
the increase in slaughter by a pretty fair margin; which
would suggest that if people get the idea that these prices
are going to stabilize, that there is a fair amount of
beef that can come to the market from U.S. sources and
there may be some impact of that kind.
Q
Does this mean that the carcass will come
in intact or that portions of the ca~cass will be brought
SECRETARY SHULTZ:
Ioanes to respond to that.
in?
Well, maybe I will ask Mr.
HR. IOANES: This is primarily processing frozen
beef that goes into processed foods such as salami
?nUaausages. It comes usually in frozen blocks, 40 pound
frozen blocks mainly for processing.
Q
What countries will this come from and will
it be inspected over there before it leaves or over here?
SECRETARY SHULTZ: I think you have in the fact
sheet that has been handed out, a list of the countries
from which we irrlport beef and what the expectation was
for import5 this year.
Now, of course, that is based on the voluntary
quotas that have been "forked out and those have been removed.
But that gives us an idea, broadly speaking, where it comes
from.
Q
What about the inspection?
HR. IOJl.t~r:S:
It will be safe
systems of all these countries meet the
for inspection in this country. It is
is re-inspected here. It is safe meat,
requiremer. C.3.
meat. The ins?ection
standards established
inspected there and
meeting our health
Q
You have talked about price stability. In the
months ahead, can the aVerage housewife anticipate any change
in the price of meat at the super market?
S~CRETARY SHULTZ:
Well, she can anti~j.pG.te t.hat
the President Nill be working as l:ard as he c~n to keep
this partic1Jlar price and other prices under co!".trr:-l as
we have been doing right along. Just how the prices will
be in any particula= market, I think it is a littl~ haza=dous
to predict. But this action is bound to be helpful an~ we
think that i t may very ""'ell stabilize the wholesale prices
here.
Q
M=. Secretary, does this mean that th~ 30-day
freeze which had ~een contemplated, that the Price
Commission has ne,," ruled that out?
MORE
- 4 -
r have
SECRE'l').=,S SHULTZ:
that writ~en U?
se~~
There is no thought of a freeze.
The President has ruled that out.
Q
Some plac% in this country, Hr. Shultz,
the departments are cllt~ing herds be;::ause of drought? l'lhat
part does th~t rlay in the beef supply of the situation
in this country?
SEC~TARY SHULTZ:
I thi~k it will probably tend
to inc:ceas0 the immed:'ace s11pply and cut the longer term
supplYr ;;ut we nave :)ur expert here.
nn. IOANE3: I would buy tnat answer, Mr. Secretary.
The drought ha5 no~ been a major factor in the supply that
we have haJ to the present time and the expectation of
addi ticnal supplies is basi?d on the fact that there are
substantially larger numbers of anim:lls in feed lots
,,,hieh ShOLlld be combg to th~~ lllarkei:. So dr·::mght has
not been a major factor i~ thiJ situation.
l1ctiol1 .i.s rhJt ::'.med ,,'I: the Amer ... can fanner, won't it
inevitably· c\;u.: cdttlE: pricE:s?
SECP3'fARY SHULTZ:
viha~ ~;e
ali; "Cr;.:.n~: to
I t won' t necessarily lower them.
CO J;3 g,~t
then stabilized. 'iVe have
had these surqes r:f i11crease::: in catti.e prL:::es and by, among
other t;li..l-}S sL0j",c~~;;ng o ... r dO!11(;stic markr:~.: more fully
to tre dLcl,JJ.ljl€ of the world mal:j~et t,.Je hope that we can
PI, ,..:~:... t f'L: ':." c. ~ .:: •.ll 'Je S (J 1: -ell i',::' ~ind.
;:'1' '~[jI s i.s a puce blat fluctuates pretty sharply
alrr,on.
~;:'C;.~
:me ·.}E'ek to
,,:0 some
qiv~
here L:; to
,Jno;J~.er,
dS~,lJl:anc<;:
bur, ;- thi.nk the main problem
agti.inst the further surge
Q
1:{. Secretary, d.:.! you cxr:;ect that some sort
of contrcls on t~~ prices of ~gricultural products will
fc'- ',-, t~i.s ac-::'i':·'?
SEer" .TAr.'
Well, as I say, the President has
Prices in
gr,.)cery s ::(;r2~, of: a11-:;o1'1:5 of process'~c1 ag:;:icu::.tural
pro&lct.:: tire ('O'/ered by the system, but we are looking into
all mannE r of ct.hc·( (' :'tePldtives that li11.ght be developed.
SHD~,'rZ:
n; ',>1 ou.~. the 2.dec. of aI:/ ,cLd cf a freeze.
Q
lAy question was to the ralo' agricultural
pruducts \'Jhi en I ui\dersta,1Q jo not have any controls now?
S:::CPET1\RI S'FJLT7:
Cl
rrhat is right.
vIOD S t this fLlr:'her ir.crea.se our trade deficit?
SEC:;'~:,-_R:: SBUL~Z:
It hc.s t1:at result to some degree.
I thi.:lk , t i~ ';. :::i;l2tiv'3~y s:nall degree. vIe don't have to
worry Clbout ~~:, '.: p::-:":J12T:. :,.',Le j.3 full o~ c0'1tr;o:c1:i,ctiona.
-5-
Q
Were the cattle producers consulted in Texas
and elsewhere?
SECRETARY SHULTZ ~ I think they are pretty well
aware of what is taking place. They have probably read the
President's statement on Thursday that suggested the general
direction of his thinki~g. What direct consultations with
them have been held, I am not personally posted on.
Q
Mr. Secretary, how much beef would you estimate
has been held back? You suggest that there has been q~ite
a bit held back for speculative purposes. Is that true and
how much is it?
SECRETARY SHULTZ: I don't knoll]. I t is interesting
to compare estimates of the increase in cattle in feed lot,
'71 with '72, with the increase in slaughter.
Now, these estimates are a?pa~ently very hare to
make, but I have heard some that go up in estimating the
increase jn the food lots as high as 12 percent. I have
heard others on the order of six percent, nine percent, like
that. But, at any rate, I think the rate of increase in
slaughter is on the or-der of 1-1/2 percent or so.
So you can see whatever the estimate is, whether
you take the low end of the scale or the high eno. of the
scale, there is a difference here.
[~ow feed is very cheap right now and that tends to
make It economic to keep the cattle and feed the cattle, so
you expect tha~. NEvertheless, the point is that with this
increase in the feed lots, sooner or later that is going
to come t.O the l1\d:txet and that is, of course, where our big
suppl}' comes from in the United States.
Q
all that
,.,.e
Isn't it true that last year we did not import
allowed to import?
wer~
SECRETARY SHULTZ: I think that is true. The
dock strike is one reason. He have the problem this year
where you assign quotas or quotas are developed, voluntary
quotas going to different countries. Some countries fulfill
their quotas i!nd others don't,
Ther, you try to reallocate, but it is often difficult
to reallocate fast enough and effectively enough to bring
the total up to what you originally thought. This was one
possible option t I might say, just the reullocation.
The President felt the best thing to do was
eliminate the quotas entirely and that would allow people to
just come forward with however much we can get.
Q
f1r. Secretary, in processed meats, can we get
an idea. of what effect, if any, the lifting of import quotas
will have, for instance, on the prices of hamburger meat
and hot dogs?
~10RE
- 6 SECRETARY SHULTZ: Well, I think that the imported
.neat, if I am not !!',ist.ay.en, goes very hec"v:'ly :nto the
kind of process"d pre-duct.s that you n.entioned. However,
like ~09t markets for a commodity that can be divided into
all sorts or categories, like hamburger, hot dogs, steak,
roasts and so forth, there is a great deal of possible
mcvement:L.'Uo."lg those categories. So if you help out one you
help out them all to a fair degree.
Q
Mr. Secretary, in order to get an immediate
irnpa';t immediately, will you use planes rather than ships?
v'cu Idn 't they have to be airlifted?
S8CRETARY S!WLTZ: No, you ",auld expect this to
co(t.e in refrigerated ships, I believe, so you don't get
instantaneous movement into the market, but the point is
t"at there is a £"low here, there is a whole set of institutions
being d2~~loped to bring me3t from the other cou~tries here
and you are talk1ng about essenti~lly stepping that up wherever
it can be stepped.lp so it will have this impact on the
supplies.
Q
of
t1r,
Secretary, the increase in the number
cat~le
in the feed lots is a tempo r a!)" condition. What
_.5 the lCilg-te:::-n p;~oces '= for adequate increase in the cattle
population over a number of years to keep pace with the
demand? 15 there any prospect of that or is the cattle
pnpulatiGD limited?
S:::CRETARY SHULTZ: The cattle population has been
gtowir.C] anc tnf' amcu;)': 0 f. f; laughter this year is greater
':.\an the .Jl'"tj~::' of slau<;hter last year.
The big point here
:.s that t.,'1e: :12lTl'7".d :;:-1 the Un! ted States h?.8 been growing
t!\7en mo:o:-e T"C'pid:'y anj also we have a growth in world demand
for ttis
patc~cular ?~Jduct.
Q
By q <.l,"S t ion was, Hr. Secre tary, concerning
the ;;1':,~'?ect of the irt::r.e.ase in population keeping up with
::emand ';;!ven tLQugh ':t is below it. Is there any prospect
~~tever th~t it will increase enough or will it not be
g'~3.dl1ally [al.l.ir-g behind the demand?
SECRETARY 3HULTZ:
~_r.i~
Well, the fact that we do have
substa:1tial population of cattle in the feed lots
~uggests that there is that possibility for growth in supply.
3ut/ as in all marke~s, you have a time and a shake-out
period as tLe lonq-tc:.cm is balanced against the short-term.
F(;!rhaps l1r. Ioanes would like to add something on
tl"is.
1m.
I01.N8S:
The cow population in this country
he.::, l.>H.'i k;::c[.ling pace with the growth and demand and our
es t:.i11 ::-'.;cs foe tl:E Gun:ent year inc.icatt;! a total supply for
the yea= three O~ f0~r percent over the last year. We are
e:q)andir'g our br:~c:d~.ng hE:rds anC; we sl':ould be in position
to ccntinue to ?rov~de th~~ th~ee or four percent additional
that is nea~~J _~ ~hc ruture.
- 7 SECRETARY SHULTZ: Dut the point is we haven't been
getting that in terms of the slaughter so far this year and
that has been the thing that has throvn people off in their
short run calculations.
Q
Hr. Secretary, do you expect today's action
to reduce or stabilize the level of high prices and if it is
in fact to reduce the level of prices, how soon?
SECRETARY SHULTZ: No one can be certain precisely
vlhat the effect will be. However, it is bound to have the
effect, as it increases the supply above what it otherwise
';JOuld he.ve been, to dampen these price movements and our
expectation is that it vlill contribute to bringing about
grea.ter 3tability in a market where prices have had now
'c:hree fairly major upward surges in the past five months or so.
Q
Is that reduction or stabilization?
ruling out redurtion th8n, sir?
Are you
SECRJ3'I'.~F:Y SHULTZ:
We are not ruling it out, but
I think th," j.n'p.:y"tant thing is to get some stability in the
situation.
Q
expect this
\-Jhat is the time frame on that? Nhen do you
to C'.lt off t:1e surge syndrome?
s~ubility
S;:;Ci-\ETARY SHULTZ:
We 11, that can operate in two ways.
Of ccurse, as was brought out, it takes time to ship additional
beef to tt!is c(,(mt:cy, Sf) in O:1C sense having that be(;o~e
available and get d'1g it actually shipped presents one piece
of time dirnensi~n.
On the ether hand, as people see and become convinced
that ~hi5 is going to happen, that has anticipatory effects on
the price marke~ and could react fairly fast.
o
Could you describe for us, what are the market
mechanics of redu=ing the price of a prime steak by importing
more hamburger? I know that is highly oversimplified, but
the point is, when you are importing larger amounts of meat
for processing, ~o,,' does this affect the kind of beef you
0et aut of the feed lot cattle?
SECRETARY SHULTZ;
I thi~k the point is that
within sOr:le limits beef is moved around from one type of
product to another. Obviously there are some pieces of
the carcass that aren't suitable for prime steak. It is all
suitable for hamburger, but it doesn't make sense to take
the best and grind it up for hamburger, although some people
do prefer that.
There are situations where the products can be one
way or another. Therefore, when you increase the supply in
one sector of the market, you have the impact, not the full
impact, but yo\.! have the impact throughout the market.
NORE
- 8 -
Q
Arc ycu ~~00A2ttng then that the housewife
lS abL", Lc: tu,.' r'd,iUl'!SE1' in a reduced amount may turn
a\',ay fro:'1 the pri<:le ('uts \>!ti ch +:hen hopefully bring down
y::~O
the price of the
pri~2
SEC!~~l'M~Y
cut?
That is another mechanic
Sli L'l/i' Z
C2
lIre )'N\ g0~ng to ask At:stralia and New Zealand
to s ':r~~l) rnore types ''of bcef cuts in the percentage of the
I \>/i 11 call on my expert over
SECRi:;c;,'!"p'y SEULTZ:
t~R. Kl',l'Z;
\':E' 11 , obviously, they are free to
sup!:"l)' '"rbF.i.:;':er t):'" h,a.rk,::t <Ai::} tc>kt,:,
fhere are no limitations
of any ]un<"he:, ::;;r;3.'f-,':J~' w 1,at t1-],ey have been supplying
or
I\')VE'
i~
C:118'':"
~''''/
I')O'NE'V'(':Y.
foy:':
i
':'1i~'
E'
::(;, ,,:~, J,V
,'f:'
that is rather unlikely,
",hat they have already."
:":"1 cr-eaSE;
be2n ShH'ri1h1
in terms of vlho is
the lifting of these
t('-t~ +-::-.1~·;.:~·~_" :~i~C"l~ lJl?jor be'1efits to the
i~I·:us·t 0) ~(!~~a and rh)t 50 P1uch in terms of
goi~~,
to
~!2n-'~§:~_ nl\'):;~~
quotil~'
?
;_r€;-~~
~;rOCFSE~r.;, r:F~E'-:
bee":
i·Ct.~,~C:~ . ~t:Jly
frorr~
C\l'~'-;"i
:-.~C'~"'i':, R.'.o
31..{lT.,'i'i· lh, I thlnk the person who is
;C>~;\'~ :~' _>:~,':=~;,C' L'~ "pen.':"" -2onsume:::- &nd that is the
peI':: .. !'. t"G:-- P',,;~:iJ:e,-": <3 ':)(> ,,", \.'hinking about in making this
!T}C,\,-e
~ J"' ·.... t
i r) ·1:. '\ ,.. l· j ~ .r,~~:. tl? be!1~ ~~ i ci ary.
:'::.::.'1
1,1'"
ge1: a E; -:;ture of t'lhat the outlook
wj:ly; v'J;,t'l .~;:" L:f ....1.l'\j' of t.lesc quotas for the processed
r.,e,~·~ 1.n' "''::'':'('"h,'+:';'::.~l tbe ::f=8Ct Do:; on the prices of
~17;:: "."\ll.'! ",.nr;:r3..
.:f chis actl')n helps, as ';Ie
tt'l,;, i,t w:..ll; to staDiliz'O prices 5.n this ;7larket, then
t:,os,'=' aJ":' t)-,c~r pro::l:lcV., [:bose are the things that they
bUY:L',-eJ j- ;'''''rE:f0re tJ.'2lr p!' J c:es '.Jecome stabilized at the level
o E t'". <.~ "." ",Vi ,'C! t e r 13.1 '" t 1; E:y proces s .
~',:.
,)
of
Ld.Vj,;-:;
thl::
(3~cn::a~,:'
:: )lu,ci 1 !,".' ::hEI~t
i
',';RS ':he sentJ.ment in the Cost
':o:ltrols rather than taking
r::;~)'.. e',)
t-'ot particularly, no. The problem
I trieD to point out, you have
t,:o ti ;i~'::= 1: .... ,: :IOU a:.e trJ~,n~1 ',-0 Clo. You are trying to get
:.he bE:e 1 t:' "'.r.e :nr,';';;'['llC on 1:ne housewife's table and you
are t:-:!l;,-:: r.o:jet it t>ere at a r9asor.able cost. If you
t2ke ;In 2.c~i\.-,'~ -\-,o;c· -:;\:",s "Jkn i} orice that discourages
s L1P:'; L" yc~_:. ~~. :' c".:'lE; f • i ,"S 1.')'.' r)'C lce and no beef and that
S::;·':5!g:!',i'::" :J'iW.:rz;
~it~ 3:r~c~
doesl~i:.
;c1tr0:S
SO.~',I<;
'::h~
.~
~s
rr')~'lr::T'
•
. :ORE
- 9 -
For example, if we cut our prices way back, there
are lots of other people in the world who would be anxious
to have this meet shipped from other countries to their
country instead of it coming here.
Q
Mr. Secretary, what is the difference in the
price level between the imported beef in general terms and
American grown beef?
SECRETARY SHULTZ: That is a question that is
extremely complicated to answer and therefore, I will turn
it over to Mr. Ioanes here, but it involves tariff arrangements
other countries have and so on.
MR. IOANES: As I understand it, the question concerns
the price of imported beef, the kind we are talking about today,
versus our own.
Q
Yes.
MR. IOANES: Imported beef of the type I have talked
about is in the area of 65, 66, 67 cents a pound. That would be a
boneless ~ee= product.
I would guess ~hat this price goes
along roughly comparable to the price for our own fresh cow
beef which is the most nearly comparable beef we have in the
United States.
The wholesale price of choice beef -- somebody was
talking about steaks and that mostly comes from choice beef
that would probably wholesale, at the present time, in the
neighborhood of about $59 in carcass form.
When you move it up to retail, it would be over
a dollar a pound.
o In other words, 65 cents to 67 cents compared
to over a dollar a pound?
MR. IOANES: At retail. So when you bring the
imported meat to the counte= -- I am speakir.g of a wholesale
figure for choice beef -- and I would have to guess that is
in the area of around 75 to 80 cents a pound.
o From 65 to 80 cents a pound would be the spread
of imported against domestic?
MR. IOANES: Well, there are two different kinds of
meat. I told you cow beef of the kind we produce in this
country would run at about the same level.
o
Could we stay with the comparable beef?
MR. IOP~ES: That is our fresh cow beef and they
would run at about the same price. They go up and down together.
o You would expect then that the price of the
imported product is going to rise? If it is going to come
to this country they would have to make money. Therefore, this
price differential is not as great as you indicate; is that
right?
MORE
- 10 from other
prices are
us and the
thing that
developed.
SECRETARY SHULTZ: \'Jhat draws meat to this country
countries is the fact that historically our
high and therefore people want to export to
tendency for those exports to come here is one
is lying behind the quota system that has been
In other words, the quota as distinct from the
desire to ship in is what has been setting the quantities
that have moved.
Now the quota is being removed so more can come
in. This, however, is taking place in a setting where the
world demand has risen and world prices are rlslng, so we
can't say that we will get a huge surge here, but it should
be helpful.
Q
In other words, we are after a psychological
effect on the people?
SECRETARY SHULTZ: No, there is a quantitative
effect here. That is identifiable. This is a specific
substantive move that is being taken that will have an effect
on the supply side of this and should help with both the
supply and the price. How much it will help, how much extra
supply we will get is practically impossible to estimate,
but we are working on that problem and as I said at the
beginning of this session, Secretary Roge=s is in Australia
today and this is among the subjects he will be discussing
there.
Q
When I used the word psychological, I was going
to people who are holding cattle on the feed lots. My question
is wouldn't it have been more direct action and might it not
have had more direct impact on the domestic market if there
had been a freeze placed on prices?
SECRETARY SHULTZ:
No, I would be very skeptical
of that.
o When the President ruled out a freeze, does
that mean on all food prices or meat?
SECRETARY SHULTZ:
All food prices.
o Will this be labeled imported as law requires
other products that are imported?
SECRETARY SHULTZ: Well, I believe that most of
it gets processed quite heavily and I don't think it is
particularly practical to so label it.
Q
Did Secretary Butz
o~pose
this?
SECRETARY SHULTZ: No. Secretary Butz agreed with
this action in our discussion with the President.
Q
Could we run over the comparisons again so I
am clear what figure we are comparing 65 cents against?
MORE
- 11 -
MR. IOANES: The question asked was what was the price
of imported meats versus our own meats and somebody said
let's stick to the same price and the United States imported
meat.
The comparable price in the United States is meat
that comes from cows and I said the price would be around
60 in imported meat and our prices for the same kind of meat
would run at about the same kind of level.
SECRETARY SHULTZ: That is just in the nature of
a market. If you have the same commodity selling in
a market, the market doesn't differentiate. It is exactly
the same whether it is imported or not and the price is
going to wind up the same.
Our real question is our prices compared with
prices in other countries and is there enough of an attraction
to our market to induce this beef to the united States. That
is the kind of price comparison that we have been thinking
about and working with and it is that that makes relevant
the rise in demand on a world basis for this product.
THE PRESS:
Thank you,
END
~rr.
Secretary.
(AT 11:35 A.M. EDT)
The Deportment of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 27, 1972
FIRST WOMAN SWORN IN AS TREASURY AGENT WITH ATF
Eugene T. Rossides, Assistant Secretary of the Treasury
for Enforcement, Tariff and Trade Affairs,and Operations today
swore in Joann Kocher as the first female agent for Treasury's
Alcohol, Tobacco and Firearms Bureau.
Twenty-six year old Miss Kocher is the first woman
an agent with arrest powers in the bureau that enforces
relating to alcohol, tobacco, firearms and explosives.
Treasury Agent, Miss Kocher will be primarily concerned
Criminal Investigations into violations c:f these laws.
to become
laws
As a
with
Mr. Rossides said that he is proud "that all Treasury
enforcement agencies have hired women as Treasury Agents
in the past two years, in furtherance of President
Nixon's policy to recruit women for every phase of government
work at every level of responsibility."
Since 1969, Miss Kocher has been employed by Saturn Airlines,
a non-scheduled New York airline, beginning as a customer service
assistant and rising to become the first woman in the United
States to be appointed an airlines station manager. As station
manager at New York's JFK Airport, she was responsible for overseeing
all customer service operation for Saturn Airlines.
Before joining Saturn, Miss Kocher taught in elementary
schools in Queens and the Bronx, New York, from 1967 to 1969.
She received a B.S. degree in elementary education from St. John's
UniverSity, New York, in 1967, and an M.S. in communication arts
from Queens College, New York, in 1969.
During the summer months, when Miss Kocher was neither
teaching school nor attending school, she always managed to find
a job that would keep her in touch with people. At the New York
World's Fair, she worked in the Belgium Village pavilion, and
for two years she was a Diamond Club Girl with the New York Mets
baseball team.
8-9
(OVER)
- 2 -
Miss Kocher holds a green belt in judo, likes all sports,
sews many of her own clothes, and frequently rides a foldup
bicycle transported in the trunk of her car. She readily admits,
however, that these pursuits don't necessarily add substantially
to her qualifications as an ATF agent, but she says, "I'm
anxious now to go through orientation and training as an agent,
so that I will be qualified, and then I think all of my interests
and education will be of value on the job."
Miss Kocher's training will include seven weeks at the
Treasury Law Enforcement School in Washington, and later an
additional seven weeks of basic special agent training. She
will be assigned to the ATF offices in New York City.
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
70R
RELEASE UPON DEL IVERY
REMARKS OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
(ENFORCEMENT, TARIFF AND TRADE AFFAIRS, AND OPERATIONS)
before the
UNITED STATES COUNCIL, INTERNATIONAL CHAMBER OF COMMERCE
UNIVERSITY CLUB, COLLEGE HALL
NEW YORK, NEW YORK
June 28, 1972
1:00 p.m.
ANTIDUMPING AND COUNTERVAILING DUTY LAWS:
INSTRUMENTS FOR FREER TRADE
THREE AND ONE-HALF YEARS OF REJUVENATION
Increased Use of Antidumping
and Countervailing Duty Laws
One of the accomplishments of this Adminis·tration
is the rejuvenation of the administration of the Antidumping and Countervailing Duty Laws. As President
Nixon stated in his second annual review of United
States foreign policy:
"We tightened our administration of
the antidumping laws to protect our
industries against unfair pricing
by their foreign competitors."
Since that statement was made, the Treasury
Department has further tightened the application and
use of the Antidumping and Countervailing Duty Laws.
This has led to allegations by some of our friends
abroad that the United States is abandoning its
traditional liberal stance and using these two statutes
as instruments of protectionism.
Nothing could be further from the truth.
- 2 In the final analysis, the Antidumping and
Countervailing Duty Laws are two great liberal trade
laws of the United States and indeed, of the international community! They are instruments for freer
trade.
What is Dumping?
In a typical dumping situation, a foreign ~ompany
sells its merchandise for less in the United States than
in its home market, thereby causing injury to U.S. industr)
Under our law, the Treasury Department is responsible for
determining whether a foreign company has been dumping,
while the Tariff Commission determines the question of
1nJury. Dumping duties are assessed only if there is
both dumping and injury.
-
-
What is Countervailing?
In a typical countervailing duty situation, subsidies
are paid by foreign governments on exports. The subsidies
may be simple direct bounty payments or, frequently, may b,
in the guise of other benefits to assist the exporter.
Typical Dumping Case
A foreign firm sells its merchandise for $1,000 in
its home market, where competition with other producers
may be limited. Realizing that it could not compete
successfully in international trade at this price, the
foreign firm elects to sell its product abroad at lower
prices.
In the United States, American producers sell the
same product, manufactured here, for $950. The foreign
firm, until its product name becomes widely known in this
- 3 -
country, will be tempted to underprice similar American
products in order to compete successfully. It therefore
sells its product in the United States for $900--$100
less than its home market. If it succeeds in its
objective, American firms will lose contracts, and
American labor jobs because of what is universally
recognized as an unfair international trade practice.
If the Tariff Commission finds that American industry
has been injured by such foreign dumping, the Secretary
of the Treasury is required, to impose dumping duties
equivalent to the dumping margin. In our hypothetical
case, the dumping margin would be $100.
The clear objective of the Antidumping Act is to
eliminate any incentive that foreign firms might otherwise
have to dump their merchandise in the United States.
Typical Countervailing Duty Case
If a foreign exporter receives a bounty or grant of
$100 on exportation of an item which he normally sells
for $1,000, he is then in a position to sell this item
for $900 in the United States. An American producer
may have been manufacturing this same item for sale in
the United States for $950. If it were not for the
subsidy payment, the American firm would, all other conditions
being equal, be able to undersell its foreign competition
by $50.
Because of the subsidy, however, the American firm
now suddenly finds itself in a situation where its product
can be undersold in the United States by the foreign
firm by $50 -- this despite the fact that if normal
market forces had been allowed to function without
interference, the American manufacturer's greater
efficiency would have permitted it to hold its fair
share of the market.
- 4 If the Secretary of the Treasury finds that a bounty
or grant is being paid or bestowed on exports to the
United States, he is required to impose, on top of the
normally assessed duty, an additional duty equivalent to
the bounty or grant -- $100 in the case of our hypothetical
example.
The rationale of the statute is simple and straightforward. No U.S. firm, no matter how efficient, is in a
position to compete successfully against the resources
of a foreign government. Why should American firms lose
contracts, and American labor lose jobs, when American
merchandise is underpriced by foreign competition not
through the operation of normal market forces, but because
of subsidies given by foreign governments on exports to
the United States? The subsidizations toward which
countervailing duties are directed are recogniz~d as
unfair international trade practices.
United States--Major Target for
Unfair International Trade Practices
We represent the world's largest consumer market.
Because of this, and because of the liberal access to our
market which we have traditionally allowed to foreign
competition, we have over the years become a major target
for foreign governments and firms willing to resort to
subsidies and dumping as a means of underselling U.S. produc
within our own borders.
What Administration Has Done To
Discourage Unfair International Trade Practices
When this Administration assumed office, five
professionals in the Bureau of Customs were responsible for
administering the Antidumping and Countervailing Duty Laws.
In addition, one career Treasury official devoted part time
to supervising this area.
The consequences of the lax administration of these
two statutes were predictable. Dumping investigations
took two and even three years for the Treasury Department
to complete. Countervailing duty investigations frequently
took even longer.
By the time the investigations were completed, even
if there were a finding of dumping or a decision to countervail,
the foreign dumpers and subsidizing governments had succeeded
in their objective of penetrating the American market by
means unfair to U.S. industry and lahor.
This Administration has acted decisively and
energetically on many fronts to halt the erosion that had
been and was taking place in our international balance of
trade. To the extent the practices I have described
contributed to this process, they are being examined and
acted upon within the context of our rejuvenated administration
of the Antidumping and Countervailing Duty Laws.
With
the bipartisan support of the Congress, we
increased the Treasury staff in the B~reau of Customs
assigned to investigating and analyzing unfair international
trade practices from 5 to 41, and we have since directed an
increase to 60 professionals.
We streamlined procedures in order to reduce the
inordinate time required tu decide cases,
In order to instituticGs1ize the changes that had been
made and to establish a mechanism for adequate Treasury
supervision in this area, the Secretary approved the
establishment under my supervision of the Office of Tariff
and Trade Affairs. We now have the mechanism to insure
that the Treasury Department will have an ongoing operation
for proper supervision and administration of these two acts.
- 6 -
We also made significant policy changes in the
administration of the Antidumping Act. Among other
things, in May, 1970, we terminated the old policy of
indiscriminately accepting price assurances in dumping
cases--a policy which was actually encouraging dumping.
Now we accept assurances (that they will discontinue
dumping prices) as a basis for closing out cases only
when the dumping margins are minimal in relation to
the volume of sales.
Under the new policy, foreign concerns are impelled
to take the Antidumping Act into account before they
engage in sales to the United States.
Results of Changes in Administration Approach
The Administration's personnel, policy, and
administrative changes in implementing the Antidumping
and Countervailing Duty Statutes have brought substantial
results. Antidumping investigations which previously
took two to three years are generally being completed
now by Treasury in nine to twelve months. Complaints
filed during the past three years have been 50 percent
greater than during 1966--1968. And the number of final
decisions published by the Treasury over the same time
periods has increased by 80 percent.
U.S. industry and labor have reacted favorably to
our efforts to defend Americans from unfair international
trade practices. This is a development they had been
seeking for years. The present Administration understands
and is sympathetic with their problems and is doing
something in their behalf.
It is surprising and heartening to American industry
and labor to learn that the filing of antidumping and
countervailing duty complaints, where the evidence is plain,
is no longer an exercise in futility.
-7-
What Lies Ahead
Now. we are studying possible refinements of the use
of these measures which defend U.S. industry against unfair
competition, partly to make sure they appropriately cover
newer practices that may be emerging. In new proposed
Antidumping Regulations which were published for comment
on April 19,we moved one step further in our plan to clarify
and tighten further the procedures of the Antidumping Act.
The comments are now being considered, and I anticipate that
the revised regulations will be issued in definitive form in
the near future.
We are also turning our attention to making fully
appropriate use of the Countervailing Duty Law to defend
American industry against imports which are unfairly
competitive because of foreign subsidies granted to
exporters. With our expanded staff and administrative
and policy changes, we are now, at long last, in a position
to analyze many sophisticated subsidies which have previously
escaped our attention. The same holds true in the field
of dumping.
Amendments of our Antidumping and Countervailing Duty
Laws may be required to achieve freer and fairer competition
in international trade. We are studying the possibility
of such amendments in connection 'with our continuing
campaign to guarantee effective administration of these
statutes for fair trade.
International Reaction to
Administration's New Approach
Not surprisingly, foreign governments and exporters
did not react enthusiastically to the changes made. This
is understandable since one of the consequences of the
new approach was to make it more difficult for them to
sell their merchandise in the United States.
Instead of asking themselves why this was so, many
of the governments and firms concerned automatically
concluded that, to the extent that access to the U.S. market
for their goods was being impaired by reason of the new
- 8 -
Administration approach, this constituted protectionism.
Such a conclusion fails to take into account basic concepts
of fairness in the conduct of international trade, as
well as the explicit rules of the GATT.
If, for example, foreign firms gain access to the
u. S. market through subs_idization of their sales
to this country, is it protectionism to take action to
nullify the advantages gained by the subsidies?
If such firms gain access to the U.S. market by
dumping their merchandise here, is it protectionism to
nullify the advantages gained from dumping?
GATT Article VI and the International Anti-Dumping
Code clearly indicate to the contrary.
We take pride in our fair administration of these
laws. Numerous complaints by domestic producers have
been rejected because of lack of evidence of price
discrimination, injury or subsidy. And critical foreign
governments have failed to take note of the fact that,
after investigation, a significant number of antidumping
cases have resulted in negative determinations.
And I should point out that vigorous application
of these laws where appropriate has helped to forestall
the enactment of protectionist legislation of a type
which could turn the clock back twenty years on the
movement for more liberal world trade.
The basic problem that our major trading partners
find with the measures taken by this Administration to
counter unfair international trade practices is that
once entry is effected into a lucrative market such as
that of the United States -- regardless of the method
by which it was achieved -- those profiting from such
access are understandably reluctant to give up the
advantages they have achieved.
- 9 -
No Vested Right in Lax Enforcement
I am ~ prepared to concede that anyone, whether it
be a foreign government or a foreign firm, has a vested
right in lax enforcement of our international fair trade
statutes.
On the contrary, if we had been more alert years ago
to the implications of proper utilization of the Antidumping
and Countervailing Duty Laws, perhaps the United States
would not be confronted with complaints from our business
and labor communities that we have too long ignored their
charges of injury from unfair international trade practices.
We are all aware that it is precisely charges such as
these that have encouraged the growth of protectionist
sentiment in the United States, a development this
Administration deplores and is doing its best to stem.
A liberal trade policy can have no meaning if we do
not subsume in the definition of liberal trade the concept
of fair trade. I, therefore, see no need to apologize for
the efforts we have made to strengthen the administration
of these two statutes. It is desirable and was long overdue.
The fact that realistic administration of these two
statutes supports the efforts of the United States to
improve its trade balance is not a point to be overlooked.
Yet, even if the situation were reversed, and the United
States had continued to maintain the strong balance of
trade and payments position that it enjoyed in the 50's,
I would still favor vigorous administration of these two
statutes. This is because I firmly believe it is a
mistake ever to allow unfair trade practices to take root.
They are an impediment to the liberal trade policy for
which the United States had consistently stood and stands.
If, as I confidently expect, we once again achieve
a healthy balance in our international payments, there
are many measures that can be taken to correct imbalances
that may thereafter develop. Overlooking unfair trade
practices ought not to be one of them.
- 10 -
In short, I cannot see the United States returning
to a policy which ignores the interests of efficient
American producers and of American labor. Those interests
are ignored when we permit foreign firms to benefit through
subsidies or resort to dumping tactics.
For too long, we have allowed access to our markets
to foreign competition which was successful only because
it disregarded internationally accepted liberal trade
concepts. Worse yet, we did little about it, and what
was done was ineffectual. The fact that we were previously
ineffectual, in my opinion, is no argument for concluding
that we should continue in that way.
Although I believe in consistency, I see no virtue
in being consistently wrong.
The Future
Under the leadership of president Nixon, the
United States has embarked upon a program of discussions
and negotiations designed to ~ad to a new set of monetary
and trade rules and new procedures for implementing them
which will lead to the establishment of a new Doctrine
of Fairness in International Trade. These discussions,
which can take place in more than one forum, will be
long and arduous. We must be patient during this period
until comprehensive agreements can be reached.
In the meantime, in our case-by-case handling of
complaints filed under the Antidumping and Countervailing
Duty Laws,we expect to make an important contribution
to the need to maintain fair play in international trade.
We hope to demonstrate to our trading partners that
neither they nor we can gain by engaging in unfair
international trade practices; that everyone loses under
such circumstances. This is why I said that these laws
are instruments for freer trade.
- 11 -
president Nixon, in his message to the Ministerial
Council Meeting of the OECD on May 24, referred to the
generous assistance afforded by the United States under
the Marshall Plan, and said, in part:
"Now on this anniversary /of the Marshall
Plan/, we face a new world and-new tasks.
With restored strength in Europe and Japan
comes the need to redefine those early
post-war responsibilities. Together, we
must erect a new international monetary
system and make renewed progress toward
a free and fair system of trade."
***
"The tasks ahead ·will not be easy,
but surely if we could rebuild from the
ashes of war, we can succeed now in
rebuilding a new era of growth and
prosperity in the service of peace."
000
The Department of the TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR RELEASE ON DELIVERY -- 10:00
A.M~DT
STATEMENT BY THE HONORABLE GEORGE Po SHULTZ
SECRETARY OF THE TREASURY
BEFORE THE SENATE FINANCE COMMITTEE
JUNE 28, 1972
Mro Chairman and Members of the
Commi.ttee~
On July 1, 1972, the debt limit will revert to its
permanent ceiling of $400 billion o The debt subject to
statutory limit stood at $426 8 billion on June 27 and
will be approximately $425 billion on July 10 In addition,
assuming an operating cash balance of $6 billion we
expect the debt to rise to approxDffiately $460 billion
next Februaryo
0
Accordingly
in order both to provide a margin for
contingencies and to assure the new Congress an early
opportunity to review the debt limit matter -- we recommended
to the House Ways and Means Committee that the temporary
ceiling be increased to $465 billion and extended to March 1,
19730
However, the Committee recommended -- and the House
adopted -- an extension of the existing $450 billion ceiling
only through October of this year.
The 1972 fiscal situation has improved significantly
in recent months o In our mid-session review, we estimated
that the fiscal 1972 deficit would be in the range of
$26 billion -- almost $~3 billion less than the January
estimate o This improvement is primarily the result of a
8-12
-2$9 2 billion increase in revenues -- largely due to higher
individual income tax receiptso Outlays also are now
expected to be some $3 6 billion below the January
estimateo Almost two-thirds of the reduction in outlays
results from the delay in enactment of the President's
revenue-sharing measure, which would have added some
$202 billion to fiscal 1972 expenditureso
0
0
About two-thirds of the expected increase in individual
income tax receipts is in withheld taxes, and largely
reflects the over-withholding resulting from the Revenue
Act of 1971
0
Looking ahead to fiscal 1973, we now see a unified
budget deficit of $27 billion, $105 billion over the
January estimate of $2505 billion o Total outlays -including the $202 billion in revenue-sharing which we
expect to be spent in fiscal 1973 rather than this year
are $3.7 billion highero Despite heavy refunds, receipts
will also be higher than thought in Januaryo
Taken together, the deficits for fiscal years 1972
and 1973 are now expected to be about $11 billion less
than anticipated last Januaryo
The needed increase in the debt ceiling is determined
not only by the deficit in transactions with the general
public (the unified budget) but also by the amount of
Treasury debt held by the Federal trust funds and other
government agencieso Virtually all of the reduction from
our January estimates in our projected deficits for the
two years, fiscal 1972 and 1973, has occurred in the Federal
funds sector of the budgeto The trust funds are in surplus
and therefore acquiring Treasury debt o However, contrary
to popular belief, the trust funds are in surplus only
because they receive substantial amounts of Federal funds
each year
o
~
3-
The following table is of interest in this connection:
$ Billions
Trust
Trust
Total
Trust
Trust
Fund Receipts from the Public
Fund Receipts of Federal Funds
Fund Outlays
Fund Surplus
Actual
1971
54 08
1J.04
66 02
5904
6 08
Estimated
1972 1973
60 01 70 6
13.1 13 00
7302 83 06
6700 72 08
6:2 10 8
0
0
Table I (attached) shows our estimates of Federal debt
subject to limitation by months through June 29, 1973
Assuming a constant $6 billion cash balance, the calendar
year 1972 peak level will be $453 2 billion on December 15
On February 27, 1973, the level will rise to $460 billion,
0
0
0
In proposing to the Ways and Means Committee a new
temporary debt ceiling of $1;.65 billion for the period
through February 1973, we recognized that it will again
be appropriate at that time for the Congress to review
the b'J.dget and debt lirt.it situation against the background
of actl,,'l experience in the first half of fiscal 1973 and
in relation to the fiscal 1974 budget outlook o As already
noted, the House has passed a bill which will merely
extend (he $450 billion temporary limit to November 1,
when further action would again be essentialo
I view this intentiJn as unfortunate in view of the
many other obligations fac.ing the Congress o We would very
much prefer that the Congle;.·;~ accede to our original
request
HOvJever, we must defer to the exigencies of the
situation, and ask you to ::.~eport a bill identical to
HeRo 15390, the bill passed by the House of Representativeso
Otherwise, I am concerned that June 30 will pass without
final Congressional action e
0
I am sure I need not bela.bor before this Committee
the need for Congressional action on the debt ceiling by
June 30
The result of inaction on this matter would be
a reversion to a debt ceiling some $25 billion below the
level of the debt actually ol:cstanding o This would create
an extremely difficl:lt situE:'::1.Jn for the Government in
paying its bills and conducting its business o
0
-4I therefore recommend prompt and favorable consideration
of this request for a $450 billion temporary debt ceiling
through October 1972
0
Mro Chairman, in concluding my statement I would be
remiss if I did not express my deep and growing concern
about the emerging fiscal situation in this country
With
deficits this year and next, the Federal budget will
continue appropriately to stimulate an economy in which
unemployment is too high and plant utilization too lowo
My concern is not that such deficits will not occur -- but
that our seeming inability to master the Federal budget
will swell them much beyond proper economic limits o If
this unhappy event is allowed to occur, then we shall
likely find ourselves overwhelmed once again by the
ravages of demand-pull inflationo
0
We must not undo the good work of recent years o The
difficult and courageous efforts to cool an overheated
economy and restore healthy economic growth with high
employment and stable prices must not be negated by a
ballooning Federal budget which no one can contro1
Q
The Administration is firmly convinced that the
Congress must face up to this problem in this session o
It can do so by enacting the tough, no-exceptions ceiling
on outlays which the President first proposed in July 1970,
and again in 1971 and January 1972
Adjusted for the delay
in revenue sharing, that ceiling should be set no higher
than $250 billion for the coming fiscal year, a level that
approximates the revenues we would receive if the economy
were at full employment
0
0
Although it would normally be appropriate to add such
a measure to the debt ceiling legislation, time does not
so permito The bill you are considering must be on the
President's desk before midnight, June 30 0 Therefore a
bill identical to that which passed the House yesterday
is essentia10
But there will be ample time and opportunities to
enact the President's outlay ceiling before final
adjournment of this Congress o Indeed, the expiration
-5-
of the temporary debt ceiling on October 31 assures just
such an opportunity -- and without the exigencies of the
current situation
0
We therefore recommend -- and urgently -- that this
Committee report out HoRo 15390 without amendment o
000
TABLE I
Estimated Public Debt Subject to Limitation
Fiscal Year 1973
($ billions)
Wi th $6 Billion
cash balance
1972:
June
30
425.4
July
l7
28
31
434.0
435.5*
432.0
August
15
30
31
439.1
440.7;'t
439.4
September 15
29
446.4'':
439.0
October
16
30
31
444.7
447.3-:;
441. 8
November
15
29
30
448.9
15
29
453.2*
449.7
January
15
31
455.4;';
449.4
February
15
27
28
458.4
460.0;':
456.8
March
15
29
30
463.5
469.8;';
465.8
April
16
30
473.2;';
463.3
May
15
30
31
470.2
15
29
477.9*
464.8
December
451.5~·;
447.1
1973 :
June
475.4;'~
371.8
June 28, 1972
TABLE II
Budget Receipts
Outlays and Surplus or Deficit (-) by Fund
($ billions)
Fiscal Year
Actual : :Current Estimat
1971
1972
197:
Receipts:
Trus t Fund s
Federal Funds •....•.•....•..•.•••••.•.••.••
66.2
133.8
73.2
83.
147.1
Deduct: Intragovernmental receipts .•..•.•••
-11.6
-13.3
152.
-13.
188.4
207.0
223.
Trus t Funds ................................ .
59.4
67.0
Federal Funds .............•....•..•....•.••
Deduct: Intragovernmental outlays .....•....
163.7
-11.6
179.3
-13.3
72.
190.
.. 13.
................ , .
211.4
233.0
250.
41
•••••••••••••••••••••••••••••••
Total unified budget
Outlays:
Total unified budget
Budget surplus (+) or deficit (-):
Trus t Funds .................................
+6.8
..29419
+6.2
-32.2
+10.
Federal Funds .•..•.••.••••.•.••.•••••.•••••
Total unified budget ......••.•..••....
-23,0
-26.0
-27.
Office of the Secretary of the Treasury
Office of Tax AnalYSis
-ll:.
June 28,
]
TABLE: III
Unified Budget Receipts
Outlays and Deficits (-)
($ billions)
Fiscal Year 1972
:January :Change from :
Current
1972 :January 1972:
estimate
: estimate: estimate
Receipts ••..
197.8
Outlays
236.6
Deficit (-).
-38.8
+9.2
+12.8
Fiscal Year 1973
:January :Change fram : Current
1972 :January 1972:
estimate
: estimate: estimate
207.0
220.8
+2.2
223.0
233.0
246.3
+3.8
250.0
-26.0
-25.5
-1.6
-27.0
Office of the Secretary of the Treasury
Office of Tax Analys is
Note:
Figures are rounded and may not necessarily add to totals.
June 28, 1972
TABLE
IV
Comparison of Fiscal Year 1972 Receipts -- as Estimated in
January 1972 and Currently
($ billions)
January :: Change from Janu.1ry 1972 Budget ::
Curre
1972 :: Economic and: Legls- . 0 I : Ttl ..
.].
t lcr
0 a .. estima
:
b udget .. re-estlmate:atlon:
86.5
30.1
I.ndiv idua1 income tax
+1. 511 +7.9
+6.4
+1.5
94.4
31;·&
46.3
-0.1
+1.5
-0.1
-0.1
+0.1
+0.1
3;5
I:s tate and gift taxes ...•...••••••
Customs duties ...•...••..•••..•.•.
:1iscellaneous receipts .....•..•.••
3.4
15.2
5.2
3.2
3.5
-0.1
-0.1
Total budget receipts •.• ,.,." ..
197.8
+7.8
Curporat"ion income tax •••.•..•.•••
[mplopnent taxes and contributions.
Unemployment insurance •..•••..••.•
Contributions for other insurance
and retirement .••••.•••••.••••.•
46.4
4.4
Excise taxes ...................... .
-0.1
4.;3
1~. ?
...
5.1
]~2
~
-0.1
+l.5
+9.2
207.0
Underlying Income Assumptions -- Calendar Year 1971
c~p
................................
Personal income ..........•..•.•••
Corporate profits before tax ., .•.•
1047
857
85
Office of the Secretary of the Treasury
Office of Tax Analysis
J) Change in capital gains tax estimate •
.:otc: TIle figures are rounded and may not necessarily add to totals.
1,~47
857
85.
June 28, 1972
TABLE V
Comparison of Fiscal Year 1973 Receipts -- as Estimated in
January 1972 and Currently
($ billions)
January:: Change from January 1972 Budget .. Current
1972 ::Economic and:Legis-: h : T
1"
.
.
l'
at er
ota .. estlmate
b u dget :: re-estDnate: atlon:
:
Individual income tax
:orporation income tax .••••.••.••.
~Dployment taxes and contributions.
Jnemployment insurance •..•.••.••.•
:ontributions for other insurance
and retirement •••••.•••••.•.••.•
,ixcise taxe s ................................ .
Istate and gift taxes .......•.••.•
·~u8toms duties ............................ .
4iscellaneous receipts •..•....••••
93.9
futal budget receipts •.••.•..•..
220.8
35.7
+0.1
+0.3
+0.1
55.1
5.0
3.6
16.3
+1.511 +1.6
+0.3
+0.1
+0.1
+0.1
36.0
55.2
5.0
3.7
16.3
4.3
4.3
2.8
95.5
+0.1
+0.1
2.9
4.1
4.1
+0.6
+0.1
+1.5
+2.2
223.0
Underlying Income Assumptions -- Calendar Year 1972
~NP •••••••••••••••••
o •••••••••••••
1145
1145
,ersona1 income •.•............•.•
~orporate profits before tax .•.•..
924
99
924
99
Office of the Secretary of the Treasury
Office of Tax Analysis
~I Change in capital gains tax escimate.
lote: The figures are rounded and may not necessarily add to totals.
June 28, 1972
TABLE VI
Unified Budget Receipts
Eatimated Receipts, Fiscal Years 1972 and 1973,
January 1972 Budget and Current Estimate
($ billions)
Fiscal Year 1972
::
Fiscal Year 1973
Total recei ts :Increase (+) or decrease (-):: Total recei ts
Increase (+) or decrease {-}
:-------::--p--'7
Current estimate over
::
p
Current estimate over
January: Current:
January estimate
:: January: Current:
January budget
budget :estimate: Total :Legis1ation: Other:: budget :estimate: Total :Legislation:
Other
Individual income tax:
Gross:
Withheld •...........................•....•..........•.•.•.
Other thsn withheld ...............•......••.••..•.•••••.•.
Total gross ..•..........•.....••.••.•.....•.•..•.••.•••.
Less:
Refunds
....
&
...................
"
..................
""
..........
""
..
"
....................
"
..
Net individual income tax .............................. .
Corporation income tax ............................................................................. ..
Employment taxes and contributions .•..•....•.••.••.•....•.....
Unemp loyment insurance .................... " ........................................................ ..
Contributions for other insurance and retirement ......•.•.....
Exc ise taxes
............................ " .................................................. " ................ ..
Estate and gift taxes ........................................ .
Customs dut ies ................•.....•........•..•....••.••.•.•
Miscellaneous receipts •..•...••.•..••.••.•..•••.•..••••••.••••
total receipts ....•.......•....•..•..•.•.•..•..•..•.••••..••
Office of the Secretary of
Office of Tax AnalY8is
~he
7&.2
24.8
101.0
82.5
25.8
108.3
...li..2
...ll.J!
86.5
30.1
46.4
4.4
3.4
15.2
5.2
3.2
~
197.8
94.4
31.6
46.3
4.3
3.5
15.2
5.1
3.2
--1...1
207.0
+6.3
+1.0
+1':3
-0.6
+7':9
+1.5
-0.1
-0.1
+0.1
Nate: Figure. are rounded and may not add to totals.
+7.. 9
+1.5
-0.1
-0.1
+0.1
*
'*
-0.1
*
*
+9.1
Treasury
than $50 million.
-~
-0.1
1/ Effect of delaying of increase in wage base from $9,000 to $10,200 pa.t June 10. 1972.
"'~.a
+6.3
+.L.Q
+7.3
."
."
-Q.1
+9"""'3
84.3
26.6
1l0.9
.JL..Q
93.9
35.7
55.1
5.0
3.6
16.3
4.3
.- "2.8
~
220.8
94.8
.JM
119.7
24.2
"'"95.5
36.0
S5.2
5.0
3.7
16.3
4.3
2.9
4.1
22'3.0
+10.5
-1.7
+8.8
+7.2
+l.6
+0.3
+0.1
+10.5
-1.7
+8.8
+7.2
+1:6
+0.1
1/
+0.3
+0.1
+0.1
-to. 1
+0.1
+2.2
+{)
.1
+2.1
June 28, 1972
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
MEMORANDUM TO CORRESPONDENTS:
June 28, 1972
Attached is a letter to Congressman Wilbur Do Mills,
Chairman, Committee on Ways and Means, from Treasury
Secretary George Po Shultz recommending changes in the
Internal Revenue Code that would permit casualty loss
deductions in 1972 for victims of the recent flood
disaster o
000
S-13
THE SECRETARY OF THE TREASURY
WASHINGTON
JUN 2 D1972
Dear Mr. Chairman;
The recent floods in South Dakota and in the east have
given rise to economic losses which represent personal
tragedies to thousands of families and which will have a
serious effect on the economies of the regions involved and
of the nation as a whole. Rebuilding of lost homes and
property must begin immediately.
If the floods had occurred prior to April 15, the Internal Revenue Code would have permitted taxpayers suffering
loss to get a casualty loss deduction against their 1971
taxable inc(lme, thus giving them innnediate tax relie'f which
would help offset their losses.
The President believes that, in order to alleviate the
enormous personal hardships of the residents-of the flood
disaster areas, the Internal Revenue Code should be amended
to permit the treatment afforded to casualty losses occurring
in the first three and one-half months to be extended to
losses in the first six months of the year. Such an amendment would permit taxpayers with flood losses to elect to
take their loss deductions against their last year's income
tax instead of against next year's income tax, and thus to
get immediate tax relief.
We know that the time of your Committee is' heavily committed in the next few days, but nonetheless, kno~ing your
interest in this humanitarian effort, we very much hope that
the Committee can find time to deal with this subject, which
we believe presents no major technical problems.
- 2 -
If the legislation can be enacted, the Ipternal Revenue
Service has agreed to p~ovide assistance to taxpayers in
ascertaining the amount of damage and in filing refun~ claims,
and will do everything possible to expedite the payment of
those refunds.
Yours truly,
The Honorable
Wi'lbur D. Mills
Chairman, Committee on Ways and Means
House of Representatives
Washington, ~D.C. 20515
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 27, 1972
TREASURY ANNOUNCES ACTION ON FIVE INVESTIG.~TIONS
UNDER THE ANTIDUMPING ~CT
Assistant Secretary of the Treasury Eugene T. Rossides
announced today Treasury's actions with respect to five
investigations under the Antidumping Act of 1921, as amended.
In three cases the Treasury is withholding appraisement
pending completion of its investigations, and in two cases
the Treasury has issued findings of dumping. The decisions
will be published in the Federal Register of June 28, 1972.
In the first case, Mr. Rossides announced the
withholding of appraisement of Kanekalon wigs from Hong Kong.
Under the Antidumping Act, the Secretary of the Treasury is
required to withhold appraisement whenever he has reasonable
cause to believe or suspect that sales at less than fair value
may be taking place. A final Treasury decision in this
investigation will be made within 3 months. If a determination of sales at less than fair value were made in this
investigation, the case would then be referred to the
Tariff COlrumission, which would consider whether an American
industry is being injured. If sales at less than fair value
and injury were shown, dumping duties would be assessed as
of the date of withholding of appraisement. During the
period from June 1970 through May 1971, Kanekalon wigs
imported from Hong Kong were valued at approximately
$19 million.
In the second and third cases, the Treasury is
withholding appraisement of perchlorethylene from France
and Japan. Perchlorethylene is a chlorinated solvent
commonly used as a dry cleaning fluid and as an industrial
degreasing solvent. As in the first case, a Treasury
decision in these investiqations will be made within 3 months.
If the Treasury determines there a~e sales at less than fair
value in either or both cases, the case or cases will be
referred to the Tariff Commission for an injury determination.
The total value of perchlorethylene imported from France during
the period from January through December 1971 amounted to
approximately $1 million. During the same period, the total
value of perchlorethylene imported from Japan amounted to
approximately $110,000.
8-14
(OVER)
-2-
In the fourth case, Assistant Secretary Rossides
announced that the Treasury has issued a dumping finding
with respect to elemental sulphur from Mexico. On
February 4, 1972, the Treasury Department advised the
Tariff Commission that elemental sulphur from Mexico was
being sold at less than fair value within the meaning of
the Antidumping Act. On May 4, 1972, the Tariff Commission
determined there was injury. In such situations the dumping
finding automatically follows as the final administrative
requirement in antidumping investigations. Dumping duties
will be assessed on imports of elemental sulphur from
Mexico which have not been appraised and on which dumping
margins are found to exist. During the period from
January 1971 through March 1972, imports of elemental
sulphur were valued at roughly $16,500,000.
In the fifth case, the Department issued a dumping
finding with respect to asbestos cement pipe from Japan.
On February 2, 1972, the Treasury Department advised the
Tariff Commission that asbestos cement pipe from Japan
was being sold at less than fair value, and on May 2, 1972,
the Tariff Commission issued a determination of injury.
During the period from January 1971 through April 1972,
imports of asbestos cement pipe from Japan were valued at
roughly $1.5 million.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FO~
IMMEDIATE RELEASE
June 28, 1972
TREASURY ANNOUNCES ACTIONS ON TT..;rO INVESTIGATIONS
UNDER THE ANTIDUMPING ACT
Assistant Secretary of the Treasury Eugene T. Rossides
announced today Treasury's actions with resoect to two
investigations under the Antidumping Act of 1921, as amended.
In one case the Treasury is withholding appraisement
pending completion of its investigation, and in the other case
there is a tentative determination of no sales at less than
fair value.
The decisions will be published in the Federal
Register of June 29, 1972.
In the first case, Mr. Rossides announred the withholding
of appraisement of color television picture tubes from Japan.
Under the Antidumping Act, the Secretary of the Treasury is
required to withhold appraisement whenever he has reasonable
cause to believe or suspect that sales at less than fair value
may be occurring. A final Treasury decision in this investigation will be made within 3 months.
If a determination of
sales at less than fair value were made in this investigation,
the case would then be referred to the Tariff Commission,
which would consider whether an American industry is being
injured.
If sales at less than fair value and injury are
shown, dumping duties would be assessed as of the date of
withholding of appraisement. During calendar year 1971,
color television picture tubes imported from Japan were
valued at approximately $4 million.
In the second case the Treasury announced the issuance
of a tentative determination of no sales at less than fair
value in connection with its antidumping investigation of
fire-extinguishing foam from Canada.
Information gathered
in this investiqation shows that the price to buyers in the
home market was lower than the price to buyers in the
United States. Appraisement of this merchandise has not
been withheld. During the one-year period from March 1971
through February 1972; fire~extinguishing foam imported from
canada was valued at slightly more than $200,000.
In both cases, before a final Treasury determination
is made, an opportunity will be afforded interested parties
to present written and oral views on these actions.
000
5-15
The Department of the TRfASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR RELEASE ON DELIVERY
10 :00 A.M. , EDT
STATEMENT BY THE HONORABLE GEORGE P. SHULTZ
SECRETARY OF THE TREASURY
BEFORE·THE COMMITTEE ON FINANCE
UNITED STATES SENATE
THURSDAY, JUNE 29, 1972 , 10:00 A.M. , EDT
mitte e:
Mr. Chai rman and Members of this disti ngui shed Com
publ ic
I want to than k you for begi nnin g so prom ptly your ue
reven
hear ings on the vita lly impo rtant matt er of gene ral ediat ely afte r
shar ing. Your deci sion to begi n delib erati ons imm al Assi stanc e
succ essfu l Hous e actio n on the Stat e and Loca l Fisc when gene ral
Act of 1972 (H. R. 1437 0) prom ises to haste n the day
reven ue shar ing becom es law.
-The peop le of this natio n have been telli ng us that
they doub t gove rnme nt's capa city to meet thei r
publ ic serv ice need s;
they think gove rnme nt cost s too much ;
they feel unab le to influ ence the cour se of
even ts that gove rnme nt take s.
and
Ther e is an unea sine ss, diss atisf acti on, frus trati on our
t
abou
t
doub
g
conc ern among the peop le toda y, and a risin
er.
abil ity to gove rn ours elve s in a fair , ratio nal mann
25
Gove rnme nt has moved away from the peop le in the past ~nt
dist
too
is
nt
year s. The peop le seem to feel that gove rnme
they face
to prov ide sens ible solu tion s to the pres sing prob lems
of a prob lem
ever y day. Over the past 25 year s, the reco gniti on . Prog ram
in Ame rican soci ety has mand ated a Fede ral solu tion
the hope
atop Fede ral prog ram has been adde d in Wash ingto n with
bure aucr acy
that if we throw enou gh Fede ral doll ars and Fede ral
at the prob lem, it will go away .
S-16
- 2 As a result of this almost reflex practice, the structure
of our Federal system has become exceedingly top-heavy. Moreover,
the increased concentration of programs at the Federal level'has
virtually guaranteed that overall government in the country will
become more distant from the people.
But this generation of new programs has not contributed as
hoped to the solution of our basic problems. Indeed, it may
have exacerbated them and worsened our ability to solve local
problems effectively. We have put in place over 500 Federal
Grant-in-Aid programs which form a crazy-quilt of partial solutions to particular local problems in the nation. This plethora
of narrow programs has created an enormous Federal bureaucracy
and forced our state and local governments to compete with one
another in their quest for Federal grants-in-aid. Virtually all
of our states have been forced to open Washington offices in order
to "win" Federal funds. The application process frequently takes
as long as 18 months even for those who know their way around the
halls of our Federal agencies. How many times have each of you
had to intervene for your state to expedite a grant request or
mitigate the red tape that has engulfed Federal-state relations?
This maze of programs has signifieantly reduced accountabilit
at the state and loca+ level because it has generated literally
thousands of new special purpose districts that have been set up
to receive and spend these funds, but which only infrequently
answer to the voters~ In 1957 there were 14~000 special districts
in the United States -- in 1972, there are approximately 22,000.
In contrast, the number of counties, cities, and towns has remaine
rather stable over this period while the number of school district
has actually decreased.
This bewildering array of different kinds of local government
has confused, frustrated, and angered the public. It also has
created in Washington a vast number of uncoordinated and sometimeE
duplicate efforts to solve the 5ame, or similar problems. We may
laugh at this lack of coordination among Federal agencies, but it
is the public confidence in government that ultimately suffers.
-3-
These are the developments that our people know about.
These are the trends that we must reverse. We cannot afford
to ignore, or dismiss, this growing disenchantment.
Our very
system of government is at stake, because a republic which does
not enjoy the confidence of its people is a republic in trouble.
We simply must find ways of making our Federal system work
better. We have to make it more responsive, more efficient,
and less costly.
It is in this context that general revenue sharing ought
to be debated and discussed.
General revenue sharing seeks to
achieve basic reform in the manner in which the central government
provides aid to the states and their localities.
It is a brand
new technique which has been designed purposely to break with
the traditional practices of the categorical aid type programs.
The aim is to provide critically needed financial assistance
to State and local governments under a format which will
simultaneously shift more authority for decision-making to
these units of government.
Only by this coupling of discretion
with dollars can we make real progress in moving government
closer to the people--in order to face realistically and to
solve positively the problems that beset us.
This idea of providing unrestricted aid to state and
local government has not gone without criticism.
Before turning
to the specifics of President Nixon's proposal and H.R. 14370,
I would like to comment briefly on the most frequently made
objections.
First--How can we share revenues when the Federal budget
in a deficit?
lS
As former Director of the Office of Management and Budget,
I know perhaps as well as anyone the meaning of expenditures
being in excess of revenues. The budgetary deficits we have
experienced have been crucial in returning the economy to an
expansionary path.
Our experience in the first and second
quarter of this year bears this out.
Given then that our budget
is out of balance, and that it is an important countercyclical
fiscal device, we may still inquire if revenue sharing should
be funded.
-4-
Each year, hundreds of requests come in to OMB for
upward adjustments in appropriation requests. Hundreds get
turned down. The question really is -- is revenue sharing
worth it?
The answer is twofold. First, the basic reform and
revitalization of our Federal system is a number one priority
in the nation. The malaise and frustration of the American
public require that we redefine our approach to assisting states
and local governments now, today. Tomorrow is too late.
Secondly, the alternative to no revenue sharing this year
would, in my judgment, not be a smaller deficit but rather an
increase in other programs of lower priority.
Two--Won't revenue sharing actually increase the control of the
Federal government over the states and localities rather than
decrease it?
While I have heard this question many times, I must admit
that I am unable to comprehend its rationale. It might have
validity if we were to roll back history and reopen the question
of the propriety of Federal fiscal assistance to the States and
localities. Obviously that is not a realistic option in 1972,
when Federal aid to State and local governments has reached an
annual level of $40 billion.
The concept of general revenue sharing has developed out
of a growing concern that the traditional forms of Federal
aid involve too much Federal control. We believe that this
less conditional form of fiscal assistance will result in a
reduction of Federal control and will serve to revitalize
the decision-making capacity of State and local government.
Three--Doesn't revenue sharing violate a time-honored principle
of public finance by divorcing taxing responsibility from spemding
responsibility?
Here again, it should be recognized that our categorical
grant-in-aid programs have in fact done this for some time.
Despite the Federal controls, the spending under these programs,
in the final analysis, has been by the State and local governments. There is a good deal of evidence that the state
governments have not suffered in their transfer-of-funds
programs to their localities. Moreover, it should be borne in
mind that the Congress is making the overall spending decision
by inaugurating the revenue sharing program. Should it find
-5-
~at
the goals of revenue sharing are not being achieved, the
Congres s can change the program or end it as it sees fit.
At the local level we must recognize ~hat revenue sharing
will reduce the upward pressure on regress~ve property and
sales taxes. And it relieves these pressures primarily through
the most progressive financing device we have at our disposal:
the Federal individual income tax. At the same time, the individual taxpayer will acquire a stronger voice in how governmental
services are provided to him because these decisions will be
made at the local level rather than in WaShington. Needless
to say, these officials are more accountable to him than those
~ the Federal agencies.
four--Why not provide a Federal tax credit for state and local
lnCo'me taxes?
It is our view that the tax credit is an inferior device
for fiscal reform and fiscal relief. The beneficiaries of the
credit would be at the outset local citizens. There would be
no fiscal relief to state governments. And, except in a few
states, a eredi t would not provide any fiscal relief to localities,
because few have local income taxes. In addition, the tax credit
approach would provide a permanent advantage to high income states.
Others have suggested that instead of revenue sharing, we
ought to increase further our reliance on Federal categorical
grants to states and localities. I cannot imagine a less productive
alternative. We do not need more of the same. We do need a basic
reform in the way we provide aid to the states and localities.
--MORE--
-6-
To sum up:
For our states and localities: Revenue sharing represents
a substantial new assistance in meeting recurring financial crises.
As is well known, the states and localities rely primarily on
sales and property taxation. These two taxes tend to provide less
revenues per increase in gross national product than the Federal
individual income tax. As a result, there has been a ch~onic
shortfall of revenues as public service demands grow ~ith the
economy. In turn, the provision of public services has been
chronically below that demanded. The federal pre-emption of the
individual income tax has caused this structural imbalance in
fiscal resources which revenue sharing will redress in good
measure. The delays and rigidities that plague current Federal
aid programs will be replaced by a supple, viable, prompt, and
responsive system.
For our entire Federal system: General revenue sharing
offers new hope for the revitalization of state and local govern~
ment. Revenue sharing reflects a strong Federal commitment to
domestic needs in the states, counties, and cities. At the same
time, it signals a new respect and faith in the capacity and
wisdom of local self-government.
This is the philosophy that underlies the general revenue
sharing approach to Federal aid to state and local governments.
Mr. Chairman, the specifics of President Nixon's revenue
sharing proposal are well known. Let me refresh the Committee's
memory on that basic proposal, while at the same time noting what
the House actually did in passing the State and Local Fiscal
Assistance Act of 1972.
1. The President proposed that specified amounts of funds
be returned to states and localities each year. In order
to assure that these units of government would have an
opportunity to order their own priorities and plan their
spending, the Administration proposal would have tied the
amount to the individual income tax base. On this formula,
the total grant would be $2.25 billion for the retroactive
period from January 1, 1972, to July 1, 1972. In FY73 it
would provide $5.3 billion and climb to an estimated $6.9
billion by FY76. Over the period of the House bill -January 1, 1972 - December 30, 1976 -- the Administration
approach would payout $29.85 billion.
The amounts to be distributed under H. R. 14370 are not
tied to the tax base, but are specified in the statute.
The House bill does provide for growth of $300 million a
year after the first year of operation. By FY76 over $6
billion annually will be paid out. The total over the
five years of the program is $29.8 billion -- virtually
identical to the five-year total under the President's
proposal.
-7-
2. The President proposed that the funds be distributed
to the states and localities on a fair and equitable
basis. Specifically, the portion going to the states would
have been determined by population adjusted for revenue
effort (revenues raised relative to personal income in the
state). The portion going to the localities would have been
distributed on the basis of local revenues raised relative
to the total of all revenues raised in the state.
H. R. 14370 distributes $1.8 billion directly to state
governments. Of this total, $900 million would be
distributed on the basis of general tax and tax effort in
the state, and the remaining $900 million on the extent
to which the state relies on the individual income tax.
3. The Pr.esident proposed that the use of the funds by
the states and localities be unrestricted--except that
they would have to be expended legally and without discrimination.
H. R. 14370 includes a non-discrimination provision and
attaches no strings to the use of the $1.8 billion which
goes to the state governments. Local units would, however,
have to use the $3.5 billion allocated to them for operation
of priority purposes: they can spend these funds for
public safety, environmental protection, and public transportation programs. Allowable capital expenditure items are:
sewage collection and treatment, refuse disposal systems,
and public transportation.
4. The President proposed that the funds within each state
be distributed on the basis of relative local revenues.
The House bill contains a series of complex formulas that
distribute funds on the basis of population, urbanized
population, and population weighted inversely by per capita
income.
5. Under both the President's proposal and the House bill,
the financial reporting will be simple.
During executive session in the Ways and Means Committee a
variety of other formulas were conEidered. One included tax
effort and inverse per capita income as a modificati<:m to th~
President's proposal. However, each of the al ternat~ ve s rev ~ewed
Contained certain anomalies. The House formula represents a
series of constructive compromises on the difficult matter of
Within-state allocation. If the Committee wishes to reexamine the
Solutions found in the House bill, we would be happy to work with
you to improve the bill.
-8-
There are then certain differences between the President's
proposal and the House bill.
While we prefer determining the amount to be shared each
year as a percentage of the Federal tax base, we also respect the
desire of the Congress to limit the duration of the program so
that it can be evaluated and changed if necessary. We feel certail
that a five-year trial period is sufficient to see if this redirection in our Federal system is as effective as we anticipate.
In the distribution of funds among state governments, the
House bill places great emphasis on state income taxes. It has
been the position of the Administration not to favor particular
state tax instruments, but rather to reward overall state and
local tax effort. Accordingly, we would prefer to replace the
income tax incentive with a provision closer to the President's
original proposal.
Another difference involved the restrictions placed on local
uses of these revenue sharing funds. The President's proposal
required only that the funds be used for legitimate governmental
purposes and in a nondiscriminatory fashion. The House bill
provides for a series of high priority categories. We would
recommend that your Committee consider removing these restrictions
on local spending contained in the House bill.
A third aspect of the House bill-which deserves comment is
the use of urbanized population as a factor to distribute the
$3.5 billion among the states to the localities. This factor
discriminates rather severely against three states (Alaska,
Vermont, and Wyoming) without urbanized population. Consequently,
we recommend that the Committee explore ways of removing this
discrimination.
As I indicated before, the House bill bears an essential
similarity to the President's proposal. We endorse it and hope
that we can work with this distinguished Committee to improve
upon it as an instrument to reform and revitalize our Federal
system of government.
Mr. Chairman, I again thank the Committee for these early
hearings and urge you to move with all deliberate speed in
reporting a general revenue sharing measure to the Senate.
APPENDIX I
DESCRIPTION OF FORMULAS IN
STATE AND LOCAL FISCAL ASSISTANCE ACT OF 1972
(H. R. 14370)
June 29, 1972
1. overview of Bill.
The Mills revenue sharing bill, H. R. 14370, provides about
$30 B of aid to state and local governments over 5 years.
~
.
Each
$3.5 B is allocated to localities and $1.8 B to state govern-
.nts.
The
$l~8
B grows by $300 M a year after the first year.
JAX:alities must establ.ish a trust fund to spend the money and
mwt establish that they will spend only for certain high priority
~ses
:Ie
that are specified in the bil.l..
In contrast, there are
limitations on state uses of the state grants.
In addition, the
blll provides for the federal collection of state imposed individual
income taxes after January 1974 after 5 states with at least 5% of
the returns have bldicated a willingness to "piggyback" onto the
federal tax system.
2. Allocation Formulas.
A.
Allocation of $3.5 B to Local Governments.
i.
State Area Allocations Formula.
Each year for five years the $3.5 B is distributed among
~te
geographic areas on the basis of population, urbanized popula-
~n (the number of persons living in cities over 50,000 or more)
ad population weighted by per capita income.
More specifically,
1.167 B is distributed among state areas on a population basis;
• share per state for population is simply the state's share of the
S. population multiplied times $1.167 B.
$1.167 B is allocated
.aqoUSly anlong state areas on the basis of urbanized population.
- 2 -
The final $1.167 B is allocated by multiplying a state's population
by a need index, and comparing the state's population weighted
need to the sum of all of the state's weighted for need.
in turn is
th~
for
The index
per capita income of the United States divided by
the per capita income of the state.
Thus, a state with a below
.average per capita income will have a need index value over 1.0
while a well to do state will have a need index below 1.0.
The
higher index value in turn then increases the shale of the $1.167 B
going to a state compared to the share it would get based on just
population.
Once the allocation is made to the state area on the basis of
the above three factors, the funds are allocated to county geographic
areas.
For the first year and one-half of the program, a specific
formula, specified in the bill, allocates the funds to the county
area and below.
Subsequently, however, a state may use certain
alternative formulas in a manner specified in the bill.
ii.
Allocation Formula to County, City, and Township
Governments for First 1-1/2 Years.
The allocation to individual local governments is derived
in a series of steps.
First, the three state area amounts are dis-
tributed to county geographic area on the same basis.
Thus, a
county area receives an allocation of the state population amount
based on the county area's share of the state population.
Similarly,
- 3 -
izatio n amou nt
a count y area recei ves an alloc ation of the state 's urban
popu lation .
based on the count y area I s share of the state 's urban ized
popu lation Final ly, the amou nt alloc ated to the state area based on
anala gous
weigh ted-fo r-nee d is alloc ated· amon g count y areas on an
a incom e
basis excep t that the need index is now the state per capit
divide d by count y area per capit a incom e.
This alloc ation proce dure
aphic area level .
thus creat es three dolla r amou nts at the count y geogr
is
The furth er divis ion 0'£ these three count y area amoun ts
'County area.
first made among types of local gover nmen ts withi n the'
all citie s
'!ben, havin g deter mine d how much the count y gover runen t,
ation is made
(or all towns hips) in the count y shall recei ve, an alloc
moong those local gover nmen ts.
This first divis ion is made on the
basis of relat ive adjus ted taxes raise d.
So, if a count y
gove~ent
count y area,
raised 20 perce nt of all non-s chool taxes raise d in the
ation s to the
it would recei ve 20 perce nt of each of the three alloc
on the basis
county area (20 perce nt of the ammmt to the count y area
and 20 perce nt
of popu lation , 20 perce nt on the basis of urban izatio n,
~
the basis of popu lation weigh ted by the need index ).
three
'the secon d divis ion of the remai ning 80 perce nt of the
~unts
follow s the patte rn estab lishe d in the formu la alloc ating
&mds to the count y area.
Each city recei ves a share of the 80 perce nt
total city popu laof the popu lation amoun t based on its share of the
Uon in the coun ty.
~percent
Simi larly , each city recei ves a share of the
ted
of the popU lation amou nt based on city popu lation weigh
- 4 by a need index.
Here, the index is the ratio of county area per
capita income divided by city per capita inconle.
The distribution
of the 80 percent of the urbanized population amount among cities
is slightly more complex than in the first division of funds
because there are no urbanized population data at the city or
township level.
TO allocate the urbanized population amount, part
is distributed on the basis of population, and part on the basis
of population weighted by the need index.
The exact amount that
is distributed on each basis is determined by prorating on the basis
of the relative size of the original two amounts at the county area
level.
Thus, if $1 M came to the county area on the basis of popula-
tion and $2 M on the basis of population weighted for need, 1/3
(1/(2 + 1»
of the urbanized amount would·be distributed among cities
on a population basis and 2/3 on a population-weighted-by need basis.
iii.
Arithmetic Example of Allocation Formulas for First
1-1/2 Years.
a.
State by State.
Suppose State X has 4.36 percent of the U. S. population, 4.80 percent of the U. S. urbanized population, and a per capita
income of $3373.
The amount going to the state area on the basis of
population then is $50.87 M (4.36% x $1.167
B)i
the amount going to
the state area on the basis of urbanized population is $56.0 M
(4.80% x $1.167 B).
Suppose further that the state's population,
weighted for need, is 3.94 percent of the sum of all the states
- 5 wighted for need.
That is, since the state has a higher than
average per capita income, its :::-;hare of the U. S. population adjusted
for need is
~en,
relativel~{ SITh'JJ.l~r.
the state would receive
than its straight population share.
~45.98
on the basis of population
weighted for need.
b.
Within Sta-te.
(i)
To County 'uea 1.
Suppose COllnt;{ Area 1 has 15.0 percent of the
state population.
Then the county area would receive $7.63 M on
the basis of population
(15%
x
~50.87 M).
Suppose that the county
area had 18 percent of the state's urbanized population; then
$10.08 M
would be allocated to the county area on the basis of
urbanized population (18% x $56 M).
~9
Finally, suppose the county
had a per capita income of $3,582.
~Uld
Then its need index score
be .9416 ($3373/3582), and it would get a smaller percentage
of the state -area grant based on need than had its share of this
alDunt been based just on populatio""l.
Suppose the county area
~lation
to 12 percent of the sum of
weighted for need works
o~t
the county area populations weig~1ted for need.
Then the area would
receive $5.52 M on this last basis.
O. i )
within County Area 1.
Suppose
L~ere
is a county government, and two
city governments in the county area, and suppose further that the
county
go~rnment
raised $1
t-: in non-school taxes and each of the
- 6 cities raised $1 M in non-school taxes.
Then the county government
would receive 33.3 percent of each of the three amounts to the county
area since it raised 33.3 percent of all local non-school taxes in
that county area.
Thus, the county government would receive $2.54 M
from the area population amount (1/3 of $7.63 M), $3.36 M from the
area urbanized population amount (1/3 of $10.08 M), and $1.84 M from
the area population-weighted-for-need amount (1/3 of $5.52 M).
The
two cities would share, on the basis of population, the remaining
2/3 of the population amount ($5.09 M), and would share, on the
basis of population-weighted-for-need, the remaining 2/3 of the
$5.52 M ($3.68 M).
The cities also share the remaining $6.72 M
(2/3 of $10.08 M) that came to the county area on the basis of
urbanized population.
Since $1.63 M came to the county area on the
basis of population and $5.52 M came to the county area, 7.63
$13.15 or 58.0% of the $10.08 M is shared between the two cities on
a population basis and 42.0% of the $10.08 M is shared on a populationweighted-for-need basis.
If a local grant is calculated to be less than $200, the bill
provides that the funds go to the county government in which the city
or township is located.
There is also a maximum grant that any local
unit may receive: the bill provides
tha~
no locality may receive a
grant in excess of 50% of its revenues (including Federal and state
transfers, exclusive of those transfers in the
bil~.
The excess is
distributed among other localities in the county on the basis of the
formula.
- 7 (iii)
Possible State Variations ir. Local
Formulas.
Two kinds of variations a.ce
state goverrunent.
ava~~ab.i.e
to t.hE:
First, it can replace populatic:l in the first
part of the formul.a with population weighted by per. capi.ta ddjasted
taxes.
Thus, rather than allocate the $50.87 M among t~1e c:01mty
areas on the basis of population f it can
stipula~E'
that ":tle
~50,,87
be distributed on the basis of pOFmlation "..eighted by ad j ustec' taxes.
3Udlarly, in the allocation among cities (and townships) , the state
may stipulate that population weighted by adjusted taxes ::-athe!" than
~pulation
alone allocate the area funds.
This general
va~i2tion
is called the "Bit formula, and a state can specify that it be used
to the county area but not within, to the county area and within, or
just wi thin the county area.
The second kind of variation a state may use involves the relleiqhting of .the three factors at the state level.
arithmetic example, the state received three
In the above
a!rlt'u..''lt£::
$SG.a7!vi
(population), $56.0 M (urbanized population), and $·~5.98 z.i (need).
'1'0 reweight these three factors, a state can reduce any of the three
amounts by up to 25 percent, and increase any a..'TtOU!lt by up to 40
percent.
So, in terms of the above,
f'J~
example I if the state wanted
~qive more weight to urbanization and less to population, it could
take 25 percent of the population amou.,t or $12.72
tJi
(1/4 of $50.87 M),
- 8 and add it to the urbanization amount which would then rise to $68.72 M
($12.72 M + $56.0 M).
Since this is a 22.7 percent increase in the
urbanization amount, this reweighting does not violate the 40 percent
rule.
A state can
corr~ine
both kinds of formula variations; however,
in using either type of variation, it must do so by state law.
B.
Allocation of $1.8 B to state Governments.
The state government grant is based on two formulas, each of
which allocates initially $900 M.
i.
Formula Based on Taxes and Tax Effort.
Each state share of the first $900 M is calculated by
multiplying a states total taxes by its tax effort (total state and
local taxes divided by total personal income) and dividing this
figure by the sum of these figures for all states.
The resulting
percentage is that state's share of the $900 million.
ii.
Formula Based on State Imposed Individual Income
Tax Liabil i tie s .
The second $900 M is based essentially on 7-1/2 percent
of state individual income tax collections.
Each state is to re-
ceive this 7-1/2 percent, but no more than 3 percent of the federal
individual income tax liability in that state; if it has no individual
income tax, then it receives one-half percent of the federal individual
income tax liability.
If the sum of all the state grants in the
above procedure exceeds $900 M, then each state receives its prorata
share of the $900 M.
- 9 After the first full year of operation, $300 M of additional
'hold harmless' funds are added to the State entitlement.
Of this
annual increment of $300 N, $200 M is distributed on the basis of
individual income tax collections, and $100 M is distributed on the
basis of total taxes and tax effort.
The Department of the TRfASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR RELEASE UPON DELIVERY
STATEMENT BY THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY FOR
ENFORCEMENT, TARIFF AND TRADE AFFAIRS, AND OPERATIONS
BEFORE
SUBCOMMITTEE NO. 5
OF THE
HOUSE COMMITTEE OF THE JUDICIARY
June 29, 1972
10:00 a.m.
On behalf of the Administration, I wish to
thank you, Mr. Chairman, for providing us with
this opportunity to appear here today to comment
upon our enforcement experience under the provisions
of the Gun Control Act of 1968; and to comment
further upon possible legislative improvements that
could be made to the Act; and upon the general subject of federal legislation concerning firearms, which
legislation has been referred to and is currently
pending before this Subcommittee.
The Gun Control Act of 1968 had just become
effective when this Administration took office.
In 1969, when we were requested to comment upon the
Act, we stated that we had insufficient experience
under the Act to judge its operation and effectiveness.
The Act has now operated long enough for us to make
some informed judgments regarding "it, and its administration, and its enforcement. The results are mixed.
Concerning overall enforcement, one of the
primary problems that developed as we gained experience
S-17
- 2 -
administering this relatively new law arose from
the manner in which the enforcement responsibility
was structured within the Internal Revenue Service.
Enforcement was basically organized under seven
regional cornmissionerswho exercised a relatively
high degree of autonomy. A pattern began to emerge
of varying approaches to enforcement and inconsistent
interpretations of the Act among the various regions.
Further, firearms enforcement work differed significantly from the general tax compliance mission of
the Internal Revenue Service.
We undertook an intensive study on how most
effectively to resolve this basic administrative
problem and, as a direct result of our study, on
March 8, 1972, the Secretary of the Treasury announced that the Alcohol, Tobacco and Firearms
Division of the Internal Revenue Service would be
transferred, effective July 1st, to the Treasury
Department as a separate bureau. The Bureau will
be named the Bureau of Alcohol, Tobacco and Firearms.
We believe that with the transfer we will be able to
achieve improved coordination and control over the
general enforcement of firearms laws and greater
flexibility in administration without disturbing
revenue functions.
To be more specific, through the reorganization, we
expect to achieve the following:
1. Uniform administration of Federal firearms laws
including standardization of policies regarding issuance
and denial of licenses;
2. Centralized direction of the enforcement of
firearms laws, including improved quality of investigation
and prosecution of criminal cases;
3. Improved liaison with state and local law
enforcement agencies, the firearms industry, and
concerned public interest groups;
- 3 -
4. More effective utilization of total manpower
resources, particularly utilizing non-law enforcement
personnel for regulatory aspects of the firearms laws,
such as for firearms application and compliance investigations;
5. Greater centralization and standardization of
the enforcement training programs;
6. Strengthening of the bureau's headquarters'
in-house capability for monitoring and evaluating the
direction and effectiveness of field activities, including
close review of all sensitive firearms investigations; and
7. Faster and more direct forms of communication
between bureau headquarters and field offices.
Most personnel of the Division will remain in their
present position with the new Bureau, but there will be
some personnel reassignments with the goal of providing
expanded expertise at critical points.
We believe that we have gained much experience over
the past three and one-half years in learning how to deal
with this new Act and with the new responsibility for
enforcement in an area that is extraordinarily sensitive
and difficult.
It should be noted that between 1968 and 1971
enforcement personnel within the Division increased from
978 to 1,626. This is a very brief time span. Sudden
growth and direction changes of this character did result
in some general overall enforcement-problems. We believe
that the organizational changes from a decentralized
organizational structure to a straight line-authority
type law enforcement agency will materially increase our
law enforcement effectiveness, and enable us to direct
our efforts better to assist state and local law enforcement agencies and to concentrate on major type criminal
conspiracies involving firearms.
- 4 -
We support the general concepts embraced by the
Gun Control Act of 1968. Specifically, we support
licensing of importers, manufacturers, and dealers in
firearms and the provisions which forbid the possession
of firearms by felons, drug addicts, and mental incompetents.
We support the mandatory serialization and recordkeeping
provisions and find that they have been of material
assistance. We support the restrictions against mail order
sales. We support the strict controls and prohibitions
that attend machine guns, sawed-off shotguns, bazookas,
and other similar armament that serve no legitimate role
in the private sector in this country.
We believe that concepts of registration of firearms
and licensing of their users would be better left to the
determination of state and local governments. In this way,
the pattern of laws dealing with this subject can better
accommodate the great differences that obtain among the
several states.
For example, the circumstances relating to firearms
differ considerably among Alaska, and the mountain, western,
and southern states and New York City or Chicago. Further,
by proceeding in this manner, state and local governments
would retain basic enforcement responsibility consistent
with our national tradition of basic police power residing
in our states.
If we were to establish broad federal authority in
this area, we would also create the need for a national
police force for enforcement, which concept we strongly
oppose. It is our aim to support, not supplant, the over
350,000 state and local police officials in this country.
For this reason, the Administration would resist much
of the legislation that currently is pending before this
Committee. We might only observe that the wide diversity
of legislation reflects the wide spectrum and diversity of
thought that obtains in this land on this general subject;
- 5 -
These matters are being studied and reviewed
in the context of the new Bureau and organization
structure.
We appreciate your having provided us with an
opportunity to appear here today and to present our
general views on the subject of firearms control.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
June 29, 1972
TREASURY ANNOUNCED ACTIONS ON
FIVE INVESTIGATIONS UNDER THE
ANTIDUMPING ACT
Assistant Secretary of the Treasury Eugene T. Rossides
announced today Treasury's actions with respect to five
investigations under the Antidumping Act of 1921, as amended.
In the first two cases there is a final determination of
sales at less than fair value; in the third case, the Treasury
is withholding appraisement pending completion of its investigation; and in the fourth and fifth cases, antidumping
investigations are being discontinued. The decisions will be
published in the Federal Register of June 30, 1972.
In the first case, Assistant Secretary Rossides announced
that cast iron soil pipe fittings from Poland are being sold
at less than fair value within the meaning of the Antidumping
Act. The case will now be referred to the Tariff Commission
for a determination as to whether an American industry is
being, or is likely to be, injured. In the event of a determination of injury, dumping duti~s will be assessed on all
entries of cast iron soil pipe fittings from Poland which
have not been appraised and on which dumping margins exist.
A notice of "Withholding of Appraisement" was issued on
April 26, 1972, which stated that there was reasonable cause
to believe or suspect that there were sales at less than
fair value. During the period from January 1970 through
December 1971 imports of cast iron soil pipe fittings from
Poland were valued at approximately $250,000.
In the second case, the Treasury announced that dry
cleaning machinery from Germany is being sold at less than
fair value within the meaning of the Antidumping Act. The
case will now be referred to the Tariff Commission for a
determination as to whether an American industry is being,
or is likely to be, injured. In the event of an affirmative
injury determination, dumping duties will be assessed on
all entries of dry cleaning machinery from Germany which
have not been appraised and on which dumping margins exist.
A notice of "Withholding of Appraisement" was issued on
- 2 April 7, 1972, which stated there was reasonable cause to
believe or suspect that there were sales at less than fair
value. During the period from July 1970 through March 1972
the value of imports of dry cleaning machinery from Germany
was approximately $4,737,000.
In the first two cases, interested parties were
afforded an opportunity to present oral and written views
prior to the final Treasury determinations.
In the third case, Mr. Rossides announced that the
Treasury is withholding appraisement on northern bleached
hardwood kraft pulp from Canada. Under the Antidumping
Act, the Secretary of the Treasury is required to withhold
appraisement whenever he has reasonable cause to believe or
suspect that sales at less than fair value may be occurring.
A final Treasury decision in this investigation will be made
in three months. If a determination of sales at less than
fair value were made in this investigation, the case would
then be referred to the Tariff Commission, which would consider whether an American industry is being injured. If
sales at less than fair value and injury were shown, dumping
duties would be assessed as of the date of withholding of
appraisement. During the period of January 1971 through
February 1972 imports of this hardwood pulp from Canada
amounted to approximately $30 million.
In the fourth case involving deflection yokes, used in
color television receivers, from Japan, the Department
announced a tentative discontinuance of the investigation
on the basis of minimal margins and price assurances. The
investigation revealed some instances where purchase price
was lower than the adjusted home market price, but these
were determined minimal in terms of the volume of sales
involved. A formal assurance has been received from the
sole manufacturer involved that no future sales of these
deflection yokes for export to the United States will be
made at less than fair value. During the period from
May 1971 through March 1972 the value of these deflection
yokes imported from Japan was approximately $3.5 million.
In the fifth case the Treasury announced a tentative
discontinuance of the antidumping investigation with regard
to neopentyl glycol from Japan. Neopentyl glycol is a white
chemical solid, usually in the form of chips or flakes,
primarily used in polyester resins which are in turn used
as inert finishes for plastic products. Imports of
- 3 -
neopentyl glycol from Japan terminated in March 1972, and
formal assurances have been received from the sole Japanese
manufacturer that it will terminate all future sales of
the merchandise to the United States. During calendar year
1971, imports of neopentyl glycol from Japan were valued at
approximately $250,000.
In the last three cases, before a final determination
is made by the Treasury, interested parties will be afforded
the opportunity to present written and oral views on these
actions.
000
The Department of the
TREASURY
WASHINGTON, D.C. 20220
TElEPHONE W04·2041
MEMORANDUM FOR CORRESPONDENTS:
June 30, 1972
The attached notice, to be published in the Federal
Register, describes the proper procedures for financial
institutions to follow in obtaining taxpayer identification
numbers in accordance with the regulations implementing
Public Law 91-508, the Financial Recordkeeping and Currency
and Foreign Transactions Reporting Act of 1970.
S-18
SUMMARY STATEMENT
FINANCIAL RECORDKEEPING - Treasury instructions
relating to taxpayer identification numbers.
NOTICE
DEPARTMENT OF THE TREASURY
MONETARY OFFICES
FINANCIAL RECORDKEEPING AND REPORTING
OF CURRENCY AND FOREIGN TRANSACTIONS
INSTRUCTIONS RELATING TO TAXPAYER
IDENTIFICATION NUMBERS
UNDER 31 CPR, PART 103
Any person residing or doing business in the
United States who opens an account with a financial
institution after June 30, 1972, must provide that
institution with his taxpayer identification number
at the time the account is opened.
This requirement is pursuant to the regulations
contained
~n
Part 103 of Title 31, Code of Federal
Regulations, Financial
Recordke~ping
and Reporting of
Currency and Foreign Transactions, published on April 5,
1972 (37 F.R. 6912).
For individuals, the taxpayer identi-
fication number is his social security number.
For
corporations, partnerships, and other entities it is the
IRS employer identification number.
Banks, savings and loan associations, building
and loan associations, savings banks, credit unions,
and brokers and dealers in securities are included
in this requirement.
If an account is opened in
more than one individual's name, the financial institution is required to secure and maintain the social
security number of at least one individual having a
financial interest in that account.
2
If the customer does not have a number or has
lost his card and is unaware of his number, for the
convenience of financial institutions and their new
customers, the Social Security Administration will
furnish the customer's social security number to both
parties, provided that the customer authorizes the
Social Security Administration to furnish his number
to the financial institution.
This authorization may be printed or stamped by
financial institutions on the back of Form SS-5
(Application for Social Security Number), in the
space immediately above the legend, "For Bureau of
Data Processing and Accounts Use
ll
•
The authorization
must contain the following language:
Please Furnish my SSN to:
NAME,_______________________________________________
ADDRESS ____________________________________________
Signature _______________________________________________
Relationship (If not signed by applicant)
To accomplish this the customer must complete
Form 55-5, in duplicate, sign the authorization on the
back of the form and give both copies to the financial
institution.
The financial institution must mail one
3
copy to the Social Security Administration in the
pre-addressed envelope provided, and retain the other
copy until the number is received.
If the customer is under 18 years of age, the
authorization must be signed by his parent or legal
guardian.
The parent or guardian is required to indicate
his relationship to the customer.
To obtain a new employer identification number for
corporations, trusts, partnerships, nonprofit organizations, and other entities, the applicaLt should sign an
appropriate authorization on the back of Part 2 of
Form SS-4 (Application for Employer Identification
Numb€r).
The IRS will then furnish the employer identi-
fication number to both the applicant and the financial
institution.
with respect to accounts opened for trusts, charitable
organizations, clubs, and similar entities the financial
institution should secure the employer identification
number of tIle entity.
An employer identification number
must be obtained for this purpose even though an organization may not otherwise require one.
The authorization to have the Internal Revenue
Service furnish the ErN to both C':1tities should contain
the following language:
Please furnish the ErN being applied for to:
Name:
Address:
Signature:
Title:
The authorization should be signed by an individual
who is authorized to sign the Federal tax returns for the
entity.
The customer is required to complete Form SS-4, in
duplicate, sign the authorization on the back of Part 2 of
the form, and give both copies to the financial institution.
The financial institution will mail one copy to the
Internal Revenue Service in the pre-addressed envelope
provided, and retain the other 90py until the number is
rece~ved.
Financial institutions may obtain supplies of
Form SS-5 and pre-addressed envelopes from their nearest
Social Security Office, and supplies of Form SS-4 and
pre-addressed envelopes will be available at the nearest
Internal Revenue Service Center.
£
.
•
DATE: JWJ 3(11Q7?
.
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Eugene T. Rossides
~ssistant Secretary for
Enforcement, Tariff and
Trade Affairs and Operations
Treas.
HJ
10
u.s.
Treasury Dept.
Press Releases.
.AIJP4
V.179
Treas.
HJ
10
AUTHOR
.AIJP
'*
U.S. Treasury Dept.
Press Releases.
TITLE
V.179
CAlf
LOANED
BORROWER'S NAME
PHONE
NUMBER
@FedFRASER